Sphere 3D Corp

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 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.

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 nine months ended September 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

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.

Current wording

We are strategizing for our future growth by refreshing 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. As a result of our strategic changes, during the third quarter of 2024 mining production decreased as we focused on our long-term strategic goals of transitioning to lower-cost hosting sites and refreshing our fleet with newer-generation machines. The decrease in the third quarter of 2024 also reflects a significant change at one hosting site, where the hosting provider bought out our contract. We are currently evaluating machines from this site and are actively exploring more affordable hosting options.

Previous 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.

Current wording

As of September 30, 2024, we owned approximately 15,000 miners, of which approximately 6,400 were in service. We do not have scheduled downtime for our miners. During the third quarter of 2024, we have started the process of removing our older machines and replacing them with newer generation machines, and expect this to continue through the first quarter of 2025. In addition, we plan to continue to acquire new generation miners as we expand our exahash. 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 September 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 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.

Current wording

As of September 30, 2024, we held approximately 1.3 Bitcoin. The fair value of our Bitcoin as of September 30, 2024 was approximately $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.

Previous 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.

Current wording

•In the first nine months of 2024, we issued 4,626,133 common shares for the conversion of 32,383 Series H Preferred Shares. Subsequent to September 30, 2024, we issued 297,713 common shares for the conversion of 2,084 Series H Preferred Shares.

Previous wording

The Second Quarter of 2024 Compared with the Second Quarter of 2023

Current wording

The Third Quarter of 2024 Compared with the Third Quarter of 2023

Previous 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.

Current wording

Sales and marketing expenses were nil and $0.2 million for the third 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 sales and marketing expenses.

Previous 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.

Current wording

Research and development expenses were nil and $0.4 million for the third quarter of 2024 and 2023, respectively. The decrease of $0.4 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

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 wording

General and administrative expenses were $3.0 million and $3.4 million for the third quarter of 2024 and 2023. The decrease of $0.4 million was due to a decrease of $0.3 million associated with outside services related to our expansion into the cryptocurrency industry, a $0.2 million decrease in share-based compensation, a $0.2 million decrease related to operating costs for our former special purpose acquisition company which no longer exists for 2024, and a $0.1 million decrease in director fees due to the reduction in number of board members. These decreases were partially offset by an increase of $0.4 million primarily associated with legal fees.

Previous 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.

Current wording

Depreciation and amortization expense was $1.7 million and $2.0 million for the third quarter of 2024 and 2023, respectively. The decrease of $0.3 million was primarily due to lessor depreciation related to our Bitcoin mining machines due to current year sales of machines and the impairment in the second quarter of 2024, resulting in a lower cost basis to be depreciated over the remaining useful life.

Previous wording

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 wording

Loss on disposal of property and equipment was nil and $0.3 million for the third quarter of 2024 and 2023, respectively, and the prior year related to the sale of mining equipment.

Previous 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.

Current wording

Change in fair value of Bitcoin was $8,000 and nil for the third 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 third 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 $0.1 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.

Current wording

Realized gain on sale of Bitcoin was nil and $0.1 million for the third quarter of 2024 and 2023, respectively. The third 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 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.

Current wording

Unrealized loss on investment in equity securities was $0.4 million and nil for the third quarter of 2024 and 2023, respectively. The loss was related to our equity investment in Core Scientific Inc., a publicly traded company.

Previous wording

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 wording

Other income, net was $5.8 million and $0.1 million for the third quarter of 2024 and 2023, respectively. The third quarter of 2024 other income, net, primarily related to a realized gain of $2.9 million on the partial sale of our equity investment in Core Scientific Inc., and $3.0 million for the early termination of a hosting agreement. The third quarter of 2023 other income, net, primarily related to a $0.2 million fair value adjustment for warrant liabilities offset by $0.1 million for extinguishment of debt.

Previous wording

The First Six Months of 2024 Compared with the First Six Months of 2023

Current wording

The First Nine Months of 2024 Compared with the First Nine Months of 2023

Previous wording

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 wording

We generated revenues of $14.0 million and $14.2 million during the first nine months of 2024 and 2023, respectively. The $0.2 million decrease in revenue is primarily due to an increase of $1.4 million in revenues from our Bitcoin mining operation for the first nine months of 2024 compared to 2023, offset by a decrease of $1.6 million related to our former Service and Product segment which was sold in December 2023. In July 2024, one of our hosting providers took approximately 3,300, or 22%, of our mining machines offline to relocate them and such machines are pending redeployment. In addition, beginning the third quarter of 2024, we are in the process of removing our older mining equipment and replacing it with newer generation machines. This is expected to be an ongoing process through the first quarter of 2025 which may result in fluctuations in exahash. During the first nine months of 2024, all of our revenue was derived from Bitcoin mining.

Previous wording

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 wording

Direct cost of revenues during the first nine months of 2024 and 2023 were $11.0 million and $11.1 million, respectively, representing a decrease of $0.1 million primarily due to the prior year disposal of our Service and Product segment, and the decrease in miners deployed as we refresh our fleet by removing older mining machines and replacing them with newer generation machines.

Previous wording

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 wording

Sales and marketing expenses were nil and $0.8 million for the first nine months of 2024 and 2023, respectively. The decrease of $0.8 million was due to the sale of our Service and Product segment in December 2023 and we no longer have sales and marketing expenses.

Previous wording

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 wording

Research and development expenses were nil and $0.9 million for the first nine months of 2024 and 2023, respectively. The decrease of $0.9 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

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.

Current wording

General and administrative expenses were $9.5 million and $10.5 million for the first nine months of 2024 and 2023, respectively. The decrease of $1.0 million was primarily due to a decrease of $0.9 million related to operating costs for our former special purpose acquisition company which no longer exists for 2024, a $0.7 million decrease associated with outside services related to our expansion into the cryptocurrency industry, an aggregate $0.2 million decrease in legal fees associated with our Bitcoin mining operation and insurance cost, and a $0.2 million decrease in investor relations. These decreases were offset by an increase of $0.5 million in share-based compensation primarily related to awards to certain executives, an increase of $0.2 million for employee and related expenses, and a $0.2 million increase in costs related to strategic business growth.

Previous wording

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 wording

Depreciation and amortization expense was $5.4 million and $4.4 million for the first nine months of 2024 and 2023, respectively. The increase of $1.0 million was primarily due to depreciation related to our Bitcoin mining machines.

Previous wording

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 wording

Impairment of property and equipment was $0.9 million and nil for the first nine months of 2024 and 2023, respectively, and related to idle mining equipment not expected to return to use.

Previous wording

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 wording

Loss on disposal of property and equipment was $0.7 million and $0.6 million for the first nine months of 2024 and 2023, respectively, and related to the sale of mining equipment.

Previous wording

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 wording

Change in fair value of Bitcoin was $0.7 million and nil for the first nine 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 nine 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.

Previous wording

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.

Current wording

Realized gain on sale of Bitcoin was nil and $0.9 million for the first nine months of 2024 and 2023, respectively. The first nine 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.

Previous wording

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 wording

Unrealized gain on investment in equity securities was $4.1 million and nil for the first nine months of 2024 and 2023, respectively. The gain was related to our equity investment in Core Scientific Inc., a publicly traded company.

Previous wording

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 wording

Other income, net was $6.5 million and $1.5 million of income, net, for the first nine months of 2024 and 2023, respectively. The first nine months of 2024 other income, net, primarily related to a $3.4 million realized gain on the partial sale of our equity investment in Core Scientific Inc., $3.0 million for the early termination of a hosting agreement, and a $0.2 million fair value adjustment for warrant liabilities. The first nine months of 2023 other income, net, primarily related to a $1.1 million fair value adjustment for warrant liabilities, $0.2 million for cancellation of warrant liabilities, and $0.2 million in interest income from restricted funds held in trust.

Previous 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.

Current wording

We have recurring year to date losses from operations. Our primary source of cash flow is generated from Bitcoin mining revenue. At September 30, 2024, we had cash and cash equivalents of $5.0 million compared to cash and cash equivalents of $0.6 million at December 31, 2023. As of September 30, 2024, we had working capital of $11.0 million reflecting an increase of $2.8 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 and we are phasing out high-cost hosting contracts, leveraging our access to capital, and reducing our overall mining costs.

Previous 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.

Current wording

Management has projected that based on our recurring losses, negative cash flows from operating activities, and our hashing rate at September 30, 2024, cash on hand may not be sufficient to allow us to continue operations and there is 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) 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.

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) we do not maintain compliance with the requirements of the NASDAQ Capital Market and/or we do not maintain our 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

The following table shows a summary of our cash flows (used in) provided by operating activities and investing activities (in thousands):

Current wording

The following table shows a summary of our cash flows (used in) provided by operating activities, investing activities, and financing activities (in thousands):

Previous 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.

Current wording

Net cash used in operating activities. The use of cash during the first nine months of 2024 was primarily a result of our net loss of $2.2 million, offset by $1.5 million in non-cash items, which primarily included an unrealized gain on investment in equity securities, realized gain on investment in equity securities, depreciation and amortization, share-based compensation expense, impairment of property and equipment, loss on disposal of property and equipment, 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 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.

Current wording

Net cash provided by investing activities. During the first nine months of 2024, we received $10.5 million from proceeds from the sale of investment in equity securities and $1.5 million from proceeds from the sale of Bitcoin, offset by $4.6 million of payments for the purchase of property and equipment consisting of newer generation mining machines. During the first nine months of 2023, we sold 2,925 miners originally included in mining equipment, for cash proceeds of $4.1 million, our SPAC received $10.3 million from the redemption of the trust account and paid $10.4 million for the redemption of the redeemable non-controlling interest related to MEOA, and we paid $1.6 million towards digital asset mining machines and shipping costs.

Previous wording

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.

Current wording

Net cash provided by financing activities. For the first nine months of 2023, we received $3.0 million of proceeds from the issuance of preferred shares and warrants, $0.8 million, net, from the issuance of a convertible note, and $0.3 million from the exercise of stock options. These inflows were offset by $1.3 million of payments made on our convertible debt which was paid in full in August 2023.

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 six months ended June 30, 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 nine months ended September 30, 2024.