The9 Limited — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone 2023 Q4 filing; quarterly results are not provided in the supplied filing text. Financial statements are prepared under U.S. GAAP, with RMB as the reporting currency.
Business context
The9 is a Cayman Islands holding company whose primary business is cryptocurrency mining, principally Bitcoin. It reported mining revenue from global operations and said most revenue was generated by subsidiaries outside mainland China. The online game business is now limited; the company ceased its NFT and MetaGoal operations in January 2023 and sold the NFT business in October 2023. Since early 2024, it has begun pursuing AI-related investments and alliances.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | RMB 179.0 million (US$25.2 million) | RMB 108.1 million |
| Gross profit (loss) | RMB (32.8) million; gross margin (18.4%) | RMB (47.3) million; gross margin (43.7%) |
| Operating loss | RMB (317.8) million | RMB (661.5) million |
| Net income (loss) | RMB 12.6 million | RMB (979.5) million |
| Net income (loss) attributable to The9 ordinary shareholders | RMB 20.0 million | RMB (974.9) million |
| Operating cash flow | RMB (46.3) million | RMB (154.0) million |
| Cash and cash equivalents at year-end | RMB 45.2 million (US$6.4 million) | RMB 58.1 million |
| Working capital | Positive RMB 60.0 million (US$8.4 million) | Negative RMB 166.5 million |
Cryptocurrency mining generated RMB 173.3 million, or 96.8% of FY2023 revenue, versus RMB 101.0 million in FY2022. Revenue rose 65.7%, which management attributed mainly to increased mining activity and higher Bitcoin prices. Cost of revenue rose 36.4% to RMB 211.9 million, so mining and other activities still produced a gross loss.
Net income was supported by substantial non-recurring or market-sensitive items: a RMB 175.3 million gain from extinguishing legacy World of Warcraft refund liabilities, a RMB 158.8 million gain on disposal of the NFT business, and RMB 40.0 million in fair-value gains and RMB 42.8 million in realized gains on digital assets. These gains more than offset the continuing-operations loss of RMB 144.3 million. The company also recorded RMB 161.0 million of equipment impairment.
Liquidity, debt and capital
- Year-end current assets were RMB 222.8 million and current liabilities RMB 162.9 million. Total assets were RMB 363.7 million; total liabilities RMB 182.4 million; equity RMB 181.3 million.
- Convertible notes, net of discount, totaled RMB 66.7 million at year-end: RMB 49.9 million current and RMB 16.7 million non-current. The balance included notes issued to Streeterville and a US$6 million note issued to Bripheno in November 2023. A separate conversion-feature derivative liability was RMB 28.6 million.
- FY2023 financing cash flow was positive RMB 32.2 million, including RMB 85.3 million proceeds from convertible-note issuance, partly offset by RMB 42.9 million in note repayments and related-party loan repayments.
- Cash fell by RMB 12.8 million during the year. The company reported an accumulated deficit of RMB 4.36 billion and said it had sufficient cash and positive working capital to meet obligations for the next 12 months from the filing date, while also considering additional financing.
- Issued and outstanding shares increased from 861.0 million at December 31, 2022 to 1.405 billion at December 31, 2023. The filing reports substantial share-based compensation and securities issuance; dilution is a material consideration.
Changes, outlook and material risks
- Business transition: Results remain dependent on Bitcoin prices, mining difficulty, electricity and hosting costs, equipment availability, and access to financing. The company provided no quantified earnings or revenue guidance.
- Crypto accounting: The9 early-adopted ASU 2023-08 on January 1, 2023, measuring qualifying crypto assets at fair value with changes in net income. The adoption produced a RMB 1.5 million opening adjustment; 2023 fair-value gains were RMB 40.0 million.
- Mining assets and exposure: At December 31, 2023, the company reported 306 Bitcoin and total cryptocurrency assets of RMB 108.0 million, including restricted crypto assets of RMB 20.2 million. By the filing date, it reported 231 Bitcoin held after mining 1,958 in total; 18 Bitcoin remained pledged to Binance. Subsequent to year-end, it pledged 50 Bitcoin in each of two completed financing tranches and another 50 Bitcoin in a third tranche that had not closed by the filing date.
- Nasdaq listing: Nasdaq notified the company on January 11, 2024 that it failed the minimum US$2.5 million stockholders’ equity requirement and did not meet the stated alternative standards. The company submitted a compliance plan on February 26, 2024; continued listing was not assured in the filing.
- Financial reporting controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2023. Material weaknesses involved untimely period-end close and insufficient U.S. GAAP/SEC reporting expertise. Significant deficiencies included unreconciled intercompany balances and late mining-pool support. Remediation was planned but not yet demonstrated as effective.
- Other risks: The company relies on third-party mining pools and hosting providers, has limited insurance for crypto assets and miners, and faces regulatory uncertainty across jurisdictions. Its mainland China VIE contributed only 0.2% of revenue in 2023, but the contractual structure remains subject to legal and enforcement uncertainty. RMB 77.4 million of mainland China net assets was restricted from distribution.
- AI plans: In 2024, The9 signed term sheets for investments in Fazhidao and Shenma and a definitive agreement to increase its stake in Beijing Naonao. These proposed transactions involve cash and substantial restricted-share issuance; completion and financing terms remain important to verify.
- Audit opinion: RBSM LLP issued an unqualified opinion on the FY2023 financial statements. The auditor identified cryptocurrency mining revenue recognition as a critical audit matter. It did not provide an attestation on internal control effectiveness.
Most important facts for investors to verify
- How much of FY2023 earnings depended on WoW liability extinguishment, NFT disposal, and crypto fair-value or realized gains, and whether the core mining business can achieve positive gross profit.
- Current unrestricted cash, near-term note maturities and repayment terms, and the status and dilution impact of outstanding convertible securities and warrants.
- Whether Nasdaq accepts the compliance plan and whether the company meets continued-listing requirements.
- Whether the identified control weaknesses are remediated, including reconciliation of intercompany balances and timely support from mining pools.
- Bitcoin holdings, pledged assets, custody and counterparty exposure, and the status of the third 2024 Bitcoin-collateral financing tranche.
- Completion, valuation, cash consideration and share issuance for the announced AI-related transactions, and any resulting change in the company’s strategy or funding needs.