Item 1A. Risk Factors.
Not applicable to small reporting companies. However,
our principal risk factors are described under “Management’s Discussions and Analysis of Financial Condition and Results of
Operations.”
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk
Management and Strategy
During 2024 we were a “blank check”
company with no business operations and our sole business activity has been identifying and evaluating suitable acquisition transaction
candidates. Therefore, we did not consider that we face significant cybersecurity risk and have not adopted any cybersecurity risk management
program or formal processes for assessing cybersecurity risk. Our board of directors is generally responsible for the oversight of risks
from cybersecurity threats, if any. Our management will use its best efforts to adopt a cybersecurity risk management program and formal
processes for assessing cybersecurity risk as we develop our HPC operations.
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. On the Closing date
we have also acquired a lease on 1,050 sqm of building space and 28 sqm of office space in Marviken, Sweden at a cost of approximately
$30,000 per month. The lease expires December 31, 2034. We have also obtained a 20,000 sqm Freehold plot of land located at Marviken Kraftverk,
610 27 Vikbolandet, Sweden. at a cost of approximately $1,750,000 USD
Item 3. Legal Proceedings.
See “Note 11. Commitments and Contingencies”
to the Financial Statements included in this report.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Market Information and Holders
Our common stock is quoted on the OTC Pink Markets
under the symbol “EDGM”. As of April 30, 2025, the last reported sale price of our common stock as reported by the OTC Markets
was $0.0035 per share. Any over the counter market quotation reflects inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions. As of April 30, 2025, 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.
Dividends
The Company has not paid dividends on its common
stock to date and does not intend to pay cash dividends in the foreseeable future. The payment of cash dividends in the future will be
dependent upon the terms of agreements restricting our ability to pay dividends, revenues and earnings, if any, capital requirements and
general financial condition and the discretion of the Company’s Board of Directors. It is the present intention of the Company’s
Board of Directors to retain all earnings, if any, for use in the Company’s business operations and, accordingly, the Board of Directors
does not anticipate declaring any dividends in the foreseeable future.
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
Following the closing of the Share Exchange, Edgemode,
through SAPL, its wholly owned subsidiary, is now designing, building, and operating digital infrastructure for HPC with the goal of becoming
a leading provider of digital colocation services. The acquisition of SAPL has positioned us to enter the rapidly evolving HPC hosting
market in an efficient and effective manner. The acquisition has enabled us to plan to leverage SAPL’s existing infrastructure and
expertise to meet the growing demand for data center facilities for third-party customers focused on cloud computing as well as machine
learning and artificial intelligence.
The acquisition of SAPL will enable us to become
a premier provider and operator of dedicated, purpose-built data center facilities for our third-party customers. We believe that opportunities
for growth exist in various applications of our data centers, which is another factor as to why we have decided to begin offering digital
infrastructure colocation services to third parties engaged in HPC.
Our goal is to utilize the assets we have acquired
via the purchase of SAPL for HPC hosting operations which will provide consistent dollar-based revenue and which represent substantially
less risk than our historical digital asset self-mining operations. Our intent is to focus our business on development and marketing efforts
to build data centers and expand our foundational HPC hosting customer base.
We are currently engaged with one customer, Cudo
Ventures Ltd (“Cudo”) who will initially account for 100% of our HPC Hosting segment revenue. Our success in the HPC Hosting
segment is highly dependent on the success of our master services agreement with Cudo Ventures and the fulfillment by it of its obligations
under the master services agreement.
12 Months Ended December 31, 2024 (“2024
Period”) Compared to the 12 Months Ended December 31, 2023 (“2023 Period”).
Results of operations
Our operating expenses for the 2024 Period were
$1,408,528 compared to $3,362,714, for the 2023 Period. In the 2024 Period, the Company incurred stock-based compensation expense of $0
compared to $1,465,522 for the 2023 Period. The stock-based compensation for the 2023 Period was related to the amendment of options to
the officers of the Company and new options issued to a consultant.
Our other expense for the 2024 Period was $181,531
compared to other income of $347,933 for the 2023 Period. Other expense in the 2024 period was comprised of $56,488 in interest expense
and $1,795,664 for the loss on the change in fair value of derivative liabilities offset by income of $425,000 on the refund of an equipment
deposit and settlement of outstanding liabilities of $1,245,621. Other income for the 2023 period was comprised of $346,162 in interest
expense, $51,859 in prepayment penalties on the preferred B shares, loss on legal settlement of $9,975 and $780 in other expenses, offset
by income of $700,000 in deposits from equipment refunds, a gain of $50,000 on the settlement of liabilities and $6,709 for the gain on
the change in fair value of derivative liabilities.
Liquidity and Capital Resources
As of April 30, 2025, the Company had approximately
$100,000 of cash on hand. We did not receive any funding or financing during the 2024 Period. Our liquidity was historically primarily
derived from debt and equity investments from accredited investors and also from selling the crypto that we mined through September 2022.
Subsequent to the period covered by this report, in February 2025, we received an initial payment of approximately $303,000 for colocation
services to be provide by the Company. In addition, in April 2025 we sold 38,510,911 shares of restricted common stock to an accredited
investor in consideration of $300,000. On April 7, 2025, we executed the Share Exchange with SAPL and we are seeking to raise at least
$2,000,000 to commence our HPC Hosting operations and generate revenue. We require significant funding to develop our HPC operations.
Subject to receiving funding, we expect that our operating expenses will increase as we attempt to develop our new HPC operations and
we devote additional resources toward new business opportunities. However, as set forth elsewhere in this report, our ability 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 unlikely and we are unable to quantify at this time the expected increases in operating expenses in future periods.
Convertible notes payable
On April 11, 2023, the Company entered into a
Securities Purchase Agreement effective April 20, 2023 with 1800 Diagonal Lending LLC, an accredited investor, pursuant to which the Company
sold the investor an unsecured promissory note in the principal amount of $60,760 (the “April Promissory Note”). The
Company received net proceeds of $50,000 in consideration of issuance of the April Promissory Note after original issue discount
of $6,510 and legal fees of $4,250. The aggregate debt discount of $10,760 is being amortized to interest expense over the respective
term of the note. The April Promissory Note shall incur a one-time interest charge of 13%, which is added to the principal balance,
has a maturity date of March 11, 2024, and requires monthly payments of $7,629 beginning on September 15, 2023. The
April Promissory Note is convertible into common shares of the Company upon an event of default, at a rate of 71% of the lowest price
for the preceding 20 trading days. In addition, upon default, the Company must repay an amount equal to 150% of the then outstanding amount
of principal and accrued interest combined.
In addition, on April 11, 2023, the Company entered
into an additional Securities Purchase Agreement effective April 20, 2023 with the above investor, pursuant to which the Company sold
the investor an unsecured promissory note in the principal amount of $56,962 (the “Convertible Note”), bears interest
at a rate of 8%, or 22% in the event of default, and matured on April 11, 2024. The Company received net proceeds of $50,000 in
consideration of issuance of the Convertible Note after original issue discount of $2,712 and legal fees of $4,250. The aggregate
debt discount of $6,962 is being amortized to interest expense over the respective term of the note. The Convertible Note is convertible
into common shares of the Company beginning on the sixth-month anniversary, at a rate of 65% of the average of the three lowest prices
for the preceding 15 trading days. In addition, upon default, the Company must repay an amount equal to 150% of the then outstanding amount
of principal and accrued interest combined.
As of December 31, 2024, the principal balance
on the April 11, 2023 notes is $106,701. The notes are in default.
On April 25, 2023, the Company entered into a
Securities Purchase Agreement with an accredited investor, pursuant to which the Company sold the investor an unsecured promissory note
in the principal amount of $60,000. The Company received net proceeds of $60,000 in consideration of issuance of the Promissory Note.
The Promissory Note shall bear interest at a rate of 10% and have a maturity date of May 26, 2023. The Promissory Note has a
prepayment percentage of 130% for the period beginning on the issuance date and ending on the maturity date. As of December 31, 2024,
the balance on the note was $60,000 and the note was past due. On April 14, 2025, the note and accrued interest were converted in full
into 31,500,000 shares of common stock.
In addition, on April 26, 2023, the Company entered
into a Promissory Note Purchase Agreement with another investor, pursuant to which the Company sold the investor an unsecured convertible
promissory note in the principal amount of $57,502 Promissory Note. The Company received gross proceeds of $57,502 in consideration
of issuance of the Promissory Note. The Promissory Note shall bear interest at a rate of 10% and have a maturity date of May 26,
2023. The Promissory Note has a prepayment percentage of 130% for the period beginning on the issuance date and ending on the maturity
date. As of December 31, 2024, the balance on the note was $57,502 and the Note was past due. On April 14, 2025, the note and accrued
interest were converted in full into 30,188,550 shares of common stock.
On August 4, 2023, the Company entered into a
Securities Purchase Agreement with 1800 Diagonal Lending LLC, an accredited investor, pursuant to which the Company sold the investor
an unsecured original issuance discount promissory note in the principal amount of $71,450 (the “August Promissory Note”).
The Company received net proceeds of $60,000 in consideration of issuance of the August Promissory Note after original issue discount
of $7,200 and legal fees of $4,250. The aggregate debt discount of $11,450 is being amortized to interest expense over the respective
term of the note. The August Promissory Note shall incur a one-time interest charge of 13%, which is added to the principal balance,
has a maturity date of May 24, 2024, and requires monthly payments of $8,971 beginning on September 15, 2023. The
August Promissory Note is convertible into common shares of the Company at any time following an event of default at a rate of 71% of
the lowest trading price of the Company’s common stock during the twenty prior trading days. In addition, upon default, the Company
must repay an amount equal to 150% of the then outstanding amount of principal and accrued interest combined. As of December 31, 2024,
the balance on the note is $99,529. The note is in default.
On October 20, 2023 the Company received notice
from 1800 Diagonal Lending LLC, the holder of the April Promissory Note, Convertible Note and August Promissory Note (collectively, the
“1800 Notes”) that such notes were in default. The holder has made demand for the immediate payment of the 1800 Notes of a
sum representing 150% of the remaining outstanding principal balances of the 1800 Notes in the aggregate of $257,151, together with accrued
interest and default interest as provided for in the 1800 Notes. As a result of the default, the 1800 Notes are convertible into common
stock.
Summary of cash flows
Net cash provided by (used in) operating activities $ 17,680 $ 42,237
Net cash provided by (used in) investing activities $ (4,600 ) $ 34,100
Net cash provided by (used in) financing activities $ (13,275 ) $ (76,109 )
Critical accounting policies
See Note 2 to the December 31, 2024 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
Any investment in our securities involves a high
degree of risk. Investors should carefully consider the risks described below and all of the information contained in this filing before
deciding whether to purchase our securities. Our business, financial condition, and results of operations could be materially adversely
affected by these risks if any of them actually occur. This filing also contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors,
including the risks we face as described below and elsewhere in this report.
Risks Relating to Our Business Operations
· Our business depends upon the demand for data centers.
· At the outset, our HPC business will be highly dependent on a single customer.
Risks Related to Our Limited Operating History
and Transition
Risks of Regulatory Laws, Regulatory Frameworks,
and Legal Action
Risks Related to Ownership of Our Common Stock
· We are a former shell company.
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 Business and Operations
We require significant capital to fund our
operations and we may have difficulty raising capital, which could deprive us of necessary revenues.
SAPL has not generated any revenues to date and,
subject to the availability of sufficient capital, does not expect to generate revenues until mid-2025 or later. We also require funding
or revenues to satisfy outstanding debt. We require funding of approximately $70,000,000 to develop our operations. In order to support
our initiatives, we will need to raise additional funds through public or private debt or equity financing, collaborative relationships,
or other arrangements with well-capitalized companies. Our ability to raise additional financing depends on many factors beyond our control,
including the current volatility in the capital markets, risks associated with investing in a pre-revenue company with no assurances our
products can be commercialized, the lack of a public market for our common stock, and the development or prospects for development of
competitive technology by others. Sufficient additional financing may not be available to us or may be available only on terms that would
result in further dilution to the current owners of our common stock. If we are unsuccessful in raising additional capital, or the terms
of raising such capital are unacceptable, we may never be able to effectively monetize our SAPL assets and/or we may default on the SAPL
note. In that event, we may have to modify our business plan and/or significantly curtail our planned activities and other operations.
Our business depends upon the demand for data
centers.
We are venturing into the business of owning,
acquiring, developing, and operating data centers. A reduction in the demand for data center space, power or connectivity would have a
greater adverse effect on our business and financial condition than if we owned a portfolio with a less specialized use. Our substantial
development activities make us particularly susceptible to general economic slowdowns as well as adverse developments in the data center,
Internet and data communications and broader technology industries. Any such slowdown or adverse development could lead to reduced corporate
IT spending, reduced demand for HPC hosting applications, such as cloud computing, machine learning, and AI, and overall reduced demand
for data center space. Changes in industry practice or in technology could also reduce demand for the physical data center space we provide.
In addition, our customers may choose to develop
new data centers or expand their own existing data centers or consolidate into data centers that we do not own or operate, which could
reduce demand for our newly developed data centers or result in the loss of one or more key customers. If any of our key customers were
to do so, it could result in a loss of business to us or put pressure on our pricing. Mergers or consolidations of technology companies
could reduce further the number of our customers and potential customers and make us more dependent on a more limited number of customers.
If our customers merge with or are acquired by other entities that are not our customers, they may discontinue or reduce the use of our
data centers in the future. Our financial condition, results of operations, cash flow, cash available for distribution, and ability to
satisfy our debt service obligations could be materially adversely affected as a result of any or all of these factors.
Our new focus on HPC hosting may not be successful
and depends on the continuing development and resource and computational requirements of HPC hosting applications such as cloud computing,
machine learning and AI, and the continuing need for the infrastructure and services we provide.
If our target customer markets, which are new
and still developing, do not grow or develop as expected or in a manner consistent with our current business model, our business, financial
condition, and results of operation would be adversely affected. Further, increases in power costs could negatively impact our hosting
customers’ demand for services, harm our growth prospects, and could have a material adverse effect on our business, financial condition,
and results of operations.
Our success also depends in large part on our
ability to attract additional customers and retain our existing customer for our HPC hosting capabilities in a profitable manner, which
we may not be able to do if:
· we are unable to strengthen awareness of our brand; or
We face significant competition, which may
adversely affect the occupancy and rental rates of our data centers.
We will compete with numerous data center providers
globally, many of whom own or operate properties similar to ours, as well as private operators specializing in HPC hosting or colocation
services, and digital asset miners seeking to convert existing mining facilities into HPC colocation facilities. In addition, we may in
the future face competition from new entrants into the data center market, including new entrants who may acquire our current competitors.
Some of our competitors and potential competitors have significant advantages over us, including greater name recognition, longer operating
histories, pre-existing relationships with current or potential customers, significantly greater financial, marketing, and other resources
and more ready access to capital which allow them to respond more quickly to new or changing opportunities.
If our competitors offer space that our customers
or potential customers perceive to be superior to ours based on factors such as available power, security, location, or connectivity,
or if they offer rental rates below current market rates, or below the rental rates we are offering, we may lose customers or potential
customers or be required to incur costs to improve our data centers or reduce our rental rates. In addition, many of our competitors have
developed and continue to develop additional data center space. If the supply of data center space continues to increase as a result of
these activities or otherwise, rental rates may be reduced or we may face delays in leasing or be unable to lease our vacant space, including
space that we develop. Further, if customers or potential customers desire services that we do not offer, we may not be able to lease
our space to those customers. Our financial condition, results of operations, cash flow, cash available for distribution, and ability
to satisfy our debt service obligations could be materially adversely affected as a result of any or all of these factors.
We have limited resources which may affect
our abilities to develop our SAPL operations.
With the limited resources we have available,
we may experience difficulties in developing our SAPL operations, including, but not limited to, our colocation data center, services,
and colocation to commence generating revenues and compete in the HPC hosting industry. Competition from existing and future competitors,
particularly those better capitalized, could result in our inability to secure acquisitions and partnerships that we may need to expand
our business in the future. This competition from other entities with greater resources, experience, and reputations may result in our
failure to maintain or expand our business, as we may never be able to successfully execute our business plan. If we are unable to develop,
expand, and remain competitive, our business could be negatively affected, which would have an adverse effect on the trading price of
our ordinary shares, which would harm our investors.
We have no operating history, require significant
capital to develop our business, expect negative cash flows from our operations to continue for the foreseeable future, and we expect
that our net losses will continue for the foreseeable future as we seek to develop and increase the efficiency of our operations and find
new colocation customers.
At the outset, our HPC business will be highly
dependent on a single customer.
One customer, Cudo Ventures Ltd (“Cudo Ventures”),
will initially account for 100% of our HPC Hosting segment revenue. Our success in the HPC Hosting segment is highly dependent on the
success of our master services agreement with Cudo Ventures and the fulfillment by it of its obligations under the master services agreement.
Any failure to meet Cudo Ventures’ expectations, including, but not limited to, failure to fulfill our contractual obligations,
could result in cancellation or non-renewal of our business relationship, or harm to our business relationship that could impact our future
growth and which could have a material adverse effect on our business, financial condition, and results of operations.
Any failure of our physical or IT or operational
technology infrastructure or services could lead to significant costs and disruptions.
Our business will depend on providing customers
with highly reliable services, including, but not limited to, power supply, physical security, cybersecurity, maintenance of environmental
conditions, and other mission-critical infrastructure services. We may fail to provide such services because our operations are vulnerable
to, among other things, mechanical or telecommunications failure, power outage, human error, physical or electronic security breaches,
cyberattacks, war, terrorism, fire, earthquake, pandemics, hurricane, flood and other natural disasters, sabotage, and vandalism.
Our customer agreements will include terms requiring
us to meet certain service level commitments. A failure to meet these or other commitments or equipment damage in our data centers could
subject us to contractual liability, including service level credits against customer rent payments, legal liability and monetary damages,
regulatory sanctions, or, in certain cases of repeated failures, the right by the customer to terminate the agreement. Service interruptions,
equipment failures, or security breaches could also materially impact our brand and reputation globally and lead to customer contract
terminations or non-renewals and an inability to attract customers in the future.
We and our third-party providers are vulnerable
to cyberattacks and security breaches that could materially disrupt or compromise our operations, data, and results.
We will rely on computer systems, hardware, software,
online sites and networks, as well as physical, digital, and operational technology infrastructure to support our internal and external
operations (collectively, “Information Systems”). We will own, operate, and manage complex, global Information Systems and
also rely on third-party providers for a range of Information Systems and other products and services, such as cloud computing. As a result,
we face evolving risks that threaten the confidentiality, integrity, and availability of Information Systems and data, including from
state-sponsored espionage actors, financially motivated hackers, hacktivists and insiders, as well as through diverse attack vectors,
such as social engineering/phishing, malware (including ransomware), human or technological error, or due to “bugs,” misconfigurations
and known and unknown vulnerabilities in hardware, software, systems and processes that support our business.
Unauthorized access to our or our customers’
physical assets or Information Systems, misappropriation of our or our customers’ sensitive or proprietary information, or disruptions
to our or our customers’ operations as a result of attacks, breaches or disruptions to our, or any providers’ or our customers’,
Information Systems or controls could lead to material breaches of legal and regulatory (e.g., privacy laws such as GDPR) or contractual
obligations, and/or other operational and business impacts. The foregoing could expose us to material lawsuits, regulatory actions, penalties
or fines, monetary damages, loss of existing or potential customers, harm to our reputation, and significant increases in our security
and insurance costs, and other adverse effects on our business and results.
Our contracts with our current or future customers
could subject us to significant liability.
In the ordinary course of business, we will enter
into agreements with our customers pursuant to which we provide data center space, power, environmental controls, physical security and
connectivity products to our customers. These contracts typically contain indemnification and liability provisions, in addition to service
level commitments, which could potentially impose a significant cost on us in the event of losses arising out of certain breaches of such
agreements, services to be provided by us or our subcontractors, or from third-party claims. Customers increasingly are looking to pass
through their regulatory obligations and other liabilities to their outsourced data center providers and we may not be able to limit our
liability or damages in an event of loss suffered by such customers whether as a result of our breach of an agreement or otherwise. Further,
liabilities and standards for damages and enforcement actions, including the regulatory framework applicable to different types of losses,
vary by jurisdiction, and we may be subject to greater liability for certain losses in certain jurisdictions.
In the future, we may also develop space specifically
for HPC data center customers pursuant to agreements signed prior to beginning or early in the development process. In those cases, if
we fail to meet our development obligations under those agreements, these customers may be able to terminate their agreements, and we
would be required to find a new customer for this space. In addition, in certain circumstances we may lease HPC data center facilities
prior to their completion. If we fail to complete the facilities in a timely manner, the customer may be entitled to terminate its agreement,
seek damages or penalties against us or pursue other remedies and we may be required to find a new customer for the space. If we are not
able to complete an HPC data center in a timely manner, if development costs are higher than we currently estimate, our financial condition,
results of operations, and cash flow could be materially adversely affected.
We may depend on significant customers for
our HPC data centers.
Many factors, including global economic conditions,
may cause our current and future HPC data center customers to experience a downturn in their businesses or otherwise experience a lack
of liquidity, which may weaken their financial condition and impact our estimates as to the probability of collectability of payments,
and ultimately result in their failure to make timely rental and other payments or their default under their agreements with us. Further,
the development of new technologies, the adoption of new industry standards or other factors could render our HPC data center customers’
current products and services obsolete or unmarketable and contribute to a downturn in their businesses, thereby increasing the likelihood
that they default under their leases, become insolvent, or file for bankruptcy. If a customer defaults or fails to make timely rent or
other payments, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment,
which could adversely affect our financial condition and results of operations.
Even if we have additional space available
for lease at any one of our data centers, our ability to lease this space to existing or new customers could be constrained by our ability
to provide sufficient electrical power.
Customers may increase their power footprint in
our data centers over time and the corresponding reduction in available power could limit our ability to increase occupancy rates or network
density within our existing data centers. Our aggregate maximum contractual obligation to provide power and cooling to our customers may
exceed the physical capacity at such data centers if customers were to quickly increase their demand for power and cooling. If we are
not able to increase the available power and/or cooling or move the customer to another location within our data centers with sufficient
power and cooling to meet such demand, we could lose the customer as well as be exposed to liability under our customer agreements. In
addition, our power and cooling systems will be difficult and expensive to upgrade, especially as we plan to design our data centers to
the specifications of new and evolving technologies, such as AI, which are more power-intensive. Accordingly, we may not be able to efficiently
upgrade or change these systems to meet new demands without incurring significant costs that we may not be able to pass on to our customers.
Any such material loss of customers, liability, or additional costs could adversely affect our business, financial condition, and results
of operations.
We will depend upon third-party suppliers for
power, and we may be vulnerable to service failures and price increases by such suppliers and to volatility in the supply and price of
power in the open market.
We will rely on third parties to provide power
to our data centers and we cannot ensure that these third parties will deliver such power in adequate quantities or on a consistent basis.
We will also be reliant on third parties to deliver additional power capacity to support the growth of our business. If the amount of
power available to us is inadequate to support our customer requirements, we may be unable to satisfy our obligations to our customers
or grow our business. In addition, our data centers may be susceptible to power shortages and planned or unplanned power outages caused
by these shortages. Power outages may last beyond our backup and alternative power arrangements, which would harm our customers and our
business. Any loss of services or equipment damage could adversely affect both our ability to generate revenues and our operating results,
harm our reputation, and potentially lead to customer disputes or litigation.
In addition, we may be subject to risks and unanticipated
costs associated with obtaining power from various utility companies. Utilities that serve our data centers may be dependent on, and sensitive
to price increases for, a particular type of fuel, such as natural gas, coal, or nuclear. In addition, the price of these fuels and the
total cost of delivered electricity could increase as a result of: regulations intended to regulate carbon emissions and other pollutants,
ratepayer surcharges related to recovering the cost of extreme weather events and natural disasters, geopolitical conflicts, military
conflicts, grid modernization charges, as well as other charges borne by ratepayers. Increases in the cost of power at any of our planned
data centers could put those locations at a competitive disadvantage relative to data centers that are supplied power at a lower price.
If we do not accurately predict our facility
requirements, it could have a material adverse effect on our business, financial condition, and results of operations.
The costs of building out, leasing, and maintaining
our facilities will constitute a significant portion of our capital and operating expenses. In order to develop, manage potential growth,
and ensure adequate capacity for any new and existing HPC hosting customers while minimizing unnecessary excess capacity costs, we will
continuously evaluate our short- and long-term data center capacity requirements. If we overestimate our business’s capacity requirements
or the demand for our services and therefore secure excess data center capacity, our operating margins could be materially reduced. If
we underestimate our data center capacity requirements, we may not be able to service the required or expanding needs of our existing
customers and may be required to limit new customer acquisition, which could have a material adverse effect on our business, financial
condition, and results of operations.
We will depend on third parties to provide
network connectivity to the customers in our data centers and any delays or disruptions in connectivity may materially adversely affect
our operating results and cash flow.
We are not a telecommunications carrier. Although
our customers generally will be responsible for providing their own network connectivity, we will still depend upon the presence of telecommunications
carriers’ fiber networks serving our data centers in order to attract and retain customers. We believe that the availability of
carrier capacity will directly affect our ability to achieve our projected results. Any carrier may elect not to offer its services within
our data centers. Any carrier that decides to provide network connectivity to our data centers may not continue to do so for any period
of time. Further, some carriers are experiencing business difficulties or have announced consolidations. As a result, some carriers may
be forced to downsize or eventually terminate connectivity within our data centers, which could have an adverse effect on the business
of our customers and, in turn, our own development and operating results.
Our data centers may require construction and
operation of a sophisticated redundant fiber network. The construction required to connect multiple carrier facilities to data centers
is complex and involves factors outside of our control, including regulatory requirements and the availability of construction resources.
We have obtained the right to use network resources owned by other companies, including rights to use dark fiber, in order to attract
telecommunications carriers and customers to our portfolio. If the establishment of highly diverse network connectivity to our data centers
does not occur, is materially delayed or is discontinued, or is subject to failure, our operating results and cash flow may be materially
adversely affected. Additionally, any hardware or fiber failures on this network may result in significant loss of connectivity to our
data centers. This could negatively affect our ability to attract or retain customers, which could have an adverse effect on our business,
financial condition, and results of operations.
Many of our costs, such as operating, general
and administrative expenses, interest expenses, and real estate acquisition and construction costs, could be adversely impacted by periods
of heightened inflation.
The consumer price index has increased substantially
year over year. Federal policies and recent global events, such as the rising price of oil and the conflict between Russia and Ukraine,
may have exacerbated, and may continue to exacerbate, inflation and increases in the consumer price index. A sustained or further increase
in inflation could have an adverse impact on our operating expenses incurred in connection with, among others, the property-related contracted
services such as repairs, maintenance, utilities, security, and insurance. With regard to utilities expenses, which we anticipate to be
our largest expense category, the vast majority of the expense will be passed directly through to our customers which significantly mitigates
our exposure to increases in power costs. For our other operating expenses, we expect to recover some increases from our customers
through our planned lease structures, annual rent escalations, or from the resetting of rents from our renewal and re-leasing activities.
As a result, we do not believe that inflation would result in a significant adverse effect on our net operating income and operating cash
flows at the property level. However, there can be no assurance that the impact of inflation will be adequately offset by some of our
annual rent escalations contained in our leases, and it is possible that the resetting of rents from our renewal and re-leasing activities
would not fully offset the impact of higher operating expenses resulting from inflationary pressure. As a result, during inflationary
periods in which the inflation rate exceeds the annual rent escalation percentages within our customer contracts, we may not adequately
mitigate the impact of inflation, which may adversely affect our business, financial condition, results of operations, and cash flows.
Our general and administrative expenses consist
primarily of compensation costs and professional service fees. Rising inflation rates may require us to provide compensation increases
beyond historical annual increases, which may unexpectedly or significantly increase our compensation costs. Similarly, professional service
fees are also subject to the impact of inflation and expected to increase proportionately with increasing market prices for such services.
Consequently, inflation may increase our general and administrative expenses over time and may adversely impact our results of operations
and cash flows.
Additionally, inflationary pricing may have a
negative effect on the construction costs necessary to complete our development projects, including, but not limited to, costs of construction
equipment, materials, labor, and services from third-party contractors and suppliers. We will rely on a number of third-party suppliers
and contractors to supply raw materials, skilled labor, and services for our construction projects. Certain increases in the costs of
construction equipment and materials can often be managed in development projects through either general budget contingencies built into
overall construction cost estimates for projects or guaranteed maximum price construction contracts, which stipulate a maximum price for
certain construction costs and shift inflation risk to our construction general contractors. However, no assurance can be given that our
budget contingencies would accurately account for potential construction cost increases given the current severity of inflation and variety
of contributing factors or that our general contractors would be able to absorb such increases in costs and complete our construction
projects timely, within budget, or at all. Higher construction costs could adversely impact our investments in real estate assets and
expected yields on our development projects, which may adversely impact our returns on our investments. As a result, our business, financial
condition, results of operations, cash flows, liquidity, ability to satisfy our debt service obligations, and to pay dividends and distributions
to security holders could be adversely affected over time.
Our business and operations, customers, suppliers,
and business partners may be adversely affected by epidemics, pandemics, or other outbreaks.
Epidemics, pandemics, other outbreaks of an illness,
disease, or virus that affect countries or regions in which we or our customers, suppliers, or business partners operate, and actions
taken to contain or prevent their further spread, may have a material and adverse impact on general commercial activity and on our financial
condition, results of operations, liquidity, and creditworthiness. Epidemics, pandemics, other outbreaks of an illness, disease, or virus
could result in significant governmental measures being implemented to control the spread of such illness, disease, or virus, including
quarantines, travel restrictions, manufacturing restrictions, declarations of states of emergency, business shutdowns, prioritization
and allocation of resources, and restrictions on the movement of our employees and those of our customers, suppliers and business partners
on which we rely, which could adversely affect our ability and their respective abilities to adequately manage our respective businesses.
Risks related to epidemics, pandemics, other outbreaks of an illness, disease, or virus could also lead to the complete or partial closure
of one or more of our offices or properties or our customers’, suppliers’ or business partners’ businesses, or otherwise
result in significant disruptions to our business and operations or theirs. Such events could materially and adversely impact our operations
and the rental revenue we generate from our agreements with our customers or could result in defaults by our customers.
We cannot predict the full extent of the impact
that epidemics, pandemics, and other global events will have on our customers, suppliers, and other business partners; however, any material
effect on these parties could adversely impact us, our future financial condition, results of operations, and cash flows. The full extent
to which epidemics, pandemics, and the various responses to such events impact our business, operations, and financial results will depend
on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of such event; governmental,
business, and individuals’ actions that have been and continue to be taken in response to such event; the availability of and cost
to access the capital markets; the effect on our customers and customer demand for and ability to pay for our services; the impact on
our development projects; and disruptions or restrictions on our employees’ ability to work and travel.
We face additional risks in expanding our business,
including the significant amount of capital required.
Expanding our business will require significant
capital. In addition, we may be required to commit significant operational and financial resources in connection with the organic growth
of our business substantially in advance of such newly developed data centers generating revenue.
The costs of constructing, developing, operating,
and maintaining our HPC operations are substantial. Our HPC hosting operations may be impacted by costs and expenses beyond our control
or require capital investment that neither we nor our customers are able to bear, reducing our revenue and profitability. Moreover, in
order to grow our hosting business, we may need additional facilities to increase our capacity for more customers. The costs of constructing,
developing, operating, and maintaining hosting facilities and growing our hosting operations may not be profitable or possible as construction
costs are rising which reflect the increase in cost of labor and raw materials, as well as supply chain and logistical challenges. Unexpected
disruptions to our supply chain, continued inflationary pressures, high interest rates, tariffs, delays in construction, limited financing
availability, constrained supplies of new power, or changes in customer requirements could significantly affect the cost or timing of
our planned expansion projects, have consequences under our project financing and partnership agreements, and interfere with our ability
to meet commitments to customers who have contracted for space in new data centers under construction.
All construction-related data center projects
will require us to carefully select, manage, and rely on the experience of one or more design firms, general contractors, and associated
subcontractors during the design and construction process, and to obtain critical government permits and authorizations. Should a design
firm, general contractor, significant subcontractor, or key supplier experience financial or operational problems during the design or
construction process or fail to perform properly, or should we be unable to obtain or experience delays in obtaining, all necessary zoning,
land-use, building, occupancy, and other governmental permits and authorizations, we could experience significant delays, increased costs
to complete the project, penalties under customer preleases, and other negative impacts to the expected return on our committed capital.
Further, there can be no assurance we will have sufficient customer demand to support the data centers we may acquire or build.
We may not be able to adapt to changing technologies
and customer requirements, and our data center infrastructure may become obsolete.
The technology industry generally and specific
industries in which certain of our customers may operate are characterized by rapidly changing technology, customer requirements, and
industry standards. New systems to deliver power to or eliminate heat in data centers or the development of new server technology that
does not require the levels of critical load and heat removal that our facilities may be designed to provide and could be run less expensively
on a different platform could make our data center infrastructure obsolete. Our power and cooling systems may be difficult and expensive
to upgrade, and we may not be able to efficiently upgrade or change these systems to meet new demands without incurring significant costs.
If we are unable to pass these costs on to our customers it could adversely impact our business, financial condition, and results of operations.
In addition, the infrastructure that will connect our data centers to the Internet and other external networks may become insufficient,
including with respect to latency, reliability, and connectivity. We may not be able to adapt to changing technologies or meet customer
demands for new processes or technologies in a timely and cost-effective manner, if at all, which would adversely impact our ability to
develop, sustain, and grow our business.
Further, our inability to adapt to changing customer
requirements may make our data centers obsolete or unmarketable to such customers. Some of our customers may operate at significant scale
across numerous data center facilities and have designed cloud and computing networks with redundancies and fail-over capabilities across
these facilities, which enhances the resiliency of their networks and applications. As a result, these potential customers may realize
cost benefits by locating their data center operations in facilities with less electrical or mechanical infrastructure redundancy than
is found in our data center facilities. Additionally, some HPC data center customers have begun to operate their data centers using a
wider range of humidity levels and at temperatures that are higher than servers customarily have operated at in the past, all of which
may result in energy cost savings for these third parties. We may not be able to operate under these environmental conditions, particularly
in multi-tenant facilities with other customers who are not willing to operate under these conditions, and our data centers could be at
a competitive disadvantage to facilities that satisfy such requirements. If we are unable to modify or build accordingly, these or other
changes in customer requirements could have a material adverse effect on our business, results of operations, and financial condition.
Further, due to regulations that apply to our
potential customers as well as industry standards, such as ISO and SOC certifications which customers may deem desirable, they may seek specific
requirements and certifications from their data centers that we are unable to provide. If new or different regulations or standards are
adopted or such extra requirements are demanded by our customers, we could lose some customers in the future or be unable to attract
new customers in certain industries, which could materially and adversely affect our operations.
Our success is dependent on the ability of
our management team and our ability to attract, develop, motivate, and retain other well-qualified employees, which may be more difficult,
costly, or time-consuming than expected.
Our success depends largely on the development
and execution of our business strategy by our senior management team. We cannot assure you that our management will work well together,
work well with our other existing employees, or successfully execute our business strategy in the near-term or at all, which could have
a material adverse effect on our business, financial condition, and results of operations.
Our future success also depends on our continuing
ability to attract, develop, motivate, and retain highly qualified and skilled management and other employees. It is difficult to locate
experienced executives in our industry. Further, competition for facility design, construction management, operations, data processing,
engineering, IT, risk management, sales and marketing, and other highly skilled personnel is extremely intense. We may not be able to
hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure at this stage in
our development. We may be unable to attract and retain our senior executives and other key personnel, which could have a material adverse
effect on our business, financial condition, and results of operations.
The development and advancement in the efficiency
of AI models presents risks and challenges that may adversely affect our business and operating results.
The introduction of, and advancement in the efficiency
of AI models could potentially adversely affect data center usage by significantly reducing the computational power needed to train AI
models, potentially leading to less demand for high-power density, liquid-cooled data center infrastructure and colocation facilities.
New advancements in AI models could also alter the way data centers are currently designed and utilized and may adversely affect our business
and results of operations.
We are subject to risks associated with our
need for significant electrical power.
Our operations will require significant amounts
of electrical power and we anticipate our demand for electrical power will continue to grow. The fluctuating price of electricity required
for our operations and to power our expansion may inhibit our profitability. If we are unable to obtain, and then continue to obtain,
sufficient electrical power on a cost-effective basis, we may not realize the anticipated benefits of our significant capital investments.
Risks Related to Our Limited Operating History
and Transition
Our new services and changes to services in
the future could fail to attract or retain users, generate revenue and profits, or otherwise adversely affect our business.
Our ability to retain, increase, and engage our
customer base and to increase our revenue will depend heavily on our ability to continue to evolve our services and to create successful
new services, both independently and in conjunction with developers or other third parties. We may introduce significant changes to our
services or acquire or introduce new and unproven services, including using technologies with which we have little or no prior development
or operating experience. These efforts, including the introduction of new services or changes to existing services, may result in new
or enhanced governmental or regulatory scrutiny, litigation, ethical concerns, or other complications that could adversely affect our
business, reputation, or financial results. If our services fail to engage users or developers, or if our business plans are unsuccessful,
we may fail to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify our investments
and our business may be adversely affected.
We operate in a rapidly developing industry
and have an evolving business model with no history of generating revenue from our colocation services. In addition, our evolving business
model increases the complexity of our business, which makes it difficult to evaluate our future business prospects and could have a material
adverse effect on our business, financial condition, and results of operations.
Our business model has evolved in the past and
continues to do so. After originally being founded in order to engage in the business of verifying and confirming transactions on a blockchain
(also known as transaction processing, or “mining”), we have transitioned to provide colocation services to other HPC customers.
We have not yet generated revenue from providing HPC services, and we do not know whether our change in business model will be successful.
The evolution of and modifications to our business strategy will continue to increase the complexity of our business and have placed significant
strain on our management, personnel, operations, systems, technical performance, and financial resources. Future additions to, or modifications
of, our business strategy are likely to have similar effects. Further, any new services that we offer in the future that are not favorably
received by the market could damage our reputation or our brand. We may not ever generate sufficient revenues or achieve profitably in
the future or have adequate working capital to meet our obligations.
We cannot be certain that our current business
strategy or any new or revised business strategies will be successful or that we will successfully address the risks we face. In the event
that we do not effectively evaluate future business prospects, successfully implement new strategies, or adapt to our evolving industry,
it will have a material adverse effect on our business, financial condition, and results of operations.
Risks of Regulatory Laws, Regulatory Frameworks,
and Legal Action
Regulatory developments surrounding HPC may
negatively impact our efforts to expand into HPC hosting.
The regulatory landscape surrounding HPC and AI
is evolving rapidly, and we anticipate increased scrutiny and potential regulation in the near and long term. These developments may affect
our business and operations in ways that are difficult to predict.
There are growing concerns about the ethical implications
and potential misuse of the growing AI technologies and the AI landscape is facing challenges and uncertainties. The development of more
advanced AI systems, such as large language models and generative AI, has raised concerns about potential misuse, bias, and the displacement
of human workers. Governments and regulatory bodies are considering measures to ensure responsible development and deployment of AI systems,
including guidelines for transparency, accountability, and fairness. We expect that regulatory efforts in this area will continue to evolve
and potentially affect our business.
Any potential use of emerging technologies
like AI, machine learning, and generative AI could lead to unintended consequences and result in reputational harm and litigation.
We continue to evaluate emerging technologies
like AI, machine learning, and generative AI for incorporation into our business. State and federal regulations relating to these emerging
technologies are quickly evolving, and should we adopt such technologies, we may require significant resources to maintain our business
practices while seeking to comply with U.S. laws. Any failure to accurately identify and address our responsibilities and liabilities
in this new environment could negatively affect any solutions we develop by incorporating such technologies and could subject us to reputational
harm, regulatory action, or litigation, any of which may harm our financial condition and operating results. These same risks apply to
our use of third-party service providers who are implementing these tools into the products or services they provide to us.
We may become involved in litigation arising
in the ordinary course of our business that may materially adversely affect us.
From time to time, we may become involved in various
legal proceedings relating to matters incidental to the ordinary course of our business, including intellectual property, commercial,
product liability, employment, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations
and proceedings. Attending to such matters can be time-consuming, divert management’s attention and resources, cause us to incur
significant expenses or liability, or require us to change our business practices. Because of the potential risks, expenses, and uncertainties
of litigation, we may, from time to time, settle disputes, even where we believe that we have meritorious claims or defenses, and we cannot
assure you that the results of any of these actions will not have a material adverse effect on our business. Adverse outcomes in such
proceedings or claims could result in significant liabilities, monetary damages, fines, or injunctive relief, which may materially affect
our financial condition, results of operations, or cash flows. Additionally, the uncertainty surrounding litigation and the potential
for adverse publicity related to such matters could harm our reputation and brand image, affecting customer confidence and investor perception.
Changing environmental regulation and public
energy policy may expose our business to new risks.
Our HPC data center operations will require a
substantial amount of power and can only be successful, and ultimately profitable, if the costs we incur, including for electricity, are
lower than the revenue we generate from our operations. As a result, any HPC data center facility we establish can only be successful
if we can obtain sufficient electrical power for that facility on a cost-effective basis, and our establishment of new facilities requires
us to find locations where that is the case. If new regulations are imposed, or if existing regulations are modified, the assumptions
we made underlying our plans and strategic initiatives may be inaccurate, and we may incur additional costs to adapt our planned business,
if we are able to adapt at all, to such regulations.
New legislation and increased regulation regarding