Next Technology Holding Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed elsewhere in this annual report . Overview Next Technology Holding Inc (Formerly known as “WeTrade Group Inc”) was incorporated in the State of Wyoming on March 28, 2019. We currently pursue two corporate strategies. One business strategy is to continue providing software development services, and the other strategy is to acquire and hold Bitcoin. Software development We provide AI-enabled software development services to our customers, which include developing, designing, and implementing various SAAS software solutions for businesses of all types, including industrial and other businesses. Bitcoin Acquisition Strategy Our Bitcoin acquisition strategy generally involves acquiring Bitcoin with our liquid assets that exceed working capital requirements, and from time to time, subject to market conditions, issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase Bitcoin. We view our Bitcoin holdings as held for trading and expect to continue to accumulating Bitcoin. We have not set any specific target for the amount of Bitcoin we seek to hold, and we will continue to monitor market conditions in determining whether to engage in additional financings to purchase additional Bitcoin. This overall strategy also contemplates that we may (i) periodically sell Bitcoin for general corporate purposes, including to generate cash for treasury management or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our Bitcoin holdings, and (iii) consider pursuing additional strategies to create income streams or otherwise generate funds using our Bitcoin holdings. We believe that, due to its limited supply, Bitcoin offers the opportunity for appreciation in value if its adoption increases and has the potential to serve as a hedge against inflation in the long term. Change of Officer and Director On January 31, 2024, approved by the Board of Directors, the Nominating Committee and the Compensation Committee, Mr. Liu Wei Hong was appointed as the chief executive officer of the Company, effective January 31, 2024. On August 12, 2024, Mr. Lim Kian Wee tendered his resignation as a director of the Company and Chair of the Audit Committee, effective August 12, 2024. On the same day, approved by the Board of Directors, the Nominating Committee and the Compensation Committee, Mr. Tian Yang was appointed as the director of the Company and Chair of the Audit Committee, effective August 12, 2024. On October 21, 2024, Mr. Ken Tsang tendered her resignation as a Chief Financial officer of the Company, effective October 21, 2024. On the same day, approved by the Board of Directors, the Nominating Committee and the Compensation Committee, Ms. Eve Chan was appointed as the Chief Financial Officer of the Company, effective October 21, 2024. 27 As of the end of 2024: Mr. Lichen Dong is the Chairman of the Board. The Audit Committee of the Company is composed of all four independent directors (Lichen Dong, Tian Yang, Mahesh Thapaliya and Jianbo Sun) as members, and Tian Yang is the Chair of the Audit Committee. 3. The Nominating Committee of the Company is composed of all four independent directors (Lichen Dong, Tian Yang, Mahesh Thapaliya and Jianbo Sun) as members, and Lichen Dong is the Chair of the Nominating Committee. 4. The Compensation Committee of the Company is composed of all four independent directors (Lichen Dong, Tian Yang, Mahesh Thapaliya and Jianbo Sun) as members, and Jianbo Sun is the Chair of the Compensation Committee. Each of Lichen Dong, Tian Yang, Mahesh Thapaliya and Jianbo Sun qualifies as an independent director under rules of The Nasdaq Stock Market, and does not have a family relationship with any director or executive officer of the Company, and has not been involved in any transaction with the Company during the past two years that would require disclosure under Item 404(a) of Regulation S-K. Result of Operations The following tables provide a comparison of a summary of our results of operations for the fiscal years ended December 31, 2024 and 2023. Results of Operations for the fiscal years ended December 31, 2024 and 2023 For the year ended December 31, 2024 2023 (Restated*) Service revenue $ 1,800,000 $ 2,500,000 Cost of revenue (730,000 ) (1,070,864 ) Gross Profit 1,070,000 1,429,136 Operating expenses General and administrative expenses (1,086,804 ) (2,666,238 ) Total operating expenses (1,086,804 ) (2,666,238 ) Loss from operations (16,804 ) (1,237,102 ) Impairment of long-term investment (13,396,000 ) - Other income 43,190,557 4,387,976 Income before income taxes $ 29,777,753 $ 3,150,874 Income tax expense (8,234,503 ) (130,415 ) Net income from continuing operation 21,543,250 3,020,459 * In July 2024, we dissolved its subsidiary, WeTrade Technology (Shanghai) Co., Ltd. in the PRC, which qualified as a discontinued operation under ASC 205-20. We retrospectively adjusted the above comparative consolidated results of operations in prior year. Revenue from Operations For the fiscal year ended December 31, 2024 and 2023, total revenue was US$1.80 million and US$2.50 million, respectively. The revenue is mainly generated from the AI software development and SAAS software solutions for industrial and other businesses users. 28 Cost of revenue Cost of revenue mainly consists of staff payroll, system development costs and outsourcing staff cost for system development, which is in line with the increase in revenue during the period. General and Administrative Expenses For the fiscal year ended December 31, 2024, general and administrative expenses was US$1.09 million, compared to US$2.67 million for the fiscal year ended December 31, 2023. The notable decrease of US$1.58 million is primarily attributed to reductions in compliance fees, annual block chain consulting fees, and other professional service fees. Impairment of long-term investment In April 2024, there were 3,940,000 shares issued with the total amount of US$13.40 million for the acquisition of 20% of an associate company. We have conducted an impairment test on this long-term equity investment in accordance with ASC820 and has fully provided for impairment losses. Other income For the fiscal year ended December 31, 2024 and 2023, other income were US$43.19 million and US$4.39 million, respectively. The increase in other income is due to Bitcoin value appreciation of US$43.18 million and US$10.15 million for the years ended December 31, 2024 and 2023, which offset by waiver of related company loan of US$5.81 million during the year of 2023. Income tax expense For the fiscal year ended December 31, 2024 and 2023, the Company recorded income tax expense of US$8.23 million and US$0.13 million in 2024 and 2023, respectively. Net income from continuing operation As a result of the factors described above, for the fiscal year ended December 31, 2024 and 2023, there was a net income from continuing operation of US$21.54 million and US$3.02 million, respectively. The increase is mainly due to gain in fair value in digital assets and offset by increase in income tax expense and impairment loss of long-term investment. The following chart provides a summary of our balance sheets for the fiscal years ended December 31, 2024 and 2023. It should be read in conjunction with the financial statements, and notes thereto. 29 December 31, 2024 December 31, 2023 Restated* Cash and Cash equivalents $ 668,387 $ 668,387 Digital Assets 78,322,430 35,137,576 Receivables 1,800,000 1,000,000 Prepayments 12,125,500 12,125,500 Total assets $ 92,916,317 $ 48,931,463 Accounts payable 730,000 800,000 Amount due to related parties 972,000 1,692,672 Other liabilities 1,351,752 1,730,415 Deferred tax liabilities 8,234,503 - Total liabilities $ 11,288,255 $ 4,223,087 Total stockholders’ equity $ 81,628,062 $ 44,708,376 * In July 2024, we dissolved its subsidiary, WeTrade Technology (Shanghai) Co., Ltd. in the PRC, which qualified as a discontinued operation under ASC 205-20. We retrospectively adjusted the above comparative consolidated balance sheets in prior year. As of December 31, 2024, we had total assets of US$92.92 million, which mainly consisted of US$0.67 million in cash, US$78.32 million in digital assets, and US$13.93 million in other receivables and prepayments; we had total liabilities of US$11.29 million which consisted of US$0.73 million in accounts payable, US$0.97 million in amount due to related parties,US$1.35 million in other liabilities and US$8.24million in deferred tax liabilities; we had total stockholders’ equity of US$81.63million. As of December 31, 2023, we had total assets of US$48.93 million, which mainly consisted of US$0.67 million in cash, US$35.14 million in digital assets, and US$13.12 million in other receivables and prepayments; we had total liabilities of US$4.22million which consisted of US$0.80 million in accounts payable, US$1.69 million in amount due to related parties and US$1.73 million in other liabilities; we had total stockholders’ equity of US$44.71 million. The following table sets forth a summary of the Company’s cash flows for the years indicated: For the year ended December 31, 2024 2023 Restated* Net cash flows used in continued operating activities: $ - $ (12,703,077 ) Net cash flows provided by discontinued operating activities: - 32,909,276 Net cash flows provided by operating activities: - 20,206,199 Net cash flow used in continued investing activities: - (37,115,500 ) Net cash flows provided by discontinued investing activities: - 4,500,000 Net cash flows used in investing activities: - (32,615,500 ) Net cash provided by continued financing activities - 13,054,762 Net cash provided by discontinued financing activities: - - Net cash provided by financing activities: - 13,054,762 Effect of exchange rate changes on cash - - Change in Cash and Cash Equivalents: - 645,461 Cash and Cash Equivalents, Beginning of Year 668,387 22,926 Cash and Cash Equivalents, End of Year $ 668,387 $ 668,387 * In July 2024, we dissolved its subsidiary, WeTrade Technology (Shanghai) Co., Ltd. in the PRC, which qualified as a discontinued operation under ASC 205-20. We retrospectively adjusted the above comparative consolidated cash flows in prior year. Operating activities Net cash flows used in continued operating activities was nil in 2024, primarily due to net income from continuing operation of US$21.54 million, adjusted for (i) fair value gain on digital asset of US$43.18 million, (ii) impairment of long-term investment of US$13.40 million, (iii) deferred tax expense of US$8.23 million, and (iv)an increase in assets of US$0.8 million and an decrease in liabilities of US$0.81 million. Net cash flows used in continued operating activities was US$12.70 million in 2023, primarily due to net income from continuing operation of US$3.02 million and net loss from discontinued operation of US$12.95 million, adjusted for (i) fair value gain on digital asset of US$10.15 million, (ii)loss on amount due from a related party of US$5.81 million, (iii) an increase in assets of US$0.95 million, and (iv) an increase in liabilities of US$2.51 million. 30 Investing activities Our continuing cash flow used in investing activities was nil for the fiscal year ended December 31, 2024. Our continuing cash flow used in investing activities was US$37.12 million for the fiscal year ended December 31, 2023.It was primarily attributable to our acquisition of 833 Bitcoin amounting to US$24.99 million and prepayment for Bitcoin with the amount of US$12.13 million during the year. Financing activities Cash generated from financing activities was nil for the year ended December 31, 2024. Cash generated from financing activities was US$13.05 million for the year ended December 31, 2023, which was primarily attributable to: (i) we received proceeds US$12.61 million by issuing shares, (ii) we borrowed US$0.44 million from the former executives. Inflation Inflation does not materially affect our business or the results of our operations. Critical Accounting Policies We prepare our financial statements in accordance with generally accepted accounting principles of the United States (“GAAP”). GAAP represents a comprehensive set of accounting and disclosure rules and requirements. The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates. We use historical data to assist in the forecast of our future results. Deviations from our projections are addressed when our financials are reviewed on a monthly basis. This allows us to be proactive in our approach to managing our business. It also allows us to rely on proven data rather than having to make assumptions regarding our estimates. Revenue recognition The Company follows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts . ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. Use of Estimate The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. 31 Accounts receivable Accounts receivable are presented net of allowance for expected credit loss. The Company uses specific identification in providing for bad debts when facts and circumstances indicate that collection is doubtful and based on factors listed in the following paragraph. If the financial conditions of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance may be required. The Company maintains an allowance for expected credit loss which reflects its best estimate of amounts that potentially will not be collected. The Company determines the allowance for expected credit loss on general basis taking into consideration various factors including but not limited to the historical collection experience and credit-worthiness of the customers as well as the age of the individual receivables balance. Additionally, the Company makes specific bad debt provisions based on any specific knowledge the Company acquires that might indicate that an account is uncollectible. The facts and circumstances of each account may require the Company to use substantial judgment in assessing its collectability. Recent Accounting Pronouncements We have reviewed all the recently issued, but not yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the Company financial statements. Post-Balance Sheet Events The Company entered into an Amended and Restated BTC Trading Contract (the “Amended BTC Contract”), dated as of September 24, 2024, with an autonomous organization (the “Association Seller”), which supports its members in the sale of Bitcoins. Under the Amended BTC Contract, the Company is entitled to purchase up to 5,167 BTC (the “Total BTC”) from certain members of the Association Seller set forth on Schedule I of the Amended BTC Contract (the “BTC Sellers”) through the Association Seller at a purchase price of US$30,000 per BTC (subject to an additional purchase price by issuance of warrants to purchase shares of Common Stock at a nominal exercise price as described below) over a 12-month period ending on September 24, 2025. At the time when the Amended BTC Contract was signed, the Company indicated its intent to exercise the option to purchase 5,000 Bitcoin out of the Total BTC pursuant to the Amended BTC Contract (the “Amended 5,000 BTC Transaction”). According to the terms of the Amended BTC Contract, the previously-made prepayment amount of $12,125,500 will be applied towards the total purchase price for the Amended 5,000 BTC Transaction and the Company will pay the remaining balance through (i) the issuance of 135,171,078 shares of Common Stock (the “Shares”) valued at $1.02 per share and (ii) the issuance of warrants to purchase 294,117,647 shares of Common Stock at a nominal exercise price (the “Warrants”, and the shares issuable under the Warrants, the “Warrant Shares”). Using the same per share valuation, the Warrants are worth approximately $300,000,000. The exercise period for each Warrant is five (5) years from the initial exercise of such Warrant. On March 12, 2025 (the “Closing Date”), the Company consummated the Amended 5,000 BTC Transaction pursuant to which the Company acquired 5,000 Bitcoin and in exchange it issued the Shares and the Warrants. Concurrently with the issuance of the Warrants, the BTC Sellers indicated to the Company of their intent to immediately exercise the Warrants to purchase all of the Warrant Shares thereunder. Accordingly, the Company issued to each BTC Seller the respective Warrant Shares at the Closing Date. The total outstanding shares of the Company increased to 436,265,135 shares on the Closing Date. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a “smaller reporting company” as defined by Item 10(f)(1) of Regulation S-K, and as such are not required to provide the information contained in this item pursuant to Item 305 of Regulation S-K.