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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 and nine months ended May 31, 2025 and May 31, 2024, 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
Our business strategy generally involves the accumulation of bitcoin for
long-term investment, whether acquired by our bitcoin mining operations or from the proceeds of capital raising transactions. From
time to time, subject to market conditions, we intend to (i) issue debt or equity securities or engage in other capital raising transactions
with the objective of using the proceeds to purchase bitcoin, and (ii) expand our bitcoin mining operations and retain any bitcoin
we generate to the extent it exceeds our working capital requirements. We intend to fund further bitcoin acquisitions and mining expansion
primarily through issuances of common stock and a variety of fixed-income instruments, including debt, convertible notes and preferred
stock. We may also finance our mining expansion by conservatively leveraging our bitcoin holdings.
to accumulate bitcoin. We have not set any specific target for the amount of bitcoin we seek to hold and we will continue to monitor market
conditions in determining whether to engage in additional financings to purchase additional bitcoin. This overall strategy also contemplates
that we may (i) periodically sell bitcoin for general corporate purposes or in connection with strategies that generate tax benefits
in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin
holdings, and (iii) consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.
miners with third party hosting firms because we do not have the data center capacity to accommodate new miners. Hosting services include
the provision of mining equipment and energized space and the monitoring, troubleshooting, and repair and maintenance of customer mining
equipment. In the long-term, we plan to build data centers for our miners because we believe our total costs of operating the miners will
be less. At present, we host approximately 9% of our fleet of miners and the remainder is hosted by third parties on a fee basis.
The data centers that we build use 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.
deliver end-to-end mining infrastructure and management to companies seeking direct bitcoin mining exposure without the operational burden.
this involves the sale or lease of mining machines, as well as full deployment
support; (ii) operational management: this involves full fleet oversight, uptime maximization, and mining pool payout optimization; and
(iii) financial and compliance support: this involves providing GAAP-aligned reporting tools and treasury integration guidance.
We also offer bitcoin treasury consulting services which help companies
strategically integrate bitcoin into their corporate treasury operations. This service provides guidance on how to acquire, store, manage,
and account for bitcoin, as well as risk management and hedging strategies.
We also engage in synthetic bitcoin mining through a dual approach: (i)
we act as buyers when public miners pre-sell at discounted rates, and (ii) we pre-sell our own future hashrate (as defined below) to buyers
and use the proceeds to fund new mining equipment without large upfront costs. Synthetic bitcoin mining is a model that allows participants
to gain exposure to bitcoin mining rewards without operating physical mining hardware. Participants or buyers purchase a miner’s
hashrate via a contract where they make a one-time payment (in either fiat currency or bitcoin) and receive daily bitcoin rewards for
the duration of the contract. Essentially, participants or buyers aim to purchase hashrate at a discount to the expected future bitcoin
payout.
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Our Revenue Sources
We generate revenues primarily from proprietary mining
of bitcoin, consisting of our share of rewards from solving a block and transaction fees. Our digital asset self-mining activity competes
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. The primary factors that impact proprietary mining revenues include: (i) the price of bitcoin; (ii)
the efficiency of our miners relative to that of our competitors; (iii) the availability of attractive electricity prices since power
usage is the primary marginal cost for any mining operation; (iv) the availability of mining and immersion hosting equipment at attractive
prices; and (v) whether we have available capacity for mining in our data center facilities or are required to use third party hosting
firms for our miners.
Our approach to synthetic bitcoin mining is also a
source of revenue for us; we act as buyers when public miners pre-sell at discounted rates, and we pre-sell our own future hashrate to
buyers. We entered into a Hashrate Purchase Agreement with a third party on April 22, 2025, wherein they presold the hashrate from their
miners to us for approximately $104,670. The contract is for one month and we are expecting to receive between $110,000 to $115,000 worth
of bitcoin throughout the duration of the contract. We expect to continue this arrangement with the third party on a month-to-month basis;
however, there can be no assurance that we will continue this arrangement.
We also generate revenues from the advantageous purchase
and sale of equipment used for digital asset mining and hosting. We have verbal arrangements with some suppliers that enable us to acquire
highly desired equipment at wholesale prices which we sometimes resell to third parties. The primary factors that 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, we believe our resales of mining equipment will be impacted by the existence of hosting capacity with
attractive electricity rates in our hosting operations, as hosting clients have historically been a major source of customers for this
line of business.
We also earn revenue from our MaaS and bitcoin treasury
consulting services. Through an agreement with KULR Technology Group, Inc. (“KULR”), we leased 3,000 bitcoin ASIC miners to
KULR through December 30, 2025, for $3,200,000, with $1,600,000 paid upfront. KULR also engaged us for an $800,000 consulting agreement
for one year, focused on bitcoin Mining-as-a-Service and bitcoin treasury strategy.
We have occasionally earned hosting revenues by hosting
third party miners when we had spare capacity in our hosting facilities described below. The primary factors that 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. At the present time, we do not have any hosting clients and are not marketing our services to hosting clients.
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, 2025:
As of May 31, 2025
As of August 31, 2024
Percent Change
Network hash rate
942.612
620.355 EH/s
51.95%
Difficulty index
126.98
89.47 trillion
41.92%
Bitcoin market price
$ 104,638.09
$ 58,969.90
77.44%
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.
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Trinidad Operations
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 kilowatt (“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 agreement provides that our hosting containers will be billed for electricity usage at the local utility’s
standard rate which is the greater of 3.5 cents per kilowatt hour (“kWh”) or 75% of the declared reserve capacity, which is
equal to the customer’s highest expected monthly kilovolt-ampere demand at $7.40. 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. Also, both parties have the right to terminate the agreement on one month’s notice to the other party in either the third
or sixth year of the term.
We have one site with two containers operational
in Trinidad. As of the date of this prospectus, we had 465 miners located at the site, of which 315 were in operation. We have two additional
unused containers in Trinidad and are evaluating other TSTT sites as a location for those containers. We are also leasing space from a
third party under an oral at-will agreement to co-host 60 miners for which we pay a flat rate of $0.06 per kWh each month. We ultimately
intend to move all of our miners in Trinidad 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 monthly amortizing payments with interest at 5% per annum through May 31,
2026. The note is secured by the equipment that was sold. As of May 31, 2024 the principal and interest due on the note receivable
from ROC Digital was $592,870. We own approximately 30% of ROC Digital, and 33 1/3% of ROC Manager.
The 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 2025, we renewed the hosting agreement for an additional year running from May 2025 to April 2026. As
of May 31, 2025, we had deployed 145 Antminer S-19 pro miners to our hosting container at the site.
Effective on April 30, 2025, ROC Digital executed
an energy services agreement for the site that runs from May 1, 2025 to April 30, 2027. Under the current agreement, the site will receive
electricity at the prevailing rate plus $0.00449 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 9, 2023, we entered into a hosting agreement
with Soluna SW, LLC to host 1,095 ASIC miners at its data center at its Murray, Kentucky location. The hosting agreement had a term through
April 8, 2025. 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 under certain circumstances. On April 8, 2025, Soluna SW, LLC, elected not to renew its hosting agreement with us on the existing
terms, and on April 30, 2025, we terminated our engagement with Soluna SW, LLC. We sold 850 of the ASIC miners hosted by Soluna, SW LLC
to a third party for $120,000 and moved the remaining 245 to the Silverton, Texas location.
On December 3, 2024, we entered into a hosting agreement
with DVSL ComputeCo, LLC to host 2,900 ASIC miners at its Silverton, Texas 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
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. As of the date of this prospectus, we had 3,145 miners at the site.
Miner Summary
Set forth below is a summary of our ASIC miner inventory
as of May 31, 2025:
Sites
Total Capacity
Total Present
Total Installed
Needing repair / storage
Immersion/Air
384
440
315
Immersion
2,880
3,145
2,880
Air
60
60
52
Immersion
Pecos Texas
192
145
145
Immersion
Total
3,516
3,790
3,392
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Results of Operations
Comparison of Results of Operations for the Three Months Ended May 31,
2025 and May 31, 2024.
Revenues
During the three months ended May 31, 2025, we generated
$2,051,857 of revenue, compared to $1,224,992 of revenue in the three months ended May 31, 2024.
During the three months ended May 31, 2025, we generated
$813,027 in bitcoin revenue from self-mining digital assets, compared to $1,187,758 of revenue from self-mining in the three months ended
May 31, 2024. Mining revenues were negatively impacted somewhat by several factors during the period, including delays in installing approximately
300 newly acquired miners which experienced warranty issues, and the termination of our hosting agreement with Soluna SW, LLC as of April
30, 2025 which impacted 1,095 miners, and which resulted in a sale of 850 miners and downtime for the remaining miners which were moved
to our Silverton, Texas location. Revenues were also impacted by a machine lease agreement of 2,500 of our miners from March 8, 2025 to
May 7, 2025, and a second machine lease agreement of 3,000 of our miners which was effective as of May 16, 2025. Under both machine lease
agreements, the lessee was entitled to all revenues from the leased miners, which resulted in lower bitcoin mining revenue for us, although
the lower mining revenues were offset by higher lease revenues. Future revenues will be impacted by the May 16, 2025 machine lease agreement
involving 3,000 of our miners, under which the lessee is entitled to receive all revenues from the machines through December 31, 2025
in consideration for aggregate lease payments of $3,200,000.
Mining revenues are impacted by fluctuations in
the price of bitcoin and the difficulty index, which could either cause revenues to decrease or increase; however, the impact of those
factors will be lessened through December 31, 2025 since a substantial portion of our mining capacity has been leased to a third party
through that date for fixed lease payments totaling $3,200,000.
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During the three months ended May 31, 2025 we
generated $1,074,561 in lease revenue from our miners, all of which were generated from the two machine lease agreements described above.
Under the March 2025 machine lease agreement, the lessee paid us $850,000 for all revenues generated from 2,500 of our miners from March
8, 2025 to May 7, 2025. Under the May 2025 machine lease agreement, the lessee agreed to pay us $3,200,000 for all revenues generated
from 3,000 of our miners from May 16, 2025 to December 31, 2025.
During the three months ended May 31, 2025, we
generated $129,200 in revenue from equipment sales, compared to $20,470 in revenue from equipment sales in the three months ended May
31, 2024.
Our revenue from equipment sales in the three months
ended May 31, 2025 and May 31, 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.
·
In August 2022, we sold two hosting containers to a private party in Trinidad
for $960,000. After a down payment of $50,000, the balance of the purchase price is payable pursuant to a promissory note bearing interest
at 7.5% per annum, and is paid by 24 equal monthly payments of $40,950 commencing September 30, 2022. On February 1, 2023, we modified
this agreement in conjunction with its entry into a new hosting agreement with the party, under which we agreed that the remaining principal
balance of the note was $731,472, and that the note would be converted into an interest only note until August 31, 2024, at which time
all principal and interest due is payable in full. In addition, the Company agreed to allow the note obligor to repay the note principal
at a 10% discount if it was repaid prior to February 28, 2023. The maturity date of the note was also extended to December
31, 2024.
·
In May 2025, we recorded $129,200 of revenue from the sale of 850 ASIC
miners to a third party.
Under the guidelines of ASC 606, we determined that
payments due under notes receivable from ROC Digital and the Trinidad borrower were not “probable” due to the start-up nature
of the customers and their lack of capitalization. As a result, we report revenue from the equipment sales to both parties under the installment
sale method, under which we report our gross profit on the sale as payments are received from the purchaser. With regard to the note receivable
from ROC Digital, we recorded revenues of $20,471 in the three months ended May 31, 2024 based on the receipt of three monthly payments,
but did not record any revenues in the three months ended May 31, 2025 because we did not receive any payments on the note in that period.
With regard to the note receivable from the Trinidad borrower, we did not record any revenues in the three months ended May 31, 2024 because
the borrower only made interest only payments in that period, and we did not record any revenues in the three months ended May 31, 2025
because we accelerated and foreclosed on the note in the fourth quarter of 2024.
During the three months ended May 31, 2025, we recorded
$129,200 in revenues from the sale of 850 ASIC miners under the “completed sale” method. During the three months ended May
31, 2024, we did not record any revenues from 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 May 31, 2025, as compared to $16,762 in hosting revenues in the three months ended May 31, 2024. 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 May 31,
2025. 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.
We generated $35,068 of bitcoin consulting revenue
during the three months ended May 31, 2025, as compared to $-0- during the three months ended May 31, 2024. All of our consulting revenue
in 2025 was derived from one consulting agreement under which we are obligated to provide various operational, maintenance and consulting
services from May 16, 2025 to May 15, 2026 for aggregate consideration of $800,000, of which half was paid on May 16, 2025.
The primary factors that will impact our revenues
in subsequent periods are described in the “ —Overview ” above.
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Cost of Sales
Cost of sales were $1,560,985 in the three months
ended May 31, 2025, compared to $1,003,305 in the three months ended May 31, 2024.
in the three months ended May 31, 2025, compared to $988,094 in the three months ended May 31, 2024. 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.
Energy prices can be highly volatile and global events
(including the wars in Ukraine and the Middle East) and political events (including the U.S. governments regulation of cryptocurrencies
or its imposition of tariffs on foreign trade) may cause fuel prices, and to a lesser extent power prices, to fluctuate widely. 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 May 31, 2025, compared to $15,212 in the three months ended May 31, 2024. 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 $82,432 for the three months ended May 31, 2025 and $-0- the three months ended May 31, 2024 because all sales of mining equipment
during both periods were reported under the installment sales method. 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 related to consulting services was
$7,500 for the three months ended May 31, 2025 and $-0- for the three months ended May 31, 2024. Cost of sales for consulting services
consists primarily of an allocation of a percentage of the labor costs of the employees who provide the consulting services.
Operating Expenses
During the three months ended May 31, 2025, we incurred
$958,824 in operating expenses, compared to $756,224 in operating expenses during the three months ended May 31, 2024. Major components
of operating expenses for the 2025 period as compared to the 2024 period were:
Three months ended
Three months ended
Percentage
May 31, 2025
May 31, 2024
Change %
General and administrative expenses
$ 33,059
$ 47,715
(30.7% )
Depreciation
180,735
226,663
(20.3%
Professional fees
217,702
116,734
86.5%
Investor relations
4,450
27,800
(84.0% )
Insurance
27,697
30,912
(10.4% )
Officers compensation
230,370
210,276
9.6%
Directors compensation
56,355
13,200
326.9%
Employee shareholder compensation
174,143
126,108
38.1%
Change in fair value of cryptocurrency
34,313
(43,183 )
(179.5% )
Total operating expenses
$ 958,824
$ 756,224
26.8%
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The higher level of operating expenses in the
2025 period as compared to the 2024 period is primarily attributable to increased officer, director and employee/shareholder compensation
that we began accruing as of September 1, 2024. Specifically, we issued two of our officers 25,000 shares of common stock on September
1, 2024, each as partial compensation for fiscal 2025 officer services, and we began accruing additional cash and share compensation for
our officers as of September 1, 2024, the cash portion of which is not payable until we have sufficient liquidity. The total cash accrual
to officers and employee/shareholders is $195,000 per quarter. We also adopted a stock compensation package, beginning September 1, 2024,
under which we accrue 30,750 shares per quarter for compensation to officers and employees, including for board and board committee service.
All shares accrued during the 2025 period were valued at $5.78 per share based on a third party valuation of our shares. In addition,
legal fees increased approximately $101,000 in the 2025 period compared to 2024 due to legal expense associated with the Company’s
public offering of common stock and its uplisting to the NYSE American exchange. See “ Item 1. Financial Statements -- Note 11
-- Subsequent Events .”
Operating expenses were also adversely impacted in
the 2025 period by a loss from changes in the fair value of cryptocurrency as compared to a gain in the 2024 period. Operating expenses
were positively impacted by decreased depreciation expense and investor relations expenses.
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 and hosting equipment.
Other Income (Expense)
During the three months ended May 31, 2025, we
incurred $154,810 in other expenses, net, as compared to $119,691 of other expenses, net, in the three months ended May 31, 2024. Interest
expense was $71,867 in the three months ended May 31, 2025, as compared to $56,563 in the three months ended May 31, 2024, mainly as a
result of increased balances due under the LOC Agreement with IDI. Other expenses in the 2025 period were impacted by a reversal of bad
debt expense of $124,815 in regard to our note receivable from ROC Digital during the 2025 period, and a loss on extinguishment of debt
of $207,758 taken in regard to our Hashrate Sale Agreement with Luxor. Other expenses in the 2024 period were impacted by a loss on extinguishment
of debt of $133,915 relating to a different financing with Luxor, a loss of $58,840 from the Company’s investment in ROC Digital
in 2024 period as compared to $-0- in the 2025 period. Also, we recorded a change in the derivative liability from a financing with Luxor
of a positive $114,835 in the 2024 compared to $-0- in 2025. Interest income was $-0- in the 2025 period as compared to $14,792 in the
2024 period primarily as a result of the fact that we did not receive any payments on our note from ROC Digital in the 2025 period, and
our placing the ROC Digital note on non-accrual status.
Net (Loss) Attributable to Common Stockholders
As a result of the foregoing, during the three months
ended May 31, 2025, we incurred a net loss attributable to common stockholders of $622,762, or $(0.31) per share, as compared to a net
loss attributable to common stockholders of $654,228, or $(0.26) per share during the three months ended May 31, 2024. The increase in
our net loss in the three months ended May 31, 2025, compared to the three months ended May 31, 2024, is attributable to the factors discussed
above.
Comparison of Results of Operations for the Nine Months Ended May 31,
2025 and May 31, 2024.
Revenues
During the nine months ended May 31, 2025, we generated
$4,770,110 of revenue, compared to $2,627,913 of revenue in the nine months ended May 31, 2024.
During the nine months ended May 31, 2025, we generated
$2,814,133 in bitcoin revenue from self-mining digital assets, compared to $2,378,507 of revenue from self-mining in the nine months ended
May 31, 2024. Mining revenues were positively impacted during the 2025 period as a result of the purchase of 3,000 ASIC miners in November
2024, most of which were installed in December 2024. Mining revenues were somewhat negatively impacted by several factors during the period,
including delays in installing approximately 300 newly acquired miners which experienced warranty issues, and the termination of our hosting
agreement with Soluna SW, LLC as of April 30, 2025 which impacted 1,095 miners, and which resulted in a sale of 850 miners and downtime
for the remaining miners which were moved to our Silverton, Texas location. Revenues were also impacted by a machine lease agreement of
2,500 of our miners from March 8, 2025 to May 7, 2025, and a second machine lease agreement of 3,000 of our miners which was effective
as of May 16, 2025. Under both machine lease agreements, the lessee was entitled to all revenues from the leased miners, which resulted
in lower bitcoin mining revenue for us, although the lower mining revenues were offset by higher lease revenues. Future revenues will
be impacted by the May 16, 2025 machine lease agreement involving 3,000 of our miners, under which the lessee is entitled to receive all
revenues from the machines through December 31, 2025 in consideration for aggregate lease payments of $3,200,000.
Mining revenues are impacted by fluctuations in
the price of bitcoin and the difficulty index, which could either cause revenues to decrease or increase; however, the impact of those
factors will be lessened through December 31, 2025 since a substantial portion of our mining capacity has been leased to a third party
through that date for fixed lease payments totally $3,200,000.
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During the nine months ended May 31, 2025 we generated
$1,074,561 in lease revenue from our miners, all of which were generated from the two machine lease agreements described above. Under
the March 2025 machine lease agreement, the lessee paid us $850,000 for all revenues generated from 2,500 of our miners from March 8,
2025 to May 7, 2025. Under the May 2025 machine lease agreement, the lessee agreed to pay us $3,200,000 for all revenues generated from
3,000 of our miners from May 16, 2025 to December 31, 2025.
During the nine months ended May 31, 2025, we generated
$846,347 in revenue from equipment sales, compared to $210,662 in revenue from equipment sales in the nine months ended May 31, 2024.
Our revenue from equipment sales in the nine months
ended May 31, 2025 and May 31, 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.
·
In August 2022, the Company sold two hosting containers to a private party in Trinidad for $960,000. After a down payment of $50,000, the balance of the purchase price is payable pursuant to a promissory note bearing interest at 7.5% per annum, and is paid by 24 equal monthly payments of $40,950 commencing September 30, 2022. On February 1, 2023, the Company modified this agreement in conjunction with its entry into a new hosting agreement with the party, under which the Company agreed that the remaining principal balance of the note was $731,472, and that the note would be converted into an interest only note until August 31, 2024, at which time all principal and interest due is payable in full. In addition, the Company agreed to allow the note obligor to repay the note principal at a 10% discount if it was repaid prior to February 28, 2023. The maturity date of the noter was also extended to December 31, 2024.
·
During the nine months ended May 31, 2025, we recorded $703,500 of revenue from a brokered transaction of ten transformers.
·
During the nine months ended May 31, 2024, we recorded $149,250 of revenue from the sale of 100 ASIC miners to a third party.
·
During the nine months ended May 31, 2024, we recorded $129,200 of revenue from the sale of 850 ASIC miners to a third party.
Under the guidelines of ASC 606, we determined that
payments due under notes receivable from ROC Digital and the Trinidad borrower were not “probable” due to the start-up nature
of the customers and their lack of capitalization. As a result, we report revenue from the equipment sales to both parties under the installment
sale method, under which we report our gross profit on the sale as payments are received from the purchaser. With regard to the note receivable
from ROC Digital, we recorded revenues of $13,6471 in the nine months ended May 31, 2025 from two monthly payments received on the note,
as compared to revenues of $40,942 in the nine months ended May 31, 2024 from nine monthly payments received on the note. With regard
to the note receivable from the Trinidad borrower, we did not record any revenues in the nine months ended May 31, 2024 because the borrower
only made interest only payments in that period, and we did not record any revenues in the nine months ended May 31, 2025 because we accelerated
and foreclosed on the note in the fourth quarter of 2024.
During the nine months ended May 31, 2025 and May 31, 2024, we recorded
$832,700 and $149,250, respectively, from sales of equipment recorded under the “completed sale” method from the transactions
described above.
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
nine months ended May 31, 2025, as compared to $38,743 in hosting revenues in the nine months ended May 31, 2024. We terminated all of
our hosting clients in the fourth quarter of fiscal 2024, and did not have any hosting clients during the nine months ended May 31, 2025.
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.
37
We generated $35,069 of bitcoin consulting revenue
during the three months ended May 31, 2025, as compared to $-0- during the three months ended May 31, 2024. All of our consulting revenue
in 2025 was derived from one consulting agreement under which we are obligated to provide various operational, maintenance and consulting
services from May 16, 2025 to May 15, 2026 for aggregate consideration of $800,000, of which half was paid on May 16, 2025.
The primary factors that will impact our revenues
in subsequent periods are described in the “ —Overview ” above.
Cost of Sales
Cost of sales were $3,854,316 in the nine months ended
May 31, 2025, compared to $1,978,522 in the nine months ended May 31, 2024.
Cost of sales related to mining was $2,408,459 in
the nine months ended May 31, 2025, compared to $1,767,885 in the nine months ended May 31, 2024. 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.
The table below describes the average cost of mining
each bitcoin for the nine months ended May 31, 2025 and May 31, 2024, and the total energy usage and cost per each kilowatt hour (“KWH”)
utilized within both of our facilities.
38
May 31, 2025
May 31, 2024
Cost of energy per bitcoin mined
$ 25,182.59
$ 22,270.46
$ 26,559.40
$ 14,347.09
Depreciation expense per bitcoin mined (2)
$ 23,594.44
$ 13,347.46
Financing expense per bitcoin mined (3)
$ 0.00
$ 0.00
Cost to mine one bitcoin
$ 75,336.43
$ 49,965.01
Average revenue of each bitcoin mined
$ 85,822.16
$ 48,938.34
Cost of mining one bitcoin as % of average bitcoin mining revenue
87.78%
102.1%
Cost of energy per bitcoin mined
$ 52,216.60
$ 17,053.33
$ 21,706.57
$ 12,937.14
Depreciation expense per bitcoin mined (2)
$ 14,116.48
$ 17,079.39
Financing expense per bitcoin mined (3)
$ 0.00
$ 1,661.84
$ 88,039.65
$ 48,731.69
Average revenue of each bitcoin mined (4)
$ 90,756.42
$ 48,590.69
Cost of mining one bitcoin as % of average bitcoin mining revenue (5)
97.0%
100.29%
Total bitcoin mined
5.514593574
7.73501378
Bitcoin mining revenue
$ 473,274.31
$ 378,538.72
585
293
Total KWHs utilized
7,695,203.64
3,549,179.48
Total energy expense
$ 138,871.76
$ 172,262.28
Cost per KWH
$ 0.0180
$ 0.0485
Energy expense as % of bitcoin mining revenue, net
29.34%
45.51%
$ 146,464.32
$ 110,974.94
Total depreciation expense
$ 130,113.75
$ 103,242.77
Total financing costs
$ 0.00
$ 0.00
Total bitcoin mined
24.44681868
34.03642394
Bitcoin mining revenue
$ 2,218,705.73
$ 1,653,853.32
3,205
1,313
Total KWHs utilized
31,445,446.74
16,526,381.40
Total energy expense
$ 1,276,529.65
$ 580,434.30
Cost per KWH
$ 0.0406
$ 0.0351
Energy expense as % of bitcoin mining revenue, net
57.53%
35.10%
$ 530,656.67
$ 440,334.11
Total depreciation expense (2)
$ 345,103.05
$ 581,321.23
Total financing costs (3)
$ 0.00
$ 56,563.39
______________
(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.
39
Energy prices can be highly volatile and global events
(including the wars in Ukraine and the Middle East) and political events (including the U.S. governments regulation of cryptocurrencies
or its imposition of tariffs on foreign trade) may cause fuel prices, and to a lesser extent power prices, to fluctuate widely. 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 nine
months ended May 31, 2025, compared to $29,746 in the nine months ended May 31, 2024. 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 $752,432 for the nine months ended May 31, 2025, as compared to $180,891 for the nine months ended May 31, 2024. 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 related to consulting services was
$7,500 for the three months ended May 31, 2025 and $-0- for the three months ended May 31, 2024. Cost of sales for consulting services
consists primarily of an allocation of a percentage of the labor costs of the employees who provide the consulting services.
Operating Expenses
During the nine months ended May 31, 2025, we incurred
$3,181,387 in operating expenses, compared to $2,436,401 in operating expenses during the nine months ended May 31, 2024. Major components
of operating expenses for the 2025 period as compared to the 2024 period were:
Nine months ended
Nine months ended
Percentage
May 31, 2025
May 31, 2024
Change %
General and administrative expenses
$ 183,790
118,654
54.9%
Depreciation
539,054
684,564
(21.3% )
Professional fees
536,670
420,124
27.7%
Investor relations
30,850
169,360
(81.8% )
Insurance
83,092
109,739
(24.3% )
Officers compensation
1,109,148
630,829
75.8%
Directors compensation
182,265
39,600
360.3%
Employee shareholder compensation
541,251
383,304
41.2%
Change in fair value of cryptocurrency
(24,733 )
(119,774 )
(79.4% )
Total operating expenses
$ 3,181,387
2,436,401
30.6%
40
The higher level of operating expenses in the
2025 period as compared to the 2024 period is primarily attributable to increased officer, director and employee/shareholder compensation
that we began accruing as of September 1, 2024. Specifically, we issued two of our officers 25,000 shares of common stock on September
1, 2024, each as partial compensation for fiscal 2025 officer services, and we began accruing additional cash and share compensation for
our officers as of September 1, 2024, the cash portion of which is not payable until we have sufficient liquidity. The total cash accrual
to officers and employee/shareholders is $195,000 per quarter. We also adopted a stock compensation package, beginning September 1, 2024,
under which we accrue 30,750 shares per quarter for compensation to officers and employees, including for board and board committee service.
All shares accrued during the 2025 period were valued at $5.78 per share based on a third party valuation of our shares. In addition,
legal fees increased approximately $101,000 in the 2025 period compared to 2024 due to legal expenses associated with the Company’s
proposed public offering of common stock and its uplisting to the NYSE American exchange. See “ Item 1. Financial Statements --
Note 11 -- Subsequent Events .”
Operating expenses were also adversely impacted in
the 2025 period by increased general and administrative, and a lower gain from changes in the fair value of cryptocurrency. Operating
expenses were positively impacted by decreased depreciation expense, investor relations expenses, and insurance.
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 and hosting equipment.
Other Income (Expense)
During the nine months ended May 31, 2025, we
incurred $488,798 in other expenses, net, as compared to $691,622 of other expenses, net, in the nine months ended May 31, 2024. Interest
expense was $200,798 in the nine months ended May 31, 2025, as compared to $210,262 in the nine months ended May 31, 2024. Other expenses
in the 2025 period were impacted by a decrease in loss on extinguishment of debt in the 2025 period of $66,405 compared to 2024 associated
with financings with Luxor. Other expenses in the 2024 period were impacted by a loss on investment of $170,613 compared to $-0- in the
2025 associated with our investment in ROC Digital. Interest income was $719 in the 2025 period as compared to $44,376 in the 2024 period
primarily as a result of the fact that in the 2025 period we only received one payment on our note from ROC Digital, and placed the note
on non-accrual status in that period, and none on our note from the Trinidad borrower in the 2025 period as that note was foreclosed on
in the fourth quarter of 2024.
Net (Loss) Attributable to Common Stockholders
As a result of the foregoing, during the nine months
ended May 31, 2025, we incurred a net loss attributable to common stockholders of $5,715,039 or $(2.62) per share, as compared to a net
loss attributable to common stockholders of $2,478,632 or $(0.99) per share during the nine months ended May 31, 2024. The increase in
our net loss in the nine months ended May 31, 2025, compared to the nine months ended May 31, 2024, is attributable to the factors discussed
above, as well as a one-time deemed dividend of $2,960,648 that we incurred during the nine months ended May 31, 2025 as a result of the
reduction in the conversion price of the Series A Convertible Preferred Stock to $4.00 per share from $11.50 share. The reduction of the
conversion price of the Series A Preferred resulted in the holders thereof being entitled to an additional 740,162 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 $4.00 per share based upon a valuation study performed by an accredited third party valuation firm.
We have included in some of our press releases, measures
of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors. For each
of these non-GAAP financial measures, we provide 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.
41
Liquidity and Capital Resources
As of May 31, 2025, we had $1,473,501 in cash
on hand. During the nine months ended May 31, 2025, we had a net loss of $2,754,391 and a net loss attributable to common stockholders
of $5,715,039, which included the net loss described above plus the impact of a 2,960,648 due to a one-time, non-cash deemed dividend
of $2,960,648 to our Series A Convertible Preferred Stockholders as a result of a resetting of its conversion terms. Our primary requirements
for liquidity and capital are working capital, capital expenditures, loan payments, public company costs and general corporate needs.
We expect these needs to continue as we further develop and grow our business. For the year ended August 31, 2024, and the nine months
ended May 31, 2025, our primary sources of liquidity came from existing cash and cash equivalents, bitcoin and proceeds, advance payments
under machine lease agreements and a bitcoin consulting agreement, loans received under equipment financing transaction with Luxor, loans
received under an LOC Agreement with IDI, as described in “ Note 6 — Related Party Transactions – Line of Credit from
IDI ” of the financial statements included in Item 1 herein.
As amended, the LOC Agreement allowed us to borrow
up to $2,350,000 thereunder until the maturity date of December 1, 2024, and provided that we had the right to extend the maturity date
for six monthly periods in consideration for an extension fee of $25,000 per extension. We exercised our right to extend the maturity
date of the loan on December 1, 2024, January 1, 2025, February 1, 2025, March 1, 2025, April 1, 2025 and May 1, 2025. As of May 31, 2025,
the amount due under the LOC Agreement was $1,875,000 in principal and approximately $516,407 in accrued interest. However, as noted below,
in June 2025 the amounts due under the LOC Agreement were either settled or restructured to extend the payment date of such amounts.
We have recently taken a number of steps that
have materially increased our liquidity. In December 2024, we entered into an investment banking agreement with ThinkEquity LLC (“ThinkEquity”)
under which ThinkEquity agreed to use its best efforts to a lead a firm underwritten public offering, and to advise us on listing our
common on a national securities exchange. In June 2025, our application to list our common stock on the NYSE American exchange was approved
and as a result out stock began trading on that exchange on June 5, 2025. On June 6, 2025, we closed on a public offering led by ThinkEquity
as lead underwriter. In the public offering, we sold 2,250,000 shares of our common stock to the underwriters at a discount to the public
offering price of $7.40 per share (92.5% of the public offering price of $8.00 per share), and granted ThinkEquity a 45-day over-allotment
option to purchase up to 337,500 additional shares of common stock, equivalent to 15% of the shares of common stock sold in the Offering.
The net proceeds to us from the sale of the shares, after deducting the underwriting discounts and commissions and other estimated offering
expenses payable by us, were $16,150,000. We have invested substantially all of the proceeds of the public offering in additional bitcoin.
We also reached an agreement with IDI in January
2025, which closed simultaneous with the closing of the public offering, under which
·
$1,000,000 of the IDI debt was converted into an unsecured term loan that bears interest at 12.5% per annum, provides for monthly payments of interest only until December 1, 2026 at which time all principal and unpaid interest are due;
·
$600,000 of the IDI debt was exchanged for a loan receivable from ROC Digital; and
·
the balance of the IDI debt was converted into common stock at the public offering price, resulting in the issuance of 99,523 shares of common stock to IDI.
We also reached an agreement with IDI and Jonathan
Bates, our chief executive officer, under which they converted all of their shares of Series A and B Convertible Preferred Stock into
common stock at their existing conversion prices at the closing of the public offering.
On June 30, 2025, we entered into a Securities
Purchase Agreement with a number of institutional investors to sell up to 55,555,556 shares of common stock (or prefunded warrants exercisable
to acquire common stock) at a price of $4.50 per share in a private placement. The expected aggregate proceeds are approximately $250
million before deducting placement agent fees and other offering expenses. The proceeds will be used to implement an Ethereum treasury
strategy in the public equity markets. We intend to use the funds to acquire the native cryptocurrency of Ethereum blockchain commonly
referred to as “ETH” and the establishment of our treasury operations. ETH will serve as our primary treasury reserve asset.
Closing is subject to the approval of the transaction by the NYSE American Exchange.
42
We believe that cash on hand, our investments
in bitcoin, expected receipts from the sale of equipment, revenue from self-mining and miner leases and contracted consulting revenue
will provide us with sufficient liquidity to fund our operations for the next 12 months. As of the date of this Report, we owned approximately
3,790 miners, which includes 3,000 miners acquired during the first quarter of fiscal 2025, which should significantly boost revenues
in fiscal 2025 over 2024 levels. Other potential sources of revenue that we may receive include equity distributions from the ROC Digital
joint venture.
As a result of the financings that we have completed
since May 31, 2025, we do not believe we need additional capital to maintain operations as they currently exist. However, we expect to
raise additional capital to the extent that we can do so on favorable terms in order to expand our digital asset hosting and mining business
and take advantage of opportunities in the marketplace that currently exist due to the growing adoption of digital currencies as a medium
of exchange. Additional capital raises may take the form of the issuance of common stock in secondary public offerings or private placements,
or the issuance of convertible notes, preferred stock or warrants. 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.
The following table sets forth the
major sources and uses of cash for the nine months ended May 31, 2025 and May 31, 2024:
Nine Months ended
May 31, 2025
May 31, 2024
Net Loss
$ (2,754,391 )
$ (2,478,632 )
Net cash provided by (used in) operating activities
1,365,868
(247,017 )
Net cash used in investing activities
(18,000 )
(67,526 )
Net cash provided by (used in) financing activities
(373,637 )
325,000
Net increase in cash
$ 974,231
$ 10,457
Operating Activities
revenue in the form of bitcoin, which we have historically sold to pay operating expenses or conveyed in kind to certain vendors to pay
expenses. Cash flows provided by operating activities were $1,365,868 for the nine months ended May 31, 2025, compared to cash flows used
in operating activities of $247,017 for the nine months ended May 31, 2024. The increase in cash flows provided by operating activities
for the nine months ended May 31, 2025 compared to the same period in 2024 was primarily attributable to the following material factors:
·
an increase in non-cash stock based compensation of $484,919 in the 2025 period of $484,919 as compared to the 2024;
·
an increase in customer advances of $397,546 in the 2025 period as compared to the 2024 period;
·
an increase in prepaid expenses of $1,193,703 in the 2025 period as compared to the 2024 period.
Cash flows provided by operating activities in
the in the nine months ended May 31, 2025 compared to the same period in 2024 were adversely affected by the following material factors:
·
a decrease in accounts payable and accrued expenses of $261,987 in the 2025 period as compared to the 2024 period;
·
a decrease in depreciation expense of $145,510 in the 2025 period as compared to the 2024 period.
Investing Activities
Cash flows used in investing activities were $18,000
for the nine months ended May 31, 2025, compared to cash flows used in investing activities of $67,526 for the nine months ended May 31,
2024. Cash flows used in investing activities primarily consisted of purchases of equipment in the 2025 and 2024 periods, offset by a
distribution of $8,408 received from ROC Digital in the 2024 period.
43
Financing Activities
Cash flows used in financing activities were $373,637
for the nine months ended May 31, 2025, compared to cash flows provided by financing activities of $325,000 for the nine months ended
May 31, 2024. The cash flows provided by financing activities in both the 2025 and 2024 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 nine months ended May 31, 2025, 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. In the nine months ended May
31, 2025, cash flows from financing activities were negatively impacted by loan repayments of $848,637 under a financing agreement with
Luxor.
Critical Accounting Estimates
Our management’s discussion and analysis of
our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S.
generally accepted accounting principles, or “GAAP.” The preparation of our financial statements requires management to make
estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosure
of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Our significant accounting policies are fully described
in Note 1 to our financial statements appearing elsewhere in this Quarterly Report. We describe in Note 1 to our financial statements
certain critical accounting policies that require us to make significant estimates, assumptions and judgments. An accounting policy is
deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time
the estimate is made and if different estimates that reasonably could have been used, or changes in the accounting estimates that are
reasonably likely to occur periodically, could materially impact the financial statements. We believes such critical accounting policies
reflect our most significant estimates and assumptions used in the preparation of the financial statements. For further information on
the critical accounting policies, see Note 1 of the Financial Statements.
None.