Nano(US:NA)2025-04-11 20:00PART I Item 3. Key Information The company details its Cayman Islands holding structure, China-based operational risks, and regulatory compliance - Nano Labs Ltd is a Cayman Islands holding company, not a Chinese operating company; its operations are conducted through subsidiaries in China and Hong Kong17 - The company has completed necessary filings with the China Securities Regulatory Commission (CSRC) for its follow-on offerings and will continue to do so for future offerings29 - The company's auditor, MaloneBailey, LLP, is registered with the PCAOB, which currently has complete access to inspect firms in mainland China and Hong Kong20190 Cash Transfers to PRC Subsidiaries | Year | Amount Transferred (US$) | | :--- | :--- | | 2022 | 24.3 million | | 2023 | 17.5 million | | 2024 | 13.1 million | Risk Factors The company faces significant business, operational, and regulatory risks, with concentrated voting power held by its founder - Key business risks include technological obsolescence, high volatility in the cryptocurrency market, supplier reliance, and significant revenue concentration from mining machines465155 - Operational risks include a history of net losses and negative operating cash flows, high customer concentration, and a material weakness in internal control over financial reporting4496143 - Significant risks related to conducting business in China include PRC government influence, legal system uncertainties, potential delisting, and cybersecurity regulations50177188 - The company's dual-class share structure concentrates voting power, with Mr. Jianping Kong holding approximately 53.7% of the total voting power, making it a "controlled company"227228 Item 4. Information on the Company The company operates as a fabless Web 3.0 infrastructure provider specializing in HTC and HPC chips History and Development The company was incorporated in 2021, listed on Nasdaq in 2022, and executed several corporate actions in 2024-2025 - The business began in July 2019, and the Cayman Islands holding company, Nano Labs Ltd, was incorporated in January 2021258259 - American Depositary Shares (ADS) began trading on Nasdaq on July 12, 2022, and the ADS facility was terminated effective February 1, 20249260 - The company executed a 2-to-1 share consolidation in January 2024 and a 10-to-1 consolidation in November 202410261 - On March 7, 2025, the company increased its authorized share capital and increased votes per Class B share from 15 to 3011262 Business Overview The company develops HTC and HPC chips, operates a fabless model, and has adopted Bitcoin as a primary reserve asset - Nano Labs is a Web 3.0 infrastructure provider focused on developing High Throughput Computing (HTC) and High-Performance Computing (HPC) chips265266 - The company adopted Bitcoin as its primary reserve asset and established Bitcoin value investment as a new business sector, holding approximately 401 Bitcoins as of April 10, 2025277281 - The company operates on a fabless model, collaborating with third-party foundries for IC fabrication, packaging, and testing to focus resources on R&D76285 R&D Expenses (RMB) | Year | R&D Expense | | :--- | :--- | | 2022 | 131.9 million | | 2023 | 88.6 million | | 2024 | 50.1 million | Cryptocurrency Holdings (as of Dec 31, 2024) | Cryptocurrency | Quantity | Fair Value (US$) | | :--- | :--- | :--- | | Bitcoin | ~361 | 33.8 million | | USDT | 9 | 9 | Organizational Structure The company is a Cayman Islands holding company operating through a network of international subsidiaries - Nano Labs Ltd is a Cayman Islands holding company that operates through a network of subsidiaries primarily located in the Cayman Islands, BVI, Hong Kong, and China376 Operating and Financial Review and Prospects The company experienced a significant revenue decline and net losses, alongside identifying a material weakness in financial controls Operating Results Net revenues declined sharply in 2024 due to lower mining product sales, though gross profit returned to positive Consolidated Financial Performance (RMB) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Total Net Revenues | 983.2 million | 78.3 million | 40.6 million | | Gross Profit (Loss) | 230.2 million | (103.4 million) | 11.6 million | | Profit (Loss) from Operations | 20.7 million | (260.8 million) | (98.5 million) | | Net Income (Loss) | 31.1 million | (254.4 million) | (119.5 million) | - The decrease in net revenues in 2024 to RMB 40.6 million from RMB 78.3 million in 2023 was primarily due to lower sales of iPollo V Series products417 - The company recorded significant inventory write-downs of RMB 184.1 million, RMB 60.8 million, and RMB 10.9 million in 2022, 2023, and 2024, respectively396398 - In 2024, the company recorded a loss of RMB 15.7 million from the change in fair value of its cryptocurrency holdings423 Liquidity and Capital Resources The company's liquidity is supported by financing activities, including share issuances and bank loans, to fund operations and investments Consolidated Cash Flow Data (RMB) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (274.9 million) | (133.5 million) | (139.3 million) | | Net cash used in investing activities | (33.2 million) | (105.5 million) | (256.8 million) | | Net cash provided by financing activities | 161.0 million | 199.5 million | 376.0 million | - Net cash used in investing activities in 2024 was RMB 256.8 million, primarily due to RMB 220.4 million in cryptocurrency purchases443 - Net cash from financing activities in 2024 was RMB 376.0 million, mainly from proceeds from the issuance of ordinary shares and warrants446 - As of December 31, 2024, the company had a credit line of RMB 198 million, with an outstanding borrowing balance of approximately RMB 176.0 million434 Internal Control Over Financial Reporting A material weakness was identified due to a lack of sufficient accounting personnel with U.S. GAAP expertise - A material weakness was identified in the company's internal control over financial reporting as of December 31, 2024451659 - The material weakness is related to a lack of sufficient accounting personnel with adequate knowledge in financial reporting in accordance with U.S. GAAP452660 - The company plans to remediate this weakness by hiring additional qualified accounting personnel and enhancing its internal audit function453661 Directors, Senior Management, and Employees Leadership compensation is disclosed, with significant voting power concentrated in the Chairman and Vice Chairman - The aggregate cash compensation for directors and executive officers in 2024 was approximately RMB 3.9 million (US$0.5 million)469 - The company adopted the 2022 Share Incentive Plan, authorizing a maximum of 10,379,000 Class A ordinary shares for awards474 - As of December 31, 2024, the company had 88 employees, with 30.7% in research and development301502 - Mr. Jianping Kong (Chairman & CEO) and Mr. Qifeng Sun (Vice Chairman) control 53.7% and 35.9% of the total voting power, respectively509 Major Shareholders and Related Party Transactions Principal shareholders provided financial support through loan guarantees and participated in private placements - Principal shareholders Jianping Kong and Qifeng Sun provided guarantees for company debts and offered interest-free loans converted into Class A ordinary shares514525527 - In December 2024, the company closed a private placement of 5.6 million Class A ordinary shares for gross proceeds of approximately US$36.3 million528 - In February 2025, the company sold 913,714 Class A ordinary shares for approximately US$5.9 million, satisfied in Bitcoin and USDT529 Financial Information The company does not plan to pay dividends and is involved in an ongoing legal proceeding with a customer - The company has no current plans to pay cash dividends and intends to retain future earnings to fund business development and growth534 - A customer filed a civil action against a subsidiary on March 5, 2024, over a sales contract dispute, demanding a return of payment of approximately RMB 3.0 million308 Additional Information The company maintains a dual-class share structure with significantly weighted voting rights for Class B shares - As of the report date, the authorized share capital is US$4,200,000, divided into 2.1 billion shares544 - The company has a dual-class share structure where each Class B ordinary share has thirty votes, while each Class A ordinary share has one vote551552553 - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the 2024 taxable year, but this determination is made annually608609 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include high supplier concentration and foreign currency exchange rate fluctuations - The company faces significant supplier concentration risk; in 2024, a single supplier accounted for 29% of total purchases636 - The company is exposed to currency risk and recognized a foreign currency translation loss of RMB 0.8 million (US$0.1 million) in 2024638 Use of Proceeds The company has utilized approximately US$48.8 million from its IPO and follow-on offerings for R&D and operations Use of Proceeds (from July 2022 to Report Date) | Use Category | Amount Spent (US$) | | :--- | :--- | | R&D of new products | ~20.6 million | | Supply chain optimization | ~15.1 million | | Brand and global sales network | ~6.9 million | | Working capital & daily operations | ~6.1 million | | Total | ~48.8 million | Controls and Procedures Disclosure controls were deemed ineffective as of year-end 2024 due to a previously identified material weakness - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were not effective due to a material weakness654657 - The identified material weakness is a lack of sufficient accounting personnel with adequate knowledge of U.S. GAAP financial reporting660 Cybersecurity The company maintains a cybersecurity risk management program and reported no material incidents in 2024 - The company has an internally managed cybersecurity risk management framework overseen by the board of directors and executed by a dedicated IT staff681683 - No material cybersecurity incidents were reported for the year ended December 31, 2024682 Financial Statements Report of Independent Registered Public Accounting Firm The auditor issued an unqualified opinion on the consolidated financial statements, which conform with U.S. GAAP - The independent auditor, MaloneBailey, LLP, issued an unqualified (clean) opinion on the company's consolidated financial statements for fiscal years 2022, 2023, and 2024699 - The auditor confirmed that the financial statements conform with U.S. Generally Accepted Accounting Principles (U.S. GAAP)699 - The company was not required to have, and the auditor did not perform, an audit of its internal control over financial reporting701 Consolidated Financial Statements The company ended 2024 with total assets of RMB 615.9 million and reported a net loss of RMB 119.5 million Consolidated Balance Sheet Highlights (as of Dec 31, 2024) | Account | Amount (RMB) | Amount (US$) | | :--- | :--- | :--- | | Total Assets | 615.9 million | 85.7 million | | Cash and cash equivalents | 32.4 million | 4.5 million | | Cryptocurrencies | 242.9 million | 33.8 million | | Total Liabilities | 383.0 million | 53.3 million | | Total Shareholders' Equity | 232.9 million | 32.4 million | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2024) | Account | Amount (RMB) | Amount (US$) | | :--- | :--- | :--- | | Net Revenues | 40.6 million | 5.6 million | | Gross Profit | 11.6 million | 1.6 million | | Loss from Operations | (98.5 million) | (13.7 million) | | Net Loss | (119.5 million) | (16.6 million) | Notes to the Consolidated Financial Statements The notes detail key accounting policies, including fair value measurement for cryptocurrencies and revenue recognition timing Note 2. Summary of Significant Accounting Policies The company's reporting currency is RMB, and it adopted fair value accounting for cryptocurrencies in 2024 - The company's reporting currency is RMB; the functional currency for PRC entities is RMB, while for entities outside the PRC, it is the US dollar725 - Effective January 31, 2024, the company adopted ASC 350-60, measuring cryptocurrencies at fair value with changes reported in the statements of operations743 - Revenue from product sales is recognized at a point in time when control of the products is transferred to the customer751 Note 6. Cryptocurrencies The company held 361 Bitcoin at year-end 2024 and recorded an unrealized loss of RMB 15.7 million for the year Cryptocurrency Holdings as of December 31, 2024 | Cryptocurrency | Quantity | Cost Basis (RMB) | Fair Value (RMB) | | :--- | :--- | :--- | :--- | | Bitcoin | 361 | 256,709,226 | 242,889,018 | | USDT | 9 | 67 | 67 | - For the year ended December 31, 2024, the company recorded an unrealized loss of RMB 15.7 million on its cryptocurrency holdings780 Note 11. Short-term and long-term debts As of year-end 2024, the company had total debt of RMB 194.0 million, secured by assets and shareholder guarantees - As of December 31, 2024, the company had RMB 18.0 million in short-term debt and RMB 176.0 million in long-term debt791793 - The company has a line of credit up to RMB 198.0 million, secured by assets and guarantees from principal shareholders792 Note 12. Shareholders' equity (deficit) The company executed two reverse stock splits in 2024 and raised capital through several private placements - The company executed two reverse stock splits in 2024: a 2-for-1 split and a 10-for-1 split, with all share data retrospectively adjusted794795796 - In April 2024, the company issued 434,784 Class A ordinary shares and warrants for gross proceeds of approximately US$5.0 million799 - In December 2024, the company issued 5,611,459 Class A ordinary shares for gross proceeds of US$36.3 million, satisfied with cash, Bitcoin, and USDT803 Note 13. Share-based compensation Share-based compensation expense decreased significantly in 2024 compared to prior years - The company's 2022 Share Incentive Plan authorizes up to 518,950 Class A ordinary shares for issuance806 - Share-based compensation expense related to options was RMB 9.3 million, RMB 0.7 million, and RMB 0.4 million for 2022, 2023, and 2024, respectively815 Note 18. Concentrations The company exhibits significant customer and supplier concentration, with one supplier accounting for 29% of purchases Customer and Supplier Concentration (2024) | Type | Party | % of Total | | :--- | :--- | :--- | | Customer | Customer A | 13% | | Customer | Customer B | 12% | | Customer | Customer C | 11% | | Supplier | Supplier E | 29% | Note 20. Subsequent events In early 2025, the company issued additional shares and increased the voting power of its Class B shares - In February 2025, the company issued 913,714 Class A ordinary shares for US$5.9 million, paid for with Bitcoin and USDT843 - On March 7, 2025, shareholders approved an increase in authorized share capital and increased the votes per Class B ordinary share from 15 to 30844