GD Culture Group Ltd current report, 23 February 2021

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Business Context and Reporting Period

Company: Code Chain New Continent Limited (Trading Symbol: CCNC)
Filing Type: Form 8-K (Current Report)
Date of Report: February 23, 2021
Reporting Period: Event date February 23, 2021
Business Context: The Company entered into a material definitive agreement to acquire Bitcoin mining assets, expanding its cryptocurrency mining operations.

Key Financial Metrics and Transaction Details

Transaction Overview: Asset Purchase Agreement with Sichuan RiZhanYun Jisuan Co., Ltd.
Assets Acquired: 10,000 Bitcoin mining machines.
Purchase Price: RMB 24,000,000 (approximately US$3,713,388 based on Feb 23, 2021 exchange rate).
Payment Terms: Revenue and income from assets to be paid daily in cryptocurrency to a Company wallet.
Contingent Consideration (Bonus Shares):

  • Target Performance: Average net profit of RMB 150,000 (approx. US$23,209) per machine per day over one year.
  • Base Issuance: RMB 56,000,000 (approx. US$8,664,573) worth of common stock if target is met.
  • Adjustment: Issuance is pro rata if performance is below target; additional shares issued if performance exceeds target.
Other Financial Metrics: The filing text does not provide clear values for the Company's current revenue, profit, cash flow, margins, debt, or liquidity.

Material Changes and Conditions

Due Diligence: The Company has 30 days to perform due diligence, extendable by an additional 30 days.
Termination Rights: The Company may terminate the agreement at its sole discretion if due diligence items are not approved, rendering the agreement null and void.
Closing Condition: Transaction closing is contingent upon the completion of due diligence.
Valuation Adjustment: The purchase price is adjustable based on a valuation report from a mutually agreed valuation firm.

Guidance, Outlook, and Risks

Management Commentary: The Company is pursuing growth in the Bitcoin mining sector through the acquisition of 10,000 machines.
Risks and Contingencies:

  • Performance Risk: Significant dilution risk exists if the mining machines fail to generate the required daily net profit, triggering the issuance of up to US$8.66 million in stock.
  • Transaction Risk: The deal is not yet closed and is subject to due diligence approval.
  • Market Risk: Valuation and profitability are tied to cryptocurrency market conditions and mining efficiency.
Unusual Items: The agreement involves payment of revenue in cryptocurrency and a performance-based equity issuance structure.

Investor Verification Checklist

  • Verify the current market price of Bitcoin and the operational status of the 10,000 mining machines.
  • Confirm the outcome of the 30-day due diligence period and whether the transaction has closed.
  • Review the valuation report to determine if the purchase price has been adjusted from the initial US$3.71 million estimate.
  • Assess the Company's current share count to understand the potential dilution impact of the contingent US$8.66 million stock issuance.
  • Examine the Company's existing cash reserves to determine if it can fund the initial purchase price without additional financing.