The Company is a Nevada corporation.
In 2017, we completed the development of TLLC’s virtual reality software and failed in our attempt to monetize it. In the
fourth quarter of 2017, based upon input from our principal investors who refused to further fund TLLC, we made the decision to
terminate TLLC, and our then Chief Executive Officer, who was one of TLLC’s founders, resigned. We negotiated the sale of
TLLC to its founders and prior key investors in December 2017 and closed the sale on January 3, 2018. On January 4, 2018, we announced
our entry into the cryptocurrency business and we are currently pursuing business ventures in the cryptocurrency business and
have initiated the mining of Bitcoins.
Liquidity and Capital Resources
As of April 3, 2018, we had approximately
$1.15 million in cash which is sufficient working capital to support operations for the next 12 months. There is no assurance that
any additional financing will be available or if available, on terms that will be acceptable. However, we have $1,826,579
of Convertible Notes due in April 2019 which require payment of 120% of principal and interest.
Going Concern
The Company has incurred losses since inception
and requires additional funding for future operating activities. The Company’s activities are not generating a level of
revenue sufficient to fund its current operating activities. These factors create an uncertainty as to how the Company will fund
its operations and maintain sufficient cash flow to operate as a going concern. The combination of these factors, among others,
raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to meet its
cash requirements in the next year is dependent upon obtaining additional financing. If this is not achieved, the Company may
be unable to obtain sufficient cash flow to fund its operations and obligations, and as a result there is substantial doubt the
Company will be able to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, and accordingly, do not include any adjustments relating to the recoverability and classification of
recorded asset amounts; nor do they include adjustments to the amounts and classification of liabilities that might be necessary
should the Company be unable to continue operations or be required to sell its assets.
Critical Accounting Policies and Estimates
Our financial statements and accompanying notes
have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies
and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to
our financial statements. In general, management’s estimates are based on historical experience, on information from third
party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual
results could differ from those estimates made by management.
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise
disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might
have a material impact on its financial position or results of operations.
Off Balance Sheet Arrangements
We do not engage in any activities involving variable interest
entities or off-balance sheet arrangements.
RISK FACTORS
Investing in our common stock involves a high
degree of risk. You should carefully consider the following Risk Factors before deciding whether to invest in our Company. Additional
risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations
or our financial condition. If any of the events discussed in the Risk Factors below occur, our business, consolidated financial
condition, results of operations or prospects could be materially and adversely affected. In such case, the value and marketability
of the common stock could decline.
You should recognize that we have been unable
to generate material revenues from our legacy business. As a result, we made the decision to enter the blockchain and cryptocurrency
business, a business which is subject to special risks described below
Risks Relating to Our Financial Condition
If we cannot complete a financing in the near future, we will
be required to cease operations.
We had net income of $1,128,827 during the
year ended December 31, 2017. However, the Company has a history of incurring losses. The Company has an accumulated deficit of
$2,740,558 as of December 31, 2017. As of April 3, 2018, we have approximately $1.15 million in cash available and based on our
estimated current liabilities, our working capital is approximately $1.1million. We expect that we can manage our accounts
payable and sustain operations until March 2019. To remain operational beyond that time, we must complete a financing. Because
small companies like ours generally face more obstacles in obtaining financing, we cannot assure you that we will be successful
in raising additional capital if needed. Further, if we complete a financing it may be very dilutive to shareholders.
Our ability to continue as a going concern
is in doubt unless we obtain adequate new debt or equity financing and achieve sufficient sales levels.
As noted
above, we have incurred significant net losses to date. We anticipate that we will continue to lose money for the foreseeable future.
Additionally, we have negative cash flows from operations and no expectations of revenue in the near future. Our continued existence
is dependent upon generating sufficient working capital and obtaining adequate new debt or equity financing. Because of our continuing
losses, without improvements in our cash flow from operations or new financing, we may have to continue to restrict our expenditures.
Working capital limitations may impinge on our day-to-day operations, which may contribute to continued operating losses.
Because of the recent declines in the price
of our common stock, third parties have declined to do business with us.
As of the close of business on April 3, 2018,
the price of our common stock was $0.008 as reported on the OTCQB. The holders of our Series E Preferred Stock may convert their
Series E Preferred Stock into a large number of shares of our common stock which may cause the price of our common stock to stay
below $0.01. Because of the recent large decline in the price of our common stock, we have faced the loss of pending business opportunities
and reluctance by third parties to enter into business with us. As a result of our low stock price, we may continue to lose business
opportunities in the future. If our stock price does not increase or if we are unable to enter into agreements with third parties,
we likely will be unable to pay our debt which is due in April 2019.
Risk of Future Cryptocurrency Legislation
and Regulation
Because of sharp
run ups in the price of Bitcoin and other cryptocurrencies and the recent declines, as well as a number of fraudulent and other
wrongful campaigns affecting cryptocurrency, the Securities and Exchange Commission (the “SEC”) and, other federal
regulators and state regulators, and foreign authorities have recently increased their focus on cryptocurrency issuances and trading
and it is likely that there will be future legislation and new rules, which may adversely affect the business of the Company.
In public speeches,
the Chairman of the SEC has focused substantial attention and concerns related to the issuance and trading of cryptocurrency. The
SEC has also filed lawsuits, suspended trading of cryptocurrency companies, taken administrative action to stop an initial coin
offering (“ICO”) and is reportedly issuing subpoenas relating to promotion of ICOs. While the Company cannot predict
what kind of legislation and regulation may be enacted in the future, it is possible that any such legislation and regulation may
adversely affect the Company which could cause our stock price to fall sharply.
If regulatory changes or interpretations
require the regulation of cryptocurrency under the Act
and the Company under the Investment Company Act of 1940 (the
“1940 Act”) by the SEC, we may be required to register and comply with such regulations, which may result in extraordinary,
non-recurring expenses to us.
Current and future legislation, the SEC rulemaking
and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which
cryptocurrency is treated for classification and clearing purposes. The SEC’s July 25, 2017 Report of Investigation Pursuant
to Section 21(a) of the Securities Exchange Act of 1934: The DAO (the “Report”) expressed its view that cryptocurrencies
may be securities depending on the facts and circumstances. We are not aware of any rules that have been proposed to regulate cryptocurrency
as securities. We cannot be certain as to how future regulatory developments will impact the treatment of cryptocurrency under
the law. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting
an investment in us. If we determine not to comply with such additional regulatory and registration requirements, we may seek to
cease certain of our operations. Any such action may adversely affect an investment in us.
To the extent that cryptocurrencies including
Ether and any other cryptocurrencies we may own are deemed by the SEC to fall within the definition of a security, we may be required
to register and comply with additional regulation under the 1940 Act, including additional periodic reporting and disclosure standards
and requirements and the registration of our Company as an investment company. Further, we have acquired a minority interest in
a cryptocurrency business which interest is a security. Because the 40% test under the 1940 Act includes this minority interest
and the Ether we own, we are limited in our future activities with respect to acquisitions of minority interests in businesses
and our ownership of cryptocurrencies. In addition, as our percentage ownership of securities increases, the volatility of Ether
or other cryptocurrencies we own may cause us to inadvertently cross this 40% threshold. While we would have one-year to cure a
violation, this can only occur once in a three-year period.
Additionally, one or more states may conclude
that Ether, Bitcoin and the other cryptocurrencies we may own are a security under state securities laws which would require registration
under state laws including merit review laws which would adversely impact us since we would likely not comply. Some states including
California define the term “investment contract” more strictly than the SEC. Such additional registrations may result
in extraordinary, non-recurring expenses of our Company, thereby materially and adversely impacting an investment in our Company.
If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease all or certain
parts of our operations. Any such action would likely adversely affect an investment in us and investors may suffer a complete
loss of their investment.
If regulatory changes or actions occur,
it may restrict the use of virtual currency in a manner that adversely affects an investment in us.
Until recently, little or no regulatory attention
has been directed toward Bitcoin, other cryptocurrencies and the markets where they trade by U.S. federal and state governments,
foreign governments and self-regulatory agencies. As Bitcoin and other cryptocurrency have grown in popularity and in market size
and ICOs which tend to be securities, the SEC, Federal Reserve Board, U.S. Congress and certain other U.S. agencies (e.g., the
CFTC, the Financial Crimes Enforcement Network (“FinCEN”) and the Federal Bureau of Investigation) have questioned
whether ICOs and cryptocurrencies are securities. Based on enforcement actions brought by the SEC and speeches by its Chairman,
it seems clear that ICOs are, in almost all cases, securities. The Company does not intend to acquire ICOs because they are securities
and, with one exception not applicable to the Company, sold in violation of the federal securities laws.
On July 25, 2017, the SEC issued its Report
which concluded that cryptocurrencies issued for the purpose of raising funds may be securities within the meaning of the federal
securities laws. The Report focused on the activities of a virtual organization which offered tokens in exchange for Ether which
is the second largest reported cryptocurrency. The Report emphasized that whether a cryptocurrency is a security is based on the
facts and circumstances. Although the Company’s activities are not focused on using cryptocurrency to raise capital or assisting
others that do so, the federal securities laws are very broad, and there can be no assurances that the SEC will not take enforcement
action against the Company in the future including for the sale of unregistered securities in violation of the Act or acting as
an unregistered investment company in violation of the 1940 Act. The SEC has taken various actions against persons or entities
misusing Bitcoin in connection with fraudulent schemes (
i.e.
, Ponzi scheme), inaccurate and inadequate publicly disseminated
information, and the offering of unregistered securities. More recently, the SEC suspended trading a number of cryptocurrencies
public companies. To the extent Bitcoin is determined to be a security or to the extent that a US or foreign government or quasi-governmental
agency exerts regulatory authority over the trading and ownership, trading or ownership in Bitcoin, an investment in us may be
adversely affected. Very recently there has been much discussion concerning the need for legislation and underlying regulation
to address these concerns.
Local state regulators such as the New York
State Department of Financial Services (the “NYSDFS”) have also initiated examinations of Bitcoin, the Bitcoin Network
and the regulation thereof. In 2015 the NYSDFS issued its final BitLicense regulatory framework. The BitLicense regulates the conduct
of businesses that are involved in “virtual currencies” in New York or with New York customers and prohibits any person
or entity involved in such activity to conduct activities without a license. As more states regulate cryptocurrency investing and
trading, we may be required to comply with these regulations or cease operation.
A similar message
is being expressed overseas by regulators. While the Company cannot predict what kind of legislation and regulation may be enacted
in the future, it is possible that any such legislation and regulation may adversely affect the Company which could cause our stock
price to fall sharply.
Bitcoin currently
faces an uncertain regulatory landscape in not only the United States but also in many foreign jurisdictions such as the European
Union, China and Russia. While certain governments such as Germany, where the Ministry of Finance has declared Bitcoin to be “Rechnungseinheiten”
(a form of private money that is recognized as a unit of account, but not recognized in the same manner as fiat currency), have
issued guidance as to how to treat Bitcoin, most regulatory bodies have not yet issued official statements regarding intention
to regulate or determinations on regulation of Bitcoin, the Bitcoin Network and Bitcoin users. Some countries such as Kyrgyzstan,
Nepal, and Cambodia have banned the trading or possession of cryptocurrencies or have issued reports that possessing cryptocurrencies
may not be legal. Other Countries, such as South Korea, have not banned cryptocurrencies but have made statement’s that ICOs
would be prohibited as a fundraising tool.
The effect of any
future regulatory change on us, Bitcoins, or other cryptocurrency is impossible to predict, but such change could be substantial
and adverse to us and could adversely affect an investment in us.
If cryptocurrencies such as Bitcoin and
Ether are found to be securities, our business model may not be successful.
Bitcoin is the oldest and most well-known form
of cryptocurrency. Bitcoin, Ether, and other forms of cryptocurrencies have been the source of much regulatory consternation, resulting
in differing definitional outcomes without a single unifying statement. When the interests of investor protection are paramount,
for example in the offer or sale of ICO tokens, the SEC has no difficulty concluding that the token offerings are securities under
the “Howey” test as stated by the United States Supreme Court. As such, ICO offerings would require registration under
the Act or an available exemption therefrom for offers or sales in the United States to be lawful. Section 5 of the Act provides
that, unless a registration statement is in effect as to a security or it is exempt, it is unlawful for any person, directly or
indirectly, to engage in the offer or sale of securities. To date, we are not aware of any court that has considered whether or
not any forms of cryptocurrency are involved in the offer and sale of a security. In contrast, the SEC’s Chairman has stated
that all ICOs of which he is aware involve the sale of a security. In any event, our counsel has advised us that it does not believe
that Bitcoin is a security. Although we do not believe our activities require registration for us to conduct such activities, the
SEC or a state securities regulator may challenge our position, and we may face regulation under the Act or the 1940 Act. Such
regulation or the inability to meet the requirements to continue operations, would have a material adverse effect on our business
and operations.
If Bitcoin were held to be a security, we may
be exposed to liabilities to the SEC. We may face similar issues with various state securities regulators who may interpret our
actions as requiring registration under state securities laws.
If we acquire cryptocurrencies which are
securities, even unintentionally, we may violate the 1940 Act and incur potential third-party liabilities
The Company intends
to comply with the 1940 Act in all respects. To that end, if the Company acquires cryptocurrencies which are determined to constitute
investment securities of a kind that subject the Company to registration and reporting under the 1940 Act, the Company will limit
its holdings of securities to less than 40% of its assets (excluding cash). Section 3(a)(1)(C) of the 1940 Act defines “investment
company” to mean any issuer that is engaged in the business of investing in securities, having a value exceeding 40% of the
value of such issuer’s total assets (exclusive of cash). If we violate this 40% limit, we will have one-year to cure by getting
our investment securities below the 40% test. However, we may only do this every three years. What complicates this is (i) we may
inadvertently surpass the 40% limit due to a spike in the price of a security we own or (ii) a court or the SEC administratively
may rule that cryptocurrencies we own are securities. If we ever are required to register as an investment company, we may be required
to cease operations.
If regulatory changes or interpretations
of our activities require our registration as a money services business under the regulations promulgated by FinCEN under the authority
of the U.S. Bank Secrecy Act or under state regulations, we may be required to register and comply with such regulations, the required
registrations, licensure and regulatory compliance steps may result in extraordinary, non-recurring expenses to us or cause us
to cease operating in the area which requires registration.
The Company is engaged in a business activity
that involves transmitting cryptocurrency. Although the Company does not feel this business activity categorizes it as a Money
Services Business (“MSB”) or Money Transmitter (“MT”) under regulations promulgated by the Financial Crimes
Enforcement Network (“FinCEN”) under the Bank Secrecy Act or any other applicable state MSB or MT law changing regulations
or regulatory interpretations of the Company’s business activities may require it to register and comply with MSB and/or
MT regulations. In the event the Company is required to register as a MSB or MT, the Company may be required to obtain MSB or MT
licensure and take regulatory compliance steps including implementing anti-money laundering programs, reporting to FinCEN or a
state regulatory authority regarding the Company’s MSB or MT business, and maintaining certain records. Additionally, in
the event that companies that we do business with are not properly registered, our business will be adversely affected and we may
be liable for being an unlicensed MSB or MT.
Currently, multiple states have finalized or
proposed regulatory frameworks for businesses conducting cryptocurrency business activities and have made public statements indicating
cryptocurrency businesses may be required to seek licenses as MSBs or MTs in the near future. The effect of any future regulatory
change on us, Bitcoins, or other cryptocurrencies is impossible to predict, but such change could be substantial and adverse to
us and could adversely affect an investment in us.
To the extent that the activities of the Company
cause it to be deemed a MSB or MT or equivalent designation the Company may be required to seek a license or otherwise register
with the U.S. Department of Treasury or 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. In addition to New York’s
BitLicense framework for businesses that conduct “cryptocurrency business activity,” the Conference of State Bank Supervisors
has proposed a model form of state level “cryptocurrency” regulation and additional state regulators including those
from California, Idaho, Virginia, Kansas, Texas, South Dakota and Washington have made public statements indicating that cryptocurrency
businesses may be required to seek licenses as MSBs or MTs. In July 2016, North Carolina updated the law to define “cryptocurrency”
and the activities that trigger licensure in a business-friendly approach that encourages companies to use cryptocurrency and blockchain
technology. Specifically, the North Carolina law does not require miners or software providers to obtain a license for multi-signature
software, smart contract platforms, smart property, colored coins and non-hosted, non-custodial wallets. Starting January 1, 2016,
New Hampshire requires anyone who exchanges a cryptocurrency for another currency must become a licensed and bonded MT. Washington
recently passed legislation requiring that cryptocurrency exchanges be registered as MSBs or MTs, that cryptocurrency exchanges
agree to third-party security audits of their transmission systems, and that
they post surety bonds to cover the cost of certain customer claims.
In numerous other states, including Connecticut and
New Jersey, legislation is being proposed or has been introduced regarding the treatment of Bitcoin and other cryptocurrencies.
The Company will continue to monitor for developments in such legislation, guidance or regulations.
Regulators in Missouri and New York have brought
cases against businesses or individuals for operating unlicensed MSBs or MTs relating to the transmission of cryptocurrency. Additionally,
federal regulators have investigated and prosecuted cases in Ohio and Michigan relating to unlicensed MSBs or MTs. FinCEN recently
announced that mining and investing in cryptocurrency for personal use does not constitute activity requiring a MSB or MT license.
If we are deemed to be a MSB or MT, the Company
may decide to cease operations or may not be capable with complying with certain federal or state regulatory obligations applicable
to MSBs and MTs. Any termination of Company operations in response to changed regulatory circumstances or interpretations at the
federal or state levels will adversely affect our business and your investment in the Company.
It may be illegal now, or in the future,
to acquire, own, hold, sell or use cryptocurrencies in one or more countries, and ownership of, holding or trading in our securities
may also be considered illegal and subject to sanction.
Although cryptocurrencies are currently not
regulated or are lightly regulated in most countries, including the United States, one or more countries such as China, South Korea
or Russia may take regulatory actions in the future that severely restricts the right to acquire, own, hold, sell or use cryptocurrencies
or to exchange cryptocurrencies for fiat currency. Such an action may also result in the restriction of ownership, holding or trading
in our securities. Some countries such as Kyrgyzstan, Nepal, and Cambodia have banned the trading or possession of cryptocurrencies
or have issued reports that possessing cryptocurrencies may not be legal. Such restrictions may adversely affect an investment
in us, if we elect to do business outside of the United States.
If federal or state legislatures or agencies
initiate or release tax determinations that change the classification of cryptocurrency as property for tax purposes (in the context
of when such Bitcoins are held as an investment), such determination could have a negative tax consequence on our Company or our
shareholders.
Current Internal Revenue Service (“IRS”)
guidance indicates that cryptocurrency such as Bitcoin should be treated and taxed as property, and that transactions involving
the payment of Bitcoin for goods and services should be treated as barter transactions. While this treatment creates a potential
tax reporting requirement for any circumstance where the ownership of the cryptocurrency passes from one person to another, usually
by means of cryptocurrency transactions (including off-blockchain transactions), it preserves the right to apply capital gains
treatment to those transactions.
On December 5, 2014, the New York State Department
of Taxation and Finance issued guidance regarding the application of state tax law to cryptocurrency such as Bitcoin. The agency
determined that New York State would follow the IRS guidance with respect to the treatment of cryptocurrency such as Bitcoin for
state income tax purposes. Furthermore, they defined cryptocurrency such as Bitcoin to be a form of “intangible property,”
meaning the purchase and sale of Bitcoin for fiat currency is not subject to state income tax (although transactions of Bitcoin
for other goods and services may be subject to sales tax under barter transaction treatment). It is unclear if other states will
follow the guidance of the IRS and the New York State Department of Taxation and Finance with respect to the treatment of cryptocurrency
such as Bitcoin for income tax and sales tax purposes. If a state adopts a different treatment, such treatment may have negative
consequences including the imposition of a greater tax burden on investors in Bitcoin or imposing a greater cost on the acquisition
and disposition of Bitcoin, generally; in either case potentially having a negative effect on prices in the cryptocurrency exchange
market and may adversely affect an investment in our Company.
Foreign jurisdictions may also elect to treat
cryptocurrency such as Bitcoin differently for tax purposes than the IRS or the New York State Department of Taxation and Finance.
To the extent that a foreign jurisdiction with a significant share of the market of Bitcoin users imposes onerous tax burdens on
Bitcoin users, or imposes sales or value added tax on purchases and sales of Bitcoin for fiat currency, such actions could result
in decreased demand for Bitcoin in such jurisdiction, which could impact the price of Bitcoin or other cryptocurrency and negatively
impact an investment in our Company.
Since there has
been limited precedent set for financial accounting or taxation of cryptocurrencies it is unclear how we will be required to account
for cryptocurrency transactions and the taxation of our businesses.
There is currently no authoritative literature
under accounting principles generally accepted in the United States which specifically addresses the accounting for cryptocurrency.
Therefore, by analogy, we intend to record cryptocurrency similar to financial instruments under ASC 825, Financial Instruments,
because the economic nature of these cryptocurrency is most closely related to a financial instrument such as an investment in
a foreign currency.
In 2014, the IRS issued guidance in Notice
2014-21 that classified cryptocurrency as property, not currency, for federal income tax purposes. But according to the requirements
of the Fair Trade and Accurate Credit Transactions Act, which requires foreign financial institutions to provide the IRS with information
about accounts held by U.S. taxpayers or foreign entities controlled by U.S. taxpayers, cryptocurrency exchanges, in the ordinary
course of doing business, are considered financial institutions.
On November 30, 2016, a federal judge in the
Northern District of California granted an IRS application to serve a “John Doe” summons on Coinbase Inc., which operates
a cryptocurrency wallet and exchange business. The summons asked Coinbase to identify all U.S. customers who transferred convertible
cryptocurrency from 2013 to 2015. The IRS is trying to get cryptocurrency owners to report the value of their wallets to the federal
government and the IRS is treating cryptocurrency as both property and currency.
We believe that all of our cryptocurrency activities
will be accounted for on the same basis regardless of the form of cryptocurrency. A change in regulatory or financial accounting
standards or interpretation by the IRS or accounting standards or the SEC could result in changes in our accounting treatment,
taxation and the necessity to restate our financial statements. Such a restatement could negatively impact our business, prospects,
financial condition and results of operation. Further, actions by the IRS or other regulators which impinge on the anonymity of
cryptocurrency may adversely affect our future business and prospects and reduce the value of our cryptocurrency.
Risks Concerning Cryptocurrency Mining
Because of a supply shortage, we may be
unable to purchase adequate computer equipment to mine cryptocurrency at a competitive level.
Mining cryptocurrency requires running high-end
computers which process complex algorithms to add to the blockchain. Because mining cryptocurrency requires large amounts of computer
processing power, there is a worldwide shortage for computer components which can successfully mine cryptocurrency. There is a
worldwide shortage for high-end graphics cards which can be enabled to function as computer processors for mining cryptocurrency.
Further, other types of computer components, which can be used for mining, are in short supply. As more individuals enter the mining
business the demand for components rises. Additionally, as more miners engage in mining the ability to successfully mine cryptocurrency
requires more powerful components. If we are unable to obtain adequate components to mine cryptocurrency we will be unable to engage
in mining. As such, we may be unable to acquire the components we need to successfully mine cryptocurrency which could have an
adverse price on our stock.
If we cannot secure affordable electric power, our mining business
will not be successful.
Mining cryptocurrency requires a substantial
amount of electricity in order to power the computers, commonly referred to as mining rigs, which mine cryptocurrency. Locations
offering cheap mining electricity, both within the United States and internationally, have been historically targeted by groups
of people interested in mining. T
he mining industry has witnessed a change from small miners
operating from their homes to large mining “farms” operated by companies with substantial capital, computer resources
and other capabilities and competitive advantages. The surge in population to these areas caused by new mining activity has caused
electricity prices to increase for local residents. In reaction to electricity prices rising, local officials in some areas have
taken action to ban or restrict
certain aspects of mining. If we are unable to locate areas with cheap electricity costs
which are feasible for mining or if the electricity costs where we have a mining rig increase in value or if the area in which
we operate a mining rig passes ordinances which restrict our mining activities we may be unable to mine cryptocurrency in a way
that is profitable which could have an adverse price on our stock.
If a malicious
actor or botnet obtains control in excess of 50% of the processing power active on the Bitcoin network, it is possible that such
actor or botnet could manipulate the blockchain in a manner that adversely affects an investment in us.
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 network, including the Bitcoin network, it may be able to alter the
blockchain by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the
blockchain can add valid blocks and could control, exclude or modify the ordering of transactions, though it could not generate
new Bitcoin or transactions using such control.
The approach towards and possible crossing
of the 50% threshold indicate a greater risk that a single mining pool could exert authority over the validation of Bitcoin transactions.
To the extent that the Bitcoin ecosystems do not act to ensure greater decentralization of Bitcoin mining processing power, the
feasibility of a malicious actor obtaining in excess of 50% of the processing power on the Bitcoin network (e.g., through control
of a large mining pool or through hacking such a mining pool) will increase, which may adversely impact an investment in us.
If the award of Bitcoin for solving blocks
and transaction fees for recording transactions are not sufficiently high to incentivize miners, miners may cease expending hashrate
to solve blocks and confirmations of transactions on the blockchain could be slowed temporarily. A reduction in the hashrate expended
by miners on the Bitcoin network could increase the likelihood of a malicious actor obtaining control in excess of 50% of the aggregate
hashrate active on such network or the blockchain, potentially permitting such actor to manipulate the blockchain in a manner that
adversely affects an investment in us.
Bitcoin miners record transactions when they
solve for and add blocks of information to the blockchain. When a miner solves for a block, it creates that block. Typically, Bitcoin
transactions will be recorded in the next chronological block if the spending party has an internet connection and at least one
minute has passed between the transaction’s data packet transmission and the solution of the next block. If a transaction
is not recorded in the next chronological block, it is usually recorded in the next block thereafter.
As the award of new Bitcoin for solving blocks
declines, and if transaction fees are not sufficiently high, miners may not have an adequate incentive to continue mining and may
cease their mining operations. Any reduction in confidence in the confirmation process or aggregate speed of completing transactions
on the Bitcoin network (the hashrate) may negatively impact the value of Bitcoin, which will adversely impact an investment in
us.
To the extent Bitcoin
mining operations experience low profit margins, their operators are more likely to immediately sell their Bitcoin earned by mining
in the Bitcoin exchange market, resulting in a reduction in the price of Bitcoin that could adversely impact an investment in us.
Over the past two years, professionalized Bitcoin
mining operations have largely replaced individual users mining with computer processors, graphics processing units and first-generation
servers. Professionalized mining operations are of a greater scale than prior miners and have more defined, regular expenses and
liabilities. These regular expenses and liabilities may require professionalized mining operations to immediately sell Bitcoin
earned from mining operations on the Bitcoin exchange market, which is different than individual miners in past years who didn’t
face pressures to immediately divest of their Bitcoin. The immediate selling of newly mined Bitcoin greatly increases the supply
of Bitcoin on the Bitcoin exchange market, creating downward pressure on the price of each Bitcoin.
The extent to which the value of Bitcoin mined
by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such operation.
A professionalized mining operation may be more likely to sell a higher percentage of its newly mined Bitcoin rapidly if it is
operating at a low profit margin—and it may partially or completely cease operations if its profit margin is negative. Lower
Bitcoin prices could result in further tightening of profit margins, particularly for professionalized mining operations with higher
costs and more limited capital reserves, creating a network effect that may further reduce the price of Bitcoin until mining operations
with higher operating costs become unprofitable and remove mining power from the respective Bitcoin network. The network effect
of reduced profit margins resulting in greater sales of newly mined Bitcoin could result in a reduction in the price of Bitcoin
that could adversely impact an investment in us.
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 cryptocurrency network, which could adversely impact an investment
in us.
To the extent that any miners cease to record
transaction 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 cryptocurrency networks, which could adversely impact an investment in us.
The acceptance of cryptocurrency network
software patches or upgrades by a significant, but not overwhelming, percentage of the users and miners in any cryptocurrency network
could result in a “fork” in the respective blockchain, resulting in the operation of two separate networks until such
time as the forked blockchains are merged. The temporary or permanent existence of forked blockchains could adversely impact an
investment in us
.
Cryptocurrency networks are open source projects
and, although there is an influential group of leaders in, for example, the Bitcoin network community known as the “Core
Developers,” there is no official developer or group of developers that formally controls the Bitcoin network. Any individual
can download the Bitcoin network software and make any desired modifications, which are proposed to users and miners on the Bitcoin
network through software downloads and upgrades, typically posted to the Bitcoin development forum on GitHub.com. A substantial
majority of miners and Bitcoin users must consent to those software modifications by downloading the altered software or upgrade
that implements the changes; otherwise, the changes do not become a part of the Bitcoin network. Since the Bitcoin network’s
inception, changes to the Bitcoin network have been accepted by the vast majority of users and miners, ensuring that the Bitcoin
network remains a coherent economic system; however, a developer or group of developers could potentially propose a modification
to the Bitcoin network that is not accepted by a vast majority of miners and users, but that is nonetheless accepted by a substantial
population of participants in the Bitcoin network. In such a case, and if the modification is material and/or not backwards compatible
with the prior version of Bitcoin network software, a fork in the blockchain could develop and two separate Bitcoin networks could
result, one running the pre-modification software program and the other running the modified version (i.e., a second “Bitcoin”
network). Such a fork in the blockchain typically would be addressed by community-led efforts to merge the forked blockchains,
and several prior forks have been so merged. This kind of split in the Bitcoin network could materially and adversely impact an
investment in us and, in the worst case scenario, harm the sustainability of the Bitcoin network’s economy.
Because there is
a limited supply of Bitcoin, miners may not have an adequate incentive to continue mining Bitcoin and the Company may be unable
to use its mining equipment to mine other cryptocurrencies.
The current fixed
reward for solving a new Bitcoin block is 12.5 Bitcoin per block; the reward decreased from 25 Bitcoin in July 2016. The reward
for adding a block to the Bitcoin protocol is halved every 210,000 blocks and it is estimated that it will halve again in about
four years. The current Bitcoin protocol permits a total of 21 million Bitcoin to exist. As the number of Bitcoin remaining for
mining decreases the processing power required to record new blocks on the blockchain increases. Eventually the processing power
required to add a block to the blockchain may exceed the value of the reward for adding a block. Further, at some point, there
will be no Bitcoin to mine.
Once the processing
power required to add a block to the blockchain exceeds the value of the reward for adding a block the Company may need to use
its mining equipment to mine other types of cryptocurrency. If the Company is unable to successfully mine other types of cryptocurrency,
the Company may have to discontinue its mining operations and sell the Company’s mining equipment which may result in a net
loss to the Company’s mining business.
Risks Related to
Cryptocurrency
The further development and acceptance of
cryptocurrency networks and other cryptocurrency, which represent a new and rapidly changing industry, are subject to a variety
of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of cryptocurrency systems may
adversely affect an investment in us
.
Cryptocurrencies, such as Bitcoin, which may
be used to buy and sell goods and services are a new and rapidly evolving industry of which the cryptocurrency networks are prominent,
but not unique, parts. The growth of the cryptocurrency industry in general, and the cryptocurrency networks of Bitcoin in particular,
are subject to a high degree of uncertainty.
There is no assurance that a person who accepts
a
cryptocurrency
as payment today will continue to do so in the future.
The
factors affecting the further development of the cryptocurrency industry, as well as the cryptocurrency networks, include:
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continued worldwide growth in the adoption and use of Bitcoin and other cryptocurrency;
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government and quasi-government regulation of Bitcoin and other cryptocurrency and their use, or
restrictions on or regulation of access to and operation of the cryptocurrency network or similar cryptocurrency systems;
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the maintenance and development of the open-source software protocol of the Bitcoin network;
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changes in consumer demographics and public tastes and preferences;
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the availability and popularity of other forms or methods of buying and selling goods and services,
including new means of using fiat currencies;
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general economic conditions and the regulatory environment relating to cryptocurrency; and
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the impact of regulators focusing on cryptocurrency and the costs associated with such regulatory
oversight.
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A decline in the popularity or acceptance of
the cryptocurrency networks of Bitcoin or similar cryptocurrency systems, could adversely affect an investment in us.
Because, there is relatively small use of
cryptocurrency in the retail and commercial marketplace in comparison to relatively large use by speculators, it may contribute
to price volatility that could adversely affect an investment in us.
As relatively new
products and technologies, cryptocurrency and the blockchain networks on which they exist have only recently become widely accepted
as a means of payment for goods and services by some major retail and commercial outlets, and use of cryptocurrency by consumers
to pay such retail and commercial outlets remains limited. Conversely, a significant portion of demand for cryptocurrency is generated
by speculators and investors seeking to profit from the short- or long-term holding of such cryptocurrency. A lack of expansion
of cryptocurrency into retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction
in the price of all or any cryptocurrency, either of which could adversely impact an investment in us.
If significant contributors to the Bitcoin
network could propose amendments to the network’s protocols and software and the amendments are accepted and authorized by
such network, it could adversely affect an investment in us.
With respect to the
Bitcoin network, a small group of individuals contribute to the Bitcoin Core project. These individuals can propose refinements
or improvements to the Bitcoin network’s source code through one or more software upgrades that alter the protocols and software
that govern the Bitcoin network and the properties of Bitcoin, including the irreversibility of transactions and limitations on
the mining of new Bitcoin. To the extent that a significant majority of the users and miners on the Bitcoin network install such
software upgrade(s), the Bitcoin network would be subject to new protocols and software that may adversely affect an investment
in us. In the event a developer or group of developers proposes a modification to the Bitcoin network that is not accepted by a
majority of miners and users, but that is nonetheless accepted by a plurality of miners and users, two or more competing and incompatible
blockchain implementations could result. This is known as a “hard fork” which could materially and adversely affect
the perceived value of Bitcoin as reflected on one or both incompatible blockchains, which may adversely affect an investment in
us. The same risk applies if we diversify our business in the future and make investments in the blockchain and cryptocurrency
business. Other generic cryptocurrency-type risks apply if we diversify our investment portfolio.
Forks in the Bitcoin network may occur in
the future which may affect the value of Bitcoin held by us.
On August 1, 2017 Bitcoin’s blockchain
was forked and Bitcoin Cash was created. The fork resulted in a new blockchain being created with a shared history, and a new path
forward. Bitcoin Cash has a block size of 8mb and other technical changes. On October 24, 2017, Bitcoin’s blockchain was
forked and Bitcoin Gold was created. The fork resulted in a new blockchain being created with a shared history, and new path forward,
Bitcoin Gold has a different proof of work algorithm and other technical changes. The value of the newly created Bitcoin Cash and
Bitcoin Gold may or may not have value in the long run and may affect the price of Bitcoin if interest is shifted away from Bitcoin
to the newly created Bitcoin. If a fork occurs on a Bitcoin Network, it may have a negative effect on the value of Bitcoin and
may adversely affect an investment in us.
Because of our involvement in the blockchain
and cryptocurrency business, it is more likely that we may be the target of security breaches, computer viruses and computer hacking
attacks, which in turn may harm our business and results of operations.
Security breaches, computer malware and computer
hacking attacks have become more prevalent in our industry and may occur on our systems in the future. This risk is accentuated
because hackers may be more inclined to hack us in anticipation of stealing our cryptocurrency. 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,
financial condition and operating results. Though it is difficult to determine what harm may directly result from any specific
interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure
to the satisfaction of our users may harm our reputation and our ability to retain existing users and attract new users.
Because the cryptocurrency exchanges on
which cryptocurrencies trade are relatively new and, in most cases, largely unregulated, they may be more exposed to fraud and
failure than established, regulated exchanges for other products.
The cryptocurrency exchanges on which Bitcoin
trade are new and, in most cases, largely unregulated. Furthermore, many cryptocurrency exchanges (including several of the most
prominent United States dollar denominated cryptocurrency exchanges) do not provide the public with significant information regarding
their ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace may lose
confidence in, or may experience problems relating to, cryptocurrency exchanges, including prominent exchanges handling a significant
portion of the volume of cryptocurrency trading.
For example, over the past several years, a
number of Bitcoin exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers
of such Bitcoin exchanges were not compensated or made whole for the partial or complete losses of their account balances in such
Bitcoin exchanges. While smaller Bitcoin exchanges are less likely to have the infrastructure and capitalization that make larger
Bitcoin exchanges more stable, larger Bitcoin exchanges are more likely to be appealing targets for hacker and “malware”
(
i.e.
, software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access
to private computer systems). In January 2018, it was reported that $530 million of cryptocurrency were missing from a Japanese
exchange. Further, the collapse of the largest Bitcoin exchange in 2014 suggests that the failure of one component of the overall
Bitcoin ecosystem can have consequences for both users of a Bitcoin exchange and the Bitcoin industry as a whole.
A lack of stability in the cryptocurrency exchange
market and the closure or temporary shutdown of cryptocurrency exchanges due to fraud, business failure, hackers or malware, or
government-mandated regulation may reduce confidence in the cryptocurrency networks and result in greater volatility in cryptocurrency
values. These potential consequences of a cryptocurrency exchange’s failure could adversely affect an investment in us.
If political or economic crises motivate
large-scale sales of cryptocurrency, it could result in a reduction in some or all cryptocurrency’ values and adversely affect
an investment in us.
As an alternative to fiat currencies that are
backed by central governments, cryptocurrency such as Bitcoin, which are relatively new, are subject to supply and demand forces
based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear
how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale
acquisitions or sales of cryptocurrency either globally or locally. Large-scale sales of cryptocurrency would result in a reduction
in their value and could adversely affect an investment in us. The recent dramatic drop in the value of Bitcoin and other
cryptocurrency seems likely to have resulted from substantially selling and possibly small investor panic.
Because demand for Bitcoin is driven, in
part, by its status as the most prominent and secure cryptocurrency, it is possible that cryptocurrency other than Bitcoin could
have features that make them more desirable to a material portion of the cryptocurrency user base this could result in a reduction
in demand for Bitcoin, which could have a negative impact on the price of Bitcoin and adversely affect an investment in us.
Bitcoin holds a “first-to-market”
advantage over other cryptocurrency. This first-to-market advantage is driven in large part by having the largest user base and,
more importantly, the largest combined mining power in use to secure their respective blockchains and transaction verification
systems. Having a large mining network results in greater user confidence regarding the security and long-term stability of a cryptocurrency
network and its blockchain; as a result, the advantage of more users and miners makes a cryptocurrency more secure, which makes
it more attractive to new users and miners, resulting in a network effect that strengthens the first-to-market advantage.
As of March 6, 2018, there were over 1,500
alternate cryptocurrencies tracked by CoinMarketCap, having a total market capitalization (including the market capitalization
of Bitcoin) of approximately $442 billion, using market prices and total available supply of Bitcoin. Despite the marked first
to market advantage of the Bitcoin network over other cryptocurrency networks, it is possible that another cryptocurrency could
become materially popular. If a cryptocurrency obtains significant market share (either in market capitalization, mining power
or use as a payment technology), this could reduce Bitcoin’s market share as well as other cryptocurrency we may become involved
in and have a negative impact on the demand for, and price of, such cryptocurrency and could adversely affect an investment in
us.
To the extent that we own cryptocurrency,
we are subject to a risk that we will lose the private key necessary to convert it to cash or sell it, or the private key will
be hacked
.
We own cryptocurrency and expect that we will
continue to do so. A private key, which is a complex numeric password is necessary to convert cryptocurrency to cash or sell it.
While we have established procedures to safeguard our private key, if our procedures are insufficient or if we are hacked, we will
irrevocably lose the value of our cryptocurrency. If a foreign third party has already gained access to our system while using
our private key the third party may be able to access and manipulate our cryptocurrency.
Because cryptocurrency transactions are
irrevocable and stolen or incorrectly transferred cryptocurrencies may be irretrievable, any incorrectly executed cryptocurrency
transactions could adversely affect an investment in us.
Cryptocurrency 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 respective cryptocurrency network. Once a transaction has
been verified and recorded in a block that is added to the blockchain, an incorrect transfer of cryptocurrencies or a theft of
cryptocurrencies generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft
since the parties are anonymous. It is possible that, through computer or human error, or through theft or criminal action, our
cryptocurrencies 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 which has received
our cryptocurrencies through error or theft, we will be unable to revert or otherwise recover incorrectly transferred cryptocurrencies.
The damages from any such loss could adversely affect an investment in us.
The Company’s Bitcoin may be subject to loss, damage, theft
or restriction on access.
We believe that the Company’s Bitcoin
will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal our cryptocurrency. We cannot
guarantee that any security software will prevent such loss, damage or theft, whether caused intentionally, accidentally or by
act of God. Access to the Company’s Bitcoin or private key could be restricted by natural events (such as an earthquake or
flood) or human actions (such as a terrorist attack). We cannot currently insure the loss of our Bitcoin. While the Company will
continue to seek out opportunities to insure or prevent loss of our Bitcoin we cannot ensure that any developments in insurance
or technology will reduce the risk of loss of our Bitcoin. The loss or theft of part or all of the Company’s Bitcoin may
adversely affect our operations and, consequently, an investment in us.
General Risks
Because our business
model is evolving, we cannot assure you that our business model will be successful. Further, because it is very unlikely that shareholder
approval will be required, our management and Board will have broad discretion in determining what businesses we may enter, whether
in the blockchain/cryptocurrency area or otherwise. We cannot assure you that it will complete any additional acquisitions or if
we do, such acquisitions will be successful.
In January 2018, we sold our only subsidiary
which was engaged in developing a virtual reality business and began implementing our plan to engage in the cryptocurrency/blockchain
business. As our first step into this new business we invested in Ether and began actively exploring various business opportunities
in this sector. We have been negotiating with Cryptogram to acquire a minority interest in Cryptogram, provide the owners of Cryptogram
with a minority interest in us, and acquire a License to use Cryptogram’s software and technology. We have not yet entered
into any agreement with Cryptogram and we may not acquire the License. Acquiring the License is subject to a number of factors
and there can be no assurance that we will acquire the License or be able to monetize the License once acquired. If we are
unable to acquire the License there may be a substantial disruption to our business model and we may decide to discontinue our
plan to engage in the cryptocurrency/blockchain business.
Because our management team has been in
place for a very short period, it may be difficult to evaluate our future prospects and the risk of success or failure of our business.
Jonathan Read, our Chief Executive Officer,
has only served on our management team since November 2017, although he previously served on our management team beginning prior
to our September 2016 acquisition of a virtual reality company. In addition, while the Company has been in existence and pursuing
its business objectives for a long time, our Company transitioned its business to seeking blockchain opportunities in late December
2017. These limited time periods make it difficult to project whether our management team and operations will be successful.
If we cannot manage our growth effectively,
we may not become profitable.
Businesses which grow rapidly often have difficulty
managing their growth. Our staff presently consists of our Chief Executive Officer and a part-time Chief Financial Officer. If
we continue to grow as rapidly as we anticipate, we will need to expand our management by recruiting and employing experienced
executives and key employees capable of providing the necessary support. We cannot assure you that our management will be able
to manage our growth effectively or successfully. Our failure to meet these challenges could cause us to lose money, and your investment
could be lost.
If we lose the services of our Chief Executive
Officer, it could adversely affect our business.
Jonathan Read, our Chief Executive Officer,
is our only employee. If we were to lose his services, it would pose significant difficulties to the Company’s ability to
continue operations. In addition, it could be costly and time-consuming to identify individuals to replace him if he were to leave,
and our operations would be adversely affected. We do not have life insurance covering Mr. Read. Further, the lack of staff and
other management support limits Mr. Read’s ability to manage and grow our business. In December 2017, we restructured our
capital structure. However, this restructuring was extremely dilutive. As of April 3, 2018, holders of our Series E Convertible
Preferred Stock may convert their shares into 195,382,000 shares of common stock.
Risks Relating to Our Common Stock
As a result of our recent financings including
the March Notes financing, we are obligated to issue a substantial number of additional shares of common stock, which will dilute
our present shareholders.
In March 2018, we closed a financing transaction
and issued the March Notes. This transaction obligates us to potentially issue 36,491,228 shares of common stock for the March
Notes and an additional 35,087,720 shares of common stock for Warrants issued to the holders of the March Notes. In addition, other
Convertible Notes, Convertible Preferred Stock and Warrants obligate us to issue shares of common stock. In the future, we may
grant additional options, warrants and convertible securities. The exercise, conversion or exchange of options, warrants or convertible
securities, including for other securities, will dilute the percentage ownership of our shareholders. The dilutive effect of the
exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these
securities may be expected to exercise or convert such options, warrants and convertible securities at a time when we would be
able to obtain additional equity capital on terms more favorable than such securities or when our Common Stock is trading at a
price higher than the exercise or conversion price of the securities. The exercise or conversion of outstanding warrants, options
and convertible securities will have a dilutive effect on the securities held by our shareholders. We have in the past, and may
in the future, exchange outstanding securities for other securities on terms that are dilutive to the securities held by other
shareholders not participating in such exchange.
Because our common stock is subject to the
“penny stock” rules, brokers cannot generally solicit the purchase of our common stock, which adversely affects its
liquidity and market price.
The SEC has adopted regulations which generally
define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific
exemptions. The market price of our common stock on the OTCQB is presently less than $5.00 per share and therefore we are considered
a “penny stock” according to SEC rules. Further, we do not expect our stock price to rise above $5.00 in the immediate
future. The “penny stock” designation requires any broker-dealer selling these securities to disclose certain information
concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable
to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore
reduce the liquidity of the public market for our shares.
Moreover, as a result of apparent regulatory
pressure from the SEC and the Financial Industry Regulatory Authority, a growing number of broker-dealers decline to permit investors
to purchase and sell or otherwise make it difficult to sell shares of penny stocks. The “penny stock” designation may
continue to have a depressive effect upon our common stock price.
Because of their share ownership, our former
management may be able to exert control over us to the detriment of minority shareholders.
Our former executive officers and directors
beneficially own approximately 21% of our common stock. These shareholders acting together, would be able to control our management
and affairs and all matters requiring shareholder approval, including significant corporate transactions. This concentration of
ownership may have the effect of delaying or preventing our change in control and might affect the market price of our common stock.
If our common stock becomes subject to a
“chill” imposed by the Depository Trust Company (the “DTC”), your ability to sell your shares may be limited.
The DTC acts as a depository or nominee for
street name shares that investors deposit with their brokers. DTC in the last several years has increasingly imposed a chill or
freeze on the deposit, withdrawal and transfer of common stock of issuers whose common stock trades on the tiers of the OTC Markets
like that of the Company. Depending on the type of restriction, a chill or freeze can prevent shareholders from buying or selling
shares and prevent companies from raising money. A chill or freeze may remain imposed on a security for a few days or an extended
period of time (in at least one instance a number of years). While we have no reason to believe a chill or freeze will be imposed
against our common stock in the future, if it were your ability to sell your shares would be limited. In such event, your investment
will be adversely affected.
Due to factors beyond our control, our stock
price may be volatile.
Any of the following factors could affect the
market price of our common stock:
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Regulatory changes including new laws and rules which adversely affect companies in the cryptocurrency
business;
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Factors including the cost of high speed computer serves and the cost of electricity which affect
the viability of mining;
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Prices of cryptocurrencies we may own;
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Our public disclosure of the terms of any financing which we consummate in the future;
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Our failure to generate increasing material revenues;
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Our failure to become profitable;
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Our failure to raise working capital;
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Any acquisitions we may consummate;
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Announcements by us or our competitors of significant contracts, new services, acquisitions,
commercial relationships, joint ventures or capital commitments;
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Changes in our management;
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The sale of large numbers of shares of common stock which we may register;
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Short selling activities; or
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Changes in market valuations of similar companies.
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In the past, following periods of volatility
in the market price of a company’s securities, securities class action litigation has often been instituted. A securities
class action suit against us could result in substantial costs and divert our management’s time and attention, which would
otherwise be used to benefit our business.
Because we may issue preferred stock without
the approval of our shareholders and have other anti-takeover defenses, it may be more difficult for a third party to acquire us
and could depress our stock price
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In general, our Board may issue, without a
vote of our shareholders, one or more additional series of preferred stock that have more than one vote per share, although the
Company’s ability to designate and issue preferred stock is currently restricted by covenants under our agreements with prior
investors. Without these restrictions, our Board could issue preferred stock to investors who support us and our management and
give effective control of our business to our management. Additionally, issuance of preferred stock could block an acquisition
resulting in both a drop in our stock price and a decline in interest of our common stock. This could make it more difficult for
shareholders to sell their common stock. This could also cause the market price of our common stock shares to drop significantly,
even if our business is performing well.
Because we may not be able to attract the
attention of major brokerage firms, it could have a material impact upon the price of our common stock.
It is not likely that securities analysts of
major brokerage firms will provide research coverage for our common stock since these firms cannot recommend the purchase of our
common stock under the penny stock rules referenced in an earlier risk factor. The absence of such coverage limits the likelihood
that an active market will develop for our common stock. It may also make it more difficult for us to attract new investors at
times when we require additional capital.
Since we intend to retain any earnings for
development of our business for the foreseeable future, you will likely not receive any dividends for the foreseeable future.
We have not paid dividends in the past and
do not intend to pay any dividends in the foreseeable future, as we intend to retain any earnings for development and expansion
of our business operations. As a result, you will not receive any dividends on your investment for an indefinite period of time.
Our Common Stock may be affected by limited
trading volume and price fluctuations, which could adversely impact the value of our Common Stock.
Until recently, there has been limited trading
in our Common Stock and there can be no assurance that an active trading market in our Common Stock will either develop or be maintained.
Our Common Stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could
adversely affect the market price of our Common Stock without regard to our operating performance. In addition, we believe that
factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial
markets could cause the price of our Common Stock to fluctuate substantially. These fluctuations may also cause short sellers to
periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market
participants and, therefore, can offer no assurances that the market for cryptocurrency will be stable or appreciate over time.
Offers or availability for sale of a substantial
number of shares of our Common Stock may cause the price of our Common Stock to decline.
If our shareholders sell substantial amounts
of our outstanding Common Stock preferred stock, convertible notes issuable upon the exercise of outstanding warrants or other
convertible securities, it could create a circumstance commonly referred to as an “overhang” and in anticipation of
which the market price of our Common Stock could fall. The existence of an overhang, whether or not sales have occurred or are
occurring, could make it difficult to raise additional financing through the sale of equity or equity-related securities in the
future at a time and price that we deem reasonable or appropriate. The shares of our restricted Common Stock will be freely tradable
upon the earlier of: (i) effectiveness of any registration statement covering such shares and (ii) the date on which such shares
may be sold without registration pursuant to Rule 144 (or other applicable exemption) under the Act.
Cautionary Note Regarding Forward Looking
Statements
This Report includes forward-looking statements
including statements regarding liquidity, anticipated cash flows, future capital-raising activity, our future acquisition of cryptocurrency,
and our potential entry into an agreement with Cryptogram. All statements other than statements of historical facts contained in
this Report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives
of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,”
“continue,” “anticipate,” “intend,” “should,” “plan,” “could,”
“target,” “potential,” “is likely,” “will,” “expect” and similar expressions,
as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely
on our current expectations and projections about future events and financial trends that we believe may affect our financial condition,
results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks,
uncertainties and assumptions described in “Risk Factors” immediately above. Other sections of this Report may include
additional factors which could adversely affect our business and financial performance. New risk factors emerge from time to time
and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business
or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Except as otherwise required by applicable laws, we undertake no obligation to publicly
update or revise any forward-looking statements or the risk factors described in this Report, whether as a result of new information,
future events, changed circumstances or any other reason after the date this Report is filed.