Overview

BTC Digital Ltd. (“the Company”) is a crypto asset technology company based in the U.S. with a focus on bitcoin mining. The company also generates revenue through mining machines resale and rental business operations.

For the six months ended June 30, 2024, the Company generated a substantial majority of its revenue from mining machines resale. However, for the same period, the Company generated a substantial majority of its revenue from bitcoin mining. The Company stores all of its mined bitcoins in hot wallets and may exchange them for fiat currency to fund its business operations.

The Company attributes its growth since launching its crypto asset business in 2022 to its competitive strengths in diversified revenue streams, dedicated team, regulatory compliance efforts, and experienced management team.

As of June 30, 2024, the Company owned a total of 2,021 mining machines under operation with a total hash rate of 213PH/S. The mining machines are managed and operated at a hosting facility in New Tazewell, Tennessee. For the six months ended June 30, 2024, the Company mined a total of 16.45 bitcoins, generating US$0.94 million in revenue.

To mitigate the risks associated with bitcoin price fluctuations, the Company has launched a mining machines resale and rental business. The Company sources mining machines from a major manufacturer, AGM Technologies Ltd., often at prices lower than market prices, and resells them when there is a shortage and prices are higher. Additionally, the Company rents out its mining machines to customers at a rate calculated based on the total bitcoins mined.

The Company believes research and development capabilities are key to its continued long-term growth. Through a joint venture, the Company has participated in the design and development of equipment dedicated for mining machines and infrastructure, including high voltage power supply, liquid-cooling systems, and hash boards. The Company plans to continue investing in research and development to accumulate knowledge in the cryptocurrency industry.

Results of Operations

The following tables summarize the Company’s consolidated results of operations for the three and six months ended June 30, 2023 and 2024.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The Company’s total revenue decreased by 63.5% from Q2 2023 to Q2 2024, primarily due to declines in both bitcoin mining and mining machines resale revenue. The decline in mining revenue was partly because the Company used more of its existing mining machines for rentals, while newly purchased machines had not yet been deployed. Mining revenue was also affected by the bitcoin halving event. The decrease in mining machines resale was mainly due to the bitcoin halving, which temporarily reduced market demand.

The Company’s total cost of revenues decreased by 58.6%, largely consistent with the decline in bitcoin mining and mining machines resale operations. As a result, the Company’s gross profit decreased from $0.2 million in Q2 2023 to a gross loss of $0.2 million in Q2 2024, with the gross profit margin declining from 3.7% to negative 9.2%.

Selling and marketing expenses decreased from $70 thousand to $61 thousand, mainly due to the lower volume of mining machine resales. General and administrative expenses increased by 34.7% to $0.4 million, primarily due to the increase in the number of employees and daily office expenses.

Interest expenses decreased from $20 thousand to $9 thousand, consistent with the decrease in short-term loans. The Company’s gain on equity method investments increased from $1 thousand to $10 thousand.

As a result of the above factors, the Company’s net loss increased from $135 thousand in Q2 2023 to $704 thousand in Q2 2024.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The Company’s total revenue decreased by 31.6% from H1 2023 to H1 2024, primarily due to declines in both bitcoin mining and mining machines resale revenue. The decline in mining revenue was partly because the Company used more of its existing mining machines for rentals, while newly purchased machines had not yet been deployed. Mining revenue was also affected by the bitcoin halving event. The decrease in mining machines resale was mainly due to the bitcoin halving, which temporarily reduced market demand.

The Company’s total cost of revenues decreased by 28.0%, largely consistent with the decline in bitcoin mining and mining machines resale operations. As a result, the Company’s gross loss increased from $0.1 million in H1 2023 to $0.3 million in H1 2024, with the gross loss margin increasing from 1.5% to 6.9%.

Selling and marketing expenses decreased from $198 thousand to $96 thousand, mainly due to the 40% reduction in the volume of mining machine resales. General and administrative expenses increased by 59.1% to $1.3 million, primarily due to a $0.57 million increase in expenses related to the Employee Stock Option Plan.

Interest expenses decreased from $50 thousand to $15 thousand, consistent with the decrease in short-term loans. The Company’s gain on equity method investments increased from $1 thousand to $25 thousand.

As a result of the above factors, the Company’s net loss increased from $1.1 million in H1 2023 to $1.4 million in H1 2024.

Non-GAAP Financial Measures

To supplement its consolidated financial statements, the Company also uses adjusted net income and adjusted EBITDA as additional non-GAAP financial measures. These measures are used by management to evaluate the Company’s operating performance and provide useful information to investors.

Adjusted net income represents net loss before share-based compensation and offering expenses. Adjusted EBITDA represents net loss before interest, taxes, depreciation, amortization, share-based compensation, and offering expenses.

Taxation

The Company is incorporated in the Cayman Islands and is not subject to income or capital gains tax. Its subsidiaries in the British Virgin Islands and Hong Kong are also not subject to income tax. However, the Company’s subsidiary in Delaware is subject to an 8.7% corporate tax rate.

Critical Accounting Policies

The Company’s critical accounting policies include share-based compensation, which is measured at the grant date and recognized over the requisite service period using the straight-line method.

Liquidity and Capital Resources

The Company’s principal sources of liquidity have been cash generated from operating activities. As of June 30, 2024, the Company had $287,000 in cash and cash equivalents.

The Company intends to finance future working capital and capital expenditures from cash generated from operations and funds raised from financing activities. The Company believes its current cash resources will be sufficient to meet its needs for the next 12 months.

However, the Company may require additional cash resources due to changing business conditions or future developments, including potential investments or acquisitions. The Company may seek to raise funds through the sale of equity or debt securities, or by borrowing from banks, if necessary.

Trend Information

The Company is not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on its net revenues, income, profitability, liquidity or capital resources.

JOBS Act

As an “emerging growth company” under the JOBS Act, the Company is eligible for certain reduced regulatory and reporting requirements, such as being exempt from the auditor attestation requirement on the effectiveness of internal controls and providing a reduced level of executive compensation disclosure.