BTCS Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis of financial condition and results of operations should be read in conjunction with our historical financial statements and the notes to those statements that appear elsewhere in this report. Certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” and elsewhere in this report. When we refer to the “Fiscal 2023” and the “Fiscal 2022” we are referring to the years ended December 31, 2023 and December 31, 2022, respectively. COMPANY OVERVIEW BTCS Inc. is a Nasdaq listed company operating in the blockchain technology sector since 2014 and is one of the only U.S. publicly traded companies with a primary focus on proof-of-stake blockchain infrastructure. Our core focus is on driving scalable growth through a diverse range of business streams leveraging and built on top of our core and proven blockchain infrastructure operations. Blockchain Infrastructure The Company specializes in operating validator nodes on various delegated proof-of-stake and proof-of-stake based blockchain networks, with an emphasis on Ethereum. We earn native token rewards by validating transactions across various blockchain networks by staking our crypto assets on validator nodes operated by BTCS and third parties. Subject to available capital and the restrictions of certain blockchains, BTCS intends to expand its blockchain infrastructure operations to secure other disruptive blockchain protocols that allow for delegating, which presents a significant growth opportunity for the Company. Our evaluation of blockchain networks involves comprehensive due diligence procedures, including assessments of blockchain quality, reward potential, and the technical challenges associated with running validator nodes. Criteria for assessing blockchain quality encompass factors such as i) market and on-chain statistics, ii) liquidity, iii) potential blockchain utility, iv) history and milestones, v) growth and development roadmap, vi) use cases, vii) community interest, vii) quality of documentation, viii) decentralization, and ix) any other publicly available information. StakeSeeker – Staking-as-a-Service BTCS’s Staking-as-a-Service (“StaaS”) business model allows for crypto asset holders to earn token rewards by participating in network consensus mechanisms through staking and delegating their crypto assets to Company operated validator nodes. As a non-custodial validator operator, the Company receives a percentage of a crypto asset holders’ staking rewards generated as a validator node fee, for our ministerial role in hosting the validator node. This creates an opportunity for scalable revenue and business growth with limited additional costs. The Company’s StaaS strategy provides a more accessible and cost-effective alternative for crypto asset holders to participate in blockchain networks’ consensus mechanisms, promoting the growth and adoption of blockchain technology. 15 The Company’s internally-developed “StakeSeeker” platform is a personal finance software and education center with a comprehensive crypto dashboard for crypto asset holders to connect, monitor, track, and analyze their crypto portfolios across exchanges and wallets in a single analytics platform. The StakeSeeker dashboard reads user data from digital wallets and utilizes application programming interfaces (APIs) to read data from crypto exchanges and does not allow for the trading or custody of crypto assets. StakeSeeker’s Stake Hub functions as an educational center, offering users guidance on the delegation of their crypto assets to our non-custodial validator nodes, along with the ability to monitor such delegation activities through data analysis. StakeSeeker does not provide or facilitate direct, crypto asset delegation or transaction execution on our platform. The Stake Hub’s primary role is to offer instructional support and tracking capabilities. There is no active process for crypto asset delegation through the Stake Hub dashboard; it is primarily a monitoring tool. Crypto asset holders are able to delegate to our validator nodes without signing up for our StakeSeeker platform; conversely, crypto asset holders can delegate to validator nodes not operated by the Company and sign up for StakeSeeker to utilize our software and data analytics. The StakeSeeker platform is currently free-to-use for registered users so is not currently generating revenue. The Company is not a broker-dealer or an investment advisor and does not provide any such related services. A StaaS provider maintains a ministerial role in validating transactions on a given dPoS network on behalf of its Delegators by (1) arranging transactions using open-source software to stake the relevant crypto assets; (2) monitoring the nodes it is operating to ensure the computers remain online to validate transactions; and (3) verifying transactions on the network when required. As a non-custodial StaaS provider, we do not hold or take possession of any Delegator funds, crypto assets, or crypto asset rewards at any point during the staking or delegation process. Delegation does not involve the transfer of crypto asset ownership to a Validator. During the process of staking, delegated crypto assets remain in the Delegator’s digital wallets. The blockchain network calculates rewards earned, which are then distributed directly to the Delegator’s wallet. At no point does the Validator gain access, control, or custody of the original staked crypto assets or the earned crypto rewards through staking to its node. Therefore, the Company does not have any exposure to the custodial risks that a crypto exchange would have related to excessive redemptions or withdrawals of crypto assets, suspension of redemptions, or withdrawals. Further, we do not issue or hold crypto assets on behalf of third parties and have no exposure to the risks an exchange would have with respect to loans, rehypothecation, or margin. The following table sets forth the number of third-party crypto assets delegated to our non-custodial validator nodes as of December 31, 2023: Blockchain Delegated Crypto Assets (Native Tokens) Delegated Crypto Assets ($USD) Cosmos 81,000 ATOM $ 858,000 Akash 190,000 AKT $ 465,000 Near protocol 89,000 NEAR $ 325,000 Oasis 1548,000 ROSE $ 213,000 Avalanche 1,000 AVAX $ 39,000 Kava 34,000 KAVA $ 30,000 Total $ 1,93 0,000 Builder+ – Ethereum Block Building In January 2024, we introduced “Builder+”, an Ethereum block builder. Builder+ utilizes advanced algorithms to maximize validator earnings by constructing optimized blocks for on-chain validation. We believe Builder+ should enhance our Ethereum blockchain infrastructure and create opportunities for new scalable revenue streams on Ethereum’s blockchain. Builder+ did not have a material impact to 2023 operations. ChainQ – AI Analytics ChainQ is an under-developed AI-powered blockchain data and analytics platform, designed to allow users to query real-time and historical on-chain blockchain data. Through comprehensive indexing of public blockchain data from our Blockchain Infrastructure operations, ChainQ is intended to provide an intuitive and straightforward platform for users to access on-chain data. 16 Crypto Assets The tables below describes BTCS’s quarterly crypto assets holdings as of the end of Fiscal 2022 through the end of Fiscal 2023. Crypto Assets Held at Period End Asset 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Ethereum (ETH) 8,454 8,524 7,833 7,748 7,815 Cardano (ADA) 262,860 262,860 263,293 264,751 265,254 Kusama (KSM) 6,493 6,767 6,946 7,246 7,313 Tezos (XTZ) 73,486 74,765 25,375 25,760 26,174 Solana (SOL) 7,371 7,493 7,621 7,752 7,845 Polkadot (DOT) 7,280 7,526 7,882 8,284 8,650 Cosmos (ATOM) 96,318 102,298 243,472 256,784 270,098 Polygon (MATIC) 480,825 486,806 492,965 499,548 506,010 Avalanche (AVAX) 17,178 17,178 17,824 17,824 17,842 Axie Infinity (AXS) 42,030 46,482 50,955 55,584 60,552 Kava (KAVA) 290,909 304,968 315,362 327,862 345,394 Band Protocol (BAND) 992 992 992 992 992 Mina (MINA) 74,177 79,937 81,377 84,257 90,017 Oasis Network (ROSE) 359,607 2,569,991 2,600,279 2,626,600 2,647,629 Akash (AKT) 107,405 110,213 113,063 115,735 119,071 NEAR Protocol (NEAR) 74,702 75,724 77,389 79,067 80,267 Evmos (EVMOS) - - 295,422 322,693 345,777 Fair Market Value of Crypto Assets at Period End Asset 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Ethereum (ETH) 10,117,237 15,530,133 15,141,859 12,948,491 17,829,264 Cardano (ADA) 64,786 104,861 75,553 67,259 157,615 Kusama (KSM) 149,981 236,070 175,352 138,166 329,353 Tezos (XTZ) 52,720 83,614 20,452 17,569 26,379 Solana (SOL) 73,426 158,625 144,010 165,849 796,327 Polkadot (DOT) 31,410 47,720 40,763 34,009 70,879 Cosmos (ATOM) 900,440 1,144,459 2,261,411 1,859,407 2,860,870 Polygon (MATIC) 364,714 544,815 325,857 266,400 491,138 Avalanche (AVAX) 187,286 304,341 231,941 164,759 687,713 Axie Infinity (AXS) 253,943 389,893 302,966 254,967 535,546 Kava (KAVA) 166,752 270,486 305,501 207,289 301,429 Band Protocol (BAND) 1,396 1,857 1,260 1,121 2,174 Mina (MINA) 32,187 62,101 39,579 32,095 122,007 Oasis Network (ROSE) 12,291 156,698 128,686 109,516 363,571 Akash (AKT) 19,938 34,510 63,311 94,686 291,574 NEAR Protocol (NEAR) 93,785 150,854 107,088 89,660 293,204 Evmos (EVMOS) - - 26,069 24,089 43,886 Total 12,522,292 19,221,037 19,391,658 16,475,332 25,202,929 QoQ Change -15 % 53 % 1 % -15 % 53 % YoY Change -61 % -48 % 63 % 11 % 101 % 17 Prices of Crypto Assets at Period End Asset 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Ethereum (ETH) $ 1,197 $ 1,822 $ 1,933 $ 1,671 $ 2,281 Cardano (ADA) $ 0.25 $ 0.40 $ 0.29 $ 0.25 $ 0.59 Kusama (KSM) $ 23.10 $ 34.89 $ 25.24 $ 19.07 $ 45.04 Tezos (XTZ) $ 0.72 $ 1.12 $ 0.81 $ 0.68 $ 1.01 Solana (SOL) $ 9.96 $ 21.17 $ 18.90 $ 21.40 $ 102 Polkadot (DOT) $ 4.31 $ 6.34 $ 5.17 $ 4.11 $ 8.19 Cosmos (ATOM) $ 9.35 $ 11.19 $ 9.29 $ 7.24 $ 10.59 Polygon (MATIC) $ 0.76 $ 1.12 $ 0.66 $ 0.53 $ 0.97 Avalanche (AVAX) $ 10.90 $ 17.72 $ 13.01 $ 9.24 $ 38.54 Axie Infinity (AXS) $ 6.04 $ 8.39 $ 5.95 $ 4.59 $ 8.84 Kava (KAVA) $ 0.57 $ 0.89 $ 0.97 $ 0.63 $ 0.87 Band Protocol (BAND) $ 1.41 $ 1.87 $ 1.27 $ 1.13 $ 2.19 Mina (MINA) $ 0.43 $ 0.78 $ 0.49 $ 0.38 $ 1.36 Oasis Network (ROSE) $ 0.03 $ 0.06 $ 0.05 $ 0.04 $ 0.14 Akash (AKT) $ 0.19 $ 0.31 $ 0.56 $ 0.82 $ 2.45 NEAR Protocol (NEAR) $ 1.26 $ 1.99 $ 1.38 $ 1.13 $ 3.65 Evmos (EVMOS) $ - $ - $ 0.09 $ 0.07 $ 0.13 The tables below detail BTCS’s quarterly crypto assets earned as staking rewards during Fiscal 2023. Crypto Asset Rewards Crypto assets earned from staking to BTCS validator nodes Asset 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Ethereum (ETH) 98 108 85 67 Cosmos (ATOM) 5,980 10,662 13,312 13,314 Kava (KAVA) 13,008 10,394 12,500 17,532 Kusama (KSM) 273 180 300 67 Mina (MINA) 5,760 1,440 2,880 5,760 Evmos (EVMOS) - 32,236 27,271 30,084 Akash (AKT) 2,807 2,851 2,671 3,337 Avalanche (AVAX) - 646 - 18 Oasis Network (ROSE) 20,364 30,287 26,321 21,029 NEAR Protocol (NEAR) 1,022 1,665 1,606 1,200 Tezos (XTZ) 1,179 435 385 414 Crypto assets earned from staking to third-party validator nodes Asset 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Axie Infinity (AXS) 4,452 4,474 4,629 4,967 Polygon (MATIC) 5,981 6,158 6,276 6,462 Solana (SOL) 121 128 131 93 Polkadot (DOT) 246 356 402 366 Cardano (ADA) - 433 1,458 503 Fair Value of Crypto Asset Rewards Earned Recognized as Revenue Revenue earned from staking to BTCS validator nodes Asset 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Ethereum (ETH) $ 154,634 $ 201,121 $ 151,699 $ 131,903 Cosmos (ATOM) 75,469 109,787 106,982 116,726 Kava (KAVA) 11,735 9,351 9,523 13,033 Kusama (KSM) 9,412 4,960 6,416 1,193 Mina (MINA) 3,837 1,070 1,234 4,818 Evmos (EVMOS) - 5,862 2,016 2,929 Akash (AKT) 1,045 1,159 2,263 5,341 Avalanche (AVAX) - 8,403 - 714 Oasis Network (ROSE) 1,196 1,735 1,183 1,688 NEAR Protocol (NEAR) 2,111 2,841 2,050 1,834 Tezos (XTZ) 1,269 432 288 337 Total revenue earned from staking to BTCS validator nodes $ 260,708 $ 346,721 $ 283,654 $ 280,516 Revenue earned from staking to third-party validator nodes Asset 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Axie Infinity (AXS) $ 40,028 $ 29,313 $ 23,755 $ 34,595 Polygon (MATIC) 6,737 5,057 3,676 5,143 Solana (SOL) 2,531 2,581 2,860 3,620 Polkadot (DOT) 1,504 1,957 1,898 1,999 Cardano (ADA) - 124 399 251 Total revenue earned from staking to third-party validator nodes $ 50,800 $ 39,032 $ 32,588 $ 45,609 Total $ 311,508 $ 385,753 $ 316,242 $ 326,125 Prior to the Company’s adoption of ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets during Fiscal 2023, the Company accounted for all crypto asset holdings as long-lived intangible assets, carrying them at their impaired cost value. The following table presents the Fair Market Value of crypto assets held compared to the GAAP Book Value reported on the Company’s balance sheet in Fiscal 2022. 18 December 31, 2022 Asset Book Value Fair Value Ethereum (ETH) $ 5,708,624 $ 10,117,237 Cardano (ADA) 63,178 64,786 Kusama (KSM) 142,242 149,981 Tezos (XTZ) 51,651 52,720 Solana (SOL) 60,012 73,426 Polkadot (DOT) 30,859 31,410 Cosmos (ATOM) 568,359 900,440 Polygon (MATIC) 161,293 364,714 Avalanche (AVAX) 182,964 187,286 Axie Infinity (AXS) 245,443 253,943 Kava (KAVA) 165,426 166,752 Band Protocol (BAND) 982 1,396 Mina (MINA) 32,002 32,187 Oasis Network (ROSE) 12,045 12,291 Akash (AKT) 17,993 19,938 NEAR Protocol (NEAR) 92,840 93,785 Total $ 7,535,913 $ 12,522,292 The adoption of ASU No. 2023-08 required an adjustment to the Company’s opening Retained Earnings balance, which is included in the ‘Accumulated Deficit’ line on the statement of stockholder’s equity for Fiscal 2023. This adjustment was made during the year of adoption (Fiscal 2023) to recognize the cumulative effect of initially applying the change in accounting principle to the previous periods. Specifically, it accounted for the difference between the Fiscal 2022 ending book value of crypto assets and their fair market value, as disclosed in the table above. 19 Results of Operations for the Years Ended December 31, 2023 and 2022 The following tables reflect our operating results for the years ended December 31, 2023 and 2022: For the Year Ended December 31, $ Change % Change 2023 2022 2023 2023 Revenues Validator revenue (net of fees) $ 1,339,628 $ 1,692,454 $ (352,826 ) (21 )% Total revenues 1,339,628 1,692,454 (352,826 ) (21 )% Cost of revenues Validator expenses 359,778 426,440 (66,662 ) (16 )% Gross profit 979,850 1,266,014 (286,164 ) (23 )% Operating expenses: General and administrative $ 1,863,916 $ 1,916,193 $ (52,277 ) (3 )% Research and development 687,288 611,758 75,530 12 % Compensation and related expenses 2,129,144 3,313,638 (1,184,494 ) (36 )% Marketing 12,153 78,171 (66,018 ) (84 )% Impairment loss on crypto assets - 13,348,874 (13,348,874 ) (100 )% Realized (gains) losses on crypto asset transactions 604,269 (506,757 ) 1,111,026 (219 )% Total operating expenses 5,296,770 18,761,877 (13,465,107 ) (72 )% Other income (expenses): Change in unrealized appreciation (depreciation) on crypto assets 12,135,648 - 12,135,648 100 % Change in fair value of warrant liabilities - 1,638,750 (1,638,750 ) (100 )% Distributions to warrant holders - (35,625 ) 35,625 (100 )% Total other income (expenses) 12,135,648 1,603,125 10,532,523 657 % Net income (loss) $ 7,818,728 $ (15,892,738 ) 23,711,466 149 % Validator Revenue The decrease in revenue during Fiscal 2023 as compared to Fiscal 2022 is primarily due to a drop in the fair value of our crypto assets earned as rewards for staking since the market’s highs in the first quarter of 2022. Despite the late upswing in market prices of crypto assets at the end of Fiscal 2023, revenue was recognized throughout the year at lower average prices than Fiscal 2022. Although we believe the number of crypto assets we earn from staking and revenue recognized may increase as we continue to expand our blockchain infrastructure efforts, we recognize that volatility in the crypto asset markets may impact the market prices of the crypto assets we earn from staking. 20 Cost of Revenues The decrease in cost of revenues during Fiscal 2023 as compared to Fiscal 2022 is due to efficiencies realized in our blockchain infrastructure validating operating costs, including streamlining of web service hosting fees and reduction of services provided by third-party vendors. We believe our cost of revenues will increase as we continue to ramp up our business. However, we believe gross margin may improve as we add scale to our blockchain infrastructure operations and reduce costs as a result of increased operational efficiencies, leading to improved gross profits. Operating expenses General and administrative expenses consist of director compensation, legal and professional fees, and other personnel and related costs. These expenses decreased slightly during Fiscal 2023 compared to Fiscal 2022 as a result of cost-cutting measures employed by management in numerous areas, including investor relation related as the Company focused on cost management and transitioning related efforts in-house from third-party engagements. These decreases were partially offset by increases in legal service costs during Fiscal 2023, driven primarily by services surrounding the Series V Preferred Stock distribution and related listing on Upstream Exchange. Research and development expenses increased during Fiscal 2023 as the Company focused on the beta release of our proprietary StakeSeeker platform, including responding to user feedback and continued planned feature development and incorporation onto the platform. We anticipate research and development costs to remain consistent as we continue to expand on technological solutions in the blockchain sector, including the development of Builder+ and ChainQ with a focus on cost management of our third-party development team. Compensation and related expenses decreased during Fiscal 2023 primarily due to approximately $2,825,000 non-cash equity-based contingent bonuses granted to employees during Fiscal 2022 for the achievement of performance milestones compared to only approximately $1,643,000 non-cash equity-based compensation during Fiscal 2023. We believe our compensation expenses will increase from those reported in Fiscal 2023 as the Company continues to utilize equity-based compensation incentives as a core part of our compensation strategy. Marketing costs decreased during Fiscal 2023 as the Company focused on cost-reduction efforts. The decrease in operating expenses during Fiscal 2023 can be attributed primarily to the Company’s change in accounting principles resulting from its adoption of ASU No. 2023-08 in Fiscal 2023. This accounting change permits the Company to value its crypto assets at their fair market value and eliminates the necessity to recognize impairment losses on crypto assets, which had been a significant contributor to net losses in prior years. Notably, in Fiscal 2022, the Company recorded an impairment loss of approximately $13,349,000 on crypto assets, which is no longer required under the revised accounting treatment. The Company realized losses on sale of crypto assets during Fiscal 2023, compared to gains realized in Fiscal 2022, primarily resulting from the Company’s sale of approximately 968 ETH earned as crypto rewards from our staking operations at prices below their original cost after liquidity was unlocked in April 2023 as part of Ethereum’s Shanghai upgrade. Other income (expense) The changes in other income for Fiscal 2023 were primarily attributed to the recognition of the change in unrealized appreciation on crypto assets resulting from the Company’s adoption of ASU No. 2023-08 for Fiscal 2023. This adoption allows the Company to account for its crypto assets at their fair market value. Prior to its adoption in Fiscal 2023, the Company accounted for its crypto assets as long-lived intangible assets with carrying values based on the original cost, less any impairment. Changes in the unrealized appreciation or depreciation of crypto assets are directly influenced by the volatility in crypto markets, which can be challenging for management to predict. Furthermore, the changes in other income for Fiscal 2022 were primarily driven by the decrease in the fair value of warrant liabilities throughout the year. This non-cash expense is influenced by the value of our stock price at the end of each quarter, a factor that we cannot predict. Net income (loss) The increase in net income for Fiscal 2023, compared to the net loss in Fiscal 2022, is primarily attributable to a change in accounting principle resulting from the Company’s adoption of ASU No. 2023-08 during Fiscal 2023. This change had significant implications for crypto assets, including the elimination of the need for the Company to recognize impairment losses on its crypto assets, which had been a primary contributor to net losses in previous years. Additionally, this change allowed the Company to account for its crypto assets at their fair market value and include the change in fair market value of crypto assets as part of net income for the fiscal year. We acknowledge that our net income (loss) may exhibit significant fluctuations due to the volatility in the crypto asset markets, impacting changes in the fair value of crypto assets during future reporting periods. 21 LIQUIDITY AND CAPITAL RESOURCES Recent Financing On September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may offer and sell, from time-to-time through H.C. Wainwright, shares of the Company’s Common Stock having an aggregate offering price of up to $98,767,500. From the period September 14, 2021 through March 19, 2024, the Company sold a total of 4,346,748 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $17,256,000 at an average selling price of $3.97 per share, resulting in net proceeds of approximately $16,696,000 after deducting commissions and other transaction costs. Liquidit y The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At December 31, 2023, the Company had approximately $1,458,000 of cash and working capital of approximately $26,055,000. As of March 19, 2024, the Company had approximately $870,000 of cash and the fair market value of the Company’s liquid crypto assets was approximately $35,665,000. The Company has no outstanding debt. As of March 19, 2024, the Company also has approximately $5.5 million available under the ATM Agreement over the next twelve months under the Form S-3 baby shelf rules, although, the amount that we may raise under the Form S-3 may increase or decrease based upon our stock price. The Company believes that the existing cash and liquid crypto assets held by us, in addition to the funds available to the Company from the issuance of additional stock through the ATM Agreement, provide sufficient liquidity to meet working capital requirements, anticipated capital expenditures and contractual obligations for at least the next twelve months. Certain of our staked crypto assets may be locked up for varying durations, depending on the specific blockchain protocol, and we may be unable to unstake them in a timely manner in order to liquidate to the extent desired. Lock-up periods for our staked crypto assets range from several hours to six months. During times of instability in the market of crypto assets, we may not be able to sell our crypto assets at reasonable prices or at all. As a result, our crypto assets may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. Cash Flows Cash used in operating activities was approximately $3,562,000 during Fiscal 2023 compared to approximately $777,000 during Fiscal 2022. The sale of our remaining bitcoin holdings during 2022 was the primary contributor to the approximately $2,547,000 operating cash inflows from the sale of non-productive crypto assets during the Fiscal 2022 compared to $0 in Fiscal 2023. We do not anticipate any future material cash inflows from the sale of non-productive assets, as our blockchain infrastructure strategy focuses primarily on acquiring and staking productive proof-of-stake blockchain networks. Additional non-cash adjustments to our operating cash flows consisted of approximately $13,349,000 impairment loss on crypto assets (“Crypto Asset Impairment”) during Fiscal 2022 compared to $0 in Fiscal 2023. Due to the Company’s change in accounting principle resulting from its adoption of ASU No. 2023-08 in Fiscal 2023, the Company will no longer be required to recognize impairment on its crypto assets in future reporting periods. This is partially offset by the approximately $2,688,000 equity-based contingent bonuses granted to employees during Fiscal 2022 for the achievement of performance milestones compared to only approximately $1,342,000 equity-based compensation in Fiscal 2023. We anticipate similar levels of equity-based compensation in future periods as reported in Fiscal 2023. Cash provided by investing activities was approximately $186,000 during Fiscal 2023 compared to cash used in investing activities of approximately $8,973,000 for Fiscal 2022. Net cash outflows for investing activities were used primarily for the purchase of crypto assets for blockchain infrastructure operations. We anticipate purchase activity to remain lower and consistent with the levels reported during Fiscal 2023 as we focus our strategies on technical developments. Fiscal 2022 included large purchases of productive crypto assets to build on our blockchain infrastructure operations. Fiscal 2023 included a higher than typical volume of sales of crypto assets, primarily driven by the re-allocation of Ethereum rewards earned to other productive crypto assets which were subsequently staked. Cash provided by financing activities was approximately $2,688,000 during Fiscal 2023 compared to approximately $10,496,000 during Fiscal 2022. The cash inflows from financing activities in Fiscal 2023 and Fiscal 2022 were entirely from proceeds of Common Stock sold pursuant to the ATM Agreement. The cash inflows from financing activities during Fiscal 2022 was partially offset by a one-time return of capital distribution of $631,000 made to record holders as of March 17, 2022. The Company has plans to continue to raise proceeds from the sale of Common Stock to fund operations as needed. Off Balance Sheet Transactions As of December 31, 2023, there were no off-balance sheet arrangements and we were not a party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations. 22 CRITICAL ACCOUNTING POLICIES AND ESTIMATES We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis: Accounting Treatment of Crypto Assets Fair Value Measurement The Company’s fair value measurement for its crypto assets is guided by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 - Fair Value Measurement . According to ASC 820, fair value is defined as the price that would be received for an asset in a current sale, assuming an orderly transaction between market participants on the measurement date. It requires the Company to assume that its crypto assets are sold in their principal market or, in the absence of a principal market, the most advantageous market. In this context, market participants are considered to be independent, knowledgeable, and willing and able to transact. Kraken has been identified as the principal market for the Company’s crypto assets, serving as the Company’s primary cryptocurrency exchange for both purchases and sales. This determination is based on a comprehensive evaluation process that considers various factors, including regulatory compliance, trading activity, and price stability. The Company places significant trust in Kraken’s well-established reliability and robust capabilities. To determine the fair value of its crypto assets, the Company relies primarily on coinmarketcap.com (“CoinMarketCap”) as the principal pricing source. The selection of CoinMarketCap is the result of thorough due diligence, which identified it as the most reliable source for consistently obtaining timely and accurate crypto asset price data, covering all the crypto assets held by the Company. The real-time pricing from CoinMarketCap is notably aligned with the bid/ask quotes observed on the Company’s primary exchange and principal market, Kraken. While Kraken is designated as the primary exchange, the Company maintains the flexibility to engage in cryptocurrency transactions on other exchanges where it maintains accounts. This flexibility allows the Company to adapt to changing market conditions and explore alternative platforms when necessary to ensure cost-effective execution and fair value measurement using the most advantageous market. The determination of Kraken as the principal market reflects the Company’s commitment to making informed decisions based on regulatory compliance, trading activity, and price stability and achieving the most accurate representation of fair value for its crypto assets. The Company regularly reviews and assesses its choice of principal market to ensure it aligns with its objectives and the evolving landscape of the cryptocurrency market. Accounting for Crypto Assets The cost basis of the Company’s crypto assets is initially recorded at their fair value using the U.S. dollar spot price of the related crypto asset at 4:00 p.m., New York time, on the date of receipt (or “carrying value”). Crypto assets are measured at their fair respective fair market values at each reporting period end on the balance sheets and classified as either ‘Staked Crypto Assets’ or ‘Crypto Assets’ to distinguish their nature within the respective balances. Staked crypto assets are presented as current assets if their lock-up periods are less than 12 months, and as long-term other assets if the lock-up extends beyond one year. The majority of our crypto assets are staked, typically with lock-up periods of less than 21 days, and are considered current assets in accordance with ASC 210-10-20, Balance Sheet , due to the Company’s ability to sell them in a liquid marketplace, as we have a reasonable expectation that they will be realized in cash or sold or consumed during the normal operating cycle of our business to support operations when needed . The classification of purchases and sales in the statements of cash flows is determined based on the nature of the crypto assets, which can be categorized as ‘productive’ (i.e. acquired for purposes of staking) or ‘non-productive’ (e.g. bitcoin). Acquisitions of non-productive crypto assets are treated as operating activities, while acquisitions of productive crypto assets are classified as investing activities in accordance with ASC 230-10-20, Investing activities . Productive crypto assets staked with lock-up periods of less than 12 months are listed as current assets in the ‘Staked Crypto Assets’ line item on the balance sheet. Staked crypto assets with lock-up periods exceeding 12 months are categorized as long-term other assets. Non-productive crypto assets are included in the ‘Crypto Assets’ line item on the balance sheet. Effective January 1, 2023, the Company has elected to early adopt ASU No. 2023-08, resulting in a material change in accounting principle related to the Company’s accounting treatment of crypto assets. The impacts of the change in accounting principle are discussed further in Note 3. Prior to the Company’s adoption of ASU No. 2023-08, the Company accounted for its crypto assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles –Goodwill and Other . 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. 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. Prior to the Company’s adoption of ASU No. 2023-08, on a quarterly basis, crypto assets were measured at carrying value, net of any impairment losses incurred since receipt. The Company recorded impairment losses as the fair value fell below the carrying value of the crypto assets at any time during the period, as determined using the lowest intraday U.S. dollar spot price of the related crypto asset subsequent to its acquisition. The crypto assets could only be marked down when impaired and not marked up when their value increases. Impairment losses could not be recovered for any subsequent increase in fair value until the sale or disposal of the asset. Such impairment in the value of crypto assets was recorded as a component of costs and expenses in our statements of operations. The Company recorded impairment losses of approximately $0 and $13,349,000 related to crypto assets during the years ended December 31, 2023 and 2022, respectively. 23 Realized gain (loss) on sale of crypto assets are included in other income (expense) in the statements of operations. The Company recorded realized gains (losses) on crypto assets of approximately ($604,000) and $507,000 during the years ended December 31, 2023 and 2022, respectively. Revenue Recognition The Company recognizes revenue under ASC 606 , Revenue from Contracts with Customers . The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the Company satisfies a performance obligation Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company generates revenue through staking rewards generated from its blockchain infrastructure operations. The transaction consideration the Company receives – the crypto asset awards and gas fees – are a non-cash consideration, which the Company measures at fair value on the date received. The fair value of the crypto asset award received is determined using the U.S. dollar spot price of the related crypto asset at 4:00 p.m., New York time, on the date of receipt. Blockchain Infrastructure The Company engages in network-based smart contracts by running its own crypto asset validator nodes as well as by staking (or “delegating”) crypto assets directly to both its own validator nodes and nodes run by third-party operators. Through these contracts, the Company provides crypto assets to stake to a node for the purpose of validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last from a few days to several weeks after it is cancelled (or “un-staked”) by the delegator and requires that the crypto assets staked remain locked up during the duration of the smart contract. In exchange for staking the crypto assets and validating transactions on blockchain networks, the Company is entitled to all of the fixed crypto asset award earned from the network when delegating to the Company’s own node and is entitled to a fractional share of the fixed crypto asset award a third-party node operator receives (less crypto asset transaction fees payable to the node operator, which are immaterial and are recorded as a deduction from revenue), for successfully validating or adding a block to the blockchain. The Company’s fractional share of awards received from delegating to a third-party validator node is proportionate to the crypto assets staked by the Company compared to the total crypto assets staked by all Delegators to that node at that time. The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized. 24 Cost of Revenue The Company’s cost of revenue related to its blockchain infrastructure operations primarily includes direct production costs associated with transaction validation on the network, cloud-based server hosting expenses related to our validator nodes, and allocated employee salaries dedicated to node maintenance and support. Additionally, the cost of revenue encompasses fees, including equity compensation stock-based fees paid to third parties for their assistance in software maintenance and node operations. These costs directly related to production of revenues are collectively summarized as “Validator expenses” in the statements of operations. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation . ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans and stock incentive shares. Under ASC 718, awards result in a cost that is measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest and will result in a charge to operations. Share-based payment awards exchanged for services are accounted for at the fair value of the award on the estimated grant date. Options Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options often vest over a one-year period. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Expected Volatility – The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option. Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the option. Expected Term – The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns. Expected Dividend – The Company has not historically declared or paid any cash dividends on its common shares and does not plan to pay any recurring cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. Restricted Stock Units (RSUs) For awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. Stock-based compensation expense for the market-based restricted stock units with explicit service conditions is recognized on a straight-line basis over the longer of the derived service period or the explicit service period, regardless of whether the market condition is satisfied. However, in the event that the explicit service period is not met, previously recognized compensation cost would be reversed. Market-based restricted stock units subject to market-based performance targets require achievement of the performance target as well as a service condition in order for these RSUs to vest. The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period. 25 Expected Volatility – The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the RSUs. Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the RSUs. Expected Term – The Company’s expected term represents the weighted-average period that the Company’s RSUs are expected to be outstanding. The expected term is based on the stipulated 5-year period from the grant date until the market-based criteria are achieved. If the market-based criteria are not achieved within the five-year period from the grant date, the RSUs will not vest and shall expire. Vesting Hurdle Price – The vesting hurdle prices are determined by taking the vesting Market Cap criteria divided by the shares outstanding as of the valuation dates. Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures. Recent Accounting Pronouncements See Note 3 to the financial statements for a discussion of recent accounting standards and pronouncements. COVID-19 The COVID-19 pandemic has created significant national and global economic disruptions, which may adversely affect our business. However, based on our current assessment, we do not expect any material impact on our long-term development, our operations, or our liquidity due to the worldwide spread of COVID-19. We are actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, and the industry. Inflation In addition to the impacts of COVID-19, we have experienced, and are experiencing, the impact of domestic and global inflationary pressures largely outside of our control. This inflationary pressure impacts our cost structure, leading to operational adjustments, and increasing the cost of retaining talent and certain professional costs, despite our continued focus on controlling our costs where possible. Management is unable to accurately predict when, or if, these national and global inflationary pressures will subside, or their long-term impacts on our business and results of operations. We are actively monitoring the situation and assessing potential mitigation strategies. 26 RISK FACTORS There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our Common Stock could decline and investors could lose all or part of their investment. Summary Risk Factors Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. Set forth below is a summary of the principal risks we face: ● We have a limited operating history, particularly with respect to our blockchain infrastructure solutions business, StakeSeeker, Builder+, ChainQ and staking-as-a-service operations. ● We have an evolving business model which we may be unable to develop, adapt or execute effectively, and we may be unable to manage our growth or implement our business plan as intended or at all. ● We are highly dependent on our executive officers, particularly Charles Allen, our Chairman and Chief Executive Officer, Michal Handerhan, our Chief Operating Officer, Michael Prevoznik, our Chief Financial Officer, and Manish Paranjape, our Chief Technology Officer, and the loss of the services of any of these individuals could materially harm our business. ● We may be subject to regulatory actions, private causes of actions such as intellectual property infringement claims, and restrictions and limited access to banking and financial services due to our operations in the cryptocurrency industry, and regulatory or other adverse developments in the cryptocurrency industry could otherwise adversely affect us. ● Because of our involvement in staking of crypto assets through delegations as part of our StaaS strategy, we are subject to risks inherent in engaging in activities involving financial instruments owned by third-party users, notwithstanding the non-custodial nature of our platform or other features management believes to constitute meaningful distinctions for regulatory, compliance and other purposes. ● A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if we are unable to correctly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, sanctions, penalties and other adverse consequences, including potentially becoming subject to the Investment Company Act of 1940 which would impose significant regulatory burdens and compliance costs. ● Crypto assets and our related activities are characterized by numerous other risks and uncertainties, including the possibility for adverse developments such as regulatory actions, bans or restrictions, declines in the price of, demand for or public perception of crypto assets, theft, fraud, hacking, manipulation or malicious coding, price volatility, the potential for one cryptocurrency to branch into two, variations among and the potential for adverse changes to blockchain algorithms, and other external forces beyond our control described more fully below. ● The future development and growth of cryptocurrencies is subject to a variety of factors that are difficult to predict and evaluate, and the market for the crypto assets we obtain and hold may not grow as we expect or the prices may decline, including due to political or economic crises or other factors which we neither predict nor control. ● The cryptocurrency space is subject to continuous regulatory uncertainty, and any adverse regulatory changes or other developments with respect to our operations or the crypto assets with which we transact may require us to alter our business model or suspend or cease some or all of our operations. ● Our focus on PoS blockchain networks exposes us to risk of loss due to features unique to those networks, including by virtue of being locked in by smart contracts such that we cannot liquidate a portion of the relevant crypto assets for a period of time during and after the staking process, during which the price or value of the crypto assets may depreciate. ● We are reliant on a single service provider for cloud computing infrastructure deployed in our blockchain infrastructure business, and are therefore exposed to the risks which may arise from potential adverse developments that may be caused or experienced by such service provider. ● We are subject to various other risks and uncertainties relating to our StaaS and other elements of our business, including potential loss of revenue if we experience excessive removal of delegated crypto assets on our validator nodes, potential shifts in the block building landscape, and competitive forces for Ethereum and other crypto assets for which our services are offered, technical failures, bugs, or vulnerabilities in our block builder software, and our efforts with respect to new features and services which were recently launched or are still under development. ● Our critical accounting policies may prove to be incorrect including due to our adoption of new accounting standards applicable to crypto assets in 2023, we may need to implement additional finance and accounting systems, procedures and controls, and we face challenges inherent in operating a crypto assets business which is subject to evolving accounting treatment for which there is limited precedent. ● Our stock price has in the past and may in the future be subject to significant volatility due to a variety of factors, many of which are beyond our control, including its potential connection to the price of one or more of the crypto assets with which we are or may become involved. 27 Risks Related to Our Company in General We have a limited operating history, particularly with respect to our blockchain infrastructure operations, including certain features and service offerings which recently commenced and our platform and staking-as-a-service business model, and we have a history of operating losses, and expect to incur significant additional operating losses. We have a limited operating history, and only recently commenced our blockchain infrastructure operations in 2021. Further, we lack an operating history with respect to our crypto asset analytics and staking-as-a-service platform’s functions and operations. In addition, the PoS blockchain networks on which our operations are centered are a relatively new and evolving means of validating crypto asset transactions. In addition to the relative novelty of our business and industry generally, we also launched Builder+ which is designed to enhance validator earnings by deploying algorithms to identify and access optimized blockers to increase reward fees in February 2024. We are in the process of developing ChainQ, an AI-powered blockchain data and analytics platform with the goal of launching later in 2024. The performance and results of these developments, and their impact on our business and financial condition, has yet to be determined. Therefore, there is limited historical financial information upon which to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations in general, and in the cryptocurrency industry in particular with itself remains a relatively new space imbued with risk and uncertainty. While we generated a net gain of $7.8 million for the year ended December 31, 2023, we generated a net loss of $15.9 million for the year ended December 31, 2022. We expect to incur additional net losses over the next several years as we seek to expand operations. The amount of future losses and when, if ever, we will achieve profitability are uncertain. If we are unsuccessful at executing our business plan, our business, prospects, and results of operations may be materially adversely affected. We have an evolving business model which we may be unable to develop, adapt or execute effectively. As and to the extent crypto assets and blockchain technologies become more widely available, we expect the services and products associated with them to evolve. In 2017, the SEC issued a DAO Report that promoters that use initial coin offerings or token sales to raise capital may be engaged in the offer and sale of securities in violation of the Securities Act and the Securities Exchange Act of 1934 (the “Exchange Act”). The SEC has also brought enforcement actions with respect to crypto assets and related activities, including custodial staking-as-a-service models, and the SEC and courts have issued further orders and guidance as the crypto asset industry continues to develop and evolve, as more particularly described later in these Risk Factors. These or future developments may force or cause us to potentially change our future business in order to comply fully with the federal securities laws as well as applicable state securities laws. As a result, to stay current with the industry, our business model may need to evolve in the future as well. From time to time we may modify aspects of our business model relating to our product mix and service offerings. For example, a main component of our current business objective is developing a comprehensive crypto asset analytics and staking-as-a-service platform which enables users to perform or utilize a variety of functions related to crypto assets, such as portfolio monitoring, and risk assessment all in one place in the hopes of attracting, maintaining and growing a customer base in the long term. However, our investments into and efforts with respect to this goal may not come to fruition, including due to adverse developments in regulatory, technological, competitive or other aspects that are beyond our control. As the crypto industry and technology surrounding it continues to develop, new market entrants offering the same, similar or alternative products and services to ours could arise, challenging our business model and market share. For example, disruptive technologies such as generative artificial intelligence (AI) may fundamentally alter the use of crypto assets and related infrastructure in unpredictable ways. Because of the foregoing realities and uncertainties surrounding our business and industry, we may invest substantial resources towards developing additional platform features or new offerings such as Builder+ that ultimately fail to achieve the goals or benefits sought, or need to be suspended, due to competitive, regulatory, technological or other conditions or developments beyond our control. Further, any success we have achieved or may in the future achieve towards our goal could be stifled by these forces, particularly if we are unable to adequately or quickly adapt to them, which could render some or all of our offerings obsolete. We cannot offer any assurance that our current business plan or any other modifications or undertakings with respect thereto will be successful or will not result in harm to the business. In addition, we may not be able to manage our growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. If we are unable to effectively develop, execute and adjust our business plan, or successfully manage our growth, you could lose some or all of your investment. The loss of our executive officers could have a material adverse effect on us. Our success depends on the continued services of our executive officers who have extensive technological and market knowledge and long-standing industry relationships. In particular, we have relied and will continue to rely on Charles Allen, our Chairman and Chief Executive Officer, Michal Handerhan, our Chief Operating Officer, Michael Prevoznik, our Chief Financial Officer, and Manish Paranjape, our Chief Technology Officer, to continue and grow our operations and execute our business plan. Our reputation among and our relationships with key cryptocurrency industry leaders are the direct result of a significant investment of time and effort by these individuals to build our credibility in a highly specialized industry. The loss of services of any of our executive officers could diminish our business and growth opportunities and our relationships with key leaders in the crypto asset industry and could have a material adverse effect on us. 28 Banks and financial institutions may not provide banking services, or may cut off services, to businesses that engage in cryptocurrency-related activities, and turmoil among financial institutions arising from or relating to crypto assets or in general can materially adversely affect us and our industry. A number of companies that engage in crypto asset and/or other cryptocurrency-related activities have been unable to find banks or financial institutions that are willing to provide them with bank accounts and other services. Similarly, a number of companies and individuals or businesses associated with cryptocurrencies may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions in response to government action, including in China where regulatory response to cryptocurrencies has been to exclude their use for ordinary consumer transactions within China. Government action in the U.S. involving crypto assets and related activities may cause this trend to expand in the U.S. We also may be unable to obtain or maintain these services for our business. Many businesses that provide cryptocurrency-related activities may continue to have difficulties in finding banks and financial institutions willing to provide them services which may decrease the usefulness of cryptocurrencies as a payment system and harm public perception of cryptocurrencies, and could decrease their usefulness. As an example of adverse events affecting the crypto landscape, in November 2023 Binance, the world’s largest crypto exchange, undertook to exit the U.S. and paid a $4.4 billion fine to settle charges by the U.S. Department of Justice, Treasury, and the Commodity Futures Trading Commission that the exchange violated sanctions and facilitated human and narcotics trafficking. Further, in March 2023 two large financial institutions in the U.S., Silicon Valley Bank and Signature Bank, which both serviced customers involved with crypto assets, collapsed as continued negative economic prospects and failures to obtain payment from borrowers, together with a large number of withdrawals, caused these banks to encounter substantial financial difficulty leading up to their failures. In response to these events, the Federal Deposit Insurance Corporation (“FDIC”) transferred all the deposits, both insured and uninsured, of these banks to corresponding “bridge banks” operated by the FDIC as it markets the institution to potential bidders. The impact of these developments on the Company and on the crypto asset industry and the economy in general, and whether and to what extent they signal a continuing trend impacting the industry and potentially our business, remain unclear. The usefulness of cryptocurrencies as a payment system and the public perception of cryptocurrencies could be damaged if crypto exchanges and other industry participants exit the U.S. markets, and if banks or financial institutions were to close the accounts of businesses engaging in cryptocurrency-related activities, which contingencies may become more likely in the future if and to the extent crypto assets are considered a significant factor in the financial crises or criminal activity such as those described above. This could occur as a result of compliance risk, cost, government regulation, or public pressure. The risk applies to securities firms, clearance and settlement firms, national stock and derivatives on commodities exchanges, the over-the-counter market, and the Depository Trust Company, which, if any of such entities adopts or implements similar policies, rules or regulations, could negatively affect our relationships with financial institutions and impede our ability to convert cryptocurrencies to fiat currencies. Such factors could have a material adverse effect on our ability to continue as a going concern or to pursue our strategy at all, which could have a material adverse effect on our business, prospects, or operations and harm investors. 29 Risks Related to Crypto Assets A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, with a growing number of regulators taking the position that certain crypto assets are securities and bringing enforcement actions accordingly, and if we are unable to properly characterize a crypto asset or comply with the applicable regulatory requirements, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition. The SEC and its staff have taken the position that certain crypto assets fall within the definition of a “security” under the U.S. federal securities laws. Legal tests to determine whether a crypto asset is a security have been established by the U.S. Supreme Court case law and the SEC has issued reports, orders, and statements that provide guidance on when a crypto asset may be a security for purposes of the U.S. federal securities laws. The process of determining whether a specific crypto asset qualifies as a security involves a nuanced analysis open to interpretation, making the outcome uncertain and challenging to predict. Despite regulatory developments in this field, some ambiguity persists, as the identification of crypto assets as securities or otherwise can be a complex matter. Notably, the SEC has identified certain crypto assets as securities in the context of legal actions involving industry participants, such as Ripple, Coinbase, and Binance. The Coinbase action involved alleged securities law violations for its custodial staking-as-a-service activities, which were followed by actions relating to their staking-as-a-service activities by numerous state regulators as well. The potential for and resolution of ongoing enforcement actions and legal proceedings are still pending, potentially leaving room for further clarification to be sought regarding the regulatory treatment of specific crypto assets. Moreover, based upon decided federal court cases, it appears that the federal courts of appeals, and possibly the U.S. Supreme Court, may ultimately settle unresolved legal issues with respect to the identification of certain crypto assets as securities. In regard to the 2023 cases, in separate SEC complaints, the SEC has alleged several crypto assets we hold, specifically Cardano, Tezos, Solana, Cosmos, Polygon, Axie Infinity, and NEAR Protocol are securities. The Company has conducted a detailed legal analysis which has led us to determine that the identification by the SEC of certain crypto assets held by us as securities should not impact our business, financial condition, and results of operations. However, if our conclusions or any part thereof turn out to be incorrect, or new adverse regulatory developments occur, we could be adversely impacted and/or be forced to modify or cease certain aspects of our current and planned operations and business. In February 2023, the SEC charged Kraken with failing to register the offer and sale of its staking-as-a-service program, whereby investors transferred crypto assets to Kraken for staking in exchange for advertised annual investment returns. Kraken settled this action by agreeing to cease its custodial staking business and to pay $30 million in disgorgement, prejudgment interest, and civil penalties. While there are material distinctions between Kraken’s staking model and ours, including the fact that we do not take custody of or exert control over the crypto assets that are staked using our platform, the SEC could disagree with our assessment and seek to enforce the federal securities laws and regulations against our operations. Similarly, in March 2023 the New York Attorney General became the first U.S. regulator to claim in court that Ethereum, one of the major crypto assets which we hold and stake, is a security in its lawsuit against KuCoin, a crypto asset exchange. If we become subject to regulatory scrutiny or enforcement actions by securities regulators, it could result in expensive litigation and penalties and cessation of the allegedly noncompliant operations, which would materially adversely harm us, including due to our recent shift of focus to our non-custodial staking-as-a-service business and the costs and efforts deployed towards its development. These or additional developments that may arise underscore the risks in our business, particularly its reliance on the use of crypto assets and staking of users’ crypto asset holdings. Further, certain crypto assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of crypto assets as “securities.” As a result of the foregoing recent and potential developments, we may be forced to, or voluntarily elect to, limit, suspend or cease our staking services operations or certain aspects thereof in order to comply with applicable laws and regulations and avoid the regulatory scrutiny and adverse consequences that could result. Further, because of how recent these government actions are and the high probability that further action is forthcoming, we anticipate higher compliance costs and diversion of management’s limited time and attention towards these events until a more definitive regulatory regime is established to govern the crypto asset industry in which we operate. While we do not currently, nor do we plan to, offer, sell, trade, and clear crypto assets or take custody of crypto assets as part of any potential staking-as-a-service operations we may undertake, crypto assets we stake and validate transactions for could be deemed to be a “security” under applicable laws. This could be the case even if we conclude that our activities are compliant with these laws and regulations. Our blockchain infrastructure operations which entails securing blockchains by validating blockchain transactions (most analogous to Bitcoin mining) could be construed as facilitating transactions in crypto assets; as such we could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a blockchain we secure is a “security” under applicable laws. Because our platform is not registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to secure blockchains. We recognize that the application of securities laws to the specific facts and circumstances of crypto assets is a complex and often unpredictable process and subject to change, and staking and securing a blockchain, while similar to Bitcoin mining, does not guarantee any conclusion under the U.S. federal securities laws, particularly given that each crypto asset and blockchain network is unique. Therefore, if we do conclude that a particular crypto asset is not a security on advice of our legal counsel, and the SEC or other government agencies or courts disagree with this assessment, we could be held liable for violation of securities laws. In addition, new laws may be implemented that prevent or hinder us from operating in the manner we currently conduct our business or plan to conduct our business, in which case our business may be materially harmed. Further, if any crypto asset is deemed to be a security under any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such crypto asset. For instance, the networks on which such crypto assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the crypto asset. Also, such a development may make it difficult for such supported crypto assets to be traded, cleared, and custodied as compared to other crypto assets that are not considered to be securities. These events could, among things, result in a decline in the market prices for the crypto assets on which our operations rely, and thereby reduce the demand for our solutions and the revenue generated therefrom. To the extent we hold crypto assets allegedly identified as securities by the SEC, it could have a material adverse effect on our business and our stock price. 30 Because crypto assets may be determined to be Digital Securities, we may inadvertently violate the 1940 Act and incur large losses as a result and potentially be required to register as an investment company. This would have a material adverse effect on an investment in us. We hold and plan to acquire a portfolio of crypto assets including Ethereum and other crypto assets. There is an increased regulatory examination of crypto assets and Digital Securities. This has led to regulatory and enforcement activities. As described elsewhere in these Risk Factors, the SEC and certain state regulators have in recent years begun to take a more definitive and aggressive stance indicating that crypto assets and related activities, including custodial staking-based services, entail the offer and sale of securities subject to applicable securities laws and regulations. We cannot be certain as to how future regulatory developments will impact the treatment of Ethereum and other crypto assets, or our operations as they relate to such crypto assets or in general, under the law. Under the 1940 Act, a company may be deemed an investment company under if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on a consolidated basis. Crypto assets we may own in the future may be determined to be Digital Securities by the SEC or a court. Additionally, one or more states may conclude Ethereum, or other crypto assets held by us in the future are securities under state securities laws which would require registration under state laws including merit review laws. For example, California defines the term “investment contract” more strictly than the SEC. In addition, the New York Attorney General has taken the position that Ethereum is a security under New York law, and if this position is upheld it could significantly impact Ethereum and other crypto assets, as notwithstanding the decentralized nature of crypto assets, a substantially large proportion of capital markets activities and the U.S. population are located in New York. Future legislation, SEC rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoin, Ethereum, and other crypto assets are treated for classification and clearing purposes. The SEC’s July 25, 2017 DAO Report expressed its view that crypto assets may be securities depending on the facts and circumstances, and recent developments have confirmed that the SEC presently considers many if not most crypto assets to be securities. If a crypto asset we hold were later determined to be a Digital Security, we could inadvertently become an investment company, as defined by the 1940 Act, if the value of the Digital Securities we owned exceeded 40% of our assets excluding cash. We are subject to the following risks: ● the SEC or a court may conclude that Ethereum, or other crypto assets we later acquire to be securities, notwithstanding differing conclusions we may draw on advice of counsel; ● based on legal advice, we may acquire other crypto assets which we have been advised are not securities but later are held to be securities; and ● we may knowingly acquire crypto assets that are securities and acquire minority investments in businesses which investments are securities. In the event that the crypto assets held by us exceed 40% of our total assets, exclusive of cash, we may inadvertently become an investment company. In order to limit our acquisition of Digital Securities to stay within the 40% threshold, we will examine the manner in which a crypto asset was initially marketed to determine if it may be deemed a Digital Security and subject to federal and state securities laws. Even if we conclude that a particular crypto asset is not a security under the 1940 Act, certain states take a stricter view which means the crypto asset may have violated applicable state securities laws. Should the total value of securities which we hold exceed more than 40% of our assets (exclusive of cash) SEC Rule 3a-2 under the 1940 Act allows an issuer to prevent itself from being deemed an investment company if it reduces its holdings of securities to less than 40% of its assets (exclusive of cash) and does not go above the 40% threshold more than once every three years. Accordingly, if changes in the classification of crypto assets causes us to exceed the 40% threshold, we may experience large losses when we liquidate Digital Securities as a result of continued volatility. The 40% requirement 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. To the extent that crypto assets held by us are deemed by the SEC or a state legislator to fall within the definition of a security, we may be required to register and comply with additional regulation under the Investment Company Act, including additional periodic reporting and disclosure standards and requirements and the registration of our Company as an investment company. Such additional registrations: i) would result in extraordinary, non-recurring expenses, ii) is time consuming and restrictive, iii) would require a restructuring of our operations, and iv) we would be very constrained in the kind of business we could do as a registered investment company, thereby materially and adversely impacting an investment in us. Further, if our examination of a crypto asset is incorrect, we may incur regulatory penalties and private investor liabilities since Section 5 of the Securities Act is a strict liability statute much like selling spoiled milk and state securities laws generally impose liability for negligence for misrepresentations. In order to comply with the 1940 Act, we anticipate having increased management time and legal expenses in order to analyze which crypto assets are securities and periodically analyze our total holdings to ensure that we do not maintain more than 40% of our total assets (exclusive of cash) as securities. If our view that the crypto assets we hold are not securities is challenged by the SEC and courts uphold the challenge, we may inadvertently violate the 1940 Act and incur substantial legal fees in defending our position. The cost of such compliance would result in the Company incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact to conduct our operations. 31 If the SEC concludes that our non-custodial staking business involves the offer and sale of a security in violation of Section 5 of the Securities Act of 1933 and the courts conclude the SEC is correct, we will be required to cease our staking as a service business and seek another business opportunity and may be subject to monetary and other penalties. The SEC has been successful in litigating against certain companies and individuals who have offered and sold various cryptocurrencies in violation of the registration provisions of the Securities Act of 1933 (the “Securities Act”) and the anti-fraud provisions of the Securities Act and the Securities Exchange Act of 1934 (the “Exchange Act”). While we believe that our non-custodial staking business does not involve the offer or sale of a security, we do not know if the SEC will agree or whether if we seek relief from the courts, we will be successful. If we are also found to have offered and sold securities in violation of the Securities Act and the Exchange Act, the SEC could sue us for acting as an unregistered dealer. Further, as discussed in the risk factor noted above, we may inadvertently violate the 1940 Act. Whether we voluntarily cease our current business or litigate and lose, we would be required to find another business opportunity whether through an acquisition or otherwise. We may also have to pay a civil monetary penalty if the SEC sues us and is successful or as a condition of any settlement. We have no plans with regard to another business opportunity and our shareholders may not have any opportunity to vote on any new business, unless our common stock remains listed on the Nasdaq Capital Market and its rules require it. Because of the recent volatility in the cryptocurrency market and other adverse developments and publicity surrounding the industry, our business plans may not be successful and our business and financial condition may be adversely affected. Our business is focused on the cryptocurrency industry, particularly blockchain infrastructure and staking-as-a-service. We also hold and stake a number of crypto assets to generate revenue from the PoS systems on which they operate. The crypto asset industry is characterized by a high level of volatility, and the significant decline in the prices of most popular crypto assets such as Bitcoin and Ethereum from their all-time highs in 2021 has cast doubt on the future of crypto asset-focused businesses such as ours, despite the partial recovery of those prices as of February 2024. This trend was further impacted by the recent controversy and failure surrounding FTX, a crypto asset exchange that collapsed after its Chief Executive Officer was accused of fraud and misappropriation of corporate funds in a manner that has been compared to both Enron and Madoff. Since then certain other crypto asset-focused companies have filed for bankruptcy, in March 2023 three major U.S. banks with involvement in crypto assets collapsed, and in November 2023 Binance settled charges alleging violation of sanctions and facilitating human and narcotics trafficking which settlement included its forced exit from the United States. These developments appear to reflect a broader regulatory landscape, wherein regulators have begun reviewing crypto asset-focused companies and their operations with greater scrutiny, and have brought enforcement actions seeking to restrict or cease such activities. While we believe the non-custodial staking model we are pursuing for our platform presents distinctions from custodial methods of holding and controlling crypto assets such as those that were employed by defendants in past regulatory actions such as FTX and Kraken, holders of crypto assets, regulators, and other stakeholders may fail to appreciate this distinction or to consider it sufficient to utilize our services or invest in our business. If we are unable to separate ourselves from the recent adverse developments in the crypto asset space, or otherwise develop and execute on our business plan and blockchain infrastructure in a manner that enables us to establish and maintain material revenue sources, our business and financial condition could be materially adversely affected. Further, a perceived lack of stability in the crypto asset and the closure or suspension shutdown of crypto asset exchanges and networks due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce confidence in crypto asset networks and result in greater volatility in crypto asset values and on our results of operations. Further, our focus on crypto assets, and the above-described past and/or any future adverse developments with respect to our operations or industry, could result in declines or volatility in our stock price, difficulty or inability to obtain adequate financing as needed, on favorable terms or at all, reduction in consumer demand for our platform and services, the risk of increased losses or asset impairments, and the potential for legal proceedings and reputational harm which could arise from any of the foregoing. Such external developments have the potential to affect us even if we believe our financial condition, operations and infrastructure our secure. These potential consequences could materially adversely affect an investment in us. Past and recent events have increased the likelihood that U.S. federal and state legislatures and regulatory agencies will enact laws and regulations to regulate crypto assets and crypto asset intermediaries, such as crypto exchanges and custodians. Beginning with the collapse of TerraUSD and Luna in 2022 and the bankruptcy filings of FTX and its subsidiaries, Three Arrows Capital, Celsius Network, Voyager Digital, Genesis Global and BlockFi, as well as alleged violations of law brought against other industry participants, have resulted in calls for heightened scrutiny and regulation of the crypto asset industry, with a specific focus on crypto asset exchanges, platforms, and custodians. Federal and state legislatures and regulatory agencies are expected to introduce and enact new laws and regulations to regulate crypto asset intermediaries, such as crypto asset exchanges and custodians. The March 2023 collapses of Silicon Valley Bank, Silvergate Bank, and Signature Bank are believed to have also contributed to these trends. The U.S. regulatory regime – namely the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the SEC, the CFTC, FinCEN, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Bureau of Investigation) as well as the White House have issued reports and releases concerning crypto assets, including Bitcoin and crypto asset markets, and have formed coalitions aimed at addressing the perceived threats posed by crypto assets and activities involving them. However, the extent and content of any forthcoming laws, regulations and government actions are not yet ascertainable with certainty, and it may not be ascertainable in the near future. A divided Congress makes any prediction difficult. Further the SEC seems to have changed tactics as it has sued multiple crypto asset companies for selling, operating exchanges, and engaging in other prohibited activities involving unregistered securities. We cannot predict how these and other related events will affect us or the crypto asset business generally. We cannot assure you that future legislation or regulation will not have an adverse effect upon us. It is possible that new laws and increased regulation and regulatory scrutiny may require the Company to comply with certain regulatory regimes, which could result in new costs for the Company. The Company may have to devote increased time and attention to regulatory matters, which could increase costs to the Company. New laws, regulations, and regulatory actions could significantly restrict or eliminate the market for, or uses of, crypto assets including Ethereum, which could have a negative effect on the value of Ethereum, which in turn would have a negative effect on the value of the Company’s shares. 32 Because our blockchain infrastructure business is dependent on the value of the crypto assets we stake to obtain blockchain rewards, and because those rewards are paid out in the form of the blockchain’s native crypto assets, low market values and/or continued or long-term declines in crypto asset prices will materially and adversely affect our results of operations. As discussed above, the cryptocurrency market experienced a critical decline in 2022, although prices of some major crypto assets including Bitcoin and Ethereum have partially recovered in 2023 and thus far in 2024. Prospects of a full recovery declined when the FTX controversy arose and was subsequently followed by other adverse developments involving crypto-focused companies. Our reliance on staking, which is expected to increase as we continue to seek to expand our non-custodial staking-as-a-service business, means that if the market values of the crypto assets we stake continues to decline or remain at the relatively low levels they are currently, which appears possible given the adverse developments and wide scale sales of and skepticism surrounding crypto assets that have resulted, the revenue we generate from staking will diminish. This is because the rewards for staking a given crypto asset are paid out in more of that same crypto asset. Therefore, if the market price for the crypto asset declines while staking is ongoing, unless the price later recovers, the rewards we receive may not cover the decline in value of the assets. If this trend continues, our operating results and financial condition will be materially adversely affected. Our business faces significant scaling obstacles due to its dependence on crypto assets and related infrastructure. Crypto assets on which our current and planned operations depend 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 of crypto assets is essential to the widespread acceptance of crypto assets as a means of payment or other uses that stakeholders have in the past cited in demonstrating interest in crypto assets. Many crypto asset networks, including those with which we are or may become involved in our operations, face significant scaling challenges. For example, crypto assets are limited with respect to how many transactions can occur per second. Participants in the crypto asset ecosystem debate potential approaches to increasing the average number of transactions per second that a network can handle and have implemented mechanisms or are researching ways to increase scale, such as increasing the allowable sizes of blocks, and therefore the number of transactions per block, and sharding (a horizontal partition of data in a database or search engine), which would not require every single transaction to be included in every single validator’s block. However, there is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement of crypto asset transactions will be effective. If adoption of crypto assets as a means of payment or other uses does not occur on the schedule or scale anticipated or at all, the demand for crypto assets may stagnate or decrease, which could adversely affect future prices of crypto assets we hold or otherwise rely upon in our operations, and our results of operations and financial condition, which could have a material adverse effect on our business or the market price for our securities. The further development and acceptance of cryptographic and algorithmic protocols governing the issuance of and transactions in cryptocurrencies, which represent a rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The use of crypto assets to, among other things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs cryptocurrency assets based upon a computer-generated mathematical and/or cryptographic protocol. Large-scale acceptance of cryptocurrencies as a means of payment has not, and may never, occur. The growth of the cryptocurrency industry in general, and the use of crypto assets in particular, is subject to a high degree of uncertainty. The factors affecting the further development of the cryptocurrency industry, include but are not limited to: ● continued worldwide growth in the adoption and use of crypto assets as a medium of exchange; ● government and quasi-government regulation of crypto assets and their use, or restrictions on or regulation of access to and operation of the crypto assets systems; ● the maintenance and development of the open-source software protocol of cryptocurrency networks; ● changes in consumer demographics and public tastes and preferences; ● the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies and digital forms of fiat currencies; ● general economic conditions and the regulatory environment relating to crypto assets; and ● the impact of regulators focusing on crypto assets and Digital Securities and the costs associated with such regulatory oversight. A decline in the popularity or acceptance of the Ethereum network or other blockchains networks we have exposure to could adversely affect an investment in us. The outcome of these factors could have negative effects on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations as well as potentially negative effect on the value of any Ethereum or other crypto assets we hold or acquire, which would harm investors in our securities. 33 If a malicious actor or botnet obtains control in excess of 50% control of a cryptocurrency network, it is possible that such actor or botnet could manipulate a 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 or staked assets dedicated to either mining or staking a cryptocurrency, it may be able to alter blockchains on which transactions of cryptocurrency reside and rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could control, exclude or modify the ordering of transactions, though depending on blockchain may not generate new units or transactions using such control. The malicious actor could “double-spend” its own cryptocurrency (i.e., spend the same crypto asset in more than one transaction) and prevent the confirmation of other users’ transactions for as long as it maintained control. To the extent that such malicious actor or botnet does not yield its control of the processing power or staked assets on the network, or the cryptocurrency community does not reject the fraudulent blocks as malicious, reversing any changes made to blockchains may not be possible. The foregoing description is not the only means by which the entirety of blockchains or cryptocurrencies may be compromised but is only an example and may differ from blockchain to blockchain. The possible crossing of the 50% threshold indicates a greater risk that a single validator could exert authority over the validation of network transactions. To the extent that a blockchain ecosystem including other validators do not act to ensure greater decentralization of validator voting power, the feasibility of a malicious actor obtaining control will increase because the botnet or malicious actor could compromise more than 50% voting power and thereby gain control of blockchain, whereas if the blockchain remains decentralized it is inherently more difficult for the botnet of malicious actor to aggregate enough voting power to gain control of the blockchain, may adversely affect an investment in our Common Stock. Such lack of controls and responses to such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any Ethereum or other crypto assets we acquire or hold, and harm investors. The decentralized nature of crypto asset systems may lead to slow or inadequate responses to crises, which may negatively affect our business . The decentralized nature of the governance of crypto asset systems may lead to ineffective decision making that slows development or prevents a network from overcoming emergent obstacles. Governance of many crypto asset systems is by voluntary consensus and open competition with no clear leadership structure or authority. To the extent lack of clarity in corporate governance of cryptocurrency systems leads to ineffective decision making that slows development and growth of such crypto assets, the value of our Common Stock may be adversely affected. Crypto exchanges are relatively new and therefore may be more exposed to fraud and failure than established, regulated exchanges for other products. To the extent that large crypto exchanges representing a substantial portion of the crypto asset volume are involved in fraud or experience security failures or other operational issues, such exchanges’ failures may result in a reduction in the price of crypto assets and adversely affect an investment in us. A number of crypto exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such exchanges were not compensated or made whole for the partial or complete losses of their account balances in such exchanges. While smaller exchanges are less likely to have the infrastructure and capitalization that make larger exchanges more stable, larger exchanges are 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). A lack of stability in an exchange market and the closure or temporary shutdown of larger crypto exchanges due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in crypto assets overall and result in greater volatility in crypto asset values. These potential consequences of an exchange’s failure could adversely affect an investment in us. There is a lack of liquid markets, and possible manipulation of blockchain/cryptocurrency-based crypto assets. Crypto assets that are represented and trade on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have listing requirements and vet issuers; requiring them to be subjected to rigorous listing standards and rules, and monitor investors transacting on such platform for fraud and other improprieties. These conditions may not necessarily be replicated on a distributed ledger platform, depending on the platform’s controls and other policies. The laxer a distributed ledger platform is about vetting issuers of cryptocurrency assets or users that transact on the platform, the higher the potential risk for fraud or the manipulation of the ledger due to a control event. These factors may decrease liquidity or volume or may otherwise increase volatility or other assets trading on a ledger-based system, which may adversely affect us. Such circumstances could adversely affect an investment in us. 34 Political or economic crises may motivate large-scale sales of crypto assets, which could result in a reduction in crypto asset values and adversely affect an investment in us. Geopolitical or economic crises may motivate large-scale sales of crypto assets, which could rapidly decrease the price of crypto assets. For example, market analysts have indicated that in some cases, such as during large scale adverse economic events, trading and market prices of cryptocurrencies such as Bitcoin and Ethereum have correlated to some extent with the movement of equity markets, regardless of the stock or asset class. For example, in March 2020, as global shutdowns ramped up in response to the COVID-19 pandemic, the price of Bitcoin, Ethereum and other crypto assets plummeted together with stock prices globally. Similarly, in 2022 as the Federal Reserve raised interest rates to combat inflation, crypto asset prices declined with stock prices in the U.S. These trends are contrary to a formerly commonly held conception that buying and holding crypto assets can be used as a “hedge” to investing in the more conventional equity markets, and may eventually result in diminished popularity of crypto assets in general by the public. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in crypto assets as investors focus their investment on less volatile asset classes as a means of hedging their investment risk. As an alternative to fiat currencies that are backed by central governments, crypto assets such as Bitcoin and Ethereum, 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 crypto assets either globally or locally. Large-scale sales of crypto assets would result in a reduction in crypto asset values and could adversely affect an investment in us. The price of crypto assets may be affected by the sale of such crypto assets by other vehicles investing in crypto assets or tracking cryptocurrency markets. The global market for crypto assets is characterized by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical protocols under which certain cryptocurrencies are mined or minted permit the creation of a limited, predetermined amount of currency, while others have no limit established on total supply. To the extent that other vehicles investing in crypto assets or tracking cryptocurrency markets form and come to represent a significant proportion of the demand for crypto assets, large redemptions of the securities of those vehicles and the subsequent sale of crypto assets by such vehicles could negatively affect crypto asset prices and therefore affect the value of our crypto assets. Such events could have a material adverse effect on an investment in us. Current interpretations require the regulation of Bitcoin, Ethereum, and other crypto assets under the CEA by the CFTC, we may be required to register and comply with such regulations. To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in extraordinary, non-recurring expenses to us. We may also decide to cease certain operations. Any disruption of our operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors. Current and future legislation, CFTC and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoin, Ethereum, and other crypto assets are treated for classification and clearing purposes. In particular, derivatives on these assets are not excluded from the definition of “commodity future” by the CFTC. We cannot be certain as to how future regulatory developments will impact the treatment of Bitcoin, Ethereum, and other crypto assets under the law. Bitcoin and Ethereum have been deemed to fall within the definition of a commodity and, we may be required to register and comply with additional regulation under the CEA, including additional periodic report and disclosure standards and requirements. Moreover, we may be required to register as a commodity pool operator and to register us as a commodity pool with the CFTC through the National Futures Association. 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. 35 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 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, to the extent validation constitutes a transaction, with persons named on OFAC’s SDN list. While we don’t believe validation constitutes a transaction, we can provide no assurances regulators will agree with that view. By way of example our Ethereum validator nodes only use block builders which remove wallet addresses found on the SDN list and Builder+ also screens out these SDN wallet addresses. Our Company’s policy prohibits any transactions with such SDN individuals, but we may not be adequately capable of determining the ultimate identity of the individual who delegate to our nodes. Additionally, the U.S Department of Treasury recently has added sanctions that prevent U.S. persons from using cryptocurrencies to circumnavigate financial sanctions placed on Russia. 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 affect the value of our Common Stock. If federal or state legislatures or agencies initiate or release tax determinations that change the classification of Bitcoin, Ethereum or other crypto assets as property for tax purposes (in the context of when such crypto assets are held as an investment), such determination could have a negative tax consequence on our Company or our shareholders. Current IRS guidance indicates that crypto assets such as Ethereum should be treated and taxed as property, and that transactions involving the payment of Ethereum 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 an Ethereum passes from one person to another, usually by means of Ethereum transactions (including off-blockchain transactions), it preserves the right to apply capital gains treatment to those transactions which may have adversely affect an investment in our Company. On December 5, 2014, the New York State Department of Taxation and Finance issued guidance regarding the application of state tax law to crypto assets such as Bitcoin and Ethereum. The agency determined that New York State would follow IRS guidance with respect to the treatment of crypto assets for state income tax purposes. Furthermore, they defined crypto assets to be a form of “intangible property,” meaning the purchase and sale of crypto assets for fiat currency is not subject to state income tax (although transactions of crypto assets for other goods and services maybe 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 crypto assets for income tax and sales tax purposes. If a state adopts a different treatment, such treatment may have negative consequences including the imposition of greater a greater tax burden on investors in crypto assets or imposing a greater cost on the acquisition and disposition of crypto assets, generally; in either case potentially having a negative effect on prices in crypto assets and may adversely affect an investment in our Company. Foreign jurisdictions may also elect to treat crypto assets 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 crypto asset users imposes onerous tax burdens crypto users, or imposes sales or value added tax on purchases and sales of crypto assets for fiat currency, such actions could result in decreased demand for crypto assets in such jurisdiction, which could impact the price of crypto assets and negatively impact an investment in our Company. We may suffer losses due to staking, delegating, and other related services. Crypto assets which utilize PoS consensus mechanisms enable holders to earn rewards by operating nodes and participating in decentralized governance, bookkeeping and transaction confirmation activities on their underlying blockchain networks. We stake certain of our crypto assets and operate nodes on blockchain networks through our blockchain infrastructure operations. Most PoS networks require crypto assets to be transferred into smart contracts on the underlying blockchain networks not under our or anyone’s control. If our validators, any third-party service providers, or smart contracts fail to behave as expected, suffer cybersecurity attacks, experience security issues, or encounter other problems, our crypto assets may be irretrievably lost. In addition, most PoS blockchain networks dictate requirements for participation in the relevant decentralized governance activity, and may impose penalties, or “slashing,” if the relevant activities are not performed correctly, such as if the node operator acts maliciously on the network, “double signs” any transactions, or experience extended downtimes. Slashing penalties can apply due to prolonged inactivity on a blockchain network and inadvertent errors such as computing or hardware issues, as well as more serious behavior such as intentional malfeasance. If we are slashed by an underlying blockchain network, our crypto assets may be confiscated, withdrawn, or burnt by the network, resulting in permanent losses. Any penalties or slashing events could damage our brand and reputation, cause us to suffer financial losses, and adversely impact our business. 36 Builder+, ChainQ, and our blockchain infrastructure operations including Company owned and run validator nodes on PoS blockchains, are subject to concentration risk as they are consolidated on Amazon Web Services. The development and operation of the Company’s validator nodes for non-custodial staking, as well as the development of StakeSeeker, Builder+, and ChainQ, are hosted on cloud computing by Amazon Web Services (“AWS”). The consolidation of our proprietary technology on AWS subjects the Company to cyber security and other risks that face AWS. We have limited control over AWS, the services it provides us and the safety and security measures related thereto. If AWS fails to maintain the continuous functionality or security of its networks and related hardware on which we rely for our operations, we may be unable to generate revenue we otherwise would, and could suffer substantial losses. For example, some PoS networks implement the slashing penalties described above, wherein the crypto assets that were staked to allow us to participate in the validation process are taken away from us, if a validator node on which the crypto asset is staked is offline for a certain amount of time. Additionally, if our Delegators crypto assets become subject to slashing, we could experience significant losses, from resulting claims against us by them, as well as reputational harm and lost customer relationships. If any of the foregoing or other adverse developments occur as a result of our reliance on a single service provider for our PoS validating operations, it could have a material adverse effect on our business, financial condition and results of operations. Crypto assets staked on Proof-of-Stake blockchains are locked in smart contracts and may not be accessible and liquid. Crypto assets which utilize PoS consensus mechanisms are locked in smart contracts while staked which limits liquidity of the underlying crypto asset. This is because under PoS network protocols, in order to participate in the staking process validators such as us are required to enter into smart contracts which, among other things, require the validator to continue to keep a specified number of the crypto assets owned by the validator “locked-up” in the network for a specified period of time before they can again be transferred by such validator. This lock-up period often extends beyond the time at which the transaction is validated. We currently stake certain of our crypto assets and operate nodes on blockchain networks through our blockchain infrastructure services business. During times of high volatility or downturns, which are common among crypto assets for many reasons including those described elsewhere in these Risk Factors, we may be unable to liquidate certain crypto assets to the extent desired. As such we may experience large losses when and if we are able to liquidate our crypto assets as a result of continued volatility. Further if we are unable to liquidate our crypto assets we could suffer material financial losses, which would adversely impact our business. Because our current staking-as-a-service business plan and operations depend on consumers investing in crypto assets and staking to our nodes and monitoring them using our non-custodial platform, economic downturns will materially adversely affect us. Our non-custodial staking-as-a-service strategy depends on consumers purchasing crypto assets from exchanges and holding them long-term, and staking them to our validator nodes. Therefore, economic downturns or a recession will cause a reduction in delegation traffic to our nods by causing consumers to reduce spending on investments or non-essential items such as crypto assets. Similarly, a decline in the popularity or public perception of such crypto assets would yield a similar result. In 2022, the U.S. capital markets in general, and crypto assets prices in particular, saw significant declines as the Federal Reserve heightened interest rates to combat inflation. This followed initial declines earlier in 2022 in response to the Ukraine war and worsening supply chain issues and supply shortages. While the markets have appeared to recover as of February 2024, crypto and stock prices have nonetheless experienced substantial volatility in recent years, and in the event of adverse market conditions, consumers may elect to sell their crypto assets, or decline to increase their holdings, rather than hold and stake them to our nodes. Because we and our industry depend on consumers holding and staking crypto assets long-term, such a trend has the potential to materially adversely harm us and our prospects. Particularly in the event of prolonged or recurring recessionary or turbulent market conditions. 37 Our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions is uncertain and untested, and we are subject to uncertainty with respect to our Ethereum block building and non-custodial staking-as-a-service businesses and we may be subject to investigations and enforcement actions by U.S. and non-U.S. regulators and governmental authorities. In addition to the securities laws and regulations discussed elsewhere in these Risk Factors, laws regulating financial services, the internet, mobile technologies, digital, and related technologies inside and outside of the U.S. may impose obligations on us, as well as broader liability. For example, we are required to comply with laws and regulations related to sanctions and export controls enforced by U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC, and U.S. anti-money laundering and counter-terrorist financing laws and regulations, enforced by FinCEN and certain state financial services regulators. U.S. sanctions laws and regulations generally restrict dealings by persons subject to U.S. jurisdiction with certain governments, countries, or territories that are the target of comprehensive sanctions, currently the Crimea Region of Ukraine, Russian Federation, Cuba, Iran, North Korea, Syria, and Venezuela as well as with persons identified on certain prohibited lists. In May 2019, FinCEN issued guidance on the application of FinCEN regulations to certain business models. While the guidance directly addressed Bitcoin mining, it did not address securing PoS blockchains which while similar to Bitcoin mining has technical nuanced differences which could potentially alter the analysis. As such, there can be no guarantee that securing (staking) on PoS blockchain networks will be viewed as compliant, notwithstanding the May 2019 FinCEN guidance. In particular, the nature of blockchains make it technically impossible in all circumstances to prevent or identify transactions with particular persons or addresses. Our platform, StakeSeeker, utilizes geo-blocking in an effort to prevent its use by persons located in sanctioned jurisdictions by employing third-party software, Cloudflare, to automatically identify and restrict log-in attempts to the StakeSeeker platform from specific countries and jurisdictions These restricted areas include Cuba, Iran, North Korea, the Russian Federation, Syria, and Venezuela. Any StakeSeeker users detected from these regions will be redirected to a page informing them that their access has been restricted. In addition, our Builder+ block builder software is equipped with a filtering mechanism that screens transactions initiated by wallet addresses listed on OFAC’s Specially Designated Nationals And Blocked Persons (SDN) list, ensuring transactions from identified wallets are not included in the blocks we propose to validators. We actively monitor sanctioned jurisdictions to ensure that appropriate restrictions are maintained. If, notwithstanding these efforts, our current or planned activities are found to constitute “facilitating” or assisting the actions of non-U.S. persons that would be prohibited for U.S. persons to perform directly due to U.S. sanctions, despite the fact we don’t take custody of staked crypto assets nor pay delegator crypto rewards, it could result in material negative consequences for us, including costs related to government investigations, harsh financial penalties, and harm to our reputation. The impact on us related to these matters could be substantial. We’ve sought and are seeking additional legal guidance on what, if any, controls and procedures need to be put in place and whether our activities could constitute facilitation of any illicit activities under the current regulatory framework. Regulators worldwide frequently study each other’s approaches to the regulation of the digital economy. Consequently, developments in any jurisdiction may influence other jurisdictions. New developments in one jurisdiction may be extended to additional services and other jurisdictions. In addition, digital economies themselves are subject to rapid and unpredictable change that regulators could decide warrants updates or additions to existing regulatory regimes. As a result, the risks created by any new law or regulation in one jurisdiction are magnified by the potential that they may be replicated, affecting our business in another place. Conversely, if regulations diverge worldwide, we may face difficulty adjusting aspects of our business. The complexity of U.S. federal and state and international regulatory and enforcement regimes, coupled with the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions. Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brands and business, and adversely affect our operating results and financial condition. Due to the uncertain application of existing laws and regulations, it may be that, despite our planned regulatory and legal analysis that certain products and services are currently unregulated, such products or services may indeed be subject to financial regulation, licensing, or authorization obligations that we have not obtained or with which we have not complied. As a result, we are at a heightened risk of enforcement action, litigation, regulatory, and legal scrutiny which could lead to sanctions, cease, and desist orders, or other penalties and censures which could significantly and adversely affect our continued operations and financial condition. 38 Security Risks Related to Our Crypto Asset Holdings Our crypto assets may be subject to loss, damage, theft or restriction on access. There is a risk that part or all of our crypto assets could be lost, stolen, destroyed or become inaccessible. We believe that our crypto assets will be an appealing target to hackers or malware distributors seeking to destroy, damage, or steal our crypto assets. To minimize the risk of loss, damage and theft, security breaches, and unauthorized access we primarily hold our crypto assets in various cryptocurrency digital wallets and hold minimal amounts at exchanges. Nevertheless, the digital wallets and exchanges we utilize may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by us. Any of these events may adversely affect our operations and, consequently, an investment in us. To the extent that any of our crypto assets are held by crypto exchanges, we may face heightened risks from cybersecurity attacks and the financial stability of the exchanges. All crypto assets not held in a Company’s controlled digital wallet are held at crypto exchanges and subject to the risks encountered by those exchanges including DdoS Attacks, other malicious hacking, a sale of the exchange, loss of the crypto assets by the exchange, security breaches, and unauthorized access of our account by hackers. The Company may not maintain a custodian agreement with the exchanges with which it holds its crypto assets, and such exchanges do not provide insurance and may lack the resources to protect against hacking and theft. Less than 0.1% of the Company’s crypto assets are typically stored at exchanges; however, this may increase at or around the sales or purchase of crypto assets. We may be materially and adversely affected if the exchanges suffer cyberattacks or incur financial problems. The loss or destruction of a private key required to access a crypto asset may be irreversible. Our loss of access to our private keys could adversely affect an investment in our Company. Crypto assets are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the crypto assets are held. We are required by the operation of the crypto asset network to publish the public key relating to a digital wallet in use by us when it first verifies a spending transaction from that digital wallet and disseminates such information into the network. We safeguard and keep private the private keys relating to our crypto assets not held at exchanges by utilizing key sharing and multi-signature storage techniques; to the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is accessible, we will be unable to access the crypto assets held by it and the private key will not be capable of being restored by the network. Any loss of private keys relating to digital wallets used to store our crypto assets could adversely affect an investment in us. Security threats to us could result in a loss of Company’s crypto assets. 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 Ethereum and other crypto assets. Any breach of our infrastructure could result in damage to our reputation which could adversely affect an investment in us. Furthermore, we believe that, as our assets continue to grow, it may become a more appealing target for security threats such as hackers and malware. The security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of ours, or otherwise, and, as a result, an unauthorized party may obtain access to our, private keys, data, or Ethereum. Additionally, outside parties may attempt to fraudulently induce employees of ours to disclose sensitive information in order to gain access to our infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security system occurs, the market perception of the effectiveness of our security system could be harmed, which could adversely affect an investment in us. In the event of a security breach, we may be forced to cease operations, or suffer a reduction in assets, the occurrence of each of which could adversely affect an investment in us. Incorrect or fraudulent crypto asset transactions may be irreversible. Crypto asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction. Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of crypto assets or a theft of crypto assets generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our crypto 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 which has received our crypto assets through error or theft, we will be unable to revert or otherwise recover incorrectly transferred crypto assets. To the extent that we are unable to seek redress for such error or theft, such loss could adversely affect an investment in us. The limited rights of legal recourse against us, and our lack of insurance protection expose us and our shareholders to the risk of loss of our crypto assets for which no person is liable. The crypto assets held by us are not insured. Therefore, a loss may be suffered with respect to our crypto assets which are 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. Crypto assets held by us are not subject to FDIC or SIPC protections. We do not and will not hold our Ethereum and other crypto assets with a banking institution or a member of the FDIC or the Securities Investor Protection Corporation (“SIPC”) and, therefore, our crypto assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. 39 Risks Related to Our Development Efforts There is substantial doubt that we will be able to fully develop or commercialize our StakeSeeker platform as intended. We are continuing to develop our StakeSeeker platform with the ultimate goal of consolidating users’ information so that it can be more easily accessed and reviewed by users. We may not successfully fully develop this platform as planned, in a cost-efficient manner, to the extent sought or at all. If we fail to develop a comprehensive dashboard for StakeSeeker as intended, it could have a material adverse effect on our business, especially to the extent that we allocate significant capital, labor and other resources to this endeavor rather than focusing on other business opportunities which may prove to have been more lucrative in hindsight. Even if we do successfully develop our platform and bring it to the marketplace, there is no guarantee that we will attract enough users to generate revenue or become profitable. Our competitors, most of whom have greater capital and human resources than we do, may develop technologies that are superior to our platform or commercialize comparable technologies before us, in which case our ability to attract users and generate revenue therefrom could be rendered unlikely or even impossible. If we fail to obtain users for our platform or find an alternative means of commercializing our platform to recoup our investment therein, it will have a material adverse effect on our financial condition. Finally, even if we do fully develop the platform and attract users, events outside of our control such as regulatory actions against us or crypto assets on which our platform depend, or economic downturns, could force us to cease operating our platform or render it obsolete. If we fail to fully develop and commercialize our platform in a timely and effective manner, your investment in us could lose some or all of its value. Even if we develop and commercialize our StakeSeeker platform, we may not be able to generate material revenues. The continued development of StakeSeeker will require significant time and capital. Even if we do develop this platform and acquire a sufficient number of users to generate revenue, we cannot guarantee the revenue would be material or sufficient to justify the costs we anticipate incurring to develop the platform. While we are pursuing the development of additional features to make our platform more useful and attractive to consumers involved in crypto assets, we may fail to develop these features effectively in an efficient manner, or within a timeframe that enables us to be or remain competitive. Our ability to capitalize on any platform we do develop will depend on a variety of factors and uncertainties beyond our control, including the competition we face and similar or superior services that may already exist by the time we begin marketing our platform, the volatile nature of the blockchain industry generally and the unknown demand for the services we plan to offer through our platform as it is currently envisioned, regulatory developments that have arisen or may arise in the future, and the advancement of new technologies which could arise in the future and render our platform partially or completely obsolete. If any of these or other risks come to fruition to prevent our platform from generating material revenue to justify its costs of production, it would have a material adverse effect on our business. We may experience loss of revenues resulting from excessive removal of delegated crypto assets from our validator nodes. To the extent the Company successfully executes on its business plan and earns material revenue from customers who delegate their crypto assets to the Company’s validator nodes and subsequently experiences excessive removal of customer staked crypto assets from its validator nodes (i.e. a loss of customers) the Company would lose the related revenue which may have a material adverse impact on the Company. Shifts in the Ethereum block building landscape and market could increase the difficulty of remaining competitive and increase costs. Our Ethereum block builder, Builder+, faces competition from existing and potential entrants in the expanding market. New and existing competitors may emerge with superior algorithms or strategies, potentially eroding our current market share, potential growth, and revenue generation potential. Moreover, changes in the Ethereum ecosystem, including network upgrades or shifts to alternative networks, may impact the demand for our services. Staying competitive requires continuous innovation and adaptation to market dynamics, which may necessitate additional investments and resources. We may experience losses resulting from technical failures, bugs, or vulnerabilities in our block builder software. The risk of technical failures, bugs, or vulnerabilities in our block builder software could lead to operational disruptions and potential financial losses. Our Ethereum block-building process heavily relies on advanced algorithms and technology. The risk of technical failures, bugs, or vulnerabilities in our block builder software could lead to operational disruptions and potential financial losses. Furthermore, the security of our operation is paramount, as vulnerabilities in smart contracts, blockchain infrastructure, or the Ethereum network could result in security breaches, data breaches, and financial harm to our clients and us. Ensuring the ongoing scalability and efficiency of our algorithms requires continuous investment in research and development. The development of our StakeSeeker and ChainQ platforms will depend on the successful efforts of our employees. Our platform development efforts are completely dependent on our infrastructure. We use internally developed systems for the platforms. Any future difficulties in developing aspects of our platforms may cause delays in bringing our platforms to market. If our data stored on AWS and the backups thereof are compromised, our platform and prospects could be harmed. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, the occurrence of any of which could lead to interruptions, delays, loss of critical data, or the inability to launch our platform. The occurrence of any of the foregoing risks could materially harm our business. We are subject to cyber security risks and may incur delays in platform development in an effort to minimize those risks and to respond to cyber incidents. StakeSeeker is and will continue to be dependent on the secure operation of our website and systems as well as the operation of the Internet generally. The platform involves reading user data, and storage of user data, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. A number of large Internet companies have suffered security breaches, some of which have involved intentional attacks. From time to time, we and many other internet businesses also may be subject to a denial-of-service attacks wherein attackers attempt to block customers’ access to our website. If we are unable to avert a denial-of-service attack for any significant period, we could sustain delays in the development of the platform and when launched risk losing future users and have user dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us, our users, or exchanges we read data from in general or the communication infrastructure on which we depend. If an actual or perceived attack or breach of our security occurs, user perception of the effectiveness of our security measures could be harmed and we could lose our future user. Actual or anticipated attacks and risks may cause us to incur increasing costs, and delay development. A person who is able to circumvent our security measures might be able to misappropriate our or our users’ proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and platform. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business. 40 We may become subject to data privacy and data security laws and regulations by virtue of our StakeSeeker platform, which could force us to incur significant compliance costs and expose us to liabilities. By virtue of our platform, including planned additional functions, we may become subject to the various local, state, federal, and international laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer, and processing of personal data. These data protection and privacy laws and regulations and their applicability to our current and future operations and offerings are subject to uncertainty and continue to evolve in ways that could adversely impact our business. These laws could have a substantial impact on our operations, depending in large part on the location of our operations, users, employees and other stakeholders with which we are or become involved. In the United States, state and federal lawmakers and regulatory authorities have increased their attention on the collection and use of user data. For example, California enacted the California Consumer Privacy Act, or CCPA, which became effective in 2020. The CCPA requires covered companies to, among other things, provide new disclosures to California users, and affords such users new privacy rights such as the ability to opt-out of certain sales of personal information and expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is collected, used, and shared. The CCPA provides for civil penalties for violations, as well as a private right of action for security breaches that may increase security breach litigation. Potential uncertainty surrounding the CCPA may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a material adverse effect on our business, including how we use personal information, our financial condition, the results of our operations or prospects. Since the CCPA was enacted, a growing number of states have enacted similar legislation designed to protect the personal information of consumers and penalize companies that fail to comply, and other states have also proposed similar legislation. The costs of compliance with, and other burdens imposed by, the CCPA, and similar laws may limit our prospective customer base or the use and adoption of our products and services and/or require us to incur substantial compliance costs, which could have an adverse impact on our business. Additionally, many foreign countries and governmental bodies in which our users may reside, have laws and regulations concerning the collection, use, processing, storage, and deletion of personal information obtained from their residents or by businesses operating within their jurisdiction. These laws and regulations are often more restrictive than those in the United States. Such laws and regulations may require companies to implement new privacy and security policies, permit individuals to access, correct, and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, require that certain types of data be retained on local servers within these jurisdictions, and, in some cases, obtain individuals’ affirmative opt-in consent to collect and use personal information for certain purposes. There is a risk that as we develop and offer our platform and other services, we may become subject to one or more of these data privacy and security laws. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection, and information security, including by deploying geo-blocking features to limit the jurisdictions from which our platform can be accessed, it is possible that our practices, offerings, or platform, or third parties on which we rely, could fail. For instance, the overall regulatory framework governing the application of privacy laws to blockchain technology is still highly undeveloped and likely to evolve. Further, given the pseudonymous nature of activities involving crypto assets, we may encounter enhanced difficulties in our compliance efforts that are not present to the same degree in other business types. Our failure, or the failure by our third-party providers or partners, to comply with applicable laws or regulations and to prevent unauthorized access to, or use or release of personal data, or the perception that any of the foregoing types of failure has occurred, even if unfounded, could subject us to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, potential severe criminal or civil sanctions, fines or damages, reputational harm, or expensive and time-consuming proceedings by governmental agencies and private claims and litigation, any of which could materially adversely affect our business, operating results, and financial condition. We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing the StakeSeeker platform. Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties however, we may not always be able to determine that we are using or accessing protected information or software. For example, there could be issued patents of which we are not aware that our products infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. 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 products infringe. Because of the foregoing, we may be subject to legal claims of alleged infringement of the intellectual property rights of third parties. We expect this risk to increase as we continue to develop and roll-out additional functions for the StakeSeeker platform and potential StaaS operations in the future. The ready availability of damages, royalties and the potential for injunctive relief has increased the defense litigation costs of patent infringement claims, especially those asserted by third parties whose sole or primary business is to assert such claims. Such claims, even if not meritorious, may result in significant expenditure of financial and managerial resources, and the payment of damages or settlement amounts. Accordingly, we could expend significant resources defending against patent infringement and other intellectual property right claims, which could require us to divert resources away from operations. Any damages we are required to pay or injunctions against our continued use of such intellectual property in resolution of such claims may cause a material adverse effect to our business and operations, which could adversely affect the trading price of our securities and harm our investors. Additionally, we may become subject to injunctions prohibiting us from using software or business processes we currently use or may need to use in the future or requiring us to obtain licenses from third parties when such licenses may not be available on financially feasible terms or terms acceptable to us or at all. In addition, we may not be able to obtain on favorable terms, or at all, licenses or other rights with respect to intellectual property we do not own in providing ecommerce services to other businesses and individuals under commercial agreements. 41 Risks Related to Our Public Company Reporting Requirements and Accounting Matters We may need to implement additional finance and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements . We are required to comply with a variety of reporting, accounting, and other rules and regulations. Compliance with existing requirements is expensive. We may need to implement additional finance and accounting systems, procedures, and controls to satisfy our reporting requirements and such further requirements may increase our costs and require additional management time and resources. For example, many crypto assets, including those on PoS blockchain networks with which we are or may become involved, demonstrate novel and unique accounting challenges, including due to smart contracts affecting the underlying crypto assets. Any deficiencies in our internal control over financial reporting, should they arise, could cause investors to lose confidence in our reported financial information, negatively affect the market price of our Common Stock, subject us to regulatory investigations and penalties, and adversely impact our business and financial condition. Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results . Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to revenue recognition, estimating valuation allowances and accrued liabilities (including allowances for returns, credit card chargebacks, doubtful accounts and obsolete and damaged inventory), internal use software and website development (acquired and developed internally), accounting for income taxes, valuation of long-lived and intangible assets and goodwill, stock-based compensation and loss contingencies, are highly complex and involve many subjective assumptions, estimates and judgments by our management. Additional complexities can arise with respect to crypto asset operations. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance. Further, in January 2024 we adopted a new accounting treatment (ASU No. 2023-08) for our crypto assets, which may pose challenges or added expenses in the preparation of our financial statements, or render a comparison of our financial performance and condition between periods more difficult or investors, especially given the novelty of this new accounting method for crypto assets. If our estimates or judgment relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected. The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in Part II, Item 7 of this Annual Report on Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve the identification of performance obligations in revenue recognition, evaluation of tax positions, and the valuation of stock-based awards and crypto assets we hold, among others. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of analysts and investors, resulting in a decline in the trading price of our Common Stock. We are subject to the information and reporting requirements of the Exchange Act), and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to shareholders will cause our expenses to be higher than they would have been if we were privately held. It may be time-consuming, difficult and costly for us to develop, implement and maintain the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. Public company compliance may make it more difficult to attract and retain officers and directors. The Sarbanes-Oxley Act and rules implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs and make certain activities more time-consuming and costly. The impact of the SEC’s July 25, 2017 report on Digital Securities (the “DAO Report”) as well as enforcement actions and speeches made by the SEC’s Chairman will increase our compliance and legal costs. As a public company, we also expect that these rules and regulations will make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board or as executive officers, and to maintain insurance at reasonable rates, or at all. 42 Risks Related to our Common Stock Our stock price may be volatile. The market price of our Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following: ● changes in our industry including changes which adversely affect crypto assets; ● adverse regulatory developments such as the recent actions brought by securities regulators on crypto assets activities; ● public announcements and corporate events; ● continued volatility in the price of crypto assets; ● our ability to obtain working capital financing; ● sales of our securities or those of other companies, or of crypto assets, due to external forces such as geopolitical turmoil, inflation, federal interest rate adjustments or other events; ● additions or departures of key personnel including our executive officers; ● sales of our Common Stock; ● exercise of our warrants and the subsequent sale of the underlying Common Stock; ● conversion of our convertible notes and the subsequent sale of the underlying Common Stock; ● our ability to execute our business plan; ● operating results that fall below expectations; ● loss of any strategic relationship; and ● economic and other external factors. In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock. As a result, you may be unable to resell your shares at a desired price. While we paid a cash dividend in 2022, and declared a Series V Preferred stock (“Series V”) dividend in 2023, we do not expect to pay regular or recurring dividends in the future. Any return on investment may be limited to the value of our Common Stock. While we declared and paid a cash dividend (which came with the option to be paid in Bitcoin if elected by the shareholder) payable to holders of our Common Stock as of March 17, 2022, and distributed Series V dividend to shareholders of our Common Stock of record as of May 12, 2023, we do not anticipate paying dividends on a regular or recurring basis for the foreseeable future. Any future payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only occur if our stock price appreciates. Our articles of incorporation allow for our Board to create new series of preferred stock without further approval by our shareholders, which could adversely affect the rights of the holders of our Common Stock. Our Board has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board also has the authority to issue preferred stock without further shareholder approval. As a result, our Board could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, provide holders of the preferred anti-dilution protection, the right to receive dividend payments before dividends are distributed to the holders of Common Stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our Common Stock. For example, we issued a total of 14,542,803 shares of Series V Preferred Stock in June 2023, which preferred stock comes with a 20% liquidation preference over our Common Stock and also has certain rights to dividend and distributions at the discretion of the Board. In addition, our Board could authorize the issuance of a series of preferred stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative voting power of our Common Stock or result in dilution to our existing shareholders. Substantial future sales of our Common Stock by us or by our existing shareholders could cause our stock price to fall. Additional equity financings (in addition to the shares issued under the ATM Agreement) or other share issuances by us, including shares issued in connection with strategic alliances and corporate partnering transactions, could adversely affect the market price of our Common Stock. Sales by existing shareholders of a large number of shares of our Common Stock in the public market or the perception that additional sales could occur could cause the market price of our Common Stock to drop. 43 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 15(a)(1) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None