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Unless the context otherwise requires, when we use the words the “Company,” “Bitmine,” “we,” “us,” “our” or “our Company” in this Form 10-K, we are referring to Bitmine Immersion Technologies, Inc., a Delaware corporation, and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements (such as when we describe what “will,” “may,” or “should” occur, what we “plan,” “intend,” “estimate,” “believe,” “expect” or “anticipate” will occur, and other similar statements) include, but are not limited to, statements regarding future operating results, potential risks pertaining to these future operating results, future plans or prospects, anticipated benefits of proposed (or future) acquisitions, dispositions and new facilities, growth, the capabilities and capacities of business operations, any financial or other guidance, expected capital expenditures and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including assumptions about our future operating results and business plans. However, the inclusion of forward-looking statements should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section named “Risk Factors” as well as those disclosed in subsequent reports we file with the Securities and Exchange Commission (“SEC”).
Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we comprehensively assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Current Report on Form 8-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.
Further, certain information regarding market and industry statistics contained in this Current Report on Form 8-K has been obtained from industry and other publications that we believe to be reliable, but that are not produced for purposes of securities filings and which may contain such forward-looking statements. We have not independently verified any market, industry or similar data presented in this Current Report on Form 8-K and cannot assure you of its accuracy or completeness. Further, we have not reviewed or included data from all sources. Forecasts and other forward-looking statements obtained from third-party sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future markets or events.
All forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this Annual Report on Form 10-K, and we do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware, except as required by law. You should read this document completely and with the understanding that our actual future results or events may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
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PART I
Company Background
A predecessor to the Company was incorporated in the state of Nevada on August 16, 1995 as Interactive Lighting Showrooms, Inc. On June 30, 2004, the predecessor changed its name to Am/Tex Oil and Gas, Inc. On January 24, 2008, the predecessor changed its name to Critical Point Resources, Inc. On February 2, 2012, the predecessor changed its name to Renewable Energy Solution Systems, Inc. On May 18, 2012, the predecessor changed its name to RES Systems, Inc. On May 23, 2013, the predecessor changed its name back to Renewable Energy Solution Systems, Inc.
On April 6, 2020, the predecessor redomiciled in the State of Delaware by merging with a Delaware subsidiary named RESS Merger Corp., which was the successor in the merger. Thereafter, effective July 15, 2020, the predecessor and the Company effected a holding company reorganization pursuant to Section 251(g) of the Delaware General Corporation Law under which RESS Merger Corp. merged with RESS of Delaware, Inc., a Delaware subsidiary of RESS Merger Corp., and all shareholders of RESS Merger Corp. received one share of common stock of the Company, another Delaware subsidiary of RESS Merger Corp., for each share that they previously held in RESS Merger Corp., and RESS of Delaware, Inc. (the successor in the merger with RESS Merger Corp.) becoming a subsidiary of the Company.
Effective July 17, 2020, the Company divested RESS of Delaware, Inc. to Sterling Acquisitions I, Inc. (“Sterling”), which is owned by the chief executive officer of the Company, pursuant to an agreement under Sterling (i) purchased Ten Million (10,000,000) common shares of the Company for an aggregate price of Ten Dollars ($10), and (ii) was issued Ten Million (10,000,000) Class A Warrants at an aggregate price of Ten Dollars ($10), and (iii). Ten Million (10,000,000) Class B Warrants at an aggregate price of Ten Dollars ($10). In addition, the Company agreed to pay a fee of $1,000 to Sterling to cover the expenses associated with the maintenance of RESS of Delaware, Inc. until such time as a certificate of dissolution is filed with the state of Delaware.
On June 25, 2020, the Board of Directors and the shareholders of the Company approved a 1 for 40,000 reverse-split, with all fractional shares rounded up to the nearest whole share, and immediately after the completion of the reverse split, effected a 200 for 1 forward stock split. The net effect of the splits as a 1 for 200 reverse-split of the Company’s common shares. The stock splits were effective April 27, 2021.
By a written consent dated July 16, 2021, holders of a majority of the Company’s issued and outstanding common stock approved a resolution to appoint Jonathan Bates, Raymond Mow, Michael Maloney and Seth Bayles to the board of directors of the Company, and to appoint Jonathan Bates as Chairman, Seth Bayles as Corporate Secretary, Raymond Mow as Chief Financial Officer, and Ryan Ramnath as Chief Operating Officer (collectively, the “New O&Ds”). Erik S. Nelson remained a director and the chief executive officer. At the same time, the shareholders approved the issuance of 32,994,999 shares of common stock in the Company’s offering of common stock at $0.015 per share, and the grant of 4,750,000 shares for services, which were valued at $0.015 per share. As a result of the foregoing stock issuances, the New O&Ds (or entities controlled by them) collectively acquired 24,893,877 shares of common stock, which represents 60.4% of the issued and outstanding shares as of December 1, 2021.
The appointment of certain of the New O&Ds to the Company’s board, and issuance to the New O&Ds of a controlling interest in the Company, were made in order to enable the Company to enter the business of creating a hosting center for Bitcoin mining computers primarily utilizing immersion cooling technology, as well mining the Bitcoin digital currency for its own account. Prior to the change of control to the New O&Ds, the Company was a shell company.
Company Overview
We are a blockchain technology company that is building out industrial scale digital asset mining, equipment sales and hosting operations. The Company’s primary business is hosting third-party equipment used in mining of digital asset coins and tokens, specifically Bitcoin, as well as self-mining for its own account. Our state-of-the-art facilities will be specifically designed and constructed for housing advanced mining equipment. Our data centers will provide power, racks, proprietary thermodynamic management (heat dissipation and airflow management), redundant connectivity, 24/7 security, as well as software which provide infrastructure management and custom firmware that boost performance and energy efficiency.
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We plan to operate our data centers using immersion cooling technology. Immersion cooling is the process of submerging computer components (or full servers) in a thermally, but not electrically, conductive liquid (dielectric coolant) allowing higher heat transfer performance than air and many other benefits. Immersion cooling can be up to 95% more efficient than standard air cooling, producing an estimated PUE (power usage effectiveness) of 1.05. This cooler environment has been shown to extend machine lives by 30% or longer.
We have decided to locate our initial facility in Trinidad, which has some of the cheapest electricity in the world due to its abundant supplies of oil and gas. We are currently exploring various sites in Trinidad, and expect to have our first site operational by January 2022. We elected to locate our first site in Trinidad because it has ample supplies of cost-effective power and because some of technical staff is located there. We are also exploring the development of both hydroelectric and solar-backed projects in the United States and Canada, which could provide power to our data centers, while allowing us to generate collateral revenue from the sale of excess power to the local utility grid and from the generation of saleable carbon credits.
Our digital asset mining operation is focused on the generation of digital assets by solving complex cryptographic algorithms to validate transactions on specific digital asset network blockchains, which is commonly referred to as “mining.” Our digital asset self-mining activity competes with a myriad of mining operations throughout the world to complete new blocks in the blockchain and earn the reward in the form of an established unit of a digital asset. While we expect to sell or exchange a portion of the digital assets we mine to fund our growth strategies or for general corporate purposes, we may hold our digital assets as investments in anticipation of continued adoption of digital assets as a “store of value” and a more efficient medium of exchange than traditional fiat currencies.
As the demand for digital assets increases and digital assets become more widely accepted, there is an increasing demand for professional-grade, scalable infrastructure to support growth of the blockchain ecosystem. We expect to continually evaluate the performance of our data centers, including our ability to access additional megawatts of electric power and to expand our total self-mining and customer and related party hosting hash rates.
Revenue Sources
Our revenue will consist primarily of returns from our hosting operations, including the sales of mining equipment to be hosted in our data centers and proceeds related to Bitcoin transaction processing (digital asset mining income) fees.
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Blockchain and Cryptocurrencies Generally
Bitcoin was first introduced in 2008 and was first introduced as a means of exchange in 2009. Bitcoin is a digital asset that is issued by and transmitted through an open-source protocol collectively maintained by a peer-to-peer network of decentralized user nodes. This network hosts a public transaction ledger, known as the Bitcoin blockchain, on which Bitcoin holdings and transactions in Bitcoin are recorded. Balances of Bitcoin are stored in individual “wallet” functions, which associate network public addresses with a “private key” that controls the transfer of Bitcoin. The Bitcoin blockchain can be updated without any single entity owning or operating the network. New Bitcoin is created and allocated by the protocol that governs Bitcoin through a “mining” process that rewards users that verify transactions in the Bitcoin blockchain. The Bitcoin protocol limits the total issuance of Bitcoin over time to 21 million.
Bitcoin can be used to pay for goods and services, or it can be converted to fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on Bitcoin trading platforms, which operate 24-hours-a-day, 7-days-a-week and are not regulated in as comprehensive a manner as traditional securities exchanges. As a result, trading on these markets is likely more subject to manipulation than on securities markets regulated by the SEC, and pricing on these markets is likely affected by such manipulative activity. In addition to these platforms, over-the-counter markets and derivatives markets for Bitcoin also exist; however, these markets are still maturing and many are unregulated.
Bitcoin exists entirely in electronic form, as virtually irreversible public transaction ledger entries on the blockchain, and transactions in Bitcoin are recorded and authenticated not by a central repository, but by a decentralized peer-to-peer network. This decentralization avoids certain threats common to centralized computer networks, such as denial of service attacks, and reduces the dependency of the Bitcoin network on any single system. While the Bitcoin network as a whole is decentralized, the private keys used to access Bitcoin balances are not widely distributed and are held on hardware (which can be physically controlled by the holder or by a third party such as a custodian) or via software programs on third-party servers and loss of such private keys results in an inability to access, and effective loss of, the corresponding Bitcoin. Consequently, Bitcoin holdings are susceptible to all of the risks inherent in holding any electronic data, such as power failure, data corruption, security breach, communication failure, and user error, among others. These risks, in turn, make Bitcoin subject to theft, destruction, or loss of value from hackers, corruption, or technology-specific factors such as viruses that do not affect conventional fiat currency. In addition, the Bitcoin network relies on open source developers to maintain and improve the Bitcoin protocol. Accordingly, Bitcoin may be subject to protocol design changes, governance disputes such as “forked” protocols, competing protocols, and other open source-specific risks that do not affect conventional proprietary software.
Distributed blockchain technology is a decentralized and encrypted ledger that is designed to offer a secure, efficient, verifiable, and permanent way of storing records and other information without the need for intermediaries. Cryptocurrencies serve multiple purposes. They can serve as a medium of exchange, store of value or unit of account. Examples of cryptocurrencies include: Bitcoin, Bitcoin cash, and litecoin. Blockchain technologies are being evaluated for a multitude of industries due to the belief in their ability to have a significant impact in many areas of business, finance, information management, and governance.