What changed in this filing

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Item 1. Financial Statements

2022-11-01 compared with 2022-08-02 · 202 added, 150 removed, 543 unchanged (39% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

September 30,

Current assets:

44 unchanged sentences

Three Months Ended

September 30,

Product licenses

17 unchanged sentences

Total operating expenses

Loss from operations

Income (loss) from operations

Interest expense, net

Other income (expense), net

Other income, net

Loss before income taxes

9 unchanged sentences

(in thousands, except per share data)

Six Months Ended

Nine Months Ended

September 30,

Product licenses

32 unchanged sentences

Three Months Ended

Other comprehensive (loss) income, net of applicable taxes:

September 30,

Other comprehensive loss, net of applicable taxes:

Foreign currency translation adjustment

Total other comprehensive (loss) income

Total other comprehensive loss

Comprehensive loss

Six Months Ended

Nine Months Ended

September 30,

Other comprehensive loss, net of applicable taxes:

43 unchanged sentences

Balance at June 30, 2022

Other comprehensive loss

Issuance of class A common stock upon exercise of stock options

Issuance of class A common stock under employee stock purchase plan

Issuance of class A common stock upon vesting of restricted stock units, net of withholding taxes

Share-based compensation expense

Balance at September 30, 2022

The accompanying notes are an integral part of these Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities:

4 unchanged sentences

Deferred taxes

Release of liabilities for unrecognized tax benefits

Share-based compensation expense

25 unchanged sentences

Issuance costs paid for other long-term secured debt

Repayments of other long-term secured debt

Proceeds from sale of common stock under public offerings

Issuance costs paid related to sale of common stock under public offerings

Proceeds from exercise of stock options

15 unchanged sentences

Interim results are not necessarily indicative of results for a full year.

Certain amounts in the prior year’s Consolidated Statements of Cash Flows have been reclassified to conform to current year presentation.

In particular, accrued interest related to the Company’s long-term debt has been reclassified from “Accounts payable and accrued expenses” to “Accrued interest” within operating activities.

In the prior year’s Consolidated Statements of Cash Flows, accrued interest related to the Company’s long-term debt has been reclassified from “Accounts payable and accrued expenses” to “Accrued interest” within operating activities to conform to current year presentation.

The balances presented in the Consolidated Statements of Stockholders’ Equity as of January 1, 2021 include the opening balance adjustments due to the adoption of Accounting Standards Update No.

13 unchanged sentences

The following table summarizes the Company’s digital asset holdings (in thousands, except number of bitcoins), as of:

September 30,

Approximate number of bitcoins held

2 unchanged sentences

The carrying value represents the lowest fair value (based on Level 1 inputs in the fair value hierarchy) of the bitcoins at any time since their acquisition.

Therefore, these fair value measurements were made during the period from their acquisition through June 30, 2022 or December 31, 2021, respectively, and not as of June 30, 2022 or December 31, 2021, respectively.

Therefore, these fair value measurements were made during the period from their acquisition through September 30, 2022 or December 31, 2021, respectively, and not as of September 30, 2022 or December 31, 2021, respectively.

The following table summarizes the Company’s digital asset purchases and digital asset impairment losses (in thousands, except number of bitcoins) for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Approximate number of bitcoins purchased

1 unchanged sentence

Digital asset impairment losses

The Company did no t sell any of its bitcoins during the three and six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, approximately 14,589 of the bitcoins held by the Company serve as part of the collateral for the Company’s 6.125 % Senior Secured Notes due 2028 (the “2028 Secured Notes”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements and in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

As of June 30, 2022, approximately 30,051 of the bitcoins held by the Company serve as part of the collateral for a $ 205.0 million term loan (the “2025 Secured Term Loan”) issued to MacroStrategy LLC (“MacroStrategy”), a wholly-owned subsidiary of the Company, by Silvergate Bank (“Silvergate”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements.

From time to time, the Company may be extended short-term credits from Coinbase to purchase bitcoin in advance of using cash funds in the Company’s trading account.

The trade credits are due and payable in cash within days after they are extended.

As of September 30, 2022, the Company had no outstanding trade credits payable.

The Company did no t sell any of its bitcoins during the three and nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, approximately 14,890 of the bitcoins held by the Company serve as part of the collateral for the Company’s 6.125 % Senior Secured Notes due 2028 (the “2028 Secured Notes”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements and in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

As of September 30, 2022, approximately 30,051 of the bitcoins held by the Company serve as part of the collateral for a $ 205.0 million term loan (the “2025 Secured Term Loan”) issued to MacroStrategy LLC (“MacroStrategy”), a wholly-owned subsidiary of the Company, by Silvergate Bank (“Silvergate”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements.

(3) Contract Balances

4 unchanged sentences

Accounts receivable (in thousands) consisted of the following, as of:

September 30,

Billed and billable

1 unchanged sentence

Accounts receivable, net

Changes in the allowance for credit losses were not material for the three and six months ended June 30, 2022.

In estimating its allowance for credit losses as of June 30, 2022 and December 31, 2021, the Company continued to consider the impact from the pandemic caused by a novel strain of coronavirus (“COVID-19”) on the Company’s reserves.

Changes in the allowance for credit losses were not material for the three and nine months ended September 30, 2022.

Rights to consideration that are subject to a condition other than the passage of time are considered contract assets and presented within “Prepaid expenses and other current assets” in the Consolidated Balance Sheets since the rights to consideration are expected to become unconditional and transfer to accounts receivable within one year.

2 unchanged sentences

These true-up adjustments are generally not material.

During the three and six months ended June 30, 2022 and 2021, there were no significant impairments to the Company’s contract assets, nor were there any significant changes in the timing of the Company’s contract assets being reclassified to accounts receivable.

Contract assets included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheets consisted of $ 0.8 million and $ 1.1 million in accrued sales and usage-based royalty revenue as of June 30, 2022 and December 31, 2021, respectively.

During the three and nine months ended September 30, 2022 and 2021, there were no significant impairments to the Company’s contract assets, nor were there any significant changes in the timing of the Company’s contract assets being reclassified to accounts receivable.

Contract assets included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheets consisted of $ 0.7 million and $ 1.1 million in accrued sales and usage-based royalty revenue as of September 30, 2022 and December 31, 2021, respectively.

Contract liabilities are amounts received or due from customers in advance of the Company transferring the software or services to the customer.

1 unchanged sentence

Revenue is subsequently recognized in the period(s) in which control of the software or services is transferred to the customer.

The Company’s contract liabilities are presented as either current or non-current “Deferred revenue and advance payments” in the Consolidated Balance Sheets, depending on whether the software or services are expected to be transferred to the customer within the next year.

The Company’s contract liabilities are

presented as either current or non-current “Deferred revenue and advance payments” in the Consolidated Balance Sheets, depending on whether the software or services are expected to be transferred to the customer within the next year.

The Company’s “Accounts receivable, net” and “Deferred revenue and advance payments” balances in the Consolidated Balance Sheets include unpaid amounts related to contracts under which the Company has an enforceable right to invoice the customer for non-cancellable and/or non-refundable software and services.

1 unchanged sentence

Deferred revenue and advance payments (in thousands) from customers consisted of the following, as of:

September 30,

Deferred product licenses revenue

8 unchanged sentences

Total non-current deferred revenue and advance payments

During the three and six months ended June 30, 2022, the Company recognized revenues of $ 58.9 million and $ 133.8 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2022.

During the three and six months ended June 30, 2021, the Company recognized revenues of $ 55.7 million and $ 125.9 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2021.

For the three and six months ended June 30, 2022 and 2021, there were no significant changes in the timing of revenue recognition on the Company’s deferred balances.

During the three and nine months ended September 30, 2022, the Company recognized revenues of $ 42.5 million and $ 176.3 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2022.

During the three and nine months ended September 30, 2021, the Company recognized revenues of $ 38.9 million and $ 164.9 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2021.

For the three and nine months ended September 30, 2022 and 2021, there were no significant changes in the timing of revenue recognition on the Company’s deferred balances.

The Company’s remaining performance obligation represents all future revenue under contract and includes deferred revenue and advance payments and billable non-cancelable amounts that will be invoiced and recognized as revenue in future periods.

1 unchanged sentence

The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet within contract balances and are instead included in the following remaining performance obligation disclosure.

As of June 30, 2022, the Company had an aggregate transaction price of $ 273.9 million allocated to the remaining performance obligation related to product support, subscription services, product licenses, and other services contracts.

As of September 30, 2022, the Company had an aggregate transaction price of $ 255.9 million allocated to the remaining performance obligation related to product support, subscription services, product licenses, and other services contracts.

The Company expects to recognize $ 190.6 million within the next 12 months and the remainder thereafter .

1 unchanged sentence

The net carrying value of the Company’s long-term debt (in thousands) consisted of the following, as of:

June 30, 2022

September 30, 2022

December 31, 2021

17 unchanged sentences

The terms of the 2025 Convertible Notes and 2027 Convertible Notes (collectively, the “Convertible Notes”) are discussed more fully in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no adjustments to the initial conversion rates for each of the Convertible Notes as of June 30, 2022.

As of June 30, 2022, the maximum number of shares into which the Convertible Notes could be potentially converted if the conversion features are triggered are 1,633,190 and 733,005 shares for the 2025 Convertible Notes and 2027 Convertible Notes, respectively.

During the six months ended June 30, 2022, the 2025 Convertible Notes were convertible at the option of the holders of the 2025 Convertible Notes during the first quarter of 2022 only.

During the six months ended June 30, 2021, the 2025 Convertible Notes were convertible during the second quarter of 2021 only.

During the six months ended June 30, 2022 and 2021, the 2027 Convertible Notes were not convertible at any time.

No conversions of the Convertible Notes occurred during the six months ended June 30, 2022 or 2021.

There have been no adjustments to the initial conversion rates for each of the Convertible Notes as of September 30, 2022.

As of September 30, 2022, the maximum number of shares into which the Convertible Notes could be potentially converted if the conversion features are triggered are 1,633,190 and 733,005 shares for the 2025 Convertible Notes and 2027 Convertible Notes, respectively.

During the nine months ended September 30, 2022, the 2025 Convertible Notes were convertible at the option of the holders of the 2025 Convertible Notes during the first quarter of 2022 only.

During the nine months ended September 30, 2021, the 2025 Convertible Notes were convertible during the second quarter of 2021 only.

During the nine months ended September 30, 2022 and 2021, the 2027 Convertible Notes were not convertible at any time.

No conversions of the Convertible Notes occurred during the nine months ended September 30, 2022 or 2021.

The Convertible Notes may be convertible in future periods if one or more of the conversion conditions is satisfied during future measurement periods.

As of June 30, 2022 and December 31, 2021, the net carrying value of the Convertible Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the Company’s convertible debt instruments as of June 30, 2022 (in thousands):

As of September 30, 2022 and December 31, 2021, the net carrying value of the Convertible Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the Company’s convertible debt instruments as of September 30, 2022 (in thousands):

Principal Amount

8 unchanged sentences

The fair value of the Convertible Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2).

For the three months ended June 30, 2022 and 2021, interest expense related to the Convertible Notes was as follows (in thousands):

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

For the three months ended September 30, 2022 and 2021, interest expense related to the Convertible Notes was as follows (in thousands):

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021

Amortization of

6 unchanged sentences

2027 Convertible Notes

For the six months ended June 30, 2022 and 2021, interest expense related to the Convertible Notes was as follows (in thousands):

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021

For the nine months ended September 30, 2022 and 2021, interest expense related to the Convertible Notes was as follows (in thousands):

Nine Months Ended September 30, 2022

Nine Months Ended September 30, 2021

Amortization of

6 unchanged sentences

2027 Convertible Notes

For the three and six months ended June 30, 2022, the Company paid $ 2.4 million in interest expense related to the 2025 Convertible Notes.

For the three and six months ended June 30, 2021, the Company paid $ 2.5 million in interest related to the 2025 Convertible Notes.

The Company did no t pay any interest expense related to the 2025 Convertible Notes during the three months ended September 30, 2022 and 2021.

For the nine months ended September 30, 2022 and 2021, the Company paid $ 2.4 million and $ 2.5 million, respectively, in interest related to the 2025 Convertible Notes.

The Company has no t paid any special interest expense related to the 2027 Convertible Notes to date.

8 unchanged sentences

The 2028 Secured Notes are governed by an indenture containing certain covenants with which the Company must comply, including covenants with respect to limitations on (i) additional indebtedness, (ii) liens, (iii) certain payments and investments, (iv) the ability to merge or consolidate with another person, or sell or otherwise dispose of substantially all the Company’s assets, and (v) certain transactions with affiliates.

The Company was in compliance with its debt covenants as of June 30, 2022.

As of June 30, 2022 and December 31, 2021, the net carrying value of the 2028 Secured Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2028 Secured Notes as of June 30, 2022 (in thousands):

The Company was in compliance with its debt covenants as of September 30, 2022.

As of September 30, 2022 and December 31, 2021, the net carrying value of the 2028 Secured Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2028 Secured Notes as of September 30, 2022 (in thousands):

Principal Amount

6 unchanged sentences

The fair value of the 2028 Secured Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2).

For the three months ended June 30, 2022 and 2021, interest expense related to the 2028 Secured Notes was as follows (in thousands):

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

For the three months ended September 30, 2022 and 2021, interest expense related to the 2028 Secured Notes was as follows (in thousands):

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021

Amortization of

5 unchanged sentences

2028 Secured Notes

For the six months ended June 30, 2022 and 2021, interest expense related to the 2028 Secured Notes was as follows (in thousands):

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021

For the nine months ended September 30, 2022 and 2021, interest expense related to the 2028 Secured Notes was as follows (in thousands):

Nine Months Ended September 30, 2022

Nine Months Ended September 30, 2021

Amortization of

5 unchanged sentences

2028 Secured Notes

For the three and six months ended June 30, 2022, the Company paid $ 15.3 million in interest expense related to the 2028 Secured Notes.

The Company did no t pay any interest expense related to the 2028 Secured Notes during the three and six months ended June 30, 2021.

The Company did no t pay any interest expense related to the 2028 Secured Notes during the three months ended September 30, 2022 and 2021.

For the nine months ended September 30, 2022, the Company paid $ 15.3 million in interest expense related to the 2028 Secured Notes.

The Company did no t pay any interest expense related to the 2028 Secured Notes during the nine months ended September 30, 2021.

Secured Term Loan

4 unchanged sentences

Under the terms of the Credit and Security Agreement, the 2025 Secured Term Loan proceeds may be used (i) by MacroStrategy to purchase bitcoins, (ii) by MacroStrategy to pay fees, interest, and expenses related to the 2025 Secured Term Loan transaction, or (iii) for MacroStrategy’s or the Company’s general corporate purposes.

The 2025 Secured Term Loan may be prepaid at any time, subject to prepayment premiums of 0.50 % and 0.25 % of the 2025 Secured Term Loan amount prepaid for prepayments during years one and two of the 2025 Secured Term Loan term, respectively.

In accordance with the terms of the Credit and Security Agreement, the 2025 Secured Term Loan was collateralized at closing by bitcoin with a value of approximately $ 820.0 million placed in a collateral account with a custodian mutually authorized by Silvergate and MacroStrategy (the “Bitcoin Collateral Account”).

While the 2025 Secured Term Loan is outstanding, MacroStrategy is required to maintain a Loan to collateral value ratio (“LTV Ratio”) of 50 % or less (the “Maximum LTV Ratio”), which would amount to at least $ 410.0 million worth of bitcoin being required to be held in such account assuming the full $ 205.0 million of 2025 Secured Term Loan principal remains outstanding.

If the price of bitcoin drops such that the LTV Ratio exceeds 50 %, MacroStrategy is required to either deposit additional bitcoin in the Bitcoin Collateral Account or prepay a portion of the 2025 Secured Term Loan such that the LTV Ratio is reduced to 25 % or less (or 35 % or less, provided that in such case the interest rate on the 2025 Secured Term Loan will be increased by 25 basis points until such time as the LTV Ratio is reduced to 25 % or less).

In June 2022, as the price of bitcoin declined causing the LTV Ratio to increase, MacroStrategy deposited 10,585 additional bitcoins into the account securing the borrowing under the Credit and Security Agreement to help ensure that the LTV Ratio remained below the Maximum LTV Ratio.

The 2025 Secured Term Loan may be prepaid at any time, subject to a prepayment premium of 0.50 % or 0.25 % of the principal balance being prepaid, if such prepayment is made during the first year or second year, respectively, of the 2025 Secured Term Loan.

There is no premium or penalty for prepayments made after March 23, 2024 .

In accordance with the terms of the Credit and Security Agreement, the 2025 Secured Term Loan was collateralized at closing by bitcoin with a value of approximately $ 820.0 million placed in a collateral account (the “Bitcoin Collateral Account”) with a custodian mutually authorized by Silvergate and MacroStrategy.

While the 2025 Secured Term Loan is outstanding, MacroStrategy is required to maintain a loan to collateral value ratio (“LTV Ratio”) of less than 50 % (the “Maximum LTV Ratio”).

As a result, MacroStrategy is required to maintain more than $ 410.0 million of bitcoin in the Bitcoin Collateral Account, assuming the full $ 205.0 million of 2025 Secured Term Loan principal remains outstanding.

If the price of bitcoin drops such that the LTV Ratio equals or exceeds the Maximum LTV Ratio, MacroStrategy will be required to either deposit additional bitcoin in the Bitcoin Collateral Account or prepay a portion of the 2025 Secured Term Loan such that the LTV Ratio is reduced to 25 % or less (or 35 % or less, provided that in such case the interest rate on the 2025 Secured Term Loan will be increased by 25 basis points until such time as the LTV Ratio is reduced to 25 % or less).

In June 2022, as the price of bitcoin declined causing the LTV Ratio to increase, MacroStrategy deposited 10,585 additional bitcoins into the Bitcoin Collateral Account to help ensure that the LTV Ratio remained below the Maximum LTV Ratio.

If at any time the LTV Ratio is less than 25 % as a result of excess collateral in the Bitcoin Collateral Account, MacroStrategy is entitled to a return of such excess collateral so long as the LTV Ratio would not exceed 25 % after giving effect to such return .

2 unchanged sentences

The collateral for the 2025 Secured Term Loan does not extend beyond assets in the Bitcoin Collateral Account and the Reserve Account.

As of June 30, 2022, the Reserve Account is presented within “Restricted cash” in the Company’s Consolidated Balance Sheet and the Bitcoin Collateral Account is presented within “Digital assets” in the Company’s Consolidated Balance Sheet as further described in Note 2, Digital Assets, to the Consolidated Financial Statements.

As of September 30, 2022, the Reserve Account is presented within “Restricted cash” in the Company’s Consolidated Balance Sheet and the Bitcoin Collateral Account is presented within “Digital assets” in the Company’s Consolidated Balance Sheet as further described in Note 2, Digital Assets, to the Consolidated Financial Statements.

The 2025 Secured Term Loan is not guaranteed by any party.

The Credit and Security Agreement contains customary affirmative and negative covenants for credit facilities of this type, including, among others, limitations on MacroStrategy with respect to the sale of collateral and the incurrence of liens on the collateral.

The Credit and Security Agreement does not restrict MacroStrategy from incurring additional debt, permits additional liens so long as such liens are not on the assets serving as collateral for the 2025 Secured Term Loan, and permits MacroStrategy to sell assets so long as they are not serving as collateral for the 2025 Secured Term Loan.

The Credit and Security Agreement, however, does not restrict MacroStrategy from incurring additional debt, incurring additional liens on assets not serving as collateral for the 2025 Secured Term Loan, or selling assets not serving as collateral for the 2025 Secured Term Loan.

There are no restrictions in the Credit and Security Agreement on utilizing bitcoin that is not in the Bitcoin Collateral Account.

2 unchanged sentences

Upon an event of default, Silvergate has the right to accelerate the 2025 Secured Term Loan in full, increase the interest accrual rate by an additional 2 %, and liquidate the collateral to pay the 2025 Secured Term Loan.

MacroStrategy was in compliance with its debt covenants as of June 30, 2022.

MacroStrategy was in compliance with its debt covenants as of September 30, 2022.

The Company incurred approximately $ 0.4 million in lender fees and third-party costs (“issuance costs”) associated with the 2025 Secured Term Loan.

The Company accounts for these issuance costs as a reduction to the principal amount of the 2025 Secured Term Loan and amortizes the issuance costs to interest expense over the contractual term of the 2025 Secured Term Loan at an effective interest rate of 3.87 %.

As of June 30, 2022, the net carrying value of the 2025 Secured Term Loan was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2025 Secured Term Loan as of June 30, 2022 (in thousands):

As of September 30, 2022, the net carrying value of the 2025 Secured Term Loan was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2025 Secured Term Loan as of September 30, 2022 (in thousands):

Principal Amount

1 unchanged sentence

2025 Secured Term Loan

The principal or par value of the 2025 Secured Term Loan approximates its fair value as of June 30, 2022.

The principal or par value of the 2025 Secured Term Loan approximates its fair value as of September 30, 2022.

The fair value of the 2025 Secured Term Loan is determined using unobservable inputs provided by the lender, specifically hypothetical lending terms attainable as of the end of the reporting period, which are comparable to the loan's original terms (Level 3).

For the three and six months ended June 30, 2022, interest expense related to the 2025 Secured Term Loan was as follows (in thousands):

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

For the three and nine months ended September 30, 2022, interest expense related to the 2025 Secured Term Loan was as follows (in thousands):

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Amortization of

5 unchanged sentences

2025 Secured Term Loan

The Company paid $ 1.6 million in interest expense related to the 2025 Secured Term Loan during the three and six months ended June 30, 2022.

The Company paid $ 2.7 million and $ 4.3 million in interest expense related to the 2025 Secured Term Loan during the three and nine months ended September 30, 2022, respectively.

Other long-term secured debt

1 unchanged sentence

The loan is secured by certain non-bitcoin assets of the Company that are not otherwise serving as collateral for any of the Company’s other indebtedness.

The following table shows the maturities of the Company’s debt instruments as of June 30, 2022 (in thousands).

As of September 30, 2022, the loan had a net carrying value of $ 10.7 million and an outstanding principal balance of $ 11.0 million, after monthly payments made under the terms of the agreement.

The following table shows the maturities of the Company’s debt instruments as of September 30, 2022 (in thousands).

The principal payments related to the 2028 Secured Notes are included in the table below based on the First Springing Maturity Date of September 15, 2025, as if the springing maturity feature discussed above were triggered.

The Company’s expectation is that the springing maturity feature of the 2028 Secured Notes will not be triggered.

Payments due by period ended June 30,

Payments due by period ended September 30,

2025 Convertible Notes

10 unchanged sentences

Historically, the Company has not been obligated to make significant payments for these obligations and does not currently expect to incur any material obligations in the future.

Accordingly, the Company has not recorded an indemnification liability on its Balance Sheets as of June 30, 2022 or December 31, 2021.

Accordingly, the Company has not recorded an indemnification liability on its Balance Sheets as of September 30, 2022 or December 31, 2021.

(b) Contingencies

1 unchanged sentence

On February 6, 2020, the Company learned that a Brazilian court authorized the Brazilian Federal Police to use certain investigative measures in its investigation into alleged corruption and procurement fraud involving certain government officials, pertaining to a particular transaction.

Pursuant to this court authorization, numerous entities and individuals across Brazil were subject to the freezing of assets and other measures, including former resellers and former employees of the Company’s Brazilian subsidiary.

On February 6, 2020, the bank accounts of the Company’s Brazilian subsidiary were also frozen up to an amount of BRL 10.0 million.

On May 22, 2020, these bank accounts of the Company’s Brazilian subsidiary were unfrozen based on a court decision that found the evidence provided to support the alleged illicit origin of the relevant funds was insufficient.

On October 19, 2021, an appeals court upheld the decision to unfreeze the accounts (which had remained unfrozen while the appeal was pending).

This decision is final.

The transaction at issue is part of the basis of the previously reported failure or likely failure of the Brazilian subsidiary to comply with local procurement regulations.

The Company is not aware of any allegations that any former employee or the Company made any payments to Brazilian

government officials.

The Company is not aware of any allegations that any former employee or the Company made any payments to Brazilian government officials.

The Brazilian Federal Police expanded the investigation to include other possible cases of procurement fraud involving Brazilian government entities.

23 unchanged sentences

Fact discovery reopened on April 18, 2022 and closed on June 1, 2022.

The case has proceeded to expert discovery and the parties exchanged their opening expert reports on issues for which they bear the burden of proof on July 1, 2022 and exchanged their rebuttal expert reports on July 29, 2022.

In July 2022, the case proceeded to expert discovery and the parties exchanged their opening expert reports on issues for which they bear the burden of proof on July 1, 2022, their rebuttal reports on July 29, 2022, and their reply reports on August 12, 2022.

The parties engaged in expert depositions the weeks of August 22 and August 29, 2022 and on September 21, 2022, the parties filed their respective motions for summary judgment.

The outcome of this matter is not presently determinable.

On August 31, 2022, the District of Columbia (the “District”), through its Office of the Attorney General, filed a civil complaint in the Superior Court of the District of Columbia naming as defendants (i) Michael J.

Saylor, the Chairman of the Company’s Board of Directors and the Company’s Executive Chairman, in his personal capacity, and (ii) the Company.

The District is seeking, among other relief, monetary damages under the District’s False Claims Act for the alleged failure of Mr.

Saylor to pay personal income taxes to the District over a number of years together with penalties, interest, and treble damages.

The complaint alleges that the amount of personal income taxes purportedly involved is more than $ 25 million.

The complaint also alleges that the Company has violated the District’s False Claims Act by conspiring to assist Mr.

Saylor’s alleged failure to pay personal income taxes.

The Company believes that the District’s claims against the Company have no merit and is defending itself aggressively against these allegations.

On October 26, 2022, the Company filed a motion to dismiss the District’s complaint.

The Company filed a motion to stay discovery on September 28, 2022, and the court granted this motion on October 28, 2022.

The outcome of this matter is not presently determinable.

The Company is also involved in various legal proceedings arising in the normal course of business.

6 unchanged sentences

The Share Repurchase Program may be funded using the Company’s working capital, as well as proceeds from any other funding arrangements that the Company may enter into in the future.

During the three and six months ended June 30, 2022 and 2021, the Company did no t repurchase any shares of its class A common stock pursuant to the Share Repurchase Program.

As of June 30, 2022, the Company had repurchased an aggregate of 5,674,226 shares of its class A common stock at an average price per share of $ 104.13 and an aggregate cost of $ 590.9 million pursuant to the Share Repurchase Program.

As of June 30, 2022, $ 209.1 million of the Company’s class A common stock remained available for repurchase pursuant to the Share Repurchase Program.

During the three and nine months ended September 30, 2022 and 2021, the Company did no t repurchase any shares of its class A common stock pursuant to the Share Repurchase Program.

As of September 30, 2022, the Company had repurchased an aggregate of 5,674,226 shares of its class A common stock at an average price per share of $ 104.13 and an aggregate cost of $ 590.9 million pursuant to the Share Repurchase Program.

As of September 30, 2022, $ 209.1 million of the Company’s class A common stock remained available for repurchase pursuant to the Share Repurchase Program.

The average price per share and aggregate cost amounts disclosed above include broker commissions.

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As a result of these factors, and due to potential changes in the Company’s period-to-period results, fluctuations in the Company’s effective tax rate and respective tax provisions or benefits may occur.

For the six months ended June 30, 2022, the Company recorded a provision for income taxes of $ 88.1 million on a pretax loss of $ 1.105 billion, which resulted in an effective tax rate of ( 8.0 )%.

For the six months ended June 30, 2021, the Company recorded a benefit from income taxes of $ 194.5 million on a pretax loss of $ 603.8 million, which resulted in an effective tax rate of 32.2 %.

The change in the effective tax rate, as compared to the same period in the prior year, is primarily due to the establishment of a valuation allowance on the Company’s deferred tax asset related to the impairment on its bitcoin holdings, attributable to the decrease in the market value of bitcoin as of June 30, 2022.

As of June 30, 2022, the Company had a valuation allowance of $ 391.3 million primarily related to the Company’s deferred tax asset related to the impairment on its bitcoin holdings that, in the Company’s present estimation, more likely than not will not be realized.

For the nine months ended September 30, 2022, the Company recorded a provision for income taxes of $ 112.0 million on a pretax loss of $ 1.108 billion, which resulted in an effective tax rate of ( 10.1 )%.

For the nine months ended September 30, 2021, the Company recorded a benefit from income taxes of $ 217.4 million on a pretax loss of $ 662.9 million, which resulted in an effective tax rate of 32.8 %.

As of September 30, 2022, the Company had a valuation allowance of $ 411.8 million primarily related to the Company’s deferred tax asset related to the impairment on its bitcoin holdings that, in the Company’s present estimation, more likely than not will not be realized.

If the market value of bitcoin continues to decline or the Company is unable to regain profitability in future periods, the Company may be required to increase further the valuation allowance against its deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred.

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The Company records liabilities related to its uncertain tax positions.

As of June 30, 2022 and December 31, 2021, the Company had gross unrecognized tax benefits of $ 6.2 million, of which $ 2.1 million was recorded in “Other long-term liabilities” and $ 4.1 million was recorded in “Deferred tax assets, net” in the Company’s Consolidated Balance Sheets.

As of September 30, 2022, the Company had gross unrecognized tax benefits of $ 6.3 million, which was recorded in “Other long-term liabilities” in the Company’s Consolidated Balance Sheet.

As of December 31, 2021, the Company had gross unrecognized tax benefits of $ 6.2 million, of which $ 2.1 million was recorded in “Other long-term liabilities” and $ 4.1 million was recorded in “Deferred tax assets, net” in the Company’s Consolidated Balance Sheet.

(8) Share-based Compensation

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The Company’s 2013 Stock Incentive Plan (as amended, the “2013 Equity Plan”) authorizes the issuance of various types of share-based awards to the Company’s employees, officers, directors, and other eligible participants.

As of June 30, 2022, a total of 2,750,000 shares of the Company’s class A common stock were authorized for issuance under the 2013 Equity Plan.

As of June 30, 2022, there were 179,462 shares of class A common stock reserved and available for future issuance under the 2013 Equity Plan.

As of September 30, 2022, a total of 2,750,000 shares of the Company’s class A common stock were authorized for issuance under the 2013 Equity Plan.

As of September 30, 2022, there were 121,221 shares of class A common stock reserved and available for future issuance under the 2013 Equity Plan.

Stock option awards

As of June 30, 2022, there were options to purchase 1,489,404 shares of class A common stock outstanding under the 2013 Equity Plan.

The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the three months ended June 30, 2022:

As of September 30, 2022, there were options to purchase 1,539,279 shares of class A common stock outstanding under the 2013 Equity Plan.

The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the three months ended September 30, 2022:

Stock Options Outstanding

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Remaining Contractual

Balance as of April 1, 2022

Balance as of July 1, 2022

Forfeited/Expired

Balance as of June 30, 2022

Exercisable as of June 30, 2022

Expected to vest as of June 30, 2022

Stock options outstanding as of June 30, 2022 are comprised of the following range of exercise prices per share (in thousands, except per share data and years):

Stock Options Outstanding at June 30, 2022

Balance as of September 30, 2022

Exercisable as of September 30, 2022

Expected to vest as of September 30, 2022

Stock options outstanding as of September 30, 2022 are comprised of the following range of exercise prices per share (in thousands, except per share data and years):

Stock Options Outstanding at September 30, 2022

Weighted Average

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$600.01 - $691.23

An aggregate of 26,250 stock options with an aggregate grant date fair value of $ 2.3 million vested during the three months ended June 30, 2022.

The weighted average grant date fair value of stock option awards using the Black-Scholes valuation model was $ 152.69 and $ 252.81 for each share subject to a stock option granted during the three months ended June 30, 2022 and 2021, respectively, based on the following assumptions:

An aggregate of 15,625 stock options with an aggregate grant date fair value of $ 0.7 million vested during the three months ended September 30, 2022.

The weighted average grant date fair value of stock option awards using the Black-Scholes valuation model was $ 153.74 and $ 334.40 for each share subject to a stock option granted during the three months ended September 30, 2022 and 2021, respectively, based on the following assumptions:

Three months ended

September 30,

Expected term of options in years

Expected volatility

69.2% - 69.5%

Risk-free interest rate

Expected dividend yield

For the three and six months ended June 30, 2022, the Company recognized approximately $ 12.3 million and $ 22.7 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan.

For the three and six months ended June 30, 2021, the Company recognized approximately $ 8.8 million and $ 14.1 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan.

As of June 30, 2022, there was approximately $ 145.2 million of total unrecognized share-based compensation expense related to unvested stock options.

As of June 30, 2022, the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 3.1 years.

For the three and nine months ended September 30, 2022, the Company recognized approximately $ 12.7 million and $ 35.4 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan.

For the three and nine months ended September 30, 2021, the Company recognized approximately $ 8.9 million and $ 23.0 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan.

As of September 30, 2022, there was approximately $ 141.4 million of total unrecognized share-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted average vesting period of approximately 2.9 years.

Share-settled restricted stock units

As of June 30, 2022, there were 131,953 share-settled restricted stock units outstanding under the 2013 Equity Plan.

As of September 30, 2022, there were 129,969 share-settled restricted stock units outstanding under the 2013 Equity Plan.

The following table summarizes the Company’s share-settled restricted stock unit activity (in thousands) for the periods indicated:

Share-Settled Restricted Stock Units Outstanding

Balance as of April 1, 2022

Balance as of June 30, 2022

Expected to vest as of June 30, 2022

During the three months ended June 30, 2022, 367 share-settled restricted stock units having an aggregate grant date fair value of $ 0.2 million vested, and 134 shares were withheld to satisfy tax obligations, resulting in 233 issued shares.

The weighted average grant date fair value of share-settled restricted stock units granted during the three months ended June 30, 2022 and 2021 was $ 222.66 and $ 616.88 , respectively, based on the fair value of the Company’s class A common stock.

For the three and six months ended June 30, 2022, the Company recognized approximately $ 3.2 million and $ 6.4 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan.

For the three and six months ended June 30, 2021, the Company recognized approximately $ 1.4 million and $ 2.6 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan.

As of June 30, 2022, there was approximately $ 45.2 million of total unrecognized share-

based compensation expense related to unvested share-settled restricted stock units.

As of June 30, 2022 , the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 3 .

Balance as of July 1, 2022

Balance as of September 30, 2022

Expected to vest as of September 30, 2022

During the three months ended September 30, 2022, 5,975 share-settled restricted stock units having an aggregate grant date fair value of $ 4.5 million vested, and 2,012 shares were withheld to satisfy tax obligations, resulting in 3,963 issued shares.

The weighted average grant date fair value of share-settled restricted stock units granted during the three months ended September 30, 2022 and 2021 was $ 249.20 and $ 747.77 , respectively, based on the fair value of the Company’s class A common stock.

For the three and nine months ended September 30, 2022, the Company recognized approximately $ 3.6 million and $ 10.0 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan.

For the three and nine months ended September 30, 2021, the Company recognized approximately $ 2.4 million and $ 5.0 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan.

As of September 30, 2022, there was approximately $ 41.7 million of total unrecognized share-based compensation expense related to unvested share-settled restricted stock units, which the Company expects to recognize over a weighted average vesting period of approximately 2.9 years.

Other stock-based awards and cash-settled restricted stock units

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Due to their required cash settlement feature, these awards are classified as liabilities in the Company’s Consolidated Balance Sheets and the fair value of the awards is remeasured each quarterly reporting period.

For the three and six months ended June 30, 2022, the Company recognized a reduction of approximately $ 0.7 million and $ 0.5 million, respectively, in share-based compensation expense from other stock-based awards and cash-settled restricted stock units.

For the three months ended June 30, 2021, the Company recognized an insignificant amount of share-based compensation expense from other stock-based awards and cash-settled restricted stock units.

For the six months ended June 30, 2021, the Company recognized $ 0.9 million in share-based compensation expense from other stock-based awards and cash-settled restricted stock units.

As of June 30, 2022, there was approximately $ 0.4 million of total unrecognized share-based compensation expense related to other stock-based awards and cash-settled restricted stock units.

As of June 30, 2022, the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 2.7 years, subject to additional fair value adjustments through the earlier of settlement or expiration.

For the three and nine months ended September 30, 2022, the Company recognized approximately $ 0.2 million in share-based compensation expense and a reduction of approximately $ 0.4 million in share-based compensation expense, respectively, from other stock-based awards and cash-settled restricted stock units.

For the three and nine months ended September 30, 2021, the Company recognized $ 0.3 million and $ 1.2 million, respectively, in share-based compensation expense from other stock-based awards and cash-settled restricted stock units.

As of September 30, 2022, there was approximately $ 0.5 million of total unrecognized share-based compensation expense related to other stock-based awards and cash-settled restricted stock units, which the Company expects to recognize over a weighted average vesting period of approximately 2.4 years, subject to additional fair value adjustments through the earlier of settlement or expiration.

The Company also maintains the 2021 Employee Stock Purchase Plan (the “2021 ESPP”).

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An aggregate of 100,000 shares of the Company’s class A common stock has been authorized for issuance under the 2021 ESPP.

During the three months ended June 30, 2022, no shares of class A common stock were issued in connection with the 2021 ESPP.

As of June 30, 2022, 87,938 shares of the Company’s class A common stock remained available for issuance under the 2021 ESPP.

For the three and six months ended June 30, 2022, the Company recognized approximately $ 0.5 million and $ 1.1 million, respectively, in share-based compensation expense related to the 2021 ESPP.

For the three and six months ended June 30, 2021, the Company recognized approximately $ 0.8 million and $ 1.2 million, respectively, in share-based compensation expense related to the 2021 ESPP.

As of June 30, 2022, there was approximately $ 0.3 million of total unrecognized share-based compensation expense related to the 2021 ESPP.

As of June 30, 2022, the Company expects to recognize this remaining share-based compensation expense over a period of approximately 0.2 years.

During the three months ended September 30, 2022, 8,475 shares of class A common stock were issued in connection with the 2021 ESPP.

As of September 30, 2022, 79,463 shares of the Company’s class A common stock remained available for issuance under the 2021 ESPP.

For the three and nine months ended September 30, 2022, the Company recognized approximately $ 0.5 million and $ 1.6 million, respectively, in share-based compensation expense related to the 2021 ESPP.

For the three and nine months ended September 30, 2021, the Company recognized approximately $ 0.6 million and $ 1.8 million, respectively, in share-based compensation expense related to the 2021 ESPP.

As of September 30, 2022, there was approximately $ 1.3 million of total unrecognized share-based compensation expense related to the 2021 ESPP, which the Company expects to recognize over a period of approximately 0.4 years.

Tax Benefits Related to Equity Plans

For the three and six months ended June 30, 2022 and 2021, tax (benefit) expense related to the Company’s equity plans was as follows (in thousands):

For the three and nine months ended September 30, 2022 and 2021, tax benefit related to the Company’s equity plans was as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Tax (benefit) expense related to:

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The Company has never declared or paid any cash dividends on either class A or class B common stock.

As of June 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.

As of September 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.

Potential common shares are included in the diluted earnings per share calculation when dilutive.

Potential common shares consisting of class A common stock issuable upon the exercise of outstanding stock options, the vesting of restricted stock units, and in connection

with the 2021 ESPP are computed using the treasury stock method.

Potential common shares consisting of class A common stock issuable upon the exercise of outstanding stock options, the vesting of restricted stock units, and in connection with the 2021 ESPP are computed using the treasury stock method.

Potential common shares consisting of class A common stock issuable upon conversion of the Convertible Notes are computed using the if-converted method.

In computing diluted earnings per share, the Company first calculates the earnings per incremental share (“EPIS”) for each class of potential common shares and ranks the classes from the most dilutive (i.e.

, lowest EPIS) to the least dilutive (i.e.

, highest EPIS) .

Basic earnings per share is then adjusted for the effect of each class of shares, in sequence and cumulatively, until a particular class no longer produces further dilution.

For the three and six months ended June 30, 2022 and 2021, the following weighted average shares of potential class A common stock were excluded from the diluted loss per share calculation because their impact would have been anti-dilutive (in thousands):

For the three and nine months ended September 30, 2022 and 2021, the following weighted average shares of potential class A common stock were excluded from the diluted loss per share calculation because their impact would have been anti-dilutive (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Stock Options

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2027 Convertible Notes

(10) At-the-Market Equity Offerings

2021 Open Market Offering

On June 14, 2021, the Company entered into an Open Market Sale Agreement (the “2021 Open Market Sale Agreement”) with Jefferies LLC, as agent (“Jefferies”), pursuant to which the Company issued and sold shares of its class A common stock having an aggregate offering price of approximately $ 1.0 billion from time to time through Jefferies (the “2021 Open Market Offering”).

The Company agreed to pay Jefferies commissions for its services in acting as agent in the sale of the shares in the amount of up to 2.0 % of gross proceeds from the sale of shares pursuant to the 2021 Open Market Sale Agreement.

The Company also agreed to provide Jefferies with customary indemnification and contribution rights.

During the three and nine months ended September 30, 2021 the Company issued and sold 555,179 shares of its class A common stock under the 2021 Open Market Sale Agreement, at an average gross price per share of approximately $ 727.64 , for aggregate net proceeds (less $ 4.5 million in sales commissions and expenses) of approximately $ 399.5 million.

The sales commissions and expenses related to the 2021 Open Market Sale Agreement were considered direct and incremental costs and were charged against “Additional paid-in capital” on the balance sheet in the period in which the related shares were issued and sold.

As of December 31, 2021, the cumulative aggregate offering price of the shares of class A common stock sold under the 2021 Open Market Sale Agreement was approximately $ 1.0 billion, inclusive of sales commissions, constituting the maximum program amount under the 2021 Open Market Sale Agreement.

2022 At-the-Market Equity Offering

On September 9, 2022, the Company entered into a Sales Agreement (the “2022 Sales Agreement”) with Cowen and Company LLC and BTIG, LLC, as agents (collectively, the “2022 Sales Agents”), pursuant to which the Company may issue and sell shares of its class A common stock having an aggregate offering price of up to $ 500.0 million from time to time through the 2022 Sales Agents.

The Company agreed to pay the 2022 Sales Agents commissions for their services in acting as agents in the sale of the shares in the amount of up to 2.0 % of gross proceeds from the sale of shares pursuant to the 2022 Sales Agreement.

The Company also agreed to provide the 2022 Sales Agents with customary indemnification and contribution rights.

As of September 30, 2022, the Company has no t issued and sold any shares of class A common stock under the 2022 Sales Agreement.

Expenses totaling $ 0.4 million related to the 2022 Sales Agreement were considered direct and incremental costs and have been deferred on the balance sheet in “Prepaid expenses and other current assets” and will be charged against “Additional paid-in-capital” in future periods in which related shares are issued and sold.

(11) Segment Information

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Other Regions

Three months ended June 30, 2022

Three months ended September 30, 2022

Total revenues

Three months ended June 30, 2021

Three months ended September 30, 2021

Total revenues

Six months ended June 30, 2022

Nine months ended September 30, 2022

Total revenues

Six months ended June 30, 2021

Nine months ended September 30, 2021

Total revenues

As of June 30, 2022

As of September 30, 2022

Long-lived assets

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The other regions include all other foreign countries, generally comprising Latin America and the Asia Pacific region.

For the three and six months ended June 30, 2022 and the six months ended June 30, 2021, no individual foreign country accounted for 10% or more of total consolidated revenues.

For the three months ended June 30, 2021, no individual foreign country other than Germany accounted for 10% or more of total consolidated revenues.

For the three and six months ended June 30, 2022 and 2021, no individual customer accounted for 10% or more of total consolidated revenues.

As of June 30, 2022 and December 31, 2021, no individual foreign country accounted for 10% or more of total consolidated assets.

For the three and nine months ended September 30, 2022 and 2021, no individual foreign country accounted for 10% or more of total consolidated revenues.

For the three and nine months ended September 30, 2022 and 2021, no individual customer accounted for 10% or more of total consolidated revenues.

As of September 30, 2022 and December 31, 2021, no individual foreign country accounted for 10% or more of total consolidated assets.

(12) Related Party Transaction

In June 2021, Michael J.

Saylor , the Company’s Chairman of the Board of Directors & Chief Executive Officer, entered into an indemnification agreement (the “Original Agreement”) with the Company for an initial term of 90 days and subject to successive 90-day term extensions at the election of the Company.

Saylor , the Company’s Chairman of the Board of Directors and Executive Chairman and, at that time, the Company’s Chief Executive Officer, entered into an indemnification agreement (the “Original Agreement”) with the Company for an initial term of 90 days and subject to successive 90-day term extensions at the election of the Company.

All term extensions were exercised, most recently in February 2022 for a final 90-day period that began in March 2022.

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Saylor a one-time fee of $ 388,945 for the initial 90-day term (the “Renewal Payment”).

On June 24, 2022, the Company bound D&O liability insurance policies (the “Commercial Policies”) with several third-party carriers for $ 30 million in coverage.

On June 24, 2022, the Company bound D&O liability insurance policies (the “Initial Commercial Policies”) with several third-party carriers for $ 30 million in coverage.

Concurrently, Mr.

Saylor and the Company also entered into (i) an indemnification agreement (the “Excess Agreement”) for Mr.

Saylor to provide $ 10 million in excess indemnity coverage payable only after the exhaustion of the Commercial Policies, and (ii) an indemnification agreement (the “Tail Agreement”) for Mr.

Saylor to provide $ 40 million in indemnity coverage for claims made at any time based on actions or omissions occurring prior to the inception date of the Commercial Policies.

Saylor to provide $ 10 million in excess indemnity coverage payable only after the exhaustion of the Initial Commercial Policies, and (ii) an indemnification agreement (the “Tail Agreement”) for Mr.

Saylor to provide $ 40 million in indemnity coverage for claims made at any time based on actions or omissions occurring prior to the inception date of the Initial Commercial Policies.

The Company paid Mr.

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At the option of the Company, the Company may elect to extend the term under the Tail Agreement for up to a total of twenty-three additional 90 -day periods, for $ 150,000 per additional 90-day term.

In connection with the execution of the Initial Commercial Policies and the release of his obligations under the Renewed Agreement, Mr.

Saylor refunded the Company $ 337,086 , which is the pro rata portion of the Renewal Payment attributable to the period from the date of the Initial Commercial Policies through the end of the original term of the Renewed Agreement.

On August 30, 2022, the Company bound additional D&O liability insurance policies (the “Excess Commercial Policies”) with third-party carriers for $ 10 million in excess coverage payable only after the exhaustion of the Initial Commercial Policies.

Effective as of the same date, the Company and Mr.

Saylor executed an amendment (the “Amendment”) to the Excess Agreement to limit Mr.

Saylor’s obligation to provide indemnification under the Excess Agreement to claims made during the term of the Excess Agreement which arise from wrongful acts occurring upon or after the commencement of the Excess Agreement but prior to the effective date of the Amendment.

In connection with the Amendment, Mr.

Saylor refunded $ 489,863 to the Company, representing the pro rata portion of the $600,000 originally paid by the Company to Mr.

Saylor under the Excess Agreement attributable to the period from the date of the Amendment through the end of the original term of the Excess Agreement.

Also during the third quarter of 2022, pursuant to the terms of the Tail Agreement, the Company elected to extend the term of the Tail Agreement for an additional 90 -day period and paid Mr.

Saylor $ 150,000 for this extension.

Under the Excess Agreement and Tail Agreement, Mr.

Saylor will provide, during the term of each agreement, from his personal funds, indemnity coverage to the Company for the benefit of the D&Os of the Company and its subsidiaries in the event such coverage is not provided by the Commercial Policies or indemnifiable by the Company.

Saylor will provide, during the term of each agreement, from his personal funds, indemnity coverage to the Company for the benefit of the D&Os of the Company and its subsidiaries in the event such coverage is not provided by the Initial Commercial Policies, the Excess Commercial Policies or indemnifiable by the Company.

The Excess Agreement and the Tail Agreement expressly supersede the Original Agreement and the Renewed Agreement.

Saylor refunded the Company $ 337,086 , which is the pro rata portion of the Renewal Payment, in connection with the release of his obligations under the Renewed Agreement.

Prior to entering into the Original Agreement, Renewed Agreement, Excess Agreement, and Tail Agreement with Mr.

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The Company determined that the policies considered at such times would have provided insufficient coverage and would have required substantial premiums to the extent coverage were available, and that obtaining indemnification coverage provided by Mr.

Saylor was appropriate and in the best interest of the Company.

Saylor was appropriate and in the best interests of the Company.

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. Financial Statements