Registration No. 333-257934
Filed Pursuant to
Rule 424(b)(3) under the
Securities Act of 1933
PROSPECTUS
$500,000,000
BIT DIGITAL, INC.
Ordinary Shares
Preferred Shares
Warrants
Units
Subscription Rights
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.
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 this prospectus for a discussion of information that should be
considered before making a decision to purchase our ordinary
shares, including, but not limited to:
|
● |
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. |
| |
● |
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. |
| |
● |
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 on the
spot market worldwide. 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. |
|
● |
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. |
| |
● |
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. 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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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.
|
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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 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. Any representation to the contrary is a criminal
offense.
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.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is May 4, 2022.
TABLE OF CONTENTS
ABOUT THIS
PROSPECTUS
This prospectus is part of an automatic shelf registration
statement that we filed with the U.S. Securities and Exchange
Commission, or the SEC, using a “shelf” registration process. Under
this shelf registration process, we may sell ordinary shares,
preferred shares (including convertible preferred shares), warrants
for equity securities, and units comprised of any combination
thereof from time to time in one or more offerings for up to an
initial aggregate offering price of $500,000,000. By using a shelf
registration statement, we may sell securities from time to time
and in one or more offerings as described in this prospectus. This
prospectus provides you with a general description of the
securities we may offer. Each time that we offer and sell
securities, we will provide a prospectus supplement to this
prospectus that contains specific information about the securities
being offered and sold and the specific terms of that offering. We
may also authorize one or more free writing prospectuses to be
provided to you that may contain material information relating to
these offerings. The prospectus supplement or free writing
prospectus may also add, update or change information contained in
this prospectus with respect to that offering. If there is any
inconsistency between the information in this prospectus and the
applicable prospectus supplement or free writing prospectus, you
should rely on the prospectus supplement or free writing
prospectus, as applicable. However, no prospectus supplement will
offer a security that is not registered and described in this
prospectus at the time of its effectiveness. This prospectus,
together with the applicable prospectus supplement and the
documents incorporated by reference into this prospectus, includes
all material information relating to the offering of securities
under this prospectus. Before purchasing any securities, you should
carefully read both this prospectus and the applicable prospectus
supplement (and any applicable free writing prospectuses), the
information and documents incorporated herein by reference and the
additional information described under the heading “Where You Can
Find More Information; Incorporation by Reference.”
This prospectus may not be used to consummate a sale of
securities unless it is accompanied by a prospectus
supplement.
You should rely only on the information contained in or
incorporated by reference in this prospectus or any prospectus
supplement. We have not authorized anyone to provide you with any
information or to make any representations other than those
contained in or incorporated by reference into this prospectus, any
applicable prospectus supplement or any free writing prospectuses
prepared by or on behalf of us or to which we have referred you. We
take no responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you. We
will not make an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus and the applicable
prospectus supplement to this prospectus is accurate only as of the
date on its respective cover, that the information appearing in any
applicable free writing prospectus is accurate only as of the date
of that free writing prospectus, and that any information
incorporated by reference is accurate only as of the date of the
document incorporated by reference, unless we indicate otherwise.
Our business, financial condition, results of operations and
prospects may have changed since those dates. This prospectus
incorporates by reference, and any prospectus supplement or free
writing prospectus may contain and incorporate by reference, market
data and industry statistics and forecasts that are based on
independent industry publications and other publicly available
information. Although we believe these sources are reliable, we do
not guarantee the accuracy or completeness of this information and
we have not independently verified this information. In addition,
the market and industry data and forecasts that may be included or
incorporated by reference in this prospectus, any prospectus
supplement or any applicable free writing prospectus may involve
estimates, assumptions and other risks and uncertainties and are
subject to change based on various factors, including those
discussed under the heading “Risk Factors” contained in this
prospectus, the applicable prospectus supplement or any applicable
free writing prospectus, and under similar headings in other
documents that are incorporated by reference into this prospectus.
Accordingly, investors should not place undue reliance on this
information.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus, applicable prospectus supplement or any related free
writing prospectus.
These documents are not an offer to sell or a solicitation of an
offer to buy these securities in any circumstances under which the
offer or solicitation is unlawful, nor does this prospectus, any
applicable supplement to this prospectus, or any applicable free
writing prospectus constitute an offer to sell or the solicitation
of an offer to buy securities in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such
jurisdiction.
WHERE YOU CAN FIND MORE
INFORMATION; INCORPORATION BY REFERENCE
Available Information
We file annual, semi-annual, quarterly (on a voluntary basis as a
foreign private issuer) and current reports and other information
with the Securities and Exchange Commission (the “SEC”). Our public
filings are available from the Internet web site maintained by the
SEC at HTTP://WWW.SEC.GOV. In addition,
our ordinary shares are listed on the Nasdaq Capital Market.
Accordingly, our reports, statements and other information may be
inspected at the offices of Nasdaq, One Liberty Plaza, 165
Broadway, New York, New York 10006.
Our web site address is www.bit-digital.com. The information on, or
accessible through, our web site, however, is not, and should not
be deemed to be, a part of this prospectus.
This prospectus and any prospectus supplement are part of a
registration statement that we filed with the SEC and do not
contain all of the information in the registration statement. The
full registration statement may be obtained from the SEC or us, as
provided below. Other documents establishing the terms of the
offered securities are or may be filed as exhibits to the
registration statement or documents incorporated by reference in
the registration statement. Statements in this prospectus or any
prospectus supplement about these documents are summaries, and each
statement is qualified in all respects by reference to the document
to which it refers. You should refer to the actual documents for a
more complete description of the relevant matters. You may inspect
a copy of the registration statement through the SEC’s website, as
provided above.
Incorporation by Reference
The SEC’s rules allow us to “incorporate by reference” information
into this prospectus, which means that we can disclose important
information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference
is deemed to be part of this prospectus, and subsequent information
that we file with the SEC will automatically update and supersede
that information. Any statement contained in this prospectus or a
previously filed document incorporated by reference will be deemed
to be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or a
subsequently filed document incorporated by reference modifies or
replaces that statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We incorporate by reference our documents listed below and any
future filings made by us with the SEC under Sections 13(a),
13(c) or 15(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) between the date of this prospectus and the
termination of the offering of the securities described in this
prospectus. We are not, however, incorporating by reference any
documents or portions thereof, whether specifically listed below or
filed in the future, which are “furnished” and are not deemed to
have been “filed” with, the SEC.
This prospectus and any accompanying prospectus supplement
incorporate by reference the documents set forth below that have
previously been filed with the SEC:
The following documents filed with the SEC are incorporated by
reference in this prospectus.
| (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. |
A copy of any and all of the information included in the documents
that have been incorporated by reference in this prospectus
(excluding exhibits thereto, unless such exhibits have been
specifically incorporated by reference into the information which
this prospectus incorporates) but which are not delivered with this
prospectus will be provided by us without charge to any person to
whom this prospectus is delivered, upon the oral or written request
of such person. Written requests should be directed to Bit Digital,
Inc., 33 Irving Place, New York, New York 10003, Attention:
Corporate Secretary. Oral requests may be directed to the Corporate
Secretary at (212) 463-5121.
SUMMARY OF
INFORMATION
The following summary is qualified in its entirety by reference to
the more detailed information appearing elsewhere in this
prospectus or incorporated herein by reference. Each prospective
investor is urged to read this prospectus, the applicable
prospectus supplement, any related free writing prospectus,
including the risks of investing in the securities discussed under
the heading “Risk Factors” contained in the applicable prospectus
supplement 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, including our
financial statements and the exhibits to the registration statement
of which this prospectus is a part. Investment in the securities
offered hereby involves a high degree of risk. See “Risk Factors”
beginning on page 18. 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 or prospectus supplement.
All references to “we,” “us,” “our,” “Company,” “Registrant” or
similar terms used in this prospectus refer to Bit Digital, Inc.
(formerly known as Golden Bull Limited), a Cayman Islands exempted
company (“Bit Digital”), including its consolidated subsidiaries,
unless the context otherwise indicates. We currently conduct our
business through Bit Digital 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 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 or Renminbi, as the case may
be, 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 or the accompanying
prospectus in that jurisdiction. Persons who come into possession
of this prospectus or the accompanying 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 or the
accompanying 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 concern 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 our prior peer-to-peer lending business, as well as
our doing business in mainland China through our 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
intention 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, we migrated our previously warehoused
miners out of China, none of our mining assets remain in mainland
China. Since at least June 2021, the management of our digital
assets by Bit Digital Strategies Limited, one of our Hong Kong
subsidiaries, has taken place 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 the ongoing COVID-19 related travel
restrictions between mainland China and Hong Kong, all of 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. |
|
● |
As of
the date of this prospectus, we are not required to obtain approval
of 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 in
connection with this offering. 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. |
|
● |
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,
thus, would reduce the time before our securities may be prohibited
from trading or be delisted. 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. |
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 this rate 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 $3,746,267 net loss, comprised of a $610,500 gain
from miner sales and a $4,356,767 loss from miner 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 to 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.
Our 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. They are
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
$3.00 per unit. Power costs range from $0.35 to $0.60 per KWH.
Compute North shall receive a range of 15–25% of the bitcoin mined
after payment of the Monthly Service and Power Fees.
As of March 15, 2022, Compute North’s facilities in Nebraska and
Texas provided 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 has 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. “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, and 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.
As of March 15, 2022, at Digihost’s new facilities in North
Tonawanda and Buffalo, New York, Digihost had 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. As a result of the Digihost and
BlockFusion 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. The Company continues to evaluate
additional hosting arrangements with existing and prospective new
hosting partners in North America.
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 as of
March 15, 2022. 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 September 30,
2021, the Company had contracted for 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 which 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. Those miners are expected to
increase the Company’s miner hash rate by approximately 1.0 Exahash
(“EH/s”). Upon receipt and deployment of these 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 our
September 2021 private placement, as well as the liquidation of
bitcoins we currently hold to fund 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 the 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 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 3,575.54 bitcoins.
The following table presents the number of bitcoins mined on a
quarterly basis:
The Company earned 248.36 and 240.57 bitcoins in the third and
fourth quarters of 2021. The 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 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 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 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 prices 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 price 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, the Company had loaned 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 subject
to interest of 5% per annum. The bitcoins were repayable on demand.
As of June 30, 2021, the unaffiliated third parties repaid all
bitcoins under the aforementioned loans. 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:
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damage caused by insider theft or dishonest acts
by Cactus Custody employees or executives; |
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third-party hacks, copying, or theft of private
keys for both hot and cold storage; and |
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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’s premises and in transit; and appropriate legal costs.
From the Company’s commencement of mining operations in February
2020 to December 31, 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, our 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.
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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.
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Payment of dividends or
distributions |
During the period from February 2020 to the date of this
prospectus, 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.
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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 areas, 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 (the “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
Private Placement
On September 29, 2021, the Company 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 Ordinary Share Purchase
Warrants (“Warrants”) to purchase an aggregate of 10,118,046
ordinary shares at an exercise price of $7.91 per whole share
(subject to adjustment), for a combined purchase price of $5.93 per
share and accompanying warrant (collectively, the “Securities”).
Each Warrant is exercisable immediately and will expire three and
one-half years after the effective date (the “Effective Date”) of
the registration statement declared effective on January 25, 2022
which was filed pursuant to the Registration Right Agreement (the
“RRA”). 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.
A Purchaser (together with its affiliates) will not be able to
exercise any portion of the Warrant to the extent that the
Purchaser would own more than 4.99% (or, at the Purchaser’s option
upon issuance, 9.99%) of the Company’s outstanding ordinary shares
immediately after exercise. However, upon prior notice from the
Purchaser to the Company, a Purchaser with a 4.99% ownership
blocker may increase or decrease the amount of ownership of
outstanding ordinary shares after exercising the Purchaser’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 this 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 RRA on September 29, 2021 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. This Registration
Statement was filed on a timely basis, however, was not declared
effective by November 13, 2021. Therefore, the Company incurred
liquidated damages 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 gross proceeds of $80,000,017 in connection with the
Private Placement before deducting placement agent fees and related
offering expenses.
The proceeds received by the Company under the Purchase Agreement
are being used to purchase bitcoin miners and associated assets and
for working capital and general corporate purposes.
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 by 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 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 (which it has surpassed) 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.
The foregoing summaries of the Purchase Agreement, the Warrants and
the Registration Rights Agreement (collectively, the “Transaction
Documents”) do not purport to be complete and are subject to, and
qualified in their entirety by, such documents attached as Exhibits
4.1, 2.1 and 2.2, respectively, to the Company’s Report on Form 6-K
filed on September 30, 2021, which are incorporated herein by
reference.
Foreign Private Issuer Status
As of June 30, 2021, the date of determination, we believe we are a
foreign private issuer within the meaning of the rules under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As such, we are exempt from certain provisions applicable to United
States domestic public companies. For example:
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we
are not required to provide as many Exchange Act reports, or as
frequently, as a domestic public company; |
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for
interim reporting, we are permitted to comply solely with our home
country requirements, which are less rigorous than the rules that
apply to domestic public companies; |
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we
are not required to provide the same level of disclosure on certain
issues, such as executive compensation; |
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we
are exempt from provisions of Regulation FD aimed at preventing
issuers from making selective disclosures of material
information; |
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we
are not required to comply with the sections of the Exchange Act
regulating the solicitation of proxies, consents or authorizations
in respect of a security registered under the Exchange Act;
and |
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Our
insiders are not required to comply with Section 16 of the Exchange
Act requiring such individuals, and entities to file public reports
of their share ownership and trading activities and establishing
insider liability for profits realized from any “short-swing”
trading transaction. |
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart
Our Business Startups Act (the “JOBS Act”), and we are eligible to
take advantage of certain exemptions from various reporting and
financial disclosure requirements that are applicable to other
public companies, that are not emerging growth companies,
including, but not limited to, (1) presenting only two years
of audited financial statements and only two years of related
management’s discussion and analysis of financial condition and
results of operations in this prospectus, (2) not being
required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), (3) reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and (4)
exemptions from the requirements of holding a non-binding advisory
vote on executive compensation and shareholder approval of any
golden parachute payments not previously approved. We intend to
take advantage of these exemptions. As a result, investors may find
investing in our ordinary shares less attractive.
In addition, Section 107 of the JOBS Act also provides that an
emerging growth company can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities
Act of 1933, as amended (the “Securities Act”), for complying with
new or revised accounting standards. As a result, an emerging
growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private
companies. We intend to take advantage of such extended transition
period.
We could remain an emerging growth company for up to five years, or
December 31, 2023, or until the earliest of (1) the last day of the
first fiscal year in which our annual gross revenues exceed $1.07
billion, (2) the date that we become a “large accelerated filer” as
defined in Rule 12b-2 under the Exchange Act, which would occur if
the market value of our ordinary shares that is held by
non-affiliates exceeds $700 million as of the last business day of
our most recently completed second fiscal quarter and we have been
publicly reporting for at least 12 months, or (3) the date on which
we have issued more than $1 billion in non-convertible debt during
the preceding three-year period.
Corporate Information
Our principal executive offices are located at 33 Irving Place, New
York, New York 10003. Our telephone number at this address is +1
(212) 463-5121. The information on our website does not constitute
part of this prospectus. Our office in Hong Kong is located at Room
3603, Tower 2 Metro Plaza, Hong Kong, China. Our registered office
in the Cayman Islands is located at Corporate Filing Services Ltd.,
3rd Floor, Harbour Centre, 103 South Church Street,
George Town, Grand Cayman, KY 1-1002, Cayman Islands. Our agent for
service of process in the United States is Corporation Service
Company, 19 West 44th Street, Suite 201, New York, New
York 10036. The Company’s legal advisers are as follows: in the
PRC: Tian Yuan Law Firm, 10F, Tower B, China Pacific Insurance
Plaza, 28 Fengsheng Hutong, Xicheng District, Beijing 10032 China;
in the Cayman Islands: Ogier, 89 Nexus Way, Camana Bay, Grand
Cayman, Cayman Islands KY1-9009; and in the United States: Davidoff
Hutcher & Citron LLP, 605 Third Ave, New York, New York 10158
and Sullivan & Cromwell LLP, 125 Broad Street, New York, New
York 10004. Our Auditors are: Audit Alliance, LLP, 20 Maxwell Road
#11-09, Maxwell House, Singapore 069113. See “Experts” regarding
prior auditors. Investors should contact us for any inquiries
through the address and telephone number of our principal executive
offices.
RISK FACTORS
An investment in our ordinary shares involves a high degree
of risk. You should carefully consider the risks and uncertainties
described below together with all other information contained in
this prospectus, including the matters discussed under the headings
“Forward-Looking Statements” and 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.
.
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;
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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:
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the
presence of construction or repair defects or other structural or
building damage; |
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any
noncompliance with or liabilities under applicable environmental,
health or safety regulations or requirements or building permit
requirements; |
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any
damage resulting from natural disasters, such as hurricanes,
earthquakes, fires, floods and windstorms; and |
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claims by employees and others for injuries
sustained at our properties. |
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:
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continued worldwide growth in the adoption and
use of digital assets as a medium to exchange; |
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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; |
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general economic conditions and the regulatory
environment relating to digital assets; and |
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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 results or those of companies
perceived to be similar to us; |
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actual or anticipated changes in our growth rate
relative to our competitors; |
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commercial success and market acceptance of
blockchain and bitcoin and other digital assets; |
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actions by our competitors, such as new business
initiatives, acquisitions and divestitures; |
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strategic transactions undertaken by
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additions or departures of key
personnel; |
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prevailing economic conditions; |
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disputes concerning our intellectual property or
other proprietary rights; |
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sales
of our 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 respect to us or our industry in
general; |
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other
risks, uncertainties and factors described in our Annual Report on
Form 20-F. |
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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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;
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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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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.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference
contain “forward-looking statements” within the meaning of
Section 27A of the Securities Act and Section 21E of the
Exchange Act about us and our industry that involve substantial
risks and uncertainties. All statements other than statements of
historical fact contained in this document and the materials
accompanying this document are forward-looking statements. These
statements are based on current expectations of future events.
Frequently, but not always, forward-looking statements are
identified by the use of the future tense and by words such as
“believes,” “expects,” “anticipates,” “intends,” “will,” “may,”
“could,” “would,” “predicts,” “anticipates,” “future,” “plans,”
“continues,” “estimates” or similar expressions. Forward-looking
statements are not guarantees of future performance and actual
results could differ materially from those indicated by such
forward-looking statements. Forward-looking statements involve
known and unknown risks, uncertainties, and other factors that may
cause our or our industry’s actual results, levels of activity,
performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements
expressed or implied by the forward-looking statements. These
forward-looking statements speak only as of the date made and are
subject to a number of known and unknown risks, uncertainties and
assumptions, including the important factors incorporated by
reference into this prospectus from our most recent Annual Report
on Form 20-F and any subsequent Reports on Form 6-K we file after
the date of this prospectus, and all other information contained or
incorporated by reference into this prospectus, as updated by our
subsequent filings under the Exchange Act and in our other filings
with the SEC, that may cause our actual results, performance or
achievements to differ materially from those expressed or implied
by the forward-looking statements.
Because forward-looking statements are inherently subject to risks
and uncertainties, some of which cannot be predicted or quantified
and some of which are beyond our control, you should not rely on
these forward-looking statements as predictions of future events.
The events and circumstances reflected in our forward-looking
statements may not be achieved or occur and actual results could
differ materially from those projected in the forward-looking
statements. Moreover, we operate in an evolving environment. New
risk factors and uncertainties may emerge from time to time, and it
is not possible for management to predict all risk factors and
uncertainties. Except as required by applicable law, we do not plan
to publicly update or revise any forward-looking statements,
whether as a result of any new information, future events, changed
circumstances or otherwise.
USE OF PROCEEDS
Unless otherwise indicated in a prospectus supplement, we intend to
use the net proceeds from the sale of securities under this
prospectus for general corporate purposes, which may include
capital expenditures, funding potential purchases of additional new
mining equipment, other potential acquisitions, and general working
capital. We will set forth in a prospectus supplement relating to a
specific offering any intended use for the net proceeds received
from the sale of securities in that offering. We will have
significant discretion in the use of any net proceeds. Investors
will be relying on the judgment of our management regarding the
application of the proceeds of any sale of securities. We may
invest the net proceeds temporarily until we use them for their
stated purpose, as applicable.
ENFORCEABILITY OF
CIVIL LIABILITIES
We were incorporated in the Cayman Islands in order to enjoy the
following benefits:
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political and economic stability; |
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effective judicial system; |
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favorable tax system; |
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absence of exchange control or currency restrictions;
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availability of professional and support services. |
However, certain disadvantages accompany incorporation in the
Cayman Islands. These disadvantages include, but are not limited
to, the following:
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The
Cayman Islands has a less developed body of securities laws as
compared to the United States and these securities laws provide
significantly less protection to investors; and |
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Cayman Islands companies may not have standing to
sue before the federal courts of the United States. |
Our constitutional documents do not contain provisions requiring
that disputes, including those arising under the securities laws of
the United States, between us, our officers, directors and
shareholders, be arbitrated. Currently, a portion of our operations
are conducted outside of the United States, and a portion of our
assets are located outside the United States. All 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.
We have appointed Corporation Service Company located at 19 West
44th Street, Suite 201, New York, New York 10036, as our
agent upon whom process may be served in any action brought against
us under the securities laws of the United States.
Ogier, our counsel as to Cayman Islands law, and Tian Yuan Law
Firm, our counsel as to PRC law, have advised us, respectively,
that there is uncertainty as to whether the courts of the Cayman
Islands and China, respectively, would recognize or enforce
judgments of United States courts obtained against us or our
directors or officers predicated upon the civil liability
provisions of the securities laws of the United States or any state
in the United States; or entertain original actions brought in each
respective jurisdiction against us or our directors or officers
predicated upon the securities laws of the United States or any
state in the United States.
Ogier has informed us that it is uncertain whether the courts of
the Cayman Islands will allow shareholders of our Company to
originate actions in the Cayman Islands based upon securities laws
of the United States. In addition, there is uncertainty with regard
to Cayman Islands law related to whether a judgment obtained from
the U.S. courts under civil liability provisions of U.S. securities
laws will be determined by the courts of the Cayman Islands as
penal or punitive in nature. If such a determination is made, the
courts of the Cayman Islands will not recognize or enforce the
judgment against a Cayman Islands company, such as our Company. As
the courts of the Cayman Islands have yet to rule on making such a
determination in relation to judgments obtained from U.S. courts
under civil liability provisions of U.S. securities laws, it is
uncertain whether such judgments would be enforceable in the Cayman
Islands. Ogier has further advised us that the courts of the Cayman
Islands would recognize as a valid judgment a final and conclusive
judgment in personam obtained in the federal or state courts in the
United States under which a sum of money is payable (other than a
sum of money payable in respect of multiple damages, taxes or other
charges of a like nature or in respect of a fine or other penalty)
or, in certain circumstances, an in personam judgment for
non-monetary relief, and would give a judgment based thereon
provided that: (a) such courts had proper jurisdiction over
the parties subject to such judgment; (b) such courts did not
contravene the rules of natural justice of the Cayman Islands;
(c) such judgment was not obtained by fraud; (d) the
enforcement of the judgment would not be contrary to the public
policy of the Cayman Islands; (e) no new admissible evidence
relevant to the action is submitted prior to the rendering of the
judgment by the courts of the Cayman Islands; and (f) there is
due compliance with the correct procedures under the laws of the
Cayman Islands.
Tian Yuan Law Firm has further advised us that the recognition and
enforcement of foreign judgments are subject to compliance with the
PRC Civil Procedures Law and relevant civil procedure requirements
in the PRC. PRC courts may recognize and enforce foreign judgments
in accordance with the requirements of PRC Civil Procedures Law
based either on treaties between China and the country where the
judgment is made or on reciprocity between jurisdictions. China
does not have any treaties or other form of reciprocity with the
United States or the Cayman Islands that provide for the reciprocal
recognition and enforcement of foreign judgments. In addition,
according to the PRC Civil Procedures Law, courts in the PRC will
not enforce a foreign judgment against us or our directors and
officers if they decide that the judgment violates the basic
principles of PRC law or national sovereignty, security or public
interest. As a result, it is uncertain whether and on what basis a
PRC court would enforce a judgment rendered by a court in the
United States or in the Cayman Islands.
TAXATION
Material income tax consequences relating to the purchase,
ownership and disposition of any of the securities offered by this
prospectus will be set forth in the applicable prospectus
supplement relating to the offering of those securities.
DESCRIPTION OF SHARE
CAPITAL
The following description sets forth certain general terms and
provisions of the ordinary shares and preferred shares to which any
prospectus supplement may relate.
In this “Description of Share Capital” section, when we refer to
“we,” “us” or “our” or when we otherwise refer to ourselves, we
mean Bit Digital, Inc., excluding, unless otherwise expressly
stated or the context requires, our subsidiaries.
General
We are a Cayman Islands exempted company and our affairs are
governed by our memorandum and articles of association, the
Companies Act (Revised) of the Cayman Islands, which we refer to as
the Companies Act below and by the common law of the Cayman
Islands.
At our Annual General Meeting held on April 20, 2021, our
shareholders resolved to amend and restate our memorandum and
articles of association to create a new class of 10,000,000
authorized preferred shares and to make a number of changes to the
description of Cayman Island laws. We further amended our
authorized share capital on September 8, 2021, following an
extraordinary general meeting on the same date, to increase the
total authorized share capital to US$3,500,000.
Our authorized share capital is 350,000,000 shares consisting of
340,000,000 ordinary shares, par value $0.01 per share and
10,000,000 preferred shares, par value $0.01 per share. As of May
2, 2022, there were 80,392,838 ordinary shares and 1,000,000
preferred shares issued and outstanding, with 50 votes per
preferred share.
Ordinary Shares
Dividends. Subject to any rights and restrictions of any
other class or series of shares, our board of directors may, from
time to time, declare dividends on the shares issued and authorize
payment of the dividends out of our lawfully available funds under
Cayman Islands laws. No dividends shall be declared by the board of
our Company except out of:
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profits; or |
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“share premium account,” which represents the
excess of the price paid to our Company on issue of its shares over
the par or “nominal” value of those shares, which is similar to the
U.S. concept of additional paid in capital. |
Voting Rights. The holders of our ordinary shares are
entitled to one vote per share, including for the election of
directors. Voting at any meeting of shareholders is by show of
hands unless a poll is demanded. On a show of hands, every
shareholder present in person or by proxy shall have one vote. On a
poll, every shareholder entitled to vote (in person or by proxy)
shall have one vote for each share for which he is the holder. A
poll may be demanded by the chairman or one or more shareholders
present in person or by proxy holding not less than fifteen percent
of the paid-up capital of the Company entitled to vote. A quorum
required for a meeting of shareholders consists of shareholders who
hold at least one-third of our outstanding shares entitled to vote
at the meeting present in person or by proxy. While not required by
our articles of association, a proxy form will accompany any notice
of general meeting convened by the directors to facilitate the
ability of shareholders to vote by proxy
Any ordinary resolution to be made by the shareholders requires the
affirmative vote of a simple majority of the votes of the ordinary
shares cast in a general meeting, while a special resolution
requires the affirmative vote of no less than two-thirds of the
votes of the ordinary shares cast. Under Cayman Islands law, some
matters, such as amending the memorandum and articles, changing the
name or resolving to be registered by way of continuation in a
jurisdiction outside the Cayman Islands, require approval of
shareholders by a special resolution.
There are no limitations on non-residents or foreign shareholders
in the memorandum and articles to hold or exercise voting rights on
the ordinary shares imposed by foreign law or by the constituent
documents of our company. However, no person will be entitled to
vote at any general meeting or at any separate meeting of the
holders of the ordinary shares unless the person is registered as
of the record date for such meeting and unless all calls or other
sums presently payable by the person in respect of ordinary shares
in the Company have been paid.
Winding up; Liquidation. Upon the winding up of our company,
after the full amount that holders of any issued shares ranking
senior to the ordinary shares as to distribution on liquidation or
winding up are entitled to receive has been paid or set aside for
payment, the holders of our ordinary shares are entitled to receive
any remaining assets of the Company available for distribution as
determined by the liquidator. The assets received by the holders of
our ordinary shares in a liquidation may consist in whole or in
part of property, which is not required to be of the same kind for
all shareholders.
Calls on ordinary shares and Forfeiture of ordinary shares.
Our board of directors may from time to time make calls upon
shareholders for any amounts unpaid on their ordinary shares in a
notice served to such shareholders at least 14 days prior to the
specified time and place of payment. Any ordinary shares that have
been called upon and remain unpaid are subject to forfeiture.
Redemption of ordinary shares. We may, subject to
obtaining the necessary approvals under our memorandum and articles
of association, issue shares that are, or at our option or at the
option of the holders are, subject to redemption on such terms and
in such manner as we may, before the issue of the shares,
determine. Under the Companies Act, shares of a Cayman Islands
exempted company may be redeemed or repurchased out of profits of
the company, out of the proceeds of a fresh issue of shares made
for that purpose or out of capital, provided the memorandum and
articles of association authorize this ( and any necessary
approvals thereunder are duly obtained) and the company has the
ability to pay its debts as they fall due in the ordinary course of
business.
No Preemptive Rights. Holders of ordinary shares do not
have preemptive or preferential right to purchase any securities of
our company.
Variation of Rights Attaching to Shares. If at any time
the share capital is divided into different classes of shares, the
rights attaching to any class (unless otherwise provided by the
terms of issue of the shares of that class) may, subject to the
memorandum and articles of association, be varied or abrogated with
the consent in writing of the holders of three fourths of the
issued shares of that class or with the sanction of a special
resolution passed at a general meeting of the holders of the shares
of that class.
Anti-Takeover Provisions. Some provisions of our
current memorandum and articles of association may discourage,
delay or prevent a change of control of our company or management
that shareholders may consider favorable, including provisions that
authorize our board of directors to issue preferred shares in one
or more series and to designate the price, rights, preferences,
privileges and restrictions of such preferred shares without any
further vote or action by our shareholders.
Exempted Company. We are an exempted company with
limited liability under the Companies Act. The Companies Act
distinguishes between ordinary resident companies and exempted
companies. Any company that is registered in the Cayman Islands but
conducts business mainly outside of the Cayman Islands may apply to
be registered as an exempted company. The requirements for an
exempted company are essentially the same as for an ordinary
company except that an exempted company:
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does
not have to file an annual return of its shareholders with the
Registrar of Companies; |
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is
not required to open its register of members for
inspection; |
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does
not have to hold an annual general meeting; |
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may
issue shares with no par value; |
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may
obtain an undertaking against the imposition of any future taxation
(such undertakings are usually given for 20 years in the first
instance); |
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may
register by way of continuation in another jurisdiction and be
deregistered in the Cayman Islands; |
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may
register as a limited duration company; and |
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may
register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is
limited to the amount unpaid by the shareholder on the shares of
the company.
Listing
The Company’s ordinary shares are listed on the Nasdaq Capital
Market under the symbol “BTBT.”
Transfer Agent and Registrar
The transfer agent and registrar for our ordinary shares is
TranShare Securities Transfer & Registrar, whose address is
Bayside Center 1, 17755 North U.S. Highway 19, Suite 140,
Clearwater, Florida 33764.
Preferred Shares
The Board is empowered to designate and issue from time to time one
or more classes or series of Preferred Shares and to fix and
determine the relative rights, preferences, designations,
qualifications, privileges, options, conversion rights, limitations
and other special or relative rights of each such class or series
so authorized. Such action could adversely affect the voting power
and other rights of the holders of the Company’s ordinary shares or
could have the effect of discouraging or making difficult any
attempt by a person or group to obtain control of the Company.
At the Company’s Annual General Meeting held on April 20, 2021, the
Company’s shareholders authorized a new class of 1,000,000
preferred shares which entitle the holders thereof to (a) receive
when, if and as paid or declared by the directors, prior and in
preference to any declaration or payment of any dividend on the
ordinary shares, dividends at the annual rate of eight (8%) percent
of the original purchase price per preference share, as adjusted
for any share combinations or subdivisions, bonus issues and
similar recapitalization events; (b) a liquidation preference; (c)
conversion into ordinary shares on a 1:1 basis, subject to a 4.99%
conversion limitation; and (d) enhanced voting rights for all
matters requiring the votes of shareholders by a poll or a proxy of
fifty (50) votes for each preferred share. These preferred shares
were issued to our Chairman, Zhaohui Deng (700,000 shares) and our
Chief Financial Officer, Erke Huang (300,000 shares) in order to
enable them to carry out our business strategy.
A prospectus supplement relating to any series of preferred shares
being offered will include specific terms relating to the offering.
Such prospectus supplement will include:
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the
title and stated or par value of the preferred shares; |
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the
number of preferred shares offered, the liquidation preference per
share and the offering price of the preferred shares; |
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the
dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred shares; |
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whether dividends shall be cumulative or
non-cumulative and, if cumulative, the date from which dividends on
the preferred shares shall accumulate; |
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the
provisions for a sinking fund, if any, for the preferred
shares; |
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any
voting rights of the preferred shares; |
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the
provisions for redemption, if applicable, of the preferred
shares; |
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any
listing of the preferred shares on any securities
exchange; |
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the
terms and conditions, if applicable, upon which the preferred
shares will be convertible into our ordinary shares, including the
conversion price or the manner of calculating the conversion price
and conversion period; |
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if
appropriate, a discussion of Federal income tax consequences
applicable to the preferred shares; and |
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any
other specific terms, preferences, rights, limitations or
restrictions of the preferred shares. |
The terms, if any, on which the preferred shares may be convertible
into or exchangeable for our ordinary shares will also be stated in
the preferred shares prospectus supplement. The terms will include
provisions as to whether conversion or exchange is mandatory, at
the option of the holder or at our option, and may include
provisions pursuant to which the number of our ordinary shares to
be received by the holders of preferred shares would be subject to
adjustment.
Provisions in Corporate Law
The Companies Act is modeled after that of English law but does not
follow many recent English law statutory enactments. In addition,
the Companies Act differs from laws applicable to United States
corporations and their shareholders. Set forth below is a summary
of the significant provisions of the Companies Act applicable to
us.
Mergers and Similar Arrangements. A merger of two or
more constituent companies under Cayman Islands law requires a plan
of merger or consolidation to be approved by the directors of each
constituent company and authorization by (a) a special
resolution of the shareholders and (b) such other
authorization, if any, as may be specified in such constituent
company’s articles of association.
A merger between a Cayman Islands parent company and its Cayman
Islands subsidiary or subsidiaries does not require authorization
by a resolution of shareholders of that Cayman Islands subsidiary
if a copy of the plan of merger is given to every member of that
Cayman Islands subsidiary to be merged unless that member agrees
otherwise. For this purpose a subsidiary is a company of which at
least ninety percent (90%) of the issued shares entitled to
vote are owned by the parent company.
The consent of each holder of a fixed or floating security interest
over a constituent company is required unless this requirement is
waived by a court in the Cayman Islands.
Except in certain circumstances, a dissenting shareholder of a
Cayman constituent company is entitled to payment of the fair value
of such dissenting shareholder’s shares upon dissenting to a merger
or consolidation. The exercise of appraisal rights will preclude
the exercise of any other rights save for the right to seek relief
on the grounds that the merger or consolidation is void or
unlawful.
In addition, there are statutory provisions that facilitate the
reconstruction and amalgamation of companies, provided that the
arrangement is approved by a majority in number of each class of
shareholders and creditors with whom the arrangement is to be made,
and who must in addition represent three-fourths in value of each
such class of shareholders or creditors, as the case may be, that
are present and voting either in person or by proxy at a meeting,
or meetings, convened for that purpose. The convening of the
meetings and subsequently the arrangement must be sanctioned by the
Grand Court of the Cayman Islands. While a dissenting shareholder
has the right to express to the court the view that the transaction
ought not to be approved, the court can be expected to approve the
arrangement if it determines that:
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the
statutory provisions as to the required majority vote have been
met; |
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the
shareholders have been fairly represented at the meeting in
question and the statutory majority are acting bona fide without
coercion of the minority to promote interests adverse to those of
the class; |
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the
arrangement is such that may be reasonably approved by an
intelligent and honest man of that class acting in respect of his
interest; and |
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arrangement is not one that would more properly be sanctioned under
some other provision of the Companies Act. |
When a takeover offer is made and accepted by holders of 90.0% of
the shares within four months, the offeror may, within a two-month
period commencing on the expiration of such four-month period,
require the holders of the remaining shares to transfer such shares
on the terms of the offer. An objection can be made to the Grand
Court of the Cayman Islands but this is unlikely to succeed in the
case of an offer which has been so approved unless there is
evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved, the
dissenting shareholder would have no rights comparable to appraisal
rights, which would otherwise ordinarily be available to dissenting
shareholders of Delaware corporations, providing rights to receive
payment in cash for the judicially determined value of the
shares.
Shareholders’ Suits. In principle, we will
normally be the proper plaintiff and as a general rule a derivative
action may not be brought by a minority shareholder. However, based
on English authorities, which would in all likelihood be of
persuasive authority in the Cayman Islands, there are exceptions to
the foregoing principle, including when:
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a
company acts or proposes to act illegally or ultra
vires; |
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act complained of, although not ultra vires, could only be effected
duly if authorized by more than a simple majority vote that has not
been obtained; and |
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those
who control the company are perpetrating a “fraud on the
minority.” |
Indemnification of Directors and Executive Officers and
Limitation of Liability. Cayman Islands law does not limit
the extent to which a company’s memorandum and articles of
association may provide for indemnification of officers and
directors, except to the extent any such provision may be held by
the Cayman Islands courts to be contrary to public policy, such as
to provide indemnification against civil fraud or the consequences
of committing a crime. Our current memorandum and articles of
association permit indemnification of officers and directors for
losses, damages, costs and expenses incurred in their capacities as
such unless such losses or damages arise from the willful neglect
or default of such directors or officers. This standard of conduct
is generally the same as permitted under the Delaware General
Corporation Law for a Delaware corporation. In addition, we have
entered into indemnification agreements with our directors and
executive officers that provide such persons with additional
indemnification beyond that provided in our current memorandum and
articles of association.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers or
persons controlling us under the foregoing provisions, we have been
informed that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable.
Directors’ Fiduciary Duties. Under
Delaware corporate law, a director of a Delaware corporation has a
fiduciary duty to the corporation and its shareholders. This duty
has two components: the duty of care and the duty of loyalty. The
duty of care requires that a director act in good faith, with the
care that an ordinarily prudent person would exercise under similar
circumstances. Under this duty, a director must inform himself of,
and disclose to shareholders, all material information reasonably
available regarding a significant transaction. The duty of loyalty
requires that a director act in a manner he reasonably believes to
be in the best interests of the corporation. He must not use his
corporate position for personal gain or advantage. This duty
prohibits self-dealing by a director and mandates that the best
interest of the corporation and its shareholders take precedence
over any interest possessed by a director, officer or controlling
shareholder and not shared by the shareholders generally. In
general, actions of a director are presumed to have been made on an
informed basis, in good faith and in the honest belief that the
action taken was in the best interests of the corporation and its
shareholders. However, this presumption may be rebutted by evidence
of a breach of one of the fiduciary duties. Should such evidence be
presented concerning a transaction by a director, the director must
prove the procedural fairness of the transaction, and that the
transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director owes three types of
duties to the company: (i) statutory duties, (ii) fiduciary duties,
and (iii) common law duties. The Companies Act imposes a number of
statutory duties on a director. A Cayman Islands director’s
fiduciary duties are not codified; however the courts of the Cayman
Islands have held that a director owes the following fiduciary
duties: (a) a duty to act in what the director bona fide considers
to be in the best interests of the company, (b) a duty to exercise
their powers for the purposes they were conferred, (c) a duty to
avoid fettering his or her discretion in the future and (d) a duty
to avoid conflicts of interest and of duty. The common law duties
owed by a director are those to act with skill, care and diligence
that may reasonably be expected of a person carrying out the same
functions as are carried out by that director in relation to the
company and, also, to act with the skill, care and diligence in
keeping with a standard of care commensurate with any particular
skill they have which enables them to meet a higher standard than a
director without those skills. In fulfilling their duty of care,
directors must ensure compliance with our articles of association,
as amended and restated from time to time. We have the right to
seek damages where certain duties owed by any of our directors are
breached.
Shareholder Action by Written Consent. Under the
Delaware General Corporation Law, a corporation may eliminate the
right of shareholders to act by written consent by amendment to its
certificate of incorporation. Cayman Islands law and our current
articles of association provide that shareholders may approve
corporate matters by way of a unanimous written resolution signed
by or on behalf of each shareholder who would have been entitled to
vote on such matter at a general meeting without a meeting being
held.
Shareholder Proposals. Under the Delaware General
Corporation Law, a shareholder has the right to put any proposal
before the annual meeting of shareholders, provided it complies
with the notice provisions in the governing documents. A special
meeting may be called by the board of directors or any other person
authorized to do so in the governing documents, but shareholders
may be precluded from calling special meetings.
Cayman Islands law does not provide shareholders any right to put
proposals before a meeting or requisition a general meeting.
However, these rights may be provided in articles of association.
Our current articles of association allow our shareholders holding
not less than one-third of all voting power of our share capital in
issue to requisition a shareholder’s meeting. Other than this right
to requisition a shareholders’ meeting, our current articles of
association do not provide our shareholders other right to put
proposal before a meeting. As a Cayman Islands exempted company, we
are not obliged by law to call shareholders’ annual general
meetings.
Cumulative Voting. Under the Delaware General
Corporation Law, cumulative voting for elections of directors is
not permitted unless the corporation’s certificate of incorporation
specifically provides for it. Cumulative voting potentially
facilitates the representation of minority shareholders on a board
of directors since it permits the minority shareholder to cast all
the votes to which the shareholder is entitled on a single
director, which increases the shareholder’s voting power with
respect to electing such director. There are no prohibitions in
relation to cumulative voting under the laws of the Cayman Islands,
but our current articles of association do not provide for
cumulative voting. As a result, our shareholders are not afforded
any less protections or rights on this issue than shareholders of a
Delaware corporation.
Removal of Directors. Under the Delaware General
Corporation Law, a director of a corporation with a classified
board may be removed only for cause with the approval of a majority
of the outstanding shares entitled to vote, unless the certificate
of incorporation provides otherwise. Under our current articles of
association, directors may be removed with or without cause, by an
ordinary resolution of our shareholders.
Transactions with Interested Shareholders. The
Delaware General Corporation Law contains a business combination
statute applicable to Delaware corporations whereby, unless the
corporation has specifically elected not to be governed by such
statute by amendment to its certificate of incorporation, it is
prohibited from engaging in certain business combinations with an
“interested shareholder” for three years following the date that
such person becomes an interested shareholder. An interested
shareholder generally is a person or a group who or which owns or
owned 15% or more of the target’s outstanding voting share within
the past three years. This has the effect of limiting the ability
of a potential acquirer to make a two-tiered bid for the target in
which all shareholders would not be treated equally. The statute
does not apply if, among other things, prior to the date on which
such shareholder becomes an interested shareholder, the board of
directors approves either the business combination or the
transaction which resulted in the person becoming an interested
shareholder. This encourages any potential acquirer of a Delaware
corporation to negotiate the terms of any acquisition transaction
with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we
cannot avail ourselves of the types of protections afforded by the
Delaware business combination statute. However, although Cayman
Islands law does not regulate transactions between a company and
its significant shareholders, it does provide that such
transactions must be entered into bona fide in the best interests
of the company and not with the effect of constituting a fraud on
the minority shareholders.
Dissolution; Winding up. Under the Delaware
General Corporation Law, unless the board of directors approves the
proposal to dissolve, dissolution must be approved by shareholders
holding 100% of the total voting power of the corporation. Only if
the dissolution is initiated by the board of directors may it be
approved by a simple majority of the corporation’s outstanding
shares. Delaware law allows a Delaware corporation to include in
its certificate of incorporation a supermajority voting requirement
in connection with dissolutions initiated by the board. Under
Cayman Islands law, a company may be wound up by either an order of
the courts of the Cayman Islands or by a special resolution of its
members or, if the company is unable to pay its debts as they come
due, by an ordinary resolution of its members. The court has
authority to order winding up of a company in a number of specified
circumstances, including where it is, in the opinion of the court,
just and equitable to do so. Under the Companies Act and our
current articles of association, our company may be dissolved,
liquidated or wound up by a special resolution of our
shareholders.
Variation of Rights of Shares. Under the
Delaware General Corporation Law, a corporation may vary the rights
of a class of shares with the approval of a majority of the
outstanding shares of such class, unless the certificate of
incorporation provides otherwise. Under Cayman Islands law and our
current articles of association, if our share capital is divided
into more than one class of shares, we may vary the rights attached
to any class with the written consent of the holders of
three-fourths of the issued shares of that class or with the
sanction of a resolution passed by not less than three-fourths of
such holders of the shares of that class as may be present at a
general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the
Delaware General Corporation Law, a corporation’s governing
documents may be amended with the approval of a majority of the
outstanding shares entitled to vote, unless the certificate of
incorporation provides otherwise. As permitted by Cayman Islands
law, our current memorandum and articles of association may only be
amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign
Shareholders. There are no limitations imposed
by our post-offering amended and restated memorandum and articles
of association on the rights of non-resident or foreign
shareholders to hold or exercise voting rights on our shares. In
addition, there are no provisions in our current memorandum and
articles of association governing the ownership threshold above
which shareholder ownership must be disclosed.
Share Options/Restricted Stock Units
The Company’s Board of Directors adopted the 2021 Omnibus Equity
Incentive Plan (the “2021 Plan”), which was approved by the
Company’s shareholders at the Annual General Meeting on April 20,
2021. An aggregate of 2,415,293 Restricted Stock Units (“RSUs”)
were granted under the 2021 Plan and no ordinary shares remained
reserved for issuance under the 2021 Plan. There are 5,000,000
ordinary shares reserved for issuance under the Company’s 2021
Second Omnibus Equity Incentive Plan (the “2021 Second Plan’), with
11,000 RSUs and 325 ,000 stock options outstanding as of the
date of this prospectus.
The 2021 Second Plan allows the Company to grant incentive stock
options, non-qualified stock options, stock appreciation rights,
restricted stock awards, warrants and stock units. The
incentive stock options are exercisable for up to ten years,
at an option price per share not less than the fair market value on
the date the option is granted. The incentive stock options are
limited to persons who are regular full-time employees of the
Company at the date of the grant of the option. Non-qualified
options may be granted to any person, including, but not limited
to, employees, independent agents, consultants and attorneys, who
the Company’s Board believes have contributed, or will contribute,
to the success of the Company. Non-qualified options may be issued
at option prices of less than fair market value on the date of
grant and may be exercisable for up to ten years from date of
grant. The option vesting schedule for options granted is
determined by the Board of Directors at the time of the grant. The
2021 Second Plan provides for accelerated vesting of unvested
options if there is a change in control, as defined in the 2021
Second Plan.
DESCRIPTION OF
WARRANTS
General
We may issue warrants for the purchase of our preferred shares,
ordinary shares, or any combination thereof. Warrants may be issued
independently or together with our preferred shares or ordinary
shares and may be attached to or separate from any offered
securities. Each series of warrants will be issued under a separate
warrant agreement to be entered into between us and a bank or trust
company, as warrant agent. The warrant agent will act solely as our
agent in connection with the warrants. The warrant agent will not
have any obligation or relationship of agency or trust for or with
any holders or beneficial owners of warrants. This summary of
certain provisions of the warrants is not complete. For the terms
of a particular series of warrants, you should refer to the
prospectus supplement for that series of warrants and the warrant
agreement for that particular series.
Equity Warrants
The prospectus supplement relating to a particular series of
warrants to purchase our ordinary shares or preferred shares will
describe the terms of the warrants, including the following:
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the title of the warrants; |
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the offering price for the warrants, if any; |
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the aggregate number of warrants; |
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the designation and terms of the
ordinary shares or preferred shares that may be purchased upon
exercise of the warrants; |
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if applicable, the designation and
terms of the securities with which the warrants are issued and the
number of warrants issued with each security; |
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if applicable, the date from and
after which the warrants and any securities issued with the
warrants will be separately transferable; |
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the number of ordinary shares or
preferred shares that may be purchased upon exercise of a warrant
and the exercise price for the warrants; |
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the dates on which the right to exercise the warrants shall
commence and expire; |
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if applicable, the minimum or maximum amount of the warrants
that may be exercised at any one time; |
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the currency or currency units in which the offering
price, if any, and the exercise price are payable; |
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if applicable, a discussion of material U.S. federal income tax
considerations; |
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the antidilution provisions of the warrants, if any;
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the redemption or call provisions, if any, applicable to the
warrants; |
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any provisions with respect to a holder’s right to require us
to repurchase the warrants upon a change in control or similar
event; and |
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any additional terms of the warrants, including procedures and
limitations relating to the exchange, exercise and settlement of
the warrants. |
Holders of equity warrants will not be entitled:
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to vote, consent, or receive
dividends; |
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receive notice as shareholders with respect to
any meeting of shareholders for the election of our directors or
any other matter; or |
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exercise any rights as
shareholders. |
DESCRIPTION OF
SUBSCRIPTION RIGHTS
We may issue subscription rights to purchase our ordinary shares or
preferred shares. These subscription rights may be offered
independently or together with any other security offered hereby
and may or may not be transferable by the shareholder receiving the
subscription rights in such offering. In connection with any
offering of subscription rights, we may enter into a standby
arrangement with one or more underwriters or other purchasers
pursuant to which the underwriters or other purchasers may be
required to purchase any securities remaining unsubscribed for
after such offering.
The prospectus supplement relating to any subscription rights we
offer, if any, will, to the extent applicable, include specific
terms relating to the offering, including some or all of the
following:
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the
price, if any, for the subscription rights; |
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the
exercise price payable for our ordinary shares or preferred shares
upon the exercise of the subscription rights; |
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the
number of subscription rights to be issued to each
shareholder; |
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the
number and terms of our ordinary shares or preferred shares which
may be purchased per each subscription right; |
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the
extent to which the subscription rights are
transferable; |
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any
other terms of the subscription rights, including the terms,
procedures and limitations relating to the exchange and exercise of
the subscription rights; |
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the
date on which the right to exercise the subscription rights shall
commence, and the date on which the subscription rights shall
expire; |
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the
extent to which the subscription rights may include an
over-subscription privilege with respect to unsubscribed securities
or an over-allotment privilege to the extent the securities are
fully subscribed; and |
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if
applicable, the material terms of any standby underwriting or
purchase arrangement which may be entered into by us in connection
with the offering of subscription rights. |
The description in the applicable prospectus supplement of any
subscription rights we offer will not necessarily be complete and
will be qualified in its entirety by reference to the applicable
subscription rights certificate, which will be filed with the SEC
if we offer subscription rights. We urge you to read the applicable
subscription rights certificate and any applicable prospectus
supplement in their entirety.
DESCRIPTION OF
UNITS
We may issue units consisting of some or all of the securities
described above, in any combination, including ordinary shares,
preferred shares and/or warrants. The terms of these units
will be set forth in a prospectus supplement. The description of
the terms of these units in the related prospectus supplement
will not be complete. You should refer to the applicable form of
unit and unit agreement for complete information with respect to
these units.
PLAN OF
DISTRIBUTION
We may sell the securities offered by this prospectus from time to
time in one or more transactions, including without limitation:
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through underwriters or
dealers; |
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directly to purchasers; |
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in a rights offering; |
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in
“at the market” offerings, within the meaning of
Rule 415(a)(4) of the Securities Act, to or through a market
maker or into an existing trading market on an exchange or
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through agents; |
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through a combination of any of these methods;
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through any other method
permitted by applicable law and described in a prospectus
supplement. |
In addition, we may enter into derivative or hedging transactions
with third parties, or sell securities not covered by this
prospectus to third parties in privately negotiated transactions.
In connection with such a transaction, the third parties may sell
securities covered by and pursuant to this prospectus and any
accompanying prospectus supplement. If so, the third party may use
securities borrowed from us or others to settle such sales and may
use securities received from us to close out any related short
positions. We may also loan or pledge securities covered by this
prospectus and any accompanying prospectus supplement to third
parties, who may sell the loaned securities or, in an event of
default in the case of a pledge, sell the pledged securities
pursuant to this prospectus and any accompanying prospectus
supplement.
The prospectus supplement with respect to any offering of
securities will include the following information:
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the
terms of the offering; |
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the
names of any underwriters, dealers or direct
purchasers; |
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name or names of any managing underwriter or
underwriters; |
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the
purchase price or initial public offering price of the
securities; |
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net proceeds from the sale of the securities; |
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any
delayed delivery arrangements; |
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any
underwriting discounts, commissions and other items constituting
underwriters’ compensation; |
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any
discounts or concessions allowed or reallowed or paid to
dealers; |
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commissions paid to agents; and |
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any
securities exchange on which the securities may be
listed. |
Sale through Underwriters or Dealers
If underwriters are used in the sale, the underwriters will acquire
the securities for their own account. The underwriters may resell
the securities from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price
or at varying prices determined at the time of sale. Underwriters
may offer securities to the public either through underwriting
syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. Unless we
inform you otherwise in the applicable prospectus supplement, the
obligations of the underwriters to purchase the securities will be
subject to certain conditions, and the underwriters will be
obligated to purchase all of the offered securities if they
purchase any of them. The underwriters may change from time to time
any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers.
During and after an offering through underwriters, the underwriters
may purchase and sell the securities in the open market. These
transactions may include overallotment and stabilizing transactions
and purchases to cover syndicate short positions created in
connection with the offering. The underwriters may also impose a
penalty bid, which means that selling concessions allowed to
syndicate members or other broker-dealers for the offered
securities sold for their account may be reclaimed by the syndicate
if the offered securities are repurchased by the syndicate in
stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the
offered securities, which may be higher than the price that might
otherwise prevail in the open market. If commenced, the
underwriters may discontinue these activities at any time.
Some or all of the securities that we offer through this prospectus
may be new issues of securities with no established trading market.
Any underwriters to whom we sell our securities for public offering
and sale may make a market in those securities, but they will not
be obligated to do so and they may discontinue any market making at
any time without notice. Accordingly, we cannot assure you of the
liquidity of, or continued trading markets for, any securities that
we offer.
If dealers are used in the sale of securities, we will sell the
securities to them as principals. They may then resell those
securities to the public at fixed prices or at varying prices
determined by the dealers at the time of resale. We will include in
the applicable prospectus supplement the names of the dealers and
the terms of the transaction.
If agents are used in an offering, the names of the agents and the
terms of the agency will be specified in a prospectus supplement.
Unless otherwise indicated in a prospectus supplement, the agents
will act on a best-efforts basis for the period of their
appointment. 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.
Dealers and agents named in a prospectus supplement may be
underwriters as defined in the Securities Act and any discounts or
commissions they receive from us and any profit on their resale of
the securities may be treated as underwriting discounts and
commissions under the Securities Act. We will identify in the
applicable prospectus supplement any underwriters, dealers or
agents and will describe their compensation. We may have agreements
with the underwriters, dealers and agents to indemnify them against
specified civil liabilities, including liabilities under the
Securities Act.
Underwriters, dealers or agents and their associates may engage in
other transactions with and perform other services for us in the
ordinary course of business.
If so indicated in a prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit
offers by institutional investors to purchase securities pursuant
to contracts providing for payment and delivery on a future date.
We may enter contracts with commercial and savings banks, insurance
companies, pension funds, investment companies, educational and
charitable institutions and other institutional investors. The
obligations of any institutional investor will be subject to the
condition that its purchase of the offered securities will not be
illegal at the time of delivery. The underwriters and other agents
will not be responsible for the validity or performance of
contracts.
Direct Sales and Sales through Agents
We may sell the securities directly. In this case, no underwriters
or agents would be involved. We may also sell the securities
through agents designated by us from time to time. In the
applicable prospectus supplement, we will name any agent involved
in the offer or sale of the offered securities, and we will
describe any commissions payable to the agent. Unless we inform you
otherwise in the applicable prospectus supplement, any agent will
agree to use its reasonable best efforts to solicit purchases for
the period of its appointment.
We may sell the securities directly to institutional investors or
others who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any sale of those securities. We
will describe the terms of any sales of these securities in the
applicable prospectus supplement.
At the Market Offerings
We may also sell the securities offered by any applicable
prospectus supplement in “at the market offerings” within the
meaning of Rule 415(a)(4) of the Securities Act, to or through
a market maker or into an existing trading market, on an exchange
or otherwise.
Remarketing Arrangements
Securities may also be offered and sold, if so indicated in the
applicable prospectus supplement, in connection with a remarketing
upon their purchase, in accordance with a redemption or repayment
pursuant to their terms, or otherwise, by one or more remarketing
firms, acting as principals for their own accounts or as agents for
us. Any remarketing firm will be identified and the terms of its
agreements, if any, with us and its compensation will be described
in the applicable prospectus supplement.
Delayed Delivery Contracts
If we so indicate in the applicable prospectus supplement, we may
authorize agents, underwriters or dealers to solicit offers from
certain types of institutions to purchase securities from us at the
public offering price under delayed delivery contracts. These
contracts would provide for payment and delivery on a specified
date in the future.
The contracts would be subject only to those conditions described
in the applicable prospectus supplement. The applicable prospectus
supplement will describe the commission payable for solicitation of
those contracts.
General Information
We may have agreements with the underwriters, dealers, agents and
remarketing firms to indemnify them against certain civil
liabilities, including liabilities under the Securities Act, or to
contribute with respect to payments that the underwriters, dealers,
agents or remarketing firms may be required to make. Underwriters,
dealers, agents and remarketing firms may be customers of, engage
in transactions with or perform services for us in the ordinary
course of their businesses.
LEGAL MATTERS
Davidoff Hutcher & Citron LLP is acting as counsel for the
Company in connection with the offering. The validity of our
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.
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.
| |
- |
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.
| |
- |
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:
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damage caused by insider theft or dishonest acts
by Cactus Custody employees or executives; |
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third-party hacks, copying, or theft of private
keys for both hot and cold storage; and |
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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.
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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.
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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.
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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.
RISK FACTORS
Investment in our ordinary shares involves risks. Before
deciding whether to invest in our ordinary shares, you should
consider carefully the risk factors discussed below and those
contained in the base prospectus dated May 4, 2022 and in the
section entitled “Risk Factors” contained in our Annual Report on
Form 20-F for the year ended December 31, 2021, as filed with the
SEC on April 15, 2022, which is incorporated herein by reference in
its entirety, as well as any amendment or update to our risk
factors reflected in subsequent filings with the SEC. 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. If any of the
risks or uncertainties described in our SEC filings actually
occurs, our business, financial condition, results of operations or
cash flow could be materially and adversely affected. This could
cause the trading price of our ordinary shares to decline,
resulting in a loss of all or part of your investment. The risks
and uncertainties we have described are not the only ones facing
our company. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial may also affect our
business operations.
Risks Associated with this Offering
You will suffer immediate and substantial dilution in the net
tangible book value per share of the ordinary shares that you
purchase in this offering.
The ordinary shares sold in this offering, if any, will be sold
from time to time at various prices; however, the assumed public
offering price of our ordinary shares is substantially higher than
the as adjusted net tangible book value per ordinary share.
Therefore, investors purchasing shares of ordinary shares in this
offering will pay a price per ordinary share that substantially
exceeds the as adjusted net tangible book value per share after
this offering. Assuming that an aggregate of 238,095,238 ordinary
shares are sold at an assumed public offering price of $2.10 per
share, the last reported sale price of our ordinary shares on the
Nasdaq Capital Market on April 26, 2022, for aggregate gross
proceeds of $500 million, and after deducting commissions and
estimated offering expenses payable by us, new investors in this
offering will experience immediate dilution of $0.13 per ordinary
share, representing the difference between the assumed public
offering price and our as adjusted net tangible book value per
ordinary share after giving effect to this offering. See “Dilution”
for a more detailed discussion of the dilution you would incur if
you purchase ordinary shares in this offering.
We have broad discretion in the use of the net proceeds of this
offering and may not use them effectively.
We intend to use the net proceeds from this offering for working
capital and general corporate purposes, including, but not limited
to, the purchase of computer miners. However, our management will
have broad discretion in the application of the net proceeds from
this offering and could spend the proceeds in ways that do not
improve our results of operations or enhance the value of our
ordinary shares. The failure by management to apply these funds
effectively could result in financial losses that could have a
material adverse effect on our business, cause the price of our
ordinary shares to decline and delay our greater strategy.
You may experience future dilution as a result of future equity
offerings.
In order to raise additional capital, we may in the future offer
additional ordinary shares or other securities convertible into or
exchangeable for our ordinary shares at prices that may not be the
same as the price per ordinary share in this offering. We may sell
ordinary shares or other securities in any other offering at a
price per ordinary share that is less than the price per ordinary
share paid by investors in this offering, and investors purchasing
ordinary shares or other securities in the future could have rights
superior to existing shareholders. The price per ordinary share at
which we sell additional ordinary shares or securities convertible
or exchangeable into ordinary shares, in future transactions may be
higher or lower than the price per ordinary share paid by investors
in this offering.
The ordinary shares offered hereby will be sold in
“at-the-market” offerings, and investors who buy ordinary shares at
different times will likely pay different prices.
Investors who purchase ordinary shares in this offering at
different times will likely pay different prices, and so may
experience different outcomes in their investment results. We will
have discretion, subject to market demand, to vary the timing,
prices and numbers of ordinary shares sold, and there is no minimum
or maximum sales price. Investors may experience a decline in the
value of their ordinary shares as a result of ordinary share sales
made at prices lower than the prices they paid.
The actual number of ordinary shares we will sell under the
sales agreement, at any one time or in total, is uncertain.
Subject to certain limitations in the sales agreement and
compliance with applicable law, we have the discretion to deliver a
sales notice to Wainwright at any time throughout the term of the
sales agreement. The number of ordinary shares that are sold by
Wainwright after we deliver a sales notice will fluctuate based on
the market price of the ordinary shares during the sales period and
limits we set with Wainwright. Because the price per ordinary share
of each ordinary share sold will fluctuate based on the market
price of ordinary shares representing our ordinary shares during
the sales period, it is not possible at this stage to predict the
number of ordinary shares that will be ultimately issued.
USE OF PROCEEDS
We may sell our ordinary shares having aggregate sales proceeds of
up to $500 million from time to time. Because there is no minimum
offering amount required as a condition to close this offering, the
actual total public offering amount, commissions and proceeds to
us, if any, are not determinable at this time. We estimate that the
net proceeds from the sale of our ordinary shares that we are
offering may be up to approximately $484,800,000, after deducting
Wainwright’s commission and estimated offering expenses payable by
us.
We intend to use the net proceeds of this offering for working
capital and general corporate purposes, including, but not limited
to, the purchase of additional new mining equipment and other
potential requisitions.
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our ordinary
shares. We have no present plan to declare and pay any dividends on
our ordinary shares in the near future. We currently intend to
retain most, if not all, of our available funds and any future
earnings to operate and expand our business. Any future
determination to pay dividends will be at the discretion of our
board of directors, subject to applicable laws, and will depend on
our financial condition, results of operations, capital
requirements, general business conditions and other factors that
our board of directors considers relevant.
CAPITALIZATION
The following table sets forth the consolidated capitalization of
Bit Digital, Inc. and its subsidiaries as of December 31, 2021, on
an actual basis and adjusted basis to give effect to this offering
of the ordinary shares.
The information below should be read in conjunction with, and is
qualified in its entirety by, the audited consolidated financial
statements and schedules and notes thereto included in our annual
report on Form 20-F for the financial years ended December 31, 2020
and December 31, 2021, each as incorporated by reference into this
prospectus supplement.
|
|
|
As of December 31 2021 |
|
|
|
|
Actual |
|
|
As Adjusted |
|
| Shareholder’s equity: |
|
|
|
|
|
|
|
Preferred shares, $0.01 par value,
10,000,000 and nil shares authorized, 1,000,000 and nil shares
issued and outstanding of December 31, 2021 and December 31, 2020,
respectively |
|
$ |
9,050,000 |
|
|
$ |
9,050,000 |
|
| Ordinary shares, $0.01 par value, 340,000,000 and
50,000,000 shares authorized and 69,591,389 and 307,686,627 shares,
respectively, issued and outstanding, and as adjusted for the
offering. |
|
$ |
695,914 |
|
|
$ |
3,076,866 |
|
| Treasury stock, at cost, 115,514 shares in 2021
and nil shares in 2020 |
|
$ |
(1,094,859 |
) |
|
$ |
(1,094,859 |
) |
| Additional paid-in capital |
|
$ |
182,869,159 |
|
|
$ |
665,288,207 |
|
|
Accumulated deficit |
|
$ |
(19,529,868 |
) |
|
$ |
(19,529,868 |
) |
|
Total shareholders’
equity |
|
$ |
171,990,346 |
|
|
$ |
656,790,346 |
|
|
Total Liabilities and
Shareholders’ Equity |
|
$ |
180,392,649 |
|
|
$ |
665,192,649 |
|
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
Bit Digital (NASDAQ:BTBT)
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