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Business Context and Reporting Period

Company: Golden Bull Limited (formerly Bit Digital, Inc.; NASDAQ: DNJR)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2019
Filing Date: January 30, 2020

Golden Bull Limited, formerly a peer-to-peer (P2P) lending marketplace in China, announced financial results for the first half of 2019. Due to regulatory policy changes in China, the Company shut down its P2P lending business and is transitioning to auto rental and bitcoin mining operations. The filing also addresses a Nasdaq trading suspension related to a criminal investigation by the Shanghai Public Security Bureau into the Company's variable interest entity (Dianniu) for suspected illegal collection of public deposits.

Key Financial Metrics

Operational Metrics (Six Months Ended June 30, 2019):

• Loans Facilitated: 2,615 (Decreased 15.4% from 3,090 in 2018)
• Loan Volume: $66.0 million (Decreased 15.3% from $77.9 million in 2018)
• Number of Borrowers: 1,965 (Derived from quarterly data: 1,506 in Q1 + 459 in Q2)

Material Changes Versus Prior Period

• Revenue Decline: Total revenue decreased 13% to $4.55 million, driven by a 15.3% drop in loan volume due to the contraction of the P2P lending sector in China.
• Surge in Net Loss: Net loss increased 769.5% to $6.46 million. This was primarily caused by a 131.5% increase in selling expenses ($5.33 million vs. $2.30 million) as the Company attempted to retain lenders and build brand confidence amidst regulatory crackdowns.
• Liquidity Deterioration: Cash, cash equivalents, and restricted cash dropped from $2.93 million at year-end 2018 to approximately $1.00 million by June 30, 2019. Net cash used in operating activities increased significantly to $1.97 million.
• Balance Sheet Shift: Total assets decreased by nearly $5 million, largely due to a reduction in prepaid costs and expenses and a decrease in cash. Total liabilities increased to $2.35 million, primarily due to a rise in other payables and accrued liabilities.

Guidance, Outlook, and Risks

Management Commentary and Outlook: Management attributes the financial decline to the Chinese government's policy shift from supporting to shutting down P2P lending, which led to increased default rates and a loss of lender confidence. The Company expects its new businesses (auto rental and bitcoin mining) to drive future growth, though management noted that historical P2P data cannot precisely estimate future revenues due to the uncertainty of these new ventures.

Financial Forecast: The Company provided a forecast estimating net losses of $1.2 million (2019), $0.6 million (2020), $0.5 million (2021), $0.4 million (2022), and $0.3 million (2023). Consequently, the Company established a full valuation allowance on deferred tax assets.

Risks and Contingencies:

• Regulatory and Legal: The Shanghai Public Security Bureau has taken criminal enforcement measures against 17 suspects in the Company's VIE (Dianniu) for suspected illegal deposit collection. This resulted in a Nasdaq trading suspension.
• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of June 30, 2019. Significant material weaknesses were identified, including lack of sufficient accounting personnel, lack of an internal audit department, inadequate IT controls, and significant deficiencies at the VIE level.
• Business Transition: The Company faces uncertainty in successfully commercializing its new auto rental and bitcoin mining businesses to replace the shuttered P2P revenue stream.

Investor Verification Checklist

• Cash Runway: Verify the sufficiency of the remaining ~$1 million in cash to fund the transition to auto rental and bitcoin mining operations given the current burn rate.
• Legal Proceedings: Monitor the status of the Shanghai Public Security Bureau investigation and the potential impact of the Nasdaq trading suspension on the Company's ability to raise capital.
• Internal Control Remediation: Assess the progress of management's plan to remediate material weaknesses in internal controls, specifically regarding accounting staffing and IT governance.
• New Business Viability: Scrutinize the actual revenue generation and operational metrics of the new auto rental and bitcoin mining segments, as historical P2P data is no longer predictive.
• Deferred Tax Assets: Confirm the impact of the full valuation allowance on deferred tax assets on future financial statements and tax liabilities.