Bit Digital, Inc 6-K, filed Aug 19, 2024
Bit Digital, Inc (BTBT)
About this 6-K
Bit Digital, Inc filed this 6-K on August 19, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2024
Commission File Number: 001-38421
BIT DIGITAL, INC.
(Translation of registrant’s name into English)
31 Hudson Yards, Floor 11, New York, NY 10001
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F
Form 20-F ☒ Form 40-F ☐
Exhibit Index
A copy of the Bit Digital, Inc. press release dated August 19, 2024, titled “Bit Digital, Inc. Announces Second Quarter of Fiscal Year 2024 Financial Results,” is being filed as Exhibit 99.1 with this Report on Form 6-K.
| Exhibit 99.1 | Bit Digital, Inc. press release dated August 19, 2024, titled “Bit Digital, Inc. Announces Second Quarter of Fiscal Year 2024 Financial Results” |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Bit Digital, Inc. | ||
| (Registrant) | ||
| By: | /s/ Samir Tabar | |
| Name: | Samir Tabar | |
| Title: | Chief Executive Officer | |
Date: August 19, 2024
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Exhibit 99.1
Bit Digital, Inc. Announces Second Quarter of Fiscal Year 2024 Financial Results
NEW YORK, August 19, 2024 /PRNewswire/ -- Bit Digital, Inc. (Nasdaq: BTBT) (the “Company”), a sustainable platform for digital assets and artificial intelligence (“AI”) infrastructure headquartered in New York City, today announced its unaudited financial results for the Second Quarter ended June 30, 2024.
Financial Highlights for the Second Quarter of 2024
| ● | Total revenue was $29.0 million for the Second Quarter of 2024, a 220% increase compared to the Second Quarter of 2023. The increase was primarily driven by the commencement of our high performance computing services (“HPC”) business and by a higher realized bitcoin price. |
| ● | Revenue from bitcoin mining was $16.1 million for the Second Quarter of 2024, an 80% increase compared to the prior year’s quarter. The Company’s HPC recognized $12.5 million of revenue during the quarter compared to nil the prior year. |
| ● | The Company had cash, cash equivalents and restricted cash of $61.4 million, and total liquidity (defined as cash, cash equivalents and restricted cash, USDC, and the fair market value of digital assets) of approximately $191.9 million1, as of June 30, 2024. |
| ● | Total assets were $315.5 million and Shareholders’ Equity amounted to $295.3 million as of June 30, 2024. |
| ● | Adjusted EBITDA2 was $(3.8) million for the Second Quarter of 2024 compared to $1.9 million for the Second Quarter of 2023. Adjusted EBITDA includes an $11.5 million unrealized loss on digital assets. |
| ● | GAAP loss per share was $0.09 on a fully diluted basis for the Second Quarter of 2024 compared to a loss per share of $0.03 for the Second Quarter of 2023. |
Operational Highlights for the Second Quarter of 2024
| ● | The Company earned 244.2 bitcoins during the Second Quarter of 2024, a 23% decrease from the prior year. The decline was primarily driven by a reduction in block rewards following the halving event in April 2024 and by an increase in network difficulty. |
| ● | The Company paid approximately $0.047 per kilowatt hour to its hosting partners for electricity consumed during the Second Quarter of 2024. |
| ● | The average fleet efficiency for the active fleet was approximately 27.9 J/TH as of June 30, 2024. |
| ● | The Company earned 109.4 ETH from native staking in the Second Quarter of 2024. |
| · | Treasury holdings of BTC and ETH were 585.6 and 27,226.21, respectively, with a fair market value of approximately $36.7 million and $93.5 million on June 30, 2024, respectively. |
| 1 | This figure excludes approximately 2,701 ETH that were transferred to an internally managed fund. |
| 2 | Adjusted EBITDA refers to earnings before interest expense, income tax expense and depreciation and amortization expense (“EBITDA”) adjusted to eliminate the effects of certain non-cash and / or non-recurring items. See disclosure about Non-GAAP Financial Measures on page 24 below. |
| · | The BTC equivalent3 of our digital asset holdings as of June 30, 2024 (defined as if all ETH and USDC holdings were converted into BTC as of that date) was approximately 2,082.1 BTC1, or approximately $130.5 million. |
| ● | As of June 30, 2024, we had 50,044 miners owned or operating (in Iceland) for bitcoin mining with a total maximum hash rate of 4.3 EH/s. |
| ● | The Company’s active hash rate of its bitcoin mining fleet was approximately 2.6 EH/s as of June 30, 2024. |
| ● | The Company purchased approximately 1,146 bitcoin mining units during the Second Quarter of 2024. |
| ● | Approximately 86% of our fleet’s run-rate electricity consumption was generated from carbon-free energy sources as of June 30, 2024. These figures are based on data provided by our hosts, publicly available sources, and internal estimates, demonstrating our commitment to sustainable practices in the digital asset mining industry. |
| ● | The Company had approximately 17,184 ETH actively staked in native staking protocols as of June 30, 2024. |
| ● | In the second quarter of 2024, the Company finalized an agreement to supply its existing customer with an additional 2,048 GPUs over a three-year period. To help finance this operation, the Company entered into a sale-leaseback agreement with a third party, agreeing to sell 128 AI servers (equivalent to 1,024 GPUs) and lease them back for three years. In late July, at behest of the customer, the Company and the customer mutually agreed to temporarily delay the purchase order so that the customer could evaluate potentially upgrading the purchase order to include newer generation Nvidia GPUs. Accordingly, the Company and manufacturer mutually agreed to delay the Company’s purchase pending the contractual outcome with the Company’s customer. The Company expects to provide additional details about the revised deployment timeline in the coming weeks. The Company’s contract with the customer remains fully in effect, but may have to be amended to provide for newer generation GPUs. In early August, the Company received $30.0 million as a non-refundable prepayment from its customer, half of which will be distributed to the Company’s leasing partner. |
Subsequent Events
| ● | On August 19, 2024, Bit Digital announced that it had signed a binding term sheet with Boosteroid Inc. (“Boosteroid”), the world’s third-largest cloud gaming provider. Upon signing a master service agreement (“MSA”), Boosteroid will place an initial purchase for a starting quantity of GPU servers with a five-year service duration. Bit Digital will provide Boosteroid with options to draw down additional servers in multiples of 100, up to a total of 50,000 GPU servers within five years after signing the MSA, depending on their deployment plans and subject to market conditions. The entire 50,000 GPU deployment represents an aggregate revenue opportunity to Bit Digital in excess of $700 million over the five-year term. The initial purchase includes GPU-servers based on AMD EPYC 4th Gen CPUs and RX7900XT GPUs, customized by ASUSTeK Computer Inc. (“ASUS”) and AMD for Boosteroid. Deployment is planned across a network of more than 10 data centers in the U.S. and Europe. The initial deployment is scheduled to begin over the next two to three months and is expected to generate approximately $13 million in revenue to Bit Digital over the five-year term, or approximately $2.6 million per year. Bit Digital’s entry into a MSA is conditioned upon further diligence of Boosteroid, customary legal and business reviews, internal approvals, and execution of an acceptable MSA. |
| 3 | “BTC equivalent” is a hypothetical illustration of the value of our digital asset portfolio in bitcoin terms. BTC equivalent is defined as if all non-BTC digital assets, comprised of ETH and USDC, were converted into BTC as of June 30, 2024, and added to our existing BTC balance. Conversion values are found using the closing price on coinmarketcap.com. |
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Management Commentary
“The second quarter of 2024 was an important step in the evolution of Bit Digital. Despite the reduction in block rewards from the April ‘halving event’, our total revenue more than doubled from the prior year, principally aided by the first full quarter of revenue from our HPC services business. Our balance sheet remains a key strength that will enable us to withstand recent market volatility and deploy growth capital into high-return opportunities.
Mining economics remain challenging, and in the absence of a material improvement in expected payback periods for mining equipment, it is unlikely that we will reach our active hash rate target of 6.0 EH/s by year-end 2024. From the onset of the year, we have been cautious in terms of exahash growth, preferring to wait for the post-halving mining environment before enacting material growth. In the interim, we will focus on high grading our existing fleet while reserving the right to make opportunistic growth purchases should the returns profile justify the expenditure.
We continue to view the HPC business as the most attractive use of incremental growth capex in the current environment. Our pipeline remains strong and the main bottleneck to date has been a lack of personnel and man hours to bring contracts to the finish line. We have started to solve this issue, making our first key hire for this business earlier this month with a plan to further expand our personnel and improve our tech stack. Our growth pipeline remains strong, and we continue to believe we will be able to reach our $100 million annualized revenue target by year-end 2024 even if the 2,000 GPU expansion deployment with our existing customer is pushed into 2025.”
About Bit Digital
Bit Digital, Inc. is a sustainable platform for digital assets and artificial intelligence (“AI”) infrastructure headquartered in New York City. Our bitcoin mining operations are located in the US, Canada, and Iceland. For additional information, please contact ir@bit-digital.com or visit our website at www.bit-digital.com.
Investor Notice
Investing in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risks, uncertainties and forward-looking statements described under “Risk Factors” in Item 3.D of our Annual Report on Form 20-F for the fiscal year ended December 31, 2023. If any material risk was to occur, our business, financial condition or results of operations would likely suffer. In that event, the value of our securities could decline and you could lose part or all of your investment. The risks and uncertainties we describe are not the only ones facing us. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. In addition, our past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results in the future. Future changes in the network-wide mining difficulty rate or bitcoin hash rate may also materially affect the future performance of Bit Digital’s production of bitcoin. Actual operating results will vary depending on many factors including network difficulty rate, total hash rate of the network, the operations of our facilities, the status of our miners, and other factors. See “Safe Harbor Statement” below.
Safe Harbor Statement
This press release may contain certain “forward-looking statements” relating to the business of Bit Digital, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are “forward-looking statements.” These forward-looking statements are often identified by the use of forward-looking terminology such as “believes,” “expects,” or similar expressions, involving known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company’s periodic reports that are filed with the Securities and Exchange Commission and available on its website at http://www.sec.gov. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview
Bit Digital, Inc. or the “Company”, is a sustainable platform for digital assets and artificial intelligence (“AI”) infrastructure. The Company engages in the digital asset mining business, Ethereum (“ETH”) staking business, and high performance computing services for artificial intelligence applications.
Digital Asset Mining Business
We are a sustainable digital infrastructure platform for digital assets and artificial intelligence (“AI”) with mining operations in the United States, Canada and Iceland. We commenced our bitcoin (“BTC”) mining business in February 2020. We initiated limited Ethereum mining operations in January 2022, however discontinued the operations by September 2022 due to Ethereum blockchain switching from proof-of-work (“PoW”) consensus mechanism to proof-of-stake (“PoS”) validation. Our mining operations, hosted by third-party providers, use specialized computers, known as miners, to generate digital assets. Our miners use application specific integrated circuit (“ASIC”) chips. These chips enable the miners to apply high computational power, expressed as “hash rate”, to provide transaction verification services (generally known as “solving a block”) which helps support the blockchain. For every block added, the blockchain provides an award equal to a set number of digital assets per block. Miners with a greater hash rate generally have a higher chance of solving a block and receiving an award.
We operate our mining assets with the primary intent of accumulating digital assets which we may sell for fiat currency from time to time depending on market conditions and management’s determination of our cash flow needs, and/or exchange into ETH or USD Coin (“USDC”). Our mining strategy has been to mine bitcoins as quickly and as many as possible given the fixed supply of bitcoins. In view of historically long delivery lead times to purchase miners from manufacturers like Bitmain Technologies Limited (“Bitmain”) and MicroBT Electronics Technology Co., Ltd (“MicroBT”), and other considerations, we have chosen to acquire miners on the spot market, which can typically result in delivery within a relatively short time.
We have signed service agreements with third-party hosting partners in North America and Iceland. These partners operate specialized mining data centers, where they install and operate the miners and provide IT consulting, maintenance, and repair work on site for us. Our mining facilities in New York are maintained by Coinmint LLC (“Coinmint”) and Digihost Technologies Inc. (“Digihost”). Our mining facility in Texas is maintained by Dory Creek, LLC, a subsidiary of Bitdeer Technologies Group (“Bitdeer”). Our mining facility in Kentucky is maintained by Soluna Computing, Inc (“Soluna”). Our mining facility in Canada is maintained by Blockbreakers Inc. (“Blockbreakers”). Our mining facility in Iceland is maintained by GreenBlocks ehf, an Icelandic private limited company (“GreenBlocks”). We have relocated some miners from our Texas and Nebraska facilities, once under Compute North LLC’s maintenance before a third-party takeover preceding their 2022 bankruptcy, to facilities operated by Coinmint in New York. We have relocated those miners from our Georgia mining facility, previously maintained by Core Scientific, Inc to one of Coinmint’s facilities. We have relocated those miners from Blockfusion USA, Inc. (“Blockfusion”) facilities to Digihost, Bitdeer and Soluna after our service agreement with Blockfusion ended in September 2023. From time to time, the Company may change partnerships with hosting facilities to recalibrate its bitcoin mining operations. These terminations are strategic, targeting reduced operational costs, enhanced energy efficiency for a smaller carbon footprint, increased flexibility in operational control, and minimized geopolitical risks. While a short-term decrease in mining output might occur, we expect these changes to yield long-term operational improvements.
We are a sustainability-focused digital asset mining company. On June 24, 2021, we signed the Crypto Climate Accord, a private sector-led initiative that aims to decarbonize the crypto and blockchain sectors. On December 7, 2021, we became a member of the Bitcoin Mining Council (“BMC”), joining MicroStrategy and other founding members to promote transparency, share best practices, and educate the public on the benefits of bitcoin and bitcoin mining.
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High Performance Computing Services
In the fourth quarter of 2023, we initiated Bit Digital AI, a new business line to provide high performance computing services to support generative AI workstreams. Hosted at a third-party specialized datacenter, the Company’s high performance computing (“HPC”) services provide an integrated platform engineered to harness the process power of our fleet of NVIDIA H100 GPUs. The HPC services equipment is comprised of Graphics Processing Units (“GPUs”) servers, network equipment, and data storage equipment. In line with our commitment to sustainability, our HPC services equipment utilizes 100% carbon-free renewable energy from geothermal and hydroelectric sources.
The Company finalized a service agreement with its first customer, for the provision of HPC services from a total of 2,048 GPUs over a three-year period. To finance this operation, the Company entered into a sale-leaseback agreement with a third party, selling 96 AI servers (equivalent to 768 GPUs) and leasing them back for three years. On January 22, 2024, approximately 192 servers (equivalent to 1,536 GPUs) were deployed at a specialized data center and began generating revenue, and subsequently on February 2, 2024, approximately an additional 64 servers (equivalent to 512 GPUs) also started revenue generation.
In the second quarter of 2024, the Company finalized an agreement to supply its existing customer with an additional 2,048 GPUs over a three-year period. To finance this operation, the Company entered into a sale-leaseback agreement with a third party, agreeing to sell 128 AI servers (equivalent to 1,024 GPUs) and leasing them back for three years. In late July, at the customer’s request, the Company and the customer agreed to temporarily delay the purchase order so the customer could evaluate an upgrade to newer generation Nvidia GPUs. Consequently, the Company and manufacturer postponed the purchase order. In early August, the customer made a non-refundable deposit of $30.0 million.
Our revenue from high performance computing services was $12.5 million and $20.6 million for the three and six months ended June 30, 2024. The Company issued a one-time service credit of $1.3 million to its HPC customer, during the three months ended March 31, 2024, as compensation for decreased utilization during the initial deployment period, which included testing and optimization phases.
ETH Staking Business
In the fourth quarter of 2022, we formally commenced Ethereum staking operations. We intend to delegate or stake our ETH holdings to an Ethereum validator node to help secure and strengthen the blockchain network. Stakers are compensated for this commitment in the form of a reward of the native network token.
Our native staking operations are enhanced by a partnership with Blockdaemon, the leading institutional-grade blockchain infrastructure company for node management and staking. In the fourth quarter of 2022, following a similar mechanism to native Ethereum staking, we also participated in liquid staking via Portara protocol (formerly known as Harbour), the liquid staking protocol developed by Blockdaemon and StakeWise and the first of its kind tailored to institutions. With the introduction of staked ETH withdrawals in April 2023, we have reassessed our Ethereum network staking approaches, weighing the advantages of traditional staking against liquid staking solutions. The withdrawal feature in native staking, coupled with yields that are on par with those of liquid staking, has encouraged us to expand our collaborations with other service providers in this domain. As a result, we terminated all liquid staking activities with StakeWise in the third quarter of 2023, reclaiming all staked Ethereum along with the accumulated rewards. In the fourth quarter of 2023, the Company terminated the native staking activities and reclaimed all staked Ethereum with Blockdaemon.
Our native staking operations with MarsProtocol Technologies Pte. Ltd. (“Marsprotocol”) commenced in the first quarter of 2023 and concluded in July 2023. After ceasing operations with Marsprotocol, we initiated our native staking with MarsLand Global Limited (“MarsLand”) in August 2023. Subsequently, we have ceased our native staking with MarsLand in the first quarter of 2024 and initiated our native staking with Figment Inc.
We started participating in liquid staking via Liquid Collective protocol on the Coinbase platform in the first quarter of 2023. Liquid staking allows participants to achieve greater capital efficiency by utilizing their staked ETH as collateral and trading their staked ETH tokens on the secondary market. In the first quarter of 2024, we have reclaimed all the liquid staked ETH from Liquid Collective protocol.
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Miner Deployments
During the three and six months ended June 30, 2024, we continued to work with our hosting partners to deploy our miners in North America and Iceland.
During the first quarter of 2024, the Company deployed an additional 2,350 miners at one of Coinmint’s hosting facilities.
During the second quarter of 2024, the Company deployed an additional 600 miners at Blockbreakers’ hosting facility.
As of June 30, 2024, the Company’s active hash rate totals approximately 2.6 EH/s, with operations in North America and Iceland.
In July 2024, the Company deployed an additional 546 miners at Soluna’s hosting facility.
Power and Hosting Overview
During the three and six months ended June 30, 2024, our hosting partners continued to prepare sites to deliver our contracted hosting capacity, bringing additional power online for our miners.
The Company’s subsidiary, Bit Digital Canada, Inc., entered into a Mining Services Agreement effective September 1, 2022, for Blockbreakers, Inc. to provide five (5) MW of incremental hosting capacity at its facility in Canada. The facility utilizes an energy source that is primarily hydroelectric.
On May 8, 2023, the Company entered into a Master Mining Services Agreement with Blockbreakers, pursuant to which Blockbreakers agreed to provide the Company with four (4) MW of additional mining capacity at its hosting facility in Canada. The agreement is for two (2) years automatically renewable for additional one (1) year terms unless either party gives at least sixty (60) days’ advance written notice. The performance fee is 15% of the net profit. Additionally, Bit Digital has secured a side letter agreement with Blockbreakers, granting the Company the right of first refusal for any future mining hosting services offered by Blockbreakers in Canada. This new agreement brings the Company’s total contracted hosting capacity with Blockbreakers to approximately 9 MW. As of June 30, 2024, Blockbreakers provided approximately 7.0 MW of capacity for our miners at their facility.
On June 7, 2022, we entered into a Master Mining Services Agreement (the “MMSA”) with Coinmint LLC, pursuant to which Coinmint will provide the required mining colocation services for a one-year period automatically renewing for three-month periods unless earlier terminated. The Company will pay Coinmint electricity costs, plus operating costs required to operate the Company’s mining equipment, as well as a performance fee equal to 27.5% of the net profit, subject to a ten percent (10%) reduction if Coinmint fails to provide uptime of ninety-eight (98%) percent or better for any period. We are not privy to the emissions rate at the Coinmint facility or at any other hosting facility. However, the Coinmint facility operates in an upstate New York region that reportedly utilizes power that is 99% emissions-free, as determined based on the 2023 Load & Capacity Data Report published by the New York Independent System Operator, Inc. (“NYISO”).
On April 5, 2023, the Company entered into a letter agreement and MMSA Amendment with Coinmint pursuant to which Coinmint agreed to provide the Company with up to ten (10) MW of additional mining capacity to energize the Company’s mining equipment at Coinmint’s hosting facility in Plattsburgh, New York. The agreement is for two (2) years automatically renewing for three (3) months unless terminated by either party on at least ninety (90) days prior written notice. The performance fees under this letter agreement range from 30% to 33% of the net profit. This new agreement brings the Company’s total contracted hosting capacity with Coinmint to approximately 30 MW at this facility.
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On April 27, 2023, the Company entered into a letter agreement and MMSA Amendment with Coinmint pursuant to which Coinmint agreed to provide the Company with up to ten (10) MW of additional mining capacity to energize the Company’s mining equipment at Coinmint’s hosting facility in Massena, New York. The agreement is for one (1) year automatically renewing for three (3) months unless terminated by either party on at least ninety (90) days prior written notice. The performance fees under this letter agreement are 33% of the net profit. This new agreement brings the Company’s total contracted hosting capacity with Coinmint to approximately 40 MW.
On January 26, 2024, the Company entered into a letter agreement and MMSA Amendment with Coinmint pursuant to which Coinmint agreed to provide the Company with up to six (6) MW of additional mining capacity to energize the Company’s mining equipment at Coinmint’s hosting facility in Massena, New York. The agreement is for one (1) year automatically renewing for three (3) months unless terminated by either party on at least ninety (90) days prior written notice. The performance fees under this letter agreement are 28% of the net profit. This new agreement brings the Company’s total contracted hosting capacity with Coinmint to approximately 46 MW. As of June 30, 2024, Coinmint provided approximately 46.0 MW of capacity for our miners at their facilities.
In June 2021, we entered into a strategic co-mining agreement with Digihost Technologies in North America. Pursuant to the terms of the agreement, Digihost provides certain premises to Bit Digital for the purpose of the operation and storage of a twenty (20) MW bitcoin mining system to be delivered by Bit Digital. Digihost provides services to maintain the premises for a term of two (2) years. Digihost shall also be entitled to 20% of the net profit generated by the miners.
In April 2023, we renewed the co-mining agreement with Digihost, previously executed in June 2021. Pursuant to the terms of the new agreement, Digihost provides certain premises to Bit Digital for the purpose of the operation and storage of an up to twenty (20) MW bitcoin mining system to be delivered by Bit Digital. Digihost also provides services to maintain the premises for a term of two (2) years, automatically renewing for a period of one (1) year. Digihost shall also be entitled to 30% of the net profit generated by the miners. As of June 30, 2024, Digihost provided approximately 6.0 MW of capacity for our miners at their facility.
On May 9, 2023 (“Effective Date”), the Company entered into a Term Loan Facility and Security Agreement (the “Loan Agreement”) with GreenBlocks. Pursuant to the Loan Agreement, GreenBlocks has requested the Company to extend one or more loans (“Advances”) under a senior secured term loan facility in an aggregate outstanding principal amount not to exceed $5 million. The interest rate of the Loan Agreement is 0% and Advances are to be repaid on the maturity date, which is the thirty-nine-month anniversary of the Effective Date. GreenBlocks will exclusively use the Advances to buy miners that will be operated for the benefit of the Company at a facility in Iceland, with an overall capacity of 8.25 MW. To secure the prompt payment of Advances, the Company has been granted a continuing first priority lien and security interest in all of GreenBlocks’s rights, title and interest to the financed miners. The miners are the sole property of GreenBlocks, of which they are responsible for the purchase, installation, operation, and maintenance.
On May 9, 2023, the Company entered into a Computation Capacity Services Agreement (the “Services Agreement”) with GreenBlocks. Pursuant to the Agreement, GreenBlocks will provide computational capacity services and other necessary ancillary services, such as operation, management, and maintenance, at the facility in Iceland for a term of two (2) years. GreenBlocks will own and operate the miners financed through the Loan Agreement for the purpose of providing computational capacity of up to 8.25 MW. The Company will pay power costs of five cents ($0.05) per kilowatt hour, a pod fee of $22,000 per pod per month, and a depreciation fee equal to 1/36 of the facility size per month. The performance fees under this agreement are 20% of the net profit. The Company submitted to Greenblocks a deposit in the amount of $1,052,100, which was exclusively for the purpose of paying the landlord of the facility for hosting space.
On June 1, 2023, the Company and GreenBlocks entered the Omnibus Amendment to Loan Documents and Other Agreements (“Omnibus Amendment”). This amendment revised both the Loan Agreement and the Services Agreement previously entered on May 9, 2023. While the core terms remained consistent, notable modifications pertained to the facility size and contracted capacity. Specifically, the facility size was increased from $5 million to $6.7 million. Moreover, GreenBlocks agreed to expand the computation capacity to approximately 10.7 MW. Advances of $6.4 million have been financed by the Company to GreenBlocks. As of June 30, 2024, GreenBlocks provided approximately 5 MW of capacity for our miners at their facility.
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In October 2023, we entered into a strategic co-location agreement with Soluna Computing, Inc. (“Soluna”) for a term of one (1) year automatically renewing on a month-to-month basis unless terminated by either party. Pursuant to the terms of the agreement, Soluna provides certain required mining colocation services to Bit Digital for the purpose of the operation and storage of an up to 4.4 MW bitcoin mining system to be delivered by Bit Digital. Soluna shall also be entitled to 42.5% of the net profit generated by the miners. As of June 30, 2024, Soluna provided approximately 4.3 MW of capacity for our miners at their facility.
In November 2023, we entered into a hosting services agreement with Dory Creek, LLC, a subsidiary of Bitdeer Technologies Group (“Bitdeer”), for a term of one (1) year automatically renewing on an annual basis unless terminated by either party by giving a 30-day prior notice to the other Party in writing. Pursuant to the terms of the agreement, Bitdeer provides maintenance and operation services to Bit Digital to support 17.5 MW of capacity. Bitdeer shall also be entitled to 30% of the net profit generated by the miners. Bit Digital shall have the first right, but not obligation, to accept services for any extra capacity under the terms of this Agreement. As of June 30, 2024, Bitdeer provided approximately 15.4 MW of capacity for our miners at their facility.
In May 2022, our hosting partner Blockfusion advised us that the substation at its Niagara Falls, New York facility was damaged by an explosion and fire, and power was cut off to approximately 2,515 of the Company’s bitcoin miners and approximately 710 ETH miners that had been operating at the site immediately prior to the incident. The explosion and fire are believed to have been caused by faulty equipment owned by the power utility. Blockfusion and the Company have entered into a common interest agreement to jointly pursue any claims evolving from the explosion and fire. Prior to the incident, our facility with Blockfusion in Niagara Falls, provided approximately 9.4 MW to power our miners. Power was restored to the facility in September 2022. However, we received a notice dated October 4, 2022 (the “Notice”), from the City of Niagara Falls, which ordered the cease and desist from any cryptocurrency mining or related operations at the facility until such time as Blockfusion complies with Section 1303.2.8 of the City of Niagara Falls Zoning Ordinance (the “Ordinance”), in addition to all other City ordinances and codes. Blockfusion has advised us that the Ordinance came into effect on October 1, 2022, following the expiration of a related moratorium on September 30, 2022. Blockfusion has further advised that it has submitted applications for new permits based on the Ordinance’s new standards and that the permits may take several months to process. Pursuant to the Mining Services Agreement between Bit Digital and Blockfusion dated August 25, 2021, Blockfusion represents, warrants and covenants that it “possesses, and will maintain, all licenses, registrations, authorizations and approvals required by any governmental agency, regulatory authority or other party necessary for it to operate its business and engage in the business relating to its provision of the Services.” On October 5, 2022, Bit Digital further advised Blockfusion that it expects it to comply with the directives of the Notice. Our service agreement with Blockfusion ended in September 2023. On June 3, 2024, the Company filed suit in Delaware Superior Court against Blockfusion alleging claims for breach of contract, conversion, and related claims in connection with, among other things, certain deposits and advances paid to Blockfusion, the return of which is owed to the Company. The Company is seeking in excess of $4.3 million. Refer to Note 16. Contingencies for further details.
Miner Fleet Update and Overview
As of December 31, 2023, we had 46,548 miners owned or operating (in Iceland) for bitcoin mining with a total maximum hash rate of 3.9 EH/s.
On January 25, 2024, we entered into a purchase agreement with an unaffiliated seller of bitcoin mining computers, from whom we acquired 2,350 S19 Pro miners. As of the date of this report, all miners have been delivered.
On April 15, 2024, we entered into a purchase agreement with an unaffiliated seller of bitcoin mining computers, from whom we acquired 1,146 S19K Pro miners. As of the date of this report, all miners have been delivered.
As of June 30, 2024, we had 50,044 miners owned or operating (in Iceland) for bitcoin mining with a total maximum hash rate of 4.3 EH/s.
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Bitcoin Production
From the inception of our bitcoin mining business in February 2020 to June 30, 2024, we earned an aggregate of 6,985.1 bitcoins.
The following table presents our bitcoin mining activities for the six months ended June 30, 2024:
| Number of bitcoins | Amount (1) | |||||||
| Balance at December 31, 2023 | 642.4 | $ | 19,818,980 | |||||
| Cumulative effect of the adoption of ASU 2023-08 | - | 7,341,320 | ||||||
| Receipt of BTC from mining services | 654.9 | 37,971,653 | ||||||
| Exchange of BTC into ETH | (639.5 | ) | (40,267,700 | ) | ||||
| Exchange of BTC into USDC | (15.0 | ) | (1,049,818 | ) | ||||
| Sales of and payments made in BTC | (57.2 | ) | (3,297,239 | ) | ||||
| Change in fair value of BTC | - | 16,190,019 | ||||||
| Balance at June 30, 2024 | 585.6 | $ | 36,707,215 | |||||
| (1) | Receipt of digital assets from mining services are the product of the number of bitcoins received multiplied by the bitcoin price obtained from CoinMarketCap, calculated on a daily basis. Sales of bitcoin represent the carrying value of bitcoin at the time of sale. |
Environmental, Social and Governance
Sustainability is a major strategic focus for us. Several of our mining locations in the US and Canada provide access to partially carbon-free energy and other sustainability-related solutions, in varying amounts depending on location, including components of hydroelectric, solar, wind, nuclear and other carbon-free generation sources, based on information provided by our hosts and publicly available data, which we believe helps mitigate the environmental impact of our operations. We work with an independent ESG (Environmental, Social and Governance) consultant to self-monitor and adopt an environmental policy to help us to improve our percentage of green electricity and other sustainability initiatives. As we continue to align ourselves with the future of technology and business, we are dedicated to continuously enhancing sustainability, which we believe future-proofs our operations and the larger bitcoin network.
We believe that the bitcoin network and the mining that powers it are important inventions in human progress. The process of problem-solving and verifying bitcoin transactions using advanced computers is energy intensive, and scrutiny has been applied to the industry for this reason. It follows that the environmental costs of mining bitcoin should be surveyed and mitigated by every company in our fast-growing sector. We aim to contribute to the acceleration of bitcoin’s decarbonization and act as a role model in our industry, responsibly stewarding digital assets.
We work with Apex Group Ltd, an independent ESG consultancy, with the goal of becoming one the first publicly-listed bitcoin miners to receive an independent ESG rating on our operations, which we anticipate will provide transparency on the environmental sustainability of our operations, as well as other metrics. Apex’s ESG Ratings & Advisory tools allow us to benchmark our ESG performance against international standards and our peers to identify opportunities for improvement and progress over time. We believe this is an integral approach to improving our sustainability practices and mitigating our environmental impact. By measuring the sustainability and footprint of Bit Digital’s mining, we are able to develop targets to continuously improve as we shift towards our goal of 100% clean energy usage.
On December 7, 2021, the Company became a member of the Bitcoin Mining Council (“BMC”), joining MicroStrategy and other founding members to promote transparency, share best practices, and educate the public on the benefits of bitcoin and bitcoin mining.
9
Results of operations
The following table summarizes the results of our operations during the three months ended June 30, 2024 and 2023, respectively, and provides information regarding the dollar increase or (decrease) during the period.
| For the Three Months Ended June 30, |
Variance in | |||||||||||
| 2024 | 2023 | Amount | ||||||||||
| Revenues | ||||||||||||
| Revenue - digital asset mining | $ | 16,079,893 | $ | 8,911,943 | $ | 7,167,950 | ||||||
| Revenue - high performance computing services | 12,497,197 | - | 12,497,197 | |||||||||
| Revenue - ETH staking | 373,812 | 125,659 | 248,153 | |||||||||
| Total revenues | 28,950,902 | 9,037,602 | 19,913,300 | |||||||||
| Operating costs and expenses | ||||||||||||
| Cost of revenue (exclusive of depreciation and amortization shown below) | ||||||||||||
| Cost of revenue - digital asset mining | (10,537,841 | ) | (5,653,797 | ) | (4,884,044 | ) | ||||||
| Cost of revenue - high performance computing services | (4,595,301 | ) | - | (4,595,301 | ) | |||||||
| Cost of revenue - ETH staking | (24,456 | ) | (9,192 | ) | (15,264 | ) | ||||||
| Depreciation and amortization expenses | (8,346,633 | ) | (3,725,152 | ) | (4,621,481 | ) | ||||||
| General and administrative expenses | (5,480,519 | ) | (5,390,204 | ) | (90,315 | ) | ||||||
| Losses on digital assets | (11,538,949 | ) | - | (11,538,949 | ) | |||||||
| Realized gains on exchange of digital assets | - | 4,443,689 | (4,443,689 | ) | ||||||||
| Impairment of digital assets | - | (1,351,331 | ) | 1,351,331 | ||||||||
| Total operating expenses | (40,523,699 | ) | (11,685,987 | ) | (28,837,712 | ) | ||||||
| Loss from operations | (11,572,797 | ) | (2,648,385 | ) | (8,924,412 | ) | ||||||
| Other income, net | 161,478 | 330,802 | (169,324 | ) | ||||||||
| Total other income, net | 161,478 | 330,802 | (169,324 | ) | ||||||||
Loss before income taxes | (11,411,319 | ) | (2,317,583 | ) | (9,093,736 | ) | ||||||
| Income tax expenses | (541,781 | ) | (109,427 | ) | (432,354 | ) | ||||||
| Net loss | $ | (11,953,100 | ) | $ | (2,427,010 | ) | $ | (9,526,090 | ) | |||
Revenue
We generate revenues from digital asset mining, high performance computing services and ETH staking.
Revenue from digital asset mining
We provide computing power to digital asset mining pools, and receive consideration in the form of digital assets, the value of which is determined using the market price of the related digital asset at the time of receipt. By providing computing power to successfully add a block to the blockchain, the Company is entitled to a fractional share of the digital assets award from the mining pool operator, which is based on the proportion of computing power the Company contributed to the mining pool to the total computing power contributed by all mining pool participants in solving the current algorithm.
10
For the three months ended June 30, 2024, we received 244.2 bitcoins from the Foundry USA Pool (“Foundry”) mining pool. As of June 30, 2024, our maximum hash rate was at an aggregate of 4.3 EH/s for our bitcoin miners. For the three months ended June 30, 2024, we recognized revenue of $16.1 million from bitcoin mining services.
For the three months ended June 30, 2023, we received 318.4 bitcoins from Foundry mining pool. As of June 30, 2023, our maximum hash rate was at an aggregate of 3.4 EH/s for our bitcoin miners. For the three months ended June 30, 2023, we recognized revenue of $8.9 million from bitcoin mining services.
Our revenues from digital asset mining services increased by $7.2 million, or 80.4%, to $16.1 million for the three months ended June 30, 2024 from $8.9 million for the three months ended June 30, 2023. The increase was primarily due to a higher average BTC price in the second quarter of 2024, compared to the same period in 2023 and partially offset by a decrease of 74.2 bitcoins generated from our mining business. The higher average BTC price was, in part, a result of the halving of BTC, which occurred on April 19, 2024.
We expect to continue to opportunistically invest in miners to increase our hash rate capacity.
Revenue from high performance computing services
In the fourth quarter of 2023, we initiated Bit Digital AI, a new business line to provide high performance computing services to support generative AI workstreams. The Company finalized a service agreement with its first customer, for the provision of HPC services from a total of 2,048 GPUs over a three-year period. On January 22, 2024, approximately 192 GPU servers (1,536 GPUs) were deployed at a specialized data center and began generating revenue. Subsequently, on February 2, 2024, approximately an additional 64 GPU servers (512 GPUs) also started revenue generation.
In the second quarter of 2024, the Company finalized an agreement to supply its existing customer with an additional 2,048 GPUs over a three-year period. The servers will be deployed at a specialized data center where the Company’s existing GPU servers are located. In late July, at the customer’s request, the Company and the customer agreed to temporarily delay the purchase order so the customer could evaluate an upgrade to newer generation Nvidia GPUs. Consequently, the Company and manufacturer postponed the purchase order. In early August, the customer made a non-refundable deposit of $30.0 million.
Our revenue from high performance computing services was $12.5 million for the three months ended June 30, 2024.
Revenue from ETH staking
During the fourth quarter of 2022, we commenced ETH staking business, in both native staking and liquid staking.
For the ETH native staking business, we previously partnered with Blockdaemon, Marsprotocol and MarsLand Global Limited (“MarsLand”). Currently, we stake ETH with Figment, using network-based smart contracts, on a node for the purpose of validating transactions and adding blocks to the network. Through these contracts, the Company stakes ETH on nodes for the purpose of validating transactions and adding blocks to the Ethereum blockchain network. The Company is able to withdraw staked ETH under contracted staking since April 12, 2023 when the announced Shanghai upgrade was completed. In exchange for staking the ETH and validating transactions on blockchain networks, the Company is entitled to block rewards and transaction fees for successfully validating or adding a block to the blockchain. These rewards are received by the Company directly from the Ethereum network and are calculated approximately based on the proportion of the Company’s stake to the total ETH staked by all validators.
In the fourth quarter of 2023, the Company terminated the native staking activities and reclaimed all staked Ethereum with Blockdaemon. Our native staking operations with Marsprotocol commenced in the first quarter of 2023 and concluded in July 2023. After ceasing operations with Marsprotocol, we initiated our native staking operations with MarsLand in August 2023. In the first quarter of 2024, we concluded our operations with MarsLand and initiated our native staking operations with Figment. As of June 30, 2024, all of native staking operations are with Figment.
11
For the liquid staking business, the Company has deployed ETH into Portara protocol (formerly known as Harbour) supported by liquid staking solution provider under the consortium of Blockdaemon and Stakewise, and Liquid Collective protocol supported by Coinbase. By staking, we receive receipt tokens for the ETH staked which could be redeemed to ETH or can be traded or collateralized elsewhere, at any time. In addition, we receive rETH-h for rewards earned from Portara protocol. With the introduction of staked ETH withdrawals in April 2023, we have reassessed our Ethereum network staking approaches, weighing the advantages of traditional staking against liquid staking solutions. The withdrawal feature in native staking, coupled with yields that are on par with those of liquid staking, has encouraged us to expand our collaborations with other service providers in this domain. As a result, we terminated all liquid staking activities with StakeWise in the third quarter of 2023, reclaiming all staked Ethereum along with the accumulated rewards. In the first quarter of 2024, we ceased our liquid staking activities with Liquid Collective protocol and reclaimed all our staked Ethereum. Since the first quarter of 2024, the Company has no liquid staking activities.
For the three months ended June 30, 2024, we earned 109.4 ETH in native staking and nil ETH in liquid staking, respectively. For the three months ended June 30, 2024, we recognized revenues of $373,812 and $nil from native staking and liquid staking, respectively.
For the three months ended June 30, 2023, we earned 36.3 ETH in native staking and 31.6 rETH-h in Portara liquid staking, respectively. For the three months ended June 30, 2023, we recognized revenues of $66,649 and $59,010 from native staking and Portara liquid staking, respectively. For the three months ended June 30, 2023, the staking reward from the Liquid Collective protocol was immaterial.
Our revenues from ETH native staking increased by $307,163, or 460.9%, to $373,812 for the three months ended June 30, 2024 from $66,649 for the three months ended June 30, 2023. The increase was primarily due to an increase of 73.1 ETH earned from staking services and an increase in the average price of ETH for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.
Our revenues from ETH liquid staking decreased by $59,010, or 100%, to $nil for the three months ended June 30, 2024 from $59,010 for the three months ended June 30, 2023. The decrease was due to the termination of liquid staking activities in the first quarter of 2024.
Cost of revenue
We incur cost of revenue from our digital asset mining business, high performance computing services and ETH staking business.
The Company’s cost of revenue consists primarily of (i) direct production costs related to mining operations, including electricity costs, profit-sharing fees and other relevant costs, but excluding depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations, (ii) direct production costs related to high performance computing services operations, including electricity costs, datacenter lease expense, GPU servers lease expense, and other relevant costs, but excluding depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations, and (iii) direct cost related to ETH staking business including service fee and reward-sharing fees to the service providers.
Cost of revenue - digital asset mining
For the three months ended June 30, 2024 and 2023, the cost of revenue from digital asset mining was comprised of the following:
| For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Electricity costs | $ | 7,177,302 | $ | 4,156,353 | ||||
| Profit-sharing fees | 2,714,035 | 1,295,992 | ||||||
| Other costs | 646,504 | 201,452 | ||||||
| Total | $ | 10,537,841 | $ | 5,653,797 | ||||
12
Electricity costs. These expenses were incurred by mining facilities for the miners in operation and were closely correlated with the number of deployed miners.
For the three months ended June 30, 2024, electricity costs increased by $3.0 million, or 73%, compared to the electricity costs incurred for the three months ended June 30, 2023. The increase primarily resulted from an increase in the number of deployed miners.
Profit-sharing fees. In 2021, we entered into hosting agreements with certain mining facilities, which included performance fees calculated as a fixed percentage of net profit generated by the miners. We refer to these fees as profit-sharing fees.
For the three months ended June 30, 2024, profit-sharing fees increased by $1.4 million, or 109%, compared to profit-sharing fees incurred in the three months ended June 30, 2023. The increase in profit-sharing fees was primarily due to the higher average BTC price for three months ended June 30, 2024, partially offset by a lower bitcoin production as a result of the halving of BTC, which occurred on April 19, 2024.
We expect a proportionate increase in the cost of revenue as we continue to focus on the expansion and upgrade of our miner fleet.
Cost of revenue - high performance computing services
For the three months ended June 30, 2024 and 2023, the cost of revenue from high performance computing services was comprised of the following:
| For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Electricity costs | $ | 143,043 | $ | - | ||||
| Datacenter lease expenses | 605,220 | - | ||||||
| GPU servers lease expenses | 3,830,061 | - | ||||||
| Other costs | 16,977 | - | ||||||
| Total | $ | 4,595,301 | $ | - | ||||
Electricity costs. These expenses were incurred by the datacenter for the high performance computing equipment and were closely correlated with the number of deployed GPU servers.
For the three months ended June 30, 2024 and 2023, electricity costs totaled $0.1 million and $nil, respectively.
Datacenter lease expenses. In December 2023, we entered into a datacenter lease agreement for a fixed monthly recurring cost.
For the three months ended June 30, 2024 and 2023, datacenter lease expenses totaled $0.6 million and $nil, respectively.
GPU servers lease expenses. In 2023, we entered into a GPU servers lease agreement to support our high performance computing services. The lease payment depends on the usage of the GPU servers.
For the three months ended June 30, 2024 and 2023, GPU servers lease expenses totaled $3.8 million and $nil, respectively.
13
Cost of revenue - ETH staking business
For the three months ended June 30, 2024, cost of revenue from ETH staking business increased by $15,264, or 166%, compared to the cost of revenue incurred for the three months ended June 30, 2023. The increase primarily resulted from an increase in the service costs and participatory reward payments due to the increased number of staked ETH.
Depreciation and amortization expenses
For the three months ended June 30, 2024 and 2023, depreciation and amortization expenses were $8.3 million and $3.7 million, respectively, based on an estimated useful life of three years for miners and high performance computing services equipment and five years for equipment accessories and vehicles.
General and administrative expenses
For the three months ended June 30, 2024, our general and administrative expenses, totaling $5.5 million, were primarily comprised of shared-based compensation expenses of $0.4 million, salary and bonus expenses of $1.0 million, professional and consulting expenses of $2.3 million, directors and officers insurance expenses of $0.2 million, marketing expenses of $0.4 million, and travel expenses of $0.3 million.
For the three months ended June 30, 2023, our general and administrative expenses, totaling $5.4 million, were primarily comprised of professional and consulting expenses of $1.4 million, salary and bonus expenses of $0.7 million, shared-based compensation expenses of $0.5 million related to share options granted to our management and employees, directors and officers insurance expenses of $0.2 million, and marketing expenses of $0.4 million.
Gains (losses) on digital assets
For the three months ended June 30, 2024, a loss of $11.5 million was recognized, primarily attributable to the decreases in the prices of bitcoin and ETH as of June 30, 2024.
As a result of the adoption of ASU 2023-08 effective January 1, 2024, digital assets are recorded at fair value, changes in fair value are recognized as part of net income. As described under the heading “Realized gain on exchange of digital assets”, gains on digital assets for the three months ended June 30, 2024 are not comparable to the three months ended June 30, 2023.
Realized gain on exchange of digital assets
For the three months ended June 30, 2023, we recorded a gain of $4.4 million from the exchange of 429.8 bitcoins and 2.2 ETH.
Prior to the adoption of ASU 2023-08, digital assets were classified as indefinite-lived intangible assets and were measured at cost less impairment. Subsequent increases in digital asset prices are not allowed to be recorded unless the digital asset is sold, at which point the gain is recognized in “Realized gain on exchange of digital assets” in the consolidated statements of operations. Accordingly, realized gains (losses) recognized on digital asset transactions for the three months ended June 30, 2024 are not comparable to the three months ended June 30, 2023.
Impairment of digital assets
As a result of the adoption of ASU 2023-08 effective January 1, 2024, impairment of digital assets was no longer recognized.
Impairment of digital assets was $1.4 million for the three months ended June 30, 2023. We utilized the intraday low price of digital assets in the calculation of impairment of digital assets. For the three months ended June 30, 2023, the impairment of $1.4 million was comprised of impairment of $0.9 million and $0.5 million on bitcoins and ETH, respectively.
14
Income tax expenses
Income tax expenses were $0.5 million for the three months ended June 30, 2024, which was mainly comprised of income tax expense of $0.7 million from our Iceland operations and income tax benefit of $0.2 million from our Canada operations. The Iceland income tax expense of $0.7 million is driven by the profits from the high performance computing services. The income tax benefit of $0.2 million from Canada is primarily driven by a reduction in the deferred tax liabilities due to a smaller basis difference in digital assets.
Income tax expenses were $0.1 million for the three months ended June 30, 2023, which was comprised of income tax expenses of $347 from our U.S. operations, income tax expenses of $0.1 million from our Hong Kong operations. The tax expense from Hong Kong is driven by the additional accrued penalty related to uncertain Hong Kong profits tax positions due to offshore non-taxable claim lodged on the business profits and tax deduction claim on share-based compensation which are both, however, subject to review and approval by the Hong Kong tax authority.
Net income (loss) and earnings (loss) per share
For the three months ended June 30, 2024, our net loss was $11.9 million, representing a change of $9.5 million from a net loss of $2.4 million for the three months ended June 30, 2023.
Basic and diluted loss per share was $0.09 and $0.09 for the three months ended June 30, 2024, respectively. Basic and diluted loss per share was $0.03 and $0.03 for the three months ended June 30, 2023, respectively.
Basic and diluted weighted average number of shares was 128,053,586 and 128,053,586 for the three months ended June 30, 2024, respectively. Basic and diluted weighted average number of shares was 83,062,519 and 83,062,519 for the three months ended June 30, 2023, respectively.
15
The following table summarizes the results of our operations during the six months ended June 30, 2024 and 2023, respectively, and provides information regarding the dollar increase or (decrease) during the period.
| For the Six Months Ended June 30, |
Variance in | |||||||||||
| 2024 | 2023 | Amount | ||||||||||
| Revenues | ||||||||||||
| Revenue - digital asset mining | $ | 37,971,653 | $ | 17,126,333 | $ | 20,845,320 | ||||||
| Revenue - high performance computing services | 20,566,781 | - | 20,566,781 | |||||||||
| Revenue - ETH staking | 699,558 | 176,268 | 523,290 | |||||||||
| Total revenues | 59,237,992 | 17,302,601 | 41,935,391 | |||||||||
| Operating costs and expenses | ||||||||||||
| Cost of revenue (exclusive of depreciation and amortization shown below) | ||||||||||||
| Cost of revenue - digital asset mining | (23,522,773 | ) | (10,818,897 | ) | (12,703,876 | ) | ||||||
| Cost of revenue - high performance computing services | (7,752,628 | ) | - | (7,752,628 | ) | |||||||
| Cost of revenue - ETH staking | (40,889 | ) | (10,386 | ) | (30,503 | ) | ||||||
| Depreciation and amortization expenses | (15,192,582 | ) | (7,371,200 | ) | (7,821,382 | ) | ||||||
| General and administrative expenses | (11,436,259 | ) | (10,547,659 | ) | (888,600 | ) | ||||||
| Gains on digital assets | 34,193,628 | - | 34,193,628 | |||||||||
| Realized gains on exchange of digital assets | - | 9,325,626 | (9,325,626 | ) | ||||||||
| Impairment of digital assets | - | (3,584,996 | ) | 3,584,996 | ||||||||
| Total operating expenses | (23,751,503 | ) | (23,007,512 | ) | (743,991 | ) | ||||||
| Income (loss) from operations | 35,486,489 | (5,704,911 | ) | 41,191,400 | ||||||||
| Other income, net | 4,761,399 | 1,180,666 | 3,580,733 | |||||||||
| Total other income, net | 4,761,399 | 1,180,666 | 3,580,733 | |||||||||
| Income (loss) before income taxes | 40,247,888 | (4,524,245 | ) | 44,772,133 | ||||||||
| Income tax expenses | (2,119,131 | ) | (163,070 | ) | (1,956,061 | ) | ||||||
| Net income (loss) | $ | 38,128,757 | $ | (4,687,315 | ) | $ | 42,816,072 | |||||
Revenue
We generate revenues from digital asset mining, high performance computing services and ETH staking.
Revenue from digital asset mining
We provide computing power to digital asset mining pools, and receive consideration in the form of digital assets, the value of which is determined using the market price of the related digital asset at the time of receipt. By providing computing power to successfully add a block to the blockchain, the Company is entitled to a fractional share of the digital assets award from the mining pool operator, which is based on the proportion of computing power the Company contributed to the mining pool to the total computing power contributed by all mining pool participants in solving the current algorithm.
For the six months ended June 30, 2024, we received 654.9 bitcoins from the Foundry USA Pool (“Foundry”) mining pool. As of June 30, 2024, our maximum hash rate was at an aggregate of 4.3 EH/s for our bitcoin miners. For the six months ended June 30, 2024, we recognized revenue of $38.0 million from bitcoin mining services.
16
For the six months ended June 30, 2023, we received 680.4 bitcoins from Foundry mining pool. As of June 30, 2023, our maximum hash rate was at an aggregate of 3.4 EH/s for our bitcoin miners. For the six months ended June 30, 2023, we recognized revenue of $17.1 million from bitcoin mining services.
Our revenues from digital asset mining services increased by $20.9 million, or 122.2%, to $38.0 million for the six months ended June 30, 2024 from $17.1 million for the six months ended June 30, 2023. The increase was primarily due to a higher average BTC price in the second quarter of 2024, compared to the same period in 2023 and partially offset by a decrease of 25.5 bitcoins generated from our mining business. The higher average BTC price and the decrease in bitcoin generation were, in part, a result of the halving of BTC, which occurred on April 19, 2024.
We expect to continue to opportunistically invest in miners to increase our hash rate capacity.
Revenue from high performance computing services
In the fourth quarter of 2023, we initiated Bit Digital AI, a new business line to provide high performance computing services to support generative AI workstreams. The Company finalized a service agreement with its first customer, for the provision of HPC services from a total of 2,048 GPUs over a three-year period. On January 22, 2024, approximately 192 GPU servers (equivalent to 1,536 GPUs) were deployed at a specialized data center and began generating revenue, and subsequently on February 2, 2024, approximately an additional 64 GPU servers (equivalent to 512 GPUs) also started revenue generation.
In the second quarter of 2024, the Company finalized an agreement to supply its existing customer with an additional 2,048 GPUs over a three-year period. The servers will be deployed at a specialized data center where the Company’s existing AI servers are located. In late July, at the customer’s request, the Company and the customer agreed to temporarily delay the purchase order so the customer could evaluate an upgrade to newer generation Nvidia GPUs. Consequently, the Company and manufacturer postponed the purchase order. In early August, the customer made a non-refundable deposit of $30.0 million.
Our revenue from high performance computing services was $20.6 million for the six months ended June 30, 2024. The Company issued a one-time service credit of $1.3 million to its HPC customer, during the three months ended March 31, 2024, as compensation for decreased utilization during the initial deployment period, which included testing and optimization phases.
Revenue from ETH staking
During the fourth quarter of 2022, we commenced ETH staking business, in both native staking and liquid staking.
For the ETH native staking business, we previously partnered with Blockdaemon, Marsprotocol and MarsLand Global Limited (“MarsLand”). Currently, we stake ETH with Figment, using network-based smart contracts, on a node for the purpose of validating transactions and adding blocks to the network. Through these contracts, the Company stakes ETH on nodes for the purpose of validating transactions and adding blocks to the Ethereum blockchain network. The Company is able to withdraw staked ETH under contracted staking since April 12, 2023 when the announced Shanghai upgrade was completed. In exchange for staking the ETH and validating transactions on blockchain networks, the Company is entitled to block rewards and transaction fees for successfully validating or adding a block to the blockchain. These rewards are received by the Company directly from the Ethereum network and are calculated approximately based on the proportion of the Company’s stake to the total ETH staked by all validators.
In the fourth quarter of 2023, the Company terminated the native staking activities and reclaimed all staked Ethereum with Blockdaemon. Our native staking operations with Marsprotocol commenced in the first quarter of 2023 and concluded in July 2023. After ceasing operations with Marsprotocol, we initiated our native staking operations with MarsLand in August 2023. In the first quarter of 2024, we concluded our operations with MarsLand and initiated our native staking operations with Figment in the first quarter of 2024. As of June 30, 2024, all of native staking operations are with Figment.
For the liquid staking business, the Company has deployed ETH into Portara protocol (formerly known as Harbour) supported by liquid staking solution provider under the consortium of Blockdaemon and Stakewise, and Liquid Collective protocol supported by Coinbase. By staking, we receive receipt tokens for the ETH staked which could be redeemed to ETH or can be traded or collateralized elsewhere, at any time. In addition, we receive rETH-h for rewards earned from Portara protocol. With the introduction of staked ETH withdrawals in April 2023, we have reassessed our Ethereum network staking approaches, weighing the advantages of traditional staking against liquid staking solutions. The withdrawal feature in native staking, coupled with yields that are on par with those of liquid staking, has encouraged us to expand our collaborations with other service providers in this domain. As a result, we terminated all liquid staking activities with StakeWise in the third quarter of 2023, reclaiming all staked Ethereum along with the accumulated rewards. In the first quarter of 2024, we ceased our liquid staking activities with Liquid Collective protocol and reclaimed all our staked Ethereum. Since the first quarter of 2024, the Company has no liquid staking activities.
17
For the six months ended June 30, 2024, we earned 220.5 ETH in native staking and 1.3 ETH in liquid staking, respectively. For the six months ended June 30, 2024, we recognized revenues of $695,055 and $4,503 from native staking and liquid staking, respectively.
For the six months ended June 30, 2023, we earned 45.0 ETH in native staking and 54.6 rETH-h in Portara liquid staking, respectively. For the six months ended June 30, 2023, we recognized revenues of $80,881 and $95,387 from native staking and Portara liquid staking, respectively. For the six months ended June 30, 2023, the staking reward from the Liquid Collective protocol was immaterial.
Our revenues from ETH native staking increased by $614,174, or 759.4%, to $695,055 for the six months ended June 30, 2024 from $80,881 for the six months ended June 30, 2023. The increase was primarily due to an increase 175.5 ETH earned from staking services and an increase in the average price of ETH for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
Our revenues from ETH liquid staking decreased by $90,884, or 95.3%, to $4,503 for the six months ended June 30, 2024 from $95,387 for the six months ended June 30, 2023. The decrease was due to the termination of liquid staking activities in the first quarter of 2024.
Cost of revenue
We incur cost of revenue from our digital asset mining business, high performance computing services, and ETH staking business.
The Company’s cost of revenue consists primarily of (i) direct production costs related to mining operations, including electricity costs, profit-sharing fees and other relevant costs, but excluding depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations, (ii) direct production costs related to high performance computing services operations, including electricity costs, datacenter lease expense, GPU servers lease expense, and other relevant costs, but excluding depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations, and (iii) direct cost related to ETH staking business including service fee and reward-sharing fees to the service providers.
Cost of revenue - digital asset mining
For the six months ended June 30, 2024 and 2023, the cost of revenue from digital asset mining was comprised of the following:
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Electricity costs | $ | 15,264,702 | $ | 8,229,998 | ||||
| Profit-sharing fees | 6,977,443 | 2,241,835 | ||||||
| Other costs | 1,280,628 | 347,064 | ||||||
| Total | $ | 23,522,773 | $ | 10,818,897 | ||||
18
Electricity costs. These expenses were incurred by mining facilities for the miners in operation and were closely correlated with the number of deployed miners.
For the six months ended June 30, 2024, electricity costs increased by $7.0 million, or 85%, compared to the electricity costs incurred for the six months ended June 30, 2023. The increase primarily resulted from an increase in the number of deployed miners.
Profit-sharing fees. In 2021, we entered into hosting agreements with certain mining facilities, which included performance fees calculated as a fixed percentage of net profit generated by the miners. We refer to these fees as profit-sharing fees.
For the six months ended June 30, 2024, profit-sharing fees increased by $4.7 million, or 211%, compared to profit-sharing fees incurred in the six months ended June 30, 2023. The increase in profit-sharing fees was primarily due to the higher average BTC price for six months ended June 30, 2024, partially offset by a lower bitcoin production as a result of the halving of BTC, which occurred on April 19, 2024.
We expect a proportionate increase in the cost of revenue as we continue to focus on the expansion and upgrade of our miner fleet.
Cost of revenue - high performance computing services
For the six months ended June 30, 2024 and 2023, the cost of revenue from high performance computing services was comprised of the following:
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Electricity costs | $ | 226,421 | $ | - | ||||
| Datacenter lease expenses | 1,306,110 | - | ||||||
| GPU servers lease expenses | 5,912,240 | - | ||||||
| Other costs | 307,857 | - | ||||||
| Total | $ | 7,752,628 | $ | - | ||||
Electricity costs. These expenses were incurred by the datacenter for the high performance computing equipment and were closely correlated with the number of deployed GPU servers.
For the six months ended June 30, 2024 and 2023, electricity costs totaled $0.2 million and $nil, respectively.
Datacenter lease expenses. In December 2023, we entered into a datacenter lease agreement for a fixed monthly recurring cost.
For the six months ended June 30, 2024 and 2023, datacenter lease expenses totaled $1.3 million and $nil, respectively.
GPU servers lease expenses. In 2023, we entered into a GPU servers lease agreement to support our high performance computing services. The lease payment depends on the usage of the GPU servers.
For the six months ended June 30, 2024 and 2023, GPU servers lease expenses totaled $5.9 million and $nil, respectively.
Cost of revenue - ETH staking business
For the six months ended June 30, 2024, cost of revenue from ETH staking business increased by $30,503, or 294%, compared to the cost of revenue incurred for the six months ended June 30, 2023. The increase primarily resulted from an increase in the service costs and participatory reward payments due to the increased number of staked ETH.
19
Depreciation and amortization expenses
For the six months ended June 30, 2024 and 2023, depreciation and amortization expenses were $15.2 million and $7.4 million, respectively, based on an estimated useful life of three years for miners and high performance computing services equipment and five years for equipment accessories and vehicles.
General and administrative expenses
For the six months ended June 30, 2024, our general and administrative expenses, totaling $11.4 million, were primarily comprised of shared-based compensation expenses of $0.9 million, salary and bonus expenses of $2.0 million, professional and consulting expenses of $4.9 million, directors and officers insurance expenses of $0.4 million, marketing expenses of $0.7 million, and travel expenses of $0.5 million.
For the six months ended June 30, 2023, our general and administrative expenses, totaling $10.5 million, were primarily comprised of professional and consulting expenses of $2.4 million, salary and bonus expenses of $2.7 million, shared-based compensation expenses of $0.6 million related to RSUs and share options granted to our management and employees, directors and officers insurance expenses of $1.3 million, and marketing expenses of $0.7 million.
Gain (loss) on digital assets
For the six months ended June 30, 2024, a gain of $34.2 million was recognized, primarily attributable to the increases in the prices of bitcoin and ETH as of June 30, 2024.
As a result of the adoption of ASU 2023-08 effective January 1, 2024, digital assets are recorded at fair value, changes in fair value are recognized as part of net income. As described under the heading “Realized gain on exchange of digital assets”, gains on digital assets for the six months ended June 30, 2024 are not comparable to the six months ended June 30, 2023.
Realized gain on exchange of digital assets
For the six months ended June 30, 2023, we recorded a gain of $9.3 million from the exchange of 1,013.5 bitcoins and 3,002.3 ETH.
Prior to the adoption of ASU 2023-08, digital assets were classified as indefinite-lived intangible assets and were measured at cost less impairment. Subsequent increases in digital asset prices are not allowed to be recorded unless the digital asset is sold, at which point the gain is recognized in “Realized gain on exchange of digital assets” in the consolidated statements of operations. Accordingly, realized gains (losses) recognized on digital asset transactions for the six months ended June 30, 2024 are not comparable to the six months ended June 30, 2023.
Impairment of digital assets
As a result of the adoption of ASU 2023-08 effective January 1, 2024, impairment of digital assets was no longer recognized.
Impairment of digital assets was $3.6 million for the six months ended June 30, 2023. We utilized the intraday low price of digital assets in the calculation of impairment of digital assets. For the six months ended June 30, 2023, the impairment of $3.6 million was comprised of impairment of $2.6 million and $1.0 million on bitcoins and ETH, respectively.
20
Other income, net
Other income, net was $4.8 million and $1.2 million for the six months ended June 30, 2024 and 2023, respectively. Other income, net for the six months ended June 30, 2024, was primarily comprised of unrealized gain from digital assets held in fund of $2.7 million, unrealized gain from equity investment of $0.5 million, performance fee income of $0.7 million, interest income of $0.5 million and interest income related to net investment in lease of $0.2 million. Other income, net for the six months ended June 30, 2023, was primarily comprised of the sales of Antminer coupons of $0.7 million, and interest income of $0.4 million.
Income tax expenses
Income tax expenses were $2.1 million for the six months ended June 30, 2024, which was comprised of income tax expenses of $1.0 million from our Canada operations, income tax expense of $1.0 million from our Iceland operations, and $0.1 from our U.S. operations. The income tax expense of $1.0 million from Canada is primarily driven by the increased deferred tax liability due to a higher basis difference in digital assets resulting from the adoption of ASU 2023-08. The Iceland income tax expense of $1.0 million is driven by the profits from the high performance computing services. The income tax in the United States is primarily attributed to the income tax from the Global Intangible Low Taxed Income.
Income tax expenses were $0.2 million for the six months ended June 30, 2023, which was comprised of income tax expenses of $5,347 from our U.S. operations, income tax expenses of $0.2 million from our Hong Kong operations. The tax expense from Hong Kong is driven by the additional accrued penalty related to uncertain Hong Kong profits tax positions due to offshore non-taxable claim lodged on the business profits and tax deduction claim on share-based compensation which are both, however, subject to review and approval by the Hong Kong tax authority.
Net income (loss) and earnings (loss) per share
For the six months ended June 30, 2024, our net income was $38.1 million, representing a change of $42.8 million from a net loss of $4.7 million for the six months ended June 30, 2023.
Basic and diluted earnings per share was $0.31 and $0.31 for the six months ended June 30, 2024, respectively. Basic and diluted loss per share was $0.06 and $0.06 for the six months ended June 30, 2023, respectively.
Basic and diluted weighted average number of shares was 121,362,883 and 122,374,103 for the six months ended June 30, 2024, respectively. Basic and diluted weighted average number of shares was 82,781,060 and 82,781,060 for the six months ended June 30, 2023, respectively.
21
Discussion of Certain Balance Sheet Items
The following table sets forth selected information from our consolidated balance sheets as of June 30, 2024 and December 31, 2023. This information should be read together with our consolidated financial statements and related notes included elsewhere in this report.
| June 30, | December 31, | Variance in | ||||||||||
| 2024 | 2023 | Amount | ||||||||||
| ASSETS | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | 59,020,014 | $ | 16,860,934 | $ | 42,159,080 | ||||||
| Restricted cash | 2,404,150 | 1,320,000 | 1,084,150 | |||||||||
| Accounts receivable | 4,127,532 | - | 4,127,532 | |||||||||
| USDC | 340,106 | 405,596 | (65,490 | ) | ||||||||
| Digital assets | 130,173,439 | 40,456,083 | 89,717,356 | |||||||||
| Digital assets held in fund | 8,791,775 | 6,115,538 | 2,676,237 | |||||||||
| Net investment in lease - current | 1,046,625 | - | 1,046,625 | |||||||||
| Other current assets | 11,279,188 | 18,188,032 | (6,908,844 | ) | ||||||||
| Total Current Assets | 217,182,829 | 83,346,183 | 133,836,646 | |||||||||
| Loans receivable | 400,000 | 400,000 | - | |||||||||
| Deposits for property and equipment | 2,348,749 | 4,227,371 | (1,878,622 | ) | ||||||||
| Property and equipment, net | 73,720,951 | 81,474,649 | (7,753,698 | ) | ||||||||
| Operating lease right-of-use assets | 5,283,258 | 6,216,255 | (932,997 | ) | ||||||||
| Net investment in lease - non-current | 1,828,814 | - | 1,828,814 | |||||||||
| Investment securities | 6,011,182 | 4,373,685 | 1,637,497 | |||||||||
| Other non-current assets | 8,721,545 | 9,290,239 | (568,694 | ) | ||||||||
| Total Assets | $ | 315,497,328 | $ | 189,328,382 | $ | 126,168,946 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable | $ | 3,157,603 | $ | 2,316,343 | $ | 841,260 | ||||||
| Deferred Revenue | - | 13,073,449 | (13,073,449 | ) | ||||||||
| Current portion of operating lease liability | 2,002,049 | 1,864,779 | 137,270 | |||||||||
| Income tax payable | 681,184 | 50,973 | 630,211 | |||||||||
| Other payables and accrued liabilities | 4,420,889 | 9,775,718 | (5,354,829 | ) | ||||||||
| Total Current Liabilities | 10,261,725 | 27,081,262 | (16,819,537 | ) | ||||||||
| Other long-term liabilities | 1,883,333 | 1,883,333 | - | |||||||||
| Non-current portion of operating lease liability | 3,281,209 | 4,351,476 | (1,070,267 | ) | ||||||||
| Long-term income tax payable | 3,196,204 | 3,196,204 | - | |||||||||
| Deferred tax liability | 1,593,172 | 112,251 | 1,480,921 | |||||||||
| Total Liabilities | $ | 20,215,643 | $ | 36,624,526 | $ | (16,408,883 | ) | |||||
Cash and cash equivalents
Cash and cash equivalents primarily consist of funds deposited with banks, which are highly liquid and are unrestricted to withdrawal or use. The total balance of cash and cash equivalents were $59.0 million and $16.9 million as of June 30, 2024 and December 31, 2023, respectively. The increase in the balance of cash and cash equivalents was a result of net cash of $30.4 million used in operating activities, and net cash of $6.7 million used in investing activities, partially offset by net cash of $80.3 million provided by financing activities.
22
USDC
USD Coin (“USDC”) is accounted for as a financial instrument; one USDC can be redeemed for one U.S. dollar on demand from the issuer. The balance of USDC was $0.3 million and $0.4 million as of June 30, 2024 and December 31, 2023, respectively. The decrease in the balance of USDC was primarily due to payment of other expenses of $1.1 million, partially offset by the collection of USDC of $1.0 million from exchange of BTC.
Digital assets
Digital assets primarily consist of BTC and ETH. For the six months ended June 30, 2024, we earned digital assets from mining services and ETH staking services. We exchanged BTC into ETH or USDC, exchanged BTC and ETH into cash, or used BTC and ETH to pay certain operating costs and other expenses. Digital assets held are accounted for as intangible assets measured at fair value, with changes in fair value recorded in net income in each reporting period.
As compared with the balance as of December 31, 2023, the balance of digital assets as of June 30, 2024 increased by $89.7 million, which was primarily attributable to the cumulative effect of the adoption of ASU 2023-08 of $21.2 million, change in fair value of $34.2 million, and generation of bitcoins of $38.0 million from our mining business, partially offset by exchange of bitcoins of $40.3 million into ETH, exchange of bitcoins of $1.0 million into USDC, and payment of bitcoin for service charges of $3.2 million.
Digital assets held in fund
Digital assets held in fund consists of an investment made by the Company in Bit Digital Innovation Master Fund SPC Ltd. As of June 30, 2024, the total balance of this investment was $8.8 million, compared to $6.1 million as of December 31, 2023. The increase of $2.7 million was due to subsequent fair value adjustments.
Loans Receivable
Loans receivable consist of a loan issued by the Company to a third party. The total balance of loans receivable was $0.4 million and $0.4 million as of June 30, 2024 and December 31, 2023, respectively.
Net investment in lease
Net investment in lease represents the present value of the lease payments not yet received from lessee. The current and non-current balance of net investment in lease was $1.0 million and $1.8 million, respectively as of June 30, 2024. The current and non-current balance of net investment in lease was $nil and $nil, respectively as of December 31, 2023.
Investment Securities
As of June 30, 2024, our portfolio consists of investments in one fund, a privately held company via a simple agreement for future equity (“SAFE”), and four privately held companies over which the Company neither has control nor significant influence. The total balance of investment securities was $6.0 million and $4.4 million as of June 30, 2024, and December 31, 2023, respectively. The increase of $1.6 million in the value of our investment securities was mainly driven by investment of $1.0 million in a SAFE, investment of $0.1 million in one equity investee, and upward fair value adjustments of $0.5 million for the Nine Blocks investment.
Deposits for property and equipment
The deposits for property and equipment consists of advance payments for property and equipment. The balance was derecognized once the control of the property and equipment was transferred to and obtained by us.
Compared with December 31, 2023, the balance as of June 30, 2024 decreased $1.8 million, mainly due to prepayment of property and equipment of $10.1 million offset by the receipt of property and equipment of $8.3 million.
23
Property and equipment, net
Property and equipment was primarily comprised of BTC miners and high performance computing equipment, both with an estimated 3-year useful life.
As of June 30, 2024, we had 50,044 bitcoin miners with a net book value of $27.8 million. As of December 31, 2023, we had 46,548 bitcoin miners with a net book value of $30.2 million.
As of June 30, 2024, the high performance computing equipment had a net book value of $44.7 million. As of December 31, 2023, construction in progress of $51.0 million represented HPC equipment received but not yet placed into service. This amount was reclassified to property and equipment as the assets were put into service in January 2024.
Operating lease right-of-use assets and operating lease liability
As of June 30, 2024, the Company’s operating lease right-of-use assets and operating lease liability were $5.3 million and $5.3 million respectively. As of December 31, 2023, the Company’s operating lease right-of-use assets and operating lease liability were $6.2 million and $6.2 million, respectively. The decrease in operating lease right-of-use assets and operating lease liability of $0.9 million was due to the amortization of the operating lease right-of-use assets totaling $0.9 million for the quarter ended June 30, 2024.
Accounts payable
Accounts payable primarily consists of amounts due for maintenance costs related to our digital asset mining and high performance computing services. Compared with December 31, 2023, the balance of accounts payable increased by $0.8 million, largely due to the unpaid bills for our digital asset mining and high performance computing services in the six months ended June 30, 2024.
Deferred revenue
Deferred revenue pertains to prepayments received from a customer for high performance computing services.
As of June 30, 2024, the Company’s deferred revenue was $nil. As of December 31, 2023, the Company’s deferred revenue was $13.1 million. The decrease in deferred revenue of $13.1 million reflects the Company’s successful fulfillment of its performance obligations stemming from our high performance computing services commenced in January 2024.
Long-term income tax payable
Compared with December 31, 2023, the balance as of June 30, 2024 did not change as no incremental penalty was accrued on the existing unrecognized tax benefits for the six months ended June 30, 2024. Refer to Note 13 Income Taxes for further details.
Non-GAAP Financial Measures
In addition to consolidated U.S. GAAP financial measures, we consistently evaluate our use of and calculation of the non-GAAP financial measures, such as “Adjusted EBITDA”.
EBITDA is computed as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is a financial measure defined as our EBITDA adjusted to eliminate the effects of certain non-cash and / or non-recurring items that do not reflect our ongoing strategic business operations, which management believes results in a performance measurement that represents a key indicator of the Company’s core business operations. The adjustments currently include fair value adjustments such as investment securities value changes and non-cash share-based compensation expenses, in addition to other income and expense items.
24
We believe Adjusted EBITDA can be an important financial measure because it allows management, investors, and our board of directors to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments.
Adjusted EBITDA is provided in addition to and should not be considered to be a substitute for, or superior to net income, the comparable measures under U.S. GAAP. Further, Adjusted EBITDA should not be considered as an alternative to revenue growth, net income, diluted earnings per share or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under U.S. GAAP.
Reconciliations of Adjusted EBITDA to the most comparable U.S. GAAP financial metric for historical periods are presented in the table below:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Reconciliation of non-GAAP income (loss) from operations: | ||||||||||||||||
| Net income (loss) | $ | (11,953,100 | ) | $ | (2,427,010 | ) | $ | 38,128,757 | $ | (4,687,315 | ) | |||||
| Depreciation and amortization expenses | 8,346,633 | 3,725,152 | 15,192,582 | 7,371,200 | ||||||||||||
| Income tax expenses | 541,781 | 109,427 | 2,119,131 | 163,070 | ||||||||||||
| EBITDA | (3,064,686 | ) | 1,407,569 | 55,440,470 | 2,846,955 | |||||||||||
| Adjustments: | ||||||||||||||||
| Share based compensation expenses | 423,736 | 506,934 | 916,335 | 613,775 | ||||||||||||
| Changes in fair value of long-term investments | (1,182,792 | ) | (24,835 | ) | (1,637,497 | ) | (67,726 | ) | ||||||||
| Adjusted EBITDA | $ | (3,823,742 | ) | $ | 1,889,668 | $ | 54,719,308 | $ | 3,393,004 | |||||||
Liquidity and capital resources
As of June 30, 2024, we had working capital of $206.9 million which includes USDC of $0.3 million and digital assets of $130.2 million as compared with working capital of $56.3 million as of December 31, 2023. Working capital is the difference between the Company’s current assets and current liabilities.
To date, we have financed our operations primarily through cash flows from operations, and equity financing through public and private offerings of our securities. We plan to support our future operations primarily from cash generated from our operations and equity financings. We may also consider debt, preferred and convertible financing on favorable terms.
We have sold and intend to continue to offer and sell equity securities from time to time in one or more offerings at the market (ATM) at prices and on terms which the Company will then determine for an initial aggregate offering price of $500 million pursuant to a registration statement on Form F-3 declared effective by the SEC on May 4, 2022.
Under the Company’s Purchase Agreement with Ionic Ventures LLC, the Company had the right, but not the obligation, to sell to Ionic up to $22 million of registered Ordinary Shares.
In May and June 2023, the Company issued an aggregate of 2,401,776 ordinary shares to Ionic Ventures LLC for gross proceeds of $7.0 million. The Company received net proceeds of approximately $6.7 million after deducting commissions payable to the placement agent.
25
In July and August 2023, the Company issued an aggregate of 4,345,887 ordinary shares to Ionic Ventures LLC for gross proceeds of $15.0 million. The Company received net proceeds of $14.3 million after deducting commissions payable to the placement agent.
In August and September 2023, the Company sold an aggregate of 781,602 ordinary shares in connection with the at-the-market offering. The Company received net proceeds of $1.9 million, net of offering costs.
In the fourth quarter of 2023, the Company sold an aggregate of 13,962,424 ordinary shares in connection with the at-the-market offering. The Company received net proceeds of $43.3 million, net of offering costs.
In the first quarter of 2024, the Company sold an aggregate of 12,871,934 ordinary shares in connection with the at-the-market offering. The Company received net proceeds of $38.7 million, net of offering costs.
In the second quarter of 2024, the Company sold an aggregate of 16,237,292 ordinary shares in connection with the at-the-market offering. The Company received net proceeds of $41.6 million, net of offering costs.
Revenue from Operations
Funding our operations on a going-forward basis will rely significantly on our ability to continue to mine digital assets and the spot or market price of the digital assets we mine, our ability to earn ETH rewards from ETH staking business and the spot or market price of ETH, and on the revenue earned from our high performance computing services.
We expect to generate ongoing revenues primarily from the production of digital assets, primarily bitcoin, and the high performance computing services. Our ability to liquidate digital assets at future values will be evaluated from time to time to generate cash for operations. Generating digital assets, for example, with spot market values which exceed our production and other costs, will determine our ability to report profit margins related to such mining operations. Furthermore, regardless of our ability to generate revenue from our digital assets or our high performance computing services, we may need to raise additional capital in the form of equity or debt to fund our operations and pursue our business strategy, including purchases in order to fund our high performance computing services.
The ability to raise funds as equity, debt or conversion of digital assets to maintain our operations is subject to many risks and uncertainties and, even if we are successful, future equity issuances would result in dilution to our existing stockholders and any future debt or debt securities may contain covenants that limit our operations or ability to enter into certain transactions. Our ability to realize revenue through digital asset production and successfully convert digital assets into cash or fund overhead with digital assets is subject to a number of risks, including regulatory, financial and business risks, many of which are beyond our control. Additionally, the value of digital asset rewards has historically been extremely volatile, and future prices cannot be predicted.
If we are unable to generate sufficient revenue when needed or secure additional funding, it may become necessary to significantly reduce our current rate of expansion or to explore other strategic alternatives.
Cash flows
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net Cash Used in Operating Activities | $ | (30,370,425 | ) | $ | (9,321,512 | ) | ||
| Net Cash Used in Investing Activities | (6,660,262 | ) | (10,735,108 | ) | ||||
| Net Cash Provided by Financing Activities | 80,273,917 | 5,885,000 | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 43,243,230 | (14,171,620 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of period | 18,180,934 | 34,011,060 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 61,424,164 | $ | 19,839,440 | ||||
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Operating Activities
Net cash used in operating activities was $30.4 million for the six months ended June 30, 2024, derived mainly from (i) a net income of $38.0 million for the six months ended June 30, 2024 adjusted for digital assets of $38.1 million from our mining services, depreciation expenses of property and equipment of $15.2 million, unrealized gain on digital assets held in fund of $2.7 million, and gains on digital assets of $34.2 million, and (ii) net changes in our operating assets and liabilities, principally comprising of a decrease in deferred revenue of $13.1 million, decrease in other payable and accrued liabilities of $3.7 million, and a decrease in net investment in lease of $2.9 million, offset by and an increase in accounts payable of $3.8 million and other current assets of $8.4 million.
Net cash used in operating activities was $9.3 million for the six months ended June 30, 2023, derived mainly from (i) a net loss of $4.7 million for the six months ended June 30, 2023 adjusted for digital assets of $17.1 million from our mining services, depreciation expenses of miners of $7.4 million, gain from exchange of digital assets of $9.3 million, and impairment of digital assets of $3.6 million, and (ii) net changes in our operating assets and liabilities, principally comprising of a decrease in digital assets and stable coins of $10.9 million as net proceeds from sales of digital assets and stable coins.
Investing Activities
Net cash used in investing activities was $6.7 million for the six months ended June 30, 2024, primarily attributable to purchases of and deposits made for property and equipment of $5.6 million, investment in a SAFE of $1.0 million and investment in one equity investee of $0.1 million.
Net cash used in investing activities was $10.7 million for the six months ended June 30, 2023, primarily attributable to purchases of and deposits made for bitcoin miners of $7.1 million, investment of $2.1 million in two equity investees and loans of $1.5 million made to two third parties.
Financing Activities
Net cash provided by financing activities was $80.3 million for the six months ended June 30, 2024, attributable to net proceeds of $80.3 million from the at-the-market offering.
Net cash provided by financing activities was $5.9 million for the six months ended June 30, 2023, primarily attributable net proceeds of $6.7 million from private placements with Ionic Ventures, an institutional investor, partially offset by the payment of dividends of $0.8 million to the preferred shareholder.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements. These financial statements are prepared in accordance with U.S. GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues, and expenses, to disclose contingent assets and liabilities on the dates of the unaudited condensed consolidated financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting periods. The most significant estimates and assumptions include the valuation of digital assets and other current assets, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities and realization of deferred tax assets. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates as a result of changes in our estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this release reflect the more significant judgments and estimates used in preparation of our unaudited condensed consolidated financial statements.
27
BIT DIGITAL, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2024 and December 31, 2023
(Expressed in US dollars, except for the number of shares)
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 59,020,014 | $ | 16,860,934 | ||||
| Restricted cash | 2,404,150 | 1,320,000 | ||||||
| Accounts receivable | 4,127,532 | - | ||||||
| USDC | 340,106 | 405,596 | ||||||
| Digital assets | 130,173,439 | 40,456,083 | ||||||
| Digital assets held in fund | 8,791,775 | 6,115,538 | ||||||
| Net investment in lease - current | 1,046,625 | - | ||||||
| Other current assets | 11,279,188 | 18,188,032 | ||||||
| Total Current Assets | 217,182,829 | 83,346,183 | ||||||
| Non-Current Assets | ||||||||
| Loans receivable | 400,000 | 400,000 | ||||||
| Deposits for property and equipment | 2,348,749 | 4,227,371 | ||||||
| Property and equipment, net | 73,720,951 | 81,474,649 | ||||||
| Operating lease right-of-use assets | 5,283,258 | 6,216,255 | ||||||
| Net investment in lease - non-current | 1,828,814 | - | ||||||
| Investment securities | 6,011,182 | 4,373,685 | ||||||
| Other non-current assets | 8,721,545 | 9,290,239 | ||||||
| Total Non-Current Assets | 98,314,499 | 105,982,199 | ||||||
| Total Assets | $ | 315,497,328 | $ | 189,328,382 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 3,157,603 | $ | 2,316,343 | ||||
| Deferred revenue | - | 13,073,449 | ||||||
| Current portion of operating lease liability | 2,002,049 | 1,864,779 | ||||||
| Income tax payable | 681,184 | 50,973 | ||||||
| Other payables and accrued liabilities | 4,420,889 | 9,775,718 | ||||||
| Total Current Liabilities | 10,261,725 | 27,081,262 | ||||||
| Non-Current Liabilities | ||||||||
| Other long-term liabilities | 1,883,333 | 1,883,333 | ||||||
| Non-current portion of operating lease liability | 3,281,209 | 4,351,476 | ||||||
| Long-term income tax payable | 3,196,204 | 3,196,204 | ||||||
| Deferred tax liability | 1,593,172 | 112,251 | ||||||
| Total Non-Current Liabilities | 9,953,918 | 9,543,264 | ||||||
| Total Liabilities | 20,215,643 | 36,624,526 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ Equity | ||||||||
| Preferred shares, $0.01 par value, 10,000,000 and 10,000,000 shares authorized, 1,000,000 and 1,000,000 shares issued and outstanding of June 30, 2024 and December 31, 2023, respectively | 9,050,000 | 9,050,000 | ||||||
| Ordinary shares, $0.01 par value, 340,000,000 and 340,000,000 shares authorized, 137,491,039 and 107,421,813 shares issued, 137,361,053 and 107,291,827 shares outstanding as of June 30, 2024 and December 31, 2023, respectively | 1,374,910 | 1,074,218 | ||||||
| Treasury stock, at cost, 129,986 and 129,986 shares as of June 30, 2024 and December 31, 2023, respectively | (1,171,679 | ) | (1,171,679 | ) | ||||
| Additional paid-in capital | 373,615,169 | 290,660,609 | ||||||
| Accumulated deficit | (87,586,715 | ) | (146,909,292 | ) | ||||
| Total Shareholders’ Equity | 295,281,685 | 152,703,856 | ||||||
| Total Liabilities and Shareholders’ Equity | $ | 315,497,328 | $ | 189,328,382 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
28
BIT DIGITAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2024 and 2023
(Expressed in US dollars, except for the number of shares)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | ||||||||||||||||
| Revenue - digital asset mining | $ | 16,079,893 | $ | 8,911,943 | $ | 37,971,653 | $ | 17,126,333 | ||||||||
| Revenue - high performance computing services | 12,497,197 | - | 20,566,781 | - | ||||||||||||
| Revenue - ETH staking | 373,812 | 125,659 | 699,558 | 176,268 | ||||||||||||
| Total Revenues | 28,950,902 | 9,037,602 | 59,237,992 | 17,302,601 | ||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Cost of revenue (exclusive of depreciation and amortization shown below) | ||||||||||||||||
| Cost of revenue - digital asset mining | (10,537,841 | ) | (5,653,797 | ) | (23,522,773 | ) | (10,818,897 | ) | ||||||||
| Cost of revenue - high performance computing services | (4,595,301 | ) | - | (7,752,628 | ) | - | ||||||||||
| Cost of revenue - ETH staking | (24,456 | ) | (9,192 | ) | (40,889 | ) | (10,386 | ) | ||||||||
| Depreciation and amortization expenses | (8,346,633 | ) | (3,725,152 | ) | (15,192,582 | ) | (7,371,200 | ) | ||||||||
| General and administrative expenses | (5,480,519 | ) | (5,390,204 | ) | (11,436,259 | ) | (10,547,659 | ) | ||||||||
| Gains (losses) on digital assets | (11,538,949 | ) | - | 34,193,628 | - | |||||||||||
| Realized gains on exchange of digital assets | - | 4,443,689 | - | 9,325,626 | ||||||||||||
| Impairment of digital assets | - | (1,351,331 | ) | - | (3,584,996 | ) | ||||||||||
| Total operating expenses | (40,523,699 | ) | (11,685,987 | ) | (23,751,503 | ) | (23,007,512 | ) | ||||||||
| Income (loss) from operations | (11,572,797 | ) | (2,648,385 | ) | 35,486,489 | (5,704,911 | ) | |||||||||
| Other income, net | 161,478 | 330,802 | 4,761,399 | 1,180,666 | ||||||||||||
| Total other income, net | 161,478 | 330,802 | 4,761,399 | 1,180,666 | ||||||||||||
| Income (loss) before income taxes | (11,411,319 | ) | (2,317,583 | ) | 40,247,888 | (4,524,245 | ) | |||||||||
| Income tax expenses | (541,781 | ) | (109,427 | ) | (2,119,131 | ) | (163,070 | ) | ||||||||
| Net income (loss) | $ | (11,953,100 | ) | $ | (2,427,010 | ) | $ | 38,128,757 | $ | (4,687,315 | ) | |||||
| Weighted average number of ordinary share outstanding | ||||||||||||||||
| Basic | 128,053,586 | 83,062,519 | 121,362,883 | 82,781,060 | ||||||||||||
| Diluted | 128,053,586 | 83,062,519 | 122,374,103 | 82,781,060 | ||||||||||||
| Earnings (loss) per share | ||||||||||||||||
| Basic | $ | (0.09 | ) | $ | (0.03 | ) | $ | 0.31 | $ | (0.06 | ) | |||||
| Diluted | $ | (0.09 | ) | $ | (0.03 | ) | $ | 0.31 | $ | (0.06 | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
29
BIT DIGITAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months and Six Months Ended June 30, 2024 and 2023
(Expressed in U.S. dollars, except for the number of shares)
| Additional | Total | |||||||||||||||||||||||||||||||||||
| Preferred Shares | Common Shares | Treasury | paid-in | Accumulated | stockholder’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | Deficit | equity | ||||||||||||||||||||||||||||
| Balance as at December 31, 2022 | 1,000,000 | $ | 9,050,000 | 82,485,583 | $ | 826,156 | (129,986 | ) | $ | (1,171,679 | ) | $ | 212,644,843 | $ | (131,416,011 | ) | $ | 89,933,309 | ||||||||||||||||||
| Share-based compensation | - | - | 11,308 | 113 | - | - | 106,728 | - | 106,841 | |||||||||||||||||||||||||||
| Declaration of dividends to preferred shareholder | - | - | - | - | - | - | - | (800,000 | ) | (800,000 | ) | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (2,260,305 | ) | (2,260,305 | ) | |||||||||||||||||||||||||
| Balance as at March 31, 2023 | 1,000,000 | $ | 9,050,000 | 82,496,891 | $ | 826,269 | (129,986 | ) | (1,171,679 | ) | $ | 212,751,571 | $ | (134,476,316 | ) | $ | 86,979,845 | |||||||||||||||||||
| Issuance of ordinary shares in connection with share-based compensation | - | - | 130,000 | 1,300 | - | - | 404,700 | - | 406,000 | |||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | 100,934 | - | 100,934 | |||||||||||||||||||||||||||
| Issuance of ordinary shares in connection with private placements with an institutional investor | - | - | 2,401,776 | 24,018 | - | - | 6,660,982 | - | 6,685,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (2,427,010 | ) | (2,427,010 | ) | |||||||||||||||||||||||||
| Balance as at June 30, 2023 | 1,000,000 | 9,050,000 | 85,028,667 | 851,587 | (129,986 | ) | (1,171,679 | ) | 219,918,187 | (136,903,326 | ) | 91,744,769 | ||||||||||||||||||||||||
| Balance as at December 31, 2023 | 1,000,000 | $ | 9,050,000 | 107,291,827 | $ | 1,074,218 | (129,986 | ) | $ | (1,171,679 | ) | $ | 290,660,609 | $ | (146,909,292 | ) | $ | 152,703,856 | ||||||||||||||||||
| Share-based compensation expense | - | - | - | - | - | - | 106,199 | - | 106,199 | |||||||||||||||||||||||||||
| Issuance of common stock/At-the-market offering, net of offering costs | - | - | 12,871,934 | 128,719 | - | - | 38,523,688 | - | 38,652,407 | |||||||||||||||||||||||||||
| Share-based compensation in connection with issuance of ordinary shares to employees | - | - | 100,000 | 1,000 | - | - | 275,000 | - | 276,000 | |||||||||||||||||||||||||||
| Share-based compensation in connection with issuance of ordinary shares to consultants | - | - | 700,000 | 7,000 | - | - | 2,058,000 | - | 2,065,000 | |||||||||||||||||||||||||||
| Share-based compensation in connection with issuance of ordinary shares to director | - | - | 40,000 | 400 | - | - | 110,000 | - | 110,400 | |||||||||||||||||||||||||||
| Cumulative effect upon adoption of ASU 2023-08 | - | - | - | - | - | - | - | 21,193,820 | 21,193,820 | |||||||||||||||||||||||||||
| Net Income | - | - | - | - | - | - | - | 50,081,857 | 50,081,857 | |||||||||||||||||||||||||||
| Balance, March 31, 2024 | 1,000,000 | $ | 9,050,000 | 121,003,761 | $ | 1,211,337 | (129,986 | ) | (1,171,679 | ) | $ | 331,733,496 | $ | (75,633,615 | ) | $ | 265,189,539 | |||||||||||||||||||
| Share-based compensation expense | - | - | - | - | - | - | 40,661 | - | 40,661 | |||||||||||||||||||||||||||
| Issuance of common stock/At-the-market offering, net of offering costs | - | - | 16,237,292 | 162,373 | - | - | 41,459,137 | - | 41,621,510 | |||||||||||||||||||||||||||
| Share-based compensation in connection with issuance of ordinary shares to employees | - | - | 120,000 | 1,200 | - | - | 381,875 | - | 383,075 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (11,953,100 | ) | (11,953,100 | ) | |||||||||||||||||||||||||
| Balance, June 30, 2024 | 1,000,000 | 9,050,000 | 137,361,053 | 1,374,910 | (129,986 | ) | (1,171,679 | ) | 373,615,169 | (87,586,715 | ) | 295,281,685 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
30
BIT DIGITAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2024 and 2023
(Expressed in US dollars)
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | 38,128,757 | $ | (4,687,315 | ) | |||
| Adjustments to reconcile net income (loss) to net cash (used in) operating activities: | ||||||||
| Depreciation of property and equipment | 15,192,582 | 7,371,200 | ||||||
| Gains on digital assets | (34,193,628 | ) | - | |||||
| Realized gains on exchange of digital assets | - | (9,325,626 | ) | |||||
| Impairment of digital assets | - | 3,584,996 | ||||||
| Share based compensation expenses | 916,334 | 613,775 | ||||||
| Realized and unrealized gains on digital assets held within Investment Fund | (2,676,237 | ) | - | |||||
| Changes in fair value of investment security | (537,497 | ) | (67,726 | ) | ||||
| Equity loss from one equity method investment | - | 1,783 | ) | |||||
| Digital assets mined | (37,971,653 | ) | (17,126,333 | ) | ||||
| Digital assets earned from staking | (699,558 | ) | (176,268 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Digital assets and stable coins | 369,914 | 10,859,035 | ||||||
| Operating lease right-of-use assets | 932,997 | - | ||||||
| Deferred revenue | (13,073,449 | ) | - | |||||
| Operating lease liability | (932,997 | ) | - | |||||
| Other current assets | 8,383,844 | (1,345,823 | ) | |||||
| Other non-current assets | 568,694 | 195,748 | ||||||
| Accounts receivable | (4,127,532 | ) | - | |||||
| Accounts payable | 3,819,978 | (1,167,445 | ) | |||||
| Other payables and accrued liabilities | (3,706,666 | ) | 1,752,702 | ) | ||||
| Net investment in lease | (2,875,439 | ) | - | |||||
| Income tax receivable | - | 43,585 | ||||||
| Income tax payable | 630,210 | - | ||||||
| Deferred tax liability | 1,480,921 | - | ||||||
| Long-term income tax payable | - | 152,200 | ||||||
| Net Cash Used in Operating Activities | (30,370,425 | ) | (9,321,512 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of and deposits made for property and equipment | (5,560,262 | ) | (7,152,917 | ) | ||||
| Investment in equity securities | (100,000 | ) | (2,088,982 | ) | ||||
| Investment in SAFE | (1,000,000 | ) | - | |||||
| Loan made to third parties | - | (1,493,209 | ) | |||||
| Net Cash Used in Investing Activities | (6,660,262 | ) | (10,735,108 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Net proceeds from issuance of ordinary shares in connection with private placements with an institutional investor | - | 6,685,000 | ||||||
| Net proceeds from issuance of common stock/At-the-market offering | 80,273,917 | - | ||||||
| Payment of dividends | - | (800,000 | ) | |||||
| Net Cash Provided by Financing Activities | 80,273,917 | 5,885,000 | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 43,243,230 | (14,171,620 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of period | 18,180,934 | 34,011,060 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 61,424,164 | $ | 19,839,440 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for income taxes, net of (refunds) | $ | 8,000 | $ | 131,678 | ||||
| Non-cash Transactions of Investing and Financing Activities | ||||||||
| Purchases of property and equipment in USDC | - | (5,109,920 | ) | |||||
| Reclassification of deposits to property and equipment | $ | 10,141,866 | $ | 3,236,868 | ||||
Reconciliation of cash, cash equivalents and restricted cash
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Cash and cash equivalents | $ | 59,020,014 | $ | 16,860,934 | ||||
| Restricted cash | 2,404,150 | 1,320,000 | ||||||
| Cash, cash equivalents and restricted cash | $ | 61,424,164 | $ | 18,180,934 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
31
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Bit Digital, Inc. (“BTBT” or the “Company”), formerly known as Golden Bull Limited, is a holding company incorporated on February 17, 2017, under the laws of the Cayman Islands. The Company is currently engaged in the digital asset mining business, Ethereum staking activities and high performance computing services for artificial intelligence applications through its wholly owned subsidiaries.
On April 17, 2023, Bit Digital Investment Management Limited (“BT IM”) was established as the investment manager to oversee Bit Digital Innovation Master Fund SPC Limited (“BT SPC”), a segregated portfolio company which was incorporated in May 2023. Both entities are 100% owned by Bit Digital Strategies Limited.
On October 19, 2023 and August 17, 2023, Bit Digital AI, Inc. (“BT AI”) and Bit Digital Iceland ehf (“BT Iceland”) were incorporated to support the Company’s generative artificial intelligence (“AI”) workstreams. Bit Digital Iceland ehf is 100% owned by Bit Digital AI, Inc. which is 100% owned by Bit Digital, Inc.
On June 27, 2024, Bit Digital HPC, Inc. (“BT HPC”) was incorporated to support the Company’s generative artificial intelligence (“AI”) workstreams in the United States. Bit Digital HPC, Inc. is 100% owned by Bit Digital AI, Inc. which is 100% owned by Bit Digital, Inc.
The accompanying unaudited condensed consolidated financial statements reflect the activities of the Company and each of the following entities:
| Name | Background | Ownership | |||
| Bit Digital USA, Inc. (“BT USA”) | ● | A United States company | 100% owned by Bit Digital, Inc. | ||
| ● | Incorporated on September 1, 2020 | ||||
| ● | Engaged in digital asset mining business | ||||
| Bit Digital Canada, Inc. (“BT Canada”) | ● | A Canadian company | 100% owned by Bit Digital, Inc. | ||
| ● | Incorporated on February 23, 2021 | ||||
| ● | Engaged in digital asset mining business | ||||
| Bit Digital Hong Kong Limited (“BT HK”) | ● | A Hong Kong company | 100% owned by Bit Digital, Inc. | ||
| ● | Acquired on April 8, 2020 | ||||
| ● | Dormant and previously engaged in digital asset mining related business | ||||
| Bit Digital Strategies Limited (“BT Strategies”) | ● | A Hong Kong company | 100% owned by Bit Digital, Inc. | ||
| ● | Incorporated on June 1, 2021 | ||||
| ● | Engaged in treasury management activities | ||||
32
| Name | Background | Ownership | |||
| Bit Digital Singapore Pte. Ltd. (“BT Singapore”) | ● | A Singapore company | 100% owned by Bit Digital, Inc. | ||
| ● | Incorporated on July 1, 2021 | ||||
| ● | Engaged in digital asset staking activities | ||||
| Bit Digital Investment Management Limited (“BT IM”) | ● | A British Virgin Islands company | 100% owned by Bit Digital Strategies Limited. | ||
| ● | Incorporated on April 17, 2023 | ||||
| ● | Engaged in fund and investment management activities | ||||
| Bit Digital Innovation Master Fund SPC Limited (“BT SPC”) | ● | A British Virgin Islands company | 100% owned by Bit Digital Strategies Limited. | ||
| ● | Incorporated on May 31, 2023 | ||||
| ● | A segregated portfolios company | ||||
| Bit Digital AI, Inc (“BT AI”) | ● | A United States company | 100% owned by Bit Digital, Inc. | ||
| ● | Incorporated on October 19, 2023 | ||||
| ● | Engaged in high performance computing services for artificial intelligence applications | ||||
| Bit Digital Iceland ehf (“BT Iceland”) | ● | An Icelandic company | 100% owned by Bit Digital AI, Inc | ||
| ● | Incorporated on August 17, 2023 | ||||
| ● | Engaged in high performance computing services for artificial intelligence applications | ||||
| Bit Digital HPC, Inc. (“BT HPC”) | ● | An United States company | 100% owned by Bit Digital AI, Inc | ||
| ● | Incorporated on June 27, 2024 | ||||
| ● | Engaged in high performance computing services for artificial intelligence applications | ||||
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The interim unaudited condensed consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States (“US GAAP”).
The unaudited condensed consolidated financial information as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 has been prepared without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with US GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 20-F for the fiscal year ended December 31, 2023, which was filed with the SEC on March 18, 2024.
33
In the opinion of the management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation of financial results for the interim periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2023. The results of operations for the three and six months ended June 30, 2024 and 2023 are not necessarily indicative of the results for the full years.
Fair value of financial instruments
ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data. |
| ● | Level 3 - inputs to the valuation methodology are unobservable. |
Fair value of digital assets is based on Level 1 inputs as these were based on observable quoted prices in the Company’s principal market for identical assets. The fair value of the Company’s other financial instruments including cash and cash equivalents, restricted cash, loans receivable, deposits, other receivables, accounts payable, and other payables, approximate their fair values because of the short-term nature of these assets and liabilities.
Digital assets
Digital assets (primarily include bitcoin and ETH) are included in current assets in the accompanying consolidated balance sheets. Digital assets purchased are recorded at cost and digital assets awarded to the Company through its mining activities and staking activities are accounted for in accordance with the Company’s revenue recognition policy disclosed below.
Effective January 1, 2024, the Company early adopted ASU 2023-08, which requires entities to measure certain cryptocurrencies at fair value, with changes in fair value recorded in net income in each reporting period. The Company’s digital assets are within the scope of ASU 2023-08 and the transition guidance requires a cumulative-effect adjustment as of the beginning of the current fiscal year for any difference between the carrying amount of the Company’s digital assets and fair value.
Prior to the adoption of ASU 2023-08, digital assets were accounted for as intangible assets with indefinite useful lives and are recorded at cost less impairment in accordance with ASC 350 - Intangibles-Goodwill and Other. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Digital assets held are accounted for as intangible assets with indefinite useful lives and are subject to impairment losses if the fair value of digital assets decreases below the carrying value at any time during the period. The fair value is measured using the quoted price of the digital assets at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
34
ASC 820 defines “principal market” as the market with the greatest volume and level of activity for the asset or liability. The determination of the principal market (and, as a result, the market participants in the principal market) is made from the perspective of the reporting entity. The digital assets held by the Company are traded on a number of active markets globally. The Company does not use any exchanges to buy or sell digital assets. Instead, the Company uses Amber Group’s OTC desk for selling or exchanging bitcoins for U.S. dollars or vice versa. The Company determines CoinMarketCap as its principal market, as it is one of the earliest and the most trusted sources by users, institutions, and media for comparing thousands of crypto assets and selected by the U.S. government.
The Company recognizes revenue by utilizing daily close prices obtained from CoinMarketCap, except for the year 2022. During that specific year, the Company also used hourly close price from CryptoCompare to recognize revenue from our digital asset mining activities. The Company believed the hourly close price can better reflect revenue recognized from our digital asset mining activities as compared to daily close price from CoinMarketCap.
Purchases of digital assets by the Company and digital assets awarded to the Company through its mining activities and staking activities are included within operating activities on the accompanying consolidated statements of cash flows. The changes of digital assets are included within operating activities in the accompanying consolidated statements of cash flows. After adopting ASU 2023-08, changes in fair value and realized gains or losses are now reported as “gains (losses) on digital assets” in the consolidated statements of operations. Prior to this adoption, realized gains or losses were reported as “realized gains (losses) on exchange of digital assets” in the consolidated statements of operations. The Company accounts for its gains or losses in accordance with the first-in first-out method of accounting.
Digital assets held in fund
On October 1, 2023, the Company made of investment of 2,701 Ethereum, with a fair value of $4.7 million, into Bit Digital Innovation Master Fund SPC Ltd. (the “Fund”). The Fund was subsequently consolidated based on the Company’s financial control interest. As a result, the assets held in the Fund are included in current assets in the Consolidated Balance Sheets under the caption digital assets held in Fund.
The Fund qualified and operated as an investment company for accounting purposes pursuant to the accounting and reporting guidance under ASC 946 – “Financial Services – Investment Companies” (“ASC 946”), which requires fair value measurement of the Fund. The Company retains the Fund’s investment company specific accounting principles under ASC 946 upon consolidation. The digital assets held by the Fund were traded on a number of active markets globally. A fair value measurement under ASC 820 - “Fair Value Measurement” (“ASC 820”) for an asset assumes that the asset is exchanged in an orderly transaction between market participants either in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset (ASC 820-10-35-5). The fair value of the assets within the Fund was primarily determined using the price from CoinMarketCap. Any changes in the fair value of the assets were recorded in the consolidated statements of operations under the caption realized and unrealized gains (losses) on digital assets held in fund. The activity in the Fund for the six months ended June 30, 2024 and June 30, 2023 was as follows:
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Opening balance | $ | 6,115,538 | $ | - | ||||
| Unrealized gains on digital assets held in fund | 2,676,237 | - | ||||||
| Ending balance | $ | 8,791,775 | $ | - | ||||
35
Investment securities
As of June 30, 2024, investment securities represent the Company’s investments in one fund, a privately held company via a simple agreement for future equity (“SAFE”), and four privately held companies over which the Company neither has control nor significant influence through investments in ordinary shares or preferred shares. As of December 31, 2023, investment securities represent the Company’s investments in one fund and three privately held companies over which the Company neither has control nor significant influence through investments in ordinary shares or preferred shares.
Investment in equity method investee
In accordance with ASC 323, Investments - Equity Method and Joint Ventures, the Company accounts for the investment in one privately held company using equity method, because the Company has significant influence but does not own a majority equity interest or otherwise control over the equity investee.
Under the equity method, the Company initially records its investment at cost and prospectively recognizes its proportionate share of each equity investee’s net income or loss into its consolidated statements of operations. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee.
The Company continually reviews its investment in the equity investee to determine whether a decline in fair value below the carrying value is other-than-temporary. The primary factors the Company considers in its determination include the financial condition, operating performance and the prospects of the equity investee; other company specific information such as recent financing rounds; the geographic region, market and industry in which the equity investee operates; and the length of time that the fair value of the investment is below its carrying value. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value.
Investment in fund
Equity securities not accounted for using the equity method are carried at fair value with unrealized gains and losses recorded in the consolidated income statements, according to ASC 321, Investments - Equity Securities. As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of the investment in the fund. NAV is primarily determined based on information provided by the fund administrator.
Investment in privately held company
Equity securities not accounted for using the equity method are carried at fair value with unrealized gains and losses recorded in the consolidated income statements, according to ASC 321, Investments - Equity Securities. The Company elected to record the equity investments in privately held companies using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer.
Equity investments in privately held companies accounted for using the measurement alternative are subject to periodic impairment reviews. The Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of these equity securities. In computing realized gains and losses on equity securities, the Company calculates cost based on amounts paid using the average cost method. Dividend income is recognized when the right to receive the payment is established.
Investment in SAFE
SAFE investments provide the Company with the right to participate in future equity financing of preferred stock. The Company accounted for this investment under ASC 320, Investments - Debt Securities and elected the fair value option for the SAFE investment under ASC 825, Financial Instruments, which requires financial instruments to be remeasured to fair value each reporting period, with changes in fair value recorded in the consolidated statements of operations. The fair value estimate includes significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.
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Leases
The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.
For leases with a term exceeding 12 months, an operating lease liability is recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding operating lease right-of-use asset equal to the initial lease liability is also recorded, adjusted for any prepayment and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. The Company’s incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease. Variable lease costs are recognized in the period in which the obligation for those payments is incurred and not included in the measurement of right-of-use assets and operating lease liabilities.
For the Company’s operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of 12 months or less, any fixed lease payments are recognized on a straight-line basis over the lease term and are not recognized on the Company’s consolidated balance sheet as an accounting policy election. Leases qualifying for the short-term lease exception were insignificant.
For sales-type leases where the Company is the lessor, the Company recognizes a net investment in lease, which comprises of the present value of the future lease payments and any unguaranteed residual value. Interest income is recognized over the lease term at a constant periodic discount rate on the remaining balance of the lease net investment using the rate implicit in the lease and is included in “Other income, net.”. Sales-type leases result in the recognition of gain or loss at the commencement of the lease, which will be recorded in “Other income, net.”
Deposits for property and equipment
The deposits for property and equipment represented advance payments for purchases of miner and high performance computing equipment. The Company initially recognizes deposits for property and equipment when cash is advanced to our suppliers. Subsequently, the Company derecognizes and reclassifies deposits for property and equipment to property and equipment when control over these equipment is transferred to and obtained by the Company.
Below is the roll forward of the balance of deposits for property and equipment for the six months ended June 30, 2024 and 2023, respectively.
| For the Six Months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Opening balance | $ | 4,227,371 | $ | 2,594,881 | ||||
| Reclassification to property and equipment | (10,141,867 | ) | (3,251,693 | ) | ||||
| Addition of deposits for property and equipment | 8,263,245 | 6,222,419 | ||||||
| Ending balance | $ | 2,348,749 | $ | 5,565,607 | ||||
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Property and equipment, net
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment were primarily comprised of digital asset miners with estimated useful lives of three years, high performance computing equipment with estimated useful lives of three years, equipment accessories with estimated useful lives of five years, and one vehicle with estimated useful life of five years.
Revenue recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. Refer to Note 3- Revenue for further information.
Contract costs
Capitalized contract costs represent the costs directly related and incremental to the origination of new contracts, including commissions that are incurred directly related to obtaining customer contracts. We amortize the deferred contract costs on a straight-line basis over the expected period of benefit. These amounts are included in the accompanying consolidated balance sheets, with the capitalized costs to be amortized to commission expense over the expected period of benefit and commission expense payable included in Other long-term liabilities.
The Company capitalized lease expense incurred in December 2023 that are directly related to fulfilling its high performance computing services which commenced operations in January 2024. The lease expense is directly related to fulfill customer contracts and is expected to be recovered. The capitalized lease expense was reclassified as lease expense in January 2024.
Deferred Revenue
Deferred revenue primarily pertains to prepayments received for HPC services from a customer, which commenced in January 2024. Deferred revenues are recognized as revenue recognition criteria have been met.
Remaining performance obligation
Remaining performance obligations represent the transaction price of contracts for work that have not yet been performed. The amount represents estimated revenue expected to be recognized in the future related to the unsatisfied portion of the performance obligation.
Cost of revenue
The Company’s cost of revenue consists primarily of i) direct production costs related to mining operations, including electricity costs, profit-sharing fees/variable performance fees and/or other relevant costs paid to our hosting facilities, ii) direct production costs related to our high performance computing services, including electricity costs, datacenter lease costs, and other relevant costs, and iii) direct cost related to ETH staking business, including service fees payable to the service provider.
Cost revenue excludes depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.
Reclassification
Certain items in the financial statements of the comparative period have been reclassified to conform to the financial statements for the current period. The reclassification has no impact on the total assets and total liabilities as of June 30, 2024 or on the statements of operations for the three and six months ended June 30, 2024.
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Recent accounting pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.
In December 2023, the FASB issued ASU 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), which establishes accounting guidance for crypto assets meeting certain criteria. Bitcoin and ETH meet this criterion. The amendments require crypto assets meeting the criteria to be recognized at fair value with changes recognized in net income each reporting period. Upon adoption, a cumulative-effect adjustment is made to the opening balance of retained earnings as of the beginning of the annual reporting period of adoption. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt ASU 2023-08, effective January 1, 2024.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 expands existing income tax disclosures for rate reconciliations by requiring disclosure of certain specific categories and additional reconciling items that meet quantitative thresholds and expands disclosures for income taxes paid by requiring disaggregation by certain jurisdictions. ASU 2023-09 is effective for annual periods beginning after December 15, 2024; early adoption is permitted. The Company is closely monitoring the development of the ASU 2023-09 and does not expect its impact to be material on the consolidated financial statements.
3. Revenue from Contracts with Customers
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”).
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange.
Disaggregation of revenues
Below table presents the disaggregation of Company’s revenues by revenue streams:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Digital asset mining | $ | 16,079,893 | $ | 8,911,943 | $ | 37,971,653 | $ | 17,126,333 | ||||||||
| High performance computing services | 12,497,197 | - | 20,566,781 | - | ||||||||||||
| ETH native staking | 373,812 | 66,649 | 695,055 | 80,881 | ||||||||||||
| ETH liquid staking | - | 59,010 | 4,503 | 95,387 | ||||||||||||
| $ | 28,950,902 | $ | 9,037,602 | $ | 59,237,992 | $ | 17,302,601 | |||||||||
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Digital asset mining
The Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contract is terminable at any time by either party with no termination penalty. Our enforceable right to compensation begins when, and lasts for as long as, we provide computing power to the mining pool operator; our performance obligation extends over the contract term given our continuous provision of computing power. This period of time corresponds with the period of service for which the mining pool operator determines compensation due to us. Given cancellation terms of the contract, and our customary business practice, the contract effectively provides the option to renew for successive contract terms daily. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed digital assets award the mining pool operator receives, for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. The Company is entitled to its relative share of consideration even if a block is not successfully placed.
Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration. ASC 606-10-32-21 requires entities to measure the estimated fair value of noncash consideration at contract inception. Because the consideration to which the Company expects to be entitled for providing computing power is entirely variable, as well as being noncash consideration, the Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Because it is probable that a significant reversal of cumulative revenue will not occur and the Company is able to calculate the payout based on the contractual formula, this amount should be estimated and recognized in revenue upon inception, which is when the hash rate is provided.
For reasons of operational practicality, the Company applies an accounting convention to use the daily quoted closing U.S. dollar spot rate of digital asset each day to determine the fair value of digital asset on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools.
For the three months ended June 30, 2024 and 2023, the Company earned revenue of $16,079,893 and $8,911,943, respectively, from Foundry USA Pool. For the six months ended June 30, 2024 and 2023, the Company earned revenue of $37,971,653 and $17,126,333, respectively, from Foundry USA Pool.
Below table presents the Company’s revenues generated from digital asset mining business by countries:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| United States | $ | 14,185,805 | $ | 8,318,427 | $ | 33,497,689 | $ | 16,032,940 | ||||||||
| Iceland | 1,210,510 | - | 2,811,550 | - | ||||||||||||
| Canada | 683,578 | 593,516 | 1,662,414 | 1,093,393 | ||||||||||||
| $ | 16,079,893 | $ | 8,911,943 | $ | 37,971,653 | $ | 17,126,333 | |||||||||
High performance computing services
The Company provides high performance computing (“HPC”) services to support customers’ generative AI workstreams. We have determined that HPC services are a single continuous service comprised of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e. distinct days of service).
These services are consumed as they are received, and the Company recognizes revenue over time using the variable allocation exception as it satisfies performance obligations. We apply this exception because we concluded that the nature of our obligations and the variability of the payment terms based on the number of GPUs providing HPC services are aligned and uncertainty related to the consideration is resolved on a daily basis as we satisfy our obligations. The Company recognizes revenue net of consideration payable to customers, such as service credits, and accounted for as a reduction of the transaction price in accordance with guidance in ASC 606-10-32-25.
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During the three months ended March 31, 2024, the Company issued a one-time service credit of $1.3 million to the customer as compensation for decreased utilization during the initial deployment period, which included testing and optimization phases. For the three months ended June 30, 2024 and 2023, the Company recorded revenue of $12.5 million and $nil respectively. For the six months ended June 30, 2024 and 2023, the Company recorded revenue of $20.6 million and $nil respectively.
ETH staking business
The Company generates revenue through ETH staking rewards. The Company commenced both native staking business and liquid staking business in 2022. In the first quarter of 2024, the Company terminated its liquid staking business. Currently, the Company only participates in native staking.
With the introduction of staked ETH withdrawals in April 2023, we have reassessed our Ethereum network staking approaches, weighing the advantages of traditional staking against liquid staking solutions. The withdrawal feature in native staking, coupled with yields that are on par with those of liquid staking, has encouraged us to expand our collaborations with other service providers in this domain. As a result, we have terminated all liquid staking activities with StakeWise and Liquid Collection in the third quarter of 2023 and in the first quarter of 2024, respectively, reclaiming all staked Ethereum along with the accumulated rewards. In the fourth quarter of 2023, the Company terminated the native staking activities and reclaimed all staked Ethereum with Blockdaemon. Subsequently, we have ceased our native staking with MarsLand in the first quarter of 2024 and initiated our native staking with Figment Inc.
(a) Native staking
The Company has entered into network-based smart contracts by staking ETH on nodes run by third-party operators or nodes maintained by us in 2022. Through these contracts, the Company stakes ETH on nodes for the purpose of validating transactions and adding blocks to the Ethereum blockchain network. The Company is able to withdraw the staked ETH which was previously locked-up in staking contracts since the Shanghai upgrade was successfully completed on April 12, 2023. In exchange for staking the ETH and validating transactions on blockchain networks, the Company is entitled to the block rewards and transaction fees for successfully validating or adding a block to the blockchain. These rewards are received by the Company directly from the Ethereum network and are calculated approximately based on the proportion of the Company’s stake to the total ETH staked by all validators.
The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives, the digital asset awards, is a non-cash consideration, which the Company measures at fair value on the date received. The fair value of the ETH reward received is determined using the quoted price of the ETH at the time of receipt. The satisfaction of the performance obligation for transaction verification services occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are deposited to our address. At that point, revenue is recognized.
As of June 30, 2024 and 2023, the Company has native staked 17,184 ETH and 9,312 ETH, respectively, on the Ethereum blockchain. For the three months ended June 30, 2024 and 2023, the Company earned 109.4 ETH valued at $373,812 and 36.3 ETH valued at $66,649, respectively, from such staking activities and recognized the ETH staking rewards as revenues. For the six months ended June 30, 2024 and 2023, the Company earned 220.5 ETH valued at $695,055 and 45.0 ETH valued at $80,881, respectively, from such staking activities and recognized the ETH staking rewards as revenues.
(b) Liquid staking
Liquid staking is similar to native staking in terms of performance obligations, determination of transaction price and revenue recognition. When we participated in liquid staking via Portara protocol, the Company received receipt tokens sETH-H to represent the staked ETH at 1:1 ratio. The liquid staking rewards were in the form of rETH-H which could be redeemed for ETH from the liquid staking provider or exchange for ETH via OTC. When we participated in liquid staking via Liquid Collective protocol, the Company received receipt tokens Liquid Staked ETH (“LsETH”) to represent the staked ETH. LsETH uses a floating conversion rate, or protocol conversion rate, between the receipt token and staked tokens, reflecting the value of accrued network rewards, penalties, and fees associated with the staked tokens.
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For the three months ended June 30, 2024 and 2023, the Company generated revenues of $nil and $59,010, respectively, from the liquid staking. For the six months ended June 30, 2024 and 2023, the Company generated revenues of $4,503 and $95,387, respectively, from the liquid staking.
Contract costs
The Company capitalizes commission expenses directly related to obtaining customer contracts, which would not have been incurred if the contract had not been obtained. As of June 30, 2024, capitalized costs to obtain a contract totaled $2.8 million, and the outstanding commission expense payable was $1.9 million. As of December 31, 2023, capitalized costs to obtain a contract totaled $2.8 million, and the outstanding commission expense payable was $1.9 million.
The Company capitalizes lease expense that are directly related to fulfilling its high performance computing services which commenced operations in January 2024. The lease expense is directly related to fulfill customer contracts and is expected to be recovered. As of June 30, 2024 and December 31, 2023, capitalized costs to fulfill a contract totaled $nil and $100 thousand, respectively.
Deferred Revenue
Deferred revenue primarily pertains to prepayments received for HPC services from a customer, which commenced in January 2024:
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Beginning balance | $ | 13,073,449 | $ | - | ||||
| Revenue earned | (13,073,449 | ) | - | |||||
| Ending balance | $ | - | $ | - | ||||
Remaining performance obligation
Revenue expected to be recognized in the future related to the unsatisfied portion of the performance obligation was fully recognized as of June 30, 2024.
4. USDC
| June 30, 2024 | December 31, 2023 | |||||||
| USDC | $ | 340,106 | $ | 405,596 | ||||
The following table presents additional information about USDC for the six months ended June 30, 2024 and 2023, respectively:
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Opening balance | $ | 405,596 | $ | 626,441 | ||||
| Receipt of USDC from sales of other digital assets | 1,044,600 | 6,898,860 | ||||||
| Receipt of USDC from sales of Antminer coupon | - | 699,425 | ||||||
| Payment of USDC for purchase of property and equipment | - | (5,109,920 | ) | |||||
| Payment of USDC for other expenses | (1,110,090 | ) | (1,328,432 | ) | ||||
| Ending balance | $ | 340,106 | $ | 1,786,374 | ||||
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5. DIGITAL ASSETS
Adoption of ASU 2023-08, Accounting for and Disclosure of Crypto Assets
Effective January 1, 2024, the Company early adopted ASU 2023-08, which requires entities to measure crypto assets at fair value with changes recognized in net income each reporting period. The Company’s digital assets are within the scope of ASU 2023-08 and the transition guidance requires a cumulative-effect adjustment as of the beginning of the current fiscal year for any difference between the carrying amount of the Company’s digital assets and fair value. As a result of the Company’s early adoption of ASU 2023-08, the Company recorded a $21.2 million increase to digital assets and a $21.2 million decrease to accumulated deficit on the consolidated balance sheets as of the beginning of the quarter ended March 31, 2024.
The following table presents the Company’s significant digital assets holdings as of June 30, 2024:
| Quantity | Cost Basis | Fair Value | ||||||||||
| BTC | 585.6 | $ | 35,856,401 | $ | 36,707,215 | |||||||
| ETH | 27,226.2 | 72,429,946 | 93,466,224 | |||||||||
| Total digital assets held as of June 30, 2024 | $ | 108,286,347 | $ | 130,173,439 | ||||||||
The cost basis is equal to the post-impairment value of all BTC and ETH held as of the adoption of ASU 2023-08 on January 1, 2024. For BTC and ETH earned subsequent to the adoption of ASU 2023-08, the cost basis of the BTC and ETH represents the valuation at the time the Company determined for revenue recognition purposes.
The following table presents a roll-forward of BTC for the six months ended June 30, 2024, based on the fair value model under ASU 2023-08:
| Fair value | ||||
| BTC as of December 31, 2023 | $ | 19,818,980 | ||
| Cumulative effect of the adoption of ASU 2023-08 | 7,341,320 | |||
| Receipt of BTC from mining services | 37,971,653 | |||
| Sales of BTC in exchange of ETH | (40,267,700 | ) | ||
| Sales of BTC in exchange of USDC | (1,049,818 | ) | ||
| Payment of BTC for service charges from mining facilities | (3,206,301 | ) | ||
| Payment of BTC for other expenses | (90,938 | ) | ||
| Change in fair value of BTC | 16,190,019 | |||
| BTC as of June 30, 2024 | $ | 36,707,215 | ||
For the additions of BTC generated by the Company’s mining business, see Note 3. Revenue from Contracts with Customers.
Bitcoin is sold on a FIFO basis. For the six months ended June 30, 2024, gains from the sales of bitcoin are included in change in fair value of BTC which is included in the consolidated statements of operations under the caption “Gains on digital assets”.
The following table presents a roll-forward of ETH for the six months ended June 30, 2024, based on the fair value model under ASU 2023-08:
| Fair value | ||||
| ETH as of December 31, 2023 | $ | 20,637,103 | ||
| Cumulative effect of the adoption of ASU 2023-08 | 13,852,500 | |||
| Receipt of ETH from exchange of BTC | 40,240,138 | |||
| Receipt of ETH from native staking business | 695,055 | |||
| Receipt of ETH from liquid staking business | 4,503 | |||
| Receipt of ETH from other income | 198 | |||
| Payment of ETH for other expenses | (21,203 | ) | ||
| Change in fair value of ETH | 18,057,930 | |||
| ETH fair value at June 30, 2024 | $ | 93,466,224 | ||
For the additions of ETH generated by the Company’s ETH staking business, see Note 3. Revenue from Contracts with Customers.
ETH is sold on a FIFO basis. For the six months ended June 30, 2024, gains from the sales of ETH are included in change in fair value of ETH which is included in the consolidated statements of operations under the caption “Gains on digital assets”.
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Prior to Adoption of ASU 2023-08, Accounting for and Disclosure of Crypto Assets
Prior to the adoption of ASU 2023-08, digital assets were accounted for as indefinite-lived intangible assets and were initially measured in accordance with ASC 350 - Intangible-Goodwill and Other. Digital assets were not amortized, but were assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived intangible asset is impaired. Whenever the exchange-traded price of digital assets declined below its carrying value, the Company was required to determine if an impairment existed and to record an impairment equal to the amount by which the carrying value exceeded the fair value.
The following table presents a roll-forward of BTC for the year ended December 31, 2023, based on the cost-impairment model under ASC 350:
| For the Year Ended December 31, | ||||
| 2023 | ||||
| Opening balance | $ | 15,796,147 | ||
| Receipt of BTC from mining services | 44,240,418 | |||
| Receipt of BTC from other income | 140,724 | |||
| Sales of BTC in exchange of cash | (4,679,714 | ) | ||
| Sales of BTC in exchange of ETH | (11,756,006 | ) | ||
| Sales of BTC in exchange of USDC | (17,251,504 | ) | ||
| Payment of BTC for service charges from mining facilities | (1,758,441 | ) | ||
| Payment of BTC for other expenses | (392,952 | ) | ||
| Impairment of BTC | (4,519,692 | ) | ||
| Ending balance | $ | 19,818,980 | ||
The following table presents a roll-forward of ETH for the year ended December 31, 2023, based on the cost-impairment model under ASC 350:
| For the Year Ended December 31, | ||||
| 2023 | ||||
| Opening balance | $ | 11,791,181 | ||
| Receipt of ETH from exchange of BTC | 17,164,100 | |||
| Receipt of ETH from native staking business | 531,702 | |||
| Receipt of ETH from liquid staking business* | 144,011 | |||
| Other income in the form of ETH | 540 | |||
| Sales of ETH in exchange of cash | (3,243,415 | ) | ||
| Payment of ETH for other expenses | (22,757 | ) | ||
| Payment of ETH to investment fund | (3,615,507 | ) | ||
| Impairment of ETH | (2,112,752 | ) | ||
| Ending balance | $ | 20,637,103 | ||
| * | It includes 71.7 rETH-h earned from the liquid staking activity in 2023. |
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6. OTHER CURRENT ASSETS
Other current assets were comprised of the following:
| June 30, 2024 |
December 31, 2023 |
|||||||
| Deposits (a) | $ | 1,328,564 | $ | 1,171,709 | ||||
| Prepayments to one mining facility (b) | - | 382,207 | ||||||
| Prepaid director and officer insurance expenses | 658,406 | 168,594 | ||||||
| Prepaid consulting service expenses | 1,208,124 | 931,200 | ||||||
| Office rental deposits | 64,663 | 50,858 | ||||||
| Deferred contract costs | 1,138,333 | 1,041,667 | ||||||
| Receivable from third parties | 4,910,547 | 13,855,949 | ||||||
| Receivable from fund | 1,175,723 | 395,923 | ||||||
| Others | 794,828 | 189,925 | ||||||
| Total | $ | 11,279,188 | $ | 18,188,032 | ||||
| (a) | As of June 30, 2024 and December 31, 2023, the balance of deposits represented the deposits made to our service providers, who paid utility charges in mining facilities on behalf of the Company. The deposits are refundable upon expiration of the agreement between the Company and the service provider, which may be due within 12 months from the effective date of the agreement. |
| (b) | As of December 31, 2023, the balance of prepayments to one mining facility represented the prepayments for service charges from the mining facility. |
7. LEASES
Lease as Lessee
During the year ended December 31, 2023, the Company entered into a capacity lease agreement for its high performance computing services designed to support generative AI workstreams. The initial lease term is three years, with automatic renewals for successive twelve-month periods.
The lease expense incurred in December 2023 is capitalized as deferred cost since it is directly related to fulfilling its high performance computing services which commenced operations in January 2024. The capitalized lease payment was expensed in January 2024.
As of June 30, 2024 and December 31, 2023, operating right-of-use assets were $5.3 million and $6.2 million, respectively and operating lease liabilities were $5.3 million and $6.2 million, respectively. For the three and six months ended June 30, 2024, the Company’s amortization on the operating lease right-of-use assets totaled $0.5 million and $0.9 million, respectively.
Additional information regarding the Company’s leasing activities as a lessee is as follows:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating cash outflows from operating leases | $ | 600,000 | $ | - | $ | 1,200,000 | $ | - | ||||||||
| Remaining lease term – operating lease | 2.5 | - | 2.5 | - | ||||||||||||
| Discount rate – operating lease | 9.9 | % | - | 9.9 | % | - | ||||||||||
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The following table represents our future minimum operating lease payments as of June 30, 2024:
| Year | Amount | |||
| 2024 | $ | 1,200,000 | ||
| 2025 | 2,400,000 | |||
| 2026 | 2,300,000 | |||
| Total undiscounted lease payments | 5,900,000 | |||
| Less present value discount | (616,742 | ) | ||
| Present value of lease liability | $ | 5,283,258 | ||
The Company entered into a GPU server lease agreement effective January 2024 for its high performance computing services designed to support generative AI workstreams. The lease payment depends on the usage of the GPU servers and the Company concludes that the lease payments are variable and will be recognized when they are incurred. For the three and six months ended June 30, 2024, the GPU server lease expense amounted to $3.8 million and $5.9 million, respectively.
Lease as Lessor
During the quarter ended March 31, 2024, the Company entered into a sales-type lease agreement as a lessor for its data storage equipment. The term of the lease is scheduled to expire in December 2026.
The components of lease income for the sales-type lease were as follows:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Interest income related to net investment in lease | $ | 92,505 | $ | - | $ | 192,252 | $ | - | ||||||||
Interest income is included in the consolidated statements of operations under the caption “Other income, net”.
The components of net investment in sales-type leases were as follows:
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net investment in lease - lease payment receivable | $ | 2,875,439 | $ | - | ||||
The following table illustrates the Company’s future minimum receipts for sales-type lease as of June 30, 2024:
| Year | Sales-Type Lease | |||
| 2024 | $ | 670,422 | ||
| 2025 | 1,340,844 | |||
| 2026 | 1,340,844 | |||
| Total future minimum receipts | 3,352,110 | |||
| Unearned interest income | (476,671 | ) | ||
| Net investment in sales type lease | $ | 2,875,439 | ||
The present value of minimum sales-type receipts of $2,875,439 is included in the consolidated balance sheets under the caption “Net investment in lease”.
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8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net was comprised of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Miners for Bitcoin | $ | 56,372,358 | $ | 50,853,637 | ||||
| High performance computing equipment | 51,867,492 | - | ||||||
| Equipment Accessories | 10,688 | - | ||||||
| Vehicle | 235,576 | 235,576 | ||||||
| Less: Accumulated depreciation | (35,837,815 | ) | (20,645,231 | ) | ||||
| 72,648,299 | 30,443,982 | |||||||
| Construction in progress | 1,072,652 | 51,030,667 | ||||||
| Property and equipment, net | $ | 73,720,951 | $ | 81,474,649 | ||||
For the three months ended June 30, 2024 and 2023, depreciation expenses were $8,346,633 and $3,725,152, respectively. For the six months ended June 30, 2024 and 2023, depreciation expenses were $15,192,582 and $7,371,200, respectively.
We purchased data storage equipment totaling $5,315,202 and almost immediately thereafter, we entered into a sales-type lease agreement effective January 2024 for a portion of these assets valued at $3,353,608 with a third party. As a result, the leased data storage equipment was derecognized from our property and equipment and recorded as a net investment in lease. Refer to Note 7. Leases for more information.
9. INVESTMENT SECURITIES
Investment securities were comprised of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Investment in Digital Future Alliance Limited (“DFA”) (a) | $ | 94,534 | $ | 94,534 | ||||
| Investment in Nine Blocks Offshore Feeder Fund (“Nine Blocks”) (b) | 2,716,661 | 2,179,164 | ||||||
| Investment in Auros Global Limited (c) | 1,999,987 | 1,999,987 | ||||||
| Investment in Ingonyama Ltd (d) | 100,000 | 100,000 | ||||||
| Investment in Cysic Inc (e) | 100,000 | - | ||||||
| Investment in a SAFE (f) | 1,000,000 | - | ||||||
| Total | $ | 6,011,182 | $ | 4,373,685 | ||||
(a) Investment in Digital Future Alliance Limited (“DFA”)
DFA is a privately held company, over which the Company neither has control nor significant influence through investment in ordinary shares. The Company accounted for the investment in DFA using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer.
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For the three and six months ended June 30, 2024 and 2023, the Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of June 30, 2024 and December 31 2023, the Company did not recognize impairment against the investment security.
(b) Investment in Nine Blocks Offshore Feeder Fund (“Nine Blocks”)
On August 1, 2022, the Company entered into a subscription agreement with Nine Blocks for investment of $2.0 million. The investment includes a direct investment into the Nine Blocks Master Fund, a digital assets market neutral fund using basis trading, relative value, and special situations strategies.
As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of the investment in the fund. For the three months ended June 30, 2024 and 2023, the Company recorded cumulative upward adjustments of $82,792 and $42,891, respectively, on the investment. For the six months ended June 30, 2024 and 2023, the Company recorded cumulative upward adjustments of $537,497 and $67,726, respectively, on the investment.
(c) Investment in Auros Global Limited (“Auros”)
On February 24, 2023, the Company closed an investment of $1,999,987 in Auros, which is a leading crypto-native algorithmic trading and market making firm that delivers best-in-class liquidity for exchanges and token projects. The Company neither has control nor significant influence through investment in ordinary shares. The Company accounted for the investment in Auros using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer.
For the three and six months ended June 30, 2024 and 2023, the Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of June 30, 2024 and December 31 2023, the Company did not recognize impairment against the investment security.
(d) Investment in Ingonyama Ltd. (“Ingonyama”)
In September 2023, the Company closed an investment of $100,000 in Ingonyama, a semiconductor company focusing on Zero Knowledge Proof hardware acceleration. The Company neither has control nor significant influence through investment in preferred shares. The Company accounted for the investment in Ingonyama using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer.
For the three and six months ended June 30, 2024, the Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of June 30, 2024 and December 31, 2023, the Company did not recognize impairment against the investment security.
(e) Investment in Cysic Inc (“Cysic”)
On April 2, 2024, the Company closed an investment of $100,000 in Cysic, a ZK hardware acceleration company and ZK prover network to provide ZK Compute-as-a-Service. The Company neither has control nor significant influence through investment in preferred shares. The Company accounted for the investment in Cysic using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer.
For the three and six months ended June 30, 2024, the Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of June 30, 2024, the Company did not recognize impairment against the investment security.
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(f) Investment in a SAFE
On June 30, 2024 (the “Effective Date”), the Company entered into a simple agreement for future equity (“SAFE”) agreement for an initial investment amount of $1 million in exchange for a right to participate in a future equity financing of preferred stock to be issued by Canopy Wave Inc. (“Canopy”). Alternatively, upon a liquidity event such as a change in control, a direct listing or an initial public offering, the Company is entitled to receive the greater of (i) the SAFE investment amount plus 15% annual accrued interest (the “cash-out amount”) or (ii) the SAFE investment amount divided by a discount to the price per share of Canopy’s common stock. In a dissolution event, such as a bankruptcy, the Company is entitled to receive the cash-out amount. If the SAFE is outstanding on the three-year anniversary of the Effective Date, then the SAFE will expire and the Company will be entitled to receive the cash-out amount. In the event of a qualifying equity financing, the number of shares of preferred stock received by the Company would be determined by dividing the SAFE investment amount by a discounted price per share of the preferred stock issued in the respective equity financing. The Company recorded an investment of $1 million as an investment in the SAFE on the Consolidated Balance Sheets. Additionally, per the terms of the SAFE arrangement, the Company may be obligated to invest up to an additional $2 million into the SAFE arrangement if Canopy satisfies certain milestones prior to the expiration of the SAFE, or if an equity financing event occurs.
The Company accounted for this investment under ASC 320, Investments - Debt Securities and elected the fair value option for the SAFE investment pursuant to ASC 825, Financial Instruments, which requires financial instruments to be remeasured to fair value each reporting period, with changes in fair value recorded in the consolidated statements of operations. The fair value estimate includes significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The decision to elect the fair value option is determined on an instrument-by-instrument basis on the date the instrument is initially recognized, is applied to the entire instrument, and is irrevocable once elected. For instruments measured at fair value, embedded conversion or other features are not required to be separated from the host instrument. Issuance costs related to convertible securities carried at fair value are not deferred and are recognized as incurred on the Consolidated Statements of Operations.
(g) Investment in MarsProtocol Technologies Pte. Ltd.
On March 1, 2023, Bit Digital Singapore Pte. Ltd. and Saving Digital Pte. Ltd. (“SDP”), a wholly owned subsidiary of Mega Matrix Corp., entered into a shareholders’ agreement with MarsProtocol Technologies Pte. Ltd. (“MarsProtocol”). MarsProtocol provides staking technology tools in digital assets through the staking platform.
The Company invested $88,994 which represents a 40% equity interest in MarsProtocol. The Company used the equity method to measure the investment in the MarsProtocol. For the three and six months ended June 30, 2023, the Company recorded a loss of $2,222 and $1,783 for its share of the results of MarsProtocol. As of June 30, 2023, the Company did not recognize impairment against the investment in MarsProtocol. In August 2023, the Company divested its stake in MarsProtocol for consideration of $89,519 and recognized a gain of $8,220.
10. OTHER NON-CURRENT ASSETS
Other non-current assets were comprised of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Deposits (a) | $ | 6,680,051 | $ | 6,680,051 | ||||
| Prepaid consulting service expenses | 77,600 | 543,200 | ||||||
| Deferred contract costs | 1,707,500 | 1,883,333 | ||||||
| Others | 256,394 | 183,655 | ||||||
| Total | $ | 8,721,545 | $ | 9,290,239 | ||||
| (a) | As of June 30, 2024 and December 31, 2023, the balance of deposits represented the deposits made to service providers, who paid utility charges in mining facilities on behalf of the Company. The deposits are refundable upon expiration of the agreement between the Company and the service provider, which may be due over 12 months from the effective date of the agreement. |
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11. SHARE-BASED COMPENSATION
Share-based compensation such as restricted stock units (“RSUs”), incentive and non-statutory stock options, restricted shares, share appreciation rights and share payments may be granted to any directors, employees and consultants of the Company or affiliated companies under 2021 Omnibus Equity Incentive Plan (“2021 Plan”), 2021 Second Omnibus Equity Incentive Plan (“2021 Second Plan”) and 2023 Omnibus Equity Incentive Plan (“2023 Plan”). An aggregate of 2,415,293 RSUs were granted under the 2021 Plan and no ordinary shares remain reserved for issuance under the 2021 Plan. There are 5,000,000 ordinary shares reserved for issuance under the Company’s 2021 Second Plan, under which 3,711,372 RSUs and 395,000 share options have been granted as of June 30, 2024. There are 5,000,000 ordinary shares reserved for issuance under the Company’s 2023 Plan, under which 725,000 RSUs have been granted as of June 30, 2024.
Restricted Stock Units (“RSUs”)
As of December 31, 2023, the Company had nil awarded and unvested RSUs.
On March 16, 2024, the Company granted 25,000 RSUs to an employee, which are subject to an eight-quarter service vesting schedule.
On March 31, 2024, the Company granted 50,000 RSUs to each of the Company’s CEO and CFO in accordance with their compensation arrangement. All of these RSUs were immediately vested.
On March 31, 2024, the Company granted 40,000 RSUs to a non-executive director in accordance with his compensation arrangement. All of these RSUs were immediately vested.
On May 13, 2024, the Company granted 135,000 RSUs to employees, which are subject to an eight-quarter service vesting schedule.
On June 30, 2024, the Company granted 50,000 RSUs to each of the Company’s CEO and CFO in accordance with their compensation arrangement. All of these RSUs were immediately vested.
For the three months ended June 30, 2024 and 2023, the Company recognized share-based compensation expenses of $383,047 and $406,000. For the six months ended June 30, 2024 and 2023, the Company recognized share-based compensation expenses of $770,635 and $410,873. As of June 30, 2024, the Company had $307,365 unrecognized compensation costs related to the unvested RSUs.
As of June 30, 2024, the Company had 140,000 awarded and unvested RSUs.
Share Options
For the six months ended June 30, 2024 and 2023, the Company did not grant any options.
The Company recognizes compensation expenses related to options on a straight-line basis over the vesting periods. For the three months ended June 30, 2024 and 2023, the Company recognized share-based compensation expenses of $40,688 and $100,934, respectively. For the six months ended June 30, 2024 and 2023, the Company recognized share-based compensation expenses of $145,700 and $202,902, respectively. As of June 30, 2024, there were $137,076 of unrecognized compensation costs related to all outstanding share options.
Other share-based compensation
In January 2024, the Company modified an existing two-year service agreement with a consulting firm by granting an additional 500,000 RSUs, which vested immediately. Over the duration of the service period specified in the amendment, the Company will recognize additional share-based compensation expenses aggregating to $1.5 million based upon the closing price of the Company’s common stock on the date of the amendment.
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In January 2024, the Company modified an existing service agreement with a consulting firm by granting an additional 200,000 RSUs as compensation for successfully securing a customer for our business under a three-year service agreement. Over the duration of the service agreement, the Company will recognize additional share-based compensation expenses aggregating to $0.6 million based upon the closing price of the Company’s common stock on the date of the amendment.
12. SHARE CAPITAL
Ordinary shares
As of December 31, 2023, there were 107,421,813 ordinary shares issued and 107,291,827 ordinary shares outstanding.
During the six months ended June 30, 2024, 960,000 ordinary shares were issued to the Company’s employees, non-executive director, and consulting firms in settlement of an equal number of fully vested restricted stock units awarded to such individuals and companies by the Company pursuant to grants made under the Company’s 2021 Second Plan and 2023 Plan.
In May of 2022, the Company entered into an at-the-market offering with H.C. Wainwright & Co., LLC relating to shares of its common stock. In accordance with the terms of the sales agreement, the Company may offer and sell shares of our common stock having an aggregate offering price of up to $500,000,000. During the six months ended June 30, 2024, the Company sold 29,109,226 shares of common stock for an aggregate purchase price of $80.3 million net of offering costs pursuant to this at-the-market offering.
As of June 30, 2024, there were 137,491,039 ordinary shares issued and 137,361,053 ordinary shares outstanding.
Preferred shares
As of June 30, 2024 and December 31, 2023, there were 1,000,000 preferred shares issued and outstanding.
The preference shares are entitled to the following preference features: 1) an annual dividend of 8% when and if declared by the Board of Directors; 2) a liquidation preference of $10.00 per share; 3) convert on a one for one basis for ordinary shares, subject to a 4.99% conversion limitation; 4) rank senior to ordinary shares in insolvency; and 5) solely for voting purposes vote 50 ordinary shares, for each preference share.
On February 7, 2023 and again on December 8, 2023, the Board of Directors declared an eight (8%) percent ($800,000) dividend on the preference shares to Geney Development Ltd. (“Geney”). Erke Huang, our Chief Financial Officer, is the President of Geney and the beneficial owner of thirty percent (30%) of the equity of Geney, with the remaining seventy percent (70%) held by Zhaohui Deng, the Company’s Chairman of the Board. The Company fully paid the declared dividends in 2023.
Treasury stock
The Company treats shares withheld for tax purposes on behalf of employees in connection with the vesting of restricted share grants as ordinary share repurchases because they reduce the number of shares that would have been issued upon vesting. For the six months ended June 30, 2024 and 2023, the Company withheld nil shares of its ordinary shares that were surrendered to the Company for withholding taxes related to restricted stock vesting valued at $nil, based on fair value of the withheld shares on the vesting date.
As of June 30, 2024 and December 31, 2023, the Company had treasury stock of $1,171,679 and $1,171,679, respectively.
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Warrants
As of June 30, 2024 and December 31, 2023, the Company had outstanding 10,118,046 private placement warrants to purchase an aggregate of 10,118,046 ordinary shares at an exercise price of $7.91 per whole share.
In accordance with ASC 815, the Company determined that the warrants meet the conditions necessary to be classified as equity because the consideration is indexed to the Company’s own equity, there are no exercise contingencies based on an observable market not based on its stock or operations, settlement is consistent with a fixed-for-fixed equity instrument, the agreement contains an explicit number of shares and there are no cash payment provisions.
The fair value of the warrants was estimated at $33.3 million using the Black-Scholes model. Inherent in these valuations are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its ordinary shares based on historical and implied volatilities of selected peer companies as well as its own that match the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates it to remain at zero.
The following table provides quantitative information regarding Level 3 fair value measurements inputs for the Company’s warrants at their measurement dates:
| As of October 4, 2021 | ||||
| Volatility | 192.85 | % | ||
| Stock price | 7.59 | |||
| Expected life of the warrants to convert | 3.81 | |||
| Risk free rate | 0.97 | % | ||
| Dividend yield | 0.0 | % | ||
13. INCOME TAXES
Cayman Islands
Under the current and applicable laws of the Cayman Islands, the Company is not subject to tax on income or capital gain as Cayman Islands does not impose any taxes on the corporation’s income, capital gains, payroll, or other direct taxes. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.
Hong Kong
After all bitcoin miners were migrated to North America, BT HK operates under a cost-plus model for its general and administration services which is currently reimbursed by Bit Digital USA Inc. starting in fiscal year 2022. Currently the mark-up percentage for the general and administration services provided by BT HK is 4.84% by the transfer pricing study conducted by a third-party service provider. The Company will continue to closely monitor the development of transfer pricing guidelines and update the cost-plus markup percentage if necessary.
Our subsidiaries in Hong Kong are taxed at a reduced rate of 8.25% for assessable profits not exceeding 2 million HKD and the remaining assessable profits will be taxed at the standard tax rate of 16.5% under Hong Kong profits tax.
For the three and six months ended June 30, 2024, BT HK generated a taxable income of $5,696 and $17,954 and did not recognize any income tax expense as BT HK has sufficient net operating loss carried over from prior years to offset the taxable income in the current quarter. For the three and six months ended June 30, 2023, BT HK generated taxable income of $399,760 and $528,163 and recorded a current income tax benefit of $5,070 and a current income tax expense of $43,573, respectively.
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By virtue of the territorial source system adopted in Hong Kong, BT HK is in the process of applying for the Offshore Non-taxable Claim on its bitcoin mining income earned for the years ended December 31, 2021 and 2020 under Hong Kong profits tax with the Hong Kong Inland Revenue Department (“HKIRD”) on the ground that the said income was not arising in or derived from Hong Kong. Given the Offshore Non-taxable Claim is still subject to review and agreement by the HKIRD and there are uncertainties surrounding the claim as well as the Company’s stock-based compensation deduction tax position, the Hong Kong subsidiary recorded $114,150 and $152,200 as long-term income tax expenses for the three and six months ended June 30, 2023, respectively, for its uncertain tax positions. The tax expense is recognized for the incremental penalty accrued on the existing unrecognized tax benefits. The Hong Kong subsidiary did not record long-term income tax expenses for the three and six months ended June 30, 2024, for its uncertain tax positions.
For the three months ended June 30, 2024 and 2023, BT Strategies generated a taxable loss of $662,550 and $434,445, and did not recognize any income tax expenses for the relevant periods respectively. For the six months ended June 30, 2024 and 2023, BT Strategies generated a taxable loss of $1,301,447 and $934,714, and did not recognize any income tax expenses for the relevant periods respectively.
United States of America
For the U.S. jurisdiction, the Company is subject to federal and state income taxes on its business operations.
For the three and six months ended June 30, 2024 and 2023, the Company is subject to U.S. federal income taxes, state income taxes and franchise taxes. The Company will continue to monitor its exposure to different states and comply with state income taxes filing requirement as the Company continues to expand its business in the United States. The Company has not been under any tax examination in the United States since inception.
For the three and six months ended June 30, 2024 and 2023, the Company incurred income tax and withholding tax expenses as below:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Federal income tax expenses | $ | (84,274 | ) | $ | (88 | ) | $ | (84,274 | ) | $ | (4,829 | ) | ||||
| State income tax expenses | (1,984 | ) | (259 | ) | (3,969 | ) | (518 | ) | ||||||||
| Total | $ | (86,258 | ) | $ | (347 | ) | $ | (88,243 | ) | $ | (5,347 | ) | ||||
For the three and six months ended June 30, 2024, the federal income tax is primarily from Bit Digital AI Inc. for the Global Intangible Low-Taxed Income (“GILTI”) as a result of its fully owned controlled foreign corporation (“CFC”), Bit Digital Iceland ehf. The Tax Cuts and Jobs Act (the “Act”) includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. This income will effectively be taxed at a 10.5% tax rate in general which can be utilized up to 80% of the foreign tax credit paid by the CFC to offset its GILTI tax.
Canada
The Company is subject to both federal and provincial income taxes for its business operation in Canada.
For the three months ended June 30, 2024 and 2023, Bit Digital Canada generated a taxable loss of $206,303 and a taxable income $123,334, respectively. For the six months ended June 30, 2024 and 2023, Bit Digital Canada generated taxable income of $101,036 and $196,916, respectively.
For three and six months ended June 30, 2024 and 2023, the Company incurred Canada federal and provincial income tax expenses as below:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Federal income tax expenses | $ | (165,040 | ) | $ | - | $ | (671,294 | ) | $ | - | ||||||
| Provincial income tax expenses | (88,022 | ) | - | (358,023 | ) | - | ||||||||||
| Total | $ | (253,062 | ) | $ | - | $ | (1,029,317 | ) | $ | - | ||||||
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Singapore
The Company is subject to corporate income tax for its business operation in Singapore. The Company generated a taxable loss of $288,276 and $533,095 for the three and six months ended June 30, 2024, respectively, and did not recognize any tax expense for the relevant periods. The Company generated a taxable loss of $679,597 and $1,029,873 for the three and six months ended June 30, 2023, respectively, and did not recognize any tax expense for the relevant periods respectively.
British Virgin Islands
On April 17, 2023, Bit Digital Investment Management Limited was established as the investment manager to oversee Bit Digital Innovation Master Fund SPC Limited, a segregated portfolio company which was established in May 2023. Both entities are 100% owned by Bit Digital Strategies Limited and both entities are based in the British Virgin Islands.
As of June 30, 2024, no corporate income tax is levied on the Company as no income tax is imposed per the local regulation.
Iceland
The Company’s HPC business is conducted through Bit Digital Iceland ehf in Iceland and its operations are subject to Iceland corporate income tax. For the three and six months ended June 30, 2024, the Company recorded an income tax expense of $708,584 and $1,001,571.
Deferred Tax Assets/Liabilities
The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be fully realized. The Company evaluates its valuation allowance requirements at end of each reporting period by reviewing all available evidence, both positive and negative, and considering whether, based on the weight of that evidence, a valuation allowance is needed. When circumstances cause a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryforward period available under applicable tax law. As of June 30, 2024, after careful consideration, the Company determined that it is more likely than not that all of the deferred tax assets will not be realized except for Canada and Iceland, which both have a net deferred tax liability as of June 30, 2024. The dominant negative evidence is the cumulative 3 years pre-tax losses, which outweigh any other positive evidence. As a result, the Company applied a full valuation allowance on its entire deferred tax assets except Canada.
Unrecognized Tax Benefits
For unrecognized tax benefits, the Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense. For the three and six months ended June 30, 2023, the Company recorded an unrecognized tax benefit of $114,150 and $152,200, respectively, related to its HK operations. For the three and six months ended June 30, 2024, the Company did not record an unrecognized tax benefit related to its HK operations. The Company will continue to review its tax positions and provide for unrecognized tax benefits as they arise.
Global Intangible Low-Taxed Income
The Tax Cuts and Jobs Act (the “Act”) includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. This income will effectively be taxed at a 10.5% tax rate in general. As a result, our deferred tax assets and liabilities were being evaluated to determine if the deferred tax assets and liabilities should be recognized for the basis differences expected to reverse as a result of GILTI provisions in the fiscal year ended December 31, 2024, or should the tax on GILTI provisions be recognized as period costs in each year incurred. We elected to account for GILTI as a component of current period tax expense starting from the first quarter of the fiscal year ending December 31, 2024.
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Pillar Two – Global Minimum Tax
As introduced by the Organization for Economic Co-operation and Development (“OECD”), more than 140 countries agreed to enact a two-pillar solution to address the challenges arising from the digitalization of the economy. Pillar Two introduces a global minimum Effective Tax Rate (ETR) via a system where multinational groups with consolidated revenue over Euro 750 million are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions. The Company has been closely monitoring the impact from the implementation of the Pillar Two framework and as of June 30, 2024, no impact is expected as the Company does not meet the revenue threshold of Euro 750 million.
14. EARNING (LOSS) PER SHARE
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income (loss) | $ | (11,953,100 | ) | $ | (2,427,010 | ) | $ | 38,128,757 | $ | (4,687,315 | ) | |||||
| Weighted average number of ordinary share outstanding | ||||||||||||||||
| Basic | 128,053,586 | 83,062,519 | 121,362,883 | 82,781,060 | ||||||||||||
| Diluted | 128,053,586 | 83,062,519 | 122,374,103 | 82,781,060 | ||||||||||||
| Earning (loss) per share | ||||||||||||||||
| Basic | $ | (0.09 | ) | $ | (0.03 | ) | $ | 0.31 | $ | (0.06 | ) | |||||
| Diluted | $ | (0.09 | ) | $ | (0.03 | ) | $ | 0.31 | $ | (0.06 | ) | |||||
Basic earning (loss) per share is computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue ordinary share were exercised or converted into ordinary shares or resulted in the issuance of ordinary shares that then shared in the earnings of the entity.
For the three months ended June 30, 2024, the unvested RSUs, warrants, options and convertible preferred shares were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the six months ended June 30, 2024, the dilutive effect of preferred shares and unvested RSUs were included in the calculation of diluted earnings per share. The warrants and options were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the three and six months ended June 30, 2023, the unvested RSUs, warrants, options and convertible preferred shares were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
15. RELATED PARTIES
On February 7, 2023 and again on December 8, 2023, the Board of Directors declared an eight (8%) percent ($800,000) dividend on the preference shares to Geney Development Ltd. (“Geney”). Erke Huang, our Chief Financial Officer, is the President of Geney and the beneficial owner of thirty (30%) percent of the equity of Geney, with the remaining seventy (70%) percent held by Zhaohui Deng, the Company’s Chairman of the Board. As of December 31, 2023, the Company fully paid the dividend.
Bit Digital Iceland ehf has appointed Daniel Jonsson as its part-time Chief Executive Officer starting November 7, 2023, for a six-month term with a three-month probation. His compensation includes a monthly salary of $8,334, a $6,440 signing bonus, and eligibility for performance-based RSU. Concurrently, Daniel Jonsson is part of the management team at GreenBlocks ehf which not only provides bitcoin mining hosting services but also benefits from a facility loan agreement extended by Bit Digital USA Inc., an affiliate of Bit Digital Iceland ehf. Additionally, Bit Digital Iceland ehf has contracted GreenBlocks ehf for consulting services pertaining to our high performance computing services in Iceland. As of December 31, 2023, the Company owed $21,592 to Daniel Jonsson for salary and bonus, and $160,000 to GreenBlocks ehf for services rendered. By the end of the first quarter of 2024, we had settled these outstanding amounts with both Daniel Jonsson and GreenBlocks ehf.
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16. CONTINGENCIES
Legal Proceedings
The Company from time to time may become involved in legal proceedings in the ordinary course of our business. The Company may also pursue litigation to assert its legal rights and assets, and such litigation may be costly and divert the efforts and attention of its management and technical personnel which could adversely affect its business. Due to the uncertainty of litigation and depending on the amount and the timing, an unfavorable resolution of some or all of such matters may materially affect our business, results of operations, financial position, or cash flows.
Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable possibility that a loss may have been incurred, U.S. GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made. We follow a thorough process in which we seek to estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings, a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.
Bit Digital USA, Inc. v. Blockfusion USA, Inc., C.A. No. N24C-05-306 PRW (CCLD)
On June 3, 2024, the Company filed suit in Delaware Superior Court against Blockfusion, Inc. (“Blockfusion”) alleging claims for breach of contract, conversion, and related claims in connection with, among other things, certain deposits and advances paid to Blockfusion, the return of which is owed to Bit Digital. Bit Digital is seeking in excess of $4.3 million. The Company could be subject to counterclaims. The litigation is at an early stage and a reasonably possible loss or range of loss or recovery can not be estimated.
17. SETTLEMENT OF CLASS ACTION LAWSUIT
On January 20, 2021, a securities class action lawsuit was filed against the Company and its former Chief Executive Officer and current Chief Financial Officer titled Anthony Pauwels v. Bit Digital, Inc., Min Hu and Erke Huang (Case No. 1:21-cv-00515) (U.S.D.C. S.D.N.Y.). The class action was on behalf of persons that purchased or acquired our ordinary shares between December 21, 2020 and January 11, 2021, a period of volatility in our Ordinary Shares, as well as volatility in the price of bitcoin. We believe the complaints are based solely upon a research article issued on January 11, 2021, which included false claims and to which the Company responded in a press release filed on Form 6-K on January 19, 2021. On April 21, 2021, the Court consolidated several related cases under the caption In re Bit Digital Securities Litigation. Joseph Franklin Monkam Nitcheu was appointed as lead plaintiff. We filed a motion to dismiss the lawsuits and vigorously defended the action. While that motion was pending, the Company agreed with the lead plaintiff selected in the case to settle the class action by paying $2,100,000. The Company recorded the liabilities of $2,100,000 in the account of “accrued litigation settlement costs”. The Company chose to do that to eliminate the burden, expense and uncertainties of further litigation. The Company continues to deny the allegations in the Amended Complaint and nothing in the settlement is evidence of any liability on the Company’s behalf.
On March 7, 2023, a final judgment in this matter was entered approving the settlement and certifying the class for purposes of enforcing the settlement and payment was then made by the Company.
18. SUBSEQUENT EVENTS
Subsequent to June 30, 2024, the Company sold 9,338,134 shares of common stock for aggregate proceeds of approximately $34.5 million pursuant to the at-the-market offering agreement with H.C. Wainwright & Co., LLC. The Company received net proceeds of $33.6 million, net of offering costs.
On July 1, 2024, the Company entered into share purchase agreements with an unrelated third party (“Buyer”). According to the agreements, the Buyer agreed to purchase 100% of the outstanding shares of Bit Digital Investment Management Limited for $176,000 and Bit Digital Innovation Master Fund SPC Limited for $100. These sales were finalized on the same day.
On July 15, 2024, the Company entered into a subscription agreement with Pleasanton Ventures Innovation Master Fund SPC Limited for investment of $15.9 million in its AI Innovation Fund I.
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Forward Looking Statements
The discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this report. Except for the statements of historical fact, this report contains “forward-looking information” and “forward-looking statements reflecting our current expectations that involve risks and uncertainties (collectively, “forward-looking information”) that is based on expectations, estimates and projections as at the date of this report. Actual results and the timing of events in this report includes information about hash rate expansion, diversification of operations, potential further improvements to profitability and efficiency across mining operations, potential for the Company’s long-term growth, and the business goals and objectives of the Company. Factors that could cause actual results, performance or achievements to differ materially from those discussed in our such forward-looking statements as a result of many factors, including, but not limited to: supply chain disruptions may have a material adverse effect on the Company’s performance; the ability to establish new facilities for bitcoin mining in North America and elsewhere; a decrease in cryptocurrency migrating and then operating its assets; a decrease in cryptocurrency pricing; volume of transaction activity or generally, the profitability of cryptocurrency mining; further improvements to profitability and efficiency may not be realized; the digital currency market; the Company’s ability to successfully mine digital currency on the cloud; the Company may not be able to profitably liquidate its current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on the Company’s operations; the volatility of digital currency prices; issues in the development and use of AI; regulations that target AI, and governmental regulations and other legal obligations and other legal obligations related to data privacy, data protection and information security, and other related risks as more fully set forth under “Risk Factors” and elsewhere in our Annual Report on Form 20-F for the year ended December 31, 2023 and other documents disclosed under the Company’s filings at www.sec.gov. The forward-looking information in this report reflects the current expectations, assumptions and/or beliefs of the Company based on information currently available to the Company. In connection with the forward-looking information contained in this report, the Company has made assumptions about: the current profitability in mining cryptocurrency (including pricing and volume of current transaction activity); profitable use of the Company’s assets going forward; the Company’s ability to profitably liquidate its digital currency inventory as required; historical prices of digital currencies and the ability of the Company to mine digital currencies on the cloud will be consistent with historical prices; and there will be no regulation or law that will prevent the Company from operating its business. The Company has also assumed that no significant events occur outside of the Company’s normal course of business. Although the Company believes that the assumptions inherent in the forward-looking information are reasonable, forward-looking information is not a guarantee of future performance and accordingly undue reliance should not be put on such information due to the inherent uncertainty therein.
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