Sangrix Inc 6-K, filed Apr 26, 2024
Sangrix Inc. (SGRX)
About this 6-K
Sangrix Inc filed this 6-K on April 26, 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 April 2024
Commission File Number: 001-38857
BIT ORIGIN LTD
(Translation of registrant’s name into English)
27F, Samsung Hub
3 Church Street Singapore 049483
T: 347-556-4747
(Address of principal executive office)
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 ☐ |
This Form 6-K (including the exhibit) is incorporated by reference into the Company’s Registration Statement on Form F-3 initially filed with the Securities and Exchange Commission on November 21, 2022 (Registration No. 333-268501), as amended, and the Company’s Registration Statement on Form F-3 initially filed with the Securities and Exchange Commission on November 16, 2023 (Registration No. 333-275602), as amended.
EXHIBIT INDEX
Exhibit No. |
| Description |
99.1 |
| Operating and Financial Review and Prospects in Connection with the Unaudited Consolidated Financial Statements for the Six Months Ended December 31, 2023 and 2022 |
99.2 |
| Unaudited Consolidated Financial Statements for the Six Months Ended December 31, 2023 and 2022 |
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.
Date: April 26, 2024 |
| BIT ORIGIN LTD | |
| |
|
|
| | By: | /s/ Jinghai Jiang |
| | Name: | Jinghai Jiang |
| | Title: | Chief Executive Officer, Chief Operating Officer and Chairman of the Board |
Exhibit 99.1
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
IN CONNECTION WITH THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022
In this report, as used herein, and unless the context suggests otherwise, the term “Company” refers to Bit Origin Ltd, and the terms “we” “us” or “ours” refer to the combined business of Bit Origin Ltd, its subsidiaries and other consolidated entities. References to “dollar” and “$” are to U.S. dollars, the lawful currency of the United States. References to “SEC” are to the Securities and Exchange Commission.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this report on Form 6-K and with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 20-F for the fiscal year ended June 30, 2023 filed with the Securities and Exchange Commission on October 31, 2023 (the “2023 Annual Report”). This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those identified elsewhere in this report on Form 6-K, and those listed in the 2023 Annual Report under “Item 1A. Risk Factors” or in other parts of the 2023 Annual Report.
Overview
Our Business
We are engaged in the Bitcoin mining operation. We use specialized computers, known as miners, to generate Bitcoins, a digital asset (also known as a cryptocurrency). The miners use application specific integrated circuit (“ASIC”) chips. These chips enable the miners to apply greater computational power, or “hash rate”, to provide transaction verification services (known as solving a block) which helps support the Bitcoin blockchain. For every block added, the Bitcoin blockchain awards a Bitcoin award equal to a set number of Bitcoins per block. Miners with a greater hash rate have a higher chance of solving a block and receiving a Bitcoin award.
On December 14, 2021, we formed SonicHash Inc. (“SonicHash Canada”), a company incorporated under the laws of Alberta, Canada. On December 16, 2021, we formed SonicHash Pte. Ltd. (“SonicHash Singapore”), a company incorporated under the laws of Singapore. On December 17, 2021, we formed SonicHash LLC (“SonicHash US”) under the laws of the State of Delaware. We hold 100% equity interest in SonicHash Canada, SonicHash Singapore and SonicHash US, which mainly engage in cryptocurrency mining related operation and management, and we purchased 55% equity interest in Sonic Auspice DC LLC (“Sonic Auspice”) in December 2023. Sonic Auspice was formed to engage in building cryptocurrency mining facilities in the United States, including a brand-new 25MW cryptocurrency mining data center, in Cheyenne, Wyoming. Since December 2023, we have stopped our Bitcoin mining operation due to the high operating costs in the U.S. We currently have 4,250 units of cryptocurrency mining equipment stored at the mining facility in Wyoming, and we are searching for and planning to build new suitable mining facilities in the U.S. We do not have miners for cryptocurrencies other than Bitcoins.
Reverse Share Split
On May 23, 2023, the Board of Directors of us approved a reverse share split of our outstanding ordinary shares at a ratio of one-for-thirty (1-for-30) (the “Reverse Share Split”). The par value of the ordinary shares was increased in proportion to the ratio of the Reverse Share Split to $0.30 per share and the number of authorized ordinary shares was reduced in proportion to the ratio of the Reverse Share Split to 10,000,000 ordinary shares.
Summary of Cryptocurrency Mining Results
The following table presents additional information about our cryptocurrency mining activities of Bitcoin (“BTC”) in coins and amounts during the six months ended December 31, 2023:
|
| Quantities (in coins) |
| Cryptocurrencies | |
| | BTC | | Amounts | |
Balance on July 1, 2022 |
| 7.17 | | $ | 141,888 |
Revenue recognized from cryptocurrencies mined |
| 272.38 | |
| 6,261,091 |
Hosting fees |
| (22.14) | |
| (428,839) |
Proceeds from sale of cryptocurrencies |
| (175.09) | |
| (4,384,562) |
Realized gain on sale/exchange of cryptocurrencies |
| — | |
| 676,015 |
Impairment loss of cryptocurrencies |
| — | |
| (181,263) |
Balance on June 30, 2023 |
| 82.32 | | $ | 2,084,330 |
Revenue recognized from cryptocurrencies mined |
| 95.62 | |
| 2,888,482 |
Hosting fees |
| (7.60) | |
| (212,344) |
Proceeds from sale of cryptocurrencies |
| (165.87) | |
| (4,668,828) |
Realized gain on sale/exchange of cryptocurrencies |
| — | |
| 92,680 |
Impairment loss of cryptocurrencies |
| — | |
| — |
Balance on December 31, 2023 (unaudited) |
| 4.47 | | $ | 184,320 |
Results of Operations
The tables in the following discussion summarize our consolidated statements of operations for the periods indicated. This information should be read together with our consolidated financial statements included elsewhere in this press release. The operating results in any period are not necessarily of the results that may be expected for any future period.
Revenue
Total cryptocurrency mining revenue for the six months ended December 31, 2023 and 2022 was approximately $2.9 million and $2.1 million, respectively. We started Bitcoin mining in May 2022 and were awarded a total of 95.62 coins during the six months ended December 31, 2023 at an average Bitcoin value of $30,208. We were awarded a total of 102.36 coins during the six months ended December 31, 2022 at an average Bitcoin value of $20,133.
Costs and expenses
Cost of revenues for cryptocurrency mining for the six months ended December 31, 2023 and 2022 was approximately $3.8 million and $4.2 million, respectively. Cost of revenues consists primarily of all-in-one production costs of mining operations, and depreciation expense of our own mining equipment recorded during the six months ended on December 31, 2023 and 2022. We signed hosting agreement with hosting partners, and the hosting partners will install the mining equipment and provide elective power, internet services and other necessary services to maintain the operation of the mining equipment. All the related operating fees are included in the all-in-one monthly fees charged by the hosting partners.
Gross Profit
The gross profit for the six months ended December 31, 2023 and 2022 was approximately ($0.9) million and ($2.2) million, respectively. The negative gross profit for the six months ended on December 31, 2023 and 2022 was mostly due to the depreciation charges for facilities and website hosting costs.
General and Administrative Expenses
General and administrative expenses decreased by approximately $0.8 million, or 47.4%, from approximately $1.7 million for the six months ended December 31, 2022 to approximately $0.9 million for the six months ended December 31, 2023.
The decrease in general and administrative expenses was primarily due to a decrease in travel expenses of approximately $51,000, rental expenses of approximately $340,000, payroll expenses of approximately $210,000, advertising expenses of approximately $55,000, and consulting and legal professional fees of approximately $150,000 as we did not have any disposal transaction in the six months ended December 31, 2023.
Provision for Credit Losses
During the six months ended December 31, 2023, we made $349,960 provision for expected credit losses for the GST tax receivable. We made no provision for expected credit losses during the six months ended December 31, 2022.
Impairment Loss of Long-lived assets
We made $4,530,587 and nil of impairment loss during for the six months ended December 31, 2023 and 2022 for our cryptocurrency mining equipment, respectively.
Stock Compensation Expenses
We incurred $42,009 and nil during the six months ended December 31, 2023 and 2022 for the stock-based compensation expenses of the CEO, president and head of human resources, respectively.
Loss from Operations
The loss from operations for the six months ended December 31, 2023 was approximately $6.8 million, an increase of approximately $2.9 million, or 75.1%, from approximately $3.9 million for the six months ended December 31, 2022. The increase was primarily due to the impairment loss of approximately $4.5 million incurred during the six months ended December 31, 2023.
Other Income (Expenses), Net
Our other income (expenses), net, includes realized gain (loss) on sale/exchange of cryptocurrencies, interest income, interest expense, other finance expenses, and other income (expenses). Our total net other expenses were approximately $0.3 million for the six months December 31, 2023, an increase of approximately $0.2 million or 106.9%, from our net other expenses of approximately $0.1 million for the six months December 31, 2022. The increase was primarily due to an increase in other finance expenses of approximately $0.3 million due to the increased amortization of convertible debenture issuance costs and discounts. The increase was offset by an increase in realized gain on sale/exchange of cryptocurrencies of approximately $0.1 million during the six months December 31, 2023.
Provision for Income Taxes
We did not have any taxable income during the six months ended December 31, 2023 and 2022.
Net Loss
Our net loss was approximately $7.1 million for the six months ended December 31, 2023, increased by approximately $3.1 million, or 76.2%, from a net loss of approximately $4.0 million for the six months ended December 31, 2022. Such change was the result of the combination of the changes as discussed above.
The following tables reconcile our non-GAAP net income to the most directly comparable financial measures calculated in accordance with U.S. GAAP, which are net loss (income) attributable to our ordinary shareholders.
|
| For the six months ended December 31, |
| |||||||||
| | | | | | | | Percentage |
| |||
|
| 2023 |
| 2022 |
| Change |
| Change |
| |||
Reconciliation of net loss to non-GAAP net (loss) income |
| |
|
| |
|
| |
|
|
| |
Net loss | | $ | (7,058,158) | | $ | (4,004,805) | | $ | (3,053,353) |
| (76.2) | % |
Stock compensation expense | |
| 42,009 | |
| — | |
| 42,009 |
| 100.00 | % |
Non-GAAP net loss | | $ | (7,016,149) | | $ | (4,004,805) | | $ | (3,011,344) |
| (75.2) | % |
Our non-GAAP net loss decreased by approximately $3.0 million, or 75.2%, to non-GAAP net loss of approximately $7.0 million for the six months ended December 31, 2023, from non-GAAP net loss of approximately $4.0 million for the six months ended December 31, 2022. Such change was primarily attributable to the impairment loss of approximately $4.5 million the six months ended December 31, 2023 as discussed above.
Liquidity and Capital Resources
In assessing our liquidity, we monitor and analyze our cash on-hand and its operating expenditure commitments. Our liquidity needs are to meet its working capital requirements and operating expenses obligations. To date, we have financed our operations primarily through cash flows from operations and proceeds from financial institutions or third-party loans.
As of December 31, 2023, we had working capital of approximately $7.5 million. We can use equity financing to finance our working capital requirements and capital expenditures.
Based on the above considerations, management is of the opinion that we have sufficient funds to meet our working capital requirements for the next twelve months from the date of this report.
The following summarizes the key components of our cash flows for the six months ended December 31, 2023 and 2022.
| | For the six months ended | ||||
|
| 2023 |
| 2022 | ||
Net cash used in operating activities | | $ | (4,620,364) | | $ | (3,165,884) |
Net cash provided by investing activities | |
| 3,718,828 | |
| 288,250 |
Net cash provided by financing activities | |
| 7,773,271 | |
| 2,892,716 |
Net change in cash and cash equivalents | | $ | 6,871,735 | | $ | 15,082 |
Operating activities
Net cash used in operating activities was approximately $4.6 million for the six months ended December 31, 2023, which was mainly due to the net loss of approximately $7.1 million, realized gain on sale/exchange of cryptocurrencies of approximately $0.1 million, the increase of cryptocurrencies - mining of approximately $3.0 million, the increase of other receivables of approximately $1.0 million, and the decrease of accounts payable approximately $0.7 million. The net cash used in operating activities was mainly offset by the non-cash items of the depreciation expense of approximately $0.9 million, the provision for expected credit losses of approximately $0.3 million, and the impairment losses of approximately $4.5 million, the amortization of convertible debenture issuance costs and discounts of approximately $0.3 million, the decrease in prepayments of approximately $0.3 million, the decrease in security deposits of approximately $0.1 million, and the increase in other payables and accrued liabilities of approximately $0.5 million.
Net cash used in operating activities was approximately $3.2 million for the six months ended December 31, 2022, which was mainly due to the net loss from continuing operations of approximately $4.0 million, the increase of cryptocurrencies - mining of approximately $2.0 million, the increase of prepayments of approximately $0.5 million, the increase of security deposits of approximately $0.2 million and the decrease of other payables and accrued liabilities of approximately $0.3 million. The net cash used in operating activities was mainly offset by the non-cash items of depreciation and amortization of approximately $2.4 million and the decrease of other receivables of approximately $1.1 million.
Investing activities
Net cash provided by investing activities for the six months ended December 31, 2023 was approximately $4.7 million from the sale of mined Bitcoins. This was offset by the loan to a third party of approximately $1.0 million.
Net cash provided by investing activities for the six months ended December 31, 2022 was due to the sale of Bitcoins mined of approximately $0.3 million.
Financing activities
Net cash provided by financing activities was approximately $7.8 million for the six months ended December 31, 2023, primarily due to the proceeds from issuance of ordinary shares through private offerings of approximately $2.9 million, and the net proceeds from convertible debenture, net of issuance costs of approximately $6.1 million. Cash provided by financing activities was mainly offset by the repayments to the convertible debenture of $0.3 million and the repayments to third party loans of approximately $0.8 million.
Net cash provided from financing activities for the six months ended December 31, 2022 was approximately $2.9 million, primarily due to other receivables - repayments from related parties of $0.4 million, proceeds from third party loans of approximately $0.8 million and proceeds from convertible bonds of $1.8 million.
Statement Regarding Unaudited Financial Information
The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company’s year-end financial statements, which could result in significant differences from this unaudited financial information.
Safe Harbor Statement
This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. When the Company uses words such as “may, “will, “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the actual results to differ materially from the Company’s expectations discussed in the forward-looking statements. These statements are subject to uncertainties and risks including, but not limited to, the following: the Company’s goals and strategies; the Company’s future business development; product and service demand and acceptance; changes in technology; economic conditions; reputation and brand; the impact of competition and pricing; government regulations; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing and other risks contained in reports filed by the Company with the Securities and Exchange Commission. For these reasons, among others, investors are cautioned not to place undue reliance upon any forward-looking statements in this press release. Additional factors are discussed in the Company’s filings with the U.S. Securities and Exchange Commission, which are available for review at www.sec.gov. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.
Exhibit 99.2
BIT ORIGIN LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
| December 31, | | June 30, | ||
|
| 2023 |
| 2023 | ||
| | | (Unaudited) | | | |
ASSETS | | | | | | |
CURRENT ASSETS | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Cryptocurrencies | |
| | |
| |
Other receivables | |
| | |
| |
Prepayments | |
| | |
| |
Security deposit | |
| | |
| |
Loan receivable | |
| | |
| — |
GST tax receivable | | | — | | | |
Total current assets | |
| | |
| |
| | | | | | |
OTHER ASSETS | |
|
| |
|
|
Plant and equipment, net | |
| | |
| |
Long-term investment | |
| | |
| |
Total other assets | |
| | |
| |
| | | | | | |
Total assets | | $ | | | $ | |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES | | | | | | |
Loans from a third party | | $ | — | | $ | |
Convertible debenture, net | | | | | | |
Accounts payable | | | — | | | |
Other payables and accrued liabilities | | | | | | |
Total current liabilities | | | | | | |
| | | | | | |
OTHER LIABILITIES | | | | | | |
Convertible debenture, net | | | | | | |
Total other liabilities | | | | | | |
| | | | | | |
Total liabilities | | | | | | |
| | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | |
| | | | | | |
SHAREHOLDERS’ EQUITY | | | | | | |
Ordinary shares, $ | | | | | | |
Additional paid-in capital | | | | | | |
Accumulated deficit | | | ( | | | ( |
Total Bit Origin Limited shareholders' equity | | | | | | |
| | | | | | |
Total equity | | | | | | |
| | | | | | |
Total liabilities and shareholders’ equity | | $ | | | $ | |
* | Giving retroactive effect to the -for-30 reverse share split effected on May 23, 2023 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-1
BIT ORIGIN LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| | For the Six Months Ended December 31, | ||||
|
| 2023 |
| 2022 | ||
REVENUES | | | | | | |
Cryptocurrencies mining revenue | | $ | | | $ | |
Total revenues | |
| | |
| |
| | | | | | |
COST OF REVENUES | |
|
| |
|
|
Cost of cryptocurrencies mining revenue | | | | | | |
Total cost of revenues | |
| | |
| |
| | | | | | |
GROSS LOSS | |
| ( | |
| ( |
| | | | | | |
OPERATING EXPENSES: | |
|
| |
|
|
General and administrative | |
| | |
| |
Provision for expected credit losses | | | | | | — |
Impairment loss of cryptocurrency mining equipment | | | | | | — |
Stock compensation expense | |
| | |
| — |
Total operating expenses | |
| | |
| |
| | | | | | |
LOSS FROM OPERATIONS | |
| ( | |
| ( |
| | | | | | |
OTHER INCOME (EXPENSE) | |
|
| |
|
|
Realized gain (loss) on sale/exchange of cryptocurrencies | |
| | |
| ( |
Interest expense | |
| ( | |
| ( |
Other finance expenses | |
| ( | |
| ( |
Other expenses, net | | | — | | | — |
Total other expenses, net | |
| ( | |
| ( |
| | | | | | |
LOSS BEFORE INCOME TAXES | |
| ( | |
| ( |
| | | | | | |
PROVISION FOR INCOME TAXES | | | — | | | — |
| | | | | | |
| | | | | | |
NET LOSS | | | ( | | | ( |
| | | | | | |
OTHER COMPREHENSIVE INCOME (LOSS) | |
| | |
| |
Foreign currency translation adjustment | |
| — | |
| — |
| | | | | | |
TOTAL COMPREHENSIVE LOSS | | $ | ( | | $ | ( |
| | | | | | |
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES* | |
| | |
| |
Basic and diluted | | | | | | |
| | | | | | |
LOSS PER SHARE - BASIC AND DILUTED* | | $ | ( | | $ | ( |
* | Giving retroactive effect to the -for-30 reverse share split effected on May 23, 2023 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
BIT ORIGIN LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | |
| | | | | |
| Additional | | | | | | | |
|
| Ordinary shares |
| paid-in | | Accumulated | | | | |||||
|
| Shares* |
| Par value |
| capital |
| deficit |
| Total | ||||
BALANCE, June 30, 2022 |
| | | $ | | | $ | | | $ | ( | | | |
Issuance of ordinary shares for equipment purchase |
| | |
| | |
| | |
| — | |
| |
Net loss |
| — | |
| | |
| | |
| ( | |
| ( |
BALANCE, December 31, 2022 (Unaudited) |
| | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | |
BALANCE, June 30, 2023 | | | | $ | | | $ | | | $ | ( | | | |
Sales of ordinary shares | | | | | | | | | | | — | | | |
Issuance of ordinary shares for compensation | | | | | | | | | | | — | | | |
Conversion of convertible debenture into ordinary shares | | | | | | | | | | | — | | | |
Warrants issued with convertible debenture | | — | | | | | | | | | — | | | |
Net loss | | — | | | | | | | | | ( | | | ( |
BALANCE, December 31, 2023 (Unaudited) | | | | $ | | | $ | | | $ | ( | | $ | |
* | Giving retroactive effect to the -for-30 reverse share split effected on May 23, 2023 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
BIT ORIGIN LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For the six months ended December 31, | ||||
|
| 2023 |
| 2022 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
| |
Depreciation | |
| | |
| |
Provision for expected credit losses | | | | | | — |
Realized (gain) loss on sale/exchange of cryptocurrencies | |
| ( | |
| |
Impairment loss of cryptocurrency mining equipment | |
| | |
| — |
Stock compensation expense | | | | | | — |
Amortization of convertible debenture issuance cost and discount | | | | | | |
Interest expense of convertible debenture | | | | | | |
Interest expense of third party loans | | | | | | |
Changes in operating assets and liabilities | | | | | | |
Cryptocurrencies - mining, net of mining pool operating fees | | | ( | | | ( |
Other receivables | |
| ( | |
| |
Prepayments | |
| | |
| ( |
Security deposits | |
| | |
| ( |
Accounts payable | | | ( | | | |
Other payables and accrued liabilities | | | | | | ( |
Net cash used in operating activities | | | ( | | | ( |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Proceeds from sale of cryptocurrencies | | | | | | |
Loan to a third party | |
| ( | |
| — |
Net cash provided by investing activities | |
| | |
| |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Repayments from other receivables - related parties, net | |
| — | |
| |
Proceeds from issuance of ordinary shares through private offerings | | | | | | — |
Proceeds from third party loans | | | — | | | |
Repayments to third party loans | |
| ( | |
| — |
Payments of convertible debenture interest expense | |
| ( | |
| ( |
Payments of third party loans interest expense | |
| ( | |
| ( |
Proceeds from convertible debentures, net of issuance costs | | | | | | |
Repayments of convertible debenture | | | ( | | | — |
Net cash provided by financing activities | | | | | | |
| | | | | | |
EFFECT OF EXCHANGE RATE ON CASH | |
| — | |
| — |
| | | | | | |
CHANGES IN CASH AND CASH EQUIVALENTS | |
| | |
| |
| | | | | | |
CASH AND CASH EQUIVALENTS, beginning of period | |
| | |
| |
| | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | | | $ | |
| | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | |
| |
Cash paid for income tax | | $ | — | | $ | — |
Cash paid for interest | | $ | | | $ | |
| | | | | | |
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES | |
| | |
| |
Conversion of convertible debenture into ordinary shares | | $ | | | $ | — |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Note 1 – Nature of business and organization
Organization
Bit Origin Ltd (“Bit Origin” or the “Company”) is a holding company incorporated on January 23, 2018 under the laws of the Cayman Islands. Bit Origin has no substantive operations other than holding all of the outstanding share capital of the following entities: SonicHash Inc, (“SonicHash Canada”), SonicHash Pte. Ltd (“SonicHash Singapore”) and SonicHash LLC (“SonicHash US”), and holding
Business Overview
The Company has been focusing on its cryptocurrency mining operations through its newly incorporated subsidiaries SonicHash Canada, SonicHash Singapore and SonicHash LLC since December 2021. On December 14, 2021, the Company formed SonicHash Canada, a company incorporated under the laws of Alberta, Canada. On December 16, 2021, the Company formed SonicHash Singapore, a company incorporated under the laws of Singapore. On December 17, 2021, the Company formed SonicHash US under the laws of the State of Delaware. The Company holds
Sonic Auspice DC LLC was formed by a third party under the laws of the State of Delaware on November 30, 2023. It was formed to engage in building cryptocurrency mining facilities in the United States, including a brand-new 25MW cryptocurrency mining data center, in Cheyenne, Wyoming. The Company purchased
Consolidation Scope
The accompanying unaudited condensed consolidated financial statements reflect the activities of Bit Origin and each of the following entities:
Name |
| Background |
| Ownership |
SonicHash Canada | | · A Canada company | | |
SonicHash Singapore | | · A Singapore company | | |
SonicHash US | | · A US company | | |
Sonic Auspice DC LLC |
| · A US company |
|
Note 2 – Summary of significant accounting policies
Liquidity
In assessing the Company’s liquidity, the Company monitors and analyzes the cash on-hand and its operating expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements and operating expenses obligations. To date, the Company has financed its operations primarily through cash flows from operations and proceeds from financial institutions or third-party loans.
As of December 31, 2023, the Company had working capital of approximately $
Based on the above considerations, management is of the opinion that the Company has sufficient funds to meet its working capital requirements for the next twelve months from the date of this report.
F-5
Basis of presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (SEC), regarding financial reporting, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. The results of operations for the six months ended December 31, 2023 are not necessarily indicative of results to be expected for any other interim period or for the full year of 2024. Accordingly, these statements should be read in conjunction with the Company’s audited financial statements as of and for the years ended June 30, 2023 and 2022.
Principles of consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances are eliminated upon consolidation.
The Company accounts for its noncontrolling interests in joint ventures or partnerships where the Company has influence over financial and operational matters, generally 50% or less ownership interest, under the equity method of accounting. In such cases, the original investments are recorded at cost and adjusted for our share of earnings, losses, and distributions. Distributions received from equity method investees are accounted for under the cumulative earnings approach on the Company’s consolidated statements of cash flows.
Use of estimates and assumptions
In presenting the unaudited condensed consolidated financial statements in accordance with U.S. GAAP, management make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgement and available information. Accordingly, actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. The Company bases its estimates on past experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The inputs into our judgments and estimates consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Significant estimates are used when accounting for items and matters including standalone selling price of each distinct performance obligation in revenue recognition, determinations of the useful lives and impairment of long-lived assets, allowance for expected credit losses, realization of deferred tax assets and uncertain tax position, fair value of the Company’s share price to determine the beneficial conversion feature (“BCF”) within the convertible debentures, fair value of the share-based compensation, and fair value of the warrants issued.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and time deposits placed with banks or other financial institutions and have original maturities of less than three months.
Cryptocurrencies
Cryptocurrencies (Bitcoins) are included in current assets in the accompanying consolidated balance sheets. Cryptocurrencies purchased are recorded at cost. Cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed below.
Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. 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. Impairment exists when the carrying amount exceeds its fair value, which is measured using the intraday low quoted price of the cryptocurrency 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. For the six months ended December 31, 2023 and 2022,
F-6
Purchases of cryptocurrencies by the Company are included within investing activities in accompanying consolidated statements of cash flows, while cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows. The sales of cryptocurrencies are included within investing activities in the accompanying consolidated statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations. The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting.
Other receivables
Other receivables include advances to a third party and receivable due from buyer of disposed entities. Management regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes the collection of amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. As of December 31, 2023 and June 30, 2023, $
Prepayments
Prepayments are cash advanced to service providers for future services. This amount is refundable and bears no interest.
Security deposits
Security deposits are cash deposited to mining services providers with a term of one year. This amount is refundable and bears no interest. Management regularly reviews the deposit accounts and changes in payment trends and records allowances when management believes the collection of amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. As of December 31, 2023 and June 30, 2022,
Plant and equipment, net
Plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets with
|
| Useful Life |
Cryptocurrency mining equipment |
|
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances revise estimates of useful lives.
Long-term investment
The Company’s long-term investment consists of an equity investment without readily determinable fair value. For equity securities without readily determinable fair value and do not qualify for the existing practical expedient in ASC Topic 820, Fair Value Measurements and Disclosures (“ASC820”) to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company elected to use the measurement alternative to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.
For those equity investments that the Company elects to use the measurement alternative, the Company makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the entity has to estimate the investment’s fair value in accordance with the principles of ASC 820. If the fair value is less than the investment’s carrying value, the Company has to recognize an impairment loss in net income (loss) equal to the difference between the carrying value and fair value. During the six months ended December 31, 2023 and 2022, the Company recorded
F-7
Impairment for long-lived assets
Long-lived assets, including plant and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. During the six months ended December 31, 2023 and 2022, $
Accounts payable
Accounts payable are unpaid hosting fees. This amount is generally due within
Financial instruments
The Company analyzes all financial instruments with features of both liabilities and equity under FASB Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity” and FASB ASC Topic 815 “Derivatives and Hedging”. The embedded conversion features of convertible debentures not separately accounted for as a derivative and contained considered to be derivative instruments provide for a rate of conversion that is below market value. Such feature is normally characterized as a BCF required to separate the instruments into debt and equity. A BCF is a non-detachable conversion feature that is “in the money” at the commitment date, which requires recognition of interest expense for underlying debt instruments and a deemed dividend for underlying equity instruments. A conversion option is “in the money” if the effective conversion price is lower than the commitment date fair value of the share into which it is convertible. The relative fair values of the BCF were recorded as discounts from the face amount of the respective debt instrument. The Company amortized the discount using the straight-line method which approximates the effective interest method through maturity of such instruments.
Fair value measurement
The accounting standard regarding the fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | 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, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest. Long-term convertible debenture on the balance sheets is at carrying value, which approximates fair value as the third party was lending the money to us at the market rate.
Convertible debentures
The Company evaluates its convertible debentures to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is recorded at fair value each reporting period and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.
F-8
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a BCF. A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt.
Upon conversion, the carrying amount of the convertible debentures, net of the unamortized discount shall be reduced by, if any, the cash (or other assets) transferred and then shall be recognized in the capital accounts to reflect the shares issued and no gain or loss is recognized pursuant to ASC Topic 470-20-40-4.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. As the Company’s warrants meet all of the criteria for equity classification, so the Company classified each warrant as its own equity.
Revenue recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: (i) identifies the contract with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocates the transaction price to the respective performance obligations in the contract, and (v) recognizes revenue when (or as) the Company satisfies the performance obligation.
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
| ● | Variable consideration |
| ● | Constraining estimates of variable consideration |
| ● | The existence of a significant financing component in the contract |
F-9
| ● | Noncash consideration |
| ● | Consideration payable to a customer |
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Cryptocurrency mining:
The Company has entered into cryptocurrency mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less cryptocurrency transaction fees to the mining pool operator which are recorded net with revenues), 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.
Providing computing power in cryptocurrency transaction verification services is an output of the Company’s ordinary activities. The provision of computing power is the only performance obligation in the Company’s contracts with third party pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the Company successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the cryptocurrency award received is determined using the intraday low quoted price of the related cryptocurrency at the time of receipt. All of the Company’s cryptocurrency are populated cryptocurrencies which are actively traded on the major trading platforms such as coinmarketcap.com.
There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.
Cost of revenues
Cost of revenues consists primarily of the direct costs associated with running the cryptocurrency mining business, such as utilities, maintenance labor costs, shipping fees, plant remodeling fees and other service charges. The Company signed hosting agreement with hosting partners, and the hosting partners will install the mining equipment and provide elective power, internet services and other necessary services to maintain the operation of the mining equipment. All the related operating fees are included in the all-in-one monthly fees charged by the hosting partner to the Company. Depreciation of cryptocurrency mining equipment is calculated separately and also recorded as a component of cost of revenues for cryptocurrency mining.
Share-based compensation
The Company records share compensation expense for employees at fair value on the grant date and recognizes the expense over the employee’s requisite service period. The Company’s expected volatility assumption is based on the historical volatility of the Company’s shares. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination rate. The risk-free interest rate for the expected term of an option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is based on the Company’s current and expected dividend policy.
Income taxes
The Company accounts for income taxes in accordance with U.S. GAAP for income taxes. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
F-10
Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. No penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
(Loss) earnings per share (“EPS”)
Basic (loss) earnings per share are computed by dividing (loss) income available to ordinary shareholders by the weighted average ordinary shares outstanding during the period. Diluted (loss) earnings per share take into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. Ordinary shares equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation of diluted (loss) earnings per share. Dilution is computed by applying the treasury share method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase ordinary shares at the average market price during the period.
A total of warrants to purchase up to
A total of
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Segment reporting
ASC 280, Segment Reporting, (“ASC 280”), establishes standards for companies to report in their financial statements information about operating segments, products, services, geographic areas, and major customers. Based on the criteria established by ASC 280, the chief operating decision maker (“CODM”) has been identified as the Company’s Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. As a whole, the Company has one reportable segment. The Company does not distinguish between markets or segments for the purpose of internal reporting. As the Company primarily generates cryptocurrency mining revenue through mining pool operators, no geographical segments are presented.
Recently issued accounting pronouncements
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-02 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses, leases, and hedging standard. The new effective date for these preparers is for fiscal years beginning after December 15, 2022. The Company has adopted this update on July 1, 2023, and the adoption did not have any material impact on its unaudited condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. The amendment in this Update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the Board decided to reduce the number of accounting models for convertible debt instruments and convertible preferred shares. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this ASU did not have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its unaudited condensed consolidated financial statements and related disclosures.
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In December 2023, the FASB issued Accounting Standards Update No. 2023-08, Intangibles – “Goodwill and Other - Crypto Assets (Topic 350-60): Accounting for and Disclosure of Crypto Assets” (ASU 2023-08”), which requires entities to measure crypto assets that meet specific criteria at fair value with changes recognized in net income each reporting period. Additionally, ASU 2023-08 requires an entity to present crypto assets measured at fair value separately from other intangible assets in the balance sheets and record changes from remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement. The amendments also require that an entity provide disclosures about significant holdings, contractual sale restrictions, and changes during the reporting period. The objectives of the amendments are to provide investors and other capital allocators with more decision-useful information that better reflects the underlying economics of crypto assets within the scope and an entity’s financial position while reducing cost and complexity associated with applying cost-less-impairment accounting.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance). If amendments are adopted in an interim period, they must be adopted as of the beginning of the fiscal year that includes that interim period.
The amendments in this ASU require a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets) as of the beginning of the annual reporting period in which an entity adopts the amendments. The Company is currently assessing the potential impact of this standard on its consolidated financial statements.
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
Note 3 – Cryptocurrencies
The following table presents additional information about our cryptocurrency mining activities of Bitcoin (“BTC”) in coins and amounts during the six months ended December 31, 2023:
| | Quantities (in coins) | | Cryptocurrencies | |
|
| BTC |
| Amounts | |
Balance on July 1, 2022 |
| | | $ | |
Revenue recognized from cryptocurrencies mined |
| | |
| |
Hosting fees settled in cryptocurrencies |
| ( | |
| ( |
Proceeds from sale of cryptocurrencies |
| ( | |
| ( |
Realized gain on sale/exchange of cryptocurrencies |
| — | |
| |
Impairment loss of cryptocurrencies |
| — | |
| ( |
Balance on June 30, 2023 |
| | * | $ | |
Revenue recognized from cryptocurrencies mined | | | | | |
Hosting fees settled in cryptocurrencies | | ( | | | ( |
Proceeds from sale of cryptocurrencies | | ( | | | ( |
Realized gain on sale/exchange of cryptocurrencies | | — | | | |
Impairment loss of cryptocurrencies | | — | | | — |
Balance on December 31, 2023 (unaudited) |
| | | $ | |
* | A total of |
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Note 4 – Other receivables, net
Other receivables, net consist of the following:
| | December 31, | | June 30, | ||
|
| 2023 |
| 2023 | ||
| | | (Unaudited) | | | |
Advances to a third party | | | | | | |
Receivable due from buyer of disposed entities | |
| | |
| |
Total other receivables | | | | | | |
Less: allowance for expected credit losses | | | ( | | | ( |
Total other receivables, net | | $ | | | $ | |
Note 5 – Loan receivable
The Company signed a loan agreement of $
Note 6 – Plant and equipment, net
Plant and equipment, net consist of the following:
|
| December 31, |
| June 30, | ||
| | 2023 | | 2023 | ||
| | | (Unaudited) | | | |
Cryptocurrency mining equipment | | $ | |
| $ | |
Less: accumulated depreciation | |
| ( |
|
| ( |
Total plant and equipment, net | | | | | | |
Less: impairment loss | | | ( | | | ( |
Plant and equipment, net | | $ | |
| $ | |
Depreciation expense for those mining equipment amounted to $
The Company has fully stopped the Bitcoin mining operations since December 2023, and the
The estimates used are considered observable Level 2 inputs, which are used to measure fair value at the quoted prices for similar assets or liabilities. Changes in management’s assumptions or estimates could lead to different conclusions. The determination of fair value involves a significant degree of judgment, and the use of estimates and assumptions that are inherently uncertain. Accordingly, actual results may differ from the Company’s estimates, and the difference may be material. Additionally, continued elevated power costs, continued increases in the Bitcoin network hash rate, and further decreases in the value of Bitcoin in the market could result in further impairment of the Company’s cryptocurrency mining equipment.
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Note 7 – Long-term investment
|
| December 31, |
| June 30, | ||
| | 2023 | | 2023 | ||
| | | (Unaudited) | | | |
Cost of long-term investment |
| | |
| | |
Less: impairment loss |
| | ( |
| | ( |
Long-term investment, net | | $ | | | $ | |
The Company entered into a subscription agreement with MineOne Cloud Computing Investment I L.P. (the “Partnership”) on June 10, 2022, pursuant to which the Company made $
Similar to Note 6, the Investment’s operating performance was adversely affected by challenging business climate, such as a decrease in the price of Bitcoin and a resulting decrease in the market price of mining facility.
The Company has utilized the market comparison approach to estimate the fair value of its Investment and cross-checked by direct comparisons with transactions of comparable mining facility within the vicinity and elsewhere, based on various estimates developed by management. The estimates used are considered unobservable Level 3 inputs, which are used to measure fair value when relevant observable inputs are not available. Changes in management’s assumptions or estimates could lead to different conclusions. The determination of fair value involves a significant degree of judgment, and the use of estimates and assumptions that are inherently uncertain. Accordingly, actual results may differ from the Company’s estimates, and the difference may be material. Additionally, continued elevated power costs, continued increases in the Bitcoin network hash rate, and further decreases in the value of Bitcoin in the market could result in further impairment of the Company’s Investment.
Based on management’s impairment assessment, there is indication that the estimated fair value of the mining facility was less than their net carrying value. As of December 31, 2023, a total impairment charge of $
Note 8 – Credit facilities
Loans from third parties
Outstanding balances of third-party loans consisted of the following:
|
| |
| |
| Collateral/ |
| December 31, |
| June 30, | ||
Name of lender | | Maturities | | Weighted average interest rate | | Guarantee | | 2023 | | 2023 | ||
| | | | | | | | (Unaudited) | ||||
Pony Partners Ltd |
| August 30, 2023 (Fully repaid in September 2023) |
| | % | | $ | — | | $ | | |
| | | | | | | | | | | | |
Pony Partners Ltd |
| September 12, 2023 (Fully repaid in September 2023) |
| | % | |
| — | |
| | |
| | | | | | | | $ | — | | $ | |
Interest expense pertaining to the above loans amounted to $
The above loans were fully repaid by the Company in September 2023 by selling the
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Note 9 – Taxes
Income tax
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders,
Canada
SonicHash Canada is incorporated in Canada and is subject to both federal and provincial income taxes for its business operation in Canada. The applicable tax rate is
United States of America ("U.S.")
SonicHash US and Sonic Auspice are incorporated in the U.S. and subject to both federal and state income taxes for their business operation in the U.S. The applicable tax rate is
Singapore
SonicHash Singapore is incorporated in Singapore and is subject to Singapore Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Singapore tax laws. SonicHash Singapore had
Loss before provision for income taxes consisted of:
|
| For the six months |
| For the six months | ||
| | ended | | ended | ||
| | December 31,2023 | | December 31,2022 | ||
| | (Unaudited) | | (Unaudited) | ||
Cayman Islands | | $ | ( | | $ | ( |
United States of America | |
| ( | |
| ( |
Canada | | | ( | | | ( |
Singapore | | | ( | | | ( |
| | $ | ( | | $ | ( |
Significant components of deferred tax assets were as follows:
|
| December 31, |
| June 30, | ||
| | 2023 | | 2023 | ||
| | | (Unaudited) | | | |
Deferred tax assets | | | | | | |
Net operating loss carryforward in the U.S. | |
| | |
| |
Net operating loss carryforward in Canada | | | | | | |
Net operating loss carryforward in Singapore | | | | | | |
Valuation allowance | | | ( | | | ( |
Total net deferred tax assets | | $ | — | | $ | — |
F-16
As of December 31, 2023 and June 30, 2023, SonicHash US’s net operating loss carry forward for the U.S. income taxes was approximately $
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2023 and June 30, 2023, the Company did
Goods and services tax (”GST”) receivable
SonicHash Canada exported
Note 10 – Concentration of risks
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. In the US, the insurance coverage of each bank is $
The Company used to trade BTCs on KuCoin and switched to f2pool, which is also a global crypto exchange, in October 2022. Those digital assets are kept in unique and segregated blockchain addresses accessible by the Company and verifiable on blockchain at any time. While the exchange holds the Company’s digital assets, the ownership and operation rights are always
The Company is also exposed to risk from its security deposits and other receivables. These assets are subjected to credit evaluations. An allowance has been made for estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment.
Note 11 – Convertible Debentures
Convertible Debenture issued on October 21, 2022
On October 21, 2022, the Company entered into the Securities Purchase Agreement with the Selling Shareholder pursuant to which the Company sold a Convertible Debenture (the “Debenture”) in the original principal amount of $
F-17
price of $
Share price |
| $ | | |
Exercise price | | $ | | |
Expected terms (in years) | |
| | |
Expected volatility | |
| | % |
Annual rate of quarterly dividends | |
| — | % |
Risk free interest rate | |
| | % |
The fair value measurement of the convertible debentures is categorized as Level 2 under the Fair Value Hierarchy. The Company estimated the fair value of the Debenture over the payment term using the effective interest rate method, which is estimated to be $
The Debenture is convertible at an initial conversion price equal to $
The conversion feature of the Debenture is excluded from the scope of ASC 815 and accounted for as equity. However, due to the conversion price of the Debenture is higher than the market price of the Company on the issuance date, the Company determined that the Debenture does not contain any BCF in accordance with ASC 470-20-25-5.
The Debenture has an interest of the greater of (i) twelve percent (
Convertible Debenture issued on December 29, 2023
On December 29, 2023, the Company entered into the Securities Purchase Agreement with the Selling Shareholder pursuant to which the Company sold a Convertible Debenture (the “Debenture”) in the original principal amount of $
Share price |
| $ |
| |
Exercise price | | $ | | |
Expected terms (in years) | |
| | |
Expected volatility | |
| | % |
Annual rate of quarterly dividends | |
| — | % |
Risk free interest rate | |
| | % |
F-18
The fair value measurement of the convertible debentures is categorized as Level 2 under the Fair Value Hierarchy. The Company estimated the fair value of the Debenture over the payment term using the effective interest rate method, which is estimated to be $
The Debenture is convertible at an initial conversion price equal to $
The conversion feature of the Debenture is excluded from the scope of ASC 815 and accounted for as equity. However, due to the conversion price of the Debenture is higher than the market price of the Company on the issuance date, the Company determined that the Debenture does not contain any BCF in accordance with ASC 470-20-25-5.
The Debenture has an interest of the greater of (i) thirteen and a half percent (
The summary of all the Convertible Debentures activity is as follow:
|
| December 31, |
| June 30, | ||
| | 2023 | | 2023 | ||
| | (Unaudited) | | | | |
Principal balance | | $ | | | $ | |
Less: repayments | | | ( | | | ( |
Remaining balance | | | | | | |
Less: Debentures discount and debts insurance cost | |
| ( | |
| ( |
Total | | $ | | | $ | |
Less: non-current | | | ( | | | ( |
Total current | | $ | | | $ | |
During the six months ended December 31, 2023 and 2022, the Company made $
Note 12 – Equity
Change of authorized shares
The Company increased of the share capital of the Company from $
F-19
On May 23, 2023, the Board of Directors of the Company approved a reverse share split of the Company’s outstanding ordinary shares at a ratio of one-for-thirty (-for-30) (the “Reverse Share Split”). The par value of the ordinary shares was increased in proportion to the ratio of the Reverse Share Split to $
Direct offerings and Private placements
November 2021 Registered Direct Offering Warrants
On November 22, 2021, the Company entered into a certain securities purchase agreement with certain non-affiliated investors pursuant to which the Company agreed to sell
January 2022 Registered Direct Offering Warrants
The Company entered into a certain securities purchase agreement dated January 28, 2022, as amended on January 30, 2022 (the “Purchase Agreement”) with certain non-affiliated investors pursuant to which the Company agreed to sell
June 2022 Underwriting Offering
The Company entered into an underwriting agreement dated June 3, 2022 (the “Underwriting Agreement”) with Univest Securities, LLC (the “Underwriter”), pursuant to which the Company agreed to sell
F-20
additional
August 2022 Issuance of Shares for Equipment
On August 15, 2022, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with certain non-affiliated seller (the “Seller”), pursuant to which the Company purchased
October 2022 Sale of Convertible Debenture
On October 21, 2022, the Company entered into the Securities Purchase Agreement with the Selling Shareholder pursuant to which the Company sold a Convertible Debenture in the original principal amount of $
Pursuant to October 2022 Investors Warrants, if at any time and from time to time on or after the issuance date there occurs any share split, share dividend, share combination recapitalization or other similar transaction involving the ordinary shares (“Share Combination Event”) and the Event Market Price (which is defined as with respect to any Share Combination Event date, the quotient determined by dividing (x) the sum of the VWAP of the ordinary shares for each of the (5) lowest trading days during the (20) consecutive trading day period ending and including the trading day immediately preceding the sixteenth (16th) trading day after such Share Combination Event date, divided by (y)
November 2023 Sale of Ordinary Shares
On November 7, 2023 and November 9, 2023, the Company entered into securities purchase agreements with investors for the sale of
December 2023 Sale of Convertible Debenture
On December 7, 2023, the Company, entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Buyer”) relating to the issuance and sale of a senior secured convertible note (the “Note”) in the principal amount of $
F-21
Share options
In August 2019, the Company issued a total of
The summary of share option activity is as follows giving retroactive effect to the 1-to-30 Reverse Share Split effected on May 23, 2023:
| | |
| |
| Weighted |
| Average |
| | |
| | | | | | Average | | Remaining | | Aggregate | |
| | Options | | Exercisable | | Exercise | | Contractual | | Intrinsic | |
|
| Outstanding |
| Option |
| Price |
| Life |
| Value | |
June 30, 2020 |
| |
| | | $ | |
|
| | |
Granted/Acquired |
| — |
| — | | $ | — |
|
| — | |
Forfeited |
| |
| | | $ | |
|
| | |
Exercised |
| — |
| — | | $ | — |
|
| — | |
June 30, 2021 | | | | | | $ | | | | | |
Granted/Acquired | | — | | — | | $ | — | | | — | |
Forfeited | | | | — | | $ | — | | | | |
Exercised | | — | | | | $ | — | | | — | |
June 30, 2022 | | | | | | $ | | | | | |
Granted/Acquired | | — | | — | | $ | — | | | — | |
Forfeited | | ( | | ( | | $ | | | | | |
Exercised | | — | | — | | $ | — | | | — | |
June 30, 2023 |
| — |
| | | $ | |
|
| | |
Restricted Shares Issued for Compensation
The Company entered into an employment agreement with Lucas Wang for the position of Chief Executive Officer. The employment agreement is from April 27, 2022 to April 26, 2025, with an annual compensation of $
The Company entered into an employment agreement with Jiaming Li for the position of President. The employment agreement is effective from December 6, 2021 to November 30, 2024, with an annual compensation of $
F-22
The Company entered into an employment agreement with Jingjing Han for the position of Head of Human Resources and Investors Relationship. The employment agreement is effective from December 6, 2021 to November 30, 2024, with an annual compensation of $
The summary of restricted share grants is as follows giving retroactive effect to the 1-to-30 Reverse Share Split effected on May 23, 2023:
|
|
|
| Weighted |
| |
| |
| | | | Average | | | | |
| | | | Grant Date | | Aggregate | ||
| | | | Fair Value | | Intrinsic | ||
| | Shares | | Per Share | | Value | ||
Unvested as of June 30, 2021 |
| — | | $ | |
| $ | — |
Granted |
| | | $ | |
| $ | — |
Forfeited |
| | | $ | |
| $ | — |
Vested |
| ( | | $ | |
| $ | — |
Unvested as of June 30, 2022 |
| | | $ | |
| $ | — |
Granted |
| | | $ | |
| $ | — |
Forfeited |
| — | | $ | |
| $ | — |
Vested |
| ( | | $ | |
| $ | — |
Unvested as of June 30, 2023 | | — | | $ | — | | $ | — |
Granted | | | | $ | | | $ | — |
Forfeited | | — | | $ | — | | $ | — |
Vested | | ( | | $ | | | $ | — |
Unvested as of December 31, 2023 (unaudited) |
| — | | $ | — |
| $ | — |
Warrants
The summary of warrant activity is as follows giving retroactive effect to the 1-to-30 Reverse Share Split effected on May 23, 2023:
|
| |
| |
| Weighted |
| Average | |
| | | | | | Average | | Remaining | |
| | Warrants | | Exercisable | | Exercise | | Contractual | |
| | Outstanding | | Shares |
| Price |
| Life | |
June 30, 2021 |
| |
| | | $ | |
| |
Granted/Acquired | | | | | | $ | | | |
Forfeited | | | | | | $ | | | |
Exercised | | | | | | $ | | | |
June 30, 2022 | | | | | | $ | | | |
Granted/Acquired | | | | | | $ | | | |
Forfeited | | | | | | $ | | | |
Exercised | | | | | | $ | | | |
June 30, 2023 | | | | | | $ | | | |
Granted/Acquired | | | | | | $ | | | |
Forfeited | | | | | | $ | | | |
Exercised | | | | | | $ | | | |
December 31, 2023 (unaudited) |
| |
| | | $ | |
| |
F-23
Note 13 – Commitments and contingencies
Lease commitments
Effective July 1, 2019, the Company adopted FASB ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. For lease terms of twelve months or fewer, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. The Company also adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All of the Company’s real estate leases are classified as operating leases.
The Company entered in
Operating lease expenses was recorded under general and administrative expenses for the six months ended December 31, 2023 and 2022 amounted to $
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company first determines whether a loss from a claim is probable, and if it is reasonable to estimate the potential loss, the loss will be accrued. The Company discloses a range of possible losses, if a loss from a claim is probable but the amount of loss cannot be reasonably estimated.
In March 2023, Bit Origin and SonicHash US, along with other named entities, were named as defendants in a state court civil lawsuit filed in Cheyenne, Wyoming by BCB Cheyenne LLC (“BCB”) who had contractual relationship with two of the named defendants, MineOne Wyoming Data Center LLC, the other with Terra Crypto, Inc. Defendant alleges these parties breached their respective contracts. For its part, Bit Origin and SonicHash US, who had no relationship with BCB, were nevertheless alleged to have intentionally interfered with BCB’s contractual relationships with these other parties. Both Bit Origin and SonicHash US were also named as what is known as an “alter ego” defendant pursuant to which a party may be found liable if its later discovered it was acting, in essence, as the alter ego of the primary wrongdoer. Prior to the Company discovering it had been named in this Wyoming lawsuit, the case had been dismissed but simultaneously recommenced in the U.S. District Court in Wyoming against the same parties, with substantively the same causes of action. Bit Origin and SonicHash US were made aware of and appeared in this new federal court litigation denying all material allegations alleged against each of them. In September 2023, BCB filed an amended complaint to add parties and substitute parties in place of others but leaving Bit Origin and Sonichash US as named defendants accused of intentionally interfering with BCB’s contractual relations. Once again, both companies were also alleged to be alter egos of the primary wrongdoers. In its lawsuit, BCB seeks “no less than $
Note 14 – Subsequent Events
The Company evaluated all events and transactions that occurred after December 31, 2023 up through April 26, 2024, except for the following events, the Company did not identify any other subsequent events occurred that would require recognition or disclosure in the Company’s unaudited condensed consolidated financial statements.
F-24
As disclosed in Note 12, On November 7, 2023 and November 9, 2023, the Company entered into securities purchase agreements with investors for the sale of
On February 6, 2024, the Company was approved to increase the authorized ordinary shares from
On April 18, 2024, the members of the Board of Directors of the Company was approved via a special meeting to wind down one of the subsidiaries namely Sonichash Pte. Ltd. which the said subsidiary does not own any assets or employees and does not have any business operation.
F-25