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 May 2024
Commission File Number: 001-38421
BIT DIGITAL, INC.
(Translation of registrant’s name into English)
33 Irving Place, New York, NY 10003
(Address of principal executive offices)
Indicate by check mark whether the registrant
files or will file annual reports under cover of Form 20-F or Form 40-F
Form 20-F ☒ Form
40-F ☐
Exhibit Index
A copy of the Bit Digital, Inc. press release dated
May 15, 2024, titled “Bit Digital, Inc. Announces First Quarter of Fiscal Year 2024 Financial Results,” is being filed as
Exhibit 99.1 with this Report on Form 6-K.
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.
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Bit Digital, Inc. |
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(Registrant) |
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By: |
/s/ Samir Tabar |
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Name: |
Samir Tabar |
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Title: |
Chief Executive Officer |
Date: May 15, 2024
Exhibit 99.1
Bit Digital, Inc. Announces First Quarter of
Fiscal Year 2024 Financial Results
NEW YORK, May 15, 2024 /PRNewswire/ -- Bit Digital,
Inc. (Nasdaq: BTBT) (the “Company”), a sustainable platform for digital assets and artificial intelligence (“AI”)
infrastructure headquartered in New York City, today announced its unaudited financial results for the First Quarter ended March 31, 2024.
Financial Highlights for the First Quarter of 2024
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Total revenue was $30.3 million for the First Quarter of 2024, a 266% increase compared to the First Quarter of 2023. The increase was primarily driven by the commencement of our Bit Digital AI business and by a higher realized bitcoin price. |
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Revenue from bitcoin mining was $21.9 million for the First Quarter of 2024, a 166% increase compared to the prior year’s quarter. The Company’s Bit Digital AI business, referred to as High performance computing services (“HPC”), began generating revenue in January 2024, and recognized $8.1 million of revenue during the quarter. The Company issued a one-time service credit of $1.3 million to its HPC customer as compensation for decreased utilization during the initial deployment period, which included testing and optimization phases. Illustratively, adding back this credit would yield pro forma gross margins of approximately 72% on a net basis compared to reported gross margins of 61% for the segment. Revenue from ETH staking was approximately $0.3 million. |
| ● | The Company had cash, cash equivalents and restricted cash
of $35.5 million, and total liquidity (defined as cash equivalents and restricted cash, USDC, and the fair market value of digital assets)
of approximately $163.2 million1, as of
March 31, 2024. |
| ● | Total assets were $291.1 million and Shareholders’
Equity amounted to $265.2 million as of March 31, 2024. |
| ● | Adjusted EBITDA2
was $58.5 million for the First Quarter of 2024 compared to $1.5 million for the First Quarter of 2023. |
| ● | GAAP earnings per share was $0.43 on a fully-diluted basis
for the First Quarter of 2024 compared to a loss of $0.03 for the First Quarter of 2023. |
Operational Highlights for the First Quarter
of 2024
| ● | The Company earned 410.7 bitcoins during the First Quarter
of 2024, a 13% increase from the prior year. Growth was primarily driven by a higher active hash rate and partially offset by an increase
in network difficulty. |
| ● | The Company paid approximately $0.05 per kilowatt hour to
its hosting partners for electricity consumed during the First Quarter of 2024. |
| ● | The average fleet efficiency for the active fleet was approximately
28.3 J/TH as of March 31, 2024. |
| ● | The Company earned 111.1 ETH in native staking and
1.3 ETH in liquid staking, respectively, in the First Quarter of 2024. |
| ● | Treasury holdings of BTC and ETH were 956.4 and 16,031.411,
respectively, with a fair market value of approximately $68.2 million and $58.5 million on March 31, 2024, respectively. |
| ● | The BTC equivalent3
of our digital asset holdings as of March 31, 2024 (defined as if all ETH and USDC holdings were converted into BTC as of
that date) was approximately 1,790.0 BTC1,
or approximately $127.7 million. |
| ● | As of March 31, 2024, we had 48,898 miners owned or operating
(in Iceland) for bitcoin mining with a total maximum hash rate of 4.2 EH/S. |
| ● | The Company’s active hash rate of its bitcoin mining
fleet was approximately 2.76 EH/s as of March 31, 2024. |
| ● | The Company purchased approximately 2,350 bitcoin mining
units during the First Quarter of 2024. |
| ● | Approximately 85% of our fleet’s run-rate electricity
consumption was generated from carbon-free energy sources as of March 31, 2024. These figures are based on data provided by our hosts,
publicly available sources, and internal estimates, demonstrating our commitment to sustainable practices in the digital asset mining
industry. |
| 1 | This figure excludes approximately 2,701 ETH that were transferred
to an internally managed fund. |
| 2 | Adjusted EBITDA refers to earnings before interest expense,
income tax expense and depreciation and amortization expense (“EBITDA”) adjusted to eliminate the effects of certain non-cash
and / or non-recurring items. |
| 3 | “BTC equivalent” is a hypothetical illustration
of the value of our digital asset portfolio in bitcoin terms. BTC equivalent is defined as if all non-BTC digital assets, comprised of
ETH and USDC, were converted into BTC as of March 31, 2024, and added to our existing BTC balance. Conversion values are found using
the closing price on coinmarketcap.com. |
| ● | The Company had approximately 3,008 ETH actively staked in native staking protocols as of March 31, 2024.
The decrease relative to the prior quarter was due to the Company changing its provider for native staking solutions. As of April 30,
2024, the Company had approximately 17,184 ETH actively staked in native staking protocols. |
| ● | On January 22, 2024, approximately 192 servers (1,536 GPUs)
began generating revenue from the Company’s AI customer contract. Subsequently, approximately 64 additional servers (512 GPUs)
commenced revenue generation on February 2, 2024. |
| ● | On January 26, 2024, the Company finalized an agreement with
Coinmint for up to 6 MW of additional mining capacity at Coinmint’s hosting facility in Massena, New York. This new agreement brings
the Company’s total contracted hosting capacity with Coinmint to approximately 46 MW. |
Management Commentary
“Our First Quarter 2024 results represent a
strong start to the year with revenue growing by more than 250% and GAAP Net Income in excess of $50 million. The primary drivers for
the improved performance were the commencement of our Bit Digital AI business and a higher realized bitcoin price.
We were well prepared for the halving which occurred
in April 2024. Our balance sheet remains a core strength with over $160 million of total liquidity as of March 31, 2024, zero debt, and
a growing revenue stream that is not correlated to the economics of bitcoin mining. While we continue to evaluate the post-halving bitcoin
mining landscape, our goal of reaching 6.0 EH/s this year remains intact. We are actively engaged in discussions for both incremental
hosting opportunities and potential acquisitions.
We continue to believe that capital allocation
optionality provided by our complementary business lines is a key differentiator for our Company. We are actively evaluating a number
of growth opportunities, both organic and inorganic, across each of our business lines. We are in the late stages of finalizing an agreement
to double the size of the GPU fleet for our anchor client and our negotiations with prospective clients are progressing well. Our target
of reaching a $100 million annualized revenue run-rate by year-end for this segment remains intact.”
About Bit Digital
Bit Digital, Inc. is a sustainable platform for digital assets and
artificial intelligence (“AI”) infrastructure headquartered in New York City. Our bitcoin mining operations are located in
the US, Canada, and Iceland. The Company has established a business line, Bit Digital AI, that offers infrastructure services for artificial
intelligence applications. For additional information, please contact ir@bit-digital.com or visit our website at www.bit-digital.com.
Investor Notice
Investing in our securities involves a high degree of risk. Before
making an investment decision, you should carefully consider the risks, uncertainties and forward-looking statements described under "Risk
Factors" in Item 3.D of our Annual Report on Form 20-F for the fiscal year ended December 31, 2023. If any material risk was to occur,
our business, financial condition or results of operations would likely suffer. In that event, the value of our securities could decline
and you could lose part or all of your investment. The risks and uncertainties we describe are not the only ones facing us. Additional
risks not presently known to us or that we currently deem immaterial may also impair our business operations. In addition, our past financial
performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results in the
future. Future changes in the network-wide mining difficulty rate or bitcoin hash rate may also materially affect the future performance
of Bit Digital's production of bitcoin. Actual operating results will vary depending on many factors including network difficulty rate,
total hash rate of the network, the operations of our facilities, the status of our miners, and other factors. See "Safe Harbor Statement"
below.
Safe Harbor Statement
This press release may contain certain "forward-looking statements"
relating to the business of Bit Digital, Inc., and its subsidiary companies. All statements, other than statements of historical fact
included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking
terminology such as "believes," "expects," or similar expressions, involving known and unknown risks and uncertainties.
Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions,
risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking
statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated
in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that
are filed with the Securities and Exchange Commission and available on its website at http://www.sec.gov.
All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by
these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview
Bit Digital, Inc. or the (“Company”),
is a sustainable platform for digital assets and artificial intelligence (“AI”) infrastructure. The Company engages in digital
asset mining business, Ethereum (“ETH”) staking business, and high performance computing services for artificial intelligence applications.
Digital Asset Mining Business
We are a sustainable digital infrastructure
platform for digital assets and artificial intelligence (“AI”) with mining operations in the United States, Canada and
Iceland. We commenced our bitcoin (“BTC”) mining business in February 2020. We initiated limited Ethereum mining
operations in January 2022 and discontinued the operations by September 2022 due to Ethereum blockchain switching from proof-of-work
(“PoW”) consensus mechanism to proof-of-stake (“PoS”) validation. Our mining operations, hosted by
third-party providers, use specialized computers, known as miners, to generate digital assets. Our miners use application specific
integrated circuit (“ASIC”) chips. These chips enable the miners to apply high computational power, expressed as
“hash rate”, to provide transaction verification services (generally known as “solving a block”) which helps
support the blockchain. For every block added, the blockchain provides an award equal to a set number of digital assets per block.
Miners with a greater hash rate generally have a higher chance of solving a block and receiving an award.
We operate our mining assets with the primary
intent of accumulating digital assets which we may sell for fiat currency from time to time depending on market conditions and management’s
determination of our cash flow needs, and/or exchange into ETH or USD Coin (“USDC”). Our mining strategy has been to mine bitcoins as quickly and as
many as possible given the fixed supply of bitcoins. In view of historically long delivery lead times to purchase miners from manufacturers
like Bitmain Technologies Limited (“Bitmain”) and MicroBT Electronics Technology Co., Ltd (“MicroBT”), and other
considerations, we may choose to acquire miners on the spot market, which can typically result in delivery within a relatively short time.
We have signed service agreements with third-party
hosting partners in North America and Iceland. These partners operate specialized mining data centers, where they install and operate
the miners and provide IT consulting, maintenance, and repair work on site for us. Our mining facilities in New York are maintained by
Coinmint LLC (“Coinmint”) and Digihost Technologies Inc. (“Digihost”). Our mining facility in Texas is maintained
by Dory Creek, LLC, a subsidiary of Bitdeer Technologies Group (“Bitdeer”). Our mining facility in Kentucky is maintained
by Soluna Computing, Inc (“Soluna”). Our mining facility in Canada is maintained by Blockbreakers Inc. (“Blockbreakers”).
Our mining facility in Iceland is maintained by GreenBlocks ehf, an Icelandic private limited company (“GreenBlocks”). We
have relocated some miners from our Texas and Nebraska facilities, once under Compute North LLC’s maintenance before a third-party
takeover preceding their 2022 bankruptcy, to facilities operated by Coinmint in New York. We have relocated those miners from our Georgia
mining facility, previously maintained by Core Scientific, Inc to one of Coinmint’s facilities. We have relocated those miners from
Blockfusion USA, Inc. (“Blockfusion”) facilities to Digihost, Bitdeer and Soluna after our service agreement with Blockfusion
ended in September 2023. From time to time, the Company may change partnerships with hosting facilities to recalibrate its bitcoin mining
operations. These terminations are strategic, targeting reduced operational costs, enhanced energy efficiency for a smaller carbon footprint,
increased flexibility in operational control, and minimized geopolitical risks. While a short-term decrease in mining output might occur,
we expect these changes to yield long-term operational improvements.
We are a sustainability-focused digital asset
mining company. On June 24, 2021, we signed the Crypto Climate Accord, a private sector-led initiative that aims to decarbonize the crypto
and blockchain sectors. On December 7, 2021, we became a member of the Bitcoin Mining Council (“BMC”), joining MicroStrategy
and other founding members to promote transparency, share best practices, and educate the public on the benefits of bitcoin and bitcoin
mining.
ETH Staking Business
In the fourth quarter of 2022, we formally commenced
Ethereum staking operations. We intend to delegate or stake our ETH holdings to an Ethereum validator node to help secure and strengthen
the blockchain network. Stakers are compensated for this commitment in the form of a reward of the native network token.
Our native staking operations are enhanced by
a partnership with Blockdaemon, the leading institutional-grade blockchain infrastructure company for node management and staking. In
the fourth quarter of 2022, following a similar mechanism to native Ethereum staking, we also participated in liquid staking via Portara
protocol (formerly known as Harbour), the liquid staking protocol developed by Blockdaemon and StakeWise and the first of its kind tailored
to institutions. With the introduction of staked ETH withdrawals in April 2023, we have reassessed our Ethereum network staking approaches,
weighing the advantages of traditional staking against liquid staking solutions. The withdrawal feature in native staking, coupled with
yields that are on par with those of liquid staking, has encouraged us to expand our collaborations with other service providers in this
domain. As a result, we terminated all liquid staking activities with StakeWise in the third quarter of 2023, reclaiming all staked Ethereum
along with the accumulated rewards. In the fourth quarter of 2023, the Company terminated the native staking activities and reclaimed
all staked Ethereum with Blockdaemon.
Our native staking operations with Marsprotocol
commenced in the first quarter of 2023 and concluded in July 2023. After ceasing operations with Marsprotocol, we initiated our
native staking with MarsLand Global Limited in August 2023. Subsequently, we have ceased our native staking with MarsLand in the first
quarter of 2024 and initiated our native staking with Figment Inc.
In addition, we started participating in liquid
staking via Liquid Collective protocol on the Coinbase platform in the first quarter of 2023. Liquid staking allows participants to achieve
greater capital efficiency by utilizing their staked ETH as collateral and trading their staked ETH tokens on the secondary market. In
the first quarter of 2024, we have reclaimed all the liquid staked ETH from Liquid Collective protocol.
High Performance Computing Services
In the fourth quarter of 2023, we initiated Bit
Digital AI, a new business line to provide high performance computing services to support generative AI workstreams. Hosted at a third-party
Tier-3 datacenter, the Company’s high performance computing ("HPC") services provide an integrated platform engineered
to harness the process power of our fleet of NVIDIA H100 GPUs. The HPC services equipment is comprised of Graphics Processing
Units (“GPUs”) servers, network equipment, and data storage equipment. In line with our commitment to sustainability,
our HPC services equipment utilizes 100% carbon-free renewable energy from geothermal and hydroelectric sources.
The Company finalized a service agreement with
its first customer, for the provision of HPC services from a total of 2,048 GPUs over a three-year period. To finance this operation,
the Company entered into a sale-leaseback agreement with a third party, selling 96 AI servers (equivalent to 768 GPUs) and leasing them
back for three years. On January 22, 2024, approximately 192 servers (1,536 GPUs) were deployed at a Tier-3 data center and began generating
revenue, and subsequently on February 2, 2024, approximately an additional 64 servers (512 GPUs) also started revenue generation. Our
revenue from high performance computing services was $8.1 million for the three months ended March 31, 2024.
Miner Deployments
During the three months ended March 31, 2024,
we continued to work with our hosting partners to deploy our miners in North America and Iceland.
During the first quarter of 2024, the Company
deployed an additional 2,350 miners at one of Coinmint’s hosting facilities.
As
of March 31, 2024, the Company’s active hash rate totals approximately 2.8 EH/s, with operations in North America and
Iceland.
Power and Hosting Overview
During the three months ended March 31, 2024,
our hosting partners continued to prepare sites to deliver our contracted hosting capacity, bringing additional power online for our miners.
The Company’s subsidiary, Bit Digital Canada,
Inc., entered into a Mining Services Agreement effective September 1, 2022, for Blockbreakers, Inc. to provide five (5) MW of incremental
hosting capacity at its facility in Canada. The facility utilizes an energy source that is primarily hydroelectric.
On May 8, 2023, the Company entered into a
Master Mining Services Agreement with Blockbreakers, pursuant to which Blockbreakers agreed to provide the Company with four (4) MW
of additional mining capacity at its hosting facility in Canada. The agreement is for two (2) years automatically renewable for
additional one (1) year terms unless either party gives at least sixty (60) days’ advance written notice. The performance fee
is 15% of the net profit. Additionally, Bit Digital has secured a side letter agreement with Blockbreakers, granting the Company the
right of first refusal for any future mining hosting services offered by Blockbreakers in Canada. This new agreement brings the
Company’s total contracted hosting capacity with Blockbreakers to approximately 9 MW. As of March 31, 2024, Blockbreakers
provided approximately 5.4 MW of capacity for our miners at their facility.
On June 7, 2022, we entered into a Master
Mining Services Agreement (the “MMSA”) with Coinmint LLC, pursuant to which Coinmint will provide the required mining
colocation services for a one-year period automatically renewing for three-month periods unless earlier terminated. The Company will
pay Coinmint electricity costs, plus operating costs required to operate the Company’s mining equipment, as well as a
performance fee equal to 27.5% of the net profit, subject to a ten percent (10%) reduction if Coinmint fails to provide uptime of
ninety-eight (98%) percent or better for any period. We are not privy to the emissions rate at the Coinmint facility or at any other
hosting facility. However, the Coinmint facility operates in an upstate New York region that reportedly utilizes power that is 99%
emissions-free, as determined based on the 2023 Load & Capacity Data Report published by the New York Independent System
Operator, Inc. (“NYISO”).
On April 5, 2023, the Company entered into a letter
agreement and MMSA Amendment with Coinmint pursuant to which Coinmint agreed to provide the Company with up to ten (10) MW of additional
mining capacity to energize the Company’s mining equipment at Coinmint’s hosting facility in Plattsburgh, New York. The agreement
is for two (2) years automatically renewing for three (3) months unless terminated by either party on at least ninety (90) days prior
written notice. The performance fees under this letter agreement range from 30% to 33% of the net profit. This new agreement brings the
Company’s total contracted hosting capacity with Coinmint to approximately 30 MW at this facility.
On April 27, 2023, the Company entered into a
letter agreement and MMSA Amendment with Coinmint pursuant to which Coinmint agreed to provide the Company with up to ten (10) MW of additional
mining capacity to energize the Company’s mining equipment at Coinmint’s hosting facility in Massena, New York. The agreement
is for one (1) year automatically renewing for three (3) months unless terminated by either party on at least ninety (90) days prior written
notice. The performance fees under this letter agreement are 33% of the net profit. This new agreement brings the Company’s total
contracted hosting capacity with Coinmint to approximately 40 MW.
On January 26, 2024, the Company entered into
a letter agreement and MMSA Amendment with Coinmint pursuant to which Coinmint agreed to provide the Company with up to six (6) MW of
additional mining capacity to energize the Company’s mining equipment at Coinmint’s hosting facility in Massena, New York.
The agreement is for one (1) year automatically renewing for three (3) months unless terminated by either party on at least ninety (90)
days prior written notice. The performance fees under this letter agreement are 28% of the net profit. This new agreement brings the Company’s
total contracted hosting capacity with Coinmint to approximately 46 MW. As of March 31, 2024, Coinmint provided approximately 48.5 MW
of capacity for our miners at their facilities.
In June 2021, we entered into a strategic co-mining
agreement with Digihost Technologies in North America. Pursuant to the terms of the agreement, Digihost provides certain premises to Bit
Digital for the purpose of the operation and storage of a twenty (20) MW bitcoin mining system to be delivered by Bit Digital. Digihost
provides services to maintain the premises for a term of two (2) years. Digihost shall also be entitled to 20% of the net profit generated
by the miners.
In April 2023, we renewed the co-mining agreement
with Digihost, previously executed in June 2021. Pursuant to the terms of the new agreement, Digihost provides certain premises to Bit
Digital for the purpose of the operation and storage of an up to twenty (20) MW bitcoin mining system to be delivered by Bit Digital.
Digihost also provides services to maintain the premises for a term of two (2) years, automatically renewing for a period of one (1) year.
Digihost shall also be entitled to 30% of the net profit generated by the miners. As of March 31, 2024, Digihost provided approximately
6.0 MW of capacity for our miners at their facility.
On May 9, 2023 (“Effective Date”),
the Company entered into a Term Loan Facility and Security Agreement (the “Loan Agreement”) with GreenBlocks. Pursuant to
the Loan Agreement, GreenBlocks has requested the Company to extend one or more loans (“Advances”) under a senior secured
term loan facility in an aggregate outstanding principal amount not to exceed $5 million. The interest rate of the Loan Agreement is 0%
and Advances are to be repaid on the maturity date, which is the thirty-nine-month anniversary of the Effective Date. GreenBlocks will
exclusively use the Advances to buy miners that will be operated for the benefit of the Company at a facility in Iceland, with an overall
capacity of 8.25 MW. To secure the prompt payment of Advances, the Company has been granted a continuing first priority lien and security
interest in all of GreenBlocks’s rights, title and interest to the financed miners. The miners are the sole property of GreenBlocks,
of which they are responsible for the purchase, installation, operation, and maintenance.
On May 9, 2023, the Company entered into a Computation
Capacity Services Agreement (the “Services Agreement”) with GreenBlocks. Pursuant to the Agreement, GreenBlocks will provide
computational capacity services and other necessary ancillary services, such as operation, management, and maintenance, at the facility
in Iceland for a term of two (2) years. GreenBlocks will own and operate the miners financed through the Loan Agreement for the purpose
of providing computational capacity of up to 8.25 MW. The Company will pay power costs of five cents ($0.05) per kilowatt hour, a pod
fee of $22,000 per pod per month, and a depreciation fee equal to 1/36 of the facility size per month. The performance fees under this
agreement are 20% of the net profit. The Company submitted to Greenblocks a deposit in the amount of $1,052,100, which was exclusively
for the purpose of paying the landlord of the facility for hosting space.
On June 1, 2023, the Company and GreenBlocks entered
the Omnibus Amendment to Loan Documents and Other Agreements (“Omnibus Amendment”). This amendment revised both the Loan Agreement
and the Services Agreement previously entered on May 9, 2023. While the core terms remained consistent, notable modifications
pertained to the facility size and contracted capacity. Specifically, the facility size was increased from $5 million to $6.7 million.
Moreover, GreenBlocks agreed to expand the computation capacity to approximately 10.7 MW. Advances of $6.4 million have been financed
by the Company to GreenBlocks. As of March 31, 2024, GreenBlocks provided approximately 5 MW of capacity for our miners at their facility.
In October 2023, we entered into a strategic
co-location agreement with Soluna Computing, Inc. (“Soluna”) for a term of one (1) year automatically renewing on a
month-to-month basis unless terminated by either party. Pursuant to the terms of the agreement, Soluna provides certain required
mining colocation services to Bit Digital for the purpose of the operation and storage of an up to 4.4 MW bitcoin mining system to
be delivered by Bit Digital. Soluna shall also be entitled to 42.5% of the net profit generated by the miners. As of March 31, 2024,
Soluna provided approximately 4.3 MW of capacity for our miners at their facility.
In November 2023, we entered into a hosting
services agreement with Dory Creek, LLC, a subsidiary of Bitdeer Technologies Group (“Bitdeer”), for a term of one (1)
year automatically renewing on an annual basis unless terminated by either party by giving a 30-day prior notice to the other Party
in writing. Pursuant to the terms of the agreement, Bitdeer provides maintenance and operation services to Bit Digital to support
17.5 MW of capacity. Bitdeer shall also be entitled to 30% of the net profit generated by the miners. Bit Digital shall have the
first right, but not obligation, to accept services for any extra capacity under the terms of this Agreement. As of March 31, 2024,
Bitdeer provided approximately 15.4 MW of capacity for our miners at their facility.
In May 2022, our hosting partner Blockfusion advised us that the substation
at its Niagara Falls, New York facility was damaged by an explosion and fire, and power was cut off to approximately 2,515 of the Company’s
bitcoin miners and approximately 710 ETH miners that had been operating at the site immediately prior to the incident. The explosion and
fire are believed to have been caused by faulty equipment owned by the power utility. Blockfusion and the Company have entered into a
common interest agreement to jointly pursue any claims evolving from the explosion and fire. Prior to the incident, our facility with
Blockfusion in Niagara Falls, provided approximately 9.4 MW to power our miners. Power was restored to the facility in September 2022.
However, we received a notice dated October 4, 2022 (the “Notice”), from the City of Niagara Falls, which ordered the cease
and desist from any cryptocurrency mining or related operations at the facility until such time as Blockfusion complies with Section 1303.2.8
of the City of Niagara Falls Zoning Ordinance (the “Ordinance”), in addition to all other City ordinances and codes. Blockfusion
has advised us that the Ordinance came into effect on October 1, 2022, following the expiration of a related moratorium on September 30,
2022. Blockfusion has further advised that it has submitted applications for new permits based on the Ordinance’s new standards
and that the permits may take several months to process. Pursuant to the Mining Services Agreement between Bit Digital and Blockfusion
dated August 25, 2021, Blockfusion represents, warrants and covenants that it “possesses, and will maintain, all licenses, registrations,
authorizations and approvals required by any governmental agency, regulatory authority or other party necessary for it to operate its
business and engage in the business relating to its provision of the Services.” On October 5, 2022, Bit Digital further advised
Blockfusion that it expects it to comply with the directives of the Notice. Our service agreement with Blockfusion ended in September
2023.
Miner Fleet Update and Overview
As of December 31, 2023, we had 46,548 miners
owned or operating (in Iceland) for bitcoin mining with a total maximum hash rate of 3.9 EH/s.
On January 25, 2024, we entered into a purchase
agreement with an unaffiliated seller of bitcoin mining computers, from whom we acquired 2,350 S19 Pro miners. As of the date of this
report, all miners have been delivered.
As of March 31, 2024, we had 48,898 miners owned
or operating (in Iceland) for bitcoin mining with a total maximum hash rate of 4.2 EH/s.
On April
15, 2024, we entered into a purchase agreement with an unaffiliated seller of bitcoin mining computers, from whom we acquired 1,150
S19K Pro miners. As of the date of this report, no miners have been delivered.
Bitcoin Production
From the inception of our bitcoin mining business
in February 2020 to March 31, 2024, we earned an aggregate of 6,740.9 bitcoins.
The following table presents our bitcoin mining activities for the
three months ended March 31, 2024:
| | |
Number of
bitcoins | | |
Amount (1) | |
| Balance at December 31, 2023 | |
| 642.4 | | |
$ | 19,818,980 | |
| Cumulative effect of the adoption of ASU 2023-08 | |
| - | | |
| 7,341,320 | |
| Receipt of BTC from mining services | |
| 410.7 | | |
| 21,891,760 | |
| Exchange of BTC into ETH | |
| (45.9 | ) | |
| (2,098,253 | ) |
| Sales of and payments made in BTC | |
| (50.8 | ) | |
| (2,954,463 | ) |
| Change in fair value of BTC | |
| - | | |
| 24,220,670 | |
| Balance at March 31, 2024 | |
| 956.4 | | |
$ | 68,220,014 | |
| (1) |
Receipt of digital assets from mining services are the product of the number of bitcoins received multiplied by the bitcoin price obtained from CoinMarketCap, calculated on a daily basis. Sales of bitcoin represent the carrying value of bitcoin at the time of sale. |
Environmental, Social and Governance
Sustainability is a major strategic focus for
us. Several of our mining locations in the US and Canada provide access to partially carbon-free energy and other sustainability-related
solutions, in varying amounts depending on location, including components of hydroelectric, solar, wind, nuclear and other carbon-free
generation sources, based on information provided by our hosts and publicly available data, which we believe helps mitigate the environmental
impact of our operations. We work with an independent ESG (Environmental, Social and Governance) consultant to self-monitor and adopt
an environmental policy to help us to improve our percentage of green electricity and other sustainability initiatives. As we continue
to align ourselves with the future of technology and business, we are dedicated to continuously enhancing sustainability, which we believe
future-proofs our operations and the larger bitcoin network.
We believe that the bitcoin network and the mining
that powers it are important inventions in human progress. The process of problem-solving and verifying bitcoin transactions using advanced
computers is energy intensive, and scrutiny has been applied to the industry for this reason. It follows that the environmental costs
of mining bitcoin should be surveyed and mitigated by every company in our fast-growing sector. We aim to contribute to the acceleration
of bitcoin’s decarbonization and act as a role model in our industry, responsibly stewarding digital assets.
We work with Apex Group Ltd, an independent ESG
consultancy, with the goal of becoming one the first publicly-listed bitcoin miners to receive an independent ESG rating on our operations,
which we anticipate will provide transparency on the environmental sustainability of our operations, as well as other metrics. Apex’s
ESG Ratings & Advisory tools allow us to benchmark our ESG performance against international standards and our peers to identify opportunities
for improvement and progress over time. We believe this is an integral approach to improving our sustainability practices and mitigating
our environmental impact. By measuring the sustainability and footprint of Bit Digital’s mining, we are able to develop targets
to continuously improve as we shift towards our goal of 100% clean energy usage.
On December 7, 2021, the Company became a member
of the Bitcoin Mining Council (“BMC”), joining MicroStrategy and other founding members to promote transparency, share best
practices, and educate the public on the benefits of bitcoin and bitcoin mining.
Results of operations
The following table summarizes the results of
our operations during the three months ended March 31, 2024 and 2023, respectively, and provides information regarding the dollar increase
or (decrease) during the period.
| | |
For the Three Months
Ended March 31, | | |
Variance in | |
| | |
2024 | | |
2023 | | |
Amount | |
| | |
| | |
| | |
| |
| Revenue | |
| | |
| | |
| |
| Revenue - digital asset mining | |
$ | 21,891,760 | | |
| 8,214,390 | | |
| 13,677,370 | |
| Revenue - high performance computing services | |
| 8,069,584 | | |
| - | | |
| 8,069,584 | |
| Revenue - ETH staking | |
| 325,746 | | |
| 50,609 | | |
| 275,137 | |
| Total revenue | |
| 30,287,090 | | |
| 8,264,999 | | |
| 22,022,091 | |
| | |
| | | |
| | | |
| | |
| Operating costs and expenses | |
| | | |
| | | |
| | |
| Cost of revenue (exclusive of depreciation and amortization shown below) | |
| | | |
| | | |
| | |
| Cost of revenue - digital asset mining | |
| (12,984,932 | ) | |
| (5,165,100 | ) | |
| (7,819,832 | ) |
| Cost of revenue - high performance computing services | |
| (3,157,327 | ) | |
| - | | |
| (3,157,327 | ) |
| Cost of revenue - ETH staking | |
| (16,433 | ) | |
| (1,194 | ) | |
| (15,239 | ) |
| Depreciation and amortization expenses | |
| (6,845,949 | ) | |
| (3,646,048 | ) | |
| (3,199,901 | ) |
| General and administrative expenses | |
| (5,955,740 | ) | |
| (5,157,455 | ) | |
| (798,285 | ) |
| Gains on digital assets | |
| 45,732,577 | | |
| - | | |
| 45,732,577 | |
| Realized gain on exchange of digital assets | |
| - | | |
| 4,881,937 | | |
| (4,881,937 | ) |
| Impairment of digital assets | |
| - | | |
| (2,233,665 | ) | |
| 2,233,665 | |
| Total operating expenses | |
| 16,772,196 | | |
| (11,321,525 | ) | |
| 28,093,721 | |
| | |
| | | |
| | | |
| | |
| Income (loss) from operations | |
| 47,059,286 | | |
| (3,056,526 | ) | |
| 50,115,812 | |
| | |
| | | |
| | | |
| | |
| Other income, net | |
| 4,599,921 | | |
| 849,864 | | |
| 3,750,057 | |
| Total other income, net | |
| 4,599,921 | | |
| 849,864 | | |
| 3,750,057 | |
| | |
| | | |
| | | |
| | |
| Income (loss) before income taxes | |
| 51,659,207 | | |
| (2,206,662 | ) | |
| 53,865,869 | |
| | |
| | | |
| | | |
| | |
| Income tax expenses | |
| (1,577,350 | ) | |
| (53,643 | ) | |
| (1,523,707 | ) |
| Net income (loss) | |
$ | 50,081,857 | | |
$ | (2,260,305 | ) | |
$ | 52,342,162 | |
Revenue
We generate revenues from digital asset mining,
ETH staking, and high performance computing services.
Revenue from digital asset mining
We provide computing power to digital asset mining
pools, and receive consideration in the form of digital assets, the value of which is determined using the market price of the related
digital asset at the time of receipt. By providing computing power to successfully add a block to the blockchain, the Company is entitled
to a fractional share of the digital assets award from the mining pool operator, which is based on the proportion of computing power the
Company contributed to the mining pool to the total computing power contributed by all mining pool participants in solving the current
algorithm.
For the three months ended March 31, 2024, we
received 410.7 bitcoins from the Foundry USA Pool (“Foundry”) mining pool. As of March 31, 2024, our maximum hash rate was
at an aggregate of 4.2 EH/s for our bitcoin miners. For the three months ended March 31, 2024, we recognized revenue of $21.9 million
from bitcoin mining services.
For the three months ended March 31, 2023, we
received 362.0 bitcoins from Foundry mining pool. As of March 31, 2023, our maximum hash rate was at an aggregate of 2.6 EH/s for our
bitcoin miners. For the three months ended March 31, 2023, we recognized revenue of $8.2 million from bitcoin mining services.
Our revenues from digital asset mining services
increased by $13.7 million, or 166.5%, to $21.9 million for the three months ended March 31, 2024 from $8.2 million for the three months
ended March 31, 2023. The increase was primarily due to a higher average BTC price in the first quarter of 2024, compared to the same
period in 2023 and an increase of 48.7 bitcoins generated from our mining business. The higher average BTC price was, in part, a result
of the anticipated halving of BTC which occurred on April 19, 2024.
We expect to continue to opportunistically invest
in miners to increase our hash rate capacity.
Revenue from high performance computing services
In
the fourth quarter of 2023, we initiated Bit Digital AI, a new business line to provide high performance computing services to support
generative AI workstreams. The Company finalized a service agreement with its first customer, for the provision of HPC services from a
total of 2,048 GPUs over a three-year period. On January 22, 2024, approximately 192 GPU servers (1,536 GPUs) were deployed at a specialized data center and began generating revenue, and subsequently on February 2, 2024,
approximately an additional 64 GPU servers (512 GPUs) also started revenue generation.
Our revenue from high performance computing services
was $8.1 million for the three months ended March 31, 2024.
Revenue from ETH staking
During the fourth quarter of 2022, we commenced
ETH staking business, in both native staking and liquid staking.
For the ETH native staking business, we previously
partnered with Blockdaemon, Marsprotocol and MarsLand Global Limited (“MarsLand"). Currently, we stake ETH with Figment, using
network-based smart contracts, on a node for the purpose of validating transactions and adding blocks to the network. Through these contracts,
the Company stakes ETH on nodes for the purpose of validating transactions and adding blocks to the Ethereum blockchain network. The Company
is able to withdraw staked ETH under contracted staking since April 12, 2023 when the announced Shanghai upgrade was completed. In exchange
for staking the ETH and validating transactions on blockchain networks, the Company is entitled to block rewards and transaction fees
for successfully validating or adding a block to the blockchain. These rewards are received by the Company directly from the Ethereum
network and are calculated approximately based on the proportion of the Company’s stake to the total ETH staked by all validators.
In the fourth quarter of 2023, the Company terminated
the native staking activities and reclaimed all staked Ethereum with Blockdaemon. Our native staking operations with Marsprotocol commenced
in the first quarter of 2023 and concluded in July 2023. After ceasing operations with Marsprotocol, we initiated our native staking operations
with MarsLand in August 2023. In the first quarter of 2024, we concluded our operations with MarsLand and initiated our native staking
operations with Figment in the first quarter of 2024. As of March 31,2024, all of native staking operations are with Figment.
For the liquid staking business, the Company has
deployed ETH into Portara protocol (formerly known as Harbour) supported by liquid staking solution provider under the consortium of Blockdaemon
and Stakewise, and Liquid Collective protocol supported by Coinbase. By staking, we receive receipt tokens for the ETH staked which could
be redeemed to ETH or can be traded or collateralized elsewhere, at any time. In addition, we receive rETH-h for rewards earned from Portara
protocol. With the introduction of staked ETH withdrawals in April 2023, we have reassessed our Ethereum network staking approaches, weighing
the advantages of traditional staking against liquid staking solutions. The withdrawal feature in native staking, coupled with yields
that are on par with those of liquid staking, has encouraged us to expand our collaborations with other service providers in this domain.
As a result, we terminated all liquid staking activities with StakeWise in the third quarter of 2023, reclaiming all staked Ethereum along
with the accumulated rewards. In the first quarter of 2024, we ceased our liquid staking activities with Liquid Collective protocol and
reclaimed all our staked Ethereum. As of March 31, 2024, the Company has no liquid staking activities.
For the three months ended March 31, 2024, we
earned 111.1 ETH in native staking and 1.3 ETH in liquid staking, respectively. For the three months ended March 31, 2024, we
recognized revenues of $321,243 and $4,503 from native staking and liquid staking, respectively.
For the three months ended March 31, 2023, we
earned 8.7 ETH in native staking and 23.0 rETH-h in Portara liquid staking, respectively. For the three months ended March 31,
2023, we recognized revenues of $14,232 and $36,377 from native staking and Portara liquid staking, respectively. For the three months
ended March 31, 2023, the staking reward from the Liquid Collective protocol was immaterial.
Our
revenues from ETH native staking increased by $307,011, or 2,157.2%, to $321,243 for the three months ended March 31, 2024 from
$14,232 for the three months ended March 31, 2023. The increase was primarily due to an increase of 102.4 ETH earned from staking
services and an increase in the average price of ETH for the three months ended March 31, 2024 compared to the three months ended
March 31, 2023.
Our
revenues from ETH liquid staking decreased by $31,874, or 87.6%,
to $4,503 for the three months ended March 31, 2024 from $36,377 for the three months ended March 31, 2023. The decrease was primarily
due to a decrease of 21.7 ETH earned from staking services, partially offset by an increase in the average price of ETH for the three
months ended March 31, 2024 compared to the three months ended March 31, 2023.
Cost of revenue
We incur cost of revenue from our digital asset
mining business, ETH staking business, and high performance computing services.
The Company’s cost of revenue consists primarily of (i) direct
production costs related to mining operations, including electricity costs, profit-sharing fees and other relevant costs, but excluding
depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations, (ii) direct production
costs related to high performance computing services operations, including electricity costs, datacenter lease expense, GPU servers lease
expense, and other relevant costs, but excluding depreciation and amortization, which are separately stated in the Company’s consolidated
statements of operations, and (iii) direct cost related to ETH staking business including service fee and reward-sharing fees to the service
providers.
Cost of revenue - digital asset mining
For the three months ended March 31, 2024 and
2023, the cost of revenue from digital asset mining was comprised of the following:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| | |
| | |
| |
| Electricity costs | |
$ | 8,087,400 | | |
$ | 4,073,645 | |
| Profit-sharing fees | |
| 4,263,408 | | |
| 945,844 | |
| Other costs | |
| 634,124 | | |
| 145,611 | |
| Total | |
$ | 12,984,932 | | |
$ | 5,165,100 | |
Electricity costs. These expenses
were incurred by mining facilities for the miners in operation and were closely correlated with the number of deployed miners.
For the three months ended March 31, 2024, electricity
costs increased by $4.0 million, or 99%, compared to the electricity costs incurred for the three months ended March 31, 2023. The increase
primarily resulted from an increase in the number of deployed miners.
Profit-sharing fees. In 2021, we
entered into hosting agreements with certain mining facilities, which included performance fees calculated as a fixed percentage of net
profit generated by the miners. We refer to these fees as profit-sharing fees.
For the three months ended March 31, 2024, profit-sharing
fees increased by $3.3 million, or 351%, compared to profit-sharing fees incurred in the three months ended March 31, 2023. The net increase
in profit-sharing fees was primarily due to the higher bitcoin production resulting from the deployment of additional miners at both our
new and existing hosting sites and the higher average BTC price for three months ended March 31, 2024.
We expect a proportionate increase in the cost
of revenue as we continue to focus on the expansion and upgrade of our miner fleet.
Cost of revenue - high performance computing
services
For the three months ended March 31, 2024 and
2023, the cost of revenue from high performance computing services was comprised of the following:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| | |
| | |
| |
| Electricity costs | |
$ | 83,378 | | |
$ | - | |
| Datacenter lease expenses | |
| 700,890 | | |
| - | |
| GPU servers lease expenses | |
| 2,082,179 | | |
| - | |
| Other costs | |
| 290,880 | | |
| - | |
| Total | |
$ | 3,157,327 | | |
$ | - | |
Electricity costs. These expenses were
incurred by the datacenter for the high performance computing equipment and were closely correlated with the number of deployed GPU servers.
For the three months ended March 31, 2024 and
2023, electricity costs totaled $83,378 and $nil.
Datacenter lease expenses. In December
2023, we entered into a datacenter lease agreement for a fixed monthly recurring cost.
For the three months ended March 31, 2024 and
2023, datacenter lease expenses totaled $0.7 million and $nil.
GPU servers lease expenses. In 2023,
we entered into a GPU servers lease agreement to support our high performance computing services. The lease payment depends on the usage
of the GPU servers.
For the three months ended March 31, 2024 and
2023, GPU servers lease expenses totaled $2.1 million and $nil.
Cost of revenue - ETH staking business
For the three months ended March 31, 2024, cost
of revenue from ETH staking business increased by $15,239, or 1,276%, compared to the cost of revenue incurred for the three months ended
March 31, 2023. The increase primarily resulted from an increase in the service costs and participatory reward payments due to the increased
number of staked ETH.
Depreciation and amortization expenses
For the three months ended March 31, 2024 and
2023, depreciation and amortization expenses were $6.8 million and $3.6 million, respectively, based on an estimated useful life of three
years for miners and high performance computing services equipment and five years for vehicles.
General and administrative expenses
For the three months ended March 31, 2024, our
general and administrative expenses, totaling $6.0 million, were primarily comprised of shared-based compensation expenses of $0.5 million,
salary and bonus expenses of $1.0 million, professional and consulting expenses of $2.6 million, directors and officers insurance expenses
of $0.2 million, marketing expenses of $0.3 million, and travel expenses of $0.2 million.
For the three months ended March 31, 2023, our
general and administrative expenses, totaling $5.2 million, were primarily comprised of professional and consulting expenses of $1.0 million,
salary and bonus expenses of $2.0 million, shared-based compensation expenses of $0.1 million related to RSUs and share options granted
to our employees, consultants and directors, directors and officers liability insurance expenses of $1.0 million, and marketing expenses
of $0.3 million.
Gains on digital assets
For the three months ended March 31, 2024, a gain
of $45.7 million was recognized, primarily attributable to the increases in the prices of bitcoin and ETH held as of March 31, 2024.
As a result of the adoption of ASU 2023-08 effective
January 1, 2024, digital assets are recorded at fair value, changes in fair value are recognized as part of net income. As described under
the heading “Realized gain on exchange of digital assets”, gains on digital assets for the three months ended March
31, 2024 are not comparable to the three months ended March 31, 2023.
Realized gain on exchange of digital assets
For the three months ended March 31, 2023, we
recorded a gain of $4.9 million from the exchange of 583.8 bitcoins and 3001.1 ETH.
Prior to the adoption of ASU 2023-08, digital
assets were classified as indefinite-lived intangible assets and were measured at cost less impairment. Subsequent increases in digital
asset prices are not allowed to be recorded unless the digital asset is sold, at which point the gain is recognized in “Realized
gain on exchange of digital assets” in the consolidated statements of operations. Accordingly, realized gains (losses) recognized
on digital asset transactions for the three months ended March 31, 2024 are not comparable to the three months ended March 31, 2023.
Impairment of digital assets
As a result of the adoption of ASU 2023-08 effective
January 1, 2024, impairment of digital assets was no longer recognized.
Impairment of digital assets was $2.2 million
for the three months ended March 31, 2023. We utilized the intraday low price of digital assets in the calculation of impairment of digital
assets. For the three months ended March 31, 2023, the impairment of $2.2 million was comprised of impairment of $1.7 million and $0.5
million on bitcoins and ETH, respectively.
Other income, net
Other income, net was $4.6 million and $0.9 million
for the three months ended March 31, 2024 and 2023, respectively. Other income, net for the three months ended March 31, 2024, was primarily
comprised of unrealized gain from digital assets held in fund of $3.0 million and unrealized gain from equity investment of $0.5 million.
Other income, net for the three months ended March 31, 2023, was primarily comprised of the sales of Antminer coupons of $0.7 million,
and interest income of $0.1 million.
Income tax expenses
Income
tax expenses were $1.6 million for the three months ended March 31, 2024, which was comprised of income tax expenses of $1.3 million from
our Canada operations, $0.3 million from our Iceland operations, and $1,984 from our U.S. operations. The income tax expense of $1.3 million
from Canada is primarily driven by the increased deferred tax liability due to a higher book basis of digital assets resulting from the
adoption of ASU 2023-08. The Iceland income tax expense of $0.3 million is driven by the profits from the high performance computing services.
The income tax in the United States is attributed to the Texas marginal tax.
Income tax expenses were $53,643 for the three
months ended March 31, 2023, which was comprised of income tax expenses of $5,000 from our U.S. operations and income tax expense of $48,643
from our Hong Kong operations. The income tax expenses from U.S. operations are primarily driven by recognition of withholding tax expenses
of $4,741 and the tax expense from Hong Kong is driven by the additional accrued penalty related to uncertain Hong Kong profits tax positions
due to offshore non-taxable claim lodged on the business profits and tax deduction claim on share-based compensation which are both, however,
subject to review and approval by the Hong Kong tax authority.
Net income (loss) and earnings (loss) per share
For the three months ended March 31, 2024, our
net income was $50.1 million, representing a change of $52.3 million from a net loss of $2.3 million for the three months ended March
31, 2023.
Basic and diluted earnings per share was $0.44
and $0.43 for the three months ended March 31, 2024, respectively. Basic and diluted loss per share was $0.03 and $0.03 for the three
months ended March 31, 2023, respectively.
Basic and diluted weighted average number of shares
was 114,594,710 and 115,594,710 for the three months ended March 31, 2024, respectively. Basic and diluted weighted average number
of shares was 78,614,174 and 78,614,174 for the three months ended March 31, 2023, respectively.
Discussion of Certain Balance Sheet Items
The following table sets forth selected information
from our consolidated balance sheets as of March 31, 2024 and December 31, 2023. This information should be read together with our consolidated
financial statements and related notes included elsewhere in this report.
| | |
March 31, | | |
December 31, | | |
Variance in | |
| | |
2024 | | |
2023 | | |
Amount | |
| ASSETS | |
| | |
| | |
| |
| Current Assets | |
| | |
| | |
| |
| Cash and cash equivalents | |
$ | 33,087,252 | | |
$ | 16,860,934 | | |
$ | 16,226,318 | |
| Restricted cash | |
| 2,404,150 | | |
| 1,320,000 | | |
| 1,084,150 | |
| USDC | |
| 979,072 | | |
| 405,596 | | |
| 573,476 | |
| Digital assets | |
| 126,700,846 | | |
| 40,456,083 | | |
| 86,244,763 | |
| Digital assets held in fund | |
| 9,123,400 | | |
| 6,115,538 | | |
| 3,007,862 | |
| Net investment in lease - current | |
| 1,015,390 | | |
| - | | |
| 1,015,390 | |
| Other current assets | |
| 16,234,756 | | |
| 18,188,032 | | |
| (1,953,276 | ) |
| Total Current Assets | |
| 189,544,866 | | |
| 83,346,183 | | |
| 106,198,683 | |
| | |
| | | |
| | | |
| | |
| Loans receivable | |
| 400,000 | | |
| 400,000 | | |
| - | |
| Deposits for property and equipment | |
| 100,000 | | |
| 4,227,371 | | |
| (4,127,371 | ) |
| Property and equipment, net | |
| 79,230,480 | | |
| 81,474,649 | | |
| (2,244,169 | ) |
| Operating lease right-of-use assets | |
| 5,755,300 | | |
| 6,216,255 | | |
| (460,955 | ) |
| Net investment in lease - non-current | |
| 2,102,755 | | |
| - | | |
| 2,102,755 | |
| Investment securities | |
| 4,828,390 | | |
| 4,373,685 | | |
| 454,705 | |
| Other non-current assets | |
| 9,149,594 | | |
| 9,290,239 | | |
| (140,645 | ) |
| Total Assets | |
$ | 291,111,385 | | |
$ | 189,328,382 | | |
$ | 101,783,003 | |
| | |
| | | |
| | | |
| | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | | |
| | |
| Accounts payable | |
$ | 5,584,189 | | |
$ | 2,316,343 | | |
$ | 3,267,846 | |
| Deferred Revenue | |
| 3,751,588 | | |
| 13,073,449 | | |
| (9,321,861 | ) |
| Current portion of operating lease liability | |
| 1,955,338 | | |
| 1,864,779 | | |
| 90,559 | |
| Income tax payable | |
| 52,957 | | |
| 50,973 | | |
| 1,984 | |
| Other payables and accrued liabilities | |
| 4,010,656 | | |
| 9,775,718 | | |
| (5,765,062 | ) |
| Total Current Liabilities | |
| 15,354,728 | | |
| 27,081,262 | | |
| (11,726,534 | ) |
| | |
| | | |
| | | |
| | |
| Other long-term liabilities | |
| 1,883,333 | | |
| 1,883,333 | | |
| - | |
| Non-current portion of operating lease liability | |
| 3,799,963 | | |
| 4,351,476 | | |
| (551,513 | ) |
| Long-term income tax payable | |
| 3,196,204 | | |
| 3,196,204 | | |
| - | |
| Deferred tax liability | |
| 1,687,618 | | |
| 112,251 | | |
| 1,575,367 | |
| | |
| | | |
| | | |
| | |
| Total Liabilities | |
$ | 25,921,846 | | |
$ | 36,624,526 | | |
$ | (10,702,680 | ) |
Cash and cash equivalents
Cash and cash equivalents primarily consist of
funds deposited with banks, which are highly liquid and are unrestricted as to withdrawal or use. The total balance of cash and cash equivalents
were $33.1 million and $16.9 million as of March 31, 2024 and December 31, 2023, respectively. The increase in the balance of cash and
cash equivalents was a result of net cash of $20.9 million used in operating activities, and net cash of $0.5 million used in investing
activities, partially offset by net cash of $38.7 million provided by financing activities.
USDC
USD Coin (“USDC”) is accounted for
as a financial instrument; one USDC can be redeemed for one U.S. dollar on demand from the issuer. The balance of USDC was $1.0 million
and $0.4 million as of March 31, 2024 and December 31, 2023, respectively. The increase in the balance of USDC was primarily due to collection
of USDC of $1.0 million from exchange of BTC, partially offset by payment of other expenses of $0.5 million.
Digital assets
Digital assets primarily consist of BTC and ETH.
For the three months ended March 31, 2024, we earned BTC from mining services and ETH staking services. We exchanged BTC into ETH or USDC,
exchanged BTC and ETH into cash, or used BTC and ETH to pay certain operating costs and other expenses. Digital assets held are accounted
for as intangible assets measured at fair value, with changes in fair value recorded in net income in each reporting period.
As compared with the balance as of December 31,
2023, the balance of digital assets as of March 31, 2024 increased by $86.2 million, which was primarily attributable to the cumulative
effect of the adoption of ASU 2023-08 of $21.2 million, change in fair value of $45.8 million, and generation of bitcoins of $21.9 million
from our mining business, partially offset by exchange of bitcoins of $1.0 million into USDC, and payment of bitcoin for service
charges of $1.9 million.
Digital assets held in fund
Digital assets held in fund consists of an investment
made by the Company in Bit Digital Innovation Master Fund SPC Ltd. As of March 31, 2024, the total balance of this investment was $9.1
million, compared to $6.1 million as of December 31, 2023. The increase of $3.0 million was due to subsequent fair value adjustments.
Loans Receivable
Loans receivable consist of a loan issued by the
Company to a third party. The total balance of loans receivable was $0.4 million and $0.4 million as of March 31, 2024 and December 31,
2023, respectively.
Net investment in lease
Net investment in lease represents the present
value of the lease payments not yet received from lessee. The current and non-current balance of net investment in lease was $1.0 million
and 2.1 million, respectively as of March 31, 2024. The current and non-current balance of net investment in lease was $nil and $nil,
respectively as of December 31, 2023.
Investment Securities
As
of March 31, 2024, our portfolio consists of investments in one fund and three privately held companies over which the Company neither
has control nor significant influence. The total balance of investment securities was $4.8 million and $4.4 million as of March 31, 2024,
and December 31, 2023, respectively. The increase of $0.4 million in the value of our investment securities was mainly driven by upward
fair value adjustments of $0.4 million for the Nine Blocks
investment.
Deposits for property and equipment
The deposits for property and equipment consists
of advance payments for property and equipment. The balance was derecognized once the control of the property and equipment was transferred
to and obtained by us.
Compared with December 31, 2023, the balance as
of March 31, 2024 decreased $4.1 million, mainly due to prepayment of property and equipment of $3.4 million offset by the receipt of
property and equipment of $7.5 million.
Property and equipment, net
Property and equipment was primarily comprised
of BTC miners and high performance computing equipment, both with an estimated 3-year useful life.
As
of March 31, 2024, we had 48,898 bitcoin miners with a net book value of $30.0 million. As of December 31, 2023, we had 46,548 bitcoin
miners with a net book value of $30.2 million.
As of March 31, 2024, the high performance computing
equipment had a net book value of $49.0 million. As of December 31, 2023, construction in progress of $51.0 million represented HPC equipment
received but not yet placed into service. This amount was reclassified to property and equipment as the assets were put into service in
January 2024.
Operating lease right-of-use assets and operating
lease liability
As of March 31, 2024, the Company’s operating
lease right-of-use assets and operating lease liability were $5.8 million and $5.8 million respectively. As of December 31, 2023, the
Company’s operating lease right-of-use assets and operating lease liability were $6.2 million and $6.2 million, respectively. The
decrease in operating lease right-of-use assets and operating lease liability of $0.5 million was due to the amortization of the operating
lease right-of-use assets totaling $0.5 million for the quarter ended March 31, 2024.
Accounts payable
Accounts payable primarily consists of amounts
due for maintenance costs related to our digital asset mining and high performance computing services. Compared with December 31, 2023,
the balance of accounts payable increased by $3.3 million, largely due to the unpaid bills for our high performance computing services
in the three months ended March 31, 2024.
Deferred revenue
Deferred revenue pertains to prepayments received
from a customer for high performance computing services.
As of March 31, 2024, the Company’s deferred
revenue was $3.8 million. As of December 31, 2023, the Company’s deferred revenue was $13.1 million. The decrease in deferred revenue
of $9.3 million reflects the Company’s successful fulfillment of its performance obligations stemming from our high performance
computing services commenced in January 2024.
Long-term income tax payable
Compared with December 31, 2023, the balance as
of March 31, 2024 did not change as no incremental penalty was accrued on the existing unrecognized tax benefits for the three months
ended March 31, 2024. Refer to Note 12 Income Taxes for further details.
Non-GAAP Financial Measures
In addition to consolidated U.S. GAAP financial
measures, we consistently evaluate our use of and calculation of the non-GAAP financial measures, such as “Adjusted EBITDA”.
EBITDA is computed as net income before interest,
taxes, depreciation, and amortization. Adjusted EBITDA is a financial measure defined as our EBITDA adjusted to eliminate the effects
of certain non-cash and / or non-recurring items that do not reflect our ongoing strategic business operations, which management believes
results in a performance measurement that represents a key indicator of the Company’s core business operations. The adjustments
currently include fair value adjustments such as investment securities value changes and non-cash share-based compensation expenses, in
addition to other income and expense items.
We believe Adjusted EBITDA can be an important
financial measure because it allows management, investors, and our board of directors to evaluate and compare our operating results, including
our return on capital and operating efficiencies, from period-to-period by making such adjustments.
Adjusted EBITDA is provided in addition to and
should not be considered to be a substitute for, or superior to net income, the comparable measures under U.S. GAAP. Further, Adjusted
EBITDA should not be considered as an alternative to revenue growth, net income, diluted earnings per share or any other performance measure
derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Adjusted
EBITDA has limitations as an analytical tool, and you should not consider such measures either in isolation or as substitutes for analyzing
our results as reported under U.S. GAAP.
Reconciliations of Adjusted EBITDA to the most comparable U.S. GAAP
financial metric for historical periods are presented in the table below:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Reconciliation of non-GAAP income (loss) from operations: | |
| | |
| |
| Net income (loss) | |
$ | 50,081,857 | | |
$ | (2,260,305 | ) |
| Depreciation and amortization expenses | |
| 6,845,949 | | |
| 3,646,048 | |
| Income tax expense | |
| 1,577,350 | | |
| 53,643 | |
| EBITDA | |
| 58,505,156 | | |
| 1,439,386 | |
| | |
| | | |
| | |
| Adjustments: | |
| | | |
| | |
| Share-based compensation expenses | |
| 492,599 | | |
| 106,841 | |
| Changes in fair value of long-term investments | |
| (454,705 | ) | |
| (42,891 | ) |
| Adjusted EBITDA | |
$ | 58,543,050 | | |
$ | 1,503,336 | |
Liquidity and capital resources
As of March 31, 2024, we had working capital of
$174.2 million which includes USDC of $1.0 million and digital assets of $126.7 million as compared with working capital of $56.3 million
as of December 31, 2023. Working capital is the difference between the Company’s current assets and current liabilities.
To date, we have financed our operations primarily
through cash flows from operations, and equity financing through public and private offerings of our securities. We plan to support our
future operations primarily from cash generated from our operations and equity financings. We may also consider debt, preferred and convertible
financing on favorable terms.
We have sold and intend to continue to offer and
sell equity securities from time to time in one or more offerings at the market (ATM) at prices and on terms which the Company will then
determine for an initial aggregate offering price of $500 million pursuant to a registration statement on Form F-3 declared effective
by the SEC on May 4, 2022.
Under the Company’s Purchase Agreement with
Ionic Ventures LLC, the Company had the right, but not the obligation, to sell to Ionic up to $22 million of registered Ordinary Shares.
In May and June 2023, the Company issued an aggregate
of 2,401,776 ordinary shares to Ionic Ventures LLC for gross proceeds of $7.0 million. The Company received net proceeds of approximately
$6.7 million after deducting commissions payable to the placement agent.
In July and August 2023, the Company issued an
aggregate of 4,345,887 ordinary shares to Ionic Ventures LLC for gross proceeds of $15.0 million. The Company received net proceeds of
$14.3 million after deducting commissions payable to the placement agent.
In August and September 2023, the Company sold
an aggregate of 781,602 ordinary shares in connection with the at-the-market offering. The Company received net proceeds of $1.9 million,
net of offering costs.
In the fourth quarter of 2023, the Company sold
an aggregate of 13,962,424 ordinary shares in connection with the at-the-market offering. The Company received net proceeds of $43.3 million,
net of offering costs.
In the first quarter of 2024, the Company sold
an aggregate of 12,871,934 ordinary shares in connection with the at-the-market offering. The Company received net proceeds of $38.7 million,
net of offering costs.
Revenue from Operations
Funding our operations on a going-forward basis
will rely significantly on our ability to continue to mine digital assets and the spot or market price of the digital assets we mine,
our ability to earn ETH rewards from ETH staking business and the spot or market price of ETH, and on the revenue earned from our high
performance computing services.
We expect to generate ongoing revenues primarily
from the production of digital assets, primarily bitcoin, in our mining facilities and from the high performance computing services. Our
ability to liquidate digital assets at future values will be evaluated from time to time to generate cash for operations. Generating digital
assets, for example, with spot market values which exceed our production and other costs, will determine our ability to report profit
margins related to such mining operations. Furthermore, regardless of our ability to generate revenue from our digital assets or our high
performance computing services, we may need to raise additional capital in the form of equity or debt to fund our operations and pursue
our business strategy, including purchases in order to fund our high performance computing services.
The ability to raise funds as equity, debt or
conversion of digital assets to maintain our operations is subject to many risks and uncertainties and, even if we are successful, future
equity issuances would result in dilution to our existing stockholders and any future debt or debt securities may contain covenants that
limit our operations or ability to enter into certain transactions. Our ability to realize revenue through digital asset production and
successfully convert digital assets into cash or fund overhead with digital assets is subject to a number of risks, including regulatory,
financial and business risks, many of which are beyond our control. Additionally, the value of digital asset rewards has historically
been extremely volatile, and future prices cannot be predicted.
If we are unable to generate sufficient revenue
when needed or secure additional funding, it may become necessary to significantly reduce our current rate of expansion or to explore
other strategic alternatives.
Cash flows
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Net Cash (Used in) Operating Activities | |
$ | (20,867,530 | ) | |
$ | (1,480,014 | ) |
| Net Cash (Used in) Investing Activities | |
| (474,409 | ) | |
| (2,503,807 | ) |
| Net Cash Provided by (Used in) Financing Activities | |
| 38,652,407 | | |
| (800,000 | ) |
| Net (decrease) increase in cash, cash equivalents and restricted cash | |
| 17,310,468 | | |
| (4,783,821 | ) |
| Cash, cash equivalents and restricted cash, beginning of period | |
| 18,180,934 | | |
| 34,011,060 | |
| Cash, cash equivalents and restricted cash, end of period | |
$ | 35,491,402 | | |
$ | 29,227,239 | |
Operating Activities
Net cash used in operating activities was $20.9
million for the three months ended March 31, 2024, derived mainly from (i) a net income of $50.1 million for the three months ended March
31, 2024 adjusted for digital assets of $21.9 million from our mining services, depreciation expenses of property and equipment of $6.8
million, unrealized gain on digital assets held in fund of $3.0 million, and gains on digital assets of $45.7 million, and (ii) net changes
in our operating assets and liabilities, principally comprising of a decrease in deferred revenue of $9.3 million, decrease in other payable
and accrued liabilities of $4.8 million, and a decrease in net investment in lease of $3.1 million, offset by and an increase in accounts
payable of $4.8 million and other current assets of $3.4 million.
Net cash used in operating activities was $1.5
million for the three months ended March 31, 2023, derived mainly from (i) net loss of $2.3 million for the three months ended March 31,
2023 adjusted for digital assets of $8.2 million from our mining services, depreciation expenses of miners of $3.6 million, gain from
exchange of digital assets of $4.9 million, and impairment of digital assets of $2.2 million, and (ii) net changes in our operating assets
and liabilities, principally comprising of a decrease in digital assets and stable coins of $10.9 million as net proceeds from sales of
digital assets and stable coins, and a decrease in accounts payable of $2.6 million.
Investing Activities
Net cash used in investing activities was $0.5
million for the three months ended March 31, 2024, primarily attributable to net purchases of and deposits made for property and equipment
of $0.5 million.
Net cash used in investing activities was $2.5
million for the three months ended March 31, 2023, primarily attributable to investment of $2.1 million in two equity investees and loans
of $0.4 million made to a third party.
Financing Activities
Net cash provided by financing activities was
$38.7 million for the three months ended March 31, 2024, primarily attributable to net proceeds of $38.7 million from the at-the-market
offering.
Net cash used in financing activities was $0.8
million for the three months ended March 31, 2023, primarily attributable to the payment of dividends of $0.8 million to the preferred
shareholder.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition
and results of operations are based upon our unaudited condensed consolidated financial statements. These financial statements are prepared
in accordance with U.S. GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of our assets,
liabilities, revenues, and expenses, to disclose contingent assets and liabilities on the dates of the unaudited condensed consolidated
financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting periods. The
most significant estimates and assumptions include the valuation of digital assets and other current assets, useful lives of property
and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities and realization of deferred tax
assets. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these
evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those
estimates as a result of changes in our estimates. Some of our accounting policies require higher degrees of judgment than others in their
application. We believe critical accounting policies as disclosed in this release reflect the more significant judgments and estimates
used in preparation of our unaudited condensed consolidated financial statements.
BIT DIGITAL, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2024 and December 31, 2023
(Expressed in US dollars, except for the number
of shares)
| | |
March 31, | | |
December 31, | |
| | |
2024 | | |
2023 | |
| ASSETS | |
| | |
| |
| Current Assets | |
| | |
| |
| Cash and cash equivalents | |
$ | 33,087,252 | | |
$ | 16,860,934 | |
| Restricted cash | |
| 2,404,150 | | |
| 1,320,000 | |
| USDC | |
| 979,072 | | |
| 405,596 | |
| Digital assets | |
| 126,700,846 | | |
| 40,456,083 | |
| Digital assets held in fund | |
| 9,123,400 | | |
| 6,115,538 | |
| Net investment in lease - current | |
| 1,015,390 | | |
| - | |
| Other current assets | |
| 16,234,756 | | |
| 18,188,032 | |
| Total Current Assets | |
| 189,544,866 | | |
| 83,346,183 | |
| | |
| | | |
| | |
| Non-Current Assets | |
| | | |
| | |
| Loans receivable | |
| 400,000 | | |
| 400,000 | |
| Deposits for property and equipment | |
| 100,000 | | |
| 4,227,371 | |
| Property and equipment, net | |
| 79,230,480 | | |
| 81,474,649 | |
| Operating lease right-of-use assets | |
| 5,755,300 | | |
| 6,216,255 | |
| Net investment in lease - non-current | |
| 2,102,755 | | |
| - | |
| Investment securities | |
| 4,828,390 | | |
| 4,373,685 | |
| Other non-current assets | |
| 9,149,594 | | |
| 9,290,239 | |
| Total Non-Current Assets | |
| 101,566,519 | | |
| 105,982,199 | |
| | |
| | | |
| | |
| Total Assets | |
$ | 291,111,385 | | |
$ | 189,328,382 | |
| | |
| | | |
| | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 5,584,189 | | |
$ | 2,316,343 | |
| Deferred revenue | |
| 3,751,588 | | |
| 13,073,449 | |
| Current portion of operating lease liability | |
| 1,955,338 | | |
| 1,864,779 | |
| Income tax payable | |
| 52,957 | | |
| 50,973 | |
| Other payables and accrued liabilities | |
| 4,010,656 | | |
| 9,775,718 | |
| Total Current Liabilities | |
| 15,354,728 | | |
| 27,081,262 | |
| | |
| | | |
| | |
| Non-Current Liabilities | |
| | | |
| | |
| Other long-term liabilities | |
| 1,883,333 | | |
| 1,883,333 | |
| Non-current portion of operating lease liability | |
| 3,799,963 | | |
| 4,351,476 | |
| Long-term income tax payable | |
| 3,196,204 | | |
| 3,196,204 | |
| Deferred tax liability | |
| 1,687,618 | | |
| 112,251 | |
| Total Non-Current Liabilities | |
| 10,567,118 | | |
| 9,543,264 | |
| | |
| | | |
| | |
| Total Liabilities | |
| 25,921,846 | | |
| 36,624,526 | |
| | |
| | | |
| | |
| Commitments and Contingencies | |
| | | |
| | |
| | |
| | | |
| | |
| Shareholders’ Equity | |
| | | |
| | |
| Preferred shares, $0.01 par value, 10,000,000 and 10,000,000 shares authorized, 1,000,000 and 1,000,000 shares issued and outstanding of March 31, 2024 and December 31, 2023, respectively | |
| 9,050,000 | | |
| 9,050,000 | |
| Ordinary shares, $0.01 par value, 340,000,000 and 340,000,000 shares authorized, 121,133,747 and 107,421,813 shares issued, 121,003,761 and 107,291,827 shares outstanding as of March 31, 2024 and December 31, 2023, respectively | |
| 1,211,337 | | |
| 1,074,218 | |
| Treasury stock, at cost, 129,986 and 129,986 shares as of March 31, 2024 and December 31, 2023, respectively | |
| (1,171,679 | ) | |
| (1,171,679 | ) |
| Additional paid-in capital | |
| 331,733,496 | | |
| 290,660,609 | |
| Accumulated deficit | |
| (75,633,615 | ) | |
| (146,909,292 | ) |
| Total Shareholders’ Equity | |
| 265,189,539 | | |
| 152,703,856 | |
| Total Liabilities and Shareholders’ Equity | |
$ | 291,111,385 | | |
$ | 189,328,382 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
BIT DIGITAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
For the Three Months Ended March 31, 2024 and
2023
(Expressed in US dollars, except for the number
of shares)
| | |
For the Three Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| | |
| | |
| |
| Revenue | |
| | |
| |
| Revenue - digital asset mining | |
$ | 21,891,760 | | |
| 8,214,390 | |
| Revenue - high performance computing services | |
| 8,069,584 | | |
| - | |
| Revenue - ETH staking | |
| 325,746 | | |
| 50,609 | |
| Total Revenue | |
| 30,287,090 | | |
$ | 8,264,999 | |
| | |
| | | |
| | |
| Operating costs and expenses | |
| | | |
| | |
| Cost of revenue (exclusive of depreciation and amortization shown below) | |
| | | |
| | |
| Cost of revenue - digital asset mining | |
| (12,984,932 | ) | |
| (5,165,100 | ) |
| Cost of revenue - high performance computing services | |
| (3,157,327 | ) | |
| - | |
| Cost of revenue - ETH staking | |
| (16,433 | ) | |
| (1,194 | ) |
| Depreciation and amortization expenses | |
| (6,845,949 | ) | |
| (3,646,048 | ) |
| General and administrative expenses | |
| (5,955,740 | ) | |
| (5,157,455 | ) |
| Gains on digital assets | |
| 45,732,577 | | |
| - | |
| Realized gain on exchange of digital assets | |
| - | | |
| 4,881,937 | |
| Impairment of digital assets | |
| - | | |
| (2,233,665 | ) |
| Total operating expenses | |
| 16,772,196 | | |
| (11,321,525 | ) |
| | |
| | | |
| | |
| Income (loss) from operations | |
| 47,059,286 | | |
| (3,056,526 | ) |
| | |
| | | |
| | |
| Other income, net | |
| 4,599,921 | | |
| 849,864 | |
| Total other income, net | |
| 4,599,921 | | |
| 849,864 | |
| | |
| | | |
| | |
| Income (loss) before income taxes | |
| 51,659,207 | | |
| (2,206,662 | ) |
| | |
| | | |
| | |
| Income tax expenses | |
| (1,577,350 | ) | |
| (53,643 | ) |
| Net income (loss) | |
$ | 50,081,857 | | |
$ | (2,260,305 | ) |
| | |
| | | |
| | |
| Weighted average number of ordinary share outstanding | |
| | | |
| | |
| Basic | |
| 114,594,710 | | |
| 78,614,174 | |
| Diluted | |
| 115,594,710 | | |
| 78,614,174 | |
| | |
| | | |
| | |
| Earnings (loss) per share | |
| | | |
| | |
| Basic | |
$ | 0.44 | | |
$ | (0.03 | ) |
| Diluted | |
$ | 0.43 | | |
$ | (0.03 | ) |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
BIT DIGITAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF EQUITY
For the Three Months Ended March 31, 2024 and
2023
(Expressed in U.S. dollars, except for the
number of shares)
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Additional | | |
| | |
Total | |
| | |
Preferred
Shares | | |
Common
Shares | | |
Treasury | | |
paid-in | | |
Accumulated | | |
stockholders’ | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
capital | | |
Deficit | | |
equity | |
| Balance
as at December 31, 2022 | |
| 1,000,000 | | |
$ | 9,050,000 | | |
| 82,485,583 | | |
$ | 826,156 | | |
| (129,986 | ) | |
$ | (1,171,679 | ) | |
$ | 212,644,843 | | |
$ | (131,416,011 | ) | |
$ | 89,933,309 | |
| Share-based
compensation | |
| - | | |
| - | | |
| 11,308 | | |
| 113 | | |
| - | | |
| - | | |
| 106,728 | | |
| - | | |
| 106,841 | |
| Declaration
of dividends to preferred shareholder | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (800,000 | ) | |
| (800,000 | ) |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,260,305 | ) | |
| (2,260,305 | ) |
| Balance
as at March 31, 2023 | |
| 1,000,000 | | |
$ | 9,050,000 | | |
| 82,496,891 | | |
$ | 826,269 | | |
| (129,986 | ) | |
| (1,171,679 | ) | |
$ | 212,751,571 | | |
$ | (134,476,316 | ) | |
$ | 86,979,845 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
as at December 31, 2023 | |
| 1,000,000 | | |
$ | 9,050,000 | | |
| 107,291,827 | | |
$ | 1,074,218 | | |
| (129,986 | ) | |
$ | (1,171,679 | ) | |
$ | 290,660,609 | | |
$ | (146,909,292 | ) | |
$ | 152,703,856 | |
| Share-based
compensation expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 106,199 | | |
| - | | |
| 106,199 | |
| Issuance
of common stock/At-the-market offering, net of offering costs | |
| - | | |
| - | | |
| 12,871,934 | | |
| 128,719 | | |
| - | | |
| - | | |
| 38,523,688 | | |
| - | | |
| 38,652,407 | |
| Share-based
compensation in connection with issuance of ordinary shares to employees | |
| - | | |
| - | | |
| 100,000 | | |
| 1,000 | | |
| - | | |
| - | | |
| 275,000 | | |
| - | | |
| 276,000 | |
| Share-based
compensation in connection with issuance of ordinary shares to consultants | |
| - | | |
| - | | |
| 700,000 | | |
| 7,000 | | |
| - | | |
| - | | |
| 2,058,000 | | |
| - | | |
| 2,065,000 | |
| Share-based
compensation in connection with issuance of ordinary shares to director | |
| - | | |
| - | | |
| 40,000 | | |
| 400 | | |
| - | | |
| - | | |
| 110,000 | | |
| - | | |
| 110,400 | |
| Cumulative
effect upon adoption of ASU 2023-08 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 21,193,820 | | |
| 21,193,820 | |
| Net
Income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 50,081,857 | | |
| 50,081,857 | |
| Balance,
March 31, 2024 | |
| 1,000,000 | | |
$ | 9,050,000 | | |
| 121,003,761 | | |
$ | 1,211,337 | | |
| (129,986 | ) | |
| (1,171,679 | ) | |
$ | 331,733,496 | | |
$ | (75,633,615 | ) | |
$ | 265,189,539 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
BIT DIGITAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Three Months Ended March 31, 2024 and
2023
(Expressed in US dollars)
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Cash Flows from Operating Activities: | |
| | |
| |
| Net income (loss) | |
$ | 50,081,857 | | |
$ | (2,260,305 | ) |
| Adjustments to reconcile net income (loss) to net cash (used in) operating activities: | |
| | | |
| | |
| Depreciation of property and equipment | |
| 6,845,949 | | |
| 3,646,048 | |
| Gains on digital assets | |
| (45,732,577 | ) | |
| - | |
| Realized gains on exchange of digital assets | |
| - | | |
| (4,881,937 | ) |
| Impairment of digital assets | |
| - | | |
| 2,233,665 | |
| Share based compensation expenses | |
| 492,599 | | |
| 106,841 | |
| Realized and unrealized gains on digital assets held within Investment Fund | |
| (3,007,862 | ) | |
| - | |
| Changes in fair value of investment security | |
| (454,705 | ) | |
| (42,891 | ) |
| Equity loss from one equity method investment | |
| - | | |
| (439 | ) |
| Digital assets mined | |
| (21,891,760 | ) | |
| (8,214,390 | ) |
| Digital assets earned from staking | |
| (325,746 | ) | |
| (50,609 | ) |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Digital assets and stable coins | |
| 396,210 | | |
| 10,859,035 | |
| Operating lease right-of-use assets | |
| 460,955 | | |
| - | |
| Deferred revenue | |
| (9,321,861 | ) | |
| - | |
| Operating lease liability | |
| (460,954 | ) | |
| - | |
| Other current assets | |
| 3,428,276 | | |
| 207,484 | |
| Other non-current assets | |
| 140,645 | | |
| 1,462,760 | |
| Accounts payable | |
| 4,786,557 | | |
| (2,648,387 | ) |
| Other payables and accrued liabilities | |
| (4,764,318 | ) | |
| (2,015,827 | ) |
| Net investment in lease | |
| (3,118,145 | ) | |
| - | |
| Income tax receivable | |
| - | | |
| 80,888 | |
| Income tax payable | |
| 1,983 | | |
| - | |
| Deferred tax liability | |
| 1,575,367 | | |
| - | |
| Long-term income tax payable | |
| - | | |
| 38,050 | |
| Net Cash Used in Operating Activities | |
| (20,867,530 | ) | |
| (1,480,014 | ) |
| | |
| | | |
| | |
| Cash Flows from Investing Activities: | |
| | | |
| | |
| Purchases of and deposits made for property and equipment | |
| (474,409 | ) | |
| (14,825 | ) |
| Investment in equity securities | |
| - | | |
| (2,088,982 | ) |
| Loan made to a third party | |
| - | | |
| (400,000 | ) |
| Net Cash (Used in) Investing Activities | |
| (474,409 | ) | |
| (2,503,807 | ) |
| | |
| | | |
| | |
| Cash Flows from Financing Activities: | |
| | | |
| | |
| Net proceeds from issuance of common stock/At-the-market offering | |
| 38,652,407 | | |
| - | |
| Payment of dividends | |
| - | | |
| (800,000 | |
| Net Cash Provided by (Used In) Financing Activities | |
| 38,652,407 | | |
| (800,000 | ) |
| | |
| | | |
| | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | |
| 17,310,468 | | |
| (4,783,821 | ) |
| Cash, cash equivalents and restricted cash, beginning of period | |
| 18,180,934 | | |
| 34,011,060 | |
| Cash, cash equivalents and restricted cash, end of period | |
$ | 35,491,402 | | |
$ | 29,227,239 | |
| | |
| | | |
| | |
| Supplemental Cash Flow Information | |
| | | |
| | |
| Cash paid for income taxes, net of (refunds) | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| Non-cash Transactions of Investing and Financing Activities | |
| | | |
| | |
| Reclassification of deposits to property and equipment | |
$ | 7,540,304 | | |
$ | - | |
| Right of use assets exchanged for operating lease liability | |
$ | 460,955 | | |
$ | - | |
Reconciliation of cash, cash equivalents and
restricted cash
| | |
March 31, | | |
December 31, | |
| | |
2024 | | |
2023 | |
| Cash and cash equivalents | |
$ | 33,087,252 | | |
$ | 16,860,934 | |
| Restricted cash | |
| 2,404,150 | | |
| 1,320,000 | |
| Cash, cash equivalents and restricted cash | |
$ | 35,491,402 | | |
$ | 18,180,934 | |
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Bit Digital, Inc. (“BTBT” or the “Company”),
formerly known as Golden Bull Limited, is a holding company incorporated on February 17, 2017, under the laws of the Cayman Islands. The
Company is currently engaged in the digital asset mining business, Ethereum staking activities and high performance computing services
for artificial intelligence applications through its wholly owned subsidiaries.
On April 17, 2023, Bit Digital Investment Management
Limited (“BT IM”) was established as the investment manager to oversee Bit Digital Innovation Master Fund SPC Limited (“BT
SPC”), a segregated portfolio company which was incorporated in May 2023. Both entities are 100% owned by Bit Digital Strategies
Limited.
On October 19, 2023 and August 17, 2023, Bit Digital
AI, Inc. (“BT AI”) and Bit Digital Iceland ehf (“BT Iceland”) were incorporated to support the Company’s
generative artificial intelligence (“AI”) workstreams. Bit Digital Iceland ehf is 100% owned by Bit Digital AI, Inc. which
is 100% owned by Bit Digital, Inc.
The accompanying unaudited condensed consolidated
financial statements reflect the activities of the Company and each of the following entities:
| Name |
|
Background |
|
Ownership |
| Bit Digital USA, Inc. (“BT USA”) |
|
● A United States company
● Incorporated on September 1, 2020
● Engaged in digital asset mining business
|
|
100% owned by Bit Digital, Inc. |
| Bit Digital Canada, Inc. (“BT Canada”) |
|
● A Canadian company
● Incorporated on February 23, 2021
● Engaged in digital asset mining business
|
|
100% owned by Bit Digital, Inc. |
| Bit Digital Hong Kong Limited (“BT HK”) |
|
● A Hong Kong company
● Acquired on April 8, 2020
● Engaged in digital asset mining related business
|
|
100% owned by Bit Digital, Inc. |
| Bit Digital Strategies Limited (“BT Strategies”) |
|
● A Hong Kong company
● Incorporated on June 1, 2021
● Engaged in treasury management activities
|
|
100% owned by Bit Digital, Inc. |
| Bit Digital Singapore Pte. Ltd. (“BT Singapore”) |
|
● A Singapore company
● Incorporated on July 1, 2021
● Engaged in
digital asset staking activities
|
|
100% owned by Bit Digital, Inc. |
| Bit Digital Investment Management Limited (“BT IM”) |
|
● A British Virgin Islands company
● Incorporated on April 17, 2023
● Engaged in
fund and investment management activities
|
|
100% owned by Bit Digital Strategies Limited. |
| Name |
|
Background |
|
Ownership |
| Bit Digital Innovation Master Fund SPC Limited (“BT SPC”) |
|
● A British Virgin Islands company
● Incorporated on May 31, 2023
● A segregated portfolios company
|
|
100% owned by Bit Digital Strategies Limited. |
| Bit Digital AI, Inc (“BT AI”) |
|
● A United States company
● Incorporated on October 19, 2023
● Engaged in
high performance computing services for artificial intelligence applications
|
|
100% owned by Bit Digital, Inc. |
| Bit Digital Iceland ehf (“BT Iceland”) |
|
● An Icelandic company
● Incorporated on August 17, 2023
● Engaged in high
performance computing services for artificial intelligence applications |
|
100% owned by Bit Digital AI, Inc |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of
consolidation
The interim unaudited condensed consolidated financial
statements are prepared and presented in accordance with accounting principles generally accepted in the United States (“US GAAP”).
The unaudited condensed consolidated financial
information as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 has been prepared without audit, pursuant to the
rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included
in annual financial statements prepared in accordance with US GAAP, have been omitted pursuant to those rules and regulations. The unaudited
interim financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the
Form 20-F for the fiscal year ended December 31, 2023, which was filed with the SEC on March 18, 2024.
In the opinion of the management, the accompanying
unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation
of financial results for the interim periods presented. The Company believes that the disclosures are adequate to make the information
presented not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting
policies as used in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2023. The
results of operations for the three months ended March 31, 2024 and 2023 are not necessarily indicative of the results for the full years.
Fair value of financial instruments
ASC 825-10 requires certain disclosures regarding
the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes
the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level
1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| |
● |
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data. |
| |
● |
Level 3 - inputs to the valuation methodology are unobservable. |
Fair value of digital assets is based on Level
1 inputs as these were based on observable quoted prices in the Company’s principal market for identical assets. The fair value
of the Company’s other financial instruments including cash and cash equivalents, restricted cash, loans receivable, deposits, other
receivables, accounts payable, and other payables, approximate their fair values because of the short-term nature of these assets and
liabilities. Warrants were measured at fair value using unobservable inputs and categorized in Level 3 of the fair value hierarchy (Note
12).
Digital assets
Digital assets (primarily include bitcoin and
ETH) are included in current assets in the accompanying consolidated balance sheets. Digital assets purchased are recorded at cost and
digital assets awarded to the Company through its mining activities and staking activities are accounted for in accordance with the Company’s
revenue recognition policy disclosed below.
Effective January 1, 2024, the Company early adopted
ASU 2023-08, which requires entities to measure certain cryptocurrencies at fair value, with changes in fair value recorded in net
income in each reporting period. The Company’s digital assets are within the scope of ASU 2023-08 and the transition guidance requires
a cumulative-effect adjustment as of the beginning of the current fiscal year for any difference between the carrying amount of the Company’s
digital assets and fair value.
Prior to the adoption of ASU 2023-08, digital
assets were accounted for as intangible assets with indefinite useful lives and are recorded at cost less impairment in accordance with
ASC 350 - Intangibles-Goodwill and Other. An intangible asset with an indefinite useful life is not amortized but assessed for
impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that
the indefinite-lived asset is impaired. Digital assets held are accounted for as intangible assets with indefinite useful lives and are
subject to impairment losses if the fair value of digital assets decreases below the carrying value at any time during the period. The
fair value is measured using the quoted price of the digital assets at the time its fair value is being measured. In testing for impairment,
the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment
exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.
If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized,
the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
ASC 820 defines “principal market”
as the market with the greatest volume and level of activity for the asset or liability. The determination of the principal market (and,
as a result, the market participants in the principal market) is made from the perspective of the reporting entity. The digital assets
held by the Company are traded on a number of active markets globally. The Company does not use any exchanges to buy or sell digital assets.
Instead, the Company uses Amber Group’s OTC desk for selling or exchanging bitcoins for U.S. dollars or vice versa. The Company
determines CoinMarketCap as its principal market, as it is one of the earliest and the most trusted sources by users, institutions, and
media for comparing thousands of crypto assets and selected by the U.S. government.
The Company recognizes revenue by utilizing daily
close prices obtained from CoinMarketCap, except for the year 2022. During that specific year, the Company also used hourly close price
from CryptoCompare to recognize revenue from our digital asset mining activities. The Company believed the hourly close price can better
reflect revenue recognized from our digital asset mining activities as compared to daily close price from CoinMarketCap.
Purchases of digital assets by the Company
and digital assets awarded to the Company through its mining activities and staking activities are included within operating
activities on the accompanying consolidated statements of cash flows. The changes of digital assets are included within operating
activities in the accompanying consolidated statements of cash flows. After adopting ASU 2023-08, changes in fair value and realized
gains or losses are now reported as “gains (losses) on digital assets” in the consolidated statements of operations.
Prior to this adoption, realized gains or losses were reported as “realized gain (loss) on exchange of digital assets”
in the consolidated statements of operations. The Company accounts for its gains or losses in accordance with the first-in first-out
method of accounting.
Digital assets held in fund
On October 1, 2023, the Company made of investment
of 2,701 Ethereum, with a fair value of $4.7 million, into Bit Digital Innovation Master Fund SPC Ltd. (the “Fund”). The Fund
was subsequently consolidated based on the Company’s financial control interest. As a result, the assets held in the Fund are included
in current assets in the Consolidated Balance Sheets under the caption digital assets held in Fund.
The Fund qualified and operated as an investment
company for accounting purposes pursuant to the accounting and reporting guidance under ASC 946 – “Financial Services –
Investment Companies” (“ASC 946”), which requires fair value measurement of the Fund. The Company retains the Fund’s
investment company specific accounting principles under ASC 946 upon consolidation. The digital assets held by the Fund were traded on
a number of active markets globally. A fair value measurement under ASC 820 - “Fair Value Measurement” (“ASC
820”) for an asset assumes that the asset is exchanged in an orderly transaction between market participants either in the principal
market for the asset or, in the absence of a principal market, the most advantageous market for the asset (ASC 820-10-35-5). The fair
value of the assets within the Fund was primarily determined using the price from CoinMarketCap. Any changes in the fair value of the
assets were recorded in the consolidated statements of operations under the caption realized and unrealized gains (losses) on digital
assets held in fund. The activity in the Fund for the three months ended March 31, 2024 and March 31, 2023 was as follows:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| | |
| | |
| |
| Opening balance | |
$ | 6,115,538 | | |
$ | - | |
| Unrealized gains on digital assets held in fund | |
| 3,007,862 | | |
| - | |
| Ending balance | |
$ | 9,123,400 | | |
$ | - | |
Investment
securities
As of March
31, 2024, investment securities represent the Company’s investments in one fund and three privately held companies over which the
Company neither has control nor significant influence through investments in ordinary shares or preferred shares. As of December 31, 2023,
investment securities represent the Company’s investments in one fund and three privately held companies over which the Company
neither has control nor significant influence through investments in ordinary shares or preferred shares.
Investment in equity method investee
In accordance with ASC 323, Investments - Equity
Method and Joint Ventures, the Company accounts for the investment in one privately held company using equity method, because the
Company has significant influence but does not own a majority equity interest or otherwise control over the equity investee.
Under the equity method, the Company initially
records its investment at cost and prospectively recognizes its proportionate share of each equity investee’s net income or loss
into its consolidated statements of operations. When the Company’s share of losses in the equity investee equals or exceeds its
interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments
or guarantees on behalf of the equity investee.
The Company continually reviews its investment
in the equity investee to determine whether a decline in fair value below the carrying value is other-than-temporary. The primary factors
the Company considers in its determination include the financial condition, operating performance and the prospects of the equity investee;
other company specific information such as recent financing rounds; the geographic region, market and industry in which the equity investee
operates; and the length of time that the fair value of the investment is below its carrying value. If the decline in fair value is deemed
to be other-than-temporary, the carrying value of the equity investee is written down to fair value.
Investment
in the fund
Equity securities not accounted for using the
equity method are carried at fair value with unrealized gains and losses recorded in the consolidated income statements, according to
ASC 321, Investments - Equity Securities. As a practical expedient, the Company uses Net Asset Value (“NAV”) or
its equivalent to measure the fair value of the investment in the fund. NAV is primarily determined based on information provided by the
fund administrator.
Investment
in the privately held company
Equity securities
not accounted for using the equity method are carried at fair value with unrealized gains and losses recorded in the consolidated income
statements, according to ASC 321, Investments - Equity Securities. The Company elected to record the equity investments in
privately held companies using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price
changes resulting from orderly transactions for identical or similar investments of the same issuer.
Equity investments
in privately held companies accounted for using the measurement alternative are subject to periodic impairment reviews. The Company’s
impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of these
equity securities. In computing realized gains and losses on equity securities, the Company calculates cost based on amounts paid using
the average cost method. Dividend income is recognized when the right to receive the payment is established.
Leases
The Company determines whether an arrangement
contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the
date on which the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of the
lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination
options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is
reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement,
which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the
lease term.
For leases with a term exceeding 12 months, an
operating lease liability is recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value
of its fixed minimum payment obligations over the lease term. A corresponding operating lease right-of-use asset equal to the initial
lease liability is also recorded, adjusted for any prepayment and/or initial direct costs incurred in connection with execution of the
lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a
given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates
implicit in its leasing arrangements are typically not readily determinable. The Company’s incremental borrowing rate reflects the
rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease. Variable lease
costs are recognized in the period in which the obligation for those payments is incurred and not included in the measurement of right-of-use
assets and operating lease liabilities.
For the Company’s operating leases, fixed
lease payments are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of 12 months or less,
any fixed lease payments are recognized on a straight-line basis over the lease term and are not recognized on the Company’s consolidated
balance sheet as an accounting policy election. Leases qualifying for the short-term lease exception were insignificant.
For sales-type leases where the Company is the
lessor, the Company recognizes a net investment in lease, which comprises of the present value of the future lease payments and any unguaranteed
residual value. Interest income is recognized over the lease term at a constant periodic discount rate on the remaining balance of the
lease net investment using the rate implicit in the lease and is included in “Other income, net.”. Sales-type leases result
in the recognition of gain or loss at the commencement of the lease, which will be recorded in “Other income, net.”
Deposits for property
and equipment
The deposits for property and equipment represented
advance payments for purchases of miner and high performance computing equipment. The Company initially recognizes deposits for property
and equipment when cash is advanced to our suppliers. Subsequently, the Company derecognizes and reclassifies deposits for property and
equipment to property and equipment when control over these equipment is transferred to and obtained by the Company.
Below is the roll forward of the balance of deposits
for property and equipment for the three months ended March 31, 2024 and 2023, respectively.
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| | |
| | |
| |
| Opening balance | |
$ | 4,227,371 | | |
$ | 2,594,881 | |
| Reclassification to property and equipment | |
| (7,540,304 | ) | |
| - | |
| Addition of deposits for property and equipment | |
| 3,412,933 | | |
| 14,825 | |
| Ending balance | |
$ | 100,000 | | |
$ | 2,609,706 | |
Property and equipment, net
Property and equipment is recorded at cost and
depreciated using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment were
primarily comprised of digital asset miners with estimated useful lives of three years, high performance computing equipment with estimated
useful lives of three years, and one vehicle with estimated useful life of five years.
Revenue recognition
The Company recognizes revenue in accordance with ASC 606, Revenue
from Contracts with Customers (“ASC 606”). The Company recognizes revenue when it transfers its goods and services to customers
in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. Refer to Note 3- Revenue for
further information.
Contract costs
Capitalized
contract costs represent the costs directly related and incremental to the origination of new contracts, including commissions that are
incurred directly related to obtaining customer contracts. We amortize the deferred contract costs on a straight-line basis over the expected
period of benefit. These amounts are included in the accompanying consolidated balance sheets, with the capitalized costs to be amortized
to commission expense over the expected period of benefit and commission expense payable included in Other long-term liabilities.
The Company
capitalized lease expense incurred in December 2023 that are directly related to fulfilling its high performance computing services which
commenced operations in January 2024. The lease expense is directly related to fulfill customer contracts and is expected to be recovered.
The capitalized lease expense was reclassified as lease expense in January 2024.
Deferred Revenue
Deferred
revenue primarily pertains to prepayments received for HPC services from a customer, which commenced in January 2024. Deferred revenues
are recognized as revenue recognition criteria have been met.
Remaining
performance obligation
Remaining performance obligations
represent the transaction price of contracts for work that have not yet been performed. The amount represents estimated revenue expected
to be recognized in the future related to the unsatisfied portion of the performance obligation.
Cost of revenue
The Company’s
cost of revenue consists primarily of (i) direct production costs related to mining operations, including electricity costs, profit-sharing
fees/variable performance fees and/or other relevant costs paid to our hosting facilities, (ii) direct production costs related to our
high performance computing services, including electricity costs, datacenter lease costs, and other relevant costs, and (iii) direct cost
related to ETH staking business, including service fees payable to the service provider.
Cost revenue excludes depreciation and amortization,
which are separately stated in the Company’s consolidated statements of operations.
Reclassification
Certain items in the financial statements of the
comparative period have been reclassified to conform to the financial statements for the current period. The reclassification has no impact
on the total assets and total liabilities as of March 31, 2024 or on the statements of operations for the three months ended March 31,
2024.
Recent accounting pronouncements
The Company continually assesses any new accounting
pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s
financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements
and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect
the change.
In December 2023, the FASB issued ASU 2023-08,
Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU
2023-08”), which establishes accounting guidance for crypto assets meeting certain criteria. Bitcoin and ETH meet this criterion.
The amendments require crypto assets meeting the criteria to be recognized at fair value with changes recognized in net income each reporting
period. Upon adoption, a cumulative-effect adjustment is made to the opening balance of retained earnings as of the beginning of the annual
reporting period of adoption. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, including interim periods within
those fiscal years. Early adoption is permitted. The Company elected to early adopt ASU 2023-08, effective January 1, 2024.
In December 2023, the Financial Accounting Standards
Board (“FASB”) issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU
2023-09”). ASU 2023-09 expands existing income tax disclosures for rate reconciliations by requiring disclosure of certain specific
categories and additional reconciling items that meet quantitative thresholds and expands disclosures for income taxes paid by requiring
disaggregation by certain jurisdictions. ASU 2023-09 is effective for annual periods beginning after December 15, 2024; early adoption
is permitted. The Company is closely monitoring the development of the ASU 2023-09 and does not expect its impact to be material on the
consolidated financial statements.
3. Revenue from Contracts with Customers
The Company recognizes revenue in accordance with
ASC 606, Revenue from Contracts with Customers (“ASC 606”).
To determine revenue recognition for contracts
with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable
that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations
in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it transfers
its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange.
Disaggregation of revenues
Below table presents the disaggregation of Company’s revenues
by revenue streams.
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Digital asset mining | |
$ | 21,891,760 | | |
$ | 8,214,390 | |
| High performance computing services | |
| 8,069,584 | | |
| - | |
| ETH native staking | |
| 321,243 | | |
| 14,232 | |
| ETH liquid staking | |
| 4,503 | | |
| 36,377 | |
| | |
$ | 30,287,090 | | |
$ | 8,264,999 | |
Digital asset mining
The Company has entered into digital asset mining
pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contract is terminable
at any time by either party with no termination penalty. Our enforceable right to compensation begins when, and lasts for as long as,
we provide computing power to the mining pool operator; our performance obligation extends over the contract term given our continuous
provision of computing power. This period of time corresponds with the period of service for which the mining pool operator determines
compensation due to us. Given cancellation terms of the contract, and our customary business practice, the contract effectively provides
the option to renew for successive contract terms daily. In exchange for providing computing power, the Company is entitled to a fractional
share of the fixed digital assets award the mining pool operator receives, for successfully adding a block to the blockchain. The Company’s
fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing
power contributed by all mining pool participants in solving the current algorithm. The Company is entitled to its relative share of consideration
even if a block is not successfully placed.
Providing computing power in digital asset transaction
verification services is an output of the Company’s ordinary activities. The provision of such computing power is the only performance
obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is
noncash consideration. ASC 606-10-32-21 requires entities to measure the estimated fair value of noncash consideration at contract inception.
Because the consideration to which the Company expects to be entitled for providing computing power is entirely variable, as well as being
noncash consideration, the Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently,
to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not
occur once the uncertainty associated with the variable consideration is subsequently resolved. Because it is probable that a significant
reversal of cumulative revenue will not occur and the Company is able to calculate the payout based on the contractual formula, this amount
should be estimated and recognized in revenue upon inception, which is when the hash rate is provided.
For reasons of operational practicality, the Company
applies an accounting convention to use the daily quoted closing U.S. dollar spot rate of digital asset each day to determine the fair
value of digital asset on the date received, which is not materially different than the fair value at contract inception or the time the
Company has earned the award from the pools.
For the three months ended March 31, 2024 and 2023, the Company earned
revenue of $21,891,760 and $8,214,390, respectively, from Foundry USA Pool.
Below table presents the Company’s revenues
generated from digital asset mining business by countries:
| | |
For the Three Months
Ended March
31, | |
| | |
2024 | | |
2023 | |
| | |
| | |
| |
| United States | |
$ | 19,311,884 | | |
$ | 7,714,513 | |
| Iceland | |
| 1,601,040 | | |
| - | |
| Canada | |
| 978,836 | | |
| 499,877 | |
| | |
$ | 21,891,760 | | |
$ | 8,214,390 | |
High performance computing services
The Company provides high performance computing
(“HPC”) services to support customers’ generative AI workstreams. We have determined that HPC services are a single
continuous service comprised of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e.
distinct days of service).
These services are consumed as they are received,
and the Company recognizes revenue over time using the variable allocation exception as it satisfies performance obligations. We apply
this exception because we concluded that the nature of our obligations and the variability of the payment terms based on the number of
GPUs providing HPC services are aligned and uncertainty related to the consideration is resolved on a daily basis as we satisfy our obligations.
The Company recognizes revenue net of consideration payable to customers, such as service credits, and accounted for as a reduction of
the transaction price in accordance with guidance in ASC 606-10-32-25.
During
the three months ended March 31, 2024, the Company issued a one-time service credit of $1.3 million to the customer as compensation
for decreased utilization during the initial deployment period, which included testing and optimization phases. As a result, for
the three months ended March 31, 2024 and 2023, the Company recorded revenue of $8.1 million and $nil, respectively, under our
initial customer contract.
ETH staking business
The Company
generates revenue through ETH staking rewards. Currently, the Company participates in native staking. Prior to the end of the first quarter
of 2024, the Company conducted its ETH staking business via both native staking and liquid staking. The Company commenced both
native staking business and liquid staking business in the year ended December 31, 2022.
With the introduction of staked ETH withdrawals
in April 2023, we have reassessed our Ethereum network staking approaches, weighing the advantages of traditional staking against liquid
staking solutions. The withdrawal feature in native staking, coupled with yields that are on par with those of liquid staking, has encouraged
us to expand our collaborations with other service providers in this domain. As a result, we have terminated all liquid staking activities
with StakeWise and Liquid Collection in the third quarter of 2023 and in the first quarter of 2024, respectively, reclaiming all staked
Ethereum along with the accumulated rewards. In the fourth quarter of 2023, the Company terminated the native staking activities and reclaimed
all staked Ethereum with Blockdaemon. Subsequently, we have ceased our native staking with MarsLand in the first quarter of 2024 and initiated
our native staking with Figment Inc.
(a) Native staking
The Company has entered into network-based smart
contracts by staking ETH on nodes run by third-party operators or nodes maintained by us in 2022. Through these contracts, the Company
stakes ETH on nodes for the purpose of validating transactions and adding blocks to the Ethereum blockchain network. The Company is able
to withdraw the staked ETH which was previously locked-up in staking contracts since the Shanghai upgrade was successfully completed on
April 12, 2023. In exchange for staking the ETH and validating transactions on blockchain networks, the Company is entitled to the block
rewards and transaction fees for successfully validating or adding a block to the blockchain. These rewards are received by the Company
directly from the Ethereum network and are calculated approximately based on the proportion of the Company’s stake to the total
ETH staked by all validators.
The provision of validating blockchain transactions
is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network
represents a performance obligation. The transaction consideration the Company receives, the digital asset awards, is a non-cash consideration,
which the Company measures at fair value on the date received. The fair value of the ETH reward received is determined using the quoted
price of the ETH at the time of receipt. The satisfaction of the performance obligation for transaction verification services occurs at
a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are deposited
to our address. At that point, revenue is recognized.
The
Company commenced native staking business in the year ended December 31, 2022. For the three months ended March 31, 2024 and 2023, the
Company has native staked 3,008 ETH and 1,120 ETH, respectively, on the Ethereum blockchain. During these periods, the Company earned
111.1 ETH valued at $321,243 and 8.7 ETH
valued at $14,232, respectively, from such staking activities and recognized the ETH staking rewards as revenues.
(b) Liquid staking
The liquid staking is similar to native staking
in terms of performance obligations, determination of transaction price and revenue recognition. When we participated in liquid staking
via Portara protocol, the Company received receipt tokens in the form of sETH-h to represent the staked ETH at 1:1 ratio. The liquid staking
rewards were in the form of rETH-h which could be redeemed for ETH from the liquid staking provider or exchange for ETH via OTC. When
we participated in liquid staking via Liquid Collective protocol, the Company received receipt tokens in the form of Liquid Staked
ETH (“LsETH”) to represent the staked ETH. LsETH uses a floating conversion rate, or protocol conversion rate, between the
receipt token and staked tokens, reflecting the value of accrued network rewards, penalties, and fees associated with the staked tokens.
For the three months ended March 31, 2024 and
2023, the Company generated revenues of $4,503 and $36,377, respectively, from the liquid staking.
Contract costs
The Company
capitalizes commission expenses directly related to obtaining customer contracts, which would not have been incurred if the contract had
not been obtained. As of March 31, 2024, capitalized costs to obtain a contract totaled $3.1 million, and the outstanding commission expense
payable was $1.9 million. As of December 31, 2023, capitalized costs to obtain a contract totaled $2.8 million, and the outstanding commission
expense payable was $1.9 million.
The Company
capitalizes lease expense that are directly related to fulfilling its high performance computing services which commenced operations in
January 2024. The lease expense is directly related to fulfill customer contracts and is expected to be recovered. As of March 31, 2024
and December 31, 2023, capitalized costs to fulfill a contract totaled $nil and
$100,000, respectively.
Deferred Revenue
Deferred
revenue primarily pertains to prepayments received for HPC services from a customer, which commenced in January 2024:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Beginning balance | |
$ | 13,073,449 | | |
$ | - | |
| Revenue earned | |
| (9,321,861 | ) | |
| - | |
| Ending balance | |
$ | 3,751,588 | | |
$ | - | |
Remaining performance obligation
The following
table presents estimated revenue expected to be recognized in the future related to the unsatisfied portion of the performance obligation
as of March 31, 2024:
| | |
Remainder of 2024 | |
| High performance computing services | |
$ | 3,751,588 | |
| Total deferred revenue | |
$ | 3,751,588 | |
The remaining performance obligation
is expected to be fulfilled completely in the second quarter of 2024.
4. USDC
| | |
March 31, 2024 | | |
December 31,
2023 | |
| USDC | |
$ | 979,072 | | |
$ | 405,596 | |
The following table presents additional information
about USDC for the three months ended March 31, 2024 and 2023, respectively:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| | |
| | |
| |
| Opening balance | |
$ | 405,596 | | |
$ | 626,441 | |
| Receipt of USDC from sales of other digital assets | |
| 1,044,600 | | |
| - | |
| Receipt of USDC from sales of Antminer coupon | |
| - | | |
| 699,425 | |
| Payment of USDC for other expenses | |
| (471,124 | ) | |
| (844,573 | ) |
| Ending balance | |
$ | 979,072 | | |
$ | 481,293 | |
5. DIGITAL ASSETS
Adoption of ASU 2023-08, Accounting for and
Disclosure of Crypto Assets
Effective January 1, 2024, the Company early adopted
ASU 2023-08, which requires entities to measure crypto assets at fair value with changes recognized in net income each reporting period.
The Company’s digital assets are within the scope of ASU 2023-08 and the transition guidance requires a cumulative-effect adjustment
as of the beginning of the current fiscal year for any difference between the carrying amount of the Company’s digital assets and
fair value. As a result of the Company’s early adoption of ASU 2023-08, the Company recorded a $21.2 million increase to digital
assets and a $21.2 million decrease to accumulated deficit on the consolidated balance sheets as of the beginning of the quarter ended
March 31, 2024.
The following table presents the Company’s
significant digital assets holdings as of March 31, 2024:
| | |
Quantity | | |
Cost Basis | | |
Fair Value | |
| BTC | |
| 956.4 | | |
$ | 40,445,951 | | |
$ | 68,220,014 | |
| ETH | |
| 16,031.4 | | |
| 34,139,014 | | |
| 58,480,832 | |
| Total digital assets held as of March 31, 2024 | |
| | | |
$ | 74,584,965 | | |
$ | 126,700,846 | |
The cost basis is equal to the post-impairment
value of all BTC and ETH held as of the adoption of ASU 2023-08 on January 1, 2024, and, for BTC and ETH earned subsequent to the adoption
of ASU 2023-08, the cost basis of the BTC and ETH represents the valuation at the time the Company determined for revenue recognition
purposes.
The following table presents a roll-forward of
BTC for the quarter ended March 31, 2024, based on the fair value model under ASU 2023-08:
| | |
Fair value | |
| BTC as of December 31,2023 | |
$ | 19,818,980 | |
| Cumulative effect of the adoption of ASU 2023-08 | |
| 7,341,320 | |
| Receipt of BTC from mining services | |
| 21,891,760 | |
| Sales of BTC in exchange of ETH | |
| (2,098,253 | ) |
| Sales of BTC in exchange of USDC | |
| (1,049,818 | ) |
| Payment of BTC for service charges from mining facilities | |
| (1,883,578 | ) |
| Payment of BTC for other expenses | |
| (21,067 | ) |
| Change in fair value of BTC | |
| 24,220,670 | |
| BTC as of March 31, 2024 | |
$ | 68,220,014 | |
For the
additions of BTC generated by the Company’s mining business, see Note 3. Revenue from Contracts with Customers.
Bitcoin
is sold on a FIFO basis. For the three months ended March 31, 2024, gains from the sales of bitcoin are included in change in fair value
of BTC which is included in the consolidated statements of operations under the caption “Gains on digital assets”.
The following table presents a roll-forward of
ETH for the quarter ended March 31, 2024, based on the fair value model under ASU 2023-08:
| | |
Fair value | |
| ETH as of December 31,2023 | |
$ | 20,637,103 | |
| Cumulative effect of the adoption of ASU 2023-08 | |
| 13,852,500 | |
| Receipt of ETH from exchange of BTC | |
| 2,077,575 | |
| Receipt of ETH from native staking business | |
| 321,243 | |
| Receipt of ETH from liquid staking business | |
| 4,503 | |
| Receipt of ETH from other income | |
| 199 | |
| Payment of ETH for other expenses | |
| (14,183 | ) |
| Change in fair value of ETH | |
| 21,601,892 | |
| ETH fair value at March 31, 2024 | |
$ | 58,480,832 | |
For the
additions of ETH generated by the Company’s ETH staking business, see Note 3. Revenue from Contracts with Customers.
ETH is sold
on a FIFO basis. For the three months ended March 31, 2024, gains from the sales of ETH are included in change in fair value of ETH which
is included in the consolidated statements of operations under the caption “Gains on digital assets”.
Prior to Adoption of ASU 2023-08, Accounting
for and Disclosure of Crypto Assets
Prior to the adoption of ASU 2023-08, digital
assets were accounted for as indefinite-lived intangible assets and were initially measured in accordance with ASC 350 - Intangible-Goodwill
and Other. Digital assets were not amortized, but were assessed for impairment annually, or more frequently, when events or changes
in circumstances occur indicating that it is more likely than not that the indefinite-lived intangible asset is impaired. Whenever the
exchange-traded price of digital assets declined below its carrying value, the Company was required to determine if an impairment existed
and to record an impairment equal to the amount by which the carrying value exceeded the fair value.
The following table presents a roll-forward of
BTC for the year ended December 31, 2023, based on the cost-impairment model under ASC 350:
| | |
For the Year Ended
December 31, | |
| | |
2023 | |
| Opening balance | |
$ | 15,796,147 | |
| Receipt of BTC from mining services | |
| 44,240,418 | |
| Receipt of BTC from other income | |
| 140,724 | |
| Sales of BTC in exchange of cash | |
| (4,679,714 | ) |
| Sales of BTC in exchange of ETH | |
| (11,756,006 | ) |
| Sales of BTC in exchange of USDC | |
| (17,251,504 | ) |
| Payment of BTC for service charges from mining facilities | |
| (1,758,441 | ) |
| Payment of BTC for other expenses | |
| (392,952 | ) |
| Impairment of BTC | |
| (4,519,692 | ) |
| Ending balance | |
$ | 19,818,980 | |
The following table presents a roll-forward of
ETH for the year ended December 31, 2023, based on the cost-impairment model under ASC 350:
| | |
For the Year Ended
December 31, | |
| | |
2023 | |
| Opening balance | |
$ | 11,791,181 | |
| Receipt of ETH from exchange of BTC | |
| 17,164,100 | |
| Receipt of ETH from native staking business | |
| 531,702 | |
| Receipt of ETH from liquid staking business* | |
| 144,011 | |
| Other income in the form of ETH | |
| 540 | |
| Sales of ETH in exchange of cash | |
| (3,243,415 | ) |
| Payment of ETH for other expenses | |
| (22,757 | ) |
| Payment of ETH to investment fund | |
| (3,615,507 | ) |
| Impairment of ETH | |
| (2,112,752 | ) |
| Ending balance | |
$ | 20,637,103 | |
| * |
It includes 71.7 rETH-h earned from the liquid staking activity in 2023. |
6. OTHER CURRENT ASSETS
Other current assets were comprised of the following:
| |
|
March 31,
2024 |
|
|
December 31,
2023 |
|
| Deposits (a) |
|
$ |
1,328,564 |
|
|
$ |
1,171,709 |
|
| Prepayments to one mining facility (b) |
|
|
- |
|
|
|
382,207 |
|
| Prepaid director and officer insurance expenses |
|
|
- |
|
|
|
168,594 |
|
| Prepaid consulting service expenses |
|
|
1,892,381 |
|
|
|
931,200 |
|
| Office rental deposits |
|
|
60,505 |
|
|
|
50,858 |
|
| Deferred contract costs |
|
|
1,138,333 |
|
|
|
1,041,667 |
|
| Receivable from third parties |
|
|
10,214,414 |
|
|
|
13,855,949 |
|
| Others |
|
|
1,600,559 |
|
|
|
585,848 |
|
| Total |
|
$ |
16,234,756 |
|
|
$ |
18,188,032 |
|
| (a) |
As of March 31, 2024 and December 31, 2023, the balance of deposits represented the deposits made to our service providers, who paid utility charges in mining facilities on behalf of the Company. The deposits are refundable upon expiration of the agreement between the Company and the service provider, which may be due within 12 months from the effective date of the agreement. |
| (b) |
As of December 31, 2023, the balance of prepayments to one mining facility represented the prepayments for service charges from the mining facility. |
7. LEASES
Lease
as Lessee
During the year ended December 31, 2023, the Company
entered into a capacity lease agreement for its high performance computing services designed to support generative AI workstreams. The
initial lease term is three years, with automatic renewals for successive twelve-month periods.
The lease expense incurred in December 2023 is
capitalized as deferred cost since it is directly related to fulfilling its high performance computing
services which commenced operations in January 2024. The capitalized lease payment was expensed in January 2024.
As
of March 31, 2024 and December 31, 2023, operating right-of-use assets were $5.8 million and $6.2 million, respectively and operating
lease liabilities were $5.8 million and $6.2 million, respectively. For the three months ended March 31, 2024, the Company’s amortization
on the operating lease right-of-use assets totaled $0.4 million.
Additional information regarding the Company’s
leasing activities as a lessee is as follows:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Operating cash outflows from operating leases | |
$ | 600,000 | | |
$ | - | |
| Remaining lease term – operating lease | |
| 2.8 | | |
| - | |
| Discount rate – operating lease | |
| 9.9 | % | |
| - | |
The following table represents our future minimum
operating lease payments as of March 31, 2024:
| Year | |
Amount | |
| 2024 | |
$ | 1,800,000 | |
| 2025 | |
| 2,400,000 | |
| 2026 | |
| 2,300,000 | |
| Total undiscounted lease payments | |
| 6,500,000 | |
| Less present value discount | |
| (744,700 | ) |
| Present value of lease liability | |
$ | 5,755,300 | |
During the quarter ended March 31, 2024, the Company
entered into a GPU server lease agreement for its high performance computing services designed to support generative AI workstreams. The
lease payment depends on the usage of the GPU servers and the Company concludes that the lease payments are variable and will be recognized
when they are incurred. For the three months ended March 31, 2024, the GPU server lease expense amounted to $2.1 million.
Lease as Lessor
During
the quarter ended March 2024, the Company entered into a sales-type lease agreement as a lessor for its data storage equipment. The term
of the lease is scheduled to expire in December 2026.
The components of lease income for the sales-type
lease were as follows:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Interest income related to net investment in lease | |
$ | 99,748 | | |
$ | - | |
Interest income is included in the consolidated
statements of operations under the caption “Other income, net”.
The components of net investment in sales-type
leases were as follows:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Net investment in lease - lease payment receivable | |
$ | 3,118,145 | | |
$ | - | |
The following table illustrates the Company’s
future minimum receipts for sales-type lease as of March 31, 2024:
| Year | |
Sales-Type Lease | |
| 2024 | |
$ | 1,005,633 | |
| 2025 | |
| 1,340,844 | |
| 2026 | |
| 1,340,844 | |
| Total future minimum receipts | |
| 3,687,321 | |
| Unearned interest income | |
| (569,176 | ) |
| Net investment in sales type lease | |
$ | 3,118,145 | |
The present value of minimum sales-type receipts
of $3,118,145 is included in the consolidated balance sheet under the caption “Net investment in lease”.
8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net was comprised of the
following:
| | |
March 31, 2024 | | |
December 31,
2023 | |
| Miners for Bitcoin | |
$ | 54,618,592 | | |
$ | 50,853,637 | |
| High performance computing equipment | |
| 51,867,492 | | |
| - | |
| Vehicle | |
| 235,576 | | |
| 235,576 | |
| | |
| | | |
| | |
| Less: Accumulated depreciation | |
| (27,491,180 | ) | |
| (20,645,231 | ) |
| | |
| 79,230,480 | | |
| 30,443,982 | |
| Construction in progress | |
| - | | |
| 51,030,667 | |
| Property and equipment, net | |
$ | 79,230,480 | | |
$ | 81,474,649 | |
For the three months ended March 31, 2024 and
2023, depreciation expenses were $6,845,949 and $3,646,048, respectively.
During the three months ended March 31, 2024,
we purchased data storage equipment totaling $5,315,202. Almost immediately thereafter, we entered into a sales-type lease agreement for
a portion of these assets valued at $3,353,608 with a third party. As a result, the leased data storage equipment was derecognized from
our property and equipment and recorded as a net investment in lease. Refer to Note 7 - Leases for more information.
9. INVESTMENT SECURITIES
Investment securities were comprised of the following:
| | |
March 31,
2024 | | |
December 31,
2023 | |
| Investment in Digital Future Alliance Limited (“DFA”) (a) | |
$ | 94,534 | | |
$ | 94,534 | |
| Investment in Nine Blocks Offshore Feeder Fund (“Nine Blocks”) (b) | |
| 2,633,869 | | |
| 2,179,164 | |
| Investment in Auros Global Limited (c) | |
| 1,999,987 | | |
| 1,999,987 | |
| Investment in Ingonyama Ltd (d) | |
| 100,000 | | |
| 100,000 | |
| Total | |
$ | 4,828,390 | | |
$ | 4,373,685 | |
(a) Investment in Digital Future Alliance Limited (“DFA”)
DFA is a privately held company, over which the
Company neither has control nor significant influence through investment in ordinary shares. The Company accounted for the investment
in DFA using the measurement alternative at cost, less impairment, with subsequent adjustments for
observable price changes resulting from orderly transactions for identical or similar investments of the same issuer.
For the three months ended March 31, 2024 and
2023, the Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis
considers both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of
March 31, 2024 and December 31 2023, the Company did not recognize impairment against the investment security.
(b) Investment in Nine Blocks Offshore Feeder Fund (“Nine
Blocks”)
On August 1, 2022, the Company entered into a
subscription agreement with Nine Blocks for investment of $2.0 million. The investment includes a direct investment into the Nine Blocks
Master Fund, a digital assets market neutral fund using basis trading, relative value, and special situations strategies.
As a practical
expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of the investment in the fund.
For the three months ended March 31, 2024 and 2023, the Company recorded accumulative upward adjustments of $454,705 and $42,891, respectively,
on the investment.
(c) Investment in Auros Global Limited (“Auros”)
On February 24, 2023, the Company closed an investment of $1,999,987
in Auros, which is a leading crypto-native algorithmic trading and market making firm that delivers best-in-class liquidity for exchanges
and token projects. The Company neither has control nor significant influence through investment in ordinary shares. The Company
accounted for the investment in Auros using the measurement alternative at cost, less impairment,
with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the
same issuer.
For the three months ended March 31, 2024 and
2023, the Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis
considers both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of
March 31, 2024 and December 31 2023, the Company did not recognize impairment against the investment security.
(d) Investment in Ingonyama Ltd. (“Ingonyama”)
In September 2023, the Company closed an investment
of $100,000 in Ingonyama, a semiconductor company focusing on Zero Knowledge Proof hardware acceleration. The Company neither has
control nor significant influence through investment in preferred shares. The Company accounted for the investment in Ingonyama using
the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly
transactions for identical or similar investments of the same issuer.
For the three months ended March 31, 2024, the
Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis considers
both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of March 31,
2024 and December 31 2023, the Company did not recognize impairment against the investment security.
(e) Investment in MarsProtocol Technologies Pte. Ltd. (“MarsProtocol”)
On March 1, 2023, Bit Digital Singapore Pte. Ltd.
and Saving Digital Pte. Ltd. (“SDP”), a wholly owned subsidiary of Mega Matrix Corp., entered into a shareholders’ agreement
with MarsProtocol Technologies Pte. Ltd. (“MarsProtocol”). MarsProtocol provides staking technology tools in digital assets
through the staking platform.
The Company invested $88,994 which represents
40% of equity interest in Marsprotocol. The Company used the equity method to measure the investment in the MarsProtocol. For the three
months ended March 31, 2023, the Company recorded $439 for its share of the results of MarsProtocol. As of March 31, 2023, the Company
did not recognize impairment against the investment in MarsProtocol. In August 2023, the Company divested its stake in MarsProtocol for
consideration of $89,519 and recognized a gain of $8,220.
10. OTHER NON-CURRENT ASSETS
Other non-current assets were comprised of the
following:
| | |
March 31,
2024 | | |
December 31,
2023 | |
| Deposits (a) | |
$ | 6,680,051 | | |
$ | 6,680,051 | |
| Prepaid consulting service expenses | |
| 310,400 | | |
| 543,200 | |
| Deferred contract costs | |
| 1,992,083 | | |
| 1,883,333 | |
| Others | |
| 167,060 | | |
| 183,655 | |
| Total | |
$ | 9,149,594 | | |
$ | 9,290,239 | |
| (a) |
As of March 31, 2024 and December 31, 2023, the balance of deposits represented the deposits made to service providers, who paid utility charges in mining facilities on behalf of the Company. The deposits are refundable upon expiration of the agreement between the Company and the service provider, which may be due over 12 months from the effective date of the agreement. |
11. SHARE-BASED COMPENSATION
Share-based compensation such as restricted stock
units (“RSUs”), incentive and non-statutory stock options, restricted shares, share appreciation rights and share payments
may be granted to any directors, employees and consultants of the Company or affiliated companies under 2021 Omnibus Equity Incentive
Plan (“2021 Plan”), 2021 Second Omnibus Equity Incentive Plan (“2021 Second Plan”) and 2023 Omnibus Equity Incentive
Plan (“2023 Plan”). An aggregate of 2,415,293 RSUs were granted under the 2021 Plan and no ordinary shares remain reserved
for issuance under the 2021 Plan. There are 5,000,000 ordinary shares reserved for issuance under the Company’s 2021 Second Plan,
under which 3,711,372 RSUs and 395,000 share options have been granted as of March 31, 2024. There are 5,000,000 ordinary shares reserved
for issuance under the Company’s 2023 Plan, under which 490,000 RSUs have been granted as of March 31, 2024.
Restricted Stock Units (“RSUs”)
As of December 31, 2023, the Company had nil awarded
and unvested RSUs.
On March 16, 2024, the Company granted 25,000
RSUs to an employee, which are subject to an eight-quarter service vesting schedule.
On March 31, 2024, the Company granted 50,000
RSUs to each of the Company’s CEO and CFO in accordance with their compensation arrangement. All of these RSUs were immediately
vested.
On March 31, 2024, the Company granted 40,000
RSUs to a non-executive director in accordance with his compensation arrangement. All of these RSUs were immediately vested.
For the three months ended March 31, 2024, the
Company recognized share-based compensation expenses of $387,587, in connection with the above RSU awards.
As of March 31, 2024, the Company had 25,000 awarded
and unvested RSUs.
As of March 31, 2024, the Company had $53,063
unrecognized compensation costs related to the unvested RSUs.
Share Options
For the three months ended March 31, 2024 and
2023, the Company did not grant share of options.
For the three months ended March 31, 2024 and
2023, the Company recognized share-based compensation expenses of $105,011 and $101,968, respectively. As of March 31, 2024, there were
$177,764 of unrecognized compensation costs related to all outstanding share options.
Other share-based compensation
In January 2024, the Company modified an existing
two-year service agreement with a consulting firm by granting an additional 500,000 RSUs, which vested immediately. Over the duration
of the service period specified in the amendment, the Company will recognize additional share-based compensation expenses aggregating
to $1.5 million based upon the closing price of the Company’s common stock on the date of the amendment.
In
January 2024, the Company modified an existing service agreement with a consulting firm by granting an additional 200,000 RSUs as compensation
for successfully securing a customer for our business under a three-year service agreement. Over the duration of the service agreement,
the Company will recognize additional share-based compensation expenses aggregating to $0.6 million based
upon the closing price of the Company’s common stock on the date of the amendment.
12. SHARE CAPITAL
Ordinary shares
As of December 31, 2023, there were 107,421,813
ordinary shares issued and 107,291,827 ordinary shares outstanding.
During the three months ended March 31, 2024,
840,000 ordinary shares were issued to the Company’s employees, non-executive director, and consulting firms in settlement of an
equal number of fully vested restricted stock units awarded to such individuals by the Company pursuant to grants made under the Company’s
2021 Second Plan and 2023 Plan.
In May of 2022, the Company entered into an at-the-market
offering with H.C. Wainwright & Co., LLC relating to shares of its common stock. In accordance with the terms of the sales agreement,
the Company may offer and sell shares of our common stock having an aggregate offering price of up to $500,000,000. During the three months
ended March 31, 2024, the Company sold 12,871,934 shares of common stock for an aggregate purchase price of $38.7 million net of offering
costs pursuant to this at-the-market offering.
As of March 31, 2024, there were 121,133,747 ordinary
shares issued and 121,003,761 ordinary shares outstanding.
Preferred shares
As of March 31, 2024 and December 31, 2023, there
were 1,000,000 preferred shares issued and outstanding.
The preference shares are entitled to the following
preference features: 1) an annual dividend of 8% when and if declared by the Board of Directors; 2) a liquidation preference of $10.00
per share; 3) convert on a one for one basis for ordinary shares, subject to a 4.99% conversion limitation; 4) rank senior to ordinary
shares in insolvency; and 5) solely for voting purposes vote 50 ordinary shares, for each preference share.
On February 7, 2023 and again on December 8, 2023, the Board of Directors
declared an eight percent (8%) ($800,000) dividend on the preference shares to Geney Development Ltd. (“Geney”). Erke Huang,
our Chief Financial Officer, is the President of Geney and the beneficial owner of thirty (30%) percent of the equity of Geney, with the
remaining seventy percent (70%) held by Zhaohui Deng, the Company’s Chairman of the Board. The Company fully paid the declared dividends
in 2023.
Treasury stock
The Company treats shares withheld for tax purposes
on behalf of employees in connection with the vesting of restricted share grants as ordinary share repurchases because they reduce the
number of shares that would have been issued upon vesting. For the three months ended March 31, 2024 and 2023, the Company withheld nil
shares of its ordinary shares that were surrendered to the Company for withholding taxes related to restricted stock vesting valued at
$nil, based on fair value of the withheld shares on the vesting date.
As of March 31, 2024 and December 31, 2023, the
Company had treasury stock of $1,171,679 and $1,171,679, respectively.
Warrants
As of March 31, 2024 and December 31, 2023, the
Company had outstanding 10,118,046 private placement warrants to purchase an aggregate of 10,118,046 ordinary shares at an exercise price
of $7.91 per whole share.
In accordance with ASC 815, the Company determined
that the warrants meet the conditions necessary to be classified as equity because the consideration is indexed to the Company’s
own equity, there are no exercise contingencies based on an observable market not based on its stock or operations, settlement is consistent
with a fixed-for-fixed equity instrument, the agreement contains an explicit number of shares and there are no cash payment provisions.
The fair value of the warrants was estimated at
$33.3 million using the Black-Scholes model. Inherent in these valuations are assumptions related to expected stock-price volatility,
expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its ordinary shares based on historical
and implied volatilities of selected peer companies as well as its own that match the expected remaining life of the warrants. The risk-free
interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining
life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend
rate is based on the historical rate, which the Company anticipates it to remain at zero.
The following table provides quantitative information
regarding Level 3 fair value measurements inputs for the Company’s warrants at their measurement dates:
| | |
As of
October 4,
2021 | |
| | |
| |
| Volatility | |
| 192.85 | % |
| Stock price | |
| 7.59 | |
| Expected life of the warrants to convert | |
| 3.81 | |
| Risk free rate | |
| 0.97 | % |
| Dividend yield | |
| 0.0 | % |
13. INCOME TAXES
Cayman Islands
Under the current and applicable laws of the Cayman
Islands, the Company is not subject to tax on income or capital gain as Cayman Islands does not impose any taxes on the corporation’s
income, capital gains, payroll, or other direct taxes. Additionally, upon payments of dividends by the Company to its shareholders, no
Cayman Islands withholding tax will be imposed.
Hong Kong
After all bitcoin miners were migrated to North
America, BT HK operates under a cost-plus model for its general and administration services which is currently reimbursed by Bit Digital
USA Inc. starting in fiscal year 2022. Currently the mark-up percentage for the general and administration services provided by BT HK
is 4.84% by the transfer pricing study conducted by a third-party service provider. The Company will continue to closely monitor the development
of transfer pricing guidelines and update the cost-plus markup percentage if necessary.
Our subsidiaries in Hong Kong are taxed at a reduced
rate of 8.25% for assessable profits not exceeding 2 million HKD and the remaining assessable profits will be taxed at the standard tax
rate of 16.5% under Hong Kong profits tax.
For the three months ended March 31, 2024, BT HK generated a taxable
income of $12,258 and did not recognize any income tax expense as BT HK has sufficient net operating loss carried over from prior
years to offset the taxable income in current quarter. For the three months ended March 31, 2023, BT HK generated a taxable income of
$128,404 and recorded a current income tax expense of $10,593.
By virtue of the territorial source system adopted in Hong Kong, BT
HK is in the process of applying for the Offshore Non-taxable Claim on its bitcoin mining income earned for the years ended December 31,
2021 and 2020 under Hong Kong profits tax with the Hong Kong Inland Revenue Department (“HKIRD”) on the ground that the said
income was not arising in or derived from Hong Kong. Given the Offshore Non-taxable Claim is still subject to review and agreement by
the HKIRD and there are uncertainties surrounding the claim as well as the Company’s stock-based compensation deduction tax position,
the Hong Kong subsidiary recorded $nil and $38,050 as long-term income tax expenses for the three months ended March 31, 2024 and 2023,
respectively, for its uncertain tax positions. The tax expense of $nil and $38,050 are recognized for the incremental penalty accrued
on the existing unrecognized tax benefits for the three months ended March 31, 2024 and 2023, respectively.
For
the three months ended March 31, 2024 and 2023, BT Strategies generated a taxable loss of
$638,897 and $433,985, and did not recognize any income tax expenses for the relevant periods respectively.
United States of America
For the U.S. jurisdiction, the Company is subject
to federal and state income taxes on its business operations.
For the three months ended March 31, 2024 and
2023, the Company is subject to U.S. federal income taxes, state income taxes and franchise taxes. The Company will continue to monitor
its exposure to different states and comply with state income taxes filing requirement as the Company continues to expand its business
in the United States. The Company has not been under any tax examination in the United States since inception.
For the three months ended March 31, 2024 and
2023, the Company incurred income tax and withholding tax (expenses) benefits as below:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Federal income tax expenses | |
$ | - | | |
$ | (4,741 | ) |
| State income tax expenses | |
| (1,984 | ) | |
| (259 | ) |
| Total | |
$ | (1,984 | ) | |
$ | (5,000 | ) |
Canada
The Company is subject to both federal and provincial
income taxes for its business operation in Canada.
Bit
Digital Canada generated a taxable income of $307,339 before net operating loss for
the three months ended March 31, 2024.
For three months ended March 31, 2024 and 2023,
the Company incurred Canada federal and provincial income tax benefits as below:
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Federal income tax expenses | |
$ | (836,334 | ) | |
$ | - | |
| Provincial income tax expenses | |
| (446,045 | ) | |
| - | |
| Total | |
$ | (1,282,379 | ) | |
$ | - | |
Singapore
The
Company is subject to corporate income tax for its business operation in Singapore. The Company generated a taxable loss
of $244,819 and $350,276 for the three months ended March 31, 2024 and 2023, respectively, and did not recognize any tax expense for the
relevant periods.
British Virgin Islands
On April 17, 2023, Bit Digital Investment Management
Limited was established as the investment manager to oversee Bit Digital Innovation Master Fund SPC Limited, a segregated portfolio company
which was established in May 2023. Both entities are 100% owned by Bit Digital Strategies Limited and both entities are based in the British
Virgin Islands.
As of March 31, 2024, no corporate income tax
is levied on the Company as no income tax is imposed per the local regulation.
Iceland
The Company’s AI business is conducted through
Bit Digital Iceland ehf in Iceland and its operations are subject to Iceland corporate income tax. For the three months ended March 31,
2024, the Company generated a pre-tax loss of $150,989 and recorded a current income tax expense of $292,987.
Deferred Tax Assets/Liabilities
The
Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset
will be fully realized. The Company evaluates its valuation allowance requirements at end of each reporting period by reviewing all available
evidence, both positive and negative, and considering whether, based on the weight of that evidence, a valuation allowance is needed.
When circumstances cause a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change
on the valuation allowance is generally reflected in income from operations. The future realization of the tax benefit of an existing
deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate character within
the carryforward period available under applicable tax law. As of March 31, 2024, after careful consideration, the Company determined
that it is more likely than not that all of the deferred tax assets will not be realized except for Canada and Iceland, which both have
a net deferred tax liability as of March 31, 2024. The dominant negative evidence is the cumulative 3 years pre-tax losses, which outweigh
any other positive evidence. As a result, the Company applied a full valuation allowance on its entire deferred tax assets except Canada.
Unrecognized Tax Benefits
For unrecognized tax benefits, the Company’s
policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits
as a component of income tax expense. For the three months ended March 31, 2024 and 2023, the Company recorded an unrecognized tax benefit
of $nil and $38,050, respectively, related to its HK operations. The Company will continue to review its tax positions and provide for
unrecognized tax benefits as they arise.
Pillar Two – Global Minimum Tax
As introduced by the Organization for Economic
Co-operation and Development (“OECD”), more than 140 countries agreed to enact a two-pillar solution to address the challenges
arising from the digitalization of the economy. Pillar Two introduces a global minimum Effective Tax Rate (ETR) via a system where multinational
groups with consolidated revenue over Euro 750 million are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions.
The Company has been closely monitoring the impact from the implementation of the Pillar Two framework and as of March 31, 2024, no impact
is expected as the Company does not meet the revenue threshold of Euro 750 million.
14. EARNING (LOSS) PER SHARE
| | |
For the Three Months
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Net income (loss) | |
$ | 50,081,857 | | |
$ | (2,260,305 | ) |
| Weighted average number of ordinary share outstanding | |
| | | |
| | |
| Basic | |
| 114,594,710 | | |
| 78,614,174 | |
| Diluted | |
| 115,594,710 | | |
| 78,614,174 | |
| | |
| | | |
| | |
| Earning (loss) per share | |
| | | |
| | |
| Basic | |
$ | 0.44 | | |
$ | (0.03 | ) |
| Diluted | |
$ | 0.43 | | |
$ | (0.03 | ) |
Basic earning (loss) per share is computed by
dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue ordinary share were
exercised or converted into ordinary shares or resulted in the issuance of ordinary shares that then shared in the earnings of the entity.
For the three months ended March 31, 2024, the
dilutive effect of convertible preferred shares was included in the calculation of diluted earnings per share, but the
unvested RSUs were excluded because they were anti-dilutive.
For the three months ended March 31, 2023, the
unvested RSUs, warrants, options and convertible preferred shares were excluded from the calculation of diluted earnings per share because
they were anti-dilutive.
15. RELATED PARTIES
On February 7, 2023, the Board of Directors declared
an eight (8%) percent ($800,000) dividend on the preference shares to Geney Development Ltd. (“Geney”). Erke Huang, our Chief
Financial Officer, is the President of Geney and the beneficial owner of thirty (30%) percent of the equity of Geney, with the remaining
seventy (70%) percent held by Zhaohui Deng, the Company’s Chairman of the Board. As of December 31, 2023, the Company fully paid
the dividend.
Bit Digital Iceland ehf has appointed Daniel
Jonsson as its part-time Chief Executive Officer starting November 7, 2023, for a six-month term with a three-month probation. His compensation
includes a monthly salary of $8,334, a $6,440 signing bonus, and eligibility for performance-based RSU. Concurrently, Daniel Jonsson
is part of the management team at GreenBlocks ehf which not only provides bitcoin mining hosting services but also benefits from a facility
loan agreement extended by Bit Digital USA Inc., an affiliate of Bit Digital Iceland ehf. Additionally, Bit Digital Iceland ehf has contracted
GreenBlocks ehf for consulting services pertaining to our high performance computing services in Iceland. As of December 31, 2023, the
Company owed $21,592 to Daniel Jonsson for salary and bonus, and $160,000 to GreenBlocks ehf for services rendered. By the end of the
first quarter of 2024, we had settled these outstanding amounts with both Daniel Jonsson and GreenBlocks ehf.
16. CONTINGENCIES
From time to time, the Company is a party to various
legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable
and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. As of
March 31, 2024, we are not aware of any material contingencies.
17. SETTLEMENT OF CLASS ACTION LAWSUIT
On January 20, 2021, a securities class action
lawsuit was filed against the Company and its former Chief Executive Officer and current Chief Financial Officer titled Anthony Pauwels
v. Bit Digital, Inc., Min Hu and Erke Huang (Case No. 1:21-cv-00515) (U.S.D.C. S.D.N.Y.). The class action was on behalf of persons that
purchased or acquired our ordinary shares between December 21, 2020 and January 11, 2021, a period of volatility in our Ordinary Shares,
as well as volatility in the price of bitcoin. We believe the complaints are based solely upon a research article issued on January 11,
2021, which included false claims and to which the Company responded in a press release filed on Form 6-K on January 19, 2021. On April
21, 2021, the Court consolidated several related cases under the caption In re Bit Digital Securities Litigation. Joseph Franklin Monkam
Nitcheu was appointed as lead plaintiff. We filed a motion to dismiss the lawsuits and vigorously defended the action. While that motion
was pending, the Company agreed with the lead plaintiff selected in the case to settle the class action by paying $2,100,000. The Company
recorded the liabilities of $2,100,000 in the account of “accrued litigation settlement costs”. The Company chose to do that
to eliminate the burden, expense and uncertainties of further litigation. The Company continues to deny the allegations in the Amended
Complaint and nothing in the settlement is evidence of any liability on the Company’s behalf.
On March 7, 2023, a final judgment in this matter
was entered approving the settlement and certifying the class for purposes of enforcing the settlement and payment was then made by the
Company.
18.
SUBSEQUENT EVENTS
In
the second quarter of 2024 through April 30, 2024, the Company sold 4,227,345 shares of common stock for aggregate proceeds of approximately
$9.8 million pursuant to the at-the-market offering agreement with H.C. Wainwright & Co., LLC. The Company received net proceeds
of $9.5 million, net of offering costs.
Forward Looking Statements
The discussion and analysis of our financial
condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere
in this report. Except for the statements of historical fact, this report contains “forward-looking information” and “forward-looking
statements reflecting our current expectations that involve risks and uncertainties (collectively, “forward-looking information”)
that is based on expectations, estimates and projections as at the date of this report. Actual results and the timing of events in this
report includes information about hash rate expansion, diversification of operations, potential further improvements to profitability
and efficiency across mining operations, potential for the Company’s long-term growth, and the business goals and objectives of
the Company. Factors that could cause actual results, performance or achievements to differ materially from those discussed in our such
forward-looking statements as a result of many factors, including, but not limited to: supply chain disruptions may have a material adverse
effect on the Company’s performance; the ability to establish new facilities for bitcoin mining in North America and elsewhere;
a decrease in cryptocurrency migrating and then operating its assets; a decrease in cryptocurrency pricing; volume of transaction activity
or generally, the profitability of cryptocurrency mining; further improvements to profitability and efficiency may not be realized; the
digital currency market; the Company’s ability to successfully mine digital currency on the cloud; the Company may not be able to
profitably liquidate its current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative
impact on the Company’s operations; the volatility of digital currency prices; issues in the development and use of AI; regulations
that target AI, and governmental regulations and other legal obligations and other legal obligations related to data privacy, data protection
and information security, and other related risks as more fully set forth under “Risk Factors” and elsewhere in our Annual
Report on Form 20-F for the year ended December 31, 2023 and other documents disclosed under the Company’s filings at www.sec.gov.
The forward-looking information in this report reflects the current expectations, assumptions and/or beliefs of the Company based on information
currently available to the Company. In connection with the forward-looking information contained in this report, the Company has made
assumptions about: the current profitability in mining cryptocurrency (including pricing and volume of current transaction activity);
profitable use of the Company’s assets going forward; the Company’s ability to profitably liquidate its digital currency inventory
as required; historical prices of digital currencies and the ability of the Company to mine digital currencies on the cloud will be consistent
with historical prices; and there will be no regulation or law that will prevent the Company from operating its business. The Company
has also assumed that no significant events occur outside of the Company’s normal course of business. Although the Company believes
that the assumptions inherent in the forward-looking information are reasonable, forward-looking information is not a guarantee of future
performance and accordingly undue reliance should not be put on such information due to the inherent uncertainty therein.
46
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