We may offer and sell the securities identified
above from time to time in one or more offerings at prices and on terms that we will determine at the time of each offering, for an aggregate
initial offering price of $500,000,000. This prospectus provides you with a general description of the securities that is not meant to
be a complete description of each of the securities.
Each time we offer and sell securities, we will
provide a supplement to this prospectus that contains specific information about the offering and the amounts, prices and terms of the
securities. The supplement may also add, update or change information contained in this prospectus with respect to that offering. You
should carefully read this prospectus, the applicable prospectus supplement, as well as the documents incorporated or deemed to be incorporated
by reference herein or therein, before you purchase any of our securities.
We may offer and sell the securities described
in this prospectus and any prospectus supplement to or through one or more underwriters, dealers and agents, or directly to purchasers,
or through a combination of these methods. These securities also may be resold by selling securityholders. If any underwriters, dealers
or agents are involved in the sale of any of the securities, their names and any applicable purchase price, fee, commission or discount
arrangement between or among them will be set forth, or will be calculable from the information set forth, in an applicable prospectus
supplement. See the sections of this prospectus entitled “About this Prospectus” and “Plan of Distribution” for
further information.
No securities may be sold without delivery of
this prospectus and the applicable prospectus supplement describing the method and terms of the offering of such securities.
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.
From the Company’s commencement of mining
operations in February 2020 to October 3, 2021, the Company did not transfer any cash to any of its subsidiaries. During the year ended
December 31, 2020, the Company raised proceeds of approximately $5.2 million from private placements of the Company’s securities,
and the proceeds were directly transferred from investors in those private placements to the designated accounts of Bit Digital Hong
Kong Limited (“BT HK”), one of the Company’s wholly-owned subsidiaries in Hong Kong.
During the period from January 1, 2021 to
October 3, 2021, the Company raised proceeds of approximately $37 million from private placements and an equity line of credit. The proceeds
were directly transferred from investors to designated accounts of Bit Digital USA, Inc. (“BT USA”), the Company’s
subsidiary in the U.S. The net proceeds raised in our $80 million September 2021 private placement were transferred to BT USA. See “Recent
Sales of Unregistered Securities” below.
During the period from February 2020 to September
30, 2021, Bit Digital Hong Kong transferred 25,006 miners to BT USA, with a carrying value of $19.80 million.
During the period from February 2020 to the
date hereof, the Company has not received any dividends or distributions from any of its subsidiaries, nor did the Company make any dividends
or distributions to its investors. See “Prospectus Summary” below for further information.
Our ordinary shares are listed on the Nasdaq Capital
Market (“Nasdaq”) under the symbol “BTBT.” On May 3, 2022, the last reported sale price of our ordinary shares
on Nasdaq was $2.13 per share. We will apply to list any ordinary shares sold by us pursuant to this prospectus and any prospectus
supplement on the Nasdaq Capital Market. The applicable prospectus supplement will contain information, where applicable, as to any other
listing, if any, on Nasdaq or any other securities market or other securities exchange of the securities covered by the prospectus supplement.
The date of this prospectus is May 4, 2022.
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 in the
applicable prospectus supplement and in the documents incorporated by reference in this prospectus and substantially filed reports, and
before you decide to invest in our ordinary shares. The Company may be subject to various legal and operational risks as a result
of its previously being a China-based Issuer with substantial amounts of the Company’s operations previously in China and Hong
Kong. The legal and regulatory environment in China is in many respects different from the United States. These risks and others could
result in a material change in the value of our securities and/or significantly limit or completely limit or completely hinder our ability
to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless.
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 Doing Business in China
Prior to the commencement of the Company’s
bitcoin mining business, and before the involvement of any of the Company’s current directors, officers or employees, Golden Bull
Limited formerly operated a peer-to-peer lending business in the PRC, as discussed below. Additionally, from February 2020 to June 2021,
the Company operated its bitcoin mining business in the PRC, but completed the migration of all of its bitcoin mining operations out
of China by September 30, 2021. Risks related to the Company’s former operations in the PRC are discussed below.
Pursuant to laws and regulations of PRC, there
are two ways for foreign legal persons/entities to be considered to be engaging in operation activities within the territory of China.
One way is to establish a foreign-invested enterprise, that is incorporated, according to the Foreign Investment Law of PRC, within the
territory of China and that is wholly or partly invested by a foreign investor. The organization form, institutional framework and standard
of conduct of a foreign-invested enterprise are subject to the provisions of the Company Law of the PRC and the Partnership Enterprise
Law of the PRC and other law related regulations. Another way to be deemed to be operating within China is 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. Notwithstanding the fact that we no longer have bitcoin mining operations in China, our prior operations
may subject us to the statutes and regulations of China, as the Company conducted its bitcoin mining operations in the PRC through its
Hong Kong subsidiary and did not register to do business in the PRC and, as described below, we may be subject to fines, penalties and/or
other sanctions.
There are risks to foreign investors
in Chinese companies.
The Chinese government implements 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 for foreign investment refers to special administrative measures for the restricted or
prohibited access of foreign investment in specific fields as stipulated by the Chinese government.
Pursuant to the Special Administrative Measures
for Access of Foreign Investment Access (2021 Edition), or the 2021 Edition Negative List for Foreign, issued by The Ministry of Commerce
of the PRC (the “MOFCOM”) and the National Development and Reform Commission (the “NDRC”) on December 27, 2021,
which came into effect on January 1, 2022, our bitcoin mining business does not fall into the Negative List for Foreign. However, the
2021 Edition Negative List for Foreign indicates that “Fields not mentioned in the Negative List for Foreign Investment Access
shall be subject to administration under the principle of consistency for domestic and foreign investments. The relevant provisions of
the Negative List for Market Access shall apply to domestic and foreign investors on a unified basis.”
Also, based on the Negative List for Market
Access (2022 Edition), “the Catalogue for Guidance on Industrial Restructuring shall be included in the Negative List for Market
Access”; plus, according to the Decision of the State Council on Promulgating and Implementing the “Temporary Provisions
on Promoting Industrial Structure Adjustment,” valid from December. 2, 2005, “In principle, the ‘Guidance Catalogue
for the Industrial Structure Adjustment “shall apply to various types of enterprises inside China.” “The industries
of the eliminated category under the ‘Guidance Catalogue for the Industrial Structure Adjustment’ shall apply to the foreign
investment enterprises.” and “Investments are prohibited from being contributed to projects under the eliminated category.”
Additionally, the NDRC released on December 30, 2021 its No. 49 Decree, announcing that the Decision of the National Development and
Reform Commission on Amending the Guiding Catalog for Industrial Restructuring (2019 Version) (the “Amended Catalog”). The
Amended Catalog added ‘virtual currency mining activities’ to the eliminated category of ‘1. outdated production processing
and equipment ‘under the original Catalog.” Therefore, foreign investment enterprises are prohibited from virtual currency
activities and our bitcoin mining business are banned in China as well. There can be no assurance that our prior mining activities in
China will not be subject to fines and penalties on a retroactive basis.
We may be subject to penalties as a
result of the Chinese government suspension of our former P2P lending business
The Company is currently engaged in the bitcoin
mining business, but previously, before the involvement of any of the Company’s current officers, directors or employees, was 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 was conducting an investigation
of 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 six of those suspects. On March 24, 2020, the Bureau announced that it had transferred seven suspects to the procuratorates for
criminal prosecution and took criminal action against 14 defendants and is searching for our former CEO as of the date of this prospectus.
While the Company has not been subject to any enforcement actions or investigations, nine persons, including a former director of the
Company, have been found guilty of fund-raising fraud or illegally collecting public deposits by the People’s Court of Shanghai
Pudong New District, and were sentenced to imprisonment and the confiscations and return all the illegal gains, which may or may not
include assets of the Company. The Company’s current management believes that its former Chief Financial Officer, as well as members
of the VIE’s management, may have been the subject of these proceedings. No current member of our management or board and none
of our current employees was involved with the Company at the time of the events described above. As of the date of this prospectus,
the final outcome of the investigation has not been published, and the impact of any such outcome on the Company cannot be estimated
or determined with any certainty.
We may be subject to fines and penalties
for any noncompliance with or liabilities in our former business in China in a certain period from now on.
Pursuant to the Law of the People’s
Republic of China on Administrative Penalties (Revised in 2021), where an unlawful act conducted in China is not discovered within two
years of its commission (the period shall be counted from the date on which the unlawful act is committed, or if the act is ongoing or
continuous, from the date on which the act ends), the administrative penalty shall be exempted; and if it involves citizens’ life
and health security or financial security, and causes harmful consequences, the above-mentioned period shall be extended to five years,
except as otherwise prescribed by laws. We have not received any administrative penalty for our historical mining business as of the
date of this prospectus. Nevertheless, uncertainties still exist since the administrative organs may impose administrative penalties
on us in a certain period from now on for any noncompliance with or liabilities in our historical business in China, including, but not
limited to, any noncompliance with or liabilities under Order No.31 and applicable environmental, health or safety regulations, which
could materially and adversely affect our results of operations.
As a result of the May 21, 2021 Financial
Stability Development Committee of the State Council in China targeting virtual currency mining in China, we suspended all mining operations
in China and terminated our business operations in June 2021. However, as described in the next risk factor, it was not until September
2021 that all digital asset transactions were banned. In October 2020, the Company commenced the migration of miners out of China and
believes it was in compliance with Chinese law on bitcoin mining while operating in China. However, according to Foreign Investment Law
of PRC and Order No. 31, foreign enterprises engaged in profit-making activities in China are required to 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, foreign enterprises may not conduct any production and operation activities within the territory
of China, and foreign enterprises engaging in profit-making activities without proper authority may be subject to penalties, such as
warnings, fines, confiscation of illegal income or suspension of business for rectification on a case-by-case basis of the PRC authorities
under the PRC laws.
Before we terminated our business operations
in China, our business in China was not carried out through any Chinese subsidiaries. In China, we made profits from mining equipment
stored in facilities directly leased by Bit Digital Hong Kong, deemed to be a foreign enterprise. Bit Digital Hong Kong did not provide
cloud mining services or similar services to any third parties. Nevertheless, the Company may be subject to penalties such as warnings,
fines, confiscation of illegal income, or suspension of business for rectification on a case-by-case basis of the PRC authorities under
the PRC laws, for not registering to do business in China or having authorization for its bitcoin mining operations.
The PRC government department does have the
authority to issue licenses or approval in some industries directly to foreign companies, including Hong Kong companies, which has been
provided in Order No. 31. A foreign company, including a Hong Kong company, is permitted to be engaged in production and operation within
China in two ways--one is to obtain the license or approval, and the other is to establish a subsidiary in the territory of China, otherwise
it may lead to a punishment of a warning, fine, confiscation of income and/or suspension of business for rectification. Furthermore,
although Hong Kong is one of the special administrative districts of the PRC, from the perspective of foreign investment supervision,
Hong Kong companies are treated as foreign companies, and most of the laws and regulations related to the foreign investment also apply
to Hong Kong companies. Considering that Bit Digital Hong Kong Limited (“BT HK”) had already been engaged in bitcoin mining
activities in the territory of China, and that BT HK had not obtained business licenses in relevant provinces, it would be much more
difficult for Bit Digital Hong Kong to obtain licenses directly than to establish a subsidiary in PRC. From the perspective of compliance,
the Company decided to initiate the process of forming a subsidiary to undertake operational activities in PRC. However, in view of the
more recent ban on all new digital asset operations in China, we terminated the process of forming a subsidiary in mainland, China. Since
BT HK had not obtained business licenses in relevant provinces where Bit Digital Hong Kong used to carry out business, it may lead to
a punishment of a warning, fine, confiscation of income and/or suspension of business for rectification.
It is now illegal in China to engage
in digital asset transactions, including bitcoin mining operations, which may adversely affect us.
China has taken significant regulatory action
to ban digital asset mining operations and to severely restrict the right to acquire, own, hold, sell or use of bitcoin assets or to
exchange them for fiat currency. Such restrictions may adversely affect us as the large-scale use of digital assets as a means of exchange
is presently confined to certain regions globally. Ongoing and future regulatory actions in China may impact our ability to pursue part
of our business strategy, which could have a material adverse effect on our business, prospects or operations.
On May 21, 2021, the Financial Stability and
Development Committee of the State Council in China proposed to “crack down on bitcoin mining and trading.” However, it was
not until September 24, 2021, as described below, that all digital asset transactions were banned in China. In the interim, we incurred
significant costs in connection with the migration of our miners out of China and the time that our miners were not being operated. In
May 2021, local governments began to issue corresponding measures in succession to respond to the central government, including Xinjiang
Changji Hui Autonomous Prefecture Development and Reform Commission, where we previously had mining operations, issuing a notice on the
immediate shutdown of enterprises engaged in digital asset mining on June 9, 2021. At the time of the announcement of the ban in Xinjiang,
we had no mining operations in Xinjiang. On June 18, 2021, Sichuan Provincial Development and Reform Commission and Sichuan Energy Bureau
issued a notice on the shutdown of digital asset mining projects with a deadline of June 25, 2021. Accordingly, we ceased all of our
remaining operations in PRC on June 21, 2021. On September 24, 2021, the newly issued Notification of Overhauling the Mining Activity
of Cryptocurrency (or the Notification No. 1283) banned all new digital asset operations in China. The NDRC notice set forth penalties
on a going forward basis for all of the PRC. While we do not believe Sichuan Province will seek to impose retroactive fines, penalties
or sanctions, there can be no assurance the province may not seek to do so.
In consideration of the PRC government’s
policies and general attitude toward our industry, as well as our business plans, we will not conduct any digital asset mining operations
or digital asset trading operations in mainland PRC. All of our miners have been migrated out of the PRC as of September 30, 2021 and
are expected to be fully operational in the U.S. during the second half of 2022. We have not had difficulties transferring the bitcoin
mining equipment from our Hong Kong subsidiaries to our other subsidiaries, nor have we had difficulties in transferring cash to or from
our Hong Kong subsidiaries. However, this could change in the event that our Hong Kong subsidiaries become subject to the direct oversight
of the PRC government if the National laws of mainland China are applied in Hong Kong. All of our bitcoin mining equipment has been transferred
from our Hong Kong subsidiaries to North America. See Risk Factor — “We may be subject to fines and penalties for any noncompliance
with or liabilities in our former business in China in a certain period from now on” above, and “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”
below.
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.
Although we have completed the migration of
miners to the United States and/or Canada, our bitcoin mining business is worldwide. We expect to continue to purchase bitcoin miners
from manufacturers, and/or other sellers located in Hong Kong. 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 are 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 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 precedential value. 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.
The risks arising from the legal system in China include risks and uncertainties regarding the enforcement of laws and that rules and
regulations in China can change quickly with little, if any, advance notice; and there is a risk that the Chinese government may intervene
or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based
issuers, which could result in a material change in our operations and/or the value of our securities. Any risks that any actions by
the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based
issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the
value of such securities to significantly decline or be worthless.
China is one of the jurisdictions to implement
strict foreign exchange control. The free flow of bitcoin presents novel issues in the context of Chinese foreign exchange control. In
some public speeches, officials of the Chinese State Administration of Foreign Exchange (“SAFE”) have expressed concerns
about the challenges of digital asset 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, as they have done with bitcoin mining,
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. These actions contributed to our decision to commence migration of miners out of China in October 2020.
We may be subject to recently announced
measures from the Cyberspace Administration of China concerning the collection of data and required to obtain clearance from the CAC.
The Cybersecurity Review Measures (2021)
(the “Measures”) were officially released to the public on December 28, 2021 and became effective on February 15, 2022.
According to the Measures, to go public abroad, an online platform operator that possesses the personal information of more than 1
million users must seek cybersecurity review from the Office of Cybersecurity Review.
Currently, we have not been involved in any
investigations on cybersecurity review initiated by the CAC or related governmental regulatory authorities, and we have not received
any inquiry, notice, warning, or sanction in such respect.
We believe we currently are not required to
obtain clearance from the CAC regarding our listing in the United States under the recently-enacted or proposed regulations or rules
because we have never set an online platform for any user and we have not acted as an online platform operator. However, since these
cybersecurity rules were recently enacted and uncertainties exist as to the interpretation or implementation of the Measures, if the
Measures require us to obtain clearance or permissions from the CAC, we would file an application with CAC and seek to obtain the clearance
or permissions from the CAC as required, however there can be no assurance we will obtain clearance or permission which could adversely
affect our business. Compliance with the Measures, as well as additional laws, regulations and guidelines that the Chinese government
promulgates in the future, may entail significant expenses and could materially affect our business.
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”
in our Annual Report on Form 20-F, and certain other regulations and rules concerning mergers and acquisitions establish additional procedures
and requirements in PRC that could make merger and acquisition activities by foreign investors more time consuming and complex, including
requirements in some instances that 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. Also, according to the Foreign Investment
Law of the PRC, “Where a foreign investor acquires any domestic enterprise in China or participates in the concentration of undertakings
by other means, it shall be subject to the review of concentration of undertakings according to the provisions of the Anti-monopoly Law
of the PRC.” Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions
(to the extent relevant) 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.
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.
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.” Since a portion of our management members are not 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.
United States regulators may be limited
in their ability to conduct investigations or inspections of our operations in Hong Kong.
The increased regulatory scrutiny of U.S.-listed
companies with operations in China could add uncertainties to our business operations, share price and reputation. Although the audit
reports of Audit Alliance LLP incorporated by reference into this prospectus are prepared by our auditors in Singapore who are subject
to inspection by the Public Company Accounting Overnight Board (the “PCAOB”), there is no guarantee that future audit reports
will be prepared by auditors that are completely inspected by the PCAOB, and, as such, future investors may be deprived of the benefit
of such complete inspections, which could result in limitations or restrictions on our ability to access the U.S. capital markets. Furthermore,
trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act (the “HFCA Act”) or the Accelerating
Holding Foreign Companies Accountable Act, if the SEC subsequently determines our audit work is performed by auditors that the PCAOB
is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as Nasdaq or the over-the-counter
market, may determine to delist our securities.
U.S. public companies that have or had a substantial
portion of their operations in China have been the subject of heightened scrutiny, criticism and negative publicity by investors, financial
commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial
and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate government
policies or a lack of adherence thereto and, in many cases, allegations of fraud.
As part of increased regulatory focus in the
United States on access to audit information, the United States enacted the Holding Foreign Companies Accountable Act, or the HFCA Act,
in December 2020. The HFCA Act includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that
the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s
local jurisdiction. The HFCA Act also requires public companies on this SEC list to certify that they are not owned or controlled by
a foreign government and make certain additional disclosures in their SEC filings. In addition, under the HFCA Act, if the auditor of
a U.S. listed company’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection”
years after the law becomes effective, the SEC is required to prohibit the securities of such issuer from being traded on a U.S. national
securities exchange, such as the NYSE and Nasdaq, or in the U.S. over-the-counter markets. On March 24, 2021, the SEC announced that
it had adopted interim final amendments to implement the foregoing certification and disclosure requirements and that it was seeking
public comment on the issuer identification process as well as the submission and disclosure requirements. On December 2, 2021, the SEC
adopted amendments to finalize rules implementing the HFCA Act that require the SEC to prohibit an issuer’s securities from trading
on any U.S. national securities exchange and on the over-the-counter market if the auditor is not subject to PCAOB inspections for three
consecutive years. Accordingly, our securities may be prohibited from trading on Nasdaq or other U.S. stock exchange if our auditor is
not inspected by the PCAOB for three consecutive years, and this ultimately could result in our ordinary shares being delisted.
On June 22, 2021, the U.S. Senate passed the
Accelerating Holding Foreign Companies Accountable Act, which if enacted into law, would amend the HFCA Act and require the SEC to prohibit
an issuer’s securities from trading on U.S. stock exchanges if its auditors are not subject to PCAOB inspections for two consecutive
“non-inspection” years instead of three. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act,
which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the Board is unable to
inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by
one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued PCAOB Rule 6100 Board Determinations Under the Holding
Foreign Companies Accountable Act. The PCAOB notified the SEC that it was unable to inspect or investigate completely registered public
accounting firms headquartered in mainland China and in Hong Kong because of the positions taken by authorities in mainland China and
Hong Kong. While we understand that there has been dialogue among the China Securities Regulatory Commission, the SEC and the PCAOB regarding
the inspection of PCAOB-registered accounting firms in China, and the audit reports of Audit Alliance LLP incorporated by reference into
this prospectus are prepared by auditors based in Singapore who are subject to inspection and investigation by the PCAOB, there can be
no assurance that our auditor or we will be able to comply with these and other requirements imposed by U.S. regulators in the future.
The market prices of our ordinary shares and/or other securities could be adversely affected as a result of possible negative impacts
of the HFCA Act and other similar rules and regulations.
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Our Hong Kong subsidiaries could become
subject to the direct oversight of the PRC government at any time if the national laws of mainland China are applied to Hong Kong.
The national laws of the PRC, including, but
not limited to (i) the Cybersecurity Review Measures that became effective on February 15, 2022; and (ii) approval by the Chinese Securities
Regulatory Commission (“CSRC”) or any other Chinese regulatory authority to approve or permit our offering of securities
in the U.S., do not currently apply to our Hong Kong subsidiaries, except for those listed in the Basic Law of Hong Kong. However, due
to the uncertainty of the PRC legal system and changes in laws, regulations or policies, including how those laws, regulations or policies
would be interpreted or implemented, and the national laws applicable in Hong Kong, the Basic Law might be revised in the future and
our Hong Kong subsidiaries may be subject to future oversight by the PRC government.
Pursuant to Article 18 of the Basic Law of
the Hong Kong Special Administrative Region of the PRC (the “Basic Law”), “The laws in force in the Hong Kong Special
Administrative Region shall be the Basic Law, the laws previously in force in Hong Kong as provided for in Article 8 of this Law, and
the laws enacted by the legislature of the Region. National laws shall not be applied in the Hong Kong Special Administrative Region
except for those listed in Annex III to the Basic Law. The laws listed therein shall be applied locally by way of promulgation or legislation
by the Region. Also, regarding the Annex III and several Instruments of the Basic Law, National Laws, which have applied in Hong Kong
until now are as following:
Resolution on the Capital, Calendar, National
Anthem and National Flag of the PRC; Resolution on the National Day of the PRC; Declaration of the Government of the PRC on the Territorial
Sea; Nationality Law of the PRC; Regulations of the PRC Concerning Diplomatic Privileges and Immunities; Law of the PRC on the National
Flag; Regulations of the PRC Concerning Consular Privileges and Immunities; Law of the PRC on the National Emblem; Law of the PRC on
the Territorial Sea and the Contiguous Zone; Law of the PRC on Garrisoning the Hong Kong Special Administrative Region; Law of the PRC
on the Exclusive Economic Zone and the Continental Shelf; Law of the PRC on Judicial Immunity from Compulsory Measures Concerning the
Property of Foreign Central Banks; and Law of the PRC on the National Anthem; Law of the PRC on Safeguarding National Security in the
Hong Kong Special Administrative Region.
The CSRC released, on December 24, 2021, the
Provisions of the State Council on the Administration of Domestic Companies Offering Securities for Overseas Listing (Revision Draft
for Comments) (the “Provisions”) and the Administrative Measures for the Filing of Domestic Companies Seeking Overseas Securities
Offering and Listing (the “Measures”) for public comment. According to the Provisions and Measures, “Domestic companies
that seek to offer and list securities in overseas markets shall fulfill the filing procedure with the securities regulatory agency under
the State Council and report relevant information;” and “An overseas offering and listing is prohibited under any of the
following circumstances: (1) if the intended securities offering and listing falls under specific clauses in national laws and regulations
and relevant provisions prohibiting such financing activities.” Furthermore, the Cybersecurity Review Measures (2021) were officially
released to the public on December 28, 2021 and became effective on February 15, 2022. According to the Cybersecurity Review Measures
(2021), “To go public abroad, an online platform operator who possesses the personal information of more than 1 million users shall
declare to the Office of Cybersecurity Review for cybersecurity review.”
As of the date of this prospectus, the Hong
Kong subsidiaries have not established any subsidiary or branch in mainland PRC and are not conducting any business operations in mainland
PRC.
Based on the aforementioned Basic Law, the
Hong Kong subsidiaries are not currently subject to the Cybersecurity Review Measures (2021) and the Provisions and the Measures. However,
due to the uncertainty of the PRC legal system and changes in laws, regulations or policies, including how these laws, regulations or
policies would be interpreted or implemented, the national laws applicable in Hong Kong in the Basic Law might be revised in the future.
Therefore, we cannot assure you that we will
not be affected by the foregoing or relevant laws, regulations or policies in the future, if there are any changes to the foregoing laws,
regulations and policies, or if any new laws, regulations, and policies are published. We could not guarantee that the relevant laws,
regulations, or policies would not be applied retroactively, so we might face penalties, and our reputation and results of operations
could be materially and adversely affected
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 to replace 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 partly revised,
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 former 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.
Historically, a portion 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 have affected the relative purchasing power in RMB terms of our U.S. dollar assets. Gains and losses
from the remeasurement of assets and liabilities that are receivable or payable in RMB are included in our historical consolidated statements
of operations. Periodic remeasurements have 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 may 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 hedge our exposure to exchange rate fluctuations adequately
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.
General Risks
We have a history of operating losses,
and we may not be able to sustain profitability; we have recently shifted our bitcoin mining business, and we may not be continuously
successful in this business.
We recently experienced profitability from
our continuing bitcoin mining operations. We may again incur losses, as we continue to work to grow our bitcoin mining business. Prior
to the commencement of the Company’s bitcoin mining business, and before the involvement of any of the Company’s current
directors, officers or employees, Golden Bull Limited was previously engaged in a peer to peer (“P2P”) online lending business
in China. Starting on or about November 2019, we made a decision to diversify into the bitcoin mining business, as well as the car rental
business in the United States, which plans concerning the car rental business were suspended as a result of the coronavirus pandemic.
In September 2020, we disposed of our P2P and Chinese car rental business and decided to focus primarily on our bitcoin mining business.
Currently, our operations are focused on our bitcoin mining business located at our bitcoin mining facilities in the United States and
Canada. Our current business, including our growth strategy for our business, involves an industry that is itself new and evolving and
is subject risks, many of which are discussed below. Even though we are currently operating profitability, we may not be able to sustain
profitability in subsequent periods. See “Bitcoin Related Risks” below.
Our results of operations 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 bitcoin mining operating history. In May 2021 when the Chinese government targeted virtual currency mining and put pressure
on Chinese banks and payment companies to restrict digital asset transactions and otherwise signaled that China intended to further limit
digital asset mining within the country, we suspended operations in China and continued to migrate all of our remaining miners in China
to North America. We terminated all bitcoin mining operations in China in June 2021. Our results of operations for the second and third
quarters of 2021 have been adversely affected by the material decrease in bitcoins mined during those periods, including, in part, due
to the need to migrate and replace a portion of our miners. We have migrated all miners to the United States by the end of October 2021,
and expect to have them and any newly purchased miners operational during the second quarter of 2022. However, there can be no assurance
we will achieve the level of profitability we experienced in late 2020 or the first quarter of 2021.
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 annual 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. |
Pursuant to a Share Purchase Agreement dated
September 8, 2020, the Company sold Point Cattle Holdings Limited, one of the Company’s subsidiaries, together with its subsidiaries
and VIEs to an unaffiliated third party, and, following the disposition, the operations of its peer-to-peer lending business were classified
as discontinued operations. Since on or before September 8, 2020, the spun-off subsidiaries and VIEs engaging in peer-to-peer lending
business have no current or ongoing relationship with the Company. See Item 4 - “Information of the Company - Legal Proceedings”
in our Annual Report on Form 20-F for the year ended December 31, 2021.
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. According to the newly-issued Regulations on the Prevention and Treatment of Illegal Fundraising, which
came into force on May 1, 2021, no one shall benefit from illegal fund-raising. Even if there is no criminal offense, the PRC governmental
authorities or regulators have the right to seal up, freeze and/or seize the related assets, and the PRC governmental authority also
could mandatorily request the person/entity who commits illegal fund-raising or who assists the illegal fund-raising which could involve
the Company, to return or sell related assets which could be those of the Company, at the current price to recover the funds that were
illegally raised. In addition, although the Company is not responsible for any potential claims by customers with 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 we disposed of our former VIE entities that were involved
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 shareholders’
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.
Having recently exited China, 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 ordinary shares, preferred shares or a combination of debt and equity as consideration, which could significantly
dilute the ownership of our existing shareholders or provide rights to such preferred shareholders in priority over our ordinary shareholders.
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 or other businesses. 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. |
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.
The loss of any member 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 team, including Mr. Bryan Bullett, our Chief Executive Officer, Mr. Erke
Huang, our Chief Financial Officer, and Mr. Sam Tabar, our Chief Strategy 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 team, 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 or retain such personnel. If we are unable to attract or retain 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 and otherwise
make timely and accurate public disclosure 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. As of December 31, 2021, our disclosure controls and procedures
were not effective and management determined that we did not maintain effective internal control over financial reporting due to certain
significant deficiencies and material weaknesses. Management is undertaking actions to remediate the material weaknesses, but there is
no assurance they will be remediated this year. See Item 15 – “Controls and Procedures” in the Company’s Annual
Report on Form 20-F for the year ended December 31, 2021.
If our internal control over financial reporting
or our disclosure controls are 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 ordinary shares listing on Nasdaq could
be suspended or terminated and our share 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 shareholder lawsuits, which could impose significant
additional costs on us and divert management attention.
The coronavirus pandemic is a serious threat
to health and economic wellbeing affecting our employees, investors and our sources of supply, which could significantly disrupt our operations
and financial results.
On March 11, 2020, the World Health Organization
announced that novel Coronavirus COVID-19 infections had become pandemic, and, on March 13, 2020, the U.S. President declared a national
emergency relating to the virus. There has been and continues to be widespread infection in the United States with a second wave now
appearing in China and elsewhere, with the potential for catastrophic impact. Mandatory business closures have had catastrophic impacts
on worldwide economies of uncertain duration.
We believe that our results of operations,
business and financial condition has continuously been adversely impacted by the effects of COVID-19. In addition to global macroeconomic
effects, the COVID-19 outbreak and any other related adverse public health developments may cause disruption to our mining activities.
If an outbreak occurs near our mining facilities, 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. COVID-19 or other disease outbreak has 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 COVID-19 outbreak on our business
and operations remains uncertain, the continued global spread of 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 COVID-19 global pandemic could
have a material adverse effect on our business.
The effectiveness of the COVID-19 vaccine and
vaccination programs remains to be verified worldwide, including against variants of the virus. The sweeping nature of the 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 interruption
or disruption insurance coverage.
Currently, we do not have any business liability
or disruption insurance to cover our operations, other than director’s and officer’s liability insurance. 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.
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.
During the year ended December 31, 2020, we
raised gross proceeds aggregating $5.2 million in cash and $14.6 million in U.S. digital coin in certain private placements, which enabled
us to implement our new business strategy. Since May 20, 2021, we drew down an aggregate of $36,000,000 under the Purchase Agreement
and raised $80,000,000 of gross proceeds in our September 2021 private placement. We incurred net losses of approximately $1.9 million
and $9.7 million for the years ended December 31, 2020 and 2019, respectively. We reported net income of approximately $4.9 million for
the year ended December 31, 2021. We had negative cash flows from our operating activities of approximately $23.3 million, $3.4 million
and $1.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Negative cash flow during fiscal 2021 resulted,
in part, from $13,114.000 of depreciation of property and equipment and $20,461,000 of share-based compensation related to restricted
stock units. We cannot assure you our business model will allow us to continue to generate positive cash, given our substantial expenses
in relation to our revenue at this stage of our Company’s development. Our inability to offset our expenses with adequate revenue,
will adversely affect our liquidity, financial condition and results of operations. Although we have adequate cash on hand from our September
2021 private placement and anticipated cash flows from operating activities are expected to 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 that 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. 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; US$28,922 per coin as of December
31, 2020; to US$34,755 per coin as of June 30, 2021 and a high of US$47,215.69 as of March 30, 2022, according to Coin Market Cap.
We expect our results of operations to continue
to be affected by the bitcoin price as most of our revenue is from bitcoin mining production as of the filing date of this prospectus.
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’s 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.
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 is the sole digital asset we currently mine. Specifically, our revenues from our bitcoin
mining operations are principally based upon two factors: (1) the number of bitcoin rewards we successfully mine and (2) the value of
bitcoin. We also receive transaction fees paid in bitcoin by participants who initiated transactions associated with new blocks that
we mine. 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 primarily on bitcoin (as opposed to other digital assets). 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 digital assets, such as ETH, that are not mined utilizing the “SHA-256
algorithm.” If other digital assets were to achieve acceptance at the expense of bitcoin or bitcoin cash (a variant form of bitcoin
created in 2017 by a hard fork of the bitcoin blockchain) 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 digital assets, or our share price, inflating
and making their market prices more volatile or creating “bubble” type risks for both bitcoin and our ordinary shares.
The impact of government responses to miner
activity is uncertain.
Because of environmental-impact concerns related
to the potential high demand for electricity to support digital asset mining activity, political concerns, and for other reasons, we
may be required to cease mining operations in certain locations in the world without much or any prior notice by a national or local
government’s formal or informal requirement or because of the anticipation of an impending requirement. For example, the Chinese
government has required the mining of digital assets to be discontinued on very short notice. We were already in the process of migrating
our bitcoin mining assets out of China to North America; however, in light of the Chinese government’s actions, we had to accelerate
our migration efforts, which has had a material adverse effect on our operations in 2021.
Such government action had a negative impact not
only on the value of existing miners owned by us but also on our ability to dispose of obsolete miners and to purchase new miners and
the prices to acquire the same. Such government action also had a significant impact on the price of bitcoin, including an increase in
the volatility of the price (both up and down) of bitcoin and the price and value of miners owned by us (both up and down). These events
had a negative impact on our earnings for the second quarter of 2021.
Our discontinuance of mining operations in
China in response to such government action caused us to migrate miners to North America. This process resulted in costs associated with
the refurbishment and transfer to be incurred by us, as well as the transferred miners being off-line and not able to mine digital assets
for some time. This has had an adverse impact on our earnings for the second and third quarters of 2021.
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 registration statement of which this prospectus
is a part 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 performance.
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 damage, including damage that is not covered by insurance.
Our prior mining operations in China and current
operations in the states of Texas, Nebraska and Georgia in the United States and Canada 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:
| ● | the presence of construction or
repair defects or other structural or building damage; |
| ● | any noncompliance with or liabilities
under applicable environmental, health or safety regulations or requirements or building permit requirements; |
| ● | any damage resulting from natural
disasters, such as hurricanes, earthquakes, fires, floods and windstorms; and |
| ● | claims by employees and others
for injuries sustained at our properties. |
For example, our mines could be rendered inoperable,
temporarily or permanently, as a result of a fire or other natural disaster, the coronavirus or another pandemic, or by a terrorist or
other attack. The security and other measures we take to protect against these risks may not be sufficient. Additionally, our mines 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 requirements of our mines, 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 alternative mining facilities. 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 in the U.S. and Canada 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. 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, as we did to migrate from China, 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.
The development and acceptance of cryptographic
and algorithmic protocols governing the issuance of and transactions in digital assets is subject to a variety of factors that are difficult
to evaluate.
The use of digital assets 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 digital assets 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:
| |
● |
continued worldwide growth in the adoption and use of digital assets
as a medium to exchange; |
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|
|
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● |
governmental and quasi-governmental regulation of digital assets
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 digital assets for developing
smart contracts and distributed applications; |
| |
|
|
| |
● |
general economic conditions and the regulatory environment relating
to digital assets; and |
| |
|
|
| |
● |
negative consumer sentiment and perception of bitcoin specifically
and digital assets generally. |
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 digital assets
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 digital
assets 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 digital assets 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 digital assets 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 in our industry and in related industries
have and may continue to have in finding banks and financial institutions willing to provide them services may now, and in the future,
decrease the usefulness of digital assets as a payment system, harm public perception of digital assets and decrease their usefulness.
The usefulness of digital assets as a payment
system and the public perception of digital assets 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 digital assets 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 digital assets.
A disruption of the Internet may affect the
use of digital assets and subsequently the value of our securities. Generally, digital assets and our business of mining digital assets
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 digital assets and our ability to mine digital assets.
The impact of geopolitical and economic
events on the supply and demand for digital assets is uncertain.
Geopolitical crises may motivate large-scale
purchases of bitcoin and other digital assets, which could increase the price of bitcoin and other digital assets 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 digital assets 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, digital assets, 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 ordinary shares.
Political or economic crises may motivate large-scale acquisitions or sales of digital assets 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 digital
assets 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.
Currently, miners receive both rewards of
new bitcoin and transaction fees paid in bitcoin by persons engaging in bitcoin transactions on the bitcoin blockchain for being the
first to solve bitcoin blocks. 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 and transaction fees to solely
transaction fees. This transition could be accomplished by miners independently electing to record in the blocks they solve only those
transactions that include payment of the highest transaction fees. 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 digital asset 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 of and demand for bitcoin may adversely affect its value and
result in a reduction in the price of bitcoin and, consequently, 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 digital assets, the value of our ordinary shares may be adversely affected.
There is a lack of liquid markets for
digital assets, and blockchain/bitcoin-based assets are susceptible to potential manipulation.
Digital assets 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 digital assets 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 digital assets.
We compete with other users and/or companies
that are mining digital assets and other potential financial vehicles, including securities backed by or linked to digital assets 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 digital assets 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 digital assets 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 digital assets 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. Digital Assets are stored in platforms 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 from external attack 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. Moreover, cold storage
may increase the risk of internal theft or malfeasance. We hold our digital assets in hot and cold wallets
through third party custodians to reduce the risk of external malfeasance, but the risk of loss of our bitcoin assets cannot be wholly
eliminated. If any of our bitcoin were lost or stolen, it is unlikely that we would ever be able to recover such bitcoin.
Hackers or malicious actors may launch attacks
to steal, compromise or secure digital assets, 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.
Digital assets 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 digital assets 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 digital assets we mine or otherwise acquire or hold for our own account.
We may suffer significant and adverse effects
due to hacking or one or more adverse software events.
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 custodian 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 digital assets 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 digital assets 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 digital assets
we mine or otherwise acquire or hold for our own account.
Our reliance primarily on a few models
of miners may subject our operations to increased risk of mining failure.
The performance and reliability of our miners
and our technology is critical to our reputation and our operations. Because we currently use MicroBT and Bitmain 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 and Bitmain miners affects all our miners, if a defect other
flaw is exploited, our entire mining operations 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/or 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 share price. Currently, we do not have any insurance to cover our digital assets or mining
equipment. The market for such insurance is in the early stages, and we intend to purchase such insurance in the future. One of our digital
asset custodians, Cactus Custody, is self-insured for $4 million plus annual additions; and our other digital asset custodian, Copper
Technologies, has a $10 million comprehensive insurance policy that covers our digital assets as well as any fiat currency. Any uninsured
losses may have an adverse effect on our results of operations and/or financial condition.
Digital assets face significant scaling
obstacles that can lead to high fees or slow transaction settlement times.
Digital assets 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 digital assets is essential to the widespread acceptance of digital assets 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, digital assets 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 digital assets may be affected
by the sale of such digital assets by other vehicles investing in digital assets 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 digital assets 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 digital assets or tracking bitcoin markets
form and come to represent a significant proportion of the demand for digital assets, large redemptions of the securities of those vehicles
and the subsequent sale of digital assets 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 digital assets we mine or otherwise acquire or hold for our own account.
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 digital assets 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 manufacturers or sellers adjust the prices of their 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-based manufacturers. In addition,
there have been reports of shortages of the semiconductors, which are key components in miner production. The global reliance on China
as a main supplier of bitcoin miners has been called into question particularly in the wake of the COVID-19 pandemic. Should similar
outbreaks or other disruptions to the China-based global supply chain for bitcoin hardware on the spot market or otherwise 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 we mine is subject to halving;
the bitcoin reward for successfully uncovering a block will halve several times in the future and bitcoin’s 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 digital assets 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. 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. Halving 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 digital assets we mine, whether now or in the future, or otherwise acquire or hold for our own account. 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.
The impact of social media and influencers
on the price for digital assets is uncertain.
Renowned persons, including social media influencers,
may publicly discuss their holdings (or the holdings of companies with which they are affiliated) of bitcoin or their intent to buy or
sell large quantities of bitcoin. This may have a dramatic impact on the price of bitcoin, both up and down. At a minimum, these public
statements delivered through social media, such as Twitter, may cause the price of bitcoin to experience significant volatility. These
episodes could have a material adverse impact on the value of our bitcoin holdings as well as the prices of bitcoin that we may sell.
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 digital assets, 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 shares.
The protocol pursuant to which transactions
are confirmed automatically on the bitcoin blockchain through mining is known as proof of work. Proof of stake is an alternative method
in validating digital asset transactions. Should the bitcoin 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 digital assets 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 digital assets.
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 is believed that 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 yields 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 digital assets 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, which may adversely affect
an investment in our ordinary shares. 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 digital assets we mine or otherwise acquire or hold
for our own account, and harm investors.
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.
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.
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 ordinary shares.
Risks Related to United States Government Regulation
We are subject to an extensive and rapidly-evolving
regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand,
reputation, business, operating results and financial condition.
Our business may be or may become subject
to extensive laws, rules, regulations, policies, orders, determinations, directives, treaties, and legal and regulatory interpretations
and guidance in the markets in which we operate, including those typically applied to financial services and banking, securities, commodities,
the exchange, and transfer of digital assets, cross-border and domestic money and digital asset transmission businesses, as well as those
governing data privacy, data governance, data protection, cybersecurity, fraud detection, payment services (including payment processing
and settlement services), consumer protection, antitrust and competition, bankruptcy, tax, anti-bribery, economic and trade sanctions,
anti-money laundering, and counter-terrorist financing. Many of these legal and regulatory regimes were adopted prior to the advent of
the internet, mobile technologies, digital assets, and related technologies. As a result, they often do not contemplate or address unique
issues associated with digital assets, are subject to significant uncertainty, and vary widely across U.S. federal, state, and local
jurisdictions. These legal and regulatory regimes, including the laws, rules, and regulations thereunder, evolve frequently and may be
modified, interpreted, and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. Moreover,
the relative novelty and evolving nature of our business and the significant uncertainty surrounding the regulation of digital assets
requires us to exercise our judgement as to whether certain laws, rules, and regulations apply to us, and it is possible that governmental
bodies and regulators may disagree with our conclusions. To the extent we have not complied with such laws, rules, and regulations, we
could be subject to significant fines, limitations on our business, reputational harm, and other regulatory consequences, as well as
criminal penalties, each of which may be significant and could adversely affect our business, operating results and financial condition.
In addition to existing laws and regulations,
various governmental and regulatory bodies, including legislative and executive bodies, in the United States, as well as in other countries
may adopt new laws and regulations, or new interpretations of existing laws and regulations may be issued by such bodies or the judiciary,
which may adversely impact the development and use of digital assets as a whole, digital asset mining operations, and our legal and regulatory
status in particular by changing how we operate our business, how our operations are regulated, and what products or services we and
our competitors can offer, requiring changes to our compliance and risk mitigation measures, imposing new licensing requirements or new
costs of doing business, or imposing a total ban on certain activities or transactions with respect to digital assets, as has occurred
in certain jurisdictions in the past.
Due to our business activities, if laws or regulations
or their respective interpretation change, we may become subject to ongoing examinations, oversight, and reviews by U.S. federal and state
regulators, which would have broad discretion to audit and examine our business if we become subject to their oversight. Adverse changes
to, or our failure to comply with, any laws and regulations have had, and may continue to have, an adverse effect on our reputation and
brand and our business, operating results and financial condition.
We are subject to governmental regulation
and other legal obligations related to data privacy, data protection and information security. If we are unable to comply with these,
we may be subject to governmental enforcement actions, litigation, fines and penalties or adverse publicity.
We collect and process data, including personal,
financial and confidential information about individuals, including our employees and business partners; however, not of any customers
or other third parties. The collection, use and processing of such data about individuals are governed by data privacy laws and regulations
enacted in the U.S. (federal and state), and other jurisdictions around the world. These data privacy laws and regulations are complex,
continue to evolve, and on occasion may be inconsistent between jurisdictions leading to uncertainty in interpreting such laws and it
is possible that these laws, regulations and requirements may be interpreted and applied in a manner that is inconsistent with our existing
information processing practices, and many of these laws are significantly litigated and/or subject to regulatory enforcement. The implication
of this includes that various federal, state and foreign legislative or regulatory bodies may enact or adopt new or additional laws and
regulations concerning data privacy, data retention, data transfer, and data protection. Such laws may continue to restrict or dictate
how we collect, maintain, combine and disseminate information and could have a material adverse effect on our business, results of operations,
financial condition and prospects.
In the United States, there are numerous federal
and state laws and regulations that could apply to our operations or the operations of our partners, including data breach notification
laws, financial information and other data privacy laws, and consumer protection laws and regulations (e.g., Section 5 of the FTC
Act), that govern the collection, use, disclosure, and protection of personal information.
We are subject to extensive environmental,
health and safety laws and regulations that may expose us to significant liabilities for penalties, damages or costs of remediation or
compliance.
Our operations and properties are subject to extensive
laws and regulations governing occupational health and safety, the discharge of pollutants into the environment or otherwise relating
to health, safety and environmental protection requirements in the United States. These laws and regulations may impose numerous obligations
that are applicable to our operations, including acquisition of a permit or other approval before conducting construction or regulated
activities; restrictions on the types, quantities and concentration of materials that can be released into the environment; limitation
or prohibition of construction and operating activities in environmentally sensitive areas, such as wetlands; imposing specific health
and safety standards addressing worker protection; and imposition of significant liabilities for pollution resulting from our operations,
including investigation, remedial and clean-up costs. Failure to comply with these requirements may expose us to fines, penalties and/or
interruptions in our operations that could have a material adverse effect on our financial position, results of operations and cash flows.
Certain environmental laws may impose strict, joint and several liability for costs required to clean up and restore sites where hazardous
substances have been disposed or otherwise released into the environment, even under circumstances where the hazardous substances were
released by prior owners or operators or the activities conducted and from which a release emanated complied with applicable law. Moreover,
it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly
caused by noise or the release of hazardous substances into the environment.
The trend in environmental regulation has been
to place more restrictions and limitations on activities that may be perceived to impact the environment, and thus there can be no assurance
as to the amount or timing of future expenditures for environmental regulation compliance or remediation. New or revised regulations that
result in increased compliance costs or additional operating restrictions could have a material adverse effect on our financial position,
results of operations and cash flows.
The regulatory and legislative developments
related to climate change, may materially adversely affect our brand, reputation, business, operating results and financial condition.
A number of governments or governmental bodies
have introduced or are contemplating legislative and regulatory changes in response to various climate change interest groups and the
potential impact of climate change. Given the very significant amount of electrical power required to operate digital asset mining machines,
as well the environmental impact of mining for the rare earth metals used in the production of mining servers, the digital asset mining
industry may become a target for future environmental and energy regulation. For example, in June and July of 2021, the Chinese government
prohibited the operation of mining machines and supply of energy to mining businesses, citing concerns regarding high levels of energy
consumption, which resulted in our suspension of mining operations in China. United States legislation and increased regulation regarding
climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital
equipment, environmental monitoring and reporting, and other costs to comply with such regulations. Specifically, imposition of a carbon
tax or other regulatory fee in a jurisdiction where we operate or on electricity that we purchase could result in substantially higher
energy costs, and due to the significant amount of electrical power required to operate digital asset mining machines, could in turn
put our facilities at a competitive disadvantage. Any future climate change regulations could also negatively impact our ability to compete
with companies situated in areas not subject to such limitations. Given the political significance and uncertainty around the impact
of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition,
operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity
in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation.
Any of the foregoing could have a material adverse effect on our financial position, results of operations and cash flows.
A particular digital asset’s status
as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if a regulator disagrees with
our characterization of a digital asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may
adversely affect our business, operating results and financial condition. Furthermore, a determination that Bitcoin or any other digital
asset that we own or mine is a “security” may adversely affect the value of Bitcoin and our business.
The SEC and its staff have taken the position that certain digital
assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether
any given digital asset is a security is a highly complex, fact-driven analysis that may evolve over time, and the outcome is difficult
to predict. Our determination that the digital assets we hold are not securities is a risk-based assessment and not a legal standard or
binding on regulators. The SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset
as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or
timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners
could substantially impact the views of the SEC and its staff. Public statements made by senior officials at the SEC indicate that the
SEC does not intend to take the position that Bitcoin is a security (as currently offered and sold). However, such statements are not
official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency
or court and cannot be generalized to any other digital asset. As of the date of this prospectus, with the exception of certain centrally
issued digital assets that have received “no-action” letters from the SEC staff, Bitcoin and ETH are the only digital assets
which senior officials at the SEC have publicly stated are unlikely to be considered securities. Chairman Gensler stated (at the Penn
Law Capital Markets Association Annual Conference on April 4, 2022) that “Issuers of crypto tokens that are securities must register
their offers and sales of these assets with the SEC and comply with our disclosure requirements or meet an exemption.” As a bitcoin
mining company, we do not believe we are an issuer of any “securities” as defined under the federal securities laws. Our internal
process for determining whether the digital assets we hold or plan to hold is based upon the public statements of the SEC and existing
case law. The digital assets we hold or plan to hold, other than bitcoin and ETH, may have been created by an issuer as an investment
contract under the Howey test, SEC v. Howey Co., 328 U.S. 293 (1946), and may be deemed to be securities by the SEC. However,
the Company was not the issuer that created these digital assets and is holding them on an interim basis until liquidated. Should the
SEC state in the future that bitcoin, ETH or USDC tokens we hold are securities, we may no longer be able to hold any of these digital
assets. It will then likely become difficult or impossible for such digital asset to be traded, cleared or custodied in the United States
through the same channels used by non-security digital assets, which in addition to materially and adversely affecting the trading value
of the digital asset is likely to cause substantial volatility and significantly impact its liquidity and market participants’ ability
to convert the digital asset into U.S. dollars. Our inability to exchange bitcoin for fiat currency or other digital assets (and vice
versa) to administer our treasury management objectives may decrease our earnings potential and have an adverse impact on our business
and financial condition.
Under the Investment Company Act of 1940, as
amended, a company may fall within the definition of an investment company under section 3(c)(1)(A) thereof if it is or holds itself
out as being engaged primarily, or proposes to engage primarily in the business of investing, reinvesting or trading in securities,
or under section 3(a)(1)(C) thereof if it is engaged or proposes to engage in business of investing, reinvesting, owning, holding,
or trading in securities, and owns or proposes to acquire “investment securities” (as defined) having a value exceeding
40% of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. There is no authoritative
law, rule or binding guidance published by the SEC regarding the status of digital assets as “securities” or
“investment securities” under the Investment Company Act. Although we believe that we are not engaged in the business of
investing, reinvesting, or trading in investment securities, and we do not hold ourselves out as being primarily engaged, or
proposing to engage primarily, in the business of investing, reinvesting or trading in securities, to the extent the digital assets
which we mine, own, or otherwise acquire may be deemed “securities” or ” investment securities” by the SEC
or a court of competent jurisdiction, we may meet the definition of an investment company. If we fall within the definition of an
investment company under the Investment Company Act, we would be required to register with the SEC. If an investment company fails
to register, it likely would have to stop doing almost all business, and its contracts would become voidable. Generally non-U.S.
issuers may not register as an investment company without an SEC order.
The classification of a digital asset as a security
under applicable law has wide-ranging implications for the regulatory obligations that flow from the mining, sale and trading of such
assets. For example, a digital asset that is a security in the United States may generally only be offered or sold in the United States
pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that
effect transactions in digital assets that are securities in the United States may be subject to registration with the SEC as a “broker”
or “dealer.”
There can be no assurances that we will properly
characterize any given digital asset as a security or non-security for purposes of determining which digital assets to mine, hold and
trade, or that the SEC, or a court, if the question was presented to it, would agree with our assessment. We could be subject to judicial
or administrative sanctions for failing to offer or sell digital assets in compliance with the registration requirements, or for acting
as a broker or dealer without appropriate registration. Such an action could result in injunctions, cease and desist orders, as well
as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Further, if bitcoin is deemed to be
a security under the laws of any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it
may have adverse consequences for such digital asset. For instance, all transactions in such supported digital asset would have to be
registered with the SEC, or conducted in accordance with an exemption from registration, which could severely limit its liquidity, usability
and transactability. For instance, all transactions in such supported digital asset would have to be registered with the SEC, or conducted
in accordance with an exemption from registration, which could severely limit its liquidity, usability and transactability. Further,
it could draw negative publicity and a decline in the general acceptance of the digital asset. Also, it may make it difficult for such
digital asset to be traded, cleared, and custodied as compared to other digital assets that are not considered to be securities.
Failure to comply with anti-corruption and
anti-money laundering laws, including the Foreign Corrupt Practices Act (the “FCPA”) and similar laws associated with our
activities outside of the United States, could subject us to penalties and other adverse consequences.
We operate an international business and may have
direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We are subject
to the FCPA, and other applicable anti-corruption and anti-money laundering laws in certain countries in which we conduct activities.
The FCPA prohibits providing, offering, promising, or authorizing, directly or indirectly, anything of value to government officials,
political parties, or political candidates for the purpose of obtaining or retaining business or securing any improper business advantage.
In addition, U.S. public companies are required to maintain records that accurately and fairly represent their transactions and have an
adequate system of internal accounting controls.
In many foreign countries, including countries
in which we may conduct business, it may be a local custom that businesses engage in practices that are prohibited by the FCPA, or other
applicable laws and regulations. We face significant risks if we or any of our directors, officers, employees, contractors, agents or
other partners or representatives fail to comply with these laws and governmental authorities in the United States and elsewhere could
seek to impose substantial civil and/or criminal fines and penalties which could have a material adverse effect on our business, reputation,
operating results, prospects and financial condition.
Any violation of the FCPA, other applicable anti-corruption
laws, or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges,
severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, any of which
could have a materially adverse effect on our reputation, business, operating results, prospects and financial condition. In addition,
responding to any enforcement action or internal investigation related to alleged misconduct may result in a significant diversion of
management’s attention and resources and significant defense costs and other professional fees.
Enactment of the Infrastructure Investment
and Jobs Act of 2021 (the “Infrastructure Act”) may have an adverse impact on our business and financial condition.
On November 15, 2021, President Joseph R.
Biden signed the Infrastructure Act. Section 80603 of the Infrastructure Act modifies and amends the Internal Revenue Code of 1986 (the
“Code”) by requiring brokers of digital asset transactions to report their customers to the IRS. This provision was included
to enforce the taxability of digital asset transactions. Section 80603 defines “broker” as “any person who (for consideration)
is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” That
could potentially include miners, validators, and developers of decentralized applications. These functions play a critical role in our
business and in the functioning of the blockchain ecosystem. Importantly, these functions have no way of identifying their anonymous
users. Indeed, bitcoin’s blockchain was designed for anonymity.
This reporting requirement does not take effect
until January 1, 2023 and will impact tax returns filed in 2024. The implementation of these requirements will require further guidance
from the federal government. Disclosing the identity of our bitcoin mining operations and associated accounts to ensure they can be taxed
by the IRS could cause a significant devaluing of our business, the bitcoin currency, and the entire digital assets market. Additionally,
noncompliance with this provision could lead to significant fines and or regulatory actions against our company.
Our interactions with a blockchain and mining
pools may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distributive ledger technology.
The Office of Financial Assets Control of the
U.S. 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 or from countries on
OFAC’s sanctioned countries’ list. We also rely on a third-party mining pool service provider for our mining revenue payments
and other participants in the mining pool, unknown to us, may also be persons from countries on OFAC’s SDN list or from countries
on OFAC’s sanctioned countries list. Our Company’s policy prohibits any transactions with such SDN individuals or persons
from sanctioned countries, 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 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 ordinary shares.
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, Georgia 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.
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 digital assets 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 digital assets we hold or expects to acquire for our own account and harm investors.
Risks Related to Canadian Government Regulations
The Alberta Utilities Commission (“AUC”)
and AUC’s Decision 26379-D02-2021 had an adverse impact on our Canadian operations.
The Alberta Utilities Commission (“AUC”)
is the Province of Alberta’s electric generation regulatory agency. AUC regulates and oversees the development of and generation
of electricity under the Hydro and Electric Act (the “Act”). AUC ensures that proposed electric generation activities are
in the public interest while considering related environmental and social issues. As such, AUC must approve all digital asset miners
seeking to develop their own electric generation in Alberta, unless their operations are exempt. Our hosting partner, Link Global Technologies
(“Link”) that had supplied approximately 3.3 MW for hosting our miners was required to discontinue operations as a result
of the hereinafter described AUC proceedings which had an adverse effect on our operations. The Company has sent Link a termination notice
and is seeking a refund of its $129,845 deposit. Pending a termination, the Company has redirected miners formerly hosted with Link to
other hosting partners.
We are subject to Canadian restrictions
on export.
Under Canadian law, we cannot export, re-export,
transfer, or make available, whether directly or indirectly, any regulated item or information to anyone outside Canada in connection
with an Agreement with Link Global without first complying with all export control laws and regulations which may be imposed by applicable
governmental authorities of any country or organization of nations within whose jurisdiction we operate or do business.
Risks Involving Intellectual Property
We rely upon licenses of third-party intellectual
property rights and may be unable to protect our software codes.
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 digital asset related operations. We 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 digital asset mining operation. Our open source licenses may not afford us the protection we
need to protect our intellectual property.
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” in our Annual Report on Form 20-F for the year ended December 31, 2021. 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.
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. 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 Our Ordinary Shares
The trading price of our ordinary shares is
subject to 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 digital assets or blockchains generally,
factors over which we have little or no influence or control.
Other factors that 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
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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
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actions by our competitors, such as new business initiatives, acquisitions
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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
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sales of our ordinary shares by our officers, directors or significant
shareholders; |
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other actions taken by our shareholders; |
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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
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the level of short interest in our shares; and |
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other risks, uncertainties and factors described in our 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 issuers. These broad market fluctuations
may negatively impact the price or liquidity of our ordinary shares. 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 Item 4 -
“Information on the Company - Legal Proceedings” in our Annual Report on Form 20-F for the year ending December 31, 2021
and the risk factor below titled “We are defendants in securities class action litigation which could result in substantial costs
and liabilities for the Company.” The pending lawsuit has required significant management time and attention, resulting in significant
legal expenses and potential damages.
Our Chief Financial Officer and Chairman
currently have voting power to control all significant corporate actions.
Erke Huang, our Chief Financial Officer and a director, and Zhaohui
Deng, our Chairman of the Board, collectively beneficially own 1,000,000 preferred shares, each having fifty (50) votes, which equals
approximately 62.2% of the voting power of our 80,392,838 outstanding ordinary shares as of May 2, 2022 or approximately 38.3% of all
votes cast. The Board authorized the exchange by Messrs. Huang and Deng of 1,000,000 ordinary shares for an equivalent number of preferred
shares, in the form of a poison pill, to enable them to carry out the Company’s business plan without the threat of a hostile takeover.
Nevertheless, as a result of their shareholdings, Mr. Huang and Mr. Deng may be able to control the vote over decisions regarding mergers,
consolidations and the sale of all or substantially all of our assets, the election of directors, and other significant corporate actions.
They may also take action that is not in the best interests of our other shareholders. This concentration of voting power may discourage
or 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.
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 in November 2019, 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 Nasdaq 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 are not eligible for quotation or listing on another market or exchange, trading of our ordinary shares could
be conducted only on 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 if our shares are delisted from
Nasdaq, which may negatively affect our business plans and the results of our operations.
If securities or industry analysts do not
publish research or publish unfavorable research about our business, our share 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 shares, 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 share price of our ordinary
shares 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 share 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 may not be well-known 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 a relatively
unknown 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. A 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 for the Company.
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 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.). The class action was brought 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 shares, as well
as volatility in the price of bitcoin. We believe the complaints are 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. On April 29,
2021, the Court consolidated several related cases under the caption In re Bit Digital, Inc. Securities Litigation. Joseph Franklin
Monkam Nitcheu was appointed as lead plaintiff. On July 6, 2021, the lead plaintiff filed a consolidated class action complaint (the
“Amended Complaint”). The Amended Complaint was still based upon the January 11, 2021 research article and included additional
information concerning our previously discontinued peer to peer lending business. While the outcome is uncertain at this early point
in time, we have filed a motion to dismiss the lawsuit and will continue to vigorously defend the action.
We have not paid dividends in the past and do not anticipate
paying cash dividends in the foreseeable future.
We have never declared or paid any cash dividends
with respect to our ordinary shares and do not intend to pay any cash dividends in the foreseeable future. We currently plan to retain
any future earnings to cover operating costs and otherwise fund the growth of our business. We cannot assure you that we would, at any
time, generate sufficient surplus cash that would be available for distribution to the holders of our ordinary shares as a dividend. As
a result, capital appreciation, if any, of our ordinary shares will be the sole source of gain for the foreseeable future. There is no
guarantee that our ordinary shares will appreciate in value or even maintain the price at which a shareholder purchased such shareholder’s
shares.
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 amended
and restated memorandum and articles of association and by the Companies Act (Revised) of the Cayman Islands 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. It may be difficult for a shareholder to enforce against us 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. See “Description of Share Capital –
Provisions in Corporate Law” below.
You may experience difficulties in effecting
service of legal process and enforcing judgments against us and our management, and the ability of U.S. authorities to bring actions
abroad.
Currently, a portion of our operations and
of our non-mining assets and personnel are located in Hong Kong. Four of five members of our Board of Directors are nationals or residents
of jurisdictions other than the United States, and a substantial portion, if not all, 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. Hong Kong has no arrangement for the reciprocal
enforcement of judgments with the United States. As a result, recognition and enforcement in Hong Kong of judgments of a court in the
United States and any of the other jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult
or impossible. Even if you sue successfully in a U.S. court or any other jurisdictions, you may not be able to collect on such judgment
against us or our directors and officers. In addition, the SEC, the U.S. Department of Justice and other U.S. authorities may also have
difficulties in bringing and enforcing actions against us or our directors or officers in Hong Kong.
We are currently 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.
As of June 30, 2021, the date of determination,
we are currently a foreign private issuer within the meaning of the rules under the Exchange Act and expect to remain as such through
June 30, 2022. 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; |
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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; and. |
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we file annual reports on Form 20-F and reports on Form 6-K as a foreign
private issuer. As a result of our reduced reporting requirements, our shareholders may not have access to certain information they
may deem important. |
We are an “emerging growth company” within
the meaning of the Securities Act, and we take advantage of certain exemptions from disclosure requirements available to emerging growth
companies, which could make it more difficult to compare our performance with other public companies and make our ordinary shares less
attractive to investors.
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. We have elected 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. 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 financial accounting 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
that 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. Because of these lessened regulatory requirements,
our shareholders are 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.
We incur significant costs as a result of
being a public company and will continue to do so in the future, particularly after we cease to qualify as an “emerging growth company.”
We incur significant legal, accounting and other
expenses as a public company. The Sarbanes-Oxley Act 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 set forth above, 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 filer, 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. If we are no longer an emerging growth company, we will incur additional costs which could have a material
adverse effect on our financial condition.
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%. |
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. shareholder who holds our ordinary shares, the U.S.
shareholder may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.
Whether we are a PFIC for 2021 or any future
taxable year is uncertain because, among other things, the treatment of digital asset such as bitcoin for purposes of the PFIC rules
is unclear. We express no opinion with respect to our PFIC status and also express no opinion with regard to our expectations regarding
our PFIC status. Given this uncertainty, prospective U.S. shareholders contemplating an investment in the ordinary shares may want to
assume that we are a PFIC and are urged to consult their own tax advisors regarding our PFIC status and the resulting U.S. federal income
tax consequences in light of their own particular circumstances.
EXPERTS
Our consolidated financial statements as of
and for the fiscal year ended December 31, 2020 and December 31, 2021 have been incorporated by reference in this prospectus and in this
Registration Statement in reliance upon the report of Audit Alliance LLP and for the fiscal year ended December 31, 2019, upon the report
of JLKZ CPA LLP, independent registered public accounting firms, on their audit of our financial statements given on authority of these
firms as experts in accounting and auditing.
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION.
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY IN ANY JURISDICTION WHERE SUCH OFFER, OR SALE IS NOT PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR ANY SALE OF THESE SHARES.
$500,000,000
Ordinary Shares
Preferred Shares
Warrants
Units
Subscription Rights
BIT DIGITAL, INC.
PROSPECTUS
May 4, 2022
PROSPECTUS SUPPLEMENT
(To prospectus dated May 4, 2022)
Up to $500,000,000
Ordinary Shares
We have entered into an At The Market Offering
Agreement, or sales agreement, with H.C. Wainwright & Co., LLC, or Wainwright, relating to our ordinary shares offered by this prospectus
supplement and the accompanying prospectus. In accordance with the terms of the sales agreement, we may offer and sell our ordinary shares
having an aggregate offering price of up to $500,000,000 from time to time through Wainwright acting as our sales agent.
Our ordinary shares are traded on The Nasdaq Capital Market under the
symbol “BTBT.” The last reported sale price of our ordinary shares on May 3, 2022 was $2.13 per share.
Sales of our ordinary shares, if any, under this
prospectus supplement and the accompanying prospectus will be made by any method permitted that is deemed an “at the market offering”
as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act, including sales made directly on or through
the Nasdaq Capital Market or any other existing trading market in the United States for our ordinary shares, sales made to or through
a market maker other than on an exchange or otherwise, directly to Wainwright as principal, in negotiated transactions at market prices
prevailing at the time of sale or at prices related to such prevailing market prices and/or in any other method permitted by law. If we
and Wainwright agree on any method of distribution other than sales of our ordinary shares on or through the Nasdaq Capital Market or
another existing trading market in the United States at market prices, we will file a further prospectus supplement providing all information
about such offering as required by Rule 424(b) under the Securities Act. Wainwright is not required to sell any specific number or dollar
amount of securities, but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales
practices. There is no arrangement for funds to be received in any escrow, trust or similar arrangement.
Wainwright will be entitled to compensation at
a commission rate of 3.0% of the gross sales price per ordinary share sold. In connection with the sale of the ordinary shares on our
behalf, Wainwright may be deemed to be an “underwriter” within the meaning of the Securities Act and the compensation of Wainwright
may be deemed to be underwriting commissions or discounts. We have also agreed to provide indemnification and contribution to Wainwright
with respect to certain liabilities, including liabilities under the Securities Act or the Exchange Act of 1934, as amended, or the Exchange
Act.
Investing in our ordinary shares is
highly speculative and involves a significant degree of risk. The Company may be subject to various legal and operational risks as a
result of its previously being a China-based Issuer with certain administrative personnel and the majority of the Board of Directors
remaining in China, including Hong Kong. See “Risk Factors” beginning on page 18 of the prospectus for a discussion of
information that should be considered before making a decision to purchase our ordinary shares, including, but not limited to:
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“Uncertainties in the interpretation and
enforcement of Chinese laws and regulations could limit the legal protections available to us. In view of our having previously
been a China-based issuer and because of our prior bitcoin mining operations in China, as well as our current limited presence in
China, we are subject to Chinese laws and regulations which could limit the legal protection available to us. 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. The risks arising from the legal system in China include risks and uncertainties
regarding the enforcement of laws and that rules and regulations in China can change quickly with little, if any, advance notice;
and there is a risk that the Chinese government may intervene or influence our operations at any time, or may exert more control
over offerings conducted overseas which could result in a material change in our operations and/or the value of our securities. |
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We may be subject to penalties
as a result of the Chinese government’s suspension of our former P2P lending business. The Pudong Branch of the Shanghai
Public Safety Bureau (the “Bureau”) took criminal action against 14 defendants in connection with our prior P2P lending
business for illegal collection of public deposits. While the Company has not been the subject of any enforcement actions or investigations
as of the date hereof, nine persons were sentenced to imprisonment and were required to return of illegal gains, including our former
Chief Financial Officer and former Chief Executive Officer who is still being pursued by the authorities. No current member
of our management or board and none of our current employees was involved with the Company at the time of the events described above.
The final outcome of the criminal action has not been published, and the impact on the Company when that occurs cannot be determined
with any degree of certainty. |
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We may be subject to fines and
penalties with respect to our former business in China in a certain period from now on. Without the approval of the approving
authorities and the registration approval of the registration authorities, foreign enterprises (which include our Hong Kong subsidiaries)
may not conduct business in China. In China, our Hong Kong subsidiary made profits from mining equipment stored in facilities
leased by our Hong Kong subsidiaries, each of which is not registered in China. While, as of the date hereof, we have not received
any administrative penalty for our activities in China, there is a two-year statute of limitations for the Chinese authorities
to commence legal action against us for those activities which ended on June 21, 2021. If the Chinese authorities bring such an action
against us and are successful, we may be subject to penalties such as warnings, fines, confiscation of illegal income or suspension
of business for not having required authorization for our bitcoin mining operations. |
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It is now illegal to engage in
digital asset transactions, including bitcoin mining operations, in China, which adversely affect us. In May 2021, local
governments in China, including in the Xinjiang Province where we previously had bitcoin mining operations, began to issue shutdown
notices to operators within the cryptocurrency mining industry, among others. We had already been migrating our mines out of China
at a significant cost and adverse effect on our operations. At the time of the announcement of the ban in Xinjiang, we
had no mining operations in Xinjiang. We had bitcoin mining operations in Sichuan Province until June 21, 2021, whereas the
Sichuan shutdown went into effect on June 25, 2021. There can be no assurance that Sichuan Province or any other province will not
seek to impose retroactive fines, penalties or sanctions on our Company for our historical operations in those places. On
September 24, 2021, all digital asset transactions were banned in China. |
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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. Although
we have completed the migration of our miners from China to the United States and Canada, our bitcoin mining business is worldwide.
We expect to continue to purchase bitcoin miners from manufacturers and/or other sellers located in Hong Kong. Accordingly, our business,
prospects, financial condition and results of operations may be adversely affected by political, economic and social conditions in
China generally and by continued economic growth in China as a whole. |
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Our Hong Kong subsidiaries could become subject to the direct
oversight of the PRC government at any time if the national laws of mainland China are applied to Hong Kong. The national
laws of the PRC, including, but not limited to: (i) the Cybersecurity Review Measures that became effective on February
15, 2022, and (ii) approval by the China Securities Regulatory Commission (“CSRC”) or any other Chinese regulatory authority
to approve or permit an offering of securities in the U.S., do not apply to our Hong Kong subsidiaries, except for those listed in
the Basic Law of Hong Kong and described in more detail under “Risk Factors” below. However, due to the uncertainty of
the PRC legal system and changes in laws, regulations or policies, including how those laws, regulations or policies would be interpreted
or implemented, and the national laws applicable in Hong Kong, the Basic Law might be revised in the future and our Hong Kong subsidiaries
may be subject to future oversight by the PRC government. |
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United States regulators may be limited in their ability to
conduct investigations or inspection of our operations in Hong Kong. The Company’s auditor, Audit Alliance LLP (“AA”),
is PCAOB registered and based in Singapore. Under the Holding Foreign Companies Accountable Act (the “HFCAA”) and related
regulations, the PCAOB is permitted to inspect our independent accounting firm. AA is not subject to the determinations announced
by the PCAOB on December 16, 2021, nor the determinations under the HFCAA and related regulations, as described below under “Summary
of Information” and “Risk Factors – Risks Related to Doing Business in China.” Trading in our securities
may be prohibited under the HFCAA or the Accelerating Holding Foreign Companies Accountable Act, if the SEC subsequently determines
our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely and, as a result, U.S. national
securities exchanges, such as Nasdaq, may determine to delist our securities. |
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You may experience difficulties in effecting service of legal
process and enforcing judgments against us and our management, and the ability of U.S. authorities to bring actions abroad. Currently,
a portion of our operations and of our assets and personnel are located in Hong Kong. All but one member of our Board
of Directors are nationals or residents of jurisdictions other than the United States, and a substantial portion, if not all, 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. Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States. As
a result, recognition and enforcement in Hong Kong of judgments of a court in the United States and any other jurisdictions in relation
to any matter not subject to a binding arbitration provision may be difficult or impossible. Even if you sue successfully
in a U.S. court or any other jurisdictions, you may not be able to collect on such judgment against us or our directors and officers. In
addition, the SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing
actions against us or our directors or officers in Hong Kong. |
Other Limitations
From the Company’s commencement of mining
operations in February 2020 to October 3, 2021, the Company did not transfer any cash to any of its subsidiaries. During the year ended
December 31, 2020, the Company raised proceeds of approximately $5.2 million from private placements of the Company’s securities,
and the proceeds were directly transferred from investors in those private placements to the designated accounts of Bit Digital Hong
Kong Limited (“BT HK”), one of the Company’s wholly-owned subsidiaries in Hong Kong.
During the period from January 1, 2021 to
October 3, 2021, the Company raised proceeds of approximately $37 million from private placements and an equity line of credit. The proceeds
were directly transferred from investors to designated accounts of Bit Digital USA, Inc. (“BT USA”), the Company’s
subsidiary in the U.S. The net proceeds raised in our $80 million September 2021 private placement were transferred to BT USA. See “Recent
Sales of Unregistered Securities” below.
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Transfers of other assets |
During the period from February 2020 to September
30, 2021, Bit Digital Hong Kong transferred 25,006 miners to BT USA, with a carrying value of $19.80 million.
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Payment of dividends or distributions |
During the period from February 2020 to the
date hereof, the Company has not received any dividends or distributions from any of its subsidiaries, nor did the Company make any dividends
or distributions to its investors. See “Prospectus Supplement Summary” below for further information.
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
supplement. Any representation to the contrary is a criminal offense.
H.C. WAINWRIGHT & CO.
The date of this prospectus supplement is May 4, 2022.
TABLE OF CONTENTS
Prospectus Supplement
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is part of the registration statement
that we filed with the Securities and Exchange Commission, or the SEC, using a “shelf” registration process and consists of
two parts. The first part is this prospectus supplement, which describes the specific terms of this offering. The second part, the accompanying
prospectus, gives more general information, some of which may not apply to this offering. Generally, when we refer only to the “prospectus,”
we are referring to both parts combined. This prospectus supplement may add to, update or change information in the accompanying prospectus
and the documents incorporated by reference into this prospectus supplement or the accompanying prospectus. By using a shelf registration
statement, we may offer ordinary shares having an aggregate offering price of up to $500,000,000 from time to time under this prospectus
supplement at prices and on terms to be determined by market conditions at the time of offering.
If information in this prospectus supplement is
inconsistent with the accompanying prospectus or with any document incorporated by reference that was filed with the SEC before the date
of this prospectus supplement, you should rely on this prospectus supplement. This prospectus supplement, the accompanying prospectus
and the documents incorporated into each by reference include important information about us, the securities being offered and other information
you should know before investing in our securities. You should also read and consider information in the documents we have referred you
to in the sections of this prospectus supplement entitled “Where You Can Find More Information” and “Incorporation by
Reference.”
You should rely only on this prospectus supplement,
the accompanying prospectus, the documents incorporated or deemed to be incorporated by reference herein or therein and any free writing
prospectus prepared by us or on our behalf. We have not, and the underwriters have not, authorized anyone to provide you with information
that is in addition to or different from that contained or incorporated by reference in this prospectus supplement and the accompanying
prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We and the underwriters are
not offering to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information
contained in this prospectus supplement, the accompanying prospectus or any free writing prospectus, or incorporated by reference herein,
is accurate as of any date other than as of the date of this prospectus supplement or the accompanying prospectus or any free writing
prospectus, as the case may be, or in the case of the documents incorporated by reference, the date of such documents regardless of the
time of delivery of this prospectus supplement and the accompanying prospectus or any sale of our securities. Our business, financial
condition, liquidity, results of operations and prospects may have changed since those dates.
We further note that the representations, warranties
and covenants made by us in any agreement that is filed as an exhibit to any document that is incorporated by reference in this prospectus
supplement or the accompanying prospectus were made solely for the benefit of the parties to such agreement, including, in some cases,
for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or
covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such
representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
Unless otherwise indicated in this prospectus
or the context otherwise requires, all references to “we,” “us,” “our,” “the Company,”
and “Bit Digital” refer to Bit Digital, Inc. and its subsidiaries.
No action is being taken in any jurisdiction
outside the United States to permit a public offering of the securities or possession or distribution of this prospectus supplement or
the accompanying prospectus in that jurisdiction. Persons who come into possession of this prospectus supplement or the accompanying prospectus
in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering
and the distribution of this prospectus supplement or the accompanying prospectus applicable to that jurisdiction.
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety
by reference to the more detailed information appearing elsewhere in this prospectus supplement, the prospectus or incorporated herein
by reference. Each prospective investor is urged to read this prospectus supplement, the prospectus, any related free writing prospectus,
including the risks of investing in the securities discussed under the heading “Risk Factors” contained in this prospectus
supplement, the prospectus and any free writing prospectus, and under such headings in the documents incorporated herein by reference
in their entirety. You should also carefully read the information incorporated by reference into this prospectus supplement, including
our financial statements and the exhibits to the registration statement of which this prospectus supplement is a part. Investment in the
securities offered hereby involves a high degree of risk. See “Risk Factors” beginning on page S-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 supplement.
All references to “we,” “us,”
“our,” “Company,” “Registrant” or similar terms used in this prospectus supplement 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 U.S.A. Inc., a Delaware corporation
and our operating entity in the United States; Bit Digital Hong Kong Limited, and Bit Digital Strategies Limited, Hong Kong companies;
Bit Digital Singapore Pte. Ltd., a Singapore company; and Bit Digital Canada Inc., a Canadian company. When we refer to “you,”
we mean the holders of the applicable type of securities.
“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 supplement may contain 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 at any particular
rate or at all.
No action is being taken in any jurisdiction
outside the United States to permit a public offering of the securities or possession or distribution of this prospectus supplement in
that jurisdiction. Persons who come into possession of this prospectus supplement in jurisdictions outside the United States are required
to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus supplement applicable
to that jurisdiction.
The Company may be subject to various legal
and operational risks as a result of its previously being a China-based Issuer with a substantial amount of the Company’s operations
previously in China and Hong Kong. See “Risk Factors – Risks Related to Doing Business in China – Uncertainties in
the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.” The laws
and the rules and regulations in China, including the interpretation and enforcement thereof, particularly concerning our prior mining
operations in China, can change quickly with little, if any, advance notice; and the Chinese government may intervene or influence our
operations at any time. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas
and/or foreign investment in China-based Issuers could result in a material adverse change in our operations and/or the value of our
securities or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause
the value of such securities to significantly decline or be worthless. As a result of our prior structure of an offshore issuer with
a variable interest entity (“VIE”) which are the concerns of the SEC as to China-based Issuers, we are setting forth below
some of the risks and uncertainties concerning the Company’s prior operations, however, we are no longer a China-based Issuer,
no longer have and will not have a VIE structure and do not intend to have a mainland China subsidiary (hereinafter, a “WFOE”):
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We may be subject to penalties as a result of the Chinese government’s
suspension of Golden Bull Limited’s prior peer-to-peer lending business, as well as our doing business in mainland China through
Hong Kong Subsidiaries. The Company or its subsidiaries are required to establish a commercial entity under the PRC laws or register
itself directly with the Chinese government as a foreign company to operate in China which it did not do. Before the Company ceased
operating its bitcoin mining business in China, the Company previously conducted that business in China through its Hong Kong subsidiary,
Bit Digital Hong Kong Limited, which is deemed a foreign company. As a result of the Chinese ban on digital assets transactions,
the Company terminated the process to register a WFOE subsidiary in mainland China. |
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Since we do not own or control any VIEs and do not intend to form a VIE and have no mining operations in China, we do not believe that Chinese regulations will have an adverse impact on our ability to conduct business in North America, to accept foreign investment or list on U.S. or other foreign exchanges. |
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Our present corporate structure, which the Company has no current intent to change, is as follows: |
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Since we terminated our bitcoin mining operations
in China in June 2021, and by September 30, 2021, have migrated previously warehoused miners out of China, no mining assets remained
in mainland China. The management of our digital assets by Bit Digital Strategies Limited, a Hong Kong subsidiary, has taken place
since at least June 2021 outside of mainland China, in Hong Kong. The Company’s employees are employed
through its U.S., Cayman Islands and Hong Kong subsidiaries. Of our remaining employees in China, all of such persons have physical
office locations in Hong Kong. Further, if not for COVID-19 related travel restrictions between mainland China and Hong Kong, all
our remaining employees in China would be expected to physically work in Hong Kong, leaving us with no personnel in mainland China.
We do not maintain an office in mainland China. Notwithstanding the termination of our bitcoin mining operations in China, we presently
intend to continue our limited administrative activities described above in China and Hong Kong through our Hong Kong subsidiaries,
in order to take advantage of our existing bitcoin mining relationships and continue to access the spot market and Chinese manufacturers
of bitcoin mining equipment. Our bitcoin mining equipment purchase agreements have been signed and will be signed by and between
our Hong Kong subsidiaries and/or U.S. subsidiaries and the equipment mining manufacturers outside of mainland PRC. We have not had
difficulties transferring the bitcoin mining equipment from our Hong Kong subsidiaries to our other subsidiaries other than minor
logistical delays, nor have we had difficulties in transferring cash to or from our Hong Kong subsidiaries. However, this could change
in the event that our Hong Kong subsidiaries become subject to the direct oversight of the PRC government if the National laws of
mainland China are applied in Hong Kong. All of our bitcoin mining equipment has been transferred from our Hong Kong subsidiaries
to North America. See “Risk Factors – General Risks – Risks Related to Doing Business in China – We may be
subject to fines and penalties for any noncompliance with or liabilities in our historical business in China in a certain period
from now on” and “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” beginning on page 20 of the prospectus. |
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As of the date of this prospectus supplement, we
are not required to obtain approval or prior permission from the China Securities Regulatory Commission (the “CSRC”)
or any other Chinese regulatory authority under the Chinese laws and regulations currently in effect. As of the date of
this prospectus, neither we nor any our subsidiaries have been informed by the CSRC, Cybersecurity Administration of China (the “CAC”)
or any other Chinese regulatory authority of any requirements, approvals or permissions that we should obtain prior to this offering. However,
as there are uncertainties with respect to the Chinese legal system and changes in laws, regulations and policies, including how
those laws and regulations will be interpreted or implemented, there can be no assurances that we will not be subject to such requirements,
approvals or permissions in the future. If we are unable to comply in the future, we could become subject to penalties,
including fines, suspension of business, prohibition against new user registration (even for a short period of time) and revocation
of required licenses, and our reputation and results of operations could be materially and adversely affected. For additional
information, see “Risk Factors – Risks Related to Doing Business in China” beginning on page 18 of the prospectus.
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The Company’s auditor, Audit Alliance LLP, is
PCAOB registered and based in Singapore. Under the Holding Foreign Companies Accountable Act (the “HFCAA”), the PCAOB
is permitted to inspect our independent public accounting firm. There is no guarantee that future audit reports will be prepared
by auditors that are completely inspected by the PCAOB and, as such, future investors may be deprived of such inspections, which
could result in limitations or restrictions to our access of the U.S. capital markets. Furthermore, trading in our securities
may be prohibited under the HFCAA or the Accelerating Holding Foreign Companies Accountable Act if the SEC subsequently determines
our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national
securities exchanges, such as Nasdaq, may determine to delist our securities. Furthermore, on June 22, 2021, the U.S.
Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCAA to reduce the
number of non-inspection years from three to two years and thereby would reduce the time before our securities may be prohibited
from trading or be delisted if our auditors were unable to be completely inspected by the PCAOB. On December 2, 2021, the SEC adopted
amendments to finalize rules implementing the HFCAA requiring the SEC to prohibit an issuer’s securities from trading on any
U.S. securities exchange and on the over-the-counter market, if the auditor is not subject to PCAOB inspections for three consecutive
years and this ultimately could result in our ordinary shares being delisted. On December 16, 2021, the PCAOB issued its HFCAA Determination
Report to notify the SEC that it was unable to inspect or investigate completely registered public accounting firms headquartered
in mainland China and in Hong Kong because of the positions taken by authorities in mainland China and Hong Kong. As stated above,
our current auditors are based in Singapore, and the PCAOB is permitted to inspect and investigate them. For additional
information, see “Risk Factors – Risks Related to Doing Business in China” beginning on page 18 of the prospectus. |
Our Company
Bit Digital is a sustainability-focused bitcoin
mining company with mining operations in North America. On June 24, 2021, the Company signed the Crypto Climate Accord, a private sector-led
initiative to decarbonize the crypto and blockchain sectors.
We completed our miner fleet’s exit
from China during the third quarter of 2021. As of September 30, 2021, we had no miners remaining in China. As of November 17, 2021,
100% of our miner fleet had arrived in North America. As of December 31, 2021, we owned 27,744 bitcoin miners and 731 Ethereum
miners, with an estimated maximum total hash rate of 1.60 Exahash (“EH/s”) and 0.3 TH/s, respectively. The reduction of hash
rate in 2021 was due to the aforementioned fleet repositioning, in which the Company sold or disposed of certain models (partially offset
by purchases) in anticipation of purchase opportunities. As a result, during 2021, we recognized a $3,746,247 net loss, comprised of
a $610,520 gain from sales, and a $4,356,767 loss from disposals. The net sale proceeds from those miner sales were reinvested into subsequent
miner purchases. The Company purchased 851 miners on the spot market during the third quarter. In view of the long delivery time to purchase
new miners from miner suppliers like Bitmain and MicroBT, we initially chose to acquire second-hand miners which can be delivered in
only a few weeks. In parallel, we also enjoy strategic relationships with leading miner manufacturers, enabling us to access ASICs on
advantageous terms.
The accelerated migration of our miners
from China-North America has had a material adverse effect on our business and financial condition. Specifically, a significant portion
of our mining assets have been taken offline and continue to be non-operating as a result of having to geographically relocate them to
new hosting locations in North America. We continue our efforts to effect their complete redeployment. The timing of redeployment is
subject to factors outside of our control, including but not limited to our hosts’ delivery of new hosting and power capacity.
During the year ended December 31, 2021, we
purchased 4,466 miners for bitcoin mining, including 1,259 Bitmain S17Pro, 953 MicroBT M20S, 931 Bitmain S17+, 500 Bitmain S19 Pro, 451
Bitmain T17, 261 MicroBT M30S, 101 Bitmain S17 and 10 Bitmain S17E models. As of December 31, 2021, these purchased miners had already
been deployed in North America. During the year ended December 31, 2021, we also purchased 731 A10 miners for ETH mining, 700 of which
were deployed in North America in January 2022.
During the year ended December 31, 2021, we
repositioned our fleet by selling 15,808 miners that were deemed to have a lower expected return on invested capital than miners we believe
we can purchase, and/or were deemed unsuitable for long-distance migration to North America. In addition, we abandoned 1,779 miners that
were deemed to have reached the end of their useful lives, were no longer operational and/or would have been uneconomical or impossible
to repair or migrate. As a result, we recognized a $3,746,247 net loss, comprised of a $610,520 gain from sales and a $4,356,767 loss
from disposals.
As of December 31, 2021, we had 27,744 miners
for bitcoin mining, with a total maximum hash rate of 1.60 EH/S, a decrease from 40,865 miners and 2.25 EH/s as of December 31, 2020.
The reduction was due to the aforementioned sales and disposals of certain miners, partially offset by miner purchases and the aforementioned
miner migration.
As of December 31, 2021, we had 731 miners
for ETH mining, with an estimated maximum total hash rate of 0.297 Terahash (“TH/s”), the majority of which were placed in
service in January 2022.
The Company’s fleet of owned miners
is comprised of the following models:
| Model | |
Owned as of
December 31,
2021 | |
| MicroBT Whatsminer M21S | |
| 16,296 | |
| MicroBT Whatsminer M20S | |
| 3,690 | |
| Bitmain Antminer S17 | |
| 3,641 | |
| MicroBT Whatsminer M10 | |
| 1,938 | |
| Bitmain Antminer T3 | |
| 769 | |
| Bitmain Antminer S19 Pro | |
| 605 | |
| Bitmain Antminer S17+ | |
| 500 | |
| MicroBT Whatsminer M30S | |
| 261 | |
| Bitmain Antminer T17+ | |
| 44 | |
| Total number of bitcoin miners | |
| 27,744 | |
| Innosilicon A10 series ETH miners | |
| 731 | |
| Total miners | |
| 28,475 | |
The Company commenced its mining operations
in February 2020, following the suspension of Golden Bull Limited’s peer-to-peer lending business in October 2019. Our bitcoin
mining operations, hosted by third party suppliers, use specialized computers, known as miners, to generate bitcoins, a digital asset.
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. When bitcoin was first launched in 2009, miners were awarded 50 bitcoin if they first solved a new block; this
award was halved to 25 bitcoin per new block in 2012, and halved again in 2016 to 12.5 bitcoin per new block. Most recently, in May 2020,
the then prevailing reward of 12.5 bitcoin per new block was halved to 6.25 bitcoin. This reward rate is expected to next halve during
2024 to 3.125 bitcoin per new block and will continue to halve at approximately four-year intervals until all potential 21 million bitcoin
have been mined. Miners with a greater hash rate have a higher chance of solving a block and receiving a bitcoin award.
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.
Hosting Agreements
In order to achieve lower utility costs, the
mining facilities are maintained by our third-party hosting service providers. Our bitcoin mining facilities in PRC were maintained by
Hong Kong suppliers. They were our hosts, and they installed the miners, provided IT consulting, maintenance and repair work on site
for us. Our bitcoin mining facilities in PRC were maintained by Hong Kong suppliers before we suspended our bitcoin mining operations
in June 2021
Compute North
Our miners’ facilities in Texas and
Nebraska are maintained by Compute North LLC, (“Compute North”), a well-known miner hosting company in North America. Pursuant
to a Master Agreement dated September 9, 2020 between Compute North and the Company, Compute North is providing colocation, managerial
and other services at its data center facilities, including rack space, electrical power, ambient air cooling, internet connectivity
and physical security for the Company’s miners during the equipment term of any miner. The term of this agreement shall be for
the remainder of any Equipment Term set forth on an order when Compute North notifies the Company in writing that such equipment has
been received and turned on by Compute North. From November 2020 through March 2021, the Company signed additional hosting capacity bringing
aggregate capacity with Compute North to approximately 48 MW with terms ranging from 12 to 36 months. In March 2022, the Company signed
a change order for approximately 6.5 MW of capacity to upgrade miner equipment and extend the term to 60 months. Compute North has advised
the Company that delivery of a portion of its contracted hosting capacity has been delayed and is now expected during the second half
of 2022. Pending delivery, the Company expects to redirect miner deployments for such capacity to other hosting partners. The agreement
is terminable by Compute North for Cause (as defined). The Company granted Compute North a security interest in the miners and other
equipment installed at the facility to secure the Company’s obligations under the Master Agreement. Compute North may, at such
time as it determines appropriate, file a UCC Financing Statement in such places it determines to evidence the security interest. At
the facilities maintained by Compute North, the Company installed miners and is responsible for a monthly service fee per unit and power
costs to be set forth on an Order Form as updated from time to time. The monthly service fee is $3.00 per unit. Power costs range from
$0.35 to $0.60 center per KWH. Compute North shall receive a range of 15–25% of the bitcoin mined after payment of the Monthly
Service and Power Fees.
Compute North’s facilities in Nebraska
and Texas currently provide approximately 20 MW to power our miners. Our overall expected hosting capacity with Compute North is approximately
48 MW. Compute North expects to deliver the remaining approximately 28 MW of anticipated hosting capacity to us in the second half of
2022.
Link Global
In Canada, our miners’ facilities have
been maintained by Link Global Technologies, Inc. (“Link Global”). Pursuant to a Master Service Agreement dated as of January
31, 2021 between Link Global and Bit Digital Canada, Inc., Link Global installed the Company’s computer miners in Alberta, Canada
and was monitoring them on at least a daily basis. Link Global has advised us that its facility in Alberta Canada that had supplied us
with approximately 3.3 MW for hosting our miners was required to discontinue operations as a result of a permitting dispute. Link Global
is currently evaluating alternative sites to accommodate our miners. In the interim, pending further updates, the Company directed miners
formerly hosted with Link Global to other hosting partners. The Company has sent Link Global a termination notice and is seeking a refund
of its deposit of $129,845. “See Risk Factors—Risks Related to Canada Government Regulations.”
Link Global provided power, internet access,
cabling, switches, DHCP and interconnection with its equipment or with other computer carriers. Link Global is responsible for janitorial
services, environmental systems maintenance, power plant maintenance regularly required. The initial term was twelve (12) months subject
to a twelve-month renewal at the Company’s option. The Company will pay Link Global the agreed rate for power of $0.036 USD per
KW hour, plus a 5% Goods and Services Tax (GST). The agreed royalty is the total hash rate per miner less the power cost, maintenance
cost, service cost and all costs related to the operation of the miners. Link Global’s share is 15% of Net Profit (as defined)
after total earnings less total costs and settled in bitcoin monthly. The Company will pay the agreed royalty by transfer of bitcoin
to a wallet deposited by Link Global. The Company has a right of first offer (“ROFO”) to purchase additional hosting facilities
and/or the purchase of all or substantially all of the assets of Link Global. Under Canadian law, we cannot export, re-export, transfer,
or make available, whether directly or indirectly, any regulated item or information to anyone outside Canada in connection with an Agreement
with Link Global without first complying with all export control laws and regulations which may be imposed by applicable governmental
authorities of any country or organization of nations within whose jurisdiction we operate or do business.
Digihost
In June 2021, we entered into a strategic
co-mining agreement with Digihost Technologies (“Digihost”) in North America. Pursuant to the terms of the agreement, Digihost
expects to provide certain premises to Bit Digital for the purpose of the operation and storage of a 20 MW Bitcoin mining system to be
delivered by Bit Digital, and Digihost will also provide services to maintain the premises for a term of two years. Notwithstanding the
foregoing, each party has the right to terminate the agreement in the event of the enactment of New York Senate Bill S6486, or a similar
federal, state or local law, that would require so-called “digital asset mining centers” to cease operations. The collaboration
between Digihost and Bit Digital is expected to generate an increase in hash rate of approximately 400 Ph/s between the companies based
on certain assumptions, including, but not limited to, the hash rate and power consumption of miners anticipated to be utilized by the
bitcoin mining systems and other factors outside of the Company’s control. Under the terms of the agreement, Digihost is obligated
to provide power for the operation of the miners and to also provide management services necessary to maintain 95% uptime on the miners.
This Agreement required a $511,000 security deposit, the first month’s rent of $511,000 and a one-time safety installation fee
of $35 per miner. The monthly recurring cost will be a Power Cost of $0.035 per KWh on an averaged basis and may include additional costs
per KWh on renewable natural gas usage (TBD). Maintenance and Service Costs will be part of the monthly recurring charge on a performance
basis. Digihost shall also be entitled to 20% of the profit generated by the miners, paid weekly. Digihost shall be provided read-only
access to the Company’s wallet for funds generated by the miners. The miners were delivered to Digihost and installation in New
York State is expected to be completed during the second quarter of 2022.
In July 2021, the Company and Digihost entered
into a second strategic co-mining agreement that is expected to be powered by approximately half renewable and/or carbon free energy
sources, subject to finalizing our energy procurement strategy with Digihost. The second agreement brings our total contracted hosting
capacity with Digihost to 120 MW. Under this second Colocation Services Agreement (the “CSA”), Digihost will provide the
premises to the Company for the operation of a 100 MW bitcoin mining system for a term of two years, subject to earlier termination described
above as a result of the New York State bill, or otherwise for Cause. This expanded CSA is expected to facilitate an additional increase
in hash rate of approximately 2EH between the two companies and a total increase in hash rate between the two companies of approximately
2.4EH, including the prior colocation described above, based on certain assumptions including, but not limited to, the hash rate and
power consumption of miners anticipated to be utilized by the bitcoin mining systems, and other factors including the Company’s
ability to purchase such equipment and to secure financing for such purchases. Substantially the same as under the initial agreement,
Digihost will maintain 95% uptime for miners on the same, safety installation fees, maintenance costs, power costs, and profit-sharing
percentage. The CSA required a security deposit of $2,555,000 and monthly power costs of $511,000 for each of the five months of December
2021 through April 2022.
At Digihost’s new facilities in North
Tonawanda and Buffalo, New York, Digihost has installed approximately 7 MW of power capacity for our miners. Upon completion, these combined
facilities are expected to deliver an aggregate of 20 MW to power our miners. Completion is currently expected in Q2 2022. Digihost has
advised the Company that it is unable to proceed with a previously-identified new site in upstate New York that had been expected to
provide Digihost’s remaining 100 MW hosting commitment to us. Digihost is currently exploring potential alternative sites for the
remaining 100 MW of contracted hosting capacity pursuant to the CSA with delivery date to be determined.
Blockfusion
On August 25, 2021, the Company entered into a 35 MW Mining Services
Agreement (the “MSA”) with BlockFusion USA, Inc. (the “Service Provider”) that is expected to be powered primarily
from zero carbon emission energy sources. As of March 15, 2022, the Service Provider had installed approximately 8 MW of power consumption
for our miners at our new facility in Niagara Falls, New York. The remaining power capacity is expected to be delivered in the second
half of 2022.
The MSA is for a two (2) year Term with automatic
renewals for one (1) year terms unless terminated by either party on at least thirty (30) days’ prior written notice. During the
Term, the Service Provider shall provide certain colocation, operation, management and maintenance services (the “Services”).
The Company provided the Service Provider with the first (of four) Pod Mining Equipment for installation in September 2021. If the Service
Provider fails to provide an uptime of 98.5% or better, the Performance Fees under the MSA shall be reduced.
The Service Provider shall provide the Company
with all necessary access to remotely monitor — in person or remotely — the generated bitcoin and all other metrics as reasonably
requested by the Company. The Company shall pay the actual expenses incurred for the energy used by the Company on a monthly basis plus
management costs of $2.00 per miner. The Service Provider shall receive a Performance Fee in respect of services relating to the first
20.0 MW hrs of load power equal to 30% of Net Digital Assets mined for any period, subject to adjustment and in respect to the next15.0
MW hrs equal to 20% of Net Digital Assets mined. The Net Digital Assets for a Payout Period means the Generated Digital Assets minus
the amount of Digital Assets that have a value that is equal to the Estimated Daily Costs for Mining such Digital Assets for such
Payout Period.
The Company paid the Service Provider in advance
$3,750,000 (the “Infrastructure Investment”) to pay for actual bona fide expenses incurred by the Service Provider. During
the Term and for a twelve (12) month period after termination of the MSA (the “ROFR Period”), the Company may propose to
match the terms of a bona fide offer from a third party to finance or otherwise sell any interest in the Service Provider, or any of
its material assets or business interests (a “Covered Transaction”), provided that Company shall be credited the amount of
the Infrastructure Investment paid and not reimbursed (the “Discount”). If the Parties do not enter into definitive agreements
in respect of one or more Covered Transactions pursuant to which the Company obtains the full economic benefit of the Discount, then,
within twelve (12) months following the termination of this Agreement, Service Provider shall refund the Infrastructure Investment. All
capitalized terms herein shall have the meanings set forth in the attached MSA.
At our new facility in Niagara Falls, New
York, Blockfusion has installed approximately 8 MW of power capacity for our miners. Upon completion, this facility is expected to deliver
an aggregate of 35 MW to power our miners. Completion is currently expected in the second half of 2022.
As a result of its signed hosting agreements,
as of December 31, 2021, the Company had secured hosting capacity sufficient to complete the redeployment of its fleet in North America,
with additional signed capacity to facilitate future fleet growth.
Migration and Status of Mining Operations
It is a common practice in the mining industry
in China to migrate miners within geographic locations on a seasonal basis, which we did, depending on water and electricity availability
and cost. In October 2020, we commenced our strategy of migrating assets from China to North America. The Company had already migrated
its miners out of Inner Mongolia when the government of China’s Inner Mongolia banned all crypto mining facilities in March 2021.
On May 21, 2021, when the Financial Stability and Development Committee of the State Council in China proposed to “crack down on
bitcoin mining and trading,” local governments began to issue corresponding measures to respond to the central government’s
proposal. From May 21, 2021 until June 18, 2021, when the Sichuan Province issued a notice on the shutdown of digital asset mining operations,
the Company had mining operations only in Sichuan Province that it terminated on June 21, 2021, prior to the June 25, 2021 deadline.
From April through June 2021, we migrated
14,500 miners from China to the United States. As of June 30, 2021, 9,489 of our miners in China were warehoused and were not in operation,
awaiting disposition or migration to North America. As a result, a significant portion of our fleet was offline in 2021. Prior to shipment,
we generally refurbished our miners in a facility in Shenzhen, China, to ensure the resilience during transfer and operability upon arrival.
Miners are securely packaged and shipped via air or by sea, depending on market conditions. We completed the migration of all of our
remaining China-based miners out of China by September 2021. The last miner shipments arrived in the U.S. as of November 17, 2021. 27.8%
of our fleet or 7,710 bitcoin miners representing 0.457 EH/s was deployed in North America as of December 31, 2021. As of March 15, 2022,
39.2% of our currently-owned fleet, or 10,462 bitcoin miners and 712 Ethereum miners representing 0.511 Exahash (“EH/s”)
and 0.188 Terahash (“TH/s”), respectively, was deployed in North America. The miners awaiting installation in the United
States are expected to be installed at sites operated by Compute North and/or at the new facilities to be operated by Digihost and Blockfusion
in upstate New York in 2022.
On October 7, 2021, the Company contracted
to purchase an additional 10,000 Antminers from Bitmain Technologies Limited (“Bitmain”) under a Sales and Purchase Agreement
(the “SPA”) at an estimated cost of $65 million. These miners are expected to increase the Company’s miner hash rate
by approximately 1.0 Exahash (“EH/s”). Upon receipt and deployment of those additional miners, our maximum total hash rate
is expected to be approximately 2.603 EH/s. The initial payment of $27,500,000 under the SPA was made on October 7, 2021 upon the signing
of the SPA. Shipments are scheduled to be made between March and June 2022. The Company is using funds on hand and proceeds from the
sale of securities in the September 2021 Private Placement, as well as the liquidation of bitcoins we currently hold, to fund the proposed
the purchase of these additional miners.
The miners we own are mostly made by manufacturers
MicroBT and Bitmain for bitcoin mining, which we believe are the top two brands in the industry, and standard Bitcoin ASIC miners providing
hash computing power to the bitcoin network. We have not had any bitcoin mining operations in mainland China since June 2021.
Our miners completed the migration from mainland
China to North America during the fourth quarter of 2021. All miners and newly purchased miners are expected to be fully operational
in early 2022.
As
of December 31, 2021, in Nebraska we had 5,532 miners, in Texas we had 4,300 miners, in Georgia
we had 100 miners, in New York we had 12,566 miners, and in New Jersey we had 5,977 miners
warehoused.
As of December 31, 2021, the maximum total
hash rate of all the 27,744 bitcoin miners and 731 Ethereum miners was 1.603 EH/s and 0.297 TH/s, respectively, all located in North
America.
From the inception of our bitcoin mining business
in February 2020 to December 31, 2021, we earned an aggregate of 3,575.46 bitcoins. The following table presents the number of bitcoins
mined on a quarterly basis:
The Company earned 248.4 and 240.6 bitcoins
in the third and fourth quarters of 2021. The quarter-over-quarter reduction from 562.9 bitcoins mined during the second quarter was
due to the aforementioned accelerated migration program, in which a higher percentage of fleet capacity was offline while in transit
to or awaiting installation in North America, as well as miner sales and disposals.
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. Each of our operating subsidiaries in Hong Kong, the U.S. and Canada received
revenue in the form of digital assets, the value of which is determined using the market price of the related digital asset at the time
of receipt. The digital asset is either held by the subsidiary or sold for fiat currency or USD Coin (“USDC”). See “Digital
Asset Transactions” below.
Custodian Accounts
Generally, we only sell bitcoins when there
is a need to fund our working capital requirements and the purchase of mining equipment. We otherwise store the balance in custody. We
use Cactus Custody, a division of Matrixport Guard Limited (“Cactus Custody”) and Copper Technology (UK) Limited (“Copper”)
as our custodians (the “Custodians”) to store all of our digital assets. While the Custodians hold our digital assets, the
ownership and operation rights are always 100% attributed to the Company. Our custody account status and assets transactions are clearly
recorded, and we can log into each Custodian’s system to query and download those records at any time. The Custodians will not
loan, hypothecate, pledge and/or encumber our assets without express instructions from us.
Cactus Custody can transfer any digital assets
to either cold or hot wallet addresses which transactions are assigned and managed under the Custodian’s management. Copper provides
cold, warm, and hot storage locations at our choice. The transactions are broadcast to the blockchain network, where they are validated
and then enter the Custodian’s custody. Digital assets are kept in unique and segregated blockchain addresses accessible by us
and verifiable on blockchain at any time.
For storage of digital assets, the Cactus
Custody wallet arrangement includes hardware and software infrastructure and security controls over key generation, storage, management
and transaction signing. Hot storage is the online key storage part. The Cactus Custody’s proprietary solution adopts HSM (Hardware
Security Module) for key generation, storage and transaction signing. An HSM is a physical computing device that safeguards and manages
digital keys for strong authentication and provides cryptoprocessing. HSMs provide tamper evidence, tamper resistance and tamper responsiveness
features that can safeguard client’s private keys. Private keys will be generated in HSM by a true random number generator; the
plaintext of the private key will never leave the HSM. Cactus Custody’s proprietary storage applies industry best practice in security
design for cold storage, such as the highest security level HSM, multi-sig, private key split and stored in geographically distributed
vaults. Vault here refers to a highly-secured data center with stringent access control and high-quality environment control. Each cold
storage vault only stores one-half of the encrypted private key in HSM. Vaults are located in three continents and are not prone to single
point of failure. Digital assets stored at Copper are protected using MPC (Multimedia Personal Computer) technology, whether they are
stored in Copper’s Omnibus Treasury or in the Company’s own blockchain segregated vault.
The physical backup is the disaster recovery
measure. Private keys are generated in HSM. Matrixport will split encrypted private keys into eight (8) pieces. Each piece will be stored
in an encrypted hard disk which will be then kept in a safe deposit box in different banks. Three (3) of eight (8) pieces are held by
management, the Company and a third party would be needed to recover private keys. Cold storage withdrawal can only be made to the user’s
hot storage address. The Custodians provide internal risk control measures like withdrawal limit and whitelist as a tool to help protect
client’s digital assets.
Digital Asset Transactions
We use Amber Group’s OTC desk (Tether)
for selling or exchanging bitcoins for U.S. dollars, USDC (USD Coin) or ETH (Ethereum token). Subsequent to September 30, 2021, we exited
our holdings of WBTC and USDT and have no plans to hold these assets in the future. As of the date of this prospectus, we only own bitcoin,
ETH and USDC. We are in the research and development stage of exploring treasury management alternatives to increase earnings of the
bitcoins we mine and hold. In that regard, we may continue to hold ETH and/or USDC (in addition to bitcoin) in order to fund the purchase
of bitcoin miners and other mining equipment, to pay operational expenses such as hosting company fees and for working capital and other
general corporate purposes, including treasury management. We have temporarily taken receipt of other digital assets, the amounts of
which have not been material, as stated above. However, other than bitcoin, ETH and USDC, we have no holdings of, and have no current
plans to hold, any other types of digital assets.
The legal test for determining whether any
digital asset is a security is a fact-driven analysis. Our determination that the digital assets we hold are not securities is a risk-based
assessment and not a legal standard or binding on the SEC or any other regulators. If bitcoin, ETH, or USDC tokens are deemed to be securities
under the laws of any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse
consequences for such digital asset. See “Risk Factors–Risks Related to United States Government Regulation–A particular
digital asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and
if a regulator disagrees with our characterization of a digital asset, we may be subject to regulatory scrutiny, investigations, fines,
and other penalties, which may adversely affect our business, operating results and financial condition. Furthermore, a determination
that bitcoin, ETH or USDC that we own or mine is a “security” may adversely affect the value of bitcoin and our business.”
We expect our results of operations to continue
to be affected by bitcoin price as most of our revenue is sourced from bitcoin mining production as of the filing date of this prospectus.
Any future significant reductions in the prices of bitcoin will likely have a material adverse effect on our results of operations and
financial condition. See “Risk Factors – Bitcoin Related Risks – Our results of operations are expected to be impacted
by significant fluctuations in bitcoin price.”
As
of December 31, 2020, there was a loan of 5.19 bitcoins to an unaffiliated third party. During
the three and six months ended June 30, 2021, the Company lent an additional 141.99 and 81.78
bitcoins to two third parties, respectively. All loans were charged interest at 5% per annum.
The bitcoins were repayable on demand. As of June 30, 2021, the unaffiliated third parties
repaid all bitcoins. As of December 31, 2021, there were no additional bitcoins lent to third
parties.
Insurance
We currently do not have any insurance of
our miners; however, we intend to purchase insurance in the future. The market is in its early stages. We are actively seeking insurance
per miner asset, as well as digital assets of the Company. Cactus Custody is self-insured for its secure asset fund (the “Fund”).
The Fund size is USD $4 million, with an additional 35% of custody service annual revenue each year to be added to this Fund, at no additional
cost to the Company.
The Fund covers:
| |
● |
damage caused by insider theft or dishonest acts by Cactus Custody
employees or executives; |
| |
|
|
| |
● |
third-party hacks, copying, or theft of private keys for both hot
and cold storage; and |
| |
|
|
| |
● |
damage caused by loss of keys for both hot and cold storage |
Our custodian Copper maintains a $10 million
comprehensive insurance policy, at no additional cost to the Company. Copper’s insurance policy for digital assets as well as fiat
currency maintained on Crypto Copper’s digital infrastructure provides protection against: employee theft; third-party computer
crime; funds transfer fraud; cyber losses (crime through fraud/theft, viruses, hacking); Property loss (relevant to the assets) within
Copper premises and in transit; and appropriate legal costs.
From the Company’s commencement of mining
operations in February 2020 to October 3, 2021, the Company did not transfer any cash from the holding company to any of its subsidiaries.
During the year ended December 31, 2020, the
Company raised proceeds of approximately $5.2 million from certain private placements, and the proceeds were directly transferred from
investors to the designated accounts of Bit Digital Hong Kong Limited (“BT HK”), the Company’s wholly owned subsidiary
in Hong Kong.
During the period from January 1, 2021 to
December 31, 2021, the Company raised net proceeds of approximately $107 million from both private placements, an equity line of credit
and convertible notes. The proceeds were directly transferred from investors to designated accounts of Bit Digital USA, Inc. (“BT
USA”), the Company’s subsidiary in the U.S.
| - | Transfer of other assets |
During the period from February 2020 to September
30, 2021, Bit Digital Hong Kong transferred 25,006 miners to BT USA, with a carrying value of $19.80 million.
| - | Payment of dividends or distributions |
During the period from February 2020 to the
date of this prospectus supplement, the Company did not receive any dividends or distributions from any of its subsidiaries, nor did
the Company make any dividends or distributions to its investors.
Pursuant to the Enterprise Income Tax Law
of the People’s Republic of China 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 August 2015, the State Administration
of Taxation promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or Circular 60,
which became effective on November 1, 2015. Circular 60 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, which is what the Hong Kong subsidiaries will do.
| - | Restrictions or limitations |
As of this date, the Company had five subsidiaries
incorporated in and based in the United States, Canada, Hong Kong and Singapore. The Company is not aware of any restrictions or limitations
on foreign exchange in these countries or area, or its ability to transfer cash between entities, across borders or to U.S. investors,
nor is the Company aware of any restrictions and limitations on its ability to distribute earnings from its businesses, including the
businesses of its subsidiaries, to the holding company and its U.S. investors.
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 Golden Bull Limited previously operated our peer-to-peer lending business and the car rental business in PRC.
Prior to the sale, we discontinued our peer-to-peer lending business and the car rental business in the PRC (“Discontinued Operations”).
On the same date, the Company entered into a certain share purchase agreement (the “Disposition SPA”) by and among Sharp
Whale Limited, a BVI company (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 former subsidiaries and VIEs in the PRC that had been engaged in the Discontinued
Operations no longer have any relationship with the Company
Recent Sales of Unregistered Securities
Equity Line
On January 11, 2021, the Company entered into
an $80 million purchase agreement (the “Purchase Agreement”) as amended on July 30, 2021, together with a registration rights
agreement (the “Rights Agreement”), with an accredited institutional investor (the “Investor”). The Company also
executed a Securities Purchase Agreement on December 31, 2020 to sell to the Investor an aggregate principal amount of $1,650,000 of
convertible subordinated bridge notes that were automatically converted into the Company’s ordinary shares, $0.01 par value prior
to commencement of sales under the Purchase Agreement. Pursuant to the Purchase Agreement, the Investor agreed to purchase, from time
to time, up to $80 million of the Company’s ordinary shares, subject to certain limitations, during the 36-month term
of the Purchase Agreement. Additionally, pursuant to the Rights Agreement, the Company agreed to file a registration statement with the
U.S. Securities and Exchange Commission (“SEC”) covering the resale of ordinary shares that may be issued to the Investor
under the Purchase Agreement. The registration statement was declared effective by the SEC on May 20, 2021 (the “Commencement Date”).
A second registration statement (No. 333-258330) was declared effective with the SEC on February 7, 2022.
The purchase price of the ordinary shares purchased by the Investor
under the Purchase Agreement is derived from prevailing market prices of the Company’s ordinary shares immediately preceding the
time of sale. The Company controls 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 through August 11, 2021, the
Company has sold to the Investor an aggregate of approximately 5,972,194 shares at an aggregate price of $36 million. As of April 27,
2022, an aggregate of $54 million of ordinary shares had been sold.
In consideration for entering into the Purchase
Agreement, the Company agreed to pay to the Investor a commitment fee equal to 2.5% of the ordinary shares sold (the “Commitment
Shares”). 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 would have been required to pay
an additional commitment fee of $1,000,000, either in cash or in ordinary shares. The proceeds received by the Company under the Purchase
Agreement have been used for working capital and general corporate purposes, including the purchase of additional computer miners.
Private Placement
On September 29, 2021, Bit Digital, Inc.,
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers signatory thereto (the “Purchasers”),
pursuant to which the Company agreed to issue and sell, in a private offering (the “Private Placement”), an aggregate of
approximately $80 million of securities, consisting of 13,490,728 ordinary shares of the Company, par value $.01 per share and warrants
to purchase an aggregate of 10,118,046 ordinary shares at an exercise price of $7.91 per whole share, at a combined purchase price of
$5.93 per share and accompanying warrant (collectively, the “Securities”). Each Warrant was exercisable immediately and will
expire three and one-half years from January 25, 2022 when the registration statement filed pursuant
to the RRA (as defined below) was declared effective. If and only if, at the time of exercise of the Warrants, there is no effective
registration statement registering the warrant shares for resale, the Warrants may be exercised on a cashless basis.
The Purchase Agreement and the RRA contain
customary representations, warranties, covenants, conditions and agreements of the Company and the Purchasers and customary indemnification
rights and obligations of the parties. Pursuant to the Purchase Agreement, the Company agreed to certain restrictions on the issuance
and sale of its ordinary shares or Ordinary Share Equivalents (as defined in the Purchase Agreement) during the 60-day period ending
March 26, 2022. The Company agreed with the Purchasers that it will not enter into any “variable rate” transaction with any
third party exclusive of a Purchase Agreement with Ionic Ventures, LLC and an “at the market” offering with H.C. Wainwright
& Co., LLC (the “Placement Agent”), for a one-year period following the Effective Date. The Company also agreed that
for a one-year period from the Effective Date, it will not undertake a reverse or forward stock split or reclassification of its ordinary
shares without the prior written consent of a majority in interest of the Purchasers.
Each of the Company’s Officers and Directors
entered into a Lock-Up Agreement prohibiting transfers and sale of their ordinary shares, with certain exceptions (e.g., to pay taxes)
for a ninety (90) day period following the Effective Date. The Company agreed to not amend, modify, waive or terminate any provision
of any of the Lock-Up Agreements.
The
Purchase Agreement contained customary representations and warranties and agreements of the Company and the Purchasers and
customary indemnification rights and obligations of the parties. Pursuant to the Purchase Agreement,
the Company agreed to certain restrictions on the issuance and sale of its ordinary shares or Ordinary Share Equivalents (as defined
in the Purchase Agreement) during the 60-day period following the Effective Date.
A holder (together with its affiliates) will
not be able to exercise any portion of the Warrant to the extent that the holder would own more than 4.99% (or, at the holder’s
option upon issuance, 9.99%) of the Company’s outstanding ordinary shares immediately after exercise. However, upon prior notice
from the holder to the Company, a holder with a 4.99% ownership blocker may increase or decrease the amount of ownership of outstanding
ordinary shares after exercising the holder’s Warrant up to 9.99% of the number of the Company’s ordinary shares outstanding
immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrant,
provided that any increase shall not be effective until 61 days following notice to us. Pursuant to the terms of the Purchase Agreement,
the Company agreed to use commercially reasonable efforts to cause a Registration Statement providing for the resale by holders of shares
of its ordinary shares and shares issuable upon the exercise of the Warrants (the “Warrant Shares”), to be filed within fifteen
(15) days of the execution of the Registration Rights Agreement (the “RRA”), which was timely filed and shall use its best
efforts to cause the Registration Statement to be declared effective no later than forty five (45) days following the execution of the
RRA or, in the case of a full review by the SEC, the 75th day following the execution of the RRA. The registration statement
was filed on a timely basis, however, was not declared effective by November 13, 2022. Therefore, the Company incurred liquidated damages
of 2% of the gross proceeds or an aggregate of $5,419,000 until January 25, 2022 when the registration statement was declared effective.
The Private Placement closed on October 4,
2021. The Company received proceeds of $80,000,017 in connection with the Private Placement before deducting placement agent fees and
related offering expenses. The net proceeds received by the Company are being used to purchase bitcoin miners and associated assets and
for working capital and general corporate purposes.
Pursuant
to a letter agreement, dated April 1, 2021 (the “Engagement Letter”), the Company engaged H.C. Wainwright & Co., LLC
(the “Placement Agent”) as placement agent in connection with the Private Placement. The Company paid the Placement Agent
a cash fee of 6.0% and $125,000 for accountable expenses. Pursuant to the terms of
the Engagement Letter, the Placement Agent has the right of first refusal, for a period of twelve months following the closing of the
Private Placement, to act as the sole book-running manager, sole underwriter or sole placement agent, as applicable, in connection with
a public offering (including at-the-market financing) or a private placement or any other capital raising financing of equity or equity-linked
securities. The Company also agreed to pay the Placement Agent a tail fee equal to the 6.0% cash fee in the Private Placement if any
investor who was contacted by the Placement Agent, or introduced to the Company, during the term of its engagement, provides the Company
with capital in any public or private offering or other financing or capital-raising transaction of any type during the 12-month period
following the expiration or termination of the Engagement Letter.
On March 27, 2022, the Company entered into
Asset Purchase Agreements with each of four (4) unaffiliated sellers (the “Sellers”) of bitcoin mining computers. The four
(4) Sellers sold to the Company: 184 S19 JPRO miners; 197 S19 miners; 197 S19 miners; and 128 S19/S19 Pro miners, respectively. The Company
issued an aggregate of 1,487,473 ordinary shares valued at $3.79 per share to the Sellers. Each of the Sellers is a resident of the PRC
or Singapore. The offering by the Company was exempt from registration pursuant to the exemption provided by Regulation S under the Securities
Act of 1933. There was no underwriter or placement agent, and no commissions were paid in the offering.
Our executive offices are located at 33 Irving
Place, New York, New York 10003 and our telephone number is (347) 328-3680. The information on our website does not constitute part of
this prospectus.
THE OFFERING
| Ordinary shares offered by us pursuant to this prospectus |
|
238,095,238 ordinary shares, $0.01 par value, having an aggregate offering
price of up to $500 million, assuming a sales price of $2.10 per share, which was the closing price on Nasdaq Capital Market on April
26, 2022. The actual number of shares outstanding will vary depending on the price which ordinary shares may be sold from time to time
during this offering. |
| |
|
|
| Ordinary shares outstanding immediately after this offering (1) |
|
315,984,980
ordinary shares. |
| |
|
|
| Manner of offering |
|
“At the market offering” that
may be made from time to time on Nasdaq Capital Market or other market for our ordinary shares in the U.S. through our sales agent,
H.C. Wainwright & Co., LLC. See the section entitled “Plan of Distribution” on page S-19 of this prospectus supplement. |
| |
|
|
| Share Capital |
|
We
are a Cayman Islands exempted company and our affairs are governed by our memorandum and articles
of association and the Companies Act of the Cayman Islands. Our authorized share capital is 350,000,000
shares consisting of 340,000,000 ordinary shares, par value $.01 per share, and 10,000,000 preferred
shares, par value $.01 per share.
For more information about our ordinary
shares, you should carefully read the section in the accompanying base prospectus entitled “Description of Share Capital.” |
| |
|
|
| Use of proceeds |
|
We intend to use the net proceeds of this
offering for working capital purposes. See the section entitled “Use of Proceeds” on page S-17 of this prospectus supplement. |
| |
|
|
| Risk factors |
|
See “Risk Factors” beginning
on page S-16 of this prospectus supplement and the other information included in, or incorporated by reference into, our prospectus
for a discussion of certain factors you should carefully consider before deciding to invest in our ordinary shares. |
| |
|
|
| Nasdaq Capital Market symbol |
|
BTBT |
| |
(1) |
Except as otherwise indicated herein, the information
above and elsewhere in this prospectus supplement regarding outstanding ordinary shares is based on 77,889,742 ordinary shares outstanding
as of April 26, 2022 and excludes: up to 5,000,000 ordinary shares reserved for issuance under our 2021 Second Omnibus Equity Incentive
Plan; as well as up to 20,000,000 shares currently being registered for resale by Ionic Ventures LLC (on Registration Statement 333-258330). |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Certain statements made herein that look forward
in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements
as defined under Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created therein for
forward-looking statements. Such statements include, but are not limited to, statements concerning our anticipated operating results,
research and development, clinical trials, regulatory proceedings, and financial resources, and can be identified by use of words such
as, for example, “anticipate,” “estimate,” “expect,” “project,” “intend,”
“plan,” “believe” and “would,” “should,” “could” or “may.” All
statements, other than statements of historical facts, included herein that address activities, events, or developments that the Company
expects or anticipates will or may occur in the future, are forward-looking statements.
We caution investors that actual results or
business conditions may differ materially from those projected or suggested in forward-looking statements as a result of various factors
including, but not limited to, those described in the base prospectus and in the Risk Factors section of our annual report on Form 20-F
for the year ended December 31, 2021, and our subsequent SEC filings. All forward-looking statements contained or incorporated by reference
in this prospectus are expressly qualified in their entirety by these cautionary statements. Unless required by law, we undertake no
obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or
otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
This prospectus supplement also contains or incorporates
by reference data related to the bitcoin marketplace. These market data, including electricity rates, increases in hash rate and our ability
to grow our business are based on a number of assumptions. The failure of bitcoin to gain acceptance in the marketplace may materially
and adversely affect our business and the market price of our securities. In addition, government regulation of bitcoin subjects our growth
prospects or future business or financial condition to significant uncertainties. If any one or more of the assumptions underlying the
bitcoin marketplace proves to be incorrect, our actual results may materially differ. You should not place undue reliance on these forward-looking
statements.
DILUTION
If you purchase any of the ordinary shares
offered by this prospectus supplement, you will experience dilution to the extent of the difference between the offering price per ordinary
share you pay in this offering and the net tangible book value per ordinary share immediately after this offering. Our net tangible book
value as of December 31, 2021 was $120,878,200, or $1.74 per ordinary share based on 69,591,389 shares used and outstanding. Net tangible
book value per share represents our total tangible assets of $129,280,503 (which excludes goodwill and other intangible assets), less
our total liabilities of $8,402,303, divided by the aggregate number of our ordinary shares outstanding as of December 31, 2021.
After giving effect to the sale of our ordinary
shares in the aggregate amount of $500 million at an assumed offering price of $2.10 per ordinary share, the last reported sale price
of our ordinary shares on the Nasdaq Capital Market on April 26, 2022, and after deducting estimated offering commissions and other estimated
offering expenses payable by us, our as adjusted net tangible book value as of December 31, 2021 would have been $605,678,200, or approximately
$1.97 per ordinary share based on an aggregate of 307,686,627 ordinary shares issued and outstanding. This amount represents an immediate
increase in net tangible book value of $0.23 per ordinary share to existing shareholders as a result of this offering and immediate dilution
of approximately $0.13 per ordinary share to new investors purchasing our ordinary shares in this offering. The following table illustrates
this dilution on a per ordinary share basis. The as adjusted information below is illustrative only and will adjust based on the actual
price to the public, the actual number of shares sold and other terms of the offering determined at the time our ordinary shares are
sold pursuant to this prospectus supplement. The ordinary shares sold in this offering, if any, will be sold from time to time at various
prices.
| Assumed Offering price per ordinary share | |
$ | 2.10 | |
| Net tangible book value per ordinary share as of December 31, 2021 | |
$ | 1.74 | |
| Increase in net tangible book value per ordinary share attributable to the offering | |
$ | 0.23 | |
| As-adjusted net tangible book value per ordinary share after giving effect
to the offering | |
$ | 1.97 | |
| Dilution in net tangible book value per ordinary share to new investors | |
$ | 0.13 | |
In the event the offering is made at an assumed
price of $4.00 per share, our net tangible book value on December 31, 2021 would have been approximately $3.11 per share based on an
aggregate of 194,591,389 ordinary shares with dilution of $0.89 per share to new investors.
The per share data appearing above is based
on 69,591,389 ordinary shares outstanding as of December 31, 2021, and excludes:
| ● |
2,415,293 ordinary shares authorized for issuance
under Restricted Award Agreements (“RSUs”) granted under the 2021 Omnibus Equity Incentive Plan and no ordinary shares
remain reserved for issuance; and |
| ● |
up to 5,000,000 ordinary shares reserved for issuance under the
2021 Second Omnibus Equity Incentive Plan, of which 11,000 RSUs are issued and outstanding and 325,000 stock options are issued
and outstanding.
|
To the extent that any outstanding restricted stock awards, options
or warrants are exercised, or we otherwise issue additional ordinary shares in the future, at a price less than the public offering price,
there will be further dilution to the investors.
PLAN OF DISTRIBUTION
We have entered into an At The Market Offering
Agreement, or the sales agreement, with H.C. Wainwright & Co., LLC, or Wainwright, under which we may sell our ordinary shares from
time to time through Wainwright acting as sales agent, subject to certain limitations. The sales, if any, of ordinary shares made under
the sales agreement will be made by any method that is deemed an “at the market offering” as defined in Rule 415 promulgated
under the Securities Act. If we and Wainwright agree on any method of distribution other than sales of our ordinary shares on or through
the Nasdaq Capital Market or another existing trading market in the United States at market prices, we will file a further prospectus
supplement providing all information about such offering as required by Rule 424(b) under the Securities Act.
Each time we wish to sell ordinary shares under
the sales agreement, we will notify Wainwright of the number of ordinary shares to be offered, the dates on which such sales are anticipated
to be made, any minimum price below which sales may not be made and other sales parameters as we deem appropriate. Once we have so instructed
Wainwright, unless Wainwright declines to accept the terms of the notice, Wainwright has agreed to use its commercially reasonable efforts
consistent with its normal trading and sales practices to sell such ordinary shares up to the amount specified on such terms. The obligations
of Wainwright under the sales agreement to sell ordinary shares representing our ordinary shares are subject to a number of conditions
that we must meet. We may instruct Wainwright not to sell ordinary shares if the sales cannot be effected at or above the price designated
by us from time to time. We or Wainwright may suspend the offering of ordinary shares upon notice and subject to other conditions.
We will pay Wainwright commissions for its services
in acting as agent in the sale of our ordinary shares. Wainwright will be entitled to a commission of 3.0% of the gross proceeds from
the sale of ordinary shares offered hereby. In addition, we have agreed to reimburse Wainwright for fees and disbursements related to
its legal counsel in an amount not to exceed $100,000. Additionally, pursuant to the terms of the sales agreement, we agreed to reimburse
Wainwright for the documented fees and costs of its legal counsel reasonably incurred in connection with Wainwright’s ongoing diligence,
drafting and other filing requirements arising from the transactions contemplated by the sales agreement in an amount not to exceed $2,500
per calendar quarter. We estimate that the total expenses for the offering, excluding compensation payable to Wainwright under the
terms of the sales agreement, will be approximately $200,000.
Settlement for sales of our ordinary shares will
generally occur on the second business day following the date on which any sales are made, or on some other date that is agreed upon by
us and Wainwright in connection with a particular transaction, in return for payment of the net proceeds to us. There is no arrangement
for funds to be received in an escrow, trust or similar arrangement.
In connection with the sale of ordinary shares
on our behalf in this “at the market offering,” Wainwright may be deemed to be an “underwriter” within the meaning
of the Securities Act and the compensation of Wainwright may be deemed to be underwriting commissions or discounts. We have agreed to
provide indemnification and contribution to Wainwright against certain civil liabilities, including liabilities under the Securities Act
or the Exchange Act.
The offering of our ordinary shares pursuant to
the sales agreement will terminate upon the earlier of (i) the sale of all of our ordinary shares provided for in this prospectus supplement
or (ii) termination of the sales agreement as provided therein.
To the extent required by Regulation M, Wainwright
will not engage in any market making activities involving our ordinary shares while the offering is ongoing under this prospectus.
Wainwright and its affiliates may in the future
provide various investment banking and other financial services for us and our affiliates, for which services they may in the future receive
customary fees.
Bryan Bullett, the Company’s Chief Executive
Officer, is a FINRA-registered representative and an independent contractor for Centerboard Securities LLC (“Centerboard”),
a registered broker-dealer. Centerboard has not and will not participate in any offering of securities by the Company as an underwriter,
initial purchaser, placement agent, sales agent or any similar role.
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 Ogier, our Cayman Islands counsel. To the extent that the discussion relates to matters of PRC tax law, it represents the opinion
of Tian Yuan Law Firm, 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. 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 Mainland
Taxation
On March 16, 2007, the National People’s
Congress promulgated the PRC Enterprise Income Tax Law, or the EIT 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 EIT Law, which became effective on January
1, 2008 and was amended on April 23, 2019. Under the EIT 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 EIT Law and Implementation Rules, 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.
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 EIT 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 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.
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. 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. Besides, according to Circular 35, where
we and our withholding agents both fail to provide relevant materials as required by tax authorities, or evade, refuse or obstruct the
follow-up investigations carried out by tax authorities, rendering it impossible for tax authorities to verify whether we met the conditions
for entitlement to treaty benefits, it shall be deemed as we not meeting the conditions for entitlement to treaty benefits. In such case,
we will be required to pay back the tax deducted.
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 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 are currently 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, in light
of your own particular circumstances.
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. Gain or loss recognized by a U.S. Holder from the
sale or other disposition of ordinary shares will generally be gain or loss from sources within the United States for U.S. foreign tax
credit purposes.
Passive Foreign Investment Company
A non-U.S. corporation is considered a PFIC for
any taxable year if either:
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at least 75% of its gross income for such taxable year is passive income (the “income test”); or |
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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. Whether we are a PFIC for 2021 or any future taxable year is uncertain because, among other things,
the treatment of digital asset such as bitcoin for purposes of the PFIC rules is unclear. Even if we determine that we are not a PFIC
for a taxable year, there can be no assurance that the IRS will agree with our conclusion and that the IRS would not successfully challenge
our position. Our status as a PFIC is a fact-intensive determination made on an annual basis. Accordingly, we express no opinion with
respect to our PFIC status and also express no opinion with regard to our expectations regarding our PFIC status. Given this uncertainty,
prospective U.S. Holders contemplating an investment in the ordinary shares may want to assume that we are a PFIC and are urged to consult
their own tax advisors regarding our PFIC status and the resulting U.S. federal income tax consequences in light of their own particular
circumstances.
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:
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the excess distribution or gain will be allocated ratably over your
holding period for the ordinary shares; |
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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 |
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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.
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.
A mark-to-market election will not apply to
ordinary shares for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable
year in which we become a PFIC. Such election will not apply to any non-U.S. subsidiaries that we may organize or acquire in the future.
Accordingly, a U.S. Holder may continue to be subject to tax under the PFIC excess distribution regime with respect to any lower-tier
PFICs that we organize or acquire in the future notwithstanding the U.S. Holder’s mark-to-market election for the ordinary shares.
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.
Receipt of Foreign Currency
The gross amount of any payment in a currency
other than U.S. dollars will be included by each U.S. Holder in income in a U.S. dollar amount calculated by reference to the exchange
rate in effect on the day such U.S. Holder actually or constructively receives the payment in accordance with its regular method of accounting
for U.S. federal income tax purposes regardless of whether the payment is in fact converted into U.S. dollars at that time. If the foreign
currency is converted into U.S. dollars on the date of the payment, the U.S. Holder is not generally required to recognize any foreign
currency gain or loss with respect to the receipt of foreign currency. If, instead, the foreign currency is converted at a later date,
any currency gains or losses resulting from the conversion of the foreign currency is generally treated as U.S. source ordinary income
or loss for U.S. foreign tax credit purposes. U.S. Holders are urged to consult their own U.S. tax advisors regarding the U.S. federal
income tax consequences of receiving, owning, and disposing of foreign currency.
Additional Tax on Net Investment Income
U.S. Holders that are individuals, estates
or trusts are required to pay an additional 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income”
for the relevant taxable year or (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a
certain threshold. A U.S. Holder’s “net investment income” generally includes, among other things, dividends and net
gains from disposition of property (other than property held in the ordinary course of the conduct of a trade or business). Accordingly,
dividends on and capital gain from the sale, exchange or other taxable disposition of ordinary shares may be subject to this additional
tax. U.S. Holders are urged to consult their own tax advisors regarding the additional tax on passive income.
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 IRS 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 IRS 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 IRS 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 IRS 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.
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 completed Internal IRS Form 8938, Statement of Specified Foreign Financial
Assets, with their tax return for each year in which they hold ordinary shares. U.S. Holders should also be aware that if the Company
were a PFIC, they would generally be required to file IRS Form 8261, Information Return by a Shareholder of a Passive Foreign Investments
Company or Qualified Electing Fund, during any taxable year in which such U.S. Holder recognizes gain or receives an excess distribution
or with respect to which the U.S. Holder has made certain elections.
U.S. Holders are urged to consult their own
tax advisors regarding the application of the information reporting rules to the ordinary shares and their particular circumstances.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT
ITS OWN TAX ADVISORS ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN ORDINARY SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
LEGAL MATTERS
Davidoff Hutcher & Citron LLP is acting as
counsel for the Company in connection with the offering. The validity of its ordinary shares and certain legal matters as to Cayman Islands
law will be passed upon for us by Ogier. The Company is represented by Tian Yuan Law Firm with respect to PRC law. Ellenoff Grossman &
Schole LLP and Katten Muchin Rosenman LLP are acting as counsel for Wainwright in connection with this offering. Additional legal matters
may be passed upon for us or any underwriters, dealers or agents, by counsel that we will name in the applicable prospectus supplement.
EXPERTS
The financial statements and the related financial
statement schedule, incorporated in this prospectus by reference from the Company’s annual report on Form 20-F for the year ended
December 31, 2021 and December 31, 2020, have been audited Audit Alliance LLP and for the fiscal year ended December 31, 2019, upon the
report of JLKZ, CPA, independent registered public accounting firms, as stated in their reports, which are incorporated herein by reference.
Such financial statements and financial statement schedule have been so incorporated in reliance upon the reports of such firms given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file reports with the SEC on an annual basis
using Form 20-F and current reports on Form 6-K. The SEC maintains a website that contains annual, quarterly, and current reports, proxy
statements, and other information that issuers (including us) file electronically with the SEC. The SEC’s website address is http://www.sec.gov.
You can also obtain copies of materials we file with the SEC from our Internet website found at www.bit-digital.com. Our ordinary shares
are listed on the Nasdaq Capital Market under the symbol “BTBT.”
This prospectus is only part of a registration
statement on Form F-3 that we have filed with the SEC under the Securities Act and therefore omits certain information contained in the
registration statement. We have also filed exhibits and schedules with the registration statement that are excluded from this prospectus,
and you should refer to the applicable exhibit or schedule for a complete description of any statement referring to any contract or other
document.
INCORPORATION BY REFERENCE
The SEC allows us to “incorporate by reference”
the information we file with them. This means that we can disclose important information to you by referring you to those documents. Each
document incorporated by reference is current only as of the date of such document, and the incorporation by reference of such documents
shall not create any implication that there has been no change in our affairs since the date thereof or that the information contained
therein is current as of any time subsequent to its date. The information incorporated by reference is considered to be a part of this
prospectus and should be read with the same care. When we update the information contained in documents that have been incorporated by
reference by making future filings with the SEC, the information incorporated by reference in this prospectus is considered to be automatically
updated and superseded. In other words, in the case of a conflict or inconsistency between information contained in this prospectus and
information incorporated by reference into this prospectus, you should rely on the information contained in the document that was filed
later.
| (1) |
Bit Digital’s Report on Form 6-K for the quarter ended September
30, 2021, filed with the SEC on December 23, 2021. |
| (2) |
Bit Digital’s Report on Form
6-K for February 2022, filed with the SEC on February 16, 2022. |
| (3) |
Bit Digital’s Report on Form
6-K for March 2022, filed with the SEC on March 16, 2022. |
| (4) |
Bit Digital’s Annual Report on Form
20-F for the year ended December 31, 2021, filed with the SEC on April 15, 2022. |
| (5) |
Bit Digital’s Report on Form
6-K for April 2022, filed with the SEC on April 15, 2022. |
| (6) |
Bit Digital’s Report on Form
6-K/A for April 2022, filed with the SEC on April 19, 2022. |
| (7) |
Bit Digital’s Report on Form 6-K for April 2022, filed with the SEC on April 29, 2022. |
| (8) |
The description of our ordinary shares contained in Bit Digital’s
Registration Statement on Form
F-3 (No. 333-260241) and any amendment or report filed with the SEC for the purpose of updating. |
With respect to each offering
of securities under this prospectus, all our subsequent annual reports on Form 20-F and any report on Form 6-K that we file with the SEC
on or after the date on which the registration statement is first filed with the SEC and until the termination or completion of the offering
under this prospectus.
Our annual report on Form 20-F for the fiscal
year ended December 31, 2021 filed on April 15, 2022 contains a description of our business and audited consolidated financial
statements with a report by our independent auditors. These financial statements are prepared in accordance with accounting principles
generally accepted in the United States, or U.S. GAAP.
We also incorporate by reference into this prospectus
additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and prior to the sale of all ordinary shares registered hereunder or the termination of the registration statement, but excluding
any information deemed furnished and not filed with the SEC.
Any statements contained in a previously filed
document incorporated by reference into this prospectus is deemed to be modified or superseded for purposes of this prospectus supplement
to the extent that a statement contained in this prospectus, or in a subsequently filed document also incorporated by reference herein,
modifies or supersedes that statement.
This prospectus supplement may contain information
that updates, modifies or is contrary to information in one or more of the documents incorporated by reference in this prospectus. You
should rely only on the information incorporated by reference or provided in this prospectus supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the information in this prospectus supplement is accurate as
of any date other than the date of this prospectus supplement or the date of the documents incorporated by reference in this prospectus
supplement or the prospectus.
We will provide to each person, including any
beneficial owner, to whom this prospectus is delivered, upon written or oral request, at no cost to the requester, a copy of any and all
of the information that is incorporated by reference in this prospectus.
You may request, orally or in writing, a copy
of these documents, which will be provided to you at no cost, by contacting:
Erke Huang
Chief Financial Officer
BIT DIGITAL, INC.
33 Irving Place
New York, New York 10003
Tel: (212) 463-5121
Up to $500,000,000
BIT DIGITAL, INC.
Ordinary Shares
PROSPECTUS SUPPLEMENT
H.C. Wainwright & Co.
May 4, 2022