What changed in this filing

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Item 1. Legal Proceedings

2024-08-06 compared with 2024-05-01 · 113 added, 93 removed, 776 unchanged (21% of the section changed)

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In that event, the market price of our class A common stock may fall.

We may not be able to achieve profitability in future periods

We generated a net loss for the three months ended March 31, 2024, primarily due to digital asset impairment losses, and we may not be able to achieve profitability in future periods.

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.

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 March 31, 2024, we had $919.8 million of deferred tax assets, which reflects a $1.4 million valuation allowance.

As of June 30, 2024, we had $1.032 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.

Changes to the valuation allowance against the deferred tax asset are largely dependent on the change in the market value of bitcoin from the previous reporting date.

During 2023, the value of bitcoin increased substantially which allowed us to release the valuation allowance recorded against the bitcoin holding;

however, if the market value of bitcoin at a future reporting date is less than the average cost basis of our bitcoin holdings at such reporting date, we may be required to establish a valuation allowance against our U.S.

If the market value of bitcoin at a future reporting date is less than the average cost basis of our bitcoin holdings at such reporting date, we may be required to establish a valuation allowance against our U.S.

deferred tax assets.

Additionally, if we do not achieve profitability in the future, we may also be required to increase the valuation allowance against the remaining deferred tax assets.

Additionally, if we are unable to regain profitability in the future, we may also be required to increase the valuation allowance against the remaining deferred tax assets.

A significant increase in the valuation allowance could result in a charge that would materially adversely affect net income in the period in which the charge is incurred.

A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to service our indebtedness

As a result of our bitcoin acquisition strategy and our Treasury Reserve Policy, the majority of our assets are concentrated in our bitcoin holdings.

The concentration of our assets in bitcoin limits our ability to mitigate risk that could otherwise be achieved by purchasing a more diversified portfolio of treasury assets.

Accordingly, a significant decline in the market value of bitcoin could have a material adverse effect on our financial condition.

Any material adverse effect on our financial condition caused by a significant decline in the market value of our bitcoin holdings may create liquidity and credit risks for our business operations, as we would have limited means to obtain cash beyond the revenues generated by our enterprise analytics software business.

To the extent that the cash generated by our enterprise analytics software business is insufficient to satisfy our debt service obligations, and to the extent that the liquidation of our bitcoin holdings would be insufficient to satisfy our debt service obligations, we may be unable to make scheduled payments on our current or future indebtedness, which could cause us to default on our debt obligations.

Any default on our current or future indebtedness may have a material adverse effect on our financial condition.

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

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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.

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tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied in manner that negatively impacts us.

For example, the Biden administration has proposed

For example, the Biden administration has proposed various U.S.

federal tax law changes, which if enacted could have an adverse impact on our business, cash flows, financial condition or results of operations.

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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.

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.

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 broader digital assets industry is subject to counterparty risks, which could adversely impact the adoption rate, price, and use of bitcoin.

A series of recent high-profile bankruptcies, closures, liquidations, regulatory enforcement actions and other events relating to companies operating in the digital asset industry, including the filings for bankruptcy protection by Three Arrows Capital, Celsius Network, Voyager Digital, FTX Trading and Genesis Global Capital, the closure or liquidation of certain financial institutions that

provided lending and other services to the digital assets industry, including Signature Bank and Silvergate Bank, SEC enforcement actions against Coinbase, Inc.

and Binance Holdings Ltd., the placement of Prime Trust, LLC into receivership following a cease-and-desist order issued by Nevada’s Department of Business and Industry, and the filing and subsequent settlement of a civil fraud lawsuit by the New York Attorney General against Genesis Global Capital, its parent company Digital Currency Group, Inc., and former partner Gemini Trust Company, have highlighted the counterparty risks applicable to owning and transacting in digital assets.

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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 the hacked cryptocurrency exchange Mt.

cryptocurrency exchange Mt.

Gox which began in July 2024;

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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(iii) additional filings for bankruptcy protection or bankruptcy proceedings of major digital asset industry participants, such as the bankruptcy proceeding of FTX Trading and its affiliates;

and (iv) the actual or perceived environmental impact of bitcoin and related activities, including environmental concerns raised by private

individuals, governmental and non-governmental organizations, and other actors related to the energy resources consumed in the bitcoin mining process;

and (iv) the actual or perceived environmental impact of bitcoin and related activities, including environmental concerns raised by private individuals, governmental and non-governmental organizations, and other actors related to the energy resources consumed in the bitcoin mining process;

• changes in consumer preferences and the perceived value or prospects of bitcoin;

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• regulatory, legislative, enforcement and judicial actions that adversely affect the price, ownership, transferability, trading volumes, legality or public perception of bitcoin, or that adversely affect the operations of or otherwise prevent digital asset custodians, trading venues, lending platforms or other digital assets industry participants from operating in a manner that allows them to continue to deliver services to the digital assets industry;

• further reductions in mining rewards of bitcoin due to block reward halving events, which are events that occur after a specific period of time (the most recent of which occurred on April 19, 2024) that reduce the block reward earned by “miners” who validate bitcoin transactions, increases in the costs associated with bitcoin mining, including increases in electricity costs and hardware and software used in mining, or new or enhanced regulation or taxation of bitcoin mining, which could further increase the costs associated with bitcoin mining, any of which may cause a decline in support for the Bitcoin network;

• further reductions in mining rewards of bitcoin, including due to block reward halving events, which are events that occur after a specific period of time (the most recent of which occurred on April 19, 2024) that reduce the block reward earned by “miners” who validate bitcoin transactions, or increases in the costs associated with bitcoin mining, including increases in electricity costs and hardware and software used in mining, or new or enhanced regulation or taxation of bitcoin mining, which could further increase the costs associated with bitcoin mining, any of which may cause a decline in support for the Bitcoin network;

• transaction congestion and fees associated with processing transactions on the Bitcoin network;

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• developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography used by the Bitcoin blockchain becoming insecure or ineffective;

• changes in national and international economic and political conditions, including, without limitation, the adverse impact attributable to the economic and political instability caused by the current conflict between Russia and Ukraine and the economic sanctions adopted in response to the conflict, and the potential broadening of the Israel-Hamas conflict to other countries in the Middle East.

A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to service our indebtedness

As a result of our bitcoin acquisition strategy and our Treasury Reserve Policy, the majority of our assets are concentrated in our bitcoin holdings.

The concentration of our assets in bitcoin limits our ability to mitigate risk that could otherwise be achieved by purchasing a more diversified portfolio of treasury assets.

Accordingly, a significant decline in the market value of bitcoin could have a material adverse effect on our financial condition.

to obtain cash beyond the revenues generated by our enterprise analytics software business.

Any default on our current or future indebtedness may have a material adverse effect on our financial condition.

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.

• changes in national and international economic and political conditions, including, without limitation, developments and events relating to the 2024 U.S.

presidential election, the adverse impacts attributable to the current conflict between Russia and Ukraine and the economic sanctions adopted in response to the conflict, and the potential broadening of the Israel-Hamas conflict to other countries in the Middle East.

Bitcoin and other digital assets are novel assets, and are subject to significant legal, commercial, regulatory and technical uncertainty

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While the executive order did not mandate the adoption of any specific regulations, it instructed various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S.

central bank digital currency (“CBDC.”) A number of reports issued pursuant to the executive order have focused on various risks related to the digital asset ecosystem, and have recommended additional legislation and regulatory oversight.

central bank digital currency (“CBDC”).

A number of reports issued pursuant to the executive order have focused on various risks related to the digital asset ecosystem, and have recommended additional legislation and regulatory oversight.

On September 16, 2022, the White House released a framework for digital asset development, based on reports from various government agencies, including the U.S.

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• The European Union’s Markets in Crypto Assets Regulation (“MiCA”), a comprehensive digital asset regulatory framework for the issuance and use of digital assets, like bitcoin, became effective in June 2023, with various requirements phasing into effect through 2024.

MiCA also requires the European Commission (i) to provide a report on the environmental impact of crypto-assets and (ii) based upon such report, introduce mandatory minimum sustainability standards for consensus

mechanisms, including the proof-of-work consensus mechanisms on which the Bitcoin blockchain is based.

The initial report was prepared in October 2023 and final standards are expected to be adopted in June 2024.

• On June 5, 2023, the SEC filed a complaint against Binance Holdings Ltd.

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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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The growth of the digital assets industry in general, and the use and acceptance of bitcoin in particular, may also impact the price of bitcoin and is subject to a high degree of uncertainty.

The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying, accessing or gaining exposure to bitcoin, institutional demand for bitcoin as an investment asset, the participation of traditional financial institutions in the digital assets industry, consumer demand for

bitcoin as a means of payment, and the availability and popularity of alternatives to bitcoin.

Even if growth in bitcoin adoption occurs in the near or medium-term, there is no assurance that bitcoin usage will continue to grow over the long-term.

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.

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.

Recent actions by U.S.

banking regulators have reduced the ability of bitcoin-related services provides to access to banking services, including (i) the issuance of the February 23, 2023 “Interagency Liquidity Risk Statement” by the Federal banking agencies cautioning banks on contagion risks posed by providing services to digital assets customers, (ii) the Federal Reserve Board’s denial of Custodia Bank’s application of a Federal Reserve account, and (iii) the inclusion of crypto-related divestiture conditions in recent merger transaction approvals.

The program will focus on novel activities related to crypto-assets, distributed ledger technology, and complex, technology-driven partnerships with nonbanks to deliver financial services to customers.

banking regulators have reduced access to banking services for bitcoin-related customers and service providers.

Such actions include (i) the issuance of the February 23, 2023 “Interagency Liquidity Risk Statement” by the Federal banking agencies cautioning banks on contagion risks posed by providing services to digital assets customers, (ii) the Federal Reserve Board’s denial of Custodia Bank’s application of a Federal Reserve account, and (iii) the inclusion of crypto-related divestiture conditions in recent merger transaction approvals.

Additionally, in August 2023, the Federal Reserve established a Novel Activities Supervision Program to enhance the supervision of novel activities conducted by banking organizations supervised by the Federal Reserve, such as activities relating to crypto-assets, distributed ledger technology, and complex, technology-driven partnerships with nonbanks to deliver financial services to customers.

Liquidity of bitcoin may also be impacted to the extent that changes in applicable laws and regulatory requirements negatively impact the ability of exchanges and trading venues to provide services for bitcoin and other digital assets.

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The price of bitcoin has historically been subject to dramatic price fluctuations and is highly volatile.

As explained more fully in Note 2(g) to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, we determine the fair value of our bitcoin based on quoted (unadjusted) prices on the Coinbase exchange (our principal market for bitcoin).

As explained more fully in Note 2(g) to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, we determine the fair value of our bitcoin based on quoted (unadjusted) prices on the Coinbase exchange (our principal market for bitcoin).

We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted (unadjusted) prices on the active exchange, indicate that it is more likely than not that any of our bitcoin assets are impaired.

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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 March 31, 2024, we carried $5.074 billion of digital assets on our balance sheet, consisting of approximately 214,278 bitcoins and reflecting $2.461 billion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $81.3 million in cash and cash equivalents, compared to a carrying value of $2.000 billion of digital assets, consisting of approximately 140,000 bitcoins, and $94.3 million in cash and cash equivalents at March 31, 2023.

Digital asset impairment losses of $191.6 million incurred during the three months ended March 31, 2024 represented 66.3% of our operating expenses and contributed to our net loss of $53.1 million for the three months ended March 31, 2024, compared to $18.9 million in digital asset impairment losses incurred during the three months ended March 31, 2023 which represented 16.5% of our operating expenses and were included in our net income of $461.2 million for the three months ended March 31, 2023.

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.

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.

The availability of spot bitcoin ETPs may adversely affect the market price of our class A common stock

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

Although bitcoin and other digital assets have experienced a surge of investor attention since bitcoin was invented in 2008, until recently investors in the United States had limited means to gain direct exposure to bitcoin through traditional investment channels, and instead generally were only able to hold bitcoin through “hosted” wallets provided by digital asset service providers or through “unhosted” wallets that expose the investor to risks associated with loss or hacking of their private keys.

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To the extent investors view our class A common stock as providing exposure to bitcoin, it is possible that the value of our class A common stock may also have included a premium over the value of our bitcoin due to the prior scarcity of traditional investment vehicles providing investment exposure to bitcoin, and that the value declined due to investors now having a greater range of options to gain exposure to bitcoin and investors choosing to gain such exposure through ETPs rather than our class A common stock.

Although we are an operating company, and we believe we offer a different value proposition than a passive bitcoin investment vehicle such as a spot bitcoin ETP, investors may nevertheless view our class A common stock as an alternative to an investment in an ETP, and choose to purchase shares of a spot bitcoin ETP instead of our class A common stock.

Additionally, on May 23, 2024, the SEC approved rule changes permitting the listing and trading of spot ETPs that invest in ether, the main crypto asset supporting the Ethereum blockchain.

The approved spot ETPs commenced trading directly to the public on July 23, 2024.

The listing and trading of spot ETPs for ether offers investors another alternative to gain exposure to digital assets, which could result in a decline in the trading price of bitcoin as well as a decline in the value of our class A common stock relative to the value of our bitcoin.

Although we are an operating company, and we believe we offer a different value proposition than a bitcoin investment vehicle such as a spot bitcoin ETP, investors may nevertheless view our class A common stock as an alternative to an investment in an ETP, and choose to purchase shares of a spot bitcoin ETP instead of our class A common stock.

They may do so for a variety of reasons, including if they believe that ETPs offer a “pure play” exposure to bitcoin that is generally not subject to federal income tax at the entity level as we are, or the other risk factors applicable to an operating business, such as ours.

Additionally, unlike spot bitcoin ETPs, we (i) do not seek for our shares of Class A common stock to track the value of the underlying bitcoin we hold before payment of expenses and liabilities, (ii) do not benefit from various exemptions and relief under the Securities Exchange Act of 1934, as amended, including Regulation M, and other securities laws, which enable spot bitcoin ETPs to continuously align the value of their shares to the price of the underlying bitcoin they hold through share creation and redemption, (iii) are a Delaware corporation rather than a statutory trust, and do not operate pursuant to a trust agreement that would require us to pursue one or more stated investment objectives, and (iv) are not required to provide daily transparency as to our bitcoin holdings or our daily NAV.

Additionally, unlike spot bitcoin ETPs, we (i) do not seek for our shares of Class A common stock to track the value of the underlying bitcoin we hold before payment of expenses and liabilities, (ii) do not benefit from various exemptions and relief under the Securities Exchange Act of 1934, as amended, including Regulation M, and other securities laws, which enable ETPs to continuously align the value of their shares to the price of the underlying assets they hold through share creation and redemption, (iii) are a Delaware corporation rather than a statutory trust, and do not operate pursuant to a trust agreement that would require us to pursue one or more stated investment objectives, and (iv) are not required to provide daily transparency as to our bitcoin holdings or our daily NAV.

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.

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

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.

Our bitcoin acquisition strategy subjects us to enhanced regulatory oversight

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national securities exchange with continuous share creation and redemption at NAV.

Even though we are not, and do not function in the manner of, a spot bitcoin

ETP, it is possible that we nevertheless could face regulatory scrutiny from the SEC or other federal or state agencies due to our bitcoin holdings.

Even though we are not, and do not function in the manner of, a spot bitcoin ETP, it is possible that we nevertheless could face regulatory scrutiny from the SEC or other federal or state agencies due to our bitcoin holdings.

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 April 26, 2024, approximately 38,679 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.

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.

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

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Any actual or perceived false trading in the bitcoin market, and any other fraudulent or manipulative acts and practices, could adversely affect the value of our bitcoin.

Negative perception, a lack of stability in the broader bitcoin markets and the closure, temporary shutdown or operational disruption of bitcoin trading venues, lending institutions, institutional investors, institutional miners, custodians, or other major participants in the bitcoin ecosystem, due to fraud, business failure, cybersecurity events, government-mandated regulation, bankruptcy, or for any other reason, may result in a decline in confidence in bitcoin and the broader bitcoin ecosystem and greater

volatility in the price of bitcoin.

For example, in 2022, each of Celsius Network, Voyager Digital, Three Arrows Capital, FTX, and BlockFi filed for bankruptcy, following which the market prices of bitcoin and other digital assets significantly declined.

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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 April 26, 2024, we held approximately 214,400 bitcoins that were acquired at an aggregate purchase price of $7.543 billion and we intend to purchase additional bitcoin and increase our overall holdings of bitcoin in the future.

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.

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 March 31, 2024, bitcoin was the largest digital asset by market capitalization.

As of June 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 March 31, 2024, two of the seven largest digital assets by market capitalization are U.S.

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

dollar-pegged stablecoins.

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Additionally, we may be unable to enter into term loans or other capital raising transactions collateralized by our unencumbered bitcoin or otherwise generate funds using our bitcoin holdings, including in particular during times of market instability or when the price of bitcoin has declined significantly.

If we are unable to sell our bitcoin, enter into additional capital raising transactions using bitcoin as collateral, or otherwise generate funds using our bitcoin holdings, or if

we are forced to sell our bitcoin at a significant loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted.

If we are unable to sell our bitcoin, enter into additional capital raising transactions using bitcoin as collateral, or otherwise generate funds using our bitcoin holdings, or if we are forced to sell our bitcoin at a significant loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted.

If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our bitcoin, or if our private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our bitcoin and our financial condition and results of operations could be materially adversely affected

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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 March 31, 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.

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.

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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Our revenue is derived from sales of our analytics software platform and related services.

Although demand for analytics software has continued to grow, 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.

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.

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.

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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 three months ended March 31, 2024, transactions by channel partners for which we recognized revenue accounted for 45.3% 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 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.

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.

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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 $222.4 million as of March 31, 2024.

Our deferred revenue and advance payments totaled $210.8 million as of June 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 $115.7 million of other remaining performance obligations as of March 31, 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 $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.

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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The presence or absence of one or more large transactions in a particular period may have a material effect on our revenues and operating results for that period and may result in lower estimated revenues and earnings in future periods.

For the three months ended March 31, 2024, our top three product licenses transactions with recognized revenue totaled $3.0 million, or 23.4% of total product licenses revenues, compared to $4.0 million, or 22.9% of total product licenses revenues, for the three months ended March 31, 2023.

Our offerings face intense competition, which may lead to lower prices for our offerings, reduced gross margins, loss of market share, and reduced revenue

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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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Additionally, in March 2024, the European Commission passed the Artificial Intelligence Act.

Other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging.

Other jurisdictions, including certain U.S.

states, have adopted or may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging.

These restrictions may make it harder for us to conduct our business using AI, lead to regulatory fines or penalties, require us to change our product offerings or business practices, or prevent or limit our use of AI.

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We believe our future success depends largely on our ability to continue to rapidly develop new and innovative product offerings and enhancements to our existing offerings that achieve market acceptance, maintain and improve our current offerings, support popular operating systems and databases, maintain technological competitiveness, and meet an expanding range of customer requirements.

Analytics applications, and applications that leverage the Bitcoin blockchain and Lighting Network, can be complex, and research and development for these types of applications can be costly and time consuming.

Analytics applications, and applications that leverage the Bitcoin blockchain, can be complex, and research and development for these types of applications can be costly and time consuming.

In the case of new or contemplated offerings, we may not be able to identify business use cases for such offerings, and we have in the past and may in the future cease, delay or reallocate resources away from further development of or marketing efforts for such offerings.

In addition, customers may delay their purchasing decisions because they anticipate that new or enhanced versions of our offerings will soon become available or because of concerns regarding the complexity of migration or performance issues related to new offerings.

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The functionalities of our software depend in part on the ability of our software to interface with our customers’ information technology (“IT”) infrastructure and cloud environments, including software applications, network infrastructure, and end user devices, which are supplied to our customers by various other vendors.

our software to help ensure that it continues to effectively interoperate with our customers’ IT infrastructure and cloud environments.

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.

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 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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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 44.1% and 42.8% of our total revenues for the three months ended March 31, 2024 and 2023, respectively.

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.

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

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Compliance with Government Contracting Requirements.

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.

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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Any systems failure or security breach that results in the release of, or unauthorized access to, personal data, or any failure or perceived failure by us or our third-party service providers to comply with applicable privacy policies, contractual obligations, or any applicable laws or regulations relating to privacy or data protection, could result in proceedings against us by domestic or foreign government entities or others, including private plaintiffs in litigation.

Such proceedings could result in the imposition of sanctions, fines, penalties,

liabilities, government orders, and/or orders requiring that we change our data practices, any of which could have a material adverse effect on our business, operating results, reputation, and financial condition.

Such proceedings could result in the imposition of sanctions, fines, penalties, liabilities, government orders, and/or orders requiring that we change our data practices, any of which could have a material adverse effect on our business, operating results, reputation, and financial condition.

and foreign government bodies may enact new or additional laws or regulations, or issue rulings that invalidate prior laws or regulations, concerning privacy, data storage, data protection, and cross-border transfer of data that could materially adversely impact our business.

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China also adopted new legislation on the protection of privacy and personal data in November 2021, including the Personal Information Protection Law (“PIPL and Data Security Law”) that impose new data processing obligations on us.

Under these new regulations, if an entity operating in China violates the law, regulators

may order it to take corrective actions, issue warnings, confiscate illegal income, suspend services, revoke operating permits or business licenses, or issue a fine.

Under these new regulations, if an entity operating in China violates the law, regulators may order it to take corrective actions, issue warnings, confiscate illegal income, suspend services, revoke operating permits or business licenses, or issue a fine.

The fine can be up to ¥50 million or 5 percent of an organization’s annual revenue for the prior financial year.

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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.

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.

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 $1,282.38 as of April 26, 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 April 24, 2024, there are 1,964,025 shares of class B common stock outstanding, which accounts for approximately 55.5% of the total voting power of our outstanding common stock.

As of April 24, 2024, Mr.

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.

Saylor, our Chairman of the Board of Directors and Executive Chairman, beneficially owned 1,961,668 shares of class B common stock, or 52.9% of the total voting power.

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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 and (iii) $603.75 million aggregate principal amount of 2031 Convertible Notes.

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.

We cannot predict:

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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 March 31, 2024, we had $3.614 billion aggregate indebtedness, consisting of $650.0 million aggregate principal amount of 2025 Convertible Notes, $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, $500.0 million aggregate principal amount of 2028 Secured Notes and $10.2 million of other long-term indebtedness.

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

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.

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.

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We may not have sufficient funds available to pay the amounts due upon any such default, particularly in the event that there has been a decrease in the market value of our bitcoin holdings, 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.

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.

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

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• merge or consolidate;

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

• enter into certain transactions with affiliates.

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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 2025 Convertible Notes (which is September 15, 2025), (ii) 91 days prior to the existing maturity date of the 2027 Convertible Notes (which is November 16, 2026), or (iii) 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 2025 Convertible Notes, the 2027 Convertible Notes, or such future convertible debt, as applicable, remains outstanding.

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 in cash conversions of the Convertible Notes 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, 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 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

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 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).

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.

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.

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

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.

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, 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.

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

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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 March 31, 2024, had a carrying value of $3.468 billion on our Consolidated Balance Sheet, representing 54.7% of our consolidated total assets at such date.

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.

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.

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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