Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
The
following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from
those discussed in the forward-looking statements.
Market
Price Risk of Bitcoin. The Company holds a significant amount of bitcoin; therefore, it is exposed to the impact of market price
changes in bitcoin on its bitcoin holdings. This exposure would generally manifest itself in the following areas:
● We
account for our bitcoin holdings as indefinite lived intangible assets and we record impairment
charges whenever the carrying value of our bitcoin holdings on the balance sheet exceeds
their fair market value. Subsequent recovery of bitcoin prices would not impact the carrying
value of bitcoin on the balance sheet, as recovery of previously recorded impairment charges
are not allowed under US GAAP.
● Declines
in the fair market value of bitcoin also impact the cash value that would be realized if
we were to sell our bitcoin for cash, therefore having a negative impact on our liquidity.
At
March 31, 2023, the Company held approximately 11,466 bitcoin and the fair value of a single bitcoin was approximately $28,474, meaning
that the fair value of our bitcoin holdings on that date was approximately $326,487 thousand.
Interest
rate risk. Prior to the termination of its credit facilities on March 8, 2023, the Company was exposed to interest rate risk
as both our Term Loan and RLOC facilities called for interest at a variable rate tied to the Wall Street Journal Prime Rate, which was
7.75% as of March 8, 2023. Our Term Loan facility called for interest rates at the WSJ Prime rate plus a margin of 1.75% or 9.50% as
of March 8, 2023. Our RLOC facility called for interest rates at the WSJ Prime rate plus a margin that varies based on the collateral
posted as follows:
● 1.25%
margin (9.00% currently) if the RLOC LTV Ratio is less than 40%
● 2.00%
margin (9.75% currently) if the RLOC LTV Ratio is greater than 40% but less than 55%
● 2.75%
margin (10.50% currently) if the RLOC LTV Ratio is greater than 55%
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