Sphere 3D Corp
For the period ended Jun 30, 2024. Filed Aug 13, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 13, 2024
DRK$1.57+0.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-13.
0001591956-24-000012
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-13.
0001591956-24-000015
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 51 previous paragraphs and 86 current paragraphs.
22 unchanged; 23 reworded; 35 added; 5 removed; 1 previous and 6 current paragraphs rearranged.
Tables are not compared: 1 previous and 1 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (35)
Current report
We currently have service agreements with Foundry Digital LLC and Luxor Technology Corporation, each a cryptocurrency mining pool operator, to provide a service to perform hash calculations. In exchange for providing the service, we are entitled to Full Pay Per Share (“FPPS”), which is a fractional share of the fixed Bitcoin award the applicable mining pool operators receives, plus a fractional share of the transaction fees attached to that blockchain, less net cryptocurrency fees due to the mining pool operators over the measurement period, as applicable. The pay-outs that we receive are based on the expected value from the block reward plus the transaction fee reward, regardless of whether the applicable mining pool operators successfully records a block to the blockchain. Our fractional share is based on a contractual formula, which primarily calculates the hash rate provided to the mining pool as a percentage of total network hash rate and other inputs. The service agreements are terminable at any time by either party without compensation, and our enforceable right to compensation only begins when we begin providing hash calculation services to the applicable mining pool operators, which occurs daily at midnight Universal Time Coordinated (“UTC time”).
Current report
•In July 2024, one of our hosting providers informed us they were taking approximately 3,300, or 29%, of our mining machines offline for an undetermined period of time to relocate them. As of August 2024, approximately 1,900 mining machines that were taken offline were back online, and approximately 12% of our mining machines remain offline pending relocation.
Current report
•On April 19, 2024, a Bitcoin halving event occurred on the Bitcoin network. Halving is a key part of the Bitcoin protocol and serves to control the overall supply and reduce the risk of inflation in digital assets using a proof-of-work consensus algorithm. The Bitcoin halving event reduced the block subsidy by half from 6.25 to 3.125 Bitcoin per block.
Current report
Cost of Revenue (exclusive of depreciation and amortization expense)
Current report
Direct cost of revenues during the second quarter of 2024 and 2023 were $4.0 million and $4.3 million, respectively, representing a decrease of $0.3 million primarily due to the prior year disposal of our Service and Product segment.
Current report
Impairment of property and equipment was $0.9 million and nil for the second quarter of 2024 and 2023, respectively, and related to idle mining equipment not expected to return to use.
Current report
Loss on Disposal of Property and Equipment
Current report
Loss on disposal of property and equipment was $0.7 million and $0.3 million for the second quarter of 2024 and 2023, respectively, and related to the sale of mining equipment.
Current report
Impairment of Bitcoin
Current report
Unrealized Gain on Investment in Equity Securities
Current report
Interest Income and Other Income, Net
Current report
Interest income and other income, net was $0.6 million and $1.1 million for the second quarter of 2024 and 2023, respectively. The second quarter of 2024 interest income and other income, net, primarily related to a realized gain on the partial sale of our equity investment in Core Scientific Inc. The second quarter of 2023 interest income and other income, net, primarily related to a $1.0 million fair value adjustment for warrant liabilities and $0.1 million in interest income from restricted funds held in trust.
Current report
The First Six Months of 2024 Compared with the First Six Months of 2023
Current report
Revenue
Current report
We generated revenues of $11.6 million and $8.5 million during the first six months of 2024 and 2023, respectively. The $3.1 million increase in revenue is primarily due to the increase of $4.1 million in revenues from our Bitcoin mining operation primarily due to higher Bitcoin prices in the first six months of 2024 compared to 2023, offset by the Bitcoin halving event that occurred in April 2024, and a decrease of $1.0 million related to our former Service and Product segment which was sold in December 2023. During the first six months of 2024, all of our revenue was derived from Bitcoin mining.
Current report
Operating Expenses
Current report
Cost of Revenue (exclusive of depreciation and amortization expense)
Current report
Sales and Marketing Expense
Current report
Sales and marketing expenses were nil and $0.6 million for the first six months of 2024 and 2023, respectively. The decrease of $0.6 million was due to the sale of our Service and Product segment in December 2023 and we no longer have sales and marketing expense.
Current report
Research and Development Expense
Current report
Research and development expenses were nil and $0.5 million for the first six months of 2024 and 2023, respectively. The decrease of $0.5 million was due to the sale of our Service and Product segment in December 2023 and we no longer have research and development expense.
Current report
General and Administrative Expense
Current report
Depreciation and Amortization Expense
Current report
Depreciation and amortization expense was $3.6 million and $2.4 million for the first six months of 2024 and 2023, respectively. The increase of $1.2 million was primarily due to depreciation related to our Bitcoin mining machines.
Current report
Impairment of property and equipment was $0.9 million and nil for the first six months of 2024 and 2023, respectively, and related to idle mining equipment not expected to return to use.
Current report
Loss on Disposal of Property and Equipment
Current report
Loss on disposal of property and equipment was $0.7 million and $0.3 million for the first six months of 2024 and 2023, respectively, and related to the sale of mining equipment.
Current report
Impairment of Bitcoin
Current report
Impairment of Bitcoin was nil and $0.4 million for the first six months of 2024 and 2023, respectively. Effective January 1, 2024, we early adopted ASU 2023-08, and in accordance with the new guidance we no longer report impairment of Bitcoin and realized gain on sale of Bitcoin separately. Instead, current period comparable information is reported in the line item Change in fair value of Bitcoin in the consolidated statement of operations.
Current report
Non-Operating Income and Expenses
Current report
Unrealized Gain on Investment in Equity Securities
Current report
Unrealized gain on investment in equity securities was $4.5 million and nil for the first six months of 2024 and 2023, respectively. The gain was related to our equity investment in Core Scientific Inc., a publicly traded company.
Current report
Interest Income and Other Income, Net
Current report
Interest income and other income, net was $0.7 million and $1.4 million of income, net, for the first six months of 2024 and 2023, respectively. The first six months of 2024 interest income and other expense, net, primarily related to a $0.5 million realized gain on the partial sale of our equity investment in Core Scientific Inc. and a $0.2 million fair value adjustment for warrant liabilities. The first six months of 2023 interest income and other expense, net, primarily related to a $1.3 million fair value adjustment for warrant liabilities and $0.2 million in interest income from restricted funds held in trust.
Current report
Net cash provided by financing activities. For the first six months of 2023, we received $0.8 million, net, from issuance of a convertible note, and $0.2 million from the exercise of stock options.
Removed paragraphs (5)
Previous report
•On January 16, 2024, we reached a settlement agreement (the “Settlement Agreement”) with Core Scientific, which was approved by a United States Bankruptcy Judge on January 16, 2024 as part of Core Scientific’s emergence from bankruptcy, for $10.0 million of Core Scientific’s equity. The Settlement Agreement includes access to potential additional funds for interest as well as an additional equity pool if the value of Core Scientific’s equity decreases in the 18 months after the date of the Settlement Agreement commensurate with the other unsecured creditors. On January 23, 2024, we received 2,050,982 shares of Core Scientific Inc. common stock trading under the Nasdaq symbol CORZ.
Previous report
•In March 2024, we received proceeds from the 21.6 Bitcoin that was outstanding at December 31, 2023.
Previous report
We generated revenues of $6.9 million and $3.0 million during the first quarter of 2024 and 2023, respectively. The $3.9 million increase in revenue is primarily due to an increase in revenues from our Bitcoin mining operation as additional miners were deployed, as well as the receipt of outstanding Bitcoin proceeds, which resulted in $0.6 million of revenue not recognized in the prior year due to the uncertainty regarding when we would receive the Bitcoin.
Previous report
Cost of Revenue
Previous report
Unrealized Loss on Investment in Equity Securities
Reworded paragraphs (23)
Previous wording
The following quarterly management’s discussion and analysis (“MD&A”) should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes of Sphere 3D Corp. (the “Company”) for the three months ended March 31, 2024. The condensed consolidated financial statements have been presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Unless the context otherwise requires, any reference to the “Company,” “Sphere 3D,” “we,” “our,” “us” or similar terms refers to Sphere 3D Corp. and its subsidiaries. Unless otherwise indicated, all references to “$” and “dollars” in this discussion and analysis mean U.S. dollars.
Current wording
The following quarterly management’s discussion and analysis (“MD&A”) should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes of Sphere 3D Corp. (the “Company”) for the three and six months ended June 30, 2024. The condensed consolidated financial statements have been presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Unless the context otherwise requires, any reference to the “Company,” “Sphere 3D,” “we,” “our,” “us” or similar terms refers to Sphere 3D Corp. and its subsidiaries. Unless otherwise indicated, all references to “$” and “dollars” in this discussion and analysis mean U.S. dollars.
Previous wording
In January 2022, we commenced operations of our digital mining business and are dedicated to becoming a leader in the Blockchain and Crypto Industry. We have established and continue to grow an enterprise-scale mining operation through the procurement of mining equipment and partnering with experienced service providers. In addition to digital mining, through December 28, 2023, we delivered data management and desktop and application virtualization solutions through hybrid cloud, cloud and on premise implementations by its reseller network. We achieved this through a combination of containerized applications, virtual desktops, virtual storage and physical hyper-converged platforms. On December 28, 2023, we sold our service and product segment which included HVE ConneXions and Unified ConneXions.
Current wording
In January 2022, we commenced operations of our Bitcoin mining business and are dedicated to becoming a leader in the Blockchain and Crypto Industry. We have established and continue to grow an enterprise-scale mining operation through the procurement of mining equipment and partnering with experienced service providers. In addition to Bitcoin mining, through December 28, 2023, we delivered data management and desktop and application virtualization solutions through hybrid cloud, cloud and on premise implementations by its reseller network. We achieved this through a combination of containerized applications, virtual desktops, virtual storage and physical hyper-converged platforms. On December 28, 2023, we sold our service and product segment which included HVE ConneXions and Unified ConneXions.
Previous wording
We obtain Bitcoin as a result of our mining operations, and we sell Bitcoin to support our operations and strategic growth. We do not currently plan to engage in regular trading of Bitcoin other than sales to convert our Bitcoin into U.S. dollars. Decisions to hold or sell Bitcoins are currently determined by management by analyzing forecasts and monitoring the market in real time. We have a hybrid treasury strategy to hold Bitcoin when possible, and sell to fund working capital requirements.
Current wording
We obtain Bitcoin as a result of our mining operations, and we sell Bitcoin to support our operations and strategic growth. We currently mine Bitcoin in Missouri, Texas and Iowa, which these states do not have any material state-specific regulatory restrictions on the mining of Bitcoin. However, it is possible that these states or other states in which we may seek to operate may create laws that would impede Bitcoin mining. We do not currently plan to engage in regular trading of Bitcoin other than sales to convert our Bitcoin into U.S. dollars. Decisions to hold or sell Bitcoins are currently determined by management by analyzing forecasts and monitoring the market in real time. We have a hybrid treasury strategy to hold Bitcoin when possible, and sell to fund working capital requirements.
Previous wording
We owned approximately 13,530 miners as of March 31, 2024, of which approximately 12,488 were in service. We do not have scheduled downtime for our miners. We periodically perform both scheduled and unscheduled maintenance on our miners, but such downtime has not historically been significant. Depending on the type of repair, the miner may run at a reduced speed or be taken offline. We use multiple software programs to monitor the performance of our machines. The miners owned as of March 31, 2024 have a range of energy efficiency (joules per terahash – “J/th”) of 21.5 to 38 J/th with an average energy efficiency of 28.4 J/th. The miner efficiency is an indication of how efficient we can earn Bitcoin and minimize cost to run the miner.
Current wording
As of June 30, 2024, we owned approximately 13,100 miners, of which approximately 11,400 were in service. We do not have scheduled downtime for our miners. We periodically perform both scheduled and unscheduled maintenance on our miners, but such downtime has not historically been significant. Depending on the type of repair, the miner may run at a reduced speed or be taken offline. We use multiple software programs to monitor the performance of our machines. The miners owned as of June 30, 2024 have a range of energy efficiency (joules per terahash – “J/th”) of 21.5 to 38 J/th with an average energy efficiency of 28.4 J/th. The miner efficiency is an indication of how efficient we can earn Bitcoin and minimize cost to run the miner. At this time, we intend only to mine Bitcoin and we hold no other cryptocurrency other than Bitcoin. We do not have any power purchase agreements for the supply of power.
Previous wording
As of March 31, 2024, we held approximately 1.8 Bitcoin. The carrying value of our Bitcoin as of March 31, 2024 was $0.1 million on our consolidated balance sheet. We account for our Bitcoin as indefinite-lived intangible assets. Effective January 1, 2024, we early adopted ASU 2023-08, Intangibles - Goodwill - and Other - Crypto Assets (Subtopic 350-60): Accounting For and Disclosure of Crypto Assets(“ASU 2023-08”) and recorded a $20,000 decrease to the opening balance of accumulated deficit and an increase to digital assets. The new guidance requires Bitcoin to be valued at fair value each reporting period with changes in fair value recorded in operating expenses in the consolidated statement of operations. The fair value of Bitcoin is measured using the period-end closing price from the Company’s principal market. When Bitcoin is sold, the gains and losses from such transactions are measured as the difference between the cash proceeds and the carrying basis of the Bitcoin as determined on a first in-first out (“FIFO”) basis and are recorded within the same line item, Change in fair value of Bitcoin, in the consolidated statements of operations.
Current wording
As of June 30, 2024, we held approximately 7.2 Bitcoin. The fair value of our Bitcoin as of June 30, 2024 was $450,000 on our consolidated balance sheet. We account for our Bitcoin as indefinite-lived intangible assets. Effective January 1, 2024, we early adopted ASU 2023-08, Intangibles - Goodwill - and Other - Crypto Assets (Subtopic 350-60): Accounting For and Disclosure of Crypto Assets(“ASU 2023-08”) and recorded a $20,000 decrease to the opening balance of accumulated deficit and an increase to digital assets. The new guidance requires Bitcoin to be valued at fair value each reporting period with changes in fair value recorded in operating expenses in the consolidated statement of operations. The fair value of Bitcoin is measured using the period-end closing price from the Company’s principal market. When Bitcoin is sold, the gains and losses from such transactions are measured as the difference between the cash proceeds and the carrying basis of the Bitcoin as determined on a first in-first out (“FIFO”) basis and are recorded within the same line item, Change in fair value of Bitcoin, in the consolidated statements of operations.
Previous wording
We are strategizing for our future growth by working on a plan to refresh a significant portion of our fleet with newer-generation machines to bolster efficiency. We expect this to lead to greater gross profits given that more efficient machines typically use less power and generate more Bitcoin. We expect to start the process of removing the older machines during the second quarter of 2024 and to begin replacing them with newer generation machines, continuing in a phased approach over the remainder of the year.
Current wording
We are strategizing for our future growth by working on a plan to refresh a significant portion of our fleet with newer-generation machines to bolster efficiency. We expect this to lead to greater gross profits given that more efficient machines typically use less power and generate more Bitcoin. We expect to start the process of removing the older machines during the third quarter of 2024 and to begin replacing them with newer generation machines, continuing in a phased approach over the remainder of the year. Subsequent to June 30, 2024, we purchased 335 new miners for $1.3 million.
Previous wording
•In the first three months of 2024, we issued 2,422,710 common shares for the conversion of 16,959 Series H Preferred Shares. Subsequent to March 31, 2024, we issued 423,570 common shares for the conversion of 2,965 Series H Preferred Shares.
Current wording
•In the first six months of 2024, we issued 4,043,850 common shares for the conversion of 28,307 Series H Preferred Shares. Subsequent to June 30, 2024, we issued 408,284 common shares for the conversion of 2,858 Series H Preferred Shares.
Previous wording
The First Quarter of 2024 Compared with the First Quarter of 2023
Current wording
The Second Quarter of 2024 Compared with the Second Quarter of 2023
Previous wording
On December 28, 2023, we sold our Service and Product segment. During the first quarter of 2024, all of our revenue was derived from Bitcoin mining.
Current wording
We generated revenues of $4.7 million and $5.5 million during the second quarter of 2024 and 2023, respectively. The $0.8 million decrease in revenue is primarily due to a decrease in revenues from our Bitcoin mining operation as certain miners were relocated, the Bitcoin halving event that occurred in April 2024 offset by higher Bitcoin prices in the second quarter of 2024 compared to the second quarter of 2023, as well as a decrease in revenues of $0.5 million related to our former Service and Product segment which was sold in December 2023. During the second quarter of 2024, all of our revenue was derived from Bitcoin mining.
Previous wording
Sales and marketing expenses were nil and $0.3 million for the first quarter of 2024 and 2023, respectively. The decrease of $0.3 million was due to the sale of our Service and Product segment in December 2023 and we no longer have sales and marketing expense.
Current wording
Sales and marketing expenses were nil and $0.3 million for the second quarter of 2024 and 2023, respectively. The decrease of $0.3 million was due to the sale of our Service and Product segment in December 2023 and we no longer have sales and marketing expense.
Previous wording
Research and development expenses were nil and $0.3 million for the first quarter of 2024 and 2023, respectively. The decrease of $0.3 million was due to the sale of our Service and Product segment in December 2023 and we no longer have research and development expense.
Current wording
Research and development expenses were nil and $0.2 million for the second quarter of 2024 and 2023, respectively. The decrease of $0.2 million was due to the sale of our Service and Product segment in December 2023 and we no longer have research and development expense.
Previous wording
Depreciation and amortization expense was $1.8 million and $1.0 million for the first quarter of 2024 and 2023, respectively. The increase of $0.8 million was primarily due to depreciation related to our digital mining machines.
Current wording
Depreciation and amortization expense was $1.8 million and $1.4 million for the second quarter of 2024 and 2023, respectively. The increase of $0.4 million was primarily due to depreciation related to our Bitcoin mining machines.
Previous wording
Change in fair value of Bitcoin was $0.8 million and nil for the first quarter of 2024 and 2023, respectively. Effective January 1, 2024, we early adopted ASU 2023-08 and recorded a $20,000 decrease to the opening balance of accumulated deficit and an increase to digital assets. The gain in the first quarter of 2024 is the change in fair value of the Bitcoin held, as well as the gains and losses from when the Bitcoin was sold. Sale transactions are measured as the difference between the cash proceeds and the carrying basis of the Bitcoin as determined on a FIFO basis.
Current wording
Change in fair value of Bitcoin was $0.1 million and nil for the second quarter of 2024 and 2023, respectively. Effective January 1, 2024, we early adopted ASU 2023-08 and recorded a $20,000 decrease to the opening balance of accumulated deficit and an increase to digital assets. The loss in the second quarter of 2024 is the change in fair value of the Bitcoin held, as well as the gains and losses from when the Bitcoin was sold. Sale transactions are measured as the difference between the cash proceeds and the carrying basis of the Bitcoin as determined on a FIFO basis.
Previous wording
Realized gain on sale of Bitcoin was nil and $0.6 million for the first quarter of 2024 and 2023, respectively. The first quarter of 2023 is due to the sale of Bitcoin and the difference between the sales proceeds from the Bitcoin and the carrying amount. Typically gains are higher when Bitcoin prices are increasing over a holding period. Effective January 1, 2024, we early adopted ASU 2023-08, and in accordance with the new guidance we no longer report impairment of Bitcoin and realized gain on sale of Bitcoin separately. Instead, current period comparable information is reported in the line item Change in fair value of Bitcoin in the consolidated statement of operations.
Current wording
Realized gain on sale of Bitcoin was nil and $0.1 million for the second quarter of 2024 and 2023, respectively. The first quarter of 2023 is due to the sale of Bitcoin and the difference between the sales proceeds from the Bitcoin and the carrying amount. Typically gains are higher when Bitcoin prices are increasing over a holding period. Effective January 1, 2024, we early adopted ASU 2023-08, and in accordance with the new guidance we no longer report impairment of Bitcoin and realized gain on sale of Bitcoin separately. Instead, current period comparable information is reported in the line item Change in fair value of Bitcoin in the consolidated statement of operations.
Previous wording
Unrealized loss on investment in equity securities was $2.7 million and nil for the first quarter of 2024 and 2023, respectively. The loss was related to our equity investment in Core Scientific Inc., a publicly traded company.
Current wording
Unrealized gain on investment in equity securities was $7.3 million and nil for the second quarter of 2024 and 2023, respectively. The gain was related to our equity investment in Core Scientific Inc., a publicly traded company.
Previous wording
Direct cost of revenues during the first quarter of 2024 and 2023 were $4.3 million and $2.3 million, respectively, representing an increase of $2.0 million primarily due to the increase in miners deployed related to our digital mining operation.
Current wording
Direct cost of revenues during the first six months of 2024 and 2023 were $8.3 million and $6.5 million, respectively, representing an increase of $1.8 million primarily due to the increase in miners deployed related to our Bitcoin mining operation.
Previous wording
General and administrative expenses were $3.5 million for both the first quarter of 2024 and 2023. While there was no overall change in the comparative balances some increases and decreases to be noted are an increase of $0.6 million in share-based compensation primarily related to awards to certain executives, and an increase of $0.2 million for employee and related expenses primarily associated with executive bonuses. These increases were offset by decreases of $0.3 million associated with outside services related to our expansion into the digital mining industry, $0.2 million related to operating costs for our former special purpose acquisition company which no longer exists for 2024, and an aggregate $0.2 million decrease in legal fees associated with our digital mining operation and insurance cost primarily related to our insurance.
Current wording
General and administrative expenses were $6.4 million and $7.1 million for the first six months of 2024 and 2023, respectively. The decrease of $0.7 million was primarily due to a decrease of $0.7 million related to operating costs for our former special purpose acquisition company which no longer exists for 2024, an aggregate $0.6 million decrease in legal fees associated with our Bitcoin mining operation and insurance cost, and $0.4 million decrease associated with outside services related to our expansion into the cryptocurrency industry. These decreases were offset by an increase of $0.7 million in share-based compensation primarily related to awards to certain executives, and an increase of $0.3 million for employee and related expenses primarily associated with executive bonuses.
Previous wording
We have recurring losses from operations. Our primary source of cash flow is generated from Bitcoin mining revenue. In addition, in the past we have financed our operations through proceeds from private and public sales of securities. At March 31, 2024, we had cash and cash equivalents of $2.1 million compared to cash and cash equivalents of $0.6 million at December 31, 2023. As of March 31, 2024, we had working capital of $6.4 million reflecting a decrease of $1.8 million since December 31, 2023 primarily related to the $2.7 million loss on our investment in equity securities offset by an increase in cash. Cash management continues to be a top priority. We expect to incur negative operating cash flows as we work to increase our Bitcoin mining revenue and maintain operational efficiencies.
Current wording
We have recurring year to date losses from operations. Our primary source of cash flow is generated from Bitcoin mining revenue. At June 30, 2024, we had cash and cash equivalents of $4.3 million compared to cash and cash equivalents of $0.6 million at December 31, 2023. As of June 30, 2024, we had working capital of $13.3 million reflecting an increase of $5.2 million since December 31, 2023 primarily related to an increase in cash and the unrealized gain on our investment in equity securities. Cash management continues to be a priority.
Previous wording
Management has projected that based on our hashing rate at March 31, 2024, cash on hand may not be sufficient to allow us to continue operations and there is substantial doubt about the Company’s ability to continue as a going concern within 12 months from the date of issuance of the financial statements if we are unable to raise additional funding for operations. We expect our working capital needs to increase in the future as we continue to expand and enhance our operations. Our ability to raise additional funds for working capital through equity or debt financings or other sources may depend on the financial success of our then current business and successful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are beyond our control. Further equity financings may have a dilutive effect on shareholders and any debt financing, if available, may require restrictions to be placed on our future financing and operating activities. If we require additional capital and are unsuccessful in raising that capital at a reasonable cost and at the required time, or at all, we may not be able to continue our business operations in the cryptocurrency mining industry or we may be unable to advance our growth initiatives, either of which could adversely impact our business, financial condition and results of operations.
Current wording
Management has projected that based on our recurring losses, negative cash flows from operating activities, and our hashing rate at June 30, 2024, cash on hand may not be sufficient to allow us to continue operations and there is substantial doubt about our ability to continue as a going concern within 12 months from the date of issuance of the financial statements if we are unable to raise additional funding for operations. We expect our working capital needs to increase in the future as we continue to expand and enhance our operations. Included in our working capital is an investment in equity securities that we can liquidate as needed to assist in funding our operations. Our ability to raise additional funds for working capital through equity or debt financings or other sources may depend on the financial success of our business and successful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are beyond our control. If we require additional capital and are unsuccessful in raising that capital at a reasonable cost and at the required time, or at all, we may not be able to continue our business operations in the cryptocurrency mining industry or we may be unable to advance our growth initiatives, either of which could adversely impact our business, financial condition and results of operations. In an effort to mitigate these risks we expect to take steps to lower our cost of mining and also refresh our mining fleet to increase our mining efficiency.
Previous wording
Significant changes from our current forecasts, including but not limited to: (i) shortfalls from projected mining earning levels; (ii) increases in operating costs; (iii) fluctuations in the value of cryptocurrency; and (iv) inability to maintain compliance with the requirements of the NASDAQ Capital Market and/or inability to maintain listing with the NASDAQ Capital Market could have a material adverse impact on our ability to access the level of funding necessary to continue our operations at current levels. If any of these events occurs or we are unable to generate sufficient cash from operations or financing sources, we may be forced to liquidate assets where possible and/or curtail, suspend or cease planned programs or operations generally or seek bankruptcy protection or be subject to an involuntary bankruptcy petition, any of, which would have a material adverse effect on our business, results of operations, financial position and liquidity.
Current wording
Significant changes from our current forecasts, including but not limited to: (i) shortfalls from projected mining earning levels; (ii) increases in operating costs; (iii) decreases in the value of cryptocurrency; and (iv) our inability to maintain compliance with the requirements of the NASDAQ Capital Market and/or our inability to maintain listing with the NASDAQ Capital Market could have a material adverse impact on our ability to access the level of funding necessary to continue our operations at current levels. These factors, among others, should they occur may result in our inability to continue as a going concern within 12 months from the date of issuance of the financial statements. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty.
Previous wording
Net cash used in operating activities. The use of cash during the first three months of 2024 was primarily a result of our net loss of $4.5 million, offset by $5.3 million in non-cash items, which primarily included an unrealized loss on investment in equity securities, depreciation, amortization of intangible assets, share-based compensation expense, realized gain on sale of digital assets, change in fair value of Bitcoin, Bitcoin issued for services, and change in fair value of warrant liabilities.
Current wording
Net cash used in operating activities. The use of cash during the first six months of 2024 was primarily a result of our net loss of $2.4 million, offset by $1.7 million in non-cash items, which primarily included an unrealized gain on investment in equity securities, realized gain on investment in equity securities, depreciation, amortization of intangible assets, loss on disposal of property and equipment, share-based compensation expense, change in fair value of Bitcoin, Bitcoin issued for services, and change in fair value of warrant liabilities.
Previous wording
Net cash provided by investing activities. During the first three months of 2024, we received $1.5 million from proceeds from the sale of Bitcoin. During the first three months of 2023, we sold 2,066 miners originally included in mining equipment, for cash proceeds of $3.1 million and we paid $1.6 million towards digital asset mining machines and shipping costs.
Current wording
Net cash provided by investing activities. During the first six months of 2024, we received $5.5 million from proceeds from the sale of investment in equity securities and $1.5 million from proceeds from the sale of Bitcoin. During the first six months of 2023, we sold 2,531 miners originally included in mining equipment, for cash proceeds of $3.7 million, our SPAC paid $1.9 million for the redemption of non-controlling interest related to MEOA, and we paid $1.6 million towards Bitcoin mining machines and shipping costs.
Previous wording
Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The accounting estimates that are most critical to a full understanding and evaluation of our reported financial results are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There were no material changes to our critical accounting estimates during the three months ended March 31, 2024.
Current wording
Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The accounting estimates that are most critical to a full understanding and evaluation of our reported financial results are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There were no material changes to our critical accounting estimates during the six months ended June 30, 2024.
Rearranged current paragraphs (6)
Current report — wording carried from elsewhere
General and administrative expenses were $3.0 million and $3.6 million for the second quarter of 2024 and 2023. The decrease of $0.6 million was due to a decrease of $0.5 million related to operating costs for our former special purpose acquisition company which no longer exists for 2024, and an aggregate $0.4 million decrease in legal fees associated with our Bitcoin mining operation and insurance cost. These decreases were offset by an aggregate increase of $0.3 million primarily associated with directors’ fees and share-based compensation.
Current report — wording carried from elsewhere
Impairment of Bitcoin was nil and $0.3 million for the second quarter of 2024 and 2023, respectively. Effective January 1, 2024, we early adopted ASU 2023-08, and in accordance with the new guidance we no longer report impairment of Bitcoin and realized gain on sale of Bitcoin separately. Instead, current period comparable information is reported in the line item Change in fair value of Bitcoin in the consolidated statement of operations.
Current report — wording carried from elsewhere
Change in Fair Value of Bitcoin
Current report — wording carried from elsewhere
Change in fair value of Bitcoin was $0.7 million and nil for the first six months of 2024 and 2023, respectively. Effective January 1, 2024, we early adopted ASU 2023-08 and recorded a $20,000 decrease to the opening balance of accumulated deficit and an increase to digital assets. The gain in the first six months of 2024 is the change in fair value of the Bitcoin held, as well as the gains and losses from when the Bitcoin was sold. Sale transactions are measured as the difference between the cash proceeds and the carrying basis of the Bitcoin as determined on a FIFO basis.
Current report — wording carried from elsewhere
Realized Gain on Sale of Bitcoin
Current report — wording carried from elsewhere
Realized gain on sale of Bitcoin was nil and $0.8 million for the first six months of 2024 and 2023, respectively. The first six months of 2023 is due to the sale of Bitcoin and the difference between the sales proceeds from the Bitcoin and the carrying amount. Typically gains are higher when Bitcoin prices are increasing over a holding period. Effective January 1, 2024, we early adopted ASU 2023-08, and in accordance with the new guidance we no longer report impairment of Bitcoin and realized gain on sale of Bitcoin separately. Instead, current period comparable information is reported in the line item Change in fair value of Bitcoin in the consolidated statement of operations.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
These factors, among others, indicate there is substantial doubt about our ability to continue as a going concern within 12 months from the date of issuance of the financial statements. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty.