Item 1. Business
Item
1. Business.
Corporate
History and Recent Developments
We
were incorporated pursuant to the laws of the State of Nevada on March 20, 2002 under the name Integrated Brand Solutions Inc., and on
February 6, 2006, we changed our name to Upstream Biosciences Inc. From 2006 to December 2009, our company operated as a biotechnology
company, and from 2010 until May 2013, our company had no operating business.
On
May 24, 2013, our then majority stockholders sold their interests in our company to RealSource Acquisition Group, LLC, a Utah limited
liability company, and Chesterfield Faring Ltd., a New York corporation, and on July 11, 2013, we changed our corporate name to RealSource
Residential, Inc. Our initial business strategy in 2013 was to engage in various real estate related businesses. However, in 2016 we
disposed of all of our real estate and other assets and continued operations as a public “shell” company.
On
September 12, 2018, M1 Advisors, LLC, a Delaware limited liability company controlled by Michael Campbell, our current Chief Executive
Officer and a director of our company (“M1 Advisors”), acquired a controlling interest in our company, and on December 20,
2018, we filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada to (i)
change our corporate name from “RealSource Residential, Inc.” to “CalEthos, Inc.” and (ii) to increased our authorized
shares of common stock from 4,000,000 shares to 100,000,000 shares. This amendment became effective immediately upon filing on December
20, 2018.
Our
intention in acquiring the public company was to use it as a financing and acquisition vehicle for building a chain of large-format cannabis
retail superstores to serve the needs of the rapidly-growing Southern California market. Over the subsequent two-year period, management
assembled a number of acquisitions for retail licenses, store leases and display agreements with numerous cannabis brands as part of
executing its business plan. However, once the COVID 19 pandemic lockdowns hit in early 2020 and Federal legalization of cannabis did
not materialize after the 2020 elections, funding for cannabis-related businesses became less available and by the end of 2020, we concluded
it would be better to pursue other business opportunities for our public company. After months of research, we determined there was a
sizable opportunity to develop and manufacture high-performance computer systems for the cryptocurrency mining industry. In March 2021,
we created a new business plan to develop a five nanometer ASIC chip and bitcoin mining computer system in South Korea utilizing Samsung
technology and foundry capacity.
In
August 2021, we hired an experienced chief technology officer from the chip industry to lead our product development and in September
2021, we closed a convertible debt financing of $3.5 million to fund the initial phase of product development. In connection with such
capital raise, our board of directors determined that we are no longer a shell company, as defined in Rule 12b-2 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).
On
November 5, 2021, we incorporated AIQ System Inc. (“AIQ”), as a wholly-owned subsidiary in Seoul, Republic of Korea to
support our product development efforts and to manage all of our computer chip and system development teams and activities. During
the subsequent eight months ended June 30, 2022, the bitcoin market went into decline, and we decided to abandon our chip and system
development efforts and to discontinue the operations of AIQ as of July 1, 2022.
During
the development of our computer chip and system in Korea, we had also developed a plan to build a large-scale, clean-energy powered,
containerized, immersion-cooled data center operation in Southern California to support the use of the systems we were developing for
our company and for others. After the bitcoin market bottomed out in June 2022, we determined that we could develop a profitable business
by offering data center colocation services to a larger customer base of enterprise companies.
As of July 1, 2022, we commenced
our current operating plan to focus solely on the development and construction of clean-energy powered data centers that will utilize
immersion and liquid-cooled and conventional energy efficient systems and will provide clean-energy-powered colocation services to
large enterprise information technology (IT) customers.
To this end and to implement our
going-forward plan, on March 28, 2023 we hired Joel Stone. a senior data center executive with 24 years of data center experience, as our
President and Chief Operating Officer, and on March 30, 2023, we completed negotiations and signed an option agreement to acquire 80 acres
of commercially-zoned land in Imperial County, California that is surrounded by nearby geothermal power plants and solar farms. We are
currently in the process of negotiating with various power producers in the area to provide us with clean energy and with communication
companies for access to their close-by long-haul and dark fiber networks.
With
an experienced data center executive on board and the property under contract, we intend to complete a land use plan that will be submitted
for approval to local authorities and to apply for permits to start construction. We expect, based on all related factors, that a submittable
plan, which will include data center and infrastructure design, will take between four to six months to complete. Once submitted for
approvals and permits, it is expected that it could take another three to six months or more before we receive the required permits for
construction, and that the construction could take another six to eight months or more to complete depending on supply chain issues at
the time for data center, electrical and communication connectivity components of the data center build. The foregoing time estimates
are preliminary and are subject to change. In addition, there can be no assurance that our use plan will receive all required regulatory
approvals or that we will be issued the required approvals or permits necessary to complete construction of the data center we intend
to build.
As
we move through the development process to build a clean-energy powered data center for enterprise IT customers, we will continue to
refine and finalize the courses of action needed to implement our business plan and operations. As a result, management has not fully
determined our actual short-term or long-term capital requirements, which management expects to be substantial.
1
Plan
of Operations
As
of the filing of this Report, we have hired Joel Stone as our President and Chief Operating Officer and signed an option agreement to
acquire land for our planned large-scale, 100% geothermal/solar-powered, clean energy, data center operation.
To
complete the initial phase of our planned data center, we are now negotiating agreements for clean energy and fiber connectivity.
Over the next couple of months, we plan to finish negotiations with the local geothermal and solar power producers to deliver the
clean energy we require to power our data center and to complete agreements with multiple communication providers for access to
their close-by long-haul and dark fiber communication networks for data center connectivity.
We
believe that the significant experience of our new President and Chief Operating Officer in both building and operating data centers
and his industry relationships will be instrumental in helping us acquire the required third-party resources and assets and the management
team and staff necessary to execute our business plan. In addition to acquiring the principal components (experienced personnel, land,
clean energy, and fiber connectivity) for our data center plan, we are also in the process of developing partnerships with leading-edge
containerized and modular designed immersion and liquid cooled data center system providers, whose systems we will offer for rent to
our customers. We believe that, when construction of our data center is complete, the principal differentiators
of our data center operation in the marketplace are expected to be – we are powered by 100% certified clean energy, and we provide
leading-edge immersion and liquid cooled data center systems that will support the ever-increasing power and cooling needs of high-performance
enterprise IT computer systems.
In
the colocation segment of the data center industry, the customer typically leases the building/shell or data hall/suite level
rather than the smaller scale of retail colocation (racks/cages/cabinets). Projects generally involve heavily-customized builds, although
many operators in this segment are moving toward a mix of build-to-suit and turnkey offerings. Customers of colocation are
typically hyperscale content and media/entertainment providers, scale-oriented cloud service providers, hosting and IT managed services
providers, and telecommunications companies.
Currently,
due to the ever-growing amounts of digital data being created on social media, and from internet streaming, gaming and overall
internet use, and the need for digital data to be readily available for consumption on the internet, and because of the migration of
software and computer applications to the cloud and their use, we believe there is a severe shortage of data center space in the
global market. In some of the principal U.S. markets, there are wait times of up to a five-years for additional capacity. The need
for new data center space is expected to continue growing at a high rate for the foreseeable future based on following recent
industry reports:
Data
Center Market - The market size is estimated to grow by $615.96 billion from 2021 to 2026, growing at a compound
annual growth rate (CAGR) of 21.98% according to Technavio’s February 2022 market report.
Green
Data Centers - The U.S. Green Data Center Market Size was valued at $13.79 billion in 2022 and is expected to reach $24.20 billion by
2028, growing at a CAGR of 9.82% during 2022 to 2028 according to Arizton’s March 2023 industry report.
Data
Center as a Services (DCaaS) - The global data center as a service market size was valued at $52.7 billion in 2021 and is expected to
expand at a CAGR of 26.2% from 2022 to 2030 according to Grand View Research’s January 2022 - Data Center As A Service Market Size
& Growth Report.
We
believe the Imperial County, California site we have optioned is a unique location in that it will provide us with a rare opportunity
to acquire commercially-zoned land on which we can combine nearby direct clean geothermal/solar energy with a 24/7 data center operation.
We
also believe 100% clean-energy-powered data centers are an important element in the ability of the U.S. to meet its carbon neutral climate
goals and for enterprise IT companies to meet their shareholder and customer commitments to have an ESG-compliant, clean digital footprint
before 2030.
We
are developing our business model to compete in the colocation segment of the data center services industry, which is focused on
providing the processing, networking, and storage of data. With the move to treat data as an asset, the data services market is
expected to experience significant growth over the next decade. Industry automation and digital businesses are expanding, and these
businesses are expected to require huge amounts of data for their businesses. North America is the most advanced region globally and
data center services are in high demand.
2
Competition
The
competition in the data center industry is primarily driven by the increasing presence of small and large-scale service
providers globally. The key participants in the data center colocation market are Digital Realty Trust, Equinix, CenturyLink,
CyrusOne and China Telecom Corporation Limited, among many others. Business ventures throughout the world are progressively
competing for market share by providing services to arrange information, store data, and benefit from cloud services. This move,
together with the increasing demand of businesses to store increasing amounts of media and other information, represents gigantic
development in the market for cloud services.
The
data center services market is segmented by service (infrastructure, cloud and hosting, networks, consulting, and virtualization), data-center
(Tier 1, Tier 2, Tier 3, and Tier 4), end-user industry (BFSI, Healthcare, Retail, Manufacturing, and IT and Telecom), deployment mode
(On-premise and Cloud), and geography.
As
a new entrant into the data center marketplace, we will compete against larger, more established and better capitalized companies
that today control the majority of market share. We believe our principal advantages will be our location, which provides us with
access to an abundance of reasonably-priced local geothermal and solar energy to power a 24/7 data center operation, the various
immersion and liquid cooled data center racking systems we will offer as a colocation service and our proximity to the Southern
California market and the multitudes of companies utilizing high- performance computing that want close-by data center space.
Intellectual
Property
Our
intellectual property will consist of data center designs and systems for supporting containerized, immersion and liquid cooled data
center systems that we will deploy for colocation services to enterprise IT customers. We intend to rely on a combination
of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as contractual
protections, to protect our proprietary service offerings and data center management systems. However, as of the date of this
Report, we do not have any patents or registered trademarks.
We
cannot provide any assurance that our proprietary rights with respect to our data center designs, systems or services will be viable
or have value in the future since the validity, enforceability and type of protection of proprietary rights in these industries are uncertain
and continuingly evolving.
Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our design, systems and services or
to obtain and use information that we regard as proprietary. Policing unauthorized use of our designs and services is difficult, and
while we are unable to determine the extent to which piracy of our designs, systems and services will exist, intellectual piracy can
be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect proprietary rights to as great
an extent as do the laws of the United States, and effective copyright, trademark, trade secret and patent protection may not be available
in those jurisdictions. Our means of protecting our proprietary rights may not be adequate to protect us from the infringement or misappropriation
of such rights by others.
Further,
in recent years, there has been significant litigation in the United States involving patents and other intellectual property rights
in the data center design, systems and service offerings and Internet-related data management industries. We can become subject to intellectual
property infringement claims as the number of our competitors grows and our services overlap with competitive offerings. These claims,
even if not meritorious, could be expensive to defend and could divert management’s attention from operating our business. If we
become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial award of
damages and to develop non-infringing design, systems and service offerings, obtain a license or cease providing the services that contain
the infringing intellectual property. We may be unable to develop non-infringing data center design, systems and service offerings or
obtain a license on commercially reasonable terms, if at all.
Employees
We currently have one employee, Joel Stone
our President and Chief Operating Officer and our other officers and directors are serving our company as consultants and independent
contractors.
3
Item
1A. Risk Factors.
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
1B. Unresolved Staff Comments.
None.
Item
2. Properties.
We
do not own any real property. Our executive office is located at 11753 Willard Avenue, Tustin, California 92782, in the office of Michael
Campbell, our Chief Executive Officer. We are not charged rent for the use of this space. We believe our existing facilities are sufficient
for our current operations.
Item
3. Legal Proceedings.
We
know of no material active or pending legal proceeding against our company, nor are we involved as a plaintiff in any material proceeding
or pending litigation.
Item
4. Mine Safety Disclosures.
Not
Applicable.
4
PART
II
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