Everything Blockchain, Inc. - Annual Report: 2023 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2023

Commission file number 000-56142

12574 Flagler Center Blvd., Suite 101, Jacksonville, FL 32258

(Address of principal executive offices)

Registrant’s telephone number: (904) 454-2111 

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Title of Class 

Common Stock  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $6.9 million. For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended January 31, 2023).

NONE

TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”) regarding management’s plans and objectives for future operations including plans and objectives relating to our planned marketing efforts and future economic performance. The forward-looking statements and associated risks set forth in this report include or relate to, among other things, (a) our growth strategies, (b) anticipated trends and regulations in our industry, (c) our ability to obtain and retain sufficient capital for future operations, and (d) our anticipated needs for working capital. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business.” Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors.” In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions described herein. The assumptions are based on judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Accordingly, although we believe that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated in forward-looking statements will be realized. In addition, as disclosed in “Risk Factors,” there are a number of other risks inherent in our business and operations, which could cause our operating results to vary markedly and adversely from prior results or the results contemplated by the forward-looking statements. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause us to alter marketing, capital investment and other expenditures, which may also materially adversely affect our results of operations. In light of significant uncertainties inherent in the forward-looking information included in the report statement, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

Any statement in this report that is not a statement of an historical fact constitutes a “forward-looking statement.” Further, when we use the words “may,” “expect,” “anticipate,” “plan,” “believe,” “seek,” “estimate,” “internal,” and similar words, we intend to identify statements and expressions that may be forward- looking statements. We believe it is important to communicate certain of our expectations to our investors. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that could cause our future results to differ materially from those expressed in any forward-looking statements. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such forward-looking statements. Key factors that may cause our actual results to differ from such forward-looking statements include, but are not limited to, the risks outlined under “Risk Factors” herein. The reader is cautioned that our Company does not have a policy of updating or revising forward-looking statements and thus the reader should not assume that silence by management of our Company over time means that actual events are bearing out as estimated in such forward-looking statements.

OTHER INFORMATION

As used in this report, the terms “we,” “our,” “us” and “the “Company” mean Everything Blockchain, Inc., a Florida corporation and its consolidated subsidiaries, unless the context indicates otherwise. References to “Render” refer to Render Payment Corp., a Puerto Rico corporation and one of our wholly owned subsidiaries. References to “832” refer to 832 Energy Technology Consultants, LLC, a Texas limited liability company and one of our wholly owned subsidiaries. References to “Mercury” refer to Mercury, Inc., an Idaho company and one of our wholly owned subsidiaries. References to “Vengar” refer to Vengar Technologies LLC, a Wyoming limited liability company and one of our wholly owned subsidiaries. In addition, when used herein and unless specifically set forth to the contrary, “2023” refers to the year ended January 31, 2023, and “2022” refers to the year ended January 31, 2022.

PART I

Item 1. Business

HISTORY AND BACKGROUND

On May 23, 2021, the Company changed its name from OBITX, Inc. to Everything Blockchain, Inc. The Company is headquartered in Jacksonville, Florida.

The Company is primarily engaged in the business of consulting and developing blockchain and cybersecurity related solutions. We are a technology company that is blending blockchain, zero-trust, and database management technology to create a platform to solve real world, practical business problems. Our business model is based on building recurring revenue through software subscriptions, licensing agreements, and transaction fees. Our patent-pending advances in blockchain engineering deliver the essential elements needed for real-world business use: speed, security, and energy efficiency. Currently, our lines of business are EB Advise, BuildDB and EB Control.

On June 18, 2021, the Company formed Everything Blockchain Technology Corporation to maintain ownership of all intellectual property, technology patents and software code.

On June 21, 2021, we acquired all of the equity interests of 832. 832, which is located in Texas, has developed many innovations in the areas of distributed computing, artificial intelligence and blockchain technologies.

On June 30, 2021, we acquired all of the equity interests of Mercury (the “Mercury Acquisition”). We have utilized Mercury, which is located in Idaho, as our hosting solution since May 2020. The Company, with Mercury, launched its mining operations in the western United States. We have commenced mining for Bitcoin. Since the acquisition, Mercury has handled the Company’s information technology and customer support functions and started its network operations center.

On July 31, 2021, we acquired all of the equity interests of Vengar. Vengar, which is located in Florida, has developed a zero-trust data access and protection software that the Company plans to integrate into its blockchain solutions.

On November 16, 2022, the Company formed EBI International, Inc., which will own and manage, collectively, all international subsidiaries of the Company.

We are not profitable and have incurred losses since our inception through January 31, 2023, except for the year ended January 31, 2022. The Company’s consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent on being able to raise the necessary funding to continue operations, through the exercise of warrants, issuance of shares to the public, debt financings, joint arrangements, and other contractual arrangements, or being able to operate profitably in the future. These consolidated financial statements do not reflect the adjustments or reclassifications which would be necessary if the Company were unable to continue its operations in the normal course of business.

Corporate Information

Our principal executive office is located at 12574 Flagler Center Blvd., Suite 101, Jacksonville, Florida 32258, and our telephone number is (904) 454-2111. Our fiscal year end is January 31 of each calendar year.

Our website can be found at www.everythingblockchain.io, which is not incorporated as part of this Form 10K.

OVERVIEW OF INDUSTRY

We currently compete in, or overlap with, three primary market segments: (i) Blockchain, (ii) Zero-Trust/Data Protection, and (iii) Data Storage/Management. These combine for a projected addressable market of more than $150 billion by 2025.

Blockchain Industry Review

A blockchain is a decentralized and distributed digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and collusion of the network. The blockchain system has been designed to use nodes agreement to order transactions and prevent fraud so that records cannot be altered retroactively. The network orders transactions by putting them together into groups called blocks, each block contains a definite number of transactions and a link to the previous block. Blockchain is, quite simply, a digital, decentralized ledger that keeps a record of all transactions that take place across a peer-to-peer network.

The size of the blockchain space has been growing rapidly in recent years, and the market is projected to continue to grow in the coming years. According to a report by Markets and Markets, the blockchain market size was valued at $1.4 billion in 2020 and is projected to reach $39.7 billion by 2025, at a compound annual growth rate (“CAGR”)  of 67.3% during the forecast period 2020-2025.

This growth is being driven by increasing adoption of blockchain technology in various industries, such as financial services, supply chain management, healthcare, and government. The increasing use cases and growing awareness about the benefits of blockchain technology are also contributing to the growth of the market.

In the next five years, the blockchain market is expected to continue to grow at a significant rate, driven by factors such as increasing demand for transparency and security in transactions, growing adoption of blockchain-as-a-service offerings, and increasing investment in the development of blockchain technology.

Zero Trust Industry Review

Traditionally, networks were protected via a “castle and moat” approach. Essentially, a perimeter was built around a network through a variety of technologies and static policies such that if a user was inside the perimeter, they were deemed to be trustworthy. However, digital transformation, cloud adoption and remote working have eliminated the traditional notion of a network perimeter, or edge, breaking the legacy architecture of a perimeter-based security model.

The notion of “zero trust” access was created wherein security policy is applied based on context established through least-privileged access controls and strict user authentication, not assumed trust. Key principles of zero trust include:

Much effort has been focused on zero trust network access where zero trust concepts and technologies have been used to secure access to networks and network resources. More recently zero trust is being applied more atomically to data access, or ZTDA, with solutions such as the Company’s EB Control.

The Zero Trust security market is also a rapidly growing market, driven by the increasing adoption of remote work and the need for secure access to sensitive data and systems. According to a report by Markets and Markets, the Zero Trust security market was valued at $9.32 billion in 2020 and is projected to reach $49.81 billion by 2025, at a CAGR of 40.8% during the forecast period 2020-2025.

The Zero Trust security market is driven by several factors, such as the increasing adoption of cloud services, the growing number of cyber-attacks and data breaches, and the increasing complexity of IT environments. Other factors, such as the need for compliance with various regulations and the increasing use of mobile devices, are also contributing to the growth of the market. Additionally, the growing awareness of the need for Zero Trust security solutions and the increasing investment in the development of Zero Trust security solutions will also contribute to the growth of the market.

Data Storage/Management Industry Review

BuildDB is the newest addition to our innovative blockchain technology offerings. BuildDB is a fifth-generation database management technology that is set to revolutionize the way data is stored, processed, and managed.

BuildDB is designed to disrupt the current database market, with its advanced features and capabilities that far surpass traditional NoSQL databases like MongoDB and DynamoDB. Our innovative technology utilizes blockchain principles to provide unparalleled security, scalability, and decentralization.

As the world becomes increasingly data-driven, the demand for next-generation databases is rapidly growing. Market research shows that the global next-generation database market is projected to reach $43 billion by 2025, with a CAGR of 28%.

BuildDB is at the forefront of this market, offering a solution that addresses the challenges faced by traditional databases and providing businesses with the tools they need to stay competitive in today's digital landscape.

OVERVIEW OF COMPANY

EB Advise

EB Advise is the Company’s advisory practice, helping clients to “unthink” their current notions of blockchain. We explore how EBI’s blockchain and data storage, management, and protection platforms can address their business problems in a practical and cost-effective way and assist them in the design and implementation of a solution. Our objective is to focus on EB Advise projects that will result in recurring revenue or potential backend revenue that is a substantial multiple of the initial project value.

BuildDB

BuildDB is our patent pending blockchain and data base management system. We call this Resilient Block Storage and believe this is the next generation of data storage and management. It is the fusion of modern database technology, blockchain, and zero-trust data protection to bring unprecedented levels of scale and resilience to organizations with large datasets and needing greater data security and assurance. It is the foundation upon which we and our customers will build an application ecosystem and allows us to access and disrupt a $100 billion addressable market.

Unlike traditional blockchains that are public, permissionless and have transaction speeds in the minutes, BuildDB is a private business blockchain platform that is highly secure and transacts at sub-millisecond speeds. BuildDB is “queryable” and uses a proprietary consensus algorithm. These advances offer advantages over tradition approaches such as allowing data to be added and retrieved to the chain in real-time and opens us to a larger pool of potential business use cases such as the ability to store data from internet of things devices.

An example of this is BuildDB for environmental, social, and governance. This application receives data from sensors in real time that are monitoring greenhouse gas emissions from equipment involved with the production of oil and gas. Clients can then prove emissions are within prescribed limits and use the data for forecasting, as well. Development of additional solutions for various markets and customer use cases is underway and we continue to expand our BuildDB ecosystem.

EB Control

EB Control is a patented ZTDA solution for individuals and organizations seeking continuous control of their data across its lifespan. With data protected through an end-to-end zero-knowledge encryption architecture, only the creator of the data can grant permission for others to view their files and other data. EB Control allows our customers to:

Licensing of the EB Control engine to technology partners has already begun. On July 27, 2022, we launched EB Control to the general market. Integration with BuildDB is planned for later this year.

Patents

The Company, through Vengar and 832, has filed patent applications for seven patent families in the United States as well as 18 international patent filings. The patents relate to our ZTDA and protection software, and our blockchain technology. While the Company is in the process of filing multiple additional patents for the protection of its intellectual property, the following list provides reference to our current intellectual property patents:

DESCRIPTION OF SUBSIDIARIES

832, which is located in Texas, has developed many innovations in the areas of distributed computing, artificial intelligence and blockchain technologies. The Company has utilized Mercury, which is located in Idaho, as its hosting solution since May 2020. The Company, with Mercury, launched its mining operations in the western United States. The Company has commenced mining for Bitcoin. Since the acquisition, Mercury has handled the Company’s information technology and customer support functions and started its network operations center. Vengar, which is located in Florida, has developed a ZTDA and protection software that the Company plans to integrate into its blockchain solutions.

EMPLOYEES

As of January 31, 2023, the Company has 23 employees.

Available Information

All reports of the Company filed with the Securities and Exchange Commission, or SEC, are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

RISK FACTORS

Investing in our securities involves a high degree of risk. You should carefully consider the following risk factors as well as other information contained herein, including our financial statements and the related notes. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become key factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our securities could decline, and you may lose some or all of your investment.

Risks Regarding Unfavorable Market Conditions

We will need significant additional financing to commercialize our products and services, and we may not be able to obtain such financing on acceptable terms or at all.

To date, we have relied primarily on private placements of our common stock and warrants to purchase common stock to fund our operations. We will require additional financing in the near and long term to fully execute our business plan. Even if we raise the maximum amount of financing contemplated by this offering, we anticipate that we will need additional financing to complete tests of our systems, as well as to cover our operational costs while we obtain all relevant certifications, negotiate relevant agreements, and otherwise fully develop and commercialize them.

In addition, we are currently exploring various options with respect to developing and implementing services in cryptocurrencies and may actively consider from time to time other significant technological, strategic, and operational initiatives. In order to execute on any of these initiatives, we may require additional financing. Our success will depend on our ability to raise such additional financing on reasonable terms and on a timely basis.

The market conditions and the macroeconomic conditions that affect the markets in which we operate could have a material adverse effect on our ability to secure financing on acceptable terms, if at all. We may be unable to secure additional financing on favorable terms, or at all, or our operating cash flow may be insufficient to satisfy our financial obligations. The terms of additional financing may limit our financial and operating flexibility. Our ability to satisfy our financial obligations will depend upon our future operating performance, the availability of credit, economic conditions and financial, business, and other factors, many of which are beyond our control. Furthermore, if financing is not available when needed, or is not available on acceptable terms, we may be unable to take advantage of business opportunities or respond to regulatory pressures, any of which could have a material adverse effect on our business, financial condition, and results of operations.

We have from time to time evaluated, and we continue to evaluate our potential capital needs. We may utilize one or more types of capital raising in order to fund any initiative in this regard, including the issuance of new equity securities and new debt securities, including debt securities convertible into shares of our common stock. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into shares of our common stock, our existing stockholders could suffer significant dilution in their percentage ownership of our company. In addition, any new securities we issue could have rights, preferences, and privileges senior to those of holders of our common stock, and we may grant holders of such securities rights with respect to the governance and operations of our business. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.

The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.

The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or an alternative to distributed ledgers altogether. Our business utilizes presently existent digital ledgers and blockchains and we could face difficulty adapting to emergent digital ledgers, blockchains, or alternatives thereto. This may adversely affect us and our exposure to various blockchain technologies and prevent us from realizing the anticipated profits from our investments. 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 bitcoin or other cryptocurrencies we acquire or hold for our own account, and harm investors.

Rapid technological change may render our products or services obsolete or less desirable to customers.

With innovative technologies emerging at a breakneck pace, there is always a risk that a company's products or services may become obsolete or less desirable to customers. This is especially true in highly competitive markets where companies are constantly striving to develop the latest and greatest technologies.

We may experience delays or setbacks in developing new products or technologies.

The process of innovation can be unpredictable, with unexpected challenges and roadblocks arising at any stage of development. This can be due to a variety of factors, such as technological limitations, resource constraints, or changes in market demand. Delays or setbacks in the development of new products or technologies could result in missed opportunities and a competitive disadvantage compared to rival companies. Furthermore, such delays can impact our ability to meet customer demand and may lead to negative customer experiences.

We may face challenges in integrating modern technologies into our existing products or services.

In many cases, it may be necessary to incorporate modern technologies to keep up with the competition or to meet changing customer demands. However, integrating modern technologies can be complex and time-consuming, and may require significant changes to our existing infrastructure, systems, and processes. This can result in delays, increased costs, and potential disruption to our operations. Additionally, there is a risk that the integration may not be successful, which could impact the quality of our products or services, and ultimately, our reputation.

Economic downturns or other disruptions could reduce demand for our products or services.

Economic downturns can result in reduced consumer spending and lower demand for non-essential goods and services, including technology products. Similarly, other disruptions such as natural disasters, political instability, or supply chain disruptions could impact the demand for a company's products or services. In such situations, we may experience decreased revenue, lower profits, and potentially even financial losses.

We may be dependent on a few large customers or partners, which could create revenue concentration risk.

If a significant portion of our revenue comes from a few key customers or partners, any adverse developments or changes in those relationships could have a significant impact on our financial performance. For instance, if one of these key customers or partners decides to reduce or terminate its business relationship with us, we could lose a significant amount of revenue, leading to lower profits or even financial losses.

We may face challenges in managing foreign currency exchange rate risks or interest rate risks.

We operate in multiple countries, by which we may face challenges in managing foreign currency exchange rate risks or interest rate risks. Fluctuations in foreign currency exchange rates can impact our financial performance, especially if we have significant revenue or expenses denominated in foreign currencies. Similarly, changes in interest rates can impact our borrowing costs and financial performance.

Risk of Illiquidity

The market for our common stock may be subject to penny stock restrictions, which may result in lack of liquidity and make trading difficult or impossible.

17 CFR 240.3151-1 defines a “penny stock,” for purposes relevant to us, as an equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions. Our common stock could be subject to penny stock rules, and it is probable that our common stock could be considered to be a penny stock in the foreseeable future. This classification materially and adversely affects the market liquidity for our common stock. For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker-dealer approve a person’s account for transactions in penny stocks, and the broker-dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased.

To approve a person’s account for transactions in penny stocks, the broker-dealer must obtain financial information, investment experience and objectives of that person and make a reasonable determination that transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker-dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:

Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions payable to, both, the broker-dealer and the registered representative, current quotations for the securities, and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Because of these regulations, broker-dealers may desire to not engage in the necessary paperwork and disclosures required to sell our common stock, and broker-dealers may encounter difficulties in their attempt to sell our common stock, which may affect the ability of holders to sell our common stock in the secondary market and have the effect of reducing trading activity in the secondary market of our common stock. These additional sales practices and disclosure requirements could impede the sale of our common stock. In addition, the liquidity of our common stock may decrease, with a corresponding decrease in the price of our common stock. Our common stock, in all probability, will continue to be subject to such penny stock rules for the foreseeable future and our stockholders will, quite probably, have difficulty selling our common stock.

The Financial Industry Regulatory Authority, or FINRA, sales practice requirements may limit a shareholder’s ability to buy and sell our common shares.

FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

See Risk of Restrictions on Selling Shares.

Risk of No Market Liquidity

There may in all likelihood be little demand for shares of our common stock and as a result, investors may be unable to sell at or near ask prices or at all if they need to liquidate their investment.

There may be little demand for shares of our common stock on the OTC Bulletin Board, or OTC Markets.com, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if the company came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early-stage company such as ours or purchase or recommend the purchase of any of our securities until such time as it became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our securities is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on the securities price. We cannot give investors any assurance that a broader or more active public trading market for our common securities will develop or be sustained, or that any trading levels will be sustained. Due to these conditions, we can give investors no assurance that they will be able to sell their shares at or near ask prices or at all if they need money or otherwise desire to liquidate their holdings of our securities.

Risk of Restrictions on Selling Shares

The trading market for our common stock may be restricted, because of state securities “Blue Sky” laws which prohibit trading absent compliance with individual state laws.

Transfers of our common stock may be restricted pursuant to the securities and state laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such laws, our common stock may not be traded in such jurisdictions. Because the shares of our common stock registered hereunder have not been registered for resale under the “Blue Sky” laws of any state, the holders of such shares and persons who desire to purchase such shares in any trading market that might develop in the future, should be aware that there may be significant state “Blue Sky” law restrictions upon the ability of investors to sell and purchasers to purchase such shares. These restrictions prohibit the secondary trading of our common stock. our currently do not intend and may not be able to qualify securities for resale in those states which do not offer manual exemptions and require securities to be qualified before they can be resold by our stockholders. Accordingly, investors should consider the secondary market for our securities to be limited.

Sales of our common stock in reliance on Rule 144 may reduce prices in that market by a material amount.

A substantial number of the outstanding shares of our common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted securities, those shares may be resold only pursuant to an effective registration statement or pursuant to the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that an affiliate (i.e., an officer, director, or control person) who has held restricted securities for a prescribed period may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed 1.0% of the issuer’s outstanding common stock. The alternative limitation on the number of shares that may be sold by an affiliate, which is related to the average weekly trading volume during the four calendar weeks prior to the sale is not available to stockholders of companies whose securities are not traded on an “automated quotation system.” The OTCQB is not such a system, therefore market-based volume limitations are not available for holders of our securities selling under Rule 144.

Pursuant to the provisions of Rule 144, there is no limit on the number of restricted securities that may be sold by a non-affiliate (i.e., a stockholder who has not been an officer, director or control person for at least ninety (90) consecutive days before the date of the proposed sale) after the restricted securities have been held by the owner for a prescribed period, although there may be other limitations and/or criteria to satisfy. A sale pursuant to Rule 144 or pursuant to any other exemption from the Securities Act, if available, or pursuant to registration of shares of our common stock held by our stockholders, may reduce the price of our common stock in any market that may develop.

Risk of Adverse Tax Consequences

A risk of adverse tax consequences is the risk that an investment will be subject to an unexpected or unfavorable tax rate. This can occur if a company is taxed at a higher rate than expected or if changes in laws, regulations, or taxation policies result in an increase in taxes due. Investing in high-risk securities also carries a greater risk of incurring negative tax consequences due to their unstable nature.

Risk of Limited Disclosure

We may identify material weaknesses in our financial reporting, or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). Section 404 requires that we document and test our internal control over financial reporting and issue management’s assessment of our internal control over financial reporting. Management assessed the effectiveness of our internal control over financial reporting as of January 31, 2022. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. To remediate any material weaknesses, our management has been implementing, and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. We believe that these actions will remediate the material weakness.

If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, the accuracy and timeliness of the filing of our annual and quarterly reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. In addition, a material weakness in the effectiveness of our internal control over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition.

We expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification.

Public disclosure requirements and compliance with changing regulation of corporate governance pose challenges for our management team and result in additional expenses and costs which may reduce the focus on management and the profitability of our company.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our management team will need to devote considerable time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Risk of Business Failure

Some of our officers and directors are working under consulting agreements and have/may have external business opportunities and employment that may be in conflict with us.

Currently, some of our officers and directors are working under consulting agreements and may dedicate time and resources to other functions and personal expenditures, some of which may conflict with our objectives as a company. Any and all conflicts of interest entered into by our officers are brought to the attention of the Company’s board of directors, with a resolution to the conflict addressed as such at the time of reveal.

The loss of one or more of our key personnel could harm our business.

We depend on the continued service and performance of our key personnel. Some of these individuals have acquired specialized knowledge and skills with respect to our operations. As a result, if any of these individuals were to stop providing services to us, we could face substantial difficulty in hiring qualified successors and could experience a loss of productivity while any such successor obtains the necessary training and expertise. Moreover, much of our key technology and systems are custom-made by our personnel. The loss of key personnel, including key members of our management team, as well as certain of our key technical personnel, could disrupt our operations and have an adverse effect on our ability to grow our business. We intend to enter into long-term contracts with our key personnel but there is no guarantee we will be successful.

We may fail to recruit, train, and retain the highly skilled employees that are necessary to execute our growth strategy.

Competition for key technical personnel in highly technical industries such as ours is intense. We believe that our future success depends in large part on our ability to hire, train, retain and leverage the skills of qualified software engineers, programmers and other highly skilled personnel needed to maintain and grow our network and related technology and develop and successfully implement our products and technology. We may not be as successful as our competitors at recruiting, training, retaining and utilizing this highly skilled personnel. In particular, we may have more difficulty attracting or retaining highly skilled personnel during periods of poor operating performance. Any failure to recruit, train and retain highly skilled employees could negatively impact our business and results of operations.

Our insurance may be inadequate to cover existing and future claims against us and our ability to pay for such claims may be limited, which may adversely affect our business.

If our existing insurance policies expire or are otherwise inadequate to cover liabilities and claims for indemnification, we may be required to pay for liabilities directly, which could negatively affect our liquidity. To the extent we are required to pay for liabilities directly, our available cash reserves will be affected, which may affect our ability to respond to market conditions and to pay for other emergent expenses, which could negatively affect the results of our operations and our business.

Currently, we are lacking diversification of revenues.

Our business will depend upon entering into agreements with customers to use our services and software solutions, as well as our consulting services.

User license fees from our customers from the use of these services will provide all or substantially all of our revenues. We can give no assurance that our current and potential customers, including data service providers that provide broadband service to end users, government agencies or entities with private data networks, will license or will agree to pay the license fees we will request. The failure to enter into those agreements or realize the anticipated benefits from these agreements on a timely basis, or at all, or to renew any agreements upon expiration or termination would have a material adverse effect on our financial condition and results of operations.

We face intense competition and our failure to compete effectively could have a material adverse effect on our business, results of operations and financial condition.

There can be no assurance that we will be able to compete successfully against any of our competitors, some of whom have far greater resources, capital, experience, market penetration, sales, and distribution channels than us. If our major competitors were, for example, to significantly increase the level of price discounts offered to consumers, we could respond by offering price discounts, which could have a materially adverse effect on our business, results of operations and financial condition.

In social media, we compete with companies that sell advertising, as well as with companies that provide social and communication products and services that are designed to engage users and capture time spent on mobile devices and online. We face significant competition in every aspect of our business, including from companies that facilitate communication and the sharing of content and information, companies that enable marketers to display advertising, and companies that provide development platforms for applications developers. We compete with companies that offer services across broad platforms that replicate capabilities we provide. We also compete with companies that develop applications, particularly mobile applications, which provide social or other communications functionality, such as messaging, photo, and video-sharing, and micro-blogging, as well as companies that provide regional social networks that have strong positions in particular countries. In addition, we face competition from traditional, online, and mobile businesses that provide media for marketers to reach their audiences and/or develop tools and systems for managing and optimizing advertising campaigns.

Some of our current and potential competitors may have significantly greater resources or better competitive positions in certain service segments, geographic regions, or user demographics than we do. These factors may allow our competitors to respond more effectively than us to new or emerging technologies and changes in market conditions. We believe that some of our users are aware of and actively engaging with other products and services similar to, or as a substitute for, our products and services, and we believe that some of our users have reduced their use of and engagement with our service in favor of these other products and services.

The industry within which we compete is highly competitive, which may hinder our ability to generate revenue and may diminish our margins.

The technology and media focused advertising industry within which we will compete is highly competitive. New developments in technology may negatively affect the development or licensing of proprietary software or make our proprietary software uncompetitive or obsolete. Some of our competitors may be much larger companies with longer operating histories and substantially greater financial, technical, sales, marketing, and other resources than we do, as well as greater name recognition. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time than we could. Each of these competitors has the potential to capture market share in various markets, which could have a material adverse effect on our position in the industry and our financial results.

We may not be able to compete with other companies, some of whom have greater resources and experience.

We may not be able to compete successfully against present or future competitors. The cryptocurrency industry has attracted various high-profile and well-established operators, some of which have substantially greater liquidity and financial resources than we do. We may experience great difficulties in expanding and improving our network of computers to remain competitive. Competition from existing and future competitors that have access to more competitively priced resources could result in our inability to secure acquisitions and partnerships that we may need to expand our business in the future. This competition from other entities with greater resources, experience and reputation may result in our failure to maintain or expand our business, as we may never be able to successfully thrive in the already established market. If we are unable to expand and remain competitive, our business could be negatively affected, which would have an adverse effect on the trading price of our securities.

We may experience data breaches, which could result in theft of sensitive information or loss of customer trust.

A data breach can occur due to a variety of factors, including cyberattacks, human error, or technical failures. If a company's data is compromised, it can lead to theft of intellectual property, pecuniary loss, or reputational damage. Moreover, customers may lose trust in our ability to protect our data, which can result in reduced customer loyalty and decreased revenue.

We may face challenges in protecting our intellectual property, trade secrets, and other confidential information.

Protecting trade secrets and confidential information is critical to maintaining our competitive position and preventing competitors from gaining an unfair advantage.

We may be vulnerable to attacks by hackers, cybercriminals, or state-sponsored actors.

Cyber threats continue to evolve rapidly, and tech companies must remain vigilant to identify and mitigate these risks proactively. The potential harm from a cyberattack could include theft of intellectual property, sensitive customer information, or financial data, as well as disruption of business operations.

We may face legal challenges related to patents, trademarks, or copyrights, which could result in costly litigation or loss of intellectual property rights.

We may face legal challenges from competitors, patent trolls, or other third parties alleging infringement or violation of our intellectual property rights. In addition, we may need to defend against claims that our products or services violate the intellectual property rights of others.

We may be subject to claims of infringement or misappropriation of intellectual property by competitors, which could also result in legal disputes.

We may be subject to claims of infringement or misappropriation of intellectual property by competitors, which could result in costly legal disputes, financial losses, and reputational damage. Competitors may allege that our products or services infringe on their intellectual property rights or that we have misappropriated their confidential information or trade secrets. Such claims may arise even if we have taken reasonable steps to avoid infringement or misappropriation.

We may face challenges in licensing our intellectual property or protecting it from unauthorized use.

We may face challenges in licensing our intellectual property or protecting it from unauthorized use, which can result in lost revenue, competitive disadvantages, and reputational damage. Licensing intellectual property to third parties can be complex, and we may need to negotiate and manage complex agreements to ensure that our intellectual property is used appropriately and that our interests are protected. Additionally, we may face challenges in enforcing our intellectual property rights against infringing third parties, including competitors and others who may attempt to use our intellectual property without permission.

We may be subject to fines, penalties, or other regulatory action for non-compliance with data protection, privacy, or antitrust regulations.

We are subject to a range of data protection, privacy, and antitrust regulations, and failure to comply with these regulations can result in fines, penalties, or other regulatory action, including legal disputes, reputational damage, and potential loss of business.

Changes in regulatory requirements may increase compliance costs or require changes to our business practices.

We are subject to evolving regulatory requirements that can increase compliance costs or require changes to our business practices. These changes can result in significant financial costs, including legal fees, administrative costs, and potential fines for non-compliance. Regulatory requirements can impact various aspects of a company's operations, including data protection, privacy, antitrust, and consumer protection, among others.

We may face challenges in navigating regulatory requirements in different jurisdictions where we operate.

We operate in multiple jurisdictions and are subject to regulatory requirements that can vary significantly from one jurisdiction to another. These differences can create challenges for companies seeking to navigate the regulatory landscape, particularly in areas such as data protection, privacy, and consumer protection. Failure to comply with regulatory requirements can result in fines, legal disputes, and other penalties.

We may experience disruptions in our supply chain or production processes, which could impact our ability to deliver products or services to customers.

We rely on complex supply chains and production processes to deliver our products or services to customers. Disruptions to these processes can result in delays, cost overruns, and quality issues that can impact our ability to meet customer demand and maintain our competitive position.

We may face challenges in managing distribution networks or logistics.

Distribution networks and logistics are essential components of our supply chain management strategy, enabling us to deliver products and services to customers in a timely and cost-effective manner. However, managing these networks can be complex, particularly for companies operating in multiple geographies.

We may be subject to negative publicity related to data breaches, product defects, or other issues, which could damage our reputation or brand.

Negative publicity related to data breaches, product defects, or other issues can have a significant impact on a company's brand value and reputation, leading to reduced customer trust, loss of business, and even legal liabilities.

We may face challenges in managing our public image or social media presence.

Social media platforms have become a primary source of information for customers and stakeholders, and any negative comments, reviews, or posts can quickly spread and damage a company's reputation.

Risk of Counterparty Default

A counterparty, such as a borrower or counterparty in a financial transaction, may be unable to meet its contractual obligations due to financial difficulty or other circumstances.

This kind of risk can lead to losses for the other parties involved, which could include us. In essence, both counterparties and non-counterparties are exposed to this risk.

Risk of Use of Funds

We are a “smaller reporting company” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors. When we lose that status, there will be an increase in the costs and demands placed upon management.

As a company that is no longer an emerging growth company, the costs and demands placed upon management will likely increase, as we now have to comply with additional disclosure and accounting requirements.

We may acquire other businesses, form joint ventures, or acquire other companies or businesses that could negatively affect our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense; notwithstanding the foregoing, our growth may depend on our success in uncovering and completing such transactions.

We are actively considering strategic opportunities with the support of our external advisors and consultants of diverse types; however, we cannot offer any assurance that acquisitions of businesses, assets, and/or entering into strategic alliances or joint ventures will be successful. We may not be able to find suitable partners or acquisition candidates and may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into the existing business and could assume unknown or contingent liabilities.

Any future acquisitions also could result in the issuance of stock, incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a negative impact on our cash flows, financial condition, and results of operations. Integration of an acquired company may also disrupt ongoing operations and require management resources that otherwise would be focused on developing and expanding our existing business. We may experience losses related to potential investments in other companies, which could harm our financial condition and results of operations. Further, we may not realize the anticipated benefits of any acquisition, strategic alliance, or joint venture if such investments do not materialize.

To finance any acquisitions or joint ventures, we may choose to issue shares of common stock, preferred stock or a combination of debt and equity as consideration, which could significantly dilute the ownership of our existing stockholders or provide rights to such preferred stockholders in priority over our common stockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using stock as consideration.

We may be subject to credit risk associated with our customers or suppliers.

Our customers and/or suppliers may not be able to fulfill their financial obligations, such as paying invoices or delivering goods and services, which could have a negative impact on our financial position and operations.

SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2. PROPERTIES.

Our executive office is located in Jacksonville, Florida, which consists of approximately 800 square feet of leased office space. Mercury owns a building in Idaho Falls, Idaho, which consists of approximately 2,500 square feet of office and warehouse space.

ITEM 3. LEGAL PROCEEDINGS.

As disclosed in Note 12 – Legal Proceedings to the consolidated financial statements included in “Part II – Item 8. Financial Statements and Supplementary Data” in this report, we are engaged in certain legal matters, and the disclosure set forth in Note 12 relating to such legal matters is incorporated by reference. 

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) Market Information

Our common stock was quoted on the OTC Markets under the stock symbol “OBTX” for the period of March 24, 2020, through November 7, 2022, and under the stock symbol “EBZT” starting on November 8, 2022. The following table sets forth for the periods indicated the range of high and low closing prices for the Company’s common stock, as reported by the OTC Markets.

The closing price of our common stock as reported on the OTC Markets was $2.27 on April 21, 2023.

(b) Holders

As of January 31, 2023, there were approximately 100 owners of record for our common stock. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

Transfer Agent and Registrar

Our independent stock transfer agent is Colonial Stock Transfer Company, Inc., 66 Exchange Place, 1^st Floor, Salt Lake City, UT 84111 Telephone: (801) 355-5740.

(c) Dividends

We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the expansion of our business, and we do not anticipate paying any cash dividends for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors deems relevant. In addition, the terms of any future debt or credit facility may preclude us from paying dividends.

(d) Securities Authorized for Issuance under Equity Compensation Plans

None

(e) Recent Sales of Unregistered Securities

The following shares of Series C Preferred Stock were sold to accredited investors during the past 12 months:

(f) Issuer Purchases of Equity Securities

None

ITEM 6. SELECTED FINANCIAL DATA.

We are a smaller reporting company and therefore, we are not required to provide the information required by this Item of Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 

In addition to the information provided here in Management’s Discussion and Analysis of Financial Condition and Results of Operations, we believe that in order to more fully understand our discussion in this section, you should read our consolidated financial statements and the notes thereto and the other disclosures herein, including the discussion of our business and risk factors. The Company’s financial statements have been prepared in accordance with GAAP.

Management’s Discussion and Analysis may contain various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-K, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

Overview

The Company is primarily engaged in the business of consulting and developing blockchain and cybersecurity related solutions. We are a technology company that is blending blockchain, zero-trust, and database management technology to create a platform to solve real world, practical business problems. Our business model is based on building recurring revenue through software subscriptions, licensing agreements, and transaction fees. Our patent-pending advances in blockchain engineering deliver the essential elements needed for real-world business use: speed, security, and energy efficiency. Currently, our lines of business are EB Advise, BuildDB and EB Control.

On June 21, 2021, we acquired all of the equity interests of 832. On June 30, 2021, we acquired all of the equity interests of Mercury. On July 31, 2021, we acquired all of the equity interests of Vengar.

Factors Affecting Comparability of Financial Information

Our historical results of operations for the year ended January 31, 2023, may not be comparable with our results of operations for the year ended January 31, 2022, for the reasons discussed below.

832’s operations are included in our historical operating results as of June 21, 2021. Mercury’s operations are included in our historical operating results as of July 1, 2021. Vengar’s operations are included in our historical operating results as of August 1, 2021.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred compensation, and contingencies.

We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We believe the following accounting policies are our critical accounting policies because they are important to the portrayal of our financial condition and results of operations, and they require critical management judgments and estimates about matters that may be uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition, and results of operations for future periods could be materially affected.

Revenue Recognition

Our revenue is derived from the subscription, non-software related hosted services, term-based and perpetual licensing of software products, associated software maintenance and support plans, consulting services, training, technical support, and merchandise sales. Most of our customer arrangements involve multiple solutions and various license rights, bundled with post-contract customer support and other meaningful rights that together provide a complete end-to-end solution to the customer.

We determine revenue recognition through the following steps:

Services revenue. We generate services revenue via consulting services and software development. The Company is engaged in developing, engineering, and designing blockchain projects, to include platforms and cryptocurrencies for customers.

Subscription revenue.

We generate revenue from subscriptions through staking of our current crypto assets. Our primary token being staked is a hybrid Proof of Work (“POW”) and Proof of Stake (“POS”) system. Stakers in this particular token are paid inflation based both on the duration of the stake (contract length), as well as based on the volume / quantity of tokens staked. Rewards / interest / inflation are paid in the native token. We also participate in networks with POW consensus algorithms, through creating or validating blocks on the network. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete, and the rewards are available for transfer. Revenue is measured based on the number of tokens received and the fair value of the token at the date of recognition.

Product revenue. We generate product revenue through customized product development and merchandise sales.

We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Acquisition Method of Accounting

We account for business combinations using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

Goodwill and Intangibles

The Company tests goodwill and intangibles for impairment annually or more often if an event or circumstance indicates that an impairment may have occurred.

Our operating results for the years ended January 31, 2023 and 2022 are summarized as follows:

Revenue

Revenue for the year ended January 31, 2023 was $2.6 million as compared to $2.5 million for the year ended January 31, 2022. Revenue for the year ended January 31, 2023 primarily consisted of $1.8 million from product revenue, $0.7 million from consulting services, and $0.1 million from staking of cryptocurrency. Revenue for the year ended January 31, 2022 primarily consisted of $1.7 million from consulting services, $0.4 million from product revenue, and $0.3 million from staking of cryptocurrency.

Cost of Sales

Cost of sales for the year ended January 31, 2023 was $1.5 million as compared to $0.2 million for the year ended January 31, 2022. The primary reason for the increase in cost of sales was due to the increase in product revenue. Cost of sales primarily consisted of product costs and commissions from Mercury.

Gross Profit

Gross profit for the year ended January 31, 2023 was $1.1 million as compared to $2.3 million for the year ended January 31, 2022. The primary reason for the decrease was due to the increase in cost of sales as discussed above.

Operating Expenses

Operating expenses primarily consist of selling, general and administrative expenses, stock-based compensation expense, amortization and depreciation expense, and goodwill and software impairment. Selling, general and administrative expenses primarily consist of personnel costs, consultant fees, professional fees, computer and internet expenses, marketing expenses, utilities expenses, meals and entertainment, office supplies, and reporting fees.

Operating expenses for the year ended January 31, 2023 were $8.5 million compared to $4.3 million for the year ended January 31, 2022. 

Operating expenses for the year ended January 31, 2023 of $8.5 million consist primarily of stock-based compensation of $2.9 million, payroll costs of $1.5 million, goodwill impairment of $1.3 million, professional fees and marketing expenses of $0.7 million each, consultant fees and depreciation and amortization expense of $0.2 million each, and software impairment of $0.1 million. The goodwill impairment relates to the write off of the Mercury goodwill. The software impairment relates to the write off of Render software.

Operating expenses for the year ended January 31, 2022 of $4.3 million consist primarily of stock-based compensation of $2.0 million, payroll costs of $1.1 million, professional and consultant fees of $0.3 million each, marketing expenses of $0.1 million, and a bad debt expense of $0.1 million.

Operating Loss

Operating loss increased by $5.4 million to an operating loss of $7.4 million for the year ended January 31, 2023 as compared to an operating loss of $2.0 million for the year ended January 31, 2022. The primary reasons for the increase in operating loss were due to the increase in revenue and operating expenses as discussed above.

Other Income

Other income consists primarily of sales of cryptocurrency and the associated costs, fair market value adjustments to cryptocurrency, and interest income and expense.

Other expense, net for the year ended January 31, 2023 was $2.5 million compared to other income, net for the year ended January 31, 2022 of $5.2 million. Other expense, net for the year ended January 31, 2023 of $2.5 million consists primarily of fair market value expense adjustments to cryptocurrency of $2.2 million and net loss from sales of cryptocurrency of $0.2 million. Other income, net for the year ended January 31, 2022 of $5.2 million consists primarily of fair market value adjustments to cryptocurrency of $3.8 million and net profit from sales of cryptocurrency of $1.2 million.

Adjusted EBITDA

The Company reports all financial information required in accordance with GAAP. The Company believes, however, that evaluating its ongoing operating results will be enhanced if it also discloses certain non-GAAP information.

Adjusted EBITDA, which is a non-GAAP financial measure, is defined by the Company as net income (loss) plus net interest income, income tax (benefit) expense, depreciation and amortization, stock-based compensation, and goodwill and software impairment.

Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation since each company may define these terms differently.

The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to net income (loss).

Analysis of Cash Flows

Operating Activities

Net cash used in operating activities was $2.8 million for the year ended January 31, 2023. We had net loss of $9.4 million, which included fair value adjustments to cryptocurrency of $2.2 million, due to decreases in the values of cryptocurrencies, stock-based compensation of $2.9 million and realized net loss on investment in cryptocurrency of $0.2 million.

Net cash used in operating activities was $0.4 million for the year ended January 31, 2022. We had net income of $2.3 million, which included fair value adjustments to cryptocurrency of $3.8 million, stock-based compensation of $2.0 million and realized net gain on investment in cryptocurrency of $1.2 million.

Investing Activities

Net cash used in investing activities was $0.5 million for the year ended January 31, 2023, compared to net cash provided by investing activities of $1.2 million for the year ended January 31, 2022. During the year ended January 31, 2023, we had capital expenditures of $1.2 million, which were offset by proceeds from sale of cryptocurrencies of $0.8 million. During the year ended January 31, 2022, we sold $5.8 million of cryptocurrency and purchased $3.1 million of cryptocurrency. We also had capital expenditures of $1.5 million.

Financing Activities

Net cash provided by financing activities was $3.0 million for the year ended January 31, 2023, compared to $0.3 million for the year ended January 31, 2022. During the year ended January 31, 2023, we sold 1.3 million shares of Series C Preferred Stock for $2.5 million, and warrants were exercised for a total of 0.6 million shares of common stock resulting in the Company receiving $0.6 million. During the year ended January 31, 2022, we had proceeds from issuance of common stock of $0.8 million and we paid off debt to a related party of $0.5 million.

Liquidity and Capital Resources

Cash on hand as of January 31, 2023 was $0.8 million. During the year ended January 31, 2023, we funded operations primarily through cash on hand and cash from sales of cryptocurrencies, Series C Preferred Stock and exercises of warrants.

On March 17, 2022, our board approved the conversion of two million shares of blank check preferred stock into two million shares of Series C Preferred Stock, par value $0.0001. On April 19, 2022, the Company sold 250,000 shares of Series C Preferred Stock for $1.0 million. On June 14, 2022, our board of directors approved the early conversion of 250,000 shares of Series C Preferred Stock into 560,928 shares of common stock.

On April 19, 2022, two warrants were exercised for a total of 500,000 shares of common stock resulting in the Company receiving $0.5 million.

On July 27, 2022, we launched EB Control, our patent-pending, zero-trust data protection solution, which was developed by Vengar.

On August 11, 2022, our board of directors approved the sale of our 2022 Cadillac Escalade to Eric Jaffe, our former chief executive officer and current board member, for $91,983. Mr. Jaffe paid for the vehicle with 26,662 shares of his Company common stock.

On August 14, 2022, to fund operations our board of directors approved the sale of 10 million HEX tokens to Michael Hawkins for $450,000. During the year ended January 31, 2023, the market price of HEX dropped. The Company recorded a loss on the transaction of approximately $47,000.

On September 16, 2022, to fund operations our board of directors approved the sale of approximately 6.7 million HEX tokens and approximately 7 Bitcoins to Michael Hawkins for $304,747. During the year ended January 31, 2023, the market prices of HEX and Bitcoin dropped. The Company recorded a loss on the transaction of approximately $195,000. As of January 31, 2023, the Company owns approximately $4,000 of cryptocurrencies.

On October 31, 2022, two warrants were exercised for a total of 250,000 shares of common stock, resulting in the Company having a receivable for $0.2 million. Since the receivable is from a stockholder, it is recorded as a contra-equity account.

On December 12, 2022, we launched BuildDB, our patent-pending blockchain platform, which serves as the backbone of the Company’s proprietary blockchain and trust ecosystem. EBI’s subsidiary, 832, developed BuildDB.

On January 5, 2023, the Company sold one million shares of Series C Preferred Stock for $1.5 million to OEM partner, Alamo City Engineering Services.

We were recently notified by the bank that the Mercury Acquisition triggered defaults under both Mercury's line of credit and term loan, due to the change in ownership. Both the line of credit and term loan are classified as current liabilities. We are working on refinancing both loans.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of January 31, 2023.

Going Concern

Our financial statements are prepared in accordance with GAAP, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Because the business is relatively new and has a succinct history and relatively few sales, no certainty of continuation can be stated. The accompanying consolidated financial statements for the years ended January 31, 2023 and 2022 have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company and therefore, we are not required to provide information required by this Item of Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Everything Blockchain, Inc.

Opinion on the Financial Statements

We have audited the accompanying the consolidated balance sheets of Everything Blockchain Inc. and its subsidiaries (“the Company”) as of January 31, 2023 and 2022 and the related statements of operations, changes in stockholders’ deficit and cash flows, for the years then ended, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended January 31, 2023 and 2022, in conformity with generally accepted accounting principles in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, as of January 31, 2023, the Company suffered losses from operations in all years since inception, except for the year ended January 31, 2022. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 3 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Going Concern- Refer to Note 3 to the financial statements

Critical Audit Matter Description

The Company raised substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time. The financial statements for the years under audit have been prepared to assume that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have identified the Going Concern as a critical audit matter because of the significant estimates and assumptions made by management. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the Company’s assessment of Going Concern. See the explanatory paragraph of the opinion paragraph.

How the Critical Audit Matter Was Addressed in the Audit

(i) We evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time. (ii) We obtained information about management’s plans that are intended to mitigate the effect of such conditions or events, and assess the likelihood that such plans can be effectively implemented. (iii) We added an explanatory paragraph to the audit report.

Fair Value Measurements Included in subsidiaries acquisitions— Refer to Notes 4, 5 and 6 to the financial statements

Critical Audit Matter Description

During June and July 2021, the Company acquired three subsidiaries. As a result, the Company performed a valuation of the intangible assets involved including goodwill, IP/Technology, and non-compete agreements. The Company’s valuation included a selection of multiples and an assessment of future profit for the Company.

We have identified the fair value measurements as a critical audit matter because of the significant estimates and assumptions made by management. This valuation requires management to make significant estimates and assumptions related to valuation multiples and forecasts of future profit.

We identified the valuation of the intangible assets as a critical audit matter because of the significant judgments made by management to estimate the fair value. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the valuation multiples and forecasts of future profit.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the valuation of the fair value measurements of the intangible assets included the following, among others: (i) Performed sensitivity analyses of the valuation multiples and revenue growth assumptions used in the model. (ii) Perform substantive testing procedures over the forecasted profit used within the valuation model. (iii) With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) valuation multiples by: (a) Testing the source information underlying the determination of the multiples and the mathematical accuracy of the calculation. (b) Developing an independent range of valuation multiples and comparing those to the multiples selected by management.

Assessment of uncertain tax positions — Refer to Note 17 to the financial statements

Critical Audit Matter Description

As discussed in Note 17, to the consolidated financial statements, the Company has recognized uncertain tax positions including associated interest and penalties. The Company’s tax positions are subject to audit by local taxing authorities and the resolution of such audits may span multiple years. Tax law is complex and often subject to varied interpretations. Accordingly, the ultimate outcome with respect to taxes the Company may owe may differ from the amounts recognized.

We identified the assessment of uncertain tax positions as a critical audit matter. The assessment of tax exposures and the ultimate resolution of uncertain tax positions requires a higher degree of auditor judgment in evaluating the Company’s interpretation of, and compliance with, tax law across multiple jurisdictions.

How the Critical Audit Matter Was Addressed in the Audit

The primary procedures we performed to address this critical audit matter included the following. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to assess uncertain tax positions, including controls related to the interpretation of tax law and identification of uncertain tax positions, the evaluation of which of the Company’s tax positions may not be sustained upon audit and the estimation of exposures associated with uncertain tax positions. We communicate with the tax professionals, that the Company hired, with specialized skills and knowledge who assisted in assessing filed tax positions, and evaluating the Company’s interpretation of tax law and its assessment of certain tax uncertainties and expected outcomes, including, if applicable, the measurement thereof, by reading advice obtained from the Company’s external specialists and correspondence with taxation authorities.

/s/Elkana Amitai CPA

We have served as the Company’s auditor since 2022.

Mitzpe Netofa, Israel

May 1, 2023

Everything Blockchain, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share and per share data)

See Accompanying Notes to Consolidated Financial Statements. 

Everything Blockchain, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except share and per share data)

See Accompanying Notes to Consolidated Financial Statements. 

Everything Blockchain, Inc

Consolidated Statements of Stockholders’ Equity

(Amounts in thousands)

See Accompanying Notes to Consolidated Financial Statements. 

Everything Blockchain, Inc.

Consolidated Statements of Cash Flows

(Amounts in thousands)

See Accompanying Notes to Consolidated Financial Statements.

EVERYTHING BLOCKCHAIN, INC.

Notes to Consolidated Financial Statements

Note 1. Organization and Basis of Presentation

The accompanying consolidated financial statements of Everything Blockchain, Inc., (the “Company,” “we,” “us” or “our”), have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).

The Company began trading under the stock symbol “OBTX” on March 24, 2020. On May 23, 2021, the Company changed its name from OBITX, Inc. to Everything Blockchain, Inc. On November 8, 2022, the Company began trading under the stock symbol “EBZT”.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Description of Business

The Company is primarily engaged in the business of consulting and developing blockchain and cybersecurity related solutions. We are a technology company that is blending blockchain, zero-trust, and database management technology to create a platform to solve real world, practical business problems. Our business model is based on building recurring revenue through software subscriptions, licensing agreements, and transaction fees. 

Subsidiaries of the Company

On April 26, 2021, in a settlement agreement with Render Payment, LLC, now named Render Payment Corp. (“Render”), owners, the Company became the sole owner of Render, in exchange for an outstanding accounts receivable the Company impaired in 2019. The settlement was considered a related party transaction and conducted as an arm’s length transaction approved by board members not associated with Render. As part of the transaction the Company recognized other income of $233,000 as fair market value (“FMV”) of the assets obtained under the settlement. The Company received two vehicles with FMV of $49,000 each and the Render Payment Processing Software with FMV of $135,000.

On June 18, 2021, the Company formed Everything Blockchain Technology Corporation (“EBTC”) to retain ownership of all intellectual property, technology patents and software code.

On June 21, 2021, the Company acquired all of the equity interests of 832 Energy Technology Consultants, LLC (“832”), pursuant to a Purchase Agreement dated June 17, 2021. Upon the closing of the transaction (the “832 Acquisition”), 832 became a wholly owned subsidiary of the Company. 832, which is located in Texas, has developed many innovations in the areas of distributed computing, artificial intelligence and blockchain technologies. For information on the 832 Acquisition refer to “Note 4. 832 Acquisition”.

On June 30, 2021, the Company acquired all of the equity interests of Mercury, Inc. (“Mercury”), pursuant to a Purchase Agreement dated April 24, 2021. Upon the closing of the transaction (the “Mercury Acquisition”), Mercury became a wholly owned subsidiary of the Company. The Company has utilized Mercury, which is located in Idaho, as its hosting solution since May 2020. The Company, with Mercury, launched its mining operations in the western United States. The Company has commenced mining for Bitcoin. Since the Mercury Acquisition, Mercury has handled the Company’s information technology and customer support functions and started its network operations center. For information on the Mercury Acquisition refer to “Note 5. Mercury Acquisition.” 

On July 31, 2021, the Company acquired all of the equity interests of Vengar Technologies LLC (“Vengar”), pursuant to a Purchase Agreement. Upon the closing of the transaction (the “Vengar Acquisition”), Vengar became a wholly owned subsidiary of the Company. Vengar, which is located in Florida, has developed a zero-trust data access and protection software that the Company plans to integrate into its blockchain solutions. For information on the Vengar Acquisition refer to “Note 6. Vengar Acquisition.” 

On November 16, 2022, the Company formed EBI International, Inc., which will own and manage, collectively, all international subsidiaries of the Company.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates and judgments relate to revenue recognition; sales returns and other allowances; allowance for doubtful accounts; valuation of inventory; valuation of long-lived assets and finite-lived intangible assets; recoverability of goodwill; acquisition method of accounting; contingencies; and income taxes.

On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Revenue Recognition Policies

Our revenue is derived from the subscription, non-software related hosted services, term-based and perpetual licensing of software products, associated software maintenance and support plans, consulting services, training, technical support, and merchandise sales. Most of our customer arrangements involve multiple solutions and various license rights, bundled with post-contract customer support and other meaningful rights that together provide a complete end-to-end solution to the customer. 

We determine revenue recognition through the following steps:

Services revenue. We generate services revenue via consulting services and software development. The Company is engaged in developing, engineering, and designing blockchain projects, to include platforms and cryptocurrencies for customers.

Subscription revenue.

We generate revenue from subscriptions through staking of our current crypto assets. Our primary token being staked is a hybrid Proof of Work (“POW”) and Proof of Stake (“POS”) system. Stakers, in this particular token are paid inflation based both on the duration of the stake (contract length), as well as based on the volume / quantity of tokens staked. Rewards / interest / inflation are paid in the native token. We also participate in networks with POW consensus algorithms, through creating or validating blocks on the network. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete, and the rewards are available for transfer. Revenue is measured based on the number of tokens received and the fair value of the token at the date of recognition.

Product revenue. We generate product revenue through customized product development and merchandise sales.

We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Research and Development

Research and development expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as an expense as incurred.

Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized only if the product or process is technically and commercially feasible, if development costs can be measured reliably, if future economic benefits are probable, if the Company intends to use or sell the asset and the Company intends and has sufficient resources to complete development. For the years ended January 31, 2023 and 2022, the Company capitalized software development costs of $1,174,000 and $303,000, respectively.

Concentration of Credit Risk and Significant Customers

Financial instruments which potentially subject the Company to a concentration of credit risk consist principally of temporary cash investments and accounts receivable.

Concentrations of credit risk with respect to trade receivables and commodities are limited due to the Company’s diverse group of customers. The Company establishes an allowance for doubtful accounts when events and circumstances regarding the collectability of its receivables or the selling of its commodities warrant based upon factors such as the credit risk of specific customers, historical trends, other information, and past bad debt history. The outstanding balances are stated net of an allowance for doubtful accounts.

Revenues from one customer represent $1.0 million of the Company’s revenue for the year ended January 31, 2022.

Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company may occasionally maintain amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The risk is managed by maintaining all deposits in high-quality financial institutions. The Company had $0.4 million and $0.1 million in excess of federally insured limits on January 31, 2023, and January 31, 2022, respectively.

Our cryptocurrency balances are maintained in accounts held by institutions located in and outside the United States. The Company maintains amounts on deposit that often exceed coverage from third party insured limit of up to $1,000,000. The risk is managed by maintaining multiple accounts with various accounts held in a cold storage wallet. The Company had $4,000 in excess of amounts protected by insurance.

Cost of Services Provided

Cost of services provided includes programs licensed; costs incurred to support and maintain Internet-based products and services, including data center costs and royalties; warranty costs; costs associated with the delivery of consulting services; and the amortization of capitalized software development costs. Capitalized software development costs are amortized over the estimated lives of the products, which the Company rates at three years.

Cash and Cash Equivalents

The Company includes in cash and cash equivalents all short-term, highly liquid investments that mature within three months of the date of purchase. Cash equivalents consist principally of investments in interest-bearing demand deposit accounts and liquidity funds with financial institutions and are stated at cost, which approximates fair value. The Company had no cash equivalents as of January 31, 2023 and 2022.

Property, Plant, and Equipment

Property, plant, and equipment is stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. Additions, improvements and major replacements that extend the life of the asset are capitalized.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. The Company’s goodwill was the result of the 832 Acquisition, the Mercury Acquisition, and the Vengar Acquisition. The Company tests goodwill for impairment annually or more often if an event or circumstance indicates that an impairment may have occurred.

Intangible Assets

The Company tests intangible assets for impairment annually or more often if an event or circumstance indicates that an impairment may have occurred.

Intangible assets consist of the following:

The Company’s IP/Technology is still being developed so no amortization has been recorded. The non-compete agreements are amortized over two years.

Acquisition Method of Accounting

The Company accounts for business combinations using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

Advertising Costs and Expense

The advertising costs are expensed as incurred. Advertising costs were $0.7 million and $0.1 million for the years ended January 31, 2023 and 2022, respectively.

Foreign Currency Translation

The Company’s functional currency and its reporting currency is the United States Dollar.

Basic and Diluted Net Earnings (Loss) Per Share

The Company follows ASC Topic 260 – Earnings Per Share, and FASB 2015-06, Earnings Per Share to account for earnings per share. Basic earnings per share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS calculations are determined by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect, calculated using (i) the “treasury stock” method for warrants and (ii) the “if converted” method for the preferred stock if their inclusion would not have been anti-dilutive.

Commitments and Contingencies

The Company reports and accounts for its commitments and contingencies in accordance with ASC 440 – Commitments and ASC 450 – Contingencies. We recognize a loss on a contingency when it is probable a loss will be incurred and that the amount of the loss can be reasonably estimated. No loss contingencies have been recorded for the years ended January 31, 2023 and 2022.

Fair Value Measurements 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

The carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities, and deferred revenue approximate their fair value due to their short maturities.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued guidance which simplifies the accounting for income taxes. The guidance amends the rules for recognizing deferred taxes for investments, performing intra-period tax allocations, and calculating income taxes in interim periods. It also reduces complexity in certain areas, including allocating taxes to members of a consolidated group. The Company adopted the new guidance during the year ended January 31, 2022. The adoption did not have a material impact on our financial statements.

Note 3. Going Concern

The Company’s consolidated financial statements are prepared in accordance with GAAP, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. Because the business is new and has a limited history, no certainty of continuation can be stated. The accompanying financial statements for the years ended January 31, 2023 and 2022, have been prepared to assume that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has had historically negative cash flow and net losses. Though the year ended January 31, 2022 resulted in positive cash flow and net income, there are no assurances the Company will generate a profit or obtain positive cash flow in the future. The Company has sustained its solvency for the years ended January 31, 2023 and 2022 through the support of its shareholder and chairman, Michael Hawkins, or companies controlled by Michael Hawkins, which raise substantial doubt about its ability to continue as a going concern.

Management is taking steps to raise additional funds to address its operating and financial cash requirements to continue operations in the next twelve months. Management has devoted a significant amount of time to the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company will receive the funding or generate the revenue necessary to fund operations. The financial statements contain no adjustments for the outcome of this uncertainty.

Note 4. 832 Acquisition

On June 21, 2021, the Company acquired all the equity interests of 832. This acquisition is consistent with the Company’s strategy of expanding its blockchain business. The purchase price consisted of 300,000 shares of common stock valued at $2.0 million at time of purchase.

This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

The purchase price recognized in our financial statements consisted of the following (amounts in thousands):

The Company’s final purchase price allocation is as follows (amounts in thousands):

The goodwill recorded reflects the value to the Company of entry into blockchain technology.

The operations of 832 are included in the consolidated statement of operations as of June 21, 2021.

Note 5. Mercury Acquisition

On June 30, 2021, the Company acquired all the equity interests of Mercury. This acquisition is consistent with the Company’s strategy of expanding its cryptocurrency business. The purchase price consisted of 450,000 shares of common stock valued at $1.3 million at time of purchase and $0.1 million of cash.

This business combination has been accounted for using the acquisition method of accounting.

The purchase price recognized in our financial statements consisted of the following (amounts in thousands):

The Company’s purchase price allocation is as follows (amounts in thousands):

The goodwill recorded reflects the value to the Company of Mercury’s mining operations.

The operations of Mercury are included in the consolidated statement of operations as of July 1, 2021.

Note 6. Vengar Acquisition

On July 31, 2021, the Company acquired all the equity interests of Vengar. This acquisition is consistent with the Company’s strategy of expanding its blockchain business. The purchase price consisted of one million shares of common stock valued at $16.2 million at time of purchase and $0.1 million of cash.

This business combination has been accounted for using the acquisition method of accounting.

The purchase price recognized in our financial statements consisted of the following (amounts in thousands):

The Company’s final purchase price allocation is as follows (amounts in thousands):

The goodwill recorded reflects the value to the Company of entry into zero-trust technology.

The operations of Vengar are included in the consolidated statement of operations as of August 1, 2021.

Note 7. Cryptocurrency Assets

The Company transacts business with cryptocurrency assets. The Company records cryptocurrency assets as an intangible asset with infinite life. We classify cryptocurrency assets that have a market value and substantial liquidity as current intangible assets, which we value at fair market value in accordance with Statement No. 157. Cryptocurrencies that do not trade on a market or have limited liquidity are classified as non-current intangible assets and are recorded on a cost basis. The following chart shows our cryptocurrency assets (in thousands):

During the year ended January 31, 2023, the Company recorded in other income (expense), net fair value expense adjustments of $2.2 million and an expense of $0.2 million on the sales of cryptocurrencies. During the year ended January 31, 2022, the Company recorded in other income fair market value adjustments of $3.8 million and sales of cryptocurrencies, net of associated costs, of $1.2 million.

Note 8. Property, Plant and Equipment

Property, plant, and equipment consisted of the following (in thousands):