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Item 1. Legal Proceedings

2024-10-31 compared with 2024-08-06 · 97 added, 135 removed, 754 unchanged (24% of the section changed)

Legal Proceedings

We are involved in various legal proceedings arising in the normal course of business, including the matter described below.

We are involved in various legal proceedings arising in the normal course of business.

Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flows.

The information required by this Item is provided under the subheading “False Claims Act Matter” in section (b) of Note 6, Commitments and Contingencies to our Consolidated Financial Statements and incorporated herein by reference.

Ri sk Factors

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We may not be able to regain profitability in future periods

We generated a net loss for the six months ended June 30, 2024, primarily due to digital asset impairment losses, and we may not be able to regain profitability in future periods.

We generated a net loss for the nine months ended September 30, 2024, primarily due to digital asset impairment losses, and we may not be able to regain profitability in future periods.

If our revenues are not sufficient to offset our operating expenses, we are unable to adjust our operating expenses in a timely manner in response to any shortfall in anticipated revenue, or we incur additional significant impairment losses related to our digital assets, we may incur operating losses in future periods, our profitability may decrease, or we may cease to be profitable.

As a result, our business, results of operations, and financial condition may be materially adversely affected.

As of June 30, 2024, we had $1.032 billion of deferred tax assets, which reflects a $1.4 million valuation allowance.

As of September 30, 2024, we had $1.173 billion of deferred tax assets, which reflects a $1.4 million valuation allowance.

The largest deferred tax asset relates to the impairment on our bitcoin holdings.

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See “Risks Related to Our Outstanding and Potential Future Indebtedness” for additional details about the risks which may impact us if we are unable to service our indebtedness.

We may have exposure to greater than anticipated tax liabilities

We may have exposure to greater than anticipated tax liabilities, including the potential taxation of unrealized gains on our bitcoin holdings

We are subject to income taxes and non-income taxes in a variety of domestic and foreign jurisdictions.

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Changes in the tax laws of foreign jurisdictions could arise, including as a result of the project undertaken by the Organisation for Economic Co-operation and Development (“OECD”) to combat base erosion and profit shifting (“BEPS”).

The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, make substantial changes to numerous long-standing tax positions and principles.

The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, make substantial changes to numerous long-standing

tax positions and principles.

These changes, many of which have been adopted or are under active consideration by OECD members and/or other countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

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with a significant portion taxable under the Global Intangible Low-Taxed Income (“GILTI”) regime.

Beginning in fiscal year 2027, the deduction allowable under the GILTI

regime will decrease from 50% to 37.5%, which will increase the effective tax rate imposed on our income.

Beginning in fiscal year 2027, the deduction allowable under the GILTI regime will decrease from 50% to 37.5%, which will increase the effective tax rate imposed on our income.

also enacted the Inflation Reduction Act of 2022 (“IRA”) in August 2022.

The IRA applies to tax years beginning after December 31, 2022 and introduces a 15% corporate alternative minimum tax for corporations whose average annual adjusted financial statement income for any consecutive three-tax-year period preceding the tax year exceeds $1 billion and a 1% excise tax on certain stock repurchases made by publicly traded U.S.

corporations after December 31, 2022.

Subject to the release and content of the final regulations by the IRS with respect to the application of the minimum tax and treatment of unrealized fair value gains, upon our adoption of ASU 2023-08, we could become subject to the alternative minimum tax if, for example, we experience significant unrealized gains on our bitcoin holdings.

On September 12, 2024, the Department of Treasury and the Internal Revenue Service issued proposed regulations with respect to the application of the CAMT.

Unless an exemption by statute or regulation applies, the IRA imposes (i) a 1% excise tax on certain stock repurchases made by publicly traded U.S.

corporations, and (ii) a 15% corporate alternative minimum tax on a corporation with respect to an initial tax year and all subsequent tax years, if the average annual adjusted financial statement income for any consecutive three-tax-year period preceding the initial tax year exceeds $1 billion.

As a result of the enactment of the IRA and our adoption of ASU 2023-08 on January 1, 2025, unless the proposed regulations with respect to CAMT are revised to provide relief, we could become subject to the corporate alternative minimum tax in the tax years 2026 and beyond if, for example, we have significant unrealized gains on our bitcoin holdings above our carrying value as of January 1, 2025 or we experience significant unrealized gains on our bitcoin holdings in future periods that we are required to recognize as income for purposes of the corporate alternative minimum tax.

If we become subject to these new taxes under the IRA for these or any other reasons, it could materially affect our financial results, including our earnings and cash flow, and our financial condition.

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For example, although we believe bitcoin, due to its limited supply, has the potential to serve as a hedge against inflation in the long term, the short-term price of bitcoin declined in recent periods during which the inflation rate increased.

Some investors and other market participants may disagree with our bitcoin acquisition strategy or actions we undertake to implement it.

Some investors and other market participants may disagree with our bitcoin acquisition strategy or actions we undertake

to implement it.

If bitcoin prices were to decrease or our bitcoin acquisition strategy otherwise proves unsuccessful, our financial condition, results of operations, and the market price of our class A common stock would be materially adversely impacted.

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Although we have implemented various measures that are designed to mitigate our counterparty risks, including by storing substantially all of the bitcoin we own in custody accounts at U.S.-based, institutional-grade custodians and negotiating contractual arrangements intended to establish that our property interest in custodially-held bitcoin is not subject to claims of our custodians’ creditors, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial accounts.

proceedings, we could be treated as a general unsecured creditor of such custodians, inhibiting our ability to exercise ownership rights with respect to such bitcoin and this may ultimately result in the loss of the value related to some or all of such bitcoin.

If our custodially-held bitcoin were nevertheless considered to be the property of our custodians’ estates in the event that any such custodians were to enter bankruptcy, receivership or similar insolvency proceedings, we could be treated as a general unsecured creditor of such custodians, inhibiting our ability to exercise ownership rights with respect to such bitcoin and this may ultimately result in the loss of the value related to some or all of such bitcoin.

Even if we are able to prevent our bitcoin from being considered the property of a custodian’s bankruptcy estate as part of an insolvency proceeding, it is possible that we would still be delayed or may otherwise experience difficulty in accessing our bitcoin held by the affected custodian during the pendency of the insolvency proceedings.

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The standard is effective for our interim and annual periods beginning January 1, 2025, with a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period in which we adopt the guidance.

Early adoption is permitted in any interim or annual period for which our financial statements have not been issued as of the beginning of the annual reporting period.

Due in particular to the volatility in the price of bitcoin, we expect the adoption of ASU 2023-08 will likely have a material impact on our financial results in future periods, increase the volatility of our financial results, and affect the carrying value of our bitcoin on our balance sheet, and could have adverse tax consequences, which in turn could have a material adverse effect on our financial results and the market price of our class A common stock.

Due in particular to the volatility in the price of bitcoin, we expect the adoption of ASU 2023-08 to have a material impact on our financial results in future periods, increase the volatility of our financial results, and affect the carrying value of our bitcoin on our balance sheet, and it could also have adverse tax consequences, which in turn could have a material adverse effect on our financial results and the market price of our class A common stock.

Additionally, as a result of ASU 2023-08 requiring a cumulative-effect adjustment to our opening balance of retained earnings as of the beginning of the annual period in which we adopt the guidance and not permitting retrospective restatement of our historical financial statements, our future results will not be comparable to results from periods prior to our adoption of the guidance.

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• investment and trading activities, such as (i) trading activities of highly active retail and institutional users, speculators, miners and investors;

(ii) actual or expected significant dispositions of bitcoin by large holders, including the expected liquidation of digital assets associated with entities that have filed for bankruptcy protection and the transfer and sale of bitcoins associated with significant hacks, seizures, or forfeitures, such as the transfers of bitcoin to creditors of the hacked

cryptocurrency exchange Mt.

Gox which began in July 2024;

Gox which began in July 2024, (b) to claimants following proceedings related to a 2016 hack of Bitfinex, or (c) the German government following the seizure of about 50,000 bitcoin in January from the operator of Movie2k.to;

and (iii) actual or perceived manipulation of the spot or derivative markets for bitcoin or spot bitcoin exchange-traded products (“ETPs”);

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• disruptions, failures, unavailability, or interruptions in service of trading venues for bitcoin, such as, for example, the announcement by the digital asset exchange FTX Trading that it would freeze withdrawals and transfers from its accounts and subsequent filing for bankruptcy protection and the SEC enforcement action brought against Binance Holdings Ltd., which initially sought to freeze all of its assets during the pendency of the enforcement action and has since resulted in Binance discontinuing all fiat deposits and withdrawals in the U.S.;

• the filing for bankruptcy protection by, liquidation of, or market concerns about the financial viability of digital asset custodians, trading venues, lending platforms, investment funds, or other digital asset industry participants, such as the filing for bankruptcy protection by digital asset trading venues FTX Trading and BlockFi and digital asset lending platforms Celsius Network and Voyager Digital Holdings in 2022, the ordered liquidation of the digital asset investment fund Three Arrows Capital in 2022, the announced liquidation of Silvergate Bank in 2023, the government-mandated closure and sale of Signature Bank in 2023, the placement of Prime Trust, LLC into receivership following a cease-and-desist order issued by the Nevada Department of Business and Industry in 2023, and the exit of Binance Holdings Ltd.

from the U.S.

market as part of its settlement with the Department of Justice and other federal regulatory agencies;

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operated as exchanges, brokers, dealers and clearing agencies without registration under the Exchange Act;

(iii) Binance

Holdings Ltd.

(iii) Binance Holdings Ltd.

engaged in the unregistered offer and sale of securities;

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Department of Treasury’s Office of Foreign Asset Control, and the Financial Crimes Enforcement Network to resolve a multi-year investigation by the agencies and a civil suit brought by the CFTC, pursuant to which Binance Holdings Ltd.

agreed to, among other things, pay $4.3 billion in penalties across the four agencies and to discontinue its operations in the U.S.

Binance Holdings Ltd.

also acknowledged that it willfully operated an unlicensed money transmitting business, pleaded guilty to criminal charges of not having adequate anti-money laundering protocols in place and committed violations of the International Emergency Economic Powers Act, and its then chief executive officer pleaded guilty to failing to maintain an effective anti-money laundering program and resigned as chief executive officer of Binance.

agreed to, among other things, pay $4.3 billion in penalties across the four agencies and to discontinue its operations in the United States.

Binance also acknowledged that it willfully operated an unlicensed money-transmitting business, pleaded guilty to criminal charges of not having adequate anti-money laundering protocols in place and committed violations of the International Emergency Economic Powers Act, and its then chief executive officer pleaded guilty to failing to maintain an effective anti-money laundering program and resigned as chief executive officer of Binance.

This settlement does not include any settlement of the SEC’s complaint against Binance referenced above.

• On October 10, 2024, the SEC filed a complaint against Cumberland DRW LLC, alleging violations of Section 15(a) of the Exchange Act (related to regulation of “brokers” and “dealers”), including references to Cumberland’s activities regarding bitcoin.

• In China, the People’s Bank of China and the National Development and Reform Commission have outlawed cryptocurrency mining and declared all cryptocurrency transactions illegal within the country.

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Because bitcoin has no physical existence beyond the record of transactions on the Bitcoin blockchain, a variety of technical factors related to the Bitcoin blockchain could also impact the price of bitcoin.

For example, malicious attacks by miners, inadequate mining fees to incentivize validating of bitcoin transactions, hard “forks” of the Bitcoin blockchain into multiple blockchains, and advances in digital computing, algebraic geometry, and quantum computing could undercut the integrity of the Bitcoin blockchain and negatively

affect the price of bitcoin.

The liquidity of bitcoin may also be reduced and damage to the public perception of bitcoin may occur, if financial institutions were to deny or limit banking services to businesses that hold bitcoin, provide bitcoin-related services or accept bitcoin as payment, which could also decrease the price of bitcoin.

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Early adoption is permitted in any interim or annual period for which our financial statements have not been issued as of the beginning of the annual reporting period.

Due in particular to the volatility in the price of bitcoin, we expect the adoption of ASU 2023-08 to increase the volatility of our financial results and significantly affect the carrying value of our bitcoin on our balance sheet.

Additionally, as a result of ASU 2023-08 requiring a cumulative-effect adjustment to our opening balance of retained earnings as of the beginning of the annual period in which we adopt the guidance and not permitting retrospective restatement of prior period, our future results will not be comparable to results from periods prior to our adoption of the guidance.

As of June 30, 2024, we carried $5.688 billion of digital assets on our balance sheet, consisting of approximately 226,331 bitcoins and reflecting $2.641 billion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $66.9 million in cash and cash equivalents, compared to a carrying value of $2.323 billion of digital assets, consisting of approximately 152,333 bitcoins, and $66.0 million in cash and cash equivalents at June 30, 2023.

Digital asset impairment losses of $371.7 million incurred during the six months ended June 30, 2024 represented 65.2% of our operating expenses and contributed to our net loss of $155.7 million for the six months ended June 30, 2024, compared to $43.1 million in digital asset impairment losses incurred during the six months ended June 30, 2023 which represented 18.4% of our operating expenses and were included in our net income of $483.4 million for the six months ended June 30, 2023.

As of September 30, 2024, we carried $6.851 billion of digital assets on our balance sheet, consisting of approximately 252,220 bitcoins and reflecting $3.053 billion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $46.3 million in cash and cash equivalents, compared to a carrying value of $2.451 billion of digital assets, consisting of approximately 158,245 bitcoins, and $45.0 million in cash and cash equivalents at September 30, 2023.

Digital asset impairment losses of $783.8 million incurred during the nine months ended September 30, 2024 represented 72.3% of our operating expenses and contributed to our net loss of $495.9 million for the nine months ended September 30, 2024, compared to $76.6 million in digital asset impairment losses incurred during the nine months ended September 30, 2023 which represented 21.1% of our operating expenses and were included in our net income of $340.0 million for the nine months ended September 30, 2023.

Because we intend to purchase additional bitcoin in future periods and increase our overall holdings of bitcoin, we expect that the proportion of our total assets represented by our bitcoin holdings will increase in the future.

As a result, and in particular with respect to

the quarterly periods and full fiscal year with respect to which ASU 2023-08 will apply, and for all future periods, volatility in our earnings may be significantly more than what we experienced in prior periods.

As a result, and in particular with respect to the quarterly periods and full fiscal year with respect to which ASU 2023-08 will apply, and for all future periods, volatility in our earnings may be significantly more than what we experienced in prior periods.

The availability of spot ETPs for bitcoin and other digital assets may adversely affect the market price of our class A common stock, and may therefore adversely affect the market price of the notes offered hereby

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Furthermore, recommendations by broker-dealers to buy, hold, or sell complex products and non-traditional ETPs, or an investment strategy involving such products, may be subject to additional or heightened scrutiny that would not be applicable to broker-dealers making recommendations with respect to our class A common stock.

Based on how we are viewed in the market relative to ETPs, and other vehicles which offer economic exposure to bitcoin, such as bitcoin futures exchange-traded funds (“ETFs”), and leveraged bitcoin futures ETFs, and similar vehicles offered on international exchanges, any premium or discount in our class A common stock relative to the value of our bitcoin holdings may increase or decrease in different market conditions.

Based on how we are viewed in the market relative to ETPs, and other vehicles which offer economic exposure to bitcoin, such as bitcoin futures exchange-traded funds (“ETFs”), leveraged bitcoin futures ETFs, and similar vehicles offered on international exchanges, any premium or discount in our class A common stock relative to the value of our bitcoin holdings may increase or decrease in different market conditions.

As a result of the foregoing factors, availability of spot ETPs for bitcoin and other digital assets could have a material adverse effect on the market price of our class A common stock.

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In addition, there has been increasing focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist activities, or circumvent sanctions regimes, including those sanctions imposed in response to the ongoing conflict between Russia and Ukraine.

While we have implemented and maintain policies and procedures reasonably designed to promote

compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire our bitcoin through entities subject to anti-money laundering regulation and related compliance rules in the United States, if we are found to have purchased any of our bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in bitcoin by us may be restricted or prohibited.

As of August 5, 2024, approximately 50,779 bitcoins serve as part of the collateral securing our 2028 Secured Notes and we may consider issuing additional debt or other financial instruments that may be collateralized by our bitcoin holdings.

While we have implemented and maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire our bitcoin through entities subject to anti-money laundering regulation and related compliance rules in the United States, if we are found to have purchased any of our bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in bitcoin by us may be restricted or prohibited.

Although our bitcoin holdings do not currently serve as collateral securing any of our outstanding indebtedness as of September 30, 2024, we may incur indebtedness or enter into other financial instruments in the future that may be collateralized by our bitcoin holdings.

We may also consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.

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For example, the SEC has recently proposed a number of rules with implications for digital assets.

Notably, on April 14, 2023, the SEC reopened the comment period for its proposal to significantly expand the definition of “exchange” under Exchange Act Rule 3b-16 to encompass trading and communication protocol systems for digital asset securities and trading systems that use distributed ledger or blockchain technology, including both so-called “centralized” and “decentralized” trading systems.

Notably, on April 14, 2023, the SEC reopened the comment period (which is now closed) for its proposal to significantly expand the definition of “exchange” under Exchange Act Rule 3b-16 to encompass trading and communication protocol systems for digital asset securities and trading systems that use distributed ledger or blockchain technology, including both so-called “centralized” and “decentralized” trading systems.

If adopted in its proposed form, the proposed rule would have a sweeping impact on digital asset trading venues and other digital asset industry participants.

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The SEC also alleged as part of its June 5, 2023, complaint that Binance Holdings Ltd.

committed strategic and targeted “wash trading” through its affiliates to artificially inflate the volume of certain digital assets traded on its exchange.

committed strategic and targeted “wash trading” through its affiliates to artificially inflate the volume of

certain digital assets traded on its exchange.

The SEC has also brought recent actions against individuals and digital asset market participants alleging such persons artificially increased trading volumes in certain digital assets through wash trades, or repeated buying and selling of the same assets in fictitious transactions to manipulate their underlying trading price.

Such reports and allegations may indicate that the bitcoin market is significantly smaller than expected and that the United States makes up a significantly larger percentage of the bitcoin market than is commonly understood.

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and Payward Ventures Inc., together known as Kraken, another large trading venue for digital assets.

As the price of our class A common stock is affected by the value of our bitcoin holdings,

the failure of a major participant in the bitcoin ecosystem could have a material adverse effect on the market price of our class A common stock.

As the price of our class A common stock is affected by the value of our bitcoin holdings, the failure of a major participant in the bitcoin ecosystem could have a material adverse effect on the market price of our class A common stock.

The concentration of our bitcoin holdings enhances the risks inherent in our bitcoin acquisition strategy

As of August 5, 2024, we held approximately 226,500 bitcoins that were acquired at an aggregate purchase price of $8.340 billion and we intend to purchase additional bitcoin and increase our overall holdings of bitcoin in the future.

As of October 30, 2024, we held approximately 252,220 bitcoins that were acquired at an aggregate purchase price of $9.904 billion and we intend to purchase additional bitcoin and increase our overall holdings of bitcoin in the future.

The concentration of our bitcoin holdings limits the risk mitigation that we could achieve if we were to purchase a more diversified portfolio of treasury assets, and the absence of diversification enhances the risks inherent in our bitcoin acquisition strategy.

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Accordingly, the emergence or growth of digital assets other than bitcoin may have a material adverse effect on our financial condition.

As of June 30, 2024, bitcoin was the largest digital asset by market capitalization.

As of September 30, 2024, bitcoin was the largest digital asset by market capitalization.

However, there are numerous alternative digital assets and many entities, including consortiums and financial institutions, are researching and investing resources into private or permissioned blockchain platforms or digital assets that do not use proof-of-work mining like the Bitcoin network.

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Stablecoins have grown rapidly as an alternative to bitcoin and other digital assets as a medium of exchange and store of value, particularly on digital asset trading platforms.

As of June 30, 2024, two of the six largest digital assets by market capitalization were U.S.

As of September 30, 2024, two of the six largest digital assets by market capitalization were U.S.

dollar-pegged stablecoins.

Additionally, central banks in some countries have started to introduce digital forms of legal tender.

For example, China’s CBDC project was made available to consumers in January 2022, and governments including the United States, the European Union, and Israel have been discussing the potential creation of new CBDCs.

For example, China’s CBDC project was made available to consumers in January 2022, and governments including the United States, the United Kingdom, the European Union, and Israel have been discussing the potential creation of new CBDCs.

Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could also compete with, or replace, bitcoin and other digital assets as a medium of exchange or store of value.

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During times of market instability, we may not be able to sell our bitcoin at favorable prices or at all.

For example, a number of bitcoin trading venues temporarily halted deposits and withdrawals in 2022, although the Coinbase exchange (our principal market for bitcoin) has, to date, not done so.

For example, a number of bitcoin trading venues temporarily

halted deposits and withdrawals in 2022, although the Coinbase exchange (our principal market for bitcoin) has, to date, not done so.

As a result, our bitcoin holdings may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.

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If there is a decrease in the availability of digital asset custodians that we believe can safely custody our bitcoin, for example, due to regulatory developments or enforcement actions that cause custodians to discontinue or limit their services in the United States, we may need to enter into agreements that are less favorable than our current agreements or take other measures to custody our bitcoin, and our ability to seek a greater degree of diversification in the use of custodial services would be materially adversely affected.

As of June 30, 2024, the insurance that covers losses of our bitcoin holdings covers only a small fraction of the value of the entirety of our bitcoin holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services we have or that such coverage will cover losses with respect to our bitcoin.

the custodian, inhibiting our ability to exercise ownership rights with respect to such bitcoin.

As of September 30, 2024, the insurance that covers losses of our bitcoin holdings covers only a small fraction of the value of the entirety of our bitcoin holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services we have or that such coverage will cover losses with respect to our bitcoin.

Moreover, our use of custodians exposes us to the risk that the bitcoin our custodians hold on our behalf could be subject to insolvency proceedings and we could be treated as a general unsecured creditor of the custodian, inhibiting our ability to exercise ownership rights with respect to such bitcoin.

Any loss associated with such insolvency proceedings is unlikely to be covered by any insurance coverage we maintain related to our bitcoin.

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Although demand for analytics software has remained strong, the market for analytics offerings continues to evolve.

Resistance from consumer and privacy groups to commercial collection, use, and sharing of personal data has grown in recent years and our customers, potential customers, or the general public may

perceive that use of our analytics software could violate individual privacy rights.

Resistance from consumer and privacy groups to commercial collection, use, and sharing of personal data has grown in recent years and our customers, potential customers, or the general public may perceive that use of our analytics software could violate individual privacy rights.

In addition, increasing government restrictions on the collection, use, and transfer of personal data could impair the further growth of the market for analytics software, especially in foreign markets.

Because we depend on revenue from a single software platform and related services, our business could be harmed by a decline in demand for, or in the adoption or prices of, our platform and related services as a result of, among other factors, any change in our pricing or packaging model, increased competition, maturation in the markets for our platform, or other risks described in this Quarterly Report.

In addition, the adoption of our bitcoin acquisition strategy and the increase in our indebtedness has caused and may in the future cause certain of our existing or prospective customers to form negative perceptions regarding our corporate risk profile or our financial viability as a commercial counterparty, and such negative perceptions could negatively impact sales of our analytics software platform and related services to current or prospective customers.

Such risks can also be exacerbated if the price of bitcoin declines or due to adverse developments in the digital assets industry including, for example, the high-profile filings for bankruptcy protection by companies operating in that industry, such as the recent bankruptcy filings by Three Arrows Capital, Voyager Digital, BlockFi and FTX Trading, and the SEC enforcement actions against Coinbase, Inc., Binance Holdings Ltd., and Kraken.

In addition, if the price of bitcoin were to decline significantly, or our indebtedness levels were to increase significantly, so as to create concern about our ability to repay our indebtedness when it becomes due, our existing or prospective customers could form negative perceptions regarding our corporate risk profile or our financial viability as a commercial counterparty, and such negative perceptions could negatively impact sales of our analytics software platform and related services.

Such risks can also be exacerbated due to adverse developments in the digital assets industry, such as high profile bankruptcies or regulatory enforcement actions involving industry participants.

We also depend on our installed customer base for a substantial portion of our revenue.

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In addition to our direct sales force, we use channel partners, such as system integrators, consulting firms, resellers, solution providers, managed service providers, OEMs, and technology companies, to license and support our offerings.

For the six months ended June 30, 2024, transactions by channel partners for which we recognized revenue accounted for 35.7% of our total product licenses revenues, and our ability to achieve revenue growth in the future will depend in part on our ability to maintain these relationships.

For the nine months ended September 30, 2024, transactions by channel partners for which we recognized revenue accounted for 42.2% of our total product licenses revenues, and our ability to achieve revenue growth in the future will depend in part on our ability to maintain these relationships.

Our channel partners may offer customers the products and services of several different companies, including competing offerings, and we cannot be certain that they will prioritize or devote adequate resources to selling our offerings.

If we are unable to maintain our relationships with our channel partners, or if we experience a reduction in sales by our channel partners, our business, operating results, and financial condition could be materially adversely affected.

If we are unable to maintain our

relationships with our channel partners, or if we experience a reduction in sales by our channel partners, our business, operating results, and financial condition could be materially adversely affected.

In addition, we rely on our channel partners to operate in accordance with applicable laws and regulatory requirements.

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Our recognition of deferred revenue and advance payments is subject to future performance obligations and may not be representative of revenues for succeeding periods

Our deferred revenue and advance payments totaled $210.8 million as of June 30, 2024.

Our deferred revenue and advance payments totaled $190.7 million as of September 30, 2024.

The timing and ultimate recognition of our deferred revenue and advance payments depend on various factors, including our performance of various service obligations.

Because of the possibility of customer changes or delays in customer development or implementation schedules or budgets, and the need for us to satisfactorily perform product support and other services, deferred revenue and advance payments at any particular date may not be representative of actual revenue for any succeeding period.

In addition, we had $149.9 million of other remaining performance obligations as of June 30, 2024, consisting of the portions of multi-year contracts that will be invoiced in the future that are not reflected on our balance sheet.

In addition, we had $189.7 million of other remaining performance obligations as of September 30, 2024, consisting of the portions of multi-year contracts that will be invoiced in the future that are not reflected on our balance sheet.

As with deferred revenue and advance payments, these other remaining performance obligations at any particular date may not be representative of actual revenue for any succeeding period.

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These AI-related initiatives, whether successful or not, could cause us to incur substantial costs and could result in delays in our software release cadence.

Our competitors or other third parties may incorporate AI into their products or operations

more quickly or more successfully than we do, which could impair our ability to compete effectively.

Our competitors or other third parties may incorporate AI into their products or operations more quickly or more successfully than we do, which could impair our ability to compete effectively.

Additionally, AI algorithms may be flawed and datasets underlying AI algorithms may be insufficient or contain biased information.

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When new or updated versions of these third-party software or systems are introduced, or new industry standards in related fields emerge, we may be required to develop updated versions of or enhancements to our software to help ensure that it continues to effectively interoperate with our customers’ IT infrastructure and cloud environments.

with our customers’ IT infrastructure and cloud environments could require substantial capital investment and employee resources.

If new or modified operating systems are introduced or new web standards and technologies or new standards in the field of database access technology emerge that are incompatible with our software, development efforts to maintain the interoperability of our software with our customers’ IT infrastructure and cloud environments could require substantial capital investment and employee resources.

If we are unable to update our software in a timely manner, cost-effectively, or at all, the ability of our software to perform key functions could be impaired, which may impact our customers’ satisfaction with our software, potentially result in breach of warranty or other claims, and materially adversely affect demand for our software.

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Certain of our customer agreements contain provisions permitting the customer to become a party to, or a beneficiary of, a source code escrow agreement under which we place the proprietary source code for our applicable services and products in escrow with a third party.

Under these escrow agreements, the source code to the applicable product may be released to the customer, typically for its use to maintain, modify, and enhance the product, upon the occurrence of specified events, such as our filing for bankruptcy, discontinuance of our support services, and/or ceasing our business operations generally.

Under these escrow agreements, the source code to the applicable product may be released to the customer, typically for its use

to maintain, modify, and enhance the product, upon the occurrence of specified events, such as our filing for bankruptcy, discontinuance of our support services, and/or ceasing our business operations generally.

Disclosing the content of our source code may limit the intellectual property protection we can obtain or maintain for that source code or the services and products containing that source code.

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We receive a significant portion of our total revenues from international sales and conduct our business activities in various foreign countries, including some emerging markets where we have limited experience, where the challenges of conducting our business can be significantly different from those we have faced in more developed markets, and where business practices may create internal control risks.

International revenues accounted for 42.8% and 40.7% of our total revenues for the three months ended June 30, 2024 and 2023, respectively, and 43.5% and 41.8% of our total revenues for the six months ended June 30, 2024 and 2023, respectively.

International revenues accounted for 44.9% and 44.5% of our total revenues for the three months ended September 30, 2024 and 2023, respectively, and 44.0% and 42.7% of our total revenues for the nine months ended September 30, 2024 and 2023, respectively.

Our international operations require significant management attention and financial resources and expose us to additional risks, including:

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foreign policy and national security goals against targeted foreign states, organizations, and individuals.

Although we have implemented policies and procedures designed to help ensure compliance with these laws, our employees, channel partners, and other persons with whom we do business may take actions in violation of our policies or these laws.

Although we have implemented policies and procedures designed to help ensure compliance with these laws, our employees, channel partners, and other persons with whom we do

business may take actions in violation of our policies or these laws.

For example, following an internal review initiated in 2018, we believe our Brazilian subsidiary failed or likely failed to comply with local procurement regulations in conducting business with certain Brazilian government entities and these matters are the subject of investigation by Brazilian authorities.

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Compliance with Government Contracting Requirements.

public sector customers substantial rights and remedies, many of which are not typical for commercial contracts.

Government contractors are required to comply with a variety of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public sector customers substantial rights and remedies, many of which are not typical for commercial contracts.

These may include rights regarding price protection, the accuracy of information provided to the government, contractor compliance with socio-economic policies, and other terms unique to government contracts.

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There has historically been significant competition for qualified employees in the technology industry, and such competition may be further amplified by evolving restrictions on immigration, travel, or availability of visas for skilled technology workers.

We may not be able to retain our current key employees or attract, train, assimilate, and retain other highly skilled personnel in the future.

We may not be able to retain our current key employees or attract, train, assimilate, and retain other highly skilled personnel in the future, particularly at times when we undergo significant headcount reductions.

Our future success also depends in large part on the continued service of Michael J.

Saylor, our Chairman of the Board of Directors and Executive Chairman.

If we lose the services of Mr.

Saylor, or if we are unable to attract, train, assimilate, and retain the highly skilled personnel we need, our business, operating results, and financial condition could be materially adversely affected.

If we were unable to attract, train, assimilate, and retain the highly skilled personnel we need, or we were to lose the services of Mr.

Saylor, our business, operating results, and financial condition could be materially adversely affected.

These risks may be exacerbated if a shareholder or a group of affiliated shareholders (other than or not including Mr.

Saylor) were to exercise majority voting control of MicroStrategy.

Changes in laws or regulations relating to privacy or the collection, processing, disclosure, storage, localization, or transmission of personal data, or any actual or perceived failure by us or our third-party service providers to comply with such laws and regulations, contractual obligations, or applicable privacy policies, could materially adversely affect our business

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We store a substantial amount of customer and employee data, including personal data, on our networks and other systems and the cloud environments we manage.

In addition, the types of data subject to protection as personal data in the European Union, China, the United States, and elsewhere have been expanding.

In addition, the types of data subject to protection as personal data in the European Union, China, the United

States, and elsewhere have been expanding.

In recent years, the collection and use of personal data by companies have come under increased regulatory and public scrutiny, especially in relation to the collection and processing of sensitive data, such as healthcare, biometric, genetic, financial services, and children’s data, precise location data, and data regarding a person’s race or ethnic origins, political opinions, or religious beliefs.

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Entities (such as us) that engage in creating, receiving, maintaining, or transmitting protected health information provided by covered entities and other business associates are subject to enforcement under HIPAA.

Our access to protected health information triggers obligations to comply with certain privacy rules and data security requirements under HIPAA.

Our access to protected health information may trigger obligations to comply with certain privacy rules and data security requirements under HIPAA.

In addition to potential enforcement by the United States Department of Health and Human Services for potential HIPAA violations, we are also potentially subject to privacy enforcement from the Federal Trade Commission (“FTC.”) The FTC has been particularly focused on certain activities related to the processing of sensitive data, including the unpermitted processing of health and genetic data through its recent enforcement actions and is expanding the types of privacy violations that it interprets to be “unfair” under Section 5 of the FTC Act, as well as the types of activities it views to trigger the Health Breach Notification Rule (which the FTC also has the authority to enforce).

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The new SCCs were required to be in place for new transfers of personal data as of September 27, 2021 and to replace those being used for existing transfers of personal data by December 27, 2022.

The new SCCs place obligations on us in relation to government authorities’ access requests in respect of personal data transferred under the SCCs, and other obligations to bring the SCCs in line with the requirements of the GDPR.

The new SCCs place obligations on us in relation to government authorities’ access requests in respect of personal data transferred under the SCCs, and other

obligations to bring the SCCs in line with the requirements of the GDPR.

The EDPB Recommendations are designed to be read in tandem with the new SCCs and set out new requirements for organizations to assess third countries and identify appropriate supplementary data protection and security measures to be implemented on a case-by-case basis where needed.

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Moreover, it is not clear whether any such legislation would give the FTC any new authority to impose civil penalties for violations of the Federal Trade Commission Act in the first instance, whether Congress will grant the FTC rulemaking authority over privacy and information security, or whether Congress will vest some or all privacy and data security regulatory authority and enforcement power in a new agency, akin to EU data protection authorities.

Complying with these and other changing requirements could cause us or our customers to incur substantial costs or pay substantial fines or penalties, require us to change our business practices, require us to take on more onerous obligations in our contracts, or limit our ability to provide certain offerings in certain jurisdictions, any of which could materially adversely affect our business and operating results.

New laws or regulations restricting or limiting the collection or use of mobile data could also reduce demand for certain of our offerings or require changes to our business practices, which could materially adversely affect our business and operating results.

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Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate, detect, or mitigate attempted security breaches and implement adequate preventative measures.

us to spend material resources to investigate or correct the breach, require us to notify affected customers or individuals and/or applicable regulators and others, provide identity theft protection services to individuals, expose us to legal liabilities, including litigation, regulatory enforcement actions, and indemnity obligations, and materially adversely affect our revenues and operating results.

Any security breach, ransomware attack, or successful denial of service attack could result in a loss of customer confidence in the security of our offerings and damage to our brand, reduce the demand for our offerings, disrupt our normal business operations, require us to spend material resources to investigate or correct the breach, require us to notify affected customers or individuals and/or applicable regulators and others, provide identity theft protection services to individuals, expose us to legal liabilities, including litigation, regulatory enforcement actions, and indemnity obligations, and materially adversely affect our revenues and operating results.

Our software operates in conjunction with and is dependent on third-party products and components across a broad ecosystem.

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The market price of our class A common stock has historically been volatile and this volatility has been significant in recent periods.

Since August 11, 2020, the date on which we announced our initial purchase of bitcoin, the closing price of our class A common stock has increased from $123.62 as of August 10, 2020, the last trading day before our announcement, to $1,309.00 as of August 5, 2024.

Since August 11, 2020, the date on which we announced our initial purchase of bitcoin, the closing price of our class A common stock has increased from $12.36 as of August 10, 2020, the last trading day before our announcement, to $247.31 as of October 30, 2024.

The market price of our class A common stock may fluctuate widely in response to various factors, some of which are beyond our control.

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Holders of our class A common stock generally have the same rights as holders of our class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have ten votes per share.

As of July 25, 2024, there are 1,964,025 shares of class B common stock outstanding, which accounts for approximately 52.9% of the total voting power of our outstanding common stock.

As of July 25, 2024, Mr.

As of October 21, 2024, there are 19,640,250 shares of class B common stock outstanding, which accounts for approximately 51.8% of the total voting power of our outstanding common stock.

As of October 21, 2024, Mr.

Saylor, our Chairman of the Board of Directors and Executive Chairman, beneficially owned 19,616,680 shares of class B common stock, or 51.7% of the total voting power.

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We are also not required to have the compensation of our executive officers be determined by a compensation committee of independent directors.

In addition, we are not required to empower our Compensation Committee with the authority to engage the services of any compensation consultants,

legal counsel, or other advisors, or to have the Compensation Committee assess the independence of compensation consultants, legal counsel, and other advisors that it engages.

In addition, we are not required to empower our Compensation Committee with the authority to engage the services of any compensation consultants, legal counsel, or other advisors, or to have the Compensation Committee assess the independence of compensation consultants, legal counsel, and other advisors that it engages.

In light of our status as a controlled company, our Board of Directors has determined not to establish an independent nominating committee or have its independent directors exercise the nominating function and has elected instead to have the Board of Directors be directly responsible for nominating members of the Board.

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We may issue and sell additional shares of class A common stock, convertible notes, or other securities in subsequent offerings to raise capital or issue shares for other purposes, including in connection with the acquisition of additional bitcoin.

For example, since January 1, 2024, we have issued and sold (i) $137.8 million of shares of class A common stock through at-the-market equity offering programs, (ii) $800 million aggregate principal amount of 2030 Convertible Notes, (iii) $603.75 million aggregate principal amount of 2031 Convertible Notes and (iv) $800.0 million in aggregate principal amount of 2032 Convertible Notes.

Additionally, we may issue and sell class A common stock having an aggregate offering price of up to $2.0 billion from time to time under the August 2024 Sales Agreement.

For example, since January 1, 2024, we have issued and sold (i) $1.246 billion of shares of class A common stock through at-the-market equity offering programs, (ii) $800.0 million aggregate principal amount of 2030 Convertible Notes, (iii) $603.8 million aggregate principal amount of 2031

Convertible Notes, (iv) $800.0 million in aggregate principal amount of 2032 Convertible Notes, and (v) $1.010 billion in aggregate principal amount of 2028 Convertible Notes.

Additionally, we may issue and sell class A common stock having an aggregate offering price of up to $891.3 million from time to time under the August 2024 Sales Agreement and up to $21 billion from time to time under the October 2024 Sales Agreement.

We cannot predict:

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It could apply, however, to a suit that falls within one or more of the categories enumerated in the choice of forum provision and asserts claims under the Securities Act, inasmuch as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

There is uncertainty as to whether a court would enforce such provision

with respect to claims under the Securities Act, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

There is uncertainty as to whether a court would enforce such provision with respect to claims under the Securities Act, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.

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Our level and terms of indebtedness could adversely affect our ability to raise additional capital to further execute on our bitcoin acquisition strategy, fund our enterprise analytics software operations, and take advantage of new business opportunities

As of June 30, 2024, we had $3.909 billion aggregate indebtedness, consisting of $145.6 million aggregate principal amount of 2025 Convertible Notes that were converted or redeemed in their entirety on or before July 15, 2024 as described below, $1.05 billion aggregate principal amount of 2027 Convertible Notes, $800.0 million aggregate principal amount of 2030 Convertible Notes, $603.8 million aggregate principal amount of 2031 Convertible Notes, $800.0 million aggregate principal amount of 2032 Convertible Notes, $500.0 million aggregate principal amount of 2028 Secured Notes and $10.1 million of other long-term indebtedness.

We refer herein to the 2025 Convertible Notes, 2027 Convertible Notes, 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, collectively, as the “Convertible Notes” and together with the 2028 Secured Notes, as the “Outstanding Notes.”

On June 13, 2024, we announced that we delivered a notice of redemption to the trustee of the outstanding 2025 Convertible Notes for the redemption of all of the outstanding 2025 Convertible Notes on July 15, 2024.

As of July 15, 2024, all 2025 Convertible Notes have been converted to shares of our class A common stock or redeemed, and no 2025 Convertible Notes are outstanding.

After giving effect to the conversion and redemption of the 2025 Convertible Notes, as of June 30, 2024, we had $3.764 billion aggregate indebtedness remaining and our annual interest expense relating to the remaining Outstanding Notes is $58.9 million.

As of September 30, 2024, we had $4.274 billion aggregate indebtedness, consisting of $1.050 billion aggregate principal amount of 2027 Convertible Notes, $1.010 billion in aggregate principal amount of 2028 Convertible Notes, $800.0 million aggregate principal amount of 2030 Convertible Notes, $603.8 million aggregate principal amount of 2031 Convertible Notes, $800.0 million aggregate principal amount of 2032 Convertible Notes, and $9.9 million of other long-term indebtedness.

We refer herein to the 2027 Convertible Notes, 2028 Convertible Notes, 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, collectively, as the “Convertible Notes.” As of September 30, 2024, our annual interest expense relating to our Convertible Notes was $34.6 million.

Our substantial indebtedness and interest expense could have important consequences to us, including:

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• limiting our ability, or increasing the costs, to refinance indebtedness.

• reducing our fixed charge coverage ratio for purposes of the 2028 Secured Notes, which further limits our ability to take certain actions, including making payments on, and settling for cash conversion or redemption of the Outstanding Convertible Notes.

We may be unable to service our indebtedness, which could cause us to default on our debt obligations and could force us into bankruptcy or liquidation

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In addition, our bitcoin acquisition strategy anticipates that we may issue additional debt in future periods to finance additional purchases of bitcoin, but if we are unable to generate sufficient cash flow to service our debt and make necessary capital expenditures, we may be required to sell bitcoin.

These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations or our

financial covenants, which could cause us to default on our debt obligations.

These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations or our financial covenants, which could cause us to default on our debt obligations.

In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness.

Upon the occurrence of an event of default under any of MicroStrategy’s indebtedness, the holders of the defaulted indebtedness could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest and, in the case of our 2028 Secured Notes, enforce their security interests on substantially all of MicroStrategy’s assets and the assets of our subsidiary guarantors, but excluding bitcoins that are currently owned by MacroStrategy, a wholly-owned subsidiary of MicroStrategy, or acquired by MacroStrategy in future periods in transactions permitted by the terms of the 2028 Secured Notes.

Any of these events could in turn result in cross-defaults under our other indebtedness.

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Any financing that we may undertake under such circumstances could result in substantial dilution of our existing stockholders, and in the absence of being able to obtain such financing, we could be forced into bankruptcy or liquidation.

The indenture governing our 2028 Secured Notes imposes significant operating and financial restrictions on us and certain subsidiaries of ours, which may prevent us from capitalizing on business opportunities

The indenture governing our 2028 Secured Notes imposes significant operating and financial restrictions on us and certain designated Restricted Subsidiaries (as defined in the indenture for the 2028 Secured Notes).

These restrictions limit our ability, and the ability of such restricted subsidiaries, to, among other things:

• incur or guarantee additional debt or issue disqualified stock or certain preferred stock;

• create or incur liens;

• pay dividends, redeem stock, or make certain other distributions;

• make certain investments;

• create restrictions on the ability of our Restricted Subsidiaries to pay dividends to us or make other intercompany transfers;

• transfer or sell assets;

• merge or consolidate;

• make cash payments in connection with the Outstanding Convertible Notes;

• enter into certain transactions with affiliates.

As a result of these restrictions, we are limited as to how we conduct our business and we may be unable to raise additional indebtedness or conduct equity financing to compete effectively or to take advantage of new business opportunities.

The terms of any future indebtedness we may incur could include more restrictive covenants.

We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders or amend the covenants.

Our failure to comply with the restrictive covenants described above, as well as other terms of our indebtedness or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date, the liquidation of our assets serving as collateral and/or potential insolvency proceedings.

If we are forced to refinance these borrowings on less favorable terms or if we cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.

We may be required to repay the 2028 Secured Notes prior to their stated maturity date, if the springing maturity feature is triggered

The 2028 Secured Notes have a stated maturity date of June 15, 2028, but include a springing maturity feature that will cause the stated maturity date to spring ahead to the date that is (i) 91 days prior to the existing maturity date of the 2027 Convertible Notes (which is November 16, 2026) or (ii) the maturity date of any future convertible debt that we may issue that is then outstanding, unless on such dates we meet specified liquidity requirements or less than $100,000,000 of aggregate principal amount of the 2027 Convertible Notes, or such future convertible debt, as applicable, remains outstanding.

If such springing maturity feature is triggered, we will be required to pay all amounts outstanding under the 2028 Secured Notes sooner than they would otherwise be due, we may not have sufficient funds available to pay such amounts at that time, and we may not be able to raise additional funds to pay such amounts on a timely basis, on terms we find acceptable, or at all.

We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash or to repurchase the Outstanding Notes for cash upon a fundamental change or to repurchase the 2030 Convertible Notes or the 2031 Convertible Notes

on September 15, 2028, or the 2032 Convertible Notes on June 15, 2029, and the 2028 Secured Notes contain, and any future debt may contain, limitations on our ability to engage in cash-settled conversions or repurchases of Outstanding Notes

We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash or to repurchase the Convertible Notes for cash upon a fundamental change or to repurchase the 2028 Convertible Notes on September 15, 2027, the 2030 Convertible Notes or the 2031 Convertible Notes on September 15, 2028, or the 2032 Convertible Notes on June 15, 2029, and any future debt may contain, limitations on our ability to engage in cash-settled conversions or repurchases of Convertible Notes

In connection with any conversion of the Convertible Notes, unless we elect (or have previously irrevocably elected) to deliver solely shares of our class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted.

However, the 2028 Secured Notes contain, and any future debt may contain, limitations on our ability to pay cash upon conversion or redemption of the Convertible Notes, which may require us to elect to deliver solely shares of our class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share) or sell certain bitcoin to generate cash that can be used to make such cash payments..

Upon a change of control or a fundamental change as defined in the indentures governing the Outstanding Notes, the holders of such notes will have the right to require us to offer to purchase all of the applicable notes then outstanding at a price equal to 101% of the principal amount of the 2028 Secured Notes and 100% of the principal amount of the Convertible Notes, respectively, plus, in each case, accrued and unpaid interest, if any, to, but excluding, the repurchase date.

Moreover, the exercise by holders of the Outstanding Notes of their right to require us to repurchase such Outstanding Notes could cause a default under future debt agreements, even if the change of control or fundamental change itself does not, due to the financial effect of such repurchase on us.

In order to obtain sufficient funds to pay the purchase price of such notes, we expect that we would have to refinance the Outstanding Notes or obtain a waiver from the applicable holders of Outstanding Notes and we may not be able to refinance the Outstanding Notes on reasonable terms, if at all.

Absent a waiver from the applicable holders of Outstanding Notes, our failure to offer to purchase all applicable Outstanding Notes or to purchase all validly tendered Outstanding Notes would be an event of default under the indentures governing the Outstanding Notes.

In addition, holders of the 2030 Convertible Notes and the 2031 Convertible Notes have the right to require us to repurchase all or a portion of their notes on September 15, 2028 and holders of the 2032 Convertible Notes have the right to require us to repurchase all or a portion of their notes on June 15, 2029 at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any.

There are exceptions allowing us to make payments on the Convertible Notes under certain circumstances and to make other restricted payments in certain amounts.

Certain of these exceptions require that we have a fixed charge coverage ratio of at least 2.0 to 1.0 at the time we make the restricted payment.

From time-to-time, our fixed charge coverage ratio has been below 2.0 to 1.0, and we have not been able to take advantage of these exceptions.

For example, as of the incurrence of our 2032 Convertible Notes in June 2024, our fixed charge coverage ratio was below 2.0 to 1.0.

To the extent our fixed charge coverage ratio remains below 2.0 to 1.0, our ability to take certain actions, including making principal payments on, and settling for cash conversions of, the Convertible Notes will be limited.

However, any future debt may contain limitations on our ability to (i) pay cash upon conversion or redemption of the Convertible Notes, which may require us to elect to deliver solely shares of our class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), or (ii) sell certain bitcoin to generate cash that can be used to make such cash payments.

Upon a fundamental change as defined in the indentures governing the Convertible Notes, the holders of such notes will have the right to require us to offer to purchase all of the applicable notes then outstanding at a price equal to 100% of the principal amount of the Convertible Notes, plus, in each case, accrued and unpaid interest, if any, to, but excluding, the repurchase date.

Moreover, the exercise by holders of the Convertible Notes of their right to require us to repurchase such Convertible Notes could cause a default under future debt agreements, even if the change of control or fundamental change itself does not, due to the financial effect of such repurchase on us.

In order to obtain sufficient funds to pay the purchase price of such notes, we expect that we would have to refinance the Convertible Notes or obtain a waiver from the applicable holders of Convertible Notes and we may not be able to refinance the Convertible Notes on reasonable terms, if at all.

Absent a waiver from the applicable holders of Convertible Notes, our failure to offer to purchase all applicable Convertible Notes or to purchase all validly tendered Convertible Notes would be an event of default under the indentures governing the Convertible Notes.

In addition, holders of (i) the 2028 Convertible Notes have the right to require us to repurchase all or a portion of their notes on September 15, 2027, (ii) the 2030 Convertible Notes and the 2031 Convertible Notes have the right to require us to repurchase all or a portion of their notes on September 15, 2028, and (iii) the 2032 Convertible Notes have the right to require us to repurchase all or a portion of their notes on

June 15, 2029, in each case, at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results

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If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

In addition, cash settlement of the Convertible Notes could be limited or prohibited by the 2028 Secured Notes.

Furthermore, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the applicable Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

We rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including the Outstanding Notes and our other long-term indebtedness, and certain of our subsidiaries holding digital assets may not provide any dividends, distributions, or other payments to us to fund our obligations and meet our cash needs

We depend on dividends, distributions, and other payments from our subsidiaries to fund our obligations, including those arising under the Outstanding Notes, and our other long-term indebtedness, and meet our cash needs.

The operating results of our subsidiaries at any given time may not be sufficient to make dividends, distributions, or other payments to us in order to allow us to make payments on the Outstanding Notes, and our other long-term indebtedness.

Our wholly-owned subsidiary, MacroStrategy, which holds the bitcoin that we owned prior to the issuance of the 2028 Secured Notes, the bitcoin that MacroStrategy acquired using the proceeds from the 2025 Secured Term Loan, and the bitcoin that MacroStrategy acquired from the proceeds of the sale of our class A shares pursuant to the sales agreements with various sales agents, is not obligated to provide and may in the future be prohibited from providing any dividends, distributions, or other payments to us to fund our obligations and meet our cash needs under such indebtedness.

MacroStrategy holds approximately 175,721 bitcoins that, as of June 30, 2024, had a carrying value of $3.468 billion on our Consolidated Balance Sheet, representing 49.2% of our consolidated total assets at such date.

We rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including the Convertible Notes and our other long-term indebtedness, and certain of our subsidiaries holding digital assets may not provide any dividends, distributions, or other payments to us to fund our obligations and meet our cash needs

We depend on dividends, distributions, and other payments from our subsidiaries to fund our obligations, including those arising under the Convertible Notes, and our other long-term indebtedness, and meet our cash needs.

The operating results of our subsidiaries at any given time may not be sufficient to make dividends, distributions, or other payments to us in order to allow us to make payments on the Convertible Notes, and our other long-term indebtedness.

In addition, dividends, distributions, or other payments, as well as other transfers of assets, between our subsidiaries and from our subsidiaries to us may be subject to legal, regulatory, or contractual restrictions, which may materially adversely affect our ability to transfer cash within our consolidated companies and our ability to meet our cash needs and service our indebtedness.

Despite our current level of indebtedness, we may be able to incur substantially more indebtedness and enter into other transactions in the future which could further exacerbate the risks related to our indebtedness

Although the indenture governing our 2028 Secured Notes contains, and future debt instruments may contain, restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a number of qualifications and exceptions and we may be able to incur significant additional indebtedness in the future.

For example, these restrictions do not prevent us from incurring obligations, such as certain trade payables and operating leases, which do not constitute indebtedness as defined under our debt instruments.

Despite our current level of indebtedness, we may incur substantially more indebtedness and enter into other transactions in the future which could further exacerbate the risks related to our indebtedness

Our bitcoin strategy includes acquiring bitcoin using proceeds from equity and debt financings and cash flows from operations.

As such, despite our current level of indebtedness, we may incur substantially more indebtedness, and we may enter into other transactions in the future.

Even if we were to enter into debt or other arrangements that contain restrictions on our ability to incur additional indebtedness, these restrictions may be subject to a number of qualifications and exceptions that would allow us to incur significant additional indebtedness.

To the extent we incur additional indebtedness or other obligations, the risks described herein with respect to our indebtedness may increase significantly.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings