Exhibit 99.2
TABLE OF CONTENTS
1
BTC DIGITAL LTD
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands of US$, except share data and per share data, or otherwise noted)
| Note | December 31, 2022 | June 30, 2023 | |||||||||
| US$’000 | US$’000 | ||||||||||
| Unaudited | |||||||||||
| (Note 2(b)) | |||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | |||||||||||
| Accounts receivable | 5 | ||||||||||
| Prepayments and other current assets | 5 | ||||||||||
| Digital assets | 6 | ||||||||||
| Total current assets | |||||||||||
| Non-current assets | |||||||||||
| Equity method investments | 7 | ||||||||||
| Property and equipment, net | 8 | ||||||||||
| Total non-current assets | |||||||||||
| Total assets | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | |||||||||||
| Short term loan | 10 | ||||||||||
| Accrued expenses and other payables | |||||||||||
| Total current liabilities | |||||||||||
Non-current liability | |||||||||||
| Amounts due to related parties | 14(b) | ||||||||||
| Total non-current liability | |||||||||||
| - | |||||||||||
| Total liabilities | |||||||||||
2
BTC DIGITAL LTD
UNAUDITED CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands of US$, except share data and per share data, or otherwise noted)
| Note | December 31, 2022 | June 30, 2023 | ||||||||
| US$’000 | US$’000 | |||||||||
| Unaudited | ||||||||||
| (Note 2(b)) | ||||||||||
| Shareholders’ equity | ||||||||||
| Ordinary shares (US$ | 13 | |||||||||
| Additional paid-in capital | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Total equity attributable to shareholders of the Company | ||||||||||
| Total shareholders’ equity | ||||||||||
| Total liabilities and shareholders’ equity | ||||||||||
| * |
3
BTC DIGITAL LTD
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands of US$, except share data and per share data, or otherwise noted)
| For the Six Months Ended June 30, | ||||||||||||
| Note | 2022 | 2023 | ||||||||||
| US$’000 | US$’000 | |||||||||||
| Unaudited | ||||||||||||
| (Note 2(b)) | ||||||||||||
| Revenues | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ||||||||
| Gross loss | ( | ) | ( | ) | ||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing expenses | ( | ) | ||||||||||
| General and administrative expenses | ( | ) | ( | ) | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||
| Realized gain on exchange of digital assets | ||||||||||||
| Interest income | ||||||||||||
| Interest expenses | ( | ) | ||||||||||
| Foreign currency exchange loss, net | ( | ) | ( | ) | ||||||||
| Equity in income on equity method investments | 7 | |||||||||||
| Others, net | ( | ) | ( | ) | ||||||||
| Loss before income tax from continuing operations | ( | ) | ( | ) | ||||||||
| Income tax expense | 9 | |||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||||||
| Income from discontinued operations, net of income taxes | ||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||
| Net gain from discontinued operations attributable to noncontrolling interest | ||||||||||||
| Less: Net gain attributable to the non-controlling interest | ||||||||||||
| Net income/(loss) attributable to shareholders of the Company | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ||||||||
| Net loss per share-Basic and diluted | 11 | |||||||||||
| - From continuing operation | ( | ) | ( | ) | ||||||||
| - From discontinued operation | ||||||||||||
| Weighted average shares used in calculating net loss per share | ||||||||||||
| - Basic | ||||||||||||
| - Diluted | ||||||||||||
4
BTC DIGITAL LTD
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands of US$, except share data and per share data, or otherwise noted)
| Note | Ordinary shares | Additional paid-in capital | Accumulated deficit | Total (deficit)/ equity attributable to shareholders of the Company | Non- controlling interests | Total (deficit)/ equity | ||||||||||||||||||||||||
| Number of shares*1 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||||||
| Balances as of December 31, 2021 | 210,710 | ( | ) | |||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of ordinary shares | *2 | - | ||||||||||||||||||||||||||||
| Share-based compensation | - | 761 | ||||||||||||||||||||||||||||
| Balances as of June 30, 2022 | 211,471 | ( | ) | |||||||||||||||||||||||||||
| *2 |
| Note | Ordinary shares | Additional paid-in capital | Accumulated deficit | Total
equity attributable to shareholders of the Company | Total equity | |||||||||||||||||||||
| Number of shares*1 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |||||||||||||||||||||
| Balances as of December 31, 2022 | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of ordinary shares | ( | ) | ||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||
| Balances as of June 30, 2023 | ( | ) | ||||||||||||||||||||||||
| *1 |
5
BTC DIGITAL LTD
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US$, except share data and per share data, or otherwise noted)
For
the Six Months Ended | ||||||||||
| Note | 2022 | 2023 | ||||||||
| US$’000 | US$’000 | |||||||||
| Unaudited | ||||||||||
| (Note 2(b)) | ||||||||||
| Cash flows from operating activities: | ||||||||||
| Continuing operation | ||||||||||
| Net loss | ( | ) | ( | ) | ||||||
| Adjustments to reconcile net income/(loss) to net cash generated from operating activities: | ||||||||||
| Depreciation | ||||||||||
| Impairment losses on digital assets | ||||||||||
| Equity income on equity method investments | ( | ) | ( | ) | ||||||
| Share-based compensation expenses | 12 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||
| Increase in accounts receivable | ||||||||||
| Decrease in prepayments and other current assets | ||||||||||
| Change of digital assets | ( | ) | ||||||||
| Decrease in accrued expenses and other payables | ||||||||||
| Decrease in accounts payable | ( | ) | ||||||||
| Net cash flow used in operating activities from discontinued operation | ( | ) | ||||||||
| Net cash flow generated from/(used in) operating activities | ( | ) | ||||||||
| Cash flows from investing activities: | ||||||||||
| Continuing operation | ||||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||||
| Purchase of short-term investments | ( | ) | ||||||||
| Net cash generated from investing activities from discontinued operation | ||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Continuing operation | ||||||||||
| Repayment of advances from related parties | ||||||||||
| Repayment of Short term loans | ( | ) | ||||||||
| Net cash used in financing activities from discontinued operation | ( | ) | ||||||||
| Net cash generated from/(used in) financing activities | ( | ) | ( | ) | ||||||
| Net increase/(decrease) in cash and cash equivalents from continuing operation | ( | ) | ||||||||
| Net decrease in cash and cash equivalents and restricted cash from discontinued operation | ( | ) | ||||||||
| Cash and cash equivalents and restricted cash at the beginning of the period for continuing operation | ||||||||||
| Cash and cash equivalents and restricted cash at the beginning of the period- for discontinued operation | ||||||||||
| Cash and cash equivalents and restricted cash at the end of the period for continuing operation | ||||||||||
| Cash and cash equivalents and restricted cash at the end of the period for discontinued operation | ||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||
| Continuing operation | ||||||||||
| Interest paid | ||||||||||
| Discontinued operation | ||||||||||
| Interest paid | ||||||||||
| Income tax paid | ||||||||||
| Supplemental disclosure of cash and cash equivalents and restricted cash: | ||||||||||
| Cash and cash equivalents | ||||||||||
| Restricted cash | ||||||||||
| Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows | ||||||||||
6
BTC DIGITAL LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of RMB, except share data and per share data, or otherwise noted)
| 1. | Organization and Principal Activities |
| (a) | Principal activities |
Meten EdtechX Education Group Ltd (the “Company”) was incorporated on September 27, 2019 under the law of Cayman Islands as an exempted company with limited liability. Meten EdtechX Education Group Ltd changed its name to “Meten Holding Group Ltd.” on August 11, 2021. On August 11, 2023, the Company changed its name to “BTC Digital Ltd.”. The Company is primarily engaged in the bitcoin mining business, and also generates revenue through mining machines resale and rental business operations.
| Entity | Date of incorporation | Place of incorporation | Percentage of direct or indirect economic ownership | Principal activities | ||||||
| Major subsidiaries: | ||||||||||
| Meten International Education Group | ||||||||||
| Meten Education Investment Limited (“Meten BVI”) | ||||||||||
| Likeshuo Education Investment Limited (“Likeshuo BVI”) | ||||||||||
| Meten Education (Hong Kong) Limited (“Meten HK”) | ||||||||||
| Likeshuo Education (Hong Kong) Limited (“Likeshuo HK”) | ||||||||||
| Meta Path investing holding company | ||||||||||
| Met Chain investing holding company Ltd | ||||||||||
| METEN BLOCK CHAIN LLC | ||||||||||
| (b) | History of the Group and reorganization |
Organization and General
The Company is authorized to issue
7
Reverse recapitalization
On December 12, 2019, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) by and among the Company, EdtechX Holdings Acquisition Corp., a Delaware corporation (“EdtechX”), Meten Education Inc., a Delaware corporation and wholly owned subsidiary of the Company (“EdtechX Merger Sub”), Meten Education Group Ltd.(“Meten International”), a Cayman Islands exempted company which incorporated on July 10, 2018 and wholly owned subsidiary of the Company (“Meten Merger Sub”, and together with EdtechX Merger Sub, the “Merger Subs”). EdtechX was a blank check company incorporated in Delaware on May 15, 2018 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities.
On March 30, 2020,
Meten International was determined to be the accounting acquirer given the controller of Meten International effectively controlled the combined entity Meten EdtechX Education Group Ltd after the SPAC Transaction.
Immediately prior to the merger transaction,
Azimut Enterprises Holdings S.r.l. invested $
In connection with merger
transaction, on February 28, 2020, March 19, 2020 and March 26, 2020, three unrelated investors agreed to invest USD
Reorganization of Meten International
Prior to the SPAC Transaction, Meten International undertook a series of steps to restructure its business.
Meten International’s history began in
April 2006 with the commencement of operations of Shenzhen Meten International Education Co., Ltd. (“Shenzhen Meten”), a
limited liability company incorporated in the PRC by Mr. Jishuang Zhao, Mr. Siguang Peng and Mr. Yupeng Guo (collectively, the “Founders”).
On December 18, 2017, Shenzhen Meten was converted into a joint stock limited liability company and
8
From March 2012 to August 2018, Mr. Yun Feng, Shenzhen Daoge Growth No.3 Investment Fund Partnership (Limited Partnership), Shenzhen Daoge Growth No.5 Investment Fund Partnership (Limited Partnership), Shenzhen Daoge Growth No.6 Investment Fund Partnership (Limited Partnership), Shenzhen Daoge Growth No.11 Investment Fund Partnership (Limited Partnership), Shenzhen Daoge Growth No.21 Investment Fund Partnership (Limited Partnership), Zhihan (Shanghai) Investment Center (Limited Partnership), Hangzhou Muhua Equity Investment Fund Partnership (Limited Partnership) (collectively known as the “Pre-listing Investors”) each acquired certain equity interests in Shenzhen Meten.
In preparation of the listing in capital markets of Shenzhen Meten’s general adult English training, overseas training services, online English training and other English language-related services businesses (the “Business”), Shenzhen Meten underwent a series of reorganization transactions (“Reorganization”) in 2018. The main purpose of the Reorganization is to establish a Cayman Islands holding company for the Business in preparation for its overseas listing.
The Reorganization was executed in the following steps:
| 1) | Meten International was incorporated as an exempted company with limited liability in the Cayman Islands on September 27, 2019 and as offshore holding company of the Group. In July and August 2018, the Founders and Pre-listing Investors subscribed for ordinary shares of Meten International at par value, all in the same proportions as the percentage of the then equity interest they held in Shenzhen Meten. Upon the issuance of ordinary shares to the Founders and Pre-listing Investors, the equity structure of the Meten International is identical to that of Shenzhen Meten. |
| 2) | In July 2018, Meten International further established two wholly-owned subsidiaries in the British Virgin Islands, Meten BVI and Likeshuo BVI. |
| 3) | In August 2018, Meten BVI and Likeshuo BVI established two wholly-owned subsidiaries in Hong Kong, Meten HK and Likeshuo HK, respectively. |
| 4) | In September 2018, Meten HK and Likeshuo HK established two wholly-owned subsidiaries in China, named Zhuhai Meizhilian Education Technology Co., Ltd.(“Zhuhai Meizhilian”) and Zhuhai Likeshuo Education Technology Co., Ltd. (“Zhuhai Likeshuo”), respectively. |
| 5) | In October 2018, Shenzhen Meten was split into three separate legal entities, namely Shenzhen Meten, Shenzhen Likeshuo Education Co., Ltd. (“Shenzhen Likeshuo”) and Shenzhen Yilian Education Investment Co. Ltd. (“Shenzhen Yilian Investment”). |
| 6) | In November 2018, Zhuhai Meten and Zhuhai Likeshuo (collectively the “WFOEs”) entered into a series of contractual arrangements, including a business cooperation agreement, exclusive technical service and management consultancy agreement, exclusive call option agreement, equity pledge agreement and shareholders’ rights entrustment agreement (collectively referred to as the “Contractual Arrangements” as further described below) with Shenzhen Meten, Shenzhen Likeshuo and their shareholders, respectively. Consequently, Shenzhen Meten and Shenzhen Likeshuo became consolidated VIEs of Meten International upon the completion of the relevant reorganization steps. |
| 7) | As part of the Reorganization, Shenzhen Meten transferred its equity interests in certain operations that are not a part of the Business to Shenzhen Yilian Investment and made a net cash distribution of approximately RMB |
9
The Reorganization involved the restructuring of the legal structure of the Business, which was under common control and did not result in any changes in the economic substance of the ownership and the Business. The accompanying consolidated financial statements have been prepared as if the VIE structure had been in existence throughout the periods presented and prior to the VIE structure was unwound.
Upon completion of the Reorganization, Meten International’s shares and per share information including the basic and diluted income/(loss) per share have been presented retrospectively as if the number of ordinary shares outstanding immediately after the completion of the Reorganization had been outstanding from the beginning of the earliest period presented, except for the ordinary shares issued in connection with the exchange of Redeemable Owner’s Investment held by the Pre-listing investors during the Reorganization have been weighted for the portion of the period that they were outstanding.
| (c) | Unwinding of the VIE Structure |
The Company has previously conducted the ELT services in China through a series of contractual arrangements with Shenzhen Meten and Shenzhen Likeshuo and their respective subsidiaries, and consolidated the financial results of Shenzhen Meten and Shenzhen Likeshuo and their subsidiaries in the Company’s consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”).
On October 22, 2022, the Company announced the decision to dispose of the VIE structures in China, and on November 22, 2022 the Company has terminated all of the VIE structures with the ELT services. From November 23, 2022, the Company no longer retained any financial interest over the ELT services related VIEs and accordingly deconsolidated the ELT services related VIEs’ financial statements from the Company’s consolidated financial statements. The disposal of ELT services related VIEs represented a strategic shift and has a major effect on the Company’s result of operations. Accordingly, assets, liabilities, and results of operations related to ELT services related VIEs have been reported as discontinued operations for all periods presented.
| (d) | Basis of presentation |
The accompanying consolidated financial statements have been prepared in accordance with GAAP.
The consolidated financial statements are presented in Renminbi (“RMB”), rounded to the nearest thousands except share data and per share data, or otherwise noted.
| (e) | Principles of consolidation |
The consolidated financial statements of the Group include the financial statements of the Company, its subsidiaries, and the VIEs before the VIE structure was unwound, in which it had a controlling financial interest. The results of the subsidiaries and the VIEs are consolidated from the date on which the Group obtained control and continue to be consolidated until the date that such control ceases. A controlling financial interest is typically determined when a company holds a majority of the voting equity interest in an entity. All significant intercompany balances and transactions among the Company, its subsidiaries and the VIEs have been eliminated on consolidation.
10
| 2. | Summary of significant accounting policies |
| (a) | Use of estimates |
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the balance sheet date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include, but are not limited to, estimate of standalone selling prices of each unit of accounting in multiple elements arrangements, estimate of breakage, the fair value of identifiable assets acquired, liabilities assumed and non-controlling interests in business combinations, the useful lives of long-lived assets including intangible assets, the fair value of the reporting unit for the goodwill impairment test, the allowance for doubtful accounts receivable and other receivables, the realization of deferred tax assets, the fair value of share-based compensation awards, lease liabilities, right-of-use assets and the recoverability of long-lived assets. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.
| (b) | Functional currency |
The Company use United States dollar (“US$”) as its reporting currency. The functional currency of the Company and its subsidiaries incorporated outside of the PRC is United States dollar (“US$”).
| (c) | Convenience translation |
Translations of balances in the consolidated balance
sheets, consolidated statements of comprehensive income/(loss) and consolidated statements of cash flows from RMB into US$ as of and for
the six months ended June 30, 2023 are solely for the convenience of the readers and were calculated at the rate of US$
| (d) | Cash and cash equivalents |
Cash and cash equivalents represent cash on hand and time deposits, which have original maturities of three months or less when purchased and which are unrestricted as to withdrawal and use. In addition, highly liquid investments which have original maturities of three months or less when purchased are classified as cash equivalents.
| (e) | Accounts receivable |
Accounts receivable are presented net of allowance for doubtful accounts. The Company uses specific identification in providing for bad debts when facts and circumstances indicate that collection is doubtful and based on factors listed in the following paragraph. If the financial conditions of its franchisee were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance may be required.
The Group maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Accounts receivable are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
11
| (f) | Digital assets |
Digital asset (including bitcoin) is 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 are accounted for in connection with the Company’s revenue recognition policy disclosed below.
Digital assets 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 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.
Purchases of digital assets by the Company, if any, will be included within investing activities in the accompanying consolidated statements of cash flows, while digital assets awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows. The sales of digital assets 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 “realized gain (loss) on exchange of digital assets” in the consolidated statements of operations and comprehensive income (loss). The Company accounts for its gains or losses in accordance with the first-in first-out method of accounting.
| (g) | Equity method investments |
Investee companies over which the Group has the
ability to exercise significant influence, but does not have a controlling interest through investment in common shares or in-substance
common shares, are accounted for using the equity method. Significant influence is generally considered to exist when the Group has an
ownership interest in the voting stock of the investee between
Under the equity method, the Group initially records its investment at cost and subsequently recognizes the Group’s proportionate share of each equity investee’s net income or loss after the date of investment into earnings and accordingly adjusts the carrying amount of the investment. The Group reviews its equity method investments for impairment whenever an event or circumstance indicates that an other-than-temporary impairment has occurred. The Group considers available quantitative and qualitative evidence in evaluating potential impairment of its equity method investments. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary.
12
| (h) | Property and equipment, net |
Property and equipment are stated at cost less accumulated depreciation and any recorded impairment.
Gains or losses arising from the disposal of an item of property and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognized in profit or loss on the date of disposal.
| Miners |
Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets.
The Group capitalizes costs associated with the acquisition of major software for internal use in other assets in the consolidated balance sheets and amortizes the assets over the expected life of the software, generally between five and ten years.
| (i) | Impairment of long-lived assets |
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Group first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment losses were recorded for the six months ended June 30, 2022 and 2023.
| (j) | Loans |
Loans comprise short-term loans and long term loans. Loans are recognized initially at fair value, net of transaction costs incurred. Loans are subsequently stated at amortized cost; any difference between the proceeds net of transaction costs and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.
| (k) | Accounts payable |
Accounts payable represent liabilities for goods provided to the Company prior to the end of the financial year which are unpaid. They are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). Otherwise, they are presented as non-current liabilities. Accounts payable are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest method.
| (l) | Revenue recognition |
The Company adopted ASC 606, “Revenue from Contracts with Customers” for all periods presented. Consistent with the criteria of ASC 606, the Company follows five steps for its revenue recognition: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
13
The primary sources of the Group’s revenue is as follows:
| (1) | 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 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 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.
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, which the Company measures at fair value 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. 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 mining pool operator 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 digital assets award received is determined using the quoted price of the related digital assets at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for digital assets 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.
| (m) | Income taxes |
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as operating loss and tax credit carryforwards, if any. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates or tax laws is recognized in the consolidated statements of comprehensive income in the period the change in tax rates or tax laws is enacted.
The Group reduces the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is “more-likely-than-not” that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a “more-likely-than-not” realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, and the Group’s experience with operating loss and tax credit carryforwards, if any, not expiring.
The Group recognizes in its financial statements the impact of a tax position if that position is “more-likely-than-not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more-likely-than-not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties recognized related to unrecognized tax benefits are classified as income tax expense in the consolidated statements of comprehensive income.
14
| (n) | Share based compensation |
Share-based awards granted to the employees in the form of share options are subject to service and non-market performance conditions. They are measured at the grant date fair value of the awards. The compensation expense in connection with the shares awarded to employees is recognized using the straight-line method over the requisite service period. Forfeitures are estimated at the time of grant, with such estimate updated periodically and with actual forfeitures recognized currently to the extent they differ from the estimate.
In determining the fair value of the shares awarded to employees, the discounted cash flow pricing model has been applied.
Estimation of the fair value involves significant assumptions that might not be observable in the market, and a number of complex and subjective variables, including the expected share price volatility (approximated by the volatility of comparable companies), discount rate, risk-free interest rate and subjective judgments regarding the Company’s projected financial and operating results, its unique business risks and its operating history and prospects at the time the grants are made.
| (o) | Statutory reserve |
In accordance with the Company Laws of the PRC,
the former VIEs registered as PRC domestic companies must make appropriations from its after-tax profit as determined under the PRC GAAP
to non-distributable reserve funds including a statutory surplus fund and a discretionary surplus fund. The appropriation to the statutory
surplus fund must be at least
The use of the statutory reserves are restricted to the off-setting of losses or increasing capital of the respective company. All these reserves are not allowed to be transferred to their investors in terms of cash dividends, loans or advances, nor can they be distributed except under liquidation.
| (ab) | Contingencies |
In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, and non-income tax matters. An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.
15
| (ac) | Fair value measurements |
The Group applies ASC 820, Fair Value measurements and Disclosures, for fair value measurements financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements on a recurring and non-recurring basis. ASC 820 defines fair value 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. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| ● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group has the ability to access at the measurement date. |
| ● | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| ● | Level 3 inputs are unobservable inputs for the asset or liability. |
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. In situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects management’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by management based on the best information available in the circumstances.
The carrying amounts of cash and cash equivalents, accounts receivable, amounts due from related parties, accounts payable, amounts due to related parties, income taxes payable, accrued expenses and other payables as of December 31, 2022 and June 30, 2023 approximate their fair values because of short maturity of these instruments.
| (ad) | Net income/(loss) per share |
Basic net income/(loss) per share is computed by dividing net income/(loss) attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted net income/(loss) per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised into ordinary shares. Ordinary share equivalents are excluded from the computation of the diluted net income/(loss) per share in years when their effect would be anti-dilutive. The Group has non-vested shares which could potentially dilute basic income/(loss) per share in the future. To calculate the number of shares for diluted net income/(loss) per share, the effect of the non-vested shares is computed using the treasury stock method.
16
| (ae) | Recently issued accounting pronouncements |
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued and has evaluated all other pronouncements.
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06). The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplify the related diluted net income per share calculation for Subtopic 470-20 and Subtopic 815-40. ASU 2020-06 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, for smaller reporting companies, as defined by the SEC. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the troubled debt restructurings (TDRs) accounting model for creditors that have already adopted Topic 326, which is commonly referred to as the current expected credit loss (CECL) model. For entities that have adopted Topic 326, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The FASB’s decision to eliminate the TDR accounting model is in response to feedback that the allowance under CECL already incorporates credit losses from loans modified as TDRs and, consequently, the related accounting and disclosures – which preparers often find onerous to apply – no longer provide the same level of benefit to users. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations, or cash flows.
| 3. | Risks and Concentration |
Credit and concentration risk
Assets that potentially subject the Group to significant concentration of credit risk primarily consist of cash and cash equivalents and restricted cash. As of June 30, 2023, substantially all of the Group’s cash and cash equivalents were deposited in financial institutions located in the PRC, Hong Kong and United States, which management believes are of high credit quality.
17
| 4. | Discontinued operations |
Disposition of the VIEs and the VIEs’ subsidiaries
On November 22, 2022, the Group terminated all of its English language training (ELT) business-related VIE contracts for nil consideration and disposed of its Chinese lottery-related business.
From November 23, 2022, the Group no longer retained any financial interest over ELT business related VIEs and accordingly deconsolidated ELT business related VIEs’ financial statements from the Group’s consolidated financial statements. The disposal of ELT business related VIEs represented a strategic shift and has a major effect on the Group’s result of operations. Accordingly, assets, liabilities, revenues, expenses and cash flows related to ELT business related VIEs have been reclassified in the consolidated financial statements as discontinued operations for the years ended December 31, 2020, 2021 and 2022.
| As of November 22, 2022 | ||||
| RMB’000 | ||||
| Consideration | ||||
| Cash and cash equivalents | ||||
| Contract assets | ||||
| Accounts receivable | ||||
| Other contract costs, Current | ||||
| Prepayments and other current assets | ||||
| Amounts due from related parties | ||||
| Prepaid income tax | ||||
| Restricted cash | ||||
| Other contract costs, non-current | ||||
| Equity method investments | ||||
| Property and equipment, net | ||||
| Intangible assets, net | ||||
| Deferred tax assets | ||||
| Goodwill | ||||
| Right-of-use assets | ||||
| Other non-current assets | ||||
| Accounts payable | ( | ) | ||
| Deferred revenue, current | ( | ) | ||
| Salary and welfare payable | ( | ) | ||
| Financial liabilities from contracts with customers | ( | ) | ||
| Accrued expenses and other payables | ( | ) | ||
| Income taxes payable | ( | ) | ||
| Current lease liabilities | ( | ) | ||
| Amounts due to related parties | ( | ) | ||
| Deferred revenue, non-current | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Non-current tax payable | ( | ) | ||
| Lease liabilities | ( | ) | ||
| Net assets of ELT business related VIEs* | ( | ) | ||
| Non-controlling interest of ELT business related VIEs | ||||
| Less: Net assets of ELT business related VIEs contributable to the Company | ( | ) | ||
| Loss on disposal of ELT business related VIEs | ||||
18
| As of December 31, 2021 | ||||
| RMB’000 | ||||
| Current assets for discontinued operations | - | |||
| Contract assets | ||||
| Accounts receivable | ||||
| Other contract costs, Current | ||||
| Prepayments and other current assets | ||||
| Amounts due from related parties | ||||
| Prepaid income tax | ||||
| Total | ||||
| Non-current assets for discontinued operations | ||||
| Other contract costs, non-current | ||||
| Equity method investments | ||||
| Property and equipment, net | ||||
| Intangible assets, net | ||||
| Deferred tax assets | ||||
| Goodwill | ||||
| Right-of-use assets | ||||
| Other non-current assets | ||||
| Total | ||||
| Current liabilities for discontinued operations | ||||
| Accounts payable | ||||
| Bank loans | ||||
| Deferred revenue, current | ||||
| Salary and welfare payable | ||||
| Financial liabilities from contracts with customers | ||||
| Accrued expenses and other payables | ||||
| Income taxes payable | ||||
| Current lease liabilites | ||||
| Amounts due to related parties | ||||
| Total | ||||
| Non-current liabilities for discontinued operations | ||||
| Deferred revenue, non-current | ||||
| Deferred tax liabilities | ||||
| Non current tax payable | ||||
| Lease liabilities | ||||
| Total | ||||
19
| Years ended December 31, | ||||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||||||
| Net cash generated/(used in) from financing activities | ( | ) | ||||||||||
| Years ended December 31, | ||||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
| Major classes of line items constituting pre-tax profit of discontinued operations | ||||||||||||
| Revenue | ||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ||||||
| Sales and marketing | ( | ) | ( | ) | ( | ) | ||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ||||||
| Other income that are not major | ( | ) | ( | ) | ||||||||
| Loss, before income tax | ( | ) | ( | ) | ( | ) | ||||||
| Income tax expense/(benefit) | ( | ) | ( | ) | ||||||||
| Loss, net of income tax | ( | ) | ( | ) | ( | ) | ||||||
| Loss on deconsolidation of the subsidiary, net of income tax | ||||||||||||
| Net income/(loss), net of income tax | ( | ) | ( | ) | ||||||||
| 5. | Accounts receivables |
| December 31, 2022 | June 30, 2023 | |||||||
| US$’000 | US$’000 | |||||||
| Accounts receivable | ||||||||
Prepayments and other assets
| December 31, 2022 | June 30, 2023 | |||||||
| US$’000 | US$’000 | |||||||
| Prepayments and other current assets | ||||||||
| Prepayment for equipment and related-services | ||||||||
| Others | ||||||||
| Total | ||||||||
The others mainly include deposits, prepaid consulting service fees and other sundry receivables.
20
| 6. | Digital assets |
| December 31, 2022 | June 30,
2023 | |||||||
| US$’000 | US$’000 | |||||||
| BTC | ||||||||
| Total | ||||||||
Additional information about bitcoin:
For the six months ended June 30, 2023,
the Company generated bitcoins primarily through mining services.
| December 31, 2022 | June 30,
2023 | |||||||
| US$’000 | US$’000 | |||||||
| Opening balance | ||||||||
| Receipt of bitcoins from mining services | ||||||||
| Receipt of bitcoins from hash power rental | ||||||||
| Exchange of BTC into USDT | ( | ) | ( | ) | ||||
| Impairment of bitcoins | ( | ) | ||||||
| Ending balance | ||||||||
For the ended June 30, 2023, the Company recognized impairment of ,
and for the ended December 31, 2022, the Company recognized impairment of US$
| 7. | Equity method investments |
In December 2021, the Company had entered into
an agreement with industry experts to establish a joint venture, Met Chain Co Limited under the laws of Hong Kong (the “2021 Joint
Venture”), specializing in the research and development (“R&D”), production, and sales of cryptocurrency mining
equipment. Upon the formation of the 2021 joint venture, the Company held
The Company recognized gain on equity method
investments of $
21
| 8. | Property and equipment, net |
| December 31, 2022 | June 30, 2023 | |||||||
| US$’000 | US$’000 | |||||||
| Cost: | ||||||||
| Miners for Bitcoin | ||||||||
| Total cost | ||||||||
| Less: Accumulated depreciation | ||||||||
| Property and equipment, net | ||||||||
Depreciation expense
recognized for the six months ended June 30, 2023 and 2022 was US$
| 9. | Income tax |
| (a) | Cayman Islands |
Under the current tax laws of Cayman Islands, the Company is not subject to tax on income, corporation or capital gain, and no withholding tax is imposed upon the payment of dividends to shareholders.
| (b) | BVI |
Under the current tax laws of the BVI, the Company’s BVI subsidiaries are not subject to any income taxes in the BVI.
| (c) | Hong Kong Profits Tax |
Under the current Hong Kong Inland Revenue Ordinance,
the Company’s Hong Kong subsidiaries are subject to Hong Kong profits tax on its taxable income generated from the operations in
Hong Kong. A Two-tiered Profits Tax rates regime was introduced since year 2018 where the first HK$
| 10. | Short term loan |
On October 1, 2022, the Group entered into a loan
agreement with JM Digital., INC., with a maturity date of
22
| 11. | Earnings (Loss) per share |
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2023 | |||||||
| (in thousands of US$,
except share data and per share data) | ||||||||
| Numerator: | ||||||||
| ( | ) | ( | ) | |||||
| Denominator | ||||||||
| Weighted average number of ordinary shares - basic | ||||||||
| Effect of dilutive securities | ||||||||
| Dilutive effect of non-vested shares | ||||||||
| Denominator for diluted net (loss)/income per share | ||||||||
| Net loss - basic | ( | ) | ( | ) | ||||
| Net loss - diluted | ( | ) | ( | ) | ||||
| 12. | Share-based compensation |
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2023 | |||||||
| US$’000 | US$’000 | |||||||
| Share options | ||||||||
These options were granted with exercise prices
denominated in US$. The grantees can exercise vested options after the commencement date of exercise and before the end of its contractual
term (i.e.,
All share-based payments to employees are measured based on their grant-date fair values. Compensation expense is recognized using the straight-line method over the requisite service period.
| 13. | Equity |
Ordinary shares
On September 27, 2019, the Company was authorized
to issue
On July 10, 2018, Meten International was incorporated
as limited liability company with authorized share capital of
In December 2018, Meten International increased
its authorized share capital by creation of
23
On March 30, 2020, the Company consummated its
acquisition of Meten International and EdtechX, pursuant to the Merger Agreement. A total of
Immediately prior to the Business Combination,
Azimut Enterprises Holdings S.r.l. invested $
In connection with the Business Combination, on
February 28, 2020, March 19, 2020 and March 26, 2020, three unrelated investors agreed to invest US$
In connection with the Business Combination, the
Company adopted a new incentive plan to replace the 2018 Plan. The Company rolled over awards granted under the 2013 Plan and 2018 Plan
with the same amount and terms. As a result, options to purchase
On January 4, 2021, the Company issued
The Company offered
On September 1, 2021, the Company offered
On November 9, 2021, the Company entered into
a securities purchase agreement with certain investors, to sell an aggregate of
On May 4, 2022, the Company completed a thirty
for one share consolidation (the “2022 Share Consolidation”) of its issued and outstanding ordinary shares, par value $
On June 29, 2022, the Company approved the proposal
to increase their authorized share capital from US$
On August 4, 2022, the Company offered
On November 10, 2022, the Company issued
On August 23, 2023, the Company completed a twenty
for one share consolidation (the “2023 Share Consolidation”, together with the 2022 Share Consolidation, the “Share
Consolidations”) of its issued and outstanding ordinary shares, par value $
As of December 31, 2022 and June 30, 2023, there
were
24
From the legal perspective, the Share Consolidations applied to the issued shares of the Company on the date of the Share Consolidations and do not have any retroactive effect on the Company’s shares prior that date. However, for accounting purposes only, references to the Company’s ordinary shares in this report are stated as having been retroactively adjusted and restated to give effect to the Share Consolidations, as if the Share Consolidations had occurred by the relevant earlier date.
Warrants
As of December 31, 2020, there were
On January 8, 2021, the Company successfully completed
a tender offer for its warrants to purchase ordinary shares at a reduced exercise price of $
The Company raised $6,192,286.80 in gross proceeds from the cash exercise of 4,423,062 warrants of the Company as part of the tender offer. In addition, 2,629,812 warrants to purchase ordinary shares of the Company were validly tendered for cashless exercise, resulting in the issuance of 1,364,512 ordinary shares of the Company.
The Company offered its existing loyal warrant holders the opportunity to exercise their warrants at $1.40 from the initial warrant exercise price at $11.50. Approximately 55.5% of the Company’s outstanding warrants were exercised in the tender offer.
Net proceeds are anticipated to be approximately
$
On February 19, 2021,
The Company offered
On September 1, 2021,
Upon effectiveness of the Reverse Split, each
outstanding warrant of
On August 4, 2022,
25
As a result of the August 2022 offering,
the exercise price of the Company’s public warrants was reduced to $
| 14. | Related party transactions |
| Name of party | Relationship | |
| Mr. Zhao Jishuang | ||
| Mr. Guo Yupeng | ||
| Mr. Peng Siguang | ||
| Met Chain Co., Limited |
| (a) |
| December 31, 2022 | June 30, 2023 | |||||||
| US$’000 | US$’000 | |||||||
| Advances from related parties | ||||||||
| - Mr. Guo Yupeng | ||||||||
| - Mr. Zhao Jishuang | ||||||||
| - Met Chain Co.,Limited | ||||||||
| Total | ||||||||
| Repayment of advances from related parties | ||||||||
| - Mr. Zhao Jishuang | ||||||||
| Total | ||||||||
| (b) |
| (c) | December 31, 2022 | June 30, 2023 | ||||||
| US$’000 | US$’000 | |||||||
| Amounts due to related parties | ||||||||
| Current | ||||||||
| - Mr. Guo Yupeng | ||||||||
| - Mr. Zhao Jishuang | ||||||||
| - Met Chain Co.,Limited | ||||||||
| Total | ||||||||
| (i) | Advances from/to these related parties are unsecured, interest free and repayable on demand. |
| 15. | Restricted net assets |
There is no other restriction on use of proceeds generated by the Group’s subsidiaries to satisfy any obligations of the Company.
26
| 16. | Subsequent events |
Purchase of
On July 14,2023, the Company has entered into
an asset purchase agreement with two unaffiliated third parties to acquire
Entry into Share Subscription Agreements
On August 7, 2023 the Company announced that it
has entered into subscription agreements with two foreign investors, including an institutional investor, Future Satoshi Ltd, and an individual
investor, for the issue and sale of
Name Change to BTC Digital Ltd.
On August 11, 2023, the Company changed its name to “BTC Digital Ltd.”.
Share Consolidation
On August 23, 2023, the Company announced a 1-for-20
share consolidation of its ordinary shares, which began to trade on Nasdaq on August 24, 2023 on a split adjusted basis. The authorized
share capital of the company is now US$
Purchase of
On November 3, 2023, the Company announced that
it has entered into an asset purchase agreement with two unaffiliated third parties to acquire
27