1000
INTCHAINS GROUP LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
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Table of Contents
Report Of Independent Registered
Public
Accounting
Firm
To the Board of Directors and
Shareholders of Intchains Group Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Intchains Group Limited and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive income/(loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statement present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Mazars USA LLP
We have served as the Company’s auditor since 2021.
New York, New York
March 1
8
, 2024
 
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Table of Contents
INTCHAINS GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
As of December 31, 2022 and 2023

 

 
  
 
 
As of December 31,
 
 
  
Note
 
2022
 
 
2023
 
 
  
 
 
RMB
 
 
RMB
 
 
US$
 
 
  
 
 
 
 
 
 
 
 
(Note 2(f))
 
 
  
 
 
(in thousands, except share and per share data)
 
ASSETS
     
Current assets:
     
Cash and cash equivalents
  4  712,231   694,750   97,854 
Inventories, net
  5  77,782   41,767   5,883 
Prepayments and other current assets, net
  6  41,968   47,403   6,678 
Short-term investments
  7  —    13,596   1,915 
   
 
 
  
 
 
  
 
 
 
Total current assets
    831,981   797,516   112,330 
   
 
 
  
 
 
  
 
 
 
Non-current
assets:
     
Cryptocurrency
    —    645   91 
Property, equipment, and software, net
  8  6,965   49,184   6,926 
Intangible assets, net
  9  —    3,425   482 
Right-of-use
assets
  10  1,329   1,735   244 
Deferred tax assets
  17  —    12,899   1,817 
Prepayments on long-term assets
  11  112,856   113,425   15,976 
Other
non-current
assets
    —    421   59 
   
 
 
  
 
 
  
 
 
 
Total
non-current
assets
    121,150   181,734   25,595 
   
 
 
  
 
 
  
 
 
 
Total assets
    953,131   979,250   137,925 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
     
Current liabilities:
     
Accounts payable
    2,903   195   27 
Contract liabilities
  2(n)  6   9,828   1,384 
Income tax payable
    2,239   1,634   230 
Lease liabilities
  10  972   1,103   155 
Provision for warranty
    223   40   6 
Accrued liabilities and other current liabilities
  12  12,855   15,364   2,165 
   
 
 
  
 
 
  
 
 
 
Total current liabilities
    19,198   28,164   3,967 
   
 
 
  
 
 
  
 
 
 
Non-current
liabilities:
     
Deferred tax liabilities
  17  42   —    —  
Lease liabilities
  10  294   761   107 
   
 
 
  
 
 
  
 
 
 
Total
non-current
liabilities
    336   761   107 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
    19,534   28,925   4,074 
   
 
 
  
 
 
  
 
 
 
Shareholders’ equity
     
Ordinary shares (US$0.000001 par value; 50,000,000,000 shares authorized, 117,647,000 and
119,876,032 shares issued and outstanding as of December 31, 2022 and 2023,
 
respectively)
  13  1   1   — 
Subscriptions receivable from shareholders
  13  (1)   (1)   — 
Additional
paid-in
capital
    144,577   186,262   26,235 
Statutory reserve
    47,478   48,265   6,798 
Accumulated other comprehensive income
    —    1,838   259 
Retained earnings
    741,542   713,960   100,559 
   
 
 
  
 
 
  
 
 
 
Total equity
    933,597   950,325   133,851 
   
 
 
  
 
 
  
 
 
 
Total liabilities and shareholders’ equity
    953,131   979,250   137,925 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
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INTCHAINS GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
For the year ended December 31, 2021, 2022 and 2023
 
 
  
 
 
  
For the year ended December 31,
 
 
  
Note
 
  
2021
 
 
2022
 
 
2023
 
 
  
 
 
  
RMB
 
 
RMB
 
 
RMB
 
 
US$
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
(Note 2(f))
 
 
  
 
 
  
(in thousands, except share and per share data)
 
Products revenue
    15      631,838       473,740       82,225       11,581  
Cost of revenue
         (113,955 )      (87,021 )      (73,147 )      (10,302 ) 
     
 
 
    
 
 
    
 
 
    
 
 
  
Gross profit
         517,883       386,719       9,078       1,279  
     
 
 
    
 
 
    
 
 
    
 
 
  
Operating expenses:
            
Research and development expenses
         (53,153 )      (48,387 )      (42,304 )      (5,958 ) 
Sales and marketing expenses
         (3,006 )      (4,070 )      (6,532 )      (920 ) 
General and administrative expenses
         (14,403 )      (11,557 )      (25,210 )      (3,551 ) 
     
 
 
    
 
 
    
 
 
    
 
 
  
Total operating expenses
         (70,562 )      (64,014 )      (74,046 )      (10,429 ) 
     
 
 
    
 
 
    
 
 
    
 
 
  
Income/(loss) from operations
         447,321       322,705       (64,968 )      (9,150 ) 
Interest income
         2,518       11,132       16,750       2,359  
Foreign exchange gain/(loss), net
         (238 )      3,494       (524 )      (74 ) 
Other income, net
(2)
      16        543       29,726       13,191       1,856  
     
 
 
    
 
 
    
 
 
    
 
 
  
Income/(loss) before income tax expenses
         450,144       367,057       (35,551 )      (5,009 ) 
Income tax (expense)/benefit
      17        —        (11,856 )      8,756       1,233  
     
 
 
    
 
 
    
 
 
    
 
 
  
Net income/(loss)
         450,144       355,201       (26,795 )     (3,776 )
Foreign currency translation adjustment, net of
nil
tax
         —        —        1,838       259  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income/(loss)
         450,144       355,201       (24,957 )     (3,517 )
     
 
 
    
 
 
    
 
 
    
 
 
  
Weighted average number of shares used in per share calculation
(1)
:
            
— Basic and diluted
      19        100,870,300       117,647,000       119,387,937       119,387,937  
Net earnings/(loss) per share
            
— Basic and diluted
      19        4.46       3.02       (0.22 )      (0.03 ) 
Note:
 
(1)
Retroactively restated for the stock subdivision as described in Note 1.
 
(2)
The reclassification of amortization of other income and interest expense and guarantee fee to other income, net can be referenced in Note 2(ad).
The accompanying notes are an integral part of these consolidated financial statements.
 
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INTCHAINS GROUP LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the year ended December 31, 2021, 2022 and 2023
 
 
  
Ordinary
Shares
(1)
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
  
Number of
Shares
 
  
Amount
 
 
Subscription
receivables
from
shareholders
 
 
Additional
paid-in

capital
 
 
Statutory
reserve
 
  
Accumulated
other
comprehensive
income
 
  
Retained
earnings/
(accumulated
(deficit)
 
 
Total
 
 
  
 
 
  
(in thousands, except share and per share data)
 
Balance as of January 1,2021
   100,000,000    1   (1)   50,518   —     —     (16,325)   34,193 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Issuance of ordinary shares
   17,647,000    — *   —    100,000   —     —     —    100,000 
Net income and total comprehensive income for the year
   —     —    —    —    —     —     450,144   450,144 
Appropriations to statutory reserve
   —     —    —    —    43,674    —     (43,674)   —  
Capital injection
   —     —    —    4,000   —     —     —    4,000 
Contribution from the then shareholder for the reorganization
   —     —    —    602   —     —     —    602 
Distribution from the then shareholders for the reorganization
   —     —    —    (10,543)   —     —     —    (10,543) 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Balance as of December 31, 2021
   117,647,000    1   (1)   144,577   43,674    —     390,145   578,396 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Balance as of January 1,2022
   117,647,000    1   (1)   144,577   43,674    —     390,145   578,396 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Net income and total comprehensive income for the year
   —     —    —    —    —     —     355,201   355,201 
Appropriations to statutory reserve
   —     —    —    —    3,804    —     (3,804)   —  
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Balance as of December 31, 2022
   117,647,000    1   (1)   144,577   47,478    —     741,542   933,597 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Balance as of January 1,2023
   117,647,000    1   (1)   144,577   47,478    —     741,542   933,597 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Issuance of ordinary shares
   2,229,032    — *   —    38,211   —     —     —    38,211 
Share-based compensation expense
   —     —    —    3,474   —     —     —    3,474 
Net (loss) for the year
   —     —    —    —    —     —     (26,795)  (26,795)
Foreign currency translation
   —     —    —    —    —     1,838    —    1,838 
Appropriations to statutory reserve
   —     —    —    —    787    —     (787)   —  
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Balance as of December 31, 2023
   119,876,032    1   (1)   186,262   48,265    1,838    713,960   950,325 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Note:
 
(1)
Retroactively restated for the stock subdivision as described in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
 
*
Represents amount less than RMB 1,000.
 
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INTCHAINS GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31, 2021, 2022 and 2023
 
    
For the year ended December 31,
  
    
2021
    
2022
    
2023
  
    
RMB
    
RMB
    
RMB
    
US$
  
                      
(Note 2(f))
  
    
(in thousands)
  
Cash flows from operating activities
  
 
 
 
Net income/(loss)
  
 
450,144
 
 
 
355,201
 
 
 
(26,795
)
 
 
(3,776
)
Adjustments to reconcile net income to net cash provided by operating activities:
  
 
 
 
Share-based compensation expense
  
 
—
 
 
 
 
—
 
 
 
 
3,474
 
 
 
489
 
Depreciation and amortization of property, equipment and software
  
 
553
 
 
 
1,807
 
 
 
3,830
 
 
 
539
 
Inventory provision
  
 
—
 
 
 
 
1,378
 
 
 
24,574
 
 
 
3,462
 
Write-down of prepayments
  
 
—
 
 
 
 
—
 
 
 
 
141
 
 
 
20
 
Deferred income tax expense/(benefit)
  
 
—
 
 
 
 
42
 
 
 
(12,941
)
 
 
(1,823
)
Investment income
  
 
—
 
 
 
 
—
 
 
 
 
(7
) 
 
 
(1
) 
Changes in fair value of short-term investments
  
 
—
 
 
 
 
—
 
 
 
 
(174
) 
 
 
(25
) 
Impairment loss of cryptocurrency
  
 
—
 
 
 
 
—
 
 
 
 
34
 
 
 
5
 
Loss on disposal of property, equipment and software
  
 
—
 
 
 
 
—
 
 
 
 
4
 
 
 
1
 
Interest expense and guarantee fee
  
 
113
 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Foreign exchange gain
  
 
—
 
 
 
 
—
 
 
 
 
843
 
 
 
119
 
Changes in assets and liabilities:
  
 
 
 
Decrease in accounts receivable
  
 
6,530
 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Decrease /(Increase) in inventories
  
 
(57,337
) 
 
 
(12,342
) 
 
 
11,441
 
 
 
1,611
 
(Increase) in prepayments and other current assets
  
 
(30,508
) 
 
 
(3,844
) 
 
 
(23,546
) 
 
 
(3,316
) 
(Increase) Other non-current assets
  
 
—
 
 
 
 
—
 
 
 
 
(421
) 
 
 
(59
) 
Increase /(Decrease) in accounts payable
  
 
5,962
 
 
 
(3,680
) 
 
 
(2,708
) 
 
 
(381
) 
Increase /(Decrease) in contract liabilities
  
 
3,002
 
 
 
(2,996
) 
 
 
9,822
 
 
 
1,383
 
Change in right-of-use assets and lease liabilities
(1)
  
 
(74
)
 
 
11
 
 
 
192
 
 
 
27
 
Increase /(Decrease) in income tax payable
  
 
—
 
 
 
 
2,239
 
 
 
(605
) 
 
 
(85
) 
(Decrease) in provision for warranty
  
 
—
 
 
 
 
(240
) 
 
 
(183
) 
 
 
(26
) 
Increase /(Decrease) in accrued liabilities and other liabilities
  
 
17,035
 
 
 
(10,891
) 
 
 
8,317
 
 
 
1,171
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash provided by/(used in) operating activities
  
 
395,420
 
 
 
326,685
 
 
 
(4,708
) 
 
 
(665
)
    
 
 
    
 
 
    
 
 
    
 
 
  
Cash flows from investing activities
:
  
 
 
 
Payment for short-term investments
  
 
—
 
 
 
 
—
 
 
 
 
(14,054
) 
 
 
(1,979
) 
Proceeds from disposal of short-term investments
  
 
—
 
 
 
 
—
 
 
 
 
639
 
 
 
90
 
Purchase of cryptocurrency
  
 
—
 
 
 
 
—
 
 
 
 
(679
) 
 
 
(96
) 
Purchase of property, equipment and software
  
 
(1,770
) 
 
 
(4,018
) 
 
 
(46,898
) 
 
 
(6,605
) 
Purchase of intangible assets
  
 
—
 
 
 
 
— 
 
 
 
(3,425
) 
 
 
(482
) 
Prepayments on long-term assets
  
 
—
 
 
 
 
(112,856
) 
 
 
(569
) 
 
 
(80
) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash used in investing activities
  
 
(1,770
) 
 
 
(116,874
) 
 
 
(64,986
) 
 
 
(9,152
) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Cash flows from financing activities:
  
 
 
 
Proceeds from issuance of ordinary shares
  
 
100,000
 
 
 
—
 
 
 
 
61,306
 
 
 
8,636
 
Payment for cost of issuance
  
 
—
 
 
 
 
—
 
 
 
 
(10,088
)
 
 
(1,421
)
Proceeds from capital contribution in a subsidiary from a shareholder
  
 
4,000
 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Proceeds from short-term debts
  
 
5,000
 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Repayment of short-term debts
  
 
(5,000
) 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Interest expense and guarantee fee
  
 
(113
) 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Contribution from the then shareholder for the reorganization
  
 
602
 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Distribution to the then shareholders for the reorganization
  
 
(10,543
) 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Amounts from to a related party
  
 
(4,803
) 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash provided by financing activities
  
 
89,143
 
 
 
—
 
 
 
 
51,218
 
 
 
7,215
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net increase/(decrease) in cash and cash equivalents
  
 
482,793
 
 
 
209,811
 
 
 
(18,476
) 
 
 
(2,602
) 
Effect of exchange rate changes on cash and cash equivalent
  
 
—
 
 
 
 
—
 
 
 
 
995
 
 
 
140
 
Cash and cash equivalents, at the beginning of year
  
 
19,627
 
 
 
502,420
 
 
 
712,231
 
 
 
100,316
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Cash and cash equivalents at the end of year
  
 
502,420
 
 
 
712,231
 
 
 
694,750
 
 
 
97,854
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Supplemental disclosure of cash flow information:
  
 
 
 
Cash paid for interest
  
 
92
 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Cash paid for guarantee fee
  
 
21
 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
Cash paid for income taxes
  
 
—
 
 
 
 
9,575
 
 
 
4,790
 
 
 
675
 
Supplemental disclosure of
non-cash
investing activities:
  
 
 
 
Purchases of property, equipment, and software included in accrued liabilities and other liabilities
  
 
—
 
 
 
 
3,131
 
 
 
1,224
 
 
 
172
 
Note:
 
(1)
The reclassification of amortization of right-of-use assets and (decrease) in lease liabilities to changes in right-of-use assets and lease liabilities can be referenced in Note 2(ad).
The accompanying notes are an integral part of these consolidated financial statements.
 
F-6
Table of Contents
INTCHAINS GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
1.
Organization and principal activities
 
 
(a)
Principal activities
Intchains Group Limited (the “Company” or “Parent Company”), an exempted company with limited liability incorporated in the Cayman Islands and its subsidiaries are collectively referred to as the “Group”. The Group are principally engaged in integrated circuit (the “IC”) design and sale of application-specific IC (the “ASIC”) chips and the solution based on these chips in the People’s Republic of China (the “PRC”).
Intchains DQ Asset Holding Limited and Intchains SCH Holding Limited, limited liability companies incorporated in the British Virgin Islands (the “BVI”), are the ultimate holding companies of the Company and are owned by Mr. Qiang Ding (“Mr. Ding”) and Mr. Chaohua Sheng (“Mr. Sheng”). Mr. Ding and Mr. Sheng are the ultimate controlling shareholders (collectively, the “Controlling Shareholders” or the
“Co-Founders”)
of the Company.
As at the date of this report, the Company had direct and indirect interests in its subsidiaries, all of which are private limited liability companies, the particulars of which are set out below:
 
   
Date of
incorporation
   
Place of
incorporation
   
Equity
interest
held
  
Principal activities
Name of subsidiaries
       
Intchains Global Limited
   October 29, 2021    The BVI    100%  Investment Holding
Intchains Pte. Ltd.
   November 17, 2021    Singapore    100%  Research and development of ICs
Intchains Investment (BVI) Limited
   July 1, 2021    The BVI    100%  Investment Holding
Intchains Technology (Hongkong) Limited
   July 16, 2021    Hong Kong    100%  Investment Holding and Trading business
Jerryken Intelligent Technology (Shanghai) Co., Ltd.
   September 28, 2021    Shanghai, China    100%  Research and development of ICs
Shanghai Intchains Technology Co., Ltd.
   December 13, 2017    Shanghai, China    100%  Research and development of ICs
Shanghai Lianfa Information Technology Co., Ltd.
   September 9, 2021    Shanghai, China    100%  Research and development of ICs
Shanghai Xinbaiwei Smart Technology Co., Ltd.
   October 22, 2021    Shanghai, China    100%  Research and development of ICs
Yancheng Intchains Technology Co., Ltd.*
   July 19, 2019    Yancheng, China    100%  Research and development of ICs
Shanghai Intchains Technology (Hong Kong) Company Limited.*
   August 2, 2018    Hong Kong    100%  Trading business
Intchains Capital Limited
   May 17, 2023    Cayman Islands    100%  Investment Holding
 
*
Yancheng Intchains Technology Co., Ltd. was
de-registered
on September 17, 2021. Shanghai Intchains Technology (Hong Kong) Company Limited was transferred to an independent third party with consideration of RMB10,000 on August 19, 2021, the disposal loss was immaterial.
 
F-7
Table of Contents
 
(b)
Reorganization and stock subdivision
Prior to the incorporation of the Company, the Group’s business was carried out by Shanghai Intchains Technology Co., Ltd. (“Shanghai Intchains”) and its subsidiaries. Shanghai Intchains was established by the
Co-Founders
and other minor shareholders. Yancheng Intchains Technology Co., Ltd. and Shanghai Intchains Technology (Hong Kong) Company Limited were then subsidiaries of Shanghai Intchains. To facilitate offshore financing, an offshore corporate structure was formed in December 2021 (the “Reorganization”), which was carried out as follows:
1) On June 28, 2021, the Company was incorporated in the Cayman Islands by the Controlling Shareholders and other minor shareholders of Shanghai Intchains*.
2) On July 1, 2021, Intchains Investment (BVI) Limited was incorporated in the BVI.
3) On July 16, 2021. Intchains Technology (Hongkong) Limited was incorporated in Hong Kong.
4) On September 9, 2021, Shanghai Lianfa Information Technology Co., Ltd. was incorporated in Shanghai, the PRC.
5) On September 28, 2021, Jerryken Intelligent Technology (Shanghai) Co., Ltd. (“Jerryken Shanghai”) was incorporated in Shanghai, the PRC.
6) On October 9, 2021, Golden Stone Hong Kong Holding Limited (“Golden Stone HK”), a Hong Kong company wholly-owned by an independent third party, acquired a 1% equity interest in Shanghai Intchains at a consideration of US$94,192.
7) On October 22, 2021, Shanghai Xinbaiwei Smart Technology Co., Ltd. was incorporated in Shanghai, the PRC.
8) On October 29, 2021, Intchains Global Limited was incorporated in the BVI.
9) On November 2, 2021, Jerryken Shanghai acquired approximately 82.49% equity interest in Shanghai Intchains at a consideration of RMB 49.4949 million.
10) On December 6, 2021, Jerryken Shanghai acquired the 0.18% equity interest in Shanghai Intchains from Golden Stone HK at a cash consideration of RMB 0.1055 million and the remaining 17.33% equity interest in Shanghai Intchains from its other shareholders at an aggregate cash consideration of RMB 10.4375 million, which was recorded as deemed distribution to these shareholders. Shanghai Intchains then became a wholly-owned subsidiary of Jerryken Shanghai.
11) On July 8, 2022, the Company effected
100
for
1
stock subdivision.
 
*
As the shareholdings in the Company and Shanghai Intchains were with a high degree of common ownership immediately before and after the Reorganization, even though no single investor controlled the Group, the transaction of the Reorganization was determined as recapitalization with lack of economic substance, and was accounted for in a manner similar to a common control transaction. Consequently, the financial information of the Group is presented on a carryover basis for all periods presented. The accompanying consolidated financial statements have been prepared as if the current corporate structure has been in existence throughout the periods presented. The consolidation of the Company has been accounted for at historical cost at the beginning of the first period presented in the accompanying consolidated financial statements. The number of outstanding shares in the consolidated balance sheets, the consolidated statements of changes in shareholders’ equity, and per share information including the net (losses)/earnings per share have been presented retrospectively as of the beginning off the earliest period presented on the consolidated financial statements to reflect the final shares immediately after the stock subdivision on July 8, 2022.
 
F-8
Table of Contents
2.
Principal Accounting Policies
 
 
(a)
Basis of presentation
Pursuant to the reorganization as disclosed in Note 1(b), the Company was incorporated on June 28, 2021 and became the holding company of the companies now comprising the Group on December 6, 2021. As the Reorganization only involved inserting new holding entities at the top of an existing company and has not resulted in any change of respective interests of the shareholders, the Consolidated Financial Statement for the reporting periods has been presented as a continuation of the existing company by applying the principles of merger accounting as if the Reorganization had been completed at the beginning of the reporting periods.
The consolidated statements of operations and comprehensive income/(loss), consolidated statements of changes in equity and consolidated statements of cash flows of the Group for the years ended December 31, 2021, 2022 and 2023 include the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the Controlling Shareholders, where this is a shorter period. The consolidated statements of financial position of the Group as at December 31, 2022 and 2023 have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from the Controlling Shareholders’ perspective. No adjustments are made to reflect fair values, or recognize any new assets or liabilities as a result of the Reorganization.
All intra-group transactions and balances have been eliminated on consolidation.
 
 
(b)
Basis of preparation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.
 
 
(c)
Use of estimates
The preparation of the Group’s consolidated financial statements in conformity with US 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 revenue and expenses during the reporting period. Actual results could differ materially from such estimates.
The Group believes that accounting estimation of recoverability of prepayments to vendors, recoverability of prepayments on long-term assets, impairment on other long-lived assets, valuation of deferred tax assets, write-down for inventories and prepayments, valuation and recognition of share-based compensation and provision for product warranty reflect significant judgments and estimates used in the preparation of its consolidated financial statements.
Management bases the estimates on historical experience and on various other assumptions as discussed elsewhere to the consolidated financial statements that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could materially differ from these estimates.
 
 
(d)
Consolidation
The Group’s consolidated financial statements include the financial statements of the Company and its subsidiaries, for which the Company or its subsidiary is the primary beneficiary. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting powers; or has the power to appoint or remove the majority of the members of the board of directors; or to cast a majority of votes at the meeting of directors; or has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
 
F-
9
Table of Contents
 
(e)
Functional currency and foreign currency translation
The Group uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company and its subsidiaries incorporated outside of PRC is the United States dollar (“US$”), while the functional currency of the PRC entities in the Group is RMB as determined based on the criteria of ASC 830,
Foreign Currency Matters
.
Transactions denominated in other than the functional currencies are
re-measured
into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Financial assets and liabilities denominated in other than the functional currency are
re-measured
at the balance sheet date exchange rate. The resulting exchange differences are included in the consolidated statements of operations and comprehensive income as foreign exchange related gains or loss.
The financial statements of the Group are translated from the functional currency to the reporting currency, RMB. Assets and liabilities of the Company and its subsidiaries incorporated outside of PRC are translated into RMB at fiscal
year-end
exchange rates, income and expense items are translated at average exchange rates prevailing during the fiscal year, representing the index rates stipulated by the People’s Bank of China. Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a separate component of shareholders’ equity on the consolidated financial statement. The exchange rates used for translation on December 31, 2022 and 2023 were US$1.00=RMB 6.9646 and 7.0827, respectively, representing the index rates stipulated by the People’s Bank of China.
 
 
(f)
Convenience translation
The unaudited United States dollar (“US$”) amounts disclosed in the accompanying financial statements are presented solely for the convenience of the readers. Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the noon buying rate of US$1.00=RMB7.0999 on the last trading day of 2023 (December 29, 2023) as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.
 
 
(g)
Fair value of financial instruments
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The three levels of inputs that may be used to measure fair value include:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Observable, market-based inputs, other than quoted prices, for the assets or liabilities either directly or indirectly.
Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
The Group does not have any
non-financial
assets or liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.
 
F-10
The Group’s financial instruments consist principally of cash and cash equivalents, short-term investments, interest receivables, other receivables, accounts payable and other liabilities.
As of December 31, 2022 and 2023, the carrying values of cash and cash equivalents, interest receivables, other receivables, accounts payable and other liabilities approximated to their fair values reported in the consolidated balance sheets due to the short term nature of these instruments.
On a recurring basis, the Group measures its short-term investments at fair value.
The following table sets forth the Group’s assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
 
   
Level 1
   
Level 2
   
Level 3
 
   
(in thousands)
 
As of December 31, 2023
      
Short-term investments:
      
U.S. Treasury securities
   —    13,596    —  
As of December 31, 2022, there was no financial asset that was measured at fair value on a recurring basis.
The Group values its debt securities using observable, market-based input, and accordingly, the Group classifies the debt securities within Level 2.
 
 
(h)
Cash and cash equivalents
Cash and cash equivalents include cash and demand deposits placed with banks or other financial institutions with no restrictions.
 
 
(i)
Short-term investments
All highly liquid investments with original maturities less than twelve months are classified as short-term investments. Investments that are expected to be realized in cash during the next twelve months are also included in short-term investments.
The Group accounts for short-term debt investments in accordance with ASC Topic 320, Investments – Debt Securities (“ASC 320”). The Group classifies the short-term investments in debt securities as held-to-maturity, trading or available-for-sale, whose classification determines the respective accounting methods stipulated by ASC 320. Dividend and interest income, including amortization of the premium and discount arising at acquisition, for all categories of investments in securities are included in earnings. Any realized gains or losses on the sale of the short-term investments are determined on a specific identification method, and such gains and losses are reflected in earnings during the period in which gains or losses are realized. Securities that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost less allowance for credit losses. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities, in accordance with ASC 320. Unrealized holding gains and losses for trading securities are included in earnings. Debt investments not classified as trading or as held-to-maturity are classified as available-for-sale debt securities, which are reported at fair value, with unrealized gains and losses recorded in “accumulated other comprehensive income/(loss)” on the consolidated balance sheets.
 
 
(j)
Inventories
The Group’s inventories consist of finished goods, work in process and raw materials, which are purchased from contract manufacturers and component suppliers. Inventories are stated at the lower of cost or net realizable value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving and obsolete inventory, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. The Group takes ownership, risks and rewards of the products purchased.
In accordance with ASC
855-10-55-1(b),
the Group considers all data available, including future demand and subsequent changes in product prices that may provide additional information about the valuation of inventories at the balance sheet date.
 
F-11
 
(k)
Property, equipment and software, net
Property, equipment and software are stated at historical cost less accumulated depreciation, amortization and impairment loss, if any. Depreciation and amortization are calculated using the straight-line method over the shorter of their estimated useful lives of these assets or the term of the related leases. The estimated useful lives are as follows:
 
Leasehold improvements  the shorter of their useful lives or the lease terms
Computers and electronic equipment  3 years
Furniture  3-5 years
Software  3 years
Building  48 years
Building improvement  10 years
Motor vehicles  4 years
Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property, equipment and software is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of operations and comprehensive income.
 
 
(l)
Intangible assets, net
Intangible assets with an indefinite life are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired. Intangible assets with finite lives are initially recorded at cost and amortized on a straight-line basis over the estimated economic useful lives of the respective assets. Acquired intangible assets from business combination are recognized and measured at fair value at the time of acquisition. Those assets represent assets with finite lives and are further amortized on a straight-line basis over the estimated economic useful lives of the respective assets. The estimated useful lives of major intangible assets are as follows:
 
Trademarks
  
7
-10
years
 
 
(m)
Impairment of long-lived assets
For other long-lived assets including cryptocurrency, property, equipment and software, intangible assets, right-of-use assets, prepayments on long-term assets, and other non-current assets, the Group evaluates for impairment whenever events or changes (triggering events) indicate that the carrying amount of an asset may no longer be recoverable. The Group assesses the recoverability of the long-lived assets by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to receive from use of the assets and their eventual disposition. Such assets are considered to be impaired if the sum of the expected undiscounted cash flows is less than the carrying amount of the assets. The impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
 
 
(n)
Contract liabilities
Cash proceeds received from customers before product delivery is recognized as contract liabilities and is recognized as revenue when revenue recognition criteria are met.
The prepayments received from customers as of December 31, 2022 and 2023 were RMB6,000 and RMB9,828,000, respectively. The revenue recognized during
years
ended December 31, 2021, 2022 and 2023 for such contract liability was nil, RMB3,002,000 and RMB 6,000, respectively.
 
F-12
Table of Contents
 
(o)
Revenue from contracts with customers (ASC 606)
The Group recognizes revenue to match the transfer of promised goods to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.
Products revenue
The Group generates revenue primarily from the sales of ASIC chips, computing equipment that incorporated the ASIC chips, ancillary software and hardware and other products.
The Group’s sales arrangements usually require full prepayment before the delivery of products after April 2021. Before that date, the Group offered credit sales to certain significant, long-standing customers in China. The payment term was up to 6 months.

Generally, the sales of ASIC chips, computing equipment that incorporated the ASIC chips, ancillary software and hardware and other products forms an integral part of the performance obligations. ASIC chips are the most crucial hardware component embedded into the Group’s products that provide computing power and are also the key factor determining efficiency of the applications of the Group’s products. Other key hardware includes the computing board, control board, and other accessories such as power supply and structural parts. Software is embedded in hardware to provide basic configuration of relevant hardware that enables
end-users
to monitor the working conditions of the chips in real time, including real-time hash rate, temperature, and network connection. Computing equipment represents the comprehensive integration of software and hardware, incorporated the Group’s ASIC chips. All of these components are part of the Group’s products with regard to the Group in completing its performance obligations. Therefore, the Group recognizes product revenue at a point in time based on management’s evaluation of when the control of the products has been passed to customers. The transfer of control is considered complete when products have been picked up by or deliver to shipper of the Group’s customers.

The Group offers a standard product warranty of not longer than six months that the product will operate under normal use. Except for the product warranty, the Group is not obligated to provide significant after- sales service such as hardware/software upgrades or updates. At the time revenue is recognized, an estimate of future warranty costs, is recorded as sales and marketing expenses. The reserves established are regularly monitored based upon historical experience and any actual claims charged against the reserve. The amount of total warranty costs incurred was immaterial for the years ended December 31, 2021, 2022 and 2023, respectively. 
 
 
(p)
Value-added-tax
(“VAT”) recoverable and surcharges
Value added tax recoverable represent amounts paid by the Group for purchases. The surcharges (i.e., Urban construction and maintenance tax, educational surtax, local educational surtax) were
5%-6%
of the value-
added-tax
depending on the tax payer’s location.
 
 
(q)
Cost of revenue
Amounts recorded as cost of revenue relate to direct expenses incurred in order to generate revenue. Cost of revenue consists of product costs, including cost of raw materials, contract manufacturers for production, shipping and handling costs
,
inventories write-downs and prepayments write-downs.
 
 
(r)
Research and development expenses
Research and development expenses consist primarily of salary and welfare for research and development personnel,
tape-out
expenses, consulting and contractor expenses, testing and tooling materials and manufacturing for trial and other expenses in associated with research and development personnel. The Group recognizes research and development expenses as expenses when incurred.
 
 
(s)
Sales and marketing expenses
Sales and marketing expenses consist primarily of salary and welfare for sales and marketing personnel, traveling expenses and other expenses in associated with sales and marketing personnel.
 
F-1
3
Table of Contents
 
(t)
General and administrative expenses
General and administrative expenses consist primarily of salary and welfare for general and administrative personnel, rental expenses and professional service fees.
 
 
(u)
Government grants
Government grants represent cash subsidies received from the PRC government. Cash subsidies which have no defined rules and regulations to govern the criteria necessary for companies to enjoy the benefits are recognized as “other income, net” when received. Total government grants recognized in “other income, net” were RMB 661,000, RMB 29,799,000 and RMB 13,201,000 for the
years
ended December 31, 2021, 2022 and 2023, respectively, and recognized in “other current liabilities” were RMB 2,520,000, nil and nil as of December 31, 2021, 2022 and 2023, respectively. The amounts recognized under “other current liabilities” represent conditions for obtaining grants are not met but cash subsidies received as of December 31, 2021, 2022 and 2023.
 
 
(v)
Lease arrangement as lessee
The Group determines if an arrangement is a lease at inception. Operating leases are included in operating lease
right-of-use
(“ROU”) asset, lease liability, and lease
liability-non-current
in the Group’s consolidated balance sheets. ROU assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. When determining the lease term, the Group includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Group’s leases do not provide an implicit rate, the Group uses its incremental borrowing rate, which it calculates based on the credit quality of the Group and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease.
 
 
(w)
Employee social security and welfare benefits
Employees of the Group in the PRC are entitled to staff welfare benefits including pension, work-related injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund plans through a PRC government-mandated multi-employer defined contribution plan. The Group is required to contribute to the plan based on certain percentages of the employees’ salaries, up to a maximum amount specified by the local government.
The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Group’s obligations are limited to the amounts contributed and no legal obligation beyond the contributions made. Employee social security and welfare benefits included as expenses in the consolidated statements of operations and comprehensive income amounted to RMB2,748,000, RMB 5,755,000
and RMB 8,291,000 for the years ended December 31, 2021, 2022 and 2023, respectively.
 
 
(x)
Income taxes
The Group accounts for income taxes under the liability method. Under the liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and income tax bases of assets and liabilities and are measured using the tax income rates that will be in effect when the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that some portion or all of a deferred income tax assets will not be realized in the foreseeable future.
The Group evaluates its uncertain tax positions using the provisions of ASC
740-10,
Income Taxes
, which prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Group recognizes in the financial statements the benefit of a tax position which is “more likely than not” to be sustained under examination based solely on the technical merits of the position assuming a review by tax authorities having all relevant information. Tax positions that meet the recognition threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Group reports tax-related interest expense and penalty in “other income, net” in the consolidated statements of operations and comprehensive income, if there is any.
 
F-14
 
(y)
Share-based compensation
The Group applies ASC 718 (“ASC 718”), Compensation—Stock Compensation, to account for its employee share-based payments. In accordance with ASC 718, the Group determines whether an award should be classified and accounted for as a liability award or an equity award. All of the Group’s share-based awards to employees were classified as equity awards. The Group measures the employee share-based compensation based on the fair value of the award at the grant date. Expense is recognized using accelerated method over the requisite service period.
Share-based compensation in relation to the restricted share units (“RSUs”) is measured based on the fair market value of the Company’s ordinary shares at the grant date of the award. Share-based compensation in relation to the share options is estimated using the Binomial Model. The determination of the fair value of share options is affected by the share price of the Company’s ordinary shares as well as the assumptions regarding a number of complex and subjective variables, including the expected share price volatility, risk-free interest rate, exercise multiple and expected dividend yield. The fair value of these share options was determined by management with the assistance from an independent valuation firm. Share-based compensation expense of awards is recorded net of estimated forfeitures in our consolidated income statements and accordingly is recorded only for those share-based awards that are expected to vest. The Group estimate the forfeiture rate based on historical forfeitures of share-based awards and adjust the rate to reflect changes when necessary. The Group review and revise our estimated forfeiture rate if actual forfeitures significantly differ from the initial estimates.
 
 
(z)
Statutory reserves
The Group’s subsidiaries incorporated in the PRC are required on an annual basis to make appropriations of retained earnings set at certain percentage of
after-tax
profit determined in accordance with PRC accounting standards and regulations (“PRC GAAP”).
Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the legal requirements in the PRC until the reserve is equal to 50% of the entities’ registered capital. The Group is not required to make appropriation to other reserve funds and the Group does not have any intentions to make appropriations to any other reserve funds.
The general reserve fund can only be used for specific purposes, such as offsetting the accumulated losses, enterprise expansion or increasing the registered capital. Appropriations to the general reserve funds are classified in the consolidated balance sheets as statutory reserves.
There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Group has not done so.
Relevant laws and regulations permit payments of dividends by the PRC subsidiaries and affiliated companies only out of their retained earnings, if any, as determined in accordance with respective accounting standards and regulations. Accordingly, the above balances are not allowed to be transferred to the Company in terms of cash dividends, loans or advances.
The Group has made RMB43,674,000, RMB3,804,000 and RMB787,000 appropriations to statutory reserve for the
years
ended December 31, 2021, 2022 and 2023, respectively.
 
 
(aa)
(Loss)/Earnings per share
Basic (loss)/earnings per share is computed by dividing net (loss)/income attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period.
Diluted (loss)/earnings per share is calculated by dividing net (loss)/income attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalents shares outstanding during the period. Dilutive equivalent shares are excluded from the computation of diluted (loss)/earnings per share if their effects would be anti-dilutive. Ordinary share equivalents consist of the ordinary shares issuable in connection with the Group’s ordinary shares issuable upon the exercise of outstanding share options, restricted shares units and warrants, using the treasury stock method. The computation of diluted net loss per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net loss per share. For the years ended December 31, 2021, 2022 and 2023, the number of dilutive shares was all
 nil.
 
F-15
 
(ab)
Comprehensive income (loss)
Comprehensive income/(loss) is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the Group’s comprehensive income/(loss) includes net income/(loss) and foreign currency translation difference and is presented in the consolidated statements of comprehensive income/(loss). Accumulated other comprehensive income of the Group include the foreign currency translation adjustments.
 
 
(ac)
Segment reporting
Operating segments are defined as components of an enterprise engaging in businesses activities for which separate financial information is available that is regularly evaluated by the Group’s Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and assess performance. The CODM has been identified as the Chief Executive Officer. The CODM reviews consolidated results including revenue, gross profit and operating profit at a consolidated level only for purposes of making operating decisions, allocating resources, and evaluating financial performance. Hence, the Group has only one operating segment and one reportable segment.
All revenue from external customers is derived from Mainland China.
In addition, the Group’s long-lived assets are substantially located in the PRC. Accordingly, no segment analysis is provided.
 
(ad)
Reclassification of Presentation in the Group’s Consolidated Statements of Operations and Comprehensive Income/(Loss) and Consolidated Statements of Cash Flows
To optimize the financial reporting process, other income and interest expense and guarantee fee of comparative prior period in the Group’s Consolidated Statements of Operations and Comprehensive Income/(Loss) were reclassified to conform with its current presentation of other income, net in the Group’s Consolidated Statements of Operations and Comprehensive Income/(Loss). In the Group’s Consolidated Statements of Operations and Comprehensive Income/(Loss) for the years ended December 31, 2021 and 2022, we have
reclassified (1)
RMB197,000 and RMB73,000
respectively of interest expense and guarantee fee to other income, net; and (2)
 
RMB740,000 and RMB29,799,000
respectively of
other income to other income, net. The net income/(loss) and total comprehensive income/(loss) for the year ended December 31, 2021 and 2022 were not changed as a result of these reclassifications. Refer to Note 16 for further information on other income, net.
Amortization of right-of-use assets and (decrease) in lease liabilities of comparative prior period in the Group’s Consolidated Statements of Cash Flows were reclassified to conform with its current presentation of change in right-of-use assets and lease liabilities in the Group’s Consolidated Statements of Cash Flows. In the Group’s Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2022, we have reclassified
(1) RMB
801,000
and RMB
946,000
respectively of amortization of right-of-use assets to change in right-of-use assets and lease liabilities; and (2)
RMB
875,000
and RMB
935,000
respectively of (decrease) in lease liabilities to change in right of-use assets and lease liabilities. The net cash provided by/(used in) operating activities for the years ended December 31, 2021 and 2022 were not changed as a result of these reclassifications.
 
 
(ae)
Recently issued accounting pronouncements
 
i.
New and amended standards adopted by the Group:
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability. In November 2018, the FASB issued No. ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-19”), which clarifies certain topics included within ASU 2016-13. In November 2019, the FASB issued No. ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”), which extends the adoption date for certain registrants. The amendments in ASU 2016-13 and ASU 2018-19 are effective for the Group for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Group adopted this new guidance on January 1, 2023 and it did not have material effect on its consolidated financial statements and related disclosures.
 
ii.
New and amended standards not yet adopted by the Group:
On December 14, 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires that entities disclose specific categories in their rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The new standard is effective for the Group beginning December 15, 2024, with early adoption permitted. The amendments should be applied on a prospective basis and retrospective application is also permitted. The Group does not expect that the adoption of ASU 2023-09 would have a material effect on its consolidated financial statements and related disclosures.
 
F-
16
On December 13, 2023, the FASB issued ASU No. 2023-08, Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), which requires entities that hold crypto assets to subsequently measure such assets at fair value with changes recognized in net income each reporting period. The guidance also requires crypto assets measured at fair value to be presented separately from other intangible assets on the balance sheet and changes in the fair value measurement of crypto assets to be presented separately on the income statement from changes in the carrying amounts of other intangible assets. The new standard is effective for fiscal years beginning December 15, 2024, with early adoption permitted. The Group is currently evaluating the impact of adopting the standard.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires the disclosure of significant segment expenses that are part of an entity’s segment measure of profit or loss and regularly provided to the chief operating decision maker. In addition, it adds or makes clarifications to other segment-related disclosures, such as clarifying that the disclosure requirements in ASC No. 280 are required for entities with a single reportable segment and that an entity may disclose multiple measures of segment profit and loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be adopted retrospectively. The Group does not expect that the adoption of ASU 2023-07 would have a material effect on its consolidated financial statements and related disclosures.
 
3.
Risks and concentration
 
 
(a)
Concentration of credit risk
Financial instruments that may potentially subject the Group to significant concentration of credit risk consist primarily of cash and cash equivalents, short-term investments, interest receivables. As of December 31, 2022 and 2023, a majority of the Group’s cash and cash equivalents, short-term investments, interest receivables were held at reputable financial institutions with high-credit ratings. In the event of bankruptcy of one of these financial institutions, the Group may not be able to claim its cash and demand deposits back in full. The Group continues to monitor the financial strength of the financial institutions. There has been no recent history of default in relation to these financial institutions.
The Group’s sales arrangements usually require full prepayment before the delivery of products after April 2021. For credit sales, the Group conducts credit evaluations of customers, and generally does not require collateral or other security from its customers. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.
Customers which contributed more than 10% of total revenue are as below:
 
    
For the year ended
December 31,
  
    
2021
    
2022
    
2023
  
Customer A
      25 %      47 %      42 % 
Customer B
      23 %      33 %      1 % 
Customer C
      18 %      1 %      0 % 
Customer D
      —        17 %      1 % 
Customer E
      —        1 %      56 % 
 
 
(b)
Supplier concentration
The Group currently purchased all of its integrated circuits, an important component of its IC products, from a third-party foundry partner for the years ended December 31, 2021, 2022 and 2023. Although only a limited number of manufacturers for such integrated circuits are available, management believes that other suppliers could provide similar integrated circuits on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely.
 
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4.
Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits placed with large reputable banks, and highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase with terms of less than three months. The following table sets forth a breakdown of cash and cash equivalents by currency denomination and jurisdiction as of December 31, 2022 and 2023:
 
   
RMB
   
RMB equivalent
USD
   
RMB equivalent
SGD
   
Total in
RMB
 
   
China
   
Overseas
   
China
   
Overseas
   
Overseas
     
   
(in thousands)
 
December 31, 2022
   611,266    95,051    656    79    5,179    712,231 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2023
   576,923    —     115,753    460    1,614    694,750 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
5.
Inventories, net
Inventories consist of the following:
 
   
As of December 31,
 
   
2022
   
2023
 
   
(in thousands)
 
Finished goods
   34,577    36,224 
Work in process
   10,399    9,756 
Raw materials
   34,184    20,686 
  
 
 
   
 
 
 
Inventories
   79,160    66,666 
Less: inventory provision
   (1,378)    (24,899) 
  
 
 
   
 
 
 
Total
   77,782    41,767 
  
 
 
   
 
 
 
During the
years
ended December 31, 2021, 2022 and 2023, the
G
r
o
u
p
 recognized inventories write-down of nil, RMB1,378,000 and RMB24,574,000 in cost of revenues, respectively.
 
Furthermore, an inventory provision of RMB1,053,000 related to obsolete items, which were determined to be non-replaceable and subsequently scrapped, was reversed.
 
6.
Prepayments and other current assets, net
The current portion of prepayments and other current assets, net consist of the following:
 
   
As of December 31,
 
   
2022
   
2023
 
   
(in thousands)
 
Prepayments and other current assets, net:
    
VAT deductible
   2,262    3,989 
Prepayments to vendors (Note a)
   20,220    33,254 
Prepayments of listing expenses (Note b)
   17,970    —  
Interest receivables
   1,200    9,844 
Rental and other deposits
   72    102 
Others
   244    214 
  
 
 
   
 
 
 
Total
   41,968    47,403 
  
 
 
   
 
 
 
Note a: Prepayments to vendors mainly represent prepayments made to a third-party supplier for foundry service. The Group also records a write-down for the prepayment to third-party suppliers when the Group believes that the net realizable value (being the estimated selling price of final products, less the costs of completion and selling expenses) is less than carrying amount. For the years ended December 31, 2021,2022 and 2023, the Group recorded write-downs
of nil, nil and RMB141,000 for the prepayment to third-party suppliers in cost of revenues.
Note b: The amount represents incremental costs directly attributable to the Company’s initial public offering.
 
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7.
Short-term investments
Short-term investments consist of the following:
 
 
  
As of December 31,
 
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Debt securities:
 
 
 
 
 
 
 
 
U.S. Treasury securities
   —     13,596 
  
 
 
   
 
 
 
As of December 31, 2022 and 2023, the Group’s short-term investments comprised of only debt securities. Short-term trading debt securities were U.S. Treasury securities with maturities less than one year, which were bought and held principally for the purpose of selling them in the near term. The cost of U.S. Treasury securities was
 
nil
and RMB
13,422,000
, with net unrealized gain of
nil
and RMB
174,000
recorded in other income, net as of December 31, 2022 and 2023, respectively.
 
8.
Property, equipment and software, net
Property, equipment and software, net consist of the following:
 
 
  
As of December 31,
 
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Cost
    
Building
   —     42,041 
Building improvements
   —     1,130 
Leasehold improvements
   683    156 
Computers and electronic equipment
   3,475    5,515 
Furniture
   658    980 
Motor vehicles
   —     351 
Software
   5,583    5,308 
  
 
 
   
 
 
 
Total cost
   10,399    55,481 
Less: Accumulated depreciation and amortization
   (3,434)    (6,297) 
  
 
 
   
 
 
 
Property, equipment and software, net
   6,965    49,184 
  
 
 
   
 
 
 
For the year ended December 31, 2023, the Group disposed of certain leasehold improvements and furniture as part of an office relocation and disposed certain software that ceased to be used in business operations, without any consideration received for these disposals. These assets
, with cost of RMB971,000 and accumulated depreciation and amortization of RMB967,000, were derecognized, resulting in a loss of RMB4,000.
No
 impairment charge was recorded for the years ended December 31, 2021, 2022 and 2023, respectively.
Depreciation
 
and amortization expenses recognized for the
years
ended December 31, 2021, 2022 and 2023 are summarized as follows:

 
 
  
For the year ended December 31,
 
 
  
2021
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Research and development expenses
   442    1,611    3,491 
Sales and marketing expenses
   8    40    115 
General and administrative expenses
   103    156    224 
  
 
 
   
 
 
   
 
 
 
Total
   553    1,807    3,830 
  
 
 
   
 
 
   
 
 
 
 
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Table of Contents
9.
Intangible assets, net
Intangible assets consisted of the following:

 

 
  
As of December 31,
 
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Amortized intangible assets with finite lives:
  
  
Cost: Trademarks (Note a)
   —     3,425 
Less: Accumulated depreciation and amortization
   —     —  
  
 
 
   
 
 
 
Intangible assets, net
   —     3,425 
  
 
 
   
 
 
 
Note a: On December 8, 2023, the Group entered into an asset acquisition agreement
with
GOLDSHELL PTE. LTD., a Singapore-based company, to acquire specific assets utilized in the operation of its Goldshell WEB3 infrastructure brand (referred to as the “Transaction” hereafter). The consideration for this transaction amounted to USD550,000, fully settled in cash by December 31, 2023. The Transaction was accounted as an asset acquisition, through which the Group acquired three identifiable assets: trademarks, customer relationships, and software. The trademarks are applied and registered in the EU, United States, UK, Hong Kong SAR, and Singapore, with remaining legal lifespans averaging between 7 to 10 years. The total purchase price, encompassing the transaction consideration of USD550,000 and direct transaction costs of USD14,000, amounted to USD564,000 (equivalent to RMB3,994,000), with allocations to trademarks, customer relationships, and software at USD483,000 (equivalent to RMB3,425,000), USD68,000 (equivalent to RMB480,000), and USD13,000 (equivalent to RMB89,000) respectively. As of December 31, 2023, all trademarks have been officially transferred to the Group and were recorded under “intangible assets”, while the transfer process for customer relationships and software was ongoing, with their allocated purchase prices recorded in “prepayments on long-term assets”. On February 28, 2024, the Transaction was completed, as details provided in Note 21.
No impairment charge was recorded for the years ended December 31, 2021, 2022 and 2023, respectively.
As of December 31, 2023, amortization expenses related to the intangible assets for future periods are estimated to be as follows:
 
 
  
Amounts
 
 
  
(in thousands)
 
Year Ending December 31,
   
2024
      381  
2025
      381  
2026
      381  
2027
      381  
2028 and after
      1,901  
  
 
 
  
     3,425  
 
10.
Lease
The Group leases facilities under
non-cancellable
operating leases. The terms of substantially all of these leases are two to three years or less. When determining the lease term, the Group includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. All of the Group’s leases qualify as operating leases. Variable lease cost and short-term leases (lease terms less than 12 months) are recognized as incurred.
 
  (a)
The components of lease expenses were as follows:
 
 
  
For the year ended December 31,
 
 
  
2021
 
  
2022
 
  
2023
 
 
  
 
 
  
(in thousands)
 
Lease cost:
         
Amortization of
right-of-use
assets
      801        946        1,103  
Interest of lease liabilities
      84        73        62  
Expenses for short-term lease within 12 months
      156        (153 )       1,075  
  
 
 
     
 
 
     
 
 
  
Total lease cost
      1,041        866        2,240  
  
 
 
     
 
 
     
 
 
  
 
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Table of Contents
  (b)
Supplemental cash flow information related to leases was as follows:
 
 
  
For the year ended December 31,
 
 
  
2021
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Cash paid for amounts included in the measurement of lease
         
Operating cash flows from operating leases
      885        1,008        1,050  
Right-of-use
assets obtained in exchange for lease obligations:
         
Operating leases
      —         —         2,213  
Lease liability settled through termination of lease:
         
Operating leases
      —         —         627  
Right-of-use assets disposed through termination of lease:
                     
 
 
 
Operating leases
      —         —         704  
 
  (c)
Supplemental balance sheet information related to leases was as follows:
 
 
  
As of December 31,
 
 
  
2021
 
  
2022
 
  
2023
 
Weighted-average remaining lease term
         
Operating leases
      30.00 months        18.55 months        21.00 months  
Weighted-average discount rate
         
Operating leases
      4% per annum        4% per annum        4% per annum  
 
  (d)
Maturities of lease liabilities were as follows:
 
 
  
As of December 31,
 
 
  
2023
 
 
  
(in thousands)
 
Year Ending December 31,
   
2024
      1,159  
2025
      773  
  
 
 
  
Total undiscounted lease payments
      1,932  
Less: imputed interest
      (68 ) 
  
 
 
  
Total lease liabilities
      1,864  
 
 
 
 
 
Amounts due within 12 months
      1,103  
Non-current lease liability
      761  
 
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1
Table of Contents
11.
Prepayments on long-term assets
The following is a summary of prepayments on long-term assets as of December 31,2022 and 2023:
 
 
  
As of December 31,
 
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Prepayments on buildings (Note a)
      112,856        112,856  
Prepayments on other
non-current
assets (Note b)
      —       569
 
 
 
 
 
 
 
 
 
     112,856      113,425
  
 
 
     
 
 
  
Note a: On December 21, 2021, the Group entered into a sale and purchase agreement (the “S&P Agreement”) with an independent third party, pursuant to which, the Group agreed to purchase a premise located in Shanghai, the PRC, at a consideration of RMB112,855,500, and fulfill certain tax requirement that during the period starting from the date of the S&P Agreement to December 31,
 
2024, the total amount of taxes payments would be not less than approximately RMB50,000,000 in aggregate. In the event that the Group fails to meet the tax requirements of RMB50,000,000, the counterparty has the right to demand a delay in delivering the premise until the Group supplements the taxation requirements, or to terminate the S&P agreement by returning all prepayments to the Group without any penalty. Although phased requirements for the taxation of RMB50,000,000 
are stated in the S&P agreement, the fulfillment of these phased requirements only affects the Group’s entitlement on certain government subsidies and does not involve the counterparty’s right to terminate the S&P agreement. As of December 31, 2023, the consideration has been fully paid. The prepayments are refundable subject to (i) the agreement is terminated by uncontrollable factors of which the liability of breach of agreement does not lay on either the seller or the Group, or (ii) the agreement is terminated by the Group on the ground that the seller cannot fulfill the responsibility of the agreement.
Note b: The amount represents the prepaid allocated purchase price for customer relationships and software, which were still in the transfer process and had not been finalized as of December 31, 2023. Please refer to Note 9 for further details regarding the asset acquisition process.
 
12.
Accrued liabilities and other current liabilities
 
 
  
As of December 31,
 
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Salary and welfare payable
      3,616        8,915  
Other tax payables
      350        3,221  
Accrued listing expenses (Note a)
      4,963        —   
Others
      3,926        3,228  
  
 
 
     
 
 
  
Total
      12,855        15,364  
  
 
 
     
 
 
  
Note a: The amount represents incremental costs directly attributable to the Company’s initial public offering payable by the Group.
 
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13.
Share capital
On June 28, 2021, Intchains Group Limited, was incorporated in the Cayman Islands as an exempted company with limited liability to become our offshore holding company with authorized share capital of US$50,000 divided into 500,000,000 shares of a par value of US$0.0001 each. On June 28, 2021, the Company issued 1,000,000 ordinary shares to existing shareholders at a price of US$0.0001 per share for a total cash consideration of US$100. All share capital is unpaid yet.
On December 14, 2021, the directors of the Company and shareholders approved that, 176,470 ordinary shares of the Company to be issued and allotted to Golden Stone Capital Limited at a consideration of RMB100,000,000.
On July 8, 2022, the Company effected 100 for 1 stock subdivision, such that the (i) authorized share capital of the Company was subdivided from US$50,000 divided into 500,000,000 shares, US$0.0001 par value each to US$50,000 divided into 50,000,000,000 shares, US$0.000001 par value each, and (ii) the issued and outstanding shares were 117,647,000 shares of par value of US$0.000001 each.
In March 2023, the
Company
completed its initial public offering (“IPO”) on the Nasdaq Capital Market. In the IPO, 1,114,516 American depositary shares (“ADSs”), representing 2,229,032 Class A ordinary shares, were issued and sold to the public at a price of USD 8.00 per ADS, after underwriter partially exercised over-allotment option to purchase additional ADSs. Net proceeds of the Company’s IPO, including the proceeds from the sale of the over-allotment shares, totalled RMB38,211,000, after deducting underwriting discounts and commission, and other incremental costs directly attributable to IPO.
Upon the completion of IPO, the authorized share capital of the Company was re-classified and re-designated such that the authorized share capital of the Company became US$50,000 divided into
50,000,000,000
shares of a par value of US$
0.000001
each, comprising
of 
(a)
49,934,912,000
Class A
ordinary shares
of a par value of US$
0.000001
each
(the “Class A Ordinary Shares”); 
and (b)
65,088,000
Class B
ordinary shares
of a par value of US$
0.000001
each
 (the “Class B Ordinary Shares”). On March 20, 2023, 52,559,000 and 65,088,000 ordinary shares held by the existing shareholders before IPO were respectively re-designated as Class A Ordinary Shares and Class B Ordinary Shares
.
Each Class A Ordinary Share shall be entitled to one (1) vote on all matters subject to the vote at general meetings of the Company, and each Class B Ordinary Share shall be entitled to ten (10) votes on all matters subject to the vote at general meetings of the Company.
Each Class B Ordinary Share shall be converted at the option of the holder, at any time after issue and without the payment of any additional sum, into one fully paid Class A Ordinary Share calculated at the
conversion rate.
Upon any sale, transfer, assignment or disposition of Class B Ordinary Shares by a holder thereof to any person or entity which is not an Affiliate of such holder, such Class B Ordinary Shares validly transferred to the new holder shall be automatically and immediately converted into an equal number of Class A Ordinary Shares.
Upon the completion of IPO, the 2022 Share Incentive Plan (“The Plan”) became effective. Please refer to Note 14 for details regarding the Plan. As of December 31, 2023, no ordinary shares had been issued under the Plan.
In March 2023, pursuant to the Underwriter Agreement, the Company issued to Maxim Partners LLC (or its permitted assignees) warrants, or the Underwriter’s Warrants, to purchase 33,435 of the
Company
’s ADSs, representing 66,870 Class A ordinary shares, at an exercise price of USD10.00 per ADS, with the option to exercise on a cashless basis. The Underwriter’s Warrants are exercisable commencing six months after the Prospectus Effective Date, and will expire 18 months after the Prospectus Effective Date. The Company classified the Underwriter’s Warrants as equity at their fair value on the issuance date. As of December 31, 2023, all the Underwriter’s Warrants are outstanding.
In November 2023,
1,095,760
Class B ordinary shares were converted into Class A ordinary shares by the holder on a
one-for-one
basis
.
As of December 31, 2023, the authorized and outstanding ordinary shares are 119,876,032. These outstanding shares consist of (1) 55,883,792 Class A ordinary shares and (2) 63,992,240 Class B ordinary shares, which were held by the Chairman and CEO, and CTO of the
G
roup
.
 
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Table of Contents
14.
Share based compensation
The Group adopted the “2022 Share Incentive Plan” on July 12, 2022 (“The Plan”), by the way of special resolution passed on July 12, 2022, which became effective upon the completion of the proposed initial public offering of American Depositary Shares of the Company in March 2023 and shall continue for 10 years unless amended or terminated by the Board. The Company could use the following awards authorized for issuance or grant under the Plan: options, share appreciation rights, share awards, restricted share units
 (“RSUs”),
dividend equivalents or other share-based awards. The maximum aggregate number of shares that may be issued under the Plan is initially 6,500,000 Shares and shall automatically increase on the first trading day in January each calendar year during the term of the Plan, beginning on the first trading day in January 2023, by an amount equal to 1% of the total number of Shares outstanding as measured as of the last trading day in the immediately preceding calendar year, or such fewer number of Shares as determined by the Board, but in no event shall any such annual increase exceed 1,350,000 Shares. The shares issued under the Plan may be authorized, but unissued, or reacquired shares (subject to applicable laws), including shares repurchased by the Company on the open market. As of December 31, 2023, the number of shares
granted
but unissued was 527,602 ordinary shares. Two ordinary shares are issuable upon the vesting or the exercise of one share-based award.
(a) RSUs
The following table summarize the Group’s RSU activities under the 2022 Plan:
 
    
Number of RSUs
     
Weighted average
grant date fair
value
  
            US$  
Awarded and unvested as of December 31, 2022
      —         —   
Granted
      135,706        8.50  
Vested
      —         —   
Canceled/forfeited
      (4,984 )       8.50  
  
 
 
     
 
 
  
Awarded and unvested as of December 31, 2023
      130,722        8.50  
  
 
 
     
 
 
  
Expected to vest as of December 31, 2023 (Note a)
      107,427        8.50  
  
 
 
     
 
 
  
Note a: RSUs expected
to
vest are the result of applying the
pre-vesting
forfeiture rate assumptions to total outstanding RSUs.
As of December 31, 2023, there were RMB 4,457,000 of unamortized compensation costs related to all outstanding RSUs, net of expected forfeitures. These amounts are expected to be recognized over a weighted average period of 3.4 years.
During the years ended December 31, 2021, 2022 and 2023, the
Group
 
recognized share-based compensation expense of nil, nil and RMB 2,122,000, respectively, in connection with the above RSUs.
(b) Share options
A summary of the changes in the share options relating to ordinary shares granted by the Group during the year ended December 31, 2023 is as follows:
 
   
Number of
share options
   
Weighted
average
excercise price
   
Weighted
average
remaining
contractual life
 
       US$   (in years) 
Outstanding as of December 31, 2022
   —     —     —  
Granted
   135,079    8.0    10.0 
Exercised
   —     —     —  
Canceled/forfeited
   (2,000 )    8.0    9.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding as of December 31, 2023
   133,079    8.0    9.4 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vested and exercisable as of December 31, 2023 (Note a)
   —     —     —  
Vested and expected to vest as of December 31, 2023 (Note b)
   109,014    8.0    9.4 
Note a: No outstanding share options will be exercisable after the expiry of a period of up to ten years from the date of grant.
Note b: Share options expected to vest are the result of applying the
pre-vesting
forfeiture rate assumptions to total outstanding share options.
 
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The aggregate intrinsic value is calculated as the difference between the exercise price of the awards and the fair value of the underlying ordinary shares at each reporting date, for those awards that had exercise price below the estimated fair value of the relevant ordinary shares.
 
As of December 31, 2023, the aggregate intrinsic value of all outstanding options that was RMB
4,119,000
. As of the same date, the aggregate intrinsic value of options that were vested and exercisable and options that were vested and expected to vest was
nil
and RMB
3,374,000
, respectively.
During the years ended March 31, 2021, 2022 and 2023, the weighted average grant date fair value of share options granted was nil, nil and US$5.3534, respectively, and there was no share option vested or exercised during the
same
years.
As of December 31, 2023, total unrecognized share-based compensation expense relating to unvested share options was RMB2,864,000, which is expected to be recognized over a weighted-average period of 3.4 years.
The Group calculated the estimated fair value of the options on the respective grant dates using the binomial tree valuation model with the following assumptions for each applicable period which took into account variables such as volatility, dividend yield, and risk-free interest rates:

 

 
  
For the year
ended December 31,
 
  
2023
Risk-free interest rate(i)
  3.76%
Expected volatility(ii)
  77%
Expected dividend yield(iii)
  0%
Exercise multiple(iv)
  2.2
 to 
2.8
Forfeiture rate (v)
  2
% to 
10%
Fair value of underlying ordinary shares
  US$ 8.5
Fair value of share option
  US$5.2670
 to
 US$5.7275
 
 
i)
Risk-free interest rate is based on the yields of United States Treasury securities with maturities similar to the expected life of the share options in effect on the measurement date.
 
 
ii)
The expected volatility was estimated based on the historical volatility of comparable peer public companies with a time horizon close to the contract life of the Group’s options.
 
 
iii)
Expected dividend yield is assumed to be nil as the Group has no history or expectation of paying a dividend on its ordinary shares.
 
 
iv)
The expected exercise multiple was estimated as the average ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested options. As the Group did not have sufficient information of past employee exercise history, it has considered the statistics by making reference to a widely-accepted academic research publication.
 
 
v)
Forfeiture rate was based on the historical data of the Group from recent years and widely-accepted academic research publications, given the Group’s limited historical record of share options.
(c) Share-based compensation expense by function:
The Group recognized share-based compensation expenses for the years ended December 31, 2021, 2022 and 2023 as follows:
 
   
For the year ended December 31,
 
   
2021
   
2022
   
2023
 
   
(in thousands)
 
Research and development expenses
   —     —     1,972 
Sales and marketing expenses
   —     —     818 
General and administrative expenses
   —     —     684 
  
 
 
   
 
 
   
 
 
 
Total
   —     —     3,474 
  
 
 
   
 
 
   
 
 
 
 
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15.
Products revenue
 
 
  
For the year ended December 31,
 
 
  
2021
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
ASIC chips products:
  
 
631,838
 
  
 
473,740
 
  
 
68,358
 
ASIC chips
  
 
560,105
 
  
 
436,980
 
  
 
47,736
 
Computing equipment (Note a)
  
 
— 
 
  
 
— 
 
  
 
8,496
 
Ancillary software and hardware
  
 
71,733
 
  
 
36,760
 
  
 
12,126
 
Others (Note b)
  
 
— 
 
  
 
— 
 
  
 
13,867
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
631,838
 
  
 
473,740
 
  
 
82,225
 
  
 
 
 
  
 
 
 
  
 
 
 
Note a: The Group began offering computing equipment with embedded ASIC chips to customers in the fourth quarter of 2023.
Note b: The revenue was substantially derived from a one-off sale of intelligent router products, totaling RMB13,839,000 for the year ending December 2023. These intelligent router products were procured from external vendors and integrated with our software solutions for resale purposes. This was a one-off transaction for the Group, with no plans in place to pursue this business line in the future.
 
16.
Other income, net
 
 
  
For the year ended December 31,
 
 
  
2021
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Government grants (Note a)
   661    29,799    13,201 
Interest expense and guarantee fee
   (197)    (73)    (62) 
Change in fair value of short-term investments
   —     —     174 
Others
   79    —     (122) 
  
 
 
   
 
 
   
 
 
 
   543    29,726    13,191 
  
 
 
   
 
 
   
 
 
 
Note a: The government grants are provided by local government to support the qualified projects of IC industry with no repayment obligations. The amount recognized represents conditions for meeting grants are fulfilled for the years ended December 31, 2021, 2022 and 2023.
 
17.
Income Taxes
 
 
(a)
Cayman Islands
Under the current tax laws of Cayman Islands, the Company is not subject to income, corporation or capital gains tax, and no withholding tax is imposed upon the payment of dividends.
 
 
(b)
British Virgin Island
Pursuant to the rules and regulations of the British Virgin Island, the Group is not subject to any income tax in the British Virgin Island.
 
 
(c)
Hong Kong Profits Tax
The Group’s subsidiaries incorporated in Hong Kong are subject to a two-tiered income tax rate on its taxable income generated from operations in Hong Kong effective on April 1, 2018. The first HK
$2 
million of profits earned by its subsidiaries incorporated in Hong Kong will be taxed at half the current tax rate (i.e.,
8.25
%) while the remaining profits will continue to be taxed at the existing
16.5
% tax rate. Under the Hong Kong tax laws, which are effective from January 1, 2023, entities in HK are exempted from the Hong Kong income tax on its foreign-derived income if the HK entities meet economic substance requirement or participation requirement. Additionally, payments of dividends by the subsidiaries incorporated in Hong Kong to the Company are not subject to any Hong Kong withholding tax.
 
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(d)
Singapore
Tax on corporate income is imposed at a flat rate of 17%. A partial tax exemption and a three-year
start-up
tax exemption for qualifying
start-up
companies are available. Under partial tax exemption, 75% of the first SGD 10,000 of chargeable income is tax exempt and 50% of the next SGD 190,000 of chargeable income is tax exempt. Under
start-up
tax exemption, 75% of the first SGD 100,000 of chargeable income is tax exempt and 50% of the next SGD 100,000 of chargeable income is tax exempt. The
start-up
exemption is not available to property development and investment holding companies. 
 
 
(e)
PRC Enterprise Income Tax (“EIT”)
Shanghai Intchains obtained its High and New Technology Enterprises (“HNTE”) certificate with a valid period of three years in 2019. Therefore, Shanghai Intchains is eligible to enjoy a preferential tax rate of 15% from 2019 to 2021 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant EIT filing procedures with the relevant tax authority. In December 2022, Shanghai Intchains received approval from the tax authority on the renewal of its HNTE status which entitled it to the preferential income tax rate of 15% effective retroactively from 2022 to 2024. In addition, Shanghai Intchains is qualified as an integrated circuit design enterprise and enjoying a
5-year
tax holiday (two years full exemption followed by three years half reduction) beginning from 2021 after utilizing all prior years’ tax losses.
 
The Group’s other PRC subsidiaries are subject to the statutory income tax rate of 25%.
The carry forward period for net operating losses under the EIT Law is five years for general enterprises and ten years for HNTE and all tax losses have been utilized during the year of 2021. However, Shanghai Intchains is eligible to enjoy a preferential tax rate of 0% after utilizing all prior year’s tax losses
 from 2021 to 2022 and 12.5% from 2023 to 2025.
 
 
(f)
PRC Withholding Income Tax on Dividends
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a
non-PRC
company is located.”
The EIT Law also imposes a withholding income tax of 10% on dividends distributed by a Foreign- invested Enterprise (“FIE”) to its immediate holding company outside of China, if such immediate holding company is considered as a
non-resident
enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company is incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by a FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% if the immediate holding company in Hong Kong owns directly at least 25% of the shares of the FIE and could be recognized as a Beneficial Owner of the dividend from PRC tax perspective.
As of December 31, 2022 and 2023, the Company did not record any withholding tax on the retained earnings of its subsidiaries in the PRC as the Group does not have any plan to require its PRC subsidiaries to distribute their retained earnings and intends to retain them to operate and expand its business in the PRC.
 
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27
Table of Contents
A reconciliation between the effective income tax rate and the PRC statutory income tax rate is as follows:
 

 
  
For the year ended December 31,
 
 
  
2021
 
 
2022
 
 
2023
 
PRC statutory income tax rates
   25.00%   25.00%   25.00% 
Effect of different tax rates available to different jurisdictions
   —    —    (1.25%
)
Effect of preferential tax rates and tax holiday
   (22.79%)   (18.34%)   (12.20%) 
Effect of expenses not deductible for tax purposes (i)
   0.01%   0.01%   (1.56%) 
Effect of additional deduction of research and development expense
   (2.22%)   (2.64%)   13.01% 
Effect of tax losses and temporary differences utilized
   —    (0.81%)   1.64% 
  
 
 
  
 
 
  
 
 
 
Total
   0.00%   3.22%   24.64% 
  
 
 
  
 
 
  
 
 
 
 
 
(i)
Expenses not deductible for tax purposes primarily consist of share-based compensation expense and entertainment expenses exceeding the pre-tax deduction limit.
Composition of income tax expense/(benefit)
The current and deferred portions of income tax expense/(benefit) included in the consolidated statements of operations and comprehensive income are as follows:

 
 
  
For the year ended December 31,
 
 
  
2021
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Current tax
   —     11,814    4,185 
Deferred taxation
   —     42    (12,941)
 
  
 
 
   
 
 
   
 
 
 
Income tax expenses/(benefit)
   —     11,856    (8,756)
  
 
 
   
 
 
   
 
 
 
Deferred tax assets and liabilities
Deferred taxes were measured using the enacted tax rates for the periods in which they are expected to be reversed.
 
The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets and liabilities as of December 31, 2022 and 2023:
 
 
  
As of December 31,
 
 
  
2022
 
  
2023
 
 
  
(in thousands)
 
Deferred tax assets:
    
Accrued expense and others
   80    129 
Inventory provision
   207    3,996 
Impairment on prepayment
   —     35 
Product warranty
   33    6 
Tax loss
   —     9,883 
  
 
 
   
 
 
 
Total deferred tax assets before valuation allowance
   —     14,049 
Valuation allowance
   —     (503) 
 
 
 
 
 
 
 
 
 
Total deferred tax assets
   320    13,546 
  
 
 
   
 
 
 
Deferred tax liabilities:
    
Accelerated tax depreciation
   (362)    (647) 
  
 
 
   
 
 
 
Total deferred tax liabilities
   (362)    (647) 
  
 
 
   
 
 
 
Presentation in the consolidate balance sheet:
    
Deferred tax assets
   —     12,899
Deferred tax liabilities
   (42)    —  
  
 
 
   
 
 
 
Net deferred tax assets/(liabilities)
   (42)    12,899 
  
 
 
   
 
 
 
 
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In accordance with ASC 740, for each
tax-paying
entity within a particular jurisdiction, all deferred tax assets and liabilities shall be offset and presented as a single amount within a particular tax jurisdiction rather than on a legal entity by entity basis. Therefore, certain
non-current
deferred tax assets and liabilities of the Group were offset and presented on a net basis on the consolidated balance sheets of the Group.
The
Group
evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2022 and 2023, the Group did not have any significant unrecognized uncertain 
tax positions.
As of December 31, 2022 and 2023, the Group had taxable losses of nil and RMB62,534,000 derived from the entity in the PRC, which can be carried forward for ten years to offset future taxable profit for the subsidiary qualified as HNTE in 2023. The PRC taxable loss will expire in 2033 if not utilized. As of December 31, 2022 and 2023, the Group had taxable losses of nil and RMB2,957,000 derived from the entity in Singapore, which can be carried forward with no expiration date.
As of December 31, 2023, the valuation allowance of RMB503,000 was principally related to the tax loss from the entity in Singapore. The Group does not believe that sufficient positive evidence exists to conclude that the recoverability of deferred tax assets of the entity in Singapore is more likely than not to be realized. Consequently, the Group has provided full valuation allowances for the entity in Singapore on the related deferred tax assets. The following table sets forth the movement of the valuation allowances for deferred tax assets for the periods presented:
 
   
For the year ended December 31,
 
   
2021
   
2022
   
2023
 
   
(in thousands)
 
Beginning balance
   —     —     —  
Additions during the year
   —     —     503 
  
 
 
   
 
 
   
 
 
 
Ending balance
   —     —     503 
  
 
 
   
 
 
   
 
 
 
 
18.
Related party transactions
During the year ended December 31, 2021, the Group entered into certain short-term loan agreements with Shanghai Pudong Development Bank Co., LTD. New Branch of Shanghai Pilot Free Trade Zone. with aggregated principal amount of RMB5,000,000, which was guaranteed by a controlling shareholder, and his spouse, and an independent third party with the interest fixed rates 4% per annum. The amount was fully repaid on October 25, 2021.
As of December 31, 2020, the amounts due to Mr. Sheng and Mr. Feng Yang, the shareholders of the Group, were RMB4,790,000 and RMB13,000, respectively. These amounts are
non-trade
in nature, unsecured, interest-free and repayable on demand and all repaid in 2021.
During the years ended December 31, 2021, 2022 and 2023, except for disclosed above, the Group did not conduct any transaction with related parties. As of December 31, 2022 and 2023, the amount due to (or due from) related parties was nil.
 
19.
Basic and diluted net earnings per share
Basic and diluted earnings per share have been calculated in accord
a
nce with ASC 260 on computation of earnings per share for each of the
years
ended December 31, 2021, 2022 and 2023, are calculated as follows:
 
 
  
For the year ended December 31,
 
 
  
2021
 
  
2022
 
  
2023
 
 
  
(in thousands, except share and per share data)
 
Basic and diluted net earnings per share calculation
      
Numerator:
      
Net earnings(loss) attributable to ordinary shareholders, basic and diluted
   450,144    355,201    (26,795)
Denominator:
      
Weighted-average ordinary shares outstanding, basic and diluted
(1)
   100,870,300    117,647,000    119,387,937 
Net earnings per share attributable to ordinary shareholders:
      
Basic
   4.46    3.02    (0.22) 
Diluted
   4.46    3.02    (0.22) 
Note:
 
 (1)
Retroactively restated for the stock subdivision as described in Note 1.
For the year ended December 31, 2023, the effects of all outstanding RSUs, share options and warrants have been excluded from the computation of diluted loss per share due to its anti-dilutive effect.
 
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20.
Commitments and contingencies
As of December 31, 2022 and 2023, the Group is not a party to any legal or administrative proceedings which will have a material adverse effect on the Group’s financial position, results of operations and cash flows. In addition to the information disclosed elsewhere in the notes to consolidated financial statements, the Group had no significant capital and other commitments, long-term obligations or guarantees as of December 31, 2022 and
2023.
 
21.
Subsequent events
On February 28, 2024, the Group completed its previously reported acquisition of certain assets from Singapore-based GOLDSHELL PTE. LTD., or the Seller, in accordance with an asset acquisition agreement between a subsidiary of the Group and the Seller dated December 8, 2023. Pursuant to the terms and conditions of such asset acquisition agreement, the Group acquired the Goldshell brand and certain related assets for a cash consideration of
US$
550,000
. Details of the acquisition are also included in Note 9.
On January 22, 2024, Maxim Partners LLC exercised the Underwriter’s Warrants granted in connection with our initial public offering on the Nasdaq Capital Market in full through a cashless exercise to acquire
7,921
of our ADSs. Information with respect to the Underwriter’s Warrants is described in Note 13.
 
22.
Restricted net assets
Pursuant to the laws applicable to the
PRC’s Foreign Investment Enterprises and local enterprises, the Group’s entities in the PRC must make appropriation from
after-tax
profit to
non-distributable
reserve funds as determined by the Board of Directors of the Company.PRC laws and regulations permit payments of dividends by the Company’s subsidiaries in the PRC only out of their retained earnings, if any, as determined in accordance with the PRC accounting standards and regulations. In addition, the Company’s subsidiaries incorporated in the PRC are required to annually appropriate
10
% of their net income to the statutory reserve prior to payment of any dividends, unless such reserve has reached
50
% of their respective registered capital.
As a result of these and other restrictions under PRC laws and regulations, the PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. Amounts restricted include paid-in capital, share premium and the statutory reserves of subsidiaries.
As of December 31, 2022 and 2023, the total of restricted net assets was RMB
157,024,000
, or
17
% of the
Group
’s total consolidated net assets, and RMB
157,810,000
, or
17
% of the
Group
’s total consolidated net assets, respectively.
 
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