Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 12, 2024

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 000-56643

 

 

Exodus Movement, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

81-3548560

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

15418 Weir St. #333

Omaha, NE(1)

68137

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (833) 992-2566

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock,

par value $0.000001 per share.

 

EXOD

 

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of July 31, 2024, the registrant had 6,318,566 shares of Class A common stock, par value $0.000001 per share, outstanding.

 

 

 

 

 

 

 

 

 

(1) We are a remote-first company. Accordingly, we do not maintain a headquarters. For purposes of compliance with applicable requirements of the Securities Act of 1933, as amended, and Securities Exchange Act of 1934, as amended, communications may be directed to the listed address.


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

3

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

23

 

 

 

PART II.

OTHER INFORMATION

24

 

 

 

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

Signatures

26

 

 

i


 

Cautionary Note on Forward-Looking Statements

This Report contains “forward-looking statements,” as that term is defined by the federal securities laws. All forward-looking statements are based upon our current expectations and various assumptions and apply only as of the date made. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs and projections will be achieved. Forward-looking statements are generally identified by the words “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” “forecast,” as well as variations of such words or similar expressions.

Forward-looking statements include statements concerning:

our business plans and strategy;
projected profitability, performance or cash flows;
future capital expenditures;
our growth strategy, including our ability to grow organically and through mergers and acquisitions (“M&A”);
anticipated financing needs;
business trends;
our capital allocation strategy;
liquidity and capital management; and
other information that is not historical information.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those expressed or implied by our forward-looking statements, including those set forth in “Item 1. Business” and “Item 1A. Risk Factors” of Amendment No. 2 to our Registration Statement on Form 10 filed with the Securities and Exchange Commission (the “SEC”) on July 10, 2024 (the "Form 10"). All forward-looking statements are expressly qualified in their entirety by such cautionary statements. Readers are cautioned not to place undue reliance on such forward-looking statements. Except as required by law, we undertake no obligation to update or revise any forward-looking statements that have been made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Exodus Movement, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share and par value value)

 

 

 

June 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,769

 

 

$

11,376

 

U.S. dollar coin ($175 and $500 restricted as of June 30, 2024 and December 31, 2023, respectively)

 

 

507

 

 

 

517

 

Treasury bills

 

 

42,420

 

 

 

43,151

 

Accounts receivable

 

 

3,004

 

 

 

3,240

 

Prepaid expenses

 

 

2,108

 

 

 

1,440

 

Other current assets

 

 

345

 

 

 

5

 

Total current assets

 

 

76,153

 

 

 

59,729

 

OTHER ASSETS

 

 

 

 

 

 

Fixed assets, net

 

 

402

 

 

 

317

 

Digital assets

 

 

124,798

 

 

 

35,010

 

Software assets, net

 

 

8,035

 

 

 

8,051

 

Other long-term asset

 

 

40

 

 

 

-

 

Indefinite-lived assets

 

 

2,096

 

 

 

1,945

 

Other investments

 

 

100

 

 

 

100

 

Deferred tax assets

 

 

-

 

 

 

6,567

 

Total other assets

 

 

135,471

 

 

 

51,990

 

TOTAL ASSETS

 

$

211,624

 

 

$

111,719

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

2,195

 

 

$

1,061

 

Other current liabilities

 

 

6,951

 

 

 

6,485

 

Total current liabilities

 

 

9,146

 

 

 

7,546

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

Other long-term liabilities

 

 

435

 

 

 

412

 

Deferred tax liability

 

 

11,237

 

 

 

-

 

Total long-term liabilities

 

 

11,672

 

 

 

412

 

Total liabilities

 

 

20,818

 

 

 

7,958

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

$0.000001 par value, 5,000,000 shares authorized, no shares issued and outstanding

 

 

-

 

 

 

-

 

Class A Common Stock

 

 

 

 

 

 

$0.000001 par value, 300,000,000 shares authorized,

 

 

-

 

 

 

-

 

5,044,368 issued and outstanding as of June 30, 2024

 

 

-

 

 

 

-

 

4,320,005 issued and outstanding as of December 31, 2023

 

 

-

 

 

 

-

 

Class B Common Stock

 

 

 

 

 

 

$0.000001 par value, 27,500,000 shares authorized,

 

 

-

 

 

 

-

 

21,520,469 issued and outstanding as of June 30, 2024

 

 

-

 

 

 

-

 

21,760,855 issued and outstanding as of December 31, 2023

 

 

-

 

 

 

-

 

ADDITIONAL PAID IN CAPITAL

 

 

125,500

 

 

 

122,558

 

ACCUMULATED OTHER COMPREHENSIVE LOSS

 

 

(809

)

 

 

(1,477

)

RETAINED EARNINGS (ACCUMULATED DEFICIT)

 

 

66,115

 

 

 

(17,320

)

Total stockholders' equity

 

 

190,806

 

 

 

103,761

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

211,624

 

 

$

111,719

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


 

Exodus Movement, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended
June 30,
2024

 

 

Three Months Ended
June 30,
2023

 

 

Six Months Ended
June 30,
2024

 

 

Six Months Ended
June 30,
2023

 

OPERATING REVENUES

 

$

22,308

 

 

$

12,405

 

 

$

51,368

 

 

$

25,750

 

COST OF REVENUES

 

 

10,767

 

 

 

7,135

 

 

 

21,471

 

 

 

13,992

 

GROSS PROFIT

 

 

11,541

 

 

 

5,270

 

 

 

29,897

 

 

 

11,758

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

9,054

 

 

 

4,015

 

 

 

17,109

 

 

 

9,987

 

Loss (gain) on digital assets, net

 

 

17,232

 

 

 

(201

)

 

 

(39,567

)

 

 

(642

)

Total operating expense (income)

 

 

26,286

 

 

 

3,814

 

 

 

(22,458

)

 

 

9,345

 

(Loss) income from operations

 

 

(14,745

)

 

 

1,456

 

 

 

52,355

 

 

 

2,413

 

OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Staking and other income

 

 

405

 

 

 

17

 

 

 

555

 

 

 

33

 

Unrealized gain (loss) on investments

 

 

158

 

 

 

85

 

 

 

(86

)

 

 

189

 

Interest income

 

 

695

 

 

 

468

 

 

 

1,642

 

 

 

871

 

Total other income

 

 

1,258

 

 

 

570

 

 

 

2,111

 

 

 

1,093

 

(Loss) income before income taxes

 

 

(13,487

)

 

 

2,026

 

 

 

54,466

 

 

 

3,506

 

INCOME TAX BENEFIT (EXPENSE)

 

 

3,881

 

 

 

(157

)

 

 

(9,285

)

 

 

(864

)

NET (LOSS) INCOME

 

$

(9,606

)

 

$

1,869

 

 

$

45,181

 

 

$

2,642

 

OTHER COMPREHENSIVE (LOSS) INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(35

)

 

 

(200

)

 

 

668

 

 

 

(250

)

COMPREHENSIVE (LOSS) INCOME

 

$

(9,641

)

 

$

1,669

 

 

$

45,849

 

 

$

2,392

 

Net (loss) income per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per share of common stock - Class A

 

$

(0.37

)

 

$

0.07

 

 

$

1.72

 

 

$

0.10

 

Basic net (loss) income per share of common stock - Class B

 

$

(0.37

)

 

$

0.07

 

 

$

1.72

 

 

$

0.10

 

Diluted net (loss) income per share of common stock - Class A

 

$

(0.37

)

 

$

0.06

 

 

$

1.42

 

 

$

0.08

 

Diluted net (loss) income per share of common stock - Class B

 

$

(0.37

)

 

$

0.06

 

 

$

1.42

 

 

$

0.08

 

Weighted average number of shares and share equivalents outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares used in basic
   computation - Class A

 

 

4,486

 

 

 

3,804

 

 

 

4,774

 

 

 

3,702

 

Weighted average number of shares used in basic
   computation - Class B

 

 

21,520

 

 

 

21,799

 

 

 

21,570

 

 

 

21,799

 

Weighted average number of shares used in diluted
    computation - Class A

 

 

4,486

 

 

 

7,300

 

 

 

8,185

 

 

 

7,207

 

Weighted average number of shares used in diluted
   computation - Class B

 

 

21,520

 

 

 

23,978

 

 

 

23,727

 

 

 

23,983

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

Exodus Movement, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Earnings

 

 

Total

 

 

 

Class A

 

 

Class B

 

 

Paid In

 

 

Comprehensive

 

 

(Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Shares

 

 

Capital

 

 

Loss

 

 

Deficit)

 

 

Equity

 

BALANCES as of January 1, 2023

 

 

3,544

 

 

 

21,798

 

 

$

116,644

 

 

$

(694

)

 

$

(30,106

)

 

$

85,844

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

2,326

 

 

 

-

 

 

 

-

 

 

 

2,326

 

Exercised options

 

 

-

 

 

 

1

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

Issuance of Common Stock upon settlement of restricted stock units, net of shares withheld for taxes

 

160

 

 

 

-

 

 

 

(152

)

 

 

-

 

 

 

-

 

 

 

(152

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

(50

)

 

 

-

 

 

 

(50

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

773

 

 

 

773

 

BALANCES as of March 31, 2023

 

 

3,704

 

 

 

21,799

 

 

$

118,819

 

 

$

(744

)

 

$

(29,333

)

 

$

88,742

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

1,736

 

 

 

-

 

 

 

-

 

 

 

1,736

 

Issuance of Common Stock upon settlement of restricted stock units, net of shares withheld for taxes

 

176

 

 

 

-

 

 

 

(172

)

 

 

-

 

 

 

-

 

 

 

(172

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

(200

)

 

 

-

 

 

 

(200

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,869

 

 

 

1,869

 

BALANCES as of June 30, 2023

 

 

3,880

 

 

 

21,799

 

 

$

120,383

 

 

$

(944

)

 

$

(27,464

)

 

$

91,975

 

BALANCES as of January 1, 2024

 

 

4,320

 

 

 

21,760

 

 

$

122,558

 

 

$

(1,477

)

 

$

(17,320

)

 

$

103,761

 

Cumulative effect adjustment to the opening balance of retained earnings for ASU 2023-08 adoption, net of tax

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,254

 

 

 

38,254

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

1,903

 

 

 

-

 

 

 

-

 

 

 

1,903

 

Issuance of Common Stock upon settlement of restricted stock units, net of shares withheld for taxes

 

234

 

 

 

-

 

 

 

(334

)

 

 

-

 

 

 

-

 

 

 

(334

)

Conversion from Class B to Class A

 

 

240

 

 

 

(240

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

703

 

 

 

-

 

 

 

703

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

54,787

 

 

 

54,787

 

BALANCES as of March 31, 2024

 

 

4,794

 

 

 

21,520

 

 

$

124,127

 

 

$

(774

)

 

$

75,721

 

 

$

199,074

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

2,256

 

 

 

-

 

 

 

-

 

 

 

2,256

 

Issuance of Common Stock upon settlement of restricted stock units, net of shares withheld for taxes

 

250

 

 

 

-

 

 

 

(883

)

 

 

-

 

 

 

-

 

 

 

(883

)

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(35

)

 

 

-

 

 

 

(35

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,606

)

 

 

(9,606

)

BALANCES as of June 30, 2024

 

 

5,044

 

 

 

21,520

 

 

$

125,500

 

 

$

(809

)

 

$

66,115

 

 

$

190,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

Exodus Movement, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

Six Months Ended
June 30,
2024

 

 

Six Months Ended
June 30,
2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

$

45,181

 

 

$

2,642

 

Net cash provided by operating activities

 

 

 

 

 

Depreciation and amortization

 

2,511

 

 

 

2,181

 

Deferred tax expense

 

7,382

 

 

 

-

 

Impairment of digital assets

 

-

 

 

 

1,996

 

Gain on digital assets, net

 

(39,567

)

 

 

(2,638

)

Staking and other income

 

(555

)

 

 

-

 

Unrealized loss (gain) on investments

 

86

 

 

 

(189

)

Stock based compensation

 

3,741

 

 

 

3,505

 

Accrued interest income

 

(1,133

)

 

 

(541

)

Other operating activities settled in digital assets and USDC (1)

 

(18,402

)

 

 

(7,135

)

Change in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(4

)

 

 

-

 

Prepaid expenses

 

(618

)

 

 

1,545

 

Other current assets

 

(340

)

 

 

16

 

Other long-term asset

 

(40

)

 

 

-

 

Accounts payable

 

1,144

 

 

 

421

 

Other current liabilities

 

(1,325

)

 

 

236

 

Other long-term liabilities

 

23

 

 

 

-

 

Net cash (used in) provided by operating activities

 

(1,916

)

 

 

2,039

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchase of domain name

 

(151

)

 

 

-

 

Purchases of fixed assets

 

(188

)

 

 

(10

)

Purchase of treasury bills

 

(44,386

)

 

 

(38,617

)

Redemption of treasury bills

 

46,164

 

 

 

32,300

 

Purchases of digital assets

 

(2,534

)

 

 

-

 

Disposal of digital assets held

 

20,631

 

 

 

-

 

Net cash provided by (used in) investing activities

 

19,536

 

 

 

(6,327

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Repurchase of shares to pay employee withholding taxes

 

(1,227

)

 

 

(324

)

Exercise of stock options

 

-

 

 

 

1

 

Net cash used in financing activities

 

(1,227

)

 

 

(323

)

Change in cash and cash equivalents

 

16,393

 

 

 

(4,611

)

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

11,376

 

 

 

20,494

 

End of period

 

27,769

 

 

 

15,883

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

Non-cash issuance of stock

$

10

 

 

$

-

 

Non-cash capitalized software costs settled in digital assets

 

 

 

 

 

   (including stock based compensation of $418 and $557 respectively)

$

(2,364

)

 

$

(2,826

)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

Cash paid for income taxes

$

(3,252

)

 

$

(619

)

 

 

 

 

 

 

 

(1) See Note 5, “Intangible Assets”.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

Exodus Movement, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of Business

Exodus Movement, Inc. (“Exodus” or “the Company” or “we”) was incorporated in Delaware in July 2016. The Company operates in the FinTech subsector of the greater blockchain and digital asset industry. The Company has developed an un-hosted self-custodial digital asset wallet on the Exodus Platform and contracts with third parties to provide various services to users that utilize the Company’s wallet through the platform.

2. Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements of the Company are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) on the same basis as the audited consolidated financial statements and in management’s opinion, reflect all the adjustments, consisting only of normal, recurring adjustments, that are necessary for the fair statement of the Company’s condensed consolidated financial statements for the periods presented. The unaudited condensed consolidated results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year or any other period.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and notes included in the Form 10.

There were no changes to the significant accounting policies or recent accounting pronouncements that were disclosed in Note 2 Summary of Significant Accounting Policies to the audited consolidated financial statements included in the Form 10, other than the adoption of ASU 2023-08 Intangibles, Goodwill and Other - Crypto Assets ("ASU 2023-08"), as discussed below.

Correction of Previously Issued Financial Statements

Subsequent to the issuance of the Company’s interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2023, the Company identified an error in the calculation of earnings per share due to the undistributed earnings not being appropriately allocated to each class of common shares and an error in the disclosure of operating activities settled in digital assets and USDC in Note 5. The effects of the correction on the prior periods are included below.

 

 

Three Months Ended
June 30, 2023

 

 

Six Months Ended
June 30, 2023

 

 

Originally
Reported

 

 

Adjustment

 

 

As
Corrected

 

 

Originally
Reported

 

 

Adjustment

 

 

As
Corrected

 

Basic net income per share - Class A

$

0.49

 

 

$

(0.42

)

 

$

0.07

 

 

$

0.71

 

 

$

(0.61

)

 

$

0.10

 

Basic net income per share - Class B

$

0.09

 

 

$

(0.02

)

 

$

0.07

 

 

$

0.12

 

 

$

(0.02

)

 

$

0.10

 

Diluted net income per share - Class A

$

0.26

 

 

$

(0.20

)

 

$

0.06

 

 

$

0.37

 

 

$

(0.29

)

 

$

0.08

 

Diluted net income per share - Class B

$

0.08

 

 

$

(0.02

)

 

$

0.06

 

 

$

0.11

 

 

$

(0.03

)

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30, 2023

 

 

Originally
Reported

 

 

Adjustment

 

 

As
Corrected

 

Digital assets expense

$

18,616

 

 

$

(8,343

)

 

$

10,273

 

Conversion of digital assets and USDC to cash

$

-

 

 

$

8,343

 

 

$

8,343

 

 

 

6


 

Concentration of Revenue

Operating revenue from Application Programming Interface Providers (“API Providers”) exceeding 10% of total operating revenues for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands):

 

 

 

Three Months Ended
June 30, 2024

 

 

Three Months Ended
June 30, 2023

 

 

Six Months Ended
June 30, 2024

 

 

Six Months Ended
June 30, 2023

 

Company A

 

$

3,832

 

 

$

2,346

 

 

 

10,532

 

 

 

4,048

 

Company B

 

 

4,629

 

 

 

2,511

 

 

 

10,286

 

 

 

4,839

 

Company C

 

 

4,360

 

 

 

1,996

 

 

 

9,094

 

 

 

4,134

 

Company D

 

 

2,713

 

 

 

1,898

 

 

 

6,828

 

 

 

4,786

 

Company E (1)

 

 

-

 

 

 

1,985

 

 

 

-

 

 

 

4,177

 

(1) Company E did not have over 10% of revenue during the three and six months ended June 30, 2024.

Digital Assets

As of June 30, 2024, the Company held $124.8 million of digital assets at fair value. The Company presents digital assets separately from other intangible assets, recorded as digital assets on the condensed consolidated balance sheets. The net activity from remeasurement of digital assets at fair value is reflected in the condensed consolidated statements of operations and comprehensive (loss) income within operating income (expense). Digital assets that are received as noncash consideration in our revenue arrangements and sold for cash within seven days are presented as cash flows from operating activities, while other digital asset activity held longer than seven days is reflected as cash flows from investing activities in the consolidated statements of cash flows. The Company uses a mix of non-custodial and custodial services at multiple locations that are geographically dispersed to store its digital assets. The Company has performed an analysis of the principal market. Refer to Note 5, Intangible Assets, and Note 12, Fair Value Measurements, for additional information. The Company has ownership of and control over its digital assets. The cost basis is calculated on a first-in first-out basis.

Fair Value Measurements

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.

Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, securities are priced using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs that market participants presumably would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted. Subsequent to the adoption of ASU 2023-08, the fair value of each digital asset is based on quoted (unadjusted) prices in the principal market for each digital asset. Such prices are based on Level 1 inputs in accordance with ASC 820.

 

Recent Accounting Pronouncements

Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. This guidance will not impact our consolidated financial statements.

Improvements to Crypto Assets Disclosures

On December 13, 2023, the FASB issued ASU 2023-08 which provides an update to existing crypto asset guidance and requires an entity to measure certain crypto assets at fair value. In addition, this guidance requires additional disclosures related to crypto assets once it is adopted. As of January 1, 2024, the Company has adopted ASU 2023-08.

 

7


 

The Company has adopted the amendments prescribed in ASU 2023-08. As a result of adopting the amendments, the Company’s cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period, or as of January 1, 2024, amounted to $38.3 million, which consisted of a $48.7 million of fair value adjustments offset by a $10.4 million tax impact related to the fair value adjustments. The Company includes realized and unrealized gains and losses in net income on the consolidated financial statements which is presented separately from changes in the carrying amount of other intangible assets.

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. This guidance only impacts footnote disclosures and will not impact our consolidated financial statements.

 

3. Revenue Recognition

The following table presents the Company’s operating revenues disaggregated by geography, based on the addresses of the Company’s API Providers (in thousands, except percentages):

 

 

 

Three Months Ended
June 30,

 

 

 

Six Months Ended
June 30,

 

 

 

 

2024

 

 

 

2023

 

 

 

2024

 

 

 

2023

 

 

Republic of the Marshall Islands

 

$

7,072

 

 

 

31.7

 

%

 

$

3,895

 

 

 

31.4

 

%

 

$

15,921

 

 

 

31.0

 

%

 

$

8,921

 

 

 

34.6

 

%

British Virgin Islands(1)

 

 

-

 

 

 

-

 

 

 

 

2,639

 

 

 

21.3

 

 

 

 

-

 

 

 

-

 

 

 

 

5,836

 

 

 

22.7

 

 

Seychelles

 

 

3,832

 

 

 

17.2

 

 

 

 

2,332

 

 

 

18.8

 

 

 

 

10,532

 

 

 

20.5

 

 

 

 

4,066

 

 

 

15.8

 

 

Hong Kong

 

 

4,894

 

 

 

21.9

 

 

 

 

2,522

 

 

 

20.3

 

 

 

 

10,903

 

 

 

21.2

 

 

 

 

4,843

 

 

 

18.8

 

 

Other(2)

 

 

6,510

 

 

 

29.2

 

 

 

 

1,017

 

 

 

8.2

 

 

 

 

14,012

 

 

 

27.3

 

 

 

 

2,084

 

 

 

8.1

 

 

Operating revenues

 

$

22,308

 

 

 

100.0

 

%

 

$

12,405

 

 

 

100.0

 

%

 

$

51,368

 

 

 

100.0

 

%

 

$

25,750

 

 

 

100.0

 

%

 

(1) British Virgin Islands no longer exceeds 10% in 2024 and is now included in Other.

(2) No other individual country accounted for more than 10% of total revenue.

 

The following table presents the Company’s operating revenues disaggregated by products and services (in thousands, except percentages):

 

 

 

Three Months Ended
June 30,

 

 

 

Six Months Ended
June 30,

 

 

 

 

2024

 

 

 

2023

 

 

 

2024

 

 

 

2023

 

 

Exchange aggregation

 

$

19,942

 

 

 

89.4

 

%

 

$

11,623

 

 

 

93.7