Bit Digital, Inc. — 2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; the supplied filing text does not provide clear Q4-only financial results. Financial statements are prepared under U.S. GAAP and audited. The auditor gave an unqualified opinion on the 2020 financial statements, but did not audit internal-control effectiveness.
Business context
The company began bitcoin mining in February 2020 and, in September, sold the subsidiaries and variable-interest entities operating its former China peer-to-peer lending and car-rental businesses. Those operations are reported as discontinued operations. The company’s continuing business is bitcoin mining, conducted through hosting providers in China and the United States. It also formed a Canadian subsidiary in February 2021.
Key financial metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Mining revenue | $21.07 million | $0 |
| Cost of revenue, excluding depreciation | $14.10 million | $0 |
| Depreciation and amortization | $3.32 million | $0 |
| General and administrative expense | $2.52 million | $1.99 million |
| Operating income (loss) | $1.12 million | $(1.99) million |
| Continuing-operations income (loss) | $1.92 million | $(1.99) million |
| Discontinued-operations loss | $(3.83) million | $(7.68) million |
| Net income (loss) | $(1.91) million | $(9.68) million |
| Basic and diluted loss per share | $(0.06) | $(0.62) |
| Operating cash flow | $(3.42) million* | $(1.35) million |
| Investing cash flow | $(2.05) million | $(0.92) million |
| Financing cash flow | $5.26 million | $0 |
*The filing’s cash-flow table elsewhere reports FY 2020 operating cash used of $3.15 million, while the audited cash-flow statement and MD&A report $3.42 million; see investor verification items below.
Calculated from reported figures, gross profit was approximately $6.96 million and gross margin approximately 33%; operating margin was approximately 5%. Continuing-operations income included an $805,557 realized gain on cryptocurrency sales. No income tax expense was recorded.
At year-end, total assets were $39.89 million, including $29.85 million of net mining equipment, $6.24 million of cryptocurrencies, and $405,133 of cash. Current assets were $8.72 million; current liabilities and total liabilities were each $1.89 million. Shareholders’ equity was $38.00 million. The balance sheet shows no long-term debt; current liabilities included $336,722 due to related parties and $1.37 million of accounts payable. Accumulated deficit was $15.70 million.
Changes versus the prior comparable period
- Mining generated $21.07 million of revenue in 2020, versus none in 2019, as the company shifted away from its former businesses.
- Continuing operations moved from a $1.99 million loss in 2019 to $1.92 million of income in 2020. Despite this, the company remained loss-making overall because discontinued operations recorded a $3.83 million loss.
- Operating expenses rose substantially with mining activity, including $14.10 million of direct mining costs and $3.32 million of depreciation. G&A increased 26% to $2.52 million.
- Net loss improved from $9.68 million to $1.91 million, while weighted-average shares increased from 15.20 million to 30.59 million, reflecting equity financing and other issuances.
- The company raised $19.8 million gross in May and July private placements and issued 4.34 million shares to acquire miners valued at approximately $13.90 million. Year-end mining equipment was carried at $29.85 million net.
Outlook, risks and unusual items
- Management outlook: The company expected a significant increase in 2021 revenue as more miners were deployed, and anticipated lower overall energy costs as U.S. operations expanded. It also expected mining costs and capital expenditures to rise. Further miner purchases were conditional on raising funds. Management stated that cash on hand and anticipated operating cash flows were expected to cover ordinary working-capital needs and capital expenditures for the next 12 months, while also warning that additional capital may be needed.
- Expansion: The company reported 41,226 miners and a stated hash rate of 2,432.5 Ph/s as of March 26, 2021 in one passage; other passages give different hash-rate figures. It had ordered another 3,300 miners for about $13.77 million, expected to be installed in the United States by the end of April 2021.
- Bitcoin and operating exposure: Revenue and asset values are highly sensitive to bitcoin prices, mining difficulty, the May 2020 block-reward halving, power costs and miner efficiency. Hosting-provider dependence, equipment obsolescence, supply interruptions, cyber theft and cryptocurrency custody are also material risks. The company said it held crypto in cold storage but had no insurance covering digital assets, business interruption or general third-party liability.
- China regulation: The majority of operations were in China. Inner Mongolia announced a mining ban in March 2021, and the company said it had moved miners from the region. It warned that other local or national restrictions could disrupt operations. The filing also states that Bit Digital Hong Kong had not obtained business licenses in relevant Chinese provinces and that the company had begun forming a PRC subsidiary.
- Legacy matters and litigation: A Chinese police investigation into the former P2P business remained unresolved; the company said it had not itself faced enforcement action as of the report date, but potential consequences could not be estimated. Two securities class actions filed in January 2021 related to share purchases during December 21, 2020–January 8, 2021; the company said it intended to seek dismissal and defend the cases.
- Disposal and impairment: The former China businesses were sold for nominal stated consideration of $10 plus other consideration. The company recorded a $3.73 million impairment of discontinued-operation net assets and a $3.83 million total discontinued-operations loss for 2020.
- Controls and management: Management concluded disclosure controls were ineffective at December 31, 2020 and reported material weaknesses in internal control over financial reporting, including no functional internal audit function and inadequate IT general controls. Management described remediation plans. Erke Huang became interim CEO in February 2021 while remaining CFO; the CEO search was ongoing.
- Capital and shareholder returns: The company reported an $80 million purchase agreement with an institutional investor, under which future share sales were at the company’s discretion and subject to conditions. It did not expect to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Reconcile the FY 2020 operating cash-flow figures: $3.42 million used in the audited statement and MD&A versus $3.15 million in a summary cash-flow table.
- Confirm the miner count and hash rate at the relevant dates; the filing cites 2,253.5 Ph/s in some sections and 2,432.5 Ph/s in others for March 2021, and gives differing miner counts by date.
- Review the economics and cash conversion of mining: year-end cash was $405,133 despite $21.07 million of mining revenue, with substantial cryptocurrency holdings, accounts payable and cash used in operations.
- Assess the effect of Chinese mining restrictions, including the Inner Mongolia ban, on miner location, power availability, hosting arrangements and production.
- Track remediation of the disclosed control weaknesses and the outcome or potential exposure from the P2P investigation and securities class actions.
- Review dilution and funding terms, including the 2020 private placements, shares issued for miners, subsequent convertible notes and the institutional share-purchase agreement.