BITMINE IMMERSION TECHNOLOGIES INC

Previous wording

The following discussion and analysis of the results of operations and financial condition of the Company for the three and six months endedFebruary 29, 2024*, and February 28, 2023, should be read in conjunction with the other sections of this Quarterly Report, including the Financial Statements and notes thereto of the Company included in this Quarterly Report. The various sections of this discussion contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Quarterly Report as well as other matters over which we have no control. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.*

Current wording

The following discussion and analysis of the results of operations and financial condition of the Company for the three and nine months ended May 31, 2024, and May 31, 2023, should be read in conjunction with the other sections of this Quarterly Report, including the Financial Statements and notes thereto of the Company included in this Quarterly Report. The various sections of this discussion contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Quarterly Report as well as other matters over which we have no control. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.

Previous wording

Revenues from cryptocurrency mining, whether derived from hosting clients or from proprietary mining, are impacted significantly by volatility in Bitcoin prices, as well as increases in the Bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks. Below are changes in key metrics effecting the profitability of mining Bitcoin during the six months ended February 29, 2024:

Current wording

Revenues from cryptocurrency mining, whether derived from hosting clients or from proprietary mining, are impacted significantly by volatility in Bitcoin prices, as well as increases in the Bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks. Below are changes in key metrics effecting the profitability of mining Bitcoin during the nine months ended May 31, 2024:

Previous wording

In October 2022, we completed the installation of initial hosting containers under our agreement with TSTT. However, prior to commencing operations, TSTT advised us that the utility refused to honor its existing agreement with TSTT with respect to electricity supplied to our pilot hosting site, and instead indicated that the rate would be approximately $0.09 per kwh, which TSTT disputed. At this time, the dispute has been resolved, the site became operational in October 2023, and our rate for electricity will be TSTT’s existing rate of 3.5 cents per kwh or 75% of the declared reserve capacity, which is equal to the customer’s highest expected monthly kilovolt-ampere demand at $7.40. As of April 9, 2024, we had 135 miners located at our initial TSTT facility. While our TSTT site was delayed pending electrification, we entered into a hosting agreement with a third party in Trinidad to host up to 192 miners in one immersion container until August 31, 2024. We do not pay a hosting fee for this space, but we do reimburse the host for its actual electricity costs, which are a variable rate that averages approximately $0.05 per kwh each month. We are also leasing space with a third party on an at will basis to co-host 56 miners, for which we pay a flat rate of $0.06 per kwh for the electricity used by our miners. We ultimately intend to move all of our currently owned and customer owned miners to our new TSTT hosting facilities.

Current wording

In October 2022, we completed the installation of initial hosting containers under our agreement with TSTT. However, prior to commencing operations, TSTT advised us that the utility refused to honor its existing agreement with TSTT with respect to electricity supplied to our pilot hosting site, and instead indicated that the rate would be approximately $0.09 per kwh, which TSTT disputed. At this time, the dispute has been resolved, the site became operational in October 2023, and our rate for electricity will be TSTT’s existing rate of 3.5 cents per kwh or 75% of the declared reserve capacity, which is equal to the customer’s highest expected monthly kilovolt-ampere demand at $7.40. As of July 1, 2024, we had 148 miners located at our initial TSTT facility. While our TSTT site was delayed pending electrification, we entered into a hosting agreement with a third party in Trinidad to host up to 192 miners (of which 158 are installed) in one immersion container until December 31, 2024. We do not pay a hosting fee for this space, but we do reimburse the host for its actual electricity costs, which are a variable rate that averages approximately $0.05 per kwh each month. We are also leasing space with a third party on an at will basis to co-host 60 miners, for which we pay a flat rate of $0.06 per kwh for the electricity used by our miners. We ultimately intend to move all of our currently owned and customer owned miners to our new TSTT hosting facilities.

Previous wording

In October 2022, we entered into a joint venture arrangement with ROC Digital Mining to jointly develop and operate a Bitcoin mining operation in Pecos, Texas. Under the joint venture, we contributed one immersion container, six transformers and cash with a value of $987,429 as a capital contribution to ROC Digital Mining I, LLC (the “ROC Digital”). In return, we received 240 Class B Units of ROC Digital pursuant to an ongoing offering of a total of 1,000 Class B Units at $4,400 per unit. We simultaneously sold ROC Digital four immersion containers for $1,200,000, which is payable pursuant to a promissory note the bears interest at 5% per annum, and is payable pursuant to monthly payments of $31,203.64 per month commencing on December 30, 2022, with any remaining principal and interest payable in full on May 31, 2026. The note is secured by the equipment that was sold. We also obtained the right to locate one container at the location that we would be able to use for self-mining. As of August 31, 2023 the note receivable from ROC Digital amounted to $1,029,721.

Current wording

In October 2022, we entered into a joint venture arrangement with ROC Digital Mining to jointly develop and operate a Bitcoin mining operation in Pecos, Texas. Under the joint venture, we contributed one immersion container, six transformers and cash with a value of $987,429 as a capital contribution to ROC Digital Mining I, LLC (the “ROC Digital”). In return, we received 240 Class B Units of ROC Digital pursuant to an ongoing offering of a total of 1,000 Class B Units at $4,400 per unit. We simultaneously sold ROC Digital four immersion containers for $1,200,000, which is payable pursuant to a promissory note that bears interest at 5% per annum, and is payable pursuant to monthly payments of $31,203.64 per month commencing on December 30, 2022, with any remaining principal and interest payable in full on May 31, 2026. The note is secured by the equipment that was sold. We also obtained the right to locate one container at the location that we would be able to use for self-mining. As of August 31, 2023 and May 31, 2024, the note receivable from ROC Digital amounted to $1,029,721 and $748,888, respectively.

Previous wording

In April 2023, the joint venture entered into a new one year agreement with the electricity provider, under which the site will receive electricity at $0.03991 per kwh for at least 95% of the annualized hourly intervals during the period. The initial agreement had a term of four years and seven months, and supplied electricity at $0.06896 per kwh, which the joint venture expected to reduce by reselling electricity during peak periods. The new agreement provides the joint venture with more predictable pricing, although a new agreement will need to be negotiated after the one year term. At the same time, we finalized a hosting agreement with the joint venture, under which we will locate one immersion container at the site for $500 per month, plus payment of our pro rata share of electricity, internet and insurance for the site. Under the hosting agreement, we also agreed to contribute $100,000 toward the electricity deposit for the site, which is refundable to us at the earlier of the date the electricity provider releases the deposit or 90 days after the expiration or termination of the hosting agreement. The hosting agreement has a term of one year, subject to our right to renew the agreement for two one year terms after receipt of notice of the renewal terms of the joint venture’s electricity supply agreement for the upcoming year. The site became fully electrified in June 2023. As of April 9, 2024, we had deployed 145 Antminer S-19 pro miners to our hosting container at the site. The joint venture has filled its five immersion containers with ASIC miners provided by hosting clients, although the hosting clients agreements currently terminate in April 2024.

Current wording

In April 2023, the joint venture entered into a new one year agreement with the electricity provider, under which the site received electricity at $0.03991 per kwh for at least 95% of the annualized hourly intervals during the period, which provided the joint venture with more predictable pricing than the initial agreement. The initial agreement had a term of four years and seven months, and supplied electricity at $0.06896 per kwh, which the joint venture expected to reduce by reselling electricity during peak periods. At the same time, we finalized a hosting agreement with the joint venture, under which we located one immersion container at the site for $500 per month, plus payment of our pro rata share of electricity, internet and insurance for the site. Under the hosting agreement, we also agreed to contribute $100,000 toward the electricity deposit for the site, which is refundable to us at the earlier of the date the electricity provider releases the deposit or 90 days after the expiration or termination of the hosting agreement. The hosting agreement has a term of one year, subject to our right to renew the agreement for two one year terms after receipt of notice of the renewal terms of the joint venture’s electricity supply agreement for the upcoming year. The site became fully electrified in June 2023. As of July 10, 2024, we had deployed 145 Antminer S-19 pro miners to our hosting container at the site. The joint venture initially filled its five immersion containers with ASIC miners provided by hosting clients, although most of the hosting clients agreements terminated in April 2024. Currently, approximately one of the hosting containers owned by the joint venture is occupied by clients, although the joint venture is aggressively trying to fill the remaining capacity with hosting clients.

Previous wording

On October 4, 2023, the Company purchased 1,050 used ASIC miners from Luxor Technology Corporation (“Luxor”) for $488,775, and simultaneously entered into a Co-Location Services Agreement to host the miners at a hosting facility owned by Soluna SW, LLC (“Soluna”) in Murray, Kentucky. The hosting agreement with Soluna has a term of 18 months, and provides that the Company is obligated to reimburse Soluna for the actual cost of the electricity used by the Company’s machines and pay a hosting fee equal to 50% of the net profit generated by the machines each month. The hosting fee is payable in bitcoin. The hosting facility has an electricity cost of $0.025 per kwh and guarantees uptime of 83% per week.

Current wording

On October 4, 2023, the Company purchased 1,050 used ASIC miners from Luxor Technology Corporation (“Luxor”) for $488,775, and simultaneously entered into a Co-Location Services Agreement to host the miners at a hosting facility owned by Soluna SW, LLC (“Soluna”) in Murray, Kentucky. We subsequently added 45 ASIC miners in May 2024 that we purchased from Soluna. The hosting agreement with Soluna has a term of 18 months, and provides that the Company is obligated to reimburse Soluna for the actual cost of the electricity used by the Company’s machines and pay a hosting fee equal to 50% of the net profit generated by the machines each month. The hosting fee is payable in bitcoin. The hosting facility has an electricity cost of $0.025 per kwh and guarantees uptime of 83% per week.

Previous wording

During the three months ended February 29, 2024, the Company generated $891,613 revenue, compared to $156,090 of revenue in the three months ended February 28, 2023.

Current wording

During the three months ended May 31, 2024, the Company generated $1,224,992 of revenue, compared to $142,126 of revenue in the three months ended May 31, 2023.

Previous wording

During the three months ended February 29, 2024, the Company generated $861,026 in Bitcoin revenue from self-mining digital assets, compared to $104,526 of revenue from self-mining in the three months ended February 28, 2023. At February 29, 2024, the Company owned 1,644 miners, of which 1,526 were deployed for self-mining. The number of undeployed miners was mainly impacted by miners that were offline due to maintenance issues. Mining revenue should be lower in future periods as a halving expected to occur in April 2024 could significantly reduce the rewards from mining. However, the impact of the halving may be offset by a rise in the price of the bitcoin due to fewer miners online after halving event, as has historically occurred after a halving event. Mining revenues in the three months ended February 29, 2024 were positively impacted due to resolution of operating issues at the Company’s first hosting facilities in Trinidad and Pecos, Texas, and the commencement of operations at a facility in Murray, Kentucky that is hosted by a third-party.

Current wording

During the three months ended May 31, 2024, the Company generated $1,187,759 in Bitcoin revenue from self-mining digital assets, compared to $128,479 of revenue from self-mining in the three months ended May 31, 2023. At May 31, 2024, the Company owned 1,691 miners, of which 1,573 were deployed for self-mining. The number of undeployed miners was mainly impacted by miners that were offline due to maintenance issues. Mining revenue should be lower in future periods as a halving occurred in April 2024, which significantly reduced the rewards from mining. However, the impact of the halving was offset by a rise in the price of bitcoin due to fewer miners online after halving event, as has historically occurred after a halving event, and by the positive impact of “ordinals,” which are increased transaction fees that occur as parties have discovered ways to imbed data regarding other assets, such as art, in the bitcoin blockchain. Mining revenues in the three months ended May 31, 2024 were positively impacted due to resolution of operating issues at the Company’s first hosting facilities in Trinidad and Pecos, Texas, and the commencement of operations at a facility in Murray, Kentucky that is hosted by a third-party. Mining revenues were also positively impacted by a short-term lease of miners that the Company entered in March that expired when the halving occurred in April 2024.

Previous wording

During the three months ended February 29, 2024 and February 28, 2023, the Company generated $20,471 in revenue from equipment sales, compared to $51,564 in revenue in the three months ended February 28, 2023. The revenue from equipment sales in the three months ended February 29, 2024 were derived from the following transactions:

Current wording

During the three months ended May 31, 2024 and May 31, 2023, the Company generated $20,471 in revenue from equipment sales, compared to $13,647 in revenue in the three months ended May 31, 2023. The revenue from equipment sales in the three months ended May 31, 2024 were derived from the following transactions:

Previous wording

Under the guidelines of ASC 606, the Company reports revenue from both equipment sales described above under the installment sale method, under which the Company reports its gross profit on the sales as payments are received from the purchaser. As of February 1, 2023, the Company reached an agreement with the obligor under the $910,000 note to convert the note into an interest only note commencing as of February 1, 2023, with a balloon payment being due at maturity on August 31, 2024, and an agreement that the principal balance on the note was $731,472. One effect of the agreement with the obligor is to materially reduce any deferred revenue associated with the sale, as the note is scheduled to receive interest only payments until August 31, 2024. As a result, the Company expects revenue from these two equipment sales to be lower in future periods. During the three months ended February 29, 2024, the Company recorded $20,471 in equipment sales as a result of the receipt of three payments of $31,204 each on the October 2022 note. No revenue was recorded on the August 2022 note since all payments were of interest only.

Current wording

Under the guidelines of ASC 606, the Company reports revenue from both equipment sales described above under the installment sale method, under which the Company reports its gross profit on the sales as payments are received from the purchaser. During the three months ended May 31, 2024, the Company recorded $20,471 in equipment sales as a result of the receipt of three payments of $31,204 each on the October 2022 note. The current terms of the August 2022 note provide for only interest payments until December 31, 2024, at which time all principal and accrued interest is due. As a result, no revenue is recorded on the August 2022 note since all payments were of interest only.

Previous wording

The Company generated $10,116 in revenues from hosting in the three months ended February 29, 2024, as compared to $-0- in hosting revenues in the three months ended February 28, 2023. The Company did not have any hosting clients during the three months ended February 29, 2023. In June 2023, the Company signed two new hosting clients. In the current market environment, the price of ASIC miners has fallen to the point that we believe self-mining is more profitable than hosting third party miners, however we will pursue hosting opportunities on a selective basis. While the Company still sees good opportunities to acquire mining equipment at attractive prices, the price of mining equipment has recently increased with the recent increase in the price of Bitcoin.

Current wording

The Company generated $16,762 in revenues from hosting in the three months ended May 31, 2024, as compared to $-0- in hosting revenues in the three months ended May 31, 2023. The Company did not have any hosting clients during the three months ended May 31, 2023. In June 2023, the Company signed two new hosting clients. In the current market environment, the price of ASIC miners has fallen to the point that we believe self-mining is more profitable than hosting third party miners, however we will pursue hosting opportunities on a selective basis. While the Company still sees good opportunities to acquire mining equipment at attractive prices, the price of mining equipment has recently increased with the recent increase in the price of Bitcoin.

Previous wording

Cost of sales related to mining was $556,849 in the three months ended February 29, 2024, compared to $93,957 in the three months ended February 28, 2023. Cost of sales normally includes electricity, utilities, facilities costs, and supplies where we perform mining from our own facilities, but not depreciation of equipment, which is stated separately. Major components of cost of sales include rent to house mining and hosting equipment, electricity, and supplies. Where our miners are hosted by third parties, cost of sales normally includes hosting fees and/or electricity costs. The Company believes that cost of sales related to mining as a percentage of revenues will be greater in futures periods as revenues will be adversely impacted by a halving that is expected to occur in April 2024.

Current wording

Cost of sales related to mining was $988,094 in the three months ended May 31, 2024, compared to $72,392 in the three months ended May 31, 2023. Cost of sales normally includes electricity, utilities, facilities costs, and supplies where we perform mining from our own facilities, but not depreciation of equipment, which is stated separately. Major components of cost of sales include rent to house mining and hosting equipment, electricity, and supplies. Where our miners are hosted by third parties, cost of sales normally includes hosting fees and/or electricity costs. The Company believes that cost of sales related to mining as a percentage of revenues will be greater in future periods as revenues will be adversely impacted by a halving that occurred in April 2024.

Previous wording

Cost of sales related to hosting was $11,142 in the three months ended February 29, 2024, compared to $-0- in the three months ended February 28, 2023. Cost of sales normally includes utilities, facilities costs, and supplies. Unlike cost of sales from mining, cost of sales from hosting does not include electricity costs, as such costs are passed on to the hosting client.

Current wording

Cost of sales related to hosting was $15,211 in the three months ended May 31, 2024, compared to $-0- in the three months ended May 31, 2023. Cost of sales normally includes utilities, facilities costs, and supplies. Unlike the cost of sales from mining, cost of sales from hosting does not include electricity costs, as such costs are passed on to the hosting client.

Previous wording

Cost of sales related to sales of mining equipment was $-0- for the three months ended February 29, 2024, compared to $1,500 in the three months ended February 28, 2023. Cost of sales from equipment sales includes the purchase price of equipment sold, plus shipping and value added tax on the equipment for sales reported under the completed sales method. There is no cost of sales associated with equipment sales reported under the installment sales method. Cost of sales from equipment sales in the six months ended February 28, 2024 and 2023 were low as a result of the fact that most of the equipment sales in those periods were reported under the installment sales method under the guidelines of ASC 606.

Current wording

Cost of sales related to sales of mining equipment was $-0- for the three months ended May 31, 2024, compared to $-0- in the three months ended May 31, 2023. Cost of sales from equipment sales includes the purchase price of equipment sold, plus shipping and value added tax on the equipment for sales reported under the completed sales method. There is no cost of sales associated with equipment sales reported under the installment sales method. Cost of sales from equipment sales in the nine months ended May 31, 2024 and 2023 were low as a result of the fact that most of the equipment sales in those periods were reported under the installment sales method under the guidelines of ASC 606.

Previous wording

During the three months ended February 29, 2024, the Company incurred $972,363 in operating expenses, compared to $349,580 in operating expenses during the three months ended February 28, 2023. Major components of operating expenses for the 2024 period as compared to the 2023 period were:

Current wording

During the three months ended May 31, 2024, the Company incurred $751,712 in operating expenses, compared to $579,248 in operating expenses during the three months ended May 31, 2023. Major components of operating expenses for the 2024 period as compared to the 2023 period were:

Previous wording

The higher level of operating expenses in the 2024 period as compared to the 2023 period is partly attributable to increased depreciation in 2024 as compared 2023 as a result of higher level of equipment in service, and increased related party compensation in 2024 as compared to 2023. Included in operating expenses in the three months ended February 29, 2024 was $277,465 in non-cash expenses due to the issuance of common stock for professional services and to related parties as compensation, as compared to $49,785 in the three months ended February 28, 2023. Additionally, we incurred $235,370 in depreciation expense in the three months ended February 29, 2024 due to the deployment of new mining equipment compared to $88,213 during the same three month period in 2023. The Company expects that operating expenses will trend materially higher in future periods as the Company begins paying regular compensation to existing officers and directors, hires additional employees, and incurs other costs, such as increased depreciation expense due to the addition of new mining equipment and the completion of the buildout of the operating facilities.

Current wording

The higher level of operating expenses in the 2024 period as compared to the 2023 period is partly attributable to increased depreciation in 2024 as compared 2023 as a result of higher level of equipment in service, and increased related party compensation in 2024 as compared to 2023. Included in operating expenses in the three months ended May 31, 2024 was $279,496 in non-cash expenses due to the issuance of common stock for professional services and to related parties as compensation, as compared to $51,335 in the three months ended May 31, 2023. Additionally, we incurred $232,781 in depreciation expense in the three months ended May 31, 2024 due to the deployment of new mining equipment compared to $147,005 during the same three month period in 2023. The Company expects that operating expenses will trend materially higher in future periods as the Company begins paying regular compensation to existing officers and directors, hires additional employees, and incurs other costs, such as increased depreciation expense due to the addition of new mining equipment and the completion of the buildout of the operating facilities.

Previous wording

During the three months ended February 29, 2024, the Company had $253,941 in other (expense), net as compared to $18,460 of other (expense) in the three months ended February 28, 2023. The significant increase in other (expense) was mainly attributable to a number of factors, including higher interest expense in the three months ended February 29, 2024 of $54,279 as compared to $22,211 in the three months ended February 28, 2023, which was due to higher outstanding loan balances during the 2024 period compared to the 2023 period. The Company also recorded a loss of $183,670 from the extinguishment of debt in the 2024 period compared to $-0- in the 2023 period, a loss of $68,559 from the Company’s investment in ROC Digital in 2024 period compared to $-0- in the 2023 period, and income of $37,777 from a change in derivative liability in 2024 as compared to $-0- in 2023.

Current wording

During the three months ended May 31, 2024, the Company had $119,690 in other (expense), net as compared to $14,189 of other (expense) in the three months ended May 31, 2023. The significant increase in other (expense) was mainly attributable to a number of factors, including higher interest expense in the three months ended May 31, 2024 of $56,563 as compared to $28,622 in the three months ended May 31, 2023, which was due to higher outstanding loan balances during the 2024 period compared to the 2023 period. The Company also recorded a loss of $133,915 from the extinguishment of debt in the 2024 period compared to $-0- in the three-month 2023 period, a loss of $58,840 from the Company’s investment in ROC Digital in the 2024 period compared to $-0- in the 2023 period, offset by income of $114,835 from a change in derivative liability in 2024 as compared to $-0- in 2023.

Previous wording

In addition, the Company recorded interest income of $14,791 in the three months ended February 29, 2024 compared to $3,751 in the three months ended February 28, 2023.

Current wording

In addition, the Company recorded interest income of $14,793 in the three months ended May 31, 2024 compared to $14,433 in the three months ended May 31, 2023.

Previous wording

As a result of the foregoing, during the three months ended February 29, 2024, the Company incurred a net loss of $902,682 or $(0.02) per share, as compared to a net loss of $307,407 or $(0.01) per share during the three months ended February 28, 2023. The increase in the Company’s net loss in the three months ended February 29, 2024, compared to the three months ended February 28, 2023, is attributable to the factors discussed above.

Current wording

As a result of the foregoing, during the three months ended May 31, 2024, the Company incurred a net loss of $6 or $(0.01) per share, as compared to a net loss of $523,704 or $(0.01) per share during the three months ended May 31, 2023. The increase in the Company’s net loss in the three months ended May 31, 2024, compared to the three months ended May 31, 2023, is attributable to the factors discussed above.

Previous wording

Comparison of Results of Operations for the Six Months Ended February 29, 2024 and February 28, 2023.

Current wording

Comparison of Results of Operations for the Nine Months Ended May 31, 2024 and May 31, 2023.

Previous wording

During the six months ended February 29, 2024, the Company generated $1,402,921 revenue, compared to $257,807 of revenue in the six months ended February 28, 2023.

Current wording

During the nine months ended May 31, 2024, the Company generated $2,627,913 of revenue, compared to $399,932 of revenue in the nine months ended May 31, 2023.

Previous wording

During the six months ended February 29, 2024, the Company generated $1,190,749 in Bitcoin revenue from self-mining digital assets, compared to $133,443 of revenue from self-mining in the six months ended February 28, 2023. At February 29, 2024, the Company owned 1,644 miners, of which 1,526 were deployed for self-mining. The number of undeployed miners was mainly impacted by miners that were offline due to maintenance issues. Mining revenue should be lower in future periods as a halving expected to occur in April 2024 could significantly reduce the rewards from mining. However, the impact of the halving may be offset by a rise in the price of the bitcoin due to fewer miners online after halving event, as has historically occurred after a halving event. Mining revenues in the six months ended February 29, 2024 were positively impacted due to resolution of operating issues at the Company’s first hosting facilities in Trinidad and Pecos, Texas, and the commencement of operations at a facility in Murray, Kentucky that is hosted by a third-party.

Current wording

During the nine months ended May 31, 2024, the Company generated $2,378,507 in Bitcoin revenue from self-mining digital assets, compared to $261,921 of revenue from self-mining in the nine months ended May 31, 2023. At May 31, 2024, the Company owned 1,691 miners, of which 1,573 were deployed for self-mining. The number of undeployed miners was mainly impacted by miners that were offline due to maintenance issues. Mining revenue should be lower in future periods as a halving occurred in April 2024, which significantly reduced the rewards from mining. However, the impact of the halving was offset by a rise in the price of bitcoin due to fewer miners online after halving event, as has historically occurred after a halving event, and by the positive impact of “ordinals,” which are increased transaction fees that occur as parties have discovered ways to imbed data regarding other assets, such as art, in the bitcoin blockchain. Mining revenues in the nine months ended May 31, 2024 were positively impacted due to resolution of operating issues at the Company’s first hosting facilities in Trinidad and Pecos, Texas, and the commencement of operations at a facility in Murray, Kentucky that is hosted by a third-party. Mining revenues were also positively impacted by a short-term lease of miners that the Company entered in March that expired when the halving occurred in April 2024.

Previous wording

During the six months ended February 29, 2024 and February 28, 2023, the Company generated $190,192 in revenue from equipment sales, compared to $124,364 in revenue in the six months ended February 28, 2023. The revenue from equipment sales in the six months ended February 29, 2024 were derived from the following transactions:

Current wording

During the nine months ended May 31, 2024 and May 31, 2023, the Company generated $210,662 in revenue from equipment sales, compared to $138,011 in revenue in the nine months ended May 31, 2023. The revenue from equipment sales in the nine months ended May 31, 2024 were derived from the following transactions:

Previous wording

Under the guidelines of ASC 606, the Company reports revenue from both equipment sales described above under the installment sale method, under which the Company reports its gross profit on the sales as payments are received from the purchaser. As of February 1, 2023, the Company reached an agreement with the obligor under the $910,000 note to convert the note into an interest only note commencing as of February 1, 2023, with a balloon payment being due at maturity on August 31, 2024, and an agreement that the principal balance on the note was $731,472. One effect of the agreement with the obligor is to materially reduce any deferred revenue associated with the sale, as the note is scheduled to receive interest only payments until August 31, 2024. As a result, the Company expects revenue from these two equipment sales to be lower in future periods. During the six months ended February 29, 2024, the Company recorded $40,942 in equipment sales as a result of the receipt of six payments of $31,204 each on the October 2022 note. No revenue was recorded on the August 2022 note since all payments were of interest only.

Current wording

Under the guidelines of ASC 606, the Company reports revenue from both equipment sales described above under the installment sale method, under which the Company reports its gross profit on the sales as payments are received from the purchaser. During the nine months ended May 31, 2024, the Company recorded $61,412 in equipment sales as a result of the receipt of nine payments of $31,204 each on the October 2022 note. The current terms of the August 2022 note provide for only interest payments until December 31, 2024, at which time all principal and accrued interest is due. As a result, no revenue is recorded on the August 2022 note since all payments were of interest only.

Previous wording

During the six months ended February 29, 2024, the Company sold 100 new ASIC miners to a third party for $149,250. Under the guidelines of ASC 606, the Company reported revenue from the June 2023 equipment sales under the completed sale method.

Current wording

During the nine months ended May 31, 2024, the Company sold 100 new ASIC miners to a third party for $149,250. Under the guidelines of ASC 606, the Company reported revenue from the June 2023 equipment sales under the completed sale method.

Previous wording

The Company generated $21,980 in revenues from hosting in the six months ended February 29, 2024, as compared to $-0- in hosting revenues in the six months ended February 28, 2023. The Company did not have any hosting clients during the three months ended February 29, 2023. In June 2023, the Company signed two new hosting clients. In the current market environment, the price of ASIC miners has fallen to the point that we believe self-mining is more profitable than hosting third party miners, however we will pursue hosting opportunities on a selective basis. While the Company still sees good opportunities to acquire mining equipment at attractive prices, the price of mining equipment has recently increased with the recent increase in the price of Bitcoin.

Current wording

The Company generated $38,743 in revenues from hosting in the nine months ended May 31, 2024, as compared to $-0- in hosting revenues in the nine months ended May 31, 2023. The Company did not have any hosting clients during the nine months ended May 31, 2023. In June 2023, the Company signed two new hosting clients. In the current market environment, the price of ASIC miners has fallen to the point that we believe self-mining is more profitable than hosting third party miners, however we will pursue hosting opportunities on a selective basis. While the Company still sees good opportunities to acquire mining equipment at attractive prices, the price of mining equipment has recently increased with the recent increase in the price of Bitcoin.

Previous wording

Cost of sales related to mining was $779,791 in the six months ended February 29, 2024, compared to $169,352 in the six months ended February 28, 2023. Cost of sales normally includes electricity, utilities, facilities costs, and supplies where we perform mining from our own facilities, but not depreciation of equipment, which is stated separately. Major components of cost of sales include rent to house mining and hosting equipment, electricity, and supplies. Where our miners are hosted by third parties, cost of sales normally includes hosting fees and/or electricity costs. The Company believes that cost of sales related to mining as a percentage of revenues will be greater in futures periods as revenues will be adversely impacted by a halving that is expected to occur in April 2024.

Current wording

Cost of sales related to mining was $1,767,885 in the nine months ended May 31, 2024, compared to $241,743 in the nine months ended May 31, 2023. Cost of sales normally includes electricity, utilities, facilities costs, and supplies where we perform mining from our own facilities, but not depreciation of equipment, which is stated separately. Major components of cost of sales include rent to house mining and hosting equipment, electricity, and supplies. Where our miners are hosted by third parties, cost of sales normally includes hosting fees and/or electricity costs. The Company believes that cost of sales related to mining as a percentage of revenues will be greater in future periods as revenues will be adversely impacted by a halving that occurred in April 2024.

Previous wording

The table below describes the average cost of mining each bitcoin for the six months ended February 29, 2024 and February 28, 2023, and the total energy usage and cost per each kilowatt hour (“KWH”) utilized within our facilities.

Current wording

The table below describes the average cost of mining each bitcoin for the nine months ended May 31, 2024 and May 31, 2023, and the total energy usage and cost per each kilowatt hour (“KWH”) utilized within our facilities.

Previous wording

Cost of sales related to hosting was $14,534 in the six months ended February 29, 2024, compared to $-0- in the six months ended February 28, 2023. Cost of sales normally includes utilities, facilities costs, and supplies. Unlike cost of sales from mining, cost of sales from hosting does not include electricity costs, as such costs are passed on to the hosting client.

Current wording

Cost of sales related to hosting was $29,746 in the nine months ended May 31, 2024, compared to $-0- in the nine months ended May 31, 2023. Cost of sales normally includes utilities, facilities costs, and supplies. Unlike cost of sales from mining, cost of sales from hosting does not include electricity costs, as such costs are passed on to the hosting client.

Previous wording

Cost of sales related to sales of mining equipment was $180,891 for the six months ended February 29, 2024, compared to $44,580 in the six months ended February 28, 2023. Cost of sales from equipment sales includes the purchase price of equipment sold, plus shipping and value added tax on the equipment for sales reported under the completed sales method. There is no cost of sales associated with equipment sales reported under the installment sales method. Cost of sales from equipment sales in the six months ended February 28, 2024 and 2023 were low as a result of the fact that most of the equipment sales in those periods were reported under the installment sales method under the guidelines of ASC 606.

Current wording

Cost of sales related to sales of mining equipment was $180,891 for the nine months ended May 31, 2024, compared to $44,580 in the nine months ended May 31, 2023. Cost of sales from equipment sales includes the purchase price of equipment sold, plus shipping and value added tax on the equipment for sales reported under the completed sales method. There is no cost of sales associated with equipment sales reported under the installment sales method. Cost of sales from equipment sales in the nine months ended May 31, 2024 and 2023 were low as a result of the fact that most of the equipment sales in those periods were reported under the installment sales method under the guidelines of ASC 606.

Previous wording

During the six months ended February 29, 2024, the Company incurred $1,686,294 in operating expenses, compared to $824,716 in operating expenses during the six months ended February 28, 2023. Major components of operating expenses for the 2024 period as compared to the 2023 period were:

Current wording

During the nine months ended May 31, 2024, the Company incurred $2,431,889 in operating expenses, compared to $1,403,965 in operating expenses during the nine months ended May 31, 2023. Major components of operating expenses for the 2024 period as compared to the 2023 period were:

Previous wording

The higher level of operating expenses in the 2024 period as compared to the 2023 period is partly attributable to increased depreciation in 2024 as compared 2023 as a result of higher level of equipment in service, and increased related party compensation in 2024 as compared to 2023. Included in operating expenses in the six months ended February 29, 2024 was $554,931 in non-cash expenses due to the issuance of common stock for professional services and to related parties as compensation, as compared to $125,214 in the six months ended February 28, 2023. Additionally, we incurred $457,901 in depreciation expense in the six months ended February 29, 2024 due to the deployment of new mining equipment compared to $147,265 during the same six month period in 2023. The Company expects that operating expenses will trend materially higher in future periods as the Company begins paying regular compensation to existing officers and directors, hires additional employees, and incurs other costs, such as increased depreciation expense due to the addition of new mining equipment and the completion of the buildout of the operating facilities.

Current wording

The higher level of operating expenses in the 2024 period as compared to the 2023 period is partly attributable to increased depreciation in 2024 as compared 2023 as a result of higher level of equipment in service, and increased related party compensation in 2024 as compared to 2023. Included in operating expenses in the nine months ended May 31, 2024 was $834,427 in non-cash expenses due to the issuance of common stock for professional services and to related parties as compensation, as compared to $418,649 in the nine months ended May 31, 2023. Additionally, we incurred $684,564 in depreciation expense in the nine months ended May 31, 2024 due to the deployment of new mining equipment compared to $294,270 during the same nine month period in 2023. The Company expects that operating expenses will trend materially higher in future periods as the Company begins paying regular compensation to existing officers and directors, hires additional employees, and incurs other costs, such as increased depreciation expense due to the addition of new mining equipment and the completion of the buildout of the operating facilities.

Previous wording

During the six months ended February 29, 2024, the Company had $571,931 in other (expense), net as compared to $2,770 of other income, net in the six months ended February 28, 2023. The significant increase in other (expense) was mainly attributable to a number of factors, including higher interest expense in the six months ended February 29, 2024 of $153,699 as compared to $27,019 in the six months ended February 28, 2023, which was due to higher outstanding loan balances during the 2024 period compared to the 2023 period. The Company also recorded a loss of $221,208 from the extinguishment of debt, a loss of $111,773 from the Company’s investment in ROC Digital and an expense of $114,835 from a change in derivative liability in 2024 as compared to $-0- for these three categories in 2023.

Current wording

During the nine months ended May 31, 2024, the Company had $691,622 in other (expense), net as compared to $11,418 of other income, net in the nine months ended May 31, 2023. The significant increase in other (expense) was mainly attributable to a number of factors, including higher interest expense in the nine months ended May 31, 2024 of $210,262 as compared to $55,641 in the nine months ended May 31, 2023, which was due to higher outstanding loan balances during the 2024 period compared to the 2023 period. The Company also recorded a loss of $355,123 from the extinguishment of debt in the 2024 period compared to $-0- in the three-month 2023 period, and a loss of $170,613 from the Company’s investment in the ROC Digital joint venture in the 2024 period compared to $-0- in the 2023 period.

Previous wording

In addition, the Company recorded interest income of $29,584 in the six months ended February 29, 2024 compared to $12,850 in the six months ended February 28, 2023.

Current wording

In addition, the Company recorded interest income of $44,376 in the nine months ended May 31, 2024 compared to $27,284 in the nine months ended May 31, 2023.

Previous wording

As a result of the foregoing, during the six months ended February 29, 2024, the Company incurred a net loss of $1,830,522, or $(0.04) per share, as compared to a net loss of 778,071 or $(0.02) per share during the six months ended February 28, 2023. The increase in the Company’s net loss in the six months ended February 29, 2024, compared to the six months ended February 28, 2023, is attributable to the factors discussed above.

Current wording

As a result of the foregoing, during the nine months ended May 31, 2024, the Company incurred a net loss of $2,474,120 or $(0.05) per share, as compared to a net loss of $1,301,775 or $(0.03) per share during the nine months ended May 31, 2023. The increase in the Company’s net loss in the nine months ended May 31, 2024, compared to the nine months ended May 31, 2023, is attributable to the factors discussed above.

Previous wording

As of February 29, 2024, the Company had $342,296 in cash on hand.

Current wording

As of May 31, 2024, the Company had $281,004 in cash on hand.

Previous wording

During the six months ended February 29, 2024, the Company had a net loss of $1,830,522.

Current wording

During the nine months ended May 31, 2024, the Company had a net loss of $2,478,632.

Previous wording

Cash flows used in operating activities were $204,304 for the six months ended February 29, 2024, compared to cash flows used of $452,160 for the six months ended February 28, 2023. The decrease in cash flows used in operating activities for the six months ended February 29, 2024 was primarily attributable a change in balance sheet accounts in 2024 compared to 2023, partially offset by a decrease in profitability in 2024 net of non-cash items.

Current wording

Cash flows used in operating activities were $247,017 for the nine months ended May 31, 2024, compared to cash flows used of $443,025 for the nine months ended May 31, 2023. The decrease in cash flows used in operating activities for the nine months ended May 31, 2024 was primarily attributable a change in balance sheet accounts in 2024 compared to 2023, offset by a decrease in profitability in 2024 net of non-cash items. Prepaid expenses increased by $673,703 during the nine months ended May 31, 2024 as compared to $100,000 in the nine months ended May 31, 2023, primarily as a result of a deposit of $670,000 paid in the 2024 period for transformers that are being resold. Customer advances increased by $703,500 in the nine months ended May 31, 2024 as compared to $-0- in the nine months ended May 31, 2023, all of which is the result of a deposit received for the transformer sale previously discussed. Accounts payable increased by $484,241 in the nine months ended May 31, 2024 as compared to a decrease of $32,032 in the nine months ended May 31, 2023, primarily as a result amounts due consultants in the amount of $155,320 which was payable in 353,000 shares of common stock (and will be paid after July 15, 2024), and $125,000 due to an employee which was settled after May 31, 2024.

Previous wording

Cash flows used in investing activities were $48,946 for the six months ended February 29, 2024, compared to cash flows used in investing activities of $469,843 for the six months ended February 28, 2023. Cash flows used in investing activities consisted primarily of purchases of $57,335 and $469,843 in equipment, respectively in the 2024 and 2023 periods. In the 2024 period the Company also received a return on investment of $8,408.

Current wording

Cash flows used in investing activities were $67,526 for the nine months ended May 31, 2024, compared to cash flows used in investing activities of $731,100 for the nine months ended May 31, 2023. Cash flows used in investing activities consisted primarily of purchases of $75,934 and $731,100 in equipment, respectively in the 2024 and 2023 periods. In the 2024 period the Company also received a return on investment of $8,408.

Previous wording

Cash flows provided by financing activities were $325,000 for the six months ended February 29, 2024, compared to cash flows provided by financing activities of $800,00 for the six months ended February 28, 2023. The cash flows provided by financing activities in both periods in both the 2024 and 2023 period were made pursuant to a line of credit with Innovative Digital Investors Emerging Technology, L.P. (“IDI”), a limited partnership controlled by Jonathan Bates, our Chairman, and Raymond Mow, our chief financial officer.

Current wording

Cash flows provided by financing activities were $325,000 for the nine months ended May 31, 2024, compared to cash flows provided by financing activities of $1,300,000 for the nine months ended May 31, 2023. The cash flows provided by financing activities in both periods in both the 2024 and 2023 period were made pursuant to a line of credit with Innovative Digital Investors Emerging Technology, L.P. (“IDI”), a limited partnership controlled by Jonathan Bates, our Chairman, and Raymond Mow, our chief financial officer.