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 110 East
Broward Blvd, Fort Lauderdale, Florida. 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 OTC Pink Markets
under the symbol “EDGM”. Our common stock was previously quoted under the symbol “FWAV.” As of April 12, 2023,
the last reported sale price of our common stock as reported by the OTC Markets was $0.023 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
None.
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 January 2022, we were a shell company with
no operations. Effective with the closing of the acquisition of Edgemode, a Wyoming corporation, we are an early-stage cryptocurrency
mining company. Although Edgemode has historically mined Ethereum, we are now focused on transitioning our operations by mining Bitcoin.
12 Months Ended December 31, 2022 (“2022 Period”) Compared
to the 12 Months Ended December 31, 2021 (“2021 Period”).
Results of operations
We had revenues of $438,042 for the 2022 Period
compared to $1,572,906 for the 2021 Period. The reason for the decrease was the decline in the price of Ethereum during the 2022 Period
compared to prices during the 2021 Period and we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus
protocol to proof of stake. Also the Company experienced power outages at our data center in Rouses Point and returned equipment related
to Etherium mining.
Our cost of revenues for the 2022 Period was $812,882
compared to $1,347,337 for the 2021 Period. The reason for the decrease was a decrease in hosting fees incurred as a result of the power
outages and seizing of Ethereum mining operations in September 2022.
Our operating expenses for the 2022 Period was
$31,014,864 compared to $3,531,646, for the 2021 Period. In the 2022 Period, the Company incurred stock-based compensation expense of
$24,582,181 compared to $2,537,418 for the 2021 Period, along with increased loss on cryptocurrencies due to increased transactions and
changes in market prices. In addition, the Company began operations in March of 2021 for initial operations versus having a full year
of operations for the 2022 Period.
Our other expenses for the 2022 Period was $856,293
compared to $252,678 for the 2021 Period. The reason for the increase was a loss related to the termination of a prepaid hosting agreement,
offset by a decrease in interest expense from the termination of the loans.
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.
Liquidity and Capital Resources
As of April 14, 2023, the Company had approximately
$15,000 of cash. Our liquidity was primarily derived from debt and equity investments from accredited investors and also from selling
the crypto that we mined through September 2022. To grow the business and help fund operations for the next 12 months, the Company is
seeking to raise $50 million in equity capital through private placements. We can provide no assurances that any such financings will
be successful, nor will they be on terms acceptable to the Company.
If we fail to raise sufficient additional funds,
we will be required to significantly scale back our plan of operations.
The Company has terminated the agreements for
approximately $1.6 million of debt for equipment that the Company was using for mining and returned the equipment to the vendor to settle
the outstanding liabilities. The Company is making no further payments against the potential balance. No confirmation has been received
from 2CRSI and as such the balance remains outstanding on the Company’s balance sheet in the accompanying financial statements.
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
Critical accounting policies
See Note 2 to the December 31, 2022 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 and Financial
Condition
We will need significant additional capital
to execute our business plan, which includes purchasing, installing and operating Bitcoin mining equipment to replace our prior 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 purchase orders to provide us with Bitcoin miners. Unless
and until we can raise sufficient capital, we are unable to complete any orders. 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 adequate debt or equity financing on favorable terms, if at all, which could impair our
growth and adversely affect our plan of operations. We need significant additional capital to pay for new Bitcoin miners. 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, with respect to the recent loan agreement and any 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 install Bitcoin mining equipment. Also, because Bitcoin mining uses a proof of
work method which requires 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, and since the 2022 declines, the price
of Bitcoin has yet to return to its previous high. 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 and early 2022 from our Ethereum mining activities, we since ceased mining Ethereum and are not actively
mining any cryptocurrency or otherwise generating revenue, and will not unless and until we obtain sufficient capital and otherwise can
execute our plan to install and operate Bitcoin mining equipment and infrastructure. Given these developments, even if we can launch a
Bitcoin mining enterprise to replace our prior Ethereum mining focus, 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, which
mining ceased in September 2022. Moving forward, and subject to certain contingencies described elsewhere in these Risk Factors and certain
other sections of this Report, our primary focus is on mining Bitcoin, and those operations are expected to be located outside of the
United States. 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, 2022 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 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 Ethereum miners experienced glitches
and defects and as a result demonstrated either limitations on mining capabilities or outright inability to mine, such that they had to
be replaced or repaired, or otherwise operated at the lower production levels. The result of this development was not only increased costs
to us, but also a reduced ability to generate revenue while these miners were not operating. Circumstances such as these, or a general
need to replace outdated miners in the future, which may arise if and when we launch Bitcoin mining operations which rely on similar equipment,
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, although we have encountered and
expect to continue to face challenges in paying purchase price installments for these miners under our purchase orders. Certain models
of Bitcoin miners 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 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. Supply chain disruptions
may adversely affect us, including 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 of our focus on Bitcoin mining and
the cryptocurrency industry in general, our future success will depend upon the value of Bitcoin and on the cryptocurrency markets, and
any sustained decline in its value could adversely affect our business and results of operations.
Our operating results will depend 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.
The cryptocurrency industry is characterized by
a high level of volatility, and the collapse in the prices of most popular cryptocurrencies such as Bitcoin and Ethereum has cast doubt
on the future of cryptocurrency-focused businesses such as ours. This trend was further impacted by the recent controversy and failure
surrounding FTX, a cryptocurrency exchange that collapsed after its Chief Executive Officer was accused of fraud and misappropriation
of corporate funds in a manner that has been compared to both Enron and Madoff. Since then certain other cryptocurrency-focused companies
have filed for bankruptcy, and more recently in March 2023 two major U.S. banks with involvement in cryptocurrencies collapsed. The result
thus far has been a decline in the cryptocurrencies markets and in the public’s perception of the industry. In addition, following
the FTX controversy, regulators began reviewing cryptocurrency-focused companies and their operations with greater scrutiny, and have
brought enforcement actions seeking to restrict or cease such activities.
If we are unable to separate ourselves from the
recent adverse developments in the cryptocurrency space, or otherwise develop and execute on our business plan in a manner that enables
us to establish and maintain material revenue sources, our business and financial condition could be materially adversely affected. Further,
a perceived lack of stability in the cryptocurrency markets and the closure or suspension shutdown of cryptocurrency exchanges and networks
due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce confidence in cryptocurrency networks
and result in greater volatility in cryptocurrency values, including Bitcoin, and on our results of operations. Further, our focus on
cryptocurrency, and the above-described past and/or any future adverse developments with respect to our operations or industry, could
result in declines or volatility in our stock price, difficulty or inability to obtain adequate financing as needed, on favorable terms
or at all, the risk of increased losses or asset impairments, and the potential for legal proceedings and reputational harm which could
arise from any of the foregoing. Such external developments have the potential to affect us even if we believe our financial condition,
operations and infrastructure our secure. These potential consequences could materially adversely affect an investment in us.
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. 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.
The performance and reliability of our miners
and our technology is critical to our operations. We currently plan on using Katena and MicroBT Whatsminer models for mining Bitcoin.
If there are issues with those machines, such as a design flaw in the ASIC chips they employ, our entire system could be affected. This
would result in both lost revenue from inhibited mining operations and increased costs to repair and replace our mining infrastructure.
Therefore, any disruption in our ability to continue mining, even with a portion of our total miners, could result in a material reduction
to Bitcoin reward yields which would harm our business. Any weakness, flaw, or error which arises with our miners such similar to or more
severe and widespread than the problems we experienced with our miners may affect all or a large portion of our miners; therefore, if
a defect or other flaw exists, our entire mine could go offline simultaneously. Any such interruption, delay or inability to continue
operations could result in financial losses, a decrease in the trading price of our common stock and reputational harm, in which case
you could lose some or all of your investment.
Because of the reliance on third-party mining
pool service providers for our mining, its operations may have a negative impact on the Company’s results of operations.
The third party hosting company will arrange our
cryptocurrency mining operations using a mining pool, in which multiple cryptocurrency mining operators agree to join together and if
any of them are rewarded Bitcoin for mining a block on the blockchain, the pool participants receive a portion of such reward based on
the computing power contributed to mining that block. Under this arrangement, we would receive Bitcoin mining rewards from our mining
activity through a third-party mining pool operator. Mining pools allow miners to combine their processing power, increasing their
chances of solving a block and getting paid by the network. Should the pool operator’s system suffer downtime due to a cyber-attack,
software malfunction or other similar issues, it will negatively impact our ability to mine and receive revenue. Furthermore, we are dependent
on the accuracy of the mining pool operator’s record keeping to accurately record the total processing power provided to the pool
for a given Bitcoin mining application in order to assess the proportion of that total processing power we provided. We would have limited
means of recourse against the mining pool operator if we determine the proportion of the reward paid out to us by the mining pool operator
is incorrect, other than leaving the pool. If we are unable to consistently obtain accurate proportionate rewards from our mining pool
operators, we may experience reduced reward for our efforts, which would have an adverse effect on our business and operations.
There is a possibility of cryptocurrency mining
algorithms transitioning to proof of stake validation and other mining related risks, which could make us less competitive and ultimately
adversely affect our business and the value of our stock.
As previously mentioned, we ceased our Ethereum
mining operations and now focus solely on Bitcoin. There is a possibility of Bitcoin mining algorithms transitioning to proof of stake
validation in the future. Proof of stake is an alternative method in validating cryptocurrency transactions that is less dependent on
the consumption of electricity. Should the algorithm, whether it relates to Bitcoin or Ethereum, or other cryptocurrencies we mine shift
from a proof of work validation method to a proof of stake method, mining would likely require less energy, which may render any company
that maintains advantages in the current climate (for example, from lower priced electricity, processing, real estate, or hosting) less
competitive. We, as a result of our efforts to optimize and improve the efficiency of our mining operations, may be exposed to the risk
in the future of losing the relative competitive advantage we may have over some of our competitors as a result, and may be negatively
impacted if a switch to proof of stake validation were to occur. This is because we are investing heavily in equipment based on the mining
algorithms method of validation. Such events could have a material adverse effect on our ability to continue as a going concern, which
could have a material adverse effect on our business, prospects or results of operations, the value of Bitcoin, Ethereum or other cryptocurrencies
we mine or otherwise acquire and your investment in us.
We may be accused of infringing intellectual
property rights of third parties.
We may be subject to legal claims of alleged infringement
of the intellectual property rights of third parties. Due to the open-source and constantly evolving nature of our business, we may not
always be able to determine that we are using or accessing protected information or software. For example, there could be issued patents
of which we are not aware that our activities or the equipment or software we use may infringe. The ready availability of damages, royalties
and the potential for injunctive relief has increased the defense litigation costs of patent infringement claims, especially those asserted
by third parties whose sole or primary business is to assert such claims. Such claims, even if not meritorious, may result in significant
expenditure of financial and managerial resources, and the payment of damages or settlement amounts. Additionally, we may become subject
to injunctions prohibiting us from using software or business processes we currently use or may need to use in the future or requiring
us to obtain licenses from third parties when such licenses may not be available on financially feasible terms or terms acceptable to
us or at all. In addition, we may not be able to obtain on favorable terms, or at all, licenses or other rights with respect to intellectual
property we do not own in providing ecommerce services to other businesses and individuals under commercial agreements.
Risks Related to Our Reliance on Bitcoin and
the Cryptocurrency Industry
Because of our focus on Bitcoin mining, the
trading price of shares of our common stock may increase or decrease with the trading price of Bitcoin, which subjects investors to pricing
risks, including “bubble” type risks, and volatility.
Because of our dependence on Bitcoin, the trading
prices of our common stock may at times be tied to the trading prices of Bitcoin. Specifically, we may experience adverse effects on our
stock price when the value of Bitcoin drops. Furthermore, if the market for Bitcoin mine operators’ stocks or the stock market in
general experiences a loss of investor confidence, the trading price of our stock could decline for reasons unrelated to our business,
operating results or financial condition. The trading price of our common stock could be subject to arbitrary pricing factors that are
not necessarily associated with traditional factors that influence stock prices or the value of non-cryptocurrency assets such as
revenue, cash flows, profitability, growth prospects or business activity since the value and price, as determined by the investing public,
may be influenced by uncertain contingencies such as future anticipated adoption or appreciation in value of cryptocurrencies or blockchains
generally, and other factors over which we have little or no influence or control.
Bitcoin and other cryptocurrency market prices,
which have historically been volatile and are impacted by a variety of factors (including those discussed below), are determined primarily
using data from various exchanges, over-the-counter markets and derivative platforms. Furthermore, such prices may be subject to
factors such as those that impact commodities, more so than business activities, which could be subjected to additional influence from
fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Pricing may be
the result of, and may continue to result in, speculation regarding future appreciation in the value of cryptocurrencies, or our share
price, making their market prices more volatile or creating “bubble” type risks for the trading price of Bitcoin.
During Calendar year 2020, the trading price of
Bitcoin appreciated significantly, from a low closing value of approximately $5,000 per Bitcoin in March 2020, to a high closing value
of approximately $29,400 per Bitcoin in December 2020. From 2021 to present the trading price of Bitcoin was volatile with a high
of approximately $68,789 in November 2021 and a low of approximately $15,460 in November 2022. There can be no assurances that similar
fluctuations in the trading price of Bitcoin will not occur in the future. Accordingly, since our revenue will depend on the price of
Bitcoin, and the trading price of our securities may therefore at times be connected to the trading price of Bitcoin, if the trading price
of Bitcoin again experiences a significant decline, we could experience a similar decline in revenue and/or in the trading price for shares
of our common stock. If this occurs, you may lose some or all of your investment.
Recent events have increased the likelihood
the US federal and state legislatures and regulatory agencies will enact laws and regulations to regulate cryptocurrencies and intermediaries,
and could have other adverse consequences.
The collapse of Terra USD and Luna and the bankruptcy
filings of FTX and its subsidiaries, Three Arrows Capital, Celsius Network, Voyager Digital, Genesis Global and BlockFi have resulted
in calls for heightened scrutiny and regulation of the cryptocurrency industry, with a specific focus on cryptocurrency exchanges, platforms,
and custodians. Federal and state legislatures and regulatory agencies are expected to introduce and enact new laws and regulations to
regulate cryptocurrency intermediaries, such as cryptocurrency exchanges and custodians. The March 2023 collapses of Silicon Valley Bank
and Signature Bank may amplify and/or accelerate these trends. The U.S. regulatory regime - namely the Federal Reserve Board, U.S. Congress
and certain U.S. agencies (e.g., the SEC, the CFTC, FinCEN, the Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, and the Federal Bureau of Investigation) as well as the White House have issued reports and releases concerning cryptocurrencies,
including Bitcoin and cryptocurrency markets. Further, in 2023 the House of Representatives formed two new subcommittees: the Digital
Assets, Financial Technology and Inclusion Subcommittee and the Commodity Markets, Digital Assets, and Rural Development Subcommittee,
each of which were formed in part to analyze issues concerning cryptocurrencies and demonstrate a legislative intent to develop and consider
the adoption of federal legislation designed to address the perceived need for regulation of and concerns surrounding the cryptocurrency
industry. However, the extent and content of any forthcoming laws and regulations are not yet ascertainable with certainty, and it may
not be ascertainable in the near future. A divided Congress makes any prediction difficult. Further the SEC seems to have changed tactics
and in early 2023 it sued multiple cryptocurrency companies for selling unregistered securities. We cannot predict how these and other
related events will affect us. We cannot assure you that future legislation or regulation will not have an adverse effect upon us. It
is possible that new laws and increased regulation and regulatory scrutiny may require the Company to comply with certain regulatory regimes,
which could result in new costs for the Company. The Company may have to devote increased time and attention to regulatory matters, which
could increase costs to the Company. New laws, regulations, and regulatory actions could significantly restrict or eliminate the market
for, or uses of, cryptocurrencies including Bitcoin, which could have a negative effect on the value of Bitcoin, which in turn would have
a negative effect on the value of the Company’s shares.
These events are continuing to develop and it
is not possible to predict, at this time, every risk that they may pose to us, our service providers, or the cryptocurrency industry as
a whole. A perceived lack of stability in the cryptocurrency market and the closure or temporary shutdown of cryptocurrency exchanges
and other cryptocurrency-focused enterprises due to business failure, hackers or malware, government-mandated regulation, or fraud, may
reduce confidence in cryptocurrency networks and result in greater volatility in cryptocurrency values. Further, these adverse developments
and public controversies could result in diminished public perception of our industry, and in turn of us, rendering it more difficult
to raise capital or otherwise further our or our investors’ interests. Any of these potential consequences could materially adversely
affect us and/or an investment in us.
The markets for Bitcoin may be under-regulated
and, as a result, the market price of our cryptocurrency may be subject to significant volatility or manipulation, which could decrease
consumer confidence in cryptocurrencies and have a materially adverse effect on our business and results of operations.
Cryptocurrencies that are represented and trade
on a ledger-based platform and those who hold them may not enjoy the same benefits as traditional securities available on trading markets
and their investors. Stock exchanges have listing requirements and vet issuers, requiring them to be subjected to rigorous listing standards
and rules, and monitor investors transacting on such platforms for fraud and other improprieties. These conditions may not necessarily
be replicated on a distributed ledger platform, depending on the platform’s controls and other policies. The more lax a distributed
ledger platform is about vetting issuers of cryptocurrency assets or users that transact on the platform, the higher the potential risk
for fraud or the manipulation of the ledger due to a control event.
Cryptocurrency market prices have historically
been volatile, are impacted by a variety of factors, and are determined primarily using data from various exchanges, over-the-counter
markets and derivative platforms. Furthermore, such prices may be subject to factors such as those that impact commodities, more so than
business activities, which could be subjected to additional influence from fraudulent or illegitimate actors, real or perceived scarcity,
and political, economic, regulatory or other conditions. Pricing may be the result of, and may continue to result in, speculation regarding
future appreciation in the value of cryptocurrencies, or our share price, making their market prices more volatile or creating “bubble”
type risks for both our cryptocurrencies and shares of our common stock.
These factors may inhibit consumer trust in and
market acceptance of cryptocurrencies as a means of exchange which could have a material adverse effect on our business, prospects, or
operations and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire.
A particular cryptocurrency’s status as
a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, with a growing number of regulators
taking the position that certain cryptocurrencies are securities and bringing enforcement actions accordingly, and if we are unable to
properly characterize a cryptocurrency or comply with the applicable regulatory requirements, we may be subject to regulatory scrutiny,
investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
While in February 2023 the SEC Chairman reiterated
his position that Bitcoin is not a security, the SEC and its staff have taken the position that every other cryptocurrency falls within
the definition of a “security” under the U.S. federal securities laws. Further, while we focus on Bitcoin, the SEC’s
views or policies with respect to Bitcoin and the agency’s regulatory authority over it could change over time, and we could in
the future expand our operations to mining or conducting other forms of business with cryptocurrencies other than Bitcoin, particularly
given the early stages of our operational development.
The legal test for determining whether any given
cryptocurrency is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict.
The SEC generally does not provide advance guidance or confirmation on the status of any particular cryptocurrency as a security. Furthermore,
the SEC’s views in this area have evolved over time, and the SEC’s Enforcement Division have recently demonstrated a willingness
and intention to bring actions against businesses with a cryptocurrency focus, including for failure to register transactions involving
cryptocurrencies under the federal securities laws by deeming such cryptocurrencies to be securities. For example, in February 2023 the
SEC charged Kraken with failing to register the offer and sale of its staking-as-a-service program, whereby investors transfer cryptocurrencies
to Kraken for staking in exchange for advertised annual investment returns. Kraken settled this action by agreeing to cease its staking
business and to pay $30 million in disgorgement, prejudgment interest and civil penalties. Similarly, in March 2023 the New York Attorney
General became the first U.S. regulator to claim in court that Ethereum, the cryptocurrency we used to mine, is a security in its lawsuit
against KuCoin, a cryptocurrency exchange. While we maintain that Bitcoin is not a security, if we become subject to regulatory scrutiny
or enforcement actions by securities regulators, based on mining or otherwise dealing in Bitcoin or in other cryptocurrencies, it could
result in a similar adverse outcome to us as was experienced by Kraken, including expensive litigation and penalties and cessation of
the allegedly noncompliant operations, which would materially adversely harm us. These or additional developments that may arise underscore
the risks in our business, particularly its reliance on cryptocurrencies such as Bitcoin. Further, as disclosed elsewhere in this Report,
we are in the research and development stage of exploring treasury management alternatives to increase earnings of the cryptocurrency
we mine and hold, and regulatory developments may hinder our ability to proceed with what management believes to be a viable pursuit,
or if we pursue such an undertaking we could be exposed to the regulatory risks discussed in this Risk Factor.
Further, certain cryptocurrencies may be deemed
to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future,
adopt additional laws, regulations, or directives that affect the characterization of cryptocurrencies as “securities.” As
a result of the foregoing recent and potential developments, we may be forced to, or voluntarily elect to, limit, suspend or cease our
staking services operations or certain aspects thereof in order to comply with applicable laws and regulations and avoid the regulatory
scrutiny and adverse consequences that could result. Further, because of how recent these government actions are and the high probability
that further action is forthcoming, we anticipate higher compliance costs and diversion of management’s limited time and attention
towards these events until a more definitive regulatory regime is established to govern the cryptocurrency industry in which we operate.
If any cryptocurrency is deemed to be a security
under any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences
for such cryptocurrency. For instance, the networks on which such cryptocurrency is utilized may be required to be regulated as securities
intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further,
it could draw negative publicity and a decline in the general acceptance of the cryptocurrency. Also, such a development may make it difficult
for such supported cryptocurrency to be traded, cleared, and custodied as compared to other cryptocurrencies that are not considered to
be securities. These events could, among things, result in a decline in the market prices for the cryptocurrencies on which our operations
rely, and thereby reduce the demand for our solutions and the revenue generated therefrom.
The development and acceptance of cryptographic
and algorithmic protocols governing the issuance of and transactions in cryptocurrencies is subject to a variety of factors that are difficult
to evaluate.
The use of cryptocurrencies, including Bitcoin,
to, among other things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that
employs cryptocurrency assets based upon a computer-generated mathematical and/or cryptographic protocol. Large-scale acceptance of cryptocurrencies
as a means of payment has not, and may never, occur. The growth of this industry in general, and the use of Bitcoin in particular, is
subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may occur
unpredictably. The factors include, but are not limited to:
A decline in the popularity or acceptance of the
Bitcoin network could adversely affect an investment in us.
The outcome of these factors could have negative
effects 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 as well as potentially negative effects on the value of any Bitcoin or other cryptocurrencies
we mine or otherwise acquire, which would harm investors in our securities.
Currently, there is relatively small use of
Bitcoins in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility
that could adversely affect an investment in us.
As relatively new products and technologies, Bitcoins
and the Bitcoin network have only recently become widely accepted as a means of payment for goods and services by many major retail and
commercial outlets, and use of Bitcoins 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 Bitcoins.
A lack of expansion by Bitcoins into retail and commercial markets, or a contraction of such use, may result in increased volatility or
a reduction in the price of Bitcoin, either of which could adversely impact an investment in us. If Bitcoin or other cryptocurrencies
we mine do not gain widespread market acceptance or accrete in value over time, our prospects and your investment in us would diminish.
Banks and financial institutions may not provide
banking services, or may cut off services, to businesses that engage in cryptocurrency-related activities, and turmoil among financial
institutions arising from or relating to cryptocurrencies or in general can materially adversely affect us and our industry.
A number of companies that engage in Bitcoin
and/or other cryptocurrency-related activities 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
cryptocurrencies 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 cryptocurrencies has been to
initially exclude their use for ordinary consumer transactions within China and later to deem all cryptocurrency-related
transactions illegal in September 2021. The difficulty that many businesses that provide Bitcoin and/or derivatives on other
cryptocurrency-related activities have and may continue to have in finding banks and financial institutions willing to provide
them services may be decreasing the usefulness of cryptocurrencies as a payment system and harming public perception of
cryptocurrencies, and could decrease their usefulness and harm their public perception in the future.
Further, in March 2023 two of the largest financial
institutions in the U.S., Silicon Valley Bank and Signature Bank, which had involvement in cryptocurrencies, collapsed as continued negative
economic prospects and failures to obtain payment from borrowers, together with a large number of withdrawals, caused these banks to encounter
substantial financial difficulty leading up to these failures. In response to these events, the Federal Deposit Insurance Corporation
(“FDIC”) transferred all the deposits, both insured and uninsured, of these banks to corresponding “bridge banks”
operated by the FDIC as it markets the institution to potential bidders. While the impact of these developments on the Company and on
the cryptocurrency industry and the economy in general remain unclear, it is possible that these events underscore a broader financial
crisis facing the country, in which cryptocurrencies may have played and/or have yet to play a role. In the wake of these collapses, the
U.S. capital markets and the prices of equity securities and cryptocurrencies have faced significant volatility as investors continue
to evaluate these events and how they may interact with other ongoing issues with the U.S. economy, including inflation and Federal Reserve
interest rate increases.
Regulators have also taken action that calls the
future role of cryptocurrencies in the U.S. financial system into question. For example, in January 2023, the Federal Reserve, Office
of the Comptroller of the Currency, and Federal Deposit Insurance Corporation issued a joint statement on the liquidity risks that cryptocurrencies
pose and urging financial institutions to engage in transactions involving cryptocurrencies and cryptocurrency-focused clients with caution,
which could potentially create challenges regarding access to financial services. Moreover, in January 2023, the White House issued a
statement cautioning deepening ties between cryptocurrencies and the broader financial system. Meanwhile, the SEC has taken several actions
aimed at curtailing activities it deems sales of unregistered securities. However, also during January of 2023, the U.S. House of Representatives
announced its first ever Financial Services Subcommittee on Digital Assets and the intention to develop a regulatory framework for the
use and trade of digital assets and related financial services products in the United States. Bipartisan leadership of the Senate Banking
Committee announced a similar objective.
The usefulness of cryptocurrencies as a payment
system and the public perception of cryptocurrencies could be damaged if banks or financial institutions were to close the accounts of
businesses engaging in Bitcoin and/or other cryptocurrency-related activities, which contingencies may become more likely in the
future if and to the extent cryptocurrencies are considered a significant factor in the recent financial collapses experienced by the
major banks as described above. This could occur as a result of compliance risk, cost, government regulation or public pressure. The risk
applies to securities firms, clearance and settlement firms, national stock and derivatives on commodities exchanges, the over-the-counter market,
and the Depository Trust Company, which, if any of such entities adopts or implements similar policies, rules or regulations, could negatively
affect our relationships with financial institutions and impede our ability to convert cryptocurrencies to fiat currencies. Such factors
could have a material adverse effect on our ability to continue as a going concern or to monetize our mining efforts, which could have
a material adverse effect on our business, prospects or operations and harm investors.
Political or economic crises may motivate large-scale sales of cryptocurrencies,
which could result in a reduction in values of cryptocurrencies such as Bitcoin adversely affect an investment in us.
Geopolitical or economic crises may motivate large-scale
sales of cryptocurrencies, which could rapidly decrease the price of cryptocurrencies. For example, market analysts have indicated that
in some cases, such as during large scale adverse economic events, trading and market prices of cryptocurrencies such as Bitcoin have