Bitmine Immersion Technologies, Inc. — Form 10-Q
Reporting period: Fiscal quarter and nine months ended May 31, 2022; fiscal year-end is August 31. The filing was signed July 14, 2022. The company was in the early stages of developing Bitcoin mining and hosting operations using immersion-cooling technology, as well as selling mining equipment.
Financial highlights
| Metric | Three months ended May 31, 2022 | Nine months ended May 31, 2022 |
|---|---|---|
| Revenue | $16,567 | $365,841 |
| Gross profit (loss) | $(83,144) | $34,005 |
| Operating expenses | $329,964 | $1,150,119 |
| Operating loss | $(413,108) | $(1,116,115) |
| Net loss | $(486,912) | $(1,307,795) |
| Loss per share, basic and diluted | $(0.01) | $(0.03) |
- Quarterly revenue was entirely hosting revenue. Nine-month revenue comprised $344,700 from mining-equipment sales and $21,141 from hosting. The comparable 2021 periods had no reported revenue.
- Quarterly gross margin was negative; nine-month gross profit was $34,005. Management attributes the early operating losses to low scale and says mining and hosting costs may exceed revenue until more miners are deployed.
- At May 31, cash was $499,912; current assets were $721,936 and current liabilities were $2,270,181, implying negative working capital of approximately $1.55 million. Total assets were $3,410,242 and stockholders’ equity was $1,140,061.
- Current liabilities included $1,894,109 of related-party line-of-credit borrowings and $200,670 of accrued related-party interest. The credit line, controlled by the chairman and CFO, carries 15% annual interest compounded monthly. The balance-sheet amount owed was well below the $3 million facility limit.
- Nine-month cash flows: $296,284 used in operations, $2,426,854 used in investing (equipment purchases), and $3,004,313 provided by financing, including $1,616,813 net related-party borrowings and $1,387,500 of private-placement proceeds. Ending cash increased to $499,912 from $218,737.
Changes, outlook, and notable items
- Revenue and operating activity began during the nine-month period as the company entered mining, hosting, and equipment sales. Compared with the prior-year nine months, net loss increased from $51,286 to $1,307,795, alongside substantially higher professional fees, related-party compensation, interest expense, and share-based compensation.
- Management expected higher future hosting and mining revenue as additional equipment arrived, but gave no quantified forecast and cautioned that timing and revenue levels were uncertain. It expected operating expenses to rise as operations expanded and compensation and staffing costs increased.
- Management said cash, operating revenue, and access to the related-party credit facility were expected to fund operations for 12 months. It was also pursuing additional financing, with no assurance of availability or favorable terms and potential dilution to shareholders.
- After May 31, the company reported subscriptions for 3,012,000 offering units and stated gross proceeds of $4,518,000, including mining equipment valued at $3,340,000. On June 24, it amended the related-party credit agreement, extending borrowing availability to August 31, 2022, and maturity to December 1, 2022.
- A $168,750 equipment-sale note receivable carried 10% interest. Its payment dates were extended to June 15 and July 15, 2022; the filing says no installment had been received as of the report date. The company also had an approximately $130,000 equipment commitment, payable upon shipment.
- The company recorded a $3,775 cryptocurrency impairment after a significant Bitcoin price decline. Its accounting policy states that impairment losses on digital currencies are not reversed.
- Management reported disclosure controls and internal control over financial reporting as effective at May 31, 2022, and said previously reported control weaknesses had been remediated. The company reported no off-balance-sheet arrangements and no known threatened or pending litigation. It checked “No” to having filed all required Exchange Act reports during the prior 12 months.
Important facts for investors to verify
- Confirm the post-period unit-offering proceeds and terms: the stated $4.518 million for 3.012 million units does not reconcile to the disclosed $1.25 per-unit offering price.
- Check collection of the $168,750 note receivable, actual equipment delivery and deployment, and whether mining and hosting operations reached the scale needed for positive gross margins.
- Assess liquidity against near-term obligations, including the high-interest related-party credit line, accrued interest, the equipment commitment, and any need for further financing or dilution.
- Reconcile filing inconsistencies: the MD&A gives the prior-year nine-month net loss as $51,826, while the financial statements report $51,286; the cash-flow statement reports $699,805 of stock-based compensation, while the MD&A cites $565,460 in its cash-flow discussion.
- Review the company’s reporting-compliance status, related-party financing and compensation, and the basis for management’s assertion that material control weaknesses were remediated.