As filed with
the Securities and Exchange Commission on March 9, 2021.
Registration No. 333-
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BIT
DIGITAL, INC.
(Exact name of Registrant as specified
in its charter)
Not Applicable
(Translation of Registrant’s name
into English)
Cayman Islands
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6199
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Not Applicable
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employee
Identification
number)
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33 Irving Place
New York, New
York 10003
Tel. 1 + (86)
199-1062-6698
Tel. 1 (347) 328-3680
(Address, including zip code, and telephone
number, including area code, of Registrant’s principal executive offices)
Corporation Service
Company
19 West 44th
Street, Suite 201
New York, New
York 10036-8401
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copies to:
Elliot
H. Lutzker, Esq.
DAVIDOFF
HUTCHER & CITRON LLP
605 Third
Avenue, 34th Floor
New York,
New York 10158
Tel: (212)
557-7200
Fax: (212)
286-1884
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Matthew
Ogurick, Esq.
K&L
Gates, LLP
599 Lexington
Avenue
New York,
New York 10022-6030
Tel: (212)
536-4085
Fax: (212)
536-3901
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Approximate date of commencement of
proposed sale to the public: as soon as practicable after the effective date of this registration statement.
If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. ☒
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant
is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company ☒
If an emerging growth company that prepares
its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards† provided pursuant to section
7(a)(2)(B) of the Securities Act. ☐
Calculation of Registration Fee
Title
of Class of Securities to be Registered
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Amount to be
Registered(2)
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Proposed Maximum Offering Price per Share
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Proposed Maximum Aggregate Offering Price(1)
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Amount
of Registration Fee
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Ordinary shares, par value $0.01 per share
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412,500
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(3)
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$
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13.26
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(4)
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$
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5,469,750
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$
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596.75
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Ordinary shares, par value $0.01 per share
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6,000,000
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(5)
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$
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13.26
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(4)
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$
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79,560,000
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$
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8,680.00
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Total
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6,412,500
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$
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85,029,750
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$
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9,276.75
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(1)
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The registration fee for securities to be offered by the Registrant is calculated solely for the purpose of calculating the registration fee pursuant to Rule 457(c).
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(2)
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In accordance with Rule 416(a), the Registrant is also registering an indeterminate number of additional Ordinary Shares that shall be issuable pursuant to Rule 416 to prevent dilution resulting from share splits, share dividends or similar transactions.
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(3)
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Represents 150% of the maximum number of shares issuable upon conversion of $1,650,000 principal amount of subordinated convertible notes at an assumed conversion price of $6.00 per share.
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(4)
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Pursuant to Rule 457(c), the fee is based upon the average of the high and low prices of the Registrant’s Ordinary Shares reported on the Nasdaq Capital Market on March 5, 2021.
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(5)
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The registrant is registering for resale, from time to time, up to $80,000,000 in Ordinary Shares that the registrant may issue to Ionic Ventures, LLC (“Ionic”) pursuant to a Purchase Agreement, dated as of January 11, 2021, by and between Ionic and the registrant.
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The Registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
PRELIMINARY
PROSPECTUS (Subject to Completion) Dated March 9, 2021
The information in this prospectus is
not complete and may be changed. The Selling Shareholder may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
Prospectus
BIT
DIGITAL, INC.
6,412,500 Ordinary Shares
This prospectus relates to the sale by
selling shareholder (the “Selling Shareholder”), including (i) up to 412,500 shares issuable to Ionic Ventures, LLC,
or Ionic, upon conversion by Ionic of senior convertible notes due May 5, 2021 (the “Notes”), and (ii) up to 6,000,000
shares issuable to Ionic under a Purchase Agreement dated as of January 11, 2021 between the Company and Ionic, which we refer
to herein as the Purchase Agreement. See “Selling Shareholder.”
The Selling Shareholder has advised us
that they will sell the Ordinary Shares from time to time in the open market, on the Nasdaq Capital Market, in privately negotiated
transactions, at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated
prices or a combination of those methods. See also “Plan of Distribution” on page 107 for more information.
We are not selling any securities under
this prospectus and will not receive any of the proceeds from the sale of Ordinary Shares by the Selling Shareholder. However,
we may receive proceeds of up to $80,000,000 from the sale of Ordinary Shares to Ionic under the Purchase Agreement, from time
to time in our discretion after the date the registration statement of which this prospectus is a part is declared effective and
after the other conditions in the Purchase Agreement have been satisfied.
Ionic is an “underwriter” within
the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”). Ionic
may sell the Ordinary Shares described in this prospectus in a number of different ways and at varying prices. See “Plan
of Distribution” on page 107 for more information about how Ionic may sell the Ordinary Shares being registered pursuant
to this prospectus.
As of March 8, 2021, there were 48,305,870
of our Ordinary Shares outstanding, of which 39,543,670 Ordinary Shares were held by non-affiliates. The 6,412,500 shares which
are being registered for resale by Ionic hereunder (412,500 upon the conversion of the Notes and 6,000,000 shares which may be
issued under the Purchase Agreement) represent less than 1/3 of the shares held by non-affiliates as of March 8, 2021.
We will pay the expenses incurred in registering
the Ordinary Shares to which this prospectus relates, including legal and accounting fees. See “Plan of Distribution.”
Our Ordinary Shares are traded on the Nasdaq
Capital Market tier under the symbol “BTBT”. On March 8, 2021, the closing price of our Ordinary Shares was $12.18
per share.
We are an “emerging growth company,”
as that term is used in the Jumpstart Our Business Startups Act of 2012 and are subject to reduced public company reporting requirements.
Investing in our Ordinary Shares is
highly speculative and involves a significant degree of risk. See “Risk Factors” beginning on page 16 of this prospectus
for a discussion of information that should be considered before making a decision to purchase our Ordinary Shares.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is _______________,
2021
TABLE OF CONTENTS
ADDITIONAL INFORMATION
You should rely only on the information
contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information
different from that contained in this prospectus or any free-writing prospectus. We are offering to sell, and seeking offers to
buy, the Ordinary Shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus
is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the
Ordinary Shares.
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking
statements” for purposes of the safe harbor provisions provided by Section 27 of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
that represent our beliefs, projections and predictions about future events. All statements other than statements of historical
fact are “forward-looking statements,” including any projections of earnings, revenue or other financial items, any
statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new
projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s
beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words
such as “may,” “will,” “should,” “could,” “would,” “predicts,”
“potential,” “continue,” “expects,” “anticipates,” “future,” “intends,”
“plans,” “believes,” “estimates” and similar expressions, as well as statements in the future
tense, identify forward-looking statements.
These statements are necessarily subjective
and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance
or achievements, or industry results, to differ materially from any future results, performance or achievements described in or
implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements,
including with respect to correct measurement and identification of factors affecting our business or the extent of their likely
impact, and the accuracy and completeness of the publicly available information with respect to the factors upon which our business
strategy is based or the success of our business.
Forward-looking statements should not be
read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times
by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time
those statements are made and management’s belief as of that time with respect to future events and are subject to risks
and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the
forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors
discussed under the headings “Risk Factors”, “Operating and Financial Review and Prospects,” and elsewhere
in this prospect
PROSPECTUS SUMMARY
This summary
highlights certain information contained elsewhere in this prospectus. You should read the entire prospectus carefully,
including our financial statements and related notes and the risks described under “Risk Factors” beginning on
page 16. We note that our actual results and future events may differ significantly based upon a number of factors. The
reader should not put undue reliance on the forward-looking statements in this document, which speak only as of the date on
the cover of this prospectus.
All references to “we,”
“us,” “our,” “Company,” “Registrant” or similar terms used in this prospectus refer
to Bit Digital, Inc.(formerly known as Golden Bull Limited), a Cayman Islands exempted company (“Bit Digital”), including
its consolidated subsidiaries, unless the context otherwise indicates. We currently conduct our business through, Bit Digital Hong
Kong Limited, a Hong Kong company and our operating entity in China; and Bit Digital U.S.A. Inc., a Delaware corporation, and our
operating entity in the United States.
“PRC” or “China”
refers to the People’s Republic of China, excluding, for the purpose of this prospectus, Taiwan, Hong Kong and Macau, “RMB”
or “Renminbi” refers to the legal currency of China and “$”, “US$” or “U.S. Dollars”
refers to the legal currency of the United States.
This prospectus contains translations of
Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. We make no representation that
the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi,
as the case may be, at any particular rate or at all.
Our Business
Bit Digital is an emerging bitcoin mining
company with operations in PRC and the United States. The Company commenced its mining operations in February 2020, following the
suspension of its peer-to-peer lending business in October 2019. See “Business-Legal Proceedings’ below. Our bitcoin
mining operations, hosted by third party suppliers, uses specialized computers, known as miners, to generate bitcoins, a cryptocurrency.
The miners use application specific integrated circuit (“ASIC”) chips. These chips enable the miners to apply greater
computational power, or “hash rate’, to provide transaction verification services (known as solving a block”)
which helps support the bitcoin blockchain. For every block added, the bitcoin blockchain awards a bitcoin award equal to a set
number of bitcoins per block. These bitcoin awards are subject to “halving,” whereby the bitcoin award per block is
reduced by half in order to control the supply of bitcoins on the market. Miners with a greater hash rate have a higher chance
of solving a block and receiving a bitcoin award.
Our mining facilities and mining platform
operate with the primary intent of accumulating bitcoin which we may sell for fiat currency from time to time depending on market
conditions and management’s determination of our cash flow needs. After a third halving of bitcoins in May 2020, our mining
strategy has been to mine bitcoins as fast and as many as possible given there are less bitcoins and a lower efficiency of mining.
In view of the long delivery time to purchase new miners from miner suppliers like Bitmain and MicroBT, we chose to acquire second-hand
miners which can be delivered in only a few weeks. We have not signed leases for bitcoin mining facilities. In order to achieve
lower utility costs, the mining facilities are maintained by our third-party suppliers. The bitcoin mining facilities in PRC are
maintained by Hong Kong suppliers. They are our hosts and they install the miners, provide IT consulting, maintenance and repair
work on site for us. Our miners’ facilities in Texas and Nebraska are maintained by Compute North, a well-known miners hosting
company in North America.
As of January 15, 2021, the Company owned
a total of 40,865 miners, including 7,025 Antminer S17+, 195 Antminer S17E, 32 Antminer S17Pro, 105 Antminer S19Pro, 800 Antminer
T3, 9,110 Antminer T17, 256 Antminer T17+, 2,200 Whatsminer M10, 4,125 Whatsminer M20S, 16,917 Whatsminer M21S and 100 Whatsminer
M31S, spread over PRC and Texas and Nebraska in the United States.
As of February 20, 2021, in Xinjiang, we
had 14,639 bitcoin miners; in Inner Mongolia, we had 17,926 miners; in Sichuan Province we had 1,650 miners; in Yunnan Province
we had 24,550 miners; in Nebraska we had 4,000 miners and in Texas we had 100 miners. We shipped a batch of 2,000 S17+ miners from
Yunnan Province, PRC to Nebraska, U.S. in early February 2021. However, as a common practice in the mining industry, we may migrate
our miners within the above locations on a seasonal basis depending on water and electricity availability and cost. We were already
in the process of migrating our miners when China’s Inner Mongolia recently announced a solicitation of banning cryptocurrency
mining and it may shut all bitcoin mining facilities in Inner Mongolia by April 2021 to allow for energy conservation. The Company
is currently evaluating plans to make more miner purchases to increase the total mining hash, conditioned upon our raising required
funds through this offering or otherwise.
Selling Shareholder Transactions
The Notes
On December 31, 2020, the Company entered
into a Securities Purchase Agreement (the “SPA”) with Ionic (the “Holder”) for the sale of subordinated
convertible notes due May 5, 2021 (the “Notes”) up to an aggregate original principal amount of $1,650,000 with an
original issue discount (OID) of 10% in a private placement.
The initial Note having an original principal
amount of $1,100,000 was issued and sold on February 5, 2021 at a first closing and a second Note having an original principal
amount of $550,000 was issued and sold at a second closing upon the filing of the registration statement of which this prospectus
forms a part.
The Company received approximately $1,280,000
in net proceeds after the second closing, after deducting fees payable to broker-dealers and certain other transaction expenses,
including fees and expenses of legal counsels in connection with the transactions.
The Notes are unsecured and are expressly
junior to any existing or future debt obligations of the Company. The Notes bear interest at 8% per annum, increasing to 15% if
not paid within three (3) months of the initial closing, or May 5, 2021 (“Maturity Date”) or otherwise upon an Event
of Default (as defined in the Notes).
The Company has the right to redeem the
Notes in whole and not in part at 110% of face value plus all accrued and unpaid interest thereon (and late charges, if any) during
the first 60 days from issuance and at 120% of face value plus all accrued and unpaid interest on (and late charges, if any) thereafter,
payable in cash. The Notes are also subject to redemption (at the election of the Holder) at 120% upon an Event of Default or a
Change of Control (as such terms are defined in the Notes). The Notes include certain customary Events of Default. Upon the occurrence
of a Bankruptcy Event of Default (as defined in the Notes), the Notes would automatically become immediately due and payable in
cash in an amount equal to all outstanding principal, interest, and late charges multiplied by a redemption premium of 120%.
If the Notes are not earlier redeemed by
the Company, the Notes shall be automatically converted into Ordinary Shares upon the effectiveness of the registration statement
of which this prospectus is made a part at the Conversion Price then in effect (if no Event of Default has occurred, at the Standard
Conversion Price then in effect, and if an Event of Default has occurred, at the Event of Default Conversion Price). The Standard
Conversion Price is equal to the lower of $6.00 per share and 80% of the average of the three lowest VWAPs during the 15 trading
days ending and including the date of conversion. The Event of Default Conversion Price is equal to 85% of the Standard Conversion
Price. We are registering 412,500 of such conversion shares in the registration statement of which this prospectus forms a part,
which represents 150% of the maximum number of shares issuable upon conversion of $1,650,000 principal amount of subordinated convertible
notes at an assumed conversion price of $6.00 per share.
This Registration Statement was not filed
within 30 days of the first closing and we are obligated under the Registration Rights Agreement to pay a one percent (1%) penalty
of the principal amount of the Note for every 30 days of lateness. We have also agreed to use best efforts to have this Registration
Statement declared effective within 90 days from the first closing. Until 30 days from the effective date of this Registration
Statement, as long as the Notes are outstanding, the Company will not issue any equity securities except Excluded Securities (as
defined in the SPA). The Holder and its affiliates have not and will not enter into a short position while the Notes are outstanding.
The Company has agreed with Ionic not to
enter into a Fundamental Transaction (as defined in the Notes), unless the successor entity assumes all of the obligations under
the Notes pursuant to written agreements satisfactory to the holder of the Notes, and the successor entity is a publicly traded
corporation whose common equity or Ordinary Shares, as applicable, are quoted or listed on a national securities exchange. The
Company is also subject to certain customary affirmative and negative covenants.
Purchase Agreement
On January 11, 2021, the Company entered
into the Purchase Agreement with Ionic (also herein referred to as the “Investor”) whereby we have the right, but not
the obligation, to sell to Ionic, and Ionic is obligated to purchase up to in the aggregate $80,000,000 worth of Ordinary Shares.
Sales of Ordinary Shares by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the
Company’s sole discretion, over the 36-month period commencing on the date that the registration statement of which this
prospectus forms a part, which the Company agreed to file with the SEC pursuant to the registration rights agreement (the “RRA”)
we entered into with Ionic on January 11, 2021 in connection with the Purchase Agreement, is declared effective by the SEC and
a final prospectus in connection therewith is filed and the other conditions set forth in the Purchase Agreement are satisfied
(such date on which all of such conditions are satisfied, the “Commencement Date”). For the avoidance of any doubt,
all Notes will be fully converted into Ordinary Shares prior to the Commencement Date.
The purchase price of the Ordinary Shares
purchased by the Investor under the Purchase Agreement will be derived from prevailing market prices of the Company’s Ordinary
Shares immediately preceding the time of sale. The Company will control the timing and amount of future sales, if any, of Ordinary
Shares to the Investor. The Investor has no right to require the Company to sell any Ordinary Shares to the Investor, but the Investor
is obligated to make purchases as the Company directs, subject to certain conditions.
Under the Purchase Agreement, from and
after the Commencement Date, the Company has the right, from time to time in its sole discretion and subject to certain conditions
and limitations set forth in the Purchase Agreement, to direct the Investor to purchase up to the lesser of (i) $2,500,000 in Ordinary
Shares; and (ii) 75% of the average dollar volume of Ordinary Shares for the lowest 8 of 10 Trading Days prior to providing notice
to the Investor. The Company may effect a regular purchase at the Regular Purchase Price equal to 85% of the arithmetic average
of the three (3) lowest volume weighted average prices (“VWAP”) calculated for the period five (5) Trading Days prior
to and ending five (5) Trading Days after delivery of pre-settlement purchase shares (the “Regular Purchase Measurement Period”)
based on an estimate and true-up. The Company may also effect an alternate purchase at the Alternate Purchase Price equal to 80%
of the arithmetic average of the VWAPs calculated for the period on and ending five (5) Trading Days after delivery of pre-settlement
shares (the “Alternate Purchase Measurement Period”) based on an estimate and true-up.
The Company may deliver a notice to the
Investor for a regular purchase or an alternate purchase as often as every business day, so long as (i) on any such notice date,
the closing sale price of the Ordinary Shares is not below the Floor Price (initially set at $1.00 per ordinary share, subject
to customary adjustments), (ii) shares for all prior regular purchases and alternate purchases have theretofore been received by
the Investor in accordance with the Purchase Agreement, and (iii) no current Regular Purchase Measurement Period or Alternate Purchase
Measurement Period is running (unless, with respect to regular purchases only, the Company and the Investor mutually agree otherwise
in writing). Notwithstanding the foregoing, the Company shall not deliver a regular purchase or alternate purchase notice to the
Investor if an Event of Default has occurred and is continuing, or if any event which, after notice and/or lapse of time, would
become an Event of Default, has occurred and is continuing.
In all instances, the Company may not sell
Ordinary Shares to the Investor under the Purchase Agreement if it would result in the Investor beneficially owning more than 4.99%
of the outstanding Ordinary Shares. Under applicable rules of the Nasdaq Capital Market, the Company, as a Foreign Private Issuer,
has elected to follow home country practice and does not require shareholder approval in the event that issuances under the Purchase
Agreement exceed twenty (20%) percent or more of the Ordinary Shares outstanding immediately prior to the execution of the Purchase
Agreement.
The Purchase Agreement and the RRA each
contains representations, warranties, covenants, closing conditions and indemnification and termination provisions by, between
and for the benefit of the parties which are customary of transactions of this nature. Additionally, sales to the Investor under
the Purchase Agreement may be limited, to the extent applicable, by Nasdaq and SEC rules. The Company agreed with the Investor
that it will not enter into any “variable rate” transactions with any third party for a period defined in the Purchase
Agreement. The Investor has covenanted not to cause or engage in any direct or indirect short selling or hedging of the Company’s
Ordinary Shares.
In connection with each Regular Purchase
and Alternate Purchase, the Company shall issue to Ionic a number of additional Ordinary Shares (the “Commitment Shares”)
equal to the product of (x) the number of Ordinary Shares sold to Ionic and (y) 2.5% as a commitment fee for no additional consideration.
Up to 145,732 shares are being registered hereunder as Commitment Shares, of which half (72,866) may be issued as Additional Commitment
Shares to satisfy the Additional Commitment Fee as described below.
The Purchase Agreement may be terminated
by the Company at any time, at its sole discretion, however upon any such termination, if the Company has sold less than $40,000,000
to the Investor under the Purchase Agreement, the Company shall pay an additional commitment fee of $1,000,000 (the “Additional
Commitment Fee”), which shall be payable either in cash or in Ordinary Shares at a price equal to 100% of the Closing Price
on the date immediately preceding the date of receipt by the Investor of the Company Termination Notice (such shares, the “Additional
Commitment Shares”) at the Company’s discretion, within two (2) Trading Days after a Company Termination Note is received
by the Investor; provided, however, that the Additional Commitment Fee shall be reduced by the aggregate Purchase Amount previously
sold hereunder prior to the Company Termination Notice multiplied by 2.5%. Up to 72,866 (half) of the Commitment Shares being registered
hereunder may be issued as Additional Commitment Shares to satisfy the Additional Commitment Fee under the terms of the Purchase
Agreement.
If this registration statement fails to
go effective by the 90th calendar day following the date of the Purchase Agreement (or, if such registration statement
is subject to a full review by the SEC, the 120th calendar day after the date of the Purchase Agreement), the Company
shall issue to Investor 10,000 Ordinary Shares (“Effectiveness Default Shares”).
The proceeds received by the Company under
the Purchase Agreement are expected to be used for working capital and general corporate purposes.
Although the Purchase Agreement provides that we may sell up
to $80,000,000 of our Ordinary Shares to Ionic, only 6,412,500 Ordinary Shares are being offered under this prospectus which may
be issued to Ionic if and when we sell shares to Ionic under the Purchase Agreement (of which 5,829,268 shares may be sold to Ionic
and up to 145,732 shares (2.5% of the number of shares sold for cash) may be issued as a commitment fee for no additional consideration
as Commitment Shares). We are contractually obligated under the RRA to issue 15,000 Filing Default Shares for not timely filing
this Registration Statement and another 10,000 shares hereunder if this Registration Statement is not timely declared effective.
Depending on the market prices of our Ordinary
Shares at the time we elect to issue and sell Ordinary Shares to Ionic under the Purchase Agreement, we may need to register additional
Ordinary Shares in order to receive aggregate gross proceeds equal to the $80,000,000 total commitment available to us under the
Purchase Agreement.
As of March 8, 2021, there were 48,305,870 of our Ordinary Shares
outstanding, of which 39,543,670 Ordinary Shares were held by non-affiliates. If all of the 6,412,500 Ordinary Shares offered by
Ionic under this prospectus were issued and outstanding as of March 8, 2021, such shares would represent approximately 11.72% of
the total number of Ordinary Shares outstanding and less than 1/3 of the total number of outstanding shares held by non-affiliates.
If we elect to sell to Ionic more than the 5,975,000 shares which are offered under this prospectus to Ionic under the Purchase
Agreement, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any
such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately
offered for resale by Ionic is dependent upon the number of shares we sell to Ionic under the Purchase Agreement.
Issuances of our ordinary shares in this
offering will not affect the rights or privileges of our existing stockholders, except that the economic and voting interests of
each of our existing stockholders will be diluted as a result of any such issuance. Although the number of Ordinary Shares that
our existing stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage
of our total outstanding shares after any such issuance to Ionic.
Of the 6,000,000 Ordinary Shares being
registered herein under the Purchase Agreement, up to 5,975,000 shares may be issued and sold for cash to Ionic, up to 145,732
shares (2.5% of the number of shares sold for cash) may be issued to Ionic for no consideration as Commitment Shares, and 15,000
shares are being registered as Filing Default Shares and 10,000 shares as Effectiveness Default Shares.
The Offering
Ordinary Shares Offered
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An aggregate of 6,412,500 Ordinary Shares are registered for resale by the Selling Shareholder, consisting of:
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(i) 412,500 shares issuable to Ionic upon the conversion of senior convertible Notes; and
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(ii) 6,000,000 shares issuable to Ionic pursuant to the Purchase Agreement dated as of January 11, 2021, of which:
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(a) up to 5,829,268 shares may be issued and sold to Ionic for cash;
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(b) up to 145,732 shares (2.5% of the number of shares sold for cash) may be issued for no consideration as Commitment Shares (of which half (72,866) may be issued as Additional Commitment Shares to satisfy the Additional Commitment Fee; and
|
|
|
|
|
|
(c) 15,000 shares are issuable for Filing Default Shares and 10,000 shares may be issuable as Effectiveness Default Shares.
|
|
|
|
Ordinary Shares Outstanding
|
|
48,305,870(1)
|
|
|
|
Use of Proceeds
|
|
We are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of Ordinary Shares by the Selling Shareholder. However, we may receive proceeds of up to $80,000,000 from the sale of Ordinary Shares to Ionic under the Purchase Agreement, from time to time in our discretion after the date the registration statement of which this prospectus is a part is declared effective and the other conditions in the Purchase Agreement have been satisfied. The proceeds received from Ionic under the Purchase Agreement will be used to purchase bitcoin miners and for working capital purposes. See “Use of Proceeds.”
|
|
|
|
Dividend Policy
|
|
We have never declared any cash dividends on our Ordinary Shares. We currently intend to retain all available funds and any future earnings for use in financing the growth of our business and do not anticipate paying any cash dividends for the foreseeable future. See “Dividend Policy.”
|
|
|
|
Trading Symbol
|
|
Our common stock currently trades on the Nasdaq Capital Market with the symbol “BTBT.”
|
|
|
|
Risk Factors
|
|
You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 16 of this prospectus before deciding whether or not to invest in our Ordinary Shares.
|
(1)
|
Reflects shares issued and outstanding as of March 8, 2021.
|
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING
DATA
The following summary consolidated financial
statements should be read in conjunction with our consolidated financial statements, the notes thereto and other information, included
elsewhere in this prospectus.
The following summary consolidated financial
statements for the years ended, 2019 and 2018 are derived from our audited consolidated financial statements included elsewhere
in this prospectus. The Company commenced its mining operations in February 2020 and we disposed of our peer-to-peer lending business
(the sole operation of the Company for 2019 and 2018, which has ceased operation in October 2019) and the car rental business in
PRC on September 8, 2020. In accordance with ASC 205-20-45, the results of all discontinued operations, less applicable income
taxes, are reported as components of net income (loss) separate from the net loss of continuing operations. Accordingly, the summary
statement of operations data for the years ended December 2019 and 2018, and summary consolidated balance sheets as of December
31, 2019 and 2018, as comparative statement of operations, have been retroactively adjusted to reflect the discontinued operations.
Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in
the United States, or U.S. GAAP.
The following summary consolidated financial
statements for the nine months ended September 30, 2020 and 2019 are derived from our unaudited consolidated financial statements
included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with generally
accepted accounting principles in the United States, or U.S. GAAP.
Our historical results for any period are
not necessarily indicative of results to be expected for any future period. You should read the following summary financial information
in conjunction with the consolidated financial statements and related notes and the information under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
STATEMENTS OF
OPERATIONS
(Expressed in U.S. dollars, except for
the number of shares)
|
|
For the Nine Months Ended
September 30,
|
|
|
Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
Revenue from cryptocurrency mining
|
|
$
|
8,602,226
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization shown
below)
|
|
|
(6,866,726
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation and amortization expenses
|
|
|
(1,241,652
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
(1,202,274
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
Total operating expenses
|
|
|
(9,310,652
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(708,426
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
Realized loss on exchange of cryptocurrencies
|
|
|
(15,753
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest income
|
|
|
40
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expenses
|
|
|
(1,964
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations before income taxes
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss from continuing operations
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(3,834,683
|
)
|
|
|
(7,682,866
|
)
|
|
|
(7,682,866
|
)
|
|
|
(1,645,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,560,786
|
)
|
|
$
|
(9,0470,250
|
)
|
|
$
|
(9,676,191
|
)
|
|
|
(3,537,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
(75,120
|
)
|
|
|
(75,120
|
)
|
|
|
(391,463
|
)
|
Comprehensive loss
|
|
$
|
(4,560,786
|
)
|
|
$
|
(9,545,370
|
)
|
|
$
|
(9,751,312
|
)
|
|
|
(3,928,589
|
)
|
Weighted average number of ordinary share outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
25,745,900
|
|
|
|
15,129,954
|
|
|
|
15,197,815
|
|
|
|
14,392,001
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.24
|
)
|
CONSOLIDATED BALANCE
SHEET DATA
(Expressed in U.S. dollars, except for
the number of shares)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
521,648
|
|
|
$
|
15,988
|
|
|
$
|
-
|
|
Restricted cash
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
Cryptocurrencies
|
|
|
652,027
|
|
|
|
-
|
|
|
|
-
|
|
Other current assets
|
|
|
1,209,369
|
|
|
|
12,501
|
|
|
|
|
|
Assets of discontinued operations
|
|
|
-
|
|
|
|
531,767
|
|
|
|
5,663,732
|
|
Total Current Assets
|
|
|
2,983,044
|
|
|
|
560,256
|
|
|
|
5,663,732
|
|
Restricted cash, noncurrent
|
|
|
-
|
|
|
|
600,000
|
|
|
|
600,000
|
|
Deposits for equipment
|
|
|
-
|
|
|
|
110,000
|
|
|
|
-
|
|
Property and equipment, net
|
|
|
17,665,286
|
|
|
|
-
|
|
|
|
-
|
|
Long-term deferred assets
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Assets of discontinued operations, noncurrent
|
|
|
-
|
|
|
|
3,246,277
|
|
|
|
6,217,738
|
|
Total Assets
|
|
$
|
20,648,330
|
|
|
$
|
4,516,533
|
|
|
$
|
12,481,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
268,604
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due to related parties
|
|
|
336,722
|
|
|
|
120,000
|
|
|
|
-
|
|
Other payables and accrued liabilities
|
|
|
160,665
|
|
|
|
266,047
|
|
|
|
-
|
|
Current liabilities of discontinued operations
|
|
|
-
|
|
|
|
43,546
|
|
|
|
403,219
|
|
Total Current Liabilities
|
|
|
765,991
|
|
|
|
429,593
|
|
|
|
403,219
|
|
Total Liabilities
|
|
|
765,991
|
|
|
|
429,593
|
|
|
|
403,219
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par value, 50,000,000 and 50,000,000 shares authorized, 43,699,185, 15,399,185 and 14,899,185 shares issued and outstanding of September 30, 2020 and December 31, 2019 and 2018, respectively
|
|
|
436,992
|
|
|
|
153,992
|
|
|
|
148,992
|
|
Share subscription receivables
|
|
|
-
|
|
|
|
(45,457
|
)
|
|
|
(45,457
|
)
|
Additional paid-in capital
|
|
|
37,796,285
|
|
|
|
17,610,220
|
|
|
|
15,855,220
|
|
Statutory reserve
|
|
|
-
|
|
|
|
6,189
|
|
|
|
6,189
|
|
Accumulated deficit
|
|
|
(18,350,938
|
)
|
|
|
(13,790,152
|
)
|
|
|
(4,319,902
|
)
|
Accumulated other comprehensive loss
|
|
|
-
|
|
|
|
(100,185
|
)
|
|
|
(33,947
|
)
|
Total Bit Digital, Inc.’s Shareholders’ Equity
|
|
|
19,882,339
|
|
|
|
3,834,607
|
|
|
|
11,611,095
|
|
Noncontrolling interests
|
|
|
-
|
|
|
|
252,333
|
|
|
|
467,156
|
|
Total Equity
|
|
|
19,882,339
|
|
|
|
4,086,940
|
|
|
|
12,078,251
|
|
Total Liabilities and Equity
|
|
$
|
20,648,330
|
|
|
$
|
4,516,533
|
|
|
$
|
12,481,470
|
|
Corporate History and Structure
We began our operations in China through
Shanghai Dianniu Internet Finance Information Service Co. Ltd., which was formed in November 2015. In early 2017, we incorporated
Golden Bull Limited under the laws of the Cayman Islands as our offshore holding company under our former name Point Cattle International
Limited. In March 2017, we established our wholly owned Hong Kong subsidiary, Point Cattle Group Company Limited, which formed
Shanghai Fuyu Information and Technology Co., Ltd., its wholly-owned subsidiary in PRC (the “WFOE”). Through the contractual
arrangements between the WFOE, Dianniu and the majority shareholders of Dianniu, we controlled 93.2% of Dianniu and derived 93.2%
of the economic interest from Dianniu.
On June 3, 2019, Golden Bull USA, Inc.
(“Golden Bull USA”) was incorporated in the State of New York, as a wholly-owned subsidiary of the Company. This entity
was formed to develop a car rental business in the United States, which has been put on hold as a result of the Covid-19 pandemic.
On October 24, 2019, the Pudong Branch
of the Shanghai Public Security Bureau (the “Bureau”) announced on its website that it conducted its investigations
against Shanghai Dianniu Internet Finance Information Service Co., Ltd., which was a variable interest entity (“VIE”)
of the Company, for suspected illegal collection of public deposit. This was as a result of a policy change of the Chinese government
which decided to suspend the Company’s peer to peer lending business, as well as the peer to peer lending business of many
other companies, alleging the illegal collection of public deposits. The Bureau took criminal enforcement measures against 17 people
in the case and detained at least six suspects which had no relationship with the current bitcoin mining business and none of these
persons are current officers, directors or employees of the Company. The final outcome of the investigation was not published,
and the Company has not been subject to any proceedings. See “Business- Legal Proceedings” below. The former CEO and
CFO were removed from their management positions as well as from the Board in October 2019. The Board of the Company elected a
new CEO and CFO and set up the new management team in October 2019. No former management or employees were retained and no former
management or employees have any involvement in the Company’s business operations, nor any voice in Management or the Board
of Directors since October 2019.
In October 2019, the Company decided to
enter the bitcoin mining business and commenced operations in February 2020.
On April 8, 2020 the Company acquired Bit
Digital Hong Kong Limited (“Bit Digital Hong Kong”) (formerly known as XMAX Chain Limited), as a wholly-owned subsidiary
in Hong Kong. Bit Digital Hong Kong was purchased from an unaffiliated third party. Management determined that Bit Digital Hong
Kong was formed in March 2018.
On September 1, 2020, the Company formed
Bit Digital USA Inc. (“BT USA”), as a wholly-owned Delaware subsidiary in order to conduct its bitcoin mining business
in the U.S.
On September 8, 2020, the Company entered
into a certain share purchase agreement (the “Disposition SPA”) by and among a BVI company, Sharp Whale Limited (the
“Purchaser”), Point Cattle Holding Limited (the “Subsidiary”) and Golden Bull Limited (now Bit Digital,
Inc., the “Seller”). Pursuant to the Disposition SPA, the Purchaser agreed to purchase the Subsidiary in exchange for
nominal consideration of $10.00 and other good and valuable consideration. The Board of Directors approved the transaction contemplated
by the Disposition SPA (the “Disposition’). The closing of the Disposition occurred on September 8, 2020 and represented
the Company’s complete disposition of the peer-to-peer lending business and focus onto the bitcoin mining business and its
planned auto leasing business in the U.S., once the Coronavirus pandemic is curtailed.
On September 10, 2020, the Cayman Island
recorded the Certification of Incorporation on Change of Name, officially changing the Company’s name to “Bit Digital,
Inc.” which the company’s management believes provided a focused corporate image that more closely reflects the operating
bitcoin mining business.
After our acquisition of Bit Digital Hong
Kong and the formation of U.S. entities for operations of bitcoin mining and the disposal of old operations of peer-to-peer lending
business and related legal entities, the Company is a Cayman entity with one Hong Kong subsidiary, Bit Digital Hong Kong and two
U.S. subsidiaries, with no subsidiary or VIE legal entities in mainland China.
All of the bitcoin mining operations in
mainland China are conducted by Bit Digital Hong Kong. As of this date, we have been advised by PRC counsel that, although some
provincial or local governments of PRC issued special limitations to bitcoin mining operations and other local governments of PRC
may issue similar limitations in the future, the bitcoin mining operations in mainland China are not prohibited by the existing
PRC laws enacted by the National People’s Congress and its Standing Committee and PRC administrative regulations enacted
by the State Council publicly available. Notwithstanding, that fact, as PRC laws and policies are subject to change, we have initiated
the process of forming a subsidiary in PRC.
Foreign Private Issuer Status
We are a foreign private issuer within
the meaning of the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are
exempt from certain provisions applicable to United States domestic public companies. For example:
|
●
|
we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company;
|
|
●
|
for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
|
|
●
|
we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
|
|
●
|
we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
|
|
●
|
we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and
|
|
●
|
Our insiders are not required to comply with Section 16 of the Exchange Act requiring such individuals, and entities to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.
|
Emerging Growth Company Status
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and we are eligible to take advantage of certain
exemptions from various reporting and financial disclosure requirements that are applicable to other public companies, that are
not emerging growth companies, including, but not limited to, (1) presenting only two years of audited financial statements
and only two years of related management’s discussion and analysis of financial condition and results of operations in this
prospectus, (2) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”), (3) reduced disclosure obligations regarding executive compensation in our
periodic reports and proxy statements, and (4) exemptions from the requirements of holding a non-binding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take advantage of
these exemptions. As a result, investors may find investing in our Ordinary Shares less attractive.
In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards.
As a result, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We intend to take advantage of such extended transition period.
We could remain an emerging growth company
for up to five years, or until the earliest of (1) the last day of the first fiscal year in which our annual gross revenues exceed
$1.07 billion, (2) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange
Act, which would occur if the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the
last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months,
or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Corporate Information
Our principal executive offices are located
at 33 Irving Place, New York, New York 10003. Our telephone number at this address is 1-347-328-3680. Our office in Hong Kong is
located at Room 3603, Tower 2 Metro Plaza, Hong Kong, China. Our telephone number at that address is +(86)-021-61659027. Our registered
office in the Cayman Islands is located at Corporate Filing Services Ltd., 3rd Floor, Harbour Centre, 103 South
Church Street, George Town, Grand Cayman, KY 1-1002, Cayman Islands. Our agent for service of process in the United States is Corporation
Service Company, 19 West 44th Street, Suite 201, New York, NY 10036. The Company’s legal advisers are as follows:
in the PRC: Merits & Tree Law Offices,5th Fl., Raffles City, Beijing Office Tower, No.1 Dongzhimen South Street,
Dongcheng District, Beijing 100007, PRC; in the Cayman Islands: Harney Westwood & Riegels, 3rd Floor, Harbour Place,
103 South Church Street, PO Box 10240, KY1-1002, Grand Cayman, Cayman Islands; and in the United States: Davidoff Hutcher &
Citron LLP, 605 Third Ave, New York, NY 10158. Our Auditors are: Audit Alliance, LLP, 20 Maxwell Road #11-09, Maxwell House, Singapore
069113. See “Experts” regarding prior auditors. Investors should contact us for any inquiries through the address and
telephone number of our principal executive offices.
RISK FACTORS
An investment in our Ordinary Shares
involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all other
information contained in this prospectus, including the matters discussed under the headings “Forward-Looking Statements”
and “Operating and Financial Review and Prospects” before you decide to invest in our Ordinary Shares. We are
a holding company with substantial operations in China and are subject to a legal and regulatory environment that in many respects
differs from the United States. If any of the following risks, or any other risks and uncertainties that are not presently foreseeable
to us, actually occur, our business, financial condition, results of operations, liquidity and our future growth prospects could
be materially and adversely affected.
Risks Related to this Offering
The sale or issuance of Ordinary
Shares to Ionic may cause dilution, and the sale of Ordinary Shares acquired by Ionic, or the perception that such sales may occur,
could cause the price of our Ordinary Shares to fall.
On December 31, 2020, the Company entered
into a Securities Purchase Agreement with Ionic for the sale of subordinated convertible Notes up to an aggregate original principal
amount of $1,650,000 with an original issue discount (OID) of 10% in a private placement. If the Notes are not earlier redeemed
by the Company, the Notes shall be automatically converted into Ordinary Shares upon the effectiveness of the registration statement
of which this prospectus is made a part at the Conversion Price then in effect (if no Event of Default has occurred, at the Standard
Conversion Price then in effect, and if an Event of Default has occurred, at the Event of Default Conversion Price). The Standard
Conversion Price is equal to the lower of $6.00 per share and 80% of the average of the three lowest VWAPs during the 15 trading
days ending and including the date of conversion. The Event of Default Conversion Price is equal to 85% of the Standard Conversion
Price. We are registering 412,500 of such conversion shares in the registration statement of which this prospectus forms a part.
Also, on January 11, 2021, we entered into the Purchase Agreement with Ionic pursuant to which Ionic has committed to purchase
up to $80,000,000 of our Ordinary Shares. Of the 5,975,000 shares being registered hereunder which are issuable under the Purchase
Agreement, up to 5,829,268 of such shares may be sold for cash and issued to Ionic under the Purchase Agreement at our discretion
from time to time commencing after the satisfaction of certain conditions set forth in the Purchase Agreement including that the
SEC has declared effective the registration statement that includes this prospectus, and up to 145,732 (2.5% of the number of shares
sold for cash) of such shares being may be issued for no additional consideration as Commitment Shares as such purchases are effected
in accordance with the terms of the Purchase Agreement. We are contractually obligated to issue 15,000 ordinary shares for the
late filing of this registration statement and may be obligated to issue 10,000 shares if this registration statement is not timely
declared effective. The purchase price for the Ordinary Shares that we may sell to Ionic under the Purchase Agreement will fluctuate
based on the price of Ordinary Shares. Depending on market liquidity at the time, sales of such Ordinary Shares may cause the trading
price of our Ordinary Shares to fall.
We generally have the right to control
the timing and amount of any future sales of our Ordinary Shares to Ionic under the Purchase Agreement. Sales of our Ordinary Shares,
if any, to Ionic will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell
to Ionic all, some or none of the additional Ordinary Shares that may be available for us to sell pursuant to the Purchase Agreement.
Therefore, sales to Ionic by us could result in substantial dilution to the interests of other holders of our Ordinary Shares.
Additionally, the sale of a substantial number of Ordinary Shares to Ionic, or the anticipation of such sales, could make it more
difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish
to effect sales. If and when we do sell Ordinary Shares to Ionic, after Ionic has acquired the Ordinary Shares, Ionic may resell
all, some or none of those Ordinary Shares at any time or from time to time in its discretion.
We may not have access to the full
amount available under the Purchase Agreement with Ionic.
Under the Purchase Agreement, from and
after the Commencement Date, the Company has the right, from time to time in its sole discretion and subject to certain conditions
and limitations set forth in the Purchase Agreement, to direct the Investor to purchase up to the lesser of (i) $2,500,000 in Ordinary
Shares; and (ii) 75% of the average dollar volume of Ordinary Shares for the lowest 8 of 10 Trading Days prior to providing notice
to the Investor. The Company may effect a regular purchase at the Regular Purchase Price equal to 85% of the arithmetic average
of the three (3) lowest VWAPs calculated for the period five (5) Trading Days prior to and ending five (5) Trading Days after delivery
of pre-settlement purchase shares based on an estimate and true-up. The Company may also effect an alternate purchase at the Alternate
Purchase Price equal to 80% of the arithmetic average of the VWAPs calculated for the period on and ending five (5) Trading Days
after delivery of pre-settlement shares based on an estimate and true-up.
Although the Purchase Agreement provides
that we may sell up to $80,000,000 of our Ordinary Shares to Ionic, only 5,975,000 Ordinary Shares are being offered under this
prospectus pursuant to the Purchase Agreement (of which up to 145,732 shares may be issued as Commitment Shares for no consideration
and 5,829,268 shares which may be issued and sold to Ionic in the future, if and when we sell Ordinary Shares to Ionic under the
Purchase Agreement). As a result, depending on the market prices of our Ordinary Shares, we may not be able to sell the full $80,000,000
commitment amount contemplated by the Purchase Agreement. For example, assuming that we sell all 5,829,268 Ordinary Shares registered
hereunder that may be issued and sold under the Purchase Agreement for cash at a purchase price of $10.00 per share, our total
gross proceeds would only be $58,292,680.
In the event that the market price of our
Ordinary Shares decreases, we may be able to issue and sell more Ordinary Shares to Ionic of up to $80,000,000 under the Purchase
Agreement than can be represented by the 5,975,000 Ordinary Shares registered for resale under the registration statement that
includes this prospectus. In such case we will need to register for resale under the Securities Act additional Ordinary Shares
to represent such Ordinary Shares, which will require additional time, resources and cost to us. In addition, the issuance and
sale of such additional Ordinary Shares could cause substantial dilution to our shareholders.
The extent to which we rely on Ionic as
a source of funding during the next three (3) years will depend on a number of factors, including the prevailing market price of
our Ordinary Shares and the extent to which we are able to secure working capital from other sources. If obtaining sufficient funding
from Ionic were to prove unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy
our working capital needs. Even if we sell all $80,000,000 of Ordinary Shares under the Purchase Agreement to Ionic, we may still
need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain
our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse
effect on our business, operating results, financial condition and prospects.
Ionic will pay less than the then-prevailing
market price for our Ordinary Shares, which could cause the price of our Ordinary Shares to decline.
The purchase price of Ordinary Shares sold
to Ionic under the Purchase Agreement is derived from the market price of our Ordinary Shares on the Nasdaq Capital Market. The
Ordinary Shares to be sold to Ionic pursuant to the Purchase Agreement will be purchased at a discounted price depending on the
type of purchase. The Company may effect a regular purchase at the Regular Purchase Price equal to 85% of the arithmetic average
of the three (3) lowest VWAPs calculated for the period five (5) Trading Days prior to and ending five (5) Trading Days after delivery
of pre-settlement purchase shares based on an estimate and true-up. The Company may also effect an alternate purchase at the Alternate
Purchase Price equal to 80% of the arithmetic average of the VWAPs calculated for the period on and ending five (5) Trading Days
after delivery of pre-settlement shares based on an estimate and true-up. As a result of this pricing structure, Ionic may sell
the Ordinary Shares it receives immediately after receipt of the Ordinary Shares, which could cause the price of our Ordinary Shares
to decrease. These sales may have a further impact on the price of our Ordinary Shares.
General Risks
We have a history of operating losses,
and we may not be able to achieve or sustain profitability; we have recently shifted our bitcoin mining business, and we may not
be continuously successful in this business.
We are not profitable and have incurred
losses since our inception. We expect to continue to incur losses for the foreseeable future, and these losses could increase as
we continue to work to develop our business. We were previously engaged in peer to peer (“P2P”) online lending business
in China. Starting in or about November 2019, we made a decision to diversify into the bitcoin mining business, as well as car
rental business. In August 2020, we disposed of our P2P and car rental business and totally focused on bitcoin mining business.
Currently, our operations are focused on our bitcoin mining business located at our bitcoin mining facilities in PRC and the United
States. Our current strategy is in an industry that is itself new and evolving and is subject to the risks discussed below. Even
if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.
Our results of operation may fluctuate
significantly and may not fully reflect the underlying performance of our business.
Our results of operations, including the
levels of our net revenues, expenses, net loss and other key metrics, may vary significantly in the future due to a variety of
factors, some of which are outside of our control, and period-to-period comparisons of our operating results may not be meaningful,
especially given our limited operating history. Accordingly, the results for any one quarter are not necessarily an indication
of future performance. Fluctuations in quarterly results may adversely affect the market price of our Ordinary Shares. Factors
that may cause fluctuations in our interim financial results include:
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the amount and timing of operating expenses related to our new business operations and infrastructure;
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fluctuations in the price of bitcoin; and
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general economic, industry and market conditions.
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We may be subject to penalties as
a result of the Chinese government suspension of our P2P lending business
The Company is currently engaged in the
bitcoin mining business. Initially, we were primarily an online finance marketplace, or “peer-to-peer” lending company,
in China that provided borrowers access to loans. On October 24, 2019, the Pudong Branch of the Shanghai Public Security Bureau
(the “Bureau”) announced that it conducted its investigation against Shanghai Dianniu Internet Finance Information
Service Co. Ltd, which was a variable interest entity (VIE) of the Company, for suspected illegal collection of public deposits.
The Bureau took criminal enforcement measures against 17 suspects in the case and detained at least 6 suspects which had no relationship
with the current bitcoin mining business and none of these persons are current officers, directors or employees of the Company.
While the Company has not been subject to any enforcement actions, the Company’s current management believes that its former
Chief Financial Officer and a Director, as well as members of the VIE’s management, may have been the subject of these proceedings.
The Public Security Bureau also initiated online hunting for the Company’s former Chief Executive Officer. As of the date
of this prospectus, the final outcome of investigation was still not published and the impact on the Company could not be estimated.
Pursuant to a Share Purchase Agreement
dated September 8, 2020, the Company sold its subsidiary Point Cattle Holdings Limited and its subsidiaries and VIEs to an unaffiliated
third party and the operations of its peer-to-peer lending business were classified as discontinued operations. As of the date
of this prospectus, the spun-off subsidiaries and VIEs engaging in peer-to-peer lending business have no relationship with the
Company. See “Business - Legal Proceedings.”
We have not received any administrative
penalty for our historical peer-to-peer lending business as of the date of this prospectus. Nevertheless, uncertainties still exist
since the PRC law system also contains government policies and internal rules (some of which are not published in a timely manner
or at all) that may have retroactive effect. Therefore, the Company may be subject to fines, other administrative sanctions and
criminal liability for the former peer-to-peer lending business. In addition, although the Company is not responsible for customers’
claimed losses, the filing of any such claims and/or government investigations or proceedings against the Company or any of its
affiliates, even if not justified, may create negative publicity and have a material adverse effect on the Company. If such situations
occur, our business, financial condition and results of operations may be materially and adversely affected even though our VIE
is not currently in the P2P lending business.
We may acquire other businesses,
form joint ventures or acquire other companies or businesses that could negatively affect our operating results, dilute our stockholders’
ownership, increase our debt or cause us to incur significant expense; notwithstanding the foregoing, our growth may depend on
our success in uncovering and completing such transactions.
We are seeking to enter bitcoin mining
related business around the globe; however, we cannot offer any assurance that acquisitions of businesses, assets and/or entering
into strategic alliances or joint ventures will be successful. We may not be able to find suitable partners or acquisition candidates
and may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able
to integrate these acquisitions successfully into our existing infrastructure. In addition, in the event we acquire any existing
businesses we could assume unknown or contingent liabilities.
Any future acquisitions also could result
in the issuance of stock, incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any
of which could have a negative impact on our cash flows, financial condition and results of operations. Integration of an acquired
company may also disrupt ongoing operations and require management resources that otherwise would be focused on developing and
expanding our existing business. We may experience losses related to potential investments in other companies, which could harm
our financial condition and results of operations. Further, we may not realize the anticipated benefits of any acquisition, strategic
alliance or joint venture if such investments do not materialize.
To finance any acquisitions or joint ventures,
we may choose to issue shares of common stock, preferred stock or a combination of debt and equity as consideration, which could
significantly dilute the ownership of our existing stockholders or provide rights to such preferred stockholders in priority over
our common stockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our
Ordinary Shares is low or volatile, we may not be able to acquire other companies or fund a joint venture project using stock as
consideration.
From time to time we may evaluate
and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt
our business and adversely affect our financial results.
We may evaluate and consider strategic
investments, combinations, acquisitions or alliances in the bitcoin mining business. These transactions could be material to our
financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we
may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to
obtain the benefits or avoid the difficulties and risks of such transaction.
Strategic investments or acquisitions will
involve risks commonly encountered in business relationships, including:
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difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business;
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inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits;
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difficulties in retaining, training, motivating and integrating key personnel;
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diversion of management’s time and resources from our normal daily operations;
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difficulties in successfully incorporating licensed or acquired technology and rights into our businesses;
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difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;
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difficulties in retaining relationships with customers, employees and suppliers of the acquired business;
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risks of entering markets, in parts of the U.S., in which we have limited or no prior experience;
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regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability;
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failure to successfully further develop the acquired technology;
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liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;
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potential disruptions to our ongoing businesses; and
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unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.
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We may not make any investments or acquisitions,
or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient
revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, we cannot
assure you that any future investment in or acquisition of new businesses or technology will achieve market acceptance or prove
to be profitable.
Our loss of any of our management
team, our inability to execute an effective succession plan, or our inability to attract and retain qualified personnel, could
adversely affect our business.
Our success and future growth will depend
to a significant degree on the skills and services of our management, including Mr. Erke Huang who serves as our interim Chief
Executive Officer and Chief Financial Officer. We will need to continue to grow our management in order to alleviate pressure on
our existing team and in order to continue to develop our business. If our management, including any new hires that we may make,
fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed. Furthermore,
if we fail to execute an effective contingency or succession plan with the loss of any member of management, the loss of such management
personnel may significantly disrupt our business.
The loss of key members of management could
inhibit our growth prospects. Our future success also depends in large part on our ability to attract, retain and motivate key
management and operating personnel. As we continue to develop and expand our operations, we may require personnel with different
skills and experiences, and who have a sound understanding of our business and the bitcoin industry. The market for highly qualified
personnel in this industry is very competitive and we may be unable to attract such personnel. If we are unable to attract such
personnel, our business could be harmed.
We incur significant costs and demands
upon management and accounting and finance resources as a result of complying with the laws and regulations affecting public companies;
if we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements
could be impaired, which could harm our operating results, our ability to operate our business and our reputation.
As a public reporting company, we are required
to, among other things, maintain a system of effective internal control over financial reporting. Ensuring that we have adequate
internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely
basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Substantial work will continue to be required
to further implement, document, assess, test and remediate our system of internal controls.
If our internal control over financial
reporting is not effective, we may be unable to issue our financial statements in a timely manner, we may be unable to obtain the
required audit or review of our financial statements by our independent registered public accounting firm in a timely manner or
we may be otherwise unable to comply with the periodic reporting requirements of the SEC, our common stock listing on Nasdaq could
be suspended or terminated and our stock price could materially suffer. In addition, we or members of our management could be subject
to investigation and sanction by the SEC and other regulatory authorities and to stockholder lawsuits, which could impose significant
additional costs on us and divert management attention.
Because cryptocurrencies may be determined
to be investment securities, we may inadvertently violate the Investment Company Act and incur large losses as a result and potentially
be required to register as an investment company or terminate operations and we may incur third party liabilities.
We are engaged in the mining of bitcoins
which the SEC said is currency and not securities. We therefore believe that we are not engaged in the business of investing, reinvesting,
or trading in securities, and we do not hold ourselves out as being engaged in those activities. However, under the Investment
Company Act a company may be deemed an investment company under section 3(a)(1)(C) thereof if the value of its investment securities
is more than 40% of its total assets (exclusive of government securities and cash items) on an unconsolidated basis.
As a result of our investments and our
mining activities, including investments in which we do not have a controlling interest, the investment securities we hold could
exceed 40% of our total assets, exclusive of cash items and, accordingly, we could determine that we have become an inadvertent
investment company. The bitcoins we own, acquire or mine may be deemed an investment security by the SEC, although we do not believe
the bitcoins we own, acquire or mine are securities. An inadvertent investment company can avoid being classified as an investment
company if it can rely on one of the exclusions under the Investment Company Act. One such exclusion, Rule 3a-2 under the Investment
Company Act, allows an inadvertent investment company a grace period of one year from the earlier of (a) the date on which an issuer
owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated
basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the
value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. We may
take actions to cause the investment securities held by us to be less than 40% of our total assets, which may include acquiring
assets with our cash and bitcoin on hand or liquidating our investment securities or bitcoin or seeking a no-action letter from
the SEC if we are unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner.
As the Rule 3a-2 exception is available
to a company no more than once every three years, and assuming no other exclusion were available to us, we would have to keep within
the 40% limit for at least three years after we cease being an inadvertent investment company. This may limit our ability to make
certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. In any event, we
do not intend to become an investment company engaged in the business of investing and trading securities.
Classification as an investment company
under the Investment Company Act requires registration with the SEC. If an investment company fails to register, it would have
to stop doing almost all business, and its contracts would become voidable. Registration is time consuming and restrictive and
would require a restructuring of our operations, and we would be very constrained in the kind of business we could do as a registered
investment company. Further, we would become subject to substantial regulation concerning management, operations, transactions
with affiliated persons and portfolio composition, and would need to file reports under the Investment Company Act regime. The
cost of such compliance would result in the Company incurring substantial additional expenses, and the failure to register if required
would have a materially adverse impact to our operations.
We face risks related to the novel
Coronavirus (COVID-19) outbreak, which could significantly disrupt our operations and financial results.
We believe that our results of operations,
business and financial condition has continuously been adversely impacted by the effects of the novel Coronavirus (COVID-19). Currently,
the majority of our mining operations are in China. Although the novel Coronavirus (COVID-19) outbreak in China has been strictly
and well controlled, to date the Chinese local authorities normally require quarantine or restriction on the movement of residents
once new novel Coronavirus (COVID-19) patient found in their jurisdiction according to the severity of the situation. If a similar
situation occurs near our mining factories, we may experience disruptions to our business operations resulting from quarantines,
self-isolations, or other movement and restrictions on the ability of our mining consultants to perform their jobs. If we are unable
to effectively service our miners, our ability to mine bitcoin will be adversely affected as miners go offline, which would have
an adverse effect on our business and the results of our operations.
In addition to global macroeconomic effects,
the novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments may cause disruption to our
mining activities. The novel Coronavirus (COVID-19) or other disease outbreak will in the short-term, and may over the longer term,
adversely affect the economies and financial markets of many countries, resulting in an economic downturn that may adversely affect
demand for bitcoin and impact our operating results. Although the magnitude of the impact of the novel Coronavirus (COVID-19) outbreak
on our business and operations remains uncertain, the continued global spread of the novel Coronavirus (COVID-19) or the occurrence
of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact
our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions
to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our
employees to perform their jobs. If we are unable to effectively service our miners, our ability to mine bitcoin will be adversely
affected as miners go offline, which would have an adverse effect on our business and the results of our operations.
Our third-party manufacturers, suppliers,
sub-contractors and customers have been and will continue to be disrupted by worker absenteeism, quarantines, restrictions on employees’
ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other
travel or health-related restrictions. Depending on the magnitude of such effects on our supply chain, shipments of parts for our
existing miners, which are second-hand, as well as any new miners we purchase, may be delayed. As our miners require repair or
become obsolete and require replacement, our ability to obtain adequate replacements or repair parts from their manufacturer may
therefore be hampered. Supply chain disruptions could therefore negatively impact our operations. If not resolved quickly, the
impact of the novel Coronavirus (COVID-19) global pandemic could have a material adverse effect on our business.
The coronavirus pandemic is a serious
threat to health and economic wellbeing affecting our employees, investors and our sources of supply.
On March 11, 2020, the World Health Organization
announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President announced
a National Emergency relating to the disease. There has been and continues to be widespread infection in the United States with
a second wave now appearing in China, with the potential for catastrophic impact. Mandatory business closures have had catastrophic
impacts on domestic and foreign economies of uncertain duration.
The effectiveness of the novel Coronavirus
(COVID-19) vaccine remains to be verified worldwide. The sweeping nature of the novel Coronavirus (COVID-19) pandemic makes it
extremely difficult to predict how the company’s business and operations will be affected in the longer run. So far, the
likely overall economic impact of the pandemic is widely viewed as highly negative to the global economy.
If we cannot maintain our corporate
culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business.
We believe that a critical component of
our success is our corporate culture, which we believe fosters innovation, encourages teamwork and cultivates creativity. As we
develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects
of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability
to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.
We do not have any business insurance
coverage.
Insurance companies in China currently
do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, we do not
have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for
these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical
for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion
of resources, which could have an adverse effect on our results of operations and financial condition.
If we are unable to successfully
continue our bitcoin mining business plan, it would affect our financial and business condition and results of operations.
Our previously announced growth strategy
included the expansion of our operations to our upstream and downstream industries. In fiscal 2018, we set new financial targets
to grow operating income, accelerate earnings per share growth faster than operating income growth and improve return on invested
capital. In October 2019, we decided to enter the bitcoin mining business. There are various risks related to these efforts, including
the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier
than expected; and the risk of adverse effects to our business, results of operations and liquidity if past and future undertakings,
and the associated changes to our business, do not prove to be cost effective or do not result in the cost savings and other benefits
at the levels that we anticipate. Our intentions and expectations with regard to the execution of our business plan, and the timing
of any related initiatives, are subject to change at any time based on management’s subjective evaluation of our overall
business needs. If we are unable to successfully execute our business plan, whether due to failure to realize the anticipated benefits
from our business initiatives in the anticipated time frame or otherwise, we may be unable to achieve our financial targets.
Failure to manage our liquidity and
cash flows may materially and adversely affect our financial conditions and results of operations. As a result, we may need additional
capital, and financing may not be available on terms acceptable to us, or at all.
In May and July 2020, we raised gross proceeds
aggregating $19.8 million in two private placements, which enabled us to implement our new business strategy. However, we incurred
net losses of approximately $4.6 million, $9.5 million, $9.7 million and $3.5 million for the nine months ended September 30, 2020
and 2019 and for the years ended December 31, 2019 and 2018, respectively. We also had negative cash flows from our operating activities
of approximately $8.6 million, $1.3 million and $5.1 million for the nine months ended September 30, 2020 and for the year ended
December 31, 2020 and 2019, respectively. We cannot assure you our business model will allow us to generate positive cash, given
our substantial expenses in relation to our revenue at this stage of our Company’s development. Our continued inability to
offset our expenses with adequate revenue, will adversely affect our liquidity, financial condition and results of operations.
Although we believe that our cash on hand and anticipated cash flows from operating activities will be sufficient to meet our anticipated
working capital requirements and capital expenditures in the ordinary course of business for the next 12 months, we cannot assure
you this will be the case. We expect to need additional cash resources in the future as we wish to pursue opportunities for investment,
acquisition, capital expenditure or similar actions in order to implement our business plan. In this regard, we are seeking to
issue equity under the registration statement of which this prospectus is a part, and/or debt securities and may obtain credit
facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of
indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations.
We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Bitcoin-Related Risks
Our results of operations are expected
to be impacted by significant fluctuation of Bitcoin price
The price of Bitcoin has experienced significant
fluctuations over its relatively short existence and may continue to fluctuate significantly in the future. Bitcoin prices ranged
from approximately US$3,792 per coin as of December 31, 2018, US$7,220 per coin as of December 31, 2019 to US$ 28,922 per coin
as of December 31, 2020 according to Blockchain.info. According to the same source, from January 1, 2020 to December 31, 2020,
the highest Bitcoin price was approximately US$29,307 per coin and the lowest was US$3,800 per coin.
We expect our results of operations to
continue to be affected by the bitcoin price as most of the revenue is from bitcoin mining production as of the filing date. Any
future significant reductions in the price of bitcoin will likely have a material and adverse effect on our results of operations
and financial condition. We cannot assure you that the bitcoin price will remain high enough to sustain our operation or that the
bitcoin price will not decline significantly in the future. Furthermore, fluctuations in the bitcoin price can have an immediate
impact on the trading price of our Ordinary Shares even before our financial performance is affected, if at all.
Various factors, mostly beyond our control,
could impact the bitcoin price. For example, the usage of bitcoins in the retail and commercial marketplace is relatively low in
comparison with the usage for speculation, which contributes to Bitcoin price volatility. Additionally, the reward for bitcoin
mining will decline over time, with the most recent halving event occurred in May 2020 and next one to occur four years later,
which may further contribute to Bitcoin price volatility.
It may be illegal now, or in the
future, to acquire, own, hold, sell or use bitcoin, ether, or other cryptocurrencies, participate in blockchains or utilize similar
bitcoin assets in China or other countries, the ruling of which would adversely affect us.
Although currently cryptocurrencies generally
are not regulated or are lightly regulated in most countries, one or more countries such as China and Russia, which have taken
harsh regulatory action, may take regulatory actions in the future that could severely restrict the right to acquire, own, hold,
sell or use these bitcoin assets or to exchange for fiat currency. China’s Inner Mongolia recently announced solicitation
of banning cryptocurrency mining and it may shut all mining facilities in Inner Mongolia by April 2021, in order to constrain growth
in energy consumption. Other provinces in China where the Company deploys miners may do the same. While we are in the process of
migrating bitcoin miners, there can be no assurance that we can be successful. In many nations, particularly in China and Russia,
financial institutions are barred from accepting deposits of cryptocurrencies. Such restrictions may adversely affect us as the
large-scale use of cryptocurrencies as a means of exchange is presently confined to certain regions globally. Such circumstances
could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which
could have a material adverse effect on our business, prospects or operations and potentially the value of any bitcoin or other
cryptocurrencies we mine or otherwise acquire or hold for our own account, and harm investors.
Our mining operating costs outpace
our mining revenues, which could seriously harm our business or increase our losses.
Our mining operations are costly, and our
expenses may increase in the future. We intend to use funds on hand and from shares sold under the Purchase Agreement to continue
to purchase bitcoin mining machines. This expense increase may not be offset by a corresponding increase in revenue. Our expenses
may be greater than we anticipate, and our investments to make our business more efficient may not succeed and may outpace monetization
efforts. Increases in our costs without a corresponding increase in our revenue would increase our losses and could seriously harm
our business and financial perform.
We have an evolving business model
which is subject to various uncertainties.
As bitcoin assets may become more widely
available, we expect the services and products associated with them to evolve. In order to stay current with the industry, our
business model may need to evolve as well. From time to time, we may modify aspects of our business model relating to our strategy.
We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to our business.
We may not be able to manage growth effectively, which could damage our reputation, limit our growth and negatively affect our
operating results. Further, we cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities
in this business sector, and we may lose out on those opportunities. Such circumstances could have a material adverse effect on
our business, prospects or operations.
The properties included in our mining
network may experience damages, including damages that are not covered by insurance.
Our current mining operation in Xinjiang,
Inner Mongolia, Yunnan and Sichuan China and Texas, and Nebraska in the United States are, and any future mining sites we may establish
will be, subject to a variety of risks relating to physical condition and operation, including, but not limited to:
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the presence of construction or repair defects or other structural or building damage;
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any noncompliance with or liabilities under applicable environmental, health or safety regulations or requirements or building permit requirements;
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any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods and windstorms; and
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claims by employees and others for injuries sustained at our properties.
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For example, our mine could be rendered
inoperable, temporarily or permanently, as a result of a fire or other natural disaster, the coronavirus, or by a terrorist or
other attack on the mine. The security and other measures we take to protect against these risks may not be sufficient. Additionally,
our mine could be materially adversely affected by a power outage or loss of access to the electrical grid or loss by the grid
of cost-effective sources of electrical power generating capacity. Given the power requirement, it would not be feasible to run
miners on back-up power generators in the event of a power outage. we do not have any insurance to cover the replacement cost of
any lost or damaged miners, or any interruption of our mining activities. In the event of an uninsured loss, such mines may not
be adequately repaired in a timely manner or at all and we may lose some or all of the future revenues anticipated to be derived
from such mines.
If, pursuant to our hosting service
contracts (the “Hosting Agreements”) with hosting service providers, hosting service providers cannot or will not supply
sufficient electric power for us to operate our miners, we may be required to relocate some or all of our miners to an alternative
facility, which may have a less advantageous cost structure and our business and results of operations may suffer as a result.
We have made a significant capital investment
in purchasing second-hand miners in order to implement them rapidly to mine bitcoin at prices advantageous to us. Management believes,
based on its knowledge of the industry, that the Hosting Agreements provide many advantages as opposed to other alternative arrangements.
If we are required to deploy or move our miners from the current hosting service providers to other mining facilities, we may be
forced to accept less advantageous terms. Further, during relocation to a new mining facility, we will not be able to operate our
miners and therefore we will not be able to generate revenue.
If we are unable to secure sufficient power
supply from the current hosting service providers, or if the current hosting service providers are unable to supply sufficient
electric power, we may be forced to seek out an alternative mining facility. Should this occur, our operations may be disrupted,
which may have a material adverse effect on our operations.
If our Hosting Agreements with the
current hosting service providers are terminated, we may be forced to seek a replacement facility to operate our miners on acceptable
terms; should this occur, our operations may be disrupted, which may have a material adverse effect on our operations.
If we are forced to relocate to a new mining
facility, we may not be successful in identifying adequate replacement facilities to house our miners. And even if we do identify
such facilities, we may not be able to secure use of those facilities at rates that are economically viable to support our mining
activities. Relocating our miners will require us to incur costs to transition to a new facility including, but not limited to,
transportation expenses and insurance, downtime while we are unable to mine, legal fees to negotiate the new lease, de-installation
at our current facility and, ultimately, installation at any new facility we identify. These costs may be substantial, and we cannot
guarantee that we will be successful in transitioning our miners to a new facility. If we are required to move our miners, our
business may suffer, and our results of operations would be expected to be materially adversely affected.
Regulatory changes or actions may
alter the nature of an investment in us or restrict the use of cryptocurrencies in a manner that adversely affects our business,
prospects or operations.
As cryptocurrencies have grown in both
popularity and market size, governments around the world have reacted differently to cryptocurrencies; certain governments have
deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the
U.S., subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. Ongoing and future regulatory
actions may impact our ability to continue to operate, and such actions could affect our ability to continue as a going concern
or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations.
The development and acceptance of
cryptographic and algorithmic protocols governing the issuance of and transactions in cryptocurrencies is subject to a variety
of factors that are difficult to evaluate.
The use of cryptocurrencies to, among other
things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs
bitcoin assets based upon a computer-generated mathematical and/or cryptographic protocol. Large-scale acceptance of cryptocurrencies
as a means of payment has not, and may never, occur. The growth of this industry in general, and the use of bitcoin, in particular,
is subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols
may occur unpredictably. The factors include, but are not limited to:
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continued worldwide growth in the adoption and use of cryptocurrencies as a medium to exchange;
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governmental and quasi-governmental regulation of cryptocurrencies and their use, or restrictions on or regulation of access to and operation of the network or similar bitcoin systems;
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changes in consumer demographics and public tastes and preferences;
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the maintenance and development of the open-source software protocol of the network;
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the increased consolidation of contributors to the bitcoin blockchain through mining pools;
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the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;
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the use of the networks supporting cryptocurrencies for developing smart contracts and distributed applications;
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general economic conditions and the regulatory environment relating to cryptocurrencies; and
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negative consumer sentiment and perception of bitcoin specifically and cryptocurrencies generally.
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The outcome of these factors could have
negative effects on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material
adverse effect on our business, prospects or operations as well as potentially negative effect on the value of any bitcoin or other
cryptocurrencies we mine or otherwise acquire or hold for our own account, which would harm investors in our securities.
Banks and financial institutions
may not provide banking services, or may cut off services, to businesses that engage in bitcoin-related activities or that accept
cryptocurrencies as payment, including financial institutions of investors in our securities.
A number of companies that engage in bitcoin
and/or other bitcoin-related activities have been unable to find banks or financial institutions that are willing to provide them
with bank accounts and other services. Similarly, a number of companies and individuals or businesses associated with cryptocurrencies
may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions
in response to government action, particularly in China, where regulatory response to cryptocurrencies has been to exclude their
use for ordinary consumer transactions within its jurisdiction.
Subject to such restrictions, we also may
be unable to obtain or maintain these services for our business. The difficulty that many businesses that provide bitcoin and/or
derivatives on other bitcoin-related activities have and may continue to have in finding banks and financial institutions willing
to provide them services may be decreasing the usefulness of cryptocurrencies as a payment system and harming public perception
of cryptocurrencies and could decrease their usefulness and harm their public perception in the future.
The usefulness of cryptocurrencies as a
payment system and the public perception of cryptocurrencies could be damaged if banks or financial institutions were to close
the accounts of businesses engaging in bitcoin and/or other bitcoin-related activities. This could occur as a result of compliance
risk, cost, government regulation or public pressure. The risk applies to securities firms, clearance and settlement firms, national
stock and derivatives on commodities exchanges, the over-the-counter market, and the Depository Trust Company, which, if any of
such entities adopts or implements similar policies, rules or regulations, could negatively affect our relationships with financial
institutions and impede our ability to convert cryptocurrencies to fiat currencies. Such factors could have a material adverse
effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse
effect on our business, prospects or operations and harm investors.
We may face risks of Internet disruptions,
which could have an adverse effect on the price of cryptocurrencies.
A disruption of the Internet may affect
the use of cryptocurrencies and subsequently the value of our securities. Generally, cryptocurrencies and our business of mining
cryptocurrencies is dependent upon the Internet. A significant disruption in Internet connectivity could disrupt a currency’s
network operations until the disruption is resolved and have an adverse effect on the price of cryptocurrencies and our ability
to mine cryptocurrencies.
The impact of geopolitical and economic
events on the supply and demand for cryptocurrencies is uncertain.
Geopolitical crises may motivate large-scale
purchases of bitcoin and other cryptocurrencies, which could increase the price of bitcoin and other cryptocurrencies rapidly.
This may increase the likelihood of a subsequent price decrease as crisis-driven purchasing behavior dissipates, adversely affecting
the value of our inventory following such downward adjustment. Such risks are similar to the risks of purchasing commodities in
general uncertain times, such as the risk of purchasing, holding or selling gold. Alternatively, as an emerging asset class with
limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in cryptocurrencies
as investors focus their investment on less volatile asset classes as a means of hedging their investment risk.
As an alternative to fiat currencies that
are backed by central governments, cryptocurrencies, which are relatively new, are subject to supply and demand forces. How such
supply and demand will be impacted by geopolitical events is largely uncertain but could be harmful to us and investors in our
common stock. Political or economic crises may motivate large-scale acquisitions or sales of cryptocurrencies either globally or
locally. Such events could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy
at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any bitcoin
or any other cryptocurrencies we mine or otherwise acquire or hold for our own account.
Acceptance and/or widespread use
of bitcoin is uncertain.
Currently, there is a relatively limited
use of any bitcoin in the retail and commercial marketplace, thus contributing to price volatility that could adversely affect
an investment in our securities. Banks and other established financial institutions may refuse to process funds for bitcoin transactions,
process wire transfers to or from bitcoin exchanges, bitcoin-related companies or service providers, or maintain accounts for persons
or entities transacting in bitcoin. Conversely, a significant portion of bitcoin demand is generated by investors seeking a long-term
store of value or speculators seeking to profit from the short- or long-term holding of the asset. Price volatility undermines
any bitcoin’s role as a medium of exchange, as retailers are much less likely to accept it as a form of payment. Market capitalization
for a bitcoin as a medium of exchange and payment method may always be low.
The relative lack of acceptance of bitcoins
in the retail and commercial marketplace, or a reduction of such use, limits the ability of end users to use them to pay for goods
and services. Such lack of acceptance or decline in acceptances could have a material adverse effect on our ability to continue
as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects
or operations and potentially the value of bitcoins we mine or otherwise acquire or hold for our own account.
Transactional fees may decrease demand
for bitcoin and prevent expansion.
As the number of bitcoins currency rewards
awarded for solving a block in a blockchain decreases, the incentive for miners to continue to contribute to the bitcoin network
may transition from a set reward to transaction fees. In order to incentivize miners to continue to contribute to the bitcoin network,
the bitcoin network may either formally or informally transition from a set reward to transaction fees earned upon solving a block.
This transition could be accomplished by miners independently electing to record in the blocks they solve only those transactions
that include payment of a transaction fee. If transaction fees paid for bitcoin transactions become too high, the marketplace may
be reluctant to accept bitcoin as a means of payment and existing users may be motivated to switch from bitcoin to another bitcoin
or to fiat currency. Either the requirement from miners of higher transaction fees in exchange for recording transactions in a
blockchain or a software upgrade that automatically charges fees for all transactions may decrease demand for bitcoin and prevent
the expansion of the bitcoin network to retail merchants and commercial businesses, resulting in a reduction in the price of bitcoin
that could adversely impact an investment in our securities. Decreased use and demand for bitcoin may adversely affect its value
and result in a reduction in the price of bitcoin and the value of our Ordinary Shares.
The decentralized nature of the governance
of bitcoin systems may lead to ineffective decision making that slows development or prevents a network from overcoming emergent
obstacles. Governance of many bitcoin systems is by voluntary consensus and open competition with no clear leadership structure
or authority. To the extent lack of clarity in corporate governance of bitcoin systems leads to ineffective decision making that
slows development and growth of such cryptocurrencies, the value of our Ordinary Shares may be adversely affected.
There is a lack of liquid markets,
and possible manipulation of blockchain/bitcoin-based assets.
Cryptocurrencies that are represented and
trade on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have listing requirements
and vet issuers; requiring them to be subjected to rigorous listing standards and rules, and monitor investors transacting on such
platform for fraud and other improprieties. These conditions may not necessarily be replicated on a distributed ledger platform,
depending on the platform’s controls and other policies. The laxer a distributed ledger platform is about vetting issuers
of bitcoin assets or users that transact on the platform, the higher the potential risk for fraud or the manipulation of the ledger
due to a control event. These factors may decrease liquidity or volume or may otherwise increase volatility of investment securities
or other assets trading on a ledger-based system, which may adversely affect us. Such circumstances could have a material adverse
effect on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse
effect on our business, prospects or operations and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise
acquire or hold for our own account, and harm investors.
Our operations, investment strategies
and profitability may be adversely affected by competition from other methods of investing in cryptocurrencies.
We compete with other users and/or companies
that are mining cryptocurrencies and other potential financial vehicles, including securities backed by or linked to cryptocurrencies
through entities similar to us. Market and financial conditions, and other conditions beyond our control, may make it more attractive
to invest in other financial vehicles, or to invest in cryptocurrencies directly, which could limit the market for our shares and
reduce their liquidity. The emergence of other financial vehicles and exchange-traded funds have been scrutinized by regulators
and such scrutiny and the negative impressions or conclusions resulting from such scrutiny could be applicable to us and impact
our ability to successfully pursue our business strategy or operate at all, or to maintain a public market for our securities.
Such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our business
strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value
of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account, and harm investors.
The development and acceptance of
competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.
The development and acceptance of competing
blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or an alternative to distributed
ledgers altogether. Our business utilizes presently existent digital ledgers and blockchains and we could face difficulty adapting
to emergent digital ledgers, blockchains, or alternatives thereto. This may adversely affect us and our exposure to various blockchain
technologies and prevent us from realizing the anticipated profits from our investments. Such circumstances could have a material
adverse effect on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material
adverse effect on our business, prospects or operations and potentially the value of any bitcoin or other cryptocurrencies we mine
or otherwise acquire or hold for our own account, and harm investors.
Our bitcoins may be subject to loss,
theft or restriction on access.
There is a risk that some or all of our
bitcoins could be lost or stolen. Cryptocurrencies are stored in bitcoin sites commonly referred to as “wallets” by
holders of bitcoins which may be accessed to exchange a holder’s bitcoin assets. Access to our bitcoin assets could also
be restricted by cybercrime (such as a denial of service attack) against a service at which we maintain a hosted hot wallet. A
hot wallet refers to any bitcoin wallet that is connected to the Internet. Generally, hot wallets are easier to set up and access
than wallets in cold storage, but they are also more susceptible to hackers and other technical vulnerabilities. Cold storage refers
to any bitcoin wallet that is not connected to the Internet. Cold storage is generally more secure than hot storage but is not
ideal for quick or regular transactions and we may experience lag time in our ability to respond to market fluctuations in the
price of our bitcoin assets. We hold all of our cryptocurrencies in cold storage to reduce the risk of malfeasance, but the risk
of loss of our bitcoin assets cannot be wholly eliminated.
Hackers or malicious actors may launch
attacks to steal, compromise or secure cryptocurrencies, such as by attacking the bitcoin network source code, exchange miners,
third-party platforms, cold and hot storage locations or software, or by other means. We may be in control and possession of one
of the more substantial holdings of bitcoins. As we increase in size, we may become a more appealing target of hackers, malware,
cyber-attacks or other security threats. Any of these events may adversely affect our operations and, consequently, our investments
and profitability. The loss or destruction of a private key required to access our digital wallets may be irreversible and we may
be denied access for all time to our bitcoin holdings or the holdings of others held in those compromised wallets. Our loss of
access to our private keys or our experience of a data loss relating to our digital wallets could adversely affect our investments
and assets.
Cryptocurrencies are controllable only
by the possessor of both the unique public and private keys relating to the local or online digital wallet in which they are held,
which wallet’s public key or address is reflected in the network’s public blockchain. We will publish the public key
relating to digital wallets in use when we verify the receipt of transfers and disseminate such information into the network, but
we will need to safeguard the private keys relating to such digital wallets. To the extent such private keys are lost, destroyed
or otherwise compromised, we will be unable to access our bitcoin rewards and such private keys may not be capable of being restored
by any network. Any loss of private keys relating to digital wallets used to store our cryptocurrencies could have a material adverse
effect on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse
effect on our business, prospects or operations and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise
acquire or hold for our own account.
Risks due to hacking or adverse software
event.
In order to minimize risk, we have established
processes to manage wallets that are associated with our bitcoin holdings. There can be no assurances that any processes we have
adopted or will adopt in the future are or will be secure or effective, and we would suffer significant and immediate adverse effects
if we suffered a loss of our bitcoin due to an adverse software or cybersecurity event. We utilize several layers of threat reduction
techniques, including: (i) the use of hardware wallets to store sensitive private key information; (ii) performance of transactions
offline; and (iii) offline generation storage and use of private keys.
At present, the Company is evaluating several
third-party custodial wallet alternatives, but there can be no assurance that such services will be more secure than those the
Company presently employs. Human error and the constantly evolving state of cybercrime and hacking techniques may render present
security protocols and procedures ineffective in ways which we cannot predict. If our security procedures and protocols are ineffectual
and our bitcoin assets are compromised by cybercriminals, we may not have adequate recourse to recover our losses stemming from
such compromise and we may lose much of the accumulated value of our bitcoin mining activities. This would have a material adverse
impact on our business and operations.
Incorrect or fraudulent bitcoin transactions
may be irreversible.
Bitcoin transactions are irrevocable and
stolen or incorrectly transferred cryptocurrencies may be irretrievable. As a result, any incorrectly executed or fraudulent bitcoin
transactions could adversely affect our investments and assets.
Bitcoin transactions are not, from an administrative
perspective, reversible without the consent and active participation of the recipient of the cryptocurrencies from the transaction.
In theory, bitcoin transactions may be reversible with the control or consent of a majority of processing power on the network,
however, we do not now, nor is it feasible that we could in the future, possess sufficient processing power to affect this reversal.
Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of a bitcoin
or a theft thereof generally will not be reversible, and we may not have sufficient recourse to recover our losses from any such
transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our bitcoin rewards
could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. Further, according to
the SEC, at this time, there is no specifically enumerated U.S. or foreign governmental, regulatory, investigative or prosecutorial
authority or mechanism through which to bring an action or complaint regarding missing or stolen bitcoin. We are, therefore, presently
reliant on existing private investigative entities, such as Chain analysis and Kroll to investigate any potential loss of our bitcoin
assets. These third-party service providers rely on data analysis and compliance of ISPs with traditional court orders to reveal
information such as the IP addresses of any attackers who may have targeted us. To the extent that we are unable to recover our
losses from such action, error or theft, such events could have a material adverse effect on our ability to continue as a going
concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations
of and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.
Our interactions with a blockchain
may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distribute ledger technology.
The Office of Financial Assets Control
of the US Department of Treasury (“OFAC”) requires us to comply with its sanction program and not conduct business
with persons named on its specially designated nationals (“SDN”) list. However, because of the pseudonymous nature
of blockchain transactions we may inadvertently and without our knowledge engage in transactions with persons named on OFAC’s
SDN list. Our Company’s policy prohibits any transactions with such SDN individuals, but we may not be adequately capable
of determining the ultimate identity of the individual with whom we transact with respect to selling bitcoin assets. Moreover,
federal law prohibits any U.S. person from knowingly or unknowingly possessing any visual depiction commonly known as child pornography.
Recent media reports have suggested that persons have imbedded such depictions on one or more blockchains. Because our business
requires us to download and retain one or more blockchains to effectuate our ongoing business, it is possible that such digital
ledgers contain prohibited depictions without our knowledge or consent. To the extent government enforcement authorities literally
enforce these and other laws and regulations that are impacted by decentralized distributed ledger technology, we may be subject
to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could harm
our reputation and affect the value of our common stock.
Our reliance primarily on a single
model of miner may subject our operations to increased risk of mine failure.
The performance and reliability of our
miners and our technology is critical to our reputation and our operations. Because we currently use MicroBT, Bitmain and Innosilicon
miners, if there are issues with those machines, our entire system could be affected. Any system error or failure may significantly
delay response times or even cause our system to fail. Any disruption in our ability to continue mining could result in lower yields
and harm our reputation and business. Any exploitable weakness, flaw, or error common to MicroBT, Bitmain and Innosilicon miners
affects all our miners, if a defect other flaw is exploited, our entire mine could go offline simultaneously. Any interruption,
delay or system failure could result in financial losses, a decrease in the trading price of our Ordinary Shares and damage to
our reputation.
The Company’s reliance on a
third-party mining pool service provider for our mining revenue payouts may have a negative impact on the Company’s operations.
We use third–party mining pools to
receive our mining rewards from the network. Mining pools allow miners to combine their processing power, increasing their chances
of solving a block and getting paid by the network. The rewards are distributed by the pool operator, proportionally to our contribution
to the pool’s overall mining power, used to generate each block. Should the pool operator’s system suffer downtime
due to a cyber-attack, software malfunction or other similar issues, it will negatively impact our ability to mine and receive
revenue. Furthermore, we are dependent on the accuracy of the mining pool operator’s record keeping to accurately record
the total processing power provided to the pool for a given bitcoin mining application in order to assess the proportion of that
total processing power we provided. While we have internal methods of tracking both our power provided and the total used by the
pool, the mining pool operator uses its own record-keeping to determine our proportion of a given reward. We have little means
of recourse against the mining pool operator if we determine the proportion of the reward paid out to us by the mining pool operator
is incorrect, other than leaving the pool. If we are unable to consistently obtain accurate proportionate rewards from our mining
pool operators, we may experience reduced reward for our efforts, which would have an adverse effect on our business and operations.
The limited rights of legal recourse
available to us and our lack of insurance protection for risk of loss of our digital assets exposes us and our shareholders to
the risk of loss of our digital assets for which no person may ultimately be held liable and we may not be able to recover our
losses.
The digital assets held by us are not insured.
Further, banking institutions will not accept our digital assets and they are therefore not insured by the Federal Deposit Insurance
Corporation (“FDIC”) or the Securities Investor Protection Corporation (“SIPC”). Therefore, a loss may
be suffered with respect to our digital assets which is not covered by insurance and we may not be able to recover any of our carried
value in these digital assets if they are lost or stolen or suffer significant and sustained reduction in conversion spot price.
If we are not otherwise able to recover damages from a malicious actor in connection with these losses, our business and results
of operations may suffer, which may have a material negative impact on our stock price.
If regulatory changes or interpretations
of our activities require our registration as a money services business (“MSB”) under the regulations promulgated by
FinCEN under the authority of the U.S. Bank Secrecy Act, or otherwise under state laws, we may incur significant compliance costs,
which could be substantial or cost-prohibitive. If we become subject to these regulations, our costs in complying with them may
have a material negative effect on our business and the results of our operations.
To the extent that our activities cause
us to be deemed an MSB under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act, we may be
required to comply with FinCEN regulations, including those that would mandate us to implement anti-money laundering programs,
make certain reports to FinCEN and maintain certain records.
To the extent that our activities cause
us to be deemed a “money transmitter” (“MT”) or equivalent designation, under state law in any state in
which we operate (currently, Nebraska and Texas), we may be required to seek a license or otherwise register with a state regulator
and comply with state regulations that may include the implementation of anti-money laundering programs, maintenance of certain
records and other operational requirements. Such additional federal or state regulatory obligations may cause us to incur extraordinary
expenses, possibly affecting an investment in our securities in a materially adverse manner. Furthermore, the Company and our service
providers may not be capable of complying with certain federal or state regulatory obligations applicable to MSBs and MTs. If we
are deemed to be subject to and determine not to comply with such additional regulatory and registration requirements, we may act
to leave a particular state or the U.S. completely. Any such action would be expected to materially adversely affect our operations.
Current regulation of the exchange
of bitcoins under the CEA by the CFTC is unclear; to the extent we become subject to regulation under the CFTC in connection with
our exchange of bitcoin, we may incur additional compliance costs, which may be significant.
Current legislation, including the Commodities
Exchange Act of 1936, as amended (the “CEA”) is unclear with respect to the exchange of bitcoins. Changes in the CEA
or the regulations promulgated thereunder, as well as interpretations thereof and official promulgations by the Commodity Futures
Trading Commission (“CFTC”), which oversees the CEA, may impact the classification of bitcoins and therefore may subject
them to additional regulatory oversight by the CFTC.
Presently, bitcoin derivatives are not
excluded from the definition of a “commodity future” by the CFTC. We cannot be certain as to how future regulatory
developments will impact the treatment of bitcoins under the law. Bitcoins have been deemed to fall within the definition of a
commodity and, we may be required to register and comply with additional regulation under the CEA, including additional periodic
report and disclosure standards and requirements. Moreover, we may be required to register as a commodity pool operator or as a
commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary,
non-recurring expenses, thereby materially and adversely impacting an investment in us. If we determine not to comply with such
additional regulatory and registration requirements, we may seek to curtail our U.S. operations. Any such action would be expected
to materially adversely affect our operations. As of the date of this prospectus, no CFTC orders or rulings are applicable to our
business.
Cryptocurrencies face significant
scaling obstacles that can lead to high fees or slow transaction settlement times.
Cryptocurrencies face significant scaling
obstacles that can lead to high fees or slow transaction settlement times and attempts to increase the volume of transactions may
not be effective. Scaling cryptocurrencies is essential to the widespread acceptance of cryptocurrencies as a means of payment,
which widespread acceptance is necessary to the continued growth and development of our business. Many bitcoin networks face significant
scaling challenges. For example, cryptocurrencies are limited with respect to how many transactions can occur per second. Participants
in the bitcoin ecosystem debate potential approaches to increasing the average number of transactions per second that the network
can handle and have implemented mechanisms or are researching ways to increase scale, such as increasing the allowable sizes of
blocks, and therefore the number of transactions per block, and sharding (a horizontal partition of data in a database or search
engine), which would not require every single transaction to be included in every single miner’s or validator’s block.
However, there is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement of
bitcoin transactions will be effective, or how long they will take to become effective, which could adversely affect an investment
in our securities.
The price of cryptocurrencies may
be affected by the sale of such cryptocurrencies by other vehicles investing in cryptocurrencies or tracking bitcoin markets.
The global market for bitcoin is characterized
by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The
mathematical protocols under which certain cryptocurrencies are mined permit the creation of a limited, predetermined amount of
currency, while others have no limit established on total supply. To the extent that other vehicles investing in cryptocurrencies
or tracking bitcoin markets form and come to represent a significant proportion of the demand for cryptocurrencies, large redemptions
of the securities of those vehicles and the subsequent sale of cryptocurrencies by such vehicles could negatively affect bitcoin
prices and therefore affect the value of the bitcoin inventory we hold. Such events could have a material adverse effect on our
ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on
our business, prospects or operations and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire
or hold for our own account.
Because there has been limited precedent
set for financial accounting of bitcoin and other bitcoin assets, the determination that we have made for how to account for bitcoin
assets transactions may be subject to change.
Because there has been limited precedent
set for the financial accounting of cryptocurrencies and related revenue recognition and no official guidance has yet been provided
by the Financial Accounting Standards Board, the Public Company Accounting Oversight Board or the SEC, it is unclear how companies
may in the future be required to account for bitcoin transactions and assets and related revenue recognition. A change in regulatory
or financial accounting standards could result in the necessity to change our accounting methods and restate our financial statements.
Such a restatement could adversely affect the accounting for our newly mined bitcoin rewards and more generally negatively impact
our business, prospects, financial condition and results of operation. Such circumstances would have a material adverse effect
on our ability to continue as a going concern or to pursue our business strategy at all, which would have a material adverse effect
on our business, prospects or operations as well as and potentially the value of any cryptocurrencies we hold or expects to acquire
for our own account and harm investors.
There are risks related to technological
obsolescence, the vulnerability of the global supply chain for bitcoin hardware disruption, and difficulty in obtaining new hardware
which may have a negative effect on our business.
Our mining operations can only be successful
and ultimately profitable if the costs, including hardware and electricity costs, associated with mining cryptocurrencies are lower
than the price of a bitcoin. As our mining facility operates, our miners experience ordinary wear and tear, and may also face more
significant malfunctions caused by a number of extraneous factors beyond our control. To date, we have purchased second-hand miners
from third parties. The degradation of our miners will require us to, over time, replace those miners which are no longer functional.
Additionally, as the technology evolves, we may be required to acquire newer models of miners to remain competitive in the market.
Reports have been released which indicate that miner manufacturer or seller adjusts the prices of its miners according to bitcoin
prices, so the cost of new machines is unpredictable but could be extremely high. As a result, at times, we may obtain miners and
other hardware from third parties at premium prices, to the extent they are available. This upgrading process requires substantial
capital investment, and we may face challenges. Further, the global supply chain for bitcoin miners is presently heavily dependent
on China, which has been severely affected by the emergence of the COVID-19 coronavirus global pandemic. The global reliance on
China as a main supplier of bitcoin miners has been called into question in the wake of the COVID-19 pandemic. Should similar outbreaks
or other disruptions to the China-based global supply chain for bitcoin hardware occur, we may not be able to obtain adequate replacement
parts for our existing miners or to obtain additional miners from the manufacturer or third parties on a timely basis. Such events
could have a material adverse effect on our ability to pursue our business strategy, which could have a material adverse effect
on our business and the value of our Ordinary Shares.
The bitcoin for which we mine, is
subject to halving; the bitcoin reward for successfully uncovering a block will halve several times in the future and their value
may not adjust to compensate us for the reduction in the rewards we receive from our mining efforts.
Halving is a process designed to control
the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined
block, the mining reward is cut in half, hence the term “halving.” For bitcoin, the reward was initially set at 50
bitcoin currency rewards per block and this was cut in half to 25 in November 28, 2012 at block 210,000 and again to 12.5 on July
9, 2016 at block 420,000. The next halving for bitcoin occurred in May 2020 at block 630,000 when the reward was reduced to 6.25.
This process will reoccur until the total amount of bitcoin currency rewards issued reaches 21 million, which is expected around
2140. While bitcoin prices have had a history of price fluctuations around the halving of its bitcoin rewards, there is no guarantee
that the price change will be favorable or would compensate for the reduction in mining reward. If a corresponding and proportionate
increase in the trading price of bitcoin does not follow these anticipated halving events, the revenue we earn from our mining
operations would see a corresponding decrease, which would have a material adverse effect on our business and operations.
Our future success will depend in
large part upon the value of bitcoin; the value of bitcoin may be subject to pricing risk and has historically been subject to
wide swings.
Our operating results will depend in large
part upon the value of bitcoin because it’s the sole cryptocurrency we currently mine. Specifically, our revenues from our
bitcoin mining operations are based upon two factors: (1) the number of bitcoin rewards we successfully mine and (2) the value
of bitcoin. In addition, our operating results are directly impacted by changes in the value of bitcoin, because under the value
measurement model, both realized and unrealized changes will be reflected in our statement of operations (i.e., we will be marking
bitcoin to fair value each quarter). This means that our operating results will be subject to swings based upon increases or decreases
in the value of bitcoin. Furthermore, our strategy currently focuses entirely on bitcoin (as opposed to other cryptocurrencies).
Further, our current application-specific integrated circuit (“ASIC”) machines (which we refer to as “miners”)
are principally utilized for mining bitcoin and bitcoin cash and cannot mine other cryptocurrencies, such as ether, that are not
mined utilizing the “SHA-256 algorithm.” If other cryptocurrencies were to achieve acceptance at the expense of bitcoin
or bitcoin cash causing the value of bitcoin or bitcoin cash to decline, or if bitcoin were to switch its proof of work algorithm
from SHA-256 to another algorithm for which our miners are not specialized, or the value of bitcoin or bitcoin cash were to decline
for other reasons, particularly if such decline were significant or over an extended period of time, our operating results would
be adversely affected, and there could be a material adverse effect on our ability to continue as a going concern or to pursue
our business strategy at all, which could have a material adverse effect on our business, prospects or operations, and harm investors.
Bitcoin and other bitcoin market prices,
which have historically been volatile and are impacted by a variety of factors (including those discussed below), are determined
primarily using data from various exchanges, over-the-counter markets and derivative platforms. Furthermore, such prices may be
subject to factors such as those that impact commodities, more so than business activities, which could be subjected to additional
influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions.
Pricing may be the result of, and may continue to result in, speculation regarding future appreciation in the value of cryptocurrencies,
or our share price, inflating and making their market prices more volatile or creating “bubble” type risks for both
bitcoin and shares of our Ordinary Shares.
We may not be able to realize the
benefits of forks.
To the extent that a significant majority
of users and miners on a bitcoin network install software that changes the bitcoin network or properties of a bitcoin, including
the irreversibility of transactions and limitations on the mining of new bitcoin, the bitcoin network would be subject to new protocols
and software. However, if less than a significant majority of users and miners on the bitcoin network consent to the proposed modification,
and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a
“fork” of the network, with one prong running the pre-modified software and the other running the modified software.
The effect of such a fork would be the existence of two versions of the bitcoin running in parallel yet lacking interchangeability
and necessitating exchange-type transaction to convert currencies between the two forks. Additionally, it may be unclear following
a fork which fork represents the original asset and which is the new asset. Different metrics adopted by industry participants
to determine which is the original asset include: referring to the wishes of the core developers of a bitcoin, blockchains with
the greatest amount of hashing power contributed by miners or validators; or blockchains with the longest chain. A fork in the
network of a particular bitcoin could adversely affect an investment in our Company or our ability to operate.
We may not be able to realize the economic
benefit of a fork, either immediately or ever, which could adversely affect an investment in our securities. If we hold a bitcoin
at the time of a hard fork into two cryptocurrencies, industry standards would dictate that we would be expected to hold an equivalent
amount of the old and new assets following the fork. However, we may not be able, or it may not be practical, to secure or realize
the economic benefit of the new asset for various reasons. For instance, we may determine that there is no safe or practical way
to custody the new asset, that trying to do so may pose an unacceptable risk to our holdings in the old asset, or that the costs
of taking possession and/or maintaining ownership of the new bitcoin exceed the benefits of owning the new bitcoin. Additionally,
laws, regulation or other factors may prevent us from benefitting from the new asset even if there is a safe and practical way
to custody and secure the new asset.
There is a possibility of bitcoin
mining algorithms transitioning to proof of stake validation and other mining related risks, which could make us less competitive
and ultimately adversely affect our business and the value of our stock.
Proof of stake is an alternative method
in validating bitcoin transactions. Should the algorithm shift from a proof of work validation method to a proof of stake method,
mining would require less energy and may render any company that maintains advantages in the current climate (for example, from
lower priced electricity, processing, real estate, or hosting) less competitive. We, as a result of our efforts to optimize and
improve the efficiency of our bitcoin mining operations, may be exposed to the risk in the future of losing the benefit of our
capital investments and the competitive advantage we hope to gain form this as a result, and may be negatively impacted if a switch
to proof of stake validation were to occur. This may additionally have an impact on other various investments of ours. Such events
could have a material adverse effect on our ability to continue as a going concern or to pursue our business strategy at all, which
could have a material adverse effect on our business, prospects or operations and potentially the value of any bitcoin or other
cryptocurrencies we mine or otherwise acquire or hold for our own account.
To the extent that the profit margins
of bitcoin mining operations are not high, operators of bitcoin mining operations are more likely to immediately sell bitcoin rewards
earned by mining in the market, thereby constraining growth of the price of bitcoin that could adversely impact us, and similar
actions could affect other cryptocurrencies.
Over the past several years, bitcoin mining
operations have evolved from individual users mining with computer processors, graphics processing units and first-generation ASIC
servers. Currently, new processing power is predominantly added by incorporated and unincorporated “professionalized”
mining operations. Professionalized mining operations may use proprietary hardware or sophisticated ASIC machines acquired from
ASIC manufacturers. They require the investment of significant capital for the acquisition of this hardware, the leasing of operating
space (often in data centers or warehousing facilities), incurring of electricity costs and the employment of technicians to operate
the mining farms. As a result, professionalized mining operations are of a greater scale than prior miners and have more defined
and regular expenses and liabilities. These regular expenses and liabilities require professionalized mining operations to maintain
profit margins on the sale of bitcoin. To the extent the price of bitcoin declines and such profit margin is constrained, professionalized
miners are incentivized to more immediately sell bitcoin earned from mining operations, whereas it is believed that individual
miners in past years were more likely to hold newly mined bitcoin for more extended periods. The immediate selling of newly mined
bitcoin greatly increases the trading volume of bitcoin, creating downward pressure on the market price of bitcoin rewards.
The extent to which the value of bitcoin
mined by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of
such operation. A professionalized mining operation may be more likely to sell a higher percentage of its newly mined bitcoin rapidly
if it is operating at a low profit margin and it may partially or completely cease operations if its profit margin is negative.
In a low profit margin environment, a higher percentage could be sold more rapidly, thereby potentially depressing bitcoin prices.
Lower bitcoin prices could result in further tightening of profit margins for professionalized mining operations creating a network
effect that may further reduce the price of bitcoin until mining operations with higher operating costs become unprofitable forcing
them to reduce mining power or cease mining operations temporarily.
If a malicious actor or botnet obtains
control of more than 50% of the processing power on a bitcoin network, such actor or botnet could manipulate blockchains to adversely
affect us, which would adversely affect an investment in us or our ability to operate.
If a malicious actor or botnet (a volunteer
or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority
of the processing power dedicated to mining a bitcoin, it may be able to alter blockchains on which transactions of bitcoin reside
and rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The
malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new units
or transactions using such control. The malicious actor could “double-spend” its own bitcoin (i.e., spend the same
bitcoin in more than one transaction) and prevent the confirmation of other users’ transactions for as long as it maintained
control. To the extent that such malicious actor or botnet does not yield its control of the processing power on the network or
the bitcoin community does not reject the fraudulent blocks as malicious, reversing any changes made to blockchains may not be
possible. The foregoing description is not the only means by which the entirety of blockchains or cryptocurrencies may be compromised
but is only an example.
Although there are no known reports of
malicious activity or control of blockchains achieved through controlling over 50% of the processing power on the network, it is
believed that certain mining pools may have exceeded the 50% threshold in bitcoin. The possible crossing of the 50% threshold indicates
a greater risk that a single mining pool could exert authority over the validation of bitcoin transactions. To the extent that
the bitcoin ecosystem, and the administrators of mining pools, do not act to ensure greater decentralization of bitcoin mining
processing power, the feasibility of a malicious actor obtaining control of the processing power will increase because the botnet
or malicious actor could compromise more than 50% mining pool and thereby gain control of blockchain, whereas if the blockchain
remains decentralized it is inherently more difficult for the botnet of malicious actor to aggregate enough processing power to
gain control of the blockchain, may adversely affect an investment in our common stock. Such lack of controls and responses to
such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy
at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any bitcoin
or other cryptocurrencies we mine or otherwise acquire or hold for our own account, and harm investors.
Cryptocurrencies, including those
maintained by or for us, may be exposed to cybersecurity threats and hacks.
As with any computer code generally, flaws
in bitcoin codes may be exposed by malicious actors. Several errors and defects have been found previously, including those that
disabled some functionality for users and exposed users’ information. Exploitations of flaws in the source code that allow
malicious actors to take or create money have previously occurred. Despite our efforts and processes to prevent breaches, our devices,
as well as our miners, computer systems and those of third parties that we use in our operations, are vulnerable to cyber security
risks, including cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins,
employee theft or misuse, and similar disruptions from unauthorized tampering with our miners and computer systems or those of
third parties that we use in our operations. Such events could have a material adverse effect on our ability to continue as a going
concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations
and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.
We are subject to risks associated
with our need for significant electrical power. Government regulators may potentially restrict the ability of electricity suppliers
to provide electricity to mining operations, such as ours.
The operation of a bitcoin or other bitcoin
mine can require massive amounts of electrical power. Further, our mining operations can only be successful and ultimately profitable
if the costs, including electrical power costs, associated with mining a bitcoin are lower than the price of a bitcoin. As a result,
any mine we establish can only be successful if we can obtain sufficient electrical power for that mine on a cost-effective basis,
and our establishment of new mines requires us to find locations where that is the case. There may be significant competition for
suitable mine locations, and government regulators may potentially restrict the ability of electricity suppliers to provide electricity
to mining operations in times of electricity shortage or may otherwise potentially restrict or prohibit the provision or electricity
to mining operations. According to PRC Provisions on Supply and Use of Electricity (revised in 2019), excessive use of electricity
or failure to use electricity in accordance with the contract may result in stop of the power supply. Additionally, our miners
could be materially adversely affected by a power outage. PRC Electricity Law forbids users to build power plants without permission
of Electric Department of the State Council. Given the power requirement, it would not be feasible to run miners on back-up power
generators or purchase power from personal power plant in the event of a government restriction on electricity or a power outage.
Any shortage of electricity supply or increase
in electricity cost in a jurisdiction may negatively impact the viability and the expected economic return for bitcoin mining activities
in that jurisdiction. In addition, the significant consumption of electricity may have a negative environmental impact, including
contribution to climate change, which may give rise to public opinion against allowing the use of electricity for bitcoin mining
activities or government measures restricting or prohibiting the use of electricity for bitcoin mining activities.
If the award of bitcoin rewards,
for us primarily bitcoin for solving blocks and transaction fees are not sufficiently high, we may not have an adequate incentive
to continue mining and may cease mining operations, which will likely lead to our failure to achieve profitability.
As the number of bitcoin rewards awarded
for solving a block in a blockchain decreases, our ability to achieve profitability worsens. Decreased use and demand for bitcoin
rewards may adversely affect our incentive to expend processing power to solve blocks. If the award of bitcoin rewards for solving
blocks and transaction fees are not sufficiently high, we may not have an adequate incentive to continue mining and may cease our
mining operations. For instance, the current fixed reward for solving a new block on the bitcoin blockchain is twelve and a half
bitcoin currency rewards per block, which decreased from 25 bitcoin in July 2016. It is estimated that it will halve again in about
one year. This reduction may result in a reduction in the aggregate hash rate of the bitcoin network as the incentive for miners
decreases. Miners ceasing operations would reduce the collective processing power on the network, which would adversely affect
the confirmation process for transactions (i.e., temporarily decreasing the speed at which blocks are added to a blockchain until
the next scheduled adjustment in difficulty for block solutions) and make bitcoin networks more vulnerable to a malicious actor
or botnet obtaining control in excess of 50 percent of the processing power active on a blockchain, potentially permitting such
actor or botnet to manipulate a blockchain in a manner that adversely affects our activities. A reduction in confidence in the
confirmation process or processing power of the network could result and be irreversible. Such events could have a material adverse
effect on our ability to continue to pursue our business strategy at all, which could have a material adverse effect on our business,
prospects or operations and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold
for our own account.
We may not adequately respond to
price fluctuations and rapidly changing technology, which may negatively affect our business.
Competitive conditions within the bitcoin
industry require that we use sophisticated technology in the operation of our business. The industry for blockchain technology
is characterized by rapid technological changes, new product introductions, enhancements and evolving industry standards. New technologies,
techniques or products could emerge that might offer better performance than the software and other technologies we currently utilize,
and we may have to manage transitions to these new technologies to remain competitive. We may not be successful, generally or relative
to our competitors in the bitcoin industry, in timely implementing new technology into our systems, or doing so in a cost-effective
manner. During the course of implementing any such new technology into our operations, we may experience system interruptions and
failures during such implementation. Furthermore, there can be no assurances that we will recognize, in a timely manner or at all,
the benefits that we may expect as a result of our implementing new technology into our operations. As a result, our business and
operations may suffer, and there may be adverse effects on the price of our common stock.
Risk Related to The Car Rental Business
Our proposed car rental business
in the U.S. is particularly sensitive to reductions in the levels of airline passenger travel, and any lasting reductions in air
travel as a result of COVID-19 could materially adversely our business strategy.
The car rental industry in the U.S. has
been severely impacted by reductions in airline passenger traffic as a result of the coronavirus. While we believe that we will
be able to implement our business strategy at favorable purchase prices there can be no assurance that the industry will return
to anywhere normal conditions in the near future. Further reductions in levels of air travel, whether caused by general economic
conditions, airfare increases (such as due to capacity reductions or increases in fuel costs borne by commercial airlines) or other
events (such as work stoppages, military conflicts, terrorist incidents, natural disasters, epidemic diseases, or the response
of governments to any of these events) could materially adversely affect us in the future.
We will face intense competition
in the car rental business that may lead to downward pricing or an inability to increase prices.
The car rental market in which we expect
to operate in the U.S. is highly competitive. We believe that price is the primary competitive factor in the car rental market
and that the Internet has enabled cost-conscious customers, including business travelers, to more easily compare rates available
from rental companies. If we try to increase our pricing, our competitors, most of which are expected to have greater resources
and better access to capital than us, may seek to compete aggressively on the basis of pricing. In addition, our competitors may
reduce prices in order to attempt to gain a competitive advantage or to compensate for declines in rental activity. To the extent
we do not match or remain within a reasonable competitive margin of our competitors’ pricing, our revenues and results of
operations could be materially adversely affected. If competitive pressures lead us to match any of our competitors’ downward
pricing and we are not able to reduce our operating costs, then our margins, results of operations and cash flows could be materially
adversely impacted.
Our car rental business is expected
to be highly seasonal and any occurrence that disrupts rental activity during our peak periods could materially adversely affect
our liquidity, cash flows and results of operations.
Certain significant components of our expenses
are fixed in the short-term, including acquisition costs, real estate taxes, rent, insurance, utilities, maintenance and other
facility-related expenses, the costs of operating our information technology systems and minimum staffing costs. Seasonal changes
in our revenues do not alter those fixed expenses, typically resulting in higher profitability in periods when our revenues are
higher. We are seeking to enter the South Florida marketplace first. The winter months of the year have historically been the strongest
quarters due to their increased levels of vacation traveling South Florida. If we are able to enter this marketplace, any occurrence
that disrupts rental activity during the winter months could have a disproportionately material adverse effect on our liquidity,
cash flows and results of operations.
If we are unable to purchase adequate
supplies of competitively priced cars or equipment and the cost of the cars or equipment we purchase increases, our financial condition,
results of operations, liquidity and cash flows may be materially adversely affected.
We do not expect to be a party to any long-term
car supply arrangements with manufacturers. The price and other terms at which we can acquire cars thus varies based on market
and other conditions. For example, certain car manufacturers have in the past, and may in the future, utilize strategies to de-emphasize
sales to the car rental industry, which can negatively impact our ability to obtain cars on competitive terms and conditions. Consequently,
there is no guarantee that we can purchase a sufficient number of vehicles at competitive prices and on competitive terms and conditions.
Reduced or limited supplies of equipment together with increased prices are risks that we also face in our equipment rental business.
If we are unable to obtain an adequate supply of cars or equipment, or if we obtain less favorable pricing and other terms when
we acquire cars or equipment and are unable to pass on any increased costs to our customers, then our financial condition, results
of operations, liquidity and cash flows may be materially adversely affected.
Significant increases in fuel prices
or reduced supplies of fuel could harm our business.
Although fuel prices are currently at low
prices, significant increases in fuel prices, reduced fuel supplies or the imposition of mandatory allocations or rationing of
fuel could negatively impact our car rental business by discouraging consumers from renting cars, changing the types of cars our
customers rent from us or the other services they purchase from us or disrupting air travel, any of which could have a material
adverse effect on our financial condition and results of operations.
Manufacturer safety recalls could
create risks to our business.
Our cars may be subject to safety recalls
by their manufacturers. A recall may cause us to retrieve cars from renters and decline to rent recalled cars until we can arrange
for the steps described in the recall to be taken. We could also face liability claims if a recall affects cars that we have sold.
If a large number of cars are the subject of a recall or if needed replacement parts are not in adequate supply, we may not be
able to rent recalled cars for a significant period of time. Those types of disruptions could jeopardize our ability to fulfill
existing contractual commitments or satisfy demand for our vehicles and could also result in the loss of business to our competitors.
Depending on the severity of any recall, it could materially adversely affect our revenues, create customer service problems, reduce
the residual value of the recalled cars and harm our general reputation.
We face risks related to liabilities
and insurance.
Our proposed business will expose us to
claims for personal injury, death and property damage resulting from the use of the cars rented or sold by us, and for employment-related
claims by our employees. We cannot assure you that we will not be exposed to uninsured liability at levels in excess of historical
levels resulting from multiple payouts or otherwise, that liabilities in respect of existing or future claims will not exceed the
level of our insurance, that we will have sufficient capital available to pay any uninsured claims or that insurance with unaffiliated
carriers will continue to be available to us on economically reasonable terms or at all.
Environmental laws and regulations
and the costs of complying with them, or any liability or obligation imposed under them, could materially adversely affect our
financial position, results of operations or cash flows.
We will be subject to federal, state, local
and foreign environmental laws and regulations in connection with our car rental operations, including with respect to the ownership
and operation of tanks for the storage of petroleum products, such as gasoline, diesel fuel and motor and waste oils. We cannot
assure you that our tanks will at all times remain free from leaks or that the use of these tanks will not result in significant
spills or leakage. If leakage or a spill occurs, it is possible that the resulting costs of cleanup, investigation and remediation,
as well as any resulting fines, could be significant. We cannot assure you that compliance with existing or future environmental
laws and regulations will not require material expenditures by us or otherwise have a material adverse effect on our consolidated
financial position, results of operations or cash flows
The U.S. Congress and other legislative
and regulatory authorities in the United States have considered, and will likely continue to consider, numerous measures related
to climate change and greenhouse gas emissions. Should rules establishing limitations on greenhouse gas emissions or rules imposing
fees on entities deemed to be responsible for greenhouse gas emissions become effective, demand for our services could be affected,
our fleet and/or other costs could increase, and our business could be adversely affected.
Changes in the U.S. legal and regulatory
environment that affect our proposed operations, including laws and regulations relating to taxes, automobile-related liability,
insurance rates, insurance products, consumer privacy, data security, employment matters, cost and fee recovery and the banking
and financing industry could disrupt our proposed business, increase our expenses or otherwise have a material adverse effect on
our results of operations.
We expect to be subject to a wide variety
of U.S. laws and regulations and changes in the level of government regulation of our business have the potential to materially
alter our business practices and materially adversely affect our financial position and results of operations, including our profitability.
Those changes may come about through new laws and regulations or changes in the interpretation of existing laws and regulations.
Risks Involving Intellectual Property
Bitcoin and bitcoin mining are software
related
We actively use specific hardware and software
for our bitcoin mining operation. In certain cases, source code and other software assets may be subject to an open source license,
as much technology development underway in this sector is open source. For these works, the Company intends to adhere to the terms
of any license agreements that may be in place.
We do not currently own, and do not have
any current plans to seek, any patents in connection with our existing and planned blockchain and cryptocurrency related operations.
We do expect to rely upon trade secrets, trademarks, service marks, trade names, copyrights and other intellectual property rights
and expect to license the use of intellectual property rights owned and controlled by others. In addition, we have developed and
may further develop certain proprietary software applications for purposes of our cryptocurrency mining operation.
Our internal systems rely on software
that is highly technical, and if it contains undetected errors, our business could be adversely affected.
Our internal systems rely on software that
is highly technical and complex. In addition, our internal systems depend on the ability of such software to store, retrieve, process
and manage immense amounts of data. The software on which we rely has contained, and may now or in the future contain, undetected
errors or bugs. Some errors may only be discovered after the code has been released for external or internal use. Any errors, bugs
or defects discovered in the software on which we rely could result in harm to our reputation, or liability for damages, any of
which could adversely affect our business, results of operations and financial conditions.
We may not be able to prevent others
from unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard trademarks, domain names, know-how,
proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination of intellectual
property laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others
to protect our proprietary rights. See “Business-Intellectual Property” and “Regulation—Regulation on Intellectual
Property Rights.” Thus, we cannot assure you that any of our intellectual property rights would not be challenged, invalidated,
circumvented or misappropriated, or such intellectual property will be sufficient to provide us with competitive advantages. In
addition, because of the rapid pace of technological change in our industry, parts of our business rely on technologies developed
or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third
parties on reasonable terms, or at all.
It is often difficult to register, maintain
and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement
and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment
and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such
breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights
in China. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate
to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual
property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We
can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become
available to, or be independently discovered by, our competitors. To the extent that our employees or consultants use intellectual
property owned by others in their work for us, disputes may arise as to the rights in related know-how and inventions. Any failure
in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition
and results of operations.
We may be subject to intellectual
property infringement claims, which may be expensive to defend and may disrupt our business and operations.
We cannot be certain that our operations
or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how
or other intellectual property rights held by third parties. We may be from time to time in the future subject to legal proceedings
and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights,
know-how or other intellectual property rights that are infringed by our products, services or other aspects of our business without
our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us in
China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may be forced
to divert management’s time and other resources from our business and operations to defend against these claims, regardless
of their merits.
Additionally, the application and interpretation
of China’s intellectual property right laws and the procedures and standards for granting trademarks, patents, copyrights,
know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC
courts or regulatory authorities would agree with our analysis. If we were found to have violated the intellectual property rights
of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property,
and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and results of operations
may be materially and adversely affected.
Risks Related to Doing Business in China
Pursuant to laws and regulations of PRC,
there are two ways for foreign legal persons/entities to engaging in operation activities within the territory of China: the first,
to establish a foreign-invested enterprise, which is incorporated according to Foreign Investment Law of PRC, within the territory
of China and is wholly or partly invested by a foreign investor. The organization form, institutional framework and standard of
conduct of a foreign-invested enterprise shall be subject to the provisions of the Company Law of the PRC and the Partnership Enterprise
Law of the PRC and other law related regulations; or the second, to complete the approval and registration procedures with the
relevant regulatory authorities in accordance with the provisions of Administrative Measures for the Registration of Enterprises
of Foreign Countries (Regions) Engaging in Production and Operation Activities within the Territory of China (Revised in 2020),
or Order No.31.
Policy risk of foreign investment
in China.
The Chinese government shall implement
the management systems of pre-establishment national treatment and negative list for foreign investment. Pre-establishment national
treatment refers to the treatment given to foreign investors and their investments during the investment access stage, which is
not lower than that given to their domestic counterparts; negative list refers to special administrative measures for the access
of foreign investment in specific fields as stipulated by the State. The Chinese government shall give national treatment to foreign
investment beyond the negative list.
Pursuant to the Special Administrative
Measures for Access of Foreign Investment (2020 Edition), or the 2020 Edition Negative list, issued by The Ministry of Commerce
of the PRC (the “MOFCOM”) and the NDRC on June 23, 2020 which came into effect on July 23, 2020, our business does
not fall into the negative list and is permitted for foreign investment as of the date hereof. The Negative list will be revised
from time to time. If the industries in which we operate are included on the negative list, our business in China will be adversely
affected accordingly.
Foreign company engaged in profit-making
activities in China.
According to Order No.31,foreign enterprises
engaged in profit-making activities in China shall apply to the provincial market regulatory administration, or the registration
authorities, for registration upon the approval of the State Council and the competent agencies authorized by the State Council,
or the approving authorities; without the approval of the approving authorities and the registration approval of the registration
authorities, the foreign enterprises may not conduct any production and operation activities within the territory of China. Without
the approval of the approving authorities and the registration of registration authorities, foreign enterprise engaging in profit-making
activities authority may be imposed penalties such as warning, fine, confiscation of illegal income, suspension of business for
rectification on a case-by-case basis.
At present, our business in China is not
carried out through any Chinese subsidiaries. In Xinjiang, Inner Mongolia, Yunnan and Sichuan China, we make profits from mining
equipment stored in facilities directly leased by Bit Digital Hong Kong. Bit Digital Hong Kong does not provided cloud mining services
or similar services to any third parties.
Given the business mode of Bit Digital
Hong Kong, the provincial approval of the State Council’s department in charge of the information industry or the telecommunications
administration authority is not a prerequisite for registration. As PRC laws and policies are subject to change, we have initiated
the process of forming a subsidiary in PRC. Bit Digital Hong Kong has not obtained business licenses in relevant provinces yet,
which may lead to a punishment of warning, fine, confiscation of income and/or suspension of business for rectification.
Changes in China’s economic,
political or social conditions or government policies could have a material adverse effect on our business and results of operations.
The majority of our current operations
are located in PRC, although we are shipping miners to the United States and our bitcoin mining business is worldwide. Accordingly,
our business, prospects, financial condition and results of operations may be influenced to a significant degree by political,
economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese economy differs from the economies
of most developed countries in many respects, including the amount of government involvement, level of development, growth rate,
control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the
utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of
improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the
government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing
industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating
resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential
treatment to particular industries or companies.
While the Chinese economy has experienced
significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy.
The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some
of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our financial condition
and results of operations may be adversely affected by government control over capital investments or changes in tax regulations.
In addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control
the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, and in particular in
2020 as a result of COVID-19, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may
reduce the demand for our products and services and materially and adversely affect our business and results of operations.
Uncertainties in the interpretation
and enforcement of Chinese laws and regulations could limit the legal protections available to us.
The PRC legal system is based on written
statutes and prior court decisions have limited value as precedents. Since the PRC legal system continues to rapidly evolve, the
interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules
involves uncertainties.
China is one of the jurisdictions to implement
strict foreign exchange control. As a matter of fact, the free flow of bitcoin blurs the boundary of foreign exchange control.
in some public speeches, officials of the Chinese State Administration of Foreign Exchange, or SAFE have expressed concerns about
the challenges of cryptocurrency to foreign exchange control. In the event regulators believe that the circulation of bitcoin has
a significant adverse impact on financial security, they may restrict the trading of bitcoin and the mining business in its jurisdiction.
From time to time, we may have to resort
to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have
significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the
outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems.
Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in
a timely manner or at all) that may have retroactive effect. Such uncertainties, including uncertainty over the scope and effect
of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our
business and impede our ability to continue our operations.
In addition to the unified policies at
the national level, the attitudes of the Chinese local or provincial governments towards mining enterprises have also changed from
time to time. In recent years, local governments in Inner Mongolia, Sichuan and Xinjiang have taken action to inspect and clean
up mining enterprises in their jurisdictions. The sharp rise in bitcoin prices this year results in increase of mining activity
and electricity consumption, which may draw further attention and trigger new regulatory measures by local governments.
The M&A Rules and certain other
PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make
it more difficult for us to pursue growth through acquisitions in China.
The M&A Rules discussed under “Business-
Regulation” and some other regulations and rules concerning mergers and acquisitions established additional procedures and
requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including
requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor
takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOFCOM shall be notified in advance
of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOFCOM
that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense
and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic
enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit
any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual
control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements
of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required
approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to
complete such transactions, which could affect our ability to expand our business or maintain our market share.
PRC regulations relating to offshore
investment activities by PRC residents may expose us or our PRC resident beneficial owners to liability and penalties under PRC
law.
SAFE promulgated the Circular on Relevant
Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles,
or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection
with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition,
such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material
events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term),
increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 is issued
to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and
Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying
and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June
1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than
SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of
overseas investment or financing.
Failure to comply with the SAFE registration
described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.
Some of our shareholders, who directly
or indirectly hold shares in our Company and who were known to us as being PRC residents, have completed the foreign exchange registrations
required in connection with our recent corporate restructuring. The remaining shareholders who directly or indirectly hold shares
in our Company and who are known to us as being PRC residents are currently processing such registrations.
However, we may not be informed of the
identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial
owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficial
owners who are PRC residents or entities have complied with and will in the future make or obtain any applicable registrations
or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations could
subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities or affect our ownership structure,
which could adversely affect our business and prospects.
Any failure to comply with PRC regulations
regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines
and other legal or administrative sanctions.
In February 2012, SAFE promulgated the
Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan
of Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and
non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan
of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified
agent, which could be the PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an
overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and
the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who have
resided in the PRC for a continuous period of not less than one year and who have been granted options or other awards are subject
to these regulations because our company is an overseas listed company. Failure to complete the SAFE registrations may subject
them to fines and legal sanctions. See “Regulation — Regulations on Stock Incentive Plans.”
If we are classified as a PRC resident
enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC
shareholders.
Under the PRC Enterprise Income Tax Law
and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within
the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of
25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial
control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April
2009, the State Administration of Taxation issued a circular, known as Circular 82, (partly amended) which provides certain specific
criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated
offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC
enterprise groups, not those controlled by PRC individuals or foreigners like us, the criteria set forth in the circular may reflect
the State Administration of Taxation’s general position on how the “de facto management body” test should be
applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated
enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having
its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only
if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii)
decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations
or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and
shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives
habitually reside in the PRC.
We believe none of our entities outside
of China is a PRC resident enterprise for PRC tax purposes. See “Taxation — People’s Republic of China Taxation.”
However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain
with respect to the interpretation of the term “de facto management body.” As all of our management members are based
in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that we or
any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such subsidiary
could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition,
we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that
we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our Ordinary
Shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals
(in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is
unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country
of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns
on your investment in our Ordinary Shares.
Regulatory bodies of the United States
may be limited in their ability to conduct investigations or inspections of our operations in China.
From time to time, the Company may receive
requests from certain U.S. agencies to investigate or inspect the Company’s operations, or to otherwise provide information.
While the Company will be compliant with these requests from these regulators, there is no guarantee that such requests will be
honored by those entities who provide services to us or with whom we associate, especially as those entities are located in China.
Furthermore, an on-site inspection of our facilities by any of these regulators may be limited or entirely prohibited. Such inspections,
though permitted by the Company and its affiliates, are subject to the unpredictability of the Chinese enforcers, and may therefore
be impossible to facilitate.
Enhanced scrutiny over acquisition
transactions by the PRC tax authorities may have a negative impact on the indirect transfer of equity in the past and potential
acquisitions we may pursue in the future.
The PRC tax authorities have enhanced their
scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident
enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective
in January 2008, and a Circular 7 in replacement of some of the existing rules in Circular 698, which became effective in February
2015.
Under Circular 7, where a non-resident
enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise”
indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor,
may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without
reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up
to 10%.
On October 17, 2017, the SAT issued the
Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Nonresident Enterprise Income Tax
at Source, or SAT Circular 37, which came into effect on December 1, 2017. The SAT Circular 37 further clarifies the practice and
procedure of the withholding of non-resident enterprise income tax. SAT Circular 698 was repealed from the date SAT Circular 37
was enacted.
Where a non-resident enterprise transfers
taxable assets in China indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer,
the non-resident enterprise as either transferor or transferee, or the PRC entity whose equity is transferred, may report such
Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may
disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the
purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC
enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the
applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor
and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor
fails to pay the taxes. We face uncertainties as to the reporting and other implications of certain past and future transactions
where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments.
Our Company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject
to withholding obligations if our company is transferee in such transactions, under Circular 7 and/or SAT Circular 37. For transfer
of shares in our Company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in
the filing under SAT Circular 7 and/or Circular 37. As a result, we may be required to expend valuable resources to comply with
SAT Circular 7 and/or Circular 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these
circulars, or to establish that our Company should not be taxed under these circulars, which may have a material adverse effect
on our financial condition and results of operations.
Fluctuations in exchange rates could
have a material adverse effect on our results of operations and the value of your investment.
To date, substantially all of our revenues
and expenditures have been denominated in RMB, whereas our reporting currency is the U.S. dollar. As a result, fluctuations in
the exchange rate between the U.S. dollar and RMB will affect the relative purchasing power in RMB terms of our U.S. dollar assets.
Our reporting currency is the U.S. dollar while the functional currency for our future PRC subsidiary and consolidated variable
interest entity is RMB. Gains and losses from the remeasurement of assets and liabilities that are receivable or payable in RMB
are included in our consolidated statements of operations. The remeasurement has caused the U.S. dollar value of our results of
operations to vary with exchange rate fluctuations, and the U.S. dollar value of our results of operations will continue to vary
with exchange rate fluctuations. A fluctuation in the value of RMB relative to the U.S. dollar could reduce our profits from operations
and the translated value of our net assets when reported in U.S. dollars in our financial statements. This could have a negative
impact on our business, financial condition or results of operations as reported in U.S. dollars. If we decide to convert our RMB
into U.S. dollars for the purpose of making payments for dividends on our Ordinary Shares or for other business purposes, appreciation
of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations
in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period
comparisons of our reported results of operations.
There remains significant international
pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may
materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on,
our Ordinary Shares in U.S. dollars. For example, to the extent that we need to convert U.S. dollars into RMB to pay our operating
expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from
the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar
equivalent of our earnings, which in turn could adversely affect the market price of our Ordinary Shares.
Very limited hedging options are available
in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an
effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the
future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure
or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability
to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.
Governmental control of currency
conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.
The PRC government imposes controls on
the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We have received
substantially all of our net revenues in RMB. Under our current corporate structure, our company in the Cayman Islands may rely
on dividend payments from our PRC subsidiary to fund any cash and financing requirements we may have. Under existing PRC foreign
exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange
transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements.
Therefore, our future PRC subsidiary is able to pay dividends in foreign currencies to us without prior approval from SAFE, subject
to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange
regulation, such as the overseas investment registrations by the beneficial owners of our Company who are PRC residents. But approval
from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and
remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. Therefore, the
Company’s ability to support its operating and capital expenditure commitments will depend upon its obtaining approval from
or registration with appropriate governmental authorities.The PRC government may also at its discretion restrict access in the
future to foreign currencies or current account transactions. If the foreign exchange control system prevents us from obtaining
sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies
to our shareholders.
Risks Related to Our Ordinary Shares
The trading price of our Ordinary Shares
is subject to arbitrary pricing factors that are not necessarily associated with traditional factors that influence stock prices
or the value of non-bitcoin assets such as revenue, cash flows, profitability, growth prospects or business activity levels since
the value and price, as determined by the investing public, may be influenced by future anticipated adoption or appreciation in
value of cryptocurrencies or blockchains generally, factors over which we have little or no influence or control.
Other factors which could cause volatility
in the market price of our Ordinary Shares include, but are not limited to:
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actual or anticipated fluctuations in our financial condition and operating results or those of companies perceived to be similar to us;
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actual or anticipated changes in our growth rate relative to our competitors;
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commercial success and market acceptance of blockchain and bitcoin and other cryptocurrencies;
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actions by our competitors, such as new business initiatives, acquisitions and divestitures;
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strategic transactions undertaken by us;
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additions or departures of key personnel;
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prevailing economic conditions;
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disputes concerning our intellectual property or other proprietary rights;
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sales of our common stock by our officers, directors or significant stockholders;
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other actions taken by our stockholders;
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future sales or issuances of equity or debt securities by us;
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business disruptions caused by earthquakes, tornadoes or other natural disasters;
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issuance of new or changed securities analysts’ reports or recommendations regarding us;
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legal proceedings involving our company, our industry or both;
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changes in market valuations of companies similar to ours;
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the prospects of the industry in which we operate;
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speculation or reports by the press or investment community with respect to us or our industry in general;
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the level of short interest in our stock; and
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other risks, uncertainties and factors described in this annual report.
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In addition, the stock markets in general
have experienced extreme volatility that has often been unrelated to the operating performance of the issuer. These broad market
fluctuations may negatively impact the price or liquidity of our common stock. When the price of a stock has been volatile, holders
of that stock have sometimes instituted securities class action litigation against the issuer, and we have been impacted in that
way. See “Business- Legal Proceedings, “We, and some of our current and former officers and directors, have been named
as parties to various lawsuits arising out of, or related to, allegedly false and misleading statements made in prior securities
filings, and those lawsuits could adversely affect us, require significant management time and attention, result in significant
legal expenses or damages, and cause our business, financial condition, results of operations and cash flows to suffer.”
We may be unable to comply with the
applicable continued listing requirements of the Nasdaq Capital Market, which may adversely impact our access to capital markets
and may cause us to default certain of our agreements.
Our Ordinary Shares are currently traded
on the Nasdaq Capital Market. Nasdaq rules require us to maintain a minimum closing bid price of $1.00 per ordinary share. The
closing bid price of our Ordinary Shares fell below $1.00 per share for 30 consecutive trading days, so we were not in compliance
with Nasdaq’s rules for listing standards. Although we regained compliance, there can be no assurance we will continue to
meet the minimum bid price requirements or any other requirements in the future, in which case our Ordinary Shares could be delisted.
In the event that our Ordinary Shares are
delisted from Nasdaq and is not eligible for quotation or listing on another market or exchange, trading of our Ordinary Shares
could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such
as the OTC. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for our Ordinary Shares
and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price
of our Ordinary Shares to decline further. In addition, our ability to raise additional capital may be severely impacted, which
may negatively affect our plans and the results of our operations.
If securities or industry analysts
do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Ordinary Shares
will be influenced by whether industry or securities analysts publish research and reports about us, our business, our market or
our competitors and, if any analysts do publish such reports, what they publish in those reports. We may not obtain or maintain
analyst coverage in the future. Any analysts that do cover us may make adverse recommendations regarding our stock, adversely change
their recommendations from time to time and/or provide more favorable relative recommendations about our competitors. If analysts
who may cover us in the future were to cease coverage of our company or fail to regularly publish reports on us, or if analysts
fail to cover us or publish reports about us at all, we could lose (or never gain) visibility in the financial markets, which in
turn could cause the stock price of our common stock or trading volume to decline. Moreover, if our operating results do not meet
the expectations of the investor community, one or more of the analysts who cover our Company may change their recommendations
regarding our Company and our stock price could decline.
Our Ordinary Shares may be thinly
traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise
desire to liquidate your shares.
Our Ordinary Shares may become “thinly-traded”,
meaning that the number of persons interested in purchasing our Ordinary Shares at or near bid prices at any given time may be
relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we are relatively
unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence
sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to
follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned.
As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent,
as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. Broad or active public trading market for our Ordinary Shares may not develop or
be sustained.
We are defendants in securities class
actions litigation which could result in substantial costs and liabilities.
The market for our Ordinary Shares may
have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more
volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class
action litigation against a company following periods of volatility in the market price of its securities. On January 20, 2021,
a securities class action lawsuit was filed against the Company and its Chief Executive Officer and Chief Financial Officer. The
class action is on behalf of persons that purchased or acquired our Ordinary Shares between December 21, 2020 and January 8, 2021,
a period of volatility in our stock as well as the price of bitcoin. The complaint is based solely upon a research article issued
on January 11, 2021, which contained false claims and was responded to by the Company in a press release filed on Form 6-K on January
19, 2021. Nevertheless, this securities litigation could result in substantial costs and liabilities and could divert management’s
attention and resources. See “Business – Legal Proceedings.”
Two former members of our management
team have substantial shareholdings in our Company and their interests may not be aligned with the interests of our other shareholders
Mr. Zeng, our former chief executive officer
and chairman and Mr. Liu, a former member of our Board of Director, beneficially own approximately 5.1% and 13.0%, respectively,
of our Ordinary Shares. Neither shareholder has any involvement in the management of the Company or the decisions of the Board
of Directors, However, as a result of their significant shareholdings, Mr. Zeng and Mr. Liu may have influence over decisions regarding
mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate
actions. They may take action that is not in the best interests of us or our other shareholders This concentration of ownership
may discourage, delay our Company, which could deprive our shareholders of an opportunity to receive a premium for their shares
as part of the sale of our Company and might reduce the market price of our Ordinary Shares. These actions may be taken even if
they are opposed by our other shareholders. For more information regarding our principal shareholders and their affiliated entities
see “Principal Shareholders.”
There is uncertainty to pay cash
dividends in the foreseeable future.
We currently intend to retain any future
earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the
foreseeable future but will review this policy as circumstances dictate. Should we determine to pay dividends in the future, our
ability to do so will depend upon the receipt of dividends or other payments from our subsidiaries.
You may face difficulties in protecting
your interests as a shareholder, as Cayman Islands law provides substantially less protection when compared to the laws of the
United States and it may be difficult for a shareholder of ours to effect service of process or to enforce judgements obtained
in the United States courts.
Our corporate affairs are governed by our
memorandum and articles of association and by the Companies Law (2016 Revision) and common law of the Cayman Islands. The rights
of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities
of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common
law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from
English common law. Decisions of the Privy Council (which is the final court of appeal for British overseas territories such as
the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme
Court of the United Kingdom and the Court of Appeal are generally of persuasive authority but are not binding on the courts of
the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law
are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the
Cayman Islands has a less developed body of securities laws as compared to the United States and provide significantly less protection
to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the
United States federal courts. The Cayman Islands courts are also unlikely to impose liabilities against us in original actions
brought in the Cayman Islands, based on certain civil liability provisions of United States securities laws.
As of December 31, 2019, substantially
all of our operations are conducted outside the United States, and substantially all of our assets are located outside the United
States. All of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial
portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service
of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts,
including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in
the United States.
As a result of all of the above, our shareholders
may have more difficulty in protecting their interests through actions against us or our officers, directors or major shareholders
than would shareholders of a corporation incorporated in a jurisdiction in the United States.
We are a foreign private issuer within
the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States
domestic public companies.
We are a foreign private issuer within
the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic
public companies. For example:
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we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company;
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for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
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we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
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we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
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we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and
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we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.
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We file annual reports on Form 20-F and reports on Form 6-K as a foreign private issuer. Accordingly, our shareholders may not have access to certain information they may deem important.
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We are an “emerging growth
company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements
available to emerging growth companies, this could make it more difficult to compare our performance with other public companies.
We are an “emerging growth company”
within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth
companies from being required to comply with new or revised financial accounting standards until private companies (that is, those
that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under
the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies
but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means
that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may
make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging
growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences
in accountant standards used.
As an “emerging growth company”
under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our Ordinary Shares
less attractive to investors.
For as long as we remain an “emerging
growth company”, as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not “emerging growth companies”, including, but
not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute
payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information
or rights available to shareholders of more mature companies. If some investors find our Ordinary Shares less attractive as a result,
there may be a less active trading market for our Ordinary Shares and our share price may be more volatile.
If we are classified as a passive
foreign investment company, United States taxpayers who own our Ordinary Shares may have adverse United States federal income tax
consequences.
A non-U.S. corporation such as ourselves
will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either
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at least 75% of our gross income for the year is passive income; or
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the average percentage of our assets
(determined at the end of each quarter) during the taxable year which produce passive income or which are held for the
production of passive income is at least 50%.
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Passive income generally includes dividends,
interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains
from the disposition of passive assets.
If we are determined to be a PFIC for any
taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Ordinary Shares, the
U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.
Depending on the amount of any assets held
for the production of passive income, it is possible that, for any taxable year, more than 50% of our assets may be assets which
produce passive income. We will make this determination following the end of any particular tax year. Although the law in this
regard is unclear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes,
not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially
all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements.
For purposes of the PFIC analysis, in general, a non-U.S. corporation is deemed to own its pro rata share of the gross income and
assets of any entity in which it is considered to own at least 25% of the equity by value.
For a more detailed discussion of the application
of the PFIC rules to us and the consequences to U.S. taxpayers if we were determined to be a PFIC, see “Taxation —
United States Federal Income Taxation — Passive Foreign Investment Company.”
We incur significant costs as a result
of being a public company and will, particularly after we cease to qualify as an “emerging growth company”
We incur significant legal, account and
other expenses as a public company. The Sarbanes-Oxley Ac of 2002, as well as rules subsequently implemented by the SEC and the
NASDAQ Capital Market, impose various requirements on the corporate governance practices of public companies. We are an “emerging
growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last
day of the fiscal year (a) ending December 31, 2023, or (b) in which we have a total annual gross revenue of at least $1.07 billion,
or (c) in which we are deemed to be a large accelerated file, which means the market value of our Ordinary Shares that is held
by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than
$1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified
reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include
exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal
control over financial reporting and permission to delay adopting new or revising accounting standards until such time as those
standards apply to private companies.
Compliance with these rules and regulations
increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costly. After we
are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management
effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example,
as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal
controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability
insurance. In addition, we incur additional costs associates with our public company reporting requirements. It may also be more
difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating
and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty
the amount of additional costs we may incur or the timing of such costs.
USE OF PROCEEDS
We are not selling any securities under
this prospectus and will not receive any of the proceeds from the sale of Ordinary Shares by the Selling Shareholder. However,
we may receive proceeds of up to $80,000,000 from the sale of Ordinary Shares to Ionic under the Purchase Agreement, from time
to time in our discretion after the date the registration statement of which this prospectus is a part is declared effective and
the other conditions in the Purchase Agreement have been satisfied. The proceeds received from Ionic under the Purchase Agreement
will be used to purchase bitcoin miners and for working capital purposes.
THE IONIC PURCHASE AGREEMENT TRANSACTION
General
On January 11, 2021, the Company entered
into the Purchase Agreement with Ionic (also herein referred to as the “Investor”) whereby we have the right, but not
the obligation, to sell to Ionic, and Ionic is obligated to purchase up to in the aggregate $80,000,000 worth of Ordinary Shares.
Sales of Ordinary Shares by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the
Company’s sole discretion, over the 36-month period commencing on the date that the registration statement of which this
prospectus forms a part, which the Company agreed to file with the SEC pursuant to the registration rights agreement (the “RRA”)
we entered into with Ionic on January 11, 2021 in connection with the Purchase Agreement, is declared effective by the SEC and
a final prospectus in connection therewith is filed and the other conditions set forth in the Purchase Agreement are satisfied
(such date on which all of such conditions are satisfied, the “Commencement Date”). For the avoidance of any doubt,
all Notes will be fully converted into Ordinary Shares prior to the Commencement Date.
Actual sales of Ordinary Shares to Ionic
under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including,
among others, market conditions, the trading price of the Ordinary Shares and determinations by the Company as to the appropriate
sources of funding for the Company and its operations. We expect that any net proceeds received by the Company from such sales
to Ionic will be used for working capital and general corporate purposes.
The purchase price of the Ordinary Shares
purchased by the Investor under the Purchase Agreement will be derived from prevailing market prices of the Company’s Ordinary
Shares immediately preceding the time of sale. The Company will control the timing and amount of future sales, if any, of Ordinary
Shares to the Investor. The Investor has no right to require the Company to sell any Ordinary Shares to the Investor, but the Investor
is obligated to make purchases as the Company directs, subject to certain conditions.
The Purchase Agreement and the RRA each
contains representations, warranties, covenants, closing conditions and indemnification and termination provisions by, between
and for the benefit of the parties which are customary of transactions of this nature. Additionally, sales to the Investor under
the Purchase Agreement may be limited, to the extent applicable, by Nasdaq and SEC rules.
Ionic may not assign or transfer its rights
and obligations under the Purchase Agreement.
Although the Purchase Agreement provides
that we may sell up to $80,000,000 of our Ordinary Shares to Ionic, only 5,975,000 Ordinary Shares are being offered under this
prospectus which may be issued to Ionic if and when we sell shares to Ionic under the Purchase Agreement (of which 5,829,268 shares
may be sold to Ionic and up to 145,732 shares (2.5% of the number of shares sold for cash) may be issued as a commitment fee for
no additional consideration as Commitment Shares). We may also be contractually obligated under the RRA to issue 15,000 as Filing
Default Shares and 10,000 shares as Effectiveness Default Shares if this Registration Statement is not timely declared effective.
Depending on the market prices of our Ordinary
Shares at the time we elect to issue and sell Ordinary Shares to Ionic under the Purchase Agreement, we may need to register additional
Ordinary Shares in order to receive aggregate gross proceeds equal to the $80,000,000 total commitment available to us under the
Purchase Agreement.
As of March 8, 2021, there were 48,305,870 of our Ordinary Shares
outstanding, of which 39,543,670 Ordinary Shares were held by non-affiliates. If all of the 6,412,500 Ordinary Shares offered by
Ionic under this prospectus were issued and outstanding as of March 8, 2021, such shares would represent approximately 11.72% of
the total number of Ordinary Shares outstanding and less than 1/3 of the total number of outstanding shares held by non-affiliates.
If we elect to sell to Ionic more than the 5,975,000 shares which are offered under this prospectus to Ionic under the Purchase
Agreement, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any
such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately
offered for resale by Ionic is dependent upon the number of shares we sell to Ionic under the Purchase Agreement.
Of the 6,000,000 Ordinary Shares being
registered herein under the Purchase Agreement, up to 5,975,000 shares may be issued and sold for cash to Ionic, up to 145,732
shares (2.5% of the number of shares sold for cash) may be issued to Ionic for no consideration as Commitment Shares, and 15,000
shares are being registered as Filing Default Shares and 10,000 shares as Effectiveness Default Shares.
Purchase of Shares under the Purchase
Agreement
Under the Purchase Agreement, from and
after the Commencement Date, the Company has the right, from time to time in its sole discretion and subject to certain conditions
and limitations set forth in the Purchase Agreement, to direct the Investor to purchase up to the lesser of (i) $2,500,000 in Ordinary
Shares; and (ii) 75% of the average dollar volume of Ordinary Shares for the lowest 8 of 10 Trading Days prior to providing notice
to the Investor. The Company may effect a regular purchase at the Regular Purchase Price equal to 85% of the arithmetic average
of the three (3) lowest volume weighted average prices (“VWAP”) calculated for the period five (5) Trading Days prior
to and ending five (5) Trading Days after delivery of pre-settlement purchase shares (the “Regular Purchase Measurement Period”)
based on an estimate and true-up. The Company may also effect an alternate purchase at the Alternate Purchase Price equal to 80%
of the arithmetic average of the VWAPs calculated for the period on and ending five (5) Trading Days after delivery of pre-settlement
shares (the “Alternate Purchase Measurement Period”) based on an estimate and true-up.
The Company may deliver a notice to the
Investor for a regular purchase or an alternate purchase as often as every business day, so long as (i) on any such notice date,
the closing sale price of the Ordinary Shares is not below the Floor Price (initially set at $1.00 per ordinary share, subject
to customary adjustments), (ii) shares for all prior regular purchases and alternate purchases have theretofore been received by
the Investor in accordance with the Purchase Agreement, and (iii) no current Regular Purchase Measurement Period or Alternate Purchase
Measurement Period is running (unless, with respect to regular purchases only, the Company and the Investor mutually agree otherwise
in writing). Notwithstanding the foregoing, the Company shall not deliver a regular purchase or alternate purchase notice to the
Investor if an Event of Default has occurred and is continuing, or if any event which, after notice and/or lapse of time, would
become an Event of Default, has occurred and is continuing.
In all instances, the Company may not sell
Ordinary Shares to the Investor under the Purchase Agreement if it would result in the Investor beneficially owning more than 4.99%
of the outstanding Ordinary Shares. Under applicable rules of the Nasdaq Capital Market, the Company, as a Foreign Private Issuer,
has elected to follow home country practice and does not require shareholder approval in the event that issuances under the Purchase
Agreement exceed twenty (20%) percent or more of the Ordinary Shares outstanding immediately prior to the execution of the Purchase
Agreement.
Other than as summarized above, there are
no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales
of Ordinary Shares to Ionic.
Commitment Shares
In connection with each Regular Purchase
and Alternate Purchase, the Company shall issue to Ionic a number of additional Ordinary Shares (the “Commitment Shares”)
equal to the product of (x) the number of Ordinary Shares sold to Ionic and (y) 2.5%, as a commitment fee for no additional consideration.
Up to 145,732 shares are being registered hereunder as Commitment Shares, of which half (72,866) may be issued as Additional Commitment
Shares to satisfy the Additional Commitment Fee as described below.
Our Termination Rights
We have the right in our sole discretion,
at any time, for any reason, to give notice to Ionic to terminate the Purchase Agreement. If the Company has sold less than $40,000,000
to the Investor under the Purchase Agreement, the Company shall pay an additional commitment fee of $1,000,000 (the “Additional
Commitment Fee”), which shall be payable either in cash or in Ordinary Shares at a price equal to 100% of the Closing Price
on the date immediately preceding the date of receipt by the Investor of the Company Termination Notice (such shares, the “Additional
Commitment Shares”) at the Company’s discretion, within two (2) Trading Days after a Company Termination Note is received
by the Investor; provided, however, that the Additional Commitment Fee shall be reduced by the aggregate Purchase Amount previously
sold hereunder prior to the Company Termination Notice multiplied by 2.5%. Up to 72,866 (half) of the Commitment Shares being registered
hereunder may be issued as Additional Commitment Shares to satisfy the Additional Commitment Fee under the terms of the Purchase
Agreement. In the event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically terminate without
action of any party.
Events of Default
Events of default under the Purchase Agreement
include the following:
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the
effectiveness of the registration statement of which this prospectus is made a part lapses
for any reason (including, without limitation, the issuance of a stop order or similar
order) or this prospectus is unavailable to the Investor for resale of any or all of
the Ordinary Shares issuable under the Purchase Agreement registered hereunder, and such
lapse or unavailability continues for a period of ten (10) consecutive business days
or for more than an aggregate of thirty (30) business days in any 365-day period;
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the
suspension of our Ordinary Shares from trading on the Nasdaq Capital Market for a period
of one (1) business day, provided that the Company may not direct the Investor to purchase
any Ordinary Shares during any such suspension;
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the
delisting of the Ordinary Shares from the Nasdaq Capital Market, provided, however, that
the Ordinary Shares are not immediately thereafter trading on the New York Stock Exchange,
The Nasdaq Global Market, The Nasdaq Global Select Market, the NYSE American, or the
NYSE Arca (or nationally recognized successor to any of the foregoing);
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the
failure for any reason by Company or its transfer agent to deliver, as DWAC shares, (i)
the pre-settlement purchase shares or the pre-settlement alternate purchase shares (as
applicable) to the Investor within two (2) trading days after the regular purchase notice
date or alternate purchase notice date (as applicable), (ii) the settlement regular purchase
shares or settlement alternate purchase shares (as applicable) to the Investor within
two (2) trading days after the Regular Purchase Measurement Period or Alternate Purchase
Measurement Period (as applicable), or (iii) the Commitment Shares to which Investor
is entitled hereunder in connection with a regular purchase or alternate purchase within
two (2) trading days after the Regular Purchase Measurement Period or Alternate Purchase
Measurement Period (as applicable);
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the
Company breaches any representation or warranty in any material respect, or breaches
any covenant or other term or condition under any Transaction Document (as defined in
the Purchase Agreement), and except in the case of a breach of a covenant which is reasonably
curable, only if such breach continues for a period of at least three (3) consecutive
business days;
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if
any person commences a proceeding against the Company pursuant to or within the meaning
of any bankruptcy law for so long as such proceeding is not dismissed;
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if
the Company is at any time insolvent, or, pursuant to or within the meaning of any bankruptcy
law, (i) commences a voluntary case, (ii) consents to the entry of an order for relief
against it in an involuntary case, (iii) consents to the appointment of a custodian of
it or for all or substantially all of its property, (iv) makes a general assignment for
the benefit of its creditors or (v) the Company is generally unable to pay its debts
as the same become due;
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a
court of competent jurisdiction enters an order or decree under any bankruptcy law that
(i) is for relief against the Company in an involuntary case, (ii) appoints a custodian
of the Company for all or substantially all of its property, or (iii) orders the liquidation
of the Company or any subsidiary for so long as such order, decree or similar action
remains in effect; or
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if
at any time the Company
is not eligible to transfer its Ordinary Shares as DWAC shares.
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In addition to any other rights and remedies
under applicable law and the Purchase Agreement, so long as an Event of Default has occurred and is continuing, or if any event
which, after notice and/or lapse of time, would become an Event of Default, has occurred and is continuing, the Company shall not
deliver to the Investor any regular purchase notice or alternate purchase notice.
Pursuant to the RRA, 15,000 Ordinary Shares
are being registered as Filing Default Shares. If this Registration Statement fails to go effective by the 90th calendar
day following the date of the Purchase Agreement (or, if such registration statement is subject to a full review by the SEC, the
120th calendar day after the date of the Purchase Agreement), the Company shall issue to the Investor 10,000 Ordinary
Shares (“Effectiveness Default Shares”).
No Short-Selling or Hedging by Ionic
The Investor agrees that beginning on the
date of the Purchase Agreement and ending on the date of termination of this Agreement, the Investor and its agents, representatives
and affiliates shall not in any manner whatsoever enter into or effect, directly or indirectly, any (i) “short sale”
(as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of the Ordinary Shares (excluding transactions properly
marked “short exempt”) or (ii) hedging transaction, which establishes a net short position with respect to the Ordinary
Shares.
Prohibitions on Variable Rate Transactions
There are no restrictions on future financings,
rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or RRA other than a prohibition
on entering into a “Variable Rate Transaction” as defined in the Purchase Agreement.
Dilutive Effect of Performance of the
Purchase Agreement on Our Shareholders
All 6,000,000 Ordinary Shares registered
in this offering which may be issued or sold by us to Ionic under the Purchase Agreement and RRA are expected to be freely tradable.
It is anticipated that the Ordinary Shares registered in this offering will be sold over a period of up to 36 months from the Commencement
Date. The sale by Ionic of a significant amount of Ordinary Shares registered in this offering at any given time could cause the
market price of our Ordinary Shares to decline and to be highly volatile. Sales of Ordinary Shares to Ionic, if any, will depend
upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Ionic all, some or none of
the additional Ordinary Shares that may be available for us to sell pursuant to the Purchase Agreement.
Issuances of our ordinary shares in this
offering will not affect the rights or privileges of our existing shareholders, except that the economic and voting interests of
each of our existing shareholders will be diluted as a result of any such issuance. Although the number of Ordinary Shares that
our existing stockholders own will not decrease, the shares owned by our existing shareholders will represent a smaller percentage
of our total outstanding shares after any such issuance to Ionic. If and when we do sell Ordinary Shares to Ionic, after Ionic
has acquired those shares (and related Commitment Shares and/or Additional Commitment Shares), Ionic may resell all, some or none
of such shares at any time or from time to time in its discretion. Therefore, issuances to Ionic by us under the Purchase Agreement
may result in substantial dilution to the interests of other holders of Ordinary Shares. In addition, if we sell a substantial
number of Ordinary Shares to Ionic under the Purchase Agreement, or if investors expect that we will do so, the actual sales of
Ordinary Shares or the mere existence of our arrangement with Ionic may make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise wish to effect such sales. However, we have the right
to control the timing and amount of any additional sales of Ordinary Shares to Ionic and the Purchase Agreement may be terminated
by us at any time at our discretion (see subsection entitled Our Termination Rights above).
Pursuant to the terms of the Purchase Agreement,
we have the right, but not the obligation, to direct Ionic to purchase up to $80,000,000 of Ordinary Shares. Depending on the price
per share at which we sell our Ordinary Shares to Ionic pursuant to the Purchase Agreement, we may need to sell to Ionic under
the Purchase Agreement more Ordinary Shares than are offered under this prospectus in order to receive aggregate gross proceeds
equal to the $80,000,000 total commitment available to us under the Purchase Agreement. If we choose to do so, we must first register
for resale under the Securities Act additional Ordinary Shares, which could cause additional substantial dilution to our shareholders.
The number of Ordinary Shares ultimately offered for resale by Ionic under this prospectus is dependent upon the number of Ordinary
Shares we direct Ionic to purchase under the Purchase Agreement.
The following table sets forth the amount
of gross proceeds we would receive from Ionic from our sale of Ordinary Shares to Ionic under the Purchase Agreement at varying
purchase prices:
Assumed Purchase Price Per
Purchase Share(1)
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Number of Ordinary Shares to
be Issued if Full Purchase (2)
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Percentage of Outstanding
Ordinary Shares After Giving Effect to the Issuance to Ionic (3)
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Proceeds from the Sale of
Ordinary Shares to Ionic Under the Purchase Agreement
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$
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5.00
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5,975,000
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10.92
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%
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$
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29,146,340
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$
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10.00
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$
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5,975,000
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10.92
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%
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$
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58,292,680
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$
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13.26
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(4)
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5,975,000
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|
|
10.92
|
%
|
|
|
77,296,094
|
|
$
|
15.00
|
|
|
|
5,466,667
|
|
|
|
10.09
|
%
|
|
$
|
80,000,000
|
|
$
|
20.00
|
|
|
|
4,100,000
|
|
|
|
7.76
|
%
|
|
$
|
80,000,000
|
|
$
|
25.00
|
|
|
|
3,280,000
|
|
|
|
6.31
|
%
|
|
$
|
80,000,000
|
|
$
|
30.00
|
|
|
|
2,733,333
|
|
|
|
5.31
|
%
|
|
$
|
80,000,000
|
|
(1)
|
For the avoidance of any doubt, this price would reflect the Regulator Purchase Price or Alternate Purchase Price after calculation (i.e., after discounts to the market price of our shares) in accordance with the terms of the Purchase Agreement.
|
(2)
|
Although the Purchase Agreement provides that we may sell up to $80,000,000 of Ordinary Shares to Ionic, we are only registering up to 5,975,000 Ordinary Shares which are issuable pursuant to the Purchase Agreement which represents: (i) up to 5,829,268 shares which may be issued and sold to Ionic in the future under the Purchase Agreement for cash if and when we sell Purchase Shares to Ionic under the Purchase Agreement and (ii) up to 145,732 (2.5% of total number of shares sold for cash) shares for no consideration as Commitment Shares which may be issued to Ionic in the future for no consideration, and which may or may not cover all the Purchase Shares we ultimately sell to Ionic under the Purchase Agreement, depending on the purchase price per Purchase Share. As a result, we have included in this column only those Ordinary Shares that we are registering under this prospectus, without regard for the beneficial ownership cap of 4.99%.
|
(3)
|
The denominator is based on 48,305,870 shares outstanding as of March 8, 2021, adjusted to include the issuance of (i) 412,500 Ordinary Shares upon conversion of the Notes and (ii) the number of Ordinary Shares set forth in the adjacent column which we would have issued to Ionic based on the applicable assumed average purchase price per Purchase Share and does not include the issuance
of 15,000 Default Filing Shares or 10,000 Effectiveness Default Shares.
|
(4)
|
The closing sale price of our Ordinary Shares on the Nasdaq Capital Market on March 5, 2021.
|
DILUTION
The sale of our Ordinary Shares to Ionic
pursuant to the Purchase Agreement will have a dilutive impact on our shareholders. In addition, the lower our Ordinary Share price
is at the time we exercise our right to sell shares to Ionic, the more Ordinary Shares we will have to issue to Ionic pursuant
to the Purchase Agreement and our existing shareholders would experience greater dilution.
Our net tangible book value as of September
30, 2020 was approximately $19,230,312, or $0.44 per Ordinary Share. Net tangible book value per share is determined by dividing
our total tangible assets, less total liabilities, by the number of Ordinary Shares (43,699,185) outstanding as of September 30,
2020. Dilution with respect to net tangible book value per share represents the difference between the amount per share paid by
Ionic to us pursuant to the Purchase Agreement and the net tangible book value per Ordinary Share immediately after such issuances
to Ionic.
After giving further effect to the issuance of 145,732 Ordinary
Shares as Commitment Shares for no consideration and the sale of 5,829,268 Ordinary Shares as Purchase Shares to Ionic pursuant
to the Purchase Agreement at an assumed average sale price of $13.26 per Ordinary Share, the last reported sale price of our Ordinary
Shares on the Nasdaq Capital Market on March 5, 2021 (without giving effect to the conversion of the Notes) divided by the Regular
Purchase Price (assumed at $13.82 per share for purposes of this calculation) however limited to gross proceeds of $80,000,000
and after deducting estimated offering expenses of $270,000 payable by us, our pro forma as-adjusted net tangible book
value as of September 30, 2020 would have been approximately $96,256,406, or $1.94 per share based on 49,699,185 shares issued
and outstanding. This represents an immediate increase in net tangible book value of $1.50 per share to existing shareholders and
dilution of $11.32 per Ordinary Share of as-adjusted net tangible book value to new investors based on the assumed average
sale price of $13.26 per Ordinary Share.
To the extent that other shares are issued,
investors purchasing our Ordinary Shares in this offering may experience further dilution. In addition, we may choose to raise
additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current
or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities,
the issuance of these securities could result in further dilution to our shareholders.
CAPITALIZATION
The following table sets forth our capitalization as of September
30, 2020:
|
●
|
on an actual basis; and
|
|
|
|
|
●
|
on an as adjusted basis to reflect the issuance and sale of the Ordinary Shares by us in this offering at an assumed average sale price of $13.26 per Ordinary Share, after deducting the estimated discounts to the underwriters, and the estimated offering expenses payable by us and assuming no exercise of the Representative’s over-allotment option.
|
You should read this table together with
our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
|
|
As of September 30,
2020
|
|
|
|
Actual
(in US$)
|
|
|
Pro Forma
As adjusted
(in US$)
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
Ordinary shares, US$0.01 par value, 50,000,000 shares authorized 43,699,185 shares issued and outstanding; 49,699,185 shares issued and outstanding, as adjusted
|
|
$
|
436,992
|
|
|
$
|
496,992
|
|
Additional paid-in capital
|
|
|
37,796,285
|
|
|
|
114,762,379
|
|
Accumulated Deficit
|
|
|
(18,350,938
|
)
|
|
|
(18,350,938
|
)
|
Total Shareholders’ Equity
|
|
$
|
19,882,339
|
|
|
$
|
96,908,433
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
20,648,330
|
|
|
$
|
97,674,424
|
|
ENFORCEABILITY OF CIVIL LIABILITIES
We were incorporated in the Cayman Islands
in order to enjoy the following benefits:
|
●
|
political and economic stability;
|
|
●
|
an effective judicial system;
|
|
●
|
a favorable tax system;
|
|
●
|
the absence of exchange control or currency restrictions; and
|
|
●
|
the availability of professional and support services.
|
However, certain disadvantages accompany
incorporation in the Cayman Islands. These disadvantages include, but are not limited to, the following:
the Cayman Islands has a less developed
body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors;
and
Cayman Islands companies may not have standing
to sue before the federal courts of the United States.
Our constitutional documents do not contain
provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers,
directors and shareholders, be arbitrated. Currently, a substantial portion of our operations are conducted outside of the United
States, and most of our assets are located outside the United States. All of our officers are nationals or residents of jurisdictions
other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may
be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against
us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the
securities laws of the United States or any state in the United States.
We have appointed Corporation Service Company
located at 19 West 44th Street, Suite 201, New York, New York 10036, as our agent upon whom process may be served in
any action brought against us under the securities laws of the United States.
Harney Westwood & Riegels, our counsel
as to Cayman Islands law, and Merits & Tree Law Offices, our counsel as to PRC law, have advised us, respectively, that there
is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would recognize or enforce judgments of
United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities
laws of the United States or any state in the United States; or entertain original actions brought in each respective jurisdiction
against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Harney Westwood & Riegels has informed
us that it is uncertain whether the courts of the Cayman Islands will allow shareholders of our Company to originate actions in
the Cayman Islands based upon securities laws of the United States. In addition, there is uncertainty with regard to Cayman Islands
law related to whether a judgment obtained from the U.S. courts under civil liability provisions of U.S. securities laws will be
determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the
Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company, such as our company. As the courts
of the Cayman Islands have yet to rule on making such a determination in relation to judgments obtained from U.S. courts under
civil liability provisions of U.S. securities laws, it is uncertain whether such judgments would be enforceable in the Cayman Islands.
Harney Westwood & Riegels has further advised us that the courts of the Cayman Islands would recognize as a valid judgment
a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money
is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect
of a fine or other penalty) or, in certain circumstances, an in personam judgment for non-monetary relief, and would give a judgment
based thereon provided that: (a) such courts had proper jurisdiction over the parties subject to such judgment; (b) such
courts did not contravene the rules of natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud;
(d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (e) no new admissible
evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f) there
is due compliance with the correct procedures under the laws of the Cayman Islands.
Merits & Tree Law Offices has further
advised us that the recognition and enforcement of foreign judgments are subject to compliance with the PRC Civil Procedures Law
and relevant civil procedure requirements in the PRC. PRC courts may recognize and enforce foreign judgments in accordance with
the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made
or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or
the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to
the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if
they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As
a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States
or in the Cayman Islands.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING
DATA
The following summary consolidated financial
statements for the years ended, 2019 and 2018 are derived from our audited consolidated financial statements included elsewhere
in this prospectus. The Company commenced its mining operations in February 2020 and we disposed of our peer-to-peer lending business
(the sole operation of the Company for 2019 and 2018, which has ceased operation in October 2019) and the car rental business in
PRC on September 8, 2020. In accordance with ASC 205-20-45, the results of all discontinued operations, less applicable income
taxes, are reported as components of net income (loss) separate from the net loss of continuing operations. Accordingly, the summary
statement of operations data for the years ended December 2019 and 2018, and summary consolidated balance sheets as of December
31, 2019 and 2018, as comparative statements of operations, have been retroactively adjusted to reflect the discontinued operations.
Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in
the United States, or U.S. GAAP.
The following summary consolidated financial
statements for the nine months ended September 30, 2020 and 2019 are derived from our unaudited consolidated financial statements
included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S.
GAAP.
The consolidated statements of operations
and comprehensive loss and consolidated cash flow data for the nine months ended September 30, 2020 and 2019 and consolidated balance
sheet data as of September 30, 2020 have been derived from our unaudited consolidated financial statements included elsewhere in
this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated
financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary
for a fair statement of our financial position and operating results for the periods presented.
Our historical results for any period are
not necessarily indicative of results to be expected for any future period. You should read the following summary financial information
in conjunction with the consolidated financial statements and related notes and the information under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
Results of Operations Data
|
|
For the Nine Months Ended
September 30,
|
|
|
Year Ended
December 31
|
|
|
|
2020
|
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
Revenue from cryptocurrency mining
|
|
$
|
8,602,226
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization shown below)
|
|
|
(6,866,726
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation and amortization expenses
|
|
|
(1,241,652
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
(1,202,274
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
Total operating expenses
|
|
|
(9,310,652
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(708,426
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
Realized loss on exchange of cryptocurrencies
|
|
|
(15,753
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest income
|
|
|
40
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expenses
|
|
|
(1,964
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations before income taxes
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss from continuing operations
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(3,834,683
|
)
|
|
|
(7,682,866
|
)
|
|
|
(7,682,866
|
)
|
|
|
(1,645,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,560,786
|
)
|
|
$
|
(9,0470,250
|
)
|
|
$
|
(9,676,191
|
)
|
|
|
(3,537,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
(75,120
|
)
|
|
|
(75,120
|
)
|
|
|
(391,463
|
)
|
Comprehensive loss
|
|
$
|
(4,560,786
|
)
|
|
$
|
(9,545,370
|
)
|
|
$
|
(9,751,312
|
)
|
|
|
(3,928,589
|
)
|
Weighted average number of ordinary share outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
25,745,900
|
|
|
|
15,129,954
|
|
|
|
15,197,815
|
|
|
|
14,392,001
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.24
|
)
|
The following table presents our summary
consolidated balance sheet data as of December 31, 2018, 2019 and September 30, 2020.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
521,648
|
|
|
$
|
15,988
|
|
|
$
|
-
|
|
Restricted cash
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
Cryptocurrencies
|
|
|
652,027
|
|
|
|
-
|
|
|
|
-
|
|
Other current assets
|
|
|
1,209,369
|
|
|
|
12,501
|
|
|
|
-
|
|
Assets of discontinued operations
|
|
|
-
|
|
|
|
531,767
|
|
|
|
5,663,732
|
|
Total Current Assets
|
|
|
2,983,044
|
|
|
|
560,256
|
|
|
|
5,663,732
|
|
Restricted cash, noncurrent
|
|
|
-
|
|
|
|
600,000
|
|
|
|
600,000
|
|
Deposits for equipment
|
|
|
-
|
|
|
|
110,000
|
|
|
|
-
|
|
Property and equipment, net
|
|
|
17,665,286
|
|
|
|
-
|
|
|
|
-
|
|
Long-term deferred assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Assets of discontinued operations, noncurrent
|
|
|
-
|
|
|
|
3,246,277
|
|
|
|
6,217,738
|
|
Total Assets
|
|
$
|
20,648,330
|
|
|
$
|
4,516,533
|
|
|
$
|
12,481,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
268,604
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due to related parties
|
|
|
336,722
|
|
|
|
120,000
|
|
|
|
-
|
|
Other payables and accrued liabilities
|
|
|
160,665
|
|
|
|
266,047
|
|
|
|
-
|
|
Current liabilities of discontinued operations
|
|
|
-
|
|
|
|
43,546
|
|
|
|
403,219
|
|
Total Current Liabilities
|
|
|
765,991
|
|
|
|
429,593
|
|
|
|
403,219
|
|
Total Liabilities
|
|
|
765,991
|
|
|
|
429,593
|
|
|
|
403,219
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par value, 50,000,000 shares authorized, and 43,699,185, 15,399,185 and 14,899,185 shares issued and outstanding as of September 30, 2020 and December 31, 2019 and 2018, respectively
|
|
|
436,992
|
|
|
|
153,992
|
|
|
|
148,992
|
|
Share subscription receivables
|
|
|
-
|
|
|
|
(45,457
|
)
|
|
|
(45,457
|
)
|
Additional paid-in capital
|
|
|
37,796,285
|
|
|
|
17,610,220
|
|
|
|
15,855,220
|
|
Statutory reserve
|
|
|
-
|
|
|
|
6,189
|
|
|
|
6,189
|
|
Accumulated deficit
|
|
|
(18,350,938
|
)
|
|
|
(13,790,152
|
)
|
|
|
(4,319,902
|
)
|
Accumulated other comprehensive loss
|
|
|
-
|
|
|
|
(100,185
|
)
|
|
|
(33,947
|
)
|
Total Bit Digital, Inc.’s Shareholders’ Equity
|
|
|
19,882,339
|
|
|
|
3,834,607
|
|
|
|
11,611,095
|
|
Noncontrolling interests
|
|
|
-
|
|
|
|
252,333
|
|
|
|
467,156
|
|
Total Equity
|
|
|
19,882,339
|
|
|
|
4,086,940
|
|
|
|
12,078,251
|
|
Total Liabilities and Equity
|
|
$
|
20,648,330
|
|
|
$
|
4,516,533
|
|
|
$
|
12,481,470
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with our financial statements and the related
notes included elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations
that involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks,
and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed
in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere
in this prospectus.
Overview
We commenced our bitcoin mining business
in February 2020. On September 14, 2020, the Company officially changed its name from “Golden Bull Limited” to “Bit
Digital, Inc.”, which the management believed more closely reflects the Company’s bitcoin mining business. We also
changed our Nasdaq trading symbol to “BTBT” for the same reason.
On April 8, 2020, we acquired Bit Digital
Hong Kong Limited (f/k/a XMAX Chain Limited), a wholly-owned subsidiary based in Hong Kong.
On September 1, 2020, we established Bit
Digital USA, Inc. (“BT USA”), a wholly owned subsidiary incorporated in Delaware, United States, through which we are
operating our bitcoin mining business with miners in the United States. In September, we commenced trial operation with 100 units
of M21s miners under operation in Texas, United States.
On September 17, 2020, BT USA entered into
a certain agreement with Compute North LLC, an industry leader in large-scale computing infrastructure, headquartered in Minnesota,
U.S. Pursuant to the service agreement, Compute North provides bitcoin mining colocation services in their Nebraska data center
facility as well as handles the management of the mining equipment for the Company’s bitcoin mining business, which is expected
to save the Company operating utilities and rent cost. The first batch of 2,000 M21s miners purchased in the third quarter was
shipped to the United States in November and was installed to the hosting facility by Compute North by the end of December 2020.
As of September 30, 2020, our hash rate
reached 1,250 Ph/s. In December 2020, we closed an asset acquisition of 17,996 bitcoin miners with total hash rate of 1,003.5 Ph/s,
worth of $13,902,742, at a consideration of issuance of an aggregate of 4,344,711 common shares, par value $0.01 per share, at
a per share price of $3.20. The closing of the acquisition increased the Company’s total hash rate by approximately 1,003.5
Ph/s, from 1,250 Ph/s to 2,253.5 Ph/s. The average energy efficiency of these miners is 47.45 (+/-5%) joules per terahash
(J/TH). With these miners being fully deployed, the total energy efficiency is expected to be decreased from 61.88 (+/-5%)
J/TH to 55.33 (+/-5%) by 10.59%, consuming 124 megawatts of power. The total 17,996 miners acquired in December 2020 were comprised
of 7,025 Antminer S17+, 9,110 Antminer T17, 195 Antminer S17E, 32 Antminer S17Pro, 105 Antminer S19Pro, 1,429 Whatsminer M20S and
100 Whatsminer M31S.
As of January 15, 2021, the Company owned
a total of 40,865 miners, including 7,025 Antminer S17+, 195 Antminer S17E, 32 Antminer S17Pro, 105 Antminer S19Pro, 800 Antminer
T3, 9,110 Antminer T17, 256 Antminer T17+, 2,200 Whatsminer M10, 4,125 Whatsminer M20S, 16,917 Whatsminer M21S and 100 Whatsminer
M31S, spread over PRC and Texas and Nebraska in the United States.
On February 3, 2021, the Company’s
Board of Directors accepted the resignation of Ping Lu as Chairwoman of the Board, and she resigned for personal health reasons.
The Board then elected Xhaohui Deng (previously misidentified as Chao Deng), an independent director, as Chairman of the Board.
The Board removed Min Hu as Chief Executive Officer, as he was not participating in the Company’s bitcoin mining operations.
Mr. Hu remains an independent director of the Company. The Board then name Erke Huang, currently Chief Financial Officer and a
Director, also as Interim Chief Executive Officer, while an ongoing search for a new CEO continues.
During the fiscal year 2020, we earned
1,510.19 bitcoins in total, and recognized unaudited revenues of approximately $21.07 Million.
During the first calendar month ending
January 31, 2021, we earned 424.72 bitcoins and recognized unaudited revenues of approximately $14.82 Million.
The following table presents the number
of bitcoins received from the mining pool operator on a monthly basis during 2020:
As of December 31, 2020, and September
30, 2020, we had 291 and 60 bitcoins on hand. The following table presents our bitcoin mining activities in coins as of December
31, 2020 and September 30, 2020.
|
|
Number of bitcoins
|
|
|
Amounts
|
|
Balance at January 1, 2020
|
|
|
-
|
|
|
$
|
-
|
|
Receipt of cryptocurrencies from mining services
|
|
|
814
|
|
|
|
8,602,226
|
|
Sales of cryptocurrencies
|
|
|
(754
|
)
|
|
|
(7,934,446
|
)
|
Realized loss on sale of cryptocurrencies
|
|
|
-
|
|
|
|
(15,753
|
)
|
Balance at September 30, 2020
|
|
|
60
|
|
|
$
|
652,027
|
|
Receipt of cryptocurrencies from mining services
|
|
|
696
|
|
|
|
|
|
Sales of cryptocurrencies
|
|
|
(645
|
)
|
|
|
|
|
Balance at December 31, 2020
|
|
|
291
|
|
|
|
|
|
Disposition of peer-to-peer lending
business and the car rental business in the PRC
On September 8, 2020, the Board approved
the disposal of Point Cattle Holdings Limited, a former wholly owned subsidiary of the Company in the British Virgin Islands, and
its subsidiaries and VIEs, through which the Company previously operated its peer-to-peer lending business and the car rental business
in PRC. Upon the sale, we discontinued our peer-to-peer lending business and the car rental business in the PRC (“discontinued
operations”). In addition to our bitcoin mining business, we expect to operate our car rental business through Golden Bull
USA, Inc., a wholly owned subsidiary based in the United States once the Coronavirus pandemic is curtailed.
On the same date, the Company entered into
a certain share purchase agreement (the “Disposition SPA”) by and among a BVI company, Sharp Whale Limited (the “Purchaser”),
Point Cattle Holding Limited (the “Subsidiary”) and the Company (the “Seller”). Pursuant to the Disposition
SPA, the Purchaser purchased the Subsidiary in exchange for nominal consideration of $10.00 and other good and valuable consideration.
COVID-19
In March 2020, the World Health Organization
declared the COVID-19 outbreak (COVID-19) a global pandemic. We operate in locations that have been impacted by COVID-19, and the
pandemic has impacted and could further impact our operations and the operations of our customers as a result of quarantines, various
local, state and federal government public health orders, facility and business closures, and travel and logistics restrictions.
Conditions may improve or worsen as governments and businesses continue to take actions to respond to the risks of the COVID-19
pandemic. While the COVID-19 pandemic continues to cause uncertainty in the global economy and restrictive measures by governments
and businesses remain in place, we expect our business and results of operations to be materially and adversely affected. Company
is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, and
industry.
Beginning in the middle of March, the outbreak
of COVID-19 led to adverse impacts on the U.S. and global economies, bringing uncertainty to our operations and customer demand.
Various local governments issued orders requiring the closure of non-essential businesses and to curtail all unnecessary travel
and requiring individuals to comply with various shelter-in-place and social distancing orders. We however experienced positive
growth from our efforts in investment in miners together with continuous increase in bitcoin market price as investors presented
increasing confidence in bitcoins.
Additionally, we have evaluated the potential
impact of the COVID-19 outbreak on our financial statements, including, but not limited to, the impairment of long-lived assets
and valuation of cryptocurrencies. We have concluded that our long-lived assets are not impaired. Where applicable, we have incorporated
judgments and estimates of the expected impact of COVID-19 in the preparation of the financial statements based on information
currently available. These judgments and estimates may change, as new events develop and additional information is obtained, and
are recognized in the consolidated financial statements as soon as they become known.
We continue to actively monitor the situation
and may take further actions that alter our operations and business practices as may be required by federal, state or local authorities
or that we determine are in the best interests of our partners, customers, suppliers, vendors, employees and shareholders. While
the disruption is currently expected to be temporary, the extent to which the COVID-19 outbreak will further impact the Company’s
financial results will depend on future developments, which are unknown and cannot be predicted, including the duration and ultimate
scope of the pandemic, advances in testing, treatment and prevention, as well as actions taken by governments and businesses.
We plan to continue to invest in our bitcoin
mining business. In December 2020, we closed an asset acquisition of bitcoin miners with total hash rate of 1,003.5 Ph/s, worth
of $13,902,742 which increased the Company’s total hash rate by approximately 1,003.5 Ph/s, from 1,250 Ph/s to 2,253.5 Ph/s.
With miners transferred to the United Stated, the COVID situation continued to place travel difficulties. The US operations are
heavily dependent on our partners.
Results of Operations
Results of Operations for the Nine Months
Ended September 30, 2020 and 2019
The following table summarizes the results
of our operations during the nine months ended September 30, 2020 and 2019, respectively, and provides information regarding the
dollar and percentage increase or (decrease) during period.
|
|
|
For the nine months ended September 30,
|
|
|
|
Variance
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
%
|
|
Revenue from cryptocurrency mining
|
|
$
|
8,602,226
|
|
|
$
|
-
|
|
|
$
|
8,602,226
|
|
|
|
>100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization shown below)
|
|
|
(6,866,726
|
)
|
|
|
-
|
|
|
|
(6,866,726
|
)
|
|
|
>100
|
%
|
Depreciation and amortization expenses
|
|
|
(1,241,652
|
)
|
|
|
-
|
|
|
|
(1,241,652
|
)
|
|
|
>100
|
%
|
General and administrative expenses
|
|
|
(1,202,274
|
)
|
|
|
(1,787,384
|
)
|
|
|
585,110
|
|
|
|
(32.7
|
)%
|
Total operating expenses
|
|
|
(9,310,652
|
)
|
|
|
(1,787,384
|
)
|
|
|
(7,523,268
|
)
|
|
|
420.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(708,426
|
)
|
|
|
(1,787,384
|
)
|
|
|
1,078,958
|
|
|
|
(60.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss on exchange of cryptocurrencies
|
|
|
(15,753
|
)
|
|
|
-
|
|
|
|
(15,753
|
)
|
|
|
>100
|
%
|
Interest income
|
|
|
40
|
|
|
|
-
|
|
|
|
40
|
|
|
|
>100
|
%
|
Other expenses
|
|
|
(1,964
|
)
|
|
|
-
|
|
|
|
(1,964
|
)
|
|
|
>100
|
%
|
Total other expense, net
|
|
|
(17,677
|
)
|
|
|
-
|
|
|
|
(17,677
|
)
|
|
|
>100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
|
|
1,061,281
|
|
|
|
(59.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0
|
%
|
Net loss from continuing operations
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
|
|
1,061,281
|
|
|
|
(59.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(3,834,683
|
)
|
|
|
(7,682,866
|
)
|
|
|
3,848,183
|
|
|
|
(50.1
|
)%
|
Net loss
|
|
$
|
(4,560,786
|
)
|
|
$
|
(9,470,250
|
)
|
|
$
|
4,909,464
|
|
|
|
(51.8
|
)%
|
Revenues
We commenced our bitcoin mining business
in February 2020. We generated revenues from provision of computing power to the digital asset mining pool, and the consideration
was in the form of cryptocurrencies, the value of which is determined using the market price of the related cryptocurrency at the
time of receipt. Providing computing powers to successfully add a block to the blockchain, the Company is entitled to a fractional
share of the fixed cryptocurrency from the mining pool operator, which is based on the proportion of computing power the Company
contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the
current algorithm.
For the nine months ended September 30,
2020, we received 814.23 bitcoins from one mining pool operator by providing computing power in our 22,869 miners (including 800
units Innosilicon T3 miners, 256 Bitmain T17+ miners, 2,200 MicroBT M10 Miners, 2,696 MicroBT M20S miners and 16,817 MicroBT M21S
miners) and as of September 30, 2020, our hash rate was 1,250 Peta-has per second (Ph/s). For the nine months ended September 30,
2020, we recognized revenue of $8,602,226. For the nine months ended September 30, 2019, we did not generate revenues from continuing
operations.
We will continue to invest in the miners
to increase the hash rate capacity, as a percentage of total computing power contributed by all mining pool participants. Our mining
operations are distributed in Xinjiang, Inner Mongolia and Sichuan Provinces PRC, and in Texas, United States which was newly launched
in in September 2020.
In December 2020, we closed an asset acquisition
of 17,996 bitcoin miners with total hash rate of 1,003.5 Ph/s, worth of $13,902,742, at a consideration of issuance of an aggregate
of 4,344,711 common shares, par value $0.01 per share, at a per share price of $3.20. The closing of the acquisition increased
the Company’s total hash rate by approximately 1,003.5 Ph/s, from 1,250 Ph/s to 2,253.5 Ph/s. The acquired miners were comprised
of 7,025 Antminer S17+, 9,110 Antminer T17, 195 Antminer S17E, 32 Antminer S17Pro, 105 Antminer S19Pro, 1,429 Whatsminer M20S,
100 Whatsminer M31S. The average energy efficiency of these miners is 47.45 (+/-5%) joules per terahash (J/TH). With these
miners being deployed, the total energy efficiency will be decreased from 61.88 (+/-5%) J/TH to 55.33 (+/-5%) by 10.59%.
As a result, we expect a continuous significant
increase in revenue for the fourth quarter of fiscal 2020. Also, with more miners operating in the United States, we expect the
energy cost to decrease on an overall basis.
Cost of revenues
Cost of revenues of $6,866,726 for the
nine months ended September 30, 2020 was primarily comprised of direct production cost of the mining operations, including utilities
and other service charges, but excluding depreciation and amortization expenses which are separately presented. As of September
30, 2020, we had 22,769 miners under operation in Inner Mongolia, PRC and Sichuan Province, PRC and 100 miners in Texas, U.S. Our
utility access in these locations aggregated 76 megawatts for the nine months ended September 30, 2020.
For the nine months ended September 30,
2019, we did not incur cost of revenues from continuing operations.
We expect to have a sharp increase in cost
of revenues in the fourth quarter of fiscal year 2020 as we launched an additional 17,996 units of miners in the December 2020.
In addition, we continue to focus on expansion and upgrade of our miners, and the increase in cost of revenues is expected to be
in line with the increase of our revenues.
Depreciation and amortization expenses
For the nine months ended September 30,
2020, the depreciation and amortization expenses represented depreciation of 22,869 miners with an estimated useful life of 3 years.
For the nine months ended September 30,
2019, we did not incur depreciation and amortization expenses from continuing operations.
General and administrative expenses
For the nine months ended September 30,
2020, our general and administrative expenses were primarily comprised of amortization of stock compensation for consulting services
of $456,000, professional and consulting expenses of $541,074, office expenses of $64,211, payroll expenses of $56,405 and travel
expenses of $50,490.
For the nine months ended September 30,
2019, our general and administrative expenses were primarily comprised of amortization of stock compensation for consulting services
of $1,760,000 and office expenses of $27,384.
Realized loss on exchange of cryptocurrencies
We recorded cryptocurrencies are recorded
at cost and any gains or losses from sales of cryptocurrencies are recorded as “Realized gain/(loss) on exchange of cryptocurrencies”
in the unaudited condensed consolidated statements of operations. For the nine months ended September 30, 2020, we recorded loss
of $15,753 from sales of 754.17 bitcoins.
Net loss from discontinued operations
For the nine months ended September 30,
2020, we provided full impairment of $3,734,498 on the net assets of our discontinued operations, and recorded a net loss from
discontinued operations of $100,185 from classification of accumulated translation adjustments, both resulting in a net loss of
$3,834,683 million from discontinued operations, compared to a net loss from discontinued operations of $7,682,866 million for
the same period ended September 30, 2019.
Income tax expenses
Income tax expenses was $nil and $nil for
the nine months ended September 30, 2020 and 2019, respectively, as we incurred net operating losses for the relevant periods.
Net loss and loss per share
For the nine months ended September 30,
2020, our net loss was comprised of net loss of $726,103 derived from our bitcoin mining business and net loss of $3,834,683 from
our disposed peer-to-peer lending business and car rental business in China (“discontinued operations”); compared to
a net loss of $9,470,250 for the same period of last year, derived from $1,787,384 from our continuing business, and $7,682,866
from our discontinued operations.
Loss per share was $0.18 and 0.63 for the
nine months ended September 30, 2020 and 2019, respectively. Weighted average number of shares was 25,745,900 and 15,129,954 for
the nine months ended September 30, 2020 and 2019, respectively.
Results of Operations for the Year Ended
December 31, 2019 Compared to Year Ended December 31, 2018
The Company commenced its mining operations
in February 2020 and we disposed of our peer-to-peer lending business (the sole operation of the Company for 2019 and 2018, which
ceased operations in October 2019) and the car rental business in PRC on September 8, 2020. The results of our operations for the
years ended December 2019 and 2018, as comparative statements of operations, have been retroactively adjusted to reflect the discontinued
operations.
The following table summarizes the results
of our operations during the years ended December 31, 2019 and 2018, respectively, and provides information regarding the dollar
and percentage increase or (decrease) during period.
|
|
For the years ended
December 31,
|
|
|
Variance
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
General and administrative expenses
|
|
$
|
(1,993,325
|
)
|
|
$
|
(1,891,213
|
)
|
|
|
(102,112
|
)
|
|
|
5.4
|
%
|
Total operating expenses
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
(102,112
|
)
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
(102,112
|
)
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0
|
%
|
Net loss from continuing operations
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
(102,112
|
)
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(7,682,866
|
)
|
|
|
(1,645,913
|
)
|
|
|
(6,036,953
|
)
|
|
|
366.8
|
%
|
Net loss
|
|
$
|
(9,676,191
|
)
|
|
$
|
(3,537,126
|
)
|
|
$
|
(6,139,065
|
)
|
|
|
173.6
|
%
|
General and Administrative Expenses
General and administrative expenses was
mainly incurred for business consulting and professional services.
Our general and administrative expenses
were $1,993,325 for the year ended September 30, 2019, representing an increase of $102,112, or 5.4% from $1,891,213 for the years
ended December 31, 2018. The increase was mainly due to engagement of law firms and consulting firms to deal with our suspension
of P2P lending business in the fourth quarter in 2019.
Net loss from discontinued operations
For the years ended December 31, 2019 and
2018, the Company incurred net loss of $7,682,866 and $1,645,913 from its P2P lending business which was disposed of in September
2020. The Company reclassified the net loss in the account of “net loss from discontinued operations” for comparison
purpose.
Net Loss
As a result of the foregoing, we had a
net loss of $9,676,191 for the year ended December 31, 2019, as compared to a net loss of $3,537,126 for the year ended December
31, 2018.
Liquidity and Capital Resources
As of September 30, 2020
To date, we have financed our operations
primarily through cash flows from operations, working capital loans from our shareholders and senior management, and equity financing
through public and private offerings of our securities. We plan to support our future operations primarily from cash generated
from our operations and equity financing.
On May 8, 2020, the Company completed the
sale of 6,500,000 Ordinary Shares at $0.40 per share for gross proceeds of $2,600,000. On July 6, 2020, the Company completed the
sale of 21,500,000 Ordinary Shares at $0.80 per share for gross proceeds of $17,200,000. The proceeds from both private placements
were used mainly to purchase bitcoin miners.
On December 3, 2020, the Company closed
an asset acquisition of bitcoin miners with total hash rate of 1,003.5 Ph/s, worth of $13,902,742, at a consideration of issuance
of an aggregate of 4,344,603 Ordinary Shares, par value $0.01 per share, at a per share price of $3.20. The closing of the acquisition
increased the Company’s total hash rate by approximately 1,003.5 Ph/s, from 1,250 Ph/s to 2,253.5 Ph/s. The acquisition of
17,996 miners was comprised of 7,025 Antminer S17+, 9,110 Antminer T17, 195 Antminer S17E, 32 Antminer S17Pro, 105 Antminer S19Pro,
1,429 Whatsminer M20S, 100 Whatsminer M31S. The average energy efficiency of these miners is 47.45 (+/-5%) joules per terahash
(J/TH). With these miners being deployed, the total energy efficiency will be decreased from 61.88 (+/-5%) J/TH to 55.33 (+/-5%)
by 10.59%.
Halving
Further affecting the industry, and particularly
for the bitcoin blockchain, the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is
a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus
algorithm. At a predetermined block, the mining reward is cut in half, hence the term “halving.” For bitcoin, the reward
was initially set at 50 bitcoin currency rewards per block and this was cut in half to 25 on November 28, 2012 at block 210,000
and again to 12.5 on July 9, 2016 at block 420,000. Halving of bitcoin occurred May 11, 2020 at block 630,000 when the then current
12.5 reward reduced to 6.25. Many factors influence the price of bitcoin and potential increases or decreases in prices in advance
of or following a future halving is unknown.
Revenue from Mining Operations
Funding our operations on a go-forward
basis will rely significantly on our ability to continue to mine cryptocurrency and the spot or market price of the cryptocurrency
we mine. We expect to generate ongoing revenues from the production of cryptocurrencies, primarily bitcoin, in our mining facilities.
Our ability to liquidate bitcoin at future values will be evaluated from time to time to generate cash for operations. Generating
bitcoin, for example, with spot market values which exceed our production and other costs, will determine our ability to report
profit margins related to such mining operations, although accounting for our reported profitability is significantly complex.
Furthermore, regardless of our ability to generate revenue from our cryptocurrency assets, we may need to raise additional capital
in the form of equity or debt to fund our operations and pursue our business strategy.
The ability to raise funds as equity, debt
or conversion of cryptocurrency to maintain our operations is subject to many risks and uncertainties and, even if we were successful,
future equity issuances would result in dilution to our existing stockholders and any future debt or debt securities may contain
covenants that limit our operations or ability to enter into certain transactions. Our ability to realize revenue through bitcoin
production and successfully convert bitcoin into cash or fund overhead with bitcoin is subject to a number of risks, including
regulatory, financial and business risks, many of which are beyond our control. Additionally, the value of bitcoin currency rewards
has been extremely volatile historically. While such volatility has recently decreased, future prices cannot be predicted.
If we are unable to generate sufficient
revenue from our bitcoin production when needed or secure additional sources of funding, it may be necessary to significantly reduce
our current rate of spending or explore other strategic alternatives.
Cash flows
For the nine months ended September
30, 2020 and 2019
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net Cash (Used in) Provided by Operating Activities
|
|
$
|
(8,647,894
|
)
|
|
$
|
703,882
|
|
Net Cash Used in Investing Activities
|
|
|
(10,851,166
|
)
|
|
|
(663,756
|
)
|
Net Cash Provided by Financing Activities
|
|
|
20,004,720
|
|
|
|
-
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
|
-
|
|
|
|
(40,126
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
505,660
|
|
|
|
15,988
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
615,988
|
|
|
|
600,000
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
1,121,648
|
|
|
$
|
615,988
|
|
Net Cash (Used in) Provided by Operating
Activities
Net cash used in operating activities was
$8,647,894 for the nine months ended September 30, 2020, mainly derived from (i) net loss of $726,103 from continuing operations
for the nine months adjusted for noncash provision for depreciation expenses of miners of $1,241,652, and amortization of stock
compensation expenses for consulting services of $456,000, and (ii) net changes in our operating assets and liabilities, principally
comprising of (a) an increase in cryptocurrencies of $8,586,472 as rewards to us for provision of mining services, and (b) an increase
in other current assets of $1,196,869, primarily attributable to payment of deposits of $1,172,165 to one service provider who
paid utility charges in mining facilities on behalf of us.
Net cash provided by operating activities
was $703,882 for the nine months ended September 2019, primarily resulting from cash inflows of $731,266 provided by our discontinued
peer-to-peer lending business.
Net Cash Used in Investing Activities
Net cash used in investing activities was
$10,851,166 for the nine months ended September 30, 2020, primarily used in purchases of miners of $18,796,938, and netting off
against proceeds of $7,934,446 from sales of cryptocurrencies
Net cash used in investing activities was
$663,756 for the nine months ended September 30, 2019, primarily resulting from cash outflows of $663,756 provided by our discontinued
peer-to-peer lending business.
Net Cash Provided by Financing Activities
Net cash provided by financing activities
was $20,004,720 for the nine months ended September 30, 2020, primarily provided by proceeds of $19,800,000 from certain shareholders
under private placement transactions and borrowings of $204,720 from related parties.
Net cash provided by financing activities
was $nil for the nine months ended September 30, 2019.
For the years ended December 31, 2019
and 2018
The Company commenced its mining operations
in February 2020 and we disposed of our peer-to-peer lending business (the sole operation of the Company for 2019 and 2018, which
ceased operation in October 2019) and the car rental business in PRC on September 8, 2020. The cash flows for the years ended December
2019 and 2018, as comparative statements of operations, have been retroactively adjusted to reflect the discontinued operations.
As of December 31, 2019, we had cash, cash
equivalents and restricted cash of approximately $0.62 million as compared to $0.6 million as of December 31, 2018. The table below
sets forth a summary of our cash flows for the years indicated:
|
|
For the Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net Cash Used in Operating Activities
|
|
$
|
(1,347,482
|
)
|
|
$
|
(5,050,076
|
)
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
1,403,596
|
|
|
|
(211,372
|
)
|
Net Cash Provided by Financing Activities
|
|
|
-
|
|
|
|
5,944,147
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
|
(40,126
|
)
|
|
|
(82,699
|
)
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
15,988
|
|
|
|
600,000
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
|
|
600,000
|
|
|
|
-
|
|
Cash, cash equivalents and restricted cash at end of year
|
|
$
|
615,988
|
|
|
$
|
600,000
|
|
Operating Activities
Net cash used in operating activities was
approximately $1.3 million for the year ended December 31, 2019, which was primarily comprised of net cash used in operating activities
from continuing operations of approximately $0.1 million which was attributable to a net loss from continuing operation of $1.9
million adjusted to share based compensation expenses of approximately $1.8 million, and net cash used in discontinued operations
of $1.2 million.
Net cash used in operating activities was
approximately $5.1 million for the year ended December 31, 2018, which was primarily comprised of net cash used in operating activities
from continuing operations of approximately $3.3 million which was attributable to a net loss from continuing operation of $1.9
million adjusted to share based compensation expenses of approximately $0.8 million and an increase of $2.2 million in prepaid
consulting service fees, and net cash used in discontinued operations of $1.7 million.
Investing Activities
For the years ended December 31, 2019,
net cash provided by investing activities of approximately $1.4 million was primarily contributed to payments of $0.1 million of
deposits for property and equipment, net of cash inflows of $1.5 million generated by discontinued operations.
For the years ended December 31, 2018,
net cash provided by investing activities of approximately $0.21 million was primarily contributed to payments of $1.76 million
to an affiliate, net of cash inflows of $1.55 million generated by discontinued operations.
Financing Activities
Net cash provided by financing activities
was nil for the year ended December 31, 2019.
Net cash provided by financing activities
was approximately $5.9 million for the year ended December 31, 2018, which was attributable to approximately $5.9 million proceeds
from issuance of Ordinary Shares through IPO.
Off-balance sheet arrangements
We have not entered into any derivative
contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our unaudited
condensed consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred
to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable
interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support or that engages in leasing,
hedging or research and development services with us.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared
in accordance with U.S. GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of
our assets and liabilities and revenues and expenses, to disclose contingent assets and liabilities on the dates of the consolidated
financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting periods.
The most significant estimates and assumptions include the valuation of cryptocurrencies and other current assets, useful lives
of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities and realization
of deferred tax assets. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances.
We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual
results could differ from those estimates as a result of changes in our estimates. Some of our accounting policies require higher
degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this prospectus reflect
the more significant judgments and estimates used in preparation of our consolidated financial statements.
Recently issued and adopted accounting
pronouncements
The Company has evaluated all recently
issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial
statements. See Note 2 of the unaudited condensed consolidated financial statements as of September 30, 2020, and Note 3 —
Summary of accounting policies – recently issued accounting pronouncements to the consolidated financial statements.
BUSINESS
History and Development of the Company
Bit Digital, Inc. (“BTBT” or
the “Company”), formerly known as Golden Bull Limited, is a holding company incorporated on February 17, 2017, under
the laws of the Cayman Islands. The Company is currently engaged in the bitcoin mining business through its wholly owned subsidiaries
in the United States and Hong Kong. Initially, we were primarily an online finance marketplace, or “peer-to-peer” lending
company, in China that provided borrowers access to loans. But on October 24, 2019, the Pudong Branch of the Shanghai Public Security
Bureau announced on its website that it conducted its investigations against Shanghai Dianniu Internet Finance Information Service
Co., Ltd., which was a variable interest entity (“VIE”) of the Company, for suspected illegal collection of public
deposits. Hence, the Company’s management decided to temporarily suspend the “peer-to-peer” lending business
in the fourth quarter of 2019. As of this date, the final outcome of investigation was still not published and the impact could
not be estimated. See “Legal Proceedings.” Pursuant to a Share Purchase Agreement dated September 8, 2020, the Company
sold its subsidiary Point Cattle Holdings Limited and its subsidiaries and VIEs to an unaffiliated third party and the operations
of its peer-to-peer lending business were classified as discontinued operations.
On June 3, 2019, Golden Bull USA, Inc.
(“Golden Bull USA”) was incorporated in the State of New York, which is a wholly owned subsidiary of Golden Bull Limited.
Golden Bull USA is our principal office. We planned to develop a car rental business through Golden Bull USA until we suspended
efforts as a result of the pandemic.
On April 8, 2020, we acquired Bit Digital
Hong Kong Limited (“Bit Digital Hong Kong”) in Hong Kong, as a wholly owned subsidiary, currently operating our bitcoin
mining business in China. Bit Digital Hong Kong was purchased from an unaffiliated third party. Management determined that Bit
Digital Hong Kong was formed in March 2018 under the name XMAX Chain Limited.
On August 7, 2020, the Company changed
its Nasdaq trading symbol to “BTBT”. On September 14, 2020, the Company officially changed its name from “Golden
Bull Limited” to “Bit Digital, Inc.”, which the management believed more closely reflects the Company’s
bitcoin mining business.
On September 1, 2020, the Company formed
Bit Digital USA Inc. (“BT USA”), as a wholly-owned Delaware subsidiary in order to conduct its bitcoin mining business
in the U.S.
On September 8, 2020, the Board approved
the disposal of Point Cattle Holdings Limited, a former wholly owned subsidiary of the Company in the British Virgin Islands, and
its subsidiaries and VIEs, through which the Company previously operated its peer-to-peer lending business and the car rental business
in PRC. Upon the sale, we discontinued our peer-to-peer lending business and the car rental business in the PRC (“discontinued
operations”), and the subsidiaries and VIEs in the PRC engaging in the discontinued operations have no relationship with
the Company
On the same date, the Company entered into
a certain share purchase agreement (the “Disposition SPA”) by and among a BVI company, Sharp Whale Limited (the “Purchaser”),
Point Cattle Holding Limited (the “Subsidiary”) and the Company (the “Seller”). Pursuant to the Disposition
SPA, the Purchaser purchased the Subsidiary in exchange for nominal consideration of $10.00 and other good and valuable consideration.
After our acquisition of Bit Digital Hong
Kong and the formation of U.S. entities for operating our bitcoin mining, together with the disposal of old operations of peer-to-peer
lending business and related legal entities, the Company is now a Cayman entity with one HK subsidiary, Bit Digital Hong Kong,
and two U.S. subsidiaries, with no subsidiary or VIE legal entities in mainland China.
We listed our Ordinary Shares on the Nasdaq
Capital Market under the symbol “DNJR” on March 19, 2018 and completed an initial public offering of 1,550,000 Ordinary
Shares on March 22, 2018 (“IPO”), raising approximately US$5.2 million in net proceeds after deducting underwriting
commissions and the offering expenses payable by us. On March 28, 2018, ViewTrade Securities, Inc., who acted as the sole underwriter
and book-runner of the Company’s IPO exercised the full over-allotment option to purchase an additional 232,500 Ordinary
Shares raising approximately US$850,000 in net proceeds after deducting underwriting commissions and the offering expenses payable
by us.
On May 8, 2020, the Company completed the
sale of 6,500,000 Ordinary Shares at $0.40 per share for gross proceeds of $2,600,000. On July 6, 2020, the Company completed the
sale of 21,500,000 Ordinary Shares at $0.80 per share for gross proceeds of $17,200,000. The proceeds from both private placements
were used mainly to purchase bitcoin miners.
On December 3, 2020, the Company closed
an asset acquisition of bitcoin miners with total hash rate of 1,003.5 Ph/s, worth of $13,902,742, at a consideration of issuance
of an aggregate of 4,344,603 Ordinary Shares, par value $0.01 per share, at a per share price of $3.20.
Our principal executive offices are located
at 33 Irving Place, New York, New York, United States 10003. Our registered office in the Cayman Islands is located at Corporate
Filing Services Ltd., 3rd Floor, Harbour Place, 103 South Church Street, Grand Cayman, KY 1-1002, Cayman Islands.
Our agent for service of process in the
United States is Corporation Service Company located at 1180 Avenue of the Americas, Suite 210, New York, New York 10036. Investors
should contact us for any inquiries through the address and telephone number of our principal executive offices.
Capital Expenditures Related to Bitcoin
Mining
For the nine months ended September 30,
2020, our capital expenditures of approximately $11.2 million were incurred primarily in connection with the purchase of bitcoin
miners, additional computer equipment and IT server to support our services.
Bitcoin Mining
Operations of bitcoin mining
In view of the widespread adoption of blockchain
technology and bitcoin worldwide the Company determined to enter the bitcoin mining industry, which is focused on the production
of bitcoin. We commenced investigation of the business in August 2019 and found that bitcoin mining is believed to be profitable
and our business plan is viable. In October 2019 the Company decided to implement its business strategy with the temporary suspension
of its existing P2P lending business. Mr. Erke Huang then joined the Company as CFO and a director. Prior to joining the Company,
he served as investment director in a venture capital fund in Shenzhen, China and invested in well-known blockchain technology
projects. Mr. Huang brings experience ranging from miner supply to mining “farm” hosting to execute the Company’s
bitcoin mining business plan. We believe the Company can achieve a discount on miner acquisition cost through bulk purchase and
the Company has also sourced a stable and cheap electricity supply. We have also assembled an experienced operations team to manage
and maintain the daily operations of miners for stable and predictable bitcoin production.
The Company operates, through its partnerships
with third party hosting firms, bitcoin mining facilities for the sole purpose of mining bitcoin. Our facilities and mining platform
are operating with the primary intent of accumulating bitcoin which we may sell for fiat currency from time to time depending on
market conditions and management’s determination of our cash flow needs. During the second and third quarters of 2020, the
Company purchased 22,869 second-hand bitcoin miners from non-affiliated persons for aggregate consideration of $18,759,770. In
December 2020, we closed an asset acquisition of 17,996 second-hand bitcoin miners with total hash rate of 1,003.5 Ph/s, worth
of $13,902,742, at a consideration of issuance of an aggregate of 4,344,711 common shares, par value $0.01 per share, at a per
share price of $3.20. The closing of the acquisition increased the Company’s total hash rate by approximately 1,003.5 Ph/s,
from 1,250 Ph/s to 2,253.5 Ph/s. The average energy efficiency of these miners is 47.45 (+/-5%) joules per terahash (J/TH).
With these miners being fully deployed, the total energy efficiency is expected to be decreased from 61.88 (+/-5%) J/TH to
55.33 (+/-5%) by 10.59%, consuming 124 megawatts of power.
As of January 15, 2021, we had a total
of 40,865 miners, including 7,025 Antminer S17+, 195 Antminer S17E, 32 Antminer S17Pro, 105 Antminer S19Pro, 800 Antminer T3, 9,110
Antminer T17, 256 Antminer T17+, 2,200 Whatsminer M10, 4,125 Whatsminer M20S, 16,917 Whatsminer M21S and 100 Whatsminer M31S, spreading
over Xinjiang Uygur Autonomous Region (“Xinjiang”), Inner Mongolia Autonomous Region (“Inner Mongolia”),
Sichuan Province and Yunnan Province in China, and the State of Texas (“Texas”) and the State of Nebraska (“Nebraska”)
in the United States.
As of February 20, 2021, in Xinjiang we
had 14,639 bitcoin miners; in Inner Mongolia we had 17,926 miners; in Sichuan Province; we had 1,650 miners; in Yunnan Province;
we had 4.000 miners; in Nebraska we had 2,000 miners and in Texas we had 100 miners. We shipped a batch of 2,000 S17+ miners from
Yunnan Province, PRC to Nebraska,U.S. in early February 2021. However, as a common practice in the mining industry in China, we
may migrate our miners within the above locations on a seasonal basis depending on water and electricity availability and cost.
We were already in the process of migrating our miners when China’s Inner Mongolia recently announced a solicitation of banning
cryptocurrency mining facilities in Inner Mongolia by April 2021 to allow for energy conservation. The Company is currently evaluating
plans to make more purchases to increase the total mining hash, conditioned upon our raising required funds.
Performance Metrics of bitcoin mining
The Company operates mining hardware which
performs computational operations in support of the bitcoin blockchain network measured in “hash rate” or “hashes
per second.” A “hash” is the computation run by mining hardware in support of the blockchain; therefore, a miner’s
“hash rate” refers to the rate at which it is capable of solving such computations. The original equipment used for
mining bitcoin utilized the Central Processing Unit (CPU) of a computer to mine various forms of bitcoin. Due to performance limitations,
CPU mining was rapidly replaced by the Graphics Processing Unit (GPU), which offers significant performance advantages over CPUs.
General purpose chipsets like CPUs and GPUs have since been replaced in the mining industry by Application Specific Integrated
Circuits (ASIC) chips like those found in the miners currently utilized by the Company at its mining facilities. These ASIC chips
are designed specifically to maximize the rate of hashing operations.
The Company measures our mining performance
and competitive position based on overall hash rate being produced in our mining sites. The latest MicroBT M31S miner performs
in the range of 76 terahash per second (TH/s) per unit, MicroBT M21S miner in the range of 50 - 58 TH/s per unit, M20S performs
in the range of 64 - 68 TH/s per unit, M10 performs in the range of 31 – 35 TH/s per unit; Bitmain S19Pro performs with a
maximum hashrate of 110 TH/s per unit, Bitmain S17Pro performs 53 TH/s per unit, Bitmain S17+ performs in the range of 58-73 TH/s
per unit, Bitmain S17E performs in the range of 56-64 TH/s per unit; Bitmain T17+ performs with a maximum hashrate of 64 TH/s per
unit; Innosilicon T17 performs in the range of 40-50 TH/s per unit and Innosilicon T3 performs in the range of 41 – 45 TH/s
per unit. These mining hardware are on the cutting edge of available mining equipment, however, advances and improvements to the
technology are ongoing and may be available in quantities to the market in the future which may affect our perceived position.
Halving
Further affecting the industry, and particularly
for the bitcoin blockchain, the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is
a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus
algorithm. At a predetermined block, the mining reward is cut in half, hence the term “halving”. For bitcoin, the reward
was initially set at 50 bitcoin currency rewards per block and this was cut in half to 25 in November 28, 2012 at block 210,000
and again to 12.5 on July 9, 2016 at block 420,000. The next halving for bitcoin is expected in May 2020 at block 630,000 when
the reward will reduce to 6.25. This process will reoccur until the total amount of bitcoin currency rewards issued reaches 21
million, which is expected to occur around 2140.
Network Hash Rate and Difficulty
In cryptocurrency mining, “hash rate”
is a measure of the processing speed by a mining computer for a specific coin. An individual mining company such as Bit Digital
has a total company hash rate of its miners seeking to mine a specific coin, and system wide there is a total hash rate of all
miners seeking to mine each specific coin. A higher total hash rate of a specific mining company, as a percentage of the system
wide total hash rate, generally results over time in a correspondingly higher success rate in coin rewards as compared to miners
with lower hash rates.
Mining Pools
A “mining pool” is the pooling
of resources by miners, who share their processing power over a network and split rewards according to the amount of work they
contributed to the probability of placing a block on the blockchain. Mining pools emerged in response to the growing difficulty
and available hashing power that competes to place a block on the bitcoin blockchain.
The Company participates in mining pools
wherein groups of miners associate to pool resources and earn cryptocurrency together allocated to each miner according to the
“hashing” capacity they contribute to the pool. As additional miners competed for the limited supply of blocks, individuals
found that they were working for months without finding a block and receiving any reward for their mining efforts. To address this
variance, miners started organizing into pools to share mining rewards more evenly on a pro rata basis based on total hashing capacity
contributed to the mining pool.
The mining pool operator provides a service
that coordinates the computing power of the independent mining enterprise. Fees are paid to the mining pool operator to cover the
costs of maintaining the pool. The pool uses software that coordinates the pool members’ hashing power, identifies new block
rewards, records how much work all the participants are doing, and assigns block rewards for successful algorithm solutions in-proportion
to the individual hash rate that each participant contributed to a given successful mining transaction. While we do not pay pool
fees directly, pool fees are deducted from amounts we may otherwise earn.
Mining pools are subject to various risks
such as disruption and down time. Bit Digital has internally created software that monitors its hashing performance and reward
rates to monitor credits for our contributed hashing power. In the event that a pool experiences down time or is not yielding returns,
our results may be impacted.
Mining Facilities
We have not signed leases for bitcoin mining
facilities. In order to achieve lower utility costs, the mining facilities are maintained by our third -party suppliers.
The bitcoin mining facilities in China
are maintained by three Hong Kong suppliers. Since July 2020, the Company, through Bit Digital Hong Kong, its wholly owned subsidiary
in Hong Kong, entered into Hosting Service Agreements with three third-parties. Each of the hosting service agreements are for
a one-year term. The three suppliers are responsible for installing the mining facilities, providing ad-hoc on-site IT consulting,
maintenance and repair and other services to ensure the operation of mining facilities.
The facilities in Nebraska are maintained
by Compute North, LLC. In September 2020, Bit Digital USA, Inc., a wholly-owned U.S. subsidiary, entered into a Hosting Service
Agreement with Compute North, LLC, an industry leader in large-scale computing infrastructure with headquarters in Minnesota. Compute
North provides bitcoin mining colocation services at their Nebraska data center and handles the management of the Company’s
mining equipment, which has and is expected to save the Company operating utilities and rent costs. The Hosting Service Agreement
is for a one-year term automatically renewable for additional one-year terms unless terminated on prior written notice. Compute
North provides maintenance support, power equipment, broadcast network support, security monitoring, maintenance management and
troubleshooting. The Company is responsible for repair and maintenance, and if it needs Compute North’s services, it will
pay Compute North for such services. Compute North is otherwise paid according to actual power consumption. Compute North shall
conduct daily monitoring of the miners to guarantee stable operation with certain exceptions for failures beyond their control.
The facilities in Texas are similarly maintained by Compute North as well.
All of our miners own exclusive serial
numbers (SN) distinguished from any other miners and are used for warranty control. The miners can be monitored or checked by our
operations and finance team at any time to determine the miners’ working status. We currently have five employees including
our interim CEO and CFO, a Vice President of Mining Operations, a Vice President of North American operations and two accounting
staff.
Competition
In bitcoin mining, companies, individuals
and groups generate units of bitcoin through mining. Miners can range from individual enthusiasts to professional mining operations
with dedicated data centers. Miners may organize themselves in mining pools. The Company competes or may in the future compete
with other companies that focus all or a portion of their activities on owning or operating bitcoin exchanges, developing programming
for the blockchain, and mining activities. At present, the information concerning the activities of these enterprises is not readily
available as the vast majority of the participants in this sector do not publish information publicly or the information may be
unreliable. Published sources of information include “bitcoin.org” and “blockchain.info”; however, the
reliability of that information and its continued availability cannot be assured.
Several public companies (traded in the
U.S. and Internationally), such as the following, may be considered to compete with us, although we believe there is no company,
including the following, which engages in the same scope of activities as we do or intend to do:
Our competitors in bitcoin mining include
Overstock.com Inc; Bitcoin Investment Trust; Blockchain Industries, Inc; (formerly Omni Global Technologies, Inc.); Bitfarms Technologies
Ltd. (formerly Blockchain Mining Ltd); DMG Blockchain Solutions Inc; Hive Blockchain Technologies Inc; Hut 8 Mining Corp; HashChain
Technology, Inc; MGT Capital Investments, Inc; DPW Holdings, Inc; Layer1 Technologies, LLC; Northern Data AG; Riot Blockchain,
Inc; Marathon Patent Group, Inc. The bitcoin industry is a highly competitive and rapidly changing industry and new competitors
and/or emerging technologies could enter the market and affect our competitiveness in the future. For more information regarding
those risk factors known to us, see the section entitled “Risk Factors” herein.
Insurance
We provide social security insurance including
pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees. We do not maintain
business interruption insurance or general third-party liability insurance, nor do we maintain product liability insurance or key-man
insurance.
Legal Proceedings
Except as set forth herein, we are not
currently a party to any material legal or administrative proceedings. On October 24, 2019, the Pudong Branch of the Shanghai Public
Security Bureau (the “Bureau”) announced that it conducted its investigation against Shanghai Dianniu Internet Finance
Information Service Co. Ltd, the Company’s former variable interest entity (VIE) which was engaged in P2P business for suspected
illegal collection of public deposits. The Bureau took criminal enforcement measures against 17 suspects in the case and detained
at least 6 suspects. On March 24, 2020, the Bureau updated the announcement that it transferred 7 suspects to the procuratorates
for criminal prosecution and took criminal enforcement measures against other 14 suspects, and our former Chief Executive Officer
is still online hunting. While the Company has not been subject to any enforcement actions, the Company’s current management
believes that its former Chief Financial Officer and a Director, as well as members of the VIE’s management, may have been
the subject of these proceedings. As of the date of this prospectus, the final outcome of investigation was still not published
and the impact could not be estimated. Pursuant to a Share Purchase Agreement dated September 8, 2020, the Company sold its subsidiary
Point Cattle Holdings Limited and its subsidiaries and VIEs to an unaffiliated third party and the operations of its peer-to-peer
lending business were classified as discontinued operations.
On January 20, 2021, a securities class
action lawsuit was filed against the Company and its Chief Executive Officer and Chief Financial Officer titled Anthony Pauwels
v. Bit Digital, Inc., Min Hu and Erke Huang (Case No. 1:21-cv-00515) (U.S.D.C. S.D.N.Y.). Several other related cases have
since been filed seeking lead plaintiff status. The class action is on behalf of persons that purchased or acquired our Ordinary
Shares between December 21, 2020 and January 8, 2021, a period of volatility in our stock, as well as volatility in the price of
bitcoin. We believe the complaint is based solely upon a research article issued on January 11, 2021, which included false claims
and to which the Company responded in a press release filed on Form 6-K on January 19, 2021. We intend to seek dismissal of the
lawsuit and will vigorously defend the action.
We have appointed Corporation Service Company,
located at 19 West 44th Street, Suite 201, New York, New York 10036, as our agent upon whom service may be served in
any action brought against us under the securities laws of the United States.
Regulations
U.S. Government Regulation
U.S. government regulation of blockchain
and cryptocurrency is being actively considered by the United States federal government via its agencies and regulatory bodies,
as well as similar entities in other countries and transnational organizations, such as the European Union. State and local regulations
also may apply to our activities and other activities in which we may participate in the future. Other governmental or semi-governmental
regulatory bodies have shown an interest in regulating or investigating companies engaged in the blockchain or cryptocurrency business.
For instance, the SEC has taken an active role in regulating the use of public offerings of proprietary coins (so-called “Initial
Coin Offerings”) and has made statements and official promulgations as to the status of certain cryptocurrencies as “securities”
subject to regulation by the SEC.
The SEC has taken the position that while
bitcoin may be deemed to be a currency and not a security, other cryptocurrencies may still be deemed to be securities. Therefore,
while we do not believe any U.S. or State regulatory body has taken any action or position adverse to our sole cryptocurrency,
bitcoin, with respect to its production, sale, and use as a medium of exchange, future changes to existing regulations or entirely
new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability.
As the regulatory and legal environment evolves, we may become subject to new laws, such as further regulation by the SEC and other
agencies, which may affect our mining and other activities. For additional discussion regarding our belief about the potential
risks existing and future regulation poses to our business, see the Section entitled “Risk Factors” herein and in our
other SEC filings, which are incorporated by reference herein.
Intellectual Property
We actively use specific hardware and software
for our cryptocurrency mining operation. In certain cases, source code and other software assets may be subject to an open source
license, as much technology development underway in this sector is open source. For these works, we intend to adhere to the terms
of any license agreements that may be in place.
We do not currently own, and do not have
any current plans to seek, any patents in connection with our existing and planned blockchain and cryptocurrency related operations.
We do expect to rely upon trade secrets, trademarks, service marks, trade names, copyrights and other intellectual property rights
and expect to license the use of intellectual property rights owned and controlled by others. In addition, we have developed and
may further develop certain proprietary software applications for purposes of our cryptocurrency mining operation.
This section sets forth a summary of the
most significant rules and regulations that affect our business activities in China.
Regulations on Illegal Fund-Raising
Raising funds by entities or individuals
from the general public must be conducted in strict compliance with applicable PRC laws and regulations to avoid administrative
and criminal liabilities. The Measures for the Banning of Illegal Financial Institutions and Illegal Financial Business Operations
promulgated by the State Council in July 1998, and the Notice on Relevant Issues Concerning the Penalty on Illegal Fund-Raising
issued by the General Office of the State Council in July 2007, explicitly prohibit illegal public fund-raising. The main features
of illegal public fund-raising include: (i) illegally soliciting and raising funds from the general public by means of issuing
stocks, bonds, lotteries or other securities without obtaining the approval of relevant authorities, (ii) promising a return of
interest or profits or investment returns in cash, properties or other forms within a specified period of time, and (iii) using
a legitimate form to disguise the unlawful purpose.
To further clarify the criminal charges
and punishments relating to illegal public fund-raising, the Supreme People’s Court promulgated the Judicial Interpretations
to Issues Concerning Applications of Laws for Trial of Criminal Cases on Illegal Fund-Raising, or the Illegal Fund-Raising Judicial
Interpretations, which came into force in January 2011. The Illegal Fund-Raising Judicial Interpretations provide that a public
fund-raising will constitute a criminal offense related to “illegally soliciting deposits from the public” under the
PRC Criminal Law, if it meets all the following four criteria: (i) the fund-raising has not been approved by the relevant authorities
or is concealed under the guise of legitimate acts; (ii) the fund-raising employs general solicitation or advertising such as social
media, promotion meetings, leafleting and SMS advertising; (iii) the fundraiser promises to repay, after a specified period of
time, the capital and interests, or investment returns in cash, properties in kind and other forms; and (iv) the fund-raising targets
at the general public as opposed to specific individuals. An illegal fund-raising activity will be fined or prosecuted in the event
that it constitutes a criminal offense. Pursuant to the Illegal Fund-Raising Judicial Interpretations, an offender that is an entity
will be subject to criminal liabilities, if it illegally solicits deposits from the general public or illegally solicits deposits
in disguised form (i) with the amount of deposits involved exceeding RMB1,000,000 (US$157,342), (ii) with over 150 fund-raising
targets involved, or (iii) with the direct economic loss caused to fund-raising targets exceeding RMB500,000 (US$78,671), or (iv)
the illegal fund-raising activities have caused baneful influences to the public or have led to other severe consequences. An individual
offender is also subject to criminal liabilities but with lower thresholds. In addition, an individual or an entity who has aided
in illegal fund-raising from the general public and charges fees including but not limited to agent fees, rewards, rebates and
commission, constitute an accomplice of the crime of illegal fund-raising. In accordance with the Opinions of the Supreme People’s
Court, the Supreme People’s Procurator and the Ministry of Public Security on Several Issues concerning the Application of
Law in the Illegal Fund-Raising Criminal Cases, the administrative proceeding for determining the nature of illegal fund-raising
activities is not a prerequisite procedure for the initiation of criminal proceeding concerning the crime of illegal fund-raising,
and the administrative departments’ failure in determining the nature of illegal fund-raising activities does not affect
the investigation, prosecution and trial of cases concerning the crime of illegal fund-raising.
We have taken measures to avoid conducting
any activities that are prohibited under the illegal-funding related laws and regulations. As part of our discontinued operations,
we formerly provided a platform for borrowers and lenders, but the Company was not a party to the loans facilitated through our
platform. In addition, we did not directly receive any funds from lenders in our own accounts as funds loaned through our platform
were deposited into and settled by a third-party custody account managed by Bank of Shangrao, a reputable third-party service provider.
In November 2018, we completed the transition from the custodian system of Bank of Shanghai to the custodian system of Bank of
Shangrao. Since then, we had cooperated only with Bank of Shangrao as our custodian for better compliance, as it was one of the
twenty-five banks that passed the test of individual network lending funds depository system, according to a report released by
The National Internet Finance Association of China (NIFA) on September 20, 2018. We have terminated contractual arrangements in
relation to our VIE; hence, we no longer control any entity which operates a P2P lending business.
Anti-money Laundering Regulations
The PRC Anti-money Laundering Law, which
became effective in January 2007, sets forth the principal anti-money laundering requirements applicable to financial institutions
as well as non-financial institutions with anti-money laundering obligations, including the adoption of precautionary and supervisory
measures, establishment of various systems for client identification, retention of clients’ identification information and
transactions records, and reports on large transactions and suspicious transactions. According to the PRC Anti-money Laundering
Law, financial institutions subject to the PRC Anti-money Laundering Law include banks, credit unions, trust investment companies,
stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions as listed and published
by the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be published
by the State Council. The PBOC and other governmental authorities issued a series of administrative rules and regulations to specify
the anti-money laundering obligations of financial institutions and certain non-financial institutions, such as payment institutions.
However, the State Council has not promulgated the list of the non-financial institutions with anti-money laundering obligations.
According to the PRC Anti-money Laundering Law, the scope of the special non-financial institutions subject to the performance
of the duties of anti-money laundering, the duties to be performed by them and the specific measures for their regulatory shall
be formulated by the competent administrative authority of anti-money laundering under the State Council jointly with the relevant
departments of the State Council.
Administrative Measures for Anti-money
Laundering and Counter-terrorism Financing by Internet Finance Service Agencies (for Trial Implementation)(the “Measures
for AML and CTF”), which became effective in January 2019, provides that institutions established within the territory of
the PRC to legally carry out internet finance business, upon approval of, or after filing a record with, the department with the
authority, shall be governed by the Measures for AML and CTF. Internet finance institutions governed by the Measures for AML
and CTF is a new-type financial business model under which internet-based technologies and information communication technologies
are employed to make possible fund financing, payments, investments and information intermediary services.
According to the Measures for AML and CTF,
the entity that subject to AML and CTF obligations has two elements: (1) the entity is established in China with the approval or
filing of the authorities; (2) the entity operates Internet financial business. Internet finance institutions including online
payment, P2P lending, P2P lending information intermediary services, equity crowdfunding financing, internet fund sale, internet
insurance, internet trust and internet consumption finance etc. naturally become the subject of Anti-money Laundering and Counter-terrorism
Financing obligations under the Measures for AML and CTF.
In cooperation with our partnering custody
banks and payment companies, we have adopted various policies and procedures, such as internal controls and “know-your-customer”
procedures, for anti-money laundering purposes.
Regulations on Internet Information
Security
Internet information in China is also regulated
and restricted from a national security standpoint. The National People’s Congress, China’s national legislative body,
has enacted the Decisions on Maintaining Internet Security, which may subject violators to criminal punishment in China for any
effort to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information;
(iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry
of Public Security has promulgated measures that prohibit use of the internet in ways which, among other things, result in a leakage
of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures,
the Ministry of Public Security and the local security bureaus may revoke its operating license and temporarily suspend its websites.
In addition, Guiding Opinions on Promoting
the Healthy Development of Internet Finance (“Guiding Opinions”) jointly released by ten PRC regulatory agencies in
July 2015 purport, among other things, to require internet finance service providers, including peer-to-peer lending platforms,
to improve technology security standards, and safeguard customer and transaction information. The PBOC and other relevant regulatory
authorities will jointly adopt the implementing rules and technology security standards.
Cybersecurity Law of the PRC became effective
on June 1, 2017, which shall apply to the construction, operation, maintenance and use of the network as well as the supervision
and administration of the cybersecurity within the territory of the PRC.
The Cyber Security Protection Bureau of
the Ministry of Public Security issued Guideline for Internet Personal Information Security Protection (Draft for Comment), which
intends to guide Internet enterprises to establish and improve the management system and technical measures of personal information
security protection, and provide feasible solutions and system design for the implementation of the Cybersecurity Law and the practical
solution to the practical problems in the complex network environment.
Regulations on Privacy Protection
In recent years, PRC government authorities
have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. Under the Several
Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011, an Internet information
service provider may not collect any user personal information or provide any such information to third parties without the consent
of a user. An Internet information service provider must expressly inform the users of the method, content and purpose of the collection
and processing of such user personal information and may only collect such information necessary for the provision of its services.
An Internet information service provider is also required to properly maintain the user personal information, and in case of any
leak or likely leak of the user personal information, the Internet information service provider must take immediate remedial measures
and, in severe circumstances, make an immediate report to the telecommunications regulatory authority. In addition, pursuant to
the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National People’s
Congress in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by
the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by
the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An Internet information
service provider must also keep such information strictly confidential, and is further prohibited from divulging, tampering or
destroying of any such information, or selling or providing such information to other parties. An Internet information service
provider is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure,
damage or loss. Any violation of these laws and regulations may subject the Internet information service provider to warnings,
fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.
Guiding Opinions also prohibit internet finance service providers, including online peer-to-peer lending platforms, from illegally
selling or disclosing customers’ personal information. The PBOC and other relevant regulatory authorities will jointly adopt
the implementing rules. Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s
Congress in August 2015 and becoming effective in November, 2015, any internet service provider that fails to fulfill the obligations
related to internet information security administration as required by applicable laws and refuses to rectify upon orders, shall
be subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect
due to the leakage of the client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation,
and any individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or
(ii) steals or illegally obtain any personal information, shall be subject to criminal penalty in severe situation.
According to Cybersecurity Law of the PRC,
personal information refers to all kinds of information recorded by electronic or otherwise that can be used to independently identify
or be combined with other information to identify natural persons’ personal information, including but not limited to: natural
persons’ names, dates of birth, ID numbers, biologically identified personal information, addresses, telephone numbers, and
other similar information.
The National Standard Entitled Information
Security Technology-Personal Information Security Specifications (GB/T 35273-2017, “Personal Information Security Specification”)
implemented by National Information Security Standardization Technical Committee on May 1, 2018, further defines the connotation
and extension of “sensitive personal information”. The Circular on Seeking Comments on the National Standard Entitled
Information Security Technology - Personal Information Security Specifications (Draft), or the Personal Information Security Specification
(draft) released on February 1, 2019 has made fine adjustment on the connation of personal sensitive information in the Personal
Information Security Specification. According to the Personal Information Security Specification (draft), personal sensitive information
means the personal information that may cause harm to personal or property security or is very likely to result in damage to an
individual’s personal reputation or physical or mental health or give rise to discriminatory treatment, once it is leaked,
unlawfully provided or abused.
On October 21, 2020, the Standing Committee
of the National People’s Congress solicited comments Sought on the Personal Information Protection Law (Draft),which provides
personal information handling shall have a clear and reasonable purpose, and shall be limited to the minimum scope required for
achieving the purpose of handling; any personal information handling that is irrelevant to the purpose of handling shall not be
conducted; personal information handling shall be conducted in line with the principles of openness and transparency, and the rules
on personal information handling shall be explicitly publicized.
On June 3, 2020, the Standing Committee
of the National People’s Congress solicited comments on the Data Security Law (Draft),which provides that organizations and
individuals operate data activities in China shall take necessary measures to effectively protect and legally utilize data and
maintain their security capability continuously.
Previously, in operating our online consumer
finance marketplace, we collected certain personal information from borrowers and lenders, and also shared the information with
our business partners such as third-party online payment companies and loan collection service providers for the purpose of facilitating
loan transactions between borrowers and lenders over our marketplace. We had obtained consent from the borrowers and lenders on
our marketplace to collect and use their personal information and had also established information security systems to protect
the user information and privacy.
Regulations Relating to Enterprise
Income Tax
On March 16, 2007, the National People’s
Congress promulgated the PRC Enterprise Income Tax Law, which was amended on February 24, 2017 and December 29, 2018. On December
6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law, which became effective
on January 1, 2008 and was amended on April 23, 2019. Under the Enterprise Income Tax Law and the relevant implementation regulations,
both resident enterprises and non-resident enterprises are subject to tax in China. Resident enterprises are defined as enterprises
that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries
but are actually or in effect controlled from within China. Non-resident enterprises are defined as enterprises that are organized
under the laws of foreign countries and whose actual management is conducted outside China, but have established institutions or
premises in China, or have no such established institutions or premises but have income generated from inside China. Under the
Enterprise Income Tax Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. However,
if nonresident enterprises have not formed permanent establishments or premises in China, or if they have formed permanent establishment
or premises in China but there is no actual relationship between the relevant income derived in China and the established institutions
or premises set up by them, enterprise income tax is set at the rate of 10% with respect to their income sourced from inside the
PRC.
Regulations Relating to Dividend
Withholding Tax
Pursuant to the Enterprise Income Tax Law
and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the PRC, or has set
up an organization or establishment but the income derived has no actual connection with such organization or establishment, it
will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China
and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding
tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard
rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State
Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81,
a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax:
(i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii)
it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends.
There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations.
In October 2019, the State Administration of Taxation promulgated the Announcement of the State Taxation Administration on Issuing
the Administrative Measures for Entitlement to Treaty Benefits for Non-resident Taxpayers or Circular 35, which became effective
on January1, 2020. Circular 35 provides that non-resident enterprises are not required to obtain pre-approval from the relevant
tax authority in order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents
may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply
the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be
subject to post-tax filing examinations by the relevant tax authorities.
Regulations Relating to Tax on Indirect
Transfer
On February 3, 2015, the SAT issued the
Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Circular 7.
Pursuant to SAT Circular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise,
by non-PRC resident enterprises, may be recharacterized and treated as a direct transfer of PRC taxable assets, if such arrangement
does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income
tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether
there is a “reasonable commercial purpose” in the transaction arrangement, features to be taken into consideration
include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly
from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment
in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly
holding PRC taxable assets have a real commercial nature which is evidenced by their actual function and risk exposure. Pursuant
to SAT Circular 7, where the payer fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the
tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default
interest. SAT Circular 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such
shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding
Regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which was amended by the Announcement of the State Administration
of Taxation on Revising Certain Taxation Normative Documents issued on June 15, 2018 by the SAT. SAT Circular 37 further elaborates
the relevant implemental rules regarding the calculation, reporting, and payment obligations of the withholding tax by the non-resident
enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of SAT Circular 7. SAT Circular 7
may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore
subsidiaries where non-resident enterprises, being the transferors, were involved.
Regulations on Foreign Currency Exchange
The principal regulations governing foreign
currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the
PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade
and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying
with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required
where RMB is to be converted into foreign currency and remitted out of China to pay capital account items, such as direct investments,
repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China. On
February 28, 2015, the SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange
Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for
approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities
and individuals will be required to apply for such foreign exchange registrations from qualified banks. The qualified banks, under
the supervision of the SAFE, will directly examine the applications and conduct the registration.
In August 2008, SAFE issued the Circular
on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency
Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign
currency-registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB
capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within
the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In
addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital
of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital
may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations may result in severe
monetary or other penalties.
In November 2012, SAFE promulgated the
Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially
amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose
foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts,
the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends
by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple
capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE
promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches over direct investment
by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating
to the direct investment in the PRC based on the registration information provided by SAFE and its branches.
In July 2014, SAFE issued SAFE Circular
36, which purports to reform the administration of settlement of the foreign exchange capitals of foreign-invested enterprises
in certain designated areas on a trial basis. Under the pilot program, some of the restrictions under SAFE Circular 142 will not
apply to the settlement of the foreign exchange capitals of the foreign-invested enterprises established within the designated
areas and the enterprises mainly engaging in investment are allowed to use its RMB capital converted from foreign exchange capitals
to make equity investment. However, our PRC subsidiary is not established within the designated areas. On March 30, 2015, the SAFE
promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular
36 on June 1, 2015. Circular 19 allows foreign-invested enterprises to make equity investments by using RMB fund converted from
foreign exchange capital. However, Circular 19 continues to, prohibit foreign-invested enterprises from, among other things, using
RMB fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying
loans between non-financial enterprises.
Regulations on Foreign Exchange Registration
of Overseas Investment by PRC Residents
SAFE issued SAFE Circular on Relevant Issues
Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE
Circular 37, that became effective in July 2014, replacing the previous SAFE Circular 75. SAFE Circular 37 regulates foreign exchange
matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and
financing or conduct round trip investment in China. Under SAFE Circular 37, a SPV refers to an offshore entity established or
controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore
investment, using legitimate onshore or offshore assets or interests, while “round trip investment” refers to direct
investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the
ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV, PRC residents
or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on
Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which
took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified
banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established
for the purpose of overseas investment or financing.
PRC residents or entities who had contributed
legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required before the implementation
of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the
registration is required if there is a material change with respect to the SPV registered, such as any change of basic information
(including change of the PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges
of shares, and mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent
notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established
through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested
enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer
or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant
PRC residents or entities to penalties under PRC foreign exchange administration regulations. We are aware that our PRC resident
beneficial owners subject to these registration requirements. Mr. Erxin Zeng and Mr. Xiaohui Liu have all fulfilled the registration
under relevant SAFE regulations.
Regulations relating to foreign investment
The Foreign Investment Law and 2020
Edition Negative list
In March 2019, the Standing Committee of
the National People’s Congress of the PRC passed the Foreign Investment Law of the People’s Republic of China, or the
Foreign Investment Law, which came into effect on January 1, 2020. Among other things, the Foreign Investment Law defines the “foreign
investment” as the investment activities in China conducted by foreign individuals, enterprises and other organizations,
or the Foreign Investors, in a direct or indirect manner. The PRC governmental authorities will administrate foreign investment
by applying the principal of pre-entry national treatment together with a negative list, to be specific, the Foreign Investors
are prohibited from making any investments in the fields catalogued into prohibited industries for foreign investment based on
the negative list, while they are allowed to make investments in the restricted industries provided that all the requirements and
conditions as set forth in the negative list have been satisfied; when the Foreign Investors make investments in the fields other
than those included in the negative list, the national treatment principle shall apply.
Pursuant to the 2020 Edition Negative list,
our business does not fall into the negative list and is permitted for foreign investment currently.
Foreign Investment in Value-Added
Telecommunication Services
According to Administrative Provisions
on Foreign-Invested Telecommunications Enterprises (Revised in 2016) promulgated by the State Council and Special Administrative
Measures for Access of Foreign Investment (Negative List) (2020 Edition) promulgated by National Development and Reform Commission
and Ministry of Commerce, the proportion of capital contributed by the foreign investor(s) in a foreign-invested telecommunications
enterprise that is engaged in value-added telecommunications services (excluding e-commerce business, domestic multi-party communications,
store-and-forward and call centers) shall not ultimately exceed 50%. The major foreign investor in a foreign-invested telecommunications
enterprise that is engaged in value-added telecommunications business is required to have a record of good performance and operating
experience in managing value-added telecommunications business.
Subject to the above regulations, if the
Company intends to operate value-added telecommunication business in PRC, either we establish a joint venture with an eligible
Chinese organization or control a qualified Variable Interest Entity.
Regulations and Government Policies
Relating to Bitcoin and Blockchain Industries
According to the Circular of the People’s
Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities Regulatory
Commission, and China Insurance Regulatory Commission on the Prevention of Risks from Bitcoin, or the Circular 289, jointly promulgated
by People’s Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities
Regulatory Commission, and China Insurance Regulatory Commission on December 3, 2013, Bitcoin shall be a kind of virtual commodity
in nature, which shall not be in the same legal status with currencies and shall not be circulated as currencies and used in markets
as currencies. The Circular 289 also provides that financial institutions and payment institutions shall not engage in business
in connection with Bitcoin.
According to Announcement of the People’s
Bank of China, the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration
for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance
Regulatory Commission on Preventing Initial Coin Offerings (ICO) Risks, or the Announcement, promulgated by seven PRC governmental
authorities including the People’s Bank of China on September 4, 2017, activities of offering and financing of tokens, all
so-called token trading platform should not (i) engage in the exchange between any statutory currency with tokens and “virtual
currencies,” (ii) trade or trade the tokens or “virtual currencies” as central counterparties, or (iii) provide
pricing, information agency or other services for tokens or “virtual currencies.” The Announcement further provides
that financial institutions and payment institutions shall not engage in business in connection with transactions of offering and
financing of tokens.
There is no prohibition under PRC laws
and regulations currently in effect on the possession of Bitcoin by PRC citizens and organizations. Although the attitudes of the
Chinese local or provincial governments towards bitcoin mining change from time to time, purchase and running of computing hardware
by PRC citizens or organizations for the purpose of Bitcoin mining in China do not violate any PRC laws enacted by the National
People’s Congress of the PRC and its Standing Committee or administrative regulations enacted by the State Council of the
PRC which are effective as of the date hereof.
Pursuant to Administrative Provisions on
Block Chain Information Services promulgated by Cyberspace Administration of China, which came into force as of February 15, 2019,
the subjects or nodes providing the public with block chain information services, as well as the institutions or organizations
providing the subjects of block chain information services with technical support, or the blockchain information service providers,
shall fulfill the responsibility for information content security management, and establish and improve management systems on user
registration, information review, emergency response and security protection. A blockchain information service providers, shall,
within ten working days of its provision of such service, fill in such information as the name of the service provider, service
category, form of services, application areas, and address of the server, via the Block Chain Information Service Record-filing
Administration System of the Cyberspace Administration of China, to handle record-filing formalities. The entities operating mining
pools which provides services to third parties should complete the filing.
Regulations on Stock Incentive Plans
SAFE promulgated the Stock Option Rules
in February 2012, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option Rules and other relevant rules
and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register
with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents
must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified
institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive
plan on behalf of the participants. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock
incentive plan if there is any material change to the stock incentive plan, the PRC agent or other material changes. The PRC agent
must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches
for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee
share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans
granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by
the PRC agents before distribution to such PRC residents.
Organizational Structure Chart
After our acquisition of Bit Digital Hong
Kong and the formation U.S. entities for operations of bitcoin mining and the disposal of old operations of peer-to peer lending
business and related legal entities, the Company is now a Cayman entity with one HK subsidiary, Bit Digital Hong Kong, and two
U.S. subsidiaries, with no subsidiary or VIE legal entities in mainland China.
All of the bitcoin mining operations in
mainland China are conducted by Bit Digital Hong Kong. All utility bills and other expenses of the Company’s PRC operations
are paid to Hong Kong suppliers who host our miners. As of this date, we have been advised by PRC counsel that, although some provincial
or local governments of PRC issued special limitations to bitcoin mining operations and other local governments of PRC may issue
similar limitations in the future, bitcoin mining operations in mainland China are not prohibited by the existing PRC laws enacted
by the National People’s Congress and its Standing Committee and PRC administrative regulations enacted by the State Council
publicly available. Notwithstanding that fact, as PRC laws and policies are subject to change, we have initiated the process of
forming a subsidiary or in PRC.
Employees
We currently have five (5) employees, including
our interim Chief Executive Officer and Chief Financial Officer, Erke Huang, a Vice President of Mining Operations, a Vice President
of North American Operations, and two accounting staff. In addition, we retain the consulting services of seven (7) different persons
on a part-time basis.
Property, Plant and Equipment
The principal executive office is located
on leased premise at 33 Irving Place, New York, New York, United States 10003. The lease for our principal executive office is
for a term ending September 30, 2021, with a monthly rental of $8,657.
The Company has leased an office at Room
3603, Tower 2, Metro Plaza, Hong Kong, China. The lease is for a term ending April 30, 2021 at a monthly rental of US$300.
The Company has ceased the leasing of Shanghai
Office in August 2019 and got a total refund of $106,090 (RMB 733,317) including the deposit of $60,623 (RMB 419,039) and one and
a half month rent of $45,467 (RMB 314,278).
We believe that we will be able to obtain
adequate facilities, principally through leasing, to accommodate our future expansion plans. We believe that our current property
rights are sufficient for our current operations.
MANAGEMENT
Directors and Executive Officers
The following table sets forth information
regarding our executive officers and directors as of the date of this prospectus.
Directors
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|
Age
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|
Position/Title
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Erke Huang
|
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32
|
|
Interim Chief Executive Officer, Chief Financial Officer and Director
|
Min Hu
|
|
43
|
|
Independent Director
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Ichi Shih
|
|
49
|
|
Independent Director
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Zhaohui Deng
|
|
51
|
|
Independent Director
|
Yan Xiong
|
|
55
|
|
Independent Director
|
Biography
Erke Huang
Mr. Huang has served as Chief Financial
Officer of the Company from October 18, 2019, as a Director since October 30, 2019 and as Interim Chief Executive Officer since
February 2, 2021. Prior thereto, Mr. Huang served as the Co-Founder and Advisor of Long Soar Technology Limited from August 2019
and as the Founder/CEO of Bitotem Investment Management Limited from May 2018. From June 2016 to May 2018, Mr. Huang served as
the Investment Manager of Guojin Capital. From August 2015 to May 2016, Mr. Huang served as an Analyst for Zhengshi Capital. Mr.
Huang served as a Program Officer of Southwest Jiaotong University from February 2015 to August 2015. From March 2013 to November
2014, Mr. Huang served as the Engineering Analyst Team Leader of Crowncastle International. Mr. Huang received his bachelor’s
degree in Environmental Engineering from Southwest Jiaotong University in 2011, and received his master’s degree in Civil
& Environmental Engineering from Carnegie Mellon University in 2012.
Min Hu
Mr. Hu, a director since October 2019,
served as Chief Executive Officer of the Company from October 30, 2019 until February 2, 2021. Mr. Hu had served as the Business
Manager of Weihua Liquor Company since 2011. From 2009 to 2011, Mr. Hu served as the General Manager of Xuejiawan Huafeng Wholesale
Market Company. Mr. Hu served as a Manager of Eastern Hair Growth Center Company from 2002 to 2009. Mr. Hu received his bachelor’s
degree in Law from Qingdao Qiushi College of Arts and Sciences in 2000.
Ichi Shih
Ms. Ichi Shih was elected to serve as a
director of the Company at the September 4, 2020 Annual General Meeting. She has over 15 years of experience building and advising
corporations through internal financial management, M&A transactions, and capital market transaction across several global
regions. From 1995 to 1998, Ms. Ichi Shih worked as an Equity Lending Assistant of Societe Generale in New York. From 1998 to 2000,
She worked as Financial Analyst of Goldman Sachs & Co. in New York. From 2003 to 2007, she worked as Senior Associate of Westminster
Securities in New York. From 2007 to 2009, she worked as Vice President of Brean Murray in New York. From 2009 to 2011, she worked
as CFO of China Valves Technologies in both Hongkong and US. From 2012 to 2014, she worked as Senior Vice President of Glory Sky
Group in Hong Kong. In 2015, she worked as Listing Advisor of Nasdaq Dubai in Dubai and Shanghai. From 2016 to 2017, she worked
as CFO of Cubetech Global Asset in Beijing. From 2017 to 2018, she worked as CFO of ProMed Clinical Research Organization Inc.
in Beijing. From 2018 until now, she has worked as a Partner of Cathay Securities Inc. in Beijing and New York. Ms. Ichi Shih received
her Bachelor’s degree in Accounting and International Business from Stern School of Business at New York University in 1995
and Master’s degree in International Finance and Business from School of International and Public Affairs at Columbia University
in 2002. Ms. Ichi Shih holds a CPA Certificate from American Institute of Certified Public Accountants.
Zhaohui Deng
Mr. Deng was elected to serve as a director
of the Company at the September 4, 2020 Annual General Meeting. He was born in January 1969. From 1995 to 2010, he worked as the
board secretary and Vice President of Hunan Jinguo Industrial Co., Ltd. From 2011 until now, he has been working as a private investor
and serves as private counsel for several listed companies in the PRC. He holds a bachelor’s degree in Accounting from Hengyang
Industrial College China.
Yan Xiong
Mr. Yan Xiong has been serving as a director
of the Company since April 19, 2020. Mr. Xiong has worked as chairman of the board of directors at Guangzhou Kangsheng Pharmaceutical
Technology Limited from 2014 to the present. From 2001 to October 2013, Mr. Xiong worked as chairman of the board of directors
at Guangzhou Kangsheng Bio-tech Limited. From 1997 to December 2000, Mr. Xiong worked as the General Manager at Zhuhai Dajiaweikang
Wujin Mineral Import and Outport Company. He holds a bachelor’s degree in Industrial Accounting from Hunan University Business
School, China.
Compensation of Directors and Executive
Officers
For the fiscal years ended December 31,
2019 and 2018, we paid an aggregate of approximately $75,785 and $54,380, respectively, in cash to our executive officers, and
$9,852 and $10,469, respectively, to our non-executive directors. We have not set aside or accrued any amount to provide pension,
retirement or other similar benefits to our executive officers and directors.
The Company entered into two apartment
units leases for former officers of Dianniu, which were terminated in May and November,2019. During the years ended December 31,
2019 and 2018 the Company made monthly rental payments of approximately $3,500 and $1,000, respectively.
Board of Directors and Committees
Our Board currently
only consists of 5 directors, including Min Hu, Erke Huang, Zhaohui Deng, Yan Xiong and Ichi Shih. We maintain an audit committee,
a compensation committee and a nominating and corporate governance Committee. Each of the committees of the Board has the composition
and responsibilities described below.
Audit Committee
Ms. Ichi Shih, Yan Xiong and Zhaohui Deng
are the members of our Audit Committee, where Ichi Shih serves as the Chairwoman. All members of our Audit Committee satisfy the
independence standards promulgated by the SEC and by Nasdaq as such standards apply specifically to members of audit committees.
We have adopted a charter for the Audit
Committee. In accordance with our Audit Committee Charter, our Audit Committee shall perform several functions, including:
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evaluates the independence and performance of, and assesses the qualifications of, our independent auditor, and engages such independent auditor;
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approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services, and approves in advance any non-audit service to be provided by the independent auditor;
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monitors the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law;
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reviews the financial statements to be included in our Annual Report on Form 20-F and Current Reports on Form 6-K and reviews with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements;
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●
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oversees all aspects our systems of internal accounting control and corporate governance functions on behalf of the board;
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reviews and approves in advance any proposed related-party transactions and report to the full Board on any approved transactions; and
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provides oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the Board, including Sarbanes-Oxley Act implementation, and makes recommendations to the Board regarding corporate governance issues and policy decisions.
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It is determined that Ms. Ichi Shih possesses
accounting or related financial management experience that qualifies her as an “audit committee financial expert” as
defined by the rules and regulations of the SEC.
Compensation Committee
Yan Xiong, Zhaohui Deng and Ichi Shih are
the members of our Compensation Committee and Yan Xiong is the chairman. All members of our Compensation Committee are qualified
as independent under the current definition promulgated by Nasdaq. We have adopted a charter for the Compensation Committee. In
accordance with the Compensation Committee’s Charter, the Compensation Committee is responsible for overseeing and making
recommendations to the Board regarding the salaries and other compensation of our executive officers and general employees and
providing assistance and recommendations with respect to our compensation policies and practices.
Nominating and Corporate Governance
Committee
Zhaohui Deng, Yan Xiong and Ichi Shih are
the members of our Nominating and Corporate Governance Committee and Zhaohui Deng is the chairman. All members of our Nominating
and Corporate Governance Committee are qualified as independent under the current definition promulgated by Nasdaq. We have adopted
a charter for the Nominating and Corporate Governance Committee. In accordance with its charter, the Nominating and Corporate
Governance Committee is responsible for identifying and proposing new potential director nominees to the board of directors for
consideration and reviewing our corporate governance policies.
Director Independence
Our Board reviewed the materiality of any
relationship that each of our directors has with us, either directly or indirectly. Based on this review, it is determined that
Zhaohui Deng, Yan Xiong and Ichi Shih are independent directors” as defined by Nasdaq.
Code of Ethics
We have adopted a code of ethics that applies
to all of our executive officers, directors and employees. The code of ethics codifies the business and ethical principles that
govern all aspects of our business.
Family Relationships
There is no family relationship among any
of our directors or executive officers.
Duties of Directors
Under Cayman Islands law, our directors
have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise
the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances.
In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association as
amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. Our board of directors
has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of
our board of directors include, among others:
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convening shareholders’ annual and extraordinary general meetings;
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declaring dividends and distributions;
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appointing officers and determining the term of office of the officers;
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exercising the borrowing powers of our company and mortgaging the property of our company; and
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approving the transfer of shares in our company, including the registration of such shares in our share register.
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Our company has the right to seek damages
if a duty owed by our directors is breached. A shareholder may in certain limited exceptional circumstances have the right to seek
damages in our name if a duty owed by our directors is breached. You should refer to “Description of Share Capital—Differences
in Corporate Law” for additional information on our standard of corporate governance under Cayman Islands law.
Terms of Directors and Officers
Our officers are elected by and serve at
the discretion of the Board and the shareholders voting by ordinary resolution. Our directors are not subject to a set term of
office and hold office until the next general meeting called for the election of directors and until their successor is duly elected
or such time as they die, resign or are removed from office by a shareholders’ ordinary resolution or the unanimous written
resolution of all shareholders A director will be removed from office automatically if, among other things, the director becomes
bankrupt or makes any arrangement or composition with his creditors generally or is found to be or becomes of unsound mind.
PRINCIPAL SHAREHOLDERS
The following table sets forth information
regarding the beneficial ownership of our Ordinary Shares as of the date of this prospectus by our officers, directors, and 5%
or greater beneficial owners of Ordinary Shares. There is no other person or group of affiliated persons known by us to beneficially
own more than 5% of our Ordinary Shares.
We have determined beneficial ownership
in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess
sole or shared voting power or investment power with respect to those securities. The person is also deemed to be a beneficial
owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Unless otherwise indicated,
the person identified in this table has sole voting and investment power with respect to all shares shown as beneficially owned
by him, subject to applicable community property laws.
Name of Beneficial Owners(1)
|
|
Ordinary Shares
Beneficially Owned
Prior to This Offering(2)
|
|
|
|
Number
|
|
|
%
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
Erke Huang
|
|
300,000
|
(3)
|
|
*
|
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Min Hu
|
|
|
|
|
-
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Zhaohui Deng
|
|
700,000
|
(3)
|
|
1.5
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%
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Yan Xiong
|
|
-
|
|
|
-
|
|
Ichi Shih
|
|
-
|
|
|
-
|
|
All directors and officers as a group (five individuals)
|
|
1,000,000
|
|
|
2.1
|
%
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5% shareholders:
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|
|
|
|
|
|
Wise
Gain Investment Industries Limited(4) Coastal Building, Wickham’s Cay II P.O. Box 2221, Road Town, Tortola B.V.I.
|
|
6,276,700
|
|
|
13.0
|
%
|
Silver
Luck International Holding Group Limited(5) Coastal Building, Wickham’s Cay II P.O. Box 2221, Road Town,
Tortola B.V.I.
|
|
2,485,500
|
|
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5.1
|
%
|
|
*
|
Less than 1% of issued and outstanding shares.
|
(1)
|
Unless otherwise noted, the business address of each of the following entities or individuals is c/o Bit Digital, Inc., Room 3603, Tower 2 Metro Plaza, Hong Kong, China.
|
(2)
|
Applicable percentage of ownership prior to the offering is based on 48,305,870 Ordinary Shares outstanding as of March 8, 2021, together with securities exercisable or convertible into Ordinary Shares within sixty (60) days as of such date for each shareholder. Applicable percentage of ownership after the offering is the same as none of the entities or individuals named in the table are Selling Shareholders.
|
(3)
|
Erke Huang and Zhaohui Deng are the beneficial owners of 300,000 and 700,000 shares, respectively, of the 1,000,000 ordinary shares owned by Geney Development Limited, a BVI entity, with an address at 4th Floor Waters Edge Building, Meridian Plaza, Road Town, Tortola VG1110, British Virgin Islands.
|
(4)
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Xiaohui Liu, a former Director of the Company who resigned in October 2019, is a director of Wise Gain Investment Industries Limited, and has voting and dispositive power over the shares held by such entity.
|
(5)
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Erxin Zeng, our former Chief Executive Officer and Chairman of the Board, who was terminated in October 2019, is a director of Silver Luck International Holding Group Limited, and has voting and dispositive power over the shares held by such entity.
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SELLING SHAREHOLDER
This prospectus relates to the possible
resale by the Selling Shareholder of Ordinary Shares that (i) are issuable to Ionic upon the conversion of Notes, and (ii) may
be issued to Ionic pursuant to the Purchase Agreement. For additional information regarding these transactions, see “Prospectus
Summary - Selling Shareholder Transactions” above, as well as “The Ionic Purchase Agreement Transaction” above.
We are registering Ordinary Shares in order to permit the Selling Shareholder to offer such shares for resale from time to time.
Except for the ownership of the shares
offered hereby pursuant to the transactions summarized herein, the Selling Shareholder has not held a position or office, or had
any material relationship with us or any of our predecessors or affiliates.
The Selling Shareholder may sell some,
all, or none of its Ordinary Shares being registered hereunder. We do not know how long the Selling Shareholder will hold its Ordinary
Shares before selling them, and we currently have no agreements, arrangements or understandings with the Selling Shareholder regarding
the resale of any of the Ordinary Shares being registered hereunder. The following table assumes that all shares will be sold by
the Selling Shareholder and no other shares will be held after the offering.
The following table presents information
regarding the Selling Shareholder and the number of Ordinary Shares that they may offer and sell from time to time under this prospectus.
The table is prepared based on information supplied to us by the Selling Shareholder and reflects its holdings as of March 8, 2021.
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act.
Selling Shareholder
|
|
Ordinary Shares
Beneficially
Owned
Before this
Offering (2)
|
|
|
Percentage of
Outstanding
Ordinary
Shares
Beneficially
Owned Before
this Offering (3)
|
|
|
Ordinary Shares to
be Sold in this Offering
Assuming the Company
issues the Maximum
Number of Ordinary
Shares
Under the Purchase
Agreement (4)
|
|
|
Percentage
of
Outstanding
Ordinary
Shares
Beneficially
Owned
After this
Offering
|
|
Ionic Ventures, LLC (1)
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0
|
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0
|
|
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6,412,500
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0
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(5)
|
(1)
|
Ionic Ventures, LLC (“Ionic”) is the record and beneficial owner of the securities set forth in the table. Brendan O’Neil and Keith Coulston are the managers of Ionic and in such capacity have joint voting and dispositive power over shares held by Ionic. Mr. O’Neil and Mr. Coulston each disclaim beneficial ownership of the reported securities except to the extent of their pecuniary interest therein. Ionic Ventures, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer. The address of Ionic Ventures, LLC is 3053 Fillmore Street, Ste. 256, San Francisco, CA 94123.
|
(2)
|
We have excluded from the number of
Ordinary Shares beneficially owned prior to the offering (i) all of the Ordinary Shares that Ionic may be required to
purchase under the Purchase Agreement, because the issuance and sale of such Ordinary Shares to Ionic is solely at our
discretion and is subject to satisfaction of the conditions set forth in the Purchase Agreement that are outside of
Ionic’s control, including the registration statement of which this prospectus is a part being declared effective by
the SEC and (ii) all Ordinary Shares issuable upon conversion of the Notes because it is expected that the Notes will be
converted into Ordinary Shares before the effective date of this prospectus.
|
(3)
|
Based on 48,305,870 outstanding Ordinary Shares as of March 8, 2021.
|
(4)
|
Includes 6,000,000 Ordinary Shares
that may be issued to Ionic Ventures pursuant to the Purchase Agreement and 412,500 Ordinary Shares issuable upon conversion
of the Notes.
|
(5)
|
Assumes all shares registered hereunder will be sold by
Ionic in this offering.
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PLAN OF DISTRIBUTION
The Ordinary Shares listed in the table
appearing under “Selling Shareholder” are being registered to permit the resale of Ordinary Shares by the Selling Shareholder
from time to time after the date of this prospectus. There can be no assurance that the Selling Shareholder will sell any or all
of the Ordinary Shares offered hereby. We will not receive any of the proceeds from the sale of the Ordinary Shares by the Selling
Shareholder.
The Selling Shareholder may sell all or
a portion of the Ordinary Shares offered hereby from time to time directly to purchasers or through one or more underwriters, broker-dealers
or agents, at market prices prevailing at the time of sale, at prices related to such market prices, at a fixed price or prices
subject to change or at negotiated prices, by a variety of methods including the following:
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on any national securities exchange or over-the-counter market on which the Ordinary Shares may be listed or quoted at the time of sale;
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●
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block trades in which a broker-dealer may attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer, as principal, and a subsequent resale by the broker-dealer for its account;
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in “at the market” offerings to or through market makers into an existing market for Ordinary Shares;
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●
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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●
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in transactions otherwise than on such exchanges or in the over-the-counter market;
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●
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through a combination of any such methods; or
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●
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through any other method permitted under applicable law.
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We will pay the expenses incident to the
registration and offering of the Ordinary Shares offered hereby. We have agreed to indemnify Ionic and certain other persons against
certain liabilities in connection with the offering of Ionic offered hereby, including liabilities arising under the Securities
Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Ionic has agreed
to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished to us by
Ionic specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in
respect of such liabilities.
Ionic has represented to us that at no
time prior to the Purchase Agreement has Ionic or its agents, representatives or affiliates engaged in or effected, in any manner
whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act)
of our Ionic or any hedging transaction, which establishes a net short position with respect to our Ordinary Shares. Ionic agreed
that during the term of the Purchase Agreement, it, its agents, representatives or affiliates will not enter into or effect, directly
or indirectly, any of the foregoing transactions.
We have advised Ionic that it is required
to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes a selling shareholder,
any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing,
or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire
distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security
in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered
by this prospectus.
Ionic has informed us that it intends to
use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant to
the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current
market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities
Act. Ionic has informed us that each such broker-dealer will receive commissions from Ionic that will not exceed customary brokerage
commissions.
The Selling Shareholder may also sell Ordinary
Shares under Rule 144 promulgated under the Securities Act of 1933, as amended, if available, rather than under this prospectus
In effecting sales, brokers-dealers engaged
by the Selling Shareholder may arrange for other brokers-dealers to participate. If the Selling Shareholder effects such transactions
by selling Ordinary Shares to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may
receive commissions in the form of discounts, concessions or commissions from the Selling Shareholder or commissions from purchasers
of Ordinary Shares for whom they may act as agent or to whom they may sell as principal. Underwriters may sell securities to or
through dealers, and dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent. The compensation paid to a particular broker-dealer may
be less than or in excess of customary commissions. Neither we nor Ionic can presently estimate the amount of compensation that
any agent will receive.
Ionic is an “underwriter” within
the meaning of Section 2(a)(11) of the Securities Act. Any underwriters, brokers, dealers or agents that participate in such distribution
may be deemed to be “underwriters” within the meaning of the Securities Act, and any discounts, commissions or concessions
received by any underwriters, brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. Any Selling Shareholder who is an “underwriter” within the meaning of the Securities Act will be subject
to the prospectus delivery requirements of the Securities Act and the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation.
In order to comply with the securities
laws of some states, Ordinary Shares sold in those jurisdictions may only be sold through registered or licensed brokers or dealers.
In addition, in some states, Ordinary Shares may not be sold unless the Ordinary Shares have been registered or qualified for sale
in that state or an exemption from registration or qualification is available and is complied with.
Underwriters, dealers and agents who participate
in the distribution of securities and their controlling persons may be entitled, under agreements that may be entered into with
us, to indemnification by us and the Selling Shareholder against certain liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments that the underwriters, dealers or agents and their controlling persons may be
required to make in respect of those liabilities.
This offering will terminate on the date
that all Ordinary Shares offered by this prospectus have been sold by the Selling Shareholder.
The Ordinary Shares are listed on the Nasdaq
Capital Market under the symbol “BTBT”.
RELATED PARTY TRANSACTIONS
During the Company’s normal business
operations in the nine months ended September 30, 2020, the Company borrowed funds from the Company’s shareholders and senior
management as working capital to support the Company’s cryptocurrency mining when needed. Such borrowings were non-interest
bearing and due on demand.
During the nine months ended September
30, 2019, the Company borrowed funds from the Company’s former senior management as working capital to support the Company’s
peer-to-peer lending business which was discontinued in September 2020.
During the year ended December 31, 2019,
the Company borrowed funds from the Company’s former senior management as working capital to support the Company’s
peer-to-peer lending business which was discontinued in September 2020.
During the year ended December 31, 2018,
the Company has not entered into any related party transactions involving the Company, or any of our subsidiaries or VIE entities.
DESCRIPTION OF SHARE CAPITAL
We are a Cayman Islands exempted company
and our affairs are governed by our memorandum and articles of association and the Companies Law (2016 Revision) of the Cayman
Islands, which we refer to as the Companies Law below.
Our authorized share capital consists of
150,000,000 Ordinary Shares, par value $0.01 per share. As of March 8, 2021, there were 48,305,870 Ordinary Shares issued and outstanding.
Ordinary shares
Dividends. Subject to any rights
and restrictions of any other class or series of shares, our board of directors may, from time to time, declare dividends on the
shares issued and authorize payment of the dividends out of our lawfully available funds. No dividends shall be declared by the
board out of our company except the following:
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profits; or
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“share premium account,” which represents the excess of the price paid to our company on issue of its shares over the par or “nominal” value of those shares, which is similar to the U.S. concept of additional paid in capital.
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However, no dividend shall bear interest
against the Company.
Voting Rights. The holders of our
Ordinary Shares are entitled to one vote per share, including the election of directors. Voting at any meeting of shareholders
is by show of hands unless a poll is demanded. On a show of hands every shareholder present in person or by proxy shall have one
vote. On a poll every shareholder entitled to vote (in person or by proxy) shall have one vote for each share for which he is the
holder. A poll may be demanded by the chairman or one or more shareholders present in person or by proxy holding not less than
fifteen percent of the paid-up capital of the Company entitled to vote. A quorum required for a meeting of shareholders consists
of shareholders who hold at least one-third of our outstanding shares entitled to vote at the meeting present in person or by proxy.
While not required by our articles of association, a proxy form will accompany any notice of general meeting convened by the directors
to facilitate the ability of shareholders to vote by proxy
Any ordinary resolution to be made by the
shareholders requires the affirmative vote of a simple majority of the votes of the Ordinary Shares cast in a general meeting,
while a special resolution requires the affirmative vote of no less than two-thirds of the votes of the Ordinary Shares cast. Under
Cayman Islands law, some matters, such as amending the memorandum and articles, changing the name or resolving to be registered
by way of continuation in a jurisdiction outside the Cayman Islands, require approval of shareholders by a special resolution.
There are no limitations on non-residents
or foreign shareholders in the memorandum and articles to hold or exercise voting rights on the Ordinary Shares imposed by foreign
law or by the charter or other constituent document of our company. However, no person will be entitled to vote at any general
meeting or at any separate meeting of the holders of the Ordinary Shares unless the person is registered as of the record date
for such meeting and unless all calls or other sums presently payable by the person in respect of Ordinary Shares in the Company
have been paid.
Winding Up; Liquidation. Upon the
winding up of our company, after the full amount that holders of any issued shares ranking senior to the Ordinary Shares as to
distribution on liquidation or winding up are entitled to receive has been paid or set aside for payment, the holders of our Ordinary
Shares are entitled to receive any remaining assets of the Company available for distribution as determined by the liquidator.
The assets received by the holders of our Ordinary Shares in a liquidation may consist in whole or in part of property, which is
not required to be of the same kind for all shareholders.
Calls on Ordinary Shares and Forfeiture
of Ordinary Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their
Ordinary Shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. Any
Ordinary Shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Ordinary Shares. We
may issue shares that are, or at [its] [our?] option or at the option of the holders are, subject to redemption on such
terms and in such manner as it may, before the issue of the shares, determine. Under the Companies Law, shares of a Cayman Islands
exempted company may be redeemed or repurchased out of profits of the company, out of the proceeds of a fresh issue of shares made
for that purpose or out of capital, provided the memorandum and articles authorize this and it has the ability to pay its debts
as they come due in the ordinary course of business.
No Preemptive Rights. Holders
of Ordinary Shares will have no preemptive or preferential right to purchase any securities of our company.
Variation of Rights Attaching to Shares. If
at any time the share capital is divided into different classes of shares, the rights attaching to any class (unless otherwise
provided by the terms of issue of the shares of that class) may, subject to the memorandum and articles, be varied or abrogated
with the consent in writing of the holders of three fourths of the issued shares of that class or with the sanction of a special
resolution passed at a general meeting of the holders of the shares of that class.
Anti-Takeover Provisions. Some
provisions of our current memorandum and articles of association may discourage, delay or prevent a change of control of our company
or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred
shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares
without any further vote or action by our shareholders.
Exempted Company. We are an
exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies
and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman
Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as
for an ordinary company except that an exempted company:
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does not have to file an annual return of its shareholders with the Registrar of Companies;
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is not required to open its register of members for inspection;
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does not have to hold an annual general meeting;
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may issue shares with no par value;
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may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);
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may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
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may register as a limited duration company; and
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may register as a segregated portfolio company.
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“Limited liability” means that
the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.
Preferred Shares
The Board is empowered to designate and
issue from time to time one or more classes or series of Preferred Shares and to fix and determine the relative rights, preferences,
designations, qualifications, privileges, options, conversion rights, limitations and other special or relative rights of each
such class or series so authorized. Such action could adversely affect the voting power and other rights of the holders of the
Company’s Ordinary Shares or could have the effect of discouraging or making difficult any attempt by a person or group to
obtain control of the Company.
Warrants
There are no outstanding warrants to purchase
any of our securities.
Options
There are no outstanding options to purchase
any of our securities.
Differences in Corporate Law
The Companies Law is modeled after that
of English law but does not follow many recent English law statutory enactments. In addition, the Companies Law differs from laws
applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between
the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements.
A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved
by the directors of each constituent company and authorization by (a) a special resolution of the shareholders and (b) such
other authorization, if any, as may be specified in such constituent company’s articles of association.
A merger between a Cayman Islands parent
company and its Cayman Islands subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that
Cayman Islands subsidiary if a copy of the plan of merger is given to every member of that Cayman Islands subsidiary to be merged
unless that member agrees otherwise. For this purpose a subsidiary is a company of which at least ninety percent (90%) of
the issued shares entitled to vote are owned by the parent company.
The consent of each holder of a fixed or
floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain circumstances, a dissenting
shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger
or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief
on the grounds that the merger or consolidation is void or unlawful.
In addition, there are statutory provisions
that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number
of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths
in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by
proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must
be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the
view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
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the statutory provisions as to the required majority vote have been met;
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the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;
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the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
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the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.
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When a takeover offer is made and accepted
by holders of 90.0% of the shares within four months, the offeror may, within a two-month period commencing on the expiration of
such four-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection
can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so
approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is
thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily
be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.
Shareholders’ Suits. In
principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority
shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands,
there are exceptions to the foregoing principle, including when:
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a company acts or proposes to act illegally or ultra vires;
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the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and
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those who control the company are perpetrating a “fraud on the minority.”
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Indemnification of Directors and
Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s
memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such
provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against
civil fraud or the consequences of committing a crime. Our current memorandum and articles of association permit indemnification
of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages
arise from dishonesty or fraud of such directors or officers. This standard of conduct is generally the same as permitted under
the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements with
our directors and executive officers that provide such persons with additional indemnification beyond that provided in our current
memorandum and articles of association.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions,
we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
Directors’ Fiduciary Duties. Under
Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This
duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith,
with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform
himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The
duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation.
He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates
that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer
or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have
been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.
However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented
concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction
was of fair value to the corporation.
As a matter of Cayman Islands law, a director
of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he
or she owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not
to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put
himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty
to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously
considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably
be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an
objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent.
Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by
amendment to its certificate of incorporation. Cayman Islands law and our current articles of association provide that shareholders
may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have
been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals. Under
the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders,
provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors
or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
Cayman Islands law does not provide shareholders
any right to put proposals before a meeting or requisition a general meeting. However, these rights may be provided in articles
of association. Our current articles of association allow our shareholders holding not less than one-third of all voting power
of our share capital in issue to requisition a shareholder’s meeting. Other than this right to requisition a shareholders’
meeting, our current articles of association do not provide our shareholders other right to put proposal before a meeting. As a
Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under
the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s
certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority
shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is
entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There
are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our current articles of association
do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue
than shareholders of a Delaware corporation.
Removal of Directors. Under
the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the
approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
Under our current articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders.
Transactions with Interested Shareholders. The
Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the
corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is
prohibited from engaging in certain business combinations with an “interested shareholder” for three years following
the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or
which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect
of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be
treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested
shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming
an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition
transaction with the target’s board of directors.
Cayman Islands law has no comparable statute.
As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However,
although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide
that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting
a fraud on the minority shareholders.
Dissolution; Winding up. Under
the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved
by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of
directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware
corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated
by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by
a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of
its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion
of the court, just and equitable to do so. Under the Companies Law and our current articles of association, our company may be
dissolved, liquidated or wound up by a special resolution of our shareholders.
Variation of Rights of Shares. Under
the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of
the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and
our current articles of association, if our share capital is divided into more than one class of shares, we may vary the rights
attached to any class with the written consent of the holders of three-fourths of the issued shares of that class or with the sanction
of a resolution passed by not less than three-fourths of such holders of the shares of that class as may be present at a general
meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under
the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority
of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman
Islands law, our current memorandum and articles of association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign
Shareholders. There are no limitations imposed by our post-offering amended and restated memorandum and articles
of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition,
there are no provisions in our current memorandum and articles of association governing the ownership threshold above which shareholder
ownership must be disclosed.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus we have
48,305,870 Ordinary Shares outstanding. Of this amount 36,156,085 Ordinary Shares held by existing shareholders are deemed “restricted
securities” as that term is defined in Rule 144 and may not be resold except pursuant to an effective registration statement
or an applicable exemption from registration, including Rule 144. As of the date of this prospectus, all but 262,082 shares sold
in January 2021 are currently eligible for sale, subject to the limitations of Rule 144.
Rule 144
In general, under Rule 144, a person who
is not our affiliate and has not been our affiliate at any time during the preceding three months will be entitled to sell any
shares of our share capital that such person has held for at least six months, including the holding period of any prior owner
other than one of our affiliates, without regard to volume limitations. Sales of our share capital by any such person would be
subject to the availability of current public information about us if the shares to be sold were held by such person for less than
one year.
In addition, under Rule 144, a person may
sell shares of our share capital acquired from us immediately upon the completion of this offering, without regard to volume limitations
or the availability of public information about us, if:
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the person is not our affiliate and has not been our affiliate at any time during the preceding three months;
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and the person has beneficially owned the shares to be sold for at least six months, including the holding period of any prior owner other than one of our affiliates.
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Our affiliates who have beneficially owned
shares of our share capital for at least six months, including the holding period of any prior owner other than another of our
affiliates, would be entitled to sell within any three-month period those shares and any other shares they have acquired that are
not restricted securities, provided that the aggregate number of shares sold does not exceed the greater of:
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1% of the number of shares of our authorized share capital then outstanding, which will equal approximately 483,059 Ordinary Shares as of the date of this prospectus; or
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the average weekly trading volume in our Ordinary Shares on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
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Sales under Rule 144 by our affiliates
are generally subject to the availability of current public information about us, as well as certain “manner of sale”
and notice requirements.
TAXATION
The following discussion of material
Cayman Islands, PRC and United States federal income tax consequences of an investment in our Ordinary Shares is based upon laws
and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This discussion
does not deal with all possible tax consequences relating to an investment in our Ordinary Shares, such as the tax consequences
under state, local and other tax laws. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents
the opinion of Harney Westwood & Riegels, our Cayman Islands counsel. To the extent that the discussion relates to matters
of PRC tax law, it represents the opinion of Merits & Tree Law Offices, our PRC counsel. To the extent the discussion relates
to the matters of U.S. tax law, it represents the opinion of Davidoff Hutcher & Citron LLP.
Cayman Islands Taxation
The Cayman Islands currently levies no
taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of
inheritance tax or estate duty. There are no other taxes levied by the Government of the Cayman Islands that are likely to be material
to holders of Ordinary Shares or Ordinary Shares. The Cayman Islands is not party to any double tax treaties. There are no exchange
control regulations or currency restrictions in the Cayman Islands.
People’s Republic of China Taxation
Under the EIT Law, an enterprise established
outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise
income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax
reporting obligations. Under the Implementation Rules, a “de facto management body” is defined as a body that has material
and overall management and control over the manufacturing and business operations, personnel and human resources, finances and
properties of an enterprise. In addition, SAT Circular 82 issued in April 2009 specifies that certain offshore-incorporated enterprises
controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions
are met: (a) senior management personnel and core management departments in charge of the daily operations of the enterprises
have their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval
by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and
files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the
enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC. Further to SAT Circular
82, the SAT issued SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT
Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on PRC resident enterprise status
and administration on post-determination matters. If the PRC tax authorities determine that the Company or any of our subsidiaries
outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences
could follow. For example, we or our subsidiaries outside of China may be subject to enterprise income tax at a rate of 25% with
respect to its worldwide taxable income. Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise
shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or Ordinary
Shares and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and
with respect to gains derived by our non-PRC individual shareholders from transferring our shares or Ordinary Shares.
It is unclear whether, if we are considered
a PRC resident enterprise, holders of our shares or Ordinary Shares would be able to claim the benefit of income tax treaties or
agreements entered into between China and other countries or areas. See “Risk Factors—Risk Factors Relating to Doing
Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise
income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC Shareholders
and have a material adverse effect on our results of operations and the value of your investment”.
Under SAT Circular 7, where a non-resident
enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests
in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident
enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the
relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard
the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of
reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC tax at a
rate of up to 10%. for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may
be at risk of being required to file a return and being taxed under SAT Circular 7, and we may be required to expend valuable resources
to comply with SAT Circular 7, or to establish that we should not be taxed thereunder. See “Risk Factors—Risk Factors
Relating to Doing Business in China—We face uncertainty regarding the PRC tax reporting obligations and consequences for
certain indirect transfers of our operating company’s equity interests. Enhanced scrutiny over acquisition transactions by
the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.”
Pursuant to the Arrangement between the
Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income,
or the Tax Arrangement, where a Hong Kong resident enterprise which is considered a non-PRC tax resident enterprise directly holds
at least 25% of a PRC enterprise, the withholding tax rate in respect of the payment of dividends by such PRC enterprise to such
Hong Kong resident enterprise is reduced to 5% from a standard rate of 10%, subject to approval of the PRC local tax authority.
Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses
of Tax Agreements, or Circular 81, a resident enterprise of the counter-party to such Tax Arrangement should meet the following
conditions, among others, in order to enjoy the reduced withholding tax under the Tax Arrangement: (i) it must directly own
the required percentage of equity interests and voting rights in such PRC resident enterprise; and (ii) it should directly
own such percentage in the PRC resident enterprise anytime in the 12 months prior to receiving the dividends. Furthermore, the
Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation), or the
Administrative Measures, which became effective in October 2009, requires that the non-resident enterprises must obtain the
approval from the relevant tax authority in order to enjoy the reduced withholding tax rate under the tax treaties. There are also
other conditions for enjoying such reduced withholding tax rate according to other relevant tax rules and regulations. Accordingly,
Bit Digital Hong Kong may be able to enjoy the 5% withholding tax rate for the dividends it receives from the wholly foreign owned
enterprise to be established in China in the near future, if it satisfies the conditions prescribed under Circular 81 and other
relevant tax rules and regulations and obtains the approvals as required under the Administrative Measures. However, according
to Circular 81, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of
enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.
United States Federal Income Tax Considerations
The following is a discussion of United
States federal income tax considerations relating to the acquisition, ownership, and disposition of our Ordinary Shares by a U.S.
Holder, as defined below, that acquires our Ordinary Shares in this offering and holds our Ordinary Shares as “capital assets”
(generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended (the “Code”).
This discussion is based upon existing United States federal income tax law, which is subject to differing interpretations or change,
possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect
to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will
not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be
important to particular investors in light of their individual circumstances, including investors subject to special tax rules
(such as, for example, certain financial institutions, insurance companies, regulated investment companies, real estate investment
trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners, tax-exempt
organizations (including private foundations), investors who are not U.S. Holders, investors that own (directly, indirectly, or
constructively) 10% or more of our voting stock, investors that hold their Ordinary Shares as part of a straddle, hedge, conversion,
constructive sale or other integrated transaction), or investors that have a functional currency other than the U.S. dollar, all
of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this discussion does not
address any tax laws other than the United States federal income tax laws, including any state, local, alternative minimum tax,
non-United States tax considerations or the Medicare tax. Each potential investor is urged to consult its tax advisor regarding
the United States federal, state, local and non-United States income and other tax considerations of an investment in our Ordinary
Shares.
General
For purposes of this discussion, a “U.S.
Holder” is a beneficial owner of our Ordinary Shares that is, for United States federal income tax purposes, (i) an
individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation
for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof
or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income
tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision
of a United States court and which has one or more United States persons who have the authority to control all substantial decisions
of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity treated
as a partnership for United States federal income tax purposes) is a beneficial owner of our Ordinary Shares, the tax treatment
of a partner in the partnership will [or “may”] vary depending on the status of the partner and the activities
of the partnership. Partnerships and partners of a partnership holding our Ordinary Shares are urged to consult their tax advisors
regarding an investment in our Ordinary Shares.
The discussion set forth below is addressed
only to U.S. Holders that purchase Ordinary Shares in this offering. Prospective purchasers are urged to consult their own tax
advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local,
foreign and other tax consequences to them of the purchase, ownership and disposition of our Ordinary Shares.
Taxation of Dividends and Other Distributions on our Ordinary
Shares
Subject to the passive foreign investment
company rules discussed below, the gross amount of distributions made by us to you with respect to the Ordinary Shares (including
the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of
receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible
for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders,
including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income,
provided that (1) the Ordinary Shares are readily tradable on an established securities market in the United States, or we are
eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information
program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend
is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty
between the United States and the Cayman Islands, clause (1) above can be satisfied only if the Ordinary Shares are readily tradable
on an established securities market in the United States. Under U.S. Internal Revenue Service authority, Ordinary Shares are considered
for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed
on Nasdaq. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect
to our Ordinary Shares, including the effects of any change in law after the date of this prospectus.
To the extent that the amount of the distribution
exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated
first as a tax-free return of your tax basis in your Ordinary Shares, and to the extent the amount of the distribution exceeds
your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal
income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution
would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Ordinary Shares
Subject to the passive foreign investment
company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a
share equal to the difference between the amount realized (in U.S. dollars) for the ordinary share and your tax basis (in U.S.
dollars) in the ordinary share. The character of the gain or loss will be capital gain or loss. If you are a non-corporate U.S.
Holder, including an individual U.S. Holder, who has held the Ordinary Shares for more than one year, you may be eligible for reduced
tax rates on any such capital gains. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company
A non-U.S. corporation is considered a
PFIC for any taxable year if either:
|
●
|
at least 75% of its gross income for such taxable year is passive income (the “income test”); or
|
|
|
|
|
●
|
at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”).
|
Passive income generally includes dividends,
interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains
from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate
share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. In
determining the value and composition of our assets for purposes of the PFIC asset test, the value of our assets must be determined
based on the market value of our Ordinary Shares from time to time, which could cause the value of our non-passive assets to be
less than 50% of the value of all of our assets on any particular quarterly testing date for purposes of the asset test.
We must make a separate determination each
year as to whether we are a PFIC. Depending on the amount of any assets held for the production of passive income, it is possible
that, for any taxable year, more than 50% of our assets may be assets held for the production of passive income. We will make this
determination following the end of any particular tax year. Although the law in this regard is unclear, we treat our consolidated
subsidiaries, as being owned by us for United States federal income tax purposes, not only because we exercise effective control
over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a
result, we consolidate their operating results in our consolidated financial statements. In particular, because the value of our
assets for purposes of the asset test will generally be determined based on the market price of our Ordinary Shares and because
cash is generally considered to be an asset held for the production of passive income, our PFIC status will depend in large part
on the market price of our Ordinary Shares. Accordingly, fluctuations in the market price of the Ordinary Shares may cause us to
become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition
of our income and assets will be affected by how, and how quickly, we spend the cash we have on hand at any time. We are under
no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the
value of our assets will depend upon material facts (including the market price of our Ordinary Shares from time to time) that
may not be within our control. If we are a PFIC for any year during which you hold Ordinary Shares, we will continue to be treated
as a PFIC for all succeeding years during which you hold Ordinary Shares. However, if we cease to be a PFIC and you did not previously
make a timely “mark-to-market” election as described below, you may avoid some of the adverse effects of the PFIC regime
by making a “purging election” (as described below) with respect to the Ordinary Shares.
If we are a PFIC for your taxable year(s)
during which you hold Ordinary Shares, you will be subject to special tax rules with respect to any “excess distribution”
that you receive and any gain you realize from a sale or other disposition (including a pledge) of the Ordinary Shares, unless
you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater
than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding
period for the Ordinary Shares will be treated as an excess distribution. Under these special tax rules:
|
●
|
the excess distribution or gain will be allocated ratably over your holding period for the Ordinary Shares;
|
|
|
|
|
●
|
the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and
|
|
●
|
the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate in effect for that year, and an interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
|
The tax liability for amounts allocated
to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for
such years, and gains (but not losses) realized on the sale of the Ordinary Shares cannot be treated as capital, even if you hold
the Ordinary Shares as capital assets.
A U.S. Holder of “marketable stock”
(as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above.
If you make a mark-to-market election for first taxable year which you hold (or are deemed to hold) Ordinary Shares and for which
we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market
value of the Ordinary Shares as of the close of such taxable year over your adjusted basis in such Ordinary Shares, which excess
will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted
basis of the Ordinary Shares over their fair market value as of the close of the taxable year. However, such ordinary loss is allowable
only to the extent of any net mark-to-market gains on the Ordinary Shares included in your income for prior taxable years. Amounts
included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Ordinary
Shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition
of the Ordinary Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included
for such Ordinary Shares. Your basis in the Ordinary Shares will be adjusted to reflect any such income or loss amounts. If you
make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply
to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under
“— Taxation of Dividends and Other Distributions on our Ordinary Shares” generally would not apply.
The mark-to-market election is available
only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days
during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable
U.S. Treasury regulations), including Nasdaq. If the Ordinary Shares are regularly traded on Nasdaq and if you are a holder of
Ordinary Shares, the mark-to-market election would be available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder of stock in
a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed
above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross
income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year.
However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information
regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare
or provide the information that would enable you to make a qualified electing fund election. If you hold Ordinary Shares in any
taxable year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and
provide certain annual information regarding such Ordinary Shares, including regarding distributions received on the Ordinary Shares
and any gain realized on the disposition of the Ordinary Shares.
If you do not make a timely “mark-to-market”
election (as described above), and if we were a PFIC at any time during the period you hold our Ordinary Shares, then such Ordinary
Shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless
you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed
sale of such Ordinary Shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The
gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess
distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value
of the Ordinary Shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding
period will begin the day after such last day) in your Ordinary Shares for tax purposes.
You are urged to consult your tax advisors
regarding the application of the PFIC rules to your investment in our Ordinary Shares and the elections discussed above.
Information Reporting and Backup Withholding
Dividend payments with respect to our Ordinary
Shares and proceeds from the sale, exchange or redemption of our Ordinary Shares may be subject to information reporting to the
U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 24%. Backup withholding will not apply,
however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on
U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish
their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged
to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional
tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain
a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the
U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders.
However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup
withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Under the Hiring Incentives to Restore
Employment Act of 2010, certain U.S. Holders are required to report information relating to our Ordinary Shares, subject to certain
exceptions (including an exception for Ordinary Shares held in accounts maintained by certain financial institutions), by attaching
a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each
year in which they hold Ordinary Shares.
EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the
total expenses that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the Financial
Industry Regulatory Authority, or FINRA, filing fee and the Nasdaq listing fee, all amounts are estimates.
SEC registration fee
|
|
$
|
10,731.92
|
|
Lega1 fees and expenses
|
|
|
150,000.00
|
|
Accounting fees and expenses
|
|
|
100,000.00
|
|
Miscellaneous
|
|
|
9,268.08
|
|
|
|
|
|
|
Total
|
|
$
|
270,000.00
|
|
LEGAL MATTERS
The Company is being represented by Davidoff
Hutcher & Citron LLP, with respect to legal matters of United States federal securities law. The validity of the Ordinary Shares
offered by this prospectus and legal matters as to Cayman Islands law will be passed upon for us by Harney Westwood & Riegels. The
Company is being represented by Merits & Tree Law Offices with regard to PRC law. Davidoff Hutcher & Citron LLP may rely
upon Merits & Tree Law Offices with respect to matters governed by PRC law.
EXPERTS
The consolidated financial statements as
of December 31, 2019 and for the year ended December 31, 2019 have been included in this prospectus in reliance on the report of
JLKZ CPA LLP, an independent registered public accounting firm, given on the authority of said firm as an expert in accounting
and auditing. The consolidated financial statements as of December 31, 2018 and for the year ended December 31, 2018 have been
included in this prospectus in reliance on the report of Friedman LLP, an independent registered public accounting firm, given
on the authority of said firm as an expert in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual reports, quarterly
reports, current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).
Our website is https://bit-digital.com. The information contained on our website is not a part of this prospectus.
You may read or obtain a copy of these reports at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C.
20549, on official business days during the hours of 10:00 am to 3:00 pm. You may obtain information on the operation of the public
reference room and its copy charges by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains registration
statements, reports, proxy information statements and other information regarding registrants that file electronically with the
SEC, which are available free of charge. The address of the website is http://www.sec.gov. If you do not have Internet access,
requests for copies of such documents should be directed to Erke Huang, Chief Financial Officer, at Bit Digital, Inc., 33 Irving
Place, New York, New York 10003.
We have filed with the SEC a registration
statement on Form F-1 under the Securities Act with respect to the Ordinary Shares being offered by this prospectus. This prospectus
is part of that registration statement. This prospectus does not contain all of the information set forth in the registration statement
or the exhibits to the registration statement. For further information with respect to us and the shares we are offering pursuant
to this prospectus, you should refer to the registration statement and its exhibits. Statements contained in this prospectus as
to the contents of any contract, agreement or other document referred to are not necessarily complete, and you should refer to
the copy of that contract or other documents filed as an exhibit to the registration statement. You may read or obtain a copy of
the registration statement at the SEC’s public reference room and website referred to above.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BIT DIGITAL, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
As of September
30, 2020 and December 31, 2019
(Expressed in U.S. dollars, except for
the number of shares)
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
521,648
|
|
|
$
|
15,988
|
|
Restricted cash
|
|
|
600,000
|
|
|
|
-
|
|
Cryptocurrencies
|
|
|
652,027
|
|
|
|
-
|
|
Other current assets
|
|
|
1,209,369
|
|
|
|
12,501
|
|
Assets of discontinued operations
|
|
|
-
|
|
|
|
531,767
|
|
Total Current Assets
|
|
|
2,983,044
|
|
|
|
560,256
|
|
Restricted cash, noncurrent
|
|
|
-
|
|
|
|
600,000
|
|
Deposits for equipment
|
|
|
-
|
|
|
|
110,000
|
|
Property and equipment, net
|
|
|
17,665,286
|
|
|
|
-
|
|
Assets of discontinued operations, noncurrent
|
|
|
-
|
|
|
|
3,246,277
|
|
Total Assets
|
|
$
|
20,648,330
|
|
|
$
|
4,516,533
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
268,604
|
|
|
$
|
-
|
|
Due to related parties
|
|
|
336,722
|
|
|
|
120,000
|
|
Other payables and accrued liabilities
|
|
|
160,665
|
|
|
|
266,047
|
|
Current liabilities of discontinued operations
|
|
|
-
|
|
|
|
43,546
|
|
Total Current Liabilities
|
|
|
765,991
|
|
|
|
429,593
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
765,991
|
|
|
|
429,593
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par value, 50,000,000 shares authorized, 43,699,185 and 15,399,185 shares issued and outstanding of September 30, 2020 and December 31, 2019, respectively
|
|
|
436,992
|
|
|
|
153,992
|
|
Share subscription receivables
|
|
|
-
|
|
|
|
(45,457
|
)
|
Additional paid-in capital
|
|
|
37,796,285
|
|
|
|
17,610,220
|
|
Statutory reserve
|
|
|
-
|
|
|
|
6,189
|
|
Accumulated deficit
|
|
|
(18,350,938
|
)
|
|
|
(13,790,152
|
)
|
Accumulated other comprehensive loss
|
|
|
-
|
|
|
|
(100,185
|
)
|
Total Bit Digital, Inc.’s Shareholders’ Equity
|
|
|
19,882,339
|
|
|
|
3,834,607
|
|
Noncontrolling interests
|
|
|
-
|
|
|
|
252,333
|
|
Total Equity
|
|
|
19,882,339
|
|
|
|
4,086,940
|
|
Total Liabilities and Equity
|
|
$
|
20,648,330
|
|
|
$
|
4,516,533
|
|
BIT DIGITAL, INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
For the Three
and Nine Months Ended September 30, 2020 and 2019
(Expressed in U.S. dollars, except for
the number of shares)
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue from cryptocurrency mining
|
|
$
|
7,909,528
|
|
|
$
|
-
|
|
|
$
|
8,602,226
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and
amortization shown below)
|
|
|
(6,210,712
|
)
|
|
|
-
|
|
|
|
(6,866,726
|
)
|
|
|
-
|
|
Depreciation and amortization expenses
|
|
|
(1,171,151
|
)
|
|
|
-
|
|
|
|
(1,241,652
|
)
|
|
|
-
|
|
General and administrative expenses
|
|
|
(405,705
|
)
|
|
|
(1,787,384
|
)
|
|
|
(1,202,274
|
)
|
|
|
(1,787,384
|
)
|
Total operating expenses
|
|
|
(7,787,568
|
)
|
|
|
(1,787,384
|
)
|
|
|
(9,310,652
|
)
|
|
|
(1,787,384
|
)
|
Income (Loss) from Operations
|
|
|
121,960
|
|
|
|
(1,787,384
|
)
|
|
|
(708,426
|
)
|
|
|
(1,787,384
|
)
|
Realized gain (loss) on exchange of cryptocurrencies
|
|
|
(21,721
|
)
|
|
|
-
|
|
|
|
(15,753
|
)
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
Other expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,964
|
)
|
|
|
-
|
|
Net income (loss) from continuing operations before income taxes
|
|
|
100,239
|
|
|
|
(1,787,384
|
)
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) from continuing operations
|
|
|
100,239
|
|
|
|
(1,787,384
|
)
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(100,185
|
)
|
|
|
(1,220,441
|
)
|
|
|
(3,834,683
|
)
|
|
|
(7,682,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54
|
|
|
$
|
(3,007,825
|
)
|
|
$
|
(4,560,786
|
)
|
|
$
|
(9,470,250
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
(109,248
|
)
|
|
|
-
|
|
|
|
(75,120
|
)
|
Comprehensive income (loss)
|
|
$
|
54
|
|
|
$
|
(3,117,073
|
)
|
|
$
|
(4,560,786
|
)
|
|
$
|
(9,545,370
|
)
|
Weighted average number of ordinary share outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
42,297,011
|
|
|
|
15,399,185
|
|
|
|
25,745,900
|
|
|
|
15,129,954
|
|
Earnings (Loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.63
|
)
|
BIT DIGITAL, INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30, 2020 and 2019
(Expressed in U.S. dollars, except for
the number of shares)
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(4,560,786
|
)
|
|
$
|
(9,470,250
|
)
|
Less: Net loss from discontinued operations
|
|
|
3,834,683
|
|
|
|
7,682,866
|
|
Net loss from continuing operations
|
|
|
(726,103
|
)
|
|
|
(1,787,384
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
1,241,652
|
|
|
|
-
|
|
Loss from acquisition of a subsidiary
|
|
|
1,964
|
|
|
|
-
|
|
Amortization of stock compensation expenses for services
|
|
|
456,000
|
|
|
|
1,760,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Cryptocurrencies
|
|
|
(8,586,472
|
)
|
|
|
-
|
|
Other current assets
|
|
|
(1,196,869
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
268,604
|
|
|
|
-
|
|
Other payables and accrued liabilities
|
|
|
(106,670
|
)
|
|
|
-
|
|
Net Cash Used in Operating Activities from Continuing Operations
|
|
|
(8,647,894
|
)
|
|
|
(27,384
|
)
|
Net Cash Provided by Operating Activities from Discontinued Operations
|
|
|
-
|
|
|
|
731,266
|
|
Net Cash Used in (Provided by) Operating Activities
|
|
|
(8,647,894
|
)
|
|
|
703,882
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(18,796,938
|
)
|
|
|
-
|
|
Proceeds from sales of cryptocurrencies
|
|
|
7,934,446
|
|
|
|
-
|
|
Acquisition of cash in connection with acquisition of a subsidiary
|
|
|
11,326
|
|
|
|
-
|
|
Net Cash Used in Investing Activities from Continuing Operations
|
|
|
(10,851,166
|
)
|
|
|
-
|
|
Net Cash Used Investing Activities from Discontinued Operations
|
|
|
-
|
|
|
|
(916,167
|
)
|
Net Cash Used in Investing Activities
|
|
|
(10,851,166
|
)
|
|
|
(916,167
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings from related parties
|
|
|
204,720
|
|
|
|
-
|
|
Proceeds from issuance of common stock under private placement transaction
|
|
|
19,800,000
|
|
|
|
-
|
|
Net Cash Provided by Financing Activities
|
|
|
20,004,720
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
|
(40,126
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
505,660
|
|
|
|
(252,411
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
615,988
|
|
|
|
868,399
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
1,121,648
|
|
|
$
|
615,988
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1.
|
ORGANIZATION AND PRINCIPAL ACTIVITIES
|
Bit Digital, Inc. (“BTBT” or
the “Company”), formerly known as Golden Bull Limited, is a holding company incorporated on February 17, 2017, under
the laws of the Cayman Islands. The Company is currently engaged in the bitcoin mining business through its wholly owned subsidiaries
in the United States and Hong Kong. On August 7, 2020, the Company changed its Nasdaq trading symbol to “BTBT”. On
September 14, 2020, the Company officially changed its name from “Golden Bull Limited” to “Bit Digital, Inc.”,
which the management believes more closely reflects the Company’s bitcoin mining business.
On June 3, 2019, Golden Bull USA was incorporated
in the State of New York, which is a wholly owned subsidiary of the Company.
On April 8, 2020, the Company entered into
an Instrument of Transfer with Mr. Ching Yeh to acquire his 100% of the ownership interest (10,000 shares) in Bit Digital Hong
Kong for HKD 10,000 (approximately $1,290). After the acquisition, Bit Digital Hong Kong became a wholly owned subsidiary of the
Company. Bit Digital Limited is a Hong Kong company, engaged in bitcoin mining business and was incorporated on March 21, 2018.
On the acquisition date, Bit Digital Hong Kong had a negative net asset of $674, and the Company recorded a loss of $1,964 from
the acquisition of Bit Digital Hong Kong.
On September 1, 2020, we established Bit
Digital USA, Inc. (“BT USA”), a wholly owned subsidiary incorporated in Delaware, United States, through which we intend
to operate bitcoin mining business with our miners in the United States. In September, we commenced trial operations with 100 units
of miners under operation in Texas, United States.
DISPOSITION OF PEER-TO-PEER LENDING
BUSINESS AND CAR RENTAL BUSINESS IN PRC
On September 8, 2020, the Board approved
the disposal of Point Cattle Holdings Limited, a former wholly owned subsidiary of the Company in the British Virgin Islands, and
its subsidiaries and VIEs, through which the Company previously operated its peer-to-peer lending business and the car rental business
in PRC. Upon the sale, we discontinued our peer-to-peer lending business and the car rental business in the PRC (“discontinued
operations”). In addition to our bitcoin mining business, we plan to operate our car rental business through Golden Bull
USA, Inc., a wholly owned subsidiary based in the United States once the Coronavirus pandemic is curtailed.
On the same date, the Company entered into
a certain share purchase agreement (the “Disposition SPA”) by and among a BVI company, Sharp Whale Limited (the “Purchaser”),
Point Cattle Holding Limited (the “Subsidiary”) and the Company (the “Seller”). Pursuant to the Disposition
SPA, the Purchaser purchased the Subsidiary in exchange for nominal consideration of $10.00 and other good and valuable consideration.
The accompanying consolidated financial
statements reflect the activities of the Company and each of the following entities:
Name
|
|
Background
|
|
Ownership
|
Golden Bull USA
|
|
●
|
A United States company
|
|
100% owned by Bit Digital, Inc.
|
|
|
●
|
Incorporated on June 3, 2019
|
|
|
|
|
●
|
Engaged in bitcoin mining business
|
|
|
BIT DIGITAL LIMITED
|
|
●
|
A Hong Kong company
|
|
100% owned by Bit Digital, Inc.
|
|
|
●
|
Acquired on April 8, 2020
|
|
|
|
|
●
|
Engaged in bitcoin mining business
|
|
|
BIT DIGITAL USA, INC.
|
|
●
|
A United States company
|
|
100% owned by Bit Digital, Inc.
|
|
|
●
|
Incorporated on September 1, 2020
|
|
|
|
|
●
|
Engaged in bitcoin mining business
|
|
|
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of presentation
The interim unaudited condensed consolidated
financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States
(“U.S. GAAP”).
The unaudited condensed consolidated financial
information as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 has been prepared without
audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures,
which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to
those rules and regulations. The unaudited interim financial information should be read in conjunction with the audited financial
statements and the notes thereto, included in the Form 20-F for the fiscal year ended December 31, 2019, which was filed with the
SEC on July 29, 2020.
In the opinion of the management, the accompanying
unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair
presentation of financial results for the interim periods presented. The Company believes that the disclosures are adequate to
make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements have been
prepared using the same accounting policies as used in the preparation of the Company’s consolidated financial statements
for the year ended December 31, 2019. The results of operations for the three and nine months ended September 30, 2020 and 2019
are not necessarily indicative of the results for the full years.
Principles of consolidation
The unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries. All transactions and balances among the Company
and its subsidiaries have been eliminated upon consolidation.
Use of estimates
In preparing the unaudited condensed consolidated
financial statements in conformity with U.S. GAAP, management makes 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 revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated
financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of
cryptocurrencies and other current assets, useful lives of property and equipment, the recoverability of long-lived assets, provision
necessary for contingent liabilities and realization of deferred tax assets. Actual results could differ from those estimates.
Fair value of financial instruments
ASC 825-10 requires certain disclosures
regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair
value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Fair value of financial instruments
(continued)
|
●
|
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
●
|
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.
|
|
|
|
|
●
|
Level 3 - inputs to the valuation methodology are unobservable.
|
Fair value of cryptocurrencies is based
on quoted prices in active markets. The fair value of the Company’s other financial instruments including cash and cash equivalents,
restricted cash, due from a related party, deposits, other receivables, accounts payable, due to related parties, and other payables,
approximate their fair values because of the short-term nature of these assets and liabilities.
Cash and cash equivalents
Cash includes cash on hand and demand deposits
in accounts maintained with commercial banks. The Company considers all highly liquid investment instruments with an original maturity
of three months or less from the date of purchase to be cash equivalents.
Cryptocurrencies
Cryptocurrencies (including bitcoin and
bitcoin cash) are included in current assets in the accompanying unaudited condensed consolidated balance sheets. Cryptocurrencies
purchased are recorded at cost and cryptocurrencies awarded to the Company through its mining activities are accounted for in connection
with the Company’s revenue recognition policy disclosed below.
Cryptocurrencies held are accounted for
as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed
for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than
not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured
using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company
has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists.
If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.
If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss
is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Purchases of cryptocurrencies by the Company
are included within investing activities in the accompanying unaudited condensed consolidated statements of cash flows, while cryptocurrencies
awarded to the Company through its mining activities are included within operating activities on the accompanying unaudited condensed
consolidated statements of cash flows. The sales of cryptocurrencies are included within investing activities in the accompanying
unaudited condensed consolidated statements of cash flows and any realized gains or losses from such sales are included in other
income (expense) in the unaudited condensed consolidated statements of operations. The Company accounts for its gains or losses
in accordance with the weighted average method of accounting.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Property and equipment
Property and equipment are stated at cost.
The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:
|
|
Useful life
|
cryptocurrency mining equipment
|
|
3 years
|
Expenditures for maintenance and repairs,
which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals
and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation
of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements
of operations and other comprehensive income (loss) in other income or expenses.
Impairment of long-lived assets
Long-lived assets, including plant and
equipment are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market
conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable.
The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate
and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus
net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is
identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows
approach or, when available and appropriate, to comparable market values.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Revenue recognition
The Company recognizes revenue in accordance
with ASC 606 Revenue from Contracts with Customers (“ASC 606”).
To determine revenue recognition for contracts
with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable
that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations
in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it
transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled
in such exchange.
Cryptocurrency mining
The Company has entered into digital asset
mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts
are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company
provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional
share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool
operator which are recorded as a component of cost of revenues), for successfully adding a block to the blockchain. The Company’s
fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total
computing power contributed by all mining pool participants in solving the current algorithm.
Providing computing power in digital asset
transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing
power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration
the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is
not materially different than the fair value at contract inception or the time the Company has earned the award from the pools.
The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur,
the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm)
and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant
financing component in these transactions.
Fair value of the cryptocurrency award
received is determined using the quoted price of the related cryptocurrency at the time of receipt.
There is currently no specific definitive
guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held,
and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative
guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s
consolidated financial position and results from operations.
Cost of revenue
The Company’s cost of revenue consists
primarily of direct production costs related to mining operations, including utilities and other service charges, but excluding
depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Income taxes
The Company accounts for income taxes under
the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment
date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.
ASC Topic 740, Income Taxes, (“ASC
740”), also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded
that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements.
The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments
that would result in material changes to its financial position.
Earnings (Loss) per share
The Company computes earnings (loss) per
share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires
companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided
by the weighted average common shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of
the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that
increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the three and nine
months ended September 30, 2020 and 2019, there were no dilutive shares.
Comprehensive income (loss)
Comprehensive income consists of two components,
net income (loss) and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation
of the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated statements
of comprehensive income (loss).
Statement of cash flows
In accordance with ASC 230, “Statement
of Cash Flows,” cash flows from the Company’s operations are formulated based upon the local currencies. As a result,
amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheets.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Commitments and contingencies
In the normal course of business, the Company
is subject to contingencies, such as legal proceedings and claims arising out of its business, which cover a wide range of matters.
Liabilities for contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment
can be reasonably estimated.
If the assessment of a contingency indicates
that it is probable that a material loss is incurred and the amount of the liability can be estimated, then the estimated liability
is accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency
is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability,
together with an estimate of the range of possible loss, if determinable and material, would be disclosed.
Loss contingencies considered remote are
generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Discontinued operation
In accordance with ASU No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity
or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic
shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity
meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held
for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major
current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and
liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations,
less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss)
of continuing operations in accordance with ASC 205-20-45.
As of September 30, 2020, the Company’s
peer-to-peer lending business and the car rental business in the PRC met all the conditions required in order to be classified
as a discontinued operation (Note 1). Accordingly, the operating results of peer-to-peer lending business and the car rental business
in the PRC are reported as a loss from discontinued operations in the accompanying unaudited condensed consolidated financial statements
for all periods presented. In addition, the assets and liabilities related to our peer-to-peer lending business and the car rental
business in the PRC are reported as assets and liabilities of discontinued operations in the accompanying consolidated balance
sheets on December 31, 2019. For additional information, see Note 10, “Disposition of Point Cattle”.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Recent accounting pronouncements
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets
held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces
the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized
cost. ASU 2016-13 was subsequently amended by Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial
Instruments—Credit Losses, Accounting Standards Update 2019-04 Codification Improvements to Topic 326, Financial Instruments—Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and Accounting Standards Update 2019-05, Targeted
Transition Relief. For public entities, ASU 2016-13 and its amendments are effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective
for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application will
be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
As an emerging growth company, the Company plans to adopt this guidance effective August 1, 2023. The Company is currently evaluating
the impact of its pending adoption of ASU 2016-13 on its consolidated financial statements.
In August 2018, the FASB Accounting Standards
Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements
for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements.
ASU 2018-13 is effective for all entities for fiscal years and interim periods within those fiscal years beginning after December
15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted
on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect this guidance
will have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU No.
2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting
for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve
consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within
those fiscal years, which is 2022 fiscal year for us, with early adoption permitted. The Company does not expect adoption of the
new guidance to have a significant impact on its consolidated financial statements.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following table presents additional
information about cryptocurrencies:
|
|
Amounts
|
|
Balance at January 1, 2020
|
|
|
-
|
|
Receipt of cryptocurrencies from mining services
|
|
$
|
8,602,226
|
|
Sales of cryptocurrencies
|
|
|
(7,934,446
|
)
|
Realized gain on sale of cryptocurrencies
|
|
|
(15,753
|
)
|
Balance at September 30, 2020
|
|
$
|
652,027
|
|
The other current assets were comprised
of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Deposits (a)
|
|
$
|
1,172,165
|
|
|
$
|
-
|
|
Others
|
|
|
37,204
|
|
|
|
12,501
|
|
Total
|
|
$
|
1,209,369
|
|
|
$
|
12,501
|
|
(a)
|
As of September 30, 2020, the balance of deposits represented the deposits made to one service provider who paid utility charges in mining facilities on behalf of the Company. The deposits are refundable upon expiration of the agreement between the Company and the service provider, which was due within 12 months from the effective date of the agreement.
|
5.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment, net was comprised
of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Miners
|
|
$
|
18,906,938
|
|
|
$
|
-
|
|
Less: accumulated depreciation
|
|
|
(1,241,652
|
)
|
|
|
-
|
|
Property and equipment, net
|
|
$
|
17,665,286
|
|
|
$
|
-
|
|
Depreciation expenses were $1,241,652 and
$nil for the nine months ended September 30, 2020 and 2019, respectively. Depreciation expenses were $1,171,151 and $nil for the
three months ended September 30, 2020 and 2019, respectively.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
At our Annual General meeting of Shareholders
on September 4, 2020, our Company’s Shareholders approved a charter amendment to increase authorized common shares from 50,000,000
to 150,000,000 shares. In January 2021, the increase in the authorized number of common shares was made effective on the Company’s
filings with the Registrar of Companies of the Cayman Islands. As of September 30, 2020 and December 31, 2019, the Company had
50,000,000 and 50,000,000 common shares authorized.
As of December 31, 2018, there were 14,899,185
shares of common stock issued and outstanding.
On May 27, 2019, the Company issued 500,000
restricted shares to its service providers as compensation for consulting services. The fair value of the services provided was
in in the total amount of $1,760,000, at a per share price at the market price of the grant date.
On May 8, 2020, the Company issued 300,000
restricted shares to service providers as compensation for consulting services. The fair value of the services provided was in
in the total amount of $456,000, at a per share price at the market price of the grant date.
On May 8, 2020, the Company completed the
sale of 6,500,000 restricted Ordinary Shares at $0.40 per share for gross proceeds of $2,600,000. On July 6, 2020, the Company
completed the sale of 21,500,000 restricted Ordinary Shares at $0.80 per share for gross proceeds of $17,200,000. The proceeds
from both private placements were used mainly to purchase miners.
As of September 30, 2020 and 2019, there
were 43,699,185 and 15,399,185 Ordinary Shares issued and outstanding, respectively.
Cayman Islands
Under the current and applicable laws of
the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends by the
Company to its shareholders, no Cayman Islands withholding tax will be imposed.
The United States of America
On December 22, 2017, the Tax Cuts and
Jobs Act of 2017 (the “Tax Act”) was signed into law, which has made significant changes to the Internal Revenue Code.
Those changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning
after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and
a one-time transition tax on the deemed repatriation of cumulative foreign earnings as of December 31, 2017. Accordingly, Golden
Bull USA reevaluated its deferred tax assets on net operating loss carryforward in the U.S and concluded there was no effect on
the Company’s income tax expenses as Golden Bull USA has no deferred tax assets generated since inception.
Hong Kong
Bit Digital Hong Kong is subject to Hong
Kong profits tax at a rate of 16.5%. However, Bit Digital Hong Kong did not generate any assessable profits arising in or derived
from Hong Kong for the nine months ended September 30, 2020 and 2019, and accordingly no provision for Hong Kong profits tax has
been made in these periods.
The Company does not anticipate any significant
increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties
related to income tax matters, if any, in income tax expense. The Company does not have any current and deferred tax expenses for
the three and nine months ended September 30, 2020 and 2019.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
During the Company’s normal business
operations in the nine months ended September 30, 2020, the Company borrowed funds from the Company’s shareholders and senior
management as working capital to support the Company’s operations when needed. Such borrowings were non-interest bearing
and due on demand. As of September 30, 2020, the balance of due to related parties was $336,722, comprised of balance of $329,722
due to Mr. Erke Huang, the Company’s Chief Financial Officer, and balance of $7,000 due to one shareholder.
As of December 31, 2019, the balance of
due to related parties was $120,000, representing advances of working capital from one shareholder.
From time to time, the Company is a party
to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when
they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are
expensed as incurred.
As of September 30, 2020, the Company was
not aware of any legal proceeding or arbitration cases.
10.
|
DISPOSITION OF POINT CATTLE
|
On September 8, 2020, the Company entered
into a certain share purchase agreement (the “Disposition SPA”) by and among a BVI company, Sharp Whale Limited (the
“Purchaser”), Point Cattle Holding Limited (“Point Cattle”, or the “Subsidiary”) and the Company
(the “Seller”). Pursuant to the Disposition SPA, the Purchaser purchased the Subsidiary in exchange for nominal consideration
of $10.00 and other good and valuable consideration. Point Cattle Holdings Limited was a former wholly owned subsidiary of the
Company in the British Virgin Islands, and its subsidiaries and VIEs, through which the Company previously operated its peer-to-peer
lending business and the car rental business in PRC.
On September 8, 2020, the parties completed
all the share transfer registration procedure as required by the laws of British Virgin Islands and all the other closing conditions
have been satisfied, as a result, the disposition contemplated by the Disposition SPA is completed. Upon completion of the disposition,
the Purchaser became the sole shareholder of Point Cattle and as a result, assumed all assets and obligations of all the subsidiaries
and VIE entities owned or controlled by Point Cattle. Upon the closing of the transaction, the Company does not bear any contractual
commitment or obligation to the microcredit business or the employees of Point Cattle and its subsidiaries and VIEs, nor to the
Purchaser.
On the same date, management was authorized
to approve and commit to a plan to sell Point Cattle, therefore the major assets and liabilities relevant to the disposal are reported
as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the
results of all discontinued operations, less applicable income taxes, are reported as components of net income (loss) separate
from the net loss of continuing operations in accordance with ASC 205-20-45. Considering the suspension of peer-to-peer lending
business and the car rental business in the PRC, the net assets relevant to the sale of Point Cattle was fully impaired by the
Company for the nine months ended September 30, 2020. The loss of $100,185 representing reclassification of accumulated translation
adjustments to disposal loss was recognized as the net loss from disposal of discontinued operation in the three and nine months
ended September 30, 2020.
In accordance with ASU No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity
or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic
shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity
meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held
for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major
current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and
liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations,
less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss)
of continuing operations in accordance with ASC 205-20-45.
BIT DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
10.
|
DISPOSITION OF POINT CATTLE (CONTINUED)
|
As the transaction was closed on September
8, 2020, the Company had no assets and liabilities held for sale in the in the unaudited condensed consolidated balance sheet as
of September 30, 2020.
The following is a reconciliation of the
amounts of major classes of income from operations classified as discontinued operations in the unaudited condensed consolidated
statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019:
|
|
For
the
Three
Months Ended
September
30,
|
|
|
For
the
Nine
months Ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,547,432
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,378
|
)
|
Operating expenses
|
|
|
-
|
|
|
|
(1,220,441
|
)
|
|
|
-
|
|
|
|
(10,982,932
|
)
|
Other income, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,227,988
|
)
|
Impairment of net assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,734,498
|
)
|
|
|
-
|
|
Net gain from discontinued operations
|
|
|
(100,185
|
)
|
|
|
-
|
|
|
|
(100,185
|
)
|
|
|
-
|
|
Net loss from discontinued operations
|
|
$
|
(100,185
|
)
|
|
$
|
(1,220,441
|
)
|
|
$
|
(3,834,683
|
)
|
|
$
|
(7,682,866
|
)
|
Total operating cash flows provided by
discontinued operations for the nine months ended September 30, 2020 and 2019 were $nil and $731,266, respectively. Total investing
cash flows used in discontinued operations for the nine months ended September 30, 2020 and 2019 were $nil and $916,167, respectively.
No cash flows were provided by or used in financing activities for the nine months ended September 30, 2020 and 2019, respectively.
On November 9, 2020, the Company entered
into certain asset purchase agreements (the “APA”) with certain “Non-U.S. Persons” (the “Sellers”)
as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”) in connection with a private
placement (the “Offering”). Pursuant to the APA, the Company agreed to issue to an aggregate of 4,344,603 Ordinary
Shares (the “Shares”), par value $0.01 per share, at a per share price of $3.20, or total consideration from such offering
of $13,902,742, to acquire $13,902,742 worth of bitcoin miners with total hash rate of 1,003.5 Ph/s. The Company closed the acquisition
on December 3, 2020.
The closing of the acquisition increased
the Company’s total hash rate by approximately 1,003.5 Ph/s, from 1,250 Ph/s to 2,253.5 Ph/s. The acquisition of 17,996 miners
was comprised of 7,025 Antminer S17+, 9,110 Antminer T17, 195 Antminer S17E, 32 Antminer S17Pro, 105 Antminer S19Pro, 1,429 Whatsminer
M20S, 100 Whatsminer M31S. The average energy efficiency of these miners is 47.45 (+/-5%) joules per terahash (J/TH). With
these miners being deployed, the total energy efficiency will be decreased from 61.88 (+/-5%) J/TH to 55.33 (+/-5%) by 10.59%.
These miners are distributed in Xinjiang,
Sichuan and Inner Mongolia Provinces PRC and are expected to be fully installed before the end of December 2020.
At our Annual General meeting of Shareholders
on September 4, 2020, our Company’s Shareholders approved a charter amendment to increase authorized common shares from 50,000,000
to 150,000,000 shares. In January 2021, the increase in the authorized number of common shares was made effective on the Company’s
filings with the Registrar of Companies of the Cayman Islands. As of September 30, 2020 and December 31, 2019, the Company had
150,000,000 and 50,000,000 common shares authorized.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of
Directors and
Shareholders of Golden Bull Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Golden Bull Limited (the “Company”) as of December 31, 2019, and the related consolidated statements
of operations, comprehensive loss, shareholders’ equity, and cash flows for the year ended December 31, 2019, and the related
notes and schedules (collectively referred to as the financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its
operations and its cash flows the year in the ended December 31, 2019, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the 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, and 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 audit included performing procedures
to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ JLKZ CPA LLP
We have served as the Company’s auditor
since 2020.
Flushing, New York
July 29, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of
Directors
and Shareholders of Golden Bull Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Golden Bull Limited (the “Company”) as of December 31, 2018 and 2017, and the related consolidated
statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three year
period ended December 31, 2018, and the related notes and schedules (collectively referred to as the financial statements). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 audit to obtain reasonable assurance about whether
the 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, and 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 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 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 financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Friedman LLP
We have served as the Company’s auditor since 2017.
New York, New York
April 30, 2019
GOLDEN
BULL LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019*
|
|
|
2018*
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,988
|
|
|
$
|
-
|
|
Other current assets
|
|
|
12,501
|
|
|
|
-
|
|
Assets of discontinued operations
|
|
|
531,767
|
|
|
|
5,663,732
|
|
Total current assets
|
|
|
560,256
|
|
|
|
5,663,732
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
600,000
|
|
|
|
600,000
|
|
Deposits for property and equipment
|
|
|
110,000
|
|
|
|
-
|
|
Assets of discontinued operations, noncurrent
|
|
|
3,246,277
|
|
|
|
6,217,738
|
|
Total other assets
|
|
|
3,956,277
|
|
|
|
6,817,738
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,516,533
|
|
|
$
|
12,481,470
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
$
|
120,000
|
|
|
$
|
-
|
|
Other payables and accrued liabilities
|
|
|
266,047
|
|
|
|
-
|
|
Current liabilities of discontinued operations
|
|
|
43,546
|
|
|
|
403,219
|
|
Total current liabilities
|
|
|
429,593
|
|
|
|
403,219
|
|
Total liabilities
|
|
|
429,593
|
|
|
|
403,219
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par value, 50,000,000 shares authorized, 15,399,185 and 14,899,185 shares issued and outstanding of December 31, 2019 and December 31, 2018
|
|
|
153,992
|
|
|
|
148,992
|
|
Shares subscription receivables
|
|
|
(45,457
|
)
|
|
|
(45,457
|
)
|
Additional paid-in capital
|
|
|
17,610,220
|
|
|
|
15,855,220
|
|
Statutory reserves
|
|
|
6,189
|
|
|
|
6,189
|
|
Accumulated deficit
|
|
|
(13,790,152
|
)
|
|
|
(4,319,902
|
)
|
Accumulated other comprehensive loss
|
|
|
(100,186
|
)
|
|
|
(33,947
|
)
|
Total shareholders’ equity
|
|
|
3,834,607
|
|
|
|
11,611,095
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTEREST
|
|
|
252,333
|
|
|
|
467,156
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
4,086,940
|
|
|
|
12,078,251
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
4,516,533
|
|
|
$
|
12,481,470
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
|
*
|
The consolidated balance sheets as of December 31, 2019
and 2018 have been retroactively reclassified to reflect the discontinued operations as discussed elsewhere in the prospectus.
|
GOLDEN
BULL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
|
|
For the years ended
December 31,
|
|
|
|
2019*
|
|
|
2018*
|
|
|
2017*
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues, net
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
(488,334
|
)
|
Total operating expenses
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
(488,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
(488,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS FROM CONTINUING OPERATIONS
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
(488,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS FROM DISCONTINUED OPERATIONS
|
|
|
(7,682,866
|
)
|
|
|
(1,645,913
|
)
|
|
|
(508,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(9,676,191
|
)
|
|
|
(3,537,126
|
)
|
|
|
(996,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to noncontrolling interest
|
|
|
(205,941
|
)
|
|
|
(111,145
|
)
|
|
|
(54,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO GOLDEN BULL LIMITED
|
|
$
|
(9,470,250
|
)
|
|
$
|
(3,425,981
|
)
|
|
$
|
(942,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(9,676,191
|
)
|
|
$
|
(3,537,126
|
)
|
|
$
|
(996,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(75,120
|
)
|
|
|
(391,463
|
)
|
|
|
574,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
|
(9,751,312
|
)
|
|
|
(3,928,588
|
)
|
|
|
(422,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive loss attributable to noncontrolling interest
|
|
|
(214,823
|
)
|
|
|
(137,955
|
)
|
|
|
(6,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS ATTRIBUTABLE TO GOLDEN BULL LIMITED
|
|
$
|
(9,536,488
|
)
|
|
$
|
(3,790,633
|
)
|
|
$
|
(415,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted*
|
|
|
15,197,815
|
|
|
|
14,392,001
|
|
|
|
6,815,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.62
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.14
|
)
|
The accompanying notes are an integral part
of these consolidated financial statements.
|
*
|
The consolidated statements of operations and comprehensive
loss for the years ended December 31, 2019,2018 and 2017 have been retroactively reclassified to reflect the discontinued operations
as dicussed elsewhere in the prospectus.
|
GOLDEN
BULL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Additional
|
|
|
(accumulated deficit)
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Ordinary Shares
|
|
|
Subscription
|
|
|
paid-in
|
|
|
Statutory
|
|
|
|
|
|
comprehensive
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares*
|
|
|
Par Value
|
|
|
Receivables
|
|
|
capital
|
|
|
reserves
|
|
|
Unrestricted
|
|
|
loss
|
|
|
interest
|
|
|
Total
|
|
BALANCE, December 31, 2017
|
|
|
13,000,000
|
|
|
|
130,000
|
|
|
|
(45,457
|
)
|
|
|
12,312,828
|
|
|
|
6,189
|
|
|
|
(893,921
|
)
|
|
|
330,706
|
|
|
|
605,111
|
|
|
|
12,445,456
|
|
Issuance of original Ordinary Shares through Initial public offering, net
|
|
|
1,550,000
|
|
|
|
15,500
|
|
|
|
-
|
|
|
|
2,465,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,481,054
|
|
Issuance of over-allotment Ordinary Shares
|
|
|
232,500
|
|
|
|
2,325
|
|
|
|
-
|
|
|
|
839,325
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
841,650
|
|
Issuance of exercised warrants shares
|
|
|
63,645
|
|
|
|
636
|
|
|
|
-
|
|
|
|
(636
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of Ordinary Shares to service consultants
|
|
|
53,040
|
|
|
|
530
|
|
|
|
-
|
|
|
|
238,150
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
238,680
|
|
Net loss attributable to Golden Bull Limited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,425,981
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(3,425,981
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(111,145
|
)
|
|
|
(111,145
|
)
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(364,653
|
)
|
|
|
(26,810
|
)
|
|
|
(391,463
|
)
|
BALANCE, December 31, 2018
|
|
|
14,899,185
|
|
|
|
148,992
|
|
|
|
(45,457
|
)
|
|
|
15,855,220
|
|
|
|
6,189
|
|
|
|
(4,319,902
|
)
|
|
|
(33,947
|
)
|
|
|
467,156
|
|
|
|
12,078,251
|
|
Issuance of original Ordinary Shares through Initial public offering, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of over-allotment Ordinary Shares
|
|
|
500,000
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
1,755,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,760,000
|
|
Issuance of exercised warrants shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of Ordinary Shares to service consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss attributable to Golden Bull Limited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,470,250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,470,250
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(205,941
|
)
|
|
|
(205,941
|
)
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(66,238
|
)
|
|
|
(8,882
|
)
|
|
|
(75,120
|
)
|
BALANCE, December 31, 2019
|
|
|
15,399,185
|
|
|
$
|
153,992
|
|
|
$
|
(45,457
|
)
|
|
$
|
17,610,220
|
|
|
$
|
6,189
|
|
|
$
|
(13,790,152
|
)
|
|
$
|
(100,185
|
)
|
|
$
|
252,333
|
|
|
$
|
4,086,940
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
GOLDEN
BULL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the years ended
December 31,
|
|
|
|
2019*
|
|
|
2018*
|
|
|
2017*
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,676,191
|
)
|
|
$
|
(3,537,126
|
)
|
|
$
|
(996,825
|
)
|
Less: net loss from discontinued operations
|
|
|
(7,682,866
|
)
|
|
|
(1,645,913
|
)
|
|
|
(508,491
|
)
|
Net loss from continuing operations
|
|
|
(1,993,325
|
)
|
|
|
(1,891,213
|
)
|
|
|
(488,334
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock compensation expenses for services
|
|
|
1,760,000
|
|
|
|
758,750
|
|
|
|
488,334
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
(335,523
|
)
|
|
|
(2,183,285
|
)
|
|
|
-
|
|
Other payables and accrued liabilities
|
|
|
426,567
|
|
|
|
-
|
|
|
|
-
|
|
Net cash used in operating activities from continuing operations
|
|
|
(142,281
|
)
|
|
|
(3,315,748
|
)
|
|
|
-
|
|
Net cash used in operating activities from continuing operations
|
|
|
(1,205,201
|
)
|
|
|
(1,734,328
|
)
|
|
|
(1,908,739
|
)
|
Net cash used in operating activities
|
|
|
(1,347,482
|
)
|
|
|
(5,050,076
|
)
|
|
|
(1,908,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits for property and equipment
|
|
|
(110,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Capital contribution to affiliated entity
|
|
|
-
|
|
|
|
(1,760,000
|
)
|
|
|
-
|
|
Net cash used in investing activities from continuing operations
|
|
|
(110,000
|
)
|
|
|
(1,760,000
|
)
|
|
|
-
|
|
Net cash provided by investing activities from continuing operations
|
|
|
1,513,596
|
|
|
|
1,548,628
|
|
|
|
1,890,928
|
|
Net cash provided by (used in) investing activities
|
|
|
1,403,596
|
|
|
|
(211,372
|
)
|
|
|
1,890,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Ordinary Shares through initial public offerings, net
|
|
|
-
|
|
|
|
5,944,147
|
|
|
|
-
|
|
Net cash provided by financing activities from continuing operations
|
|
|
-
|
|
|
|
5,944,147
|
|
|
|
-
|
|
Net cash used in financing activities from continuing operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(389,635
|
)
|
Net cash provided by (used in) financing activities
|
|
|
-
|
|
|
|
5,944,147
|
|
|
|
(389,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENT AND RESTRICTED CASH
|
|
|
(40,126
|
)
|
|
|
(82,699
|
)
|
|
|
407,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH, CASH EQUIVALENT AND RESTRICTED CASH
|
|
|
15,988
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENT AND RESTRICTED CASH, beginning of year
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENT AND RESTRICTED CASH, end of year
|
|
$
|
615,988
|
|
|
$
|
600,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,988
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Restricted cash
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year
|
|
$
|
615,988
|
|
|
$
|
600,000
|
|
|
$
|
-
|
|
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Ordinary Shares to consultants and service providers
|
|
$
|
1,760,000
|
|
|
$
|
238,680
|
|
|
$
|
4,030,000
|
|
Prepaid initial public offerings costs offset against initial public offerings proceeds
|
|
$
|
-
|
|
|
$
|
2,382,763
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
|
*
|
The consolidated statements of cash flows for the years
ended December 31, 2019, 2018 and 2017 have been retroactively reclassified to reflect the discontinued operations as discussed
elsewhere in the prospectus.
|
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of business and organization
Golden Bull Limited (“Golden Bull
Cayman” or the “Company”) is a holding company incorporated on February 17, 2017, under the laws of the Cayman
Islands. The Company has no substantial operations other than holding all of the outstanding share capital of Point Cattle Holdings
Limited (“Golden Bull BVI”). Golden Bull BVI is also a holding company holding all of the outstanding share capital
of Point Cattle Group Company Limited (“Golden Bull HK”). Golden Bull HK is also a holding company holding all of the
outstanding equity of Shanghai Fuyu Information and Technology Co., Ltd. (“Golden Bull WFOE”).
The Company, through its variable interest
entity (“VIE”), Shanghai Dianniu Internet Finance Information Service Co. Ltd. (“Shanghai Dianniu”), is
engaged in providing services for online marketplace connecting borrowers and lenders, and, through its VIE, Shanghai Baoxun Advertisement
Design Co. Ltd. (“Shanghai Baoxun”), intends to engage in design and production of online advertisement and marketing
survey services for online marketplace. The Company’s headquarter is located in the city of Shanghai, in the People’s
Republic of China (the “PRC” or “China”). All of the Company’s business activities are carried out
by Shanghai Dianniu. Shanghai Baoxun currently does not have any operations as of the date hereof.
In 2018, Shanghai Youwang Vehicle Rental
Limited (“Shanghai Youwang”) and Shanghai Xingjiuhao Network Technology Limited (“Shanghai Xingjiuhao”
or the “Xingjiuhao”) were established as subsidiaries of Shanghai Dianniu. Shanghai Youwang intends to engage in vehicle
sales, vehicle rental, providing consultation and services in the field of automotive technology. Xingjiuhao is going to engage
in production and sales for Internet of Things (“IoT”) technology and technical consulting. Both Shanghai Youwang and
Xingjiuhao do not have any operations as of the date hereof since their incorporations.
On June 8, 2017, Golden Bull Cayman completed
its reorganization of entities under the common control of three shareholders, who collectively owned a majority of the equity
interests of Golden Bull Cayman prior to the reorganization. Golden Bull Cayman, Golden Bull BVI, and Golden Bull HK, were established
as the holding companies of Golden Bull WFOE. Golden Bull WFOE is the primary beneficiary of Shanghai Dianniu and Shanghai Baoxun,
and all of these entities included in Golden Bull Cayman are under common control, which results in the consolidation of Shanghai
Dianniu and Shanghai Baoxun which have been accounted for as a reorganization of entities under common control at carrying value.
The financial statements are prepared on the basis as if the reorganization became effective as of the beginning of the first period
presented in the accompanying consolidated financial statements of Golden Bull Cayman.
On June 3, 2019, Golden Bull USA was incorporated
in the State of New York, which is a wholly owned subsidiary of Golden Bull Limited. Golden Bull USA is our principal office and
we plan to develop car rental business through Golden Bull USA.
On April 8, 2020, Golden Bull Limited entered
into an Instrument of Transfer with Mr. Ching Yeh to acquire his 100% of the ownership interest (10,000 shares) in Bit Digital
Hong Kong for HKD 10,000 (HKD 1.00 per one share). After the acquisition, Bit Digital Hong Kong became a wholly owned subsidiary
of Golden Bull Limited. Bit Digital Hong Kong is a Hong Kong company, engaging bitcoin mining business and was incorporated on
March 21, 2018.
Contractual Arrangements
Foreign ownership of internet-based businesses,
including distribution of online information (such as an online marketplace connecting borrowers and lenders) and marketing survey
services for online marketplace, is subject to restrictions under current PRC laws and regulations. For example, foreign investors
are not allowed to own more than 50% of the equity interests in internet-based businesses, subject to certain exceptions, and any
such foreign investor must have experience in providing internet-based businesses services overseas and maintain a good track record
in accordance with the Guidance Catalog of Industries for Foreign Investment promulgated in 2007, as amended in 2011, 2015 and
2017, respectively, and other applicable laws and regulations. The Company is a Cayman Islands company and Golden Bull WFOE (its
PRC subsidiary) is considered a foreign invested enterprise. To comply with these regulations, the Company conducts the majority
of its activities in PRC through Shanghai Dianniu and Shanghai Baoxun (its consolidated VIEs). As such, Shanghai Dianniu and Shanghai
Baoxun are controlled through contractual arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries.
Such contractual arrangements are a series of five agreements (collectively the “Contractual Arrangements”) which significant
terms are as follows:
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contractual Agreements with Shanghai
Dianniu
Technical Consultation and Services
Agreement
Pursuant to the technical consultation
and services agreement between Golden Bull WFOE and Shanghai Dianniu, as amended, Golden Bull WFOE is engaged as exclusive provider
of management consulting services to Shanghai Dianniu. For such services, the Shanghai Dianniu agrees to pay service fees determined
based on 93.2% of its net income to Golden Bull WFOE or Golden Bull WFOE has obligation to absorb 93.2% of Shanghai Dianniu’s
losses.
The technical consultation and services
agreement, as amended, remains in effect for 20 years until June 7, 2037. The agreement can be extended only if Golden Bull WFOE
gives its written consent of extension of the agreement before the expiration of the agreement and Shanghai Dianniu shall agree
to the extension without reserve.
Business Cooperation Agreement
Pursuant to the business cooperation agreement
between Golden Bull WFOE and Shanghai Dianniu, as amended, Golden Bull WFOE has the exclusive right to provide Shanghai Dianniu
with technical support, business support and related consulting services, including but not limited to technical services, business
consultations, equipment or property leasing, marketing consultancy, system integration, product research and development, and
system maintenance. In exchange, Golden Bull WFOE is entitled to a service fee that equals to 93.2% of the net income of Shanghai
Dianniu determined by U.S. GAAP. The service fees may be adjusted based on the services rendered by Golden Bull WFOE in that month
and the operational needs of Shanghai Dianniu.
The business cooperation agreement, as
amended, remains in effect until and unless Golden Bull WFOE commits gross negligence, or a fraudulent act, against Shanghai Dianniu.
Nevertheless, Golden Bull WFOE shall have the right to terminate this agreement upon giving 30 days’ prior written notice
to Shanghai Dianniu at any time.
Equity Option Agreements
Pursuant to the equity option agreements,
as amended, among the shareholders who collectively own 93.2% of Shanghai Dianniu (the “Participating Shareholders”),
Shanghai Dianniu and Golden Bull WFOE, Shanghai Dianniu Participating Shareholders jointly and severally grant Golden Bull WFOE
an option to purchase their equity interests in Shanghai Dianniu. The purchase price shall be the lowest price then permitted under
applicable PRC laws. If the purchase price is greater than the registered capital of Shanghai Dianniu, the Participating Shareholders
of Shanghai Dianniu are required to immediately return any amount in excess of the registered capital to Golden Bull WFOE or its
designee of Golden Bull WFOE. Golden Bull WOFE may exercise such option at any time until it has acquired all equity interests
of Shanghai Dianniu, and freely transfer the option to any third party. The agreements will terminate at the date on which all
of the Participating Shareholders’ equity interests of Shanghai Dianniu has been transferred to Golden Bull WFOE or its designee.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity Pledge Agreements
Pursuant to the equity pledge agreements,
as amended, among the Participating Shareholders of Shanghai Dianniu and Golden Bull WFOE, such Participating shareholders pledge
93.2% of the equity interests in Shanghai Dianniu to Golden Bull WFOE as collateral to secure the obligations of Shanghai Dianniu
under the exclusive consulting services and operating agreement. The Participating Shareholders may not transfer or assign transfer
or assign the pledged equity interests, or incur or allow any encumbrance that would jeopardize Golden Bull WFOE’s interests,
without Golden Bull WFOE’s prior approval. In the event of default, Golden Bull WFOE as the pledgee will be entitled to certain
rights and entitlements, including the priority in receiving payments by the evaluation or proceeds from the auction or sale of
whole or part of the pledged equity interests of Shanghai Dianniu. The agreement will terminate at the date the Participating Shareholders
have transferred all of their pledged equity interests pursuant to the equity option agreement.
Voting Rights Proxy and Financial Supporting
Agreements
Pursuant to the voting rights proxy and
financial supporting agreements, as amended, among the Participating Shareholders of Shanghai Dianniu and Golden Bull WFOE, Shanghai
Dianniu’s Participating Shareholders have given Golden Bull WFOE an irrevocable proxy to act on their behalf on all matters
pertaining to Shanghai Dianniu and to exercise all of their rights as shareholders of Shanghai Dianniu, including the right to
attend shareholders meeting, to exercise voting rights and to transfer all or a part of their equity interests in Shanghai Dianniu.
In consideration of such granted rights, Golden Bull WFOE agrees to provide the necessary financial support to Shanghai Dianniu
whether or not Shanghai Dianniu incurs loss and agrees not to request repayment if Shanghai Dianniu is unable to do so. The agreements
shall remain in effect for 20 years until June 7, 2037.
Contractual Agreements with Shanghai
Baoxun
Technical Consultation and Services
Agreement
Pursuant to the technical consultation
and services agreement and the business cooperation agreement between Golden Bull WFOE and Shanghai Baoxun, Golden Bull WFOE is
engaged as exclusive provider of management consulting services to Shanghai Baoxun. For such services, the Shanghai Baoxun agrees
to pay service fees determined based on all of its net income to Golden Bull WFOE or Golden Bull WFOE has obligation to absorb
all of Shanghai Baoxun’s losses.
The technical consultation and services
agreement remain in effect for 20 years until June 7, 2037. The technical consultation and services agreement can be extended only
if Golden Bull WFOE gives its written consent of extension of the agreement before the expiration of the agreement and Shanghai
Baoxun shall agree to the extension without reserve.
Business Cooperation Agreement
Pursuant to the business cooperation agreement
between Golden Bull WFOE and Shanghai Baoxun, Golden Bull WFOE has the exclusive right to provide Shanghai Baoxun with technical
support, business support and related consulting services, including but not limited to technical services, business consultations,
equipment or property leasing, marketing consultancy, system integration, product research and development, and system maintenance.
In exchange, Golden Bull WFOE will be entitled to a service fee that equals to 100% of the net income of Shanghai Baoxun determined
by U.S. GAAP. The service fees may be adjusted based on the services rendered by Golden Bull WFOE in that month and the operational
needs of Shanghai Baoxun.
The business cooperation agreement remains
in effect until and unless Golden Bull WFOE commits gross negligence, or a fraudulent act, against Shanghai Baoxun. Nevertheless,
Golden Bull WFOE shall have the right to terminate this agreement upon giving 30 days’ prior written notice to Shanghai Baoxun
at any time.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity Option Agreements
Pursuant to the equity option agreement
between the shareholders of Shanghai Baoxun and Golden Bull WFOE, Shanghai Baoxun shareholders jointly and severally grant Golden
Bull WFOE an option to purchase their equity interests in Shanghai Baoxun. The purchase price shall be the lowest price then permitted
under applicable PRC laws. If the purchase price is greater than the registered capital of Shanghai Baoxun, the shareholders of
Shanghai Baoxun are required to immediately return any amount in excess of the registered capital to Golden Bull WFOE or its designee
of Golden Bull WFOE. Golden Bull WOFE may exercise such option at any time until it has acquired all equity interests of Shanghai
Baoxun, and freely transfer the option to any third party. The agreement will terminate at the date on which all of the shareholders’
equity interests of Shanghai Baoxun has been transferred to Golden Bull WFOE or its designee.
Equity Pledge Agreements
Pursuant to the equity pledge agreement
between the shareholders of Shanghai Baoxun and Golden Bull WFOE, such shareholders pledge all of their equity interests in Shanghai
Baoxun to Golden Bull WFOE as collateral to secure the obligations of Shanghai Baoxun under the exclusive consulting services and
operating agreement. The shareholders may not transfer or assign transfer or assign the pledged equity interests or incur or allow
any encumbrance that would jeopardize Golden Bull WFOE’s interests, without Golden Bull WFOE’s prior approval. In the
event of default, Golden Bull WFOE as the pledgee will be entitled to certain rights and entitlements, including the priority in
receiving payments by the evaluation or proceeds from the auction or sale of whole or part of the pledged equity interests of Shanghai
Baoxun. The agreement will terminate at the date the shareholders have transferred all of their pledged equity interests pursuant
to the equity option agreement.
Voting Rights Proxy and Financial Supporting
Agreements
Pursuant to the voting rights proxy and
financial supporting agreement between the shareholders of Shanghai Baoxun and Golden Bull WFOE, Shanghai Baoxun’s shareholders
have given Golden Bull WFOE an irrevocable proxy to act on their behalf on all matters pertaining to Shanghai Baoxun and to exercise
all of their rights as shareholders of Shanghai Baoxun, including the right to attend shareholders meeting, to exercise voting
rights and to transfer all or a part of their equity interests in Shanghai Baoxun. In consideration of such granted rights, Golden
Bull WFOE agrees to provide the necessary financial support to Shanghai Baoxun whether or not Shanghai Baoxun incurs loss and agrees
not to request repayment if Shanghai Baoxun is unable to do so. The agreement shall remain in effect for 20 years until June 7,
2037.
Based on the foregoing contractual arrangements,
which grant Golden Bull WFOE effective control of Shanghai Dianniu obligate Golden Bull WFOE to absorb 93.2% of the risk of loss
from their activities, enable Golden Bull WFOE to receive 93.2% of their expected residual returns, and grant Golden Bull WFOE
effective control of Shanghai Baoxun obligate Golden Bull WFOE to absorb all of the risk of loss from their activities, and enable
Golden Bull WFOE to receive all of their expected residual returns, the Company accounts for Shanghai Dianniu and Shanghai Baoxun
as a VIEs. Accordingly, the Company consolidates the accounts of Shanghai Dianniu for the periods presented herein and Shanghai
Baoxun from February 22, 2017, the date of which Shanghai Baoxun becomes under common control, in accordance with Regulation S-X-3A-02
promulgated by the Securities Exchange Commission (“SEC”), and Accounting Standards Codification (“ASC”)
810-10, Consolidation.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial
statements reflect the activities of Golden Bull Cayman and each of the following entities:
Name
|
|
Background
|
|
Ownership
|
Golden Bull BVI
|
|
●
|
A British Virgin Islands company
|
|
100%
|
|
|
●
|
Incorporated on February 27, 2017
|
|
|
Golden Bull HK
|
|
●
|
A Hong Kong company
|
|
100% owned by Golden Bull BVI
|
|
|
●
|
Incorporated on January 24, 2017
|
|
|
Golden Bull USA
|
|
●
|
A USA company
|
|
100% owned by Golden Bull Limited
|
|
|
●
|
Incorporated on June 3, 2019
|
|
|
Golden Bull WFOE
|
|
●
|
A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”)
|
|
100% owned by Golden Bull HK
|
|
|
●
|
Incorporated on June 8, 2017
|
|
|
Shanghai Dianniu
|
|
●
|
A PRC limited liability company
|
|
VIE of Golden Bull WFOE
|
|
|
●
|
Incorporated on November 17, 2015
|
|
|
|
|
●
|
Services for online marketplace connecting borrowers and lenders.
|
|
|
Shanghai Baoxun
|
|
●
|
A PRC limited liability company
|
|
VIE of Golden Bull WOFE
|
|
|
●
|
Incorporated on January 22, 2016
|
|
|
|
|
●
|
Design and production of online advertisement and marketing survey services for online marketplace.
|
|
|
Shanghai Youwang
|
|
●
|
A PRC limited liability company
|
|
100% owned by Dianniu
|
|
|
●
|
Incorporated on April 4, 2018
|
|
|
|
|
●
|
Vehicle sales, vehicle rental, providing consultation and services in the field of automotive
technology.
|
|
|
Shanghai Xingjiuhao
|
|
●
|
A PRC limited liability company
|
|
100% owned by Dianniu
|
|
|
●
|
Incorporated on October 22, 2018
|
|
|
|
|
●
|
Production and sales for Internet of Things technology and technical consulting.
|
|
|
Bit Digital Limited
|
|
●
|
A Hong Kong company
|
|
100% owned by Golden Bull Limited
|
|
|
●
|
Acquired on April 8, 2020
|
|
|
Peer to peer lending business
In October 2019, the Company temporarily
suspended operation of Shanghai Dianniu, which provides services for online marketplace connecting borrowers and lenders. With
the policy change of PRC government, it becomes more difficult to restart the business in its original form. The Company is still
considering its finance related business in different manners consistent with the PRC regulation.
Shanghai Dianniu is the only operating
entity of the group during 2017 to 2019, contributing to all the revenue of the Company. Other than Shanghai Dianniu, the Company’s
van rental and bitcoin mining businesses placed deposits for purchase of fixed assets. As of December 31, 2019, 2018 and 2017 the
relevant deposits for fixed assets amounted to US$3,356,277, US$2,482,592, US$nil, respectively. Related cash flows (investing
activities) for the years ended December 31, 2019, 2018 and 2017 are payments for deposits for fixed assets of US$916,167, US$2,580,632
and US$nil, respectively.
The peer to peer lending business was the
sole operation of the Company for the years 2017 to 2019 and cannot be distinguished from the rest of the Company. As such, the
Company’s only operation does not meet the definition of a component of an entity as contemplated in ASC 205-20, and cannot
be reported in discontinued operations in the Company’s financial statements. However, the Company already applied the measurement
requirements in ASC 360-10 Impairment and Disposal of Long-Lived Assets to write-off and impair assets related to the peer to peer
lending business.
Note 2 – Summary of significant accounting policies
Liquidity
As of December 31, 2019, the Company had
approximately $0.63 million of cash, cash equivalents and restricted cash. The Company’s executive directors pledged to provide
continuous financial support to the Company for at least next 12 months from the date of this filing. During the year ended December
31, 2019, the Company was able to enter into additional private placement agreement with certain private investors and issued 6,500,000
shares of common stock at $0.40 per share in October 2019 and received the subscription from shareholders of $2,600,000 on May
8,2020. Subsequently, in May 2020, the Company entered into certain private placement agreement with certain private investors
and is offering 21,500,000 shares of common stock at $0.80 per share. On July 6, 2020, the Company closed a private offering and
received gross proceeds of approximately $17.2 million. Going forward, the Company plans to fund its operations through revenue
generated from its bitcoin mining business, funds from its private placements as well as financial support commitments from the
Company’s executive directors.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
Principles of consolidation
The consolidated financial statements include
the accounts of the Company, its subsidiaries, and their VIEs. All intercompany transactions and balances are eliminated upon consolidation.
Use of estimates and assumptions
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the periods presented. Significant estimates required to be made by management
include, but are not limited to, useful lives of property, plant and equipment, deferred income tax and share based compensation.
Actual results could differ from these estimates.
Foreign currency translation and transaction
The reporting currency of the Company is
the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB), as its functional currency.
Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of
the period. The statement of income accounts is translated at the average translation rates and the equity accounts are translated
at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income
(loss). Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other
than the functional currency are included in the results of operations as incurred.
Translation adjustments were included in
accumulated other comprehensive income (loss). The balance sheet amounts, with the exception of shareholders’ equity at December
31, 2019 and 2018 were translated at 6.9762 RMB and 6.8776 RMB to $1.00, respectively. The shareholder’s equity accounts
were stated at their historical rate. The average translation rates applied to the consolidated statements of operations for the
years ended December 31, 2019, 2018 and 2017 were 6.9122 RMB, 6.6163 RMB and 6.7563 RMB to $1.00, respectively. Cash flows were
also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
Fair value measurement
The accounting standard regarding fair
value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the
fair value of financial instruments held by the Company.
The accounting standards define fair value,
establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair
value measures. The three levels are defined as follow:
|
●
|
Level 1
inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
●
|
Level 2
inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
|
|
|
●
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.
|
The carrying amounts included in current
assets and current liabilities are reported in the consolidated balance sheets as approximate fair value because of the short period
of time between the origination of such instruments and their expected realization and their current market rates of interest.
The long-term prepaid expense is approximate to its carrying value.
Revenue recognition
On January 1, 2018, the Company adopted
Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective
method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon
adoption of this new guidance as the Company’s revenue was recognized based on the amount of consideration we expect to receive
in exchange for satisfying the performance obligations.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The core principle underlying the revenue
recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount
that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to
identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time,
based on when control of goods and services transfers to a customer. The Company’s revenue streams are primarily recognized
at a point in time.
The ASU requires the use of a new five-step
model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with
the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable
consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction
price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the
performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result
in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition
policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new
guidance and confirmed that there were no differences in the pattern of revenue recognition.
Transaction Fees: Transaction fees
are paid by borrowers to the Company for the work performed through its platform. These fees are recognized as a component of operating
revenue at the time of loan issuance. The amount of these fees is based upon the loan amount and other terms of the loan, including
credit grade, maturity and other factors. These fees are non-refundable upon the issuance of loan.
Management Fees: Loan borrowers
pay a management fee on each loan payment to compensate the Company for services provided in connection with facilitation of the
loan transactions. The Company records management fees as a component of operating revenue at the time of loan issuance. The amount
of these fees is based upon the loan amount and other terms of the loan, including credit grade, maturity and other factors. These
fees are non-refundable upon the issuance of loan.
In applying judgment, the Company considered
customers’ expectations of performance, materiality and the core principles of ASC Topic 606. The aforementioned revenues
are recognized and the Company’s performance obligations (control of services) are generally transferred to the customers
at the time of loan issuance. The Company’s contracts with borrowers generally do not include any variable consideration.
Sales taxes: Transaction fee, management
fee and license fee that are earned and received in the PRC are subject to a Chinese value-added tax (“VAT”) at a rate
of 6% starting in April 2017 (3% prior to March 2017) of the gross proceed or at a rate approved by the Chinese local government.
Transaction fee and management fee that are earned and received in the PRC are also subject to various miscellaneous sales taxes
at a rate of 6% of the VAT in 2019 and 10% of VAT in 2018 and 2017. VAT and miscellaneous sales taxes are presented as reduction
of revenue.
Incentives
In order to incentivize lenders, the Company
provides incentives to marketplace lenders, who commit a certain amount of money for a period of time. During the relevant incentive
program period, the Company set certain thresholds for the lenders to qualify for the cash incentive. When a qualified investment
is made by a lender, the incentive payment is paid to the lender as a percentage of investment amount at the time of loan issuance
as part of its investment to the specified loan that he/she has invested. The incentive expenses are recognized in our selling
expenses in the accompanying consolidated statements of operations and comprehensive loss. These expenses amounted to $1,119,943,
$2,191,498 and $1,497,279 for the years ended December 31, 2019, 2018 and 2017, respectively.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Servicing Expense
Servicing expenses are paid by the Company
to a third-party platform provider on each deposit made by the lenders into their respective fund accounts held by the third-party
platform fund accounts. The amount of these expenses is based upon the deposit amount. The servicing expenses are recognized in
our selling expenses in the accompanying consolidated statements of operations and comprehensive loss. These expenses amounted
to $187,972, $134,374 and $205,604 for the years ended December 31, 2019, 2018 and 2017, respectively.
Verification, credit assessment and the decision-making processes
costs
Costs related to verification and credit
assessment are recognized in the selling expenses in our accompanying consolidated statements of operations. Costs related to the
decision-making processes are recognized in the general and administration expenses in our accompanying consolidated statements
of operations. These expenses are immaterial to our consolidated statements of operations for the years ended December 31, 2019,
2018 and 2017.
Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash
consist of cash on hand, demand deposits, short-term investment placed with banks or other financial institutions and have original
maturities of less than six months and restricted cash, deposit of $600,000 was to fund an escrow account established for purpose
of indemnifying the underwriter of the initial public offering in March 2018 as restricted cash for 30 months, which was classified
as non-current assets as of December 31, 2019 and 2018. Cash and cash equivalents also consist of funds earned from the Company’s
operating revenues which were held at a third-party platform fund accounts which are unrestricted as to immediate withdrawal and
use.
Property and equipment
Property and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method after
consideration of the estimated useful lives and estimated residual value. The estimated useful lives are as follows:
|
|
Useful Life
|
|
Estimated Residual Value
|
|
Office equipment and furnishing
|
|
3-5 years
|
|
|
5
|
%
|
Leasehold improvements
|
|
Shorter of the remaining lease terms or estimated useful lives
|
|
|
-
|
|
The cost and related accumulated depreciation
and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated
statements of operations and comprehensive loss. Expenditures for maintenance and repairs are charged to earnings as incurred,
while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company
also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives.
Impairment for long-lived assets
Long-lived assets, including property and
equipment with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse
change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not
be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are
expected to generate and recognize an impairment loss when estimated discounted future cash flows expected to result from the use
of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If
an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted
cash flows approach or, when available and appropriate, to comparable market values. As of December 31, 2019, $683,627 of property
and equipment was recognized. As of December 2018, no impairment of long-lived asset was recognized.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred rent
The Company leases office space and apartment
units under operating lease agreements. Certain lease agreements contain scheduled rent increases, tenant improvement allowances
or free rent clauses during the term of the lease which are recorded as deferred rent liabilities. Deferred rent liabilities represent
the cumulative amount charged to operations under these leases in excess of the amounts paid and was included in prepaid expenses.
Rent expense is amortized on a straight-line basis to operating expense over the applicable lease term.
Research and development
Research and development costs, which include
the salary of the Company’s research and development department and benefit and website development cost, are expensed as
incurred.
Advertising costs
Advertising costs are expensed as incurred
and included in selling expenses. These expenses amounted to $758,942, $431,734 and $460,351 for the years ended December 31, 2019,
2018 and 2017, respectively.
Income taxes
The Company accounts for income taxes in
accordance with U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the recognition
of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income
tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus
deferred taxes.
The charge for taxation is based on the
results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet date.
Deferred taxes are accounted for using
the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets
and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable
tax profit. Deferred tax liabilities are recognized for all future taxable temporary differences. Deferred tax assets are recognized
to the extent that it is probable that taxable income will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability
is settled.
Deferred tax is charged or credited in
the operations of statement, except when it is related to items credited or charged directly to equity. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing
authorities.
An uncertain tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the
period incurred. PRC tax returns filed in the year ended December 31, 2019 and 2018 are subject to examination by any applicable
tax authorities.
Non-controlling Interest
Non-controlling interest mainly consists
of an aggregate of 6.8% (amended from 10.8% on December 4, 2017 as a result of a former Shareholder of Shanghai Dianniu transferred
its 4.0625% equity interest to a Shanghai Dianniu Participating Shareholder) of the equity interests of Shanghai Dianniu held by
two entities. The non-controlling interests are presented in the consolidated balance sheets, separately from equity attributable
to the shareholders of the Company. Non-controlling interests in the results of the Company are presented on the face of the consolidated
statements of operations as an allocation of the total income or loss for the year between non-controlling interest holders and
the shareholders of the Company.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings (loss) per share
Basic earnings (loss) per share are computed
by dividing income (loss) available to ordinary shareholders of the Company by the weighted average common shares outstanding during
the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other
contracts to issue common shares were exercised and converted into common shares. As of December 31, 2019 and 2018, there were
no dilutive shares.
Employee benefits
The full-time employees of the Company
are entitled to staff welfare benefits including medical care, housing fund, pension benefits, unemployment insurance and other
welfare, which are government mandated defined contribution plans. The Company is required to accrue for these benefits based on
certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC
regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued. Total expenses for the plans
were $285,771, $325,086 and $260,451 for the years ended December 31, 2019, 2018 and 2017.
Non-employees stock-based compensation
Share-based payment transactions with non-employees
shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever
is more reliably measurable.
Recently issued accounting pronouncements
In September 2017, the FASB issued ASU
No. 2017-13, to clarify the effective dates that public business entities and other entities were required to adopt ASC Topic 842
for annual reporting. A public business entity that otherwise would not meet the definition of a public business entity except
for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing
with the SEC adopting ASC Topic 842 for annual reporting periods beginning after December 15, 2019, and interim reporting periods
within annual reporting periods beginning after December 15, 2020. ASU No. 2017-13 also amended that all components of a leveraged
lease be recalculated from inception of the lease based on the revised after tax cash flows arising from the change in the tax
law, including revised tax rates. The difference between the amounts originally recorded and the recalculated amounts must be included
in income of the year in which the tax law is enacted. The Company has not early adopted this update and it will become effective
on January 1, 2020.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This
ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments
held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates
and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Company’s
portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts
recorded in the financial statements. Its mandatory effective dates are as follows: 1. Public business entities that meet the definition
of an SEC filer for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; 2. All
other public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal
years; and 3. All other entities (private companies, not-for-profit organizations, and employee benefit plans) for fiscal years
beginning after December 15, 2021, including interim periods within those fiscal years. On November 15, 2019, FASB issued ASU 2019-10
which provides a framework to stagger effective dates for future major accounting standards (including ASC 326 Financial instrument-credit
losses) and amends the effective dates to give implementation relief to certain type of entities: 1. Public business entities that
meet the definition of an SEC filer, excluding entities eligible to be Smaller Reporting Companies, or SRC, as defined by the SEC,
for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; and 2. All other entities
for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an “emerging
growth company,” or EGC, the Company has elected to take advantage of the extended transition period provided in the Securities
Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company will
adopt ASU 2016-13 and its related amendments effective January 1, 2023, and the Company is in the process of evaluating the potential
effect on its consolidated financial statements.
GOLDEN BULL LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2018, the FASB issued ASU 2018-13,
“Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,”
to improve the effectiveness of disclosures in the notes to financial statements related to recurring or nonrecurring fair value
measurements by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, policies for
timing of transfers between different levels for fair value measurements, and the valuation processes for Level 3 fair value measurements.
The new standard requires disclosure of the range and weighted average of significant unobservable inputs used to develop Level
3 fair value measurements. The amendments in this update are effective for all entities for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019. The Company does not expect that the adoption of this ASU will have a material
impact on its financial statements.
In October 2018, the FASB issued ASU2018-17,
Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. ASU 2018-17 expands
the accounting alternative that allows private companies the election not to apply the variable interest entity guidance to qualifying
common control leasing arrangements. ASU 2018-17 broadens the scope of the private company alternative to include all common control
arrangements that meet specific criteria (not just leasing arrangements). ASU 2018-17 also eliminates the requirement that entities
consider indirect interests held through related parties under common control in their entirety when assessing whether a decision-making
fee is a variable interest. Instead, the reporting entity will consider such indirect interests on a proportionate basis. The amendments
are effective for public business entities for fiscal years ending after December 15, 2019. Early adoption is permitted. The Company
is currently assessing the timing and impact of adoption of this ASU to its consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04
“Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments.” Apart from the amendments to ASU 2016-13 as mentioned below, the ASU also included subsequent
amendments to ASU 2016-01, which we adopted in January 1, 2018. The guidance in relation to the amendments to ASU 2016-01 is effective
for us for the year ending December 31, 2020 and interim reporting periods during the year ending December 31, 2020. Early adoption
is permitted. The Company does not expect that the adoption of this ASU will have a material impact on its financial statements.
In December 2019, the FASB issued ASU 2019-12
to simplify the accounting in ASC 740, Income Taxes. This guidance removes certain exceptions related to the approach for intraperiod
tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities
for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU will be effective beginning
on January 1, 2021. Early adoption is permitted. Certain amendments in this update must be applied on a prospective basis, certain
amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through
a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The Company does not believe the adoption
of this ASU would have a material effect on the Company’s consolidated financial statements.
The Company does not believe other recently
issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated
balance sheets, statements of operations and comprehensive loss and statements of cash flows.
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
3 – Variable interest entity
On
June 8, 2017, Golden Bull WFOE entered into Contractual Arrangements with Shanghai Dianniu and Shanghai Baoxun and its Participating
Shareholders. On December 4, 2017, Shanxi Xifeng Investment Co., Ltd., a former Shareholder of Shanghai Dianniu, transferred its
4.0625% equity interest in Shanghai Dianniu to Xiaohui Liu, a Participating Shareholder. As a result, Golden Bull WFOE, Shanghai
Dianniu, and Shanghai Dianniu Participating Shareholders amended the Contractual Arrangements and the equity interest of Shanghai
Dianniu Participating Shareholders increased from 89.2% to 93.2% in the Contractual Arrangements. The significant terms of these
Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the
Company classifies Shanghai Dianniu and Shanghai Baoxun as VIE’s.
On
November 1, 2019, the Board of Directors decided to temporarily suspend the current platform of P2P business and utilize the existing
platform and technology in a different manner consistent with PRC regulation.
A
VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities
without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial
interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb
the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is
deemed to be the primary beneficiary and must consolidate the VIE. Golden Bull WFOE is deemed to have a controlling financial
interest and be the primary beneficiary of Shanghai Dianniu because it has both of the following characteristics:
|
(1)
|
The
power to direct activities at Shanghai Dianniu and Shanghai Baoxun that most significantly impact such entity’s economic
performance, and
|
|
(2)
|
The
obligation to absorb losses of, and the right to receive benefits from Shanghai Dianniu and Shanghai Baoxun that could potentially
be significant to such entity.
|
Accordingly,
the accounts of Shanghai Dianniu and Shanghai Baoxun are consolidated in the accompanying financial statements pursuant to ASC
810-10, Consolidation. In addition, their financial positions and results of operations are included in the Company’s consolidated
financial statements.
The
carrying amounts of the VIEs’ consolidated assets and liabilities are as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Current
assets
|
|
$
|
1,997,990
|
|
|
$
|
3,721,696
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
723,777
|
|
Other
non-current assets
|
|
|
3,246,277
|
|
|
|
4,322,847
|
|
Total
assets
|
|
|
5,244,267
|
|
|
|
8,768,320
|
|
Total
liabilities
|
|
|
1,481,347
|
|
|
|
1,902,732
|
|
Net
assets
|
|
$
|
3,762,920
|
|
|
$
|
6,865,588
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Other
payables and accrued liabilities
|
|
$
|
1,481,347
|
|
|
$
|
1,854,947
|
|
Taxes
payable
|
|
|
-
|
|
|
|
47,785
|
|
Total
liabilities
|
|
$
|
1,481,347
|
|
|
$
|
1,902,732
|
|
The
summarized operating results of the VIEs’ are as follows:
|
|
For
the year ended December 31,
2019
|
|
|
For
the year ended December 31,
2018
|
|
|
For
the year ended December 31,
2017
|
|
Operating
revenues
|
|
$
|
4,572,153
|
|
|
$
|
7,889,201
|
|
|
$
|
6,953,757
|
|
Loss
from operations
|
|
$
|
(2,690,906
|
)
|
|
$
|
(2,298,290
|
)
|
|
$
|
(871,143
|
)
|
Net
loss
|
|
$
|
(3,041,595
|
)
|
|
$
|
(1,641,580
|
)
|
|
$
|
(508,491
|
)
|
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
4 – Prepaid costs and expenses
Prepaid
costs and expenses consist of the following:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Cloud
services
|
|
$
|
-
|
|
|
$
|
2,785
|
|
Rental
|
|
|
-
|
|
|
|
5,835
|
|
Advertising
|
|
|
-
|
|
|
|
396,191
|
|
Marketing
and promotion
|
|
|
-
|
|
|
|
3,802,469
|
|
Professional
services
|
|
|
-
|
|
|
|
1,155,122
|
|
Others
|
|
|
-
|
|
|
|
25,156
|
|
Subtotal
|
|
|
-
|
|
|
|
5,387,558
|
|
Less:
long term prepaid expenses
|
|
|
-
|
|
|
|
(2,200,506
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
3,187,052
|
|
For
the years ended December 31, 2019, prepaid costs and expenses are expected not to generate any revenue or economic benefits in
the following years. So the Company already applied the measurement requirements in ASC 360-10 Impairment and Disposal of Long-Lived
Assets to write-off and impair prepaid costs and expenses in the year ended December 31, 2019.
Note
5 – Deposits for rental vehicles
Deposits
for rental vehicles consist of the following:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Deposits
for rental vehicles
|
|
|
3,246,277
|
|
|
|
2,482,592
|
|
Total
|
|
$
|
3,246,277
|
|
|
$
|
2,482,592
|
|
The
delivery of the vehicles was delayed due to the policy change in PRC regarding vehicle emission standard change. The deposits
for rental vehicles are for developing the Company’s car rental business expected to occur in fiscal 2020.
Note
6 – Property and equipment, net
Property
and equipment consist of the following:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Office equipment and furniture
|
|
$
|
126,738
|
|
|
$
|
128,555
|
|
Vehicle
|
|
|
709,514
|
|
|
|
719,685
|
|
Leasehold improvement
|
|
|
48,675
|
|
|
|
49,373
|
|
Subtotal
|
|
|
884,927
|
|
|
|
897,613
|
|
Less: accumulated depreciation and amortization
|
|
|
(201,300
|
)
|
|
|
(173,836
|
)
|
Impairment
|
|
|
(683,627
|
)
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
723,777
|
|
Depreciation
and amortization expense for the years ended December 31, 2019, 2018 and 2017 amounted to $30,199, $82,872 and $57,603, respectively.
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
7 – Related Party Balances and Transaction
Other
payables- related party
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Name of Related Party
|
|
Relationship
|
|
Nature
|
|
|
2019
|
|
|
2018
|
|
Erxin Zeng
|
|
Chief Executive Office of the Company prior to October 30, 2019
|
|
Loan
|
|
|
$
|
82,200
|
|
|
$
|
-
|
|
Note
8 – Taxes
Income
tax
Loss
before income tax expense (benefits) consist of the following:
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
PRC
|
|
|
$
|
(3,416,358
|
)
|
|
$
|
(2,107,084
|
)
|
|
$
|
(780,032
|
)
|
Foreign
|
|
|
|
(5,453,030
|
)
|
|
|
(1,891,213
|
)
|
|
|
(488,334
|
)
|
|
|
|
$
|
(8,869,388
|
)
|
|
$
|
(3,998,297
|
)
|
|
$
|
(1,268,366
|
)
|
Cayman
Islands
Under
the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments
of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
PRC
Under
the Income Tax Laws of the PRC, companies are subject to income tax at a rate of 25%.
The
following table reconciles China statutory rates to the Company’s effective tax rate:
|
|
For the year ended
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
China income tax rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
IPO costs
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
7.7
|
%
|
PRC – non-deductible expense
|
|
|
(0.3
|
)%
|
|
|
(1.7
|
)%
|
|
|
(1.7
|
)%
|
Valuation allowance
|
|
|
(18.4
|
)%
|
|
|
-
|
|
|
|
-
|
|
Cayman – non-deductible expense-consulting fee
|
|
|
(5.5
|
)%
|
|
|
(8.1
|
)%
|
|
|
(9.6
|
)%
|
Cayman – non-deductible expense-external service fee
|
|
|
(9.9
|
)%
|
|
|
(3.7
|
)%
|
|
|
0.0
|
%
|
Effective tax rate
|
|
|
(9.1
|
)%
|
|
|
11.5
|
%
|
|
|
21.4
|
%
|
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred
tax assets – China
According
to Chinese tax regulations, companies within China should adjust their net operating losses according to the law of enterprise
income tax, which can be carried forward to offset operating income for five years. Significant components of deferred tax assets
were as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Net operating losses carried forward
|
|
$
|
1,635,394
|
|
|
$
|
810,863
|
|
Less: valuation allowance
|
|
|
(1,635,394
|
)
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
810,863
|
|
For
the years ended December 31, 2019 and 2018, the Company incurred tax operating losses of $3,298,122 and $2,182,290, respectively,
and recorded deferred tax assets of $824,531 and $810,863 at December 31, 2019 and 2018. Due to the temporary suspension of peer
to peer lending business in the last quarter of 2019, the management believes that it appears more likely than not that the Company
will not realize these tax benefits. Accordingly, the Company has provided a 100% valuation allowance on deferred tax asset benefits
related to net operating losses carry forward to reduce the assets to zero.
Uncertain
tax positions
The
Company 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, 2019 and 2018, the Company
did not have any significant unrecognized uncertain tax positions.
Taxes
payable consisted of the following:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
VAT taxes payable
|
|
$
|
-
|
|
|
$
|
42,860
|
|
Other taxes payable
|
|
|
-
|
|
|
|
4,925
|
|
Total
|
|
$
|
-
|
|
|
$
|
47,785
|
|
Note
9 – Concentration of Risk
Credit
Risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash
equivalents. As of December 31, 2019 and 2018, $16,118 and $2,196,799 were deposited with a bank located in the PRC, respectively.
As of December 31, 2019 and 2018, nil and $122,825 were deposited with a third-party platform fund account located in the PRC,
respectively. These balances are not covered by insurance. While management believes that these financial institutions and third-party
fund holder are of high credit quality, it also continually monitors their credit worthiness.
Customer
concentration risk
For
the year ended December 31, 2019 and 2018, no borrowers paid transaction and management fees accounted for more than 10% of the
Company’s total operating revenues. For the year ended December 31, 2017, one borrower paid transaction and management fees
which accounted for 16.8% of the Company’s total operating revenues.
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
10 – Equity
Restricted
net assets
The
Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiary.
Relevant PRC statutory laws and regulations permit payments of dividends by Golden Bull WFOE, Shanghai Dianniu and Shanghai Baoxun
only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results
of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from
those reflected in the statutory financial statements of Golden Bull WFOE, Shanghai Dianniu and Shanghai Baoxun’s
Golden
Bull WFOE, Shanghai Dianniu and Shanghai Baoxun are required to set aside at least 10% of their after-tax profits each year, if
any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, Golden
Bull WFOE, Shanghai Dianniu and Shanghai Baoxun may allocate a portion of its after-tax profits based on PRC accounting standards
to enterprise expansion fund and staff bonus and welfare fund at its discretion. The statutory reserve funds and the discretionary
funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject
to examination by the banks designated by State Administration of Foreign Exchange.
As
of December 31, 2019 and 2018, Golden Bull WFOE, Shanghai Dianniu and Shanghai Baoxun collectively attributed $0 and $0 of retained
earnings for their statutory reserves, respectively.
As
a result of the foregoing restrictions, Golden Bull WFOE, Shanghai Dianniu and Shanghai Baoxun are restricted in their ability
to transfer their net assets to the Company. Foreign exchange and other regulation in the PRC may further restrict Golden Bull
WFOE, Shanghai Dianniu and Shanghai Baoxun from transferring funds to the Company in the form of dividends, loans and advances.
As of December 31, 2019 and 2018, amounts restricted are the net assets of Golden Bull WFOE, Shanghai Dianniu and Shanghai Baoxun,
which amounted to $3,762,970 and $6,865,638 respectively.
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
11 – Commitments and Contingencies
Commitments
and Contingencies
In
the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of
the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes
a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss
can be made. The Company may consider many factors in making these assessments including historical and the specific facts and
circumstances of each matter. As of December 31,2019 and 2018, the company was not aware of any material contingencies that required
special attention.
Contingencies
From
time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of
business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in
the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity.
Risk,
Uncertainties, and Contingencies on P2P Business
Although
the Company is not responsible for claimed losses, however the filing of a claim or commencement of any governmental investigation
or proceeding against the Company or any of its affiliates, even if not justified, may create negative publicity and have a material
adverse impact on the Company’s operation. Should any of the allegations or claims arise, the Company operation may be adversely
affected.
Note
12 – Subsequent Event
(1) Entry into Share Purchase Agreement for Private Placement
On
May 27, 2020, the Company entered into certain securities purchase agreements (the “SPA”) with certain “Non-U.S.
Persons” (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the
“Securities Act”) in connection with a private placement (the “Offering”). Pursuant to the
SPA, the Company agreed to sell up to an aggregate of 21,500,000 Ordinary Shares (the “Shares”), par value
$0.01 per share, at a per share purchase price of $0.80. The Company has received $17.2 million proceeds by July 2, 2020 and the
offering was closed on July 6, 2020,
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(2)
Change of the Number of Board of Directors and Appointment of Directors.
Effective
April 19, 2020, the Company’s board of directors (the “Board”) increased the number of directors serving on
the Board to 7, appointed Mr. Hong Yu as an executive director and Chief Strategy Officer (the “CSO”)of the Company,
and appointed Mr. Yan Xiong as an independent director of the Company to fill the two vacancies on the Board.
(3)
Acquisition of Bit Digital Limited for Bitcoin Mining Business
On
April 8, 2020, Golden Bull Limited entered into an Instrument of Transfer with Mr. Ching Yeh to acquire his 100% of the ownership
interest (10,000 shares) in Bit Digital Hong Kong for HKD 10,000 (HKD 1.00 per one share). After the acquisition, Bit Digital
Hong Kong became a wholly owned subsidiary of Golden Bull Limited. This office is for our Bitcoin Mining business operations in
Asia.
(4)
The impact of Coronavirus (COVID-19)
In
December 2019, a novel strain of coronavirus was reported in Wuhan, China. On March 11, 2020, the World Health Organization categorized
it as a pandemic. The COVID-19 outbreak is causing lockdowns, quarantines, travel restrictions, and closures of businesses and
schools. The potential impact which may be caused by the outbreak is uncertain; however it may result in a material adverse impact
on the Company’s financial position, operations and cash flows for fiscal year 2020.
Based
on the Company’s operating results from January 1, 2020 through the date of this report, due to the suspension of peer to
peer lending business, limited support from our workforce, and restrictions on the car rental services and the start-up stage
of bitcoin mining business stage, the Company expects a lower amount of revenue and net income during February to April 2020 period.
However, the extent of the impact of COVID-19 on the Company’s results of operations and financial condition for fiscal
year 2020 will depend on certain developments, including the duration and spread of the outbreak, impact on its customers, all
of which are uncertain and cannot be predicted at this point.
Note
13 – Condensed financial information of the parent company
The
Company performed a test on the restricted net assets of consolidated subsidiary in accordance with Securities and Exchange Commission
Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable for
the Company to disclose the financial statements for the parent company.
The
subsidiary did not pay any dividend to the Company for the periods presented. For the purpose of presenting parent only financial
information, the Company records its investment in its subsidiary under the equity method of accounting. Such investment is presented
on the separate condensed balance sheets of the Company as “Investment in subsidiary” and the income (loss) of the
subsidiary is presented as “share of income (loss) of subsidiary”. Certain information and footnote disclosures generally
included in financial statements prepared in accordance with U.S. GAAP have been condensed and omitted.
The
Company did not have significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2019 and
2018, respectively.
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT
COMPANY BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
16,118
|
|
|
$
|
268,399
|
|
Prepaid costs and expenses
|
|
|
-
|
|
|
|
1,982,674
|
|
Other receivable
|
|
|
29,606
|
|
|
|
-
|
|
Total current assets
|
|
|
45,724
|
|
|
|
2,251,073
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
6,110,152
|
|
|
|
10,127,371
|
|
Restricted cash
|
|
|
600,000
|
|
|
|
600,000
|
|
Deposits for property and equipment
|
|
|
110,000
|
|
|
|
-
|
|
Long-term Deferred Asset
|
|
|
-
|
|
|
|
1,171,114
|
|
Total other assets
|
|
|
6,820,152
|
|
|
|
11,898,485
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,865,876
|
|
|
$
|
14,149,558
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Other payable
|
|
$
|
426,567
|
|
|
$
|
-
|
|
Intercompany payable - Dianniu
|
|
|
570,350
|
|
|
|
570,350
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
996,917
|
|
|
|
570,350
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
996,917
|
|
|
$
|
570,350
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par value, 50,000,000 shares authorized, 15,399,185 and 14,899,185 shares issued and outstanding as of December 31, 2019 and 2018, respectively*
|
|
|
153,992
|
|
|
|
148,992
|
|
Shares subscription receivables
|
|
|
(45,457
|
)
|
|
|
(45,457
|
)
|
Additional paid-in capital
|
|
|
17,610,220
|
|
|
|
15,855,220
|
|
Statutory reserves
|
|
|
-
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(11,849,796
|
)
|
|
|
(2,379,547
|
)
|
Accumulated other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
Total shareholders’ equity
|
|
|
5,868,959
|
|
|
|
13,579,208
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
6,865,876
|
|
|
$
|
14,149,558
|
|
*
|
Giving retroactive
effect to the 260 for 1 split effected on November 3, 2017.
|
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT
COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
SELLING EXPENSES
|
|
$
|
(3,366,933
|
)
|
|
$
|
(1,891,213
|
)
|
|
$
|
(488,334
|
)
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
(2,083,936
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER FINANCE EXPENSE
|
|
|
(2,161
|
)
|
|
|
-
|
|
|
|
-
|
|
EQUITY OF LOSS OF SUBSIDIARY
|
|
|
(4,017,220
|
)
|
|
|
(1,534,768
|
)
|
|
|
(454,034
|
)
|
NET LOSS
|
|
|
(9,470,250
|
)
|
|
|
(3,425,981
|
)
|
|
|
(942,368
|
)
|
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
|
|
|
-
|
|
|
|
(364,652
|
)
|
|
|
526,793
|
|
COMPREHENSIVE LOSS
|
|
$
|
(9,470,250
|
)
|
|
$
|
(3,790,633
|
)
|
|
$
|
(415,575
|
)
|
GOLDEN
BULL LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT
COMPANY STATEMENTS OF CASH FLOWS
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,470,250
|
)
|
|
$
|
(3,425,981
|
)
|
|
$
|
(942,368
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Equity loss of subsidiary
|
|
|
4,017,220
|
|
|
|
1,534,768
|
|
|
|
454,034
|
|
Other receivables
|
|
|
(29,606
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization of stock compensation expenses for services
|
|
|
1,760,000
|
|
|
|
758,750
|
|
|
|
488,334
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid costs and expenses
|
|
|
3,153,788
|
|
|
|
(2,370,872
|
)
|
|
|
-
|
|
Other payables and accrued liabilities
|
|
|
426,567
|
|
|
|
-
|
|
|
|
-
|
|
Inter-company
|
|
|
-
|
|
|
|
187,587
|
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(142,281
|
)
|
|
|
(3,315,748
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits for property and equipment
|
|
|
(110,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Capital contribution to affiliated entity
|
|
|
-
|
|
|
|
(1,760,000
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(110,000
|
)
|
|
|
(1,760,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered capital
|
|
|
-
|
|
|
|
18,992
|
|
|
|
-
|
|
APIC
|
|
|
-
|
|
|
|
5,925,155
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
5,944,147
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGES IN CASH AND RESTRICTED CASH
|
|
|
(252,281
|
)
|
|
|
868,399
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year
|
|
|
868,399
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year
|
|
$
|
616,118
|
|
|
$
|
868,399
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,118
|
|
|
$
|
268,399
|
|
|
$
|
-
|
|
Restricted cash
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year
|
|
|
616,118
|
|
|
|
868,399
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS OF FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Ordinary Shares to consultants and service providers for IPO services
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,000,000
|
|
Issuance of Ordinary Shares to service providers and consulting services
|
|
$
|
1,760,000
|
|
|
$
|
238,680
|
|
|
$
|
2,030,000
|
|
6,412,500
Ordinary Shares
BIT
DIGITAL, INC.
The
date of this prospectus is ___________, 2021
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 6. Indemnification of Directors
and Officers
We are a Cayman Islands exempted company.
Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification
of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy,
such as to provide indemnification against civil fraud or the consequences of committing a crime. Our articles of association provide
for indemnification of our officers and directors for any liability incurred in their capacities as such, except through their
own willful negligence or default.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions,
we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
ITEM 7. Recent Sales of Unregistered
Securities
During the past three years, the Registrant
issued and sold the securities described below without registering the securities under the Securities Act. None of these transactions
involved any underwriters’ underwriting discounts or commissions, or any public offering. We believe that each of the following
issuances to private placement investors was exempt from registration under the Securities Act in reliance on Regulation S under
the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving any public offering.
There were no placement agents or underwriters involved in these transactions and no sales commissions were paid except where noted
below.
Upon the filing of this Registration Statement,
the Company completed the sale of a $550,000 subordinated convertible note to an accredited institutional investor pursuant to
a Securities Purchase Agreement. Exemption from registration was claimed based on the representations and warranties contained
in the Securities Purchase Agreement. Commissions of an aggregate of $50,000 were paid to FINRA registered broker-dealers.
On February 5, 2021, the Company completed
the sale of a $1,100,000 subordinated convertible note to an accredited institutional investor pursuant to a Securities Purchase
Agreement (“SPA”). Exemption from registration was claimed based on the representations and warranties contained in
the SPA. Commissions of an aggregate of $100,000 were paid to FINRA registered broker-dealers.
As of January 5, 2021, the Company completed
the sale of 262,082 Ordinary Shares at $4.50 per share for gross proceeds of $1,179,369 to eleven (11) non-U.S. Persons. The above-stated
exemption from registration was claimed based on the representations and warranties contained in securities purchase agreements
signed by all investors.
On December 3, 2020, the Company completed
the sale of 4,344,603 Ordinary Shares at $3.20 per share valued at $13,902,742 in consideration of the purchase of bitcoin miners.
Exemption from registration was claimed based on the representations and warranties contained in asset purchase agreements signed
by all eleven (11) investors.
On July 6, 2020, the Company completed
the sale of 21,500,000 Ordinary Shares at $0.80 per share for gross proceeds of $17,200,000. The offering was made pursuant to
a Securities Purchase Agreement (“SPA”) dated as of May 27, 2020. The sale was made to twenty-five (25) non-U.S. Persons.
Each investor signed a SPA which contained non-U.S. Person Representations pursuant to Regulation S under the Securities Act. There
were no underwriters or placement agents involved in the transaction.
On May 8, 2020, the Company completed the
sale of 6,500,000 Ordinary Shares at $0.40 per share for gross proceeds of $2,600,000. The offering was made pursuant to a SPA
dated as of October 30, 2019. The sale was made to eight (8) unaffiliated non-U.S. Persons. Each investor signed an SPA which contained
non-U.S. Person Representations pursuant to Regulation S under the Securities Act. There were no underwriters or placement agents
involved in the transaction.
On June 23, 2017, the Company issued 796,640
Ordinary Shares to a consultant for services in connection with internet finance industry development and financing consultation
from June 2017 to June 2019, subject to renewal, extension or termination by either party by giving thirty days’ written
notice. These shares were valued at approximately $1.58 million at $1.98 per share determined by the recent cash transactions contributed
in Dianniu in December 2016 in exchange of the Company’s shares in connection with the restructuring of the Company.
ITEM 8. Exhibits and Financial Statement
Schedules
The following exhibits are filed as part
of this registration statement:
Exhibit No.
|
|
Description
|
2.1
|
|
Share Purchase Agreement dated September 8, 2020 by and between the Registrant and Sharp Whale Limited (1)
|
3.1
|
|
Certificate of Incorporation, as amended
|
3.2
|
|
Memorandum of Association of Point Cattle International Limited (12)
|
3.3
|
|
Amended and Restated Memorandum of Association
|
3.4
|
|
Articles of Association of Point Cattle International Limited (12)
|
3.5
|
|
Amended and Restated Articles of Association
|
4.1
|
|
Form of Securities Purchase Agreement dated as of October 30, 2019 (2)
|
4.2
|
|
Form of Securities Purchase Agreement dated as of May 2020 for July 6, 2020 financing(3)
|
4.3
|
|
Form of Asset Purchase Agreement dated November 2020 by and between the Registrant and the Buyers who are signatories (4)
|
4.4
|
|
Form
of Securities Purchase Agreement (Subordinate Convertible Notes) dated as of December 31, 2020 by and between the Registrant
and the Buyer signatory thereto (5)
|
4.5
|
|
Form of Subordinate Convertible Note pursuant to Securities Purchase Agreement dated as of December 31, 2020. (5)
|
4.6
|
|
Form
of Registration Rights Agreement (Subordinate Convertible Notes) by and between the Company and Ionic Ventures ,LLC pursuant
to Securities Purchase Agreement dated as of December 31, 2020 (5)
|
4.7
|
|
Form of Purchase Agreement dated January 11, 2021 by and between the Company and Ionic (6)
|
4.8
|
|
Form
of Registration Rights Agreement dated January 11, 2021 by and between the Company and Ionic (6)
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5.1
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Opinion of Harney Westwood & Riegels as to the legality of the shares
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5.2
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Opinion of Merits & Tree Law Offices
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8.1
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Opinion of Davidoff Hutcher & Citron LLP regarding certain U.S. tax matters
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8.2
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Opinion of Harney Westwood & Riegels regarding certain Cayman Island tax matters (included in Exhibit 5.1)
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8.3
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Opinion of Merits & Tree Law Offices regarding certain P.R.C. tax matters (included in Exhibit 5.2)
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10.1
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Form of Hosting Agreement (8)
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10.2
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Employment Agreement dated as of October 28, 2019 by and between the Registrant and Erke Huang (2)
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10.3
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Director Agreement dated as of October 30, 2019 by and between the Registrant and Erke Huang (2)
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10.4
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Employment Agreement dated as of October 31, 2019 by and between the Registrant and Min Hu (2)
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10.5
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Director Agreement dated as of October 31, 2019 by and between the Registrant and Min Hu (2)
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10.6
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Employment Agreement dated as of April 20, 2020 by and between the Registrant and Hong Yu (7)
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10.7
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Director Agreement dated as of April 20, 2020 by and between the Registrant and Hong Yu (7)
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10.8
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Independent Director Agreement dated as of April 20, 2020 by and between the Registrant and Yan Xiong (7)
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10.9
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Independent Director Agreement dated as of September 7, 2020 by and between the Registrant and Ichi Shih (6)
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10.10
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Independent Director Agreement dated as of September 7, 2020 by and between the Registrant and Zhaohui (misstated as Chao Hui) Deng (6)
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16.1
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Resignation of Friedman LP as Independent registered public accounting firm (9)
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16.2
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Resignation of JLKZ as Independent registered public accounting firm (10)
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16.3
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Resignation by Wei Wei & Co., LLP as Independent registered public accounting firm (11)
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21.1
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List of subsidiaries of the Registrant
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23.1
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Consent of JLKZ CPA LLP
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23.2
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Consent of Friedman LLP
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23.3
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Consent of Harney Westwood & Riegels (included in Exhibit 5.1)
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23.4
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Consent of Merits & Tree Law Offices (included in Exhibit 5.2)
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23.5
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Consent of Davidoff Hutcher & Citron LLP (included in Exhibit 8.1)
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24.1
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Power of Attorney (included on the signature page of this Registration Statement)
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(1)
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Incorporated by reference to the Registrant’s Form 6-K for September 2020 filed on September 14, 2020.
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(2)
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Incorporated by reference to the Registrant’s Form 6-K for September 2020 filed on October 31, 2019.
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(3)
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Incorporated by reference to the Registrant’s Form 6-K for May 2020 filed on May 28, 2020.
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(4)
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Incorporated by reference to the Registrant’s Form 6-K for November 2020 filed on November 10, 2020.
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(5)
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Incorporated by reference to the Registrant’s Form 6-K filed for December 2020 on December 31,2020
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(6)
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Incorporated by reference to the Registrant’s
Form 6-K for January 2021 filed on January 12, 2021
September 2020 filed on September 14, 2020.
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(7)
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Incorporated by
reference to the Registrant’s Form 6-K for April 2020 filed on April 24, 2020
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(8)
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Incorporated by reference to the Registrant’s Form 20-F for the year ended December 31, 2019 filed on July 29, 2020
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(9)
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Incorporated by reference to the Registrant’s Form 6-K for September 2019 filed on September 23, 2019.
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(10)
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Incorporated by reference to the Registrant’s Form 6-K for December 2020 filed on December 16, 2020.
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(11)
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Incorporated by reference to the Registrant’s Form 6-K for December 2019 filed on January 9, 2020.
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(12)
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Incorporated by reference to the Registrant’s Form F-1 Registration Statement filed on December 22, 2017.
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ITEM 9. Undertakings
The undersigned registrant hereby undertakes
that:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration
statement:
(i)
To include any prospectus required by section 10(a)(3) of the Securities Act;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20%
change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement.
(iii) To include any
material information with respect to the plan of distribution not previously disclosed in the registration statement or any material
change to such information in the registration statement;
(2)
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4)
To file a post-effective amendment to the registration statement to include any financial statements required by “Item
8.A. of Form 20-F (17 CFR 249.220f)” at the start of any delayed offering or throughout a continuous offering.
(5)
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the registrant is
subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A,
shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such date of first use.
(6)
That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial
distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or
referred to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the
undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes
to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes
that:
(1)
For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2)
For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide offering thereof
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, as amended, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Beijing, China, on March 9, 2021.
|
Bit Digital, Inc.
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|
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By:
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/s/ Erke Huang
|
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Name:
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Erke Huang
|
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Title:
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Interim Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial and Accounting Officer)
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Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
We, the undersigned officers and directors
of BIT DIGITAL, INC., hereby severally constitute and appoint Erke Huang, our true and lawful attorney-in-fact and agent, with
full power of substitution and re-substitution, for us and in our stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all documents relating thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
WITNESS our hands and common seal on the
dates set forth below.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
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/s/ Erke Huang
|
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Interim Chief Executive Officer and Chief Financial Officer
|
|
March 9, 2021
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Erke Huang
|
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(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
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|
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|
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/s/ Yan Xiong
|
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Director
|
|
March 9, 2021
|
Yan Xiong
|
|
|
|
|
|
|
|
|
|
/s/ Zhaohui Deng
|
|
Director
|
|
March 9, 2021
|
Zhaohui Deng
|
|
|
|
|
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|
|
|
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/s/ Ichi Shih
|
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Director
|
|
March 9, 2021
|
Ichi Shih
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|
|
|
|
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|
|
|
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/s/ Min Hu
|
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Director
|
|
March 9, 2021
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Min Hu
|
|
|
|
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INDEX TO EXHIBITS
The following exhibits are filed as part
of this registration statement:
Golden Bull (NASDAQ:DNJR)
Historical Stock Chart
From Aug 2024 to Sep 2024
Golden Bull (NASDAQ:DNJR)
Historical Stock Chart
From Sep 2023 to Sep 2024