Business Operations and Expansion - The company began its bitcoin mining operations in late 2021, marking a significant transition in its business model[44]. - The first hosting facility in Uralsk, Kazakhstan, became operational in Q4 2021 with a capacity of 15 MW, while a planned 90 MW expansion is currently being renegotiated due to recent developments in Kazakhstan[49]. - The company is exploring expansion into international markets, including Mexico and the United States, but faces challenges in securing hosting agreements[50]. - The company may incur substantial costs related to relocating mining operations if it cannot renew leases on acceptable terms[52]. - The company may experience difficulties in managing expansion and growth, which could strain resources and systems[90]. Financial Performance and Risks - The company faces significant risks related to the volatility of bitcoin prices, which can impact operating results and financial performance[47]. - Electricity costs are expected to account for a significant portion of overall costs, and any increase in electricity prices could negatively affect the viability of mining operations[53]. - The supply of bitcoin is limited, and the mining economics are subject to fluctuations, which could lead to significant losses if prices decline[46]. - The company reported a net loss of $0.1 million from inception through December 31, 2019, and a net income of $0.4 million for the fiscal year ended December 31, 2020, with an accumulated deficit of $16.4 million as of December 31, 2021[77]. - Any significant decline in Bitcoin's value could adversely affect the company's business, prospects, financial condition, and operating results[172]. Regulatory and Compliance Challenges - The company has identified material weaknesses in its internal controls over financial reporting, which could adversely affect investor confidence[45]. - Regulatory changes in the cryptocurrency industry may impose additional compliance costs and affect the company's operations[45]. - Kazakhstan introduced a new tax for cryptocurrency miners, charging 1 tenge (approximately $0.0023) per kWh starting January 1, 2022, with potential amendments to increase this fee based on electricity consumption[58]. - Future government regulations regarding cryptocurrency mining and energy consumption may increase compliance burdens and adversely affect business operations[58]. - The company may be required to comply with regulations that could classify it as a money services business (MSB), incurring significant compliance costs[117]. Supply Chain and Operational Risks - The company relies on a small number of suppliers for digital asset mining equipment, with potential shortages affecting growth expectations and financial condition[63]. - The ongoing significant shortage of ASIC chips has led to price fluctuations and disruptions in the supply of key mining components[80]. - Supply chain disruptions and delays in obtaining necessary equipment could adversely affect the company's ability to mine bitcoin[82]. - The reliance on specific mining machine models increases operational risks, as technological issues could lead to significant delays or system failures, impacting yields and reputation[183]. Cybersecurity and Digital Asset Management - The company plans to hold the majority of its cryptocurrencies in cold storage to mitigate risks associated with cyber threats[138]. - Cybersecurity breaches could lead to significant losses and harm the company's reputation, impacting the value of its digital assets[139]. - Cryptocurrency transactions are irreversible, and any incorrectly executed or fraudulent transactions could lead to significant losses for the company[145]. - There is currently no established mechanism for recovering missing or stolen cryptocurrency, which could adversely affect the company's financial condition and operating results[146]. Market and Competitive Landscape - The competitive landscape in the cryptocurrency mining industry is intensifying, posing challenges for the company to maintain and expand its operations[94]. - The profit margins of bitcoin mining operations are under pressure, leading to immediate selling of mined bitcoin, which could constrain bitcoin price growth and adversely impact the company[186]. - A decline in bitcoin prices could incentivize professionalized mining operations to sell mined bitcoin rapidly, increasing trading volume and exerting downward pressure on market prices[188]. Geopolitical and Economic Factors - The company is exposed to risks associated with geopolitical tensions, particularly in relation to its operations in China and Kazakhstan[41]. - Inflationary pressures in Asian economies may lead to government actions that could significantly decrease the company's profitability[207]. - Restrictions on foreign investment in certain countries could severely impair the company's operations and profitability[208]. Corporate Governance and Compliance with U.S. Regulations - The company has terminated its operations in China due to regulatory actions against cryptocurrency mining, which may impact its business strategy[212]. - The Holding Foreign Companies Accountable Act may restrict the company's ability to acquire certain businesses and could lead to delisting from U.S. exchanges if the PCAOB cannot inspect its auditors for three consecutive years[220]. - The SEC has issued guidance highlighting risks associated with investments in China-based issuers, which may require enhanced disclosures from the company[221]. - The company may not be able to acquire target businesses due to compliance with U.S. laws and regulations regarding foreign ownership and auditor inspections[222].
SAI.TECH (SAI) - 2021 Q4 - Annual Report