2.
Summary of principal accounting policies
Basis
of presentation and consolidation
The
accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
in the United States of America (“U.S. GAAP”) and include all the subsidiaries of the Group. The financial year-end of the
Company is December 31 while that of the predecessor company is September 30. The consolidated results are presented as of the period
ended June 30, 2023 and June 30, 2022. All intercompany transactions and balances have been eliminated in the consolidation.
Fair
value of financial instruments
The
Company follows the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of
fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring
fair value as follows:
Level
1-Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
Level
2-Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar
assets and liabilities 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 are unobservable inputs that reflect management’s assumptions based on the best available information.
The
carrying value of cash and cash equivalents, prepayments, deposits and other receivables, accruals and other payables, loans from related
parties and unrelated party approximate their fair values because of the short-term nature of these instruments.
MOXIAN
(BVI) INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
Summary of principal accounting policies (continued)
Use
of estimates
The
preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the accompanying
consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates
required to be made by management include but not limited to, useful lives of property and equipment, provision for doubtful accounts,
intangible assets valuation, inventory valuation, value added recoverable valuation and deferred tax assets valuation. Actual results
could differ from those estimates.
Cash
and cash equivalents
Cash
includes cash on hand and demand deposits in accounts maintained with commercial banks. The Company considers all highly liquid investment
instruments with an original maturity of three months or less from the date of purchase to be cash equivalents.
The
Company considers all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities
of three months or less to be cash equivalents.
Prepayments,
deposits and other receivables
Prepayments
and deposits represent amounts advanced to suppliers. The suppliers usually require advance payments or deposits when the Company makes
purchase or orders service and the prepayments and deposits will be utilized to offset the Company’s future payments. Other receivables
mainly consist of various cash advances to employees for business needs. These amounts are unsecured, non-interest bearing and generally
short-term in nature.
Allowances
are recorded when utilization and collection of amounts due are in doubt. Delinquent prepayments, deposits and other receivables are
written-off after management has determined that the likelihood of utilization or collection is not probable and known bad debts are
written off against the allowances when identified.
Property,
Equipment and Vehicles, net
Property
and equipment are recorded at cost less accumulated depreciation and amortization. Significant additions or improvements extending useful
lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives as follows:
Schedule
of Straight-line Method Over Estimated Useful Lives
| Equipment |
2-6
years |
| Vehicless |
2-6
years |
Intangible
assets, net
Intangible
assets, comprising Intellectual property rights (“IP rights”) and software, which are separable from property and equipment,
are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives
of 3- 10 years.
MOXIAN
(BVI) INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment
of long-lived assets
The
Company classifies its long-lived assets into: (i) computer and office equipment; (ii) furniture and fixtures, (iii) leasehold improvements,
and (iv) finite-lived intangible assets.
Long-lived
assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
value of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result of technology,
economy or other industry changes. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the
Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying
value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent
that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash
flow models, relief from royalty income approach, quoted market values and third-party independent appraisals, as considered necessary.
The
Company makes various assumptions and estimates regarding estimated future cash flows and other factors in determining the fair values
of the respective assets. The assumptions and estimates used to determine future values and remaining useful lives of long-lived assets
are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends,
and internal factors such as the Company’s business strategy and its forecasts for specific market expansion.
Digital
assets
Digital
assets (including USDC) 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 are accounted for in connection with the Company’s
revenue recognition policy disclosed below.
Digital
assets held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is
not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that
it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value,
which is measured using the quoted price of the digital assets at the time its fair value is being measured.
In testing for impairment,
the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment
exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.
If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized,
the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Purchases
of digital assets by the Company, if any, will be included within investing activities in the accompanying consolidated statements of
cash flows, while digital assets awarded to the Company through its mining activities are included within operating activities on the
accompanying consolidated statements of cash flows. The sales of digital assets are included within investing activities in the accompanying
consolidated statements of cash flows and any realized gains or losses from such sales are included in “realized gain (loss) on
exchange of digital assets” in the consolidated statements of operations and comprehensive income (loss). The Company accounts
for its gains or losses in accordance with the first-in first-out method of accounting.
Revenue
recognition
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.
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 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.
Fair
value of the digital assets award received is determined using the quoted price of the related digital assets at the time of receipt.
There is currently no specific definitive guidance under US GAAP or alternative accounting framework for the accounting for digital assets
recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment.
In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect
on the Company’s consolidated financial position and results from operations.
Income
taxes
The
Company utilizes ASC Topic 740 (“ASC 740”) “Income taxes”, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be realized.
MOXIAN
(BVI) INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.Summary
of principal accounting policies (continued)”
Income
taxes (continued)
ASC
740 “Income taxes” clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity
recognizes in the financial statements the impact of a tax position, if that position is more likely than not of being sustained upon
examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is
greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part
of income tax expense in the consolidated statements of operations. The Company evaluate the level of authority for each uncertain tax
position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized
benefits associated with the tax positions.
Foreign
currency transactions and translation
The
reporting currency of the Company is United States Dollars (the “USD”) and the functional currency of the PRC subsidiary
is the Renminbi (“RMB”).The functional currency of ABit Hong Kong is the Hong Kong Dollar (the “HKD”).
For
financial reporting purposes, the financial statements of the various subsidiaries are prepared using their respective functional currencies,
e translated into the reporting currency, USD so to be consolidated with the Company’s. Monetary assets and liabilities denominated
in currencies other than the reporting currency are translated into the reporting currency at the rates of exchange ruling at the balance
sheet date. Revenues and expenses are translated using average rates prevailing during the reporting period. Adjustments resulting from
the translation are recorded as a separate component of accumulated other comprehensive income in stockholders’ deficiency. Translation
losses are recognized in the statements of operations and comprehensive loss.
The
exchange rates applied are as follows:
Summary
on exchange Rates Applied
| Balance
sheet items, except for equity accounts | |
June
30, 2023 | | |
December
31, 2022 | |
| RMB:USD | |
| 7.2258 | | |
| 6.8979 | |
| HKD:USD | |
| 7.8322 | | |
| 7.7990 | |
Items
in the statements of operations and comprehensive loss, and statements cash flows:
| | |
June
30, 2023 | | |
June
30, 2022 | |
| RMB:USD | |
| 6.9291 | | |
| 6.4783 | |
| HKD:USD | |
| 7.8392 | | |
| 7.8257 | |
Earnings
per share
Basic
gain per share is based on the weighted average number of common shares outstanding during the period while the effects of potential
common shares outstanding during the period are included in diluted earnings per share.
FASB
Accounting Standard Codification Topic 260 (“ASC 260”), “Earnings Per Share,” requires that employee equity share
options, non-vested shares and similar equity instruments granted to employees be treated as potential common shares in computing diluted
earnings per share. Diluted earnings per share should be based on the actual number of options or shares granted and not yet forfeited,
unless doing so would be anti-dilutive. The Company uses the “treasury stock” method for equity instruments granted in share-based
payment transactions provided in ASC 260 to determine diluted earnings per share. Antidilutive securities represent potentially dilutive
securities which are excluded from the computation of diluted earnings or loss per share as their impact was antidilutive.
Recent
Accounting Pronouncements
In
December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the
accounting for income taxes by removing certain exceptions and enhances and simplifies various aspects of the income tax accounting guidance
in ASC 740. ASU 2019-12 was effective January 1, 2021. The adoption of ASU 2019-12 did not have any impact on the Company’s consolidated
financial statement presentation or disclosures.
MOXIAN
(BVI) INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Recent
Accounting Pronouncements (continued)
In
August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
(“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and
cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium
or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt
and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements.
ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt
can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06
are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the
settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider
whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning
after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if
adopted as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06
did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires
entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss model and is applicable to the
measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is to be adopted on a modified retrospective
basis. As a smaller reporting company, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning
after December 15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated
financial statement presentations and disclosures.
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill
Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the two-step goodwill impairment test, under which a goodwill
impairment loss was measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that
goodwill. ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss is measured as the excess
of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit).
Adoption of the ASUs is on a modified retrospective basis. As a smaller reporting company, the standard will be effective for the Company
for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact that the adoption
of ASU 2017-04 will have on its consolidated financial statement presentation or disclosures.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50),
Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU
2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an
exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange
as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as
the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification
or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment
for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination
or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring
on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects
to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes
that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statement
presentation or disclosures.
In
November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.
This update requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution
accounting model by analogy. This update is effective for annual periods beginning after December 15, 2021, and early application is
permitted. This guidance should be applied either prospectively to all transactions that are reflected in financial statements at the
date of initial application and new transactions that are entered into after the date of initial application or retrospectively to those
transactions. The Company does not expect the impact of this guidance to have a material impact on the Company’s consolidated financial
statements.
The
Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently
adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
MOXIAN
(BVI) INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|