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Bitmine Immersion Technologies, Inc.
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Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following discussion and analysis of the
results of our operations and financial condition for the three months ended November 30, 2024 and 2023, should be read in conjunction
with the other sections of this Quarterly Report, including the Financial Statements and notes thereto of 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. We do not
undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly
Report.
Overview
Since July 2021, our business has been as a blockchain
technology company that is building out industrial scale digital asset mining, equipment sales and hosting operations. Our primary business
is hosting third-party equipment used in mining of digital asset coins and tokens, specifically bitcoin, as well as self-mining for our
own account. Our state-of-the-art facilities will be specifically designed and constructed for housing advanced mining equipment. Our
existing data centers provide power, racks, proprietary thermodynamic management (heat dissipation and airflow management), redundant
connectivity, and security, as well as software which provides infrastructure management and custom firmware that boosts performance and
energy efficiency.
We plan to operate our data centers using immersion
cooling technology. Immersion cooling is the process of submerging computer components (or full servers) in a thermally, but not electrically,
conductive liquid (dielectric coolant) allowing higher heat transfer performance than air and many other benefits. Manufacturers of immersion
systems report that immersion cooling, as compared to air cooling, can reduce the energy costs associated with cooling a data center by
up to 90% and can reduce the cost of operating servers by up to 10%. In addition, manufacturers of immersion systems report the cooler,
dust-free environment provided by immersion cooling can extend the life of data center equipment when compared to an air-cooled environment.
Our digital asset mining operation is focused on
the generation of digital assets by solving complex cryptographic algorithms to validate transactions on specific digital asset network
blockchains, which is commonly referred to as “mining.” Mining requires the use of specialized computers equipped with application-specific
integrated circuit (ASIC) chips (known as “miners”) to solve complex cryptographic algorithms in support of the bitcoin blockchain
(in a process known as “solving a block”) in exchange for digital asset rewards (to date, only bitcoin). Whether we are hosting
our client’s computers or mining for our own account with our own computers, the miners participate in “mining pools”
organized by “mining pool operators” in which we or our clients share mining power (known as “hash rate”) with
the hash rate generated by other miners participating in the pool to earn digital asset rewards. The mining pool operator provides a service
that coordinates the computing power of the independent mining enterprises participating in the mining pool. Fees are paid to the mining
pool operator to cover the costs of maintaining the pool. The pool uses software that coordinates the pool members’ mining power,
identifies new block rewards, and records how much hash rate each participant contributes to the pool. We only use mining pools that pay
rewards under the Full-Pay-Per-Share Method, which pays pool participants based on the hashing power contribution to the pool each day
times the difficulty index (the “Full-Pay-Per-Share Method”). Even though we plan to effect our self-mining operations in
data centers that we own, we reserve the right to operate miners in third-party data centers when we receive advantageous terms and/or
do not have sufficient capacity in our own data centers.
with a myriad of mining operations throughout the world to complete new blocks in the blockchain and earn the reward in the form of an
established unit of a digital asset. Revenue from digital asset mining and hosting third party digital asset miners is impacted 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. Gross profits from digital asset mining are primarily impacted by the cost of electricity to operate
the miners and to a lesser extent by other operating costs. While we expect to sell or exchange a portion of the digital assets we mine
to fund our growth strategies or for general corporate purposes, we reserve the right to hold our digital assets as a long-term investment.
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As the demand for digital assets increases and
digital assets become more widely accepted, there is an increasing demand for professional-grade, scalable infrastructure to support growth
of the blockchain ecosystem. We expect to continually evaluate the performance of our data centers, including our ability to access additional
megawatts of electric power and to expand our total self-mining and customer and related party hosting hash rates.
We also generate revenues from the advantageous
purchase and sale of equipment used for digital asset mining and hosting. We have relationships with some suppliers that enable us to
acquire highly desired equipment at attractive prices, which we sometimes resell to third parties. In most cases, resales of digital asset
mining equipment would be to our hosting customers, which have the dual benefit of generating short-term gross profits from the equipment
sale as well as growing the customer base of our hosting business.
The primary factors that will impact future hosting
revenues include: (i) the price of bitcoin, since hosting revenues are primarily a percentage of bitcoin mined by clients; (ii) the completion
of operational hosting facilities, as potential hosting clients have been reluctant to sign contracts prior to the date we have a fully
operational hosting facility; and (iii) the availability of attractive electricity prices, since power usage is the primary marginal cost
for any mining operation.
The primary factors that will impact proprietary
mining revenues include: (i) the price of bitcoin; (ii) the completion of operational facilities to provide us with a cost-effective facility
to operate in; (iii) the availability of attractive electricity prices, since power usage is the primary marginal cost for any mining
operation; and (iv) the availability of mining equipment suitable for our immersion hosting environment at attractive prices and available
capacity in our hosting facilities.
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 three months ended November 30, 2024:
As of
November 30, 2024
As of
August 31, 2024
Percent
Change
Network hash rate
727.858 EH/s
620.355 EH/s
17.33%
Difficulty index
102.29 trillion
89.47 trillion
14.33%
Bitcoin market price
$ 96,449.06
$ 58,969.90
63.56%
The primary factors that will impact resales of
mining equipment include the availability of equipment at attractive prices and the number of participants willing to enter the mining
business or expand their existing operations, which is highly correlated to the margin from mining, as determined by the market price
of bitcoin and prevailing energy costs. Also, our resales of mining equipment will be impacted by the existence of hosting capacity with
attractive electricity rates in our hosting operations.
Trinidad Operations
We initially decided to locate our initial facilities
in Trinidad, because it has some of the cheapest electricity in the world due to its abundant supplies of oil and gas and because some
of our technical staff is located there. We have entered into an agreement with Telecommunications Services of Trinidad & Tobago Limited
(“TSTT”), the largest and oldest telecom company in Trinidad, to co-locate up to 125 800 kW containers for hosting digital
asset miners. TSTT has numerous potential locations for co-location of our containers. Under the agreement, we have the option, but not
the obligation, to co-locate containers at our own pace. We pay a fixed amount per container, plus the actual electricity costs incurred
by our containers in the amount billed to TSTT by the local utility without any markup. The term of the agreement expires on October 14,
2031. We have the right to terminate our agreement with TSTT at any time that the price for electricity consumption exceeds $0.05 per
kWh.
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In October 2022, we completed the installation
of initial hosting containers under our agreement with TSTT. Our rate for electricity is 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.
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 December
31, 2024. We had previously sold two containers to the third party under a long-term note secured by the containers. In July 2024, we
foreclosed on the containers as a result of a default by the third party on the note. We moved our miners to our existing TSTT site, where
we now have 340 operational miners as of November 30, 2024, of which 315 were in operation, and 100 miners in transit to the site. We
are currently evaluating other TSTT sites as a location for the two repossessed immersion containers, and expect to install them in the
first calendar quarter of 2025.
We are also leasing space from 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 Trinidad miners to our TSTT hosting facilities.
We are currently focusing our efforts on the development
of hosting centers in the United States and Canada, both directly and in joint ventures with third parties. We are exploring situations
where medium to long-term power agreements may be available at affordable prices, whether using traditional power sources such as coal
or natural gas, as well as environmentally friendly sources such as hydroelectric, wind and solar-backed projects, which might allow us
to generate collateral revenue from the sale of excess power to the local utility grid and from the generation of saleable carbon credits.
Pecos, Texas Operations
In October 2022, we entered into a joint venture
arrangement with ROC Manager 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 an aggregate value of $987,429 as a capital contribution to ROC Digital. An affiliate
of ROC Manager also contributed an immersion container. 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 through monthly payments of $31,203.64 per
month until May 31, 2026. We own approximately 30% of ROC Digital, and 33 1/3% of ROC Manager.
The Texas site became fully electrified in June
2023 and has six containers owned by the joint venture. The joint venture initially filled its six immersion containers with ASIC miners
provided by hosting clients, although most of the hosting clients’ agreements terminated in April 2024. Currently, approximately
five of the hosting containers owned by the joint venture are fully or partially occupied by clients, and the joint venture is aggressively
trying to fill the remaining capacity with hosting clients. The joint venture also owns two immersion containers which are not installed,
which we expect the joint venture to install if hosting demand warrants.
We have entered into a hosting agreement with
ROC Digital under which we have located one immersion container at our Pecos, Texas data center. We pay $500 per month, plus our pro rata
share of electricity, internet, and insurance for the site. 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 ROC Digital’s electricity supply agreement
for the upcoming year. In April 2024, we renewed the hosting agreement for an additional year. As of November 30, 2024, we had deployed
145 Antminer S-19 pro miners to our hosting container at the site.
On April 29, 2024, ROC Digital executed an energy
services agreement for the site that runs from May 1, 2024 to April 30, 2025. Under the current agreement, the site will receive electricity
at the prevailing rate plus $0.0055 per kWh. ROC Digital is not obligated to purchase any specific quantity of electricity, and employs
software which automatically discontinues mining operations when the prevailing rate exceeds certain levels.
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Soluna Hosted Locations
On October 4, 2023, we purchased 1,050 used ASIC
miners from Luxor Technology Corporation (“Luxor”) for $488,775, and on October 9, 2023 we 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 for $10,000. The hosting agreement terminates on April 8, 2025, provided
that the hosting agreement will continue after the termination date on a month-to-month basis if neither party sends a notice of termination
at least 30 days before its scheduled termination date. The hosting agreement provides that we are obligated to reimburse Soluna for the
actual cost of the electricity used by our 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.
On November 14, 2024, we acquired 3,000 S-19j
Pro computers from Luxor Technology Corporation for $1,035,000. On December 3, 2024, we entered into a hosting agreement with DVSL ComputeCo,
LLC to host 2,900 miners at its location. The hosting agreement terminates on December 2, 2025, provided that the hosting agreement will
continue after the termination date on a month-to-month basis if neither party sends a notice of termination at least 30 days before its
scheduled termination date. The hosting agreement provides that we are obligated to reimburse the DVSL for the actual cost of the electricity
used by our machines plus 1.6 cents per kWh, and pay a hosting fee equal to 50% of the net profit generated by the machines each month.
All 3,000 computers were shipped to DVSL’s hosting site in Silverton, Texas, for warranty testing, with 2,900 to remain in Silverton,
Texas and 100 to be shipped to our Trinidad data center upon the completion of testing. As of January 10, 2025, approximately 2,594 of
the acquired miners were operating, while approximately 300 did not satisfy the warranty and will be replaced with comparable miners.
Miner Summary
Set forth below is a summary of our ASIC miner
inventory as of November 30, 2024:
Site
Present
Installed
In Transit
Needing Repair
Immersion/Air-cooled
Trinidad
400
367
100
Immersion
Pecos, Texas
145
145
Immersion
Murray, Kentucky
1,095
1,095
Air Cooled
Silverton, TX
2,900
Air Cooled
Other
85
n/a
Total
1,640
1,607
3,000
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Results of Operations
Comparison of Results of Operations for the Three Months Ended November
30, 2024 and November 30, 2023.
Revenues
During the three months ended November 30, 2024,
we generated $1,200,830 of revenue, compared to $511,308 of revenue in the three months ended November 30, 2023.
During the three months ended November 30, 2024,
we generated $483,683 in bitcoin revenue from self-mining digital assets, compared to $329,723 of revenue from self-mining in the three
months ended November 30, 2023. At November 30, 2024, we owned 4,640 miners that were operable, of which 1,640 were deployed for self-mining
and the remainder were in transit to their ultimate deployment location. The number of undeployed miners was mainly impacted by 3,000
miners that were purchased in November 2024 and were in transit at November 30, 2024, and to a lesser extent by miners that were offline
due to maintenance issues. Mining revenue should be higher in future periods as we begin to receive revenues from the 3,000 miners purchased
in November 2024 that had not been installed at the quarter end. On the other hand, miner revenues could be adversely impact if the difficulty
index for mining continues to increase.
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During the three months ended November 30, 2024
and November 30, 2023, we generated $717,147 in revenue from equipment sales, compared to $169,721 in revenue in the three months ended
November 30, 2023.
The revenue from equipment sales in the three
months ended November 30, 2024 were derived from the following transactions:
·
In October
2022, we sold four hosting containers to ROC Digital for $1,200,000. The purchase price is payable pursuant to a promissory note
bearing interest at 5% per annum, and is paid by 41 equal monthly payments of $31,204 commencing December 30, 2022, with any
remaining principal and interest payable in full on May 31, 2026. We recorded $13,647 of revenue from payments received on a
promissory note.
·
We recorded $703,500 of revenue from a brokered transaction of ten transformers.
Under the guidelines of ASC 606, we determined
that payments due under note receivable from ROC Digital were not “probable” due to the start-up nature of the customer. As
a result, we report revenue from the equipment sale to ROC Digital above under the installment sale method, under which we report our
gross profit on the sale as payments are received from the purchaser.
During the three months ended November 30, 2024 and 2023, we recorded
$703,500 and $149,250 of revenue, respectively, from isolated sales of equipment recorded under the “completed sale” method.
In future periods, we expect to generate additional
revenues from the resale of certain hosting equipment, primarily containers and transformers, and of miners in “buy/host”
transactions, in which we sell miners already installed in our hosting facilities to buyers that simultaneously execute a hosting agreement
for the purchased miners, and in some cases additional miners.
We generated $-0- in revenues from hosting in
the three months ended November 30, 2024, as compared to $11,864 in hosting revenues in the three months ended November 30, 2023. We terminated
all of our hosting clients in the fourth quarter of fiscal 2024, and did not have any hosting clients during the three months ended November
30, 2024. In the current market environment, we believe self-mining is more profitable than hosting third party miners, however we will
pursue hosting opportunities on a selective basis. While we still see 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.
The primary factors that will impact our revenues
in subsequent periods are described in the “ —Overview ” above.
Cost of Sales
Cost of sales were $1,080,625 in the three months
ended November 30, 2024, compared to $407,226 in the three months ended November 30, 2023.
Cost of sales related to mining was $410,625 in
the three months ended November 30, 2024, compared to $222,942 in the three months ended November 30, 2023. Cost of sales normally includes
electricity, utilities, facilities costs, and supplies where we perform mining from our own facilities. 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, major components
of cost of sales include hosting fees and/or electricity costs. Cost of sales for both owned and hosted facilities does not include depreciation,
which is stated separately. We believe that cost of sales as a percentage of revenues may be less in future periods as compared to prior
periods if the market price of bitcoin remains at its current level or increases.
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The table below describes the average cost of
mining each bitcoin for the three months ended November 30, 2024 and November 30, 2023, and the total energy usage and cost per each kilowatt
hour (“KWH”) utilized within both of our facilities.
November 30, 2024
November 30, 2023
Cost of energy per bitcoin mined
$ 21,296.69
$ 17,227.70
Other direct costs of mining per bitcoin mined (1)
$ 25,927.43
$ 6,687.95
Depreciation expense per bitcoin mined (2)
$ 22,189.46
$ 16,459.73
Financing expense per bitcoin mined (3)
$ –
$ –
$ 69,413.58
$ 40,375.38
Cost of energy per bitcoin mined
$ 36,798.30
$ 15,006.60
Other direct costs of mining per bitcoin mined (1)
$ 16,657.88
$ 4,508.59
Depreciation expense per bitcoin mined (2)
$ 17,529.22
$ 24,509.10
Financing expense per bitcoin mined (3)
$ –
$ 6,466.94
$ 70,985.40
$ 50,491.23
Average revenue of each bitcoin mined (4)
$ 69,878.45
$ 34,045.41
Cost of mining one bitcoin as % of average bitcoin mining revenue (5)
1.02%
1.45%
Total bitcoin mined
1.99416252
1.8863381
Bitcoin mining revenue
$ 139,423.79
$ 61,802.91
485
194
Total kWhs utilized
2,399,743.06
593,802.99
Total energy expense
$ 42,469.07
$ 32,497.26
Cost per kWh
$ 0.0177
$ 0.0547
Energy expense as % of bitcoin mining revenue, net
30.46%
52.58%
Other direct costs of mining (1)
$ 51,703.50
$ 12,615.73
Total depreciation expense (2)
$ 44,248.00
$ 31,408.00
Total financing costs (3)
$ –
$ –
Total bitcoin mined
4.927616133
7.79845379
Bitcoin mining revenue
$ 344,259.34
$ 267,919.81
1,155
1,268
Total kWhs utilized
5,808,142.58
3,009,656.49
Total energy expense
181,327.89
117,028.29
Cost per kWh
$ 0.0312
$ 0.0389
Energy expense as % of bitcoin mining revenue, net
52.67%
43.68%
Other direct costs of mining (1)
$ 82,083.63
$ 35,160.05
Total depreciation expense (2)
$ 86,377.00
$ 191,122.00
Total financing costs (3)
$ –
$ 50,429.20
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______________
(1) Other direct costs of mining
for owned facilities consists mostly of rent for the facility, as well as minor costs such as supplies and internet. Other direct costs
of mining for hosted miners consist of hosting fees .
(2) Depreciation expense includes depreciation of miners used in mining.
For owned facilities, it also includes depreciation of the hosting containers and corollary equipment such as transformers and switches.
(3) Financing costs include the cost of purchase money financing for
miners, but do not include any financing costs for miners or hosting equipment acquired with general working capital, nor the cost of
hedging the price of bitcoin.
(4) Average revenue of each bitcoin
mined is calculated by dividing the sum of bitcoin mining revenue for both owned and hosted facilities by the total number of bitcoin
mined during the respective periods. We have determined that Coinbase is the principal market for valuing bitcoin transactions and uses
the daily closing prices as the source of recording revenue.
(5) Weighted average cost of
mining one bitcoin is calculated by dividing the sum of total energy expense, hosting expenses, other direct costs of mining, depreciation
and financing costs by the total bitcoin mined during the respective periods.
Energy prices can be highly volatile and global
events (including the war in Ukraine and the resulting natural gas shortage) have caused fuel prices, and to a lesser extent power prices,
to fluctuate widely over the past year. All of our sites are currently subject to relatively fixed rates during the term of their current
power supply agreements, but variable prices and market rate fluctuations with respect to wholesale power costs over the long-term. While
this renders energy prices less predictable, it also gives us greater ability and flexibility to actively manage the energy we consume
with an eye towards increasing profitability and energy efficiency. Energy prices are also highly sensitive to weather events, such as
winter storms and polar vortices, which increase the demand for power regionally. When such events occur, we may curtail our operations
to avoid using power at increased rates.
Cost of sales related to hosting was $-0- in the
three months ended November 30, 2024, compared to $3,393 in the three months ended November 30, 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.
Cost of sales related to sales of mining equipment
was $670,000 for the three months ended November 30, 2024, compared to $180,891 in the three months ended November 30, 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 three months ended November 30, 2024 and 2023 were higher as a result of a significant brokered
transaction of ten transformers that we closed in the three months ended November 30, 2024.
Operating Expenses
During the three months ended November 30, 2024,
we incurred $1,004,224 in operating expenses, compared to $715,962 in operating expenses during the three months ended November 30, 2023.
Major components of operating expenses for the 2024 period as compared to the 2023 period were:
Three months ended
Three months ended
Percentage
November 30, 2024
November 30, 2023
Change %
General and administrative expenses
$ 82,322
$ 68,398
20%
Depreciation
130,625
222,530
(41% )
Professional fees
103,400
75,860
36%
Related party compensation
773,093
349,174
121%
Change in fair value of cryptocurrency
(85,216 )
–
N/A
Total operating expenses
$ 1,004,224
$ 715,962
40%
30
The higher level of operating expenses in the
2024 period as compared to the 2023 period is primarily attributable to increased related party compensation as we issued two of our officers
500,000 shares of common stock each as partial compensation for fiscal 2025 officer services, and began accruing additional compensation
for our officers as of September 1, 2024, which will be paid when we have sufficient liquidity. Operating expenses were also impacted
by increased general and administrative expenses and increased professional fees. However, operating expenses were positively impacted
by lower depreciation expense on our equipment. We expect that operating expenses will trend materially higher in future periods as we
begin paying regular compensation to existing officers and directors, hire additional employees, and incur 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.
Other Income (Expense)
During the three months ended November 30, 2024,
we incurred ($90,720) in other expenses, net, as compared to ($317,990) of other expense in the three months ended November 30, 2023.
The significant decrease in other expense was mainly attributable to unusual expenses associated with a bitcoin derivative contract incurred
in the 2023 period to finance the purchase of ASIC miners. Charges from the bitcoin derivative contract in fiscal 2023 were ($152,612)
for a change in derivative liability and ($37,537) for loss on extinguishment of debt, as well as additional interest expense under the
contract. In the fiscal 2024 period, we recorded lower interest revenue of $718 as compared to $14,793 as a result of the permanent loss
of approximately $14,000 interest in quarterly interest revenue due to the write-off of a note receivable during the fiscal year ended
August 31, 2024.
Net (Loss) Attributable to Common Stockholders
As a result of the foregoing, during the three
months ended November 30, 2024, we incurred a net loss attributable to common stockholders of $3,935,386, or $(0.08) per share, as compared
to a net loss attributable to common stockholders of $929,870 or $(0.02) per share during the three months ended November 30, 2023. The
substantial increase in our net loss in the three months ended November 30, 2024, compared to the three months ended November 30, 2023,
is attributable to the factors discussed above, as well as a one-time deemed dividend that we incurred during the three months ended November
30, 2024 as a result of the reduction in the conversion price of the Series A Convertible Preferred Stock to $0.20 per share from $0.575
per share. The reduction of the conversion price of the Series A Preferred resulted in the holders thereof being entitled to an additional
14,803,239 shares of common stock if all of the Series A Preferred were converted into common stock. As a result, under the guidelines
of ASC 470 we recorded a one-time deemed dividend charge of $2,960,648 for the value of the extra shares issuable under the Series A Preferred,
all of which were valued at $0.20 per share based upon a valuation study performed by an accredited third party valuation firm.
The chart below measures two elements of our financial
performance that are not defined by GAAP. The non-GAAP measures are defined as follows.
“Adjusted net loss attributable to common
shareholders” is defined as the GAAP “net loss attributable to common shareholders” minus deemed dividends attributable
to the Series A Convertible Preferred Stock.
“Adjusted basic and diluted loss per common share” is defined
as the GAAP “basic and diluted loss per common share” minus deemed dividends attributable to the Series A Convertible Preferred
Stock.
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We
believe that these measures provide useful information to investors, and include these measures in other communications to
investors. For each of these non-GAAP financial measures, we are providing a reconciliation of the difference between the non-GAAP
measure and the comparable GAAP measure, and an explanation of why we believe the non-GAAP measure provides useful information to
investors. These non-GAAP measures and reconciliation, which can be found in our Management’s
Discussion and Analysis of Financial Condition and Results of Operations section, should
be viewed as addition to, and not in lieu of, the comparable GAAP measure.
Bitmine Immersion Technologies, Inc.
Condensed Statements of
Operations
(Unaudited)
GAAP
Three months
Three months
Three months
Three months
ended
ended
ended
ended
November 30,
November 30,
November 30,
November 30,
2024
2023
2024
2023
Revenue from the sale of mining equipment
$ 717,147
$ 169,721
$ 717,147
$ 169,721
Revenue from hosting
–
11,864
–
11,864
483,683
329,723
483,683
329,723
Total revenue
1,200,830
511,308
1,200,830
511,308
Cost of sales mining equipment
670,000
180,891
670,000
180,891
410,625
222,942
410,625
222,942
Cost of sales hosting
–
3,393
–
3,393
Gross profit
120,205
104,082
120,205
104,082
General and administrative expenses
82,322
68,398
82,322
68,398
Depreciation
130,625
222,530
130,625
222,530
Professional fees
103,400
75,860
103,400
75,860
Related party compensation
773,093
349,174
773,093
349,174
Change in the fair value of cryptocurrency
(85,216 )
–
(85,216 )
–
Total operating expenses
1,004,224
715,962
1,004,224
715,962
Loss from operations
(884,018 )
(611,880 )
(884,018 )
(611,880 )
Other income (expense)
Interest expense
(68,435 )
(99,420 )
(68,435 )
(99,420 )
Loss on the extinguishment of debt
(23,003 )
(37,537 )
(23,003 )
(37,537 )
Loss on investment
–
(43,214 )
–
(43,214 )
Change in derivative liability
–
(152,612 )
–
(152,612 )
Interest income
718
14,793
718
14,793
Other income (expense), net
(90,720 )
(317,990 )
(90,720 )
(317,990 )
Net loss
(974,738 )
(929,870 )
(974,738 )
(929,870 )
Deemed dividend on Series A Preferred Stock
(2,960,648 )
–
–
–
Net loss attributable to common stockholders
$ (3,935,386 )
$ (929,870 )
$ (974,738 )(a)
$ (929,870 )
Basic and diluted (loss) per common share
$ (0.08 )
$ (0.02 )
$ (0.02 )(b)
$ (0.02 )
Basic and diluted
47,422,058
49,748,705
47,422,058
49,748,705
(a) represents non-GAAP adjusted net loss attributable to common shareholders
(b) represent non-GAAP adjusted basic and diluted net loss per share
32
Liquidity and Capital Resources
As of November 30, 2024, we had $797,310 in cash
on hand.
During the three months ended November 30, 2024,
we had a net loss $974,738.
Cash flows used in operating activities were $95,934
for the three months ended November 30, 2024, compared to cash flows used in operating activities were $45,290 for the three months ended
November 30, 2023. The increase in cash flows used in operating activities for the three months ended November 30, 2024 was primarily
attributable a change in various balance sheet accounts in 2024 compared to 2023. Major factors that positively impacted our cash flow
from operations in 2024 as compared to 2023 included an increase in non-cash stock-based compensation to $471,122 in the 2024 period,
as compared to $279,497 in the 2023 period; an increase in accrued officer compensation of $372,735 in the 2024 period, as compared to
$0 in the 2023 period. Major factors that negatively impacted our cash flow from operations in 2024 as compared to 2023 included a reduction
in depreciation to $130,625 in the 2024 period from $222,530 in the 2023 period; reductions in accounts payable and accrued expenses of
$100,482, as compared to an increase in accounts payable and accrued expenses of $127,610 in the 2023 period; and non-cash charges taken
in 2023 for a change in a derivative liability of $152,612 and a loss on our investment in ROC Digital of $43,214 which did not occur
in the 2024 period.
Cash flows used in investing activities were $18,000
for the three months ended November 30, 2024, compared to cash flows used in investing activities of $79,728 for the three months ended
November 30, 2023. Cash flows used in investing activities consisted of purchases of equipment in the 2024 and 2023 periods.
Cash flows provided by financing activities were
$411,973 for the three months ended November 30, 2024, compared to cash flows provided by financing activities of $325,000 for the three
months ended November 30, 2023. The cash flows provided by financing activities in both periods in both the 2024 and 2023 periods included
$250,000 and $325,000, respectively, of advances under 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. In the three months ended
November 30, 2024, we also received $200,000 from an investment by IDI in our Series B Convertible Preferred Stock and a $25,000 payment
made to accelerate the vesting date of 150,000 shares of Series A Convertible Preferred Stock that had been issued for officer services.
During the three months ended August 31, 2023
and 2024, a significant component of our current liquidity was derived from the LOC Agreement with IDI (as described below). As amended,
the LOC Agreement allows us to borrow up to $2,300,000 thereunder until December 1, 2024. Each draw request is subject to the approval
of IDI in its sole discretion. As amended, all principal and interest due under the LOC Agreement are due and payable on December 1, 2024,
provided that we have the right to extend the maturity date for six monthly periods in consideration for an extension fee of $25,000 per
extension. As of November 30, 2024, the principal amount borrowed under the LOC Agreement was $1,875,000. We exercised our right to extend
the maturity date of the loan on December 1, 2024 and January 1, 2025.
We believe that cash on hand, expected receipts
from the sale of equipment, and revenue from self-mining will provide us with sufficient liquidity to fund our operations for the next
12 months. We expect to receive approximately $31,000 per month from the sale of four immersion containers to the ROC Digital joint venture.
As of January 10, 2025, we owned approximately 4,700 miners, which includes 3,000 miners acquired in November 2024 that were not delivered
until after the quarter end. The deployment of those miners should significantly boost our revenues in fiscal 2025. Other sources of revenue
that we may receive include equity distributions from the ROC Digital joint venture. We do not budget to include any proceeds from the
exercise of its outstanding warrants because we are not able to predict when or if the market price of our common stock will exceed the
exercise price of our warrants.
Nevertheless, while we do not believe we need
additional capital to maintain operations, we will need additional capital to expand our digital asset hosting and mining business and
take advantage of opportunities in the marketplace that currently exist due to the recent decline in digital asset prices. Therefore,
we have engaged an investment banker and are pursuing additional capital-raising alternatives, including the potential issuance of common
stock in a private placement, the issuance of convertible notes or preferred stock, and this offering. There is no assurance that we will
be able to raise additional capital or that the terms of any capital raise are not dilutive to current shareholders or carry other terms
that are unfavorable to us and our shareholders.
33
Critical Accounting Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles, or “GAAP.” The preparation of these condensed financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities
at the date of the condensed financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance
with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are fully
described in Note 1 to our condensed financial statements appearing elsewhere in this Quarterly Report, and we believe those accounting
policies are critical to the process of making significant judgments and estimates in the preparation of our condensed financial statements.
None.
34