Bitmine Immersion Technologies, Inc.: Form 10-Q for the period ended Feb 28, 2025

The following discussion and analysis of the results of our operations and financial condition for the three and six months ended February 28, 2025 and February 29, 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

Since July 2021, our business has been as a blockchain technology company that is building out industrial scale digital asset mining, equipment sales and hosting operations. Our primary business is hosting third-party equipment used in mining of digital asset coins and tokens, specifically bitcoin, as well as self-mining for our own account. Our state-of-the-art facilities will be specifically designed and constructed for housing advanced mining equipment. Our existing data centers provide power, racks, proprietary thermodynamic management (heat dissipation and airflow management), redundant connectivity, and security, as well as software which provides infrastructure management and custom firmware that boosts performance and energy efficiency.

We plan to operate our data centers using immersion cooling technology. Immersion cooling is the process of submerging computer components (or full servers) in a thermally, but not electrically, conductive liquid (dielectric coolant) allowing higher heat transfer performance than air and many other benefits. Manufacturers of immersion systems report that immersion cooling, as compared to air cooling, can reduce the energy costs associated with cooling a data center by up to 90% and can reduce the cost of operating servers by up to 10%. In addition, manufacturers of immersion systems report the cooler, dust-free environment provided by immersion cooling can extend the life of data center equipment when compared to an air-cooled environment.

Our digital asset mining operation is focused on the generation of digital assets by solving complex cryptographic algorithms to validate transactions on specific digital asset network blockchains, which is commonly referred to as “mining.” Mining requires the use of specialized computers equipped with application-specific integrated circuit (ASIC) chips (known as “miners”) to solve complex cryptographic algorithms in support of the bitcoin blockchain (in a process known as “solving a block”) in exchange for digital asset rewards (to date, only bitcoin). Whether we are hosting our client’s computers or mining for our own account with our own computers, the miners participate in “mining pools” organized by “mining pool operators” in which we or our clients share mining power (known as “hash rate”) with the hash rate generated by other miners participating in the pool to earn digital asset rewards. The mining pool operator provides a service that coordinates the computing power of the independent mining enterprises participating in the mining pool. Fees are paid to the mining pool operator to cover the costs of maintaining the pool. The pool uses software that coordinates the pool members’ mining power, identifies new block rewards, and records how much hash rate each participant contributes to the pool. We only use mining pools that pay rewards under the Full-Pay-Per-Share Method, which pays pool participants based on the hashing power contribution to the pool each day times the difficulty index (the “Full-Pay-Per-Share Method”). Even though we plan to effect our self-mining operations in data centers that we own, we reserve the right to operate miners in third-party data centers when we receive advantageous terms and/or do not have sufficient capacity in our own data centers.

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. Revenue from digital asset mining and hosting third party digital asset miners is impacted by volatility in bitcoin prices, as well as increases in the bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks. Gross profits from digital asset mining are primarily impacted by the cost of electricity to operate the miners and to a lesser extent by other operating costs. While we expect to sell or exchange a portion of the digital assets we mine to fund our growth strategies or for general corporate purposes, we reserve the right to hold our digital assets as a long-term investment.

As the demand for digital assets increases and digital assets become more widely accepted, there is an increasing demand for professional-grade, scalable infrastructure to support growth of the blockchain ecosystem. We expect to continually evaluate the performance of our data centers, including our ability to access additional megawatts of electric power and to expand our total self-mining and customer and related party hosting hash rates.

We also generate revenues from the advantageous purchase and sale of equipment used for digital asset mining and hosting. We have relationships with some suppliers that enable us to acquire highly desired equipment at attractive prices, which we sometimes resell to third parties. In most cases, resales of digital asset mining equipment would be to our hosting customers, which have the dual benefit of generating short-term gross profits from the equipment sale as well as growing the customer base of our hosting business.

The primary factors that will impact future hosting revenues include: (i) the price of bitcoin, since hosting revenues are primarily a percentage of bitcoin mined by clients; (ii) the completion of operational hosting facilities, as potential hosting clients have been reluctant to sign contracts prior to the date we have a fully operational hosting facility; and (iii) the availability of attractive electricity prices, since power usage is the primary marginal cost for any mining operation.

The primary factors that will impact proprietary mining revenues include: (i) the price of bitcoin; (ii) the completion of operational facilities to provide us with a cost-effective facility to operate in; (iii) the availability of attractive electricity prices, since power usage is the primary marginal cost for any mining operation; and (iv) the availability of mining equipment suitable for our immersion hosting environment at attractive prices and available capacity in our hosting facilities.

Revenues from cryptocurrency mining, whether derived from hosting clients or from proprietary mining, are impacted significantly by volatility in bitcoin prices, as well as increases in the bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks. Below are changes in key metrics effecting the profitability of mining bitcoin during the six months ended February 28, 2025:

The primary factors that will impact resales of mining equipment include the availability of equipment at attractive prices and the number of participants willing to enter the mining business or expand their existing operations, which is highly correlated to the margin from mining, as determined by the market price of bitcoin and prevailing energy costs. Also, our resales of mining equipment will be impacted by the existence of hosting capacity with attractive electricity rates in our hosting operations.

Trinidad Operations

We initially decided to locate our initial facilities in Trinidad, because it has some of the cheapest electricity in the world due to its abundant supplies of oil and gas and because some of our technical staff is located there. We have entered into an agreement with Telecommunications Services of Trinidad & Tobago Limited (“TSTT”), the largest and oldest telecom company in Trinidad, to co-locate up to 125 800 kW containers for hosting digital asset miners. TSTT has numerous potential locations for co-location of our containers. Under the agreement, we have the option, but not the obligation, to co-locate containers at our own pace. We pay a fixed amount per container, plus the actual electricity costs incurred by our containers in the amount billed to TSTT by the local utility without any markup. The term of the agreement expires on October 14, 2031. We have the right to terminate our agreement with TSTT at any time that the price for electricity consumption exceeds $0.05 per kWh.

In October 2022, we completed the installation of initial hosting containers under our agreement with TSTT. Our rate for electricity is TSTT’s existing rate of 3.5 cents per kWh or 75% of the declared reserve capacity, which is equal to the customer’s highest expected monthly kilovolt-ampere demand at $7.40.

While our TSTT site was delayed pending electrification, we entered into a hosting agreement with a third party in Trinidad to host up to 192 miners in one immersion container until December 31, 2024. We had previously sold two containers to the third party under a long-term note secured by the containers. In July 2024, we foreclosed on the containers as a result of a default by the third party on the note. We moved our miners to our existing TSTT site, where we now have 340 operational miners as of February 28, 2025, of which 315 were in operation, and 100 miners in transit to the site. We are currently evaluating other TSTT sites as a location for the two repossessed immersion containers, and expect to install them in the first calendar quarter of 2025.

We are also leasing space from a third party on an at will basis to co-host 60 miners, for which we pay a flat rate of $0.06 per kWh for the electricity used by our miners. We ultimately intend to move all of our Trinidad miners to our TSTT hosting facilities.

We are currently focusing our efforts on the development of hosting centers in the United States and Canada, both directly and in joint ventures with third parties. We are exploring situations where medium to long-term power agreements may be available at affordable prices, whether using traditional power sources such as coal or natural gas, as well as environmentally friendly sources such as hydroelectric, wind and solar-backed projects, which might allow us to generate collateral revenue from the sale of excess power to the local utility grid and from the generation of saleable carbon credits.

Pecos, Texas Operations

In October 2022, we entered into a joint venture arrangement with ROC Manager to jointly develop and operate a bitcoin mining operation in Pecos, Texas. Under the joint venture, we contributed one immersion container, six transformers, and cash with an aggregate value of $987,429 as a capital contribution to ROC Digital. An affiliate of ROC Manager also contributed an immersion container. We simultaneously sold ROC Digital four immersion containers for $1,200,000, which is payable pursuant to a promissory note that bears interest at 5% per annum, and is payable through monthly payments of $31,203.64 per month until May 31, 2026. We own approximately 30% of ROC Digital, and 33 1/3% of ROC Manager.

The Texas site became fully electrified in June 2023 and has six containers owned by the joint venture. The joint venture initially filled its six immersion containers with ASIC miners provided by hosting clients, although most of the hosting clients’ agreements terminated in April 2024. Currently, approximately five of the hosting containers owned by the joint venture are fully or partially occupied by clients, and the joint venture is aggressively trying to fill the remaining capacity with hosting clients. The joint venture also owns two immersion containers which are not installed, which we expect the joint venture to install if hosting demand warrants.

We have entered into a hosting agreement with ROC Digital under which we have located one immersion container at our Pecos, Texas data center. We pay $500 per month, plus our pro rata share of electricity, internet, and insurance for the site. The hosting agreement has a term of one year, subject to our right to renew the agreement for two one-year terms after receipt of notice of the renewal terms of ROC Digital’s electricity supply agreement for the upcoming year. In April 2024, we renewed the hosting agreement for an additional year. As of February 28, 2025, we had deployed 145 Antminer S-19 pro miners to our hosting container at the site.

On April 29, 2024, ROC Digital executed an energy services agreement for the site that runs from May 1, 2024 to April 30, 2025. Under the current agreement, the site will receive electricity at the prevailing rate plus $0.0055 per kWh. ROC Digital is not obligated to purchase any specific quantity of electricity, and employs software which automatically discontinues mining operations when the prevailing rate exceeds certain levels.

Soluna Hosted Locations

On October 4, 2023, we purchased 1,050 used ASIC miners from Luxor Technology Corporation (“Luxor”) for $488,775, and on October 9, 2023 we entered into a Co-Location Services Agreement to host the miners at a hosting facility owned by Soluna SW, LLC (“Soluna”) in Murray, Kentucky. We subsequently added 45 ASIC miners in May 2024 that we purchased from Soluna for $10,000. The hosting agreement terminates on April 8, 2025, provided that the hosting agreement will continue after the termination date on a month-to-month basis if neither party sends a notice of termination at least 30 days before its scheduled termination date. The hosting agreement provides that we are obligated to reimburse Soluna for the actual cost of the electricity used by our machines and pay a hosting fee equal to 50% of the net profit generated by the machines each month. The hosting fee is payable in bitcoin. The hosting facility has an electricity cost of $0.025 per kWh and guarantees uptime of 83% per week.

On November 14, 2024, we acquired 3,000 S-19j Pro computers from Luxor Technology Corporation for $1,035,000. On December 3, 2024, we entered into a hosting agreement with DVSL ComputeCo, LLC to host 2,900 miners at its location. The hosting agreement terminates on December 2, 2025, provided that the hosting agreement will continue after the termination date on a month-to-month basis if neither party sends a notice of termination at least 30 days before its scheduled termination date. The hosting agreement provides that we are obligated to reimburse the DVSL for the actual cost of the electricity used by our machines plus 1.6 cents per kWh, and pay a hosting fee equal to 50% of the net profit generated by the machines each month. All 3,000 computers were shipped to DVSL’s hosting site in Silverton, Texas, for warranty testing, with 2,900 to remain in Silverton, Texas and 100 to be shipped to our Trinidad data center upon the completion of testing. As of April 9, 2025, approximately 2,597 of the acquired miners were operating, while approximately 300 did not satisfy the warranty and will be replaced with comparable miners.

Miner Summary

Set forth below is a summary of our ASIC miner inventory as of February 28, 2025:

Results of Operations

Comparison of Results of Operations for the Three Months Ended February 28, 2025 and February 29, 2024.

Revenues

During the three months ended February 28, 2025, we generated $1,517,422 of revenue, compared to $891,613 of revenue in the three months ended February 29, 2024.

During the three months ended February 28, 2025, we generated $1,517,422 in bitcoin revenue from self-mining digital assets, compared to $861,613 of revenue from self-mining in the three months ended February 29, 2024. As of February 28, 2025, we owned 4,640 miners that were operable, of which 4,204 were deployed for self-mining. Of the remaining 436 miners, 403 have been delivered to our Trinidad and Silverton, Texas locations for installation and the remaining 33 were offline due to maintenance issues. The number of undeployed miners was mainly impacted by 403 miners that were purchased in November 2024 but were not installed immediately when they failed initial warranty testing and had to be replaced with conforming miners or repaired. Mining revenue should be higher in future periods as we begin to receive revenues from the miners that were not operating as of February 28, 2025. On the other hand, mining revenues will be impacted by fluctuations in the price of bitcoin and the difficulty index, which could either cause revenues to decrease or increase.

On April 8, 2025, Soluna SW, LLC, which hosts 1,095 ASIC miners for us at its Murray, Kentucky location, elected not to renew its hosting agreement with us on the existing terms. The scheduled termination date is April 30, 2025. We are evaluating our options to enter into a new agreement with Soluna on less favorable terms, move our ASIC miners to an alternative hosting provider or sell the ASIC miners. The ASIC miners currently generate approximately $300,000 per quarter in mining revenue based on the price of bitcoin and the difficulty index as of February 28, 2025. If we elect to renegotiate our hosting agreement with Soluna, our revenues will not be impacted but our operating margin from the miners will be decreased. If we elect to move the ASIC miners to a new location, our revenues in the next one or two quarters could be adversely impacted due to the downtime that would occur. If we elect to sell the miners, our revenues in future periods will be reduced accordingly.

During the three months ended February 28, 2025, we generated $-0- in revenue from equipment sales, compared to $20,471 in revenue from equipment sales in the three months ended February 29, 2024.

Our revenue from equipment sales in the three months ended February 28, 2025 and February 29, 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.

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 February 29, 2024 based on the receipt of three monthly payments, but did not record any revenues in the three months ended February 28, 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 February 29, 2024 because the borrower only made interest only payments in that period, and we did not record any revenues in the three months ended February 28, 2025 because we accelerated and foreclosed on the note in the fourth quarter of 2024.

During the three months ended February 28, 2025 and February 29, 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 February 28, 2025, as compared to $10,116 in hosting revenues in the three months ended February 29, 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 February 28, 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.

The primary factors that will impact our revenues in subsequent periods are described in the “—Overview” above.

Cost of Sales

Cost of sales were $1,212,706 in the three months ended February 28, 2025, compared to $567,991 in the three months ended February 29, 2024.

Cost of sales related to mining was $1,212,706 in the three months ended February 28, 2025, compared to $556,849 in the three months ended February 29, 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 February 28, 2025, compared to $11,142 in the three months ended February 29, 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 $-0- for both the three months ended February 28, 2025 and the three months ended February 29, 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.

Operating Expenses

During the three months ended February 28, 2025, we incurred $,1218,339 in operating expenses, compared to $972,362 in operating expenses during the three months ended February 29, 2024. Major components of operating expenses for the 2025 period as compared to the 2024 period were:

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 500,000 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, and the total common stock accrual to officers is 765,000 shares per quarter. We also adopted a board compensation plan under which we accrue an aggregate of 1,080,000 shares per quarter payable for board and board committee service, beginning as of September 1, 2024. All shares issued during the 2025 period were valued at $0.289 per share based on a third party valuation of our shares.

Operating expenses were also adversely impacted in the 2025 period by increased general and administrative expenses, and 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, investor relations expenses, professional fees.

We expect that operating expenses will trend materially higher in future periods as we begin paying regular compensation to existing officers and directors, hire additional employees, and incur other costs, such as increased depreciation expense due to the addition of new mining equipment.

Other Income (Expense)

During the three months ended February 28, 2025, we incurred ($243,269) in other expenses, net, as compared to ($253,941) of other expenses, net, in the three months ended February 29, 2024. Interest expense was $60,496 in the three months ended February 28, 2025, as compared to $54,279 in the three months ended February 29, 2024. Other expenses in the 2025 period were impacted by a bad debt expense of $124,815 taken in regard to our note receivable from ROC Digital during the 2025 period and a loss on extinguishment of debt of $57,958 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 $183,670 relating to a different financing with Luxor, a loss of $68,559 from the Company’s investment in ROC Digital in 2024 period as compared to $-0- in the 2025 period, and income of $37,777 from a change in derivative liability in 2024 as compared to $-0- in 2025.

Net (Loss) Attributable to Common Stockholders

As a result of the foregoing, during the three months ended February 28, 2025, we incurred a net loss attributable to common stockholders of $1,156,891, or $(0.03) per share, as compared to a net loss attributable to common stockholders of $902,682, or $(0.02) per share during the three months ended February 29, 2024. The increase in our net loss in the three months ended February 28, 2025, compared to the three months ended February 29, 2024, is attributable to the factors discussed above.

Comparison of Results of Operations for the Six Months Ended February 28, 2025 and February 29, 2024.

Revenues

During the six months ended February 28, 2025, we generated $2,718,252 of revenue, compared to $1,402,921 of revenue in the six months ended February 29, 2024.

During the six months ended February 28, 2025, we generated $2,001,105 in bitcoin revenue from self-mining digital assets, compared to $1,190,749 of revenue from self-mining in the six months ended February 29, 2024. As of February 28, 2025, we owned 4,640 miners that were operable, of which 4,204 were deployed for self-mining. Of the remaining 436 miners, 403 have been delivered to our Trinidad and Silverton, Texas locations for installation and the remaining 33 were offline due to maintenance issues. The number of undeployed miners was mainly impacted by 403 miners that were purchased in November 2024 but were not installed immediately when they failed initial warranty testing and had to be replaced with conforming miners or repaired. Mining revenue should be higher in future periods as we begin to receive revenues from the miners that were not operating as of February 28, 2025. On the other hand, mining revenues will be impacted by fluctuations in the price of bitcoin and the difficulty index, which could either cause revenues to decrease or increase.

On April 8, 2025, Soluna SW, LLC, which hosts 1,095 ASIC miners for us at its Murray, Kentucky location, elected not to renew its hosting agreement with us on the existing terms. The scheduled termination date is April 30, 2025. We are evaluating our options to enter into a new agreement with Soluna on less favorable terms, move our ASIC miners to an alternative hosting provider or sell the ASIC miners. The ASIC miners currently generate approximately $300,000 per quarter in mining revenue based on the price of bitcoin and the difficulty index as of February 28, 2025. If we elect to renegotiate our hosting agreement with Soluna, our revenues will not be impacted but our operating margin from the miners will be decreased. If we elect to move the ASIC miners to a new location, our revenues in the next one or two quarters could be adversely impacted due to the downtime that would occur. If we elect to sell the miners, our revenues in future periods will be reduced accordingly.

During the six months ended February 28, 2025, we generated $717,147 in revenue from equipment sales, compared to $190,192 in revenue from equipment sales in the six months ended February 29, 2024.

Our revenue from equipment sales in the six months ended February 28, 2025 and February 29, 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 six months ended February 28, 2025, we recorded $703,500 of revenue from a brokered transaction of ten transformers.
• During the six months ended February 29, 2024, we recorded $149,250 of revenue from the sale of 100 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 six months ended February 28, 2025 from two monthly payments received on the note, as compared to revenues of $40,942 in the six months ended February 29, 2024 from six monthly payments received on the note. With regard to the note receivable from the Trinidad borrower, we did not record any revenues in the six months ended February 29, 2024 because the borrower only made interest only payments in that period, and we did not record any revenues in the six months ended February 28, 2025 because we accelerated and foreclosed on the note in the fourth quarter of 2024.

During the six months ended February 28, 2025 and February 29, 2024, we recorded $703,500 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 six months ended February 28, 2025, as compared to $21,980 in hosting revenues in the six months ended February 29, 2024. We terminated all of our hosting clients in the fourth quarter of fiscal 2024, and did not have any hosting clients during the six months ended February 28, 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.

The primary factors that will impact our revenues in subsequent periods are described in the “—Overview” above.

Cost of Sales

Cost of sales were $2,293,331 in the six months ended February 28, 2025, compared to $975,217 in the six months ended February 29, 2024.

Cost of sales related to mining was $1,623,331 in the six months ended February 28, 2025, compared to $779,791 in the six months ended February 29, 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 six months ended February 28, 2025 and February 29, 2024, and the total energy usage and cost per each kilowatt hour (“KWH”) utilized within both of our facilities.

(1) Other direct costs of mining for owned facilities consists mostly of rent for the facility, as well as minor costs such as supplies and internet. Other direct costs of mining for hosted miners consist of hosting fees.

(2) Depreciation expense includes depreciation of miners used in mining. For owned facilities, it also includes depreciation of the hosting containers and corollary equipment such as transformers and switches.

(3) Financing costs include the cost of purchase money financing for miners, but do not include any financing costs for miners or hosting equipment acquired with general working capital, nor the cost of hedging the price of bitcoin.

(4) Average revenue of each bitcoin mined is calculated by dividing the sum of bitcoin mining revenue for both owned and hosted facilities by the total number of bitcoin mined during the respective periods. We have determined that Coinbase is the principal market for valuing bitcoin transactions and uses the daily closing prices as the source of recording revenue.

(5) Weighted average cost of mining one bitcoin is calculated by dividing the sum of total energy expense, hosting expenses, other direct costs of mining, depreciation and financing costs by the total bitcoin mined during the respective periods.

Energy prices can be highly volatile and global events (including the 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 six months ended February 28, 2025, compared to $14,534 in the six months ended February 29, 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 $670,000 for the six months ended February 28, 2025, as compared to $180,891 for the six months ended February 29, 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.

Operating Expenses

During the six months ended February 28, 2025, we incurred $2,222,563 in operating expenses, compared to $1,686,295 in operating expenses during the six months ended February 29, 2024. Major components of operating expenses for the 2025 period as compared to the 2024 period were:

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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 500,000 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, and the total common stock accrual to officers is 765,000 shares per quarter. We also adopted a board compensation plan under which we accrue an aggregate of 1,080,000 shares per quarter payable for board and board committee service, beginning as of September 1, 2024. All shares issued during the 2025 period were valued at $0.289 per share based on a third party valuation of our shares.

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 equipment.

Other Income (Expense)

During the six months ended February 28, 2025, we incurred ($333,988) in other expenses, net, as compared to ($571,931) of other expenses, net, in the six months ended February 29, 2024. Interest expense was $128,931 in the six months ended February 28, 2025, as compared to $153,699 in the six months ended February 29, 2024. Other expenses in the 2025 period were impacted by a bad debt expense of $124,815 taken in regard to our note receivable from ROC Digital during the 2025 period and a loss on extinguishment of debt of $80,961 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 $221,208 relating to a different financing with Luxor, a loss of $111,773 from the Company’s investment in ROC Digital in 2024 period as compared to $-0- in the 2025 period, and loss on change in derivative liability of $114,835 in 2024 as compared to $-0- in 2025.

Net (Loss) Attributable to Common Stockholders

As a result of the foregoing, during the six months ended February 28, 2025, we incurred a net loss attributable to common stockholders of $5,092,277, or $(0.12) per share, as compared to a net loss attributable to common stockholders of $1,830,522, or $(0.04) per share during the six months ended February 29, 2024. The increase in our net loss in the six months ended February 28, 2025, compared to the six months ended February 29, 2024, is attributable to the factors discussed above, as well as a one-time deemed dividend that we incurred during the six months ended February 28, 2025 as a result of the reduction in the conversion price of the Series A Convertible Preferred Stock to $0.20 per share from $0.575 per share. The reduction of the conversion price of the Series A Preferred resulted in the holders thereof being entitled to an additional 14,803,239 shares of common stock if all of the Series A Preferred were converted into common stock. As a result, under the guidelines of ASC 470 we recorded a one-time deemed dividend charge of $2,960,648 for the value of the extra shares issuable under the Series A Preferred, all of which were valued at $0.20 per share based upon a valuation study performed by an accredited third party valuation firm.

Non-GAAP Financial Measures

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.

Liquidity and Capital Resources

Liquidity: As of February 28, 2025, we had $482,951 in cash on hand. During the six months ended February 28, 2025, we had a net loss of ($2,131,629) and a net loss attributable to common stockholders of ($5,092,277) due to a one-time 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 six months ended February 28, 2025, our primary sources of liquidity came from existing cash and cash equivalents, bitcoin and proceeds, loans received under two equipment financing transactions with Luxor, and loans received under a line of credit 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 allows us to borrow up to $2,350,000 thereunder until December 1, 2024. Each draw request is subject to the approval of IDI in its sole discretion. As amended, all principal and interest due under the LOC Agreement was due and payable on December 1, 2024, provided that we have the right to extend the maturity date for six monthly periods in consideration for an extension fee of $25,000 per extension. 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 and April 1, 2025. As of February 28, 2025, the amount due under the LOC Agreement was $1,875,000 in principal and approximately $444,540 in interest and extension fees.

We have recently taken a number of steps to increase our liquidity. In December 2024, we entered into an investment banking agreement with ThinkEquity LLC 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. We are considering listing our common stock on either the NYSE Amex or the NASDAQ exchanges.

In December 2024 a majority of our shareholders, acting by written consent, approved a resolution approving a reverse stock split in the range of 1-for-5 through 1-for-30, as determined by our board of directors at a later date. After dissemination of an information statement relating to the shareholder action, the reverse split resolution became effective in January 2025. We are currently working with ThinkEquity to determine an appropriate reverse stock split ratio to complete the offering and obtain approval for our shares to be listed on an exchange.

If the ThinkEquity-led public offering is successful, we have reached an agreement with IDI to restructure its loan as follows:

• $1,000,000 of the debt will be 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;
• approximately $600,000 of the debt will be exchanged for an equal amount of loan receivable from ROC Digital; and
• the balance of the debt will be converted into common stock at the public offering price.

We have also reached an agreement with IDI and Jonathan Bates, our chief executive officer, under which they would convert all of their shares of Series A and B Convertible Preferred Stock into common stock at their existing conversion prices if the ThinkEquity-led public offering is successful.

We believe that cash on hand, expected receipts from the sale of equipment, and revenue from self-mining will provide us with sufficient liquidity to fund our operations for the next 12 months. As of the date of this prospectus, we owned approximately 4,700 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.

Nevertheless, while we do not believe we need additional capital to maintain operations as they currently exist, we will need additional capital to begin paying market compensation to our officers and employees, and expand our digital asset hosting and mining business and take advantage of opportunities in the marketplace that currently exist due to the recent decline in digital asset prices. In case the ThinkEquity-led public offering is not successful, we are also exploring alternatives, including the potential issuance of common stock in a private placement, and the issuance of convertible notes or preferred stock. 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.

Cash Flow: The following table sets forth the major sources and uses of cash for the six months ended February 28, 2025 and February 29, 2024:

Operating Activities

Our mining and hosting operations generate non-cash 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 used in operating activities were $310,144 for the six months ended February 28, 2025, compared to cash flows used in operating activities of $204,304 for the six months ended February 29, 2024. The increase in cash flows used in operating activities for the six months ended February 28, 2025 was primarily attributable a change in various balance sheet accounts in 2025 compared to 2024. Major factors that positively impacted our cash flow from operations in 2025 as compared to 2024 included an increase in non-cash stock-based compensation to $671,779 in the 2025 period, as compared to $554,931 in the 2024 period; an increase in accrued officer compensation of $745,470 in the 2025 period, as compared to $-0- in the 2024 period; a bad debt expense of $124,815 relating to our note receivable from ROC Digital in the 2025 period, as compared to $-0- in the 2024 period; an increase in accounts payable and accrued expenses of $360,000 in the 2025 period as compared to an increase in accounts payable and accrued expenses of $328,835 in the 2024 period. Major factors that negatively impacted our cash flow from operations in 2025 as compared to 2024 included a reduction in depreciation to $358,319 in the 2025 period from $457,901 in the 2024 period; and non-cash charges taken in 2024 for a change in a derivative liability of $114,835 and a loss on our investment in ROC Digital of $111,773 which did not occur in the 2025 period.

Investing Activities

Cash flows used in investing activities were $18,000 for the six months ended February 28, 2025, compared to cash flows used in investing activities of $48,946 for the six months ended February 29, 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.

Financing Activities

Cash flows provided by financing activities were $311,825 for the six months ended February 28, 2025, compared to cash flows provided by financing activities of $325,000 for the six months ended February 29, 2024. The cash flows provided by financing activities in both periods 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 six months ended February 28, 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 six months ended February 28, 2025, cash flows from financing activities were negatively impacted by loan repayments of $163,175 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.

Off-Balance Sheet Arrangements

None.

Evaluation of Disclosure Controls and Procedures.

Our Principal Executive Officer and Principal Financial Officer, with the assistance of management, conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of February 28, 2025. These controls are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.

During the quarter ended February 28, 2025, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.