What changed in this filing

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Item 1A. Risk Factors

2022-08-02 compared with 2022-05-03 · 131 added, 110 removed, 572 unchanged (30% of the section changed)

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We may not be able to regain or increase profitability in the future

We generated a net loss for the three months ended March 31, 2022, primarily due to digital asset impairment losses, and we may not be able to regain or increase profitability on a quarterly or annual basis in the future.

We generated a net loss for the six months ended June 30, 2022, primarily due to digital asset impairment losses, and we may not be able to regain or increase profitability on a quarterly or annual basis in the future.

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 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, 2022, we had $377.3 million of deferred tax assets, which reflects a $1.0 million valuation allowance.

As of June 30, 2022, we had $243.4 million of deferred tax assets, which reflects a $391.3 million valuation allowance.

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

If the market value of bitcoin declines, we may be required to increase the valuation allowance against the deferred tax asset.

If the market value of bitcoin continues to decline, we may be required to increase further the valuation allowance against the deferred tax asset.

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

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Our bitcoin acquisition strategy exposes us to various risks associated with bitcoin

In September 2020, our Board of Directors adopted our Treasury Reserve Policy, under which our treasury reserve assets will consist of (i) Cash Assets held by us that exceed working capital requirements and (ii) bitcoin held by us, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets.

In the first quarter of 2021, we adopted, in addition to and in conjunction with our Treasury Reserve Policy, a corporate strategy of acquiring and holding bitcoin.

Pursuant to this strategy, and from time to time, subject to market conditions, we may issue debt or equity securities or engage in other capital raising transactions with the objective of using the proceeds to purchase additional bitcoin.

We are continually examining the risks and rewards of our bitcoin acquisition strategy.

This strategy has not been tested over time or under various market conditions.

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

If bitcoin prices fall or our bitcoin acquisition strategy otherwise proves unsuccessful, it would adversely impact our financial condition, results of operations, and the market price of our class A common stock.

As of May 2, 2022, we held approximately 129,218 bitcoins that were acquired at an aggregate purchase price of $3.967 billion and an average purchase price of approximately $30,700 per bitcoin, inclusive of fees and expenses.

These purchases included purchases of bitcoin using the net proceeds from our issuance of $650.0 million aggregate principal amount of our 2025 Convertible Notes in the fourth quarter of 2020, our issuance of $1.050 billion aggregate principal amount of our 2027 Convertible Notes in the first quarter of 2021, our issuance of $500.0 million aggregate principal amount of our 2028 Secured Notes in the second quarter of 2021, our issuance and sale of 1,413,767 shares of our class A common stock pursuant to the Open Market Sale Agreement in the third and fourth quarters of 2021, and our borrowing of $205.0 million pursuant to our 2025 Secured Term Loan.

As part of our overall corporate strategy, we expect to purchase additional bitcoin in future periods, though we may also sell bitcoin in future periods as needed to generate Cash Assets for treasury management purposes.

While our bitcoin is currently owned directly by us or our wholly owned subsidiaries, we may investigate other potential approaches to holding our bitcoin assets.

If we change the means by which we hold our bitcoin assets, the accounting treatment for our bitcoin, as well as our ability to use our bitcoin as collateral for additional borrowings, may correspondingly change.

A change in the accounting treatment of our bitcoin holdings could have a material impact on our results of operations in future periods and could increase the volatility of our reported results of operations as well as affect the carrying value of our bitcoin on our balance sheet, which in turn could have a material adverse effect on our financial results and the market price of our class A common stock.

Bitcoin is a highly volatile asset that has traded below $20,000 per bitcoin and above $65,000 per bitcoin on the Coinbase exchange (our principal market for bitcoin) in the 12 months preceding the date of this Quarterly Report.

During the six months ended June 30, 2022, the significant decrease in the trading price of bitcoin significantly reduced the value of the bitcoin we hold.

Bitcoin does not pay interest or other returns and so our ability to generate cash from our bitcoin holdings depends on sales or implementing strategies that we may consider to create income streams or otherwise generate funds using our bitcoin holdings, including lending bitcoin to counterparties.

The impact of our bitcoin holdings on our financial results and the market price of our class A common stock will increase as we increase our overall holdings of bitcoin in the future.

As of the date of this Quarterly Report on Form 10-Q, we have not implemented any such revenue generating strategies.

If we continue to increase our overall holdings of bitcoin in the future, our bitcoin holdings will have a greater impact on our financial results and the market price of our Class A common stock.

See “Risks Related to Our Bitcoin Acquisition Strategy and Holdings – Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our bitcoin holdings.”

We are continually examining the risks and rewards of our bitcoin acquisition strategy.

This strategy has not been tested over time or under various market conditions.

For example, although we believe bitcoin can serve as a hedge against inflation in the long term, the short term price of bitcoin can be volatile or decline even as the inflation rate may increase.

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

If bitcoin prices continue to fall or our bitcoin acquisition strategy otherwise proves unsuccessful, it would adversely impact our financial condition, results of operations, and the market price of our class A common stock.

All of the bitcoin we own is held in custody accounts at institutional grade digital asset custodians.

We believe that existing law and the terms and conditions of our contractual arrangements with our custodians would not result in the bitcoin held by our custodians being considered part of the custodian’s bankruptcy estate were the custodian to file for bankruptcy.

However, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial accounts and, if our custodially-held bitcoin were, in the event of a bankruptcy of any of our custodians, nevertheless considered to be the property of a bankruptcy estate, the bitcoin custodially-held on our behalf could be subject to bankruptcy proceedings and we could be treated as a general unsecured creditor of the custodian, inhibiting our ability to exercise ownership rights with respect to such bitcoin.

Any such outcome could have a material adverse effect on our financial condition and the market price of our class A common stock.

While our bitcoin is currently owned directly by us or our wholly owned subsidiaries, we may investigate other potential approaches to owning bitcoin, including indirect ownership (for example, through ownership interests in a fund that owns bitcoin).

If we were to own all or a portion of our bitcoin indirectly, the accounting treatment for our bitcoin, as well as our ability to use our bitcoin as collateral for additional borrowings, may correspondingly change.

The price of bitcoin may be influenced by regulatory, commercial, and technical factors that are highly uncertain, and fluctuations in the price of bitcoin are likely to influence our financial results and the market price of our class A common stock

Fluctuations in the price of bitcoin are likely to influence our financial results and the market price of our class A common stock.

Our financial results and the market price of our class A common stock would be adversely affected and our business and financial condition could be negatively impacted if the price of bitcoin decreased substantially, including as a result of:

Fluctuations in the price of bitcoin have in the past and are likely to continue to influence our financial results and the market price of our class A common stock.

Our financial results and the market price of our class A common stock would be adversely affected, and our business and financial condition would be negatively impacted, if the price of bitcoin decreased substantially, including as a result of:

decreased user and investor confidence in bitcoin;

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changes in consumer preferences and the perceived value of bitcoin;

competition from other crypto assets that exhibit better speed, security, scalability, or other characteristics, or that are backed by governments, including the U.S.

the correlation between the prices of digital assets, including the potential that a crash in one digital asset or widespread defaults on one digital asset exchange or trading venue may cause a crash in the price of bitcoin, or a series of defaults by counterparties on bitcoin asset exchanges or trading venues;

competition from other digital assets that exhibit better speed, security, scalability, or energy efficiency, that feature other more favored characteristics, that are backed by governments, including the U.S.

government, or reserves of fiat currencies, or that represent ownership or security interests in physical assets;

due to the correlation between the prices of bitcoin and other digital assets, a decrease in the price of other digital assets, including as a result of a crash in one or more digital assets or platforms, such as the May 2022 crash of the stablecoin Terra USD or widespread defaults on digital asset exchanges, trading venues or lending platforms, such as the crash and subsequent filing for bankruptcy protection of the digital asset lending platform Celsius Network;

the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed bitcoin, or the transfer of substantial amounts of bitcoin from bitcoin wallets attributed to Mr.

interruptions in service or failures of the principal markets for bitcoin;

interruptions in service or failures of the principal markets for bitcoin, for example the announcement by the digital asset lending firm Celsius Network that it would freeze withdrawals and transfers from its accounts and subsequent filing for bankruptcy protection;

the bankruptcy, liquidation, or market concerns about the financial viability, of one or more digital asset custodians, trading venues, lending platforms, or investment funds, such as the digital asset lending platforms, Celsius Network and Voyager Digital Holdings, filing for bankruptcy protection in 2022, and the ordered liquidation of the digital asset investment fund, Three Arrows Capital, in 2022;

regulatory actions that adversely affect the price, ownership, transferability, or public perception of bitcoin, or that adversely affect the operations of digital asset custodians or trading venues;

further reductions in mining rewards of bitcoin, including block reward halving events, which are events that occur after a specific period of time that reduce the block reward earned by “miners” who validate bitcoin transactions;

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

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 Russian and Ukraine and the economic sanctions adopted in response to the conflict.

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.

In addition, bitcoin and other digital assets are relatively novel and are subject to various risks and uncertainties that may adversely impact their price.

The application of securities laws and other regulations to such assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may create new regulations or interpret laws in a manner that adversely affects the price of bitcoin.

The application of securities laws and other laws and regulations to such assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of bitcoin.

federal government, states, regulatory agencies, and foreign countries may also enact new laws and regulations that could materially impact the price of bitcoin or the ability of individuals or institutions such as us to own bitcoin.

For example, on March 9, 2022, President Biden signed an executive order relating to cryptocurrencies.

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Central Bank digital currency.

On April 4, 2022, SEC Chairman Gary Gensler announced that he has asked SEC staff to work (i) to register and regulate digital asset platforms like securities exchanges;

(ii) with the Commodities Futures Trading Commission on how to jointly address digital asset platforms that trade both securities and non-securities;

(iii) on segregating out digital asset platforms’ custody of customer assets, if appropriate;

and (iv) on segregating out the market making functions of digital asset platforms, if appropriate.

Similarly, foreign government authorities have recently expanded their efforts to restrict certain activities related to bitcoin and other digital assets.

In the European Union, in March of 2022, the EU parliament’s Economic and Monetary Affairs Committee voted to advance a new draft of the Markets in Crypto Assts framework, which contains provisions which may limit the use of digital assets that use “proof-of-work” validation, like bitcoin.

In the European Union, in June 2022, the EU Parliament and the Council of the EU agreed to advance the draft Markets in Crypto Assets regulation, which contains provisions which may regulate the use of digital assets, like bitcoin.

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

In India, it has been reported that the Ministry of Corporate Affairs has circulated draft legislation that would prohibit mining, holding, selling, trading, or using cryptocurrencies in the country.

Similarly, the Central Bank of the Russian Federation issued a report in January 2022 advocating for a wide-ranging ban on crypto-related activities including the issuance, exchange, and mining of cryptocurrencies in Russian territory, citing threats to financial stability, citizens’ wellbeing and its monetary policy sovereignty.

Moreover, the risks of engaging in a bitcoin-focused business strategy are relatively novel and have created, and may create further, complications due to the lack of experience that third parties have with companies engaging in such a business, such as the unavailability of director and officer liability insurance on acceptable terms.

Moreover, the risks of engaging in a bitcoin acquisition strategy are relatively novel and have created, and may create further, complications due to the lack of experience that third parties have with companies engaging in such a strategy, such as the unavailability on acceptable terms, or increased cost, of director and officer liability insurance.

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.

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

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

affect the price of bitcoin.

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

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As a result, any decrease in the fair value of bitcoin below our carrying value for such assets at any time since their acquisition requires us to incur an impairment charge, and such charge could be material to our financial results for the applicable reporting period, which may create significant volatility in our reported earnings and decrease the carrying value of our digital assets, which in turn could have a material adverse effect on the market price of our class A common stock.

At March 31, 2022, we carried $2.896 billion of digital assets on our balance sheet, consisting of approximately 129,218 bitcoins and reflecting $1.071 billion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $92.7 million in cash and cash equivalents, compared to a carrying value of $1.947 billion of digital assets, consisting of approximately 91,326 bitcoins, and $82.5 million in cash and cash equivalents at March 31, 2021.

Digital asset impairment losses of $170.1 million incurred during the three months ended March 31, 2022 represented 64.5% of our operating expenses, compared to $194.1 million in digital asset impairment losses representing 68.5% of our operating expenses in the three months ended March 31, 2021, contributing to our net loss of $130.8 million for the three months ended March 31, 2022 compared to net loss of $110.0 million for the three months ended March 31, 2021.

At June 30, 2022, we carried $1.988 billion of digital assets on our balance sheet, consisting of approximately 129,699 bitcoins and reflecting $1.989 billion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $69.4 million in cash and cash equivalents, compared to a carrying value of $2.051 billion of digital assets, consisting of approximately 105,085 bitcoins, and $56.4 million in cash and cash equivalents at June 30, 2021.

Digital asset impairment losses of $1.088 billion incurred during the six months ended June 30, 2022 represented 85.1% of our operating expenses, contributing to our net loss of $1.193 billion for the six months ended June 30, 2022, compared to $618.9 million in digital asset impairment losses in the six months ended June 30, 2021 representing 77.4% of our operating expenses and contributing to our net loss of $409.4 million for the six months ended June 30, 2021.

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.

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To the extent investors view the value of our class A common stock as providing such exposure, it is possible that the value of our class A common stock also includes a premium over the value of our bitcoin.

Another reason for the substantial premium to NAV exhibited by the trading prices of shares of some bitcoin investment vehicles is that such vehicles operate in a manner similar to closed-end investment funds as opposed to exchange-traded funds (“ETFs”) and therefore do not continuously offer to create and redeem their shares at NAV in exchange for bitcoin.

Another reason for the substantial premium to NAV historically exhibited by the trading prices of shares of some bitcoin investment vehicles is that such vehicles operate in a manner similar to closed-end investment funds as opposed to exchange-traded funds (“ETFs”) and therefore do not continuously offer to create and redeem their shares at NAV in exchange for bitcoin.

Although several bitcoin investment vehicles have attempted to list their shares on a U.S.

national securities exchange to permit them to function in the manner of an ETF with continuous share creation and redemption at NAV, the SEC has generally declined to approve any such listing, citing concerns over the surveillance of trading in markets for the underlying bitcoin as well as concerns about fraud and manipulation in bitcoin trading markets.

Most recently, in June 2022 the SEC denied proposals from NYSE Arca, Inc.

to convert Grayscale Bitcoin Trust into a spot bitcoin ETF and to list and trade shares of the Bitwise Bitcoin ETF.

However, in October 2021, the SEC permitted the listing of the ProShares Bitcoin Strategy ETF (the “ProShares ETF”), an ETF that invests primarily in bitcoin futures contracts.

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Even though we do not function in the manner of an ETF and do not offer continuous share creation and redemption at NAV, it is possible that we nevertheless could face regulatory scrutiny from the SEC, as a company with a class of securities registered under the Exchange Act and traded on The Nasdaq Global Select Market.

In addition, as digital assets, including bitcoin, have grown in popularity and market size, 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 recently imposed in response to the ongoing conflict between Russia and Ukraine.

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 recently 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.

We may consider issuing debt or other financial instruments that may be collateralized by our bitcoin holdings and may consider strategies to create income streams or otherwise generate funds using our bitcoin holdings, including lending bitcoin to counterparties.

To the extent that we enter into bitcoin-related transactions beyond simply acquiring and holding bitcoin, such transactions may subject us to additional regulatory compliance requirements, including federal and state money services regulations, money transmitter licensing requirements and various commodity laws and regulations.

In addition, private actors that are wary of bitcoin or the regulatory concerns associated with bitcoin may take actions that may have an adverse effect on the market price of our class A common stock.

For example, an affiliate of HSBC Holdings has prohibited customers

of its HSBC InvestDirect retail investment platform from buying shares of our class A common stock after determining that the value of our stock is related to the performance of bitcoin, indicating that it did not want to facilitate exposure to virtual currencies.

Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading venues, they may experience fraud, security failures or operational problems, which may adversely affect the value of our bitcoin

Bitcoin trading venues are relatively new and, in some cases, unregulated.

To the extent that we enter into bitcoin-related transactions beyond simply acquiring and holding bitcoin, such transactions may subject

us to additional regulatory compliance requirements, including federal and state money services regulations, money transmitter licensing requirements and various commodity and securities laws and regulations.

In addition, private actors that are wary of bitcoin or the regulatory concerns associated with bitcoin have in the past and may take further actions that may have an adverse effect on our business or the market price of our class A common stock.

For example, an affiliate of HSBC Holdings has prohibited customers of its HSBC InvestDirect retail investment platform from buying shares of our class A common stock after determining that the value of our stock is related to the performance of bitcoin, indicating that it did not want to facilitate exposure to virtual currencies.

Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading venues, bitcoin trading venues may experience greater fraud, security failures or operational problems than trading venues for more established asset classes, which may result in a loss of confidence in bitcoin trading venues and adversely affect the value of our bitcoin

Bitcoin trading venues are relatively new and, in many cases, unregulated.

Furthermore, there are many bitcoin trading venues which do not provide the public with significant information regarding their ownership structure, management teams, corporate practices and regulatory compliance.

As a result, the marketplace may lose confidence in bitcoin trading venues, including prominent exchanges that handle a significant volume of bitcoin trading, in the event one or more bitcoin trading venues experience fraud, security failures or operational problems.

As a result, the marketplace may lose confidence in bitcoin trading venues, including prominent exchanges that handle a significant volume of bitcoin trading and/or are subject to regulatory oversight, in the event one or more bitcoin trading venues experience fraud, security failures or operational problems.

For example, in 2019 there were reports claiming that 80-95% of bitcoin trading volume on trading venues was false or non-economic in nature, with specific focus on unregulated exchanges located outside of the United States.

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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 or temporary shutdown of bitcoin trading venues due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in bitcoin and result in greater volatility in the prices of bitcoin.

Negative perception, a lack of stability in the broader bitcoin markets and the closure, temporary shutdown or operational disruption of bitcoin trading venues due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in bitcoin and result in greater volatility in the prices of bitcoin.

To the extent investors view our class A common stock as linked to the value of our bitcoin holdings, these potential consequences of a bitcoin trading venue’s failure 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 May 2, 2022, we held approximately 129,218 bitcoins that were acquired at an aggregate purchase price of $3.967 billion and we intend to purchase additional bitcoin and increase our overall holdings of bitcoin in the future.

As of August 1, 2022, we held approximately 129,699 bitcoins that were acquired at an aggregate purchase price of $3.977 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 take advantage of by purchasing a more diversified portfolio of treasury assets, and the absence of diversification enhances the risks inherent in our bitcoin acquisition strategy.

If there is a significant decrease in the price of bitcoin, we will experience a more pronounced impact on our financial condition than if we used our cash to purchase a more diverse portfolio of assets.

The price of bitcoin has recently experienced a significant decline, and this has had, and any further significant declines in the price of bitcoin would have, a more pronounced impact on our financial condition than if we used our cash to purchase a more diverse portfolio of assets.

The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of Bitcoin and adversely affect our business

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

For example, China’s cryptocurrencies backed by central banks (“CBDC”) project was made available to consumers in January 2022, and governments including the United States and the European Union have been discussing potential creation of new digital currencies.

Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could have an advantage in competing with, or replacing, bitcoin and other cryptocurrencies as a medium of exchange or store of value.

Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could have an advantage in competing with, or replacing, bitcoin and other digital assets as a medium of exchange or store of value.

As a result, the value of bitcoin could decrease, which could have a material adverse effect on our business, prospects, financial condition, and operating results.

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

For example, although the Coinbase exchange (our principal market for bitcoin) has, to date, not been impacted, a number of bitcoin trading venues recently have temporarily halted deposits and withdrawals.

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

If we are unable to sell our bitcoin, 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.

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

If we are unable to sell our bitcoin, enter into additional financings 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, 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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For example, in October 2021 it was reported that hackers exploited a flaw in the account recovery process and stole from the accounts of at least 6,000 customers of the Coinbase exchange (our principal market for bitcoin), although the flaw was subsequently fixed and Coinbase reimbursed affected customers.

Similarly, in January 2022, hackers exploited weaknesses in the security architecture of the cryptocurrency exchange Crypto.com and stole over $30 million in cryptocurrencies, including bitcoin, from the accounts of 483 customers, although the flaw was subsequently fixed and Crypto.com reimbursed affected customers.

Similarly, in January 2022, hackers exploited weaknesses in the security architecture of the digital asset exchange Crypto.com and stole over $30 million in digital assets, including bitcoin, from the accounts of 483 customers, although the flaw was subsequently fixed and Crypto.com reimbursed affected customers.

Nonetheless, a successful security breach or cyberattack could result in:

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To the extent our private key is lost, destroyed, or otherwise compromised and no backup of the private key is accessible, we will be unable to access the bitcoin held in the related digital wallet.

Furthermore, we cannot provide assurance that our digital

wallets will not be compromised as a result of a cyberattack.

The bitcoin and blockchain ledger, as well as other cryptocurrencies and blockchain technologies, have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities.

Furthermore, we cannot provide assurance that our digital wallets will not be compromised as a result of a cyberattack.

The bitcoin and blockchain ledger, as well as other digital assets and blockchain technologies, have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities.

We hold our bitcoin with regulated custodians that have duties to safeguard our private keys.

In light of the significant amount of bitcoin we hold, we are continuing to seek a greater degree of diversification in the use of custodial services as the extent of potential risk of loss is dependent, in part, on the degree of diversification.

As of March 31, 2022, 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.

As of June 30, 2022, 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, as noted above, the use of custodians to hold our bitcoin exposes us to the risk that the bitcoin custodially-held on our behalf could be subject to bankruptcy proceedings and we could be treated as a general unsecured creditor of the custodian, inhibiting our ability to exercise ownership rights with respect to such bitcoin.

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

Regulatory change reclassifying bitcoin as a security could lead to our classification as an “investment company” under the Investment Company Act of 1940 and could adversely affect the market price of bitcoin and the market price of our class A common stock

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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, if there is a significant decrease in the market price of bitcoin, the market value of our bitcoin holdings will experience a significant decline, which may have a material adverse effect on our financial condition.

Accordingly, the recent decline in the market price of bitcoin has significantly reduced the market value of our bitcoin holdings and any further decline in the market price of bitcoin will cause our bitcoin holdings to experience a decline, which, if significant, 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.

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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.

Resistance from consumer and privacy groups to commercial

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

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

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

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

S uch risks can also be exacerbated if the price of bitcoin declines .

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

If our existing customers cancel or fail to renew their service contracts or fail to make additional purchases from us, our revenue could decrease and our operating results could be materially adversely affected.

A substantial customer shift in the deployment of the MicroStrategy platform from a product license model to a cloud subscription model could result in higher future rates of attrition of customers from the MicroStrategy platform and could affect the timing of revenue recognition, reduce product licenses and product support revenues, and materially adversely affect our operating results,

and our ability to accelerate our cloud strategy could be negatively impacted by any inability to provide necessary sales and engineering support

If our existing customers cancel or fail to renew their service contracts or fail to make additional purchases from us for any reason , including due to the risks inherent in our bitcoin acquisition strategy, our revenue could decrease and our operating results could be materially adversely affected.

We offer our analytics platform in the form of a product license or a cloud subscription.

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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, 2022, transactions by channel partners for which we recognized revenue accounted for 28.3% 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, 2022, transactions by channel partners for which we recognized revenue accounted for 25.9% 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 $214.5 million as of March 31, 2022.

Our deferred revenue and advance payments totaled $196.6 million as of June 30, 2022.

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 $66.1 million of other remaining performance obligations as of March 31, 2022, 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 advanced payments, these other remaining performance obligations at any particular date may not be representative of actual revenue for any succeeding period.

In addition, we had $77.3 million of other remaining performance obligations as of June 30, 2022, 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.

We may lose sales, or sales may be delayed, due to the long sales and implementation cycles of certain of our offerings, which could materially adversely affect our revenues and operating results

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These long sales cycles increase the risk that intervening events, such as the introduction of new offerings and changes in customer budgets and purchasing priorities, will affect the size, timing, and completion of an order.

Even if an order is completed, the time and resources required to implement and integrate our offerings vary

widely depending on customer needs and the complexity of deployment.

Even if an order is completed, the time and resources required to implement and integrate our offerings vary widely depending on customer needs and the complexity of deployment.

If we lose sales or sales are delayed due to these long sales and implementation cycles, our revenues and operating results for that period may be materially adversely affected.

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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, 2022, our top three product licenses transactions with recognized revenue totaled $2.6 million, or 15.6% of total product licenses revenues, compared to $7.0 million, or 32.8% of total product licenses revenues, for the three months ended March 31, 2021.

For the six months ended June 30, 2022, our top three product licenses transactions with recognized revenue totaled $8.6 million, or 23.4% of total product licenses revenues, compared to $8.9 million, or 20.6% of total product licenses revenues, for the six months ended June 30, 2021.

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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We cannot be sure that we will succeed in developing, marketing, and delivering, on a timely and cost-effective basis, new or enhanced offerings that will achieve market acceptance.

Moreover, even if our new offerings achieve market acceptance, we may experience a decline in revenues

of our existing offerings that is not fully matched by the new offering’s revenue.

Moreover, even if our new offerings achieve market acceptance, we may experience a decline in revenues of our existing offerings that is not fully matched by the new offering’s revenue.

This could result in a temporary or permanent revenue shortfall and materially adversely affect our business, operating results, and financial condition.

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We periodically receive notices from third parties claiming we are infringing their intellectual property rights.

The number of such claims may increase as we expand our offerings and branding, the number of offerings and level of competition in our industry grow,

the functionality of offerings overlaps, and the volume of issued patents, patent applications, and copyright and trademark registrations continues to increase.

The number of such claims may increase as we expand our offerings and branding, the number of offerings and level of competition in our industry grow, the functionality of offerings overlaps, and the volume of issued patents, patent applications, and copyright and trademark registrations continues to increase.

Responding to any infringement claim, regardless of its validity, could:

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The COVID-19 pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets.

Many governmental authorities have instituted quarantines, work-from-home directives, social distancing mandates, travel restrictions, border closures, limitations on public gatherings, and closures of or operational limitations on non-essential businesses, which are adversely impacting a number of industries such as travel, leisure, hospitality, and retail.

Government recommendations and requirements are continuing to change, and we may not be able to immediately respond to, meet or enforce all required health and safety measures or other government requirements in all of our locations.

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The COVID-19 pandemic could have a sustained adverse impact on economic and market conditions and trigger a period of prolonged global economic slowdown, which could decrease technology spending, adversely affect demand for our offerings, and harm our business and operating results.

Although our total revenues for the three months ended March 31, 2022 were not materially impacted by COVID-19, our revenues may be negatively impacted in future periods until the effects of the pandemic and the efforts to address it have fully subsided and the current macroeconomic environment has substantially recovered.

Although our total revenues for the six months ended June 30, 2022 were not materially impacted by COVID-19, our revenues may be negatively impacted in future periods until the effects of the pandemic and the efforts to address it have fully subsided and the current macroeconomic environment has substantially recovered.

The uncertainty related to COVID-19 may also result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements.

In light of the uncertain and rapidly evolving situation relating to COVID-19, we have taken precautionary measures intended to reduce the risk of the virus to our employees, customers, and communities in which we operate.

We established flexible working arrangements for our employees, reduced business travel, and shifted certain of our customer, employee, and industry events to virtual formats.

We established flexible working arrangements for our employees, reduced business travel, and shifted certain of our customer, employee, and industry events to virtual format s .

As a result of these precautionary measures, there could be a negative impact on our sales, marketing, and customer success efforts, continued delays in our sales cycles, delays in the release or delivery of new or enhanced offerings or unexpected changes to such offerings, or operational or other challenges, any of which could significantly disrupt our business and operating results.

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Additionally, while we have not experienced any material disruptions to date, our technological systems or infrastructure may not be equipped to facilitate effective remote working arrangements or operate in compliance with all laws and regulations for our employees in the short or long term.

Considerable uncertainty still surrounds COVID-19, the evolution of its variants, its potential long-term economic effects, as well as the effectiveness of any responses taken by government authorities and businesses and of various efforts to inoculate the global population.

Although we continue to actively monitor the situation and may take further actions as may be required by government authorities or as

more information and public health guidance become available, we may not be able to immediately respond to, meet or enforce all required health and safety measures or other government requirements in all of our locations, and the full extent to which COVID-19 impacts our business and operating results will depend on future developments, including the duration, spread, severity, and potential recurrence of the COVID-19 pandemic, impact on our customers and our sales cycles, our ability to generate new business leads, impact on our customer, employee, and industry events, and effect on our vendors, all of which are highly uncertain and cannot be predicted.

Although we continue to actively monitor the situation and may take further actions as may be required or recommended by government authorities or as more information and public health guidance become available, we may not be able to immediately respond to, meet or enforce all required or recommended health and safety measures or other government requirements or recommendations in all of our locations, and the full extent to which COVID-19 impacts our business and operating results will depend on future developments, including the duration, spread, severity, and potential recurrence of the COVID-19 pandemic, impact on our customers and our sales cycles, our ability to generate new business leads, impact on our customer, employee, and industry events, and effect on our vendors, all of which are highly uncertain and cannot be predicted.

In addition, the effects of the COVID-19 pandemic may heighten many of the other risks described in this “Risk Factors” section.

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

International revenues accounted for 42.6% and 42.9% of our total revenues for the three months ended March 31, 2022 and 2021, respectively.

International revenues accounted for 38.5% and 45.1% of our total revenues for the three months ended June 30, 2022 and 2021, respectively, and 40.6% and 44.0% of our total revenues for the six months ended June 30, 2022 and 2021, respectively.

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

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Disruptions to trade, weakening of economic conditions, economic and legal uncertainties, or changes in currency rates may adversely affect our business, financial condition, operating results, and cash flows.

between the United Kingdom and the European Union and any other future agreements the United Kingdom may make to retain access to European Union markets.

For example, we may face heightened risks in connection with our international operations as a result of the withdrawal of the United Kingdom from the European Union, commonly referred to as “Brexit.” The future effects of Brexit are uncertain and will depend on the implementation of the Trade and Cooperation Agreement between the United Kingdom and the European Union and any other future agreements the United Kingdom may make to retain access to European Union markets.

Brexit could, among other outcomes, disrupt the free movement of goods, services, and people between the United Kingdom and the European Union.

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In addition, China, the European Union, Canada, and Mexico, among others, have either threatened or put into place retaliatory tariffs of their own.

These tariffs and any further escalation of protectionist trade measures could adversely affect the markets in which we sell our offerings and, in turn, our business, financial condition, operating results, and cash flows and it is unclear to what extent the Biden administration will work to reverse such measures in the future or pursue similar policy initiatives imposed by the prior administration or make additional changes to U.S.

While the Biden administration has indicated that it may pursue temporary repeals of such measures, it is unclear whether and to what extent such measures will be reversed in the future or whether the Biden administration will make additional changes to U.S.

trade policy that may result in further impacts on our business.

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For example, following an internal review initiated in 2018, we believe our Brazilian subsidiary failed or likely failed to comply with local procurement regulations in conducting business with certain Brazilian government entities.

Any violation of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to sell our offerings to one or more countries, and could also materially damage our reputation and our brand.

Any violation of these laws could subject us to civil or administrative penalties, including substantial fines, prohibitions, or other limitations on our ability to sell our offerings to one or more countries, and could also materially damage our reputation and our brand.

These factors may have a material adverse effect on our future sales, business, operating results, and financial condition.

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Each of these difficulties could materially adversely affect our business and results of operations.

If we are unable to recruit or retain skilled personnel, or if we lose the services of our Chairman of the Board of Directors & Chief Executive Officer, our business, operating results, and financial condition could be materially adversely affected

If we are unable to recruit or retain skilled personnel, or if we lose the services of Michael J.

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

Our future success depends on our continuing ability to attract, train, assimilate, and retain highly skilled personnel.

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

Saylor, our Chairman of the Board of Directors & Chief Executive Officer.

Saylor, our current Chairman of the Board of Directors & Chief Executive Officer.

On August 2, 2022, we announced that Mr.

Saylor will transition to the new role of Executive Chairman, effective as of August 8, 2022.

If we lose the services of Mr.

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GDPR establishes requirements regarding the handling and security of personal data, requires disclosure of data breaches to individuals, customers, and data protection authorities in certain circumstances, requires companies to honor data subjects’ requests relating to their personal data, permits regulators to impose fines of up to €20,000,000 or 4% of global annual revenue, whichever is higher, and establishes a private right of action.

Furthermore, a new ePrivacy Regulation, regulating electronic communications, was proposed in 2017 and is under consideration by the European Commission, the European Parliament, and the European Council.

Furthermore, a new ePrivacy Regulation, regulating electronic communications, was proposed in 2017 and is under

consideration by the European Commission, the European Parliament, and the European Council.

More recently, the Court of Justice of the European Union (“CJEU”) invalidated the U.S.-EU Privacy Shield in July 2020.

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The rules involving this alternative SCC data transfer option are continually undergoing revision and this transfer mechanism may also be declared invalid (or require us to change our business practices) in the future, requiring us to provide an alternative means of data transfer or implement significant changes in our data security and protection practices.

In addition, the required terms for contracts

containing SCCs along with recommended supplemental provisions are changing and may require us to assume additional obligations, otherwise inhibit or restrict our ability to undertake certain activities, or incur additional costs related to data protection.

In addition, the required terms for contracts containing SCCs along with recommended supplemental provisions are changing and may require us to assume additional obligations, otherwise inhibit or restrict our ability to undertake certain activities, or incur additional costs related to data protection.

Similar requirements are also coming into force in other countries.

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These risks will increase as we continue to grow the number and scale of our cloud subscriptions and process, store, and transmit increasingly large amounts of our customers’, prospects’, vendors’, channel partners’, and our own data.

In particular, in connection with the COVID-19 pandemic, there has been an increase in cyberattacks and other malicious activities as shelter-in-place orders and remote working conditions have led businesses to increasingly rely on virtual environments and communication systems.

Our having entered into an indemnification agreement with Michael J.

Saylor, our Chairman of the Board of Directors & Chief Executive Officer, in lieu of procuring conventional director and officer liability insurance offered by a third-party insurance carrier could negatively affect our business and the market price of our class A common stock

Due to market trends toward higher premiums and the novelty of our bitcoin acquisition strategy, we have been unable to obtain director and officer liability insurance on acceptable terms, and in lieu of such insurance, we have entered into an indemnification agreement with Michael J.

In particular, in connection with the COVID-19 pandemic, there has been an increase in cyberattacks and other malicious activities as remote working conditions have led businesses to increasingly rely on virtual environments and communication systems.

Our having entered into indemnification agreements with Michael J.

Saylor, our Chairman of the Board of Directors & Chief Executive Officer, to supplement our conventional director and officer liability insurance provided by third-party insurance carriers could negatively affect our business and the market price of our class A common stock

Due to market trends toward higher premiums and the novelty of our bitcoin acquisition strategy, we have been unable to obtain our desired coverage level for director and officer liability insurance on acceptable terms, and in lieu of such insurance from June 2021 through June 2022, and as a supplement to commercial carrier coverage we were able to obtain beginning in June 2022, we have entered into indemnification agreements with Michael J.

Saylor, our Chairman of the Board of Directors & Chief Executive Officer, pursuant to which Mr.

Saylor has agreed to personally indemnify our directors and officers with respect to claims and expenses substantially similar to those typically covered under conventional director and officer insurance policies, for which we agreed to pay Mr.

Saylor a fee.

Our having entered into such an indemnification agreement with Mr.

Saylor in lieu of procuring director and officer insurance offered by a third-party insurance carrier could have adverse effects on our business, including making it more difficult to attract and retain qualified directors and officers due to the unconventional nature of the arrangement and potential concerns that the indemnification arrangement might not provide the same level of protection that might otherwise be provided by conventional director and officer insurance.

In addition, the arrangement may result in some investors perceiving that our independent directors are not sufficiently independent from Mr.

Saylor applicable fees.

Our having entered into such indemnification agreements with Mr.

Saylor could have adverse effects on our business, including making it more difficult to attract and retain qualified directors and officers due to the unconventional nature of the arrangement and potential concerns that the indemnification arrangement might not provide the same level of protection that might otherwise be provided by coverage obtained entirely through conventional director and officer insurance.

In addition, our indemnity arrangements with Mr.

Saylor may result in some investors perceiving that our independent directors are not sufficiently independent from Mr.

Saylor due to their entitlement to personal indemnification from him, which may have an adverse effect on the market price of our class A common stock.

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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 $365.91 as of May 2, 2022.

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 26, 2022, holders of our class B common stock owned 1,964,025 shares of class B common stock, or 67.8% of the total voting power.

As of April 26, 2022, Mr.

As of July 26, 2022, holders of our class B common stock owned 1,964,025 shares of class B common stock, or 67.8% of the total voting power.

As of July 26, 2022, Mr.

Saylor, our Chairman of the Board of Directors & Chief Executive Officer, beneficially owned 1,961,668 shares of class B common stock, or 67.7% of the total voting power.

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Additionally, our Board of Directors is not required to have an independent compensation or nominating committee or to have the independent directors exercise the nominating function.

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

We are also not required

to have the compensation of our executive officers be determined by a compensation committee of independent directors.

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

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A majority of our Board of Directors is currently comprised of independent directors, and our Board of Directors has established a Compensation Committee comprised entirely of independent directors.

The Compensation Committee determines the compensation of our Chief Executive Officer.

However, our Board of Directors has authorized our Chief Executive Officer to determine the compensation of executive officers other than himself, rather than having such compensation determined by the Compensation Committee, except that certain performance-based executive officer compensation is determined by the Compensation Committee.

On August 2, 2022, we announced that Mr.

Saylor will transition to the new role of Executive Chairman and Mr.

Le was appointed Chief Executive officer, each effective as of August 8, 2022.

The Compensation Committee determines the compensation of our Chief Executive Officer and will also determine the compensation of our Executive Chairman.

However, our Board of Directors has authorized our Chief Executive Officer to determine the compensation of executive officers other than himself and the Executive Chairman, except that certain performance-based executive officer compensation is determined by the Compensation Committee.

Awards made to directors and officers subject to Section 16 of the Exchange Act under the 2013 Equity Plan are also approved by the Compensation Committee.

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

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

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

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

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

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

As of March 31, 2022, we had $1.7 billion aggregate principal amount of indebtedness under the Convertible Notes, $500.0 million aggregate principal amount of indebtedness under the 2028 Secured Notes, and $205.0 million of outstanding borrowings under the 2025 Secured Term Loan.

As of June 30, 2022, we had $1.7 billion aggregate principal amount of indebtedness under the Convertible Notes, $500.0 million aggregate principal amount of indebtedness under the 2028 Secured Notes, $205.0 million of outstanding borrowings under the 2025 Secured Term Loan, and $11.1 million of other long-term indebtedness.

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

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Similarly, in the event of an event of default under the Credit and Security Agreement, the lender thereunder could elect to declare all outstanding loan principal under the 2025 Secured Term Loan to be due and payable, together with accrued and unpaid interest, and enforce its security interest on the $5.0 million cash reserve account and the bitcoin held in the account securing the borrowings under the Credit and Security Agreement.

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

Any of these events could in turn result in cross-defaults

under our other indebtedness.

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.

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Our MacroStrategy subsidiary primarily holds bitcoin, a $5.0 million cash reserve account held as collateral for the 2025 Secured Term Loan, and certain cash proceeds retained from the 2025 Secured Term Loan.

As of March 31, 2022, MacroStrategy had no operations other than purchasing and holding bitcoin and those related to the administration and repayment of the loan principal outstanding and interest due under the Credit and Security Agreement.

MacroStrategy's principal sources of funds to make payments pursuant to the Credit and Security Agreement are capital contributions, loans or other cash payments from us, which may be restricted by the covenants governing the 2028 Secured Note, and sales of bitcoin, which in turn may be restricted due to the requirement in the Credit and Security Agreement requiring MacroStrategy to maintain the LTV Ratio at or below 50%.

As of June 30, 2022, MacroStrategy had no operations other than purchasing and holding bitcoin and those related to the administration and repayment of the loan principal outstanding and interest due under the Credit and Security Agreement.

MacroStrategy’s principal sources of funds to make payments pursuant to the Credit and Security Agreement are capital contributions, loans or other cash payments from us, which may be restricted by the covenants governing the 2028 Secured Notes, and sales of bitcoin, which in turn may be restricted due to the requirement in the Credit and Security Agreement requiring MacroStrategy to maintain the LTV Ratio at or below 50%.

Accordingly, MacroStrategy may not have sufficient funds available to pay amounts due under the Credit and Security Agreement when they become due, and MacroStrategy 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.

MacroStrategy may be required to contribute additional bitcoin to the collateral package securing the Credit and Security Agreement or repay certain amounts outstanding thereunder prior to its stated maturity date, if the value of bitcoin declines

The Credit and Security Agreement has a stated maturity date of March 23, 2025, but includes a requirement that MacroStrategy maintain a LTV Ratio of 50% or less, which amounts to at least $410.0 million worth of bitcoin being required to be held in the account securing the borrowings under the Credit and Security Agreement based on the loan principal outstanding as of March 31, 2022.

If the price of bitcoin drops such that the LTV Ratio exceeds 50%, MacroStrategy will be required to either deposit additional bitcoin into such account or prepay a portion of the outstanding borrowings under the Credit and Security Agreement 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 outstanding borrowings will be increased by 25 basis points until such time as the LTV Ratio is reduced to 25% or less).

MacroStrategy has contributed and may in the future be required to contribute additional bitcoin to the collateral package securing the Credit and Security Agreement or repay certain amounts outstanding thereunder prior to its stated maturity date, if the value of bitcoin declines

If the price of bitcoin drops such that the LTV Ratio exceeds the Maximum LTV Ratio of 50%, MacroStrategy is required to either deposit additional bitcoin into such account or prepay a portion of the outstanding borrowings under the Credit and Security Agreement 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 outstanding borrowings 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.

If the LTV Ratio exceeds 50% at any time prior to the maturity date of the Credit and Security Agreement, MacroStrategy may be required to repay some of the principal outstanding under the Credit and Security Agreement sooner than such amounts would otherwise be due, MacroStrategy may not have sufficient funds available to pay such amounts at that time or the ability to sell bitcoin to generate additional funds, and MacroStrategy 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.

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If a change of control or a fundamental change occurs, we may not have enough assets to satisfy all obligations under the indentures governing the 2028 Secured Notes and the Convertible Notes.

Upon the occurrence of a change of control or a fundamental change we could seek to refinance the indebtedness under the 2028 Secured Notes or the Convertible Notes or obtain a waiver from the applicable

note holders.

However, we may not be able to obtain a waiver or refinance the applicable notes on commercially reasonable terms, if at all.

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Upon conversion of the 2025 Convertible Notes or the 2027 Convertible Notes, unless we elect (or have previously irrevocably elected) to deliver solely shares of our class A common stock to settle such conversion of such Convertible Notes (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the applicable Convertible Notes being converted as described in the applicable indenture.

However, we may not have enough available cash or be able to obtain financing at the time we are required to pay cash with respect such notes being converted.

However, we may not have enough available cash or be able to obtain financing at the time we are required to pay cash with respect to such notes being converted.

In addition, our ability to pay cash upon conversions of the Convertible Notes may be limited by law, regulatory authority, the covenants contained in the indenture governing the 2028 Secured Notes, or agreements governing any future indebtedness.

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The operating results of our subsidiaries at any given time may not be sufficient to make dividends, distributions, or other payments to us in order to allow us to make payments on the 2028 Secured Notes and the Convertible Notes.

Our MacroStrategy LLC subsidiary that holds the bitcoin that we owned prior to the issuance of the 2028 Secured Notes and the bitcoin that we acquired from the proceeds of the Open Market Offering 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.

MacroStrategy LLC holds digital assets that as of March 31, 2022 had a carrying value of $2.484 billion on our Consolidated Balance Sheet, representing 68.3% of our consolidated total assets at such date.

Our MacroStrategy LLC subsidiary that holds the bitcoin that we owned prior to the issuance of the 2028 Secured Notes and the bitcoin that we acquired from the proceeds of the sale of our class A shares pursuant to open market sales agreements 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.

MacroStrategy LLC holds approximately 115,110 bitcoins that as of June 30, 2022 had a carrying value of $1.731 billion on our Consolidated Balance Sheet, representing 67.4% of our consolidated total assets at such date.

As of June 30, 2022, approximately 30,051 bitcoins are pledged as collateral under the Credit and Security Agreement under which the 2025 Secured Term Loan was issued.

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 1A. Risk Factors