See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

Everything Blockchain, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Organization and Basis of Presentation

The accompanying unaudited consolidated financial statements of Everything Blockchain, Inc. and its consolidated subsidiaries (collectively, the “Company”, “we”, “our”), have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the SEC. All significant intercompany accounts and transactions have been eliminated.eliminated in consolidation.

Description of Business

The Company’s early model was to earn revenue through social media advertising, fees, and services. Under this plan, the Company developed its white label software solution for BOTS under the 420 Cloud brand. After multiple attempts to secure acceptanceis primarily engaged in the market, the Company discontinued this operation during the fiscal year ended January 31, 2020.

In April 2020 the Company divestedbusiness of consulting and sold its white label software solutiondeveloping blockchain and changed direction of its business. The Company has become a developer, engineer, and consultant in the industry of blockchain technologies.cybersecurity related solutions.

Subsidiaries of the Company

On April 26, 2021, in a settlement agreement with Render Payment, LLC (“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 valuePayment, LLC (“FMV”Render”) 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 a FMV of $135,000.

. On June 21, 2021, the Company acquired all of the equity interests of 832 Energy Technology Consultants, LLC (“832”), pursuant to a Purchase Agreement. 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. 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 will launch its mining operations in the western United States. The Company will commence mining for Bitcoins, Ethereum, and other alternative cryptocurrencies. 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 protection software that the Company plans to integrate into its blockchain solutions. For information on the Vengar Acquisition refer to “Note 6. Vengar Acquisition”.

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 of Render, 832, Mercury, Vengar, and Everything Blockchain Technology Corporation.

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:to revenue recognition; sales returns and other allowances; allowance for doubtful accounts; valuation of inventory; valuation and recoverability of long-lived assets; property and equipment; 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

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.

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.

We determine revenue recognition through the following steps:

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 and $0 of the Company's revenue for the nine-month periodsthree months ended October 31, 2021 and 2000, respectfully.April 30, 2021.

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 $0.6$1.3 million and $0.1 million in excess of federally insured limits on OctoberApril 30, 2022 and January 31, 2021.2022, 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 $5.0$2.8 million in excess of amounts protected by insurance.

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 April 30, 2022 and January 31, 2022.

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.

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.

Note 3. Going Concern

The Company's consolidated 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 new and has a limited history, no certainty of continuation can be stated. The accompanying financial statements for the three and nine months ended October 31,April 30, 2022 and 2021 and 2020 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.

Note 4. 832 AcquisitionThe 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 through the support of its shareholder Overwatch Partners, Inc. (“Overwatch”), which raise substantial doubt about its ability to continue as a going concern.

On June 21, 2021,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 acquired allwill receive the equity interests of 832. This acquisition is consistent withfunding or generate the Company’s strategy of expanding its blockchain business.revenue necessary to fund operations. The purchase price consisted of 300,000 shares of common stock valued at $1.5 million.

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 market values as of the acquisition date.

The purchase price recognized in our financial statements consistedcontain no adjustments for the outcome of the following (amounts in thousands):this uncertainty.

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

Intangible assets consist of blockchain source code for QueryChain.

The final purchase price and the allocation thereof will not be known until the valuation of intangible assets is completed.

The operations of 832 are included in the consolidated statement of operations as of June 21, 2021. During the three months ended October 31, 2021, the Company recorded revenue of $0.1 million and no net income related to 832. During the nine months ended October 31, 2021, the Company recorded revenue of $0.2 million and no net income related to 832.

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 and $0.1 million of cash.

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 market values as of the acquisition date.

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. During the three months ended October 31, 2021, the Company recorded revenue of $0.4 million and net loss of $0.1 million related to Mercury. During the nine months ended October 31, 2021, the Company recorded revenue of $0.5 million and net loss of $0.1 million related to Mercury.

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 1,000,000 shares of common stock valued at $5.7 million and $0.1 million of cash.

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 market values as of the acquisition date.

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

The Company’s preliminary purchase price allocation is as follows (amounts in thousands):Note 4. Intangible Assets

Intangible assets consist of patents.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.

Note 5. Cryptocurrency Assets

The final purchase priceCompany transacts business with cryptocurrency assets. The Company records cryptocurrency assets as an intangible asset with infinite life. We classify cryptocurrency that have a market value and the allocation thereof will not be known until the valuation ofsubstantial liquidity as current intangible assets, is completed.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):

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

During the three and nine months ended October 31,April 30, 2022, the Company recorded in other income (expense) fair market value expense adjustments of $0.1 million. For the three months ended April 30, 2021, the Company recorded no revenue andin other income (expense) net loss of $0.1 millionexpenses related to Vengar.

Note 7. Revenue

Under Topic 606, revenue is recognized when controlcryptocurrencies 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.

We determine revenue recognition through the following steps:

Revenue was $62,000 for the three and nine months ended October 31, 2020, consisting of consulting and service revenue. The following table presents revenue for the three and nine months ended October 31, 2021 disaggregated by revenue source (in thousands):

Transaction revenue

The Company charges a fee for its services at the transactional level. Currently the Company is engaged in developing, engineering, and designing blockchain projects, to include platforms and cryptocurrencies for customers. We typically treat all revenue generated from third parties for services as transaction revenue.$0.4 million.

SubscriptionNote 6. Property, Plant and service revenueEquipment

SubscriptionProperty, plant and service revenue primarily consist of staking revenue. The Company participates in networks with proof-of-stake 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 formequipment consisted 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.following (in thousands):

Other revenues

The Company includes interest income as a part of revenue when generated from non-cash equivalents as other revenue within net revenue. Interest earned on cash and cash equivalents is included in corporate interest income, within other income.

Other revenue also includes the sale of crypto assets. The Company records the total value of the sale in other revenue and the cost of the crypto assets in cost of sales within the consolidated statements of operations.

Note 8. Notes7. Debt

On March 17, 2021, the Company entered into a loan agreement for $500,000 with Epic Industry Corp (“Epic”), a wholly owned company of Michael Hawkins, the Company’s Chairman of the board of directors. The loan was financed with $500,000 of GUSD cryptocurrency tokens, a stable coin. The interest rate was 3% per annum. The Company paid off the loan during the quarter ended July 31, 2021.

As of April 30, 2022, Mercury’s outstanding debt of $0.5 million had a weighted average interest rate of 6.2%. The debt consists primarily of term loans and a line of credit with various financial institutions, and such debt is collateralized by the assets of Mercury. The debt has maturity dates ranging from 2022 through 2037.

Note 8. 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 incur and that the amount of the loss can be reasonably estimated. NaN loss contingencies have been recorded for the three months ended April 30, 2022 and 2021.

Note 9. Legal Proceedings

The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Cease and Desist Notice

On November 2, 2021, the Company received a cease and desist notice (the “Notice”) from First Genesis, Inc. (“First Genesis”). The Notice alleges, among other things, that Cedric Harris, the Company’s Chief Research Officer, and the Company were using First Genesis’ intellectual property. Mr. Harris, through 832, developed First Genesis’ intellectual property and has been providing First Genesis with consulting services. 832’s intellectual property, which Mr. Harris also developed, is an entirely independent work of art than that which was created by Mr. Harris in his capacity with First Genesis. We believe that the alleged claims from First Genesis are without merit and the Company will continue to vigorously defend against the allegations in the Notice. The Company timely responded to the Notice and has not received a response from First Genesis, or any other communication from First Genesis, since.

Lawsuit – District Court of Travis County, Texas, 353^rd Judicial District

On February 9, 2022, a plaintiff filed a lawsuit against numerous parties, one of which included the Company in the caption. The complaint failed to include the Company in any claim made in the complaint. The Company’s verified denial was filed on March 17, 2022. The Company filed its motion to be dismissed from the case subsequent to its verified denial, and was summarily dismissed from the case on May 23, 2022. The Company has until June 15, 2022 to motion the court for fees and costs compensated by the plaintiff, and the Company expects to submit this motion timely.

Note 10. Related Parties and Related Party Transactions

During the nine months ended October 31, 2021 and year ended January 31, 2021, Overwatch Partners paid multiple different expenses on behalf of the Company, which the Company treats as an account payable to related party. The total amount owed by the Company to Overwatch Partners as of October 31, 2021 was $23,646. The amount owed for the year ended January 31, 2021 was $12,862.