OneMedNet Corp: Form 10-Q for the period ended Sep 30, 2024
Filed with the SEC on Dec 17, 2024 and accepted by EDGAR at Dec 17, 2024, 17:25 ET.
Management's discussion and analysis
As filed, 31,255 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
The following discussion and analysis are intended to help you understand our business, financial condition, results of operations, liquidity, and capital resources. You should read this discussion in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and in the Form 10-K/A.
In addition to historical financial analysis, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions, as described under the heading “Cautionary Note Regarding Forward Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, risks and uncertainties, including those set forth under “Risk Factors” included elsewhere (or incorporated by reference) in this Report and in the Form 10-K/A. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “OneMedNet”, “we”, “us”, “our,” and “the Company” are intended to mean the business and operations of OneMedNet Corporation and its consolidated subsidiary following the Business Combination.
Company Overview
OneMedNet Corporation is a healthcare software company with solutions focused on digital medical image management, exchange, and sharing. The Company was founded in Delaware on November 20, 2015. The Company has been solely focused on creating solutions that simplify digital medical image management, exchange, and sharing. The Company has one wholly-owned subsidiary, OneMedNet Technologies (Canada) Inc., incorporated on October 16, 2015 under the provisions of the Business Corporations Act of British Columbia whose functional currency is the Canadian dollar. The Company’s headquarters location is Eden Prairie, Minnesota.
Business Combination
On November 7, 2023, we held the closing of the Business Combination whereby Merger Sub merged with and into Legacy ONMD, with Legacy ONMD continuing as the surviving entity, which resulted in all of the issued and outstanding capital stock of Legacy ONMD being exchanged for shares of Common Stock upon the terms set forth in the agreement and plan of merger, dated April 25, 2022 (the “Merger Agreement”), by and among Data Knights, Merger Sub, Legacy ONMD, Data Knights, LLC, a Delaware limited liability company (the “Sponsor”), and Paul Casey, in his capacity as representative of the stockholders of Legacy ONMD. The Business Combination and other transactions that closed on November 7, 2023, pursuant to the Merger Agreement, led to Data Knights changing its name to “OneMedNet Corporation” and the business of the Company became the business of Legacy ONMD.
Pursuant to the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “Merger Consideration”) was approximately $200 million. In connection with the special meeting of stockholders of Data Knights, certain public holders holding 1,600,741 shares of Data Knights common stock exercised their right to redeem such shares for a pro rata portion of the funds held by Continental Stock Transfer & Trust Company, as trustee in the trust account established in connection with Data Knights’ initial public offering. Effective November 7, 2023, Data Knights’ units ceased trading, and effective November 8, 2023, the Common Stock began trading on the Nasdaq Global Market under the symbol “ONMD” and the Public Warrants began trading on the Nasdaq Global Market under the symbol “ONMDW.” The Common Stock and Public Warrants were transferred from The Nasdaq Global Market to The Nasdaq Capital Market at the opening of business on August 19, 2024, and continue to trade under the symbols “ONMD” and “ONMDW,” respectively.
As a result of the Business Combination, holders of Data Knights common stock automatically received Common Stock of OneMedNet, and holders of Data Knights warrants automatically received warrants of OneMedNet with substantively identical terms. At the closing of the Business Combination, all shares of Data Knights owned by the Sponsor (consisting of shares of Data Knights common stock and shares of Data Knights Class B common stock), automatically converted into an equal number of shares of OneMedNet’s Common Stock, and the private placement warrants held by the Sponsor automatically converted into warrants to purchase one share of OneMedNet Common Stock with substantively identical terms.
Key Components of Consolidated Statements of Operations
Revenue
The Company generates revenue from two streams: (1) iRWD, which provides regulatory grade imaging and clinical data in the pharmaceutical, device manufacturing, contract research organizations, and AI markets and (2) BEAM, which is a medical imaging exchange platform between hospital/healthcare systems, imaging centers, physicians and patients. iRWD is sold on a fixed fee basis based on the number of data units and the cost per data unit committed to in the customer contract. Revenue is recognized when the data is delivered to the customer. BEAM revenue is subscription-based revenue that is recognized ratably over the subscription period committed to by the customer. The Company invoices its BEAM customers quarterly or annually in advance with the customer contracts automatically renewing unless the customer issues a cancellation notice.
The Company excludes from revenue taxes collected from a customer that are assessed by a governmental authority and imposed on and concurrent with a specific revenue-producing transaction. The transaction price for the products is the invoiced amount. Advanced billings from contracts are deferred and recognized as revenue when earned. Deferred revenue consists of payments received in advance of performance under the contract. Such amounts are generally recognized as revenue over the contractual period. The Company receives payments from customers based upon contractual billing schedules. Accounts receivable is recorded when the right to consideration becomes unconditional. Payment terms on invoiced amounts typically range from zero to 90 days, with typical terms of 30 days.
Cost of Revenue
Our cost of revenue is composed of our distinct performance obligations of hosting, labor, and data cost.
General and Administrative
General and administrative functions include finance, legal, human resources, operations, and information technology support. These functions include costs for items such as salaries and benefits and other personnel-related costs, maintenance and supplies, professional fees for external legal, accounting, and other consulting services, and depreciation expense.
Research and Development
Costs incurred in the research and development of our products are expensed as incurred. Research and development costs include personnel, contracted services, materials, and indirect costs involved in the design and development of new products and services, as well as hosting expense.
Sales and Marketing
Our sales and marketing costs consist of labor and tradeshow costs.
Interest Expense
Interest expense consists of interest incurred on shareholder loans.
Other (Income) Expenses, Net
Other (income) expenses, net, primarily includes the changes in fair value of convertible debt and change in fair value of PIPE Notes for which we have elected the fair value option of accounting. Convertible notes payable, which include convertible promissory notes, PIPE Notes issued to related parties and the Yorkville Note, including accrued interest and contingently issuable warrants, contain embedded derivatives, including settlement of the contingent conversion features, which require bifurcation and separate accounting. Accordingly, we have elected to measure the entire contingently convertible debt instruments, including accrued interest, at fair value. These debt instruments were initially recorded at fair value as liabilities and are subsequently re-measured at fair value on our condensed consolidated balance sheet at the end of each reporting period and at settlement, as applicable. Other income or expenses, net, also includes changes in fair value of loan extensions, deferred underwriting fees, Bitcoin and warrants which are treated as liability instruments measured at fair value for accounting purposes, initially recorded at fair value and subsequently re-measured to fair value on our condensed consolidated balance sheets at the end of each reporting period. The changes in the fair value of these debt and liability instruments are recorded in changes in fair value, included as a component of other (income) expenses, net, in the condensed consolidated statements of operations.
At the closing of the Business Combination, convertible promissory notes were converted into Common Stock immediately prior to the Closing and were no longer outstanding as of the closing date.
Other (income) expenses, net, also includes foreign exchange and tax expenses related to the Company’s operations and revenue outside of the United States.
Results of Operations
Comparison of the three months ended September 30, 2024 and 2023
The following table sets forth our condensed consolidated statements of operations data for the periods presented:
| Revenue | Three Months Ended September 30, 2024 | 2023 | Change $% | |
|---|---|---|---|---|
| Subscription revenue | $102 | $256 | $(154) | -60% |
| Web imaging revenue | 40 | 70 | (30) | -43% |
| Total revenue | 142 | 326 | (184) | -56% |
| Cost of revenue | 226 | 293 | (67) | -23% |
| Gross margin | (84) | 33 | (117) | -355% |
| Operating expenses | ||||
| General and administrative | 1,865 | 1,312 | 553 | 42% |
| Sales and marketing | 140 | 243 | (103) | -42% |
| Research and development | 298 | 405 | (107) | -26% |
| Total operating expenses | 2,303 | 1,960 | 343 | 18% |
| Loss from operations | (2,387) | (1,927) | (460) | 24% |
| Other expense (income), net | ||||
| Interest expense | 36 | - | 36 | N/A |
| Change in fair value of warrants | 6 | - | 6 | N/A |
| Change in fair value of PIPE Notes | (77) | - | (77) | N/A |
| Change in fair value of Yorkville Note | (262) | - | (262) | N/A |
| Change in fair value of derivative liability | (160) | - | (160) | N/A |
| Change in fair value of Bitcoin | 124 | - | 124 | N/A |
| Change in fair value of convertible promissory notes | - | 7,621 | (7,621) | -100% |
| Stock warrant expense | - | 4,285 | (4,285) | -100% |
| Other expense | 4 | 7 | (3) | -43% |
| Total other expense, net | (329) | 11,913 | (12,242) | -103% |
| Net loss | $(2,058) | $(13,840) | $11,782 | -85% |
Revenue
| Three Months Ended September 30, 2024 | 2023 | Change $% | ||
|---|---|---|---|---|
| Subscription revenue (Beam) | $102 | $256 | $(154) | -60% |
| Web imaging revenue (Real-World Data) | 40 | 70 | (30) | -43% |
| Total | $142 | $326 | $(184) | -56% |
Our revenue is comprised of sales made from our subscription revenue (BEAM) and from our web imaging (iRWD). For the three months ended September 30, 2024, overall revenue decreased by 56% compared to the prior year period. The primary driver for the subscription revenue decrease was because of the planned discontinuation of this platform in 2025. As we move away from the BEAM platform to focus on iRWD sales, we have stopped renewals for most of our customers leading to decreased revenue for the three months ended September 30, 2024. The primary driver for the web imaging revenue decrease was due to lower deliveries during the three months ended September 30, 2024.
Cost of Revenue
| Three Months Ended September 30, 2024 | 2023 | |
|---|---|---|
| Cost of revenue | 226 | 293 |
| % of revenue | 159% | 90% |
18
For the three months ended September 30, 2024, our cost of revenue as a percentage of revenue increased by 69% compared to the prior year period. The increase is primarily driven by lower overall revenues and higher iRWD consulting costs as we transition away from the BEAM platform to focus on our iRWD product.
General and Administrative
Our general and administrative expense increased $0.6 million, or 42%, to $1.9 million for the three months ended September 30, 2024 from $1.3 million for the three months ended September 30, 2023. The increase is primarily due to an increase in professional fees of $1.0 million from being a public company (e.g. higher legal, audit and consulting fees) and salaries and benefits of $0.1 million, which are partially offset by a decrease in stock compensation expense of $0.6 million and other miscellaneous office expenses of $35 thousand.
Sales and Marketing
Our sales & marketing expense decreased $0.1 million, or 42%, to $0.1 million for the three months ended September 30, 2024 from $0.2 million for the three months ended September 30, 2023. The decrease is primarily due to a decrease in consulting expenses of $76 thousand and salaries and benefits of $58 thousand, which are partially offset by increases in software expenses of $17 thousand and dues and subscriptions of $16 thousand.
Research and development
Our research and development expense decreased $0.1 million, or 26%, to $0.3 million for the three months ended September 30, 2024 from $0.4 million for the three months ended September 30, 2023. The decrease is primarily due to a decrease in professional fees of $56 thousand and software and hosting expenses of $20 thousand.
Interest Expense
During the three months ended September 30, 2024, interest expense was primarily comprised of interest expense on loans made from related parties (Management and Directors) and interest expense on the remaining $0.4 million of deferred underwriter fees payable that is payable in cash. During the three months ended September 30, 2023, we did not incur any interest expense.
Change in Fair Value of Warrants
The change in fair value of Warrants during the three months ended September 30, 2024 was due to the closing of the Business Combination and the resulting fluctuations in the market price of shares of Common Stock.
Change in Fair Value of PIPE Notes
The change in fair value of PIPE Notes during the three months ended September 30, 2024 was due to the closing of the Business Combination and the resulting fluctuations in the market price of shares of Common Stock.
Change in Fair Value of Yorkville Note
The change in fair value of Yorkville Note during the three months ended September 30, 2024 was due to the Yorkville Note issued in June 2024 and the resulting fluctuations of the market price of shares of Common Stock.
Change in Fair Value of Derivative Liability
The change in fair value of derivative liability during the three months ended September 30, 2024 relates to the mark-to-market adjustment of the SEPA put option derivative liability, which was determined to have no value as of September 30, 2024.
Change in Fair Value of Bitcoin
The change in fair value of Bitcoin during the three months ended September 30, 2024 relates to the mark-to-market adjustment of Bitcoin, which we began strategically investing in using excess cash from our private placement transactions. During the three months ended September 30, 2023, we did not have any Bitcoin holdings.
Change in Fair Value of Convertible Promissory Notes
The change in fair value of convertible promissory notes was due to the closing of the Business Combination and the resulting fluctuations of the market price of shares of Common Stock. The Legacy ONMD Convertible Promissory Notes were converted at the closing of the Business Combination and were no longer outstanding during the three months ended September 30, 2024.
Stock Warrant Expense
During the three months ended September 30, 2024, we did not incur any stock warrant expense. Stock warrant expense during the three months ended September 30, 2023 was due to the Convertible Promissory Notes Warrants, which was most accurately portrayed as an issuance cost related to the Convertible Promissory Notes.
Comparison of the nine months ended September 30, 2024 and 2023
The following tables set forth our condensed consolidated statements of operations data for the periods presented:
| Revenue | Nine Months Ended September 30, 2024 | 2023 | Change $% | |
|---|---|---|---|---|
| Subscription revenue | $443 | $595 | $(152) | -26% |
| Web imaging revenue | 174 | 86 | 88 | 102% |
| Total revenue | 617 | 681 | (64) | -9% |
| Cost of revenue | 872 | 812 | 60 | 7% |
| Gross margin | (255) | (131) | (124) | 95% |
| Operating expenses | ||||
| General and administrative | 4,934 | 2,475 | 2,459 | 99% |
| Sales and marketing | 623 | 813 | (190) | -23% |
| Research and development | 1,127 | 1,566 | (439) | -28% |
| Total operating expenses | 6,684 | 4,854 | 1,830 | 38% |
| Loss from operations | (6,939) | (4,985) | (1,954) | 39% |
| Other expense (income), net | ||||
| Interest expense | 120 | - | 120 | N/A |
| Change in fair value of warrants | 5 | - | 5 | N/A |
| Change in fair value of PIPE Notes | (44) | - | (44) | N/A |
| Change in fair value of Yorkville Note | 561 | - | 561 | N/A |
| Change in fair value of Bitcoin | 124 | - | 124 | N/A |
| Change in fair value of convertible promissory notes | - | 17,872 | (17,872) | -100% |
| Stock warrant expense | 33 | 8,385 | (8,352) | -100% |
| Other expense | 17 | 42 | (25) | -60% |
| Total other expense, net | 816 | 26,299 | (25,483) | -97% |
| Net loss | $(7,755) | $(31,284) | $23,529 | -75% |
Revenue
| Nine Months Ended September 30, 2024 | 2023 | Change $% | ||
|---|---|---|---|---|
| Subscription revenue (Beam) | $443 | $595 | $(152) | -26% |
| Web imaging revenue (Real-World Data) | 174 | 86 | 88 | 102% |
| Total | $617 | $681 | $(64) | -9% |
Our revenue is comprised of sales made from our subscription revenue (BEAM) and from our web imaging (iRWD). For the nine months ended September 30, 2024, overall revenue decreased by 9%. The primary driver for the decrease in subscription revenue was because of the planned discontinuation of this platform in 2025. As we move away from the BEAM platform to focus on iRWD sales, we have stopped renewals for most of our customers leading to an immaterial increase for the nine months ended September 30, 2024. The primary driver for the web imaging revenue increase was due to our enhanced focus on iRWD sales leading to increased customer deliveries during the nine months ended September 30, 2024.
Cost of Revenue
| Nine Months Ended September 30, 2024 | 2023 | |
|---|---|---|
| Cost of revenue | 872 | 812 |
| % of revenue | 141% | 119% |
For the nine months ended September 30, 2024, our cost of revenue as a percentage of revenue increased by 22%. The increase is primarily driven by the decrease in BEAM revenue due to our planned discontinuation of the platform in 2025. In addition, due to our enhanced focus on the iRWD product, we have incurred increased iRWD data and consulting costs during the nine months ended September 30, 2024.
General and Administrative
Our general and administrative expense increased $2.5 million, or 99%, to $4.9 million for the nine months ended September 30, 2024 from $2.5 million for the nine months ended September 30, 2023. The increase is primarily due to an increase in professional fees of $2.3 million from being a public company (e.g. higher legal, audit and consulting fees), a commitment fee of $0.5 million from the SEPA, salaries and benefits of $0.2 million, and bad debt expense of $0.1 million, which are partially offset by a decrease in stock compensation expense of $0.6 million.
Sales and Marketing
Our sales & marketing expense decreased $0.2 million, or 23%, to $0.6 million for the nine months ended September 30, 2024 from $0.8 million for the nine months ended September 30, 2023. The decrease is primarily due to a decrease in salaries and benefits of $0.3 million, which is partially offset by an increase in trade shows of $0.1 million.
Research and development
Our research and development expense decreased $0.4 million, or 28%, to $1.1 million for the nine months ended September 30, 2024 from $1.5 million for the nine months ended September 30, 2023. The decrease is primarily due to a decrease in stock compensation expense $0.4 million.
Interest Expense
During the nine months ended September 30, 2024, interest expense was primarily comprised of interest expense on loans made from related parties (Management and Directors) and interest expense on the remaining $0.4 million of deferred underwriter fees payable that is payable in cash. During the nine months ended September 30, 2023, we did not incur any interest expense.
Change in Fair Value of Warrants
The change in fair value of Warrants during the nine months ended September 30, 2024 was due to the closing of the Business Combination and the resulting fluctuations in the market price of shares of Common Stock.
Change in Fair Value of PIPE Notes
The change in fair value of PIPE Notes during the nine months ended September 30, 2024 was due to the closing of the Business Combination and the resulting fluctuations in the market price of shares of Common Stock.
Change in Fair Value of Yorkville Note
The change in fair value of Yorkville Note during the nine months ended September 30, 2024 was due to the Yorkville Note issued in June 2024 and the resulting fluctuations of the market price of shares of Common Stock.
Change in Fair Value of Bitcoin
The change in fair value of Bitcoin during the nine months ended September 30, 2024 relates to the mark-to-market adjustment of Bitcoin, which we began strategically investing in using excess cash from our private placement transactions. During the nine months ended September 30, 2023, we did not have any Bitcoin holdings.
Change in Fair Value of Convertible Promissory Notes
The change in fair value of convertible promissory notes was due to the closing of the Business Combination and the resulting fluctuations of the market price of shares of Common Stock. The Legacy ONMD Convertible Promissory Notes were converted at the closing of the Business Combination and were no longer outstanding during the nine months ended September 30, 2024.
Stock Warrant Expense
Stock warrant expense during the nine months ended September 30, 2024 was due to the Helena Termination Warrants, which was considered a cost to terminate the Helena SPA.
Stock warrant expense during the nine months ended September 30, 2023 was due to the Convertible Promissory Notes Warrants, which was most accurately portrayed as an issuance cost related to the Convertible Promissory Notes.
Liquidity and Capital Resources
As of September 30, 2024, our principal sources of liquidity were proceeds from related party investors and private placement transactions and cash received from customers.
The following table shows net cash and cash equivalents used in operating activities, net cash and cash equivalents used in investing activities, and net cash and cash equivalents provided by financing activities during the periods presented:
| Net cash provided by (used in) | Nine Months Ended September 30, 2024 | 2023 |
|---|---|---|
| Operating activities | $(5,007) | $(3,066) |
| Investing activities | (2,296) | (28) |
| Financing activities | 9,190 | 3,435 |
Operating Activities
Our net cash and cash equivalents used in operating activities consists of net loss adjusted for certain non-cash items, including depreciation and amortization, stock-based compensation expense, changes in fair value of financial instruments, and as well as changes in operating assets and liabilities. The primary changes in working capital items, such as the changes in accounts receivable and deferred revenue, result from the difference in timing of payments from our customers related to contract performance obligations. This may result in an operating cash flow source or use for the period, depending on the timing of payments received as compared to the fulfillment of the performance obligation.
Net cash used in operating activities was $5.0 million during the nine months ended September 30, 2024. Net cash used in operating activities was due to our net loss of $7.8 million, which is offset by non-cash items of $1.2 million, primarily consisting of stock-based compensation of $0.4 million, change in fair value of Yorkville Note of $0.6 million, change in fair value of Bitcoin of $0.1 million, non-cash interest expense of $0.1 million, and cash from operating assets and liabilities of $1.5 million due to the timing of cash payments to vendors and cash receipts from customers.
By comparison, the Company’s net cash used in operating activities was $3.1 million during the nine months ended September 30, 2023. Net cash used in operating activities for the nine months ended September 30, 2023 was due to our net loss of $31.3 million, which is offset by non-cash items of $27.7 million, primarily consisting of the change in fair value of convertible debt of $17.9 million, stock warrant expense of $8.4 million and stock-based compensation expense of $1.4 million, and cash from operating assets and liabilities of $0.5 million due to the timing of cash payments to vendors and cash receipts from customers.
Investing Activities
Our investing activities have consisted primarily of property and equipment purchases and Bitcoin holdings.
Net cash and cash equivalents used in investing activities during the nine months ended September 30, 2024 consisted of a $2.8 million investment in Bitcoin and $28 thousand of purchased property and equipment, which are partially offset by a $0.5 million sale of Bitcoin.
Net cash and cash equivalents used in investing activities during the nine months ended September 30, 2023 consisted of $28 thousand of purchased property and equipment.
Financing Activities
Net cash provided by financing activities was $9.2 million for the nine months ended September 30, 2024, which primarily consisted of $6.3 million of net proceeds received from three private placement transactions, $2.0 million of proceeds received from related party loans (net of $0.2 million of repayments) and $1.4 million of proceeds received from the issuance of the Yorkville Note. These increases are partially offset by repayments of $0.1 million to settle a portion of our deferred underwriter fees payable and repurchases of Common Stock.
By comparison, the Company’s net cash provided by financing activities was $3.4 million for the nine months ended September 30, 2023, which primarily consisted of $3.9 million of proceeds from the issuance of convertible promissory notes, and $0.7 million of proceeds received from related party loans, offset by $1.2 million of Business Combination costs paid.
Contractual Obligations and Commitments and Going Concern Outlook
Currently, management does not believe that our cash and cash equivalents is sufficient to meet our foreseeable cash needs for at least the next 12 months. Our foreseeable cash needs, in addition to our recurring operating expenses, include our expected capital expenditures to support the expansion of our infrastructure and workforce, interest expense and minimum contractual obligations. Management intends to raise cash for operations through debt and equity offerings. As a result of the Company’s recurring loss from operations and the need for additional financing to fund its operating and capital requirements there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern.
Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product and service offerings, and the cost of any future acquisitions of technology or businesses. In the event that additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms, if at all.
The following table summarizes our current and long-term material cash requirements as of September 30, 2024:
| Total | Payments due in: Less than 1 year | 1-3 years | |
|---|---|---|---|
| Accounts payable & accrued expenses | $6,161 | $6,161 | $- |
| Loan extensions | 2,992 | 2,992 | - |
| Deferred underwriter fee payable | 3,237 | 3,237 | - |
| Loan, related party | 2,306 | 2,306 | - |
| PIPE Notes | 1,593 | 1,593 | - |
| Yorkville Note | 1,911 | 1,911 | - |
| $18,200 | $18,200 | $- |
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements which have been prepared in accordance with GAAP. In preparing our financial statements, we make estimates, assumptions, and judgments that can have a significant impact on our reported revenue, results of operations, and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet during and as of the reporting periods. These estimates, assumptions, and judgments are necessary because future events and their effects on our results of operations and the value of our assets cannot be determined with certainty and are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.
For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K/A, the notes to our audited financial statements appearing in the Form 10-K/A, and the notes to the financial statements appearing elsewhere in this Report. Except as described in this Report, there have been no material changes to these critical accounting policies and estimates through September 30, 2024 from those discussed in the Form 10-K/A.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements included elsewhere in this Report.
Market risk
As filed, 153 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Controls and procedures
As filed, 2,804 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act), as of September 30, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures were not effective because of material weaknesses in our internal controls over financial reporting which were not designed properly to ensure proper identification of non-routine transactions and ensure appropriate segregation of duties.
Material Weaknesses
As disclosed elsewhere in this Report, we completed the Business Combination on November 7, 2023. Prior to the Business Combination, Data Knights, our predecessor, was a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization or similar business combination with one or more businesses. As a result, previously existing internal controls are no longer applicable or comprehensive enough as of the assessment date, because Data Knights’ operations prior to the Business Combination were insignificant compared to those of the consolidated entity post-Business Combination. As a result, management is aware of material weaknesses in the Company’s internal control related to user access/segregation of duties, lack of a formalized control environment and oversight of controls over financial reporting, errors in accounting for non-routine transactions, and lack of record keeping. Due to the limited transactional volume currently experienced combined with our financial limitations, we do not currently have an expanded accounting department that would allow us to better segregate duties. Over time, as we continue to grow and add accounting staff, we expect to continue to enhance our internal control structure, including appropriate segregation of duties. During September 2024, changes were made to accounting personnel to enhance our financial reporting structure, which we expect to alleviate reporting pressures, including reporting of non-routine transactions. In addition, the new personnel has focused on creating central filing repositories to manage accounting records and other company documents.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 2,067 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in the “Risk Factors” in the Form 10-K/A and our other public filings, which could materially affect our business, financial condition or future results. Except as set forth below, there have been no material changes from risk factors previously disclosed in “Risk Factors” in the Form 10-K/A and our other public filings.
The value of Bitcoin has historically been subject to wide swings. Because we do not currently hedge our investment in Bitcoin and do not intend to for the foreseeable future, we are directly exposed to Bitcoin’s price volatility and surrounding risks.
While Bitcoin prices are determined primarily using data from various exchanges, over-the-counter markets and derivative platforms, they have historically been volatile and are impacted by a variety of factors. Such factors include, but are not limited to, the worldwide growth in the adoption and use of Bitcoins, the maintenance and development of the software protocol of the Bitcoin network, changes in consumer demographics and public tastes, fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Furthermore, pricing may be the result of, and may continue to result in, speculation regarding future appreciation in the value of Bitcoin, or our share price, making prices more volatile.
Currently, we do not use a formula or specific methodology to determine whether or when we will sell Bitcoin that we hold, or the number of Bitcoins we will sell. Rather, decisions to hold or sell Bitcoins are currently determined by management by analyzing forecasts and monitoring the market in real time. Such decisions, however well-informed, may result in untimely sales and even losses, adversely affecting an investment in us. At this time, we do not anticipate engaging in any hedging activities related to our holding of Bitcoin; this would expose us to substantial decreases in the price of Bitcoin.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-07-01 to 2024-09-30 | $142.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2024-01-01 to 2024-09-30 | $617.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months2024-07-01 to 2024-09-30 | $226.0k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months2024-01-01 to 2024-09-30 | $872.0k | us-gaap:CostOfRevenue |
| Gross profit | 3 months2024-07-01 to 2024-09-30 | −$84.0k | us-gaap:GrossProfit |
| Gross profit | 9 months2024-01-01 to 2024-09-30 | −$255.0k | us-gaap:GrossProfit |
| Research and development | 3 months2024-07-01 to 2024-09-30 | $298.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months2024-01-01 to 2024-09-30 | $1.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months2024-07-01 to 2024-09-30 | −$2.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2024-01-01 to 2024-09-30 | −$6.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2024-07-01 to 2024-09-30 | $14.0k | us-gaap:InterestExpense |
| Interest expense | 9 months2024-01-01 to 2024-09-30 | $55.0k | us-gaap:InterestExpense |
| Net income | 3 months2024-07-01 to 2024-09-30 | −$2.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months2024-01-01 to 2024-09-30 | −$7.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2024-07-01 to 2024-09-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2024-01-01 to 2024-09-30 | −$0.31 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-07-01 to 2024-09-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2024-01-01 to 2024-09-30 | −$0.31 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-07-01 to 2024-09-30 | 27,878,399 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2024-01-01 to 2024-09-30 | 25,051,293 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2024-01-01 to 2024-09-30 | −$5.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2024-01-01 to 2024-09-30 | $16.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | At period end2024-09-30 | $1.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2024-09-30 | $4.3m | us-gaap:AssetsCurrent |
| Total assets | At period end2024-09-30 | $4.4m | us-gaap:Assets |
| Current liabilities | At period end2024-09-30 | $18.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2024-09-30 | $18.7m | us-gaap:Liabilities |
| Long-term debt | At period end2024-09-30 | $2.3m | us-gaap:LongTermDebt |
| Short-term borrowings | At period end2024-09-30 | $2.3m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | At period end2024-09-30 | −$14.3m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001493152-24-050454. Last ingested by Listed: Nov 6, 2026, 12:34 ET. Listed shows no prices and gives no investment advice.