Blockchain

DMG Blockchain Solutions Reports Second Quarter 2024 Results Ending March 31, 2024

Published

6 months ago

23 May, 2024

DMG Blockchain Solutions Reports Second Quarter 2024 Results Ending March 31, 2024

DMG Blockchain Solutions Inc.

VANCOUVER, British Columbia, May 22, 2024 (GLOBE NEWSWIRE) — DMG Blockchain Solutions Inc. (TSX-V: DMGI) (OTCQB US: DMGGF) (FRANKFURT: 6AX) (“DMG”), a vertically integrated blockchain and data center technology company, today announces its fiscal second quarter 2024 financial results. All financial references are in Canadian Dollars unless specified otherwise.

Q2 2024 Financial Results Highlights

Q2 2024 revenue increased 31% over the prior year to $10M, driven by self mining revenues increasing 39%
Net Income was slightly positive, maintaining profitability for the second consecutive quarter
153 bitcoin mined, down 22% from the prior quarter, with a hashrate of 0.96 EH/s and fleet efficiency of 28.4 J/TH
$4.5 million cash flow from operations, up 19% from the prior quarter
Deploying Bitmain T21 miners with goal to reach 1.7 EH/s by the end of June, targeting 2 EH/s and beyond longer term
Strong balance sheet with $43.6M in cash and digital currency, $118M in total assets

Sheldon Bennett, DMG Blockchain Solutions’ Chief Executive Officer, commented, “We are pleased with our robust performance this quarter, achieving a 3% sequential revenue increase to $10.0M and maintaining profitability for the second consecutive quarter. Our strategic investments in both our Core and Core+ strategies are delivering promising results. Systemic Trust is paving the way for financial institutions to transact bitcoin in a carbon-neutral manner, while the deployment of our Bitmain T21 miners positions us to achieve 1.7 EH/s by the end of June with further expansion planned. Additionally, our strong cash flow from operations of $4.5M and a solid balance sheet with $43.6M in cash and digital currency underscore our execution.”

Second Quarter 2024 Financial Results Review

Revenue for the second fiscal quarter ending March 31, 2024 was $10.0 million versus $7.6 million in the prior year period, an increase of 31%, primarily due to the increase in digital currency mining revenues as a result of bitcoin price increasing 133% over the year-ago period to an average of $71,851 in the March quarter. This increase was partially offset by a 93% increase in Bitcoin network difficulty that lowered DMG’s bitcoin generation per EH/s by 47% from the same period last year. In addition, revenue was also partially offset by a loss in net pool revenue of $1.3 million.

Income before other items for the three months ended March 31, 2024 was -$1.8 million versus -$4.6 million in the prior year period.

Operating and maintenance costs for the three months ended March 31, 2024 were $5.3 million as compared to $4.6 million in the same quarter in the prior year. The increase is attributed to utility expenses, driven by the expansion of digital currency mining operations and the addition of new miners.

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Net income for the three months ending March 31, 2024 was $2 thousand versus a loss of $3.8 million in the prior year period. The improvement in net income was driven primarily by an increase in revenue of $10.0 million versus $7.6 million in the prior year period, unrealized revaluation gain on digital currency, which was a gain of $1.0 million versus zero in the prior year period as well as realized gain on sale of digital currency of $1.1 million versus $0.5 million in the year-ago period. It was also driven by lower depreciation, which was $3.8 million versus $5.9 million in the prior year period. These were partially offset by operating and maintenance costs, which increased by $0.7 million and general and administrative expenses which increased by $1.1 million over the prior year.

Earnings per share for the second fiscal quarter ending March 31, 2024 was $0.00 versus -$0.02 in the prior year period.

As of March 31, 2024, the Company had cash of $1.6 million, digital currency of $42.0 million and total assets of $118.4 million. For more details, please refer to the Company’s filings.

Readers are encouraged to review the Company’s March 31, 2024 quarterly unaudited financial statements and management’s discussion and analysis thereof for a fulsome assessment of the Company’s performance and applicable risk factors, available at www.sedarplus.ca.

DMG Blockchain Solutions Inc. Second Quarter 2024 Financial Results Conference Call

The Company will host a conference call to review second quarter 2024 financial results and provide a corporate update on May 23, 2024 at 4:30 pm ET. Participants are asked to pre-register for the call through this link. Registered participants will receive a conference call weblink and dial-in information in their confirmation email.

As there will be no live Q&A session, management will address pre-submitted questions during the call. Those wishing to submit a question may do so via investors@dmgblockchain.com using the subject line ‘Conference Call Question Submission’ through 2:00 pm ET on May 23, 2024.

About DMG Blockchain Solutions Inc.

DMG is an environmentally friendly vertically integrated blockchain and data center company that manages, operates and develops end-to-end digital solutions to monetize the blockchain ecosystem. DMG’s sustainable businesses are segmented into two business lines under the Core and Core+ strategies and unified through DMG’s vertical integration.

For more information on DMG Blockchain Solutions visit: www.dmgblockchain.com
Follow @dmgblockchain on X and subscribe to DMG’s YouTube channel.

For further information, please contact:

On behalf of the Board of Directors,

Sheldon Bennett, CEO & Director
Tel: 516-222-2560
Email: investors@dmgblockchain.com
Web: www.dmgblockchain.com

Investor Relations Contact:
Core IR 516-222-2560

For Media Inquiries:
Jules Abraham
Core IR
917-885-7378
julesa@coreir.com

Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

Cautionary Note Regarding Forward-Looking Information

This news release contains forward-looking information or statements based on current expectations. Forward-looking statements contained in this news release include statements regarding DMG’s strategies and plans, the expected increase in realized hashrate, deploying Bitmain T21 miners to reach 1.7 EH/s by June 2024, targeting 2 EH/s and beyond, hosting the conference call, the deployment of new capacity, the expected arrival of new miners, the expected timelines, the opportunity and plans to monetize bitcoin transactions, the continued investment in Bitcoin network software infrastructure and applications, developing and executing on the Company’s products and services, increasing self-mining, efforts to improve the operation of its mining fleet, the launch of products and services, events, courses of action, and the potential of the Company’s technology and operations, among others, are all forward-looking information.

Future changes in the Bitcoin network-wide mining difficulty rate or Bitcoin hash rate may materially affect the future performance of DMG’s production of bitcoin, and future operating results could also be materially affected by the price of bitcoin and an increase in hash rate mining difficulty.

Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations, or intentions regarding the future. Such information can generally be identified by the use of forwarding-looking wording such as “may”, “expect”, “estimate”, “anticipate”, “intend”, “believe” and “continue” or the negative thereof or similar variations. The reader is cautioned that assumptions used in the preparation of any forward-looking information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company, including but not limited to, market and other conditions, volatility in the trading price of the common shares of the Company, business, economic and capital market conditions; the ability to manage operating expenses, which may adversely affect the Company’s financial condition; the ability to remain competitive as other better financed competitors develop and release competitive products; regulatory uncertainties; access to equipment; market conditions and the demand and pricing for products; the demand and pricing of bitcoins; security threats, including a loss/theft of DMG’s bitcoins; DMG’s relationships with its customers, distributors and business partners; the inability to add more power to DMG’s facilities; DMG’s ability to successfully define, design and release new products in a timely manner that meet customers’ needs; the ability to attract, retain and motivate qualified personnel; competition in the industry; the impact of technology changes on the products and industry; failure to develop new and innovative products; the ability to successfully maintain and enforce our intellectual property rights and defend third-party claims of infringement of their intellectual property rights; the impact of intellectual property litigation that could materially and adversely affect the business; the ability to manage working capital; and the dependence on key personnel. DMG may not actually achieve its plans, projections, or expectations. Such statements and information are based on numerous assumptions regarding present and future business strategies and the environment in which the Company will operate in the future, including the demand for its products, the ability to successfully develop software, that there will be no regulation or law that will prevent the Company from operating its business, anticipated costs, the ability to secure sufficient capital to complete its business plans, the ability to achieve goals and the price of bitcoin. Given these risks, uncertainties, and assumptions, you should not place undue reliance on these forward-looking statements. The securities of DMG are considered highly speculative due to the nature of DMG’s business. For further information concerning these and other risks and uncertainties, refer to the Company’s filings on www.sedarplus.ca. In addition, DMG’s past financial performance may not be a reliable indicator of future performance.

Factors that could cause actual results to differ materially from those in forward-looking statements include, failure to obtain regulatory approval, the continued availability of capital and financing, equipment failures, lack of supply of equipment, power and infrastructure, failure to obtain any permits required to operate the business, the impact of technology changes on the industry, the impact of viruses and diseases on the Company’s ability to operate, secure equipment, and hire personnel, competition, security threats including stolen bitcoins from DMG or its customers, consumer sentiment towards DMG’s products, services and blockchain technology generally, failure to develop new and innovative products, litigation, adverse weather or climate events, increase in operating costs, increase in equipment and labor costs, equipment failures, decrease in the price of Bitcoin, failure of counterparties to perform their contractual obligations, government regulations, loss of key employees and consultants, and general economic, market or business conditions. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement. The reader is cautioned not to place undue reliance on any forward-looking information. The forward-looking statements contained in this news release are made as of the date of this news release. Except as required by law, the Company disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Additionally, the Company undertakes no obligation to comment on the expectations of or statements made by third parties in respect of the matters discussed above.

DMG Blockchain Solutions Inc.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in Canadian Dollars)
(Unaudited)

		For the Three Months Ended		For the Six Months Ended
	Notes	March 31, 2024	March 31, 2023	March 31, 2024	March 31, 2023

Revenue	15	10,015,659	7,623,323	19,706,423	14,797,915

Expenses
Operating and maintenance costs	16(a)	5,270,851	4,594,898	10,418,502	9,003,690
General and administrative	16(b)	1,846,398	776,942	2,732,459	1,724,878
Stock-based compensation		398,010	423,079	766,502	938,209
Research and development		486,216	499,165	924,395	931,104
Provision for doubtful accounts		42	50,773	3,806	114,377
Depreciation	10	3,805,988	5,854,704	8,147,770	11,945,549
Total expenses		11,807,503	12,199,561	22,993,434	24,657,807

Loss before other items		(1,791,844)	(4,576,238)	(3,287,011)	(9,859,892)

Other income (expense)
Interest and other income	7	170,044	122,091	335,825	235,232
Provision of sales tax receivable		(381,690)	–	(635,590)	–
Gain on disposition of assets		4,809	–	4,809	70,429
Foreign exchange loss		(28,341)	(26,014)	(122,926)	(106,991)
Unrealized gain on revaluation of digital currency	5	1,019,456	–	9,182,316	–
Realized gain on sale of digital currency		1,143,489	506,054	1,995,359	328,892
Gain (loss) on change in fair value of marketable securities		(133,708)	134,698	111,043	(94,823)
Loss on fair value of investments	10		–	(609,120	–
Net income (loss)		2,215	(3,839,409)	6,974,705	(9,427,153)

Other comprehensive income
Items that may be reclassified subsequently to income or loss:
Unrealized revaluation gain on digital currency	5	15,472,215	6,245,331	15,472,215	4,820,027
Cumulative translation adjustment		(11,278)	48,347	(1,196)	48,091
Comprehensive income (loss)		15,463,152	2,454,269	22,445,724	(4,559,035)


Basic and diluted income (loss) per share	13(d)	0.00	(0.02)	0.04	(0.06)
Weighted average number of shares outstanding	13(d)
– basic		169,029,065	167,681,377	168,585,910	167,599,591
– diluted		172,516,428	167,681,377	173,248,160	167,599,591

DMG Blockchain Solutions Inc.
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
(Unaudited)

	Notes	As at March 31, 2024 (unaudited)	As at September 30, 2023 (audited)
ASSETS		$	$
Current
Cash and cash equivalents		1,609,479	1,789,913
Amounts receivable	6	2,102,769	2,476,679
Digital currency	5	41,966,494	17,142,683
Prepaid expense and other current assets		332,900	193,512
Marketable securities	8	498,027	386,984
Assets held for sale	11	3,702,466	3,451,024
Total current assets		50,212,135	25,440,795

Long-term deposits	9	18,687,623	3,256,324
Property and equipment	12	42,632,378	47,398,585
Long-term investments	13	45,000	45,000
Amount recoverable	7	6,782,076	6,446,251
Total assets		118,359,212	82,586,955

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Trade and other payables	14	5,408,373	4,178,104
Deferred revenue	19	63,712	64,361
Current portion of lease liability	15	57,014	50,555
Current portion of loans payable	16	12,127,654	1,272,397
Total current liabilities		17,656,753	5,565,417

Long-term lease liability	15	71,873	41,202
Total liabilities		17,728,626	5,606,619

Shareholders’ Equity
Share capital	17(a)	111,820,687	110,820,540
Reserves	17(b)(c)	45,711,651	45,507,272
Accumulated other comprehensive income		15,620,063	149,044
Accumulated deficit		(72,521,815)	(79,496,520)
Total shareholders’ equity		100,630,586	76,980,336
Total liabilities and shareholders’ equity		118,359,212	82,586,955

Contingencies	23
Subsequent events	25

DMG Blockchain Solutions Inc.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
(Unaudited)

		For the Six Months Ended
	March 31, 2024	March 31, 2023
	$	$
OPERATING ACTIVITIES
Net income (loss) for the period	6,974,705	(9,427,153)
Non-cash items:
Accretion	23,272	25,466
Depreciation	8,147,770	11,945,549
Share-based payments	766,502	938,209
Unrealized foreign exchange loss	40,351	43,613
Gain on disposition of assets	(4,809)	(70,429)
Gain (loss) on change in fair value of marketable securities	(111,043)	94,824
Loss on fair value of investment	609,120	–
Provision for sales tax receivable	635,590	–
Bad debt expense	3,806	114,377
Digital currency related revenue	(18,355,313)	(13,773,874)
Unrealized gain on digital currency	(9,182,315)	–
Digital currency sold	20,173,781	11,161,893
Realized gain on sale of digital currency	(1,995,359)	(328,892)
Non-cash interest income	(329,914)	(229,349)
Accrued interest	–	(129)

Changes in non-cash operating working capital:
Prepaid expenses and other current assets	(144,388)	52,650
Amounts receivable	(212,015)	3,000,466
Amounts recoverable	–	(237,039)
Deferred revenue	11,277	(91,752)
Trade and other payables	1,144,920	1,895,676
Net cash provided by operating activities	8,195,938	5,114,106

INVESTING ACTIVITIES
Purchase of property and equipment	(830,859)	(572,044)
Deposits on mining equipment	(18,102,867)	(1,991,167)
Proceeds on sale of equipment	–	4,829
Purchase of short-term investment	(609,120)	–
Proceeds from sublease	–	37,012
Net cash used by investing activities	(19,542,846)	(2,521,370)

FINANCING ACTIVITIES
Proceeds from option exercises	438,024	63,750
Principal lease payments	(61,187)	(102,973)
Proceeds from secured loan	10,791,288	950,665
Repayment of loans payable	(1,668)	–
Net cash provided by financing activities	11,166,457	911,442

Impact of currency translation on cash	17	(481)
Change in cash	(180,434)	3,503,697
Cash, beginning	1,789,913	1,247,513
Cash, end	1,609,479	4,751,210

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Market Impact: ASTRO Crashes!

The hack had an immediate impact on the price of ASTRO, which dropped nearly 60% to $0.0206 following the network shutdown. This sharp decline highlights the vulnerability of token prices to security breaches and the resulting market volatility.

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Luxembourg proposes updates to blockchain laws | Insights and resources

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DLT and Luxembourg

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Digital Bonds: Luxembourg has seen multiple digital bond issuances via DLT. For example, the European Investment Bank has issued bonds that are registered, transferred and stored via DLT processes. These bonds are governed by Luxembourg law and registered on proprietary DLT platforms.
Fund Administration: DLT can streamline fund administration processes, offering new opportunities and efficiencies for intermediaries, and can do the following:
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Warranty Management: Luxembourg-based DLT platforms allow clients to swap ownership of baskets of securities between different collateral pools at precise times.
Tokenization: DLT is used to tokenize various assets, including real estate and luxury goods, by representing them in a tokenized and fractionalized format on the blockchain. This process can improve the liquidity and accessibility of traditionally illiquid assets.
Tokenization of investment funds: DLT is being explored for the tokenization of investment funds, which can streamline the supply chain, reduce costs, and enable faster transactions. DLT can automate various elements of the supply chain, reducing the need for reconciliations between entities such as custodians, administrators, and investment managers.
Issuance, settlement and payment platforms:Market participants are developing trusted networks using DLT technology to serve as a single source of shared truth among participants in financial instrument investment ecosystems.
Legal framework: Luxembourg has adapted its legal framework to accommodate DLT, recognising the validity and enforceability of DLT-based financial instruments. This includes the following:
- Allow the use of DLT for the issuance of dematerialized securities,
- Recognize DLT for the circulation of securities,
- Enabling financial collateral arrangements on DLT financial instruments.
Regulatory compliance: DLT can improve transparency in fund share ownership and regulatory compliance, providing fund managers with new opportunities for liquidity management and operational efficiency.
Financial inclusion: By leveraging DLT, Luxembourg aims to promote greater financial inclusion and participation, potentially creating a more diverse and resilient financial system.
Governance and ethics:The implementation of DLT can promote higher standards of governance and ethics, contributing to a more sustainable and responsible financial sector.

Luxembourg’s approach to DLT in finance and fund management is characterised by a principle of technology neutrality, recognising that innovative processes and technologies can contribute to improving financial services. This is exemplified by its commitment to creating a compatible legal and regulatory framework.

Short story

Luxembourg has already enacted three major blockchain-related laws, often referred to as Blockchain I, II and III.

Blockchain Law I (2019): This law, passed on March 1, 2019, was one of the first in the EU to recognize blockchain as equivalent to traditional transactions. It allowed the use of DLT for account registration, transfer, and materialization of securities.

Blockchain Law II (2021): Enacted on 22 January 2021, this law strengthened the Luxembourg legal framework on dematerialised securities. It recognised the possibility of using secure electronic registration mechanisms to issue such securities and expanded access for all credit institutions and investment firms.

Blockchain Act III (2023): Also known as Bill 8055, this is the most recent law in the blockchain field and was passed on March 14, 2023. This law has integrated the Luxembourg DLT framework in the following way:

Update of the Act of 5 August 2005 on provisions relating to financial collateral to enable the use of electronic DLT as collateral on financial instruments registered in securities accounts,
Implementation of EU Regulation 2022/858 on a pilot scheme for DLT-based market infrastructures (DLT Pilot Regulation),
Redefining the notion of financial instruments in Law of 5 April 1993 on the financial sector and the Law of 30 May 2018 on financial instruments markets to align with the corresponding European regulations, including MiFID.

The Blockchain III Act strengthened the collateral rules for digital assets and aimed to increase legal certainty by allowing securities accounts on DLT to be pledged, while maintaining the efficient system of the 2005 Act on Financial Collateral Arrangements.

With the Blockchain IV bill, Luxembourg will build on the foundations laid by previous Blockchain laws and aims to consolidate Luxembourg’s position as a leading hub for financial innovation in Europe.

Blockchain Bill IV

The key provisions of the Blockchain IV bill include the following:

Expanded scope: The bill expands the Luxembourg DLT legal framework to include equity securities in addition to debt securities. This expansion will allow the fund industry and transfer agents to use DLT to manage registers of shares and units, as well as to process fund shares.
New role of the control agent: The bill introduces the role of a control agent as an alternative to the central account custodian for the issuance of dematerialised securities via DLT. This control agent can be an EU investment firm or a credit institution chosen by the issuer. This new role does not replace the current central account custodian, but, like all other roles, it must be notified to the Commission de Surveillance du Secteur Financier (CSSF), which is designated as the competent supervisory authority. The notification must be submitted two months after the control agent starts its activities.
Responsibilities of the control agent: The control agent will manage the securities issuance account, verify the consistency between the securities issued and those registered on the DLT network, and supervise the chain of custody of the securities at the account holder and investor level.
Simplified payment processesThe bill allows issuers to meet payment obligations under securities (such as interest, dividends or repayments) as soon as they have paid the relevant amounts to the paying agent, settlement agent or central account custodian.
Simplified issuance and reconciliationThe bill simplifies the process of issuing, holding and reconciling dematerialized securities through DLT, eliminating the need for a central custodian to have a second level of custody and allowing securities to be credited directly to the accounts of investors or their delegates.
Smart Contract Integration:The new processes can be executed using smart contracts with the assistance of the control agent, potentially increasing efficiency and reducing intermediation.

These changes are expected to bring several benefits to the Luxembourg financial sector, including:

Fund Operations: Greater efficiency and reduced costs by leveraging DLT for the issuance and transfer of fund shares.
Financial transactions: Greater transparency and security.
Transparency of the regulatory environment: Increased attractiveness and competitiveness of the Luxembourg financial centre through greater legal clarity and flexibility for issuers and investors using DLT.
Smart Contracts: Potential for automation of contractual terms, reduction of intermediaries and improvement of transaction traceability through smart contracts.

Blockchain Bill IV is part of Luxembourg’s ongoing strategy to develop a strong digital ecosystem as part of its economy and maintain its status as a leading hub for financial innovation. Luxembourg is positioning itself at the forefront of Europe’s growing digital financial landscape by constantly updating its regulatory framework.

Local regulations, such as Luxembourg law, complement European regulations by providing a more specific legal framework, adapted to local specificities. These local laws, together with European initiatives, aim to improve both the use and the security of projects involving new technologies. They help establish clear standards and promote consumer trust, while promoting innovation and ensuring better protection against potential risks associated with these emerging technologies. Check out our latest posts on these topics and, for more information on this law, blockchain technology and the tokenization mechanism, do not hesitate to contact us.

We are available to discuss any project related to digital finance, cryptocurrencies and disruptive technologies.

This informational piece, which may be considered advertising under the ethics rules of some jurisdictions, is provided with the understanding that it does not constitute the rendering of legal or other professional advice by Goodwin or its attorneys. Past results do not guarantee a similar outcome.

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