EDGEMODE, INC. The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report on Form 10-K.
Overview
Prior to closing the Transaction, we were a shell company with no operations. Effective with the closing of the Transaction, we are an early-stage cryptocurrency mining. Although Edgemode, our new wholly-owned subsidiary, has historically mined Ethereum, we are now focused on expanding the operations by mining Bitcoin.
12 Months Ended
Results of operations
We had no revenues in either of the 2021 Period nor the 2020 Period. Our
revenues will ramp up as completed the Transaction and we continue to implement
and grow our cryptocurrency business which we acquired
Our operating expenses for the 2021 Period was approximately
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
Other Expenses
Our Other Expenses were approximately
5 Net Loss
Our Net Loss was approximately
Liquidity and Capital Resources
As of
We will be required to raise a significant amount of more capital if we want to
purchase all of the bitcoin mining equipment under our
If we fail to raise sufficient additional funds when needed or do not have sufficient cash flows from mining, we may be required to scale back our plan of operations.
The Company has approximately
Summary of cash flows
December 31, 2021 December 31, 2020
Net cash (used) in operating activities $ (782,387 ) $ (620,792 )
Net cash (used) in investing activities $ (850,000 ) $ -
Net cash provided by financing activities $ 1,636,250 $ 644,887
Critical accounting policies
See Note 2 to the
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.
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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:
· We have a history of operating losses, have limited sources of revenue as
an early-stage cryptocurrency mining company and may not be able to
achieve or sustain profitability.
· We recently commenced operations as a cryptocurrency mining company, and
there is limited information available on which to evaluate our prospects.
· We will need significant additional capital to execute our business plan,
including to make the substantial purchase price payments for Bitcoin
mining equipment totaling $270,000,000 which are payable in installments
through September 2022 , and any failure to raise such capital as and when
intended or at all will materially harm our business and prospects.
· We may be unable to raise the capital needed to continue and grow our
operations, and if we do raise the capital sought the securities that we
issue may have a dilutive effect on our stockholders, a depressive effect
on our stock price and/or a restrictive effect on our ability to execute
our business plan and growth strategy.
· Our auditors have expressed substantial doubt about our ability to
continue as a going concern.
· We will need to incur significant costs to transition to and maintain and
operate Bitcoin mining equipment to replace our current equipment which is
designed to mine Ethereum, including sourcing sufficient electricity on
reasonable terms which we may be unable to do now or in the future.
· Our mining operating costs, including the costs to operate, maintain,
repair and replace our mining equipment, have historically outpaced our
mining revenues, which has and could continue to put a strain on our
business or increase our losses.
· The cryptocurrency mining industry is highly competitive, with many of our
competitors having better access to capital and may buy mining equipment
at scale. The competition has intensified as the price of Bitcoin has
appreciated in recent years, which could have a material adverse effect on
our results of operations if we are unable to keep up.
· Cryptocurrencies and related activities are characterized by numerous
other risks and uncertainties, including the possibility for adverse
regulatory developments such as bans or restrictions, hacking or malicious
coding, price volatility, inaccurate mining pool calculations, the
potential for one cryptocurrency to branch into two, the periodic
reduction by half of the Bitcoin rewards from mining a block on the
blockchain, adverse changes to the blockchain algorithm, and other
external forces beyond our control described more fully below.
· The future development and growth of cryptocurrencies such as Bitcoin is
subject to a variety of factors that are difficult to predict and
evaluate, and if the market for Bitcoin does not grow as we expect, or the
price of Bitcoin declines, our business, operating results, and financial
condition could be adversely affected.
· The market prices of cryptocurrencies such as Bitcoin are to some extent
dependent upon the possibility for broad market acceptance of these
digital assets as a means of exchange which has not and may never occur,
in which case the price of Bitcoin, the cryptocurrency markets in general
and our prospects could materially diminish.
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· Our operations and the results thereof are subject to risks arising from
Internet disruptions or delays, cybersecurity threats, incorrect digital
recording of transactions, and other contingencies resulting from holding
and transacting in digital assets. Further, due to current lack of
regulation, we may be unable to seek or obtain recourse if such
contingencies were to occur
· The ongoing supply chain delays may create the possibility of delays in
delivery and launch and/or expansion of our mining facilities and
equipment, which could stunt our growth, diminish our prospects, result in
lost opportunity or revenue and increase our costs, particularly given the
volatile nature of the cryptocurrencies we intend to mine.
· Our operating results have and will significantly fluctuate due to the
highly volatile nature of cryptocurrencies such as Bitcoin, and if the
price of Bitcoin declines, including potentially due to political,
economic, or other forces beyond our control, it would materially
adversely affect our business.
· Our reliance on third party "mining pools," which enable us to cooperate
with other Bitcoin mining enterprises to receive Bitcoin with less
variance in probability of reward by sharing Bitcoin earned pro rata based
on contribution to a block solved, subjects us to risks of inaccurate
sharing of rewards and the loss of other at-will participants in the pool.
· We may become subject to an uncertain and rapidly evolving regulatory
landscape and any adverse changes to, or our failure to comply with, any
laws and regulations, including those imposing restrictions or bans on
Bitcoin mining due to concerns about high electrical power usage, could
adversely affect our business.
· Banks and financial institutions may not provide banking services, or may
cut off services or access to capital, to businesses that engage in
cryptocurrency-related activities.
· Our stock price is subject to significant volatility due to a variety of
factors, many of which are beyond our control, including its status as a
"penny stock," the fact that it is not listed on a national securities
exchange, and its potential connection to the price of Bitcoin or other
cryptocurrencies, which could adversely affect investors.
· Because we were a shell company until January 31, 2022 , stockholders
cannot rely on the provisions of Rule 144 for the resale of their shares
until certain conditions are met.
· We have not paid cash dividends to our stockholders and do not intend to
do so in the foreseeable future.
· We will be subject to expensive compliance requirements as a public
company which is required to file reports with the SEC and adhere to
enhanced internal control requirements.
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.
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Risks Related to Our Cryptocurrency Mining Business
We will need significant additional capital to execute our business plan, which includes purchasing, installing and operating Bitcoin mining equipment to replace our current Ethereum mining operations, and any failure to raise such capital as and when intended or at all will materially harm our business and prospectus.
Our business plan envisions shifting our focus from mining Ethereum to mining
Bitcoin. Because the blockchains for each of these two cryptocurrencies use
different algorithms, different mining equipment is needed to mine Bitcoin
rather than Ethereum. Therefore, in order to mine Bitcoin as intended, we will
need to purchase and install Bitcoin mining equipment at our hosted facilities.
The price of cryptocurrency mining equipment in general and Bitcoin mining
equipment in particular is high, and can be volatile with sudden and dramatic
changes depending on uncontrollable factors such as the price of Bitcoin and
supply shortages. Additionally, the removal and installation of mining
equipment, which will be necessary given our limited access to sufficient mining
facilities, is also costly. We have executed a purchase agreement with a
supplier to provide us with Katena K10 Bitcoin miners having a combined hash
rate of 10,000,000 PH/s, however the total purchase price is
We may be unable to raise additional capital needed to grow our business.
We will likely continue to operate at a loss, at least until our business strategy is implemented, or if Bitcoin or other cryptocurrency prices decline, and we expect to need to raise additional capital to expand our operations and pursue our growth strategies, including the acquisition of new or additional miners to commence Bitcoin mining as planned, and to respond to competitive pressures or unanticipated working capital requirements. We may not be able to obtain additional debt or equity financing on favorable terms, if at all, which could impair our growth and adversely affect our existing operations. If we raise additional equity financing, our shareholders may experience significant dilution of their ownership interests, and the per share value of our common stock could decline. Furthermore, if we engage in additional debt financing, the holders of such debt would have priority over the holders of common stock on order of liquidation preference. We may be required to accept terms that restrict our ability to incur additional indebtedness or take other actions including terms that require us to maintain specified liquidity or other ratios that could otherwise not be in the interests of our shareholders.
Even if we are able to raise sufficient capital, we may encounter delays or difficulties in obtaining and deploying Bitcoin mining equipment as planned.
In order to be successful in executing our business plan, we need to efficiently
replace our Ethereum mining equipment with Bitcoin mining equipment in a timely,
efficient, and cost-effective manner. Assuming we are able to raise sufficient
capital to do so, we may encounter a variety of potential risks or problems with
respect to deploying the funds towards our new mining focus. There has been
shortages of cryptocurrency mining equipment due to limited materials such as
computer chips. Further, to obtain Bitcoin mining equipment, we will be reliant
on one or more manufacturers and/or suppliers to provide us with the miners, who
may require us to agree to excessive prices or fees, or may fail to deliver the
purchased equipment on schedule. Additionally, we will need skilled labor to
remove the Ethereum mining equipment we currently operate and replace it with
Bitcoin mining equipment. Also, because Bitcoin mining uses a proof of work
method which generally requirements more energy than the proof of stake system
employed by Ethereum's blockchain, our hosts' current electricity supply may be
inadequate to launch our Bitcoin mining as envisioned without added costs to us,
if at all. Any unexpected delays or heightened costs will adversely effect our
results of operation both by extending the period of time in which we are not
mining cryptocurrencies at our maximum potential capacity and increasing the
costs of operating. Further, because of the volatile nature of the
cryptocurrency markets, including the prices of Bitcoin and Ethereum, any such
delay could prevent us from mining and selling Bitcoin at higher prices. For
example, in early 2022 the price of Bitcoin declined by over
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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
We have a history of operating losses, and we may not be able to achieve or sustain profitability.
To date, we have mainly mined Ethereum. Moving forward, our primary focus is on
mining Bitcoin, and those operations are expected to be located in
Our auditors have issued a "going concern" audit opinion.
Our independent auditors have indicated in their report on our
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.
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The cost of obtaining new and replacement miners and parts is highly capital intensive and may have a material and adverse effect on our business and results of operations.
Our mining operations can only be successful and ultimately profitable if the costs, including hardware and electricity costs, associated with mining Bitcoin, Ethereum and other cryptocurrencies are lower than the price for which we mine when we sell them. Our miners are subject to ordinary wear and tear from operation and may also face more significant malfunctions caused by factors which may be beyond our control. For example, approximately 10% of our miners have experienced glitches and defects and as a result have seen either limitations on mining capabilities or outright inability to mine, such that they had to be or will have to be replaced or repaired. The result of this development has not only been increased costs to us, but also a reduced ability to generate revenue while these miners were not operating, whether because they were under repair and/or failing to operate at their optimal hash rate. Circumstances such as these, or a general need to replace outdated miners in the future, are highly cost intensive and can be a serious hindrance on our mining operations and ability to generate revenue or obtain profitability.
Additionally, as the mining technology, our business strategy and/or the cryptocurrency industry evolves, we may need to acquire newer models of miners to remain competitive in the market. For example, as discussed above we will need to obtain new miners in order to mine Bitcoin as planned. We intend to purchase and install Katena K10 miners, although we have encountered and expect to continue to face challenges in paying purchase price installments for these miners under our purchase agreement. Certain models of Bitcoin miners such as the Bitmain S17 model have been subject to defects diminishing our even eliminating their mining efficacy. Further, over time, we may replace those miners which are no longer functional or efficient or powerful enough with new miners purchased from third-party manufacturers, the cost of which may be higher than what we spent on prior models and/or such that we will need to raise more capital to do so. For instance, the price of Bitcoin miners has historically been somewhat correlated to the price of Bitcoin, which has appreciated in recent years. Depending on the price of new miners and our operational needs at the time we decide to replace miners in the future, we may have to do so at higher costs than we could have previously, which would add to our losses. Alternatively, even absent defects or reductions in computing power, mining machine models are upgraded frequently, and we are and will continue to be subject to either higher competitive pressure as a result, or will be forced to expend large amounts of capital to remain competitive and maintain optimal hash rates.
Inevitably, our older models will need to be repaired or replaced as a product of ordinary wear and tear and depreciation and/or competitive forces in the marketplace or other factors rendering our current miners obsolete. Any upgrading we may need or chose to undertake will require substantial capital investment, and we may face challenges in locating the requisite capital in a timely manner and/or on terms favorable to us or not highly dilutive to our investors. If we are unable to obtain adequate numbers of new and replacement miners in sufficient quantities or without delay, we may be unable to compete in our highly competitive and continuously developing industry. If this happens, we may not be able to mine Bitcoin or other cryptocurrency as efficiently or in sufficient amounts relative to our competition or at all and, as a result, our business and financial results could suffer which could, in turn, have a material adverse effect on the trading price of our common stock.
Because there are several competitors in our industry that are purchasing mining equipment at scale and due to supply chain disruptions, we may encounter delays or difficulty in us obtaining new miners, which could materially and adversely affect our business and results of operations.
We will need new mining equipment to further our operations, both to implement our short-term business plan of shifting to Bitcoin mining and to address potential issues such as ordinary wear and tear and defects which may arise in the future. Many of the competitors in our industry have also been purchasing mining equipment at scale, which has caused a world-wide shortage of mining equipment and components used to produce them, as well as delayed delivery schedules for new miner purchases. There can be no assurances the mining equipment manufacturers on which we will rely will be able to keep pace with the surge in demand for mining equipment when we obtain, upgrade and/or expand upon our current miners. The supply chain disruptions we are facing may adversely affect us including the shortages of transformers needed to power our miners. Additionally, the supply of the materials used to produce miners, such as the application-specific integrated circuit ("ASIC") computer chips that are the primary feature in their computing power, may become subject to shortages, which could also either increase the cost beyond what we can reasonably afford or reduce their availability without unreasonable delay or at all. It is uncertain how manufacturers will respond to these trends and whether they can deliver on the schedules promised to any or all of their customers in the future. In the event manufacturers of mining equipment or component parts or materials are not able to keep pace with demand or avoid supply shortages, we may not be able to purchase such products in sufficient quantities, at reasonable prices or on the delivery schedules that meet our business needs, which could have a material adverse effect on our business and results of operations.
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To the extent that the profit margins of Bitcoin mining operations are not high, Bitcoin mining companies or other participants in the Bitcoin industry are more likely to immediately sell Bitcoins in the market, thereby constraining growth of the price of Bitcoin that could adversely impact us.
Over the years, Bitcoin mining operations have shifted from individual users mining with computer processors, graphics processing units and first-generation ASIC servers to larger enterprises with newer, more "professionalized" sources of processing power which has been predominantly added by "professionalized" mining operations and resulting demand for more professionalized and powerful miners having faster hash rates. These professionalized mining operations may use proprietary hardware or sophisticated ASIC machines acquired from ASIC manufacturers. Acquiring this specialized hardware at scale requires the investment of significant up-front capital, and mine operators incur significant expenses related to the operation of this hardware at scale, such as the leasing of operating space, which is often done in data centers or warehousing facilities, obtaining and paying for an electricity supply to run the miners and employing technicians to operate the mining facilities.
As a result, these professionalized mining operations are of a greater scale than prior miners and have more defined and regular expenses and liabilities. Because these regular expenses and liabilities require professionalized mining operations to maintain profit margins on the sale of Bitcoin, to the extent the price of Bitcoin declines and such profit margin is constrained, such mining companies are incentivized to sell Bitcoin earned from mining operations more rapidly than individual mining companies who in past years were more likely to hold newly mined Bitcoin for longer periods. The immediate selling of newly mined Bitcoin greatly increases the trading volume of Bitcoin, creating downward pressure on the market price of Bitcoin rewards.
The extent to which the value of Bitcoin mined by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such an operation. A professionalized mining operation may be more likely to sell a higher percentage of its newly mined Bitcoin rapidly if it is operating at a low profit margin and it may partially or completely cease operations if its profit margin is negative. In a low profit margin environment, a higher percentage could be sold more rapidly, thereby potentially depressing Bitcoin prices. Lower Bitcoin prices could result in further tightening of profit margins for professionalized mining operations creating a network effect that may further reduce the price of Bitcoin until mining operations with higher operating costs become unprofitable forcing them to reduce mining power or cease mining operations temporarily.
Because the new miners we plan to obtain will be designed specifically to mine Bitcoin, our future success will depend in large part upon the value of Bitcoin, and any sustained decline in its value could adversely affect our business and results of operations.
Our operating results will depend in large part upon the value of Bitcoin because it is the primary cryptocurrency we intend to mine moving forward, assuming we can raise the necessary capital to obtain and install the Bitcoin mining equipment. Specifically, our revenues from our Bitcoin mining operations will be based upon two factors: (1) the number of Bitcoin rewards we successfully mine and (2) the value and liquidity of Bitcoin. This means that our operating results will be subject to swings based upon increases or decreases in the value of Bitcoin. Furthermore, our business strategy focuses solely on producing Bitcoin (as opposed to other cryptocurrencies). Previously, we focused solely on mining Ethereum as that was the only mining equipment available to us. If other cryptocurrencies overtake Bitcoin in terms of acceptance, the value of Bitcoin could decline. Further, if Bitcoin were to switch its proof of work algorithm from SHA-256 to another algorithm for which our miners (which we have contracts to acquire) would not be suited or if the value of Bitcoin were to decline for other reasons, particularly if such decline were significant or over an extended period of time, we would likely incur very significant costs in retooling or replacing our existing miners with miners better suited for this new protocols and our operating results could be adversely affected. This could result in a material adverse effect on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations, and thus harm investors.
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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
Further, due to the halving process, unless the underlying code of the Bitcoin blockchain is altered (which may be unlikely or difficult given its decentralized nature), the supply of Bitcoin is finite. Once 21 million Bitcoin have been generated by virtue of solving blocks in the blockchain, the network will stop producing more. Currently, there are approximately 19 million Bitcoin in circulation representing about 90% of the total supply of Bitcoin under the current source code. For the foregoing reasons, the halving feature exposes us to inherent uncertainty and reliance upon the historically volatile price of Bitcoin, rendering an investment in us particularly speculative, especially in the long-term. If the price of Bitcoin does not significantly increase in value, your investment could become worthless.
Interruptions to internet access could disrupt our operations, which could adversely affect our business and results of operations.
Our cryptocurrency mining operations require access to high-speed internet to be successful. If we lose internet access for a prolonged period, we may be required to reduce our operations or cease them altogether. A disruption of the Internet may affect the use of cryptocurrencies and subsequently the value of our securities. Generally, cryptocurrencies and our business of mining cryptocurrencies is dependent upon the Internet. A significant disruption in Internet connectivity could disrupt a currency's network operations until the disruption is resolved and have an adverse effect on the price of Bitcoin and our ability to mine Bitcoin. If this occurs, our business and results of operations may suffer, and our investors may be materially and adversely effected.
Bitcoin has forked multiple times and additional forks may occur in the future which may affect the value of Bitcoin held or mined by the Company.
To the extent that a significant majority of users and mining companies on a
cryptocurrency network install software that changes the cryptocurrency network
or properties of a cryptocurrency, including the irreversibility of transactions
and limitations on the mining of new cryptocurrency, the cryptocurrency network
would be subject to new protocols and software. However, if less than a
significant majority of users and mining companies on the cryptocurrency network
consent to the proposed modification, and the modification is not compatible
with the software prior to its modification, the consequence would be what is
known as a "fork" of the network, with one prong running the
pre-modified software and the other running the modified software. The effect of
such a fork would be the existence of two versions of the cryptocurrency running
in parallel yet lacking interchangeability and necessitating
exchange-type transaction to convert currencies between the two forks.
Additionally, it may be unclear following a fork which fork represents the
original cryptocurrency and which is the new cryptocurrency. Different metrics
adopted by industry participants to determine which is the original asset
include: referring to the wishes of the core developers of a cryptocurrency,
blockchains with the greatest amount of hashing power contributed by miners or
validators; or blockchains with the longest chain. A fork in the network of a
particular cryptocurrency could adversely affect an investment in our securities
or our ability to operate. Since
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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. Because we currently plan on using Katena, Bitmain and Whatsminer models for mining Bitcoin 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 are winding down our Ethereum mining operations and solely focusing on Bitcoin. There is a high possibility of Ethereum mining algorithms transitioning to proof of stake validation in the near 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.
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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 Dependence on Bitcoin
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 the year ended
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The markets for Bitcoin, Ethereum and other cryptocurrencies we mine and the existing markets 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.
If we undertake to mine digital assets other than Bitcoin and Ethereum, such digital assets may be deemed to be securities by regulators, notwithstanding any assessment by us and/or our advisors to the contrary.
While we plan to mine only Bitcoin and, to a much lesser extent, Ethereum for
the foreseeable future, we may choose to mine other cryptocurrencies. We intend
to only mine cryptocurrencies that are not securities, and to consult counsel
prior to attempting to mine any cryptocurrency other than Bitcoin and Ethereum
in order to avoid inadvertently dealing in a cryptocurrency which may be deemed
a security. However, the processes employed for determining whether particular
digital assets are securities within the meaning of
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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:
? the progress of worldwide growth in the adoption and use of Bitcoin and
other cryptocurrencies as a medium of exchange;
? governmental and organizational regulation of Bitcoin and other
cryptocurrencies and their use, or restrictions on or
regulation of access to and operation of the network or similar
cryptocurrency systems;
? changes in consumer demographics and public tastes and preferences,
including as may result from coverage of Bitcoin
or other cryptocurrencies by journalists and other sources of information
and media;
? the maintenance and development of the open-source software protocol of
the network;
? the increased consolidation of contributors to the Bitcoin blockchain
through mining pools and scaling of mining
equipment by well-capitalized market participants;
? the availability and popularity of other forms or methods of buying and
selling goods and services, including new
means of using fiat currencies;
? the use of the networks supporting Bitcoin or other cryptocurrencies for
developing smart contracts and distributed
applications;
? general economic conditions and the regulatory environment relating to
Bitcoin and other cryptocurrencies; and
? the impact of regulators focusing on cryptocurrencies and the costs
associated with such regulatory oversight.
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.
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Banks and financial institutions may not provide banking services, or may cut off services, to businesses that engage in cryptocurrency-related activities.
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
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. 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
Political or economic crises may motivate large-scale sales of cryptocurrencies, which could result in a reduction in values of cryptocurrencies such as Bitcoin and Ethereum adversely affect an investment in us.
Geopolitical crises may motivate large-scale sales of cryptocurrencies, which could rapidly decrease the price of cryptocurrencies such as Bitcoin and Ethereum. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in cryptocurrencies as investors focus their investment on less volatile asset classes as a means of hedging their investment risk.
As an alternative to fiat currencies that are backed by central governments, cryptocurrencies which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of cryptocurrencies either globally or locally. Large-scale sales of cryptocurrencies would result in a reduction in digital asset values and could adversely affect an investment in us.
The decentralized nature of cryptocurrency systems may lead to slow or inadequate responses to crises, which may negatively affect our business.
The decentralized nature of the governance of cryptocurrency systems may lead to ineffective decision making that slows development or prevents a network from overcoming emergent obstacles. Governance of many cryptocurrency systems is by voluntary consensus and open competition with no clear leadership structure or authority. To the extent lack of clarity in corporate governance of cryptocurrency systems leads to ineffective decision making that slows development and growth of such cryptocurrencies, the value of our common stock may be adversely affected.
It may be illegal now, or in the future, to acquire, own, hold, sell or use digital assets in one or more countries, and ownership of, holding or trading in our securities may also be considered illegal and subject to sanction.
As digital assets have grown in both popularity and market size, governments
around the world have reacted differently to digital assets; certain governments
have deemed them illegal, and others have allowed their use and trade without
restriction, while in some jurisdictions, such as in the
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The emergence of competing blockchain platforms or technologies may harm our business as presently conducted.
If blockchain platforms or technologies which compete with Bitcoin and its blockchain, including competing cryptocurrencies which our miners may not be able to mine, such as cryptocurrencies being developed or may be developed by popular social media platforms, online retailers, or government sponsored cryptocurrencies, consumers may use such alternative platforms or technologies. If that were to occur, we would face difficulty adapting to emergent such digital ledgers, blockchains, or alternative platforms or digital assets. This may adversely affect us by preventing us from realizing the anticipated profits from our investments and forcing us to expend additional capital in an effort to adapt. Further, to the extent we cannot adapt, be it due to our specialized miners or otherwise, we could be forced to cease operations. Such circumstances would have a material adverse effect on our business, and in turn investors' investments in our securities.
Cryptocurrencies face significant scaling obstacles that can lead to high fees or slow transaction settlement times.
Cryptocurrencies face significant scaling obstacles that can lead to high fees or slow transaction settlement times, and attempts to increase the volume of transactions may not be effective. Therefore, scaling cryptocurrencies will be essential to the widespread acceptance of cryptocurrencies as a means of payment, which widespread acceptance is necessary to the continued growth and development of our business. Many cryptocurrency networks face significant scaling challenges, such as limitations on how many transactions can occur per second. There can be no guarantee that any of the systems in place or being considered to increasing the scale of settlement of cryptocurrency transactions will be effective, or how long they will take to become effective, which could adversely affect an investment in our securities.
The price of cryptocurrencies may be affected by the sale of such cryptocurrencies by other vehicles investing in cryptocurrencies or tracking cryptocurrency markets.
The global market for cryptocurrency is characterized by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical protocols under which certain cryptocurrencies are mined permit the creation of a limited, predetermined amount of digital currency, while others have no limit established on total supply. Increased numbers of miners and deployed mining power globally will likely continue to increase the available supply of Bitcoin and other cryptocurrencies, which may depress their market price. Further, large "block sales" involving significant numbers of Bitcoin following appreciation in the market price of Bitcoin may also increase the supply of Bitcoin available on the market, which, without a corresponding increase in demand, may cause its price to fall. Additionally, to the extent that other vehicles investing in cryptocurrencies or tracking cryptocurrency markets form and come to represent a significant proportion of the demand for cryptocurrencies, large redemptions of the securities of those vehicles and the subsequent sale of cryptocurrencies by such vehicles could negatively affect cryptocurrency prices and therefore affect the value of the cryptocurrency inventory we hold. Such events could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine.
The Bitcoin we mine may be subject to loss, damage, theft or restriction on access.
There is a risk that some or all of the Bitcoin we mine could be lost or stolen.
In general, cryptocurrencies are stored in cryptocurrency sites commonly
referred to as "wallets" by holders of cryptocurrencies which may be accessed to
exchange a holder's cryptocurrency assets. Access to our Bitcoin could also be
restricted by cybercrime (such as a denial of service attack). While we take
steps to attempt to secure the Bitcoin we hold, there can be no assurance our
efforts to protect our digital assets will be successful. Hackers or malicious
actors may launch attacks to steal, compromise or secure cryptocurrencies, such
as by attacking the cryptocurrency network source code, exchange miners,
third-party platforms, cold and hot storage locations or software, or by other
means. Any of these events may adversely affect our operations and,
consequently, our ability to generate revenue and become profitable. The loss or
destruction of a private key required to access our digital wallets may be
irreversible and we may be denied access for all time to our Bitcoin holdings.
Our loss of access to our private keys or our experience of a data loss relating
to our digital wallets could adversely affect our business. Cryptocurrencies are
controllable only by the possessor of both the unique public and private keys
relating to the local or online digital wallet in which they are held, which
wallet's public key or address is reflected in the network's public blockchain.
We are required to publish the public key relating to digital wallets in use
when we verify the receipt of transfers and disseminate such information into
the network, but we will need to safeguard the private keys relating to such
digital wallets. To the extent such private keys are lost, destroyed or
otherwise compromised, we will be unable to access our Bitcoin rewards and such
private keys may not be capable of being restored by any network. Any loss of
private keys relating to digital wallets used to store our mined Bitcoin could
have a material adverse effect on our results of operations and ability to
continue as a going concern, which could have a material adverse effect on our
business, prospects or operations and potentially the value of any Bitcoin we
mine. For example, the New York Times reported in
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Incorrect or fraudulent cryptocurrency transactions may be irreversible.
Cryptocurrency transactions are irrevocable and stolen or incorrectly transferred cryptocurrencies may be irretrievable. As a result, any incorrectly executed or fraudulent cryptocurrency transactions, such as a result of a cybersecurity breach against our Bitcoin holdings, could adversely affect our investments and assets. This is because cryptocurrency transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the cryptocurrencies from the transaction. Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of a cryptocurrency or a theft thereof generally will not be reversible and we may not have sufficient recourse to recover our losses from any such transfer or theft. Further, it is possible that, through computer or human error, or through theft or criminal action, our cryptocurrency rewards could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. If an errant or fraudulent transaction in our Bitcoin were to occur, we would have very limited means of seeking to reverse the transaction or seek recourse. To the extent that we are unable to recover our losses from such action, error or theft, such events could have a material adverse effect on our business.
We will rely on one or more third parties for depositing, storing and withdrawing the cryptocurrency we mine, which could result in loss of assets, disputes and other liabilities or risks which could adversely impact our business.
We currently use a BlockFi digital wallet to store the Bitcoin we mine, although we may change to another digital wallet provider or use multiple providers at any time. In order to own, transfer and use Bitcoin on the blockchain network, we must have a private and public key pair associated with a network address, commonly referred to as a "wallet". Each wallet is associated with a unique "public key" and "private key" pair, each of which is a string of alphanumerical characters. To deposit Bitcoin into our digital wallet, we must "sign" a transaction that consists of the private key of the wallet from where the Bitcoin is being transferred, the public key of a wallet that BlockFi or its custodian controls and provides to us, and broadcast the deposit transaction onto the underlying blockchain network. Similarly, to withdraw Bitcoin from our account, we must provide BlockFi or its custodian with the public key of the wallet that the Bitcoin are to be transferred to, and BlockFi or its custodian then "signs" a transaction authorizing the transfer. In addition, some cryptocurrency networks require additional information to be provided in connection with any transfer of cryptocurrency such as Bitcoin. A number of errors or other adverse events can occur in the process of depositing, storing or withdrawing Bitcoin into or from BlockFi, such as typos, mistakes, or the failure to include the information required by the blockchain network. For instance, a user may incorrectly enter our wallet's public key or the desired recipient's public key when depositing and withdrawing Bitcoin. Additionally, our reliance on third parties such as BlockFi and the maintenance of keys to access and utilize our digital wallet will expose us to enhanced cybersecurity risks from unauthorized third parties deploying illicit activities such as hacking, phishing and social engineering, notwithstanding the security systems and safeguards employed by us and others. Cyberattacks upon systems across a variety of industries, including the cryptocurrency industry, are increasing in frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded, and organized groups and individuals. For example, attacks may be designed to deceive employees and service providers into releasing control of the systems on which we depend to a hacker, while others may aim to introduce computer viruses or malware into such systems with a view to stealing confidential or proprietary data. These attacks may occur on our digital wallet or the systems of our third-party service providers or partners, which could result in asset losses and other adverse consequences. Alternatively, we may inadvertently transfer Bitcoin to a wallet address that we do not own, control or hold the private keys to. In addition, a Bitcoin wallet address can only be used to send and receive Bitcoin, and if the Bitcoin is inadvertently sent to an Ethereum or other cryptocurrency wallet address, or if any of the foregoing errors occur, all of the Bitcoin will be permanently and irretrievably lost with no means of recovery. Such incidents could result in asset loss or disputes, any of which could materially adversely affect our business.
Security threats to us could result in, a loss of Company's Bitcoin holdings.
Security breaches, computer malware and computer hacking attacks have been a prevalent concern in the Bitcoin exchange market since the launch of the Bitcoin network. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses, could harm our business operations or result in loss of our Bitcoin and lost revenue. Furthermore we believe that to the extent we hold greater amounts of Bitcoin, we may become a more appealing target for security threats such as hackers and malware.
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The security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of ours, or otherwise, and, as a result, an unauthorized party may obtain access to our, private keys, data or Bitcoins. Additionally, outside parties may attempt to fraudulently induce employees of ours to disclose sensitive information in order to gain access to our infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security system occurs, the market perception of the effectiveness of our security system could be harmed, which could adversely affect an investment in us. In the event of a security breach, we may be forced to cease operations, or suffer a reduction in our digital assets, the occurrence of each of which could adversely affect an investment in us.
If a malicious actor or botnet obtains control of more than 50% of the processing power on a cryptocurrency network, such actor or botnet could manipulate blockchains to adversely affect us, which would adversely affect an investment in us or our ability to operate.
If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining a cryptocurrency, it may be able to alter blockchains on which transactions of cryptocurrency reside and rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new units or transactions using such control. The malicious actor could "double-spend" its own cryptocurrency (i.e., spend the same Bitcoin in more than one transaction) and prevent the confirmation of other users' transactions for as long as it maintained control. To the extent that such malicious actor or botnet does not yield its control of the processing power on the network or the cryptocurrency community does not reject the fraudulent blocks as malicious, reversing any changes made to blockchains may not be possible. The foregoing description is not the only means by which the entirety of blockchains or cryptocurrencies may be compromised but is only an example.
Although there are no known reports of malicious activity or control of blockchains achieved through controlling over 50% of the processing power on the network, it is believed that certain mining pools may have exceeded the 50% threshold in Bitcoin. The possible crossing of the 50% threshold indicates a greater risk that a single mining pool could exert authority over the validation of Bitcoin transactions. To the extent that the Bitcoin community, and the administrators of mining pools, do not act to ensure greater decentralization of Bitcoin mining processing power, the feasibility of a botnet or malicious actor obtaining control of the blockchain's processing power will increase, because such botnet or malicious actor could more readily infiltrate and seize control over the blockchain by compromising a single mining pool, if the mining pool compromises more than 50% of the mining power on the blockchain, than it could if the mining pool had a smaller share of the blockchain's total hashing power. Conversely, if the blockchain remains decentralized it is inherently more difficult for the botnet or malicious actor to aggregate enough processing power to gain control of the blockchain. If this were to occur, the public may lose confidence in the Bitcoin blockchain, and blockchain technology more generally. This would likely have a material and adverse effect on the price of Bitcoin, which could have a material adverse effect on our business, financial results and operations, and harm investors.
If the Bitcoin rewards for solving blocks are not sufficiently high, miners may not have adequate incentive to continue mining and may cease mining operations, which may make the blockchains they support with their mining activity less stable.
As the number of cryptocurrency rewards awarded for solving a block in a blockchain decreases, the relative cost of producing a single cryptocurrency will also increase, unless there is a corresponding increase in demand for that cryptocurrency. Even relatively stable demand may not be sufficient to support the costs of mining, because as new miners begin working to solve blocks, the relative amount of energy expended to obtain a cryptocurrency award will tend to increase. This increased energy directly relates to an increased cost of mining, which means an increased cost of obtaining a cryptocurrency award. This increased cost, if not met with a corresponding increase in the market price for the cryptocurrency resulting from increased scarcity and demand, may lead miners, such as us, to conclude they do not have an adequate incentive to continue mining and, therefore, may cease their mining operations. This could in turn reduce the sustainability of the Bitcoin blockchain, which is dependent upon continued mining to solve the block's algorithms and process transactions in Bitcoin. If this were to occur, your investment in us could become worthless.
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Cryptocurrencies, including those maintained by or for us, may be exposed to cybersecurity threats and hacks.
As with any computer code generally, flaws in cryptocurrency codes may be exposed by malicious actors. Several errors and defects have been found previously, including those that disabled some functionality for users and exposed users' information. Exploitations of flaws in the source code that allow malicious actors to take or create money have previously occurred. Despite our efforts and processes to prevent breaches, our devices, as well as our miners, computer systems and those of third parties that we use in our operations, are vulnerable to cyber security risks, including cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with our miners and computer systems or those of third parties that we use in our operations. Such events could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine.
We have an evolving business model which is subject to various uncertainties.
As cryptocurrency assets and blockchain technologies become more widely available, we expect the services and products associated with them to evolve. In order to stay current with the industry, our business model may need to evolve as well. From time to time, we may modify aspects of our business model relating to our strategy. We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to our business. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. Further, we cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities in this business sector and we may lose out on those opportunities. Such circumstances could have a material adverse effect on our business, prospects or operations.
Risks Related to Governmental Regulation and Enforcement
Regulatory changes or other actions may alter the nature of an investment in us or restrict the use of cryptocurrencies in a manner that adversely affects our business, prospects or operations.
As cryptocurrencies have grown in both popularity and market size, governments
around the world have reacted differently to cryptocurrencies; certain
governments have deemed them illegal, and others have allowed their use and
trade with no or minimal restriction, while in some jurisdictions, such as in
the
Current interpretations require the regulation of Bitcoin under the CEA by the CFTC, and we may be required to register and comply with such regulations. Any disruption of our operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors.
Current and future legislation, the
Bitcoins have been deemed to fall within the definition of a commodity and, we
may be required to register and comply with additional regulation under the
Commodity Exchange Act ("CEA"), including additional periodic report and
disclosure standards and requirements. Moreover, we may be required to register
as a commodity pool operator and to register us as a commodity pool with the
CFTC through the
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Our interactions with a blockchain may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distribute ledger technology.
Governmental action against the blockchain and Bitcoin mining may have a materially adverse effect on the industry, and could affect us if widely adopted.
We could become subject to regulations aimed at preventing what are perceived as
some of the negative attributes of Bitcoin and Bitcoin mining. For example,
Because we are unable to influence or predict future regulatory actions taken by
governments, we may face difficulty monitoring and responding to rapid
regulatory developments affecting Bitcoin mining, which may have a materially
adverse effect on our industry and, therefore, our business and results of
operations. If further regulatory action is taken by governments in
We are subject to the information and reporting requirements of the Securities Exchange Act of 1934, and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act").
The costs of preparing and filing annual and quarterly reports and other
information with the
Public company compliance may make it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and rules implemented by the
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Risks Related to Ownership of Our Common Stock
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
? changes in our industry including changes which adversely affect Bitcoin;
? the continued volatility of the price of Bitcoin;
? our ability to obtain working capital financing and commence our planned
Bitcoin mining operations;
? progress and publications of the commercial acceptance of Bitcoin and
other cryptocurrencies;
? additions or departures of key personnel including our executive officers;
? sales of our common stock;
? any public announcement of entering into new agreements and terms thereof,
including with respect to the purchase of miners and contracts for the
supply of electricity to our facility;
? business disruptions caused by earthquakes, tornadoes, terrorism or other
natural disasters;
? our ability to execute our business plan;
? operating results that fall below expectations;
? loss of any strategic relationship;
? adverse regulatory developments; and
? economic and other external factors.
In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. As a result, you may be unable to resell your shares at a desired price.
We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our Board may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
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Because our common stock does not trade on a national securities exchange, the prices of our common stock may be more volatile and lower than if we were listed.
Our common stock trades on the OTCQB operated by OTC Markets Group Inc. This
market is not a national securities exchange. While our common stock trading has
been relatively active, generally the OTCQB does not have the same level of
activity as a national securities exchange like Nasdaq. Most institutions will
not purchase a security unless it is on a national securities exchange. In
addition, they do not purchase stocks that trade below
Our common stock is deemed a "penny stock," which makes it more difficult for our investors to sell their shares.
Our common stock is subject to the "penny stock" rules adopted under Section
15(g) of the Exchange Act. The penny stock rules generally apply to companies
whose common stock trades at less than
Moreover, as a result of apparent regulatory pressure from the
Substantial future sales of our common stock by us or by our existing shareholders could cause our stock price to fall.
Additional equity financings or other share issuances by us, including shares issued in connection with strategic alliances and corporate partnering transactions, could adversely affect the market price of our common stock. Sales by existing shareholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the market price of our common stock to drop.
Until
We have been a shell company as defined under Rule 405 of the Securities Act of 1933 ("Securities Act"). As securities issued by a former shell company, the securities issued by us can only be resold pursuant to an effective registration statement and not by utilizing the provisions of Rule 144 until certain conditions are met, including that: (i) we are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, (ii) we have filed all required reports under the Exchange Act of the preceding 12 months and (iii) one year has elapsed since we filed "Form 10" information (e.g. audited financial statements, management information and compensation, shareholder information, etc.).
Thus, a shareholder of ours will not be able to sell its shares until such time as a registration statement for those shares is filed or we become a reporting company, we have remained current on our Exchange Act filings for 12 months and we have filed the information as would be required by a "Form 10" filing.
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