Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021
OR
FOR THE TRANSITION PERIOD FROM __________________
TO __________________________
COMMISSION FILE NUMBER: 000-55647
Fourth Wave Energy, Inc.
(Exact
name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 707-687-9093
Securities registered under Section 12(b) of the
Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
None Not applicable Not applicable
Securities registered under Section 12(g) of the
Act:
Common stock, par value $0.001 per share
(Title of class)
Indicate by check mark if 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 Act.
☐Yes ☒ No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
☒Yes
☐ No
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.4.05
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒Yes ☐ No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act 915 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐Yes ☒ No
State the aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average
bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal
quarter. $7,048,563.80 on June 30, 2021.
Indicate the number of shares outstanding of
each of the registrant’s classes of common stock, as of the latest practicable date. 383,808,340shares of common stock are issued and outstanding as of March 31, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
Page No.
Part I
Item 1. Business. 1
Item 1A. Risk Factors. 4
Item 1B. Unresolved Staff Comments. 4
Item 2. Properties. 4
Item 3. Legal Proceedings. 4
Item 4. Mine Safety Disclosures. 4
Part II
Item 6. Reserved 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 25
Item 8. Financial Statements and Supplementary Data. 26
Item 9A. Controls and Procedures. 27
Item 9B. Other Information. 28
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 28
Part III
Item 10. Directors, Executive Officers and Corporate Governance. 29
Item 11. Executive Compensation. 30
Item 14. Principal Accounting Fees and Services. 32
Part IV
Item 15. Exhibits, Financial Statement Schedules. 33
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This report contains forward-looking statements
including statements concerning paying off the amounts due on our equipment, expected delivery, anticipated mining capacity available
to us from our hosting partners, anticipated future results of operations, he growth of our business, our future capital needs and ability
to obtain financings and liquidity. Words such as “expect,” “may,” “anticipate,” “intend,”
“would,” “plan,” “believe,” “estimate,” “should,” and similar words and expressions
identify forward-looking statements. These statements are based on the Company’s estimates, projections, beliefs and assumptions
and are not guarantees of future performance.
The results anticipated by any or all of these
forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially
from these forward-looking statements are discussed in the Risk Factors section of this report and include, without limitation, failure
to obtain financing to pay for equipment we currently own and/or plan to purchase, decrease in the price of the cryptocurrency that we
purchase, unanticipated issues which decreased mining capacity, and our need for and challenges we may face in obtaining the necessary
financing to execute our business plan on favorable terms or at all. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as the result of new information, future events or otherwise. For more information regarding some of the ongoing risks
and uncertainties of our business, see the Risk Factors section of this report.
You should read thoroughly this report and the
documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse
than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in our Risk
Factors appearing elsewhere in this report. Other sections of this report include additional factors which could adversely impact our
business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all
risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations
to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any
forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak
only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated
with these statements and our business.
OTHER PERTINENT INFORMATION
Effective January 31, 2022, Fourth Wave Energy,
Inc. (the “Company”), FWAV Acquisition Corp., a Wyoming corporation and wholly owned subsidiary of the Company (the “Acquisition
Subsidiary”) and EdgeMode, a Wyoming corporation (“EdgeMode”) closed on the previously disclosed Agreement and
Plan of Merger and Reorganization dated December 2, 2021 (the “Merger Agreement”). In accordance with the Merger Agreement,
Acquisition Subsidiary merged with and into EdgeMode (the “Merger” or “Transaction”), with EdgeMode remaining
as the surviving entity after the Merger and becoming a wholly-owned subsidiary of the Company.
Joseph Isaacs, the Company’s then sole officer
and director resigned as an executive officer and director. Charlie Faulkner and Simon Wajcenberg, the principals of EdgeMode, were appointed
as directors and executive officers.
Except for disclosure contained herein dated as of December 31, 2021
including all disclosure contained in the financial statements beginning on page F-1 of this report, all disclosure relates to the business
of EdgeMode, our wholly-owned subsidiary, which we acquired effective as of January 31, 2022.
ii
PART I
Item 1. Business.
Prior to the closing of the Transaction, FWAV
was a shell company with nominal assets and liabilities. EdgeMode is an early-stage cryptocurrency mining. Although we have historically
mined Ethereum, we are now focused on expanding our operations by mining Bitcoin. We provide investors with direct exposure to cryptocurrencies,
without the technical complexity or constraints of purchasing the underlying cryptocurrency. Investors avoid the need to create online
wallets, wire money offshore, and safely store their cryptocurrency.
We operate through our partnerships with third
party hosting firms, Bitcoin mining facilities for the sole purpose of mining Bitcoin and Ethereum. Our facilities and mining platform
are operating with the primary intent of accumulating Bitcoin, although to date we have focused on Ethereum, which we may sell for fiat
currency from time to time depending on market conditions and management’s determination of our cash flow needs.
We are in the research and development stage of
exploring treasury management alternatives to increase earnings of the cryptocurrency we mine and hold. In that regard, we may continue
to hold as well as sell Ethereum in order to fund the purchase of Bitcoin miners and other mining equipment, to pay operational expenses
such as hosting company fees and for working capital and other general corporate purposes. Other than Ethereum, we have no holdings of,
and have no current plans to hold, any other types of digital assets other than Bitcoin.
Digital Asset Mining
Historically, we have mined Ethereum. Moving forward,
we plan to mine Bitcoin, and may choose to mine other cryptocurrencies, by acquiring miners to solve complex cryptographic algorithms
to support the Bitcoin blockchain (in a process known as “solving a block”). In return for solving a block, we have received
Ethereum, and when we receive our Bitcoin miners, a Bitcoin. We intend to only mine cryptocurrencies that are not securities. Our policy
is to consult counsel prior to attempting to mine any cryptocurrency other than Bitcoin, in order to avoid inadvertently dealing in a
cryptocurrency which may be deemed a security. We anticipate that, should we consider mining a cryptocurrency other than Bitcoin we will
seek the advice of securities counsel, and the process will include research, review and analysis of the current federal securities laws
and regulations regarding digital assets, including judicial interpretations and administrative guidance. However, the processes employed
for determining whether particular digital assets are securities within the meaning of U.S. federal securities laws are risk based assessments
and are not a legal standard or binding on the SEC or other regulators. See the risk factor titled “If we undertake to mine digital
assets other than Bitcoin and Ethereum, such digital assets may be deemed to be securities by regulators, notwithstanding any assessment
by us and/or our advisors to the contrary” on page 16. We recognize that whether a digital asset is a security is a complex legal
issue. For that reason, we have no plan in the foreseeable future to mine anything other than Bitcoin and to a lesser extent Ethereum.
With respect to holding and selling the cryptocurrency
we mine, our policy is to hold what we mine until management determines that market conditions and circumstances deem selling cryptocurrency
to be advisable in the furtherance of our capital needs and objectives. This may include, among other factors, a determination that the
cryptocurrency is overvalued at a particular price at a given time, that fiat currency is required to fund our operations, or that an
excessive quantity of the specific cryptocurrency has accumulated in our digital wallet resulting in a potential security risk. We hold
the cryptocurrency we mine in a digital wallet using a BlockFi account, and do not have any agreements with third parties to manage or
exchange the cryptocurrency we mine and store.
Miners measure their capability in terms of processing
power, which is known as in the industry as “hashing” power. Hashing power is measured in terms of the number of hashing algorithms
solved (or “hashes”) per second, which is the miner’s “hash rate.” Generally speaking, miners with greater
hashing power and in turn a higher hash rate relative to other miners attempting to solve a block have a higher chance of solving the
block and receiving a cryptocurrency award. However, although newer generations of miners advertise improved energy efficiency, increasing
hash rate generally requires greater electric power, which increases the cost of solving a block and, therefore, the relative cost of
mining a cryptocurrency. As additional miners competed for the limited supply of blocks, individuals found that they were working for
months without finding a block and receiving any reward for their mining efforts. To address this variance, miners started organizing
into pools to share mining rewards more evenly on a pro rata basis based on total hashing capacity contributed to the mining pool. As
of the date of this report, we do not participate in any pools but may do so when management believes it’s in the Company’s
best interests.
Our Mining Equipment
Hardware Quantity Hardware Manufacturer Location
AMD W5700 108 AMD Rouses Point NY State
NVidia 3070 24 NVidia Rouses Point NY State
AMD Vega 64 288 AMD Rouses Point NY State
Nvidia 3070 72 Nvidia Rouses Point NY State
RTX 5000 540 Nvidia Rouses Point NY State
AMD Vega 64 576 AMD Rouses Point NY State
AMD Vega 56 144 AMD Rouses Point NY State
There is an outstanding debt of $1,555,726 on
the miners which we intend to fully pay by year end 2023.
We are currently utilizing 0.5MW of power and
hosting supply at the Rouses Point facility.
We have signed a purchase order for a further
1,152 GPU servers for Ethereum mining to be installed and hosted at Rouses Point in April 2022. There is an outstanding debt of $1M on
this hardware which we intend to fully pay by March 2023. This hardware will utilize a further 0.25MW of hosting supply at Rouses
Point.
We have signed a purchase order with Katena Computing
for the supply of 10 Exahash of Bitcoin Mining hardware. We will receive the first delivery on this order in September 2022 with 5 Exahash
being delivered by December 2022 the balance of 3.5 Exahash in Q1 2023 and 3.5 Exahash in Q2 2023. This hardware will be hosted by Compute
North at their facilities in North Carolina and Texas and will require a total 250 MW of hosting capacity. See the risk factors below.
Hosting Agreements
Our K10 Miners will be located in North Carolina
and Texas and maintained by Compute North, LLC (“Compute North”) a well-known miner hosting company in North America. Under
a Master Agreement, Compute North is providing the Company with colocation, managerial and other services at its data center facilities,
including rack space, electrical power, ambient air cooling, internet connectivity and physical security for the Company’s miners.
The initial hosting capacity with Compute North is 20 MW. The purchaser order with Compute North anticipates an additional 230 MW of hosting
capacity available to the Company. The Master Agreement is terminable by Compute North for cause. The Company granted Compute North with
a security interest in the miners and other equipment installed at the facility to secure the Company’s obligations under the master
agreement. The Company is responsible for a minimum monthly service fee and other fees. See the Master Agreement with Compute North and
Purchase Order attached as Exhibit 10.5 to this report. The terms of such agreements are incorporated herein by reference.
We have a signed hosting agreement with Trinity
Mining Technologies, LLC. This agreement provides for up to 300MW of hosting facilities in Texas beginning in October 2022. See the Master
Agreement with Trinity Mining Technologies, LLC attached as Exhibit 10.6 to this report. The terms of such agreements are incorporated
herein by reference.
Our currently owned miners are primarily located
in New York with 2CRSI. See above for MW utilized and total capacity available if required. The Company pays 2CRSI hosting fees of $0.08
per KWH plus a monthly hosting charge of $50 per MWH. See the 2CRSI orders attached as Exhibit 10.7 to this report. The terms of such
orders are incorporated herein by reference.
Employees
We have two full-time employees and no part-time
employees. None of our employees are parties to any collective bargaining arrangement. We believe our relationships with our employees
are good.
Property
Our corporate headquarters are located in Chicago,
Illinois, consisting of approximately 1,000 square feet of office space under a monthly rental agreement. We believe that our existing
facilities are suitable and adequate and that we have sufficient capacity to meet our current anticipated needs.
Our Recent Corporate History
Prior to the closing of the Transaction, Fourth
Wave was a shell company with nominal assets and liabilities.
EdgeMode was incorporated in the State of Wyoming
in March 2020. Our office is located at 350 North Orleans Street, Suite 9000N, Chicago, IL 60654 and its website address is www.edgemode.io.
We have not incorporated by reference into this report the information that can be accessed through our website and you should not consider
such information to be part of this report.
Regulation
After a period of regulatory uncertainty, we believe
that the Securities and Exchange Commission (“SEC”) will not claim that Bitcoin and Ethereum are securities and therefore
will not be subject to their regulation. The SEC has been active in pursuing its regulation of other cryptocurrencies by filing lawsuits
and, more recently, administratively against a cryptocurrency that tried to register under the Securities Exchange Act of 1934 (“Exchange
Act”). Further, its new Chairman has given several speeches seeking regulatory authority over other cryptocurrencies. Whether Congress
will enact new legislation in this area is uncertain. However, enhanced regulation may adversely affect our future mining and other cryptocurrency
activities.
Blockchain and Bitcoin are increasingly becoming
subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities
and other activities in which we may participate in the future. Other governmental or semi-governmental regulatory bodies have shown
an interest in regulating or investigating companies engaged in the blockchain or cryptocurrency business. For instance, the Cyber-Digital
Task Force of the U.S. Department of Justice (the “DOJ”) published a report entitled “Cryptocurrency: An Enforcement
Framework” in October 2020. This report provides a comprehensive overview of the possible threats and enforcement challenges the
DOJ views as associated with the use and prevalence of cryptocurrency, as well as the regulatory and investigatory means the DOJ has at
its disposal to deal with these possible threats and challenges.
Presently, we do not believe any U.S. or state
regulatory body has taken any action or position adverse to our main cryptocurrency, Bitcoin, with respect to its production, sale, and
use as a medium of exchange; however, future changes to existing regulations or entirely new regulations may affect our business in ways
it is not presently possible for us to predict with any reasonable degree of reliability.
The recent action taken in China was the final
step in that country’s evolving regulatory crackdown. As the regulatory and legal environment evolves, we may become subject to
new laws, such as further regulation by the SEC and other agencies, which may affect our mining and other activities. For additional discussion
regarding our belief about the potential risks existing and future regulation pose to our business, see our “Risk Factors”
beginning on page 7.
Item 1A. Risk Factors.
Not applicable to smaller reporting companies.
However, our principal risk factors are described under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We maintain our corporate offices at 350 North
Orleans Street, Suite 9000N, Chicago, IL 60654 under a virtual office lease. We lease these premises under a monthly rental agreement
at a nominal cost.
Item 3. Legal Proceedings.
We are not a party to any
pending or threatened litigation.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Our common stock is quoted on the OTCQB Markets,
Inc. under the symbol “FWAV.” As of March 31, 2022, the last reported sale price of our common stock as reported by the
OTCQB Markets was $0.25 per share. As of that date, there were approximately 200 shareholders of record. This number does not include
beneficial owners whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.
Recent Sales of Unregistered Securities
In addition to those unregistered securities previously
disclosed in reports filed with the SEC, we have sold securities without registration under the Securities Act, as described below.
Name or Class of Investor Date of Sale No. of Securities Reason for Issuance
————————
Item 6. [Reserved]
The following discussion and analysis should be
read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report on Form 10-K.
Overview
Prior to closing the Transaction, we were a shell company with no operations.
Effective with the closing of the Transaction, we are an early-stage cryptocurrency mining. Although Edgemode, our new wholly-owned
subsidiary, has historically mined Ethereum, we are now focused on expanding the operations by mining Bitcoin.
12 Months Ended December 31, 2021 (“2021 Period”) Compared
to the 12 Months Ended December 31, 2020 (“2020 Period”).
Results of operations
We had no revenues in either of the 2021 Period
nor the 2020 Period. Our revenues will ramp up as completed the Transaction and we continue to implement and grow our cryptocurrency business
which we acquired January 31, 2022.
Our operating expenses for the 2021 Period was
approximately $1.8 million and $4.5 million for the 2020 Period.
We expect that our operating expenses will increase
as we continue to develop our new mining business and we devote additional resources toward our new technologies and business opportunities,
promoting that growth, most notably reflected in anticipated increases in general overhead, salaries for personnel and technical resources,
as well as increased costs associated with our SEC reporting obligations. However, as set forth elsewhere in this report, our ability
to continue to develop our business and achieve our operational goals is dependent upon our ability to raise significant additional working
capital. As the availability of this capital is unknown, we are unable to quantify at this time the expected increases in operating expenses
in future periods.
Other Expenses
Our Other Expenses were approximately $9.9
million of the 2021 Period compared to approximately $0.6 million for the 2020 Period. The Other Expenses for 2021 were comprised
primarily by approximately $1.5 million of interest expense related to outstanding convertible notes and $8.1 million related to
non-cash derivative liability expenses.
Net Loss
Our Net Loss was approximately $11.7 million of
the 2021 Period compared to approximately $5.1 million for the 2020 Period.
Liquidity and Capital Resources
As of March 31, 2022, the Company had approximately
$25,000 of cash. Our liquidity is primarily derived from selling the crypto that we mine, and debt and equity investments from accredited
investors. To grow the business and help fund operations for the next 12 months, the Company is seeking to raise $60 million in
equity capital through private placements and is also seeking a significant debt facility. We can provide no assurances that any such
financings will be successful nor will they be on terms
We will be required to raise a significant amount of more capital if
we want to purchase all of the bitcoin mining equipment under our $270,000,000 purchase order. We can provide no assurance to investors
that we will have access to such a large amount of capital and if so that it will be available on terms that we would accept. In such
event, the Company may incur significant and/or shareholders will suffer large dilution.
If we fail to raise sufficient additional funds
when needed or do not have sufficient cash flows from mining, we may be required to scale back our plan of operations.
The Company has approximately $2.3 million of
debt for equipment that the Company is currently mining of which approximately $1.4 million is due in 2022 and $850,000 is due in 2023.
Additionally, we have a significant amount funds committed to the purchase of new Bitcoin miners. We can provide no assurance that we
will have the ability to meet these payment requirements or that we will be successful raising capital to meet our working capital requirements.
Summary of cash flows
Net cash (used) in operating activities $ (782,387 ) $ (620,792 )
Net cash (used) in investing activities $ (850,000 ) $ –
Critical accounting policies
See
Note 2 to the December 31, 2021 financial statements included as part of this report for a discussion of our Significant Accounting Policies.
Recent Accounting Pronouncements
The Company does not believe that any recently
issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying
financial statements.
Off Balance Sheet Arrangements
As of the date of this report, we do not have
any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material
to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement
to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative
instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that
serves as credit, liquidity or market risk support for such assets.
RISK FACTORS
Summary Risk Factors
Our business and an investment in our common stock
are subject to numerous risks and uncertainties that investors should consider before investing in our common stock. Set forth below is
a summary of the principal risks we face:
There are numerous and varied risks, known and
unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results
of operation may be materially adversely affected. In such case, the trading price of our common stock could decline and investors could
lose all or part of their investment.
Risks Related to Our Cryptocurrency Mining Business
We will need significant additional capital
to execute our business plan, which includes purchasing, installing and operating Bitcoin mining equipment to replace our current Ethereum
mining operations, and any failure to raise such capital as and when intended or at all will materially harm our business and prospectus.
Our business plan envisions shifting our focus
from mining Ethereum to mining Bitcoin. Because the blockchains for each of these two cryptocurrencies use different algorithms, different
mining equipment is needed to mine Bitcoin rather than Ethereum. Therefore, in order to mine Bitcoin as intended, we will need to purchase
and install Bitcoin mining equipment at our hosted facilities. The price of cryptocurrency mining equipment in general and Bitcoin mining
equipment in particular is high, and can be volatile with sudden and dramatic changes depending on uncontrollable factors such as the
price of Bitcoin and supply shortages. Additionally, the removal and installation of mining equipment, which will be necessary given our
limited access to sufficient mining facilities, is also costly. We have executed a purchase agreement with a supplier to provide us with
Katena K10 Bitcoin miners having a combined hash rate of 10,000,000 PH/s, however the total purchase price is $270,000,000, of which we
have only paid the supplier $1,250,000. Further, we are past due on the payment of an $8,000,000 installment of the purchase price, with
future periodic installments in increasing increments continuing to come due through September 2022. The miners are scheduled to be delivered
in quarterly increments from September 2022 through September 2023. Because we failed to make a payment under the agreement when due,
and will likely continue to be behind on future payments unless and until we can raise sufficient capital, the agreement allows the supplier
to terminate the agreement, with any amounts we have paid as of such termination date being non-refundable. Further, if the agreement
is terminated by the supplier for our failure to timely make one or more payments, by the agreement’s terms the supplier will no
longer be obligated to deliver the equipment. If we are unable to raise these amounts for any reason, any amounts paid towards the purchase
price of undelivered equipment will be lost if the purchase agreement is terminated, and we will be forced to incur additional costs to
locate and obtain miners from another source, in which case our results of operation will be harmed and our future prospects will be hindered.
Any delay or inability to raise and deploy the necessary capital in a timely manner, on favorable terms, or at all, will have the effect
of delaying or preventing us from executing our business plan and meeting our growth objectives, which could materially harm your investment
in us.
We may be unable to raise additional capital needed to grow our
business.
We will likely continue to operate at a loss,
at least until our business strategy is implemented, or if Bitcoin or other cryptocurrency prices decline, and we expect to need to raise
additional capital to expand our operations and pursue our growth strategies, including the acquisition of new or additional miners to
commence Bitcoin mining as planned, and to respond to competitive pressures or unanticipated working capital requirements. We may not
be able to obtain additional debt or equity financing on favorable terms, if at all, which could impair our growth and adversely affect
our existing operations. If we raise additional equity financing, our shareholders may experience significant dilution of their ownership
interests, and the per share value of our common stock could decline. Furthermore, if we engage in additional debt financing, the holders
of such debt would have priority over the holders of common stock on order of liquidation preference. We may be required to accept terms
that restrict our ability to incur additional indebtedness or take other actions including terms that require us to maintain specified
liquidity or other ratios that could otherwise not be in the interests of our shareholders.
Even if we are able to raise sufficient capital,
we may encounter delays or difficulties in obtaining and deploying Bitcoin mining equipment as planned.
In order to be successful in executing our business
plan, we need to efficiently replace our Ethereum mining equipment with Bitcoin mining equipment in a timely, efficient, and cost-effective
manner. Assuming we are able to raise sufficient capital to do so, we may encounter a variety of potential risks or problems with respect
to deploying the funds towards our new mining focus. There has been shortages of cryptocurrency mining equipment due to limited materials
such as computer chips. Further, to obtain Bitcoin mining equipment, we will be reliant on one or more manufacturers and/or suppliers
to provide us with the miners, who may require us to agree to excessive prices or fees, or may fail to deliver the purchased equipment
on schedule. Additionally, we will need skilled labor to remove the Ethereum mining equipment we currently operate and replace it with
Bitcoin mining equipment. Also, because Bitcoin mining uses a proof of work method which generally requirements more energy than the proof
of stake system employed by Ethereum’s blockchain, our hosts’ current electricity supply may be inadequate to launch our Bitcoin
mining as envisioned without added costs to us, if at all. Any unexpected delays or heightened costs will adversely effect our results
of operation both by extending the period of time in which we are not mining cryptocurrencies at our maximum potential capacity and increasing
the costs of operating. Further, because of the volatile nature of the cryptocurrency markets, including the prices of Bitcoin and Ethereum,
any such delay could prevent us from mining and selling Bitcoin at higher prices. For example, in early 2022 the price of Bitcoin declined
by over $12,000 in a matter of weeks. If we are unable to purchase, deploy and operate Bitcoin mining equipment in sufficient quantities,
at reasonable prices or on the delivery schedules that meet our business needs, or at all, it could have a material adverse effect on
our business, results of operations and future prospects.
We are at an early stage of development of our cryptocurrency mining
business and currently have limited sources of revenue and may never become profitable.
Until February 2021, we had no operations. Although
we began generating revenue in 2021 from our cryptocurrency mining activities, we are subject to the risks and uncertainties of a new
business, including the risk that we may never develop, complete development or market any of our proposed services or be able to liquidate
our cryptocurrencies. Accordingly, we have only a limited history upon which an evaluation of our prospects and future performance can
be made. If we are unable to increase our generation of revenue, we will not become profitable, and we may be unable to continue our operations.
Furthermore, our proposed operations are subject to all business risks associated with new enterprises. In order to expand our operations,
we will need to enter into new agreements and strategic relationships which will expose us to additional financial obligations and contingencies,
including the possibility of contractual disputes and reliance on third parties which are beyond our control. The likelihood of our success
must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with
the expansion of a business, operation in a competitive industry, and the continued development of advertising, promotions and a corresponding
customer base. There can be no assurances that we will operate profitably.
We have a history of operating losses, and
we may not be able to achieve or sustain profitability.
To date, we have mainly mined Ethereum. Moving
forward, our primary focus is on mining Bitcoin, and those operations are expected to be located in North Carolina. Our current strategy
will continue to expose us to the numerous risks and volatility associated within the cryptocurrency sector, including due to the high
costs of purchasing miners and sourcing power for them, while monitoring the price of Bitcoin, which has historically been volatile. Further,
we have experienced recurring losses and negative cash flows from operations. To date, we have relied on debt or equity financings to
fund our operations, and if the price of our cryptocurrencies are not sufficiently high to enable us to sell the cryptocurrencies we mine
at prices above our cost to mine it, then we are likely to continue to be unable to fund our operations without raising additional capital.
Further, even if prices are sufficiently high for our mining activities, we are likely to need to raise additional capital to fund the
acquisition of new miners to repair or replace our existing miners and expand our number of miners to be competitive. We expect to incur
additional net losses over the next several years as we seek to expand operations. The amount of future losses and when, if ever, we will
achieve profitability are uncertain. If we are unsuccessful at executing on our business plan, our business, prospects, and results of
operations may be materially adversely affected.
Our auditors have issued a “going concern”
audit opinion.
Our independent auditors have indicated in
their report on our December 31, 2021 financial statements that there is substantial doubt about our ability to continue as a going
concern. A “going concern” opinion indicates that the financial statements have been prepared assuming that we will
continue as a going concern for one year from the date the financial statements are issued and do not include any adjustments to
reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of
liabilities that may result if we do not continue as a going concern. Therefore, you should not rely on our balance sheet as an
indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for
distribution to shareholders, in the event of liquidation.
Our mining operating costs have historically
outpaced our mining revenues, which has and could continue to put a strain on our business or increase our losses.
Our mining operations are costly and our expenses
may increase in the future, including as we transition to mining Bitcoin which will involve purchasing new mining equipment and potentially
deploying a greater amount of electricity to the mining process. This expense increase may not be offset by a corresponding increase in
revenue. Our expenses may be greater than we anticipate, and our investments to make our business more efficient may not succeed and may
outpace monetization efforts. Increases in our costs without a corresponding increase in our revenue would increase our losses and could
seriously harm our business and financial performance.
The cost of obtaining new and replacement miners
and parts is highly capital intensive and may have a material and adverse effect on our business and results of operations.
Our mining operations can only be successful and
ultimately profitable if the costs, including hardware and electricity costs, associated with mining Bitcoin, Ethereum and other cryptocurrencies
are lower than the price for which we mine when we sell them. Our miners are subject to ordinary wear and tear from operation and may
also face more significant malfunctions caused by factors which may be beyond our control. For example, approximately 10% of our miners
have experienced glitches and defects and as a result have seen either limitations on mining capabilities or outright inability to mine,
such that they had to be or will have to be replaced or repaired. The result of this development has not only been increased costs to
us, but also a reduced ability to generate revenue while these miners were not operating, whether because they were under repair and/or
failing to operate at their optimal hash rate. Circumstances such as these, or a general need to replace outdated miners in the future,
are highly cost intensive and can be a serious hindrance on our mining operations and ability to generate revenue or obtain profitability.
Additionally, as the mining technology, our business
strategy and/or the cryptocurrency industry evolves, we may need to acquire newer models of miners to remain competitive in the market.
For example, as discussed above we will need to obtain new miners in order to mine Bitcoin as planned. We intend to purchase and install
Katena K10 miners, although we have encountered and expect to continue to face challenges in paying purchase price installments for these
miners under our purchase agreement. Certain models of Bitcoin miners such as the Bitmain S17 model have been subject to defects diminishing
our even eliminating their mining efficacy. Further, over time, we may replace those miners which are no longer functional or efficient
or powerful enough with new miners purchased from third-party manufacturers, the cost of which may be higher than what we spent on prior
models and/or such that we will need to raise more capital to do so. For instance, the price of Bitcoin miners has historically been somewhat
correlated to the price of Bitcoin, which has appreciated in recent years. Depending on the price of new miners and our operational needs
at the time we decide to replace miners in the future, we may have to do so at higher costs than we could have previously, which would
add to our losses. Alternatively, even absent defects or reductions in computing power, mining machine models are upgraded frequently,
and we are and will continue to be subject to either higher competitive pressure as a result, or will be forced to expend large amounts
of capital to remain competitive and maintain optimal hash rates.
Inevitably, our older models will need to be repaired
or replaced as a product of ordinary wear and tear and depreciation and/or competitive forces in the marketplace or other factors rendering
our current miners obsolete. Any upgrading we may need or chose to undertake will require substantial capital investment, and we may face
challenges in locating the requisite capital in a timely manner and/or on terms favorable to us or not highly dilutive to our investors.
If we are unable to obtain adequate numbers of new and replacement miners in sufficient quantities or without delay, we may be unable
to compete in our highly competitive and continuously developing industry. If this happens, we may not be able to mine Bitcoin or other
cryptocurrency as efficiently or in sufficient amounts relative to our competition or at all and, as a result, our business and financial
results could suffer which could, in turn, have a material adverse effect on the trading price of our common stock.
Because there are several competitors in our
industry that are purchasing mining equipment at scale and due to supply chain disruptions, we may encounter delays or difficulty in us
obtaining new miners, which could materially and adversely affect our business and results of operations.
We will need new mining equipment to further our
operations, both to implement our short-term business plan of shifting to Bitcoin mining and to address potential issues such as ordinary
wear and tear and defects which may arise in the future. Many of the competitors in our industry have also been purchasing mining equipment
at scale, which has caused a world-wide shortage of mining equipment and components used to produce them, as well as delayed delivery
schedules for new miner purchases. There can be no assurances the mining equipment manufacturers on which we will rely will be able to
keep pace with the surge in demand for mining equipment when we obtain, upgrade and/or expand upon our current miners. The supply chain
disruptions we are facing may adversely affect us including the shortages of transformers needed to power our miners. Additionally, the
supply of the materials used to produce miners, such as the application-specific integrated circuit (“ASIC”) computer
chips that are the primary feature in their computing power, may become subject to shortages, which could also either increase the cost
beyond what we can reasonably afford or reduce their availability without unreasonable delay or at all. It is uncertain how manufacturers
will respond to these trends and whether they can deliver on the schedules promised to any or all of their customers in the future. In
the event manufacturers of mining equipment or component parts or materials are not able to keep pace with demand or avoid supply shortages,
we may not be able to purchase such products in sufficient quantities, at reasonable prices or on the delivery schedules that meet our
business needs, which could have a material adverse effect on our business and results of operations.
To the extent that the profit margins of Bitcoin
mining operations are not high, Bitcoin mining companies or other participants in the Bitcoin industry are more likely to immediately
sell Bitcoins in the market, thereby constraining growth of the price of Bitcoin that could adversely impact us.
Over the years, Bitcoin mining operations have
shifted from individual users mining with computer processors, graphics processing units and first-generation ASIC servers to larger enterprises
with newer, more “professionalized” sources of processing power which has been predominantly added by “professionalized”
mining operations and resulting demand for more professionalized and powerful miners having faster hash rates. These professionalized
mining operations may use proprietary hardware or sophisticated ASIC machines acquired from ASIC manufacturers. Acquiring this specialized
hardware at scale requires the investment of significant up-front capital, and mine operators incur significant expenses related
to the operation of this hardware at scale, such as the leasing of operating space, which is often done in data centers or warehousing
facilities, obtaining and paying for an electricity supply to run the miners and employing technicians to operate the mining facilities.
As a result, these professionalized mining operations
are of a greater scale than prior miners and have more defined and regular expenses and liabilities. Because these regular expenses and
liabilities require professionalized mining operations to maintain profit margins on the sale of Bitcoin, to the extent the price of Bitcoin
declines and such profit margin is constrained, such mining companies are incentivized to sell Bitcoin earned from mining operations more
rapidly than individual mining companies who in past years were more likely to hold newly mined Bitcoin for longer periods. The immediate
selling of newly mined Bitcoin greatly increases the trading volume of Bitcoin, creating downward pressure on the market price of Bitcoin
rewards.
The extent to which the value of Bitcoin mined
by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such an operation.
A professionalized mining operation may be more likely to sell a higher percentage of its newly mined Bitcoin rapidly if it is operating
at a low profit margin and it may partially or completely cease operations if its profit margin is negative. In a low profit margin environment,
a higher percentage could be sold more rapidly, thereby potentially depressing Bitcoin prices. Lower Bitcoin prices could result in further
tightening of profit margins for professionalized mining operations creating a network effect that may further reduce the price of Bitcoin
until mining operations with higher operating costs become unprofitable forcing them to reduce mining power or cease mining operations
temporarily.
Because the new miners we plan to obtain will
be designed specifically to mine Bitcoin, our future success will depend in large part upon the value of Bitcoin, and any sustained decline
in its value could adversely affect our business and results of operations.
Our operating results will depend in large part
upon the value of Bitcoin because it is the primary cryptocurrency we intend to mine moving forward, assuming we can raise the necessary
capital to obtain and install the Bitcoin mining equipment. Specifically, our revenues from our Bitcoin mining operations will be based
upon two factors: (1) the number of Bitcoin rewards we successfully mine and (2) the value and liquidity of Bitcoin. This means that our
operating results will be subject to swings based upon increases or decreases in the value of Bitcoin. Furthermore, our business strategy
focuses solely on producing Bitcoin (as opposed to other cryptocurrencies). Previously, we focused solely on mining Ethereum as that was
the only mining equipment available to us. If other cryptocurrencies overtake Bitcoin in terms of acceptance, the value of Bitcoin could
decline. Further, if Bitcoin were to switch its proof of work algorithm from SHA-256 to another algorithm for which our miners (which
we have contracts to acquire) would not be suited or if the value of Bitcoin were to decline for other reasons, particularly if such decline
were significant or over an extended period of time, we would likely incur very significant costs in retooling or replacing our existing
miners with miners better suited for this new protocols and our operating results could be adversely affected. This could result in a
material adverse effect on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material
adverse effect on our business, prospects or operations, and thus harm investors.
Bitcoin is subject to halving, meaning that
the Bitcoin rewarded for solving a block will be reduced in the future and its value may not commensurately adjust to compensate us for
such reductions, and the overall supply of Bitcoin is finite.
Bitcoin is subject to “halving,” which
is the process by which the Bitcoin reward for solving a block is reduced by 50% every 210,000 blocks that are solved. This means that
the amount of Bitcoin we (or any other miner) are rewarded for solving a block in the blockchain is permanently cut in half. For example,
the latest halving having occurred in May 2020, with a revised payout of 6.25 Bitcoin per block solved, down from the previous reward
rate of 12.5 Bitcoin per block solved. There can be no assurance that the price of Bitcoin will sufficiently increase to justify the increasingly
high costs of mining for Bitcoin given the halving feature. If a corresponding and proportionate increase in the trading price of these
cryptocurrencies does not follow these anticipated halving events, the revenue we earn from our mining operations would see a corresponding
decrease, which would have a material adverse effect on our business and operations. To illustrate, even if the price of Bitcoin remains
at its price as of today, all other factors being equal (including the same number of miners and a stable hash rate) our revenue would
decrease substantially upon the next halving (which is anticipated to occur in 2024).
Further, due to the halving process, unless the
underlying code of the Bitcoin blockchain is altered (which may be unlikely or difficult given its decentralized nature), the supply of
Bitcoin is finite. Once 21 million Bitcoin have been generated by virtue of solving blocks in the blockchain, the network will stop producing
more. Currently, there are approximately 19 million Bitcoin in circulation representing about 90% of the total supply of Bitcoin under
the current source code. For the foregoing reasons, the halving feature exposes us to inherent uncertainty and reliance upon the historically
volatile price of Bitcoin, rendering an investment in us particularly speculative, especially in the long-term. If the price of Bitcoin
does not significantly increase in value, your investment could become worthless.
Interruptions to internet access could disrupt our operations, which
could adversely affect our business and results of operations.
Our cryptocurrency mining operations require access
to high-speed internet to be successful. If we lose internet access for a prolonged period, we may be required to reduce our operations
or cease them altogether. A disruption of the Internet may affect the use of cryptocurrencies and subsequently the value of our securities.
Generally, cryptocurrencies and our business of mining cryptocurrencies is dependent upon the Internet. A significant disruption in Internet
connectivity could disrupt a currency’s network operations until the disruption is resolved and have an adverse effect on the price
of Bitcoin and our ability to mine Bitcoin. If this occurs, our business and results of operations may suffer, and our investors may be
materially and adversely effected.
Bitcoin has forked multiple times and additional
forks may occur in the future which may affect the value of Bitcoin held or mined by the Company.
To the extent that a significant majority of users
and mining companies on a cryptocurrency network install software that changes the cryptocurrency network or properties of a cryptocurrency,
including the irreversibility of transactions and limitations on the mining of new cryptocurrency, the cryptocurrency network would be
subject to new protocols and software. However, if less than a significant majority of users and mining companies on the cryptocurrency
network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the
consequence would be what is known as a “fork” of the network, with one prong running the pre-modified software and the
other running the modified software. The effect of such a fork would be the existence of two versions of the cryptocurrency running in
parallel yet lacking interchangeability and necessitating exchange-type transaction to convert currencies between the two forks.
Additionally, it may be unclear following a fork which fork represents the original cryptocurrency and which is the new cryptocurrency.
Different metrics adopted by industry participants to determine which is the original asset include: referring to the wishes of the core
developers of a cryptocurrency, blockchains with the greatest amount of hashing power contributed by miners or validators; or blockchains
with the longest chain. A fork in the network of a particular cryptocurrency could adversely affect an investment in our securities or
our ability to operate. Since August 1, 2017, Bitcoin’s blockchain was forked multiple times creating alternative versions
of the cryptocurrency such as Bitcoin Cash, Bitcoin Gold and Bitcoin SV. The forks resulted in a new blockchain being created with
a shared history, and a new path forward. The value of the newly created versions including Bitcoin Cash, Bitcoin Gold and Bitcoin SV
may or may not have value in the long run and may affect the price of Bitcoin if interest is shifted away from Bitcoin to the newly created
cryptocurrencies. The value of Bitcoin after the creation of a fork is subject to many factors including the value of the fork product,
market reaction to the creation of the fork product, and the occurrence of forks in the future. As such, the value of Bitcoin could be
materially reduced if existing and future forks have a negative effect on Bitcoin’s value.
Our reliance primarily on a single model of miner may subject our
operations to increased risk of mine failure.