The following discussion and analysis of the results of operations and financial
condition of the Company for the quarters ended May 31, 2022, and 2021, should
be read in conjunction with the other sections of this Quarterly Report,
including the Financial Statements and notes thereto of the Company included in
this Quarterly Report. The various sections of this discussion contain
forward-looking statements, all of which are based on our current expectations
and could be affected by the uncertainties and risk factors described throughout
this Quarterly Report as well as other matters over which we have no control.
See "Cautionary Note Regarding Forward-Looking Statements." Our actual results
may differ materially. The Company does not undertake any obligation to update
forward-looking statements to reflect events or circumstances occurring after
the date of this Quarterly Report.
Overview
By a written consent dated July 16, 2021, holders of a majority of the Company's
issued and outstanding common stock approved a resolution to appoint Jonathan
Bates, Raymond Mow, Michael Maloney, and Seth Bayles to the board of directors
of the Company, and to appoint Jonathan Bates as Chairman, Seth Bayles as
Corporate Secretary, Raymond Mow as Chief Financial Officer, and Ryan Ramnath as
Chief Operating Officer (collectively, the "New O&Ds"). Prior to July 16, 2021,
Erik S. Nelson was the sole director and officer. As part of the transaction,
Mr. Nelson agreed to remain on the board as a director and to serve as chief
executive officer. At the same time, the board and shareholders approved the
issuance of 32,994,999 shares of common stock in the Company's offering of
common stock at $0.015 per share, and the grant of 4,750,000 shares for
services, which were valued at $0.015 per share. As a result of the foregoing
stock issuances, the New O&Ds (or entities controlled by them) collectively
acquired 24,893,877 shares of common stock, which represented approximately 62%
of the issued and outstanding shares at the time.
The appointment of certain of the New O&Ds to the Company's board, and issuance
to the New O&Ds of a controlling interest in the Company, were made in order to
enable the Company to enter the business of creating a hosting center for
Bitcoin mining computers primarily utilizing immersion cooling technology, as
well mining the Bitcoin digital currency for its own account. Prior to the
change of control to the New O&Ds, the Company was a shell company.
During the nine months ended May 31, 2022, the Company began implementing its
business plan by generating revenue from the mining of Bitcoin digital currency
and from the sale of mining equipment.
Results of Operations
Comparison of Results of Operations for the Three Months Ended May 31, 2022, and
2021.
Revenues and Cost of Sales
During the three months ended May 31, 2022, the Company generated $16,567 in
Bitcoin revenue from hosting third-party miners, compared to $-0- revenue in the
corresponding period. The Company expects to generate increasing levels of
Bitcoin digital revenue from hosting third parties and for mining for our own
account once it receives additional equipment that is currently in transit.
There can be no assurances as to this timing or the level of additional sales
and revenue.
Cost of sales related to Bitcoin revenue was $99,711 for the three months ended
May 31, 2022, compared to zero in the prior period when there was no revenue.
Since we are in the early stages of setting up our infrastructure to generate
higher levels of revenues, we expect that our cost of sales to generate Bitmine
digital revenue from hosting or mining for our own account will exceed the
revenue we generate until we achieve sufficient economies of scale by deploying
more miners. These costs include electricity, utilities, facilities costs,
depreciation and supplies.
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Operating Expenses
During the three months ended May 31, 2022, the Company incurred $329,964 in
operating expenses compared to $13,555 in operating expenses during the three
months ended May 31, 2021. Operating expenses for the 2022 period were primarily
comprised of $141,312 in general and administrative expenses, $75,705 in legal
and accounting fees, and $109,172 in related party compensation expense to three
of our officers. Included in the $329,964 in operating expenses is $134,344 in
non-cash expenses due to the issuance of common stock for services and to
related parties as compensation pursuant to the terms of an employment
agreement. Additionally, we incurred $3,775 in impairment expenses on our
cryptocurrency holdings due to the significant decline in the price of Bitcoin
we are holding. The higher level of operating expenses in the 2022 period as
compared to the 2021 period is attributable to expenses incurred as part of the
Company's entry into the bitmine hosting business. The Company expects that
operating expenses will trend materially higher in future periods as the Company
begins paying regular compensation to existing officers and directors, hires
additional employees, and incurs other costs associated with the commencement of
operations.
Other Income (Expense)
During the three months ended May 31, 2022, the Company incurred $73,805 in
other expenses, which was comprised of interest expense of $78,290 and interest
income of $4,485, compared to $6,386 of interest expenses during the same three
months ended May 31, 2021. The increase in interest expense is due to increased
levels of borrowings by the Company under its LOC Agreement in 2022 compared to
the 2021 period when no line of credit was available.
Net Income (Loss)
As a result of the foregoing, during the three months ended May 31, 2022, the
Company incurred a net loss of ($486,912), or ($0.01) per share, as compared to
a net loss of ($19,941) or $(0.01) per share during the three months ended May
31, 2021. The increase in the Company's net loss in the three months ended May
31, 2022, compared to the three months ended May 31, 2021, is attributable to
the factors discussed above.
Comparison of Results of Operations for the Nine Months Ended May 31, 2022, and
2021.
Revenues and Cost of Sales
During the nine months ended May 31, 2022, the Company generated $21,141 in
Bitcoin revenue from hosting third-party miners. Additionally, the Company
recorded revenue on the sale of the mining equipment of $344,700. This compares
to no revenue during the three months ended May 31, 2021. The Company intends to
continue selling Bitmine equipment to third parties and to generate increasing
levels of Bitcoin digital revenue from hosting third parties and from mining for
its own account once it receives additional equipment that is currently in
transit. There can be no assurances as to this timing or the level of additional
sales and revenue.
Cost of sales related to the sale of mining equipment was $186,657 and the cost
of sales on Bitcoin revenue was $145,179, respectively, for the nine months
ended May 31, 2022, compared to zero in the prior period when there was no
revenue. For the sale on mining equipment, we recorded a net profit of $158,043.
Since we are in the early stages of setting up our infrastructure to generate
higher levels of revenue, we expect that our cost of sales to generate Bitmine
digital revenue from hosting or mining for our own account will exceed the
revenue we generate until achieve sufficient economies of scale by deploying
more miners. These costs include electricity, utilities, facilities costs,
depreciation and supplies.
17
Operating Expenses
During the nine months ended May 31, 2022, the Company incurred $1,150,119 in
operating expenses compared to $36,614 during the nine months ended May 31,
2021. Operating expenses for the 2022 period were primarily comprised of
$189,982 in general and administrative expenses, 742,730 in legal expenses,
accounting, investment banking, and professional fees, which includes $637,964
in non-cash stock-based compensation, and $213,633 in related party compensation
expense to three of our officers. Additionally, we incurred $3,775 in impairment
expenses on our cryptocurrency holdings due to the significant decline in the
price of Bitcoin we are holding. The higher level of operating expenses in the
2022 period as compared to the 2021 period is attributable to expenses incurred
as part of the Company's entry into the bitmine hosting business. The Company
expects that operating expenses will trend materially higher in future periods
as the Company begins paying regular compensation to existing officers and
directors, hires additional employees, and incurs other costs associated with
the commencement of operations.
Other Income (Expense)
During the nine months ended May 31, 2022, the Company incurred $191,680 in
other expenses, which was comprised of $196,165 in interest expense, and $4,485
in interest income, compared to $14,672 of interest expenses during the nine
months ended May 31, 2021. The increase in interest expense is due to increased
levels of borrowings by the Company on its Line of Credit in 2022 compared to
the 2021 period when no Line of Credit was available.
Net Income (Loss)
As a result of the foregoing, during the nine months ended May 31, 2022, the
Company incurred a net loss of ($1,307,795), or ($0.03) per share, as compared
to a net loss of ($51,826), or $(0.02) during the nine months ended May 31,
2021. The increase in the Company's net loss in the nine months ended May 31,
2022, compared to the nine months ended May 31, 2021, is attributable to the
factors discussed above.
Liquidity and Capital Resources
As of May 31, 2022, the Company had $499,912 in cash on hand.
During the nine months ended May 31, 2022, the Company had a net loss of
($1,307,795).
Cash flows used in operating activities were ($296,284) for the nine months
ended May 31, 2022, compared to cash flows used of ($36,614) for the nine months
ended May 31, 2021. The increase in cash flows used in operating activities for
fiscal 2022 compared to fiscal 2021 is primarily attributable to our operating
loss of ($1,307,795), which was offset by non-cash stock-based compensation of
$565,460, an increase of $102,792 of accrued interest, and the accrual of
$102,792 of compensation to related parties during the nine months ended May 31,
2022, as well as minor changes in other balance sheet accounts.
Cash flows used in investing activities were ($2,426,854) for the nine months
ended May 31, 2022, compared to cash flows used in investing activities of $-0-
for the nine months ended May 31, 2021. The entire increase in cash flows used
by investing activities during the 2022 period compared to the 2021 period is
due to the purchase of $2,426,854 bitmining and associated equipment.
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Cash flows provided by financing activities were $3,004,313 for the nine months
ended May 31, 2022, compared to cash flows provided by financing activities of
$38,150 for the nine months ended May 31, 2021. The increase in cash flows
provided by financing activities in the 2022 period compared to the 2021 period
is attributable to $1,616,813 in borrowings on our LOC Agreement and $1,387,500
in proceeds from the Unit offering in 2022.
A significant component of the Company's current liquidity is derived from a
Line of Credit Agreement 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, and a director. The Line of Credit
Agreement was initially entered into on July 22, 2021, and was amended and
restated in its entirety on August 4, 2021, on September 29, 2021, on March 30,
2022 and on June 24, 2022 (as amended and restated, the "LOC Agreement"). The
LOC Agreement, as most recently amended, provides for loans of up to
$3,000,000at the request of the Company to finance the purchase of equipment
necessary for the operation of the Company's business and related working
capital. Loans under the LOC Agreement accrue interest at fifteen percent (15%)
per annum, compounded on a 30/360 monthly basis until the loans have been repaid
in full. As most recently amended, the Company is entitled to borrow amounts
under the LOC Agreement until August 31, 2022, and the maturity date under the
LOC Agreement is December 1, 2022.
The Company believes that the accessibility to the LOC Agreement will enable it
to purchase equipment it can either resell at a profit or can be used to
generate revenue through the mining of Bitcoin and other crypto-currencies.
Additionally, the Company believes that this revenue combined with cash on hand
will provide it with sufficient liquidity to fund its operations for the next 12
months. Nevertheless, in order to expedite the Company's entry into the bitmine
hosting business, and to ensure that the Company has adequate cash reserves, the
Company has engaged an investment banker and is pursuing additional
capital-raising alternatives, including the potential issuance of common stock
in a private placement, or the issuance of convertible notes or preferred stock.
There is no assurance that the Company 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 the Company and its shareholders.
Critical Accounting Policies and 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 these 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 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.
19
Our significant accounting policies are fully described in Note 1 to our
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 financial
statements.
Off-Balance Sheet Arrangements
None.
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BITMINE IMMERSION TECHNOLOGIES, INC. 
