Bitmine Immersion Technologies, Inc S-1, filed Jul 27, 2022
Bitmine Immersion Technologies, Inc. (BMNR)
As filed with the United States Securities and Exchange Commission on July ___, 2022.
Registration No. 333-____________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
Telephone: (
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
_________________
Jonathan Bates
c/o Bitmine Immersion Technologies,
Inc.
2030 Powers Ferry Road SE, Suite 212,
Atlanta, Georgia 30339
Telephone: (404) 816-8240
(Name, address, including zip code, and telephone number, including area code, of agent for service)
_________________
Copies of all communications, including communications sent to agent for service, should be sent to:
Robert J. Mottern, Esq.
Davis Gillett Mottern & Sims, LLC
545 Dutch Valley Road, NE, Suite A
Atlanta, Georgia 30324
Telephone: (404) 607-6933
_________________
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If delivery of the Prospectus is expected to be made pursuant to Rule 434, check the following box. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| ☒ | Smaller reporting company | |||||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION DATED JULY 27, 2022 |
BITMINE IMMERSION TECHNOLOGIES,
INC.
14,662,800
Shares of
Common Stock
This prospectus relates to the offer and resale of up to an aggregate of 14,662,800 shares of common stock, par value $0.0001 per share of Bitmine Immersion Technologies, Inc. (“Bitmine,” “the Company,” “we,” “us” or “our”) consisting of
(a) 5,242,000 shares (the “Placement Shares”) issued in various private placement transactions, including a private placement offering (the “Private Placement”) of Bitmine that terminated on June 27, 2022,
(b) 550,000 shares of common issuable upon exercise of 550,000 Class A Warrants (the “Class A Warrant Shares”),
(c) 550,000 shares of common stock issuable upon exercise of 550,000 Class B Warrants (the “Class B Warrant Shares”),
(d) 4,147,600 shares of common stock issuable upon exercise of 4,147,600 Class C-1 Warrants (the “Class C-1 Warrant Shares”) issued in the Private Placement,
(e) 4,147,600 shares of common stock issuable upon exercise of 4,147,600 Class C-2 Warrants (the “Class C-2 Warrant Shares”) issued the Private Placement, and
(f) 25,600 shares of common stock issuable upon the exercise of 25,600 Class C-3 Warrants issued to Sutter Securities, Inc. in the Private Placement (the “Class C-3 Warrant Shares,” and with the Class A Warrant Shares, Class B Warrant Shares, Class C-1 Warrant Shares and Class C-2 Warrant Shares, the “Warrant Shares”) issued in the Private Placement.
The holders of the Placement Shares and the Warrant Shares are each referred to herein as a “Selling Stockholder” and collectively as the “Selling Stockholders.”
This prospectus also covers any additional shares of common stock that may become issuable upon any anti-dilution adjustment pursuant to the terms of the Warrants issued to the Selling Stockholders by reason of stock splits, stock dividends, and other events described therein.
The Selling Stockholders, or their respective transferees, pledgees, donees or other successors-in-interest, may sell the Placement Shares or the Warrant Shares through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. The Selling Stockholders may sell any, all or none of the securities offered by this prospectus, and we do not know when or in what amount the Selling Stockholders may sell their Placement Shares or Warrant Shares hereunder following the effective date of this registration statement. We provide more information about how a Selling Stockholder may sell its Placement Shares or Warrant Shares in the section titled “Plan of Distribution” on page 81.
We are registering the Placement Shares and Warrant Shares on behalf of the Selling Stockholders, to be offered and sold by them from time to time. We will not receive any proceeds from the sale of our common stock by the Selling Stockholders in the offering described in this prospectus. We cannot predict when and in what amounts or if the Warrants will be exercised. We have agreed to bear all of the expenses incurred in connection with the registration of the Placement Shares and the Warrant Shares. The Selling Stockholders will pay or assume discounts, commissions, fees of underwriters, selling brokers or dealer managers and similar expenses, if any, incurred for the sale of the Placement Shares and the Warrant Shares.
We are an “emerging growth company” and a “smaller reporting company” as such terms are defined under federal securities laws, and, as such have elected to take advantage of certain reduced public company reporting requirements for this prospectus and may elect to do so in future filings.
This prospectus describes the general manner in which the Placement Shares and the Warrant Shares may be offered and sold.
If necessary, the specific manner in which the Placement Shares and the Warrant Shares may be offered and sold will be described in a supplement to this prospectus.
Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 7 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2022
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
This prospectus describes the general manner in which the Selling Stockholders may offer from time to time up to 14,662,800 shares of common stock held by Selling Stockholders, consisting of (a) 5,242,000 Placement Shares, (b) 550,000 Class A Warrant Shares, (c) 550,000 Class B Warrant Shares, (d) 4,147,600 Class C-1 Warrant Shares, (c) 4,147,600 Class C-2 Warrant Shares, and (d) 25,600 Class C-3 Warrant Shares. You should rely only on the information contained in this prospectus and the related exhibits, any prospectus supplement or amendment thereto and the documents incorporated by reference, or to which we have referred you, before making your investment decision. Neither we nor the Selling Stockholders have authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus, any prospectus supplement or amendments thereto do not constitute an offer to sell, or a solicitation of an offer to purchase, the common stock offered by this prospectus, any prospectus supplement or amendments thereto in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer or solicitation of an offer in such jurisdiction. You should not assume that the information contained in this prospectus, any prospectus supplement or amendments thereto, as well as information we have previously filed with the U.S. Securities and Exchange Commission (the “SEC”), is accurate as of any date other than the date on the front cover of the applicable document.
If necessary, the specific manner in which the shares of common stock may be offered and sold will be described in a supplement to this prospectus, which supplement may also add, update or change any of the information contained in this prospectus. To the extent there is a conflict between the information contained in this prospectus and any prospectus supplement, you should rely on the information in such prospectus supplement, provided that if any statement in one of these documents is inconsistent with a statement in another document having a later date — for example, a document incorporated by reference in this prospectus or any prospectus supplement — the statement in the document having the later date modifies or supersedes the earlier statement.
Neither the delivery of this prospectus nor any distribution of common stock pursuant to this prospectus shall, under any circumstances, create any implication that there has been no change in the information set forth or incorporated by reference into this prospectus or in our affairs since the date of this prospectus. Our business, financial condition, results of operations and prospects may have changed since such date.
Unless the context indicates otherwise, the terms “Bitmine,” “Company,” “we,” “us” and “our” refer to Bitmine Immersion Technologies, Inc., a Delaware corporation, and its subsidiaries.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus, and does not contain all of the information that you should consider before investing in our common stock. This summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read this entire prospectus carefully, including the information set forth in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto included elsewhere in this prospectus, before making an investment decision. Unless the context requires otherwise, references in this prospectus to “we,” “us,” “our,” “our company,” the “Company” or similar terminology refer to Bitmine Immersion Technologies, Inc. Unless otherwise, indicated, all share amounts and per share amounts in this prospectus and our financial statements and related notes thereto reflect a net 1 for 200 reverse-split of the Company’s common shares effective as of April 27, 2021 (consisting of a 1 for 40,000 reverse-split, with all fractional shares rounded up to the nearest whole share, and immediately after a 200 for 1 forward stock split).
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Management and History
A predecessor to the Company was incorporated in the state of Nevada on August 16, 1995 as Interactive Lighting Showrooms, Inc. On June 30, 2004, the predecessor changed its name to Am/Tex Oil and Gas, Inc. On January 24, 2008, the predecessor changed its name to Critical Point Resources, Inc. On February 2, 2012, the predecessor changed its name to Renewable Energy Solution Systems, Inc. On May 18, 2012, the predecessor changed its name to RES Systems, Inc. On May 23, 2013, the predecessor changed its name back to Renewable Energy Solution Systems, Inc.
On April 6, 2020, the predecessor redomiciled in the State of Delaware by merging with a Delaware subsidiary named RESS Merger Corp., which was the successor in the merger. Thereafter, effective July 15, 2020, the predecessor and the Company effected a holding company reorganization pursuant to Section 251(g) of the Delaware General Corporation Law (the “DGCL”) under which RESS Merger Corp. merged with RESS of Delaware, Inc., a Delaware subsidiary of RESS Merger Corp., and all shareholders of RESS Merger Corp. received one share of common stock of the Company, another Delaware subsidiary of RESS Merger Corp., for each share that they previously held in RESS Merger Corp., and RESS of Delaware, Inc. (the successor in the merger with RESS Merger Corp.) becoming a subsidiary of the Company.
Effective July 17, 2020, the Company divested RESS of Delaware, Inc. to Sterling Acquisitions I, Inc. (“Sterling”), which is owned by the chief executive officer of the Company, pursuant to an agreement under Sterling (i) purchased Ten Million (10,000,000) common shares of the Company for an aggregate price of Ten Dollars ($10), and (ii) was issued Ten Million (10,000,000) Class A Warrants at an aggregate price of Ten Dollars ($10), and (iii). Ten Million (10,000,000) Class B Warrants at an aggregate price of Ten Dollars ($10). In addition, the Company agreed to pay a fee of $1,000 to Sterling to cover the expenses associated with the maintenance of RESS of Delaware, Inc. until such time as a certificate of dissolution is filed with the state of Delaware.
By a written consent dated July 16, 2021, holders of a majority of the Company’s issued and outstanding common stock approved a resolution to appoint Jonathan Bates, Raymond Mow, Michael Maloney and Seth Bayles to the board of directors of the Company, and to appoint Jonathan Bates as Chairman, Seth Bayles as Corporate Secretary, Raymond Mow as Chief Financial Officer, and Ryan Ramnath as Chief Operating Officer (collectively, the “New O&Ds”). Erik S. Nelson remained a director and the chief executive officer. At the same time, the shareholders approved the issuance of 32,994,999 shares of common stock in the Company’s offering of common stock at $0.015 per share, and the grant of 4,750,000 shares for services, which were valued at $0.015 per share. As a result of the foregoing stock issuances, the New O&Ds (or entities controlled by them) collectively acquired 24,893,877 shares of common stock, which represented approximately 62% of the issued and outstanding shares at the time.
The appointment of certain of the New O&Ds to the Company’s board, and issuance to the New O&Ds of a controlling interest in the Company, were made in order to enable the Company to enter the business of creating a hosting center for Bitcoin mining computers primarily utilizing immersion cooling technology, as well mining the Bitcoin digital currency for its own account. Prior to the change of control to the New O&Ds, the Company was a shell company.
Company Overview
We are a blockchain technology company that is building out industrial scale digital asset mining, equipment sales and hosting operations. The Company’s primary business is hosting third-party equipment used in mining of digital asset coins and tokens, specifically Bitcoin, as well as self-mining for its own account. Our state-of-the-art facilities will be specifically designed and constructed for housing advanced mining equipment. Our data centers will provide power, racks, proprietary thermodynamic management (heat dissipation and airflow management), redundant connectivity, 24/7 security, as well as software which provide infrastructure management and custom firmware that boost performance and energy efficiency.
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We plan to operate our data centers primarily using immersion cooling technology, although we will operate air-cooled facilities as well. Immersion cooling is the process of submerging computer components (or full servers) in a thermally, but not electrically, conductive liquid (dielectric coolant) allowing higher heat transfer performance than air and many other benefits. Immersion cooling can be up to 95% more efficient than standard air cooling, producing an estimated PUE (power usage effectiveness) of 1.05. This cooler environment has been shown to extend machine lives by 30% or longer.
We have located our initial operations in Trinidad, which has some of the cheapest electricity in the world due to its abundant supplies of oil and gas. We currently operate an air-cooled site in Trinidad while we complete installation of an immersion-cooled site. We elected to locate our first site in Trinidad because it has ample supplies of cost-effective power and because some of technical staff is located there. However, given the trend among some governments to ban or severely limit digital asset mining, and the uncertain regulatory framework in Trinidad, we have decided that building a geographically diversified suite of hosting locations will better serve our client base. Therefore, we are exploring the development of multiple projects in the United States and internationally. Key factors in the location of a hosting operation include the cost and available supply of electricity, whether a long-term power purchase agreement can be obtained, the political and regulatory environment, among other factors. Some of the data center locations may generate power from politically favored energy sources, such as solar, wind or hydroelectric, and present opportunities to generate collateral revenue from the sale of excess power to the local utility grid and from the generation of saleable carbon credits. Other data center locations may receive power from repurposed power sources developed for heavy industry that is now shuttered.
Our digital asset mining operation is focused on the generation of digital assets by solving complex cryptographic algorithms to validate transactions on specific digital asset network blockchains, which is commonly referred to as “mining.” Our digital asset self-mining activity competes with a myriad of mining operations throughout the world to complete new blocks in the blockchain and earn the reward in the form of an established unit of a digital asset. While we expect to sell or exchange a portion of the digital assets we mine to fund our growth strategies or for general corporate purposes, we may hold our digital assets as investments in anticipation of continued adoption of digital assets as a “store of value” and a more efficient medium of exchange than traditional fiat currencies.
As the demand for digital assets increases and digital assets become more widely accepted, there is an increasing demand for professional-grade, scalable infrastructure to support growth of the blockchain ecosystem. We expect to continually evaluate the performance of our data centers, including our ability to access additional megawatts of electric power and to expand our total self-mining and customer and related party hosting hash rates.
Risks Affecting Us
Our business is subject to a number of risks and uncertainties that you should understand before making an investment decision. These risks are discussed more fully in the section entitled “Risk Factors,” following this prospectus summary. These include:
| · | We have a history of losses and expect significant increases in our costs, expenses and losses. As we continue to invest in our development efforts, improve our operational, financial and management information systems, hire additional personnel, obtain, maintain, we expect to incur losses for at least the foreseeable future, which could harm our business and future prospects. |
| · | We may never generate positive net cash flow or become profitable or, if we achieve profitability, we may not be able to sustain it. |
| · | We have concluded that we do not have sufficient cash to fund our operations through 12 months from the issuance date of our financial statements, and as a result, there is substantial doubt about our ability to continue as a going concern. Our auditor’s opinion on our August 31, 2021 financial statements include an explanatory paragraph in respect to there being substantial doubt about our ability to continue as a going concern. |
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| · | We have identified a material weakness in our internal control over financial reporting and may identify material weaknesses in the future or otherwise fail to maintain proper and effective internal controls, which may impair our ability to produce accurate financial statements on a timely basis. |
| · | Until our operations become self-sustaining, of which there is no assurance, we will be required to raise additional funds, which may not be available or available on favorable terms, to remain in business. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our new product development programs, commercialization efforts or other operations. |
| · | Our history of losses makes evaluating our business and future prospects difficult and may increase the risk of your investment. |
| · | The price of our stock may be volatile, and you could lose all or part of your investment. |
| · | The COVID-19 pandemic and the efforts to mitigate its impact have had and may continue to have an adverse effect on our business, liquidity, results of operations, financial condition and price of our securities. |
| · | Our reliance on a limited base of suppliers for certain of our parts and products may result in disruptions to our supply chain and business and adversely affect our financial results. |
| · | The recent decline in the market prices of digital assets could adversely impact our business by reducing the demand for our hosting services and making our proprietary mining operations less profitable, and could severely impact our business if the price falls below the marginal cost of mining new digital assets. |
| · | A number of jurisdictions around the world have recently banned or limited the mining of digital assets within their borders, and there is a risk that we have to terminate operations at an established location due to the changing political or regulatory climate for digital asset mining. |
| · | Many financial institutions in the United States will not open financial accounts on behalf of companies engaged in the mining, investing or trading of digital assets, typically for unspecified “compliance” reasons, and our business could be adversely impacted if we cannot maintain a traditional banking relationship. |
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We qualify as an “emerging growth company,” as defined in the JOBS Act. For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies. These provisions include, but are not limited to:
| · | being permitted to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure; |
| · | an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act; |
| · | reduced disclosure about executive compensation arrangements in our periodic reports, registration statements and proxy statements; and |
| · | exemptions from the requirements to seek non-binding advisory votes on executive compensation or golden parachute arrangements. |
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In addition, the JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are not choosing to “opt out” of this provision. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the completion of our IPO, (ii) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (iii) the date on which we have, during the immediately preceding three-year period, issued more than $1.0 billion in non-convertible debt securities and (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year. We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus forms a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.
Corporate Information
A predecessor to the Company was originally incorporated in the State of Nevada on August 16, 1995, and redomiciled in the State of Delaware on April 6, 2020. Our principal executive offices are located at 2030 Powers Ferry Road SE, Suite 212, Atlanta, Georgia 30339, and our telephone number is (404) 816-8240. Our corporate website address is bitminetech.io. The information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
Recent Developments
Private Placement
In December 2021 we commenced an offering of 8,000,000 Units at $1.25 per Unit (the “Private Offering”). Each Unit consists of one Placement Share, one Series C-1 Warrant and one Series C-2 Warrant.
Each Class C-1 Warrant is exercisable to purchase one share of the Company’s common stock until January 15, 2025 at an exercise price of $2.00 per share. The Class C-1 Warrant is callable on thirty days’ notice by the Company for $0.01 at any time that the Company’s common stock has (i) had a closing price greater than $4 for twenty consecutive trading days and (ii) the average daily volume in excess of 50,000 shares per day during that period.
Each Class C-2 Warrant is exercisable to purchase one share of the Company’s common stock until January 15, 2025 at an exercise price of $4.00 per share. The Class C-2 Warrant is callable on thirty days’ notice by the Company for $0.01 at any time that the Company’s common stock has (i) had a closing price greater than $7 for twenty consecutive trading days and (ii) the average daily volume in excess of 50,000 shares per day during that period.
The Company agreed to file a registration statement within 30 days after the termination of the Private Offering to register the resell of the Placement Shares and the Warrant Shares.
The Company terminated the Private Offering on June 27, 2022, with 4,122,000 Units sold for gross proceeds of $5,152,500, which includes $3,340,000 of hosting equipment contributed in kind by one investor.
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THE OFFERING
| Common Stock offered by the Selling Stockholders | A total of up to 14,542,800 shares of our common stock, consisting of 5,122,000 shares of common stock that they currently own and up to 9,420,800 shares of common stock that they have the right to acquire upon exercise of the Warrants. | |
| Shares of Common Stock Outstanding | 47,098,091 shares as of July 15, 2022, excluding shares of common stock issuable upon conversion of outstanding options or warrants. | |
| Use of proceeds | We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders. The only proceeds, if any, that we would receive is in connection with the issuance of any Warrant Shares upon the exercise of the Warrants (to the extent the Warrants are exercised for cash and not on a cashless basis). | |
| Dividend Policy | We currently intend to retain our future earnings, if any, to finance the development and expansion of our business and, therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon then-existing conditions, including our results of operations and financial condition, capital requirements, business prospects, statutory and contractual restrictions on our ability to pay cash dividends, if any, and other factors our board of directors may deem relevant. See “Dividend Policy.” | |
| Plan of Distribution | The Selling Stockholders may, from time to time, sell any or all of their shares of our common stock on the stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. For further information, see “Plan of Distribution” beginning on page 81. | |
| Transfer Agent | West Coast Stock Transfer, Inc. | |
| OTC Pink Symbol | “BMNR” | |
| Risk Factors | An investment in our common stock involves a high degree of risk. You should read this prospectus carefully, including the section titled “Risk Factors” and the combined and condensed consolidated financial statements and the related notes to those statements included in this prospectus, before investing in our common stock |
Outstanding Shares of Common Stock
The number of shares of our common stock to be outstanding after this offering is based on 47,098,091 shares of common stock outstanding as of July 15, 2022, and excludes:
| • | 590,000 shares of common stock issuable upon the exercise of outstanding Class A Warrants; |
| • | 590,000 shares of common stock issuable upon the exercise of outstanding Class B Warrants; |
| • | 4,147,600 shares of common stock issuable upon the exercise of outstanding Class C-1 Warrants; |
| • | 4,147,600 shares of common stock issuable upon the exercise of outstanding Class C-2 Warrants; and |
| • | 25,600 shares of common stock issuable upon the exercise of outstanding Class C-3 Warrants. |
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this prospectus, including our financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability to accomplish our strategic objectives. As a result, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and the market price of our common stock.
Risks Related to Company’s Business and Industry
We may not be able to obtain new hosting and transaction processing hardware or purchase such hardware at competitive prices during times of high demand, which could have a material adverse effect on our business, financial condition and results of operations.
Historically, an increase in interest and demand for digital assets has led to a shortage of hosting and transaction processing hardware and increased prices. Higher Bitcoin prices increase the demand for mining equipment and increases the cost. In addition, as more companies seek to enter the mining industry, the demand for machines may outpace supply and create mining machine equipment shortages. We and our customers and potential customers have experienced, and may in the future experience, difficulty in obtaining new equipment or replacement components for our and their existing equipment, including graphics processing units and application-specific integrated circuit chipsets and computer servers, which has had, and in the future may have, a material impact on the demand for our services and associated revenue. Currently, with the restriction on digital asset mining in China and the recent drop in digital asset prices, there is increased availability, and decreased prices, of new and used mining equipment. However, these trends may be temporary, particularly the drop in digital asset prices, and a return to higher prices could, once again, lead to shortages of mining equipment and an increase in prices, which could have a material adverse effect on our business, financial condition and results of operations.
Our business is capital intensive, and failure to obtain the necessary capital when needed may force us to delay, limit or terminate our expansion efforts or other operations, which could have a material adverse effect on our business, financial condition and results of operations.
The costs of constructing, developing, operating and maintaining digital asset mining and hosting facilities, and owning and operating a large fleet of the latest generation mining equipment are substantial.
Our proprietary mining operations can only be successful and ultimately profitable if the costs, including hardware and electricity costs, associated with mining digital assets are lower than the price of the digital assets that are mined by us. Mining equipment experiences ordinary wear and tear from operation and may also face more significant malfunctions caused by factors which may be beyond our control. As miners become obsolete or degrade due to ordinary wear and tear from usage, or are lost or damaged due to factors outside of our control, these miners will need to be repaired or replaced along with other equipment from time to time for us to stay competitive. Many of the new miners we will need to purchase are made by third-party manufacturers located primarily in China. This upgrading process requires substantial capital investment, and we may face challenges in doing so on a timely and cost-effective basis based on availability of new miners and our access to adequate capital resources. If we are unable to obtain adequate numbers of new and replacement miners at scale, we may be unable to remain competitive in our highly competitive and evolving industry.
Moreover, in order to grow our hosting business, we need additional hosting facilities to increase our capacity for more miners. The costs of constructing, developing, operating and maintaining hosting facilities and growing our hosting operations may increase in the future, which may make it more difficult for us to expand our business and to operate our hosting facilities profitably.
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We will need to raise additional funds through equity or debt financings in order to meet our operating and capital needs. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms. An inability to generate sufficient cash from operations or to obtain additional debt or equity financing would adversely affect our results of operations. Additionally, if this happens, we may not be able to mine digital assets as efficiently or in similar amounts as our competition and, as a result, our business and financial results could suffer.
If future prices of Bitcoin are not sufficiently high, our business, results of operations and financial condition could be materially and adversely affected, which may have a negative impact on the trading price of our securities.
Our financial condition and results of operations are, and are expected to increasingly be, reliant on our ability to sell the Bitcoin we mine at a price greater than our costs to produce that Bitcoin. To the extent the cost of purchase new miners increases or our electricity costs increase, our cost to produce a single Bitcoin also increases, therefore requiring a corresponding increase in the price of Bitcoin for us to maintain our results of operations. If future prices of Bitcoin are not sufficiently high, we may not realize the benefit of the capital expenditures we incur each time we acquire new miners. If this occurs, our business, results of operations and financial condition could be materially and adversely affected, which may have a negative impact on the trading price of our securities, which may have a materially adverse impact on investors’ investment in our Company.
Recently, the market prices of all digital currencies have fallen substantially along with the drop in world stock exchanges. The price of Bitcoin is still sufficient to enable us and our hosting clients to mine Bitcoin profitably; however, if the price drops much farther the marginal cost of mining Bitcoin will exceed the value of the Bitcoin that is mined, which the result that both we and our hosting clients may be forced to cease mining Bitcoin until it becomes profitable to do so again. The cessation of Bitcoin mining would have a materially adverse impact on our business.
Our success depends in large part on our ability to mine digital assets profitably and to attract customers for our hosting capabilities. Increases in power costs or our inability to mine digital assets efficiently and to sell digital assets at favorable prices will reduce our operating margins, impact our ability to attract customers for our services and harm our growth prospects and could have a material adverse effect on our business, financial condition and results of operations.
Our growth depends in large part on our ability to successfully mine digital assets and to attract customers for our hosting capabilities. We may not be able to attract customers to our hosting capabilities for a number of reasons, including if:
| • | there is a reduction in the demand for our services due to macroeconomic factors in the markets in which we operate; |
| • | we fail to provide competitive pricing terms or effectively market them to potential customers; |
| • | we provide hosting services that are deemed by existing and potential customers or suppliers to be inferior to those of our competitors, or that fail to meet customers’ or suppliers’ ongoing and evolving program qualification standards, based on a range of factors, including available power, preferred design features, security considerations and connectivity; |
| • | businesses decide to host internally as an alternative to the use of our services; |
| • | we fail to successfully communicate the benefits of our services to potential customers; |
| • | we are unable to strengthen awareness of our brand; |
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| • | we are unable to provide services that our existing and potential customers’ desire; |
| • | our customers are unable to secure an adequate supply of new generation digital asset mining equipment to host with us; |
| • | we are unable to obtain deliveries of hosting equipment, including immersion containers and transformers, which have recently been in short supply; or |
| • | we are unable to find suitable locations for hosting facilities which have electricity at competitive rates. |
If we are unable to obtain hosting customers at favorable pricing terms or at all, it could have a material adverse effect on our business, financial condition and results of operations.
A slowdown in the demand for blockchain technology or blockchain hosting resources and other market and economic conditions could have a material adverse effect on our business, financial condition and results of operations.
Adverse developments in the blockchain industry, and in the blockchain hosting market could lead to a decrease in the demand for hosting resources, which could have a material adverse effect on our business, financial condition and results of operations. We face risks including those related to:
| • | a decline in the adoption and use of Bitcoin and other similar digital assets within the technology industry or a decline in value of digital assets; |
| • | increased costs of complying with existing or new government regulations applicable to digital assets and other factors; |
| • | a downturn in the market for blockchain hosting space generally, which could be caused by an oversupply of or reduced demand for blockchain space; |
| • | any transition by our customers of blockchain hosting from third-party providers like us to customer-owned and operated facilities; |
| • | the rapid development of new technologies or the adoption of new industry standards that render our or our customers’ current products and services obsolete or unmarketable and, in the case of our customers, that contribute to a downturn in their businesses, increasing the likelihood of a default under their service agreements or their becoming insolvent; |
| • | a slowdown in the growth of the Internet generally as a medium for commerce and communication; |
| • | availability of an adequate supply of new generation digital asset mining equipment to enable us to mine digital assets at scale and for customers who want to host with us to be able to do so; |
| • | the degree of difficulty in mining digital assets and the trading price of such assets; and |
| • | an increase in political opposition to mining digital assets, for example due to concerns about its impact on climate change or its impact on the availability of affordable electricity to other consumers in the local market, the degree of difficulty in mining digital assets and the trading price of such assets. |
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To the extent that any of these or other adverse conditions exist, they are likely to have an adverse impact on our mining rewards and market demand and pricing for our services, which could have a material adverse effect on our business, financial condition and results of operations.
Additionally, we and our customers are affected by general business and economic conditions in the United States and globally. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, including the imposition of new tariffs affecting our or our customers’ products and services, fluctuations in both debt and equity capital markets and broad trends in industry and finance, all of which are beyond our control. Macroeconomic conditions that affect the economy and the economic outlook of the United States and the rest of the world could adversely affect our customers and vendors, which could have a material adverse effect on our business, financial condition and results of operations.
Our business is heavily impacted by social, political, economic and other events and circumstances in countries outside of the United States, most particularly China and other non-Western countries. China’s shifting position on mining activity within its borders could reduce our revenue and profitability.
Our business is heavily impacted by social, political, economic and other events and circumstances in countries outside of the United States, most particularly in China and other non-Western countries. These events and circumstances are largely outside of our influence and control. We are heavily dependent on the Chinese manufacture of equipment. Historically China was a location of significant digital asset mining at low electric power rates. Recently, China and other foreign governments have taken action to prohibit or significantly restrict digital asset mining. For example, in May and June 2021, in their efforts to curb digital asset trading and mining, regulators in several Chinese Provinces, including Qinghai, Inner Mongolia and Sichuan, announced policies to curb or ban local digital asset mining operations. Later, the Chinese government extended the ban on digital asset mining to all Chinese Provinces, effective July 31, 2021. Following the original ban announcement, the price of Bitcoin experienced a drop of over 30% in May. The long-term impact of such restrictions is unknown and could be either beneficial or detrimental to our business and profitability. Currently, we expect the restrictions in China to enhance our business by increasing the demand for cost-effective data hosting services outside of China. Whether or not the lack of mining activity in China will negatively impact Chinese miner manufacturing and the development, price, availability of new and enhanced mining equipment is unknown. Should China or other countries that currently restrict digital asset mining eliminate such restrictions or actually seek to enhance such mining activity, the likely increase in mining activity could reduce our revenue and profitability.
Continuing coronavirus outbreaks may have a material adverse impact on our business, liquidity, financial condition and results of operations.
COVID-19 was first reported in December 2019 in the City of Wuhan, Hubei, China and was recognized as a pandemic by the World Health Organization on March 11, 2020. In response to the pandemic, governmental authorities around the World, including the United States, Canada, China and elsewhere, introduced various measures to limit the spread of the pandemic, including travel restrictions, border closures, business closures, quarantines, self- and forced isolations, shelter-in-place orders and social distancing. COVID-19 reduced the number of new generation machines available for purchase by prospective customers of our blockchain hosting services, delayed the delivery and implementation of new generation mining machines and reduced demand for services. A resurgence of COVID-19, including the emergence of variant strains of COVID-19, could have a material impact on our business, liquidity, financial condition and results of operations and any such impact will be determined by the severity and duration of the continuing pandemic.
Changes in tariffs or import restrictions could have a material adverse effect on our business, financial condition and results of operations.
Equipment necessary for digital asset mining is almost entirely manufactured outside of the United States. There is currently significant uncertainty about the future relationship between the United States and various other countries, including China, the European Union, Canada, and Mexico, with respect to trade policies, treaties, tariffs and customs duties, and taxes. For example, since 2019, the U.S. government has implemented significant changes to U.S. trade policy with respect to China. These tariffs have subjected certain digital asset mining equipment manufactured overseas to additional import duties of up to 25%. The amount of the additional tariffs and the number of products subject to them has changed numerous times based on action by the U.S. government. These tariffs have increased costs of digital asset mining equipment, and new or additional tariffs or other restrictions on the import of equipment necessary for digital asset mining could have a material adverse effect on our business, financial condition and results of operations.
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A significant portion of our assets are pledged to an entity controlled by our chairman and failure to repay obligations to such entity when due will have a material adverse effect on our business and could result in foreclosure on our assets.
As of June 30, 2022, we owed $1,894,109 to an investment fund controlled by our chairman under a line of credit that permits draws by the company of up to $3,000,000. At maturity on December 1, 2022, the amount due under the line of credit along with accrued interest will be payable in full. Our chairman has indicated a willingness to convert the amount due under the line of credit to convertible preferred stock; however, the terms of the preferred stock have not been determined, and approval of any transaction would be subject to the approval of the disinterested members of our board. Therefore, there is no certainty that any conversion will take place.
It is necessary for us to grow our business in order to generate the free cash flow necessary to repay the principal and interest on our indebtedness. If we were to default on the amounts owed or other terms and conditions of the convertible notes, the lender would have the right to exercise rights and remedies to collect, which would include obtaining judgement lien on our assets and selling them to pay the judgment. A default would have a material adverse effect on our business and our stockholders could lose their entire investment in us.
Delays in the construction of our hosting facilities or significant cost overruns could present significant risks to our business and could have a material adverse effect on our business, financial condition and results of operations.
The servers used for digital asset transaction processing and colocation hosting require the use of facilities (“hosting facilities”) with a highly specialized infrastructure and considerable, reliable power in order to compete effectively. Our growth strategy is to build mining capacity in locations that have reliable sources of low-cost power, and to utilize that capacity to host third-party miners and to host our own proprietary mining equipment. We have opened our initial hosting facility in Trinidad, and continue to search for new locations for hosting facilities, but inside and outside Trinidad. We may face challenges in obtaining suitable land to build new hosting facilities, as we need to work closely with the local power suppliers and local governments of the places where our proposed hosting facilitates are located. Delays in actions that require the assistance of such third parties, in receiving required permits and approvals or in mediations with local communities, if any, may negatively impact our construction timelines and budget or result in any new hosting facilities not being completed at all.
Additional expansion of existing hosting facilities and construction of new hosting facilities is also being contemplated. Such expansion and construction require us to rely on the experience of one or more designers, general contractors and subcontractors, and such designers or contractors may experience financial or other problems during the design or construction process. We may also experience quality control issues as we implement any upgrades in our hosting capacity through the installation and maintenance of chipsets and servers or new cooling technologies such as immersion and water curtain cooling. Our business will be negatively impacted if we are unable to run our mining operations in a way that is technologically advanced, economically and energy efficient and temperature controlled. If we are unsuccessful, we will damage our miners and the miners of third parties and the profitability of our mining operations.
If we experience significant delays in the supply of power required to support any hosting facility expansion or new construction, the progress of such projects could deviate from our original plans, which could cause material and negative effects on our revenue growth, profitability and results of operations. Any material delay in completing these projects, or any substantial cost increases or quality issues in connection with these projects, could materially delay our ability to deliver our hosting capacity, cause us to incur penalties under hosting contracts, result in reduced order volume and materially adversely affect our business, financial condition and results of operations.
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We are subject to risks associated with our need for significant electric power and the limited availability of power resources, which could have a material adverse effect on our business, financial condition and results of operations.
Our mining and hosting services require a significant amount of electric power. The costs of electric power account for a significant portion of our cost of revenue. We require a significant electric power supply to conduct our mining activity and to provide many hosting services we offer, such as powering and cooling our and our customers’ servers and network equipment and operating critical mining and hosting facility and equipment infrastructure.
The amount of power required by us and our customers will increase commensurate with the demand for our services and the increase in miners we operate for ourselves and our hosting customers. While energy costs are not vulnerable to seasonal factors in Trinidad, in some places that we are evaluating for future hosting facilities energy costs and availability are vulnerable to seasonality, with increased costs primarily in the summer months (in the Northern hemisphere) and risks of outages and power grid damage as a result of inclement weather, animal incursion, sabotage and other events out of our control. Although we aim to build and operate energy efficient hosting facilities, there can be no assurance such facilities will be able to deliver sufficient power to meet the growing needs of our business. The cost of power at some of our hosting facilities may be dependent on our ability to perform under power contracts that we are a party to, which we may be unable to do successfully. Pursuant to these power contracts, if we fail to curtail our power usage when called upon or fail to satisfy certain eligibility requirements for monthly bill credits, our power costs would increase. Any system downtime resulting from insufficient power resources or power outages could have a material adverse effect on our business, financial condition and results of operations. Our operations may not be equipped to run on back-up generators in the event of a power outage. Increased power costs and limited availability and curtailment of power resources could reduce our revenue and have a material and adverse effect on our cost of revenue and results of operations.
Any system downtime resulting from insufficient power resources or power outages could have a material adverse effect on our business, financial condition and results of operations. Because the mining portion of our business consumes a large amount of energy, it is not practical or economical for our operations to run on back-up generators in the event of a power outage.
Governments and government regulators may potentially restrict the ability of electricity suppliers to provide electricity to hosting and transaction processing operations such as ours, which could have a material adverse effect on our business, financial condition and results of operations.
Governments or government regulators may potentially restrict electricity suppliers from providing electricity to hosting facilities and hosting and transaction processing operators in times of electricity shortage or may otherwise potentially restrict or prohibit the provision of electricity to transaction process operators like us. Some governments, such as China, have moved to ban all digital asset mining due to the adverse impact such mining has on the environment and/or to conserve the electricity for use by other businesses and consumers in the market. In the event government regulators issue moratoriums or impose bans or restrictions involving hosting operations or transaction processing in jurisdictions in which we operate, we will not be able to continue our operations in such jurisdictions. A moratorium, ban or restriction could have a material adverse effect our business, financial condition and results of operations.
Power outage in our hosting facilities could have a material adverse effect on our business, financial condition and results of operations.
Although we control, operate and have access to our servers and all of the other components of our network, we are still vulnerable to disruptions and power outages resulting from weather, animal incursions, accidents, equipment failures, curtailments, acts of war, sabotage and other events. We may not have backup power generators for our blockchain operations in the event of a power outage. This could impact our ability to generate and maintain contractually specified power levels to our contractual counterparties, which could have a material adverse effect on our business, financial condition and results of operations.
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If we do not accurately predict our hosting 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 hosting facilities constitute a significant portion of our capital and operating expenses. In order to manage growth and ensure adequate capacity for our digital mining operations and new and existing hosting customers while minimizing unnecessary excess capacity costs, we continuously evaluate our short- and long-term data center capacity requirements. If we overestimate our business’ 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 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.
If there are significant changes to the method of validating blockchain transactions, such changes could reduce demand for our blockchain hosting services.
New digital asset transaction protocols are continuously being deployed, and existing and new protocols are in a state of constant change and development. While certain validation protocols currently employ a “proof of work” consensus algorithm, whereby transaction processors are required to expend significant amounts of electrical and computing power to solve complex mathematical problems in order to validate transactions and create new blocks in a blockchain, there may be a shift towards adopting alternative validating protocols. These protocols may include a “proof of stake” algorithm or an algorithm based on a protocol other than proof of work, which may decrease the reliance on computing power as an advantage to validating blocks. Our transaction processing operations, and, to our knowledge, the operations of our potential hosting customers, are currently designed to primarily support a proof of work consensus algorithm. Should the algorithm shift from a proof of work validation method to a proof of stake method, mining would require less energy and may render any company that maintains advantages in the current climate (for example, from lower priced electricity, processing, real estate or hosting) less competitive. As a result of our efforts to optimize and improve the efficiency of our digital asset mining operations, we may be exposed to the risk in the future of losing the benefit of our capital investments and the competitive advantage we hope to gain from this as a result, and may be negatively impacted if a switch to proof of stake validation were to occur. Any such change to transaction validating protocols could have a material adverse effect on our business, financial condition and results of operations.
If we fail to accurately estimate the factors upon which we base our contract pricing, we may generate less profit than expected or incur losses on those contracts, which could have a material adverse effect on our business, financial condition and results of operations.
Our ability to earn a profit on our hosting contracts requires that we accurately estimate the costs involved and outcomes likely to be achieved and assess the probability of generating sufficient hosting and colocation capacity within the contracted time period. While we generally provide in our hosting contracts that our customers are responsible for their allocable share of electricity costs, we must still pay a number of other expenses from our fee, such as facilities costs, equipment costs, supplies, and personnel. In addition, we may not be able to obtain all expected benefits, including tax abatements or government incentives offered in opportunity zones.
Also, we generally do not charge a fixed sum for hosting, but charge a percentage of the Bitcoin mined by the customer. To the extent the price of Bitcoin falls, our fee for hosting services will fall proportionally, and may fall below the cost to provide the hosting services. The inability to accurately estimate the factors upon which we base our contract pricing could have a material adverse effect on our business, financial condition and results of operations.
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Supply chain and shipping disruptions have resulted in shipping delays, a significant increase in shipping costs, and could increase product costs and result in lost sales, which may have a material adverse effect on our business, operating results and financial condition.
Supply chain disruptions, resulting from factors such as the COVID-19 pandemic, labor supply and shipping container shortages, have impacted, and may continue to impact, us and our third-party manufacturers and suppliers. These disruptions have resulted in longer lead times and increased product costs and shipping expenses, including with respect to the delivery of miners that we have purchased. While we have taken steps to minimize the impact of these increased costs by working closely with our suppliers and customers, there can be no assurances that unforeseen events impacting the supply chain will not have a material adverse effect on us in the future. Additionally, the impacts supply chain disruptions have on our third-party manufacturers and suppliers are not within our control. It is not currently possible to predict how long it will take for these supply chain disruptions to cease. Prolonged supply chain disruptions impacting us and our third-party manufacturers and suppliers could interrupt product manufacturing, increased lead times, increased product costs and result in lost sales and bitcoin production, result in a delay in the delivery of miners that we have purchased, and continue to increase shipping costs associated with the delivery of our purchased miners, which may have a material adverse effect on our business, operating results and financial condition.
Banking relationships can be difficult to maintain for companies in the crypto currency space.
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. To the extent that such events may happen to us, they 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 or hold for our own account.
Any failure in the critical systems of our hosting facilities or services we provide could lead to disruptions in our and our customers’ businesses and could harm our reputation and result in financial penalty and legal liabilities, which would reduce our revenue and have a material adverse effect on our business, financial condition and results of operations.
The critical systems of the hosting facilities we operate and the services we provide are subject to failure. Any failure in the critical systems of any hosting facility we operate or services that we provide, including a breakdown in critical plant, equipment or services, routers, switches or other equipment, power supplies or network connectivity, whether or not within our control, could result in service interruptions impacting our customers as well as equipment damage, which could significantly disrupt the normal business operations of our customers, harm our reputation and reduce our revenue. Any failure or downtime in one of the facilities that we operate impact mining rewards generated by us and reduce the profitability of our customers. The total destruction or severe impairment of any of the facilities we operate could result in significant downtime of our services and loss of customer data. Since our ability to attract and retain customers depends on our ability to provide highly reliable service, even minor interruptions in our service could harm our reputation and negatively impact our revenue and profitability. The services we provide are subject to failures resulting from numerous factors, including:
| • | power loss; |
| • | equipment failure; |
| • | human error or accidents; |
| • | theft, sabotage and vandalism; |
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| • | failure by us or our suppliers to provide adequate service or maintain our equipment; |
| • | network connectivity downtime and fiber cuts; |
| • | service interruptions resulting from server relocation; |
| • | security breaches of our infrastructure; |
| • | improper building maintenance by us; |
| • | physical, electronic and cybersecurity breaches; |
| • | animal incursions; |
| • | fire, earthquake, hurricane, tornado, flood and other natural disasters; |
| • | extreme temperatures; |
| • | water damage; |
| • | public health emergencies; and |
| • | terrorism. |
Moreover, service interruptions and equipment failures may expose us to potential legal liability. As our services are critical to our customers’ business operations, any disruption in our services could result in lost profits of or other indirect or consequential damages to our customers. Although our customer contracts typically contain provisions limiting our liability for service outages causes by factors beyond our control, there can be no assurance that a court would enforce any contractual limitations on our liability in the event that one of our customers brings a lawsuit against us as the result of a service interruption that they may ascribe to us. The outcome of any such lawsuit would depend on the specific facts of the case and any legal and policy considerations that we may not be able to mitigate. In such cases, we could be liable for substantial damage awards, which would as a result have a material adverse effect on our business, financial condition and results of 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 directors and other employees. In particular, it is difficult to locate experienced executives in our industry and offer them competitive salaries at this stage in our development. We may be unable to retain our directors, senior executives and key personnel or attract and retain new directors, senior executives and key personnel in the future, any of which could have a material adverse effect on our business, financial condition and results of operations. At this time, we are not paying any salaries to certain members of our management team, and are not paying market salaries to the remainder. There is no assurance that we will be able to retain any member of management while we are unable to competitive compensation and benefits to management.
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Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business, which in turn could have a material adverse effect on our business, financial condition and results of operation.
We believe our success depends on the efforts and talent of our employees, including hosting facility design, construction management, operations, data processing, engineering, IT, risk management and sales and marketing personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for 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. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and our ability to serve our customers could diminish, resulting in a material adverse effect on our business, financial condition and results of operations. At this time, we lack the resources to hire all of the skilled employees that we need to properly operate our business.
We may be vulnerable to security breaches, which could disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.
A party who is able to compromise the physical security measures protecting our hosting facilities could cause interruptions or malfunctions in our operations and misappropriate our property or the property of our customers. As we provide assurances to our customers that we provide the highest level of security, such a compromise could be particularly harmful to our brand and reputation. We may be required to expend significant capital and resources to protect against such threats or to alleviate problems caused by breaches in security. As techniques used to breach security change frequently and are often not recognized until launched against a target, we may not be able to implement new security measures in a timely manner or, if and when implemented, we may not be certain whether these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, regulatory penalties, loss of existing or potential customers, harm to our reputation and increases in our security costs, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, any assertions of alleged security breaches or systems failure made against us, whether true or not, could harm our reputation, cause us to incur substantial legal fees and have a material adverse effect on our business, financial condition and results of operations. Whether or not any such assertion actually develops into litigation, our management may be required to devote significant time and attention to dispute resolution (through litigation, settlement or otherwise), which would detract from our management’s ability to focus on our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant. In addition, any such resolution could involve our agreement with terms that restrict the operation of our business. Any such resolution, including the resources exhausted in connection therewith, could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, 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 assets.
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We are subject to litigation risks.
We may be subject to litigation arising out of our operations. Damages claimed under such litigation may be material, and the outcome of such litigation may materially impact our operations, and the value of the common shares. While we will assess the merits of any lawsuits and defend such lawsuits accordingly, we may be required to incur significant expense or devote significant financial resources to such defenses. In addition, the adverse publicity surrounding such claims may have a material adverse effect on our operations.
We may be exposed to cybersecurity threats and hacks, which could have a material adverse effect on our business, financial condition and results of operations.
The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our computer servers and computer systems may be vulnerable to cybersecurity risks, including denial-of-service attacks, physical or electronic break-ins, employee theft or misuse and similar disruptions from unauthorized tampering with our computer servers and computer systems. The preventive actions we take to reduce the risk of cyber incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future. To the extent that any disruption or security breach results in a loss or damage to our network, in unauthorized disclosure of confidential information or in a loss of our digital assets, it could cause significant damage to our reputation, lead to claims against us and ultimately have a material adverse effect on our business, financial condition and results of operations. Additionally, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
Our future success depends on our ability to keep pace with rapid technological changes that could make our current or future technologies less competitive or obsolete.
Rapid, significant and disruptive technological changes continue to impact our industry. The infrastructure at our hosting facilities may become less marketable due to demand for new processes and technologies, including, without limitation: (i) new processes to deliver power to, or eliminate heat from, computer systems; (ii) customer demand for additional redundancy capacity; (iii) new technology that permits higher levels of critical load and heat removal than our hosting facilities are currently designed to provide; (iv) an inability of the power supply to support new, updated or upgraded technology; and (v) a shift to more power-efficient transaction validation protocols. In addition, the systems that connect our hosting facilities to the Internet and other external networks may become insufficient, including with respect to latency, reliability and diversity of connectivity. We may not be able to adapt to changing technologies, identify and implement new alternatives successfully or meet customer demands for new processes or technologies in a timely and cost-effective manner, if at all, which would have a material adverse effect on our business, financial condition and results of operations.
Even if we succeed in adapting to new processes and technologies, there is no assurance that our use of such new processes or technology would have a positive impact on our financial performance. For example, we could incur substantial additional costs if we needed to materially improve our hosting center infrastructure through the implementation of new systems or new server technologies that require levels of critical load and heat removal that our facilities are not currently designed to provide. In addition, if one of our new offerings were competitive to our prior offerings and represented an adequate or superior alternative, customers could decide to abandon prior offerings that produce higher revenue or better margins for the new offering. Therefore, the adaptation to new processes and technologies could result in lower revenue, lower margins and/or higher costs, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, our competitors or others might develop technologies that are more effective than our current or future technologies, or that render our technologies less competitive or obsolete. Further, many of our competitors may have superior financial and human resources deployed toward research and development efforts. We may not be able to effectively keep pace with relevant technological changes. If competitors introduce superior technologies for hosting operations or transaction processing, and we cannot make upgrades to our hardware or software to remain competitive, it could have a material adverse effect on our business, financial condition and results of operations.
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Our compliance and risk management methods might not be effective and may result in outcomes that could adversely affect our reputation, operating results, and financial condition.
Our ability to comply with applicable complex and evolving laws, regulations, and rules is largely dependent on the establishment and maintenance of our compliance, audit, and reporting systems, as well as our ability to attract and retain qualified compliance and other risk management personnel. While we plan to devote significant resources to develop policies and procedures to identify, monitor and manage our risks, we cannot assure you that our policies and procedures will always be effective against all types of risks, including unidentified or unanticipated risks, or that we will always be successful in monitoring or evaluating the risks to which we are or may be exposed in all market environments.
We may infringe on third-party intellectual property rights or other proprietary rights, which could have a material adverse effect on our business, financial condition and results of operations.
Our commercial success depends on our ability to operate without infringing third-party intellectual property rights or other proprietary rights. For example, there may be issued patents of which we are not aware that our services or products infringe on. Also, there may be patents we believe we do not infringe on, but that we may ultimately be found to by a court of law or government regulatory agency. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our services or products allegedly infringe on.
If a third party brings any claim against us based on third-party intellectual property rights and/or other proprietary rights, we will be required to spend significant resources to defend and challenge such claim, as well as to invalidate any such rights. Any such claim, if initiated against us, whether or not it is resolved in our favor, could result in significant expense to us, and divert the efforts of our technical and management personnel, which could have a material adverse effect on our business, financial condition and results of operations.
The further development and acceptance of cryptographic and algorithmic protocols governing transaction validation and the issuance of, and transactions in, digital assets are subject to a variety of factors that are difficult to evaluate. The slowing or stoppage of development or acceptance of blockchain networks and digital assets would have an adverse material effect on the successful development of the mining operation and value of mined digital assets.
The use of digital assets to, among other things, buy and sell goods and services, is part of a new and rapidly evolving industry that employs digital assets based upon a computer-generated mathematical and/or cryptographic protocol. The future of this industry is subject to a high degree of uncertainty. The factors affecting the further development of this industry include, but are not limited to:
| • | continued worldwide growth in the adoption and use of digital assets and blockchain technologies; |
| • | government and quasi-government regulation of digital assets and their use, or restrictions on or regulation of access to and operations of digital asset transaction processing; |
| • | changes in consumer demographics and public tastes and preferences; |
| • | the maintenance and development of the open-source software protocols or similar digital asset systems; |
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| • | the availability and popularity of other forms or methods of buying and selling goods and services, or trading assets including new means of using fiat currencies; |
| • | general economic conditions and the regulatory environment relating to digital assets; and |
| • | negative consumer perception of digital assets, including digital assets specifically and digital assets generally. |
| • | a decline in the popularity or acceptance of digital assets could materially impact us or our potential hosting customers, which could have a material adverse effect on our business, financial condition and results of operations. |
We may not be able to adequately protect our intellectual property rights and other proprietary rights, which could have a material adverse effect on business, financial condition and results of operations.
We may not be able to obtain broad protection in the United States or internationally for all of our existing and future intellectual property and other proprietary rights, and we may not be able to obtain effective protection for our intellectual property and other proprietary rights in every country in which we operate. Protecting our intellectual property rights and other proprietary rights may require significant expenditure of our financial, managerial and operational resources. Moreover, the steps that we may take to protect our intellectual property and other proprietary rights may not be adequate to protect such rights or prevent third parties from infringing or misappropriating such rights. Any of our intellectual property rights and other proprietary rights, whether registered, unregistered, issued or unissued, may be challenged by others or invalidated through administrative proceedings and/or litigation.
We may be required to spend significant resources to secure, maintain, monitor and protect our intellectual property rights and other proprietary rights. Despite our efforts, we may not be able to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights and other proprietary rights. We may initiate claims, administrative proceedings and/or litigation against others for infringement, misappropriation or violation of our intellectual property rights or other proprietary rights to enforce and/or maintain the validity of such rights. Any such action, if initiated, whether or not it is resolved in our favor, could result in significant expense to us, and divert the efforts of our technical and management personnel, which may have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Limited Operating History and Early Stage of Growth
We operate in a rapidly developing industry and have an evolving business model with no history of generating revenue from our 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.
We may adjust our business model further from time to time, including trying to offer additional types of products or services, such as a blockchain application designed by us, blockchain services and other related businesses, or entering into strategic partnerships or acquisitions. The evolution of and modifications to our business strategy will continue to increase the complexity of our business and 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 that are not favorably received by the market could damage our reputation or our brand. There can be no assurance that we will ever generate sufficient revenues or achieve profitably in the future or that we will have adequate working capital to meet our obligations as they become due.
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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.
We may not be able to compete effectively against our current and future competitors, which could have a material adverse effect on our business, financial condition and results of operations.
The digital asset mining industry is highly innovative, rapidly evolving and characterized by healthy competition, experimentation, frequent introductions of new products and services and uncertain and evolving industry and regulatory requirements. We expect competition to further intensify in the future as existing and new competitors introduce new products or enhance existing products. We compete against a number of companies operating both within the United States and abroad, that have greater financial and other resources and that focus on digital asset mining, including businesses focused on developing substantial Bitcoin mining operations. If we are unable to compete successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, operating results and financial condition could be adversely affected.
We compete with a range of hosting providers and blockchain providers for some or all of the services we offer. We face competition from numerous developers, owners and operators in the blockchain industry, including technology companies, such as hyperscale cloud players, managed service providers and real estate investment trusts (“REITs”), some of which own or lease properties similar to ours, or may do so in the future, in the same submarkets in which our properties are located. Cloud offerings may also influence our customers to move workloads to cloud providers, which may reduce the services they obtain from us. Our current and future competitors may vary from us in size, service offerings and geographic presence.
Competition is primarily centered on reputation and track record; design, size, quality, available power and geographic coverage of hosting space; quality of installation and customer equipment repair services; relationships with equipment manufacturers and ability to obtain replacement parts; technical and software expertise; and financial strength and price. Some of our current and future competitors may have greater brand recognition, longer operating histories, stronger marketing, technical and financial resources and access to greater and less expensive power than we do.
In addition, many companies in the industry are consolidating, which could further increase the market power of our competitors. As a result, some of our competitors may be able to:
| • | identify and acquire desirable properties that we are interested in from developers; |
| • | offer hosting services at prices below current market rates or below the prices we currently charge our customers; |
| • | bundle colocation services with other services or equipment they provide at reduced prices; |
| • | develop superior products or services, gain greater market acceptance and expand their service offerings more efficiently or rapidly; |
| • | adapt to new or emerging technologies and changes in customer requirements more quickly; |
| • | take advantage of acquisition and other opportunities more readily; and |
| • | adopt more aggressive pricing policies and devote greater resources to the promotion, marketing and sales of their services. |
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We operate in a competitive market, and we face pricing pressure with respect to our hosting services. Prices for our hosting services are affected by a variety of factors, including supply and demand conditions and pricing pressures from our competitors. We may be required to lower our prices to remain competitive, which may decrease our margins and could have a material adverse effect on our business, financial condition and results of operations.
In addition, we also face significant competition from other users and/or companies that are processing transactions on one or more digital asset networks, as well as other potential financial vehicles, including securities, derivatives or futures backed by, or linked to, digital assets through entities similar to us, such as exchange-traded funds. Market and financial conditions, and other conditions beyond our control, may make it more attractive to invest in other financial vehicles, or to invest in digital assets directly. Such events could have a material adverse effect on our business, financial condition and results of operations and potentially the value of any digital assets we hold or expect to acquire for our own account.
Our projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding the demand for our hosting services and the adoption of Bitcoin and other digital assets. As a result, our projected revenues, market share, expenses and profitability may differ materially from our expectations in any given quarter or fiscal year.
We operate in a rapidly changing and competitive industry and our projections are subject to the risks and assumptions made by management with respect to our industry. Operating results are difficult to forecast as they generally depend on our assessment of the timing of adoption and use of Bitcoin and other digital assets, which is uncertain. Furthermore, as we invest in the development of our hosting and self-mining business, whether because of competition or otherwise, we may not recover the substantial up-front costs of constructing, developing and maintaining our hosting facilities and purchasing the latest generation of miners or recover the opportunity cost of diverting management and financial resources away from other opportunities. Additionally, our business may be affected by reductions in miner demand for hosting facilities and services and the price of Bitcoin and other digital assets as a result of a number of factors which may be difficult to predict. Similarly, our assumptions and expectations with respect to margins and the pricing of our hosting services and market price of Bitcoin or other digital assets we mine may not prove to be accurate. This may result in decreased revenue, and we may be unable to adopt measures in a timely manner to compensate for any unexpected shortfall in revenue. This inability could cause our operating results in a given quarter or year to be higher or lower than expected. If actual results differ from our estimates, analysts or investors may negatively react and our stock price could be materially impacted.
We may experience difficulties in establishing relationships with banks, leasing companies, insurance companies and other financial institutions that are willing to provide us with customary financial products and services, which could have a material adverse effect on our business, financial condition and results of operations.
As an early stage company with operations focused in the digital asset transaction processing industry, we may in the future experience difficulties in establishing relationships with banks, leasing companies, insurance companies and other financial institutions that are willing to provide us with customary leasing and financial products and services, such as bank accounts, lines of credit, insurance and other related services, which are necessary for our operations. To the extent a significant portion of our business consists of digital asset transaction mining, processing or hosting, we may in the future continue to experience difficulty obtaining additional financial products and services on customary terms, which could have a material adverse effect on our business, financial condition and results of operations.
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Risks Related to Regulatory Framework
If we were deemed an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
An issuer will generally be deemed to be an “investment company” for purposes of the 1940 Act if:
| • | it is an “orthodox” investment company because it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or |
| • | it is an inadvertent investment company because, absent an applicable exemption, it owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. |
We believe that we are not and will not be primarily engaged in the business of investing, reinvesting or trading in securities, and we do not hold ourselves out as being engaged in those activities. We intend to hold ourselves out as a digital asset mining business. Accordingly, we do not believe that we are an “orthodox” investment company as described in the first bullet point above.
While certain digital assets may be deemed to be securities, we do not believe that certain other digital assets, in particular Bitcoin, are securities; therefore, we believe that less than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis will comprise digital assets that could be considered investment securities. Accordingly, we do not believe that we are an inadvertent investment company by virtue of the 40% inadvertent investment company test as described in the second bullet point above. Although we do not believe any of the digital assets we may own, acquire or mine are securities, there is still some regulatory uncertainty on the subject, see “Risk Factors — There is no one unifying principle governing the regulatory status of digital assets nor whether digital assets are securities in any particular context. Regulatory changes or actions in one or more countries may alter the nature of an investment in us or restrict the use of digital assets in a manner that adversely affects our business, prospects or operations.” If certain digital assets, including Bitcoin, were to be deemed securities, and consequently, investment securities by the SEC, we could be deemed an inadvertent investment company.
If we were to be deemed an inadvertent investment company, we may seek to rely on Rule 3a-2 under the 1940 Act, which allows an inadvertent investment company a grace period of one year from the earlier of (a) the date on which the issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis or (b) the date on which the issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We are putting in place policies that we expect will work to keep the investment securities held by us at less than 40% of our total assets, which may include acquiring assets with our cash, liquidating our investment securities or seeking no-action relief or exemptive relief from the SEC if we are unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner. As Rule 3a-2 is available to an issuer no more than once every three years, and assuming no other exclusion were available to us, we would have to keep within the 40% limit for at least three years after we cease being an inadvertent investment company. This may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. In any event, we do not intend to become an investment company engaged in the business of investing and trading securities.
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Finally, we believe we are not an investment company under Section 3(b)(1) of the 1940 Act because we are primarily engaged in a non-investment company business.
The 1940 Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to continue to conduct our operations so that we will not be deemed to be an investment company under the 1940 Act. However, if anything were to happen that would cause us to be deemed to be an investment company under the 1940 Act, requirements imposed by the 1940 Act, including limitations on our capital structure, ability to transact business with affiliates and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among us and our senior management team and materially and adversely affect our business, financial condition and results of operations.
Any change in the interpretive positions of the SEC or its staff with respect to digital asset mining firms could have a material adverse effect on us.
We intend to conduct our operations so that we are not required to register as an investment company under the 1940 Act. Specifically, we do not believe that digital assets, are securities. The SEC Staff has not provided guidance with respect to the treatment of these assets under the 1940 Act. To the extent the SEC Staff publishes new guidance with respect to these matters, we may be required to adjust our strategy or assets accordingly. There can be no assurance that we will be able to maintain our exclusion from registration as an investment company under the 1940 Act. In addition, as a consequence of our seeking to avoid the need to register under the 1940 Act on an ongoing basis, we may be limited in our ability to engage in digital asset mining operations or otherwise make certain investments, and these limitations could result in our holding assets we may wish to sell or selling assets we may wish to hold, which could materially and adversely affect our business, financial condition and results of operations.
If regulatory changes or interpretations of our activities require our registration as a money services business (“MSB”) under the regulations promulgated by the Financial Crimes Enforcement Network (“FinCEN”) under the authority of the U.S. Bank Secrecy Act, or otherwise under state laws, we may incur significant compliance costs, which could be substantial or cost-prohibitive. If we become subject to these regulations, our costs in complying with them may have a material negative effect on our business and the results of our operations.
To the extent that our activities cause us to be deemed an MSB under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act, we may be required to comply with FinCEN regulations, including those that would mandate us to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records.
To the extent that our activities would cause us to be deemed a “money transmitter” (“MT”) or equivalent designation, under state law in any state in which we may operate, we may be required to seek a license or otherwise register with a state regulator and comply with state regulations that may include the implementation of anti-money laundering programs, maintenance of certain records and other operational requirements. For example, in August 2015, the New York State Department of Financial Services enacted the first U.S. regulatory framework for licensing participants in “virtual currency business activity.” The regulations, known as the “BitLicense,” are intended to focus on consumer protection and regulate the conduct of businesses that are involved in “virtual currencies” in New York or with New York customers and prohibit any person or entity involved in such activity to conduct activities without a license.
Such additional federal or state regulatory obligations may cause us to incur extraordinary expenses. Furthermore, we may not be capable of complying with certain federal or state regulatory obligations applicable to MSBs and MTs. If we are deemed to be subject to and determine not to comply with such additional regulatory and registration requirements, we may act to dissolve and liquidate.
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There is no one unifying principle governing the regulatory status of digital assets nor whether digital assets are securities in any particular context. Regulatory changes or actions in one or more countries may alter the nature of an investment in us or restrict the use of digital assets in a manner that adversely affects our business, prospects or operations.
As digital assets have grown in both popularity and market size, governments around the world have reacted differently, with certain governments deeming digital assets illegal, and others allowing their use and trade without restriction. In some jurisdictions, such as in the U.S., digital assets are subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements.
Bitcoin is the oldest and most well-known form of digital asset. Bitcoin and other forms of digital assets have been the source of much regulatory consternation, resulting in differing definitional outcomes without a single unifying statement. Bitcoin and other digital assets are viewed differently by different regulatory and standards setting organizations globally as well as in the United States on the federal and state levels. For example, the Financial Action Task Force considers a digital asset as currency or an asset, and the Internal Revenue Service (“IRS”) considers a digital asset as property and not currency. Further, the IRS applies general tax principles that apply to property transactions to transactions involving virtual currency.
Furthermore, in the several applications to establish an exchange traded fund (“ETF”) of digital assets, and in the questions raised by the Staff under the 1940 Act, no clear principles emerge from the regulators as to how they view these issues and how to regulate digital assets under the applicable securities acts. It has been widely reported that the SEC has recently issued letters and requested various ETF applications be withdrawn because of concerns over liquidity and valuation and unanswered questions about absence of reporting and compliance procedures capable of being implemented under the current state of the markets for exchange traded funds. On April 20, 2021, the U.S. House of Representatives passed a bipartisan bill titled “Eliminate Barriers to Innovation Act of 2021” (H.R. 1602). If passed by the Senate and enacted into law, the bipartisan bill would create a digital assets working group to evaluate the current legal and regulatory framework around digital assets in the United States and define when the SEC may have jurisdiction over a particular token or digital asset (i.e., when it is a security) and when the U.S. Commodity Futures Trading Commission (the “CFTC”) may have jurisdiction (i.e., when it is a commodity).
If regulatory changes or interpretations require the regulation of Bitcoin or other digital assets under the securities laws of the United States or elsewhere, including the Securities Act, the Exchange Act and the 1940 Act or similar laws of other jurisdictions and interpretations by the SEC, the CFTC, the IRS, Department of Treasury or other agencies or authorities, we may be required to register and comply with such regulations, including at a state or local level. To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in extraordinary expense or burdens to us. We may also decide to cease certain operations and change our business model. Any disruption of our operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to us.
Current and future legislation and SEC-rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoin or other digital assets are viewed or treated for classification and clearing purposes. In particular, Bitcoin and other digital assets may not be excluded from the definition of “security” by SEC rulemaking or interpretation requiring registration of all transactions unless another exemption is available, including transacting in Bitcoin or digital assets among owners and require registration of trading platforms as “exchanges.”
Furthermore, the SEC may determine that certain digital assets or interests may constitute securities under the “Howey” test as stated by the United States Supreme Court. We do not believe our planned mining activities would require registration for us to conduct such activities and accumulate digital assets. However, the SEC, CFTC, IRS, stock exchanges, or other governmental or quasi-governmental agency or organization may conclude that our activities involve the offer or sale of “securities,” or ownership of “investment securities,” and we may be subject to regulation or registration requirements under various federal laws and related rules. Such regulation or the inability to meet the requirements to continue operations, would have a material adverse effect on our business and operations. We may also face similar issues with various state securities regulators who may interpret our actions as subjecting us to regulation, or requiring registration, under state securities laws, banking laws, or money transmitter and similar laws, which are also an unsettled area or regulation that exposes us to risks.
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Regulatory changes or actions may restrict the use of digital assets or the operation of digital asset networks in a manner that may require us to cease certain or all operations, which could have a material adverse effect on our business, financial condition and results of operations.
Recently, there has been a significant amount of regulatory attention directed toward digital assets, digital asset networks and other industry participants by United States federal and state governments, foreign governments and self-regulatory agencies. For example, as digital assets such as Bitcoin have grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., FinCEN, the SEC, the CFTC and the Federal Bureau of Investigation) have begun to examine the operations of the Bitcoin network, Bitcoin users and Bitcoin exchange markets.
In addition, local state regulators such as the Texas State Securities Board, the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth, the New Jersey Bureau of Securities, the North Carolina Secretary of State’s Securities Division and the Vermont Department of Financial Regulation have initiated actions against, and investigations of, individuals and companies involved in digital assets.
Also, in March 2018, the South Carolina Attorney General Office’s Security Division issued a cease-and-desist order against Genesis Mining and Swiss Gold Global, Inc., stating that both companies were to stop doing business in South Carolina and are permanently barred from offering securities in the state in the future since they offered unregistered securities via cloud mining contracts under the South Carolina Uniformed Securities Act of 2005, S.C. Code Ann. § 35-1-101, et seq. (the order against Genesis Mining was subsequently withdrawn).
Further, the North Carolina Secretary of State’s Securities Division issued in March 2018 a Temporary Cease and Desist Order against Power Mining Pool (made permanent pursuant to a Final Order on April 19, 2018), ordering it to cease and desist, among other things, offering “mining pool shares,” which were deemed “securities” under N.C. Gen. Stat. 78A-2(11), in North Carolina until they are registered with the North Carolina Secretary of State or are offered for sale pursuant to an exemption from registration under the North Carolina Securities Act, N.C. Gen. Stat. Chapter 78A.
Additionally, we rely on third-party mining pool service providers for mining revenue payouts from our mining operation, and certain of our potential hosting customers could be involved in, or could issue, cloud mining contracts or mining pool shares, and any regulatory restrictions on their practices could significantly reduce demand for our hosting services. Furthermore, it is possible that laws, regulations or directives that affect digital assets, digital asset transaction processing or blockchain server hosting may change in a manner that may adversely affect our ability to conduct our business and operations in the relevant jurisdiction.
In addition, various foreign jurisdictions either have adopted or may adopt laws, regulations or directives that affect digital assets, digital asset networks and their users and hosting service providers that fall within such jurisdictions’ regulatory scope. Such laws, regulations or directives may conflict with those of the United States, may negatively impact the acceptance of digital assets by users, merchants and service providers outside of the United States and may therefore impede the growth of digital asset use. A number of countries, including India, China, South Korea and Russia, among others, currently have a more restrictive stance toward digital assets and, thereby, have reduced the rate of expansion of digital asset use, as well as digital asset transaction processing, in each of those countries. For example, in January 2018, several media publications reported that a Chinese multiagency government task force overseeing risk in Internet finance issued a notice ordering local authorities to guide the shutdown of digital asset transaction processing in China. However, the People’s Bank of China immediately refuted such reports, indicating that digital asset transaction processing is still permitted in China. As a result of such conflicting positions taken within the Chinese government, a number of digital asset transaction processing operators have moved their operations from China to other jurisdictions in order to build in more regulatory certainty in their operations.
Governments may in the future take regulatory actions that prohibit or severely restrict the right to acquire, own, hold, sell, use or trade digital assets or to exchange digital assets for fiat currency. Ownership of, holding or trading in digital assets may then be considered illegal and subject to sanction. Governments may also take regulatory action that may increase the cost and/or subject digital asset mining companies to additional regulation.
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By extension, similar actions by governments may result in the restriction of the acquisition, ownership, holding, selling, use or trading in the capital stock of digital asset mining companies, including our common stock. Such a restriction could result in us liquidating our digital asset inventory at unfavorable prices and may adversely affect our shareholders. The effect of any regulatory change, either by federal, state, local or foreign governments or any self-regulatory agencies, on us or our potential hosting customers is impossible to predict, but such change could be substantial and may require us or our potential hosting customers to cease certain or all operations and could have a material adverse effect on our business, financial condition and results of operations.
Current and future legislation and rulemaking regarding digital assets may result in extraordinary, non-recurring expenses and could have a material adverse effect on our business, financial condition and results of operations.
Current and future legislation and rulemaking by the CFTC and SEC or other regulators, including interpretations released by a regulatory authority, may impact the manner in which digital assets are treated. For example, digital assets derivatives are not excluded from the definition of “commodity future” by the CFTC. Furthermore, according to the CFTC, digital assets fall within the definition of a commodity under the Commodities Exchange Act (the “CEA”) and as a result, we may be required to register and comply with additional regulations under the CEA, including additional periodic reporting and disclosure standards and requirements. We may also be required to register as a commodity pool operator and to register as a commodity pool with the CFTC through the National Futures Association. If we are required to register with the CFTC or another governmental or self-regulatory authority, the scope of our business and operations may be constrained by the rules of such authority and we may be forced to incur additional expenses in the form of licensing fees, professional fees and other costs of compliance.
The SEC has issued guidance and made numerous statements regarding the application of securities laws to digital assets. The SEC’s guidance has included its position that the initial offering of digital currencies for the purpose of raising capital constitutes a securities transaction, and therefore are subject to the federal securities laws.
Although our activities are not focused on raising capital or assisting others that do so, the federal securities laws are very broad. We cannot provide assurance as to whether the SEC will continue or increase its enforcement with respect to digital assets, including taking enforcement action against any person engaged in the sale of unregistered securities in violation of the Securities Act or any person acting as an unregistered investment company in violation of the Investment Company Act of 1940, as amended (the “Investment Company Act”). Because the SEC has held that certain digital assets are securities based on the current rules and law, we may be required to register and comply with the rules and regulations under federal securities laws.
We cannot be certain as to how future regulatory developments will impact the treatment of digital assets under the law, including, but not limited to, whether digital assets will be classified as a security, commodity, currency and/or new or other existing classification. Such additional regulations may result in extraordinary, non- recurring expenses, thereby materially and adversely affecting an investment in us. If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease certain or all of our operations. Any such action could have a material adverse effect on our business, financial condition and results of operations.
Federal or state agencies may impose additional regulatory burdens on our business. Changing laws and regulations and changing enforcement policies and priorities have the potential to cause additional expenditures, restrictions, and delays in connection with our business operations.
Federal and state laws and regulations may be subject to change or changes in enforcement policies or priorities, including changes that may result from changes in the political landscape and changing technologies. Future legislation and regulations, changes to existing laws and regulations, or interpretations thereof, or changes in enforcement policies or priorities, could require significant management attention and cause additional expenditures, restrictions, and delays in connection with our business operations.
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Increasing scrutiny and changing expectations from investors, lenders, customers, government regulators and other market participants with respect to our Environmental, Social and Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks.
Companies across all industries and around the globe are facing increasing scrutiny relating to their ESG policies. Investors, lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. In February 2021, the Acting Chair of the SEC issued a statement directing the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings and in March 2021 the SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement. The increased focus and activism related to ESG may hinder our access to capital, as investors and lenders may reconsider their capital investment allocation as a result of their assessment of our ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder expectations and standards and potential government regulations, which are evolving but may relate to the suitable deployment of electric power, or which are perceived to have not responded appropriately to the growing concern for ESG issues, our reputation may suffer, which would have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Digital Assets
Because there has been limited precedent set for financial accounting for Bitcoin and other digital assets, the determinations that we have made for how to account for digital assets transactions may be subject to change.
Because there has been limited precedent set for the financial accounting for Bitcoin and other digital assets and related revenue recognition and no official guidance has yet been provided by the Financial Accounting Standards Board or the SEC, it is unclear how companies may in the future be required to account for digital asset transactions and assets and related revenue recognition. A change in regulatory or financial accounting standards could result in the necessity to change the accounting methods we currently intend to employ in respect of our anticipated revenues and assets and restate any financial statements produced based on those methods. Such a restatement could adversely affect our business, prospects, financial condition and results of operation.
Digital assets exchanges and other trading venues are relatively new and, in some cases, partially unregulated and may therefore be more exposed to fraud and failure.
To the extent that digital asset exchanges or other trading venues are involved in fraud or experience security failures or other operational issues, a reduction in digital asset prices could occur. Digital asset market prices depend, directly or indirectly, on the prices set on exchanges and other trading venues, which are new and, in most cases, largely unregulated as compared to established, regulated exchanges for securities, derivatives and other currencies. For example, during the past three years, a number of Bitcoin exchanges have been closed due to fraud, business failure or security breaches. Failures of digital asset companies have accelerated in 2022 with the substantial drop in digital assets prices. In many of these instances, the customers of the closed Bitcoin exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin exchanges. While smaller exchanges are less likely to have the infrastructure and capitalization that provide larger exchanges with additional stability, larger exchanges may be more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information, or gain access to private computer systems) and may be more likely to be targets of regulatory enforcement action. Continued failures of digital asset companies, and resulting customer losses, could create a crisis of confidence in digital assets that jeopardizes the future of the industry, and by extension our business.
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Digital asset transactions are irrevocable and, if stolen or incorrectly transferred, digital assets may be irretrievable. As a result, any incorrectly executed digital asset transactions could have a material adverse effect on our business, financial condition and results of operations.
Typically, digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on the applicable network. Once a transaction has been confirmed and verified in a block that is added to the network blockchain, an incorrect transfer of a digital asset or a theft of a digital asset generally will not be reversible and we may not be capable of seeking compensation for any such transfer or theft. Although transfers of any digital assets we hold will regularly be made to or from vendors, consultants, services providers, etc., it is possible that, through computer or human error, or through theft or criminal action, our digital assets could be transferred from us in incorrect amounts or to unauthorized third parties. To the extent that we are unable to seek a corrective transaction with such third party or are incapable of identifying the third party that has received our digital assets through error or theft, we will be unable to revert or otherwise recover our incorrectly transferred digital assets. To the extent that we are unable to seek redress for such error or theft, such loss could have a material adverse effect on our business, financial condition and results of operations.
We may not have adequate sources of recovery if the digital assets held by us are lost, stolen or destroyed due to third-party digital asset services, which could have a material adverse effect on our business, financial condition and results of operations.
Certain digital assets held by us may be a third-party digital asset service. We intend to evaluate the security procedures of any third party service to ensure that its dual authentication security, secured facilities, segregated accounts and cold storage are reasonably designed to safeguard our Bitcoin from theft, loss, destruction or other issues relating to hackers and technological attack. Nevertheless, the security procedures cannot guarantee the prevention of any loss due to a security breach, software defect or act of God that may be borne by us. In addition, our service providers may be have limited liability under their services agreement, which may limit our ability to recover losses relating to our Bitcoin. If such digital assets are lost, stolen or destroyed under circumstances rendering a third party liable to us, it is possible that the responsible third party may not have the financial resources or insurance sufficient to satisfy any or all of our claims against the third party, or have the ability to retrieve, restore or replace the lost, stolen or destroyed digital assets due to governing network protocols and the strength of the cryptographic systems associated with such digital assets. To the extent that we are unable to recover on any of our claims against any such third party, such loss could have a material adverse effect on our business, financial condition and results of operations.
Losses relating to our business may be uninsured, or insurance may be limited.
Our hosting and colocation operations are subject to hazards and risks normally associated with the daily operations of hosting facilities. Currently, we do not have any insurance, except for insurance covering loss of equipment while in transit. Once our operations become more significant, we plan to obtain insurance that is standard for businesses of our nature, including insurance covering business interruption for lost profits, property and casualty, public liability, commercial employee, workers’ compensation, personal property and auto liability. However, until we procure such insurance, we are subject to wide variety of business risks without any insurance to reimburse us for any damages we suffer. However, it may not be possible, either because of a lack of available policies, limits on coverage or prohibitive cost, for us to obtain insurance of any type that would cover losses associated with our digital asset portfolio. In general, we anticipate that certain losses related to our business may be uninsurable, or the cost of insuring against these losses may not be economically justifiable.
The digital assets held by us are not insured. Therefore, a loss may be suffered with respect to our digital assets which is not covered by insurance and for which no person is liable in damages which could adversely affect our operations and, consequently, an investment in us.
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The impact of geopolitical, economic or other events on the supply of and demand for digital assets is uncertain, but could motivate large-scale sales of digital assets, which could result in a reduction in the price of such digital asset and could have a material adverse effect on our business, financial condition and results of operations.
As an alternative to fiat currencies that are backed by central governments, digital assets, 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. It is unclear how this supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of digital assets either globally or locally. Large-scale sales of digital assets likely would result in a reduction in the price of the subject digital asset and could have a material adverse effect on our business, financial condition and results of operations.
Digital assets, such as Bitcoin, face significant scaling obstacles that can lead to high fees or slow transaction settlement times and any mechanisms of increasing the scale of digital asset settlement may significantly alter the competitive dynamics in the market.
Digital assets 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. Scaling digital assets, and particularly Bitcoin, is essential to the widespread acceptance of digital assets as a means of payment, which is necessary to the growth and development of our business.
Many digital asset networks face significant scaling challenges. For example, digital assets are limited with respect to how many transactions can occur per second. In this respect, Bitcoin may be particularly affected as it relies on the “proof of work” validation, which due to its inherent characteristics may be particularly hard to scale to allow simultaneous processing of multiple daily transactions by users. Participants in the digital asset ecosystem debate potential approaches to increasing the average number of transactions per second that the network can handle and have implemented mechanisms or are researching ways to increase scale, such as “sharding,” which is a term for a horizontal partition of data in a database or search engine, which would not require every single transaction to be included in every single miner’s or validator’s block.
There is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement of digital asset transactions will be effective, how long they will take to become effective or whether such mechanisms will be effective for all digital assets. There is also a risk that any mechanisms of increasing the scale of digital asset settlements may significantly alter the competitive dynamics in the digital asset market and may adversely affect the value of Bitcoin and the price of our common stock. Any of which could have a material adverse effect on our business, prospects, financial condition, and operating results.
The IRS and certain states have taken the position that digital assets are property for income tax purposes.
In early 2014, the IRS issued basic guidance on the tax treatment of digital assets. The IRS has taken the position that a digital asset is “property” rather than “currency” for tax purposes. Thus, general tax principles applicable to property transactions apply to the acquisition, ownership, use or disposition of digital assets. This overall treatment creates a potential tax liability for, and potential tax reporting requirements applicable to us in any circumstance where we mine or otherwise acquire, own or dispose of a digital asset. In 2019, the IRS issued additional guidance specifically relating to the taxation consequences that could arise from a digital asset hard fork event in which a new unit of digital asset may or may not be received, and released frequently asked questions to address certain digital asset topics such as basis, gain or loss on the sale or exchange of certain kinds of digital assets and how to determine the fair market value of such digital assets. The IRS’s treatment of digital assets as “property” may prevent the widespread adoption of digital assets in retail transactions, due to the need to report each transaction as a separate taxable event and track the tax basis of all digital assets used in a transaction.
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There is no guarantee that the IRS will not alter its position with respect to the taxation of digital assets, or that legislation or judicial determinations in the future will not result in a tax treatment of digital assets and transactions in digital assets for U.S. federal and state tax purposes that differs from the treatment described above. You are urged to consult your own tax advisor as to the tax implications of our acquisition, ownership, use and disposition of digital assets. The taxation of digital assets for state, local or foreign tax purposes may not be the same as the taxation of digital assets for U.S. federal income tax purposes.
In addition, under the Tax Cuts and Jobs Act of 2017 (the “Tax Cuts and Jobs Act”), as of January 1, 2018, “like-kind exchange” treatment does not apply to digital assets. This means that gain from the sale or exchange of digital assets cannot be deferred by undertaking an exchange of one type of virtual currency for another.
Certain states, including New York and New Jersey, generally follow IRS guidance with respect to the treatment of digital assets for state income tax purposes, but it is unclear if other states will do so. Transactions involving digital assets for other goods and services also may be subject to sales and use or similar taxes under barter transaction treatment or otherwise. The treatment of digital assets for state income tax and sales tax purposes may have negative consequences, including the imposition of a greater tax burden on investors in digital assets or a higher cost with respect to the acquisition, ownership and disposition of digital assets generally. In either case, this could have a negative effect on prices in the relevant digital asset exchange market and could have a material adverse effect on our business, financial condition and results of operations.
Foreign jurisdictions also may elect to treat digital assets in a manner that results in adverse tax consequences. To the extent that a foreign jurisdiction with a significant share of the market of digital asset owners or users imposes onerous tax burdens on such owners or users, or imposes sales, use or value added tax on purchases and sales of digital assets for fiat currency, such actions could result in decreased demand for digital assets in such jurisdiction, which could impact the price of digital assets and could have a material adverse effect on our business, financial condition and results of operations.
Changes to, or changes to interpretations of, the U.S. federal, state, local or other jurisdictional tax laws could have a material adverse effect on our business, financial condition and results of operations.
All statements contained herein concerning U.S. federal income tax (or other tax) consequences are based on existing law and interpretations thereof. The tax regimes to which we are subject or under which we operate, including income and non-income taxes, are unsettled and may be subject to significant change. While some of these changes could be beneficial, others could negatively affect our after-tax returns. Accordingly, no assurance can be given that the currently anticipated tax treatment will not be modified by legislative, judicial or administrative changes, possibly with retroactive effect. In addition, no assurance can be given that any tax authority or court will agree with any particular interpretation of the relevant laws.
In 2021, significant changes to U.S. federal income tax laws were proposed, including increasing the U.S. income tax rate applicable to corporations from 21% to 28% and changes implicating information reporting with respect to digital assets. Congress may include some or all of these proposals in future legislation. There is uncertainty regarding whether these proposals will be enacted and, if enacted, their scope, when they would take effect, and whether they would have retroactive effect.
State, local or other jurisdictions could impose, levy or otherwise enforce tax laws against us. Tax laws and regulations at the state and local levels frequently change, especially in relation to the interpretation of existing tax laws for new and emerging industries, and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, current or future taxes, which could have a material adverse effect on our business, financial condition and results of operations.
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Concerns about greenhouse gas emissions and global climate change may result in environmental taxes, charges, assessments or penalties and could have a material adverse effect on our business, financial condition and results of operations.
The effects of human activity on global climate change have attracted considerable public and scientific attention, as well as the attention of the United States and other foreign governments. Efforts are being made to reduce greenhouse gas emissions, particularly those from coal combustion power plants, some of which plants we may rely upon for power. The added cost of any environmental taxes, charges, assessments or penalties levied on such power plants could be passed on to us, increasing the cost to run our hosting facilities. Any enactment of laws or promulgations of regulations regarding greenhouse gas emissions by the United States, or any domestic or foreign jurisdiction in which we conduct business, could have a material adverse effect on our business, financial condition or results of operations.
Latency in confirming transactions on a network could result in a loss of confidence in the network, which could have a material adverse effect on our business, financial condition and results of operations.
Latency in confirming transactions on a network can be caused by a number of factors, such as transaction processors ceasing to support the network and/or supporting a different network. To the extent that any transaction processors cease to record transactions on a network, such transactions will not be recorded on the blockchain of the network until a block is solved by a transaction processor that does not require the payment of transaction fees or other incentives. Currently, there are no known incentives for transaction processors to elect to exclude the recording of transactions in solved blocks. However, to the extent that any such incentives arise (for example, with respect to Bitcoin, a collective movement among transaction processors or one or more transaction processing pools forcing Bitcoin users to pay transaction fees as a substitute for, or in addition to, the award of new Bitcoin upon the solving of a block), transaction processors could delay the recording and verification of a significant number of transactions on a network’s blockchain. If such latency became systemic, and sustained, it could result in greater exposure to double-spending transactions and a loss of confidence in the applicable network, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, increasing growth and popularity of digital assets, as well as non-digital asset related applications that utilize blockchain technology on certain networks, can cause congestion and backlog, and as result, increase latency on such networks. An increase in congestion and backlogs could result in longer transaction confirmation times, an increase in unconfirmed transactions (that is, transactions that have yet to be included in a block on a network and therefore are not yet completed transactions), higher transaction fees and an overall decrease in confidence in a particular network, which could ultimately affect our ability to transact on that particular network and, in turn, could have a material adverse effect on our business, financial condition and results of operations.
Significant or unexpected changes to our transaction processing operations may have a material adverse effect on our business, financial condition and results of operations.
We and our potential customers are engaged in the business of verifying and confirming transactions on a blockchain, also known as transaction processing, or “mining.” We may have to make changes to the specifications of our transaction processing operations for any number of reasons beyond our control (e.g., increased governmental and quasi-governmental regulation of blockchain-related digital assets; changes in methods of validating digital asset transactions; creation of new digital assets; general economic conditions; changes in consumer demographics and public tastes and preferences; and rising energy costs, among other reasons), or we may be unable to develop our transaction processing operations in a manner that realizes those specifications or any form of functioning and profitable transaction processing operations. Furthermore, it is still possible that our transaction processing operations may experience malfunctions, electrical power failure, hacking, cybersecurity breaches or otherwise fail to be adequately developed or maintained. Any of the above risks, which could also impact our potential hosting customers, may have a material adverse effect on our business, financial condition and results of operations.
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Currently, we believe there is relatively limited use of digital assets in the retail and commercial marketplace in comparison to relatively sizable use by speculators, thus contributing to price volatility that could adversely affect an investment in our stock.
We believe digital assets have not yet gained widespread acceptance as a means of payment for goods and services by any major retail or commercial outlets. We believe a significant portion of the demand for digital assets is generated by speculators and investors, some of whom may have no knowledge of the inner workings of those assets. Certain of these investors may seek to profit from the short-term or long-term holding of digital assets, and thus, may contribute to digital asset price volatility. A lack of expansion in the use of digital assets in retail and commercial markets, or a contraction of such use, may result in increased price volatility of digital assets or a reduction in the market price of digital assets or in the demand for digital assets which would reduce the demand of our hosting and colocation services or in the value of the digital assets held by us, any of which could have a material adverse effect on our business, financial condition and results of operations.
We may diversify our business by mining or investing in additional digital assets which could require significant investment or expose us to trading risks.
The field of digital assets is constantly expanding with over 4,000 digital assets in existence as of January 2021. We intend to evaluate the potential for mining or investing in existing, new and alternative digital assets. To the extent we elect to commence activities to generate digital assets, we would be required to invest our assets either to obtain mining equipment configured to generate digital assets based on a “proof of work” protocol or to post “stakes” to generate digital assets based on a “proof of stake” protocol. In addition, or in the alternative, we may trade our digital assets for other digital assets on centralized or decentralized exchanges. Optimization of such trades may vary depending on the exchange on which the trade is conducted because we may not have access to all exchanges on which such trades are available. Further, trading on centralized and decentralized exchanges may expose us to additional risks if such exchanges experience breaches of security measures, system errors or vulnerabilities, software corruption, hacking or other irregularities. Any new digital asset obtained through generation or trading may be more volatile or fail to increase in value compared to digital assets we currently hold. As a result, any investment in different digital assets may not achieve our goals, may be viewed negatively by analysts or investors and may negatively affect our revenues and results of operations.
If the transaction fees for recording digital assets in a blockchain increase, demand for digital assets may be reduced and prevent the expansion of the networks to retail merchants and commercial business, resulting in a reduction in the acceptance or price of digital assets.
As the number of digital assets awarded for solving a block in a blockchain decreases, the incentive for mining participants to contribute processing power to networks will transition from a set reward to transaction fees. In order to incentivize mining participants to continue to contribute processing power to the networks, the network may transition from a set reward to transaction fees earned upon solving for a block. If mining participants demand higher transaction fees to record transactions in a blockchain or a software upgrade automatically charges fees for all transactions, the cost of using digital assets may increase and the marketplace may be reluctant to accept digital assets as a means of payment. Existing users may be motivated to switch from one digital asset to another or back to fiat currency. Decreased use and demand for digital assets may adversely affect their value and result in a reduction in the value of our common stock.
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If the award of new digital assets and/or transaction fees for solving blocks is not sufficiently high to incentivize transaction processors, such processors may reduce or cease expending processing power on a particular network, which could negatively impact the utility of the network, reduce the value of its digital assets and have a material adverse effect on our business, financial condition and results of operations.
As the number of digital assets rewarded to transaction processors for validating blocks in a network decreases, the incentive for transaction processors to continue contributing processing power to the network may shift toward transaction fees. Such a shift may increase the transaction fees on a network. Higher transaction fees may reduce the utility of a network for an end user, which may cause end users to reduce or stop their use of that network. In such case, the price of the relevant digital asset may decline substantially and could go to zero. Such reduced price and demand for, and use of, the relevant digital asset and network, either as it applies to our transaction processing services or to those of our potential hosting customers, may have a material adverse effect on our business, financial condition and results of operations.
As more processing power is added to a network, our relative percentage of total processing power on that network is expected to decline absent significant capital investment, which has an adverse impact on our ability to generate revenue from processing transactions on that network and could have a material adverse effect on our business, financial condition and results of operations.
Processing power on networks has been increasing rapidly over time while the rewards and transaction fees available on those networks tends to decline over time. In order to grow or maintain the revenue we generate from processing transactions on such networks, we are required to invest significant capital to acquire new computer servers, expand our power capacity and otherwise increase our effective processing power on such networks. In the event we are unable to invest sufficient capital to grow or maintain the level of our processing power on a network relative to the total processing power of such network, our revenue from the applicable network will decline over time and as a result, it could have a material adverse effect on our business, financial condition and results of operations.
In addition, a decrease in the price of computer servers may result in an increase in transaction processors, which may lead to more competition for fees in a particular network. In the event we are unable to realize adequate fees on a network due to increased competition, our revenue from the applicable network will decline over time and in turn, it could have a material adverse effect on our business, financial condition and results of operations.
We may only have limited control over our mining operation.
Our mining operation comprises blockchain mining technologies that depend on a network of computers to run certain software programs to solve complex transactions in competition with other mining operations and to process transactions. Because of this less centralized model and the complexity of our mining operation, we have limited control over the success of our mining operations. While we participate in mining pools to combine our mining operations with other mining participants to increase processing power to solve blocks, there can be no assurance that such pools will adequately address this risk.
Our reliance on third-party mining pool service providers for our mining revenue payouts may have a negative impact on our operations.
We may utilize third party mining pools to receive our mining rewards from a given network. Mining pools allow mining participants to combine their processing power, which increases the chances of solving a block and getting paid by the network. The rewards are distributed by the pool operator, proportionally to our contribution to the pool’s overall mining power used to generate each block. 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 or other digital asset mining application in order to assess the proportion of that total processing power we provided. While we have internal methods of tracking both our power provided and the total power used by the pool, the mining pool operator uses its own record-keeping to determine our proportion of a given reward. We have little means of recourse against the mining pool operator if we determine the proportion of the reward paid out to us by a 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.
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Malicious actors or botnet may obtain control of more than 50% of the processing power on the Bitcoin or other network.
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 on the Bitcoin or other network, it may be able to alter the blockchain on which the Bitcoin or other network and most Bitcoin or other digital asset transactions 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 Bitcoin or digital assets or transactions using such control. The malicious actor could “double-spend” its own Bitcoin or digital assets (i.e., spend the same Bitcoin or digital assets in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintained control. To the extent that such malicious actor or botnet did not yield its control of the processing power on the Bitcoin or other network, or the Bitcoin or other community did not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible.
Although there are no known reports of malicious activity or control of the Bitcoin blockchain 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. The possible crossing of the 50% threshold indicates a greater risk in that a single mining pool could exert authority over the validation of Bitcoin transactions. To the extent that the Bitcoin or other digital asset ecosystems, including developers and administrators of mining pools, do not act to ensure greater decentralization of Bitcoin or other digital asset mining processing power, the feasibility of a malicious actor obtaining control of the processing power on the Bitcoin or other network will increase, which may adversely affect an investment us.
Transaction processing operators may sell a substantial amount of digital assets into the market, which may exert downward pressure on the price of the applicable digital asset and, in turn, could have a material adverse effect on our business, financial condition and results of operations.
Transaction processing requires the investment of significant capital for the acquisition of hardware, leasing or purchasing space, involves substantial electricity costs and requires the employment of personnel to operate the data facilities, which may lead transaction processing operators to liquidate their positions in digital assets to fund these capital requirements. In addition, if the reward of new digital assets for transaction processing declines, and/or if transaction fees are not sufficiently high, profit margins for transaction processing operators may be reduced, and such operators may be more likely to sell a higher percentage of their digital assets. Whereas it is believed that individual operators in past years were more likely to hold digital assets for more extended periods, the immediate selling of newly transacted digital assets by operators may increase the supply of such digital assets on the applicable exchange market, which could create downward pressure on the price of the digital assets and, in turn, could have a material adverse effect on our business, financial condition and results of operations.
To the extent that the profit margins of digital asset mining operations are not high, mining participants are more likely to sell their earned Bitcoin, which could constrain Bitcoin prices.
Over the past few years, digital asset mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation application-specific integrated circuit (“ASIC”) servers. Currently, new processing power is predominantly added by incorporated and unincorporated “professionalized” mining operations. Professionalized mining operations may use proprietary hardware or sophisticated ASIC machines acquired from ASIC manufacturers. They require the investment of significant capital to acquire this hardware, to lease operating space (often in data centers or warehousing facilities), and to pay the costs of electricity and labor to operate the mining farms. As a result, professionalized mining operations are of a greater scale than prior mining operations and have more defined and regular expenses and liabilities. These regular expenses and liabilities require professionalized mining operations to maintain profit margins on the sale of digital assets. To the extent the price of digital assets decline and such profit margin is constrained, professionalized mining participants are incentivized to more immediately sell digital assets earned from mining operations, whereas it is believed that individual mining participants in past years were more likely to hold newly mined digital assets for more extended periods. The immediate selling of newly mined digital assets greatly increases the trading volume of the digital assets, creating downward pressure on the market price of digital asset rewards. The extent to which the value of digital assets mined by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such operation. A professionalized mining operation may be more likely to sell a higher percentage of its newly mined digital assets 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 digital asset prices. Lower digital asset prices could result in further tightening of profit margins for professionalized mining operations creating a network effect that may further reduce the price of digital assets until mining operations with higher operating costs become unprofitable forcing them to reduce mining power or cease mining operations temporarily. Such circumstances could have a material adverse effect on our business, prospects or operations and potentially the value of Bitcoin and any other digital assets we mine or otherwise acquire or hold for our own account.
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The “halving” of rewards available on the Bitcoin network, or the reduction of rewards on other networks, has had and in the future could have a negative impact on our ability to generate revenue as our customers may not have an adequate incentive to continue transaction processing and customers may cease transaction processing operations altogether, which could have a material adverse effect on our business, financial condition and results of operations.
Under the current protocols governing the Bitcoin network, the reward for validating a new block on that network is cut in half from time to time, which has been referred to in our industry as the “halving.” When the Bitcoin network was first launched, the reward for validating a new block was 50 Bitcoin. In 2012, the reward for validating a new block was reduced to 25 Bitcoin. In July 2016, the reward for validating a new block was reduced to 12.5 Bitcoin, and in May 2020, the reward was further reduced to 6.25 Bitcoin. In addition, other networks may operate under rules that, or may alter their rules to, limit the distribution of new digital assets. We, and to our knowledge, our potential hosting customers, currently rely on these rewards to generate a significant portion of our total revenue. If the award of digital assets for solving blocks and transaction fees are not sufficiently high, neither we nor our customers may have an adequate incentive to continue transaction processing and may cease transaction processing operations altogether, which as a result may significantly reduce demand for our hosting services. As a result, the halving of available rewards on the Bitcoin network, or any reduction of rewards on other networks, would have a negative impact on our revenues and may have a material adverse effect on our business, financial condition and results of operations.
In addition, the reduction of rewards may reduce our profit margins, which could result in us selling a substantial portion of our digital assets, which are subject to high volatility. If we are forced to sell digital assets at low prices, it could have a material adverse effect on our business, financial condition and results of operations.
We expect to sell most or all of our digital assets to pay for costs and expenses, which will reduce the amount of digital assets we hold, thus preventing us from recognizing any gain from the appreciation in value of the digital assets we have sold and may sell in the future.
We expect to sell most or all of the digital assets that we earn from mining or hosting to pay for costs and expenses we incur, capital expenditures and other working capital, irrespective of then-current digital asset prices. When we sell a digital asset, we are unable to benefit from any future appreciation in the underlying value of that digital asset. However, we also avoid a loss on the digital asset to the extent it declines in price after the sale.
Consequently, our digital assets may be sold at a time when the price is lower than it otherwise might be in the future, which could reduce the gain we might have realized on the sale of that digital asset at a different time. If we sell any digital assets in the future, the loss of potential realized gains from the sale of such digital assets could have a material adverse effect on our business, financial condition and results of operations.
Digital assets are subject to extreme price volatility. The value of digital assets is dependent on a number of factors, any of which could have a material adverse effect on our business, financial condition and results of operations.
We expect that a large portion of our revenue will come from processing blockchain transactions in the form of Bitcoin. We believe the value of digital assets related to our business is dependent on a number of factors, including, but not limited to:
| • | global digital asset supply; |
| • | global digital asset demand, which can be influenced by the growth of retail merchants’ and commercial businesses’ acceptance of digital assets as payment for goods and services, the security of online digital asset exchanges and digital wallets that hold digital assets, the perception that the use and holding of digital assets is safe and secure, and the regulatory restrictions on their use; |
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| • | investors’ expectations with respect to the rate of inflation of fiat currencies; |
| • | investors’ expectations with respect to the rate of deflation of digital assets; |
| • | cyber theft of digital assets from online wallet providers, or news of such theft from such providers or from individuals’ online wallets; |
| • | the availability and popularity of businesses that provide digital asset-related services; |
| • | fees associated with processing a digital asset transaction; |
| • | changes in the software, software requirements or hardware requirements underlying digital assets; |
| • | changes in the rights, obligations, incentives, or rewards for the various participants in digital asset mining; |
| • | interest rates; |
| • | currency exchange rates, including the rates at which digital assets may be exchanged for fiat currencies; |
| • | fiat currency withdrawal and deposit policies on digital asset exchanges and liquidity on such exchanges; |
| • | interruptions in service or failures of major digital asset exchanges; |
| • | investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in digital assets; |
| • | momentum pricing; |
| • | monetary policies of governments, trade restrictions, currency devaluations and revaluations; |
| • | regulatory measures, if any, that affect the use of digital assets, restrict digital assets as a form of payment, or limit the purchase of digital assets; |
| • | global or regional political, economic or financial events and conditions; |
| • | expectations that the value of digital assets will change in the near or long term. A decrease in the price of a single digital asset may cause volatility in the entire digital asset industry and may affect other digital assets. For example, a security breach that affects investor or user confidence in Bitcoin or another digital asset may affect the industry as a whole and may also cause the price of other digital assets to fluctuate; or |
| • | with respect to Bitcoin, increased competition from other forms of digital assets or payments services. |
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Bitcoin and other digital assets have historically experienced significant intraday and long-term price volatility, significantly impacted by momentum pricing. Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for anticipated future appreciation in value. The market price for digital assets is determined using data from various digital asset exchanges, over-the-counter markets, digital asset futures markets, derivative platforms and other digital asset investment vehicles. We believe that momentum pricing may have resulted, and may continue to result, in significant and rampant speculation regarding future appreciation (or depreciation) in the value of digital assets, inflating and making their market prices more volatile, even more so than with traditional asset classes, such as equities. In addition, there is currently growing but limited acceptance of digital assets in the retail and commercial marketplace, as compared to the demand generated by investors seeking a long-term value retention or by speculators seeking to profit from the short- or long-term holding of such digital assets, which may contribute to their extreme levels of price volatility.
Even if shareholders are able to hold their common stock for the long-term, their common stock may never generate a profit, since digital asset markets have historically experienced extended periods of flat or declining prices, in addition to sharp fluctuations. Investors should be aware that there is no assurance that Bitcoin or other digital assets will maintain their long-term value in terms of future purchasing power or that the acceptance of digital asset payments by mainstream retail merchants and commercial businesses will continue to grow. If the price of Bitcoin or other digital assets declines, we expect our profitability to decline.
Any loss or destruction of a private key required to access a digital asset of ours is irreversible. We also may temporarily lose access to our digital assets.
Digital assets are each accessible and controllable only by the possessor of both the unique public key and private key associated with the digital asset, wherein the public and private keys are held in an offline or online digital wallet. To the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is available, we will be unable to access the applicable digital asset associated with that private key and the private key cannot be restored. As a result, any digital assets associated with such key could be irretrievably lost. Any loss of private keys relating to digital wallets used to store the applicable digital assets could have a material adverse effect on our business, financial condition and results of operations.
In addition, we may temporarily lose access to our digital assets as a result of software or systems upgrades or maintenance. In this case, we would likely rely on third parties to assist in restoring our access, and we cannot provide any assurance that such third parties will be able to restore access on a timely basis, or at all. Any temporary loss, if it occurs, could have a material adverse effect on our business, financial condition and results of operations.
Intellectual property rights claims may adversely affect the operation of any or all of the networks.
Third parties may assert intellectual property rights claims relating to the operation of digital assets and the holding and transfer of such assets. Regardless of the merit of any intellectual property rights claims or other legal action, any threatened action that reduces confidence in the long-term viability of any or all of the networks or other similar peer-to-peer networks, or in the ability of end-users to hold and transfer digital assets, may have a material adverse effect on our business, results of operations and financial condition. Additionally, a meritorious intellectual property rights claim could prevent us and other end-users from holding or transferring the digital assets, which could have a material adverse effect on our business, financial condition and results of operations.
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A soft or hard fork on a network could have a material adverse effect on our business, financial condition and results of operations.
The rules governing a network’s protocol are subject to constant change and, at any given time, there may be different groups of developers that can modify a network’s protocol. As network protocols are not sold and their use does not generate revenues for their development teams, the core developers are generally not compensated for maintaining and updating the network protocols. Consequently, there is a lack of financial incentive for developers to maintain or develop networks and the core developers may lack the resources to adequately address emerging issues with network protocols. Although the Bitcoin and other leading networks are currently supported by core developers, there can be no guarantee that such support will continue or be sufficient in the future. To the extent that material issues arise with the Bitcoin or another network protocol and the core developers and open-source contributors are unable to address the issues adequately or in a timely manner, the networks may be adversely affected.
Any individual can download the applicable network software and make any desired modifications that alter the protocols and software of the network, which are proposed to developers, users and transaction processors on the applicable network through software downloads and upgrades, typically posted to development forums such as GitHub.com. Such proposed modifications can be agreed upon, developed, adopted and implemented by a substantial majority of developers, transaction processors and users, which, in such event, results in a “soft fork” or “hard fork” on the relevant network. A “soft fork” occurs when an updated version of the validating protocol is still “backwards compatible” with previous versions of the protocol. As a result, non-upgraded network participants with an older version of the validating protocol will still recognize new blocks or transactions and may be able to confirm and validate a transaction; however, the functionality of the non-upgraded network participant may be limited. Thus, non-upgraded network participants are incentivized to adopt the updated version of the protocol. The occurrence of a soft fork could potentially destabilize transaction processing and increase transaction and development costs and decrease trustworthiness of a network.
A “hard fork” occurs when the updated version of the validating protocol is not “backwards compatible” with previous versions of the protocol, and therefore, requires forward adoption by network participants in order to recognize new blocks, validate and verify transactions and maintain consensus on the relevant blockchain. Since the updated version of the protocol is not backwards compatible, a hard fork can cause the relevant blockchain to permanently diverge into two separate blockchains on a network. For example, in the case of Bitcoin, a hard fork created two new digital assets: Bitcoin Cash and Bitcoin Gold. The value of a newly created digital asset from a hard fork (“forked digital asset”) may or may not have value in the long-run and may affect the price of other digital assets if interest and resources are shifted away from previously existing digital assets to the forked digital asset. The value of a previously existing digital asset after a hard fork is subject to many factors, including the market reaction and value of the forked digital asset and the occurrence of other soft or hard forks in the future. As such, the value of certain digital assets could be materially reduced if existing and future hard forks have a negative effect on their value.
If a soft fork or hard fork occurs on a network, which we or our hosting customers are processing transactions or hold digital assets in, we may be required to upgrade our hardware or software in order to continue our transaction processing operations, and there can be no assurance that we may be able to make such upgrades. A soft fork or hard fork in a particular digital asset that we process could have a negative effect on the value of that digital asset and could have a material adverse effect on our business, financial condition and results of operations.
The digital assets held by us may be subject to loss, damage, theft or restriction on access, which could have a material adverse effect on our business, financial condition or results of operations.
There is a risk that some or all of the digital assets held or hosted by us could be lost, stolen or destroyed. We believe that the digital assets held or hosted by us and our mining operation will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal our digital assets. Our security procedures and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of one of our employees, or otherwise, and, as a result, an unauthorized party may obtain access to our digital asset accounts, private keys, data or digital assets. Although we implement a number of security procedures with various elements such as two-factor verification, segregated accounts and secured facilities and plan to implement the maintenance of data on computers and/or storage media that is not directly connected to, or accessible from, the internet and/or networked with other computers, or (“cold storage”), to minimize the risk of loss, damage and theft, and we update such security procedures whenever reasonably practicable, we cannot guarantee the prevention of such loss, damage or theft, whether caused intentionally, accidentally or by an act of God.
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Additionally, outside parties may attempt to fraudulently induce our employees 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. As technological change occurs, the security threats to our Bitcoin will likely adapt and previously unknown threats may emerge. Our ability to adopt technology in response to changing security needs or trends may pose a challenge to the safekeeping of our digital assets. To the extent we are unable to identify and mitigate or stop new security threats, our digital assets may be subject to theft, loss, destruction or other attack.
Any of these events could expose us to liability, damage our reputation, reduce customer confidence in our services and otherwise have a material adverse effect on our business, financial condition and results of operations. Furthermore, we believe that as our assets grow, we may become a more appealing target for security threats, such as hackers and malware. If an actual or perceived breach of our digital asset accounts occurs, the market perception of our effectiveness could be harmed.
The digital assets held by us are not subject to FDIC or SIPC protections.
We do not hold our digital assets with a banking institution or a member of the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Corporation (“SIPC”), and to date, neither the FDIC nor the SIPC has extended any such protections to depositors of digital assets. Accordingly, our digital assets are not subject to the protections by FDIC or SIPC member institutions and any loss of our digital assets could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to maintain our competitive position as digital asset networks experience increases in total network hash rate.
As the relative market prices of a digital asset, such as Bitcoin, increases, more companies are encouraged to mine for that digital asset and as more miners are added to the network, its total hash rate increases. In order for us to maintain its competitive position under such circumstances, we must increase our total hash rate by acquiring and deploying more mining machines, including new miners with higher hash rates. There are currently only a few companies capable of producing a sufficient number of machines with adequate quality to address the increased demand. If we are not able to acquire and deploy additional miners on a timely basis, our proportion of the overall network hash rate will decrease and we will have a lower chance of solving new blocks which will have an adverse effect on our business and results of operations.
To the extent that any miners cease to record transactions in solved blocks, transactions that do not include the payment of a transaction fee will not be recorded on the blockchain until a block is solved by a miner who does not require the payment of transaction fees. Any widespread delays in the recording of transactions could result in a loss of confidence in that digital asset network, which could adversely impact an investment in us.
To the extent that any miners cease to record transactions in solved blocks, such transactions will not be recorded on the blockchain. Currently, there are no known incentives for miners to elect to exclude the recording of transactions in solved blocks; however, to the extent that any such incentives arise (e.g., a collective movement among miners or one or more mining pools forcing Bitcoin users to pay transaction fees as a substitute for or in addition to the award of new Bitcoins upon the solving of a block), actions of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the blockchain.
Any systemic delays in the recording and confirmation of transactions on the blockchain could result in greater exposure to double-spending transactions and a loss of confidence in certain or all digital asset networks, which could have a material adverse effect on our business, prospects, financial condition, and operating results.
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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.
The Office of Financial Assets Control of the U.S. Department of Treasury (“OFAC”) requires us to comply with its sanction program and not conduct business with persons named on its specially designated nationals (“SDN”) list. However, because of the pseudonymous nature of blockchain transactions, we may inadvertently and without our knowledge engage in transactions with persons named on OFAC’s SDN list. Our internal policies prohibit any transactions with such SDN individuals, but we may not be adequately capable of determining the ultimate identity of the individual with whom we transact with respect to selling digital assets. In addition, in the future, OFAC or another regulator, may require us to screen transactions for OFAC addresses or other bad actors before including such transactions in a block, which may increase our compliance costs, decrease our anticipated transaction fees and lead to decreased traffic on our network. Any of these factors, consequently, could have a material adverse effect on our business, prospects, financial condition, and operating results.
Moreover, federal law prohibits any U.S. person from knowingly or unknowingly possessing any visual depiction commonly known as child pornography. Recent media reports have suggested that persons have imbedded such depictions on one or more blockchains. Because our business requires us to download and retain one or more blockchains to effectuate our ongoing business, it is possible that such digital ledgers contain prohibited depictions without our knowledge or consent. To the extent government enforcement authorities literally enforce these and other laws and regulations that are impacted by decentralized distributed ledger technology, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could harm our reputation and could have a material adverse effect on our business, prospects, financial condition, and operating results.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable listing standards of any exchange on which we list our common stock. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we anticipate that we will have to expend significant resources, including accounting-related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems and controls to accommodate such changes. For example, we will need to implement new revenue recognition modules into our existing enterprise resource planning system to facilitate the preparation of our financial statements under Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”). We will also be required to adopt Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires, among other things, lessees to recognize most leases on-balance sheet via a right of use asset and lease liability, beginning January 1, 2022. We have limited experience with implementing the systems and controls that will be necessary to operate as a public company, as well as adopting changes in accounting principles or interpretations mandated by the relevant regulatory bodies. Additionally, if these new systems, controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting. Moreover, our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post-implementation issues that may arise.
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Further, while we do not believe that we have any weaknesses in disclosure controls or internal controls over financial reporting at this time, we may discover material weaknesses in our disclosure controls and internal control over financial reporting in the future as our business outgrows our current infrastructure. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our business or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K. Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting while we are an emerging growth company.
Risks Related to Ownership of Our Common Stock
An active trading market for our common stock may never develop or be sustained.
Our common stock is listed on the OTC Markets under the symbol “BMNR.” However, we cannot assure you that an active trading market for our common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our common stock will develop or be maintained, your ability to sell your shares of our common stock when desired or the prices that you may obtain for your shares.
The trading price of our common stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our common stock as you might be unable to sell your shares at or above the price you paid for those shares. Factors that could cause fluctuations in the trading price of our common stock include the following:
| • | price and volume fluctuations in the overall stock market from time to time; |
| • | volatility in the trading prices and trading volumes of technology stocks; |
| • | volatility in the price of Bitcoin and other digital assets; |
| • | changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; |
| • | sales of shares of our common stock by us or our stockholders; |
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| • | failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; |
| • | the financial projections we may provide to the public, any changes in those projections, or our failure to meet those projections; |
| • | announcements by us or our competitors of new products, features, or services; |
| • | the public’s reaction to our press releases, other public announcements and filings with the SEC; |
| • | rumors and market speculation involving us or other companies in our industry; |
| • | actual or anticipated changes in our results of operations or fluctuations in our results of operations; |
| • | actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; |
| • | litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; |
| • | developments or disputes concerning our intellectual property or other proprietary rights; |
| • | announced or completed acquisitions of businesses, products, services or technologies by us or our competitors; |
| • | new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
| • | changes in accounting standards, policies, guidelines, interpretations or principles; |
| • | any significant change in our management; and |
| • | general economic conditions and slow or negative growth of our markets. |
In addition, in the past, following periods of volatility in the overall market and in the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.
As of July 15, 2022, our executive officers, directors, significant shareholders and affiliated persons and entities collectively, beneficially owned approximately 79% of our outstanding common stock. As a result, these persons and entities have the ability to exercise control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change in control of our company that other stockholders may view as beneficial.
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Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls and, if and when we are no longer a “smaller reporting company,” will require that we have such a system of internal controls audited. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
We expect to raise capital to fund our business by issuing additional shares of common stock and/or securities convertible into common stock. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common stock.
We depend on key personnel and could be harmed by the loss of their services because of the limited number of qualified people in our industry.
Because of our small size, we require the continued service and performance of our management team, all of whom we consider to be key employees. Competition for highly qualified employees in the data storage industry is intense. Our success will depend to a significant degree upon our ability to attract, train, and retain highly skilled directors, officers, management, business, financial, legal, marketing, sales, and technical personnel and upon the continued contributions of such people. In addition, we may not be able to retain our current key employees. The loss of the services of one or more of our key personnel and our failure to attract additional highly qualified personnel could impair our ability to expand our operations and provide service to our customers.
We currently do not have employment agreements with most of our management and are not currently paying them any compensation. As a result, management’s only incentive for continuing to work for us is due to their stock ownership in us. Our management will not be able to work for us indefinitely without being paid. We plan to enter into employment contracts with management, and begin paying them compensation, once we are able to raise capital to fund our business.
Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market following the completion of the merger, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Many of our existing equity holders have substantial unrecognized gains on the value of the equity they hold, and therefore they may take steps to sell their shares or otherwise secure the unrecognized gains on those shares.
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Our common stock market price and trading volume could decline if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our securities would likely decline. If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price and trading volume of our common stock to decline.
We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, which may harm our business.
As a public company listed in the United States, we will incur significant additional legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and any exchange on which we list our shares, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts, we fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events would also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.
We do not intend to pay dividends for the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment.
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CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS AND
INDUSTRY AND MARKET DATA
Special Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements include, but are not limited to, statements about:
| • | our projected financial position and estimated cash burn rate; | |
| • | our estimates regarding expenses, future revenues and capital requirements; | |
| • | our ability to continue as a going concern; | |
| • | the continued trading of digital currencies, and in particular Bitcoin, at prices that make it profitable to mine new digital currencies; | |
| • | the availability of cost-efficient energy supplies available to mine digital currencies; | |
| • | our need to raise substantial additional capital to fund our operation and necessary capital investments in our infrastructure; | |
| • | our dependence on third party suppliers for key parts of our infrastructure; | |
| • | our ability to enter into strategic partnerships for the development and commercialization of our service offerings our proposed product candidates; | |
| • | the possibility that a third party may claim we or our third-party licensors have infringed, misappropriated or otherwise violated their intellectual property rights and that we may incur substantial costs and be required to devote substantial time defending against claims against us; | |
| • | our reliance on third parties; | |
| • | our ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel; | |
| • | market acceptance of our services, the size and growth of the potential markets for our current services and any future service offerings we may seek to develop, and our ability to serve those markets; and | |
| • | the successful development of our commercialization capabilities, including sales and marketing capabilities. |
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These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Industry and Market Data
This prospectus contains industry, market and competitive position data from our own internal estimates and research as well as independent industry publications, general publications and research surveys and studies conducted by third parties. This data involves a number of assumptions and limitations, and while we believe that the data from these industry publications that is included in this prospectus is reliable, we have not independently verified the data from third-party sources. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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USE OF PROCEEDS
All of the shares of common stock offered by the selling stockholders pursuant to this prospectus will be sold by the selling stockholders for their respective accounts. We will not receive any of the proceeds from these sales.
MARKET PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the OTC Pink under the symbol “BMNR.” On July 15, 2022, the last reported sale price of our common stock on the OTC Pink was $2.23 per share.
As of July 15, 2022, we had approximately 215 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We do not anticipate paying cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects, the requirements of current or then-existing debt instruments and other factors our board of directors may deem relevant.
MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with “Selected Financial Data” and our financial statements and related notes to those statements included elsewhere in this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements and Industry and Market Data” in this prospectus.
Overview
Since July 2021, our business has been as a blockchain technology company that is building out industrial scale digital asset mining, equipment sales and hosting operations. The Company’s primary business is hosting third-party equipment used in mining of digital asset coins and tokens, specifically Bitcoin, as well as self-mining for its own account. Our state-of-the-art facilities will be specifically designed and constructed for housing advanced mining equipment. Our data centers will provide power, racks, proprietary thermodynamic management (heat dissipation and airflow management), redundant connectivity, 24/7 security, as well as software which provide infrastructure management and custom firmware that boost performance and energy efficiency.
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We plan to operate our data centers using immersion cooling technology. Immersion cooling is the process of submerging computer components (or full servers) in a thermally, but not electrically, conductive liquid (dielectric coolant) allowing higher heat transfer performance than air and many other benefits. Immersion cooling can be up to 95% more efficient than standard air cooling, producing an estimated PUE (power usage effectiveness) of 1.05. This cooler environment has been shown to extend machine lives by 30% or longer.
We have decided to locate our initial facility in Trinidad, which has some of the cheapest electricity in the world due to its abundant supplies of oil and gas. We are currently exploring various sites in Trinidad, and expect to have our first site operational by January 2022. We elected to locate our first site in Trinidad because it has ample supplies of cost-effective power and because some of technical staff is located there. We are also exploring the development of both hydroelectric and solar-backed projects in the United States and Canada, which could provide power to our data centers, while allowing us to generate collateral revenue from the sale of excess power to the local utility grid and from the generation of saleable carbon credits.
Our digital asset mining operation is focused on the generation of digital assets by solving complex cryptographic algorithms to validate transactions on specific digital asset network blockchains, which is commonly referred to as “mining.” Our digital asset self-mining activity competes with a myriad of mining operations throughout the world to complete new blocks in the blockchain and earn the reward in the form of an established unit of a digital asset. While we expect to sell or exchange a portion of the digital assets we mine to fund our growth strategies or for general corporate purposes, we may hold our digital assets as investments in anticipation of continued adoption of digital assets as a “store of value” and a more efficient medium of exchange than traditional fiat currencies.
As the demand for digital assets increases and digital assets become more widely accepted, there is an increasing demand for professional-grade, scalable infrastructure to support growth of the blockchain ecosystem. We expect to continually evaluate the performance of our data centers, including our ability to access additional megawatts of electric power and to expand our total self-mining and customer and related party hosting hash rates.
Results of Operations
Comparison of Results of Operations for Years Ended August 31, 2021 and 2020.
Revenues
The Company did not generate any revenues during the years ended August 31, 2021 or 2020. The Company does not believe that revenues in the 2021 fiscal year are reflective of future revenues, as the Company expects to begin revenue generating operations in the second quarter of fiscal 2022.
Operating Expenses
During the year ended August 31, 2021 the Company incurred $131,815 in operating expenses compared to $-0- in operating expense during the prior year ended August 31, 2020. Operating expenses for the 2021 fiscal year were primarily comprised of $71,250 in stock-based compensation expense to certain directors and consultants for services, legal and accounting fees, Delaware taxes and other fees associated with being a public company. The higher level of operating expenses in fiscal 2021 as compared to fiscal 2020 is attributable to expenses incurred to as part of the Company’s entry into the bitmine hosting business. The Company expects that operating expenses will be trend materially higher in future periods as the Company begins paying regular compensation to existing officers and directors, hires additional employees, and incurs other costs associated with the commencement of operations.
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Other Income (Expense)
During the year ended August 31, 2021 the Company incurred $22,424 in other expenses, as compared to $1,558 of other expenses during the prior year ended August 31, 2020. In each year, other expenses consisted of interest accrued on loans made to the Company be entities affiliated with management. The higher level of interest expense in fiscal 2021 as compared to fiscal 2020 is attributable to higher loan balances in 2021 as the Company borrowed money to finance its entry into the bitmine hosting business.
Net Income (Loss)
During the year ended August 31, 2021 the Company incurred a net loss of ($154,239), or ($0.02) per share, as compared to a net of loss of ($1,558) during the prior year ended August 31, 2020. The increase in the Company’s net loss in fiscal 2021 as compared to fiscal 2020 is attributable to the factors discussed above.
Comparison of Results of Operations for the Three Months Ended May 28, 2022, and 2021.
Revenues and Cost of Sales
During the three months ended May 31, 2022, the Company generated $16,567 in Bitcoin revenue from hosting third-party miners, compared to $-0- revenue in the corresponding period. The Company expects to generate increasing levels of Bitcoin digital revenue from hosting third parties and for mining for our own account once it receives additional equipment that is currently in transit. There can be no assurances as to this timing or the level of additional sales and revenue.
Cost of sales related to Bitcoin revenue was $99,711 for the three months ended May 31, 2022, compared to zero in the prior period when there was no revenue.
Since we are in the early stages of setting up our infrastructure to generate higher levels of revenues, we expect that our cost of sales to generate Bitmine digital revenue from hosting or mining for our own account will exceed the revenue we generate until we achieve sufficient economies of scale by deploying more miners. These costs include electricity, utilities, facilities costs, depreciation and supplies.
Operating Expenses
During the three months ended May 31, 2022, the Company incurred $329,964 in operating expenses compared to $13,555 in operating expenses during the three months ended May 31, 2021. Operating expenses for the 2022 period were primarily comprised of $141,312 in general and administrative expenses, $75,705 in legal and accounting fees, and $109,172 in related party compensation expense to three of our officers. Included in the $329,964 in operating expenses is $134,344 in non-cash expenses due to the issuance of common stock for services and to related parties as compensation pursuant to the terms of an employment agreement. Additionally, we incurred $3,775 in impairment expenses on our cryptocurrency holdings due to the significant decline in the price of Bitcoin we are holding. The higher level of operating expenses in the 2022 period as compared to the 2021 period is attributable to expenses incurred as part of the Company’s entry into the bitmine hosting business. The Company expects that operating expenses will trend materially higher in future periods as the Company begins paying regular compensation to existing officers and directors, hires additional employees, and incurs other costs associated with the commencement of operations.
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Other Income (Expense)
During the three months ended May 31, 2022, the Company incurred $73,805 in other expenses, which was comprised of interest expense of $78,290 and interest income of $4,485, compared to $6,386 of interest expenses during the same three months ended May 31, 2021. The increase in interest expense is due to increased levels of borrowings by the Company under its LOC Agreement in 2022 compared to the 2021 period when no line of credit was available.
Net Income (Loss)
As a result of the foregoing, during the three months ended May 31, 2022, the Company incurred a net loss of ($486,912), or ($0.01) per share, as compared to a net loss of ($19,941) or $(0.01) per share during the three months ended May 31, 2021. The increase in the Company’s net loss in the three months ended May 31, 2022, compared to the three months ended May 31, 2021, is attributable to the factors discussed above.
Comparison of Results of Operations for the Nine Months Ended May 28, 2022, and 2021.
Revenues and Cost of Sales
During the nine months ended May 31, 2022, the Company generated $21,141 in Bitcoin revenue from hosting third-party miners. Additionally, the Company recorded revenue on the sale of the mining equipment of $344,700. This compares to no revenue during the three months ended May 31, 2021. The Company intends to continue selling Bitmine equipment to third parties and to generate increasing levels of Bitcoin digital revenue from hosting third parties and from mining for its own account once it receives additional equipment that is currently in transit. There can be no assurances as to this timing or the level of additional sales and revenue.
Cost of sales related to the sale of mining equipment was $186,657 and the cost of sales on Bitcoin revenue was $145,179, respectively, for the nine months ended May 31, 2022, compared to zero in the prior period when there was no revenue. For the sale on mining equipment, we recorded a net profit of $158,043.
Since we are in the early stages of setting up our infrastructure to generate higher levels of revenue, we expect that our cost of sales to generate Bitmine digital revenue from hosting or mining for our own account will exceed the revenue we generate until achieve sufficient economies of scale by deploying more miners. These costs include electricity, utilities, facilities costs, depreciation and supplies.
Operating Expenses
During the nine months ended May 31, 2022, the Company incurred $1,150,119 in operating expenses compared to $36,614 during the nine months ended May 31, 2021. Operating expenses for the 2022 period were primarily comprised of $189,982 in general and administrative expenses, 742,730 in legal expenses, accounting, investment banking, and professional fees, which includes $637,964 in non-cash stock-based compensation, and $213,633 in related party compensation expense to three of our officers. Additionally, we incurred $3,775 in impairment expenses on our cryptocurrency holdings due to the significant decline in the price of Bitcoin we are holding. The higher level of operating expenses in the 2022 period as compared to the 2021 period is attributable to expenses incurred as part of the Company’s entry into the bitmine hosting business. The Company expects that operating expenses will trend materially higher in future periods as the Company begins paying regular compensation to existing officers and directors, hires additional employees, and incurs other costs associated with the commencement of operations.
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Other Income (Expense)
During the nine months ended May 31, 2022, the Company incurred $191,680 in other expenses, which was comprised of $196,165 in interest expense, and $4,485 in interest income, compared to $14,672 of interest expenses during the nine months ended May 31, 2021. The increase in interest expense is due to increased levels of borrowings by the Company on its Line of Credit in 2022 compared to the 2021 period when no Line of Credit was available.
Net Income (Loss)
As a result of the foregoing, during the nine months ended May 31, 2022, the Company incurred a net loss of ($1,307,795), or ($0.03) per share, as compared to a net loss of ($51,826), or $(0.02) during the nine months ended May 31, 2021. The increase in the Company’s net loss in the nine months ended May 31, 2022, compared to the nine months ended May 31, 2021, is attributable to the factors discussed above.
Liquidity and Capital Resources
As of May 31, 2022, the Company had $499,912 in cash on hand.
During the nine months ended May 31, 2022, the Company had a net loss of ($1,307,795).
Cash flows used in operating activities were ($296,284) for the nine months ended May 31, 2022, compared to cash flows used of ($36,614) for the nine months ended May 31, 2021. The increase in cash flows used in operating activities for fiscal 2022 compared to fiscal 2021 is primarily attributable to our operating loss of ($1,307,795), which was offset by non-cash stock-based compensation of $565,460, an increase of $102,792 of accrued interest, and the accrual of $102,792 of compensation to related parties during the nine months ended May 31, 2022, as well as minor changes in other balance sheet accounts.
Cash flows used in investing activities were ($2,426,854) for the nine months ended May 31, 2022, compared to cash flows used in investing activities of $-0- for the nine months ended May 31, 2021. The entire increase in cash flows used by investing activities during the 2022 period compared to the 2021 period is due to the purchase of $2,426,854 bitmining and associated equipment.
Cash flows provided by financing activities were $3,004,313 for the nine months ended May 31, 2022, compared to cash flows provided by financing activities of $38,150 for the nine months ended May 31, 2021. The increase in cash flows provided by financing activities in the 2022 period compared to the 2021 period is attributable to $1,616,813 in borrowings on our LOC Agreement and $1,387,500 in proceeds from the Unit offering in 2022.
A significant component of the Company’s current liquidity is derived from a Line of Credit Agreement with Innovative Digital Investors Emerging Technology, L.P., (“IDI”) a limited partnership controlled by Jonathan Bates, our Chairman, and Raymond Mow, our chief financial officer, and a director. The Line of Credit Agreement was initially entered into on July 22, 2021, and was amended and restated in its entirety on August 4, 2021, September 29, 2021, March 30, 2022 and June 24, 2022 (as amended and restated, the “LOC Agreement”). The LOC Agreement, as most recently amended, provides for loans of up to $3,000,000at the request of the Company to finance the purchase of equipment necessary for the operation of the Company’s business and related working capital. Loans under the LOC Agreement accrue interest at fifteen percent (15%) per annum, compounded on a 30/360 monthly basis until the loans have been repaid in full. As most recently amended, the Company is entitled to borrow amounts under the LOC Agreement until August 31, 2022, and the maturity date under the LOC Agreement is December 1, 2022.
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The Company believes that the accessibility to the LOC Agreement will enable it to purchase equipment it can either resell at a profit or can be used to generate revenue through the mining of Bitcoin and other crypto-currencies. Additionally, the Company believes that this revenue combined with cash on hand will provide it with sufficient liquidity to fund its operations for the next 12 months. Nevertheless, in order to expedite the Company’s entry into the bitmine hosting business, and to ensure that the Company has adequate cash reserves, the Company has engaged an investment banker and is pursuing additional capital-raising alternatives, including the potential issuance of common stock in a private placement, or the issuance of convertible notes or preferred stock. There is no assurance that the Company will be able to raise additional capital or that the terms of any capital raise are not dilutive to current shareholders or carry other terms that are unfavorable to the Company and its shareholders.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition, changes in financial condition, and results of operations, liquidity or capital resources.
Related Party Transactions
Starting in 2020, Coral Investment Partners, LP, a partnership controlled by Erik Nelson, agreed to make loans to the Company from time to time pursuant to a demand promissory note that bore interest at 24% per annum. The amount due at August 31, 2020 was principal of $50,447 and interest of $1,558. The amount due of principal of $87,447 and interest of $19,476. was repaid in full in the quarter ended August 31, 2021.
On July 22, 2021, the Company entered into a Line of Credit Agreement with Innovative Digital Investors Emerging Technology, L.P., a limited partnership controlled by Jonathan Bates, our Chairman, and Raymond Mow, our chief financial officer and a director. The Line of Credit Agreement was amended and restated in its entirety on August 4, 2021, September 29, 2021, March 30, 2022 and June 24, 2022 (as amended and restated, the “LOC Agreement”). The LOC Agreement, as most recently amended, provides for loans of up to $3,000,000 at the request of the Company to finance the purchase of equipment necessary for the operation of the Company’s business, and related working capital. Loans under the LOC Agreement accrue interest at fifteen percent (15%) per annum, compounded on a 30/360 monthly basis until the loans have been repaid in full. The Company has the right to draw down funds under the LOC Agreement until August 31, 2022. The amount drawn, plus all accrued interest therein, is repayable in full on December 1, 2022. The principal amount due under the line of credit was $1,894,109 at July 8, 2022.
Critical Accounting Policies
General
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We describe in this section certain critical accounting policies that require us to make significant estimates, assumptions and judgments. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the financial statements. For further information on the critical accounting policies, see Note 1 of the Financial Statements.
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Basis of Presentation
The accompanying financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. The most significant estimates relate to income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. On August 31, 2021, and August 31, 2020, the Company’s cash equivalents totaled $218,737 and $1,930, respectively.
Stock-based Compensation
The Company accounts for stock-based compensation using the fair value method following the guidance outlined in Section 718-10 of the FASB ASC for disclosure about stock-based compensation. This section requires a public entity to measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which service is provided. No compensation cost is recognized for equity instruments for which service is not provided or rendered.
Related party transactions
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. In accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.
Net Loss per Share
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by ASC Topic 260, “Earnings per Share.” Basic earnings per common share calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. As of August 31, 2021 there were no common stock equivalents that were dilutive.
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Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between depreciation which is deductible for tax purposes prior to being deductible for book purposes. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future taxable income.
From time to time, the Company may have differences in computing the book and tax bases of property and equipment; reserves for bad debts; capitalized overhead included in inventories; bonus plan payables, and accrued wages to shareholders/employees. Deferred tax expense or benefit is the result of the changes in the deferred tax assets, net of the valuation reserve, and liabilities.
The Company accounts for income taxes in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 740 (“FASB ASC 740”), Income Taxes, which clarifies the accounting and disclosure requirements for uncertainty in tax positions. It requires a two-step approach to evaluate tax positions and determine if they should be recognized in the financial statements. The two-step approach involves recognizing any tax positions that are “more likely than not” to occur and then measuring those positions to determine if they are recognizable in the financial statements. Management regularly reviews and analyzes all tax positions and has determined that no uncertain tax positions requiring recognition have occurred.
In general, the Company’s income tax returns are subject to examination by the taxing authorities for three years after they were filed. The Company has not filed any tax returns.
Recent Accounting Pronouncements
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
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BUSINESS
Company Overview
We are a blockchain technology company that is building out industrial scale digital asset mining, equipment sales and hosting operations. The Company’s primary business is hosting third-party equipment used in mining of digital asset coins and tokens, specifically Bitcoin, as well as self-mining for its own account. Our state-of-the-art facilities will be specifically designed and constructed for housing advanced mining equipment. Our data centers will provide power, racks, proprietary thermodynamic management (heat dissipation and airflow management), redundant connectivity, 24/7 security, as well as software which provide infrastructure management and custom firmware that boost performance and energy efficiency.
We plan to operate our data centers using immersion cooling technology. Immersion cooling is the process of submerging computer components (or full servers) in a thermally, but not electrically, conductive liquid (dielectric coolant) allowing higher heat transfer performance than air and many other benefits. Immersion cooling can be up to 95% more efficient than standard air cooling, producing an estimated PUE (power usage effectiveness) of 1.05. This cooler environment has been shown to extend machine lives by 30% or longer.
We have located our initial operations in Trinidad, which has some of the cheapest electricity in the world due to its abundant supplies of oil and gas. We currently operate an air-cooled site in Trinidad while we complete installation of an immersion-cooled site. We elected to locate our first site in Trinidad because it has ample supplies of cost-effective power and because some of technical staff is located there. However, given the trend among some governments to ban or severely limit digital asset mining, and the uncertain regulatory framework in Trinidad, we have decided that building a geographically diversified suite of hosting locations will better serve our client base. Therefore, we are exploring the development of multiple projects in the United States and internationally. Key factors in the location of a hosting operation include the cost and available supply of electricity, whether a long-term power purchase agreement can be obtained, the political and regulatory environment, among other factors. Some of the data center locations may generate power from politically favored energy sources, such as solar, wind or hydroelectric, and present opportunities to generate collateral revenue from the sale of excess power to the local utility grid and from the generation of saleable carbon credits. Other data center locations may receive power from repurposed power sources developed for heavy industry that is now shuttered.
Our digital asset mining operation is focused on the generation of digital assets by solving complex cryptographic algorithms to validate transactions on specific digital asset network blockchains, which is commonly referred to as “mining.” Our digital asset self-mining activity competes with a myriad of mining operations throughout the world to complete new blocks in the blockchain and earn the reward in the form of an established unit of a digital asset. While we expect to sell or exchange a portion of the digital assets we mine to fund our growth strategies or for general corporate purposes, we may hold our digital assets as investments in anticipation of continued adoption of digital assets as a “store of value” and a more efficient medium of exchange than traditional fiat currencies.
As the demand for digital assets increases and digital assets become more widely accepted, there is an increasing demand for professional-grade, scalable infrastructure to support growth of the blockchain ecosystem. We expect to continually evaluate the performance of our data centers, including our ability to access additional megawatts of electric power and to expand our total self-mining and customer and related party hosting hash rates.
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Revenue Sources
Our revenue will consist primarily of returns from our hosting operations, including the sales of mining equipment to be hosted in our data centers and proceeds related to Bitcoin transaction processing (digital asset mining income) fees.
| • | Hosting revenue from customers and related parties. Hosting revenue from customers and related parties is based on consumption-based contracts with our customers and related parties. Most contracts are renewable, and our customers are generally billed on a fixed and recurring basis each month for the duration of their contract, which vary from one to three years in length. | ||
| • | Equipment sales to customers and related parties. Equipment sales to customers and related parties is derived from our ability to leverage our partnerships with leading equipment manufacturers to secure equipment in advance, which is then sold to our customers and related parties. Our equipment sales are typically in connection with a hosting contract. | ||
| • | Digital asset mining income. We will conduct proprietary digital asset mining operations using specialized computers equipped with application-specific integrated circuit (ASIC) chips (known as “miners”) to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving a block”) in exchange for digital asset rewards (primarily Bitcoin). The Company will participate in “mining pools” organized by “mining pool operators” in which we share our mining power (known as “hash rate”) with the hash rate generated by other miners participating in the pool to earn digital asset rewards. The mining pool operator provides a service that coordinates the computing power of the independent mining enterprises participating in the mining pool. Fees are paid to the mining pool operator to cover the costs of maintaining the pool. The pool uses software that coordinates the pool members’ mining power, identifies new block rewards, records how much hash rate each participant contributes to the pool, and assigns digital asset rewards earned by the pool among its participants in proportion to the hash rate each participant contributed to the pool in connection with solving a block. Revenues from digital asset mining are impacted by volatility in Bitcoin prices, as well as increases in the Bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks. |
Blockchain and Cryptocurrencies Generally
Bitcoin was first introduced in 2008 and was first introduced as a means of exchange in 2009. Bitcoin is a digital asset that is issued by and transmitted through an open-source protocol collectively maintained by a peer-to-peer network of decentralized user nodes. This network hosts a public transaction ledger, known as the Bitcoin blockchain, on which Bitcoin holdings and transactions in Bitcoin are recorded. Balances of Bitcoin are stored in individual “wallet” functions, which associate network public addresses with a “private key” that controls the transfer of Bitcoin. The Bitcoin blockchain can be updated without any single entity owning or operating the network. New Bitcoin is created and allocated by the protocol that governs Bitcoin through a “mining” process that rewards users that verify transactions in the Bitcoin blockchain. The Bitcoin protocol limits the total issuance of Bitcoin over time to 21 million.
Bitcoin can be used to pay for goods and services, or it can be converted to fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on Bitcoin trading platforms, which operate 24-hours-a-day, 7-days-a-week and are not regulated in as comprehensive a manner as traditional securities exchanges. As a result, trading on these markets is likely more subject to manipulation than on securities markets regulated by the SEC, and pricing on these markets is likely affected by such manipulative activity. In addition to these platforms, over-the-counter markets and derivatives markets for Bitcoin also exist; however, these markets are still maturing and many are unregulated.
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Bitcoin exists entirely in electronic form, as virtually irreversible public transaction ledger entries on the blockchain, and transactions in Bitcoin are recorded and authenticated not by a central repository, but by a decentralized peer-to-peer network. This decentralization avoids certain threats common to centralized computer networks, such as denial of service attacks, and reduces the dependency of the Bitcoin network on any single system. While the Bitcoin network as a whole is decentralized, the private keys used to access Bitcoin balances are not widely distributed and are held on hardware (which can be physically controlled by the holder or by a third party such as a custodian) or via software programs on third-party servers and loss of such private keys results in an inability to access, and effective loss of, the corresponding Bitcoin. Consequently, Bitcoin holdings are susceptible to all of the risks inherent in holding any electronic data, such as power failure, data corruption, security breach, communication failure, and user error, among others. These risks, in turn, make Bitcoin subject to theft, destruction, or loss of value from hackers, corruption, or technology-specific factors such as viruses that do not affect conventional fiat currency. In addition, the Bitcoin network relies on open-source developers to maintain and improve the Bitcoin protocol. Accordingly, Bitcoin may be subject to protocol design changes, governance disputes such as “forked” protocols, competing protocols, and other open source-specific risks that do not affect conventional proprietary software.
Distributed blockchain technology is a decentralized and encrypted ledger that is designed to offer a secure, efficient, verifiable, and permanent way of storing records and other information without the need for intermediaries. Cryptocurrencies serve multiple purposes. They can serve as a medium of exchange, store of value or unit of account. Examples of cryptocurrencies include: Bitcoin, Bitcoin cash, and litecoin. Blockchain technologies are being evaluated for a multitude of industries due to the belief in their ability to have a significant impact in many areas of business, finance, information management, and governance.
Cryptocurrencies are decentralized currencies that enable near instantaneous transfers. Transactions occur via an open source, cryptographic protocol platform which uses peer-to-peer technology to operate with no central authority. The online network hosts the public transaction ledger, known as the blockchain, and each cryptocurrency is associated with a source code that comprises the basis for the cryptographic and algorithmic protocols governing the blockchain. In a cryptocurrency network, every peer has its own copy of the blockchain, which contains records of every historical transaction - effectively containing records of all account balances. Each account is identified solely by its unique public key (making it effectively anonymous) and is secured with its associated private key (kept secret, like a password). The combination of private and public cryptographic keys constitutes a secure digital identity in the form of a digital signature, providing strong control of ownership.
No single entity owns or operates the network. The infrastructure is collectively maintained by a decentralized public user base. As the network is decentralized, it does not rely on either governmental authorities or financial institutions to create, transmit or determine the value of the currency units. Rather, the value is determined by market factors, supply and demand for the units, the prices being set in transfers by mutual agreement or barter among transacting parties, as well as the number of merchants that may accept the cryptocurrency. Since transfers do not require involvement of intermediaries or third parties, there are currently little to no transaction costs in direct peer-to-peer transactions. Units of cryptocurrency can be converted to fiat currencies, such as the US dollar, at rates determined on various exchanges, such as Cumberland, Coinsquare (in Canada), Coinbase, Bitsquare, Bitstamp, and others. Cryptocurrency prices are quoted on various exchanges and fluctuate with extreme volatility.
We believe cryptocurrencies offer many advantages over traditional, fiat currencies, although many of these factors also present potential disadvantages and may introduce additional risks, including:
| · | acting as a fraud deterrent, as cryptocurrencies are digital and cannot be counterfeited or reversed arbitrarily by a sender; | |
| · | immediate settlement; | |
| · | elimination of counterparty risk; |
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| · | no trusted intermediary required; | |
| · | lower fees; | |
| · | identity theft prevention; | |
| · | accessible by everyone; | |
| · | transactions are verified and protected through a confirmation process, which prevents the problem of double spending; | |
| · | decentralized – no central authority (government or financial institution); and | |
| · | recognized universally and not bound by government imposed or market exchange rates. |
However, cryptocurrencies may not provide all of the benefits they purport to offer at all or at any time.
As with many new and emerging technologies, there are potentially significant risks. Businesses (including the Company) which are seeking to develop, promote, adopt, transact or rely upon blockchain technologies and cryptocurrencies have a limited track record and operate within an untested new environment. These risks are not only related to the businesses the Company pursues, but the sector and industry as a whole, as well as the entirety of the concept behind blockchain and cryptocurrency as value. Factors such as access to computer processing capacity, interconnectivity, electricity cost, environmental factors (such as cooling capacity) and location play an important role in “mining,” which is the term for using the specialized computers in connection with the blockchain for the creation of new units of cryptocurrency.
Mathematically Controlled Supply
The method for creating new bitcoins is mathematically controlled in a manner so that the supply of bitcoins grows at a limited rate pursuant to a pre-set schedule. The number of bitcoins awarded for solving a new block is automatically halved every 210,000 blocks. Thus, the current fixed reward for solving a new block is 6.25 bitcoins per block, which was decreased by half from its prior reward of 12.5 around May 10, 2020. The next reduction in the reward rate to 3.125 bitcoins per block is expected to occur in March of 2024 (based on estimates of the rate of block solution calculated by BitcoinClock.com). This deliberately controlled rate of Bitcoin creation means that the number of bitcoins in existence will never exceed 21 million and that bitcoins cannot be devalued through excessive production unless the Bitcoin Network’s source code (and the underlying protocol for Bitcoin issuance) is altered. The Company monitors the Blockchain network and, as of July 16, 2022, based on the information we collected from our network access, more than 19 million bitcoins have been mined.
Performance Metrics
Hash Rate
Miners perform computational operations in support of digital asset blockchains measured in “hash rate” or “hashes per second.” A “hash” is the computation run by mining hardware in support of the blockchain; therefore, a miner’s “hash rate” refers to the rate at which it is capable of solving such computations. The original equipment used for mining Bitcoin utilized the Central Processing Unit (“CPU”) of a computer to mine various forms of digital assets. Due to performance limitations, CPU mining was rapidly replaced by the Graphics Processing Unit (“GPU”), which offers significant performance advantages over CPUs. General purpose chipsets like CPUs and GPUs have since been replaced as the standard in the mining industry by ASIC chips such as those found in the S17 and S19 miners that we and our customers use to mine Bitcoin. These ASIC chips are designed specifically to maximize the rate of hashing operations.
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Network Hash Rate
In digital assets mining, hash rate is a measure of the processing speed by a mining computer for a specific digital asset. A participant in a blockchain network’s mining function has a hash rate total of its miners seeking to mine a specific digital asset and, system-wide, there is a total hash rate of all miners seeking to mine each specific type of digital asset. A higher total hash rate relative to the system-wide total hash rate generally results over time in a corresponding higher success rate in digital asset rewards as compared to mining participants with relatively lower total hash rates.
However, as the relative market price for a digital asset increases, more users are incentivized to mine that digital asset, which increases the network’s overall hash rate. As a result, a mining participant must increase its total hash rate in order to maintain its relative possibility of solving a block on the network blockchain. Achieving greater hash rate power by deploying increasingly sophisticated miners in ever greater quantities has become one of the Bitcoin mining industry’s great sources of competition. Our goal is to deploy a powerful fleet of hosted- and self-miners, while operating as energy-efficiently as possible.
Key Factors Affecting Our Performance
Market Price of Digital Assets
Our business is heavily dependent on the spot price of Bitcoin, as well as other digital assets. The prices of digital assets, specifically Bitcoin, have experienced substantial volatility, which may reflect “bubble” type volatility, meaning that high or low prices may have little or no relationship to identifiable market forces, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting. Bitcoin (as well as other digital assets) may have value based on various factors, including their acceptance as a means of exchange by consumers and others, scarcity, and market demand.
Our financial performance and growth depend in large part on our ability to mine for digital assets profitably and to attract customers for our hosting services. Increases in power costs, inability to mine digital assets efficiently and to sell digital assets at favorable prices will reduce our operating margins, impact our ability to attract customers for our services may harm our growth prospects and could have a material adverse effect on our business, financial condition and results of operations. Over time, there has been a positive trend in the total market capitalization of digital assets which suggests increased adoption. However, historical trends are not indicative of future adoption, and it is possible that the adoption of digital assets and blockchain technology may slow, take longer to develop, or never be broadly adopted, which would negatively impact our business and operating results.
Network Hash Rate
Our business is not only impacted by the volatility in digital asset prices, but also by increases in cost of mining digital assets, as reflected by the blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks. As more and more hash rate is needed to maintain competitiveness on a given coin’s blockchain, miners deploy more and more machines, which require electrical power to operate, both to directly power hash rate production and also to dissipate the significant amount of heat generated by the machines’ operation. Therefore, as more hash rate is generated, more electric power is consumed, which generally increases the cost of mining a given coin. In response, miners have attempted to achieve greater hash rate by deploying increasingly sophisticated miners in ever greater quantities. This has become the cryptocurrency mining industry’s great “arms race.”
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Halving
Further affecting the industry, and particularly for the Bitcoin blockchain, the digital asset reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in digital assets using a proof of work consensus algorithm. At a predetermined block, the mining reward is reduced by half, hence the term “halving.”
For Bitcoin, which will be our most significant digital asset to which the majority of our mining power is devoted, the reward was initially set at 50 Bitcoin currency rewards per block. The Bitcoin blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block 210,000; (2) on July 9, 2016 at block 420,000; (3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 Bitcoin per block. The next halving for the Bitcoin blockchain is anticipated to occur in early 2024 at block 840,000. This process will repeat until the total amount of Bitcoin currency rewards issued reaches 21 million and the theoretical supply of new Bitcoin is exhausted, which is expected to occur around 2140. Many factors influence the price of Bitcoin and the other digital assets we mine for, and potential increases or decreases in prices in advance of or following a future halving are unknown.
Electricity Costs
Electricity cost is the major operating cost for the mining fleet, both to power miners and to dissipate the heat generated by the miners’ operations, as well as for the hosting services provided to customers and related parties. As a result, our ability to locate and select sites for our hosting centers that are able to supply low-cost electricity for our hosting centers is key to our success.
Equipment Costs
As the market value of digital assets has increased, the demand for the newest, most efficient miners has also increased, leading to scarcity in the supply of and thereby a resulting increase in the price of miners. As a result, the cost of new machines can be unpredictable, and could also be significantly higher than our historical cost for new miners. Additionally, the demand for hosting space has increased the demand for the equipment necessary to build and operate hosting centers. Our ability to secure the necessary equipment in a timely manner, while maintaining proper cost controls, will be key to our success.
Our Customers
In addition to factors underlying our mining business growth and profitability, our success greatly depends on our ability to retain and develop opportunities with our existing customers and to attract new customers. Our business environment is constantly evolving, and digital asset miners can range from individual enthusiasts to professional mining operations with dedicated data centers. The Company competes with other companies that focus all or a portion of their activities on mining activities at scale. We face significant competition in every aspect of our business, including, but not limited to, the acquisition of new miners, the ability to raise capital, obtaining low-cost electricity, obtaining access to energy sites with reliable sources of power, and evaluating new technology developments in the industry.
At present, the information concerning the activities of these enterprises may not be readily available as the vast majority of the participants in this sector do not publish information publicly or the information may be unreliable. Published sources of information include “Bitcoin.org” and “blockchain.info”; however, the reliability of that information and its continued availability cannot be assured.
We believe, based on available data, that the trend of increasing market prices for Bitcoin and other major digital assets we observed beginning in the third fiscal quarter of calendar year 2020 has resulted in an increase in the scale and sophistication of competition in the digital asset mining industry, with new entrants and existing competitors gaining access to substantial capital resources to build larger and larger mining operations. If this trend of increasing market prices for Bitcoin and other digital assets continues, which we believe has occurred (though with significant volatility) throughout calendar year 2021, we believe many new and existing competitors may be encouraged to build or expand their Bitcoin mining operations.
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Despite this trend, we believe, based on our access to necessary equipment, we expect to maintain a competitive hash rate capacity among both public and private Bitcoin miners. However, to remain competitive in our evolving industry, both against new entrants into the market and existing competitors, we anticipate that we will have to continue to expand our existing miner fleet by purchasing the latest generation of miners, as well as innovating to develop and implement new technologies and mining solutions.
We believe that our integrated blockchain service portfolio, as well as our differentiated customer experience and technology, are keys to retaining and growing revenue from existing customers and to acquiring new customers. For example, we believe our significant build-out and ready power along with our MinderTM software layer represent meaningful competitive advantages favorable to our business.
Competition
Our business environment is constantly evolving, and cryptocurrency miners can range from individual enthusiasts to professional mining operations with dedicated data centers. We compete with other companies that focus all or a portion of their activities on mining activities at scale. We face significant competition in every aspect of our business, including, but not limited to, the acquisition of new miners, the ability to raise capital, obtaining the lowest cost of electricity, obtaining access to energy sites with reliable sources of power, and evaluating new technology developments in the industry.
At present, the information concerning the activities of these enterprises may not be readily available as the vast majority of the participants in this sector do not publish information publicly or the information may be unreliable. Published sources of information include “Bitcoin.org” and “blockchain.info”; however, the reliability of that information and its continued availability cannot be assured.
We believe, based on available data, that the trend of increasing market prices for Bitcoin and other major cryptocurrencies that began in the third fiscal quarter of calendar year 2020 has resulted in an increase in the scale and sophistication of competition in the cryptocurrency mining industry, with new entrants and existing competitors gaining access to substantial capital resources to build larger and larger mining operations. If this trend of increasing market prices for Bitcoin and other cryptocurrencies continues, which we believe has occurred (though with significant volatility) into calendar year 2021, we believe many new and existing competitors may be encouraged to build or scale Bitcoin mining operations.
Despite this trend, we believe, based on our access to necessary equipment, we will be able to maintain a competitive hash rate capacity among both public and private Bitcoin miners. However, to stay competitive in our evolving industry, both against new entrants into the market and existing competitors, we anticipate that we will have to continue to expand our existing miner fleet by purchasing the latest generation of miners, as well as innovating to develop and implement new technologies and mining solutions.
Regulation
Our financial prospects and continued growth depend in part on our ability to continue to operate in a compliant manner with all rules and regulations. Blockchain and digital currencies are increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Other governmental or semi-governmental regulatory bodies have shown an interest in regulating or investigating companies engaged in the blockchain or cryptocurrency business. For instance, the Cyber-Digital Task Force of the U.S. Department of Justice (the “DOJ”) published a report entitled “Cryptocurrency: An Enforcement Framework” in October 2020. This report provides a comprehensive overview of the possible threats and enforcement challenges the DOJ views as associated with the use and prevalence of cryptocurrency, as well as the regulatory and investigatory means the DOJ has at its disposal to deal with these possible threats and challenges. Further, in early March 2021, the SEC chairperson nominee expressed an intent to focus on investor protection issues raised by Bitcoin and other cryptocurrencies.
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Presently, we do not believe any U.S. or State regulatory body has taken any action or position adverse to our main cryptocurrency, Bitcoin, with respect to its production, sale, and use as a medium of exchange; however, future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability.
Further, following the appreciation of the market price of Bitcoin in the second half of 2020, we have observed increasing media attention directed at the environmental concerns associated with cryptocurrency mining, particularly its energy-intensive nature. While we do not believe any U.S.-based regulators have taken a position adverse to Bitcoin mining, in March 2021, the governmental authorities for the Chinese province of Inner Mongolia, which represents roughly 8% of the world’s total mining power, implemented an outright ban on Bitcoin mining in the province due to the industry’s intense electrical power demands and its negative environmental impacts (both in terms of the waste produced by mining the rare Earth metals used to manufacture miners and the production of electrical power used in Bitcoin mining). Later, China extended the ban to the entire nation of China, effective as of the end of July 2021. While we have yet to see whether these miners will be able to relocate to another location outside of China and Mongolia to continue mining, this action serves as a stark reminder of the power of national and state governments to affect our industry through regulator action.
As the regulatory and legal environment evolves, we may become subject to new laws, such as further regulation by the SEC and other agencies, which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” herein.
Properties and Facilities
The Company does not own or lease any property at this time. However, the Company has entered into an agreement with a large regional enterprise to enable it to locate up to 100 Megawatts of hosting equipment at different locations owned by the provider. The agreement allows the company to utilize existing infrastructure of the counterparty that includes real estate, internet access, on-site security, and electricity at its industrial rate.
The Company’s chief executive officer allows the Company to utilized the office space of an affiliated company for its executive offices without charge to the Company.
Patents and Trademarks
We intend to protect our intellectual property rights through a combination of trademark, patent, copyright and trade secrets laws.
Employees and Independent Contractors
As of July 15, 2022, we had six employees and independent contractors, which do not include our officers, who are performing services without a contract or compensation until we raise capital.
We have no collective bargaining agreements with our employees, and believe all independent contractor and employment agreements relationships are satisfactory. We hire independent contractors on an as-needed basis, and we may retain additional employees and consultants during the next twelve months, including additional executive management personnel with substantial experience in development business.
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LEGAL PROCEEDINGS
The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters in accordance with the requirements of GAAP. The Company records litigation accruals for legal matters which are both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for potential insurance or third-party recoveries.
The Company is not a party to any legal proceedings at this time.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
MANAGEMENT
Directors
The following table provides information regarding current directors and executive officers as of July 15, 2022:
| Name | Age | Title | Director Since | |||
| Jonathan Bates | 52 | Chief Executive Officer and Chairman of the Board | July 2021 | |||
| Erik S. Nelson | 55 | President and Director | July 2020 | |||
| Raymond Mow | 56 | Chief Financial Officer and Director | July 2021 | |||
| Seth Bayles | 41 | Corporate Secretary and Director | July 2021 | |||
| Michael Maloney | 36 | Director | July 2021 |
Jonathan Bates has served as our Chairman of the Board since July 2021 and our Chief Executive Office since May 2022. With more than 25 years of financial industry experience, Mr. Bates has spent his career analyzing the interrelations of a vast number of different markets. He has developed a deep understanding of institutional trading environments and multi-asset portfolios is a critical resource to the operations he oversees. In addition to his role as chairman of the Company, Mr. Bates is also the Chief Investment Officer and General Partner of Progression Asset Management (an affiliate of Integrated Advisors Network, LLC) since January 2019, and its subsidiary, Innovative Digital Investors, LLC, which is the general partner of Innovative Digital Investors Emerging Technology L.P., a private investment fund. From November 2017 to January 2019, Mr. Bates served as a Managing Partner of Boustead Capital Partners, LLC, registered broker dealer. Mr. Bates has twice served as a Managing Director of J.P. Morgan Securities, LLC, from 2009 to July 2012 and from July 2015 to November 2017. In between his stints at J.P. Morgan, from July 2012 to July 2015, Mr. Bates served as a Director at Barclays Wealth U.S. Over the course of his career, Mr. Bates has, at different times, held the Series 7, 9, 10 and 65 licenses. At Innovative Digital, Mr. Bates has helped drive several private companies from early stages to public markets in both the U.S. and Canada. We believe that Mr. Bates is highly qualified to serve on our board due to his knowledge and experience technology startups, which should be instrumental as the Company grows its business and pursues a listing of its common stock on the NASDAQ Capital Market or the NYSE. Mr. Bates graduated from the University of Texas at Austin in 1992 with a degree in Business Finance.
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Erik S. Nelson has served as our President since May 2022 and a director since July 2020. In addition to his role as Chief Executive Officer of the Company, Mr. Nelson is also the Corporate Secretary and a member of the Board of Nocera, Inc. since 2011, and was previously its President from 2017 to 2019. Mr. Nelson was the sole officer (CEO, President, and CFO) and sole Director of Vinings Holdings, Inc. (October 2019 – February 2021) Mr. Nelson is also the President of Coral Capital Advisors, LLC. An advisory services firm founded in 1995 that provides services to privately held and publicly traded companies. Since September 2012, Mr. Nelson has been President of Mountain Share Transfer, LLC, an SEC registered stock transfer agent. Mr. Nelson is a graduate of the University of Colorado (1989) with a Bachelor of Science in Business Administration degree, with an emphasis in Finance. We believe that Mr. Nelson is highly qualified to serve on our board due to his extensive experience with the public markets and companies.
Mountain Share Transfer and Erik Nelson consented to an SEC Order in 2015 related to failure to file an updated correct TA-1 Form and other administrative violations and disclosure matters of the Transfer Agent, Mountain Share Transfer (Administrative Proceeding file no. 3-16378, 34 Act Rel. no. 74226).
Raymond Mow has served as our Chief Financial Officer and a director since July 2021. With more than 30 years of financial industry experience, Mr. Mow has spent his career managing and analyzing fixed income mutual funds and institutional portfolios. He has developed a broad knowledge of various asset classes as well as interpreting and forecasting domestic and international economic measures. In addition to his role as Chief Financial Officer of the Company, Mr. Mow also serves as Chief Investment Officer and Chief Compliance Officer of Progression Asset Management, as position he has held since January 2020, and Portfolio Manager of its subsidiary, Innovative Digital Investors, LLC, which is the general partner of Innovative Digital Investors Emerging Technology L.P., a private investment fund specializing in equity investments in cutting edge technology companies. From March 2018 to March 2019, Mr. Mow held the position of Managing Director of Fixed Income at First Foundation Advisers overseeing $2.3 billion. As a member of the investment policy committee, Mr. Mow collaborated on asset allocation policy and portfolio construction. From 1995-2018, Mr. Mow was Senior Portfolio Manager at Highmark Capital Management, overseeing $2 billion in fixed income assets. Mr. Mow currently holds a Series 65 license. Mr. Mow graduated in 1989 from University of Hawaii, Manoa with a BBA-Finance degree. We believe that Mr. Mow is highly qualified to serve on our board due to his extensive experience financial analysis and reporting.
Michael Maloney has served as a director since July 2021. Mr. Maloney is digital currency and blockchain technology expert who has been active in the space since 2011. He serves as an advisor to several industry leading companies, and is regularly featured as an industry commentator and educator at public events.
Mr. Maloney most recently served as the CFO for Coinmint, LLC from July 2019 to October 2021. At Coinmint, he developed partnerships with several large public companies and high-net worth private institutions that made Coinmint one of the largest cryptocurrency mining operations in North America. Under his tenure, hashrate increased from 1.3EH to over 7EH (~5% of the Bitcoin network), all from increased co-hosting contracts. He was able to grow revenues by over 600% over this same period. Since August 2019, Mr. Maloney has also served as an Adjunct Professor at Fordham Law School and Fordham Gabelli Business, teaching "Blockchain, Virtual Currencies, and Tokens: Business and Legal Issues." Mr. Maloney helps coordinate the Fordham Law Blockchain Regulatory Symposium which draws US and international regulators and financial experts together to discuss industry trends.
From November 2017 to September 2018, Mr. Maloney co-founded Galaxy Digital, the first merchant bank to serve the blockchain space, as the Managing Director. In this position, he directed both the Digital Strategy and Transaction Advisory practices to assist clients in the build and financing of blockchain technologies. Mr. Maloney also supported the development of trade and compliance technologies and provided technical critiques for the venture group.
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Mr. Maloney co-founded Themys, a blockchain insurance and risk management protocol in October 2018. There he wrote and patented the first Blockchain Derived Hashrate Bond developed to assist cryptocurrency miners finance ASIC purchases. He left in July 2019 to join Coinmint. Mr. Maloney was a founding member of Ernst & Young’s (EY) Distributed Ledger Technology group, and led global blockchain development for the firm. From June 2013 to September 2017, he assisted in the development of numerous blockchain applications for clients across a variety of industries, including: digital goods and games trading, supply chain management, anti-money laundering and KYC regulatory compliance, and language processing and machine learning marketplaces.
Since September 2016, Mr. Maloney has also served as CTO for a blockchain based non-profit organization, eduDAO. eduDAO currently assists non-profits in exploring blockchain and assessing the viability of DAOs for the funding needs. Mr. Maloney has a B.A. degree from Fordham University.
We believe that Mr. Maloney is highly qualified to serve on our board due to his extensive experience in the blockchain and bitcoin mining operations.
Seth Bayles has served as our Corporate Secretary and a director since July 2021. Mr. Bayles is a Corporate Attorney with over 15 years of experience practicing in the areas of entertainment, finance, technology, and commercial contracts. He has negotiated and drafted complex commercial agreements including multimedia, vendor, union, talent, channel, and technology-related agreements. Since 2017, he has served as the general counsel of Hospitality International Group, Inc. From 2016 to 2021, he served as general counsel and chief compliance officer of Credit Key, Inc. From 2015 to 2016, he served as director, legal affairs and business development, with ZestFinance, Inc. Prior to joining the corporate world, he worked as an associate at Weil, Gotshal & Manges, LLC in its Washington, DC office, and King & Spalding, LLP in its Washington, DC’s office. He has his B.A. in Economics and History from Brandeis University, a J.D. from the Emory University School of Law, and an L.L.M. from the Georgetown University Law Center. We believe that Mr. Bayles is highly qualified to serve on our board due to his extensive experience as a corporate attorney and in regulatory affairs.
Executive Officers who are not Directors
Ryan Ramnath has served as our Chief Operating Officer since July 2021. Ryan Ramnath currently holds the role as Chief Executive Officer (CEO) of Bitflair Mining Corp. (“Bitfair”), a Canadian owned Trinidad-operated liquid cooled bitcoin mine. Mr. Ramnath co-founded Bitflair in 2017 and was instrumental in navigating the local Trinidad environment to successfully launch the first liquid-cooled bitcoin mine in the Caribbean. Since 2014, Mr. Ramnath has worked in various engineering capacities in the upstream and downstream energy sectors. Mr. Ramnath worked for the National Gas Company of Trinidad and Tobago from June 2014 to August 2014 as reliability engineer intern. Mr. Ramnath worked for Imperial Oil Company as a pipeline engineer from September 2015 to April 2016. Mr. Ramnath worked for BHP Billiton has a drilling engineering Intern from June 2016 to August 2016. Mr. Ramnath has worked for Royal Dutch Shell since January 2018 to the present, first as a wellsite operations engineer from until July 2019, and thereafter as drilling engineer. As the CEO of Bitflair Mining Corp, Mr. Ramnath has developed special skills in the design, engineering and implementation of solutions in the liquid-cooled hosting business. Mr. Ramnath was appointed as the Chief Operating Officer (COO) of Bitmine Immersion Technologies in 2021 due to his comprehensive understanding of the liquid-cooled bitcoin mining infrastructure and ability to build, fix and repair any mechanical issues which may arise. Mr. Ramnath graduated from the University of Toronto with a Mechanical Engineering – High 5 Distinction.
Family Relationships
There are no family relationships between or among any of the current directors, executive officers or persons nominated or charged to become directors or executive officers. There are no family relationships among our officers and directors and those of our subsidiaries and affiliated companies.
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Board Composition
Our business and affairs are organized under the direction of our board of directors, which currently consists of five members. Our Bylaws provide that the authorized number of directors may be changed only by resolution of the board of directors. Our directors hold office until the earlier of their death, resignation, removal or disqualification, or until their successors have been elected and qualified. Our board of directors does not have a formal policy on whether the roles of Chief Executive Officer and Chairman of our board of directors should be separate. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counselling and direction to our management. Our board of directors meets on an as-needed basis.
We have no formal policy regarding board diversity. Our priority in selection of board members is identification of members who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business and understanding of the competitive landscape.
Conflicts of Interest
Certain of the officers and directors of the Company are engaged in other businesses, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on a board of directors. Currently, none of our officers are required to devote 100% of their time and attention to the affairs of the Company. As a result, certain conflicts of interest may arise between the Company and its officers and directors. The Company will attempt to resolve such conflicts of interest in favor of the Company. The officers and directors of the Company are accountable to it and its shareholders as fiduciaries, which require that such officers and directors exercise good faith and integrity in handling the Company's affairs. A shareholder may be able to institute legal action on behalf of the Company or on behalf of itself and other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts is in any manner prejudicial to the Company.
Corporate Governance
We do not have a separate Compensation Committee, Audit Committee or Nominating Committee. These functions are conducted by our Board of Directors acting as a whole. During the fiscal year ended August 31, 2021, our Board of Directors held no meetings and took action by written consent in lieu of a meeting on nine occasions.
There are no understandings between any director of our company or any other person pursuant to which any officer or director was or is to be selected as an officer or director, except that the Company’s employment agreement with Chris Moses provides that the Company is obligated to appoint Mr. Moses to a vacant seat on the board, and nominate him for election as a director at any annual meeting of shareholders, to the extent Mr. Moses desires to serve on the board. To date, Mr. Moses has not exercised his right to serve on the board.
Director Independence
Our current board consists of Erik Nelson, Jonathan Bates, Raymond Mow, Seth Bayles, and Michael Maloney. Our common stock is currently quoted on the OTC Pink exchange. Since the OTC Pink exchange does not have its own rules for director independence, we use the definition of independence established by the NASDAQ Stock Market. Under applicable NASDAQ Stock Market rules, a director will only qualify as an “independent director” if the director has not, at any time in the past three years, (a) been employed by us, (b) received more than $120,000 in compensation from us, other than for board services, (c) had a family member who was employed as an executive officer of us, (d) been, or had a family member that was, a partner, controlling shareholder or executive officer of any organization that received payments for property or services that exceeded the greater of 5% of the recipient’s gross revenues or $200,000, (e) been, or had a family member that was, employed as an executive officer of another entity during the past three years where any of the executive officers of us serve on the compensation committee, or (f) been, or had a family member that was, a partner in our auditor at any time in the past three years. At this time, we have determined that we have one independent director: Michael Maloney.
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Shareholder Communications with Our Board of Directors
The Company welcomes comments and questions from our shareholders. Shareholders should direct all communications to our Secretary, Seth Bayles, at our executive offices. However, while we appreciate all comments from shareholders, we may not be able to respond individually to all communications. We will attempt to address shareholder questions and concerns in our press releases and documents filed with the SEC, so that all shareholders have access to information about us at the same time. Mr. Bayles collects and evaluates all shareholder communications. All communications addressed to our directors and executive officers will be reviewed by those parties, unless the communication is clearly frivolous.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of business conduct and ethics is posted on our website at www.bluewatervaccines.com.
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EXECUTIVE AND DIRECTOR COMPENSATION
The following identifies the elements of compensation for fiscal years 2021 and 2020 with respect to our “named executive officers,” which term is defined by Item 402 of the SEC’s Regulation S-K to include (i) all individuals serving as our principal executive officer at any time during fiscal year 2021, (ii) our two most highly compensated executive officers other than the principal executive officer who were serving as executive officers at August 31, 2021 and whose total compensation (excluding nonqualified deferred compensation earnings) exceeded $100,000, and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to the foregoing item (ii) but for the fact that the individual was not serving as an executive officer of the Company at August 31, 2021.
Based on our compensation for the fiscal year ended August 31, 2021, Erik Nelson constitutes our only “named executive officers” pursuant to Item 402 of Regulation S-K.
Summary Compensation Table
| Fiscal | Stock | All Other | ||||||||||||||||
| Name and Principal Position | Year | Salary | Compensation | Compensation | Total | |||||||||||||
| Erik S. Nelson (1) | 2021 | $ | – | $ | – | $ | – | $ | – | |||||||||
| 2020 | $ | – | $ | – | $ | – | $ | – | ||||||||||
| 1) | Mr. Nelson has been the Company’s chief executive officer since July 16, 2020. Mr. Nelson did not receive any compensation for his services for either the 2020 or 2021 fiscal years. |
The Company does not provide its officers or employees with pension, stock appreciation rights, long-term incentive or other plans. The Company does not have a defined benefit, pension, profit sharing plan, or a 401(k) plan. We did not grant any stock options or stock appreciation rights to our named executive officers in the last fiscal year. We did not reprice any options or stock appreciation rights during the last fiscal year. We did not waive or modify any specified performance target, goal or condition to payout with respect to any amount included in any incentive plan compensation included in the summary compensation table.
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Compensation Philosophy
The board is responsible for creating and reviewing the compensation of our executive officers, as well as overseeing our compensation and benefit plans and policies and administering our equity incentive plans. We believe in providing a competitive total compensation package to its executives through a combination of base salary, annual performance bonuses, and long-term equity awards. The executive compensation program is designed to achieve the following objectives:
| · | provide competitive compensation that will help attract, retain and reward qualified executives; |
| · | align executives’ interests with our success by making a portion of the executive’s compensation dependent upon corporate performance; and |
| · | align executives’ interests with the interests of stockholders by including long-term equity incentives. |
The board believes that our executive compensation program should include annual and long-term components, including cash and equity-based compensation, and should reward consistent performance that meets or exceeds expectations. The board evaluates both performance and compensation to make sure that the compensation provided to executives remains competitive relative to compensation paid by companies of similar size and stage of development operating in the payment processing industry and taking into account our relative performance and its own strategic objectives.
Notwithstanding the above, the Company is not currently paying any compensation to its executive officers until it raises additional capital to fund its business and capital expenditure needs.
Outstanding Equity Awards At Fiscal Year-End
None of the named executive officers have any unvested equity awards or unexercised options in the Company as of August 31, 2021.
Employment Agreements
The Company does not have any employment agreements with any of its executive officers, except for Ryan Ramnath, the Company’s chief operating officer. Mr. Ramnath and the Company are party to an employment agreement dated July 19, 2021, under which Mr. Ramnath is employed for three years as chief operating officer, and is entitled to compensation of $4,000 per month effective September 1, 2021 with no benefits.
Severance and Change of Control Benefits
The Company does not currently have any agreements with its named executive officers or directors which provide for severance or change of control benefits.
Employee Benefit Plans and Pension Benefits
The Company does not provide its officers or employees with pension, stock appreciation rights, long-term incentive or other plans. The Company does not have a defined benefit, pension, profit-sharing plan or 401(k) plan.
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Nonqualified Deferred Compensation
None of our NEOs are covered by a deferred contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Director Compensation
The following table details the total compensation earned by our non-employee directors during the year ended August 31, 2021.
| Name | Fee Earned ($) (1) |
Restricted Stock Awards ($) (2) |
All Other Compensation ($) |
Total ($) |
||||||||
| Michael Maloney | – | 60,000 | – | 60,000 | ||||||||
| Seth Bayles | – | 7,500 | – | 7,500 |
| (1) | Excludes travel expense reimbursements. |
| (2) | Includes 4,000,000 shares issued to Mr. Maloney and 500,000 shares issued to Mr. Bayles as compensation for agreeing to join the board of directors. The shares were valued at $0.015, which is the price at which the Company sold shares for cash in a contemporaneous offering to third parties. |
There were no options outstanding to directors as of August 31, 2021.
Our board does not have a current compensation policy for its directors. However, we reimburse our directors for reasonable travel and other related expenses. Once we raise capital, we intend to develop a board compensation plan that is consistent with market norms for similar sized companies.
Limitation of Liability and Indemnification Matters
Section 102 of DGCL permits a Delaware corporation to adopt provisions in its Certificate of Incorporation or Bylaws limit or eliminate the personal liability of our directors for a breach of their fiduciary duty of care as a director. Any such provision does not apply to: any breach of the director’s duty of loyalty to us or our stockholders; any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or any transaction from which the director derived an improper personal benefit. We have not adopted any such provision in our Certificate of Incorporation or Bylaws.
Our Bylaws require us to indemnify any officer and director who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, to the fullest extent permitted by the laws of Delaware, provided however, that except for any proceeding seeking to enforce or obtain payment under any right to indemnification by the corporation, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if the corporation has joined in or consented to the initiation of such proceeding (or part thereof).
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To date, we are not required to pay any costs of indemnification, by direct payment or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final disposition of the proceeding, except by the approval of the board of directors.
In addition, we may enter into separate indemnification agreements with some of our directors and officers. These indemnification agreements, among other things, may require us to indemnify our directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of their services as a director or officer, or any other company or enterprise to which the person provides services at our request.
In the future, we may obtain a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe that these provisions in our Bylaws and these indemnification agreements, if entered into, are necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, may be permitted to directors, officers or control persons, in the opinion of the SEC, such indemnification is against public policy, as expressed in the Securities Act and is therefore unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 15, 2022, certain information concerning the beneficial ownership of our common stock by (i) each person known by us to own beneficially five percent (5%) or more of the outstanding shares of each class, (ii) each of our directors and named executive officers, and (iii) all of our executive officers and directors as a group.
The number of shares beneficially owned by each 5% stockholder, director or executive officer is determined under the rules of the Securities & Exchange Commission, or SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under those rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and also any shares that the individual or entity has the right to acquire within 60 days after July 15, 2022 through the exercise of any stock option, warrant or other right, or the conversion of any security. Unless otherwise indicated, each person or entity has sole voting and investment power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion in the table below of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
| Name | Shares Beneficially Owned | Percent of Common Stock (1) | ||
| 5% Stockholders | ||||
| Jonathan Bates (2) | 15,700,000 | 33.3% | ||
| Innovative Digital Investors Emerging Technology, LP | 11,500,000 | 24.4% | ||
| Rykor Energy Solutions, LLC (3) | 8,016,000 | 15.3% | ||
| Sam Jorgensen (4) | 6,887,754 | 14.6% | ||
| BFAM Partners, LLC | 4,200,000 | 8.9% | ||
| Michael Maloney | 4,000,000 | 8.5% | ||
| Abed Equities | 3,650,000 | 7.7% | ||
| BitFlair Mining Corp. | 3,443,877 | 7.3% | ||
| Coral Investment Partners, LP (5) | 2,505,000 | 5.2% | ||
| Directors and Named Executive Officers | ||||
| Jonathan Bates (2) | 15,700,000 | 33.3% | ||
| Michael Maloney | 4,000,000 | 8.5% | ||
| Ryan Ramnath (6) | 3,443,877 | 7.3% | ||
| Erik Nelson (7) | 2,655,000 | 5.5% | ||
| Raymond Mow | 1,250,000 | 2.7% | ||
| Seth Bayles | 500,000 | 1.1% | ||
| Officers and Directors as a Group | 27,548,877 | 57.2% |
| (1) | Based on 47,098,091 shares of common stock issued and outstanding as of July 15, 2022. |
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| (2) | Includes (i) 11,500,000 shares owned by Innovative Digital Investors Emerging Technology, LP (“Innovative”), and (ii) 4,200,000 shares owned by BFAM Partners, LLC, of which Mr. Bates is the 100% owner. Mr. Bates has sole voting and investment power of any shares owned by Innovative by virtue of his ownership of its general partner. BFAM and Co. and an individual retirement account established by Mr. Bates own approximately 14.63% of Innovative. Mr. Bates owns 90% of BFAM and Co., and a trust established for his children on the remaining 10%. Mr. Bates disclaims beneficial ownership of any shares owned by Innovative beyond his percentage interest in such entity. |
| (3) | Includes (i) 2,672,000 shares held outright, (ii) 2,672,000 Class C-1 Warrants which are exercisable immediately, and (iii) 2,672,000 Class C-2 Warrants which are exercisable immediately. |
| (4) | Includes (i) 3,443,877 shares owned by Mr. Jorgensen and (ii) 3,443,877 shares owned by BitFlair Mining Corp. (“BitFlair”), of which Mr. Jorgensen has shared voting and investment power. Mr. Jorgenson disclaims beneficial ownership of shares held by BitFlair beyond his 40% percentage interest therein. |
| (5) | Includes (i) 1,505,000 shares held outright, (ii) 500,000 Class A Warrants which are exercisable immediately, and (iii) 500,000 Class B Warrants which are exercisable immediately. |
| (6) | Includes 3,443,877 shares owned by BitFlair Mining Corp. (“BitFlair”), of which Mr. Ramnath has shared voting and investment power. Mr. Ramnath disclaims beneficial ownership of shares held by BitFlair beyond his percentage interest in Bitflair of 40%. |
| (7) | Includes (i) 2,505,000 shares beneficially owned by Coral Investment Partners, LP (“Coral”), as to which Mr. Nelson, in his capacity as owner of the general partner, has sole voting and investment power, consisting of (A) 1,505,000 shares owned by Coral, (B) 500,000 Class A Warrants owned by Coral which are immediately exercisable, and (C) 500,000 Class B Warrants owned by Coral which are immediately exercisable, and (ii) 150,000 shares beneficially owned by Sterling Acquisitions 1, Inc., which is owned by Mr. Nelson, consisting of (X) 50,000 shares owned by Sterling, (Y) 50,000 Class A Warrants owned by Sterling, and (Z) 50,000 Class B Warrants owned by Sterling. Mr. Nelson disclaims beneficial ownership of shares held by Coral beyond his 40% ownership interest therein. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of transactions since January 1, 2020 to which we were a party in which (i) the amount involved exceeded or will exceed the lesser of $120,000 of one percent (1%) of our average total assets at year-end for the last two completed fiscal years and (ii) any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, any of the foregoing persons, who had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other similar arrangements, which are described under “Executive and Director Compensation.”
Certain Relationships and Related Transactions
Starting in 2020, Coral Investment Partners, LP, a partnership controlled by Erik Nelson, agreed to make loans to the Company from time to time pursuant to a demand promissory note that bore interest at 24% per annum. The amount due at August 31, 2020 was principal of $50,447 and interest of $1,558. The amount due of principal of $87,447 and interest of $19,476. was repaid in full in the quarter ended August 31, 2021.
On July 22, 2021, the Company entered into a Line of Credit Agreement with Innovative Digital Investors Emerging Technology, L.P., a limited partnership controlled by Jonathan Bates, our Chairman, and Raymond Mow, our chief financial officer and a director. The Line of Credit Agreement was amended and restated in its entirety on August 4, 2021, September 29, 2021, March 30, 2022 and June 24, 2022; (as amended and restated, the “LOC Agreement”). The LOC Agreement, as most recently amended, provides for loans of up to $3,000,000 at the request of the Company to finance the purchase of equipment necessary for the operation of the Company’s business, and related working capital. Loans under the LOC Agreement accrue interest at fifteen percent (15%) per annum, compounded on a 30/360 monthly basis until the loans have been repaid in full. The Company has the right to draw down funds under the LOC Agreement until August 31, 2021. The amount drawn, plus all accrued interest therein, is repayable in full on December 1, 2022. The principal amount due under the line of credit was $1,894,109 at July 15, 2022.
Indemnification of Officers and Directors
Our Bylaws require us to indemnify any officer and director who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, to the fullest extent permitted by the laws of Delaware, provided however, that except for any proceeding seeking to enforce or obtain payment under any right to indemnification by the corporation, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if the corporation has joined in or consented to the initiation of such proceeding (or part thereof).
Further, we may enter into indemnification agreements with each of our directors and officers, and we may purchase a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. For further information, see “Executive and Director Compensation — Limitations of Liability and Indemnification Matters.”
Policies with Respect to Transactions with Related Persons
The board has adopted a Code of Ethics, which is available at bitminetech.io, that sets forth various policies and procedures intended to promote the ethical behavior of the Company’s employees, officers and directors. The Code of Ethics describes our policy on conflicts of interest.
The executive officers and the board are also required to complete a questionnaire on an annual basis which requires them to disclose any related person transactions and potential conflicts of interest. The responses to these questionnaires are reviewed by outside corporate counsel, and, if a transaction is reported by an independent director or executive officer, the questionnaire is submitted to the Audit Committee, or the independent directors if there is no Audit Committee. If necessary, the Audit Committee or the independent directors, as applicable, will determine whether the relationship is material and will have any effect on the director’s independence. After making such determination, the Audit Committee or independent directors, as applicable, will report its recommendation on whether the transaction should be approved or ratified by the entire board.
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DESCRIPTION OF CAPITAL STOCK
The following is a summary of the rights of our common stock and preferred stock, certain provisions of our Certificate of Incorporation and our Bylaws and applicable law. This summary does not purport to be complete and is qualified in its entirety by the provisions of our Certificate of Incorporation and our Bylaws, copies of which have been filed as exhibits to the registration statement and are incorporated by reference to our registration statement, of which this prospectus forms a part.
Authorized Capital Stock
As of the date of this prospectus, our authorized capital stock consists of 500,000,000 shares of common stock, par value $0.0001 per share. Our authorized but unissued shares of common stock are available for issuance without further action by our stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded in the future.
Common Stock
As of the date of this prospectus, there were 47,098,091 shares of common stock issued and outstanding, and 9,500,800 shares of common stock issuable upon exercise of outstanding warrants.
Under the terms of our Certificate of Incorporation, holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as our board of directors from time to time may determine. Our common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of our common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.
Preferred Stock
As of the date of this prospectus, we are not authorized to issue any shares of preferred stock.
Options
As of the date of this prospectus, we did not have any outstanding options to purchase common stock.
Warrants
As of the date of this prospectus, we have issued 590,000 Class A Warrants, 590,000 Class B Warrants, 4,147,600 Class C-1 Warrants, 4,147,600 Class C-2 Warrants, and 25,600 Class C-3 Warrants.
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Anti-Takeover Provisions of Delaware Law and Our Certificate of Incorporation and Bylaws
Section 203 of the DGCL prohibits many Delaware corporations from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, unless the transaction was approved by the board and/or shareholders in the manner specified in the statute. We are not subject to Section 203 of the DGCL because our common stock is not listed on a national securities exchange or held of record by more than 2,000 shareholders. Furthermore, our Certificate of Incorporation does contain a provision whereby we expressly elect to be governed by Section 203.
Our Bylaws contain a number of provisions that could prevent or delay a potential takeover of the Company:
• provide that the authorized number of directors may be changed only by resolution of our board of directors;
• provide that a director may only be removed with cause or without cause by the holders of at least a majority of our then-outstanding shares of the capital stock entitled to vote generally at an election of directors;
• provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;
• provide that a special meeting of our stockholders may be called only by the chairman of our board of directors, by our board of directors or of one or more stockholders who hold at least fifty percent of our issued and outstanding common stock; and
• not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose.
The amendment of any of these provisions would require approval of the vote of a majority of the board of directors or the vote of at least a majority of the issued and outstanding common stock.
The combination of these provisions may make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Because our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control.
These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to reduce our vulnerability to hostile takeovers and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of delaying changes in our control or management. As a consequence, these provisions may also inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts. We believe that the benefits of these provisions, including increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company, outweigh the disadvantages of discouraging takeover proposals, because negotiation of takeover proposals could result in an improvement of their terms.
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Limitation on Liability and Indemnification
See the section titled “Executive and Director Compensation — Limitation on Liability and Indemnification Matters.”
Listing
Our common stock is listed on OTC Pink under the trading symbol “BMNR.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is West Coast Transfer, Inc. The Transfer Agent’s address is 721 N. Vulcan Ave. First Floor, Encinitas, CA 92024.
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SELLING STOCKHOLDERS
The Placement Shares and the Warrant Shares being offered by the Selling Stockholders are those previously issued to the selling shareholders in the Private Offering. We are registering the Placement Shares and the Warrant Shares in order to permit the selling stockholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock, the selling stockholders have not had any material relationship with us within the past three years.
The table below lists the Selling Stockholders and other information regarding the beneficial ownership of the shares of common stock by each of the Selling Stockholders. The second column lists the number of shares of common stock beneficially owned by each Selling Stockholder, based on its ownership of the shares of common stock and Warrants, as of July 15, 2022, assuming exercise of the Warrants held by the Selling Stockholders on that date, without regard to any limitations on exercises. The third column lists the total number of shares being offered by this prospectus by the Selling Stockholders, including any shares of common stock currently owned by the Selling Stockholder and any shares of common stock issuable upon exercise of any Warrants held by the Selling Stockholder. The fourth column shows the number of shares of common stock that would still be owned by the Selling Stockholder assuming the sale of all of the shares offered by the Selling Stockholders pursuant to this prospectus, and the fifty column shows the percentage ownership of such remaining shares.
The table is based on information supplied to us by the Selling Stockholders, with beneficial ownership and percentage ownership determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to shares of common stock. This information does not necessarily indicate beneficial ownership for any other purpose. In computing the number of shares of common stock beneficially owned by a Selling Stockholder and the percentage ownership of that Selling Stockholder, shares of common stock subject to warrants held by that Selling Stockholder that are exercisable for shares of common stock within 60 days after July 15, 2022, are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other stockholder.
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| Name of Selling Shareholder | Number of shares of Common Stock Beneficially Owned Prior to Offering(1) | Maximum Number of Shares to be Sold Pursuant to this Prospectus(1) | Number of shares of Common Stock Owned After Offering(2) | Percentage Offering(3) | ||||||||||||
| Derek Leffler | 300,000 | 300,000 | – | – | ||||||||||||
| Scott Walker | 600,000 | 600,000 | – | – | ||||||||||||
| Natacha Furlan | 300,000 | 300,000 | – | – | ||||||||||||
| Michael Fentress | 120,000 | 120,000 | – | – | ||||||||||||
| Toalei Talataina | 120,000 | 120,000 | – | – | ||||||||||||
| Edward Staughton | 300,000 | 300,000 | – | – | ||||||||||||
| Robert B. Katz | 24,000 | 24,000 | – | – | ||||||||||||
| The Banksy Trust | 504,000 | 504,000 | – | – | ||||||||||||
| Jonathan Jacobs | 120,000 | 120,000 | – | – | ||||||||||||
| Howard Schraub | 150,000 | 150,000 | – | – | ||||||||||||
| Erik H. Smith | 60,000 | 60,000 | – | – | ||||||||||||
| Jason Tyler Green | 120,000 | 120,000 | – | – | ||||||||||||
| Arosa Investments, LTD | 480,000 | 480,000 | – | – | ||||||||||||
| Brian Polan | 60,000 | 60,000 | – | – | ||||||||||||
| Revocable Trust of Douglas W.K. Chee Dated July 20, 1998 | 72,000 | 72,000 | – | – | ||||||||||||
| Steve Simon | 60,000 | 60,000 | – | – | ||||||||||||
| Krueger Family Trust | 120,000 | 120,000 | – | – | ||||||||||||
| Rykor Energy Solutions LLC | 8,016,000 | 8,016,000 | – | – | ||||||||||||
| Dean Delis Trust | 240,000 | 240,000 | – | – | ||||||||||||
| Ionic Ventures LLC | 600,000 | 600,000 | – | – | ||||||||||||
| Sutter Securities, Inc. (4) | 223,040 | 23,040 | 200,000 | – | ||||||||||||
| Michael R. Jacks (4) | 78,760 | 53,760 | 25,000 | – | ||||||||||||
| Michael Chermak | 500,000 | 500,000 | ||||||||||||||
| Dean Sutton | 500,000 | 500,000 | ||||||||||||||
| Coral Investment Partners, LP (5) | 2,505,000 | 1,000,000 | 1,505,000 | 3.1 | ||||||||||||
| Sterling Acquisitions 1, Inc. (6) | 150,000 | 100,000 | 50,000 | – | ||||||||||||
| Michael Littman (7) | 20,000 | 20,000 | – | – | ||||||||||||
| Candice Chilcote | 10,000 | 10,000 | – | – | ||||||||||||
| David Natan (8) | 10,000 | 10,000 | – | – | ||||||||||||
| Chris Moore | 20,000 | 20,000 | – | – | ||||||||||||
| Joanne Majerus | 10,000 | 10,000 | – | – | ||||||||||||
| Philip Grey | 10,000 | 10,000 | – | – | ||||||||||||
| Kristin Nelson-Dorrance | 10,000 | 10,000 | – | – | ||||||||||||
| Steve Stephens | 10,000 | 10,000 | – | – | ||||||||||||
| Paul Eric Flesche | 10,000 | 10,000 | – | – | ||||||||||||
| George Castillo | 10,000 | 10,000 | – | – | ||||||||||||
_________
(1) The number of shares is based upon the number of shares of our common stock held by each selling stockholder and the number of shares issuable to the selling stockholder upon the full exercise of the Warrants held by each selling stockholder based upon information supplied by the selling stockholder.
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(2) Assumes that all securities registered with this offering will be sold.
(3) Percentages are based on 47,098,091 shares of common stock outstanding as of July 15, 2022.
(4) Sutter Securities, Inc. acts as financial adviser to the Company pursuant to a Placement Agent and Advisory Services Agreement. Michael R. Jacks is a registered representative with Sutter Securities, Inc.
(5) Coral Investment Partners, LP is an investment fund managed by an entity owned by Erik S. Nelson, who is the Company’s President and a director.
(6) Sterling Acquisitions 1, Inc. is owned by Erik S. Nelson, who is the Company’s President and a director.
(7) Michael Littman is a former attorney for the Company.
(8) David Nathan performs accounting services for the Company as an independent contractor.
We do not know when or in what amounts a selling stockholder may offer shares for sale. The selling stockholders might not sell any or might sell all of the shares offered by this prospectus. Because the selling stockholders may offer all or some of the shares pursuant to this offering, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares, we cannot estimate the number of the shares that will be held by the Selling Stockholders after completion of the offering. However, for purposes of this table, we have assumed that, after completion of the offering, none of the shares covered by this prospectus will be held by the selling stockholders, including common stock issuable upon exercise of the Warrants issued in the Private Placement.
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PLAN OF DISTRIBUTION
Each Selling Stockholder (the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the OTC Pink or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:
• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
• block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
• an exchange distribution in accordance with the rules of the applicable exchange;
• privately negotiated transactions;
• settlement of short sales;
• in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;
• through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
• a combination of any such methods of sale; or
• any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.
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In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities.
We agreed to keep this prospectus effective until all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
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LEGAL MATTERS
Davis Gillett Mottern & Sims, LLC, Atlanta, Georgia, is acting as counsel in connection with the registration of our securities under the Securities Act, and as such, will pass upon the validity of the securities offered in this prospectus.
EXPERTS
The financial statements of Bitmine Immersion Technologies, Inc. as of and for the years ended August 31, 2021 and 2020 included in this registration statement, of which this prospectus forms a part, have been audited by BF Borgers CPA PC, independent registered public accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in auditing and accounting in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our common stock, we refer you to the registration statement and to its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and, in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement, with each such statement being qualified in all respects by reference to the document to which it refers. Anyone may inspect and copy the registration statement and its exhibits and schedules at the Public Reference Room the SEC maintains at 100 F Street, N.E., Washington, D.C. 20549. You may obtain further information about the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect the registration statement and its exhibits and schedules and other information without charge at the website maintained by the SEC. The address of this site is www.sec.gov.
We also file periodic reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at bitminetech.io, by which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information that is contained on, or that may be accessed through, our website is not a part of this prospectus. We have included our website in this prospectus solely as an inactive textual reference.
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BITMINE IMMERSION TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Bitmine Immersion Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Bitmine Immersion Technologies, Inc. as of August 31, 2021 and 2020, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company's auditor since 2020
Lakewood, CO
December 9, 2021
| F-1 |
Bitmine Immersion Technologies, Inc.
Balance Sheets
| August 31, | August 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 218,737 | $ | 1,930 | ||||
| Total current assets | 218,737 | 1,930 | ||||||
| Fixed assets -not in service | 427,296 | – | ||||||
| Total assets | $ | 646,033 | $ | 1,930 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,680 | $ | – | ||||
| Accrued interest -related party | 4,505 | 1,558 | ||||||
| Loans payable-related party | 277,296 | 50,447 | ||||||
| Total current liabilities | 285,481 | 52,005 | ||||||
| Total liabilities | 285,481 | 52,005 | ||||||
| Commitments and contingencies | – | – | ||||||
| Stockholders' Equity: | ||||||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized; 40,433,399 and 2,688,400 issued and outstanding as of August 31, 2021 and August 31, 2020, respectively | 4,043 | 269 | ||||||
| Additional paid-in capital | 817,842 | 256,751 | ||||||
| Retained earnings deficit | (461,334 | ) | (307,095 | ) | ||||
| Total stockholders' equity | 360,551 | (50,075 | ) | |||||
| Total liabilities and equity | $ | 646,033 | $ | 1,930 | ||||
The accompanying notes are an integral part of the financial statements.
| F-2 |
Bitmine Immersion Technologies, Inc.
Statements of Operations
| Year ended | For the period from July 16, 2020 through | |||||||
| August 31, 2021 | August 31, 2020 | |||||||
| Operating expenses: | ||||||||
| General and administrative expenses | $ | 63,815 | $ | – | ||||
| Related party compensation | 68,000 | – | ||||||
| Total operating expenses | 131,815 | – | ||||||
| Income(loss) from operations | (131,815 | ) | – | |||||
| Other income (expense) | ||||||||
| Interest expense | (22,424 | ) | (1,558 | ) | ||||
| Other income (expense), net | (22,424 | ) | (1,558 | ) | ||||
| Net loss | $ | (154,239 | ) | $ | (1,558 | ) | ||
| Basic and diluted earnings (loss) per common share | $ | (0.02 | ) | $ | (0.00 | ) | ||
| Weighted-average number of common shares outstanding: Basic and diluted | 9,758,184 | 2,688,400 | ||||||
The accompanying notes are an integral part of the financial statements.
| F-3 |
Bitmine Immersion Technologies, Inc.
Statements of Changes in Stockholders' Equity
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
| Shares | Value | Capital | Earnings | Equity | ||||||||||||||||
| Balance, July 15, 2020 | 2,688,400 | $ | 269 | $ | 256,751 | $ | (305,537 | ) | $ | (48,517 | ) | |||||||||
| Net loss | – | – | – | (1,558 | ) | (1,558 | ) | |||||||||||||
| Balance, August 31,2020 | 2,688,400 | $ | 269 | $ | 256,751 | $ | (307,095 | ) | $ | (50,075 | ) | |||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
| Shares | Value | Capital | Earnings | Equity | ||||||||||||||||
| Balance, August 31,2020 | 2,688,400 | $ | 269 | $ | 256,751 | $ | (307,095 | ) | $ | (50,075 | ) | |||||||||
| Proceeds from private placement of common stock | 32,994,999 | 3,299 | 490,316 | – | 493,615 | |||||||||||||||
| Stock based compensation related party | 4,500,000 | 450 | 67,050 | – | 67,500 | |||||||||||||||
| Stock based compensation | 250,000 | 25 | 3,725 | – | 3,750 | |||||||||||||||
| Net loss | – | – | – | (154,239 | ) | (154,239 | ) | |||||||||||||
| Balance, August 31, 2021 | 40,433,399 | $ | 4,043 | $ | 817,842 | $ | (461,334 | ) | $ | 360,551 | ||||||||||
The accompanying notes are an integral part of the financial statements.
| F-4 |
Bitmine Immersion Technologies, Inc.
Statements of Cash Flows
| For the period from | ||||||||
| Year Ended | July 16, 2020 through | |||||||
| August 31, 2021 | August 31, 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (154,239 | ) | $ | (1,558 | ) | ||
| Stock based compensation | 71,250 | – | ||||||
| Change in balance sheet accounts | ||||||||
| Accounts payable | 3,680 | – | ||||||
| Accrued interest | 2,948 | 1,558 | ||||||
| Net cash provided by (used in) operating activities | (76,361 | ) | – | |||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | (427,296 | ) | – | |||||
| Net cash used in investing activities | (427,296 | ) | – | |||||
| Cash flows from financing activities: | ||||||||
| Private placements of common stock | 493,615 | – | ||||||
| Related party loans -net | 226,849 | – | ||||||
| Net cash provided by (used in) financing activities | 720,464 | – | ||||||
| Net increase (decrease) in cash and cash equivalents | 216,807 | – | ||||||
| Cash and cash equivalents at beginning of period | 1,930 | – | ||||||
| Cash and cash equivalents at end of period | $ | 218,737 | $ | – | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | – | $ | – | ||||
| Cash paid for income taxes | $ | – | $ | – | ||||
The accompanying notes are an integral part of the financial statements.
| F-5 |
BITMINE IMMERSION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2021 AND AUGUST 31, 2020
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Bitmine Immersion Technologies Inc. f/k/a Sandy Springs Holdings, Inc. (“Bitmine” or the “Company”) is a Delaware Corporation that commenced operations on July 16, 2020.
A predecessor to the Company was incorporated in the state of Nevada on August 16, 1995 as Interactive Lighting Showrooms, Inc. On June 30, 2004, the predecessor changed its name to Am/Tex Oil and Gas, Inc. On January 24, 2008, the predecessor changed its name to Critical Point Resources, Inc. On February 2, 2012, the predecessor changed its name to Renewable Energy Solution Systems, Inc. On May 18, 2012, the predecessor changed its name to RES Systems, Inc. On May 23, 2013, the predecessor changed its name back to Renewable Energy Solution Systems, Inc.
On April 6, 2020, the predecessor redomiciled in the State of Delaware by merging with a Delaware subsidiary named RESS Merger Corp., which was the successor in the merger. Thereafter, effective July 15, 2020, the predecessor and the Company effected a holding company reorganization pursuant to Section 251(g) of the Delaware General Corporation Law under which RESS Merger Corp. merged with RESS of Delaware, Inc., a Delaware subsidiary of RESS Merger Corp., and all shareholders of RESS Merger Corp. received one share of common stock of the Company, another Delaware subsidiary of RESS Merger Corp., for each share that they previously held in RESS Merger Corp., and RESS of Delaware, Inc. (the successor in the merger with RESS Merger Corp.) becoming a subsidiary of the Company.
Effective July 17, 2020, the Company divested RESS of Delaware, Inc. to Sterling Acquisitions I, Inc. (“Sterling”), which is owned by the chief executive officer of the Company, pursuant to an agreement under Sterling (i) purchased Fifty Thousand (50,000) common shares of the Company for an aggregate price of Ten Dollars ($10), and (ii) was issued Fifty Thousand (50,000) Class A Warrants at an aggregate price of Ten Dollars ($10), and (iii) Fifty Thousand (50,000) Class B Warrants at an aggregate price of Ten Dollars ($10). In addition, the Company agreed to pay a fee of $1,000 to Sterling to cover the expenses associated with the maintenance of RESS of Delaware, Inc. until such time as a certificate of dissolution is filed with the state of Delaware.
On June 25, 2020, the Board of Directors and the shareholders of the Company approved a 1 for 40,000 reverse-split, with all fractional shares rounded up to the nearest whole share, and immediately after the completion of the reverse split, effected a 200 for 1 forward stock split. The net effect of the splits as a 1 for 200 reverse-split of the Company’s common shares. The stock splits were effective April 27, 2021. All share amounts herein have been adjusted to give effect to the stock splits.
By a written consent dated July 16, 2021, holders of a majority of the Company’s issued and outstanding common stock approved a resolution to appoint Jonathan Bates, Raymond Mow, Michael Maloney and Seth Bayles to the board of directors of the Company, and to appoint Jonathan Bates as Chairman, Seth Bayles as Corporate Secretary, Raymond Mow as Chief Financial Officer, and Ryan Ramnath as Chief Operating Officer (collectively, the “New O&Ds”). Erik S. Nelson remained a director and the chief executive officer. At the same time, the shareholders approved the issuance of 32,994,999 shares of common stock in the Company’s offering of common stock at $0.015 per share, and the grant of 4,750,000 shares for services, which were valued at $0.015 per share. As a result of the foregoing stock issuances, the New O&Ds (or entities controlled by them) collectively acquired 24,893,877 shares of common stock, which represents 60.4% of the issued and outstanding shares as of December 1, 2021.
| F-6 |
The appointment of certain of the New O&Ds to the Company’s board, and issuance to the New O&Ds of a controlling interest in the Company, were made in order to enable the Company to enter the business of creating a hosting center for Bitcoin mining computers primarily utilizing immersion cooling technology, as well mining the Bitcoin digital currency for its own account. Prior to the change of control to the New O&Ds, the Company was a shell company.
The Company’s year-end is August 31, 2021.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™” (the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.
Reverse Stock Split
On June 25, 2020, the Board of Directors and the shareholders of the Company approved a 1 for 40,000 reverse-split and immediately after the completion of the reverse split, effected a 200 for 1 forward stock split. The net effect of the splits as a 1 for 200 reverse-split of the Company’s common shares (the “Reverse Split”). The stock splits were effective April 27, 2021. Accordingly, each 200 shares of the Company’s issued and outstanding common stock were converted into one share of common stock, without any change in the par value per share. No fractional shares of common stock were issued connection with the Reverse Split. If, as a result of the Reverse Split, a shareholder would have otherwise held a fractional share, the shareholder received, in lieu of the issuance of such fractional share, one whole share of common stock.
In connection with the Reverse Split, the number of authorized shares of Company’s common stock remained unchanged following the Reverse Split, with no change in the par value thereof. Prior to the split there were 480,202,704 shares outstanding. Post-split there were 2,688,400 shares outstanding.
The Company’s financial statements in this Report for the periods ended August 31, 2021 and August 31, 2020 and all references thereto have been retroactively adjusted to reflect the split unless specifically stated otherwise.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The most significant estimates relate to income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Revenue Recognition
On July 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Results for reporting periods beginning after January 1, 2018, are presented under ASC 606. As of and for the year ended August 31, 2021, the financial statements were not impacted due to the application of Topic 606 because the Company had no revenues.
| F-7 |
Cash and cash equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. On August 31, 2021 and August 31, 2020, the Company’s cash equivalents totaled $218,737 and $1,930, respectively.
Property and Equipment
Property and equipment are stated at cost or fair value if acquired as part of a business combination. Depreciation is computed by the straight-line method and is charged to operations over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred. The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:
| Computers, software, and office equipment | 1 – 5 years |
| Machinery and equipment | 3 – 5 years |
| Vehicles | 5 years |
Equipment is not depreciated the asset is placed into service.
As of August 31, 2021 the Company had $427,296 of equipment not in service.
Income taxes
The Company accounts for income taxes under FASB ASC 740, “Accounting for Income Taxes”. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FASB ASC 740-10-05, “Accounting for Uncertainty in Income Taxes” prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity of its conclusions regarding uncertain tax positions quarterly to determine if facts or circumstances have arisen that might cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit.
Stock-based Compensation
The Company accounts for stock-based compensation using the fair value method following the guidance outlined in Section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
| F-8 |
Net Loss per Share
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, "Earnings per Share." Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard.
We adopted ASC 842 on July 16, 2020. The adoption of this guidance did not have any impact on our financial statements.
NOTE 3 - NOTES PAYABLE RELATED PARTIES
As of August 31, 2020, the Company has a demand promissory note carrying an interest rate of 24% due to Coral Investment Partners. The principal balance and interest due as of August 31, 2020, was $50,447 and $1,558, respectively. At the time, both the Company and Coral Investment Partners (“CIP”) were controlled by Erik Nelson. CIP made additional advances to the Company in 2021 to fund operating expenses. In July 2021 the Company paid off the full balance of the promissory note due to CIP in the amount $87,447 in principal and $19,475 in interest
Company’s current liquidity is derived from a Line of Credit Agreement with Innovative Digital Investors Emerging Technology, L.P., a limited partnership controlled by Jonathan Bates, our Chairman, and Raymond Mow, our chief financial officer and a director. The Line of Credit Agreement was initially entered into on July 22, 2021 and was amended and restated in its entirety on August 4, 2021 and on September 29, 2021 (as amended and restated, the “LOC Agreement”). The LOC Agreement, as most recently amended, provides for loans of up to $2,500,000 at the request of the Company to finance the purchase of equipment necessary for the operation of the Company’s business. Loans under the LOC Agreement accrue interest at fifteen percent (15%) per annum, compounded on a 30/360 monthly basis until the loans have been repaid in full. The Company has the right to draw down funds under the LOC Agreement until December 31, 2021. The amount drawn, plus all accrued interest therein, is repayable in full on April 1, 2022.
The principal amount due under the line of credit as of August 31, 2021 was $277,296.
| F-9 |
NOTE 4 – EQUITY
Stockholders’ Equity
The Company is authorized to issue 500,000,000 shares of Common Stock with a par value of $0.001. As of August 31, 2021 and 2020, there were 40,433,399 and 2,688,400 shares, issued and outstanding, respectively. During the fiscal year ended the Company issued 37,744,999 shares comprised of the following:
| · | 155,000 shares were issued in a private placement at $0.01 per share, for gross proceeds of $1,550; |
| · | 32,799,999 shares were issued in a private placement at $0.015 per share, for gross proceeds of $492,000; |
| · | 4,500,000 shares were awarded to directors for services |
| · | 250,000 shares were awarded to a consultant for services |
Warrants
As of August 31, 2021, the Company had 590,000 Class A Warrants and 590,000 Class B warrants outstanding. Both sets of warrants may be exercised on a cashless basis and are exercisable until August 5, 2024. The Class A Warrant have an exercise price of $2.00 per share, and the Class B Warrants have an exercise price of $5.00 per share.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The Company did not have any contractual commitments of August 31, 2021.
NOTE 6 – SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to August 31, 2020, to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements except as follows:
The Company purchased $1,470,000 in additional equipment bringing the principal balance on its LOC Agreement as of December 1, 2021 to $1,747,296.
In September 2021, the Company issued 575,000 shares of common stock as a deposit for the purchase of a company whose only asset is an application to open a webhosting facility.
In November 2021, the Company issued 200,000 shares of common stock to an investment banker as compensation for investment banking services.
| F-10 |
Bitmine Immersion Technologies, Inc.
Balance Sheets
(Unaudited)
| May 31, | August 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other receivable | ||||||||
| Subscriptions receivable | ||||||||
| Cryptocurrencies | ||||||||
| Notes receivable | ||||||||
| Accounts receivable - other | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Fixed assets - not in service | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities - related party | ||||||||
| Accrued interest - related party | ||||||||
| Loans payable-related party | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' Equity: | ||||||||
| Common stock, $ par value, shares authorized; and issued and outstanding as of May 31, 2022 and August 31, 2021 respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| G-1 |
Bitmine Immersion Technologies, Inc.
Statements of Operations
(Unaudited)
| Three months | Three months | Nine months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| May 31, | May 31, | May 31, | May 31, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue from the sale of mining equipment | $ | $ | $ | $ | ||||||||||||
| Revenue, net hosting | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of sales mining equipment | ||||||||||||||||
| Cost of sales mining | ||||||||||||||||
| Gross profit | ( | ) | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Related party compensation | ||||||||||||||||
| Impairment of cryptocurrency | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Basic loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average number of common shares outstanding: Basic | ||||||||||||||||
| Weighted-average number of common shares outstanding: Diluted | ||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| G-2 |
Bitmine Immersion Technologies, Inc.
Statements of Changes in Stockholders' Equity
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
| Shares | Value | Capital | Earnings | Equity | ||||||||||||||||
| Balance, August 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, November 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, February 28, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Proceeds from private placement | ||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, May 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| G-3 |
Bitmine Immersion Technologies, Inc.
Statements of Changes in Stockholders' Equity
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
| Shares | Value | Capital | Earnings | Equity | ||||||||||||||||
| Balance, August 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Common shares issued for services | ||||||||||||||||||||
| Balance, November 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common shares issued for services | ( | ) | ||||||||||||||||||
| Common shares sold in a private placement | ||||||||||||||||||||
| Stock-based compensation -related party | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, February 28, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Common shares issued for services | ||||||||||||||||||||
| Common shares sold in a private placement | ||||||||||||||||||||
| Stock based compensation -related party | ||||||||||||||||||||
| Balance, May 31, 2022 | 44,086,091 | $ | $ | $ | ( | ) | $ | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements
| G-4 |
Bitmine Immersion Technologies, Inc.
Statements of Cash Flows
| Nine months | Nine months | |||||||
| ended | ended | |||||||
| May 31, | May 31, | |||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Stock based compensation | ||||||||
| Gain on the sale of property | ||||||||
| Depreciation | ||||||||
| Change in balance sheet accounts | ||||||||
| Cryptocurrencies | ( | ) | ||||||
| Accounts receivable other | ( | ) | ||||||
| Notes receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued liabilities - related parties | ||||||||
| Accrued interest - related parties | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Common shares sold in a private placement | ||||||||
| Related party loans - net | ||||||||
| Net cash provided by (used in) financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| G-5 |
BITMINE IMMERSION TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT POLICIES
About Bitmine Immersion Technologies, Inc.
Bitmine Immersion Technologies Inc. f/k/a Sandy Springs Holdings, Inc. (“Bitmine” or the “Company”) is a Delaware corporation that commenced operations on July 16, 2020. A predecessor to the Company was incorporated in the state of Nevada on August 16, 1995, as Interactive Lighting Showrooms, Inc.
By a written consent dated July 16, 2021, holders of a majority of the Company’s issued and outstanding common stock approved a resolution to appoint Jonathan Bates, Raymond Mow, Michael Maloney, and Seth Bayles to the board of directors of the Company, and to appoint Jonathan Bates as Chairman, Seth Bayles as Corporate Secretary, Raymond Mow as Chief Financial Officer, and Ryan Ramnath as Chief Operating Officer (collectively, the “New O&Ds”). Erik S. Nelson remained a director and the chief executive officer. At the same time, the shareholders approved the issuance of 32,994,999 shares of common stock in the Company’s offering of common stock at $0.015 per share, and the grant of 4,750,000 shares for services, which were valued at $0.015 per share. As a result of the foregoing stock issuances, the New O&Ds (or entities controlled by them) collectively acquired 24,893,877 shares of common stock, which represented approximately 62% of the issued and outstanding shares at the time.
The appointment of certain of the New O&Ds to the Company’s board, and issuance to the New O&Ds of a controlling interest in the Company, were made in order to enable the Company to enter the business of creating a hosting center for Bitcoin mining computers primarily utilizing immersion cooling technology, as well mining the Bitcoin digital currency for its own account. Prior to the change of control to the New O&Ds, the Company was a shell company.
During the nine months ended May 31, 2022, the Company began implementing its business plan by generating revenue from the mining of Bitcoin digital currency and the sale of mining equipment.
The Company’s year-end is August 31st.
Basis of Presentation
The foregoing unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by GAAP for complete financial statements. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended August 31, 2021. In the opinion of management, the unaudited interim condensed financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial position and results of operations.
Operating results for the nine months ended May 31, 2022, are not necessarily indicative of the results that may be expected for the year ending August 31, 2022.
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Reverse Stock Split
On June 25, 2020, the Board of Directors and the shareholders of the Company approved a 1 for 40,000 reverse split, with all fractional shares rounded up to the nearest whole share, and immediately after the completion of the reverse split, effected a 200 for 1 forward stock split. The net effect of the splits was a 1 for 200 reverse split of the Company’s common shares. The stock splits were effective April 27, 2021. No fractional shares of common stock were issued connection with the Reverse Split. If, as a result of the Reverse Split, a shareholder would have otherwise held a fractional share, the shareholder received, instead of the issuance of such fractional share, one whole share of common stock.
The Company’s financial statements in this Report for the periods ended May 31, 2022, and August 31, 2021, and all references thereto have been retroactively adjusted to reflect the split unless specifically stated otherwise.
Management’s Representation of Interim Financial Statements
The accompanying unaudited condensed financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The most significant estimates relate to income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Revenue Recognition
On July 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Results for reporting periods beginning after January 1, 2018, are presented under ASC 606.
Revenues from digital currency mining
The Company has entered into contracts with digital asset mining pool operators to provide computing power to the mining pools. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company starts providing computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less net digital asset transaction fees to the mining pool operator), for successfully adding a block to the blockchain, plus a fractional share of the transaction fees attached to that blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. The transaction consideration the Company receives is noncash consideration, in the form of digital currency, which the Company measures at fair value on the date received which is not materially different than the fair value at contract inception or time the Company has earned the award from the mining pools. Fair value of the digital currency award received is determined using the spot price of the related digital currency on the date earned.
There is currently no definitive guidance under GAAP or alternative accounting framework for the accounting for digital currencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.
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Cash and cash equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less to be cash equivalents. On May 31, 2022, and August 31, 2021, respectively,
the Company’s cash equivalents totaled $
Digital Currency
Digital currencies are included in current assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment. They are classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other, and are accounted for in connection with the Company’s revenue recognition policy detailed above and in Note 2 – Summary of Significant Accounting Policies. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. Quantitative impairment is measured using the quoted price of the digital currency at the time its fair value is being measured in accordance with ASC 820, Fair Value Measurement. Quoted prices are obtained from the principal market. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted as per ASC 350, Intangibles – Goodwill and Other.
Digital currencies earned by the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows. The sales of digital currencies are included within investing activities in the accompanying consolidated statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations and comprehensive income (loss). The Company accounts for its gains or losses in accordance with the first in first out (“FIFO”) method of accounting.
Income taxes
The Company accounts for income taxes under FASB ASC 740, “Accounting for Income Taxes”. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FASB ASC 740-10-05, “Accounting for Uncertainty in Income Taxes” prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity of its conclusions regarding uncertain tax positions quarterly to determine if facts or circumstances have arisen that might cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit.
Stock-based Compensation
The Company accounts for stock-based compensation using the fair value method following the guidance outlined in Section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
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Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, “Earnings per Share.” Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
Stock Purchase Warrants
The Company accounts for warrants issued to purchase shares of its common stock as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity.
Property and equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for leasehold improvements are typically the lesser of the estimated useful life of the asset or the life of the term of the lease. The estimated useful lives for all other property and equipment are as follows:
| Estimated useful lives | Life (Years) | |||
| Miners and mining equipment | ||||
| Machinery and equipment | ||||
| Office and computer equipment |
No depreciation is recorded on an asset until
it is placed in service. As of May 31, 2022, and August 31, 2021 had $
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard.
We adopted ASC 842 on July 16, 2020. The adoption of this guidance did not have any impact on our financial statements.
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NOTE 2 – NOTES RECEIVABLE
As of May 31, 2022 and August 31, 2021 the balance
of notes receivable was $
On May 5, 2022 by mutual agreement, the due dates of the note were extended two months to June 15, 2022 and July 15, 2022, respectively. As of the date of this report, no payment has been received on either installment due.
NOTE 3– LOANS PAYABLE AND ACCRUED LIABILITIES, RELATED PARTY
On July 22, 2021 the Company entered into a Line of Credit Agreement with Innovative Digital Investors Emerging Technology, L.P.(“IDI), a limited partnership controlled by Jonathan Bates, the Company’s Chairman, and Raymond Mow, the Company’s Chief Financial Officer and a Director. The Line of Credit Agreement was amended and restated in its entirety on August 4, 2021, on September 29, 2021 and March 30, 2022 (as amended and restated, the “LOC Agreement”). The LOC Agreement, as most recently amended, provides for loans of up to $3,000,000 at the request of the Company to finance the purchase of equipment necessary for the operation of the Company’s business, and related working capital. Loans under the LOC Agreement accrue interest at fifteen percent (15%) per annum, compounded on a 30/360 monthly basis until the loans have been repaid in full. The amount drawn, plus all accrued interest therein, is repayable in full on July 1, 2022.
Subsequent to May 31, 2022, the Company
amended and restated the LOC Agreement to extent the period in which the Company may borrow funds under the LOC Agreement to August
31, 2022, and extended the maturity date to
As of May 31, 2022, and August 31, 2021, the Company
owed $
As of May 31, 2022, and August 31, 2021, the balance
of accrued liabilities related party was $
NOTE 4 – STOCKHOLDERS’ EQUITY
Stockholders’ Equity
The Company is authorized to issue shares of Common Stock with a par value of $. As of May 31, 2022, and August 31, 2021, there were and shares outstanding, respectively.
In January 2022, the Company commenced a $10.0 million Unit Offering of its common stock and warrants at a Unit price of $1.25 per Unit, comprised of one share of its common stock, one Class C-1 Warrant which is exercisable to purchase one share of the Company’s common stock until January 15, 2025, at an exercise price of $2.00 per share, and one Class C-2 warrant which is exercisable to purchase one share of the Company’s common stock until January 15, 2025, at an exercise price of $4.00 per share.
The Company accounts for warrants issued to purchase shares of its common stock as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. Under those guidelines, the Company, using Black Scholes methodology using the variables below determined that the common stock value was $0.44, the C-1 warrant was $0.41 and the C-2 warrant was $0.40.
| Schedule of assumptions used table | ||||||
| Exercise Price | $ -$ | |||||
| Stock Price | $ | |||||
| Risk-free interest rate | % | |||||
| Expected volatility | ||||||
| Expected life (in years) | ||||||
| Expected dividend yield | $ |
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Issuance of Shares
During the nine months ended May 31, 2022, the Company issued the following shares:
| · | shares to an investment banking firm for investment banking services. The shares were valued at $ per share, which was the closing price of the shares on the date of issuance. | |
| · | shares subject to vesting for services to a company employee. These common shares were valued at $ per share as described above. The shares were valued at $924,000 amortized over a 60-month vesting period. | |
| · |
shares were sold to accredited investors under the Unit Offering. The Unit Offering was valued at $ per Unit, as described
above for a total proceeds of $ | |
| · | shares were issued to an investment banking firm for banking services. These shares were valued at $ according to the methodology for the Unit Offering described above | |
| · | shares were issued to an executive officer and director pursuant to the terms of his employment contract. These shares are subject to vesting amortized over 60 months and were valued at $0.44 according to the terms of the Unit Offering. |
Warrants
As of May 31, 2022, and August 31, 2021, the
Company had
NOTE 5 – COMMITMENTS AND CONTINGENCIES
As of May 31, 2022, the Company was contractually committed to an equipment
supplier for approximately $
NOTE 6 – SUBSEQUENT EVENTS
Since May 31, 2022, the Company received additional subscriptions for 3,012,000 Units in the Unit offering, for gross proceeds of $4,518,000. Of those subscriptions, 2,672,000 Units, equal to $3,340,000, was in the form of a sale of new mining equipment to the Company, and the remainder was in cash.
On June 24, 2022, the Company amended and restated its LOC agreement with IDI. Under the new amended and restated LOC, the Company is entitled to borrow funds up to the limit of $3,000,000 with a new maturity date of December 1, 2022. All other terms of the prior LOC remained unchanged.
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BITMINE IMMERSION TECHNOLOGIES, INC.
14,662,800
Shares of
Common Stock
___________________
PROSPECTUS
___________________
, 2022
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses in connection with this registration statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission.
Amount to be paid | ||||
| SEC registration fee | $ | 3,716 | ||
| Accounting fees and expenses | 5,000 | |||
| Legal Fees and expenses | 10,000 | |||
| Miscellaneous | – | |||
| Total | $ | 18,716 |
Item 14. Indemnification of Directors and Officers
The Company is a Delaware corporation. Section 145(a) of the Delaware General Corporation Law, or the DGCL, provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
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Section 145(b) of the DGCL provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine, upon application, that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
Further subsections of DGCL Section 145 provide that:
(1) to the extent a present or former director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (i) and (ii) of Section 145 or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses, including attorneys’ fees, actually and reasonably incurred by such person in connection therewith;
(2) the indemnification and advancement of expenses provided for pursuant to Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise; and
(3) the corporation shall have the power to purchase and maintain insurance of behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145.
As used in this Item 14, the term “proceeding” means any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Company, and whether civil, criminal, administrative, investigative or otherwise.
Our organizational documents provide, in effect, that, to the fullest extent and under the circumstances permitted by Section 145 of the DGCL, the Company will indemnify any and all of its officers and directors.
We may also enter into, and intend to continue to enter into, separate indemnification agreements with our directors, officers, employees and agents that may be broader than the specific indemnification provisions contained in the DGCL. These indemnification agreements may require us, among other things, to indemnify our directors, officers, employees and agents against certain liabilities that may arise by reason of their status or service as directors, officers, employees and agents, other than liabilities arising from willful misconduct. These indemnification agreements may also generally require us to advance any expenses incurred by the directors, officers, employees and agents as a result of any proceeding against them as to which they could be indemnified. The indemnification provisions of the DGCL, our organizational documents and indemnification agreements that we may enter into may be sufficiently broad to permit indemnification of our directors, officers, employees and agents for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or the Securities Act.
The Registrant may purchase and maintain insurance on behalf of each and every person who is or was a director or officer of the Registrant against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions.
| II-2 |
Item 15. Recent Sales of Unregistered Securities
Within the last three years, we have made the following sales of unregistered securities:
| (1) | On November 8, 2019, the Company issued Coral Investment Partners, LP 1,500,000 shares of common stock for $100, 1,500,000 Class A Warrants for $100, and 1,500,000 Class B Warrants for $100. | |
| (2) | On July 17, 2020, in consideration for the agreement of Sterling Acquisitions I, Inc. to acquire RESS of Delaware, Inc., a wholly owned subsidiary of the Company, the Company issued Sterling Acquisitions I, Inc. 50,000 shares of common stock for $10, 50,000 Class A Warrants for $10 and 50,000 Class B Warrants for $10. | |
| (3) | In June 2021, the Company issued 155,000 shares of common stock to 12 investors in a private placement at $0.01 per share, for gross proceeds of $1,550. | |
| (4) | In July and August 2021, the Company issued 32,799,999 shares of common stock to 17 investors in a private placement at $0.015 per share, for gross proceeds of $492,000. | |
| (5) | In July and August 2021, the Company issued 4,500,000 shares to two directors as a signing bonus for agreeing to serve on the Company’s board. | |
| (6) | In August 2021, the Company issued 290,000 to two consultants for consulting services. | |
| (7) | In September 2021, the Company issued 575,000 shares to a third party as a deposit for the purchase of a private company, which issuance was rescinded in December 2021. | |
| (8) | In October 2021, the Company issued 200,000 shares to Sutter Securities, Inc. pursuant to an investment banking agreement. | |
| (9) | In February 2022, the Company issued 2,100,000 shares of common stock to an officer as a signing bonus under an employment agreement. | |
| (10) | From January 2022 to June 27, 2022, the Company issued 4,122,000 Units at $1.25 per Unit, in a private placement conducted pursuant to Rule 506(b) under the Securities Act of 1933. Each Unit consists of one share of common stock, one Class C-1 Warrant and one Class C-2 Warrant. In connection with the private placement, the Company also issued 25,600 Class C-1 Warrants, 25,600 Class C-2 Warrants, and 25,600 C-3 Warrants to a registered broker who referred three of the investors. | |
| (11) | In April 2022, the Company issued 200,000 shares to a brokerage firm for investment banking services. | |
| (12) | In May 2022, the Company issued 42,692 shares of common stock an executive officer and director pursuant to the terms of his employment contract. |
All share and warrant amounts set forth above have been adjusted to give effect to a net 1 for 200 reverse-split of the Company’s common shares effective as of April 27, 2021 (consisting of a 1 for 40,000 reverse-split, with all fractional shares rounded up to the nearest whole share, and immediately after a 200 for 1 forward stock split).
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The offers, sales and issuances of the securities described in paragraphs (5), (6), and (9) were deemed to be exempt from registration under Rule 701 promulgated under the Securities Act as transactions under compensatory benefit plans and contracts relating to compensation, or under Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. The recipients of such securities were our directors, employees or bona fide consultants and received the securities under our equity incentive plans. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.
The offers, sales and issuances of the securities described in paragraphs (1), (2), (3), (4), (7), (8) and (10) were deemed to be exempt under Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D under the Securities Act as a transaction by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act and had adequate access, through employment, business or other relationships, to information about us. No underwriters were involved in these transactions.
| II-4 |
Item 16. Exhibits and Financial Statement Schedules
| Exhibit No. | Description | |
| 3.1 | Certificate of Incorporation of Sandy Springs Holdings, Inc. (incorporated by reference from Form 10 filed October 27, 2020). | |
| 3.2 | Certificate of Amendment to Certificate of Incorporation of Sandy Springs Holdings, Inc. (incorporated by reference from Form 8-K/A filed September 9, 2021). | |
| 3.3 | Certificate of Merger (incorporated by reference from Form 10 filed October 27, 2020). | |
| 3.4 | Bylaws of Sandy Springs Holdings, Inc. (incorporated by reference from Form 10 filed October 27, 2020). | |
| 4.1 | Amended Form of Class A Warrant (Incorporated by reference from Exhibit 4.1 to Form 8-K filed July 27, 2021). | |
| 4.2 | Amended Form of Class B Warrant (Incorporated by reference from Exhibit 4.2 to Form 8-K filed July 27, 2021). | |
| 4.3 | Warrant Agent Agreement by and between Bitmine Immersion Technologies, Inc. and West Coast Stock Transfer, Inc. (incorporated by reference from Form 8-K/A filed September 9, 2021). | |
| 4.4* | Form of Class C-1 Warrant. | |
| 4.5* | Form of Class C-2 Warrant. | |
| 4.6* | Form of Class C-3 Warrant. | |
| 5* | Opinion of Davis Gillett Mottern & Sims, LLC. | |
| 10.1* | Amended and Restated Line of Credit Agreement between Bitmine Immersion Technologies, Inc. and Innovative Digital Investors Emerging Technology LP dated June 24, 2022. | |
| 10.2 | Employment Agreement between the Company and Ryan Ramnath dated July 19, 2021 (incorporated by reference from Form 8-K/A filed September 9, 2021). | |
| 14 | Code of Ethics (incorporated by reference to the Annual Report on Form 10-K for the year ended August 31, 2021). | |
| 21* | List of Subsidiaries. | |
| 23.2 | Consent of Davis Gillett Mottern & Sims, LLC (included in Exhibit 5 hereto). | |
| 107 | Filing Fee Table. | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Schema Linkbase Document | |
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Labels Linkbase Document | |
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document |
____________
* Filed herewith.
| II-5 |
Item 17. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
2. For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
4. For the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B:
(a) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(b) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
| II-6 |
(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
5. For the purposes of determining liability under the Securities Act of 1933 to any purchaser in the initial distributions of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
6. The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
7. The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
| II-7 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 27th day of July, 2022.
Bitmine Immersion Technologies, Inc.
| ||
| /s/ Jonathan Bates | ||
| Name: Jonathan Bates | ||
| Title: Chief Executive Officer (Principal Executive Officer) |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Name | Position | Date | ||
| /s/ Jonathan Bates | Chairman of the Board and Chief Executive Officer | July 27, 2022 | ||
| Jonathan Bates | (Principal Executive Officer) | |||
| /s/ Erik S. Nelson | Director and President | July 27, 2022 | ||
| Erik S. Nelson | ||||
| /s/ Raymond Mow | Director and Chief Financial Officer | July 27, 2022 | ||
| Raymond Mow | (Principal Financial Officer) | |||
| /s/ Michael Maloney | Director | July 27, 2022 | ||
| Michael Maloney | ||||
| /s/ Seth Bayles | Director and Corporate Secretary | July 27, 2022 | ||
| Seth Bayles |
| S-1 |
Exhibit 4.4
NEITHER THIS WARRANT CERTIFICATE NOR THE WARRANTS REPRESENTED HEREBY NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS, NOR ANY INTEREST IN OR RIGHTS UNDER SAME, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE, AND NEITHER THIS WARRANT CERTIFICATE NOR THE WARRANTS REPRESENTED HEREBY NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS, NOR ANY INTEREST IN OR RIGHTS UNDER SAME, MAY BE SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
W-2021-C1-__
BITMINE IMMERSION TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT – CLASS C-1
Bitmine Immersion Technologies, Inc., a Delaware corporation (the “Company”), for value received and subject to the terms set forth below hereby grants to ________________________, or its registered successors and assigns (the “Holder”), the right to purchase from the Company at any time or from time to time until the date and time permitted under Section 2(a) below, ____________ fully paid and nonassessable shares of the Common Stock, par value $0.0001 per share, at the purchase price of Two Dollars and No Cents ($2.00) per share (the “Exercise Price”). The Exercise Price and the number and character of such shares of Common Stock purchasable pursuant to the rights granted under this Warrant are subject to adjustment as provided herein.
1. Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:
“Common Stock” means the Company’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter have been reclassified or changed into, including any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or other) which the Holder of this Warrant at any time shall be entitled to receive, or shall have received, upon the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock pursuant to Section 3(b) hereof or otherwise.
“Expiration Date” means the date on which this Warrant expires, being the earlier of the close of business in Atlanta, Georgia on (i) January 15, 2025 or (ii) the Termination Date, if a valid Termination Notice is sent pursuant to Section 2(f) herein.
“Issue Date” means the date on which the Subscription Agreement of the initial Holder is accepted by the Company.
“Mandatory Exercise Condition” shall mean any Trading Day on which (i) the Common Stock is trading on a Trading Market, (ii) the Market Value of the Common Stock for each of the twenty (20) previous Trading Days has exceeded $4.00 per share (as adjusted for stock splits, stock dividends, combinations and similar transactions), (iii) the Common Stock has an average daily trading volume of greater than 50,000 shares per day during the previous (20) Trading Days, as reported by Bloomberg L.P. and (iv) a Warrant Shares Registration Statement covering the resale of the Warrant Shares issuable upon exercise of this Warrant is effective.
“Market Value” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is then listed or quoted on the OTCQB or the OTCQX, the average of the high and low price of the Common Stock for such date (or the nearest preceding date), (c) if the Common Stock is not then listed or quoted for trading on a Trading Market, the OTCQB or the OTCQX, and if prices for the Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the board of directors of the Company holders, the fees and expenses of which shall be paid by the Company.
“Registration Failure” means either (a) the Company has failed to file a Warrant Shares Registration Statement by the deadline required by the Registration Rights Agreement, or (b) if the Company has filed a Warrant Shares Registration Statement by the deadline required by the Registration Rights Agreement, such Warrant Shares Registration Statement has not been declared effective within six months after the termination of the offering under which this Warrant was issued.
“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the Issue Date, to which the Corporation and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms, which shall mean the Subscription Agreement to the extent it obligates that Company to file a registration statement in relation to the Warrant Shares issuable upon exercise of this Warrant.
“Subscription Agreement” means that subscription agreement executed by the Company and the original Holder of this Warrant, under which the Holder acquired this Warrant in a private placement offering of the Company.
“This Warrant” means, collectively, this Warrant and all other stock purchase warrants issued in exchange therefor or replacement thereof.
“Trading Day” means a day on which the Common Stock is traded on a Trading Market.
“Trading Market” means any one of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
“Warrant Shares” means the shares of Common Stock issuable to the Holder upon exercise of this Warrant.
“Warrant Shares Registration Statement” means a registration statement that meets the requirements of the Registration Rights Agreement and registers the resale of all Common Stock into which this Warrant may be exercised by the Holder, who shall be named as a “selling stockholder” thereunder, all as provided in the Registration Rights Agreement.
2. Exercise.
| (a) | Exercise Period. The Holder may exercise this Warrant at any time after the Issue Date and before the Expiration Date (the “Exercise Period”). |
| (b) | Exercise Procedure. |
| (i) | This Warrant will be deemed to have been exercised at such time as the Company has received all of the following items (the “Exercise Date”): |
| 1. | a completed Subscription Agreement as described in Section 2(d) hereof, executed by the Person exercising all or part of the purchase rights represented by this Warrant (the “Purchaser”); |
| 2. | this Warrant; |
| 3. | if this Warrant is not registered in the name of the Purchaser, an Assignment or Assignments in the form set forth in Exhibit B hereto, evidencing the assignment of this Warrant to the Purchaser together with any documentation required pursuant to Section 5(a) hereof; |
| 4. | cash in the form of a wire transfer to the Company’s bank account (wire instructions to be provided upon request) in an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise; and |
| 2 |
| 5. | if a Registration Failure has occurred, in lieu of a cash exercise, the Holder may exercise this Warrant on a “cashless exercise” basis, in which the Holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: |
(A) = the Market Value of the Common Stock on the Trading Day preceding the date of such election;
(B) = the Exercise Price of this Warrant; and
(X) = the number of shares of Common Stock for which the Holder elects to exercise this Warrant.”
| (ii) | As soon as practicable after the exercise of this Warrant in full or in part, and in any event within two (2) Trading Days after the Exercise Date (the “Warrant Share Delivery Date”), the Company at its expense shall cause its transfer agent to issue the Warrant Shares acquired by the Purchaser either (A) by crediting the account of the Purchaser or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Purchaser, and otherwise by (B) either physical delivery of a certificate, registered in the Company’s share register in the name of the Purchaser or its designee, or issuance of the Warrant Shares in book entry form. If the Company fails for any reason to deliver to the Holder Warrant Shares by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. |
| (iii) | Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company at its expense will, within ten (10) days after the Exercise Date, issue and deliver to or upon the order of the Purchaser a new Warrant or Warrants of like tenor, in the name of the Purchaser or as the Purchaser (upon payment by the Purchaser of any applicable transfer taxes) may request, to purchase that number of shares of Common Stock remaining issuable under this Warrant. |
| (iv) | The Warrant Shares will be deemed to have been issued to the Purchaser on the Exercise Date, and the Purchaser will be deemed for all purposes to have become the record holder of such Warrant Shares on the Exercise Date. |
| (v) | The issuance of certificates for Warrant Shares upon exercise of this Warrant will be made without charge to the Holder or the Purchaser for any issuance tax in respect thereof or any other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock. |
| (vi) | The holder represents and warrants that at the time of any exercise of this warrant the holder is an “accredited investor,” as such term is defined in Rule 501 promulgated under the Securities Act and acknowledges and agrees that the Company may, in its sole discretion, (i) require, as a condition to the exercise of this Warrant, that the holder provide such written evidence that such holder is an accredited investor as the time of exercise, and (ii) decline to issue the Warrant Shares if the Company is not satisfied that this warrant may be exercised by the holder pursuant to a valid registration exemption from the Securities Act and any applicable state securities law. |
| (c) | Acknowledgement of Continuing Obligations. The Company will, at the time of the exercise of this Warrant, upon the request of the Purchaser, acknowledge in writing its continuing obligation to afford to the Purchaser any rights to which the Purchaser shall continue to be entitled after such exercise in accordance with the provisions of this Warrant, provided that if the Purchaser shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to the Purchaser any such rights. |
| 3 |
| (d) | Subscription Agreement. The Subscription Agreement will be substantially in the form set forth in Exhibit A hereto, except that if the Warrant Shares are not to be issued in the name of the Purchaser, the Subscription Agreement will also state the name of the Person to whom the certificates for the Warrant Shares are to be issued, and if the number of Warrant Shares to be issued does not include all the shares of Common Stock issuable hereunder, it will also state the name of the Person to whom a new Warrant for the unexercised portion of the rights hereunder is to be delivered. |
| (e) | Fractional Shares. If a fractional share of Common Stock would be issuable upon exercise of the rights represented by this Warrant, the Company will, within ten (10) days after the Exercise Date, deliver to the Purchaser a check payable to the Purchaser in lieu of such fractional share, in an amount equal to the Market Value of such fractional share as of the close of business on the Exercise Date. |
| (f) | Mandatory Exercise. The Company may in its sole discretion, on any Trading Day as to which the Mandatory Exercise Condition is true, send the Holder a notice of termination (a “Termination Notice”) of this Warrant, which shall provide that this Warrant shall terminate as of the close of business thirty (30) days after the date of the Termination Notice (the “Termination Date”), and this Warrant shall terminate and be no longer exercisable to the extent it has not been exercised on or before the Termination Date. |
3. Adjustments.
| (a) | Adjustments for Stock Splits, Etc. If the Company shall at any time after the Issue Date subdivide its outstanding Common Stock, by split-up or otherwise, or combine its outstanding Common Stock, or issue additional shares of its capital stock in payment of a stock dividend in respect of its Common Stock, the number of Warrant Shares issuable on the exercise of the unexercised portion of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination, and the Exercise Price then applicable to shares covered by the unexercised portion of this Warrant shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased in the case of combination. |
| (b) | Adjustment for Reclassification, Reorganization, Etc. In case of any reclassification, capital reorganization, or change of the outstanding Common Stock (other than as a result of a subdivision, combination or stock dividend), or in the case of any consolidation of the Company with, or merger of the Company into, another Person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the outstanding Common Stock of the Company), or in case of any sale or conveyance to one or more Persons of the property of the Company as an entirety or substantially as an entirety at any time prior to the expiration of this Warrant, then, as a condition of such reclassification, reorganization, change, consolidation, merger, sale or conveyance, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder of this Warrant, so that the Holder of this Warrant shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, reorganization, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Company as to which this Warrant was exercisable immediately prior to such reclassification, reorganization, change, consolidation, merger, sale or conveyance, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Exercise Price and of the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable in relation to any shares of stock, and other securities and property, thereafter deliverable upon exercise hereof. If, as a consequence of any such transaction, solely cash, and no securities or other property of any kind, is deliverable upon exercise of this Warrant, then, in such event, the Company may terminate this Warrant by giving the Holder hereof written notice thereof. Such notice shall specify the date (at least thirty (30) days subsequent to the date on which notice is given) on which, at 3:00 P.M., Atlanta, Georgia time, this Warrant shall terminate. Notwithstanding any such notice, this Warrant shall remain exercisable, and otherwise in full force and effect, until such time of termination. |
| 4 |
| (c) | Certificate of Adjustment. Whenever the Exercise Price or the number of Warrant Shares issuable hereunder is adjusted, as herein provided, the Company shall promptly deliver to the registered Holder of this Warrant a certificate of the Treasurer of the Company, which certificate shall state (i) the Exercise Price and the number of Warrant Shares issuable hereunder after such adjustment, (ii) the facts requiring such adjustment, and (iii) the method of calculation for such adjustment and increase or decrease. |
| (d) | Small Adjustments. No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease in the Exercise Price of at least one percent; provided, however, that any adjustments which by reason of this Section 3(d) are not required to be made immediately shall be carried forward and taken into account at the time of exercise of this Warrant or any subsequent adjustment in the Exercise Price which, singly or in combination with any adjustment carried forward, is required to be made under Sections 3(a) or (b). |
4. Reservation of Stock, etc., Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, all shares of Common Stock from time to time issuable upon the exercise of this Warrant.
5. Disposition of This Warrant, Common Stock, Etc.
| (a) | No Transfer Except on Compliance with Law. The Holder of this Warrant and any transferee hereof or of the Warrant Shares, by his or her acceptance hereof, hereby understands and agrees that this Warrant and the Warrant Shares have not been registered under the Securities Act, and may not be sold, pledged, hypothecated, donated, or otherwise transferred (whether or not for consideration) without an effective registration statement under the Act or an opinion of counsel satisfactory to the Company and/or submission to the Company of such other evidence as may be satisfactory to counsel to the Company, in each such case, to the effect that any such transfer shall not be in violation of the Act. It shall be a condition to the transfer of this Warrant that any transferee thereof deliver to the Company its written agreement to accept and be bound by all of the terms and conditions of this Warrant. The foregoing notwithstanding, the Company acknowledges its obligations as set forth in the Registration Rights Agreement to register the Warrant Shares. |
| (b) | Legend on Shares issued upon Exercise. Except to the extent the Warrant Shares are registered for resale, or may be sold to the public pursuant to Rule 144 under the Securities Act, the certificates of the Company that will evidence the Warrant Shares will be imprinted with a conspicuous legend in substantially the following form: |
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND/OR SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT.”
| (c) | No Agreement to Register. Except as set forth in the Registration Rights Agreement, the Company has not agreed to register any of the Holder’s Warrant Shares for distribution in accordance with the provisions of the Securities Act, and the Company has not agreed to comply with any exemption from registration under the Act for the resale of the Holder’s Warrant Shares. Hence, it is the understanding of the Holder of this Warrant that by virtue of the provisions of certain rules respecting “restricted securities” promulgated by the SEC, the Warrant Shares may be required to be held indefinitely, unless and until registered under the Securities Act (as contemplated by the Registration Rights Agreement), unless an exemption from such registration is available, in which case the Holder may still be limited as to the number of Warrant Shares that may be sold from time to time. |
| 5 |
6. Rights and Obligations of Warrant Holder. The Holder of this Warrant shall not, by virtue hereof, be entitled to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative actions by the Holder to purchase Common Stock of the Company by exercising this Warrant, and no enumeration in this Warrant of the rights or privileges of the Holder, will give rise to any liability of such Holder for the Exercise Price of Common Stock acquirable by exercise hereof or as a stockholder of the Company.
7. Transfer of Warrants. Subject to compliance with the restrictions on transfer applicable to this Warrant referred to in Section 5 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the registered Holder, upon surrender of this Warrant with a properly executed Assignment (in substantially the form attached hereto as Exhibit B), to the Company, and the Company at its expense will issue and deliver to or upon the order of the Holder hereof a new Warrant or Warrants in such denomination or denominations as may be requested, but otherwise of like tenor, in the name of the Holder or as the Holder (upon payment of any applicable transfer taxes) may direct.
8. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Company Records. Until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.
10. Miscellaneous.
| (a) | Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class mail, postage prepaid, to such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holder of this Warrant who has so furnished an address to the Company. All communications from the Holder of this Warrant to the Company shall be mailed by first class mail, postage prepaid, to Bitmine Immersion Technologies, Inc., 2030 Powers Ferry Road, SE, Suite 212, Atlanta, Georgia 30339, Attn: Chief Executive Officer, or such other address as may have been furnished to the Holder in writing by the Company. |
| (b) | Amendment and Waiver. Except as otherwise provided herein, this Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such amendment, waiver, discharge or termination is sought. |
| (c) | Governing Law; Descriptive Headings. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of Delaware. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. |
[SIGNATURE ON FOLLOWING PAGE]
| 6 |
Dated: _______________, 2021.
| BITMINE IMMERSION TECHNOLOGIES, INC. | ||
| By: |
| |
| Name: | Erik S. Nelson | |
| Title: | Chief Executive Officer | |
| 7 |
EXHIBIT A
SUBSCRIPTION AGREEMENT
[To be signed only upon exercise of Warrant]
| To: | Date: |
The undersigned, the Holder of the within Warrant, pursuant to the provisions set forth in the within Warrant, hereby irrevocably elects to exercise the purchase rights represented by such Warrant for, and agrees to subscribe for and purchase thereunder, shares of the Common Stock covered by such Warrant and herewith makes payment of $ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, , whose address is: . If said number of shares is less than all the shares covered by such Warrant, a new Warrant shall be registered in the name of the undersigned and delivered to the address stated below.
| Signature |
| |
| (Signature must conform in all respects to name of Holder as specified on the face of the Warrant or on the form of Assignment attached as Exhibit B thereto.) | ||
| Address |
| |
|
| ||
| [Signature Guarantee] | ||
| 8 |
EXHIBIT B
ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant with respect to the number of shares of the Common Stock covered thereby set forth below, unto:
| Name of Assignee | Address | No. of Shares |
| Dated: | Signature |
| ||
| (Signature must conform in all respects to name of Holder as specified on the face of the Warrant.) | ||||
| Address |
| |||
|
| ||||
| [Signature Guarantee] | ||||
| 9 |
Exhibit 4.5
NEITHER THIS WARRANT CERTIFICATE NOR THE WARRANTS REPRESENTED HEREBY NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS, NOR ANY INTEREST IN OR RIGHTS UNDER SAME, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE, AND NEITHER THIS WARRANT CERTIFICATE NOR THE WARRANTS REPRESENTED HEREBY NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS, NOR ANY INTEREST IN OR RIGHTS UNDER SAME, MAY BE SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
W-2021-C2-__
BITMINE IMMERSION TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT – CLASS C-2
Bitmine Immersion Technologies, Inc., a Delaware corporation (the “Company”), for value received and subject to the terms set forth below hereby grants to ________________________, or its registered successors and assigns (the “Holder”), the right to purchase from the Company at any time or from time to time until the date and time permitted under Section 2(a) below, ____________ fully paid and nonassessable shares of the Common Stock, par value $0.0001 per share, at the purchase price of Four Dollars and No Cents ($4.00) per share (the “Exercise Price”). The Exercise Price and the number and character of such shares of Common Stock purchasable pursuant to the rights granted under this Warrant are subject to adjustment as provided herein.
1. Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:
“Common Stock” means the Company’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter have been reclassified or changed into, including any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or other) which the Holder of this Warrant at any time shall be entitled to receive, or shall have received, upon the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock pursuant to Section 3(b) hereof or otherwise.
“Expiration Date” means the date on which this Warrant expires, being the earlier of the close of business in Atlanta, Georgia on (i) January 15, 2025 or (ii) the Termination Date, if a valid Termination Notice is sent pursuant to Section 2(f) herein.
“Issue Date” means the date on which the Subscription Agreement of the initial Holder is accepted by the Company.
“Mandatory Exercise Condition” shall mean any Trading Day on which (i) the Common Stock is trading on a Trading Market, (ii) the Market Value of the Common Stock for each of the twenty (20) previous Trading Days has exceeded $7.00 per share (as adjusted for stock splits, stock dividends, combinations and similar transactions), (iii) the Common Stock has an average daily trading volume of greater than 50,000 shares per day during the previous (20) Trading Days, as reported by Bloomberg L.P. and (iv) a Warrant Shares Registration Statement covering the resale of the shares of Common Stock issuable upon exercise of this Warrant is effective.
“Market Value” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is then listed or quoted on the OTCQB or the OTCQX, the average of the high and low price of the Common Stock for such date (or the nearest preceding date), (c) if the Common Stock is not then listed or quoted for trading on a Trading Market, the OTCQB or the OTCQX, and if prices for the Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the board of directors of the Company holders, the fees and expenses of which shall be paid by the Company.
“Registration Failure” means either (a) the Company has failed to file a Warrant Shares Registration Statement by the deadline required by the Registration Rights Agreement, or (b) if the Company has filed a Warrant Shares Registration Statement by the deadline required by the Registration Rights Agreement, such Warrant Shares Registration Statement has not been declared effective within six months after the termination of the offering under which this Warrant was issued.
“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the Issue Date, to which the Corporation and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms, which shall mean the Subscription Agreement to the extent it obligates that Company to file a registration statement in relation to the Warrant Shares issuable upon exercise of this Warrant.
“Subscription Agreement” means that subscription agreement executed by the Company and the original Holder of this Warrant, under which the Holder acquired this Warrant in a private placement offering of the Company.
“This Warrant” means, collectively, this Warrant and all other stock purchase warrants issued in exchange therefor or replacement thereof.
“Trading Day” means a day on which the Common Stock is traded on a Trading Market.
“Trading Market” means any one of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
“Warrant Shares” means the shares of Common Stock issuable to the Holder upon exercise of this Warrant.
“Warrant Shares Registration Statement” means a registration statement that meets the requirements of the Registration Rights Agreement and registers the resale of all Common Stock into which this Warrant may be exercised by the Holder, who shall be named as a “selling stockholder” thereunder, all as provided in the Registration Rights Agreement.
2. Exercise.
| (a) | Exercise Period. The Holder may exercise this Warrant at any time after the Issue Date and before the Expiration Date (the “Exercise Period”). |
| (b) | Exercise Procedure. |
| (i) | This Warrant will be deemed to have been exercised at such time as the Company has received all of the following items (the “Exercise Date”): |
| 1. | a completed Subscription Agreement as described in Section 2(d) hereof, executed by the Person exercising all or part of the purchase rights represented by this Warrant (the “Purchaser”); |
| 2. | this Warrant; |
| 3. | if this Warrant is not registered in the name of the Purchaser, an Assignment or Assignments in the form set forth in Exhibit B hereto, evidencing the assignment of this Warrant to the Purchaser together with any documentation required pursuant to Section 5(a) hereof; |
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| 4. | cash in the form of a wire transfer to the Company’s bank account (wire instructions to be provided upon request) in an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise; and |
| 5. | if a Registration Failure has occurred, in lieu of a cash exercise, the Holder may exercise this Warrant on a “cashless exercise” basis, in which the Holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: |
(A) = the Market Value of the Common Stock on the Trading Day preceding the date of such election;
(B) = the Exercise Price of this Warrant; and
| 6. | (X) = the number of shares of Common Stock for which the Holder elects to exercise this Warrant.” |
| (ii) | As soon as practicable after the exercise of this Warrant in full or in part, and in any event within two (2) Trading Days after the Exercise Date (the “Warrant Share Delivery Date”), the Company at its expense shall cause its transfer agent to issue the Warrant Shares acquired by the Purchaser either (A) by crediting the account of the Purchaser or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Purchaser, and otherwise by (B) either physical delivery of a certificate, registered in the Company’s share register in the name of the Purchaser or its designee, or issuance of the Warrant Shares in book entry form. If the Company fails for any reason to deliver to the Holder Warrant Shares by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. |
| (iii) | Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company at its expense will, within ten (10) days after the Exercise Date, issue and deliver to or upon the order of the Purchaser a new Warrant or Warrants of like tenor, in the name of the Purchaser or as the Purchaser (upon payment by the Purchaser of any applicable transfer taxes) may request, to purchase that number of shares of Common Stock remaining issuable under this Warrant. |
| (iv) | The Warrant Shares issuable upon the exercise of this Warrant will be deemed to have been issued to the Purchaser on the Exercise Date, and the Purchaser will be deemed for all purposes to have become the record holder of such Warrant Shares on the Exercise Date. |
| (v) | The issuance of certificates for Warrant Shares upon exercise of this Warrant will be made without charge to the Holder or the Purchaser for any issuance tax in respect thereof or any other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock. |
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| (vi) | The holder represents and warrants that at the time of any exercise of this warrant the holder is an “accredited investor,” as such term is defined in Rule 501 promulgated under the Securities Act and acknowledges and agrees that the Company may, in its sole discretion, (i) require, as a condition to the exercise of this Warrant, that the holder provide such written evidence that such holder is an accredited investor as the time of exercise, and (ii) decline to issue the Warrant Shares issuable upon such exercise if the Company is not satisfied that this warrant may be exercised by the holder pursuant to a valid registration exemption from the Securities Act and any applicable state securities law. |
| (c) | Acknowledgement of Continuing Obligations. The Company will, at the time of the exercise of this Warrant, upon the request of the Purchaser, acknowledge in writing its continuing obligation to afford to the Purchaser any rights to which the Purchaser shall continue to be entitled after such exercise in accordance with the provisions of this Warrant, provided that if the Purchaser shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to the Purchaser any such rights. |
| (d) | Subscription Agreement. The Subscription Agreement will be substantially in the form set forth in Exhibit A hereto, except that if the Warrant Shares are not to be issued in the name of the Purchaser, the Subscription Agreement will also state the name of the Person to whom the certificates for the Warrant Shares are to be issued, and if the number of Warrant Shares to be issued does not include all the shares of Common Stock issuable hereunder, it will also state the name of the Person to whom a new Warrant for the unexercised portion of the rights hereunder is to be delivered. |
| (e) | Fractional Shares. If a fractional share of Common Stock would be issuable upon exercise of the rights represented by this Warrant, the Company will, within ten (10) days after the Exercise Date, deliver to the Purchaser a check payable to the Purchaser in lieu of such fractional share, in an amount equal to the Market Value of such fractional share as of the close of business on the Exercise Date. |
| (f) | Mandatory Exercise. The Company may in its sole discretion, on any Trading Day as to which the Mandatory Exercise Condition is true, send the Holder a notice of termination (a “Termination Notice”) of this Warrant, which shall provide that this Warrant shall terminate as of the close of business thirty (30) days after the date of the Termination Notice (the “Termination Date”), and this Warrant shall terminate and be no longer exercisable to the extent it has not been exercised on or before the Termination Date. |
3. Adjustments.
| (a) | Adjustments for Stock Splits, Etc. If the Company shall at any time after the Issue Date subdivide its outstanding Common Stock, by split-up or otherwise, or combine its outstanding Common Stock, or issue additional shares of its capital stock in payment of a stock dividend in respect of its Common Stock, the number of Warrant Shares issuable on the exercise of the unexercised portion of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination, and the Exercise Price then applicable to shares covered by the unexercised portion of this Warrant shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased in the case of combination. |
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| (b) | Adjustment for Reclassification, Reorganization, Etc. In case of any reclassification, capital reorganization, or change of the outstanding Common Stock (other than as a result of a subdivision, combination or stock dividend), or in the case of any consolidation of the Company with, or merger of the Company into, another Person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the outstanding Common Stock of the Company), or in case of any sale or conveyance to one or more Persons of the property of the Company as an entirety or substantially as an entirety at any time prior to the expiration of this Warrant, then, as a condition of such reclassification, reorganization, change, consolidation, merger, sale or conveyance, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder of this Warrant, so that the Holder of this Warrant shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, reorganization, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Company as to which this Warrant was exercisable immediately prior to such reclassification, reorganization, change, consolidation, merger, sale or conveyance, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Exercise Price and of the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable in relation to any shares of stock, and other securities and property, thereafter deliverable upon exercise hereof. If, as a consequence of any such transaction, solely cash, and no securities or other property of any kind, is deliverable upon exercise of this Warrant, then, in such event, the Company may terminate this Warrant by giving the Holder hereof written notice thereof. Such notice shall specify the date (at least thirty (30) days subsequent to the date on which notice is given) on which, at 3:00 P.M., Atlanta, Georgia time, this Warrant shall terminate. Notwithstanding any such notice, this Warrant shall remain exercisable, and otherwise in full force and effect, until such time of termination. |
| (c) | Certificate of Adjustment. Whenever the Exercise Price or the number of Warrant Shares issuable hereunder is adjusted, as herein provided, the Company shall promptly deliver to the registered Holder of this Warrant a certificate of the Treasurer of the Company, which certificate shall state (i) the Exercise Price and the number of Warrant Shares issuable hereunder after such adjustment, (ii) the facts requiring such adjustment, and (iii) the method of calculation for such adjustment and increase or decrease. |
| (d) | Small Adjustments. No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease in the Exercise Price of at least one percent; provided, however, that any adjustments which by reason of this Section 3(d) are not required to be made immediately shall be carried forward and taken into account at the time of exercise of this Warrant or any subsequent adjustment in the Exercise Price which, singly or in combination with any adjustment carried forward, is required to be made under Sections 3(a) or (b). |
4. Reservation of Stock, etc., Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, all shares of Common Stock from time to time issuable upon the exercise of this Warrant.
5. Disposition of This Warrant, Common Stock, Etc.
| (a) | No Transfer Except on Compliance with Law. The Holder of this Warrant and any transferee hereof or of the Warrant Shares, by his or her acceptance hereof, hereby understands and agrees that this Warrant and the Warrant Shares have not been registered under the Securities Act, and may not be sold, pledged, hypothecated, donated, or otherwise transferred (whether or not for consideration) without an effective registration statement under the Act or an opinion of counsel satisfactory to the Company and/or submission to the Company of such other evidence as may be satisfactory to counsel to the Company, in each such case, to the effect that any such transfer shall not be in violation of the Act. It shall be a condition to the transfer of this Warrant that any transferee thereof deliver to the Company its written agreement to accept and be bound by all of the terms and conditions of this Warrant. The foregoing notwithstanding, the Company acknowledges its obligations as set forth in the Registration Rights Agreement to register the Warrant Shares. |
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| (b) | Legend on Shares issued upon Exercise. Except to the extent the Warrant Shares are registered for resale, or may be sold to the public pursuant to Rule 144 under the Securities Act, the certificates of the Company that will evidence the Warrant Shares will be imprinted with a conspicuous legend in substantially the following form: |
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND/OR SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT.”
| (c) | No Agreement to Register. Except as set forth in the Registration Rights Agreement, the Company has not agreed to register any of the Holder’s Warrant Shares for distribution in accordance with the provisions of the Securities Act, and the Company has not agreed to comply with any exemption from registration under the Act for the resale of the Holder’s Warrant Shares. Hence, it is the understanding of the Holder of this Warrant that by virtue of the provisions of certain rules respecting “restricted securities” promulgated by the SEC, the Warrant Shares may be required to be held indefinitely, unless and until registered under the Securities Act (as contemplated by the Registration Rights Agreement), unless an exemption from such registration is available, in which case the Holder may still be limited as to the number of Warrant Shares that may be sold from time to time. |
6. Rights and Obligations of Warrant Holder. The Holder of this Warrant shall not, by virtue hereof, be entitled to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative actions by the Holder to purchase Common Stock of the Company by exercising this Warrant, and no enumeration in this Warrant of the rights or privileges of the Holder, will give rise to any liability of such Holder for the Exercise Price of Common Stock acquirable by exercise hereof or as a stockholder of the Company.
7. Transfer of Warrants. Subject to compliance with the restrictions on transfer applicable to this Warrant referred to in Section 5 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the registered Holder, upon surrender of this Warrant with a properly executed Assignment (in substantially the form attached hereto as Exhibit B), to the Company, and the Company at its expense will issue and deliver to or upon the order of the Holder hereof a new Warrant or Warrants in such denomination or denominations as may be requested, but otherwise of like tenor, in the name of the Holder or as the Holder (upon payment of any applicable transfer taxes) may direct.
8. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Company Records. Until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.
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10. Miscellaneous.
| (a) | Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class mail, postage prepaid, to such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holder of this Warrant who has so furnished an address to the Company. All communications from the Holder of this Warrant to the Company shall be mailed by first class mail, postage prepaid, to Bitmine Immersion Technologies, Inc., 2030 Powers Ferry Road, SE, Suite 212, Atlanta, Georgia 30339, Attn: Chief Executive Officer, or such other address as may have been furnished to the Holder in writing by the Company. |
| (b) | Amendment and Waiver. Except as otherwise provided herein, this Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such amendment, waiver, discharge or termination is sought. |
| (c) | Governing Law; Descriptive Headings. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of Delaware. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. |
[SIGNATURE ON FOLLOWING PAGE]
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Dated: _______________, 2021.
| BITMINE IMMERSION TECHNOLOGIES, INC. | ||
| By: |
| |
| Name: | Erik S. Nelson | |
| Title: | Chief Executive Officer | |
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EXHIBIT A
SUBSCRIPTION AGREEMENT
[To be signed only upon exercise of Warrant]
| To: | Date: |
The undersigned, the Holder of the within Warrant, pursuant to the provisions set forth in the within Warrant, hereby irrevocably elects to exercise the purchase rights represented by such Warrant for, and agrees to subscribe for and purchase thereunder, shares of the Common Stock covered by such Warrant and herewith makes payment of $ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, , whose address is: . If said number of shares is less than all the shares covered by such Warrant, a new Warrant shall be registered in the name of the undersigned and delivered to the address stated below.
| Signature |
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| (Signature must conform in all respects to name of Holder as specified on the face of the Warrant or on the form of Assignment attached as Exhibit B thereto.) | ||
| Address |
| |
|
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| [Signature Guarantee] | ||
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EXHIBIT B
ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant with respect to the number of shares of the Common Stock covered thereby set forth below, unto:
| Name of Assignee | Address | No. of Shares |
| Dated: | Signature |
| ||
| (Signature must conform in all respects to name of Holder as specified on the face of the Warrant.) | ||||
| Address |
| |||
|
| ||||
| [Signature Guarantee] | ||||
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Exhibit 4.6
NEITHER THIS WARRANT CERTIFICATE NOR THE WARRANTS REPRESENTED HEREBY NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS, NOR ANY INTEREST IN OR RIGHTS UNDER SAME, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE, AND NEITHER THIS WARRANT CERTIFICATE NOR THE WARRANTS REPRESENTED HEREBY NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS, NOR ANY INTEREST IN OR RIGHTS UNDER SAME, MAY BE SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
W-2021-C3-01
BITMINE IMMERSION TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT – CLASS C-3
Bitmine Immersion Technologies, Inc., a Delaware corporation (the “Company”), for value received and subject to the terms set forth below hereby grants to ___________________, or its registered successors and assigns (the “Holder”), the right to purchase from the Company at any time or from time to time until the date and time permitted under Section 2(a) below, __________ fully paid and nonassessable shares of the Common Stock, par value $0.0001 per share, at the purchase price of One Dollar and Twenty-Five Cents ($1.25) per share (the “Exercise Price”). The Exercise Price and the number and character of such shares of Common Stock purchasable pursuant to the rights granted under this Warrant are subject to adjustment as provided herein.
1. Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:
“Common Stock” means the Company’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter have been reclassified or changed into, including any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or other) which the Holder of this Warrant at any time shall be entitled to receive, or shall have received, upon the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock pursuant to Section 3(b) hereof or otherwise.
“Expiration Date” means the close of business on the fifth anniversary of the Issue Date.
“Issue Date” means June 27, 2022.
“Market Value” means, for any date, the price for a share of Common Stock determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is then listed or quoted on the OTCQB or the OTCQX, the average of the high and low price of the Common Stock for such date (or the nearest preceding date), (c) if the Common Stock is not then listed or quoted for trading on a Trading Market, the OTCQB or the OTCQX, and if prices for the Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the board of directors of the Company holders, the fees and expenses of which shall be paid by the Company.
“This Warrant” means, collectively, this Warrant and all other stock purchase warrants issued in exchange therefor or replacement thereof.
“Trading Day” means a day on which the Common Stock is traded on a Trading Market.
“Trading Market” means any one of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
“Warrant Shares” means the shares of Common Stock issuable to the Holder upon exercise of this Warrant.
“Warrant Shares Registration Statement” means a registration statement that registers the resale of all Warrant Shares that may be acquired by the Holder by the exercise of this Warrant, naming the Holder as a “selling stockholder” thereunder.
2. Exercise.
| (a) | Exercise Period. The Holder may exercise this Warrant at any time after the Issue Date and before the Expiration Date (the “Exercise Period”). |
| (b) | Exercise Procedure. |
| (i) | This Warrant will be deemed to have been exercised at such time as the Company has received all of the following items (the “Exercise Date”): |
| 1. | a completed subscription agreement as described in Section 2(d) hereof, executed by the Person exercising all or part of the purchase rights represented by this Warrant (the “Purchaser”); |
| 2. | this Warrant; |
| 3. | if this Warrant is not registered in the name of the Purchaser, an Assignment or Assignments in the form set forth in Exhibit B hereto, evidencing the assignment of this Warrant to the Purchaser together with any documentation required pursuant to Section 5(a) hereof; and |
| 4. | either |
| a. | cash in the form of a wire transfer to the Company’s bank account (wire instructions to be provided upon request) in an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise; and |
| b. | in lieu of a cash exercise, the Holder may exercise this Warrant on a “cashless exercise” basis, in which the Holder shall be entitled to receive a certificate for the number of shares of Common Stock equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: |
(A) = the Market Value of the Common Stock on the Trading Day preceding the date of such election;
(B) = the Exercise Price of this Warrant; and
(X) = the number of shares of Common Stock for which the Holder elects to exercise this Warrant.”
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| (ii) | As soon as practicable after the exercise of this Warrant in full or in part, and in any event within two (2) Trading Days after the Exercise Date (the “Warrant Share Delivery Date”), the Company at its expense shall cause its transfer agent to issue the Warrant Shares acquired by the Purchaser either (A) by crediting the account of the Purchaser or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Purchaser, and otherwise by (B) either physical delivery of a certificate, registered in the Company’s share register in the name of the Purchaser or its designee, or issuance of the Warrant Shares in book entry form. If the Company fails for any reason to deliver to the Holder Warrant Shares by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. |
| (iii) | Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company at its expense will, within ten (10) days after the Exercise Date, issue and deliver to or upon the order of the Purchaser a new Warrant or Warrants of like tenor, in the name of the Purchaser or as the Purchaser (upon payment by the Purchaser of any applicable transfer taxes) may request, to purchase that number of shares of Common Stock remaining issuable under this Warrant. |
| (iv) | The Warrant Shares will be deemed to have been issued to the Purchaser on the Exercise Date, and the Purchaser will be deemed for all purposes to have become the record holder of such Warrant Shares on the Exercise Date. |
| (v) | The issuance of certificates for Warrant Shares upon exercise of this Warrant will be made without charge to the Holder or the Purchaser for any issuance tax in respect thereof or any other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock. |
| (vi) | The Purchaser represents and warrants that at the time of any exercise of this warrant the Purchaser is an “accredited investor,” as such term is defined in Rule 501 promulgated under the Securities Act and acknowledges and agrees that the Company may, in its sole discretion, (i) require, as a condition to the exercise of this Warrant, that the Purchaser provide such written evidence that such holder is an accredited investor as the time of exercise, and (ii) decline to issue the Warrant Shares if the Company is not satisfied that this warrant may be exercised by the Purchaser pursuant to a valid registration exemption from the Securities Act and any applicable state securities law. |
| (c) | Acknowledgement of Continuing Obligations. The Company will, at the time of the exercise of this Warrant, upon the request of the Purchaser, acknowledge in writing its continuing obligation to afford to the Purchaser any rights to which the Purchaser shall continue to be entitled after such exercise in accordance with the provisions of this Warrant, provided that if the Purchaser shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to the Purchaser any such rights. |
| (d) | Subscription Agreement. The subscription agreement will be substantially in the form set forth in Exhibit A hereto, except that if the Warrant Shares are not to be issued in the name of the Purchaser, the subscription agreement will also state the name of the Person to whom the certificates for the Warrant Shares are to be issued, and if the number of Warrant Shares to be issued does not include all the shares of Common Stock issuable hereunder, it will also state the name of the Person to whom a new Warrant for the unexercised portion of the rights hereunder is to be delivered. |
| 3 |
| (e) | Fractional Shares. If a fractional share of Common Stock would be issuable upon exercise of the rights represented by this Warrant, the Company will, within ten (10) days after the Exercise Date, deliver to the Purchaser a check payable to the Purchaser in lieu of such fractional share, in an amount equal to the Market Value of such fractional share as of the close of business on the Exercise Date. |
3. Adjustments.
| (a) | Adjustments for Stock Splits, Etc. If the Company shall at any time after the Issue Date subdivide its outstanding Common Stock, by split-up or otherwise, or combine its outstanding Common Stock, or issue additional shares of its capital stock in payment of a stock dividend in respect of its Common Stock, the number of Warrant Shares issuable on the exercise of the unexercised portion of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination, and the Exercise Price then applicable to shares covered by the unexercised portion of this Warrant shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased in the case of combination. |
| (b) | Adjustment for Reclassification, Reorganization, Etc. In case of any reclassification, capital reorganization, or change of the outstanding Common Stock (other than as a result of a subdivision, combination or stock dividend), or in the case of any consolidation of the Company with, or merger of the Company into, another Person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the outstanding Common Stock of the Company), or in case of any sale or conveyance to one or more Persons of the property of the Company as an entirety or substantially as an entirety at any time prior to the expiration of this Warrant, then, as a condition of such reclassification, reorganization, change, consolidation, merger, sale or conveyance, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder of this Warrant, so that the Holder of this Warrant shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, reorganization, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Company as to which this Warrant was exercisable immediately prior to such reclassification, reorganization, change, consolidation, merger, sale or conveyance, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Exercise Price and of the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable in relation to any shares of stock, and other securities and property, thereafter deliverable upon exercise hereof. If, as a consequence of any such transaction, solely cash, and no securities or other property of any kind, is deliverable upon exercise of this Warrant, then, in such event, the Company may terminate this Warrant by giving the Holder hereof written notice thereof. Such notice shall specify the date (at least thirty (30) days subsequent to the date on which notice is given) on which, at 3:00 P.M., Atlanta, Georgia time, this Warrant shall terminate. Notwithstanding any such notice, this Warrant shall remain exercisable, and otherwise in full force and effect, until such time of termination. |
| (c) | Certificate of Adjustment. Whenever the Exercise Price or the number of Warrant Shares issuable hereunder is adjusted, as herein provided, the Company shall promptly deliver to the registered Holder of this Warrant a certificate of the Treasurer of the Company, which certificate shall state (i) the Exercise Price and the number of Warrant Shares issuable hereunder after such adjustment, (ii) the facts requiring such adjustment, and (iii) the method of calculation for such adjustment and increase or decrease. |
| (d) | Small Adjustments. No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease in the Exercise Price of at least one percent; provided, however, that any adjustments which by reason of this Section 3(d) are not required to be made immediately shall be carried forward and taken into account at the time of exercise of this Warrant or any subsequent adjustment in the Exercise Price which, singly or in combination with any adjustment carried forward, is required to be made under Sections 3(a) or (b). |
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4. Reservation of Stock, etc., Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, all shares of Common Stock from time to time issuable upon the exercise of this Warrant.
5. Disposition of This Warrant, Common Stock, Etc.
| (a) | No Transfer Except on Compliance with Law. The Holder of this Warrant and any transferee hereof or of the Warrant Shares, by his or her acceptance hereof, hereby understands and agrees that this Warrant and the Warrant Shares have not been registered under the Securities Act, and may not be sold, pledged, hypothecated, donated, or otherwise transferred (whether or not for consideration) without an effective registration statement under the Act or an opinion of counsel satisfactory to the Company and/or submission to the Company of such other evidence as may be satisfactory to counsel to the Company, in each such case, to the effect that any such transfer shall not be in violation of the Act. It shall be a condition to the transfer of this Warrant that any transferee thereof deliver to the Company its written agreement to accept and be bound by all of the terms and conditions of this Warrant. The foregoing notwithstanding, the Company acknowledges its obligations to register the Warrant Shares as set forth herein in Section 5(d) herein. |
| (b) | Legend on Shares issued upon Exercise. Except to the extent the Warrant Shares are registered for resale, or may be sold to the public pursuant to Rule 144 under the Securities Act, the certificates of the Company that will evidence the Warrant Shares will be imprinted with a conspicuous legend in substantially the following form: |
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND/OR SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT.”
| (c) | No Agreement to Register. Except as set forth in Section 5(d), the Company has not agreed to register any of the Holder’s Warrant Shares for distribution in accordance with the provisions of the Securities Act, and the Company has not agreed to comply with any exemption from registration under the Act for the resale of the Holder’s Warrant Shares. Hence, it is the understanding of the Holder of this Warrant that by virtue of the provisions of certain rules respecting “restricted securities” promulgated by the SEC, the Warrant Shares may be required to be held indefinitely, unless and until registered under the Securities Act, unless an exemption from such registration is available, in which case the Holder may still be limited as to the number of Warrant Shares that may be sold from time to time. |
| (d) | Piggyback Registration Rights. If the Company proposes to register any of its Common Stock (other than pursuant to a Registration on Form S-4 or S-8 or any successor form), it will give prompt written notice to the Holder of its intention to effect such Registration (a “Registration”). Within ten business days of receiving such written notice of a Registration, the Holder may make a written request (the “Piggy-Back Request”) that the Company include in the proposed Registration all, or a portion, of the Warrant Shares that the Holder has the right to acquire by the exercise of this Warrant (which Piggy-Back Request shall set forth the Warrant Shares intended to be disposed of by the Holder and the intended method of disposition thereof). Notwithstanding the foregoing, if a Registration involves an underwritten offering, and the managing underwriter (or, in the case of an offering that is not underwritten, an investment banker) shall advise the Company that, in its opinion, the number of securities requested and otherwise proposed to be included in such Registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such Registration to the extent of the number which the Company is so advised can be sold in such offering, first, the securities the Company proposes to sell for its own account in such Registration and second, the Warrant Shares that the Holder requests be included in such Registration and all other securities requested to be included in such Registration on a pro rata basis. The Company shall pay all expenses arising from or incidental to the performance of, or compliance with, its obligations under this Section 5(d), provided that the Holder requesting such Registration shall bear any transfer taxes applicable to its Warrant Shares registered thereunder, customary (both as to type and amount) commissions or discounts payable to the underwriters, selling brokers, managers or other similar persons engaged in the distribution of any of the Warrant Shares, and the fees and expenses of the Holder’s own counsel. |
| 5 |
6. Rights and Obligations of Warrant Holder. The Holder of this Warrant shall not, by virtue hereof, be entitled to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative actions by the Holder to purchase Common Stock of the Company by exercising this Warrant, and no enumeration in this Warrant of the rights or privileges of the Holder, will give rise to any liability of such Holder for the Exercise Price of Common Stock acquirable by exercise hereof or as a stockholder of the Company.
7. Transfer of Warrants. Subject to compliance with the restrictions on transfer applicable to this Warrant referred to in Section 5 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the registered Holder, upon surrender of this Warrant with a properly executed Assignment (in substantially the form attached hereto as Exhibit B), to the Company, and the Company at its expense will issue and deliver to or upon the order of the Holder hereof a new Warrant or Warrants in such denomination or denominations as may be requested, but otherwise of like tenor, in the name of the Holder or as the Holder (upon payment of any applicable transfer taxes) may direct.
8. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Company Records.
| (a) | Until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. |
| (b) | Notwithstanding anything to the contrary herein, this Warrant shall initially be issuable in book-entry registration form registered in the name of the Holder. Ownership of beneficial interests in this Warrant, and the transfer of such ownership shall be effected through, records maintained by the duly appointed transfer agent for the Company’s Common Stock. If the Company’s transfer agent subsequently ceases to serve as transfer agent for the Warrants, and a replacement is not appointed, the Company or is transfer agent shall deliver the Holder of this Warrant a certificate representing this Warrant in paper form. |
10. Miscellaneous.
| (a) | Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class mail, postage prepaid, to such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holder of this Warrant who has so furnished an address to the Company. All communications from the Holder of this Warrant to the Company shall be mailed by first class mail, postage prepaid, to Bitmine Immersion Technologies, Inc., 2030 Powers Ferry Road, SE, Suite 212, Atlanta, Georgia 30339, Attn: Chief Executive Officer, or such other address as may have been furnished to the Holder in writing by the Company. |
| (b) | Amendment and Waiver. Except as otherwise provided herein, this Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such amendment, waiver, discharge or termination is sought. |
| (c) | Governing Law; Descriptive Headings. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of Delaware. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. |
[SIGNATURE ON FOLLOWING PAGE]
| 6 |
Dated: _______________, 2021.
| BITMINE IMMERSION TECHNOLOGIES, INC. | ||
| By: |
| |
| Name: | Erik S. Nelson | |
| Title: | Chief Executive Officer | |
| 7 |
EXHIBIT A
SUBSCRIPTION AGREEMENT
[To be signed only upon exercise of Warrant]
| To: | Date: |
The undersigned, the Holder of the within Warrant, pursuant to the provisions set forth in the within Warrant, hereby irrevocably elects to exercise the purchase rights represented by such Warrant for, and agrees to subscribe for and purchase thereunder, shares of the Common Stock covered by such Warrant and herewith makes payment of $ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, , whose address is: . If said number of shares is less than all the shares covered by such Warrant, a new Warrant shall be registered in the name of the undersigned and delivered to the address stated below.
| Signature |
| |
| (Signature must conform in all respects to name of Holder as specified on the face of the Warrant or on the form of Assignment attached as Exhibit B thereto.) | ||
| Address |
| |
|
| ||
| [Signature Guarantee] | ||
| 8 |
EXHIBIT B
ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant with respect to the number of shares of the Common Stock covered thereby set forth below, unto:
| Name of Assignee | Address | No. of Shares |
| Dated: | Signature |
| ||
| (Signature must conform in all respects to name of Holder as specified on the face of the Warrant.) | ||||
| Address |
| |||
|
| ||||
| [Signature Guarantee] | ||||
| 9 |
Exhibit 5
INVESTMENT LAW GROUP
OF DAVIS GILLETT MOTTERN & SIMS, LLC
545 Dutch Valley Road, N.E.
Suite A
Atlanta, Georgia 30324
____________________
| Telephone: (404) 607-6933 | Email: bmottern@ilglaw.com | Facsimile: (888) 719-4838 |
July 27, 2022
Bitmine Immersion Technologies, Inc.
2030 Powers Ferry Road SE, Suite 212,
Atlanta, Georgia 30339
Re: Registration of Shares
Ladies and Gentlemen:
We have acted as counsel to Bitmine Immersion Technologies, Inc., a Delaware corporation (the “Company”), in connection with the Resale Registration Statement on Form S-1 (including the prospectus that is a part thereof, the “Registration Statement”) filed today by the Company with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the resale, from time to time, of up to 14,662,800 shares (the “Registrable Shares”) of the Company’s common stock, $0.0001 par value per share (the “Common Stock”) by those certain selling stockholders named in the Registration Statement (the “Selling Stockholders”) pursuant to Rule 415 under the Securities Act. This opinion letter is being rendered pursuant to Item 16 of Form S-1 and Item 601(b)(5) of Regulation S-K.
The Registrable Shares consist of the following shares of Common Stock (i) 5,242,000 shares of Common Stock that are owned by certain Selling Stockholders originally issued in various private placement transactions from June 2021 to June 2022, (ii) 550,000 shares of Common Stock issuable upon the exercise of certain Class A Warrants at an exercise price of $2.00 per share that were originally issued _______________ (such warrants, the “Class A Warrants”) (iii) 550,000 shares of Common Stock issuable upon the exercise of certain Class B Warrants at an exercise price of $5.00 per share that were originally issued _________________ (such warrants, the “Class B Warrants”), (iv) 4,147,600 shares of Common Stock issuable upon the exercise of certain Class C-1 Warrants at an exercise price of $2.00 per share that were originally issued in a Unit Offering from January to June 2022 (such warrants, the “Class C-1 Warrants”), (v) 4,147,600 shares of Common Stock issuable upon the exercise of certain Class C-2 Warrants at an exercise price of $4.00 per share that were originally issued in a Unit Offering from January to June 2022 (such warrants, the “Class C-2 Warrants”), and (vi) 25,600 shares of Common Stock issuable upon the exercise of certain Class C-3 Warrants at an exercise price of $1.25 per share that were originally issued in a Unit Offering from January to June 2022 (such warrants, the “Class C-3 Warrants”),
INVESTMENT LAW GROUP
OF DAVIS GILLETT MOTTERN & SIMS, LLC
Bitmine Immersion Technologies, Inc.
July 22, 2022
Page 2 of 3
In connection with this opinion, we have examined such documents and considered such legal matters deemed by us to be relevant to this opinion letter and the Registration Statement, including (i) the applicable statutory provisions and related rules and regulations of the Delaware General Corporation Law (the “DGCL”) and the reported judicial decisions interpreting those laws, (ii) the applicable statutory provisions and related rules and regulations of the State of Delaware governing the Warrants, (iii) the Certificate of Incorporation of the Company, as amended, (iii) the Bylaws of the Company, as amended, (iv) the corporate proceedings of the Company relating to the issuance of the Registrable Shares and (v) the certificates evidencing the Warrants.
We have also made such further legal and factual examinations and investigations as we deemed necessary for the purposes of expressing the opinion set forth herein. With respect to these examinations and investigations, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as reproduced or certified copies, and the authenticity of the originals of those latter documents. As to questions of fact material to this opinion, we have, to the extent deemed appropriate, relied upon information provided by officers of the Company and the Selling Stockholders. We have not independently verified or investigated, nor do we assume any responsibility for, the factual accuracy or competency of such factual statements.
Our opinion is limited to the laws of the State of Delaware (which includes the applicable provisions of the DGCL and the reported judicial decisions interpreting those laws) and the federal laws of the United States of America, to the extent referred to specifically herein. We do not express any opinion herein concerning any other laws. We are generally familiar with the DGCL as currently in effect and the judicial decisions thereunder and have made such inquiries and review of matters of fact and law as we determined necessary to render the opinion contained herein. We assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretations thereof or such facts. We express no opinion regarding the Securities Act, or any other federal or state laws or regulations.
Based upon the foregoing, and in reliance thereon, it is our opinion that, as of the date hereof, the Registrable Shares have been duly authorized by the Company, and when issued in accordance with the terms of the Warrants, as applicable, will be validly issued, fully paid and nonassessable.
This opinion letter is provided for use solely in connection with the resale of the Common Stock covered by the Registration Statement, and except for its use in connection with such resale, may not be furnished to, quoted from or relied upon by any other person, firm, or corporation without our express written consent. No opinion may be implied or inferred beyond the opinion expressly stated in the paragraph immediately above. Our opinion expressed herein is as of the date hereof, and we undertake no obligation to advise you of any changes in applicable law or any other matters that may come to our attention after the date hereof that may affect our opinions expressed herein.
INVESTMENT LAW GROUP
OF DAVIS GILLETT MOTTERN & SIMS, LLC
Bitmine Immersion Technologies, Inc.
July 22, 2022
Page 3 of 3
We consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the use of our name under the heading “Legal Matters” in the prospectus constituting a part thereof. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder.
| Very truly yours, | |
DAVIS GILLETT MOTTERN & SIMS, LLC /s/ Davis Gillett Mottern & Sims, LLC Davis Gillett Mottern & Sims, LLC | |
Exhibit 10.1
Amended and Restated Line of Credit Agreement
This AMENDED AND RESTATED LINE OF CREDIT AGREEMENT (the “Agreement”) is entered into on this 24th day of June, 2022, by and between Innovative Digital Investors, LLC., a limited liability company, on behalf of Innovative Digital Investors Emerging Technology LP, whose address is 10845 Griffith Peak Drive #2, Las Vegas, NV 89135 ("Creditor" or ”IDI”) and BitMine lmmersion Technologies, Inc., a Delaware Corporation, whose principal address is 2030 Powers Ferry Road SE, Suite 212, Atlanta, GA. 30339 (the "Company" or "BitMine"), collectively referred to as the "Parties." This Agreement amends and restates that Line of Credit agreement originally entered into on July 22, 2021, as restated and amended on August 3, 2021, and as further restated and amended on September 29, 2021, as further restated on March 30th, 2022.
WHEREAS, BITMINE is a corporation with limited resources and from time to time may be in need of capital in order to advance the development of its operations, specifically equipment related to Cryptocurrency Mining and Infrastructure and working capital needs.
WHEREAS, Qualified Assets will include any Mining Computers selected by the Company, and any equipment used to house these machines, which are approved by IDI in advance of purchase by the Company.
WHEREAS, loan proceeds may also be used for working capital needs at the sole discretion of IDI up to the borrow limit.
WHEREAS, BITMINE is in need of borrowing funds, and IDI is willing to advance funds to BITMINE for the purposes stated above.
WHEREAS, IDI and BITMINE are desiring to enter into this Agreement for the purposes of advancing the development of BitMine's business plan as stated above.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties hereby agree as follows:
1. Amount of Line of Credit: The amount of the Line of Credit shall be Three Million Dollars ($3,000,000), which IDI shall loan to BitMine as follows:
A. Any requests to borrow funds shall be submitted with a “Use of Funds Statement.” If the request is to finance the purchase of equipment, the Use of Funds Statement shall include appropriate purchase or expense documentation documenting the equipment to be purchased with the proceeds. If the request is for general working capital, the Use of Funds Statement IDI shall indicate the types of expenses to be paid. All Use of Funds Statements shall be submitted to Jonathan Bates and IDI, and are subject to his approval. All amounts disbursed pursuant to a Use of Funds Statement shall be considered “Debt” under this Agreement.
B. Borrowing Period: The Company shall be entitled to borrow funds commencing with the signing of the original line of credit agreement on July 22, 2021 and continuing through August 31, 2022.
C. Senior Debt Status: The Debt shall be senior to all other company debt.
2. Interest Rate: All Debt shall incur interest at the rate of Fifteen Percent (15%) per annum, compounded on a 30/360 monthly basis until the Debt has been repaid in full.
3. Time of Payment:
A. Maturity Date: All amounts due IDI under this Agreement, including principal and interest, shall be due and payable on December 1, 2022.
B. Prepayment: Advance payment or payments may be made on any amounts due under this Note without penalty or forfeiture. There shall be no penalty for any prepayment.
4. Collateral: The Company hereby grants Creditor a security interest and lien on all machinery and equipment purchased with the proceeds of the Loan, as well as all other assets or cash balances of the Company, including any in proceeds thereof, to secure repayment of all amounts due under this Agreement.
5. [Intentionally Omitted]
6. Assignability: The rights or obligations under this Note may not be assigned and/or delegated by the Company without the express written consent of the other party. Holder may assign his rights without restriction.
7. Representations and Warranties of Company: The Company represents and warrants as follows:
A. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company bas the corporate power to own its properties and to carry on its business as now being conducted.
B. The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company. The Company's Board of Directors has approved this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency. reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
C. This Agreement is the legal, valid and binding obligation of the Company, except as limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally.
8. Representations and Warranties of Creditor: The Creditor represents and warrants as follows:
A. That the Creditor has knowledge and experience in financial and business matters and that he understands that the merits and risks associated with the execution of this Agreement.
9. Events of Default:
A. In the "Event of Default'' as that term is described in 9(B), the total amount under due under this Agreement shall become immediately due and payable.
| 2 |
B. The term, "Event of Default" shall mean:
i. The Company is unable to make any of the payments specified in paragraph 3(A), and fails to cure such default within 15 days after written notice from the Creditor.
ii. The Company shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts as they become due; or
iii. The Company shall file a voluntary petition in bankruptcy, or shall be the subject of an involuntary bankruptcy petition which is not dismissed within 30 days after it is filed, or adjudicated bankrupt or insolvent, or shall file any petition or answer seeking any reorganization arrangement, composition, readjustment, liquidation, dissolution, or similar relief under the present or any future Federal Bankruptcy Code or other applicable federal, state or similar statute, law or regulation, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of the Company or of all or any substantial part of its assets.
C. Notice of Default: In the event of an action triggering an Event of Default, the Creditor shall promptly notify the Company by USPS Certified Mail of the Event of Default. The Company shall have ten (10) days from the mailing of the Event of Default notice to cure the Event of Default by making the specified payment(s) or taking the specified actions.
D. Remedies on Default. Upon a default, the Creditor shall be entitled to all remedies provided at law or in equity, including all remedies available under the Uniform Commercial Code, including repossession and sale of any collateral for the Debt.
10. Notices: All notices, requests or instructions hereunder shall be in writing and delivered personally or sent by FedEx mail or similar overnight delivery, postage prepaid, as follows:
If to IDI: C/o Innovative Digital Investors, LLC. Attn.: Jonathan Bates; 10845 Griffith Peak Dr. #2; Las Vegas NV, 89135
If to BITMINE: BitMine Immersion Technologies Inc. Attn.: Jonathan Bates, CEO; 2030 Powers Ferry Road SE; Suite 212; Atlanta, GA. 30339
11. Governing Law and Venue: The terms and provisions of this letter are solely for the benefit of the BitMine and IDI and their respective successors, assigns, heirs and personal representatives. and no other person shall acquire or have any right by virtue of this letter. IDI and the Company agree that any dispute concerning the interpretation, validity or enforceability of this agreement, and any action arising from any alleged breach hereof shall be adjudicated exclusively in State or Superior Court for the county in which IDl's principal executive office shall be located at the time of institution of such action, or in the applicable district and division of the U.S. District Court having venue for disputes in that same county. In the event of any litigation arising from or related to this Agreement, or the services provided under this Agreement. the prevailing party shall be entitled to recover from the non-prevailing party all reasonable costs incurred including staff time, court costs, attorney's fees, and all other related expenses incurred in such litigation. In the event of a settlement of litigation between the parties or a resolution of a dispute by arbitration, the term "prevailing party" shall be determined by that process.
12. Entire Agreement: This Agreement, including all exhibits and schedules attached thereto, executed on even date herewith, constitutes the full and entire understanding and agreement between the parties with regard to the Debt, and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants and agreements.
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13. Severability: The invalidity or unenforceability of any provision of this letter shall not affect the validity or enforceability of any other provisions of this letter, which shall remain in full force and effect.
14. Counterparts/Electronic Signatures: This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Facsimile or electronically transmitted signatures shall be deemed effective as originals.
15. Authority/Capacities/Entities: Each person signing this Agreement represents and warrants that he or she has complete authority and legal capacity to enter into this Agreement on behalf of the entity for which he or she is signing, and agrees to defend, indemnify. and hold harmless all other parties if that authority or capacity is challenged.
16. Knowing and Voluntary Agreement: The Parties represent they have read this Agreement, understand it. voluntarily agree to its terms, and sign it freely.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written.
Innovative Digital Investors Emerging Technology LP
By: Innovative Digital Investors, LLC,
its General Partner
By: ______________________________________
Jonathan Bates, Managing Member of
Innovative Digital Investors, LLC.,
BitMine Immersion Technologies, Inc.
By: ______________________________________
Jonathan Bates,
Chief Executive Officer
| 4 |
Exhibit 21
SUBSIDIARIES OF BITMINE IMMERSION TECHNOLOGIES, INC.
| Subsidiary | Jurisdiction of Organization | Ownership | ||
| Atlantic Hash, Inc. | Trinidad corporation | 100% by the Company | ||
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in this Registration Statement on Form S-1 of Bitmine Immerson Technologies Inc. (the “Company”) to be filed on or about July 27, 2022, of our report dated December 9, 2021, relating to our audits of the consolidated financial statements as of and for the years ended August 31, 2021 and August 31, 2020, which appears in the Annual Report on Form 10-K of the Company for the year ended August 31, 2021.
We also consent to the reference to our firm under the caption “Experts” in the Prospectus, which is part of this Registration Statement.
/s/ BF Borgers CPA PC
Lakewood, Colorado
July 27, 2022