What changed in this filing

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Item 1A. Risk Factors

2022-11-01 compared with 2022-08-02 · 107 added, 94 removed, 609 unchanged (25% of the section changed)

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regulatory, commercial, and technical developments related to bitcoin or the bitcoin blockchain;

the size, timing, volume, and execution of significant orders and shipments;

the size, timing, volume, and execution of significant orders and deliveries;

the mix of our offerings ordered by customers, including product licenses and cloud subscriptions, which can affect the extent to which revenue is recognized immediately or over future quarterly periods;

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We may not be able to regain or increase profitability 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.

We generated a net loss for the nine months ended September 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 June 30, 2022, we had $243.4 million of deferred tax assets, which reflects a $391.3 million valuation allowance.

As of September 30, 2022, we had $233.0 million of deferred tax assets, which reflects a $411.8 million valuation allowance.

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

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

Our future income tax liability could be materially adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates, earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, changes in the valuation of our deferred tax assets and liabilities, changes in the amount of unrecognized tax benefits, or changes in tax laws, regulations, accounting principles, or interpretations thereof (including in response to the COVID-19 pandemic).

Our future income tax liability could be materially adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates, earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, changes in the valuation of our deferred tax assets and liabilities, changes in the amount of our unrecognized tax benefits, or changes in tax laws, regulations, accounting principles, or interpretations thereof.

In addition, if we sold any of our bitcoin at prices greater than the cost basis of the bitcoin sold, we would incur a tax liability with respect to any gain recognized, and such tax liability could be material.

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As part of the U.S.

Congress’s response to the COVID-19 pandemic, the Families First Coronavirus Response Act (“FFCR Act”) and the CARES Act were enacted in March 2020.

Congress’s response to the COVID-19 pandemic, the Families First Coronavirus Response Act (“FFCR Act”) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were enacted in March 2020.

Both contain numerous tax provisions.

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Any adverse outcome of such reviews could have an adverse effect on our operating results and financial condition.

The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain.

The determination of our worldwide

provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain.

Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is uncertain.

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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.

During the nine months ended September 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.

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

As of the date of this Quarterly Report on Form 10-Q, we have not sold any bitcoin or 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.

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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.

For example, although we believe bitcoin can serve as a hedge against inflation in the long term, the short term price of bitcoin has been volatile in recent periods and has declined even as the inflation rate increased.

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.

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

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

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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.

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

The price of bitcoin may be influenced by legal, 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 have in the past and are likely to continue to influence our financial results and the market price of our class A common stock.

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negative publicity or events relating to bitcoin, including potential public backlash against bitcoin to the extent the public views bitcoin as a vehicle that may be used to circumvent sanctions, including the recent sanctions imposed on Russia related to the ongoing conflict between Russia and Ukraine;

negative or unpredictable media or social media coverage on bitcoin;

public sentiment related to the actual or perceived environmental impact of bitcoin and related activities, including environmental concerns raised by private individuals, governmental, 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 of bitcoin;

negative or unpredictable media or social media coverage of bitcoin;

negative public sentiment related to the actual or perceived environmental impact of bitcoin and related activities, including environmental concerns raised by private individuals, governmental, 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;

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;

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 the 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 widespread default that affected and contributed to 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.

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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;

regulatory, legislative, enforcement and judicial 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 Russia and Ukraine and the economic sanctions adopted in response to the conflict.

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.

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 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.

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

On March 9, 2022, President Biden signed an executive order relating to cryptocurrencies.

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.

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;

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.

Department of Treasury, the Department of Justice, and the Department of Commerce.

Among other things, the framework encourages regulators to pursue enforcement actions, issue guidance and rules to address current and emergent risks, support the development and use of innovative technologies by payment providers to increase access to instant payments, consider creating a federal framework to regulate nonbank payment providers, and evaluate whether to call upon Congress to amend the Bank Secrecy Act and laws against unlicensed money transmission to apply explicitly to digital asset service providers.

On September 8, 2022, the White House Office of Science and Technology Policy issued a report in coordination with other federal agencies relating to the climate and energy implications of digital assets, including Bitcoin, in the United States.

Among its finding are that digital assets are energy intensive and drive significant environmental impacts, and the report recommends further study of the environmental impact of digital assets and the development of environmental performance regulations for digital asset miners , which may include limiting or eliminating digital assets that use high energy intensity consensus mechanisms, including the proof-of-work consensus mechanisms on which the bitcoin blockchain is based .

On April 4, 2022, SEC Chair 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;

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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 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 the European Union, in October 2022, the Council of the EU agreed to the full legal text of legislation known as the Markets in Crypto Assets Regulation (“MiCA”), which contains provisions which will regulate the use of digital assets, like bitcoin.

While MiCA still requires approval from the European Parliament, the legislation approved by the Council of the EU included provisions that will require 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.

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.

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.

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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 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.

At September 30, 2022 , we carried $ 1.993 billion of digital assets on our balance sheet, consisting of approximately 130,000 bitcoin s and reflecting $ 1.990 b illion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $ 60.4 million in cash and cash equivalents, compared to a carrying value of $ 2.

406 b illion of digital assets , consisting of approximately 1 14 , 042 bitcoins, and $ 57.0 million in cash and cash equivalents at September 30, 2021 .

Digital asset impairment losses of $ 1.089 b illion incurred during the nine months ended September 30, 2022 represented 79.3 % of our operating expenses, contributing to our net loss of $ 1.220 b illion for the nine months ended September 30, 2022 , compared to $ 684.0 million in digital asset impairment losses in the nine months ended September 30, 2021 representing 71.6 % of our operating expenses and contributing to our net loss of $ 445.5 million for the nine months ended September 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 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.

Although this ETF allows investors to obtain managed exposure to bitcoin futures contracts, it does not invest directly in bitcoin.

As a result, it is unclear as to whether or to what extent the existence of this ETF or other ETFs that invest in bitcoin futures contracts that may be listed in the future will have on any premium over the value of our bitcoin holdings that may be included in the value of our class A common stock.

Shortly after the listing of the ProShares ETF, the SEC permitted the listing of the Valkyrie Bitcoin Strategy ETF (the “Valkyrie ETF”) and VanEck Bitcoin Strategy ETF (“VanEck ETF”), additional ETFs that invest primarily in bitcoin futures contracts.

Other ETFs containing an asset mix consisting of bitcoin futures contracts and equities of publicly traded companies that have exposure to bitcoin or blockchain technology have also been introduced.

However, in October 2021, the SEC permitted the listing of ETFs that invest primarily in bitcoin futures contracts.

It is unclear as to whether or to what extent the existence of ETFs that invest in bitcoin futures contracts will have on any premium over the value of our bitcoin holdings that may be included in the value of our class A common stock.

If the SEC were to further resolve its concerns regarding surveillance of and the existence of fraud and manipulation in the bitcoin trading markets, it is possible that the SEC would permit the listing of ETFs specializing in the direct acquisition and holding of bitcoin, allowing these funds to offer their shares directly to the public.

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national securities exchanges could have a material adverse effect on the market price of our class A common stock.

Our bitcoin holdings could subject us to regulatory scrutiny

Our bitcoin acquisition strategy subjects us to enhanced regulatory oversight

As noted above, several bitcoin investment vehicles have attempted to list their shares on a U.S.

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To date the SEC has 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.

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, 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 and securities laws and regulations.

We have entered into a bitcoin-collateralized loan and may consider issuing additional debt or other financial instruments that may be collateralized by our bitcoin holdings.

We may also consider strategies to create income streams or otherwise generate funds using our bitcoin holdings, including lending bitcoin to counterparties.

These types of bitcoin-related transactions are the subject of enhanced regulatory oversight.

These and any other bitcoin-related transactions we may enter into, beyond simply acquiring and holding bitcoin, may subject us to additional regulatory compliance requirements and scrutiny, including under 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.

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

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.

As of October 31, 2022, we held approximately 130,000 bitcoins that were acquired at an aggregate purchase price of $3.983 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.

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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 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.

As of September 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.

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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.

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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 .

Such 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.

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

For the six months ended June 30, 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.

For the nine months ended September 30, 2022, transactions by channel partners for which we recognized revenue accounted for 25.2% of our total product licenses revenues, and our ability to achieve revenue growth in the future will depend in part on our ability to maintain these relationships.

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

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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 $196.6 million as of June 30, 2022.

Our deferred revenue and advance payments totaled $174.7 million as of September 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 $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.

In addition, we had $81.2 million of other remaining performance obligations as of September 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.

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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 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.

For the nine months ended September 30, 2022, our top three product licenses transactions with recognized revenue totaled $12.1 million, or 20.5% of total product licenses revenues, compared to $10.1 million, or 14.6% of total product licenses revenues, for the nine months ended September 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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Within the analytics space, we compete with many different software vendors, including IBM, Microsoft, Oracle, Qlik, Salesforce, and SAP.

Our future success depends on our ability to differentiate our offerings and successfully compete across analytics implementation projects of varying sizes.

Our future success depends on our

ability to differentiate our offerings and successfully compete across analytics implementation projects of varying sizes.

Our ability to compete successfully depends on a number of factors, both within and outside of our control.

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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.

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.

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.

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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 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.

Although our total revenues for the nine months ended September 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 format s .

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

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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Business disruptions, including interruptions, delays, or failures of our systems, third-party data center hosting facility, or other third-party services, could materially adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the market price of our stock

A significant portion of our research and development activities or certain other critical business operations are concentrated in facilities in Northern Virginia, China, and Poland.

A significant portion of our research and development activities or certain other critical business operations are concentrated in facilities in Northern Virginia, China, Argentina, and Poland.

In addition, we serve our customers and manage certain critical internal processes using a third-party data center hosting facility located in the United States and other third-party services, including AWS, Azure, and other cloud services.

Any disruptions or failures of our systems or the third-party hosting facility or other services that we use, including as a result of a natural disaster, fire, cyberattack (including the potential increase in risk for such attacks due to cyberwarfare in connection with the ongoing conflict between Russia and Ukraine), act of terrorism, geopolitical conflict, pandemic (including the ongoing COVID-19 pandemic), the effects of climate change, or other catastrophic event, as well as power outages, telecommunications infrastructure outages, a decision by one of our third-party service providers to close facilities that we use without adequate notice or to materially change the pricing or terms of their services, host country restrictions on the conduct of our business operations or the availability of our offerings, or other unanticipated problems with the third-party services that we use, such as a failure to meet service standards, could severely impact our ability to conduct our business operations or to attract new customers or maintain existing customers, or result in a material weakness in our internal control over financial reporting, any of which could materially adversely affect our future operating results.

Any disruptions or failures of our systems or the third-party hosting facility or other services that we use, including as a result of a natural disaster, fire, cyberattack (including the potential increase in risk for such attacks due to cyberwarfare in connection with the ongoing conflict between Russia and Ukraine), act of terrorism, geopolitical conflict (including due to the ongoing conflict between Russia and Ukraine and any potential conflict involving China and Taiwan), pandemic (including the ongoing COVID-19 pandemic), the effects of climate change, or other catastrophic event, as well as power outages, telecommunications infrastructure outages, a decision by one of our third-party service providers to close facilities that we use without adequate notice or to materially change the pricing or terms of their services, host country restrictions on the conduct of our business operations or the availability of our offerings, or other unanticipated problems with our systems or the third-party services that we use, such as a failure to meet service

standards, could severely impact our ability to conduct our business operations or to attract new customers or maintain existing customers, or result in a material weakness in our internal control over financial reporting, any of which could materially adversely affect our future operating results.

Our international operations are complex and expose us to risks that could have a material adverse effect on our business, operating results, and financial condition

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 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.

International revenues accounted for 38.1% and 41.8% of our total revenues for the three months ended September 30, 2022 and 2021, respectively, and 39.7% and 43.3% of our total revenues for the nine months ended September 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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our ability to adapt to sales practices and customer requirements in different cultures;

natural disasters, acts of war, terrorism, or pandemics (including the ongoing COVID-19 pandemic);

natural disasters, acts of war (including risks relating to the ongoing conflict between Russia and Ukraine and any potential conflict involving China and Taiwan), terrorism, or pandemics (including the ongoing COVID-19 pandemic);

political instability and security risks in the countries where we are doing business, including, without limitation, political and economic instability caused by the current conflict between Russia and Ukraine and economic sanctions adopted in response to the conflict.

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These laws and regulations include anti-bribery laws, such as the U.S.

Foreign Corrupt Practices Act, the UK Bribery Act, local laws prohibiting corrupt payments to government officials, and local laws relating to procurement, contracting, and antitrust.

Foreign Corrupt Practices Act, the UK Bribery Act, local laws prohibiting corrupt payments to government officials, and local laws relating to

procurement, contracting, and antitrust.

These laws and regulations also include import and export requirements and economic and trade sanctions administered by the Office of Foreign Assets Control and the U.S.

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

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.

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

If we lose the services of Mr.

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

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

In recent years, the collection and use of personal data by companies have come under

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

For example, in the United States, protected health information is subject to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which can provide for civil and criminal penalties for noncompliance.

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

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.

Moreover, due to Brexit, the SCCs issued by the European Commission are no longer automatically adopted in the United Kingdom post-Brexit.

In response, the UK’s Information Commissioner’s Office (“ICO”) published a template Addendum to the new EU SCCS which adapts the new EU SCCs for UK use.

In the alternative, the ICO also published the international data transfer agreement (“IDTA”).

The IDTA replaces the current set of SCCs being used in the UK.

The UK SCCs Addendum and IDTA, after having been put before UK parliament, have been in force as of March 2022 and UK-based organizations were required to start using the UK IDTA or Addendum for new data transfer arrangements starting in September 2022.

The rules involving these alternative SCC data transfer options are continually undergoing revision and these transfer mechanisms 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.

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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 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.

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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We may be required to devote substantial resources to implement and maintain compliance with the CCPA, and noncompliance could result in regulatory investigations and fines or private litigation.

Moreover, in November 2020, California voters approved a privacy law, the California Privacy Rights Act (“CPRA”), which amends the CCPA to create privacy rights and obligations in California.

Virginia and Colorado have passed laws similar to the CCPA and several other states are considering bills similar to the CCPA or other generally applicable privacy laws that may impose additional costs and obligations on us.

Moreover, in November 2020, California voters approved a privacy law, the California Privacy Rights Act (“CPRA”), which amends the CCPA to create privacy rights and obligations in California, and goes into effect in January 2023.

Virginia, Colorado, Utah, and Connecticut have passed laws similar to the CCPA, all of which go into effect in 2023, and several other states are considering bills similar to the CCPA or other generally applicable privacy laws that may impose additional costs and obligations on us.

In March 2022, the U.S.

federal government also passed the Cyber Incident Reporting for Critical Infrastructure Act of 2022, which will require companies deemed to be part of U.S.

critical infrastructure to report any substantial cybersecurity incidents or ransom payments to the federal government within 72 and 24 hours, respectively.

The implementing regulations are not expected for another two-to-three years.

Furthermore, the U.S.

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

If there is a security vulnerability in one of these products or components, and if there is a security exploit targeting it, we could face increased costs, liability claims, customer dissatisfaction, reduced revenue, or harm to our reputation or competitive position.

If there is a security

vulnerability in one of these products or components, and if there is a security exploit targeting it, we could face increased costs, liability claims, customer dissatisfaction, reduced revenue, or harm to our reputation or competitive position.

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.

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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, our Chairman of the Board of Directors and Executive Chairman, 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 were unable to obtain our desired coverage level for director and officer liability insurance from commercial carriers 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 and Executive Chairman, pursuant to which Mr.

Saylor applicable fees.

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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 $275.74 as of August 1, 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 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.

As of October 25, 2022, holders of our class B common stock owned 1,964,025 shares of class B common stock, or 67.7% of the total voting power.

As of October 25, 2022, Mr.

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

Accordingly, Mr.

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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.

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.

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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, we may sell shares of our class A common stock having an aggregate offering price of up to $500.0 million from time to time through the 2022 Sales Agents under the 2022 Sales Agreement.

We cannot predict:

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

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

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

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

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

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

As of June 30, 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.

As of September 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 $11.0 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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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 91 days prior to the existing maturity date of the 2025 Convertible Notes (which is September 15, 2025), the 2027 Convertible Notes (which is November 16, 2026), or 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 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.

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.

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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 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%.

As of September 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.

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 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

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 June 30, 2022.

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).

The Credit and Security Agreement has a stated maturity date of March 23, 2025, but includes a requirement that MacroStrategy maintain an LTV Ratio of less than 50%.

As a result, MacroStrategy is required to maintain more than $410.0 million of bitcoin in the account securing the borrowings under the Credit and Security Agreement, assuming the full $205.0 million aggregate principal amount of the 2025 Secured Term Loan remains outstanding.

If the price of bitcoin drops such that the LTV Ratio equals or exceeds the Maximum LTV Ratio of 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).

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.

If MacroStrategy is not able to maintain an LTV Ratio of less than 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.

We may not be able to finance required repurchases of the 2028 Secured Notes or the Convertible Notes upon a change of control or a fundamental change or the repayment of amounts due under the 2025 Secured Term Loan upon a change of control

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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.

We rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including the 2028 Secured Notes and the Convertible Notes, and certain of our subsidiaries holding digital assets may not provide any dividends, distributions, or other payments to us to fund our obligations and meet our cash needs

We depend on dividends, distributions, and other payments from our subsidiaries to fund our obligations, including those arising under the 2028 Secured Notes and the Convertible Notes, and meet our cash needs.

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

We rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including the 2028 Secured Notes, the Convertible Notes, and our other long-term indebtedness, and certain of our subsidiaries holding digital assets may not provide any dividends, distributions, or other payments to us to fund our obligations and meet our cash needs

We depend on dividends, distributions, and other payments from our subsidiaries to fund our obligations, including those arising under the 2028 Secured Notes, the Convertible Notes, and our other long-term indebtedness, and meet our cash needs.

Our wholly-owned subsidiary, MacroStrategy, which 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 the 2021 Open Market Sales Agreement or may acquire from proceeds we may generate from the 2022 Sales Agreement, 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 115,110 bitcoins that, as of September 30, 2022, had a carrying value of $1.731 billion on our Consolidated Balance Sheet, representing 68.0% of our consolidated total assets at such date.

As of September 30, 2022, approximately 30,051 bitcoins held by MacroStrategy are pledged as collateral under the Credit and Security Agreement that secures MacroStrategy’s obligations under the 2025 Secured Term Loan.

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