Business Context and Reporting Period
This Form 6-K filing by Bit Digital, Inc. covers the month of December 2020. The report details the entry into definitive material agreements regarding a private placement of debt securities.
Key Financial Metrics and Transaction Details
- Debt Instrument: Subordinated convertible notes (the "Notes").
- Total Principal Amount: Up to $1,650,000, issued in two closings ($1,100,000 initial; $550,000 second).
- Original Issue Discount (OID): 10%.
- Net Proceeds: Approximately $1,280,000 after deducting fees and expenses.
- Interest Rate: 8% per annum, increasing to 15% if not paid within three months of the initial closing or upon an Event of Default.
- Security Status: Unsecured and expressly junior to existing or future debt obligations.
- Transaction Costs: Aggregate commissions of 10% of gross proceeds paid to FINRA registered broker-dealers.
Material Changes and Terms
The primary material change is the execution of a Securities Purchase Agreement (SPA) on December 31, 2020. Key terms include:
- Redemption Rights: The Company may redeem Notes at 110% of face value plus accrued interest within the first 60 days, or 120% thereafter. The Holder may redeem at 120% upon an Event of Default or Change of Control.
- Conversion Terms: Notes automatically convert into Ordinary Shares upon the effectiveness of the Initial Registration Statement. The Standard Conversion Price is the lower of $6.00 per share or 80% of the average of the three lowest VWAPs during the 15 trading days ending on the conversion date. An Event of Default Conversion Price is set at 85% of the Standard Conversion Price.
- Bankruptcy Event: In the event of a Bankruptcy Event of Default, the Notes become immediately due and payable at 120% of outstanding principal, interest, and late charges.
- Registration Rights: The Company must file a registration statement within 30 days of the initial closing and have it declared effective within 90 days.
Guidance, Risks, and Contingencies
- Contingencies: The second closing is subject to customary conditions and the filing of the Initial Registration Statement.
- Covenants: The Company is subject to customary affirmative and negative covenants. It cannot enter a Fundamental Transaction unless the successor entity assumes the Notes' obligations and is a publicly traded corporation.
- Issuance Restrictions: Until 30 days after the Registration Statement becomes effective, the Company cannot issue equity securities other than Excluded Securities.
- Short Selling: The Holder and affiliates are prohibited from entering short positions while the Notes are outstanding.
- Financial Metrics: The filing text does not provide clear values for revenue, profit, cash flow, margins, or overall liquidity outside of the specific transaction proceeds.
Investor Verification Checklist
- Verify the effectiveness of the Initial Registration Statement within the required 90-day window.
- Confirm the satisfaction of conditions for the second closing to secure the full $1,650,000 principal.
- Monitor the Company's ability to service the 8% to 15% interest rate given the subordinated nature of the debt.
- Review the full text of the SPA, Notes, and Registration Rights Agreement (Exhibits 99.1 through 99.3) for complete legal terms.
- Assess the dilution impact based on the conversion price formula relative to the current market price.