Correspondence 0001104659-24-094811 from The9 LTD (NCTY)
The9 LTD
Date: Aug. 29, 2024 · CIK: 0001296774 · Accession: 0001104659-24-094811
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-34238
Referenced dates: July 18, 2024
Letter
VIA EDGAR Office of Crypto Assets Division of Corporation Finance Re: The9 Limited (the “Company”) Form 20-F for the Fiscal Year Ended December 31, Correspondence Filed October 20, 2023 File No. 001-34238
Dear Mr. Sundwall, Ms. Tillan, Mr. Brown and Ms. Bednarowski,
This letter sets forth the Company’s responses to the comments contained in the letter dated July 18, 2024 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2023 filed with the Commission on April 15, 2024 (the “2023 Form 20-F”) and the Company’s correspondence filed with the Commission on October 20, 2023 (the “Correspondence”). The Staff’s comments are repeated below in bold and are followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2023 Form 20-F and the Correspondence.
Securities and Exchange Commission
August 29,
Page 2
Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2023
Information on the Company
Business Overview
Cryptocurrency Mining, page 85
1. Refer to your response to prior comments 6 and 7. In future filings, please expand to disclose the location and number of miners at each location. Please revise to disclose how many miners you own of each type of miner identified on page 80 and identify the crypto assets mined by each type of miner.
Response:
In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page references are made to the 2023 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed.
Page 80:
We currently own the following models of mining machines:
· Antminer S19 series with the average hash rate of 90 TH, average age of two years and average energy efficiency of 3,200W. These miners mine Bitcoin. As of the date of this annual report, we owned [**] Antminer S19 series miners, including [**] located in Aktau, Kazakhstan, [**] located in Texas, the U.S., [**] located in Alberta, Canada and [**] located in Kyrgyzstan.
· WhatsMiner M21 and 31 series with the average hash rate of 60 TH, average age of three and a half years and average energy efficiency of 3,300W. These miners mine Bitcoin. As of the date of this annual report, we owned [**] WhatsMiner M21 and 31 series miners, all of which were located in Aktau, Kazakhstan.
· Avalon 1246 series with the average hash rate of 85 TH, average age of three years and average energy efficiency of 3,400W. These miners mine Bitcoin. As of the date of this annual report, we owned [**] Avalon 1246 series miners, all of which were located in Aktau, Kazakhstan.
· Avalon A10 series with the average hash rate of 32 TH, average age of four years and average energy efficiency of 2,300W. These miners mine Bitcoin. As of the date of this annual report, we owned [**] Avalon A10 series miners, all of which were located in Aktau, Kazakhstan.
· Avalon A8 series with the average hash rate of 13TH, average age of five years and average energy efficiency of 1,200W. These miners mine Bitcoin. As of the date of this annual report, we owned [**] Avalon A8 series miners, all of which were located in Aktau, Kazakhstan.
As of the date of this annual report, we have deployed around 13,018 [**] mining machines in total. We do not use our mining machines as collateral for any loan or other similar activities.
Securities and Exchange Commission
August 29,
Page 3
2. Refer to your response to prior comment 9. Regarding your disclosure under the subheading “Mining pool operators” on page 82, in future filings please revise as follows:
· We note your disclosure on page 82 that your have signed a memorandum of understanding with Binance Capital Management Co., Ltd. to procure long-term cooperation of “more than three years.” Revise to clarify the term of the agreement. You also state that “[i]n the case of any losses arising from Binance’s default, Binance should compensate NBTC.” Please clarify what you mean by “Binance’s default,” and describe the losses you may incur due to such a default. File the agreement as an exhibit to a current report or your next periodic report, or advise.
Response:
In response to the Staff’s comment, the Company undertakes to file the memorandum of understanding with Binance Capital Management Co., Ltd. (“Binance”) as an exhibit to the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2024.
In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page references are made to the 2023 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed.
Page 82:
Mining pool operators
In July 2021, NBTC Limited, our wholly-owned subsidiary, signed a memorandum of understanding with Binance Capital Management Co., Ltd., an operator of Binance mining pool, or Binance, to procure long-term cooperation of more than three years with Binance by connecting 50% of NBTC Limited’s miners hash rate to Binance’s Bitcoin mining pool pursuant to which NBTC Limited has agreed to connect 50% of its total miners’ hash rate to Binance’s Bitcoin mining pool for a period of at least three years, which can be extended and such extension shall be for a minimum of one year period. As of the date of this annual report, NBTC Limited or any of our group companies had not entered into any new mining pool agreement with Binance after the signing of the memorandum of understanding. Due to the long-term relationship with Binance, we are still using Binance’s mining pool. Although this memorandum of understanding is not explicitly extended, we believe that the collaboration with Binance is still ongoing, following the principal terms of the memorandum of understanding. Such cooperation can be terminated at any time by either party without compensating the other party.
Securities and Exchange Commission
August 29,
Page 4
Pursuant to the local laws and policies in Kazakhstan, we must arrange our Bitcoin miners to participate in Kazakhstan’s local mining pools. As of the date of this annual report, 16% of our Bitcoin miners are participated in Kazakhstan’s local mining pools. The service fees for Kazakhstan’s local mining pools is are 2.5% and 2.75% of the total proceeds from the mining pools per month. The remaining 84% of our Bitcoin miners are arranged to participate in Binance’s Bitcoin mining pools.
The adopted mode of proceeds distribution is full price per share, or FPPS, and the formula is: per tera-hash theoretical proceeds * hash rate * (1 + blockchain commission) * (1 - platform commission). The proceeds should be distributed to the owner of miners daily only in the form of Bitcoin. Based on the actual Bitcoin arithmetic value achieved by NBTC’s mining machines connected to Binance mining pool, the daily revenue we earn will be distributed to us on a daily basis, which can be verified according to the FPPS theoretical revenue calculation. In case of any losses arising from Binance’s default, Binance should compensate NBTC Limited. If NBTC Limited’s actual distributed mining revenue is lower than the FPPS theoretical revenue due to Binance’s fault, it will be topped up by Binance according to the FPPS theoretical earnings due to NBTC Limited. The service fee is 3% of the total proceeds from the mining pool per month, and we have guaranteed in the memorandum of understanding that during the term of the memorandum of understanding, the aggregated service fees we pay should be no less than 1000Ph/s * 3% * 10 months. As of December 31, 2023, the total fees under the memorandum of understanding have reached the guaranteed aggregated service fees.
· Identify by name the local mining pools you use in Kazakhstan. Disclose the material terms of your agreements with those pools and file your agreements as exhibits to a current report or your next periodic report, or advise.
Response:
In response to the Staff’s comment, the Company undertakes to file the agreements with the mining pools in Kazakhstan as exhibits to the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2024.
In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page references are made to the 2023 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed.
Securities and Exchange Commission
August 29,
Page 5
Page 82:
Mining pool operators
. . .
Mining pool operations in Kazakhstan
We have used two locally registered mining pools in Kazakhstan.
In 2023, our service provider, LGHTSTR Ltd. signed a cooperation agreement with Pool4Miners Limited Liability Partnership, or Pool4Miners, a registered provider of the Bitcoin mining pool services in Kazakhstan. According to the cooperation agreement:
· NBTC wallet was opened to collect Bitcoin mining proceeds.
· Control of the wallet has been fully given to NBTC by LGHTSTR Ltd.
· Pool4Miners is entitled to 2.75% of all mined Bitcoin proceeds generated by the mining equipment of NBTC whereas NBTC is entitled to 97.25%.
· Each party is responsible for its respective taxes.
· LGHTSTR Ltd. is responsible to provide daily mining hash rate of no less than 82.88 PH/S to the pool. If the hash rate is less than 82.88 PH/S for fifteen consecutive days after the signing date of the cooperation agreement or any three consecutive days during the term of the cooperation agreement, Pool4Miners has the right to unilaterally terminate the agreement or change the Bitcoin distribution ratio.
· Pool4Miners is responsible for technical operations of the pool, provision of information about operations of the pool (excluding its own financial performance) and provision of monthly Bitcoin mining reports to us.
· Pool4Miners’ liability is limited to the actual damages caused to LGHTSTR Ltd.
Securities and Exchange Commission
August 29,
Page 6
In March 2024, LGHTSTR Ltd. terminated the agreement. In the same month, our service provider LGHTSTR Ltd. signed the Agreement for the Provision of Services of Combining the Capacity of Hardware and Software Complex for Digital Mining of Digital Miners and Distribution of Digital Assets Obtained as a Result of Miners’ Activities, (the “Fish2Pool Agreement”) with Fish2Pool Kazakhstan Ltd., or Fish2Pool. According to the Fish2Pool Agreement:
· NBTC wallet was opened to collect Bitcoin mining proceeds.
· Control of the wallet has been fully given to NBTC by LGHTSTR Ltd.
· Fish2Pool undertakes to provide remote operational services in respect to our mining equipment: (a) acceptance of our mining equipment computing power to its serve equipment on a daily basis, and (b) distribution of digital assets to us daily.
· Fish2Pool’s service fee is 2.5% of the distributed Bitcoin proceeds generated by our mining equipment in terms of the block reward, calculated in accordance with the FPPS calculation formula. Fish2Pool’s fee shall be paid by us on a daily basis only when we actually begin to engage in digital mining activities. The rate of Fish2Pool’s fee shall be fixed for one year from the signing date of the Fish2Pool Agreement if we can keep its weighted average hash rate in all accounts at above 150PH/S. The rate will be increased from 2.5% to 3.0% if the statistical probability of finding a new block for Bitcoin mining by our equipment during past three months falls below 80%.
· Fish2Pool shall provide us with work reports daily. We have the right to object to the report within five days. Otherwise, report results shall be binding on us.
· Each party shall be responsible for paying their respective taxes.
· We have the right to terminate the agreement in case Fish
Show Raw Text
CORRESP
1
filename1.htm
The9 Limited
17 Floor, No. 130
Wu Song Road
Hong Kou District,
Shanghai 200080
People’s Republic
of China
August 29, 2024
VIA EDGAR
Mr. Rolf Sundwall
Ms. Kate Tillan
Mr. John Dana Brown
Ms. Sonia Bednarowski
Office of Crypto Assets
Division of Corporation Finance
100 F Street, NE
Washington, D.C., 20549
Re: The9 Limited (the “Company”)
Form 20-F for the Fiscal Year Ended December 31,
2023
Correspondence Filed October 20, 2023
File
No. 001-34238
Dear Mr. Sundwall, Ms. Tillan,
Mr. Brown and Ms. Bednarowski,
This
letter sets forth the Company’s responses to the comments contained in the letter dated July 18, 2024 from the staff (the
“Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report
on Form 20-F for the fiscal year ended December 31, 2023 filed with the Commission on April 15, 2024 (the “2023
Form 20-F”) and the Company’s correspondence filed with the Commission on October 20, 2023 (the “Correspondence”).
The Staff’s comments are repeated below in bold and are followed by the Company’s responses thereto. All capitalized terms
used but not defined in this letter shall have the meaning ascribed to such terms in the 2023 Form 20-F and the Correspondence.
Securities and Exchange Commission
August 29,
2024
Page 2
Annual Report
on Form 20-F for the Fiscal Year Ended December 31, 2023
Information
on the Company
Business
Overview
Cryptocurrency
Mining, page 85
1. Refer
to your response to prior comments 6 and 7. In future filings, please expand to disclose
the location and number of miners at each location. Please revise to disclose how many miners
you own of each type of miner identified on page 80 and identify the crypto assets mined
by each type of miner.
Response:
In response
to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page references
are made to the 2023 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with
deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material
development of the subject matter being disclosed.
Page 80:
We currently
own the following models of mining machines:
· Antminer
S19 series with the average hash rate of 90 TH, average age of two years and average energy
efficiency of 3,200W. These miners mine Bitcoin. As of the date of this annual report,
we owned [**] Antminer S19 series miners, including [**] located in Aktau, Kazakhstan, [**]
located in Texas, the U.S., [**] located in Alberta, Canada and [**] located in Kyrgyzstan.
· WhatsMiner
M21 and 31 series with the average hash rate of 60 TH, average age of three and a half years
and average energy efficiency of 3,300W. These miners mine Bitcoin. As of the date of
this annual report, we owned [**] WhatsMiner M21 and 31 series miners, all of which were
located in Aktau, Kazakhstan.
· Avalon
1246 series with the average hash rate of 85 TH, average age of three years and average energy
efficiency of 3,400W. These miners mine Bitcoin. As of the date of this annual report,
we owned [**] Avalon 1246 series miners, all of which were located in Aktau, Kazakhstan.
· Avalon
A10 series with the average hash rate of 32 TH, average age of four years and average energy
efficiency of 2,300W. These miners mine Bitcoin. As of the date of this annual report,
we owned [**] Avalon A10 series miners, all of which were located in Aktau, Kazakhstan.
· Avalon
A8 series with the average hash rate of 13TH, average age of five years and average energy
efficiency of 1,200W. These miners mine Bitcoin. As of the date of this annual report,
we owned [**] Avalon A8 series miners, all of which were located in Aktau, Kazakhstan.
As of
the date of this annual report, we have deployed around 13,018 [**] mining machines in total. We do not use our
mining machines as collateral for any loan or other similar activities.
2
Securities
and Exchange Commission
August 29,
2024
Page 3
2. Refer
to your response to prior comment 9. Regarding your disclosure under the subheading “Mining
pool operators” on page 82, in future filings please revise as follows:
· We
note your disclosure on page 82 that your have signed a memorandum of understanding
with Binance Capital Management Co., Ltd. to procure long-term cooperation of “more
than three years.” Revise to clarify the term of the agreement. You also state that
“[i]n the case of any losses arising from Binance’s default, Binance should compensate
NBTC.” Please clarify what you mean by “Binance’s default,” and describe
the losses you may incur due to such a default. File the agreement as an exhibit to a current
report or your next periodic report, or advise.
Response:
In
response to the Staff’s comment, the Company undertakes to file the memorandum of understanding with Binance Capital Management
Co., Ltd. (“Binance”) as an exhibit to the Company’s annual report on Form 20-F for the fiscal
year ended December 31, 2024.
In response
to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page references
are made to the 2023 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with
deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material
development of the subject matter being disclosed.
Page 82:
Mining
pool operators
In July 2021,
NBTC Limited, our wholly-owned subsidiary, signed a memorandum of understanding with Binance Capital Management Co., Ltd., an operator
of Binance mining pool, or Binance, to procure long-term cooperation of more than three years with Binance by connecting 50%
of NBTC Limited’s miners hash rate to Binance’s Bitcoin mining pool pursuant to which NBTC Limited has agreed
to connect 50% of its total miners’ hash rate to Binance’s Bitcoin mining pool for a period of at least three years, which
can be extended and such extension shall be for a minimum of one year period. As of the date of this annual report, NBTC Limited or any
of our group companies had not entered into any new mining pool agreement with Binance after the signing of the memorandum of understanding.
Due to the long-term relationship with Binance, we are still using Binance’s mining pool. Although this memorandum
of understanding is not explicitly extended, we believe that the collaboration with Binance is still ongoing, following the principal
terms of the memorandum of understanding. Such cooperation can be terminated at any time by either party without compensating the other
party.
3
Securities
and Exchange Commission
August 29,
2024
Page 4
Pursuant
to the local laws and policies in Kazakhstan, we must arrange our Bitcoin miners to participate in Kazakhstan’s local mining pools.
As of the date of this annual report, 16% of our Bitcoin miners are participated in Kazakhstan’s local mining pools. The service
fees for Kazakhstan’s local mining pools is are 2.5% and 2.75% of the total proceeds
from the mining pools per month. The remaining 84% of our Bitcoin miners are arranged to participate in Binance’s Bitcoin mining
pools.
The
adopted mode of proceeds distribution is full price per share, or FPPS, and the formula is: per tera-hash theoretical proceeds
* hash rate * (1 + blockchain commission) * (1 - platform commission). The proceeds should be distributed to the owner of miners daily
only in the form of Bitcoin. Based on the actual Bitcoin arithmetic value achieved by NBTC’s mining machines connected to Binance
mining pool, the daily revenue we earn will be distributed to us on a daily basis, which can be verified according to the FPPS theoretical
revenue calculation. In case of any losses arising from Binance’s default, Binance should compensate NBTC Limited. If
NBTC Limited’s actual distributed mining revenue is lower than the FPPS theoretical revenue due to Binance’s fault, it will
be topped up by Binance according to the FPPS theoretical earnings due to NBTC Limited. The service fee is 3% of the total proceeds
from the mining pool per month, and we have guaranteed in the memorandum of understanding that during the term of the memorandum
of understanding, the aggregated service fees we pay should be no less than 1000Ph/s * 3% * 10 months. As of December 31, 2023,
the total fees under the memorandum of understanding have reached the guaranteed aggregated service fees.
· Identify
by name the local mining pools you use in Kazakhstan. Disclose the material terms of your
agreements with those pools and file your agreements as exhibits to a current report or your
next periodic report, or advise.
Response:
In
response to the Staff’s comment, the Company undertakes to file the agreements with the mining pools in Kazakhstan as exhibits
to the Company’s annual report on Form 20-F for the fiscal year ended December 31,
2024.
In response
to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page references
are made to the 2023 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with
deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material
development of the subject matter being disclosed.
4
Securities
and Exchange Commission
August 29,
2024
Page 5
Page 82:
Mining
pool operators
. .
.
Mining
pool operations in Kazakhstan
We
have used two locally registered mining pools in Kazakhstan.
In
2023, our service provider, LGHTSTR Ltd. signed a cooperation agreement with Pool4Miners Limited Liability Partnership, or Pool4Miners,
a registered provider of the Bitcoin mining pool services in Kazakhstan. According to the cooperation agreement:
· NBTC
wallet was opened to collect Bitcoin mining proceeds.
· Control
of the wallet has been fully given to NBTC by LGHTSTR Ltd.
· Pool4Miners
is entitled to 2.75% of all mined Bitcoin proceeds generated by the mining equipment of NBTC
whereas NBTC is entitled to 97.25%.
· Each
party is responsible for its respective taxes.
· LGHTSTR
Ltd. is responsible to provide daily mining hash rate of no less than 82.88 PH/S to the pool.
If the hash rate is less than 82.88 PH/S for fifteen consecutive days after the signing date
of the cooperation agreement or any three consecutive days during the term of the cooperation
agreement, Pool4Miners has the right to unilaterally terminate the agreement or change the
Bitcoin distribution ratio.
· Pool4Miners
is responsible for technical operations of the pool, provision of information about operations
of the pool (excluding its own financial performance) and provision of monthly Bitcoin mining
reports to us.
· Pool4Miners’
liability is limited to the actual damages caused to LGHTSTR Ltd.
5
Securities
and Exchange Commission
August 29,
2024
Page 6
In
March 2024, LGHTSTR Ltd. terminated the agreement. In the same month, our service provider LGHTSTR Ltd. signed the Agreement
for the Provision of Services of Combining the Capacity of Hardware and Software Complex for Digital Mining of Digital Miners and Distribution
of Digital Assets Obtained as a Result of Miners’ Activities, (the “Fish2Pool Agreement”) with Fish2Pool Kazakhstan Ltd., or Fish2Pool.
According to the Fish2Pool Agreement:
· NBTC
wallet was opened to collect Bitcoin mining proceeds.
· Control
of the wallet has been fully given to NBTC by LGHTSTR Ltd.
· Fish2Pool
undertakes to provide remote operational services in respect to our mining equipment: (a) acceptance
of our mining equipment computing power to its serve equipment on a daily basis, and (b) distribution
of digital assets to us daily.
· Fish2Pool’s
service fee is 2.5% of the distributed Bitcoin proceeds generated by our mining equipment
in terms of the block reward, calculated in accordance with the FPPS calculation formula.
Fish2Pool’s fee shall be paid by us on a daily basis only when we actually begin to
engage in digital mining activities. The rate of Fish2Pool’s fee shall be fixed for
one year from the signing date of the Fish2Pool Agreement if we can keep its weighted average
hash rate in all accounts at above 150PH/S. The rate will be increased from 2.5% to 3.0%
if the statistical probability of finding a new block for Bitcoin mining by our equipment
during past three months falls below 80%.
· Fish2Pool
shall provide us with work reports daily. We have the right to object to the report within
five days. Otherwise, report results shall be binding on us.
· Each
party shall be responsible for paying their respective taxes.
· We
have the right to terminate the agreement in case Fish