Registration No. 333-_________
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,” a “smaller reporting company” or an “emerging growth company”
in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
RISK FACTORS
An investment in our Ordinary Shares involves
a high degree of risk. You should carefully consider the risks and uncertainties described below together with all other information contained
in this prospectus, including the matters discussed under the headings “Forward-Looking Statements” and “Operating and
Financial Review and Prospects” before you decide to invest in our Ordinary Shares. 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. Recent statements and regulatory actions by China’s government, such as those related to the
use of variable interest entities (VIEs) and ban on digital asset transactions and data security or anti-monopoly concerns, may have an
adverse effect on the Company in view of its prior operations, but are not expected to result in an adverse impact on our corporate structure
going forward or have a material change in our operations and/or the value of our securities or significantly limit or completely hinder
our ability to offer or continue to offer securities to investors or cause the value of such securities to significantly decline or be
worthless. We do not believe such developments will adversely impact the Company’s ability to conduct its business, accept foreign
investments, or continued listing on Nasdaq. The legal and regulatory environment in China is in many respects different from the United
States. If any of the following risks, or any other risks and uncertainties that are not presently foreseeable to us, actually occur,
our business, financial condition, results of operations, liquidity and our future growth prospects could be materially and adversely
affected.
Risks Related to Doing Business in China
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 refers to special administrative measures for the restricted or prohibited access of foreign
investment in specific fields as stipulated by the Chinese government. The Chinese government shall give national treatment to certain
foreign investments in addition to the negative list to other companies for investments which will not require pre-approval by the Chinese
government.
Pursuant to the Special Administrative Measures
for Access of Foreign Investment (2020 Edition), or the 2020 Edition Negative List, issued by The Ministry of Commerce of the PRC (the
“MOFCOM”) and the National Development and Reform Commission (the “NDRC”) on June 23, 2020 which came into effect
on July 23, 2020, our bitcoin mining business does not fall into the Negative List and is permitted for foreign investment as of the date
hereof although bitcoin mining operations in China are not currently allowed.
We may be subject to penalties as a result
of the Chinese government suspension of our P2P lending business
The Company is currently engaged in the bitcoin
mining business, but, previously, we were primarily an online finance marketplace, or “peer-to-peer” lending company, in China
that provided borrowers access to loans. On October 24, 2019, the Pudong Branch of the Shanghai Public Security Bureau (the “Bureau”)
announced that it 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 of 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. 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 historical 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.
On May 21, 2021, the Financial Stability Development
Committee of the State Council in China targeted virtual currency mining in China. 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.
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 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 cryptocurrency 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 to engage in digital asset
transactions including bitcoin mining operations in China, the ruling of which may adversely affect us.
China has now taken harsh regulatory action to
ban cryptocurrency mining operations and to severely restrict the right to acquire, own, hold, sell or use these bitcoin assets or to
exchange them for fiat currency. Such restrictions may adversely affect us as the large-scale use of cryptocurrencies as a means of exchange
is presently confined to certain regions globally. Ongoing and future regulatory actions may impact our ability to continue to operate,
and such actions could affect our ability to continue as a going concern or to pursue our business strategy at all, which could have a
material adverse effect on our business, prospects or operations.
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 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 issuing a notice on the immediate shutdown of enterprises engaged in cryptocurrency mining on June 9,
2021. During that three-week period, we only had mining operations in Sichuan Province and not in Xinjiang. On June 18, 2021, according
to the public media report - Sichuan Provincial Development and Reform Commission and Sichuan Energy Bureau issued a notice on the shutdown
of cryptocurrency mining projects with the deadline of June 25, 2021. That is the reason why we had already ceased all 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 cryptocurrency 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
attitude and our intentional business plan, we will not conduct any cryptocurrency mining operations or cryptocurrency trading operations
in mainland PRC. All miners have been emigrated out of the PRC as of September 30, 2021 and are expected to be fully operational in the
U.S. by early 2022.
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 are in the process of completing 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 on the spot market in China. 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 cryptocurrency to foreign exchange control. In the event regulators believe that the circulation of bitcoin has a significant
adverse impact on financial security, they may restrict the trading of bitcoin, 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 caused us 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.
On July 10, 2021, the Cyberspace Administration
of China (the “CAC”) issued the Measures for Cybersecurity Review (Revision Draft for Comments), or the Measures. The scope
of review under the Measures extends to critical information infrastructure operators, data processors carrying out data processing activities,
and national security risks related to a non-PRC listing, especially the “risks of core data, important data or substantial personal
information being stolen, leaked, damaged, illegally used or exported; risks of Critical Information Infrastructure, core data, important
data or substantial personal information data being affected, controlled and maliciously used by foreign governments after a foreign listing.”
According to Article 6 of the Measures, operators who possess personal information of over a million users shall apply to the Cybersecurity
Review Office for cybersecurity reviews before listing abroad. Besides, where any activities affect or may endanger national security
during the purchase of network products and services by key information infrastructure operators or the data processing by data workers,
cybersecurity reviews should be conducted in accordance with the Measures.
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
(i) we have never set a digital platform for any user and collected personal data during our mining operations, (ii) only the operators
who possess personal information of over a million users shall apply for cybersecurity reviews before listing abroad, and (iii) the Measures
have yet to take effect and may be further revised. However, since it is the first time that the cybersecurity review applies to the “data
processors,” and due to our past mining operations in China, we may be deemed as a “data processors carrying out data processing
activities,” we face uncertainties as to the interpretation or implementation of the Measures and, if required, whether such clearance
can be timely obtained.
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 the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor
takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOFCOM shall be notified in advance of any
concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOFCOM that became
effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security”
concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise
“national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting
to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future,
we may grow our business by acquiring complementary businesses which may include a PRC domestic enterprise. 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. The remaining shareholders who directly or indirectly hold shares in our Company
and who are known to us as being PRC residents are currently processing such registrations.
However, we may not be informed of the identities
of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply
with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents
or entities have complied with and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations.
Failure by such shareholders or beneficial owners to comply with SAFE regulations could subject us to fines or legal sanctions, restrict
our overseas or cross-border investment activities or affect our ownership structure, which could adversely affect our business and prospects.
Any failure to comply with PRC regulations
regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other
legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices
on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed
Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China
for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company,
subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary
of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained
to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our
executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one
year and who have been granted options or other awards are subject to these regulations because our company is an overseas listed company.
Failure to complete the SAFE registrations may subject them to fines and legal sanctions. See “Regulation-Regulations on Stock Incentive
Plans” in our Annual Report on Form 20-F for the year ended December 31, 2020.
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” in our
Registration Statement on Form F-1 (No. 333-254060). 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.
Regulatory bodies of the United States may
be limited in their ability to conduct investigations or inspections of our operations in China.
From time to time, the Company may receive requests
from certain U.S. agencies to investigate or inspect the Company’s operations or to otherwise provide information. While the Company
will comply with requests from these regulators, there is no guarantee that such requests will be honored by those entities that provide
services to us or with which we associate, especially for any such entities that are located in China. Furthermore, an on-site inspection
of our facilities by any of these regulators may be limited or entirely prohibited. Such inspections, though permitted by the Company
and its affiliates, are subject to the unpredictability of the Chinese enforcement and other government agencies and may therefore be
impossible to facilitate.
The Company’s auditor, Audit Alliance LLP,
is PCAOB registered and based in Singapore. Under the Holding Foreign Companies Accountable Act, the PCAOB is permitted to inspect the
Company’s public accounting firm. However, if the PCAOB later determined that it cannot inspect or fully investigate our auditor,
trading in our securities may be prohibited under the HFCAA and, as a result, Nasdaq may determine to delist our securities.
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, or SAT Circular
37, which came into effect on December 1, 2017. The SAT Circular 37 further clarifies the practice and procedure of the withholding of
non-resident enterprise income tax. SAT Circular 698 was repealed from the date SAT Circular 37 was enacted.
Where a non-resident enterprise transfers taxable
assets in China indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident
enterprise as either transferor or transferee, or the PRC entity whose equity is transferred, may report such Indirect Transfer to the
relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the
overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring
PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other
person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer
of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws
if the transferee fails to withhold the taxes and the transferor fails to pay the taxes. We face uncertainties as to the reporting and
other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale
of the shares in our offshore subsidiaries and investments. Our Company may be subject to filing obligations or taxed if our company is
transferor in such transactions and may be subject to withholding obligations if our company is transferee in such transactions, under
Circular 7 and/or SAT Circular 37. For transfer of shares in our Company by investors who are non-PRC resident enterprises, our PRC subsidiaries
may be requested to assist in the filing under SAT Circular 7 and/or Circular 37. As a result, we may be required to expend valuable resources
to comply with SAT Circular 7 and/or Circular 37 or to request the relevant transferors from whom we purchase taxable assets to comply
with these circulars, or to establish that our Company should not be taxed under these circulars, which may have a material adverse effect
on our financial condition and results of operations.
Fluctuations in exchange rates could have
a material adverse effect on our results of operations and the value of your investment.
To date, a large 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 will affect the relative purchasing power in RMB terms of our U.S. dollar assets. Our reporting currency is the
U.S. dollar while the functional currency for our future PRC subsidiary is RMB. Gains and losses from the remeasurement of assets and
liabilities that are receivable or payable in RMB are included in our consolidated statements of operations. 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 will continue to vary with exchange rate fluctuations. A fluctuation in the value of RMB relative to the U.S. dollar could
reduce our profits from operations and the translated value of our net assets when reported in U.S. dollars in our financial statements.
This could have a negative impact on our business, financial condition or results of operations as reported in U.S. dollars. If we decide
to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes,
appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations
in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period comparisons
of our reported results of operations.
There remains significant international pressure
on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and
adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ordinary shares in
U.S. dollars. For example, to the extent that we need to convert U.S. dollars into RMB to pay our operating expenses, appreciation of
the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant
depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could
adversely affect the market price of our ordinary shares.
Very limited hedging options are available in
China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to
reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability
and effectiveness of these hedges may be limited, and we may not be able to 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.
Governmental control of currency conversion
may limit our ability to utilize our net revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility
of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We have received substantially all of our
net revenues in RMB. Under our current corporate structure, our Company domiciled in the Cayman Islands may rely on dividend payments
from our PRC subsidiary to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments
of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign
currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our future PRC subsidiary is
able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such
dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment
registrations by the beneficial owners of our Company who are PRC residents. However, approval from or registration with appropriate government
authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses, such as
the repayment of loans denominated in foreign currencies. Therefore, our ability to support any operating and capital expenditure commitments
in China will depend upon our obtaining approval from or registration with appropriate governmental authorities. The PRC government may
also at its discretion restrict access in the future to foreign currencies or current account transactions. If the foreign exchange control
system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay any
potential dividends to our shareholders if we determine to declare any dividends in the future.
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 only recently became profitable from our continuing
bitcoin mining operations. We may again incur losses, as we continue to work to grow our bitcoin mining business. We were 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 cryptocurrency transactions and otherwise signaled that China intended to further limit
cryptocurrency mining within the country, we suspended operations in China and continued to migrate all of our remaining miners in China
to North America. 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. While we expect
to have all migrated miners and any newly purchased ones operational during the fourth quarter of 2021 or first quarter of 2022, 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:
|
|
●
|
the amount and timing of operating expenses related to our new business operations and infrastructure;
|
|
|
|
|
|
|
●
|
fluctuations in the price of bitcoin; and
|
|
|
|
|
|
|
●
|
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, 2020.
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 business. These transactions could be material to our financial condition
and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully
consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties
and risks of such transaction.
Strategic investments or acquisitions will involve
risks commonly encountered in business relationships, including:
|
|
●
|
difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business;
|
|
|
|
|
|
|
●
|
inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits;
|
|
|
|
|
|
|
●
|
difficulties in retaining, training, motivating and integrating key personnel;
|
|
|
|
|
|
|
●
|
diversion of management’s time and resources from our normal daily operations;
|
|
|
|
|
|
|
●
|
difficulties in successfully incorporating licensed or acquired technology and rights into our businesses;
|
|
|
|
|
|
|
●
|
difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;
|
|
|
|
|
|
|
●
|
difficulties in retaining relationships with customers, employees and suppliers of the acquired business;
|
|
|
|
|
|
|
●
|
risks of entering markets, in parts of the U.S., in which we have limited or no prior experience;
|
|
|
●
|
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;
|
|
|
|
|
|
|
●
|
failure to successfully further develop the acquired technology;
|
|
|
|
|
|
|
●
|
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;
|
|
|
|
|
|
|
●
|
potential disruptions to our ongoing businesses; and
|
|
|
|
|
|
|
●
|
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 30, 2020, 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, 2020.
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 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 the novel Coronavirus (COVID-19). In addition to global
macroeconomic effects, the novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments may cause disruption
to our mining activities. 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. The novel Coronavirus (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 novel Coronavirus (COVID-19) outbreak on our business and operations remains uncertain, the continued global spread of the novel
Coronavirus (COVID-19) or the occurrence of other epidemics and the imposition of related public health measures and travel and business
restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced
and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions
on the ability of our employees to perform their jobs. If we are unable to effectively service our miners, our ability to mine bitcoin
will be adversely affected as miners go offline, which would have an adverse effect on our business and the results of our operations.
Our third-party manufacturers, suppliers, sub-contractors
and customers have been and will continue to be disrupted by worker absenteeism, quarantines, restrictions on employees’ ability
to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related
restrictions. Depending on the magnitude of such effects on our supply chain, shipments of parts for our existing miners, which are second-hand,
as well as any new miners we purchase, may be delayed. As our miners require repair or become obsolete and require replacement, our ability
to obtain adequate replacements or repair parts from their manufacturer may therefore be hampered. Supply chain disruptions could therefore
negatively impact our operations. If not resolved quickly, the impact of the novel Coronavirus (COVID-19) global pandemic could have a
material adverse effect on our business.
The 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. However,
we incurred net losses of approximately $1.9 million, $9.7 million and $3.5 million for the years ended December 31, 2020, 2019 and 2018,
respectively. We also reported a net loss of $1,339,400 during the three months ended June 30, 2021, as a result of our suspension of
mining operations in China. We also had negative cash flows from our operating activities of approximately $3.1 million, $1.3 million
and $5.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. 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 will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary
course of business for the next 12 months, we cannot assure you this will be the case. We expect to need additional cash resources in
the future as we wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions in order to implement
our business plan. 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 US$57,413.86 as of October 11, 2021 according to Blockchain.info. According to
the same source, from January 1, 2020 to date, the highest Bitcoin price was approximately US$63,558 per coin and the lowest was US$3,800
per coin.
We expect our results of operations to continue
to be affected by the bitcoin price as most of 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 cryptocurrency 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 persons engaged in 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 entirely on bitcoin (as opposed to other cryptocurrencies). Further, our current application-specific integrated
circuit (“ASIC”) machines (which we refer to as “miners”) are principally utilized for mining bitcoin and bitcoin
cash and cannot mine other cryptocurrencies, such as ether, that are not mined utilizing the “SHA-256 algorithm.” If other
cryptocurrencies were to achieve acceptance at the expense of bitcoin or bitcoin cash (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 cryptocurrencies, or our share price, inflating
and making their market prices more volatile or creating “bubble” type risks for both bitcoin and shares of our ordinary shares.
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 cryptocurrency 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 cryptocurrencies 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 during the second and third quarters of 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 cryptocurrencies
for some time. This has had an adverse impact on our earnings for the second and third quarters of 2021.
Our mining operating costs outpace our mining
revenues, which could seriously harm our business or increase our losses.
Our mining operations are costly, and our expenses
may increase in the future. We intend to use funds on hand and from shares sold under the registration statement of which this prospectus
is a part to continue to purchase bitcoin mining machines. This expense increase may not be offset by a corresponding increase in revenue.
Our expenses may be greater than we anticipate, and our investments to make our business more efficient may not succeed and may outpace
monetization efforts. Increases in our costs without a corresponding increase in our revenue would increase our losses and could seriously
harm our business and financial performance.
We have an evolving business model which
is subject to various uncertainties.
As bitcoin assets may become more widely available,
we expect the services and products associated with them to evolve. In order to stay current with the industry, our business model may
need to evolve as well. From time to time, we may modify aspects of our business model relating to our strategy. We cannot offer any assurance
that these or any other modifications will be successful or will not result in harm to our business. We may not be able to manage growth
effectively, which could damage our reputation, limit our growth and negatively affect our operating results. Further, we cannot provide
any assurance that we will successfully identify all emerging trends and growth opportunities in this business sector, and we may lose
out on those opportunities. Such circumstances could have a material adverse effect on our business, prospects or operations.
The properties included in our mining network
may experience damage, including damage that is not covered by insurance.
Our prior mining operations in China and current
operations in the states of Texas, Nebraska and Georgia in the United States and Canada are, and any future mining sites we may establish
will be, subject to a variety of risks relating to physical condition and operation, including, but not limited to:
|
|
●
|
the presence of construction or repair defects or other structural or building damage;
|
|
|
●
|
any noncompliance with or liabilities under applicable environmental, health or safety regulations or requirements or building permit requirements;
|
|
|
●
|
any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods and windstorms; and
|
|
|
●
|
claims by employees and others for injuries sustained at our properties.
|
For example, our mines could be rendered inoperable,
temporarily or permanently, as a result of a fire or other natural disaster, the coronavirus or another pandemic, or by a terrorist or
other attack. The security and other measures we take to protect against these risks may not be sufficient. Additionally, our mines could
be materially adversely affected by a power outage or loss of access to the electrical grid or loss by the grid of cost-effective sources
of electrical power generating capacity. Given the power requirements of our mines, it would not be feasible to run miners on back-up
power generators in the event of a power outage. We do not have any insurance to cover the replacement cost of any lost or damaged miners,
or any interruption of our mining activities. In the event of an uninsured loss, such mines may not be adequately repaired in a timely
manner or at all, and we may lose some or all of the future revenues anticipated to be derived from such mines.
If, pursuant to our hosting service contracts
(the “Hosting Agreements”) with hosting service providers, hosting service providers cannot or will not supply sufficient
electric power for us to operate our miners, we may be required to relocate some or all of our miners to an alternative facility, which
may have a less advantageous cost structure and our business and results of operations may suffer as a result.
We have made a significant capital investment
in purchasing second-hand miners in order to implement them rapidly to mine bitcoin at prices advantageous to us. Management believes,
based on its knowledge of the industry, that the Hosting Agreements provide many advantages as opposed to other alternative arrangements.
If we are required to deploy or move our miners from the current hosting service providers to other mining facilities, we may be forced
to accept less advantageous terms. Further, during relocation to a new mining facility, we will not be able to operate our miners and
therefore we will not be able to generate revenue.
If we are unable to secure sufficient power supply
from the current hosting service providers, or if the current hosting service providers are unable to supply sufficient electric power,
we may be forced to seek out alternative mining facilities. Should this occur, our operations may be disrupted, which may have a material
adverse effect on our operations.
If our Hosting Agreements with the current
hosting service providers in the U.S. and Canada are terminated, we may be forced to seek a replacement facility to operate our miners
on acceptable terms; should this occur, our operations may be disrupted, which may have a material adverse effect on our operations.
If we are forced to relocate to a new mining facility,
we may not be successful in identifying adequate replacement facilities to house our miners. Even if we do identify such facilities, we
may not be able to secure use of those facilities at rates that are economically viable to support our mining activities. Relocating our
miners, as we did to migrate from China, will require us to incur costs to transition to a new facility including, but not limited to,
transportation expenses and insurance, downtime while we are unable to mine, legal fees to negotiate the new lease, de-installation at
our current facility and, ultimately, installation at any new facility we identify. These costs may be substantial, and we cannot guarantee
that we will be successful in transitioning our miners to a new facility. If we are required to move our miners, our business may suffer,
and our results of operations would be expected to be materially adversely affected.
The development and acceptance of cryptographic
and algorithmic protocols governing the issuance of and transactions in cryptocurrencies is subject to a variety of factors that are difficult
to evaluate.
The use of cryptocurrencies to, among other things,
buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs bitcoin assets
based upon a computer-generated mathematical and/or cryptographic protocol. Large-scale acceptance of cryptocurrencies as a means of payment
has not, and may never, occur. The growth of this industry in general, and the use of bitcoin, in particular, is subject to a high degree
of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may occur unpredictably. The factors
include, but are not limited to:
|
|
●
|
continued worldwide growth in the adoption and use of cryptocurrencies as a medium to exchange;
|
|
|
|
|
|
|
●
|
governmental and quasi-governmental regulation of cryptocurrencies and their use, or restrictions on or regulation of access to and operation of the network or similar bitcoin systems;
|
|
|
|
|
|
|
●
|
changes in consumer demographics and public tastes and preferences;
|
|
|
|
|
|
|
●
|
the maintenance and development of the open-source software protocol of the network;
|
|
|
●
|
the increased consolidation of contributors to the bitcoin blockchain through mining pools;
|
|
|
|
|
|
|
●
|
the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;
|
|
|
|
|
|
|
●
|
the use of the networks supporting cryptocurrencies for developing smart contracts and distributed applications;
|
|
|
|
|
|
|
●
|
general economic conditions and the regulatory environment relating to cryptocurrencies; and
|
|
|
|
|
|
|
●
|
negative consumer sentiment and perception of bitcoin specifically and cryptocurrencies 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 cryptocurrencies
we mine or otherwise acquire or hold for our own account, which would harm investors in our securities.
Banks and financial institutions may not
provide banking services, or may cut off services, to businesses that engage in bitcoin-related activities or that accept cryptocurrencies
as payment, including financial institutions of investors in our securities.
A number of companies that engage in bitcoin and/or
other bitcoin-related activities have been unable to find banks or financial institutions that are willing to provide them with bank accounts
and other services. Similarly, a number of companies and individuals or businesses associated with cryptocurrencies may have had and may
continue to have their existing bank accounts closed or services discontinued with financial institutions in response to government action,
particularly in China, where regulatory response to cryptocurrencies has been to exclude their use for ordinary consumer transactions
within its jurisdiction.
Subject to such restrictions, we also may be unable
to obtain or maintain these services for our business. The difficulty that many businesses 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 cryptocurrencies as a payment system, harm public perception of cryptocurrencies and decrease their usefulness.
The usefulness of cryptocurrencies as a payment
system and the public perception of cryptocurrencies could be damaged if banks or financial institutions were to close the accounts of
businesses engaging in bitcoin and/or other bitcoin-related activities. This could occur as a result of compliance risk, cost, government
regulation or public pressure. The risk applies to securities firms, clearance and settlement firms, national stock and derivatives on
commodities exchanges, the over-the-counter market, and the Depository Trust Company, which, if any of such entities adopts or implements
similar policies, rules or regulations, could negatively affect our relationships with financial institutions and impede our ability to
convert cryptocurrencies to fiat currencies. Such factors could have a material adverse effect on our ability to continue as a going concern
or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations and harm investors.
We may face risks of Internet disruptions,
which could have an adverse effect on the price of cryptocurrencies.
A disruption of the Internet may affect the use
of cryptocurrencies and subsequently the value of our securities. Generally, cryptocurrencies and our business of mining cryptocurrencies
is dependent upon the Internet. A significant disruption in Internet connectivity could disrupt a currency’s network operations
until the disruption is resolved and have an adverse effect on the price of cryptocurrencies and our ability to mine cryptocurrencies.
The impact of geopolitical and economic
events on the supply and demand for cryptocurrencies is uncertain.
Geopolitical crises may motivate large-scale purchases
of bitcoin and other cryptocurrencies, which could increase the price of bitcoin and other cryptocurrencies rapidly. This may increase
the likelihood of a subsequent price decrease as crisis-driven purchasing behavior dissipates, adversely affecting the value of our inventory
following such downward adjustment. Such risks are similar to the risks of purchasing commodities in general uncertain times, such as
the risk of purchasing, holding or selling gold. Alternatively, as an emerging asset class with limited acceptance as a payment system
or commodity, global crises and general economic downturn may discourage investment in cryptocurrencies as investors focus their investment
on less volatile asset classes as a means of hedging their investment risk.
As an alternative to fiat currencies that are
backed by central governments, cryptocurrencies, which are relatively new, are subject to supply and demand forces. How such supply and
demand will be impacted by geopolitical events is largely uncertain but could be harmful to us and investors in our ordinary shares. Political
or economic crises may motivate large-scale acquisitions or sales of cryptocurrencies either globally or locally. Such events could have
a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material
adverse effect on our business, prospects or operations and potentially the value of any bitcoin or any other cryptocurrencies we mine
or otherwise acquire or hold for our own account.
Acceptance and/or widespread use of bitcoin
is uncertain.
Currently, there is a relatively limited use of
any bitcoin in the retail and commercial marketplace, thus contributing to price volatility that could adversely affect an investment
in our securities. Banks and other established financial institutions may refuse to process funds for bitcoin transactions, process wire
transfers to or from bitcoin exchanges, bitcoin-related companies or service providers, or maintain accounts for persons or entities transacting
in bitcoin. Conversely, a significant portion of bitcoin demand is generated by investors seeking a long-term store of value or speculators
seeking to profit from the short- or long-term holding of the asset. Price volatility undermines any bitcoin’s role as a medium
of exchange, as retailers are much less likely to accept it as a form of payment. Market capitalization for a bitcoin as a medium of exchange
and payment method may always be low.
The relative lack of acceptance of bitcoins in
the retail and commercial marketplace, or a reduction of such use, limits the ability of end users to use them to pay for goods and services.
Such lack of acceptance or decline in acceptances could have a material adverse effect on our ability to continue as a going concern or
to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially
the value of bitcoins we mine or otherwise acquire or hold for our own account.
Transactional fees may decrease demand for
bitcoin and prevent expansion.
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 cryptocurrency
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 cryptocurrencies, the value of our ordinary shares may be adversely affected.
There is a lack of liquid markets for cryptocurrencies,
and blockchain/bitcoin-based assets are susceptible to potential manipulation.
Cryptocurrencies that are represented and trade
on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have listing requirements and vet
issuers; requiring them to be subjected to rigorous listing standards and rules, and monitor investors transacting on such platform for
fraud and other improprieties. These conditions may not necessarily be replicated on a distributed ledger platform, depending on the platform’s
controls and other policies. The laxer a distributed ledger platform is about vetting issuers of bitcoin assets or users that transact
on the platform, the higher the potential risk for fraud or the manipulation of the ledger due to a control event. These factors may decrease
liquidity or volume or may otherwise increase volatility of investment securities or other assets trading on a ledger-based system, which
may adversely affect us. Such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue
our business strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the
value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account, and harm investors.
Our operations, investment strategies and
profitability may be adversely affected by competition from other methods of investing in cryptocurrencies.
We compete with other users and/or companies that
are mining cryptocurrencies and other potential financial vehicles, including securities backed by or linked to cryptocurrencies through
entities similar to us. Market and financial conditions, and other conditions beyond our control, may make it more attractive to invest
in other financial vehicles, or to invest in cryptocurrencies directly, which could limit the market for our shares and reduce their liquidity.
The emergence of other financial vehicles and exchange-traded funds have been scrutinized by regulators and such scrutiny and the negative
impressions or conclusions resulting from such scrutiny could be applicable to us and impact our ability to successfully pursue our business
strategy or operate at all, or to maintain a public market for our securities. Such circumstances could have a material adverse effect
on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on
our business, prospects or operations and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire
or hold for our own account, and harm investors.
The development and acceptance of competing
blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.
The development and acceptance of competing blockchain
platforms or technologies may cause consumers to use alternative distributed ledgers or an alternative to distributed ledgers altogether.
Our business utilizes presently existent digital ledgers and blockchains and we could face difficulty adapting to emergent digital ledgers,
blockchains, or alternatives thereto. This may adversely affect us and our exposure to various blockchain technologies and prevent us
from realizing the anticipated profits from our investments. Such circumstances could have a material adverse effect on our ability to
continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects
or operations and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account,
and harm investors.
Our bitcoins may be subject to loss, theft
or restriction on access.
There is a risk that some or all of our bitcoins
could be lost or stolen. Cryptocurrencies are stored in bitcoin sites commonly referred to as “wallets” by holders of bitcoins
which may be accessed to exchange a holder’s bitcoin assets. Access to our bitcoin assets could also be restricted by cybercrime
(such as a denial-of-service attack) against a service at which we maintain a hosted hot wallet. A hot wallet refers to any bitcoin wallet
that is connected to the Internet. Generally, hot wallets are easier to set up and access than wallets in cold storage, but they are also
more susceptible to hackers and other technical vulnerabilities. Cold storage refers to any bitcoin wallet that is not connected to the
Internet. Cold storage is generally more secure 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 all of our cryptocurrencies in cold storage 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 cryptocurrencies, such as by attacking the bitcoin network source code, exchange miners, third-party platforms,
cold and hot storage locations or software, or by other means. We may be in control and possession of one of the more substantial holdings
of bitcoins. As we increase in size, we may become a more appealing target of hackers, malware, cyber-attacks or other security threats.
Any of these events may adversely affect our operations and, consequently, our investments and profitability. The loss or destruction
of a private key required to access our digital wallets may be irreversible and we may be denied access for all time to our bitcoin holdings
or the holdings of others held in those compromised wallets. Our loss of access to our private keys or our experience of a data loss relating
to our digital wallets could adversely affect our investments and assets.
Cryptocurrencies are controllable only by the
possessor of both the unique public and private keys relating to the local or online digital wallet in which they are held, which wallet’s
public key or address is reflected in the network’s public blockchain. We will publish the public key relating to digital wallets
in use when we verify the receipt of transfers and disseminate such information into the network, but we will need to safeguard the private
keys relating to such digital wallets. To the extent such private keys are lost, destroyed or otherwise compromised, we will be unable
to access our bitcoin rewards and such private keys may not be capable of being restored by any network. Any loss of private keys relating
to digital wallets used to store our cryptocurrencies could have a material adverse effect on our ability to continue as a going concern
or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially
the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.
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 custodial wallet alternatives, but there can be no assurance that such services will be more secure than those the Company
presently employs. Human error and the constantly evolving state of cybercrime and hacking techniques may render present security protocols
and procedures ineffective in ways which we cannot predict. If our security procedures and protocols are ineffectual and our bitcoin assets
are compromised by cybercriminals, we may not have adequate recourse to recover our losses stemming from such compromise and we may lose
much of the accumulated value of our bitcoin mining activities. This would have a material adverse impact on our business and operations.
Incorrect or fraudulent bitcoin transactions
may be irreversible.
Bitcoin transactions are irrevocable and stolen
or incorrectly transferred cryptocurrencies may be irretrievable. As a result, any incorrectly executed or fraudulent bitcoin transactions
could adversely affect our investments and assets.
Bitcoin transactions are not, from an administrative
perspective, reversible without the consent and active participation of the recipient of the cryptocurrencies from the transaction. In
theory, bitcoin transactions may be reversible with the control or consent of a majority of processing power on the network, however,
we do not now, nor is it feasible that we could in the future, possess sufficient processing power to affect this reversal. Once a transaction
has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of a bitcoin or a theft thereof generally
will not be reversible, and we may not have sufficient recourse to recover our losses from any such transfer or theft. It is possible
that, through computer or human error, or through theft or criminal action, our bitcoin rewards could be transferred in incorrect amounts
or to unauthorized third parties, or to uncontrolled accounts. Further, according to the SEC, at this time, there is no specifically enumerated
U.S. or foreign governmental, regulatory, investigative or prosecutorial authority or mechanism through which to bring an action or complaint
regarding missing or stolen bitcoin. We are, therefore, presently reliant on existing private investigative entities, such as Chain Analysis
and Kroll to investigate any potential loss of our bitcoin assets. These third-party service providers rely on data analysis and compliance
of ISPs with traditional court orders to reveal information such as the IP addresses of any attackers who may have targeted us. To the
extent that we are unable to recover our losses from such action, error or theft, such events could have a material adverse effect on
our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our
business, prospects or operations of and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or
hold for our own account.
Our reliance primarily on a few models of miners may subject
our operations to increased risk of mine failure.
The performance and reliability of our miners
and our technology is critical to our reputation and our operations. Because we currently use MicroBT, Bitmain and Innosilicon miners,
if there are issues with those machines, our entire system could be affected. Any system error or failure may significantly delay response
times or even cause our system to fail. Any disruption in our ability to continue mining could result in lower yields and harm our reputation
and business. Any exploitable weakness, flaw, or error common to MicroBT, Bitmain and Innosilicon miners affects all our miners, if a
defect other flaw is exploited, our entire mine could go offline simultaneously. Any interruption, delay or system failure could result
in financial losses, a decrease in the trading price of our ordinary shares and/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.
Cryptocurrencies face significant scaling
obstacles that can lead to high fees or slow transaction settlement times.
Cryptocurrencies face significant scaling obstacles
that can lead to high fees or slow transaction settlement times and attempts to increase the volume of transactions may not be effective.
Scaling cryptocurrencies is essential to the widespread acceptance of cryptocurrencies as a means of payment, which widespread acceptance
is necessary to the continued growth and development of our business. Many bitcoin networks face significant scaling challenges. For example,
cryptocurrencies are limited with respect to how many transactions can occur per second. Participants in the bitcoin ecosystem debate
potential approaches to increasing the average number of transactions per second that the network can handle and have implemented mechanisms
or are researching ways to increase scale, such as increasing the allowable sizes of blocks, and therefore the number of transactions
per block, and sharding (a horizontal partition of data in a database or search engine), which would not require every single transaction
to be included in every single miner’s or validator’s block. However, there is no guarantee that any of the mechanisms in
place or being explored for increasing the scale of settlement of bitcoin transactions will be effective, or how long they will take to
become effective, which could adversely affect an investment in our securities.
The price of cryptocurrencies may be affected
by the sale of such cryptocurrencies by other vehicles investing in cryptocurrencies or tracking bitcoin markets.
The global market for bitcoin is characterized
by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical
protocols under which certain cryptocurrencies are mined permit the creation of a limited, predetermined amount of currency, while others
have no limit established on total supply. To the extent that other vehicles investing in cryptocurrencies or tracking bitcoin markets
form and come to represent a significant proportion of the demand for cryptocurrencies, large redemptions of the securities of those vehicles
and the subsequent sale of cryptocurrencies by such vehicles could negatively affect bitcoin prices and therefore affect the value of
the bitcoin inventory we hold. Such events could have a material adverse effect on our ability to continue as a going concern or to pursue
our business strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the
value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.
There are risks related to technological
obsolescence, the vulnerability of the global supply chain for bitcoin hardware disruption, and difficulty in obtaining new hardware which
may have a negative effect on our business.
Our mining operations can only be successful and
ultimately profitable if the costs, including hardware and electricity costs, associated with mining cryptocurrencies are lower than the
price of a bitcoin. As our mining facility operates, our miners experience ordinary wear and tear, and may also face more significant
malfunctions caused by a number of extraneous factors beyond our control. To date, we have purchased second-hand miners from third parties.
The degradation of our miners will require us to, over time, replace those miners which are no longer functional. Additionally, as the
technology evolves, we may be required to acquire newer models of miners to remain competitive in the market. Reports have been released
which indicate that miner manufacturer or seller adjusts the prices of its miners according to bitcoin prices, so the cost of new machines
is unpredictable but could be extremely high. As a result, at times, we may obtain miners and other hardware from third parties at premium
prices, to the extent they are available. This upgrading process requires substantial capital investment, and we may face challenges.
Further, the global supply chain for bitcoin miners is presently heavily dependent on China. The global reliance on China as a main supplier
of bitcoin miners has been called into question in the wake of the COVID-19 pandemic. Should similar outbreaks or other disruptions to
the China-based global supply chain for bitcoin hardware 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 for which we mine, is subject
to halving; the bitcoin reward for successfully uncovering a block will halve several times in the future and their value may not adjust
to compensate us for the reduction in the rewards we receive from our mining efforts.
Halving is a process designed to control the overall
supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining
reward is cut in half, hence the term “halving.” For bitcoin, the reward was initially set at 50 bitcoin currency rewards
per block and this was cut in half to 25 in November 28, 2012 at block 210,000 and again to 12.5 on July 9, 2016 at block 420,000. The
next halving for bitcoin occurred in May 2020 at block 630,000 when the reward was reduced to 6.25. This process will reoccur until the
total amount of bitcoin currency rewards issued reaches 21 million, which is expected around 2140. 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 cryptocurrencies 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 cryptocurrencies 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 cryptocurrencies, industry standards would dictate that we would be expected to hold an equivalent amount of the
old and new assets following the fork. However, we may not be able, or it may not be practical, to secure or realize the economic benefit
of the new asset for various reasons. For instance, we may determine that there is no safe or practical way to custody the new asset,
that trying to do so may pose an unacceptable risk to our holdings in the old asset, or that the costs of taking possession and/or maintaining
ownership of the new bitcoin exceed the benefits of owning the new bitcoin. Additionally, laws, regulation or other factors may prevent
us from benefitting from the new asset even if there is a safe and practical way to custody and secure the new asset.
There is a possibility of bitcoin mining
algorithms transitioning to proof of stake validation and other mining related risks, which could make us less competitive and ultimately
adversely affect our business and the value of our 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 cryptocurrency 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 cryptocurrencies we mine or otherwise acquire
or hold for our own account.
To the extent that the profit margins of
bitcoin mining operations are not high, operators of bitcoin mining operations are more likely to immediately sell bitcoin rewards earned
by mining in the market, thereby constraining growth of the price of bitcoin that could adversely impact us, and similar actions could
affect other cryptocurrencies.
Over the past several years, bitcoin mining operations
have evolved from individual users mining with computer processors, graphics processing units and first-generation ASIC servers. Currently,
new processing power is predominantly added by incorporated and unincorporated “professionalized” mining operations. Professionalized
mining operations may use proprietary hardware or sophisticated ASIC machines acquired from ASIC manufacturers. They require the investment
of significant capital for the acquisition of this hardware, the leasing of operating space (often in data centers or warehousing facilities),
incurring of electricity costs and the employment of technicians to operate the mining farms. As a result, professionalized mining operations
are of a greater scale than prior miners and have more defined and regular expenses and liabilities. These regular expenses and liabilities
require professionalized mining operations to maintain profit margins on the sale of bitcoin. To the extent the price of bitcoin declines
and such profit margin is constrained, professionalized miners are incentivized to more immediately sell bitcoin earned from mining operations,
whereas it is believed that individual miners in past years were more likely to hold newly mined bitcoin for more extended periods. The
immediate selling of newly mined bitcoin greatly increases the trading volume of bitcoin, creating downward pressure on the market price
of bitcoin rewards.
The extent to which the value of bitcoin mined
by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such operation.
A professionalized mining operation may be more likely to sell a higher percentage of its newly mined bitcoin rapidly if it is operating
at a low profit margin and it may partially or completely cease operations if its profit margin is negative. In a low profit margin environment,
a higher percentage could be sold more rapidly, thereby potentially depressing bitcoin prices. Lower bitcoin prices could result in further
tightening of profit margins for professionalized mining operations creating a network effect that may further reduce the price of bitcoin
until mining operations with higher operating costs become unprofitable forcing them to reduce mining power or cease mining operations
temporarily.
If a malicious actor or botnet obtains control
of more than 50% of the processing power on a bitcoin network, such actor or botnet could manipulate blockchains to adversely affect us,
which would adversely affect an investment in us or our ability to operate.
If a malicious actor or botnet (a volunteer or
hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing
power dedicated to mining a bitcoin, it may be able to alter blockchains on which transactions of bitcoin reside and rely by constructing
fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could
control, exclude or modify the ordering of transactions, though it could not generate new units or transactions using such control. The
malicious actor could “double-spend” its own bitcoin (i.e., spend the same bitcoin in more than one transaction) and prevent
the confirmation of other users’ transactions for as long as it maintained control. To the extent that such malicious actor or botnet
does not yield its control of the processing power on the network or the bitcoin community does not reject the fraudulent blocks as malicious,
reversing any changes made to blockchains may not be possible. The foregoing description is not the only means by which the entirety of
blockchains or cryptocurrencies may be compromised but is only an example.
Although there are no known reports of malicious
activity or control of blockchains achieved through controlling over 50% of the processing power on the network, it is believed that certain
mining pools may have exceeded the 50% threshold in bitcoin. The possible crossing of the 50% threshold indicates a greater risk that
a single mining pool could exert authority over the validation of bitcoin transactions. To the extent that the bitcoin ecosystem, and
the administrators of mining pools, do not act to ensure greater decentralization of bitcoin mining processing power, the feasibility
of a malicious actor obtaining control of the processing power will increase because the botnet or malicious actor could compromise more
than 50% mining pool and thereby gain control of blockchain, whereas if the blockchain remains decentralized it is inherently more difficult
for the botnet of malicious actor to aggregate enough processing power to gain control of the blockchain, may adversely affect an investment
in our 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 cryptocurrencies 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. According
to PRC Provisions on Supply and Use of Electricity (revised in 2019), excessive use of electricity or failure to use electricity in accordance
with the contract may result in stop of the power supply. Additionally, our miners could be materially adversely affected by a power outage.
PRC Electricity Law forbids users to build power plants without permission of Electric Department of the State Council. Given the power
requirement, it would not be feasible to run miners on back-up power generators or purchase power from personal power plants in the event
of a government restriction on electricity or a power outage.
Any shortage of electricity supply or increase
in electricity cost in a jurisdiction may negatively impact the viability and the expected economic return for bitcoin mining activities
in that jurisdiction. In addition, the significant consumption of electricity may have a negative environmental impact, including contribution
to climate change, which may give rise to public opinion against allowing the use of electricity for bitcoin mining activities or government
measures restricting or prohibiting the use of electricity for bitcoin mining activities.
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 cryptocurrency 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, cryptocurrency 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 cryptocurrency mining machines,
as well the environmental impact of mining for the rare earth metals used in the production of mining servers, the cryptocurrency 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 cryptocurrency 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. 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 Ethereum
are the only digital assets which senior officials at the SEC have publicly stated are unlikely to be considered securities. If a digital
asset is determined or asserted to be a security, it is likely to become difficult or impossible for the 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 significantly impact its liquidity and market participants’ ability
to convert the digital asset into U.S. dollars.
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 cryptocurrency. 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 cryptocurrency to be traded, cleared, and custodied as compared to other cryptocurrencies 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.
Passage of H.R. 3684 known as the Infrastructure Investment and
Jobs Act of 2021 (the “Infrastructure Act”) may have an adverse impact on our business and financial condition.
On August 10, 2021, the United States Senate (the
“Senate”) voted 69-30 to pass 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” in a way
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.
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 cryptocurrency market. Additionally, noncompliance with this provision could lead to significant fines and or
regulatory actions against our company.
There can be no assurance that the Infrastructure
Act will be passed in its current form, if at all. The Company is therefore unable to determine, with any degree of certainty, how it
will comply if enacted, what the costs of compliance will be, and/or the risks of non-compliance. Prior to becoming law, the Infrastructure
Act has to pass the United States House of Representatives (the “House”) and then be signed by the President of the United
States (the “President”). If the House version modifies the Senate version, the legislation needs to be reconciled through
a temporary bicameral conference committee established to resolve the differences between the two versions of the legislation. Then the
House and Senate must pass the final version of the legislation prior to the legislation being sent to the President. There can be no
assurance that prior to the President signing the final version of the Infrastructure Act, Section 80603 will be modified with limiting
language that provides protection to the cryptocurrency industry.
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 cryptocurrencies and related revenue recognition and no official guidance has yet been provided by the Financial
Accounting Standards Board, the Public Company Accounting Oversight Board or the SEC, it is unclear how companies may in the future be
required to account for bitcoin transactions and assets and related revenue recognition. A change in regulatory or financial accounting
standards could result in the necessity to change our accounting methods and restate our financial statements. Such a restatement could
adversely affect the accounting for our newly mined bitcoin rewards and more generally negatively impact our business, prospects, financial
condition and results of operation. Such circumstances would have a material adverse effect on our ability to continue as a going concern
or to pursue our business strategy at all, which would have a material adverse effect on our business, prospects or operations as well
as and potentially the value of any cryptocurrencies we hold or expects to acquire for our own account and harm investors.
Risks Related to Canadian Government Regulations
The Alberta Utilities Commission (“AUC”)
and AUC’s Decision 26379-D02-2021 may have a potential negative impact on our business and financial condition.
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 cryptocurrency miners
seeking to develop their own electric generation in Alberta, unless their operations are exempt.
AUC requires a formal application and approval
for all generation plants over 10 MW. An application to AUC is not required when all of the following criteria are met:
|
1.
|
The power generation capacity is less than 10 megawatts;
|
|
|
|
|
2.
|
The operator generates electricity solely for their own use;
|
|
|
|
|
3.
|
No person is directly and adversely affected by the powerplant;
|
|
|
|
|
4.
|
The powerplant complies with the AUC noise control rules; and
|
|
|
|
|
5.
|
There is no adverse effect on the environment.
|
Bit Digital is not seeking their own electric
generation plant in Alberta. Instead, Bit Digital entered into a Master Service Agreement (“MSA”) with Link Global Technologies
(“Link Global”). Link Global will provide electrical power to Bit Digital. However, AUC’s requirements are still pertinent
to Bit Digital’s operation.
Link Global recently established power generation
facilities in Alberta aggregating less than 10 megawatts; believing all five aforementioned criteria were met, Link Global did not obtain
formal approval from AUC. Link Global sold energy at their plants to Block One, a bitcoin mining company, under a Master Service Agreement.
Block One owned their own bitcoin mining equipment.
Following noise complaints from residential homes
adjacent to Link Global’ s plants, the AUC’s enforcement staff initiated an investigation. Following the investigation, AUC
enforcement staff alleged that Link Global was not generating electricity for its own use.
AUC’s Decision 26379-D02-2021 (the “Decision”)
analyzes criteria #2 “the operator generates electricity solely for their own use.” Section 13 of the Act provides that the
requirement that a person obtain approval from the AUC to operate a power plant does “not apply to a person generating or proposing
to generate energy solely for the person’s own use.” The Act defines a person as a municipal corporation or other corporation.
AUC found that the definition of “person” in the Act did not extend to a partnership or joint venture arrangement. AUC concluded
that Link Global was not generating electricity for its own use.
Following the Decision, Block One transferred
its ownership of the cryptocurrency processing facilities to Link Global. Following the transfer, Link Global’ s exclusive ownership
met the own use definition of Section 13 of the Act.
AUC’s narrow interpretation of the definition
of own use and the conclusion that it was not the intention of the legislature to extend the meaning of own use to separate corporate
entities may require Bit Digital to revise its MSA and transfer ownership of assets to Link Global, while AUC’s broad regulatory
and enforcement mechanisms, may create additional risk.
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 cryptocurrency 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 cryptocurrency 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, 2020. 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 cryptocurrencies 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:
|
|
●
|
actual or anticipated fluctuations in our financial condition and operating results or those of companies perceived to be similar to us;
|
|
|
|
|
|
|
●
|
actual or anticipated changes in our growth rate relative to our competitors;
|
|
|
|
|
|
|
●
|
commercial success and market acceptance of blockchain and bitcoin and other cryptocurrencies;
|
|
|
●
|
actions by our competitors, such as new business initiatives, acquisitions and divestitures;
|
|
|
|
|
|
|
●
|
strategic transactions undertaken by us;
|
|
|
|
|
|
|
●
|
additions or departures of key personnel;
|
|
|
|
|
|
|
●
|
prevailing economic conditions;
|
|
|
|
|
|
|
●
|
disputes concerning our intellectual property or other proprietary rights;
|
|
|
|
|
|
|
●
|
sales of our ordinary shares by our officers, directors or significant shareholders;
|
|
|
|
|
|
|
●
|
other actions taken by our shareholders;
|
|
|
|
|
|
|
●
|
future sales or issuances of equity or debt securities by us;
|
|
|
|
|
|
|
●
|
business disruptions caused by earthquakes, tornadoes or other natural disasters;
|
|
|
|
|
|
|
●
|
issuance of new or changed securities analysts’ reports or recommendations regarding us;
|
|
|
|
|
|
|
●
|
legal proceedings involving our company, our industry or both;
|
|
|
|
|
|
|
●
|
changes in market valuations of companies similar to ours;
|
|
|
|
|
|
|
●
|
the prospects of the industry in which we operate;
|
|
|
|
|
|
|
●
|
speculation or reports by the press or investment community with respect to us or our industry in general;
|
|
|
|
|
|
|
●
|
the level of short interest in our shares; and
|
|
|
|
|
|
|
●
|
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, 2020 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.” We, and some of our current and former officers and directors, have been named as parties to various lawsuits arising
out of, or related to, allegedly false and misleading statements made in prior securities filings, and those lawsuits could adversely
affect us, require significant management time and attention, result in significant legal expenses or damages, and cause our business,
financial condition, results of operations and cash flows to suffer.”
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 72% of the voting power of our outstanding shares as of October 25, 2021 or approximately 42% 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 in the over-the-counter market or on an electronic bulletin board established for unlisted securities, such as the OTC. In such event,
it could become more difficult to dispose of, or obtain accurate price quotations for, our ordinary shares, and there would likely also
be a reduction in our coverage by securities analysts and the news media, which could cause the price of our ordinary shares to decline
further. In addition, our ability to raise additional capital may be severely impacted 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 intend to seek dismissal of
the lawsuit and will 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 seek recognition and/or 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.
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.
We are currently a foreign private issuer within
the meaning of the rules under the Exchange Act and expect to remain as such through at least 2021. As such, we are exempt from certain
provisions applicable to United States domestic public companies. For example:
|
|
●
|
we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company;
|
|
|
|
|
|
|
●
|
for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
|
|
|
|
|
|
|
●
|
we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
|
|
|
|
|
|
|
●
|
we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
|
|
|
|
|
|
|
●
|
we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;
|
|
|
|
|
|
|
●
|
we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction; and.
|
|
|
|
|
|
|
●
|
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
|
|
●
|
at least 75% of our gross income for the year is passive income; or
|
|
|
|
|
|
|
●
|
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 cryptocurrency 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 Current 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.