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Item 7. Management’s Discussion and Analysis

2024-04-09 compared with 2023-04-17 · 145 added, 96 removed, 78 unchanged (76% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Discussion and Analysis of Financial Condition and Results of Operation.

following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere

7 unchanged sentences

of Operations

It is the intention of our

board of directors for our company to pursue the development of the 80 acres of land in Imperial County, California that we recently

put under an exclusive option agreement and develop it for a large-scale, 100% geothermal/solar-powered, certifiable clean energy,

data center operation that will utilize immersion and liquid cooled and conventional energy efficient data center systems and provide colocation services to enterprise IT customers.

To implement our plan, we have

optioned the land and hired an experienced data center builder and operator and we are now in the process of acquiring the other principal

ingredients needed for our data center operation – clean energy and fiber connectivity.

To this end, over the next couple of months,

we plan to finish negotiations with local geothermal and solar power producers to deliver clean energy for our operation, and to complete

agreements with multiple communication providers for access to their close-by long-haul and dark fiber communication networks for connectivity.

We are also in the process of

developing partnerships with leading-edge containerized and modular 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 operations in the marketplace are expected to be that we are powered by 100% certified clean energy and that we provide

leading-edge immersion and liquid cooled energy-efficient data center systems that will support the ever-increasing power and cooling

needs of high-performance enterprise IT computer systems.

It is anticipated that we will

incur expenses in the implementation of the business plan described herein, and such expenses will require substantial financing to complete

the development of the property for a data center operation and to achieve our goals.

The failure to obtain this necessary capital when

needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our development plans, any commercialization

efforts or other operations.

We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs.

addition, even if we are able to obtain sufficient funding to commence our business operations, we may need to pursue additional financing

in the future to make expenditures and/or investments to support the growth of our business and may require additional capital to pursue

our business objectives and respond to new competitive pressures, pay extraordinary expenses or fund our growth, including through acquisitions.

Additional funds, however, may not be available when we need them on terms that are acceptable to us, or at all.

If we are unable to obtain

adequate financing or financing on terms satisfactory to us when we require it, our ability to commence our proposed business operations,

to continue to grow and support our business and to respond to business challenges could be significantly limited.

is the intention of our board of directors for our company to pursue the development of the 80 acres of land in Imperial County, California

that we recently put under an exclusive option agreement and develop it for a large-scale, 100% geothermal/solar-powered, certifiable

clean energy, data center operation that will utilize immersion and liquid cooled and conventional energy efficient data center systems

and provide colocation services to enterprise IT customers.

implement our plan, we have optioned the land and hired an experienced data center builder and operator and we are now in the process

of acquiring the other principal ingredients needed for our data center operation – clean energy and fiber connectivity.

end, over the next couple of months, we plan to finish negotiations with local geothermal and solar power producers to deliver clean

energy for our operation, and to complete agreements with multiple communication providers for access to their close-by long-haul and

dark fiber communication networks for connectivity.

are also in the process of developing partnerships with leading-edge containerized and modular 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 operations in the marketplace are expected to

be that we are powered by 100% certified clean energy and that we provide leading-edge immersion and liquid cooled energy-efficient data

center systems that will support the ever-increasing power and cooling needs of high-performance enterprise IT computer systems.

is anticipated that we will incur expenses in the implementation of the business plan described herein, and such expenses will require

substantial financing to complete the development of the property for a data center operation and to achieve our goals.

The failure to

obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our development

plans, any commercialization efforts or other operations.

We may not be able to secure financing on favorable terms, or at all, to meet

our future capital needs.

In addition, even if we are able to obtain sufficient funding to commence our business operations, we may need

to pursue additional financing in the future to make expenditures and/or investments to support the growth of our business and may require

additional capital to pursue our business objectives and respond to new competitive pressures, pay extraordinary expenses or fund our

growth, including through acquisitions.

Additional funds, however, may not be available when we need them on terms that are acceptable

to us, or at all.

If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability

to commence our proposed business operations, to continue to grow and support our business and to respond to business challenges could

be significantly limited.

currently have only limited capital with which to pay these anticipated expenses.

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following summary should be read in conjunction with our audited financial statements for the years ended December 31, 2023 and 2022.

For the years ended December 31,

Operating Expenses

Professional fees

Restricted stock grants

Impairment loss

General and administrative

Total operating (income) expenses

Income (loss) from operations

Financing costs

Interest income

Net income (loss)

$ (2,181,000 )

the years ended

compensation (gain)

and related cost

and administrative

operating expenses (income)

income from operations

on settlement of payable

on extinguishment of debt

other expense

(loss) income

$ (4,630,000 )

the years ended December 31, 2023 and 2022, we had no revenues.

professional fees decreased from $1,033,000 in the year ended December 31, 2021 to $667,000 in the year ended December 31, 2022, which

represented a decrease of approximately $366,000.

The decrease was attributable to a reduction in the use of outside professional services.

stock grant expense (gain )

Our restricted stock grant expense

(gain) decreased from an expense of $5,062,000 in the year ended December 31, 2021 to a gain of $(4,791,000) in the year ended December

31, 2022, which represented a decrease of $9,853,000 brought about by the cancellation of the stock grants made in 2021.

impairment loss increased from nil in the year ended December 31, 2021 to $154,000 in the year ended December 31, 2022, which represented

an increase of approximately $154,000 due to the impairment of intangibles and other assets as a result of the suspension of our South Korean subsidiary’s

professional fees decreased from $667,000 for the year ended December 31, 2022 to $344,000 for the year ended December 31, 2023,

representing a decrease of approximately $323,000.

Our professional fees of $344,000 is net of data center capitalized cost of

approximately $80,000.

Therefore, the actual professional fees incurred for the year ended December 31, 2023, was approximately

$424,000, a decrease of approximately $243,000.

The decrease of approximately $243,000 was attributable to a $141,000 reduction in

the use of outside contractors, a $110,000 reduction in legal fees, and a $17,000 reduction in the overhead cost of our South

Korean subsidiary, for a total of $268,000.

These reductions were offset by an approximate $21,000 increase in audit fees and a $4,000 increase in other

expenses for a total of $25,000.

compensation (gain)

equity-based compensation for the year ended December 31, 2023 is attributable to the stock options and warrants issued to our

officers, directors and consultants during the year ended December 31, 2023 for a total expense of $3,032,000.

with respect to such equity-based compensation is set forth in Note 7 to our audited financial statements for the year ended

December 31, 2023 included elsewhere in this Report.

equity-based gain in the year ended December 31, 2022 was attributable to equity-based compensation expense of approximately $6,377,000,

which was offset by forfeitures of equity-based compensation of approximately $11,168,000.

impairment loss of $154,000 in the year ended December 31, 2022 was due to the impairment of intangibles and other assets as a result

of the suspension of our South Korean subsidiary’s operations.

and administrative expenses

general and administrative expenses decreased from $52,000 in the year ended December 31, 2022 to $38,000 in the year ended December

2022, which represented a decrease of approximately $6,000.

financing cost increased from $597,000 in the year ended December 31, 2021 to $1,744,000 in the year ended December 31, 2022, which represented

an increase of $1,147,000.

Financing costs increased due to the amortization of debt issuance costs.

31, 2023, representing a decrease of approximately $14,000.

and related expenses

the year ended December 31, 2022, we did not have employees.

Our first employee, our Chief Operating Officer,

was hired in March of 2023.

The total payroll-related cost for this employee was approximately $226,000 for the year ended December 31, 2023,

of which approximately $175,000 was capitalized as data center cost.

financing cost for the year ended December 31, 2023, represented interest expense of approximately $252,000.

The total interest expense

for the year ended December 31, 2023 was approximately $448,000, of which approximately $196,000 was capitalized as data center

development cost.

Our financing cost for the year ended December 31, 2022 represented interest expense of $218,000 and debt

discount amortization of $1,526,000, of which full amortized during the year ended December 31, 2022.

The increase in interest expense

of $230,000 for the year ended December 31, 2023 was attributed to certain convertible promissory notes going into

default during the year ended December 31, 2023.

on settlement of payable

the year ended December 31, 2023, we entered into an agreement with a vendor to reduce the payable by approximately $23,000.

on extinguishment of debt

December 2023, we requested the holders of our outstanding convertible promissory notes to convert such promissory notes into shares of our common stock.

The book value of the promissory notes and accrued

interest was approximately $4,906,000, and the fair value of the common stock was approximately $5,771,000, resulting in a loss on

settlement of approximately $865,000.

Also, the holder of a $50,000 promissory note agreed to convert the principal and accrued

interest of $67,000 into shares of our common stock with a fair value of $188,000, resulting in a loss on settlement

of approximately $121,000.

and Capital Resources

2 unchanged sentences

$ (3,143,000 )

working capital decreased from a $578,000 deficit as of December 31, 2021 to a deficit of $3,143,000 as of December 31, 2022 for a

total change of $2,565,000.

The decline in our working capital was due to (i) an increase in a book basis of our convertible

promissory notes book basis increasing due to the amortization of debt issuance discounts and (ii) the decrease in our cash and cash

the years ended December 31,

working capital decreased from a $3,143,000 deficit as of December 31, 2022 to a deficit of $704,000 as of December 31, 2023 for

a total change of $2,439,000.

The decline in our working capital was due to (i) a decrease in the book basis of our convertible

promissory notes, for the December 2023 conversion and (ii) the decrease in our cash and cash equivalents, which was used for the data

center development.

the years ended

cash used in operating activities

3 unchanged sentences

in cash during the period

Cash, beginning of

Cash, end of period

beginning of period

end of period

flows from operations

Cash used in operating activities

decreased to approximately $255,000 in 2022 from approximately $382,000 in 2021, which was predominantly related to the reduction in our

expenditures for filing fees, legal fees, transfer agent fees and consulting fees paid during the year.

used in operating activities decreased to approximately $35,000 in 2023 from approximately $820,000 in 2022, which was predominantly

related to the reduction in our expenditures for filing fees, legal fees, transfer agent fees and consulting fees paid during the year.

flow from investing

We made payments of $105,000 in

2022 and $38,000 in 2021 to an engineering and design firm for the design and development work for our planned ASIC chip development.

cash used for investing activities was approximately $1,730,000 for the year ended December 31, 2023.

The primary use of cash

was for expenditures for the development of our data center.

flows from financing

We made payments of $50,000 to reduce notes payable in 2022 and 2021.

Additionally,

in 2021, we received $3,592,000 and $150,000 in proceeds from the issuance of convertible debentures and notes payable, respectively.

the year ended December 31, 2023, we had no financing activities.

and Material Cash Requirements

Promissory Notes

of December 31, 2023, we had approximately $456,000 outstanding related to our convertible promissory notes and accrued interest.

In February 2024, the total of $456,000 was converted into shares of our common stock.

is anticipated that we will incur expenses in the implementation of the business plan described above, and such expenses will require

substantial financing to complete the development of the property for a data center operation and to achieve our goals.

The failure to

obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our development

plans, any commercialization efforts or other operations.

We may not be able to secure financing on favorable terms, or at all, to meet

our future capital needs.

In addition, even if we are able to obtain sufficient funding to commence our business operations, we may need

to pursue additional financing in the future to make expenditures and/or investments to support the growth of our business and may require

additional capital to pursue our business objectives and respond to new competitive pressures, pay extraordinary expenses or fund our

growth, including through acquisitions.

Additional funds, however, may not be available when we need them on terms that are acceptable

to us, or at all.

If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability

to commence our proposed business operations, to continue to grow and support our business and to respond to business challenges could

be significantly limited.

currently have only limited capital with which to pay these anticipated expenses.

To fund our business plan going forward, we intend

to raise funds from investors by issuing common stock, preferred stock and/or debt securities.

audited financial statements included in this Report have been prepared on a going concern basis, which implies that our company will

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of Consolidation

consolidated financial statements include the accounts of the Company and its wholly owned subsidiary from the formation date.

intercompany transactions and balances have been eliminated in consolidation.

consolidated financial statements include the accounts of our company and our wholly-owned subsidiary from the formation date.

material intercompany transactions and balances have been eliminated in consolidation.

Currency Translation

financial statements of our foreign subsidiary, for which the functional currency is the local currency, are translated into U.S.

dollars using the exchange rate at the consolidated balance sheet date for assets and liabilities and a weighted-average exchange

rate during the year for revenue, expenses, gains and losses.

Translation adjustments are recorded as other comprehensive income

(loss) within shareholders’ equity (deficit).

Gains or losses from foreign currency transactions are recognized in the

consolidated statements of operations.

using the exchange rate at the consolidated balance sheet date for assets and liabilities and a weighted-average exchange rate during

the year for revenue, expenses, gains and losses.

Translation adjustments are recorded as other comprehensive income (loss) within shareholders’

equity (deficit).

Gains or losses from foreign currency transactions are recognized in the consolidated statements of operations.

and Debt Discounts

In accordance with ASC 470-20,

Debt with Conversion and Other Options , we first allocate the cash proceeds of the notes between the notes and any warrants on

a relative fair value basis.

accordance with ASC 470-20, Debt with Conversion and Other Options , we first allocate the cash proceeds of the notes between the

notes and any warrants on a relative fair value basis.

Proceeds are then allocated to the conversion feature.

We account for debt discounts originating in connection with conversion

features that remain embedded in the related notes in accordance with ASC 470-20.

These costs are classified on the balance sheet as a

direct deduction from the debt liability.

We amortize these costs over the term of our debt agreements as financing cost in the consolidated

statement of operations and comprehensive loss.

account for debt discounts originating in connection with conversion features that remain embedded in the related notes in accordance

with ASC 470-20.

These costs are classified on the balance sheet as a direct deduction from the debt liability.

We amortize these costs

over the term of our debt agreements as financing cost in the consolidated statement of operations and comprehensive loss.

account for our stock-based compensation under ASC 718, “ Compensation – Stock Compensation ” using the fair value

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Accounting Pronouncements

Our management reviewed all recently-issued

accounting standard updates (“ASU’s”) not yet adopted by our company and does not believe the future adoptions of any

such ASU’s may be expected to cause a material impact on the Company’s consolidated financial condition or the results of

-our operations.

management reviewed all recently-issued accounting standard updates (“ASU’s”) not yet adopted by our company and does

not believe the future adoptions of any such ASU’s may be expected to cause a material impact on our consolidated

financial condition or the results of our operations.

Sheet Arrangements

2 unchanged sentences

that are material to stockholders.

Quantitative and Qualitative Disclosures About Market Risk.

and Qualitative Disclosures About Market Risk.

a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Financial Statements and Supplementary Data.

Statements and Supplementary Data.

financial statements and notes thereto and the reports of RBSM LLP, our independent registered public accounting firm, are set forth

on pages F-1 through F-17 of this Report.

Changes In and Disagreements With Accountants On Accounting and Financial Disclosure.

In and Disagreements With Accountants On Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis