UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
☒
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report: April 13, 2023
Commission File Number: 001-41687
BITDEER TECHNOLOGIES GROUP
(Exact name of Registrant as specified in its charter)
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Not applicable
(Translation of Registrant’s name into English)
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Cayman Islands
(Jurisdiction of incorporation or organization)
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08 Kallang Avenue
Aperia tower 1, #09-03/04
Singapore 339509
Aperia tower 1, #09-03/04
Singapore 339509
(Address of principal executive offices)
Linghui Kong
Chief Executive Officer
08 Kallang Avenue
Aperia tower 1, #09-03/04
Singapore 339509
Telephone: +65 62828220
Chief Executive Officer
08 Kallang Avenue
Aperia tower 1, #09-03/04
Singapore 339509
Telephone: +65 62828220
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of exchange on which registered
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Class A ordinary shares, par value
US$0.0000001 |
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BTDR
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The Nasdaq Stock Market LLC
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the shell company report: 62,888,683 Class A ordinary shares and 48,399,922 Class V ordinary shares, as of April 13, 2023.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting over Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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U.S. GAAP ☐
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International Financial Reporting Standards as issued
by the International Accounting Standards Board
☒
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| | Other ☐ | |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☐
†
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
TABLE OF CONTENTS
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| SIGNATURE | | | | | | | |
i
EXPLANATORY NOTE
On April 13, 2023 (the “Closing Date”), Bitdeer Technologies Group, an exempted company with limited liability incorporated under the laws of the Cayman Islands (the “Company”), consummated the previously announced business combination pursuant to the Amended and Restate Agreement and Plan of Merger, dated December 15, 2021, by and among (i) the Company, (ii) Bitdeer Technologies Holding Company, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Bitdeer”), (iii) Blue Safari Group Acquisition Corp., a BVI business company (“BSGA”), (iv) Blue Safari Merge Limited, a British Virgin Islands business company and a wholly-owned subsidiary of the Company (“BSGA Merger Sub 1”), (v) Blue Safari Merge II Limited, a British Virgin Islands business company and a wholly-owned subsidiary of the Company (“BSGA Merger Sub 2”), (vi) Bitdeer Merge Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of the Company (“Bitdeer Merger Sub”) and (vii) Blue Safari Mini Corp., an exempted company incorporated with limited liability under the laws of the Cayman Islands and a wholly-owned subsidiary of BSGA, as amended by (a) the First Amendment to Amended and Restate Agreement and Plan of Merger, dated May 30, 2022, (b) the Second Amendment to Amended and Restated Agreement and Plan of Merger, dated December 2, 2022 and (c) the Third Amendment to Amended and Restated Agreement and Plan of Merger, dated March 7, 2023, each by and among the same parties (the “Merger Agreement”).
Pursuant to the Merger Agreement, the transactions contemplated under the Merger Agreement were consummated via a multiple-merger structure, including (i) BSGA Merger Sub 1 merging with and into BSGA with BSGA being the surviving entity and becoming a wholly-owned subsidiary of the Company (the “First SPAC Merger”, and the surviving entity, the “Initial SPAC Surviving Sub”), (ii) immediately following the First SPAC Merger, Initial SPAC Surviving Sub merging with and into BSGA Merger Sub 2, with BSGA Merger Sub 2 being the surviving entity (the “Second SPAC Merger”, and together with the First SPAC Merger, the “Initial Mergers”), and (iii) following the Initial Mergers, Bitdeer Merger Sub merging with and into Bitdeer, with Bitdeer being the surviving entity and becoming a wholly-owned subsidiary of the Company (the “Acquisition Merger”, and together with the Initial Mergers and other transactions contemplated by the Merger Agreement, the “Business Combination”).
Immediately prior to the effective time of the First SPAC Merger (the “First SPAC Merger Effective Time”), (i) each unit of BSGA (“BSGA Unit”) issued and outstanding immediately prior to the First SPAC Merger Effective Time was automatically detached into one Class A ordinary shares, no par value, of BSGA (the “BSGA Class A Ordinary Share”) and one right convertible into one-tenth (1/10) of a BSGA Class A Ordinary Share (the “BSGA Right”) and (ii) each BSGA Right outstanding immediately prior to the First SPAC Merger Effective Time (and immediately subsequent to the detachment of the BSGA Units) was cancelled and ceased to exist in exchange for the right to receive, without interest, one-tenth (1/10) of a BSGA Class A Ordinary Share.
At the First SPAC Merger Effective Time, each ordinary share, no par value, of BSGA (the “BSGA Ordinary Share”) issued and outstanding immediately prior to the First SPAC Merger Effective Time was automatically cancelled and ceased to exist in exchange for the right to receive, without interest, one Class A ordinary shares of the Company, par value US$0.0000001 per share (the “Class A Ordinary Share”).
At the effective time of the Acquisition Merger (the “Acquisition Merger Effective Time”), (i) each ordinary share of Bitdeer, par value US$0.0000001 per share (the “Bitdeer Ordinary Share”) and each preferred share of Bitdeer, par value US$0.0000001 per share, (together with Bitdeer Ordinary Share, the “Bitdeer Shares”) issued and outstanding immediately prior to the Acquisition Merger Effective Time (other than the Bitdeer Shares beneficially owned by Mr. Jihan Wu, founder of Bitdeer, through Victory Courage Limited, the “Key Executive Shares”) was automatically cancelled and ceased to exist in exchange for the right to receive, without interest, such number of Class A Ordinary Shares that is equal to the Exchange Ratio (as defined below), (ii) each Key Executive Share issued and outstanding immediately prior to the Acquisition Merger Effective Time was automatically cancelled and ceased to exist in exchange for the right to receive, without interest, such number of Class V ordinary shares of the Company (“Class V Ordinary Shares”) that is equal to Exchange Ratio (as defined below), (iii) each restricted share unit to acquire Bitdeer Shares issued pursuant to an award granted under Bitdeer’s 2021 Share Incentive Plan (“Bitdeer RSU”) outstanding immediately prior to the Acquisition Merger Effective Time, whether vested or unvested, was assumed by the Company and converted into an award of restricted share units (each an “Assumed RSU”) representing the
1
rights to receive, on the same terms and conditions (including applicable vesting, settlement and expiration provisions) as applied to each such Bitdeer RSU immediately prior to the Acquisition Merger Effective Time, Class A Ordinary Shares, except that the number of Class A Ordinary Shares subject to such Assumed RSU equals the product of (A) the number of Bitdeer Ordinary Shares that were subject to such Bitdeer RSU immediately prior to the Acquisition Merger Effective Time, multiplied by (B) the Exchange Ratio (as defined below), rounded down to the nearest whole share and (iv) the convertible note issued by Bitdeer that is convertible into the Bitdeer Ordinary Shares (the “Bitdeer Convertible Note”) outstanding immediately prior to the Acquisition Merger Effective Time was assumed by the Company and represented the rights to receive, on the same terms and conditions as applied to such Bitdeer Convertible Note, Class A Ordinary Shares, except that the number of Class A Ordinary Shares to be received upon conversion of the Bitdeer Convertible Note equals the product of the number of Bitdeer Ordinary Shares issuable upon conversion of the Bitdeer Convertible Note multiplied by the Exchange Ratio (as defined below), rounded down to the nearest whole share.
As used herein, “Exchange Ratio” means the quotient obtained by dividing (A) 118,000,000 by (B) the Bitdeer Total Shares, and is approximately 0.00858; and “Bitdeer Total Share” equals, as of immediately prior to the Acquisition Merger Effective Time, the sum of (x) the number of issued and outstanding Bitdeer Shares (on an as-converted basis), (y) the aggregate number of Bitdeer Shares (on an as-converted basis) issuable upon the settlement of all vested Bitdeer RSUs as of immediately prior to the Acquisition Merger Effective Time (including after giving effect to the consummation of the Acquisition Merger or any acceleration of any unvested Bitdeer RSUs in connection with the consummation of the Acquisition Merger) and (z) the aggregate number of Bitdeer Shares (on an as-converted basis) issuable upon conversion of the Bitdeer Convertible Note.
On April 14, 2023, Class A Ordinary Shares commenced trading on the Nasdaq Stock Market (“Nasdaq”) under the symbol “BTDR.”
2
INTRODUCTION
Frequently Used Terms
In this shell company report on Form 20-F (including information incorporated by reference herein, this “Report”), unless the context otherwise requires, the “Company,” “Bitdeer” and references to “we,” “us,” or similar such references should be understood to be references to Bitdeer Technologies Group and its subsidiaries. When this Report refers to “Bitdeer” “we,” “us,” or similar such references in the context of discussing Bitdeer’s business or other affairs prior to the consummation of the Business Combination on April 13, 2023, it refers to the business of Bitdeer Technologies Holding Company and its subsidiaries. Following the date of consummation of the Business Combination, references to “Bitdeer” “we,” “us,” or similar such references should be understood to refer to Bitdeer Technologies Group and its subsidiaries. References to “BSGA” should be understood to refer to Blue Safari Group Acquisition Corp.
Certain amounts and percentages that appear in this Report may not sum due to rounding.
Unless otherwise stated or unless the context otherwise requires, in this Report:
“Acquisition Merger Effective Time” has the meaning ascribed to it in the section entitled “Explanatory Note.”
“Bitdeer Convertible Note” means the US$30,000,000 8% coupon unsecured convertible notes due July 2023 issued pursuant to such subscription agreement dated July 23, 2021 between Bitdeer and VENTE Technology Growth Investments L.P. as the noteholder, as may be amended and/or restated from time to time.
“Bitdeer Merger Sub” or “Merger Sub 3” means Bitdeer Merge Limited, an exempted company with limited liability incorporated under the laws of Cayman Islands and a direct wholly-owned subsidiary of the Company.
“Bitdeer Ordinary Shares” means the ordinary shares in the share capital of Bitdeer.
“Bitdeer Plan” means the 2021 Share Incentive Plan adopted by Bitdeer on July 20, 2021, as amended from time to time.
“Bitdeer Preference Shares” means the preference shares in the share capital of Bitdeer.
“Bitdeer RSUs” means the restricted share units to acquire Bitdeer Shares issued pursuant to an award granted under the Bitdeer Plan.
“Bitdeer Shares” means the Bitdeer Ordinary Shares and the Bitdeer Preference Shares.
“Bitdeer Total Shares” means, as of immediately prior to the Acquisition Effective Time, the sum of (i) the number of issued and outstanding Bitdeer Shares (on an as-converted basis), (ii) the aggregate number of Bitdeer Shares (on an as-converted basis) issuable upon the settlement of all vested Bitdeer RSUs as of immediately prior to the Acquisition Effective Time (including after giving effect to the consummation of the Acquisition Merger or any acceleration of any unvested Bitdeer RSUs in connection with the consummation of the Acquisition Merger) and (iii) the aggregate number of Bitdeer Shares (on an as converted basis) issuable upon conversion of the Bitdeer Convertible Note.
“Business Combination” has the meaning ascribed to it in the section entitled “Explanatory Note.”
“Cayman Companies Act” means the Companies Act (As Revised) of the Cayman Islands.
“Class A Ordinary Shares” means the Class A ordinary shares, par value US$0.0000001, in the share capital of the Company.
“Class V Ordinary Shares” means the Class V ordinary shares, par value US$0.0000001, in the share capital of the Company.
“Closing Date” means April 13, 2023.
“COVID-19” means the novel coronavirus.
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“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
“Exchange Ratio” means the quotient obtained by dividing the Per Share Equity Value by US$10.00, which is approximately 0.00858 based on the number of Bitdeer Total Shares as of immediately prior to the Acquisition Merger Effective Time (as defined in the Merger Agreement).
“IAS” means International Accounting Standard.
“IASB” means International Accounting Standards Board.
“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board.
“Investment Company Act” or “1940 Act” means the Investment Company Act of 1940, as amended.
“JOBS Act” means the Jumpstart our Business Startups Act of 2012.
“Merger Agreement” means the Amended and Restated Agreement and Plan of Merger, dated December 15, 2021, by and among the Company, BSGA, Bitdeer and other parties thereto, which amended and restated the Agreement and Plan of Merger dated November 18, 2021, as amended by (i) the First Amendment to Amended and Restated Agreement and Plan of Merger, dated May 30, 2022, by and among the same parties, (ii) the Second Amendment to Amended and Restated Agreement and Plan of Merger, dated December 2, 2022, by and among the same parties, and (iii) the Third Amendment to Amended and Restated Agreement and Plan of Merger, dated March 7, 2023, by and among the same parties.
“Nasdaq” means the Nasdaq Stock Market.
“Ordinary Shares” means Class A Ordinary Shares and/or Class V Ordinary Shares (as appropriate).
“PFIC” means a passive foreign investment company.
“Per Share Equity Value” means the quotient obtained by dividing US$1.18 billion by the Bitdeer Total Shares.
“Rule 144” means Rule 144 under the Securities Act.
“Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“U.S. Dollars” and “US$” means United States dollars, the legal currency of the United States.
“U.S. GAAP” means generally accepted accounting principles in the United States.
“VAT” means value added tax.
Frequently Used Technical Terms
Unless otherwise stated or unless the context otherwise requires, in this Report:
“BCH” means Bitcoin Cash.
“BCHA” means Bitcoin Cash ABC.
“BSV” means Bitcoin Satoshi’s Vision.
“BTC” means Bitcoin.
“BTM” means Bytom.
“CKB” means Nervos Network.
“DASH” means Dash.
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“DCR” means Decred.
“DOGE” means Dogecoin.
“DPoS” means Delegated Proof-of-Stake.
“EH/s” means exahash per second.
“ETC” means Ethereum Classic.
“ETH” means Ethereum.
“ETN” means Electroneum.
“FIL” means Filecoin.
“HNS” means Handshake coin.
“j/T” means joule/terahash.
“LTC” means Litecoin.
“PoC” means Proof-of-Capacity.
“PoS” means Proof-of-Stake.
“PoST” means Proof-of-Spacetime.
“PoW” means Proof-of-Work.
“SC” means Siacoin.
“TH/s” means terahash per second.
“USDC” means USD Coin.
“USDT” means Tether, a cryptocurrency that is hosted on the Ethereum and Bitcoin blockchains, among others.
“XCH” means Chia.
“ZEC” means Zcash.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains or may contain forward-looking statements as defined in Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve significant risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements include information about our possible or assumed future results of operations or our performance. Words such as “expects,” “intends,” “plans,” “believes,” “anticipates,” “estimates,” and variations of such words and similar expressions are intended to identify the forward-looking statements, but absence of these words does not mean that a statement is not forward-looking. The risk factors and cautionary language referred to or incorporated by reference in this Report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described in our forward-looking statements, including among other things, the matters set forth in the section entitled “Item 3. Key Information — D. Risk Factors” of this Report and the section entitled “Risk Factors” of the Company’s Amendment No. 2 to the Registration Statement on Form F-4 (File No. 333-270345) filed with the SEC on March 23, 2023 (the “Form F-4”), which are incorporated by reference into this Report.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements contained in this Report, or the documents to which we refer readers in this Report, to reflect any change in our expectations with respect to such statements or any change in events, conditions or circumstances upon which any statement is based.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A.
Directors and Senior Management
The directors and executive officers of the Company upon the consummation of the Business Combination are set forth in the Form F-4 in the section entitled “BTG’s Directors and Officers Following the Business Combination,” which is incorporated herein by reference. The business address for each of the Company’s directors and executive officers is 08 Kallang Avenue, Aperia tower 1, #09-03/04, Singapore 339509.
B.
Adviser
Cooley LLP will act as counsel to the Company upon and following the consummation of the Business Combination.
C.
Auditors
MaloneBailey, LLP acted as the independent auditor for Bitdeer, the predecessor of the Company, as of December 31, 2021 and 2022, and for each of the three years in the period ended December 31, 2022, and will continue to act as the independent auditor of the Company upon and following the consummation of the Business Combination.
The current address of MaloneBailey, LLP is 10370 Richmond Avenue, Houston, TX 77042.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A.
[Reserved]
B.
Capitalization and Indebtedness
The following table sets forth our capitalization and indebtedness as of December 31, 2022 on:
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a historical basis; and
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a pro forma, as adjusted basis, after giving effect to the Business Combination.
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As of December 31, 2022
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Bitdeer Technologies
Holding Company (Actual) |
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Pro Forma
Combined |
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US$
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US$
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(in thousands)
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Cash and cash equivalents
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| | | | 231,362 | | | | | | 213,416 | | |
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Debt
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| | | | 29,805 | | | | | | 29,805 | | |
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Equity
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Share capital (including class A ordinary shares, class B ordinary shares,
series A preferred shares, series B preferred shares and series B+ preferred share; all classes of shares are entitled to dividend and rank pari passu except for voting rights) |
| | | | 1 | | | | | | — | | |
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Retained earnings
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| | | | 6,803 | | | | | | (34,400) | | |
| Reserves | | | | | 311,535 | | | | | | 332,006 | | |
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Total equity
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| | | | 318,339 | | | | | | 297,606 | | |
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Total capitalization
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348,144
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327,411
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C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Our business and our industry are subject to significant risks. You should carefully consider all of the information set forth in this Report and in our other filings with the SEC, including the following risk factors, in evaluating our business. If any of the following risks actually occur, our business, financial condition, operating results, and growth prospects would likely be materially and adversely affected. This Report also contains forward-looking statements that involve risks and uncertainties. See the section entitled “Cautionary Note Regarding Forward-Looking Information.”
Summary of Risk Factors
The following summary description sets forth an overview of the material risks we are exposed to in the normal course of our business activities. The summary does not purport to be complete and is qualified in its entirety by reference to the full risk factor discussion immediately following this summary description. We encourage you to read the full risk factor discussion carefully.
Our business, results of operations and financial condition could be materially and adversely affected by any of the following material risks:
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The cryptocurrency industry in which we operate is characterized by constant changes. If we fail to continuously innovate and to provide solutions or services that meet the expectations of our customers, we may not be able to attract new customers or retain existing customers, and hence our business and results of operations may be adversely affected.
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Our results of operations have been and are expected to continue to be significantly impacted by Bitcoin price fluctuation.
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The supply of Bitcoins available for mining is limited and we may not be able to quickly adapt to new businesses when all the Bitcoins have been mined.
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Although we have an organic way of growing our mining fleets, our business is nevertheless capital intensive. We may need additional capital but may not be able to obtain it in a timely manner and on favorable terms or at all.
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We may not be able to maintain our competitive position as cryptocurrency networks experience increases in the total network hash rate.
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We have experienced negative cash flows from operating activities and incurred net losses in the past. We can provide no assurance of our future operating results.
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Our limited operating history and rapid revenue growth may make it difficult for us to forecast our business and assess the seasonality and volatility in our business.
•
We have experienced and may experience in the future hash rate loss during our operations due to factors beyond our control.
•
We are subject to risks associated with our need for significant electric power and the limited availability of power resources, which could have a material adverse effect on our business, financial condition and results of operations.
•
Because there has been limited precedent set for financial accounting for Bitcoin and other cryptocurrencies, the determinations that we have made for how to account for cryptocurrencies transactions may be subject to change.
•
Any loss or destruction of a private key required to access our cryptocurrency is irreversible. We also may temporarily lose access to our cryptocurrencies.
•
Bitcoin exchanges and wallets, and to a lesser extent, the Bitcoin network itself, may suffer from hacking and fraud risks, which may adversely erode user confidence in Bitcoin which would decrease the
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demand for our products and services. Further, digital asset exchanges on which crypto assets trade are relatively new and largely unregulated, and thus may be exposed to fraud and failure. Incorrect or fraudulent cryptocurrency transactions may be irreversible.
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We are subject to a highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our business, reputation, prospects or operations.
•
The nature of our business requires the application of complex financial accounting rules, and there is limited guidance from accounting standard setting bodies. If financial accounting standards undergo significant changes, our operating results could be adversely affected.
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We are subject to tax risks related to our multinational operations.
•
Our interactions with a blockchain may expose us to specially designated nationals (“SDN”) or blocked persons or cause us to violate provisions of law that did not contemplate distribute ledger technology.
Risks Related to Our Business, Operations, Industry and Financial Condition
The cryptocurrency industry in which we operate is characterized by constant changes. If we fail to continuously innovate and to provide solutions or services that meet the expectations of our customers, we may not be able to attract new customers or retain existing customers, and hence our business and results of operations may be adversely affected.
The cryptocurrency industry in which we operate is characterized by constant changes, including rapid technological evolution, continual shifts in customer demands, frequent introductions of new products and solutions and constant emergence of new industry standards and practices. Thus, our success will depend, in part, on our ability to respond to these changes in a cost-effective and timely manner. Advances in Bitcoin mining-related technology have led to increased demand for higher speed and power efficiency for solving computational problems of increasing complexity. We need to invest significant resources in research and development in order to keep our services competitive in the market. Also, if we are unable to generate enough revenue or raise sufficient capital to make adequate research and development investments going forward, our service improvement and relevant research and development initiatives may be restricted or delayed, or we may not be able to keep pace with the latest market trends and satisfy our customers’ needs, which could materially and adversely affect our results of operations.
Furthermore, research and development activities are inherently uncertain, and we might encounter practical difficulties in commercializing our research and development results, which could result in excessive research and development expenses or delays. Given the fast pace with which blockchain technologies have been and will continue to be developed, we may not be able to timely upgrade our technologies in an efficient and cost-effective manner, or at all. In addition, new developments relating to computing power (e.g., quantum computer), computing energy consumption, blockchain and cryptocurrency could render our services obsolete or unattractive. If we are unable to keep up with the technological developments and anticipate market trends, or if new technologies render our technologies or solutions obsolete, customers may no longer be attracted to our services. As a result, our business, results of operations and financial condition would be materially and adversely affected.
Our results of operations have been and are expected to continue to be significantly impacted by Bitcoin price fluctuation.
Our ability to generate economic benefits (i.e., positive cash flow or profits) from Bitcoin mining is directly affected by the market price of Bitcoin. The Bitcoin price may impact the use of our mining machines. When the market price of a Bitcoin drops below certain thresholds, the operation of existing mining machines may not be economically beneficial for us. In addition, the depreciation and impairment potential of our mining machines may be affected by the volatility of the market prices of Bitcoin and other cryptocurrencies. On the other hand, a drop in Bitcoin price may also create an opportunity for us to add cheaper mining machines to our mining fleets.
The appreciation potential of Bitcoin is high in general, which is due to several factors. Bitcoins are inherently scarce, given they are designed to have a finite supply of 21 million associated with a depreciating
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rewarding mechanism, termed “halving,” under which the reward for Bitcoin mining is reduced in half every four years. The growing recognition of Bitcoin also attracts large investment into the Bitcoin economy, as evidenced by an increasing installed network hash rate of Bitcoin globally, and increasing adoption of Bitcoin as an investment instrument and a payment method. Further, more countries are establishing clear and robust regulations to create a stable environment for Bitcoin mining and trading, which may facilitate the demand for Bitcoins and Bitcoin price appreciation.
Despite the general appreciation potential of Bitcoin, there are a number of other factors that contribute to changes in Bitcoin price and volatility, including, but not limited to, Bitcoin market sentiment, macroeconomic factors, utility of Bitcoin, and idiosyncratic events such as exchange outages or social media, some of which are beyond our control. For example, decentralization, or the lack of control by a central authority, is a key reason that cryptocurrencies like Bitcoin have attracted many committed users. However, the decentralized nature of Bitcoin is subject to growing discussion and suspicion. Some claim that most of the actual services and businesses built within the Bitcoin ecosystem are in fact centralized since they are run by specific people, in specific locations, with specific computer systems, and that they are susceptible to specific regulations. Individuals, companies or groups, as well as Bitcoin exchanges that own vast amounts of Bitcoins, can affect the market price of Bitcoin. For example, Bitcoin price has recently been adversely affected by the continued industry-wide fallout from the recent Chapter 11 bankruptcy filings of cryptocurrency exchanges FTX Trading Ltd., et al. (“FTX”) (including its affiliated hedge fund Alameda Research LLC), crypto hedge fund Three Arrows Capital (“Three Arrows”), crypto miners Compute North LLC (“Compute North”) and Core Scientific Inc. (“Core Scientific”) and crypto lenders Celsius Network LLC, et al. (“Celsius Network”), Voyager Digital Ltd., et al. (“Voyager Digital”) and BlockFi Inc., et al. (“BlockFi”). Furthermore, mining equipment production and mining pool locations are becoming centralized. Some argue that the decentralized nature of cryptocurrencies is a fundamental flaw rather than a strength. The suspicion about the decentralized nature of Bitcoin may cause the market to lose confidence in the prospect of the Bitcoin industry, which would adversely affect Bitcoin price. This in turn could adversely affect the market demand for our services and business.
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. There is no assurance that the Bitcoin price will remain high enough to sustain the demand for our hash rate sharing and hosting services 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 Class A Ordinary Shares. If the Bitcoin price drops, the expected economic return of Bitcoin mining activities will diminish, thereby resulting in a decrease in demand for our Bitcoin-related services, and in value appreciation from our proprietary mining activities. As a result, we may need to reduce the price of our Cloud Hash Rate and hosting services. For risks relating to the impact of Bitcoin price fluctuation on our growth trends, see the section entitled “— We may be unable to execute our growth strategies or effectively maintain our rapid growth trends” below.
The supply of Bitcoins available for mining is limited and we may not be able to quickly adapt to new businesses when all the Bitcoins have been mined.
Bitcoins are inherently scarce, given they are designed to have a finite supply of 21 million associated with “halving” mechanism. The number of blocks that can be solved in a year is designed to be fixed, and the number of Bitcoins awarded for solving a block in the blockchain halves approximately every four years until the estimated complete depletion of Bitcoin available for mining by around 2140. When the Bitcoin network was first launched, the reward for validating a new block was 50 Bitcoins. In November 2012, the reward for validating a new block was reduced to 25 Bitcoins. In July 2016, the reward for validating a new block was reduced to 12.5 Bitcoins, and in May 2020, the reward was further reduced to 6.25 Bitcoins. The next halving for Bitcoin is expected in 2024 at block 840,000, when the reward will reduce to 3.125 Bitcoins. While the remaining Bitcoins are not designed to be entirely depleted in the near future, a decrease in the reward for solving a block or an increase in the transaction fees may result in a decrease in incentives for miners to continue their mining activities and the loss of Bitcoin’s dominant position among the cryptocurrencies, thereby reducing the demand for Bitcoin mining related services of us. As of the date of this Report, the largest portion of our revenue was generated from our proprietary mining business and hash rate sales through Cloud Hash Rate, which are associated with Bitcoin mining. We may not be able to quickly adapt to new businesses or expand to other cryptocurrencies when all the Bitcoins have been discovered or Bitcoin is
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replaced by other cryptocurrencies as the mainstream cryptocurrency, which will result in a significant negative impact on our business and results of operations.
Although we have an organic way of growing our mining fleets, our business is nevertheless capital intensive. We may need additional capital but may not be able to obtain it in a timely manner and on favorable terms or at all.
The costs of constructing, developing, operating and maintaining cryptocurrency mining and hosting facilities, and owning and operating a large fleet of the latest generation mining equipment are substantial. Our operations may require additional capital or financing from time to time in order to achieve further growth. We may require additional cash resources due to the future growth and development of our business. Our future capital requirements may be substantial as we seek to expand our operations, diversify our product offering, and pursue acquisitions and equity investments. If our cash resources are insufficient to satisfy our cash requirements, we may seek to issue additional equity or debt securities or obtain new or expanded credit facilities or enter into additional factoring arrangements.
Our ability to obtain external financing in the future may be subject to a variety of uncertainties, including our future financial condition, results of operations, cash flows and the liquidity of international capital and lending markets. While we face less working capital constraints as we expand our hash rate sharing business, which generates quicker cash payback, the proprietary mining business is nevertheless capital intensive. We may need additional capital if Bitcoin price increases as it will likely push up prices for supplies required for the proprietary mining business. However, in light of conditions impacting the industry, it may be more difficult for us to obtain equity or debt financing currently and/or in the future. Specifically, the crypto assets industry has been negatively impacted by recent events such as the bankruptcies of Compute North, Core Scientific, Alameda Research LLC, BlockFi, Celsius Network, Voyager Digital, Three Arrows and FTX. In response to these events, the digital asset markets, including the market for Bitcoin specifically, have experienced extreme price volatility and several other entities in the digital asset industry have been, and may continue to be, negatively affected, further undermining confidence in the digital assets markets and in Bitcoin. Any indebtedness that we may incur in the future may also contain operating and financial covenants that could further restrict our operations. There can be no assurance that financing will be available in a timely manner or in amounts or on terms acceptable to us, or at all. A large amount of bank borrowings and other debt may result in a significant increase in interest expense while at the same time exposing us to increased interest rate risks. Equity financings could result in dilution to our shareholders, and the securities issued in future financings may have rights, preferences and privileges that are senior to those of our ordinary shares. Any failure to raise needed funds on terms favorable to us, or at all, could severely restrict our liquidity as well as have a material adverse effect on our business, financial condition and results of operations.
We may not be able to maintain our competitive position as cryptocurrency networks experience increases in the total network hash rate.
As the relative market price of a cryptocurrency, such as Bitcoin, increases, more companies are encouraged to mine for that cryptocurrency and as more mining machines are added to the network, its total hash rate increases. In order for us to maintain our competitive position under such circumstances, we must increase our total hash rate by acquiring and deploying more mining machines, including new mining machines with higher hash rates. There are currently only a few companies capable of producing a sufficient number of machines with adequate quality to address the increased demand. If we are not able to acquire and deploy additional mining machines on a timely basis, our proportion of the overall network hash rate will decrease and we will have a lower chance of solving new blocks which will have an adverse effect on our business and results of operations.
We have experienced negative cash flows from operating activities and incurred net losses in the past. We can provide no assurance of our future operating results.
We had negative cash flows from operating activities in the amount of US$109.2 million, US$52.5 million and US$268.0 million for the years ended December 31, 2020, 2021 and 2022, respectively. We incurred a net loss of US$55.8 million and US$60.4 million for the years ended December 31, 2020 and 2022, respectively, and generated a net profit of US$82.6 million for the year ended December 31, 2021. We have generated negative cash flow from operating activities and incurred loss in the past, and there is no assurance that we will
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be able to generate positive cash flow from operating activities or achieve or subsequently maintain profitability in the future. We will need to generate and sustain increased revenue and net income levels in future periods in order to increase profitability, and, even if we do, we may not be able to maintain or increase our level of profitability over the long term. Our ability to achieve profitability and positive cash flow from operating activities will depend on a mix of factors, some of which are beyond our control, including the price of Bitcoin, our ability to operate and expand our business and manage our services mix, and our ability to secure favorable commercial terms from suppliers.
Our limited operating history and rapid revenue growth may make it difficult for us to forecast our business and assess the seasonality and volatility in our business.
We have achieved rapid growth since our inception. For the years ended December 31, 2020, 2021 and 2022, our total revenue amounted to US$186.4 million, US$394.7 million and US$333.3 million, respectively. We may experience negative growth or positive growth at a lower rate for a number of possible reasons, including decreasing market price of cryptocurrencies, increasing competition, declining growth of the cryptocurrency industry, unforeseeable technology innovation, emergence of alternative mainstream cryptocurrencies, or changes in government policies, regulations or general economic conditions. It is also difficult to forecast seasonality and volatility in our business, and as a result accurately allocating resources including hash rate, mining datacenter capacity, or human capital to different business lines to achieve the best results in the medium or long term. If our growth rates decline, investors’ perceptions of our business and business prospects may be adversely affected and the market price of our ordinary shares could decline. In addition, given the volatile nature of cryptocurrencies and that our business and financial condition correlate with the market price of cryptocurrencies, it is difficult to evaluate our business and future prospects based on our limited operating history or historical performance.
We have experienced and may experience in the future hash rate loss during our operations due to factors beyond our control.
We generate hash rate through operating our proprietary mining datacenters. To efficiently increase managing hash rate (i.e., proprietary hash rate and hosting hash rate), our efforts include constructing and expanding mining datacenters in prime locations globally, purchasing the latest mining machine models and continually optimizing operational efficiency of our mining datacenters and mining machines. However, hash rate generation is affected by factors beyond our control, including temperature, humidity, mining machine quality, the depreciation and deterioration of mining machines, the location of our mining machines globally, spare parts supply quality, quantity and timeliness, sudden surge in power price or sudden power outage, maintenance team members’ lack of experience, unseen computer virus attack, etc. For example, we have experienced hash rate loss during 2021, primarily due to relocation of mining machines as well as unfavorable weather condition. In the future, we expect the risks of hash rate loss will remain, which may affect our business and results of operations.
We are subject to risks associated with our need for significant electric power and the limited availability of power resources, which could have a material adverse effect on our business, financial condition and results of operations.
Our business requires a significant amount of electric power. The costs of electric power account for a significant portion of our cost of revenue. We require a significant electric power supply to conduct our mining activity, to produce cloud hash rate and to provide hosting services such as powering and cooling our and our customers’ servers and network equipment and operating critical mining and hosting infrastructure.
There has been a substantial increase in the demand for electricity for cryptocurrency mining, and this has had varying impacts on local electricity supply. Additionally, we currently rely on renewable sources of power and plan to increase our reliance on renewable sources of power in the future. Renewable power is generally an intermittent and variable source of electricity, which may not always be available. Because the electrical grid has very little storage capacity, the balance between electricity supply and demand must be maintained at all times to avoid a blackout or other cascading problem. Intermittent sources of renewable power are challenging because they disrupt the conventional methods for planning the daily operation of the electrical grid. Their power fluctuates over multiple time horizons, forcing the grid operator to adjust its day-ahead, hour-ahead, and real-time operating procedures.
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The amount of power required by us and our customers will increase commensurately with the demand for our services and the increase in mining machines we operate for ourself and our hosting customers. Should our operations require more electricity than can be supplied in the areas where our mining facilities are located or should the electrical transmission grid and distribution systems be unable to provide the continuous, steady supply of electricity required, we may have to limit or suspend activities or reduce the speed of our proposed expansion, either voluntarily or as a result of either quotas imposed by energy companies or governments, or increased prices for certain users (such as the Company). If we are unable to procure electricity at a suitable price, we may have to shut down our operations in that particular jurisdiction either temporarily or permanently. Therefore, increased power costs and limited availability and curtailment of power resources will reduce our revenue and have a material and adverse effect on our cost of revenue and results of operations. Although we aim to build and operate energy efficient facilities, there can be no assurance such facilities will be able to deliver sufficient power to meet the growing needs of our business. If we are unable to receive adequate power supply and is forced to reduce our operations due to the availability or cost of electrical power, our business would experience materially negative impacts.
Certain government actors have begun to intervene with the supply of electrical energy to cryptocurrency miners. For example, recently on March 9, 2023, the Department of the Treasury published General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals, in which it proposed imposing a 30% excise tax on electricity usage by digital asset miners. Governments or government regulators may potentially restrict electricity suppliers from providing electricity to mining datacenter in times of electricity shortage increase the cost, including through taxation, of, electricity, or may otherwise potentially restrict or prohibit the provision of electricity to businesses like us. In the event government regulators issue moratoriums or impose bans or restrictions involving hosting operations or transaction processing in jurisdictions in which we operate, we will not be able to continue our operations in such jurisdictions. A moratorium ban or restriction could have a material adverse effect on our business, financial condition and results of operations.
Additionally, our cryptocurrency mining machines would be materially adversely affected by a power outage. Energy costs and availability are vulnerable to risks of outages and power grid damage as a result of inclement weather, animal incursion, sabotage and other events out of our control. Because the mining portion of our business consumes a large amount of energy, it is not practical or economical for our operations to run on back-up generators in the event of a power outage, which may be caused by weather, acts of God, wild fires, pandemics, falling trees, falling distribution poles and transmission towers, transmission and distribution cable cuts, other force majeure events in the electricity and natural gas markets and/or the negligence or malfeasance of others. Any system downtime resulting from insufficient power resources or power outages could have a material adverse effect on our business, financial condition and results of operations.
If we fail to accurately estimate the factors upon which we base our contract pricing, we may generate less profit than expected or incur losses on those contracts, which could have a material adverse effect on our business, financial condition and results of operations.
Our cloud hash rate and hosting contracts are generally priced taking into account various factors including the then Bitcoin price, network hash rate, purchase cost of mining machines, estimated power consumption by our clients, along with other costs of products or services, as adjusted for actual costs. Our ability to earn a profit on such contracts requires that we accurately estimate the costs involved and outcomes likely to be achieved and assess the probability of generating sufficient hosting and colocation capacity within the contracted time period. Our pricing of hash rates may cause significantly lower income than we could have generated through using the same hash rates for proprietary mining. We may also not be able to accurately forecast the outcome of selling our products and services at a particular price and the inability to accurately estimate the factors upon which we base our contract pricing could have a material adverse effect on our business, financial condition and results of operations.
We have broad discretion regarding pricing strategy and resource allocation and may exercise related business judgments in a way that you may not agree with. Such judgments may not achieve the best possible outcome for our business operations.
Our business operations involve constant and important decision-making regarding the pricing of our services and allocation of mining resources. We take into account our estimates of market trends when
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determining pricing strategies. To achieve profitability in the long run, we may offer lower price in order to acquire and retain new customers, even if this pricing does not allow us to maximize our short-term revenue. As we operate three business lines, we have to decide the allocation of proprietary hash rate between “proprietary mining” and “hash rate sharing” as well as the allocation of mining datacenter capacity among “proprietary mining,” “hash rate sharing” and “hosting.” While allocating more mining resources to “hash rate sharing” and “hosting” services may facilitate cash payback and mining datacenter expansion while lower risk exposure associated with Bitcoin price volatility, we have to forgo our huge appreciation potential to some extent as we could earn more Bitcoins by allocating the same mining resources to “proprietary mining,” and vice versa. We spend great efforts in making these business decisions in the Company’s best interest, taking into account Bitcoin price, network hash rate, the amount of cash we need and our view on the market opportunities for acquiring mining machines or expanding mining datacenters at low cost, etc. However, we cannot guarantee that our decisions could generate the most revenue or offer the strongest downside protection for the Company. If we cannot accurately estimate any of the aforementioned factors upon which we base, our contract pricing could have a material adverse effect on our business, financial condition and results of operation.
We face intense competition and our competitors may employ aggressive pricing strategies, which can lead to a price reduction of our solutions and services and material adverse effect on our results of operations.
We operate in highly competitive industries for cryptocurrency mining and related services, and we may look to enter into markets with very competitive landscapes. Our competitors include many well-known worldwide players, and we face competitors that are larger than ourselves and have advantages over ourselves in terms of economies of scale and financial and other resources. We expect that competition in our markets will continue to be intense. Some of our competitors may also have stronger brand names, greater access to capital, longer histories, longer relationships with their suppliers or customers and more resources than we do. Furthermore, these competitors may be able to adapt to changes in the industry more promptly and efficiently. Intense competition from existing and potential competitors could result in material price reductions in the products we sell or a decrease in our market share. Aggressive pricing strategies by our competitors and an abundant supply of hash rate sharing or hosting services in the market may cause us to reduce the prices of our services and also negatively affect the demand for our services or harm our profitability. If we fail to compete effectively and efficiently or fail to adapt to changes in the competitive landscape, our business, financial condition, and results of operations may be materially and adversely affected.
The average selling prices of our solutions and services may fluctuate from time to time due to technological advancement and we may not be able to pass onto our machine suppliers such decreases, which may in turn adversely affect our profitability.
The Bitcoin-related industry is characterized by rapid launches of new products, continuous technological advancements and changing market trends and customer preferences, all of which may translate to fluctuations in the average selling prices of products or services over time. Because we compete in an environment of rapidly evolving technology advancement, market trends and developments of the hash rate sharing and hosting industry, there is no assurance that we will be able to pass on any decrease in average selling prices of our services to our suppliers in a timely manner or at all. In the event that average selling prices of our services unusually or significantly decrease, and such decreases cannot be offset by a corresponding decrease in the prices of the principal components of our services, our gross profit margins may be materially and adversely affected.
There are uncertainties over the outcome of our mining operations.
Our mining operation comprises blockchain mining technologies that depend on a network of computers to run certain software programs to solve complex transactions in competition with other mining operations and to process transactions. Because of this less centralized model and the complexity of our mining operation, there are uncertainties over the likelihood of winning a block reward and hence the outcome of our mining operations. While we participate in mining pools to combine our mining operations with other mining participants to increase processing power to solve blocks, there can be no assurance that such pools will adequately address this risk.
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The development of blockchain technology and cryptocurrency is in its early stage and any adverse development in the cryptocurrency or blockchain market could adversely affect our business and results of operations.
Blockchain is a voluntary open network that can be used by anyone with devices connected to the internet. It allows every node to create immutable data, transparent record of transactions and peer-to-peer transactions in an efficient, secure and trust-free manner. Because of such advantages, blockchain can be applied to various industries and activities, such as cryptocurrency, payment, financial services, Internet-of-Things (IoT), cloud computing and cybersecurity, among others. However, there can be no assurance of such acceptance in the society. There may not be strong market demand for our mining services as a key and important process during the application process of blockchain technology, and our prospects, business and results of operations can be materially and adversely affected.
Adverse developments in the blockchain industry could lead to a decrease in the demand for hash rate products and hosting resources, which could have a material adverse effect on our business, financial condition and results of operations.
We face risks including those related to:
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a decline in the adoption and use of Bitcoin and other similar cryptocurrencies within the technology industry or a decline in value of cryptocurrencies;
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increased costs of complying with existing or new government regulations applicable to cryptocurrencies and other factors;
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a downturn in the market for blockchain hosting space generally, which could be caused by an oversupply of or reduced demand for blockchain space;
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any transition by our customers of blockchain hosting from third-party providers like the Company to customer-owned and operated facilities;
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the rapid development of new technologies or the adoption of new industry standards that render us or our customers’ current products and services obsolete or unmarketable and, in the case of our customers, that contribute to a downturn in their businesses, increasing the likelihood of a default under their service agreements or their becoming insolvent;
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a slowdown in the growth of the internet generally as a medium for commerce and communication;
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availability of an adequate supply of new generation cryptocurrency mining equipment to enable us to mine cryptocurrencies at scale and for customers who want to purchase hash rate from us or host with us to be able to do so; and
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the degree of difficulty in mining cryptocurrencies and the trading price of such assets.
Additionally, Bitcoin, a mainstream cryptocurrency based upon blockchain technology, was first introduced in 2008 and is generally regarded as the first application of the blockchain technology. The Bitcoin network and its surrounding ecosystem is still in a relatively early development stage. Cryptocurrencies have only recently become selectively accepted as a means of payment for goods and services by many industries, and use of cryptocurrency by consumers to pay in such industries remains limited. In addition, there may be some jurisdictions that restrict the use of Bitcoins and other cryptocurrencies as a medium of exchange and the conversion between cryptocurrencies and fiat currencies. There is no assurance that usage of cryptocurrencies, in particular Bitcoins, will continue to grow. As our business focuses on proprietary cryptocurrency mining and serving cryptocurrency miners, and relies heavily on the cryptocurrency market, any lack of usage of or fade in the public interest for cryptocurrency may adversely affect our business, future prospects, results of operations and financial condition.
We are subject to risks associated with legal, political or other conditions or developments regarding holding, using or mining of cryptocurrencies, in particular Bitcoins, which could negatively affect our business, results of operations and financial position.
Our customers are based globally. As such, changes in government policies, taxes, general economic and fiscal conditions, as well as political, diplomatic or social events, expose us to financial and business risks. In
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particular, changes in policies and laws regarding holding, using and/or mining of Bitcoins could result in an adverse effect on our business operations and results of operations. Moreover, if any international jurisdiction where we operate mining datacenters or sell our Bitcoin mining related services prohibits or restricts Bitcoin mining activities, we may face legal and other liabilities and will experience a material loss of revenue.
There are significant uncertainties regarding future regulations pertaining to the holding, using or mining of Bitcoins, which may adversely affect our results of operations. While Bitcoin has gradually gained more market acceptance and attention, it is anonymous and may be used for black market transactions, money laundering, illegal activities or tax evasion. As a result, governments may seek to regulate, restrict, control or ban the mining, use and holding of Bitcoins. Our existing policies and procedures for the detection and prevention of money laundering and terrorism-funding activities through our business activities have only been adopted in recent years and may not completely eliminate instances in which we or our services may be used by other parties to engage in money laundering and other illegal or improper activities. We are subject to anti-money laundering laws in many jurisdictions in which we operate. We cannot assure you that there will not be a failure in detecting money laundering or other illegal or improper activities which may adversely affect our reputation, business, financial condition and results of operations.
With advances in technology, cryptocurrencies are likely to undergo significant changes in the future. It remains uncertain whether Bitcoin will be able to cope with, or benefit from, those changes. In addition, as Bitcoin mining employs sophisticated and high computing power devices that need to consume a lot of electricity to operate, future developments in the regulation of energy consumption, including possible restrictions on energy usage in the jurisdictions where we sell our products or services, may also affect our business operations and the demand for our current and future mining related products or services, including cloud hash rate, hosting and Minerplus. There have been public backlashes surrounding the environmental impacts of Bitcoin mining, particularly the large consumption of electricity, and governments of various jurisdictions have responded. For example, in the United States, certain local governments of the State of Washington have discussed measures to address environmental impacts of Bitcoin-related operations, such as the high electricity consumption of Bitcoin mining activities.
Substantial increases in the supply of mining machines connected to the Bitcoin network would lead to an increase in network hash rate capacity, which in turn would increase mining difficulty. This development would negatively affect the economic returns of Bitcoin mining activities, which would decrease the demand for and/or pricing of our products and services.
The difficulty of Bitcoin mining, or the amount of computational resource required for a set amount of reward for recording a new block, directly affects the expected economic returns for Bitcoin miners, which in turn affects our proprietary mining business and the demand for our Bitcoin mining related products and services including hash rate sharing and hosting. Bitcoin mining difficulty is a measure of how much computing power is required to record a new block and it is affected by the total amount of computing power in the Bitcoin network. The Bitcoin algorithm is designed to the effect that one block is generated, on average, every ten minutes, no matter how much computing power is in the network. Thus, as more computing power joins the network, and assuming the rate of block creation does not change (remaining at one block generated every ten minutes), the amount of computing power required to generate each block and hence the mining difficulty increases. In other words, based on the current design of the Bitcoin network, Bitcoin mining difficulty would increase together with the total computing power available in the Bitcoin network, which is in turn affected by the number of Bitcoin mining machines in operation. As a result, a strong growth in promotion of Bitcoin computing power supply services can contribute to further growth in the total computing power in the network, thereby driving up the difficulty of Bitcoin mining and resulting in downward pressure on the expected economic return of Bitcoin mining and the demand for, and pricing of, our products and services.
Our business is highly dependent on acquiring a sufficient number of cryptocurrency mining equipment from our suppliers. We may not be able to obtain new mining hardware or purchase such hardware at competitive prices during times of high demand, which could have a material adverse effect on our business, financial condition and results of operations.
Our business is highly dependent upon cryptocurrency mining equipment suppliers providing an adequate supply of new generation cryptocurrency mining machines at economical prices to support our proprietary
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mining, hash rate sharing and hosting business lines and our customers’ mining activities. The growth in our business is directly related to increased demand for hosting services and cryptocurrencies such as Bitcoin which is dependent in large part on the availability of new generation mining machines offered for sale at a price conducive to profitable cryptocurrency mining, as well as the trading price of cryptocurrencies such as Bitcoin. The market price and availability of new mining machines fluctuates with the price of Bitcoin and can be volatile.
Historically, an increase in interest and demand for cryptocurrencies has led to a shortage of mining hardware and increased prices. In addition, as more companies seek to enter the mining industry, the demand for machines may outpace supply and create mining machine equipment shortages. There is no assurance that cryptocurrency mining equipment suppliers will be able to keep pace with any surge in demand for mining equipment. We and our customers and the potential customers of our hosting service may in the future experience difficulty in obtaining new equipment or replacement components for our and their existing equipment, including graphics processing units and application-specific integrated circuit chipsets and computer servers, which in the future may have, a material impact on the demand for our products and services and associated revenue. Further, we may have little or no recourse in the event a mining machine manufacturer or distributor defaults on our mining machine delivery commitments. If we and our customers are not able to obtain a sufficient number of cryptocurrency mining machines at favorable prices, our growth expectations, liquidity, financial condition and results of operations will be negatively impacted.
We rely on supplies from a single or a group of third-party electricity, mining pool services and mining machines providers, and any negative incidents caused by actions taken by them that are outside of our control may adversely impact our business and results of operations.
To some extent, we currently rely on a single or a group of third-party suppliers and service providers to provide quality services to customers. Our brand and reputation may be harmed by actions taken by such third parties that are outside of our control. For example, we are currently contracting with one electricity supplier to support each of our mining datacenters in Norway, as well as Texas, Tennessee and Washington in the United States, respectively. Pursuant to our agreement with our electricity supplier for the mining datacenter in Hustadvika municipality, Norway, we agree to purchase power at the amount and price designated in the contract, during the period from January 1, 2022 to December 31, 2024, which is the term of this agreement. Pursuant to our agreement with our electricity supplier for the mining datacenter in Tydal municipality, Norway, we agree to purchase power at the amount and price designated in the contract, during the period from September 1, 2022 to December 31, 2024, which is the term of this agreement. Both agreements can be completely terminated with zero load ending at midnight of the final day in each quarter. Pursuant to our agreement with our electricity supplier for the mining datacenter in Texas, the supplier shall provide electricity to meet full electricity requirements of the two electricity service accounts identified by us. This contract is effective through December 31, 2027 and is terminable in the event of default. Pursuant to our agreement with our electricity supplier for mining datacenter in Tennessee, the supplier shall make power available to us in the amount designated in the contract. Valid through July 31, 2026, this contract is automatically renewed for additional five years upon expiration of the initial term, unless either party notifies the other in writing not less than 60 days prior to the expiration date of the initial term or any renewal term of its desire to terminate this contract on such expiration date. Pursuant to our agreement with our electricity supplier for mining datacenter in Washington, the supplier shall provide power and associated energy to meet our demand at rates that are subject to adjustment, modification, change or replacement from time to time. This contract remains effective until terminated upon six months prior written notice by us. While we believe that alternative suppliers are readily available in the market, changing to a new supplier may require additional costs and time. We also source mining machines from a wide variety of manufacturers and traders with whom we have built relationships over the years. The prices of mining machines were negotiated on an individual basis, and the agreements typically allow for termination upon either party’s uncured material breach, suspension of all or a substantial part of its business, deterioration of its financial position, or upon insolvency proceedings against either party. In addition, these agreements may include indemnification provisions either for benefit of us, or for benefit of the manufacturers and traders. Each agreement requires manufacturers and traders to repair or replace the defective part/component of mining machines at no charge to us. Despite the measures we have taken to ensure the quality of products and services provided by third-party suppliers and service providers, to the extent they are unable to maintain their production facilities’ efficiency, supply sufficient products in a timely manner, or provide satisfactory products and services to our customers, which
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may be due to events that are beyond our or their control, such as manufacturing defects, we may suffer reputational damage, and our business, financial condition and results of operations may be materially and adversely affected. While we have not experienced such incidents that had a material adverse impact on our business as of the date of this Report, as such incidents are beyond our control, there is no assurance that such incidents will not occur in the future regardless of the measures we have taken, and will take, to maintain the quality products and services provided by third-party suppliers and service providers. If we are unable to effectively address these risks, our brand image, reputation and financial performance may be materially and adversely affected.
Additionally, we utilize third-party mining pools to receive our mining rewards from a given network. Mining pools allow mining participants to combine their processing power, which increases the chances of solving a block and getting paid by the network. The rewards are distributed by the pool operators, proportionally to our contribution to the pools’ overall mining power used to solve a block. We entered into agreements with mining pool operators who deliver cryptocurrency rewards to accounts of us or our customers in exchange for hash rate provided by us and our Cloud Hash Rate customers. The agreements are terminable through mutual agreement between both parties or due to a breach of the contract which is not cured within two days upon receiving notice from the non-breaching party. Due to the competitiveness of the global mining pool industry, we believe that we will be able to promptly access alternative mining pools if needed. Nevertheless, we are dependent on the accuracy of a mining pool operator’s record keeping to accurately record the total processing power provided to the pool for a given Bitcoin or other cryptocurrency 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 power 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 a mining pool operator is incorrect, other than leaving the pools or entering into a lengthy negotiation with the third-party mining pools to get back the fair rewards. 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.
Failure to keep our solutions and services up-to-date in line with the approximate level of market demand could cause us to lose sales, which could have a material adverse effect on our business, financial condition and results of operations.
In order to operate our business successfully and meet the demands and expectations of our customers, we must maintain a certain level of equipment, including but not limited to mining machines, to sustain large scale service when required. Furthermore, we are required to maintain an appropriate level of equipment for any unexpected emergency substitute or in preparation of potential outage and sudden service loss. However, forecasts are inherently uncertain. If our forecasted demand is lower than actual demand or our risk estimate is much sufficient, we may not be able to provide our customers with sufficient hash rate sharing or hosting services in a timely manner, and we may lose sales and market share to our competitors.
We may be unable to execute our growth strategies or effectively maintain our rapid growth trends.
We have experienced growth and expanded our business in recent years. Our total net revenue increased from US$186.4 million in 2020 to US$394.7 million in 2021 and US$333.3 million in 2022. We incurred a net loss of US$55.8 million and US$60.4 million for the years ended December 31, 2020 and 2022, respectively, and generated a net profit of US$82.6 million for the year ended December 31, 2021. We may not be able to grow our revenue and achieve profitability in the future if we are not able to successfully execute our product development and diversification, geographic expansion and other growth plans. In addition, our rapid growth has placed and will continue to place significant demands on our management and our administrative, operational, research and development and financial resources.
To accomplish our growth strategies and manage the future growth of our operations, we will be required to enhance our research and development capabilities, improve our operational and financial systems, and expand, train and manage our growing employee base. Furthermore, we need to maintain and expand our relationships with our customers, suppliers, research institutions, third-party manufacturers and other third parties. Moreover, as we introduce new products or services or enter new markets, we may face new market, technological, operational and regulatory risks and challenges with which we are unfamiliar.
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Our current and planned operations, personnel, systems, internal procedures and controls may not be adequate to support our future growth and expansion. In addition, the success of our growth strategies depends on a number of external factors, such as the development of the cryptocurrency market and the demand for Bitcoin, the level of competition we face and evolving customer behavior and preferences. If we are unable to execute our growth strategies or manage our growth effectively, we may not be able to capture market opportunities or respond to competitive pressures, which may materially and adversely affect our business prospects and results of operations.
Moreover, our ability to generate profits and/or positive cash flow is correlated to the current and future market prices of cryptocurrencies and a decline in the market prices for cryptocurrencies could negatively impact our future operations. For example, the decreases in Bitcoin price in 2022 resulted from the FTX bankruptcy is expected to negatively impact our mining yields. However, we believe that, as compared to many other participants in the crypto assets markets, we are more resilient to cryptocurrency price volatility as our “hash rate sharing” and “hosting” businesses allow us to smooth the impact of cryptocurrency price volatility.
In addition, we also face risks associated with the expansion of our operations overseas. See the section entitled “— We face risks associated with the expansion of our scale of operations globally, and if we are unable to effectively manage these risks, they could impair our ability to expand our business abroad.” If we are not able to manage our growth or execute our strategies effectively, our expansion may not be successful and our business and prospects may be materially and adversely affected.
We face risks associated with the expansion of our scale of operations globally, and if we are unable to effectively manage these risks, they could impair our ability to expand our business abroad.
We operate our business globally, with customers and suppliers located in various countries. As we continue to grow our business and expand our operations globally, we will continue to sell our products and services into new jurisdictions in which we have limited or no experience and in which our brands may be less recognized. Our global operation exposes us to a number of risks, including:
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a limited customer base and limited sales and relationships with international customers;
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difficulty in managing multinational operations;
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competitors in overseas markets who have stronger ties with local customers and greater resources;
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fluctuations in currency exchange rates;
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challenges in providing customer products and services and support in these markets;
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challenges in managing our overseas sales force and implementing sales strategies effectively;
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unexpected transportation delays or interruptions or increases in international transportation costs;
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difficulties in and costs of exporting products overseas while complying with the different commercial, legal and regulatory requirements of the overseas markets in which we offer our products and services;
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regulations, changes to regulation, regulatory uncertainty in or inconsistent regulations across various jurisdictions that may implicate cryptocurrency mining and other cryptocurrency activities;
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difficulty in ensuring the compliance with the sanctions imposed by The Office of Financial Assets Control of the U.S. Department of Treasury (“OFAC”), the European Union or the United Nations Security Council on various foreign states, organizations and individuals;
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inability to obtain, maintain or enforce intellectual property rights in all the jurisdictions we operate in;
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inability to effectively enforce contractual or legal rights or intellectual property rights in certain jurisdictions under which we operate;
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changes in a specific country or region’s political or economic conditions or policies; and
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governmental policies favoring domestic companies in certain foreign markets or trade barriers including export requirements, tariffs, taxes and other restrictions and charges. In particular, there have been concerns over the worldwide populism trend that call for protectionism trade policy and potential international trade disputes, all of which could cause turbulence in the international markets.
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These government policies or trade barriers could increase the prices of our products and services and make us less competitive in such countries.
If we are unable to effectively manage these risks, our ability to operate and expand our business will be impaired, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
As we continue to expand and localize our international activities, our obligations to comply with the laws, rules, regulations and policies of a variety of jurisdictions will increase and we may be subject to investigations and enforcement actions by U.S. and non-U.S. regulators and governmental authorities.
As we expand and localize our international activities, we have become increasingly obligated to comply with the laws, rules, regulations, policies and legal interpretations not only the jurisdictions in which we operate but also those into which we offer services on a cross-border basis. Laws regulating financial services, the internet, mobile technologies, crypto, and related technologies outside the United States often impose different, more specific, or even conflicting obligations on us, as well as broader liability.
Regulators worldwide frequently study each other’s approaches to the regulation of the crypto economy. Consequently, developments in any jurisdiction may influence other jurisdictions. New developments in one jurisdiction may be extended to additional services and other jurisdictions. As a result, the risks created by any new law or regulation in one jurisdiction are magnified by the potential that they may be replicated, affecting our business in another place or involving another service. Conversely, if regulations diverge worldwide, we may face difficulty adjusting our products, services, and other aspects of our business with the same effect. These risks are heightened as we face increased competitive pressure from other similarly situated businesses that engage in regulatory arbitrage to avoid the compliance costs associated with regulatory changes.
The complexity of U.S. federal and state and international regulatory and enforcement regimes, coupled with the global scope of our operations and the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions. Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brands and business, and adversely affect our operating results and financial condition. Due to the uncertain application of existing laws and regulations, it is possible that, despite our regulatory and legal analysis concluding that certain products and services are currently unregulated, such products or services may indeed be subject to financial regulation, licensing, or authorization obligations that we have not obtained or with which we have not complied. As a result, we are at a heightened risk of enforcement action, litigation, regulatory, and legal scrutiny which could lead to sanctions, cease, and desist orders, or other penalties and censures which could significantly and adversely affect our continued operations and financial condition.
Delays in the expansion of existing mining datacenters or the construction of new mining datacenters or significant cost overruns could present significant risks to our business and could have a material adverse effect on our business, financial condition and results of operations.
The daily operations of all our business lines require the support of our mining datacenters, with a highly specialized infrastructure and considerable, reliable power in order to compete effectively. We intend to increase our mining capacity and increase substantially the number of mining machines we operate. In order to meet our financial plan, we need to expand our existing mining datacenters or obtain suitable land to build new mining datacenters. We may face challenges in obtaining suitable land, as we need to work closely with the local power suppliers and local governments of the places where our proposed facilitates are located. Delays in actions that require the assistance of such third parties, in receiving required permits and approvals or in mediations with local communities, if any, may negatively impact our construction timelines and budget or result in any new facilities not being completed at all.
We plan to expand our footprints to more mining datacenters across the globe to increase our total capacity to approximately 1,524MW, including 199MW power supply currently under construction and 550MW power supply “in the pipeline,” contracted or negotiated but not yet under active construction. Such expansion and construction require us to rely on the experience of one or more designers, general contractors and subcontractors, and such designers or contractors may experience financial or other problems during the
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design or construction process. We may also experience quality control issues as we implement any upgrades in our hosting capacity through the installation and maintenance of chipsets and servers or new cooling technologies such as immersion and water curtain cooling. our business will be negatively impacted if we are unable to run our mining operations in a way that is technologically advanced, economically and energy-efficient and temperature controlled. If we are unsuccessful, we will damage our mining machines and the mining machines of third parties and the profitability of our mining operations.
If we experience significant delays in the supply of power required to support any mining datacenter expansion or construction, the progress of such projects could deviate from our original plans, which could cause material and negative effects on our revenue growth, profitability and results of operations. Any material delay in completing these projects, or any substantial cost increases or quality issues in connection with these projects, could materially delay our ability to supply cloud hash rate and deliver our hosting capacity, cause us to incur penalties under hosting contracts, result in reduced order volume and materially adversely affect our business, financial condition and results of operations.
Any failure of our solutions or services to meet the necessary quality standards could adversely affect our reputation, business and results of operation.
The quality of the products and services we are providing is critical to the success of our business and depends significantly on the effectiveness of our and our manufacturing service providers’ quality control systems. In our efforts to quickly meet new market trends and demand and adopt new technologies, our products and services may not have adequate time to go through our normal rigorous testing procedures and final inspection, which could result in instances where our products and services cannot reach the required performance standard, or our products and services are found to be defective or significantly unsatisfying. These instances could result in our customers suffering losses. Defects detected before products and services performance to our customers may result in additional costs for remediation and rework. Defects detected after the performance of our products and services may result in our incurring further costs relating to inspection, installation or remediation, which may result in damages to our reputation, loss of customers, government fines and disputes and litigation.
On the other hand, we may have to turn to less reputable suppliers if we cannot source adequate equipment or other supplies from our regular suppliers. Under such circumstances, the quality of the equipment may suffer and could cause performance issues in our products and services. Shortages of supplies could result in reduced production or delays in production, as well as an increase in costs, which may negatively affect our abilities to fulfill orders or provide timely services to customers, as well as our customer relationships and profitability. Supplies shortages may also increase our costs of revenue because we may be required to pay higher prices for products in short supply, without being able to pass such cost to customers. As a result, our business, results of operations and reputation could be materially and adversely affected.
Power outage or shortages, labor disputes and other factors may result in constraints on our business activities.
Historically, we have not experienced constraints on our business activities, including at our mining datacenters, due to power outage or shortages, labor disputes or other factors. However, there can be no assurance that our operations will not be affected by power outage or shortages, labor disputes or other factors in the future, thereby causing material disruptions and delays in our delivery schedule. In such an event, our business, results of operations and financial condition could be materially and adversely affected.
If we are unable to maintain or enhance our brand recognition, our business, financial condition and results of operations may be materially and adversely affected.
Maintaining and enhancing the recognition, image and acceptance of our brand are important to our ability to differentiate our products and services from and to compete effectively with our peers. As we rely heavily on word-of-mouth branding, our brand image could be jeopardized if we fail to maintain high product and service quality, pioneer and keep pace with evolving technology trends, or timely fulfil the orders for our products and services. If we fail to promote our brand or to maintain or enhance the brand recognition and awareness among our customers, or if we are subject to events or negative allegations affecting our brand image or publicly perceived position of our brand, our business, operating results and financial condition could be adversely affected.
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We may be at a higher risk of litigation and other legal proceedings due to heightened regulatory scrutiny of the cryptocurrency industry, which could ultimately be resolved against us, requiring material future cash payments or charges, and accordingly impair our financial condition and results of operations.
The size, nature and complexity of our business could make us susceptible to various claims, both in litigation and binding arbitration proceedings, legal proceedings, and government investigations, due to the heightened regulatory scrutiny following the recent disruptions in the crypto asset markets. We believe that since cryptocurrency mining, and the digital asset industry generally, is a relatively new business sector, we are more likely subject to government investigation and regulatory determination, particularly following the recent cryptocurrency market participant bankruptcies described elsewhere herein. Any claims, regulatory proceedings or litigation that could arise in the course of our business could have a material adverse effect on us, our business or operations, or the industry as a whole.
We may not be able to adequately protect our intellectual property rights and other proprietary rights, which could have a material adverse effect on business, financial condition and results of operations.
We may not be able to obtain broad protection in Singapore, the United States or internationally for all of our existing and future intellectual property and other proprietary rights, and we may not be able to obtain effective protection for our intellectual property and other proprietary rights in every country in which we operate. Protecting our intellectual property rights and other proprietary rights may require significant expenditure of our financial, managerial and operational resources. Moreover, the steps that we may take to protect our intellectual property and other proprietary rights may not be adequate to protect such rights or prevent third parties from infringing or misappropriating such rights. Any of our intellectual property rights and other proprietary rights, whether registered, unregistered, issued or unissued, may be challenged by others or invalidated through administrative proceedings and/or litigation.
We may be required to spend significant resources to secure, maintain, monitor and protect our intellectual property rights and other proprietary rights. Despite our efforts, we may not be able to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights and other proprietary rights. We may initiate claims, administrative proceedings and/or litigation against others for infringement, misappropriation or violation of our intellectual property rights or other proprietary rights to enforce and/or maintain the validity of such rights. Any such action, if initiated, whether or not it is resolved in our favor, could result in significant expense to us, and divert the efforts of our technical and management personnel, which may have a material adverse effect on our business, financial condition and results of operations.
We may face intellectual property infringement claims or other related disputes, which could be time-consuming, costly to defend or settle and result in the loss of significant rights and lower sales.
As is typical in the cryptocurrency industry, we may be subject to infringement claims from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technology, products and services. The cryptocurrency industry is characterized by companies that hold large numbers of patents and other intellectual property rights and that vigorously pursue, protect and enforce these rights. Patent litigation has increased in recent years owing to increased assertions made by intellectual property licensing entities and increasing competition and overlap of product functionality in our markets. Additionally, we have in the past entered and may continue in the future to enter into licensing agreements with third parties for the use of their proprietary technologies, primarily software development tools, in the development of our products and services. As with any business relationship, we may face disputes and lawsuits related to those intellectual property licensing agreements. As our operations continue to grow in size and scale, the likelihood of us becoming involved in intellectual property related lawsuits and disputes to protect or defend our intellectual property rights and the use of third-party intellectual property rights will increase.
In addition, it is extremely difficult for us to monitor all of the patent applications that have been filed in the United States or in other countries or regions and whether, if such pending patents are granted, such patents would have a material and adverse effect on our business if our service offering were to infringe upon them.
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Other third parties may file claims against us or our customers alleging that our products and services, processes, or technologies infringe third-party patents or IP rights. Regardless of their merits or resolutions, such claims could be costly to defend or settle and could divert the efforts and attention of our management and technical personnel. In addition, some of our customer agreements in the future may require us to indemnify and defend our customers from third-party infringement claims and to pay damages in the case of adverse rulings. As such, claims of this sort also could harm our relationships with our customers and may deter future customers from doing business with us. We do not know whether we could prevail in any such proceeding given the complex technical issues and inherent uncertainties involved in intellectual property litigation. If any pending or future proceedings result in an adverse outcome, we could be required to:
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cease the use of the infringing equipment, processes or technologies;
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stop providing products and services to certain geographic areas;
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pay substantial damages for infringement;
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expend significant resources to develop non-infringing processes, technologies or products;
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license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all;
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cross-license our technology to a competitor in order to resolve an infringement claim, which could weaken our ability to compete with that competitor; or
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pay substantial damages to our customers to disruption of products and services they subscribed or replace the type of series with non-infringing equipment involved.
Any of the foregoing results could have a material adverse effect on our business, financial condition and results of operations.
The loss of any member of our senior management team, or our failure to attract, train and retain qualified personnel, especially our design and technical personnel, could impair our ability to grow our business and effectively execute our business strategy.
Since our inception, the growth and expansion of our business operations have been dependent upon the business strategies and foresight of our senior management. Our future success depends, in a large part, on the continued contributions of our senior management team, specifically Mr. Jihan Wu. In addition, our future success depends on our ability to retain, attract and incentivize qualified personnel, including our management, sales, marketing, finance and especially research and development personnel. As the driver of our technological and product innovations, our research and development personnel represent a very significant asset of us. As the technology in the cryptocurrency industry is advancing at a quick pace, there is an increasing need for skilled engineers. Many companies across the world are struggling to find suitable candidates for their research and development positions. The process of hiring employees with the combination of skills and characteristics required to implement our strategy can be extremely competitive and time-consuming. We cannot assure you that we will be able to attract adequate personnel as we continue to pursue our business strategies.
Moreover, there is no assurance that we will be able to retain key existing employees. The loss of any of our founder, senior management or research and development team members could harm our ability to implement our business strategies and respond to the rapidly changing market conditions in which we operate, or could result in other operating risks. The loss of one or more of our key employees, especially our key design and technical personnel, or our inability to retain, attract and motivate qualified designs and technical personnel, could have a material adverse effect on our business, financial condition and results of operations.
We may be vulnerable to security breaches, which could disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.
A party who is able to compromise the physical security measures protecting our facilities could cause interruptions or malfunctions in our operations and misappropriate our property or the property of our customers. Such a compromise could be particularly harmful to our brand and reputation. We may be required to expend significant capital and resources to protect against such threats or to alleviate problems caused by
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breaches in security. As techniques used to breach security change frequently and are often not recognized until launched against a target, we may not be able to implement new security measures in a timely manner or, if and when implemented, we may not be certain whether these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, regulatory penalties, loss of existing or potential customers, harm to our reputation and increases in our security costs, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, any assertions of alleged security breaches or systems failure made against us, whether true or not, could harm our reputation, cause us to incur substantial legal fees and have a material adverse effect on our business, financial condition and results of operations. Whether or not any such assertion actually develops into litigation, our management may be required to devote significant time and attention to dispute resolution (through litigation, settlement or otherwise), which would detract from our management’s ability to focus on our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant. In addition, any such resolution could involve our agreement with terms that restrict the operation of our business. Any such resolution, including the resources exhausted in connection therewith, could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, security breaches, computer malware and computer hacking attacks have been a prevalent concern in the Bitcoin exchange market since the launch of the Bitcoin network. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses, could harm our business operations or result in loss of our assets.
We may be exposed to cybersecurity threats and hacks, which could have a material adverse effect on our business, financial condition and results of operations.
The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our computer servers and computer systems may be vulnerable to cybersecurity risks, including denial-of-service attacks, physical or electronic break-ins, employee theft or misuse and similar disruptions from unauthorized tampering with our computer servers and computer systems. The preventive actions we take to reduce the risk of cyber incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future. To the extent that any disruption or security breach results in a loss or damage to our network, in unauthorized disclosure of confidential information or in a loss of our cryptocurrencies, it could cause significant damage to our reputation, lead to claims against us and ultimately have a material adverse effect on our business, financial condition and results of operations. Additionally, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
We may engage in acquisitions or strategic alliances in the future that could disrupt our business, result in increased expenses, reduce our financial resources and cause dilution to our shareholders. We cannot assure you that such acquisitions or strategic alliances may be successfully implemented.
We may look for potential acquisitions or strategic alliances in the future to expand our business. However, we may not be able to find suitable acquisition candidates, complete acquisitions on favorable terms, if at all, or integrate any acquired business, products or technologies into our operations. If we do complete acquisitions, they may be viewed negatively by customers or investors and they may not enable us to strengthen our competitive position or achieve our goals. In addition, any acquisitions that we make could lead to difficulties in integrating personnel, technologies and operations from the acquired businesses and in retaining and motivating key personnel from these businesses. Moreover, acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities and increase our expenses. Future acquisitions may reduce our cash available for operations and other uses, and could result in increases in amortization expenses related to identifiable intangible assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt. We cannot predict the number, timing or size of future acquisitions, or the effect that any such acquisitions might have on our operating results.
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Any global systemic economic and financial crisis could negatively affect our business, results of operations, and financial condition.
Any prolonged slowdown in the global economy may have a negative impact on our business, results of operations and financial condition. The global financial markets have experienced significant disruptions since 2008 and the United States, Europe and other economies have experienced periods of recession. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States. There have also been concerns over unrest in Ukraine, the Middle East and Africa, which have resulted in volatility in financial and other markets, and concerns over the aftermath of the United Kingdom leaving the European Union as well as the significant potential changes to United States trade policies, treaties and tariffs. There were and could be in the future a number of domino effects from such turmoil on our business, including significant decreases in orders from our customers, insolvency of key suppliers resulting in product delays, inability of customers to obtain credit to finance purchases of our products and services and/or customer insolvencies, and counterparty failures negatively impacting our operations. Any systemic economic or financial crisis could cause revenue for the mining industry as a whole to decline dramatically and could materially and adversely affect our results of operations.
Changes in international trade policies and international barriers to trade may have an adverse effect on our business and expansion plans.
We have provided worldwide products and services to a number of countries outside of Singapore and derive sales from exporting to those countries, and we intend to continue to sell our current and future products to countries outside of Singapore. Revenue generated from customers located in the United States accounted for 12.4%, 16.6% and 5.1% of our total revenue for the years ended December 31, 2020, 2021 and 2022, respectively. Further, we rely on certain overseas suppliers, including suppliers in the United States, for the supply of certain equipment and tools, such as mining machines. Changes to trade policies, treaties and tariffs in or affecting the jurisdictions in which we operate and to which we sell our products and services, or the perception that these changes could occur, could adversely affect the financial and economic conditions in those jurisdictions, as well as our international sales, financial condition and results of operations.
Our business and prospect may be negatively affected by changes in governmental policies including sanctions and export controls administered by other countries’ governments, including those imposed as a result of an increasing tense relationship of the political or economic relations among major economic groups and other geopolitical challenges. Although we currently only operate our business in certain countries, there is no assurance that the governmental authorities may take certain possible measures or restrictions towards the products and services we are providing or will provide, which could result in an adverse impact on our business and prospect if we were not able to find substitute customer group with the same quality demand from other countries. Further, some of our customers may experience undue hardship in purchasing or furthering the business relationship with us as a result of the abnormal international trade relations, which could materially and adversely affect our business performance.
In addition, countries, which are subject to other countries’ sanctions or tariff impositions may further retaliate, in response to new trade policies implemented by such foreign governments. Such retaliation measures may further escalate the tensions between the two countries, which may have a negative impact on the economies of not merely the two countries concerned, but the global economy as a whole. As a result of any major economic downturn, our business, financial condition and results of operations could be adversely affected.
Our prepayments to suppliers may subject us to counterparty risk associated with such suppliers and negatively affect our liquidity and cash position.
We are required to prepay some of our suppliers before the service is provided to secure the supplier’s production capacity. As of December 31, 2021 and 2022, the balance of prepayments we made to our suppliers amounted to US$14.5 million and US$9.7 million, respectively. The amount of our prepayment can significantly increase as we continue to pursue technological advancement. We are subject to counterparty risk exposure to our suppliers. Any failure by our suppliers to perform their contractual obligation in a timely manner and/or with our requested quality may result in us not being able to fulfill customers’ orders
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accordingly. In such an event, we may not be able to regain the prepayment in a timely manner or in full, even though our suppliers are obligated to return such prepayments under specified circumstances as previously agreed upon. Furthermore, if the cash outflows for the prepayments significantly exceed the cash inflows during any period, our future liquidity position will be adversely affected.
Concerns about greenhouse gas emissions and global climate change may result in environmental taxes, charges, assessments or penalties and could have a material adverse effect on our business, financial condition and results of operations.
The effects of human activity on global climate change have attracted considerable public and scientific attention, as well as the attention of the United States and other foreign governments. Efforts are being made to reduce greenhouse gas emissions, particularly those from coal combustion power plants, some of which plants we may rely upon for power. The added cost of any environmental taxes, charges, assessments or penalties levied on such power plants could be passed on to us, increasing the cost to run our hosting facilities.
On November 23, 2022, the governor of New York signed into law a two year moratorium on new or renewed permits for certain electricity-generating facilities that use fossil fuel and provide energy for proof-of-work digital asset mining operations. While this action does not directly impact our current operations, it may be the beginning of a new wave of climate change regulations aimed at preventing or reducing the growth of Bitcoin mining in jurisdictions in the United States, including potentially jurisdictions in which we now operate or may in the future operate. Such action could also demonstrate the beginning of a regional or global regulatory trend in response to environmental and energy preservation or other concerns surrounding crypto assets, and similar action in a jurisdiction in which we operate or in general could have a devastating effect on our operations. Any further enactment of laws or promulgations of regulations regarding greenhouse gas emissions by the United States, Norway, or any other domestic or foreign jurisdiction in which we conduct business could have a material adverse effect on our business, financial condition or results of operations.
If we experience difficulty in collecting our trade receivables, our liquidity, financial condition and results of operations would be negatively impacted.
We derive our revenue from the sale of products and services and are subject to counterparty risks such as our customer’s inability to pay. As of December 31, 2021 and 2022, our trade receivables amounted to US$8.2 million, and US$18.3 million respectively. There can be no assurance that we will be able to collect our trade receivables on a timely basis, and our trade receivable turnover days may increase, which in turn could materially and adversely affect our liquidity, financial condition and results of operations.
Our operations and those of our production partners and customers are vulnerable to natural disasters and other events beyond our control, the occurrence of which may have an adverse effect on the supply chain of our suppliers and on our facilities, personnel and results of operations.
Our business could be adversely affected by natural disasters or outbreaks of epidemics. We have not adopted any written contingency plans to combat any future natural disasters, such as floods and mudslides, or outbreaks of avian flu, H1N1 flu, SARS or any other epidemic. These natural disasters, outbreaks of contagious diseases, and other adverse public health developments in countries where our computing power facilities are located or any other countries or regions in which we conduct business could severely disrupt our business operations by damaging our network infrastructure or information technology system or impacting the productivity of our workforce, which may adversely affect our financial condition and results of operations.
The COVID-19 pandemic has brought a significantly negative impact on the global economy, industry and market conditions. The ongoing development and the global control on the pandemic are unclear, which may increase the instability of our development, materially and adversely affecting our results of operations.
Since December 2019, the outbreak of a novel strain of coronavirus disease known as COVID-19 has materially and adversely affected the global economy. The COVID-19 pandemic has caused series of consequences from many perspectives and may continue to have a prolonged impact by:
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impairing our ability to renew and maintain our relationships with existing customers;
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causing our existing customers to substantially reduce the quantity of products and services to which they subscribe, seek price concessions, or go out of business, any of which would harm our revenue;
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resulting in some of our customers failing to comply with the terms of their agreements, including payment terms, due to economic uncertainty, financial hardship, and even failure of their businesses, which could result in us being required to take action to collect payments, terminate their subscriptions for our services, and increase accounts receivable and bad debt, any of which would increase our expenses and harm our revenue and results of operations;
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making it more difficult for us to sell increased services or functionality to our existing customers;
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delaying prospective customers’ decisions to subscribe to our solutions, increase the length of sales cycles, or slow the typical growth in the use of our solutions once customers have initially deployed our solutions;
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harming our ability to effectively market and sell our solutions as a result of travel restrictions and social distancing orders;
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delaying the introduction of enhancements to our solutions and market acceptance of any new features and products;
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harming our ability to grow our worldwide sales and operations;
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harming our ability to recruit, onboard and successfully integrate new employees, including members of our direct sales force;
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impacting the health and safety of our employees, including our senior management team, and their ability to perform services;
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causing our management team to continue to commit significant time, attention and resources to monitoring the COVID-19 pandemic and seeking to mitigate its effect on our business and workforce.
It is uncertain how long and how severely the COVID-19 pandemic may continue to impact us. Significant uncertainties associated with the coronavirus remain, including with respect to the availability and efficacy of vaccines, the duration of the pandemic, the emergence of variant strains of COVID-19, and actions that may be taken by governmental authorities to contain the coronavirus or to treat its impact. The full impact of the coronavirus is unknown at this time. If the pandemic continues and lasts for a prolonged period in the regions where we operate, such as cases resurgence in certain areas, the economy could suffer substantially from the measures and restrictions taken to combat the virus, which would, in turn, have an adverse impact on our business prospects. Any significant disruption resulting from this or similar epidemics on a large scale or over a prolonged period of time could significantly interrupt our business until we would be able to resume normal business operations, which will negatively affect our financial condition. To the extent COVID-19 adversely affects our business, financial condition and results of operations, it may also heighten some of the other risks described in this “Risk Factors” section.
Risks Related to Cryptocurrencies
Because there has been limited precedent set for financial accounting for Bitcoin and other cryptocurrencies, the determinations that we have made for how to account for cryptocurrencies transactions may be subject to change.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the IASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. Further, there has been limited precedents for the financial accounting of cryptocurrencies and related valuation and revenue recognition, and no official guidance has been provided by the IASB or the SEC. As such, there remains significant uncertainty on how companies can account for cryptocurrency transactions, cryptocurrencies, and related revenue. Uncertainties in or changes to in regulatory or financial accounting standards could result in the need to changing our accounting methods and restate our financial statements and impair our ability to provide timely and accurate financial information, which could adversely affect our financial statements, result in a loss of investor confidence, and more generally impact our business, operating results, and financial condition.
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Any loss or destruction of a private key required to access our cryptocurrency is irreversible. We also may temporarily lose access to our cryptocurrencies.
Cryptocurrencies are each accessible and controllable only by the possessor of both the unique public key and private key associated with the cryptocurrency, wherein the public and private keys are held in an offline or online digital wallet. To the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is available, we will be unable to access the applicable cryptocurrency associated with that private key and the private key cannot be restored. As a result, any cryptocurrencies associated with such key could be irretrievably lost. Any loss of private keys relating to digital wallets used to store the applicable cryptocurrencies could have a material adverse effect on our business, financial condition and results of operations.
In addition, we may temporarily lose access to our cryptocurrencies as a result of software or systems upgrades or maintenance. In this case, we would likely rely on third parties to assist in restoring our access, and there is no assurance such third parties will be able to restore access on a timely basis, or at all. Any temporary loss, if it occurs, could have a material adverse effect on our business, financial condition and results of operations.
Bitcoin exchanges and wallets, and to a lesser extent, the Bitcoin network itself, may suffer from hacking and fraud risks, which may adversely erode user confidence in Bitcoin which would decrease the demand for our products and services. Further, digital asset exchanges on which crypto assets trade are relatively new and largely unregulated, and thus may be exposed to fraud and failure. Incorrect or fraudulent cryptocurrency transactions may be irreversible.
Bitcoin transactions are entirely digital and, as with any virtual system, are at risk from hackers, malware and operational glitches. Hackers can target Bitcoin exchanges and Bitcoin transactions, to gain access to thousands of accounts and digital wallets where Bitcoins are stored. Bitcoin transactions and accounts are not insured by any type of government program and all Bitcoin transactions are permanent because there is no third party or payment processor. Bitcoin has suffered from hacking and cyber-theft as such incidents have been reported by several cryptocurrency exchanges and miners, highlighting concerns about the security of Bitcoin and therefore affecting its demand and price.
To the extent that cryptocurrency exchanges or other trading venues are involved in fraud or experience security failures or other operational issues, a reduction in cryptocurrency prices could occur. Cryptocurrency market prices depend, directly or indirectly, on the prices set on exchanges and other trading venues, which are new and, in most cases, largely unregulated as compared to established, regulated exchanges for securities, derivatives and other currencies. For example, during the past three years, a number of Bitcoin exchanges have been closed due to fraud, business failure or security breaches. In many of these instances, the customers of the closed Bitcoin exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin exchanges. Also, the price and exchange of Bitcoin may be affected due to fraud risk. While Bitcoin uses private key encryption to verify owners and register transactions, fraudsters and scammers may attempt to sell false Bitcoins. All of the above may adversely affect the operation of the Bitcoin network which would erode user confidence in Bitcoin, which would negatively affect demand for our products and services. In addition, smaller exchanges are less likely to have the infrastructure and capitalization that provide larger exchanges with additional stability, larger exchanges may be more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information, or gain access to private computer systems) and may be more likely to be targets of regulatory enforcement action.
For example, during the past three years, a number of Bitcoin exchanges have been closed due to fraud, business failure or security breaches. In many of these instances, the customers of the closed Bitcoin exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin exchanges. While smaller exchanges are less likely to have the infrastructure and capitalization that provide larger exchanges with additional stability, larger exchanges may be more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information, or gain access to private computer systems) and may be more likely to be targets of regulatory enforcement action.
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Further, digital asset exchanges on which cryptocurrencies trade are relatively new and, in most cases, largely unregulated. Many digital exchanges do not provide the public with significant information regarding their ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace may lose confidence in, or may experience problems relating to, cryptocurrency exchanges, including prominent exchanges handling a significant portion of the volume of digital asset trading. During 2022, a number of companies in the crypto industry have declared bankruptcy, including Compute North, Core Scientific, Alameda Research LLC, Celsius Network, Voyager Digital, Three Arrows, BlockFi, and FTX. In June 2022, Celsius began pausing all withdrawals and transfers between accounts on its platform, and in July 2022, it filed for Chapter 11 bankruptcy protection. Further, in November 2022, FTX, one of the major cryptocurrency exchanges, also filed for Chapter 11 bankruptcy. Such bankruptcies have contributed, at least in part, to further price decreases in Bitcoin, a loss of confidence in the participants of the digital asset ecosystem and negative publicity surrounding digital assets more broadly, and other participants and entities in the digital asset industry have been, and may continue to be, negatively affected. These events have also negatively impacted the liquidity of the digital assets markets as certain entities affiliated with FTX engaged in significant trading activity.
We have not been directly impacted by any of the recent bankruptcies in the crypto asset space, as we have no contractual privity or relationship to the relevant parties. However, we are dependent on the overall crypto assets industry, and such recent events have contributed, at least in part, to our peers’ stock price as well as the price of Bitcoin. If the liquidity of the digital assets markets continues to be negatively impacted, digital asset prices (including the price of Bitcoin) may continue to experience significant volatility and confidence in the digital asset markets may be further undermined. A perceived lack of stability in the digital asset exchange market and the closure or temporary shutdown of digital asset exchanges due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce confidence in digital asset networks and result in greater volatility in cryptocurrency values. These potential consequences of a digital asset exchange’s failure could adversely affect an investment in us, discourage overall participation in the cryptocurrency industry, and result in loss of customer demand for our products and services. Cryptocurrency investments may be subject to losses or impairments if cryptocurrency values decrease as a result of failure of any digital asset exchange, however, we do not anticipate to actively participate in such activities in the foreseeable future.
We may not have adequate sources of recovery if the cryptocurrencies held by us are lost, stolen or destroyed due to third-party cryptocurrencies custodial services or if we cannot redeem or withdraw our cryptocurrencies invested in crypto lending or investing activities. Such incidents could have a material adverse effect on our business, financial condition and results of operations.
Substantially all of our cryptocurrencies were held in custody by Matrix Finance and Technologies Holding Group and its subsidiaries (“Matrixport Group”), a related party, and our disposal of cryptocurrencies, at spot price on the date of disposal, was primarily to Matrixport Group. We believe that the security procedures that Matrixport Group utilizes, such as issuing username, password and hardware tokens, are reasonably designed to safeguard our Bitcoin and other cryptocurrencies from theft, loss, destruction or other issues relating to hackers and technological attack. Nevertheless, the security procedures cannot guarantee the prevention of any loss due to a security breach, software defect or act of God that may be borne by us. If such cryptocurrencies are lost, stolen or destroyed under circumstances rendering a third party liable to us, it is possible that Matrixport Group may not have the financial resources or insurance sufficient to satisfy any or all of our claims against the third party, or have the ability to retrieve, restore or replace the lost, stolen or destroyed cryptocurrencies due to governing network protocols and the strength of the cryptographic systems associated with such cryptocurrencies. To the extent that we are unable to recover on any of our claims against any such third party, such loss could have a material adverse effect on our business, financial condition and results of operations.
If such services are commercially available, we will consider adding regulated banks, rather than solely relying on crypto custodian, as the custodian for a material amount of our cryptocurrencies. Obtaining cryptocurrency custody services from a regulated bank may confer benefits such as improved security and reduced fraud. Nevertheless, until now, banks have generally declined to provide custody services for cryptocurrencies and other virtual assets, due to the absence of clarity on permissibility and on regulators’ views of these activities generally. On July 22, 2020, the U.S. Office of the Comptroller of the Currency released publicly an interpretive letter confirming the authority of a national bank to provide cryptocurrency custody
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services for customers, providing that a national bank engaging in such activities should develop and implement those activities consistent with sound risk management practices and align them with the bank’s overall business plans and strategies as set forth in the guidance. On January 27, 2023, the Board of Governors of the Federal Reserve System released publicly a policy statement to interpret section 9(13) of the Federal Reserve Act, clarifying that the state member banks are not prohibited under the policy from providing safekeeping services for crypto-assets in a custodial capacity, if such activities are conducted in a safe and sound manner and in compliance with consumer, anti-money-laundering, and anti-terrorist-financing laws. However, it will take time for banks to start offering cryptocurrencies custodian services, and before then, we may have to continue to rely on crypto custodians, such as Matrixport Group, for our crypto custodian needs.
Historically, we have also lent cryptocurrency loans to Matrixport Group and purchased cryptocurrency wealth management products from Matrixport Group. Historically, we have not incurred or been exposed to any losses as a result of our relationship and transactions with Matrixport Group, and have never experienced any excessive redemptions, withdrawals, or a suspension of redemptions or withdrawals, of crypto assets from Matrixport Group or other exchanges or platforms. Participation in cryptocurrency lending and/or investment may subject us to counterparty risk, which may result in us losing part or all of our cryptocurrencies lent or invested. However, to further limit our counterparty risk, we currently are not engaged in, and do not anticipate to engage in crypto lending or investing activities in the foreseeable future.
Any material transaction between us and Matrixport Group or its subsidiaries is subject to our related person transaction policy. To the extent we fail to appropriately deal with any such conflicts of interests, it could negatively impact our reputation, the ability to raise additional funds and the willingness of counterparties to do business with us, all of which could have adverse effect on our business, financial condition, results of operations and cash flows.
The “halving” of rewards available on the Bitcoin network, or the reduction of rewards on other networks, has had and in the future could have a negative impact on our ability to generate revenue as our customers may not have an adequate incentive to continue transaction processing and customers may cease transaction processing operations altogether, which could have a material adverse effect on our business, financial condition and results of operations.
Under the current protocols governing the Bitcoin network, the reward for validating a new block on that network is cut in half from time to time, which has been referred to in our industry as the “halving.” When the Bitcoin network was first launched, the reward for validating a new block was 50 Bitcoin. In November 2012, the reward for validating a new block was reduced to 25 Bitcoin. In July 2016, the reward for validating a new block was reduced to 12.5 Bitcoin, and in May 2020, the reward was further reduced to 6.25 Bitcoin. The next halving for Bitcoin is expected in 2024 at block 840,000, when the reward will reduce to 3.125. In addition, other networks may operate under rules that, or may alter their rules to, limit the distribution of new cryptocurrencies. We, and to our knowledge, our potential hosting customers, currently rely on these rewards to generate a significant portion of our total revenue. If the award of cryptocurrencies for solving blocks and transaction fees are not sufficiently high, neither we nor our customers may have an adequate incentive to continue transaction processing and may cease transaction processing operations altogether, which as a result may significantly reduce demand for our hosting services. As a result, the halving of available rewards on the Bitcoin network, or any reduction of rewards on other networks, would have a negative impact on our revenue and may have a material adverse effect on our business, financial condition and results of operations.
In addition, the reduction of rewards may reduce our profit margins, which could result in us selling a substantial portion of our cryptocurrencies, which are subject to high volatility. If we are forced to sell cryptocurrencies at low prices, it could have a material adverse effect on our business, financial condition and results of operations.
Malicious actors or botnet may obtain control of more than 50% of the processing power on the Bitcoin or other cryptocurrency network.
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 on the Bitcoin or other cryptocurrency network, it may be able to alter the blockchain on which the Bitcoin or other cryptocurrency network and most Bitcoin or other cryptocurrency transactions rely by
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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 cryptocurrencies or transactions using such control. The malicious actor could “double-spend” its own cryptocurrencies (i.e., spend the same cryptocurrencies in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintained control. To the extent that such malicious actor or botnet did not yield its control of the processing power on the cryptocurrency network, or the cryptocurrency community did not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible.
Although there are no known reports of malicious activity or control of the Bitcoin blockchain 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. The possible crossing of the 50% threshold indicates a greater risk in that a single mining pool could exert authority over the validation of Bitcoin transactions. To the extent that the cryptocurrency ecosystems, including developers and administrators of mining pools, do not act to ensure greater decentralization of Bitcoin or other cryptocurrency mining processing power, the feasibility of a malicious actor obtaining control of the processing power on the cryptocurrency network will increase, which may adversely affect an investment in us.
If there are significant changes to the method of validating blockchain transactions, such changes could harm our proprietary mining business and reduce demand for our products and services.
New cryptocurrency transaction protocols are continuously being deployed, and existing and new protocols are in a state of constant change and development. While certain validation protocols currently employ a PoW consensus algorithm, whereby miners are required to expend significant amounts of electrical and computing power to solve complex mathematical problems in order to validate transactions and create new blocks in a blockchain, there may be a shift towards adopting alternative validating protocols. These protocols may include a PoS algorithm, PoC algorithm or any other algorithm based on a protocol other than PoW, which may decrease the reliance on computing power as an advantage to validating blocks. Our proprietary mining operations, and, to our knowledge, the operations of our potential hash rate sharing and hosting customers, are currently designed to primarily support a PoW consensus algorithm. Should the algorithm shift from a PoW validation method to others, 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. As a result of our efforts to optimize and improve the efficiency of our cryptocurrency mining operations, we 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 from this as a result, and may be negatively impacted if a switch to protocols other than PoW were to occur. If we cannot adapt to the new mining protocols quickly enough to keep pace with the market change, any such change to transaction validating protocols could have a material adverse effect on our business, financial condition and results of operations.
Growth in the popularity and use of other blockchain networks other than PoW cryptocurrency networks, may adversely affect our business.
A consensus algorithm is the mechanism through which a blockchain network reach consensus. There are several types of consensus algorithms, the most common among which are Proof-of-Work (“PoW”), Proof-of-Stake (“PoS”), Delegated-Proof-of-Stake (“DPoS”), Proof-of-Space-Time (“PoST”), and Proof-of- Capacity (“PoC”). PoW is employed by Bitcoin and many other cryptocurrencies, according to which miners with higher computing power have better chances to find a valid solution for the next block. On the contrary, according to PoS, the creator of a new block is chosen in a deterministic way based on his or her stake, which is the number of coins he or she owns. As validation under PoS does not depend on computing power, PoS reduces the need for electricity and mining hardware. DPoS works similarly to PoS except it involves a voting and delegation mechanism to incentivize users to secure the network with their staked collateral. PoST and PoC are consensus mechanism algorithm used in blockchains that allows for mining devices in the network to use their available storage space and time to decide mining rights and validate transactions. PoST and PoC emerged as some of the many alternative solutions to the problem of high energy consumption in PoW systems and cryptocurrency hoarding in PoS systems.
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Currently, the original PoW cryptocurrency network, Bitcoin, enjoys a first-to-market advantage over other networks such as PoS networks and dominates the cryptocurrency markets as it was introduced by Satoshi Nakamoto back in 2009, way earlier than other cryptocurrencies, and since then grew into the most populator cryptocurrency. Bitcoin’s market capitalization and its share of the market capitalization of all cryptocurrencies fluctuate as other cryptocurrencies were introduced to the digital assets industry at a later time and became more mainstream for various reasons, and there is no guarantee that Bitcoin or other PoW cryptocurrency networks, will continue to enjoy such market leading position and could be is overtaken by another virtual asset. For example, as the cryptocurrency community continues to develop and advance PoS technologies, PoS networks may offer actual or perceived advantages over PoW networks. While we intend to enrich our product and service portfolio by providing mining services covering new crypto protocols, including PoS, DPoS, PoST and PoC, and steadily increase the weight of new business to diversify revenue streams and attract new customers who are users of these new crypto protocols, our services primarily support PoW protocol currently. Specifically, prior to the second half of 2021, our business was limited to PoW protocol only; commencing from the second half of 2021, we started to mine Filecoin, which adopted PoST protocol, on a proprietary basis, and to offer computing power sharing solutions regarding Filecoin mining under our Cloud Hash Rate business. If preferences in the cryptocurrency markets shift away from PoW networks and PoS networks achieve widespread adoption, it could attract users away from Bitcoin and the other PoW cryptocurrencies we mine and the PoW related products mining services we offer, which could have a material adverse effect on our business and our prospects or operations as there is no guarantee that we will be able to adapt to new businesses swiftly enough, if at all.
The acceptance of Bitcoin network software patches or upgrades by a significant, but not overwhelming, percentage of the users and miners in the Bitcoin network could result in a “fork” in the blockchain, resulting in the operation of two separate networks that cannot be merged. The existence of forked blockchains could erode user confidence in Bitcoin and could adversely impact our business, results of operations and financial condition.
Bitcoin is based on open-source software and has no official developer or group of developers that formally controls the Bitcoin network. Any individual can download the Bitcoin network software and make any desired modifications, which are proposed to users and miners on the Bitcoin network through software downloads and upgrades. However, miners and users must consent to those software modifications by downloading the altered software or upgrading and implementing the changes; otherwise, the changes do not become part of the Bitcoin network. Since the Bitcoin network’s inception, changes to the Bitcoin network have been accepted by the vast majority of users and miners, ensuring that the Bitcoin network remains a coherent economic system. However, a developer or group of developers could potentially propose a modification to the Bitcoin network that is not accepted by a vast majority of miners and users, but that is nonetheless accepted by a substantial population of participants in the Bitcoin network. In such a case, a fork in the blockchain could develop and two separate Bitcoin networks could result, one running the pre-modification software program and the other running the modified version. An example is the introduction of a cryptocurrency known as “Bitcoin cash” in mid-2017. This kind of split in the Bitcoin network could erode user confidence in the stability of the Bitcoin network, which could negatively affect the demand for our services.
Cryptocurrency transactions are irrevocable and, if stolen or incorrectly transferred, cryptocurrencies may be irretrievable. As a result, any incorrectly executed cryptocurrency transactions could have a material adverse effect on our business, financial condition and results of operations.
Typically, cryptocurrency transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on the applicable network. Once a transaction has been confirmed and verified in a block that is added to the network blockchain, an incorrect transfer of a cryptocurrency or a theft of a cryptocurrency generally will not be reversible and we may not be capable of seeking compensation for any such transfer or theft. Although transfers of any cryptocurrencies we hold will regularly be made to or from vendors, consultants, services providers, etc., it is possible that, through computer or human error, or through theft or criminal action, our cryptocurrencies could be transferred from ourself in incorrect amounts or to unauthorized third parties. To the extent that we are unable to seek a corrective transaction with such third party or are incapable of identifying the third party that has received our cryptocurrencies through error or theft, we will be unable to revert or otherwise recover our incorrectly transferred cryptocurrencies. To the
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extent that we are unable to seek redress for such error or theft, such loss could have a material adverse effect on our business, financial condition and results of operations.
The cryptocurrencies held by us may be subject to loss, damage, theft or restriction on access, which could have a material adverse effect on our business, financial condition or results of operations.
There is a risk that some or all of the cryptocurrencies held or hosted by us could be lost, stolen or destroyed. We believe that the cryptocurrencies held or hosted by ourself and our mining operation will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal our cryptocurrencies. Our security procedures and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of one of our employees, or otherwise, and, as a result, an unauthorized party may obtain access to our cryptocurrency accounts, private keys, data or cryptocurrencies. Although we implement a number of security procedures with various elements such as two-factor verification, segregated accounts and secured facilities and plan to implement the maintenance of data on computers and/or storage media that is not directly connected to, or accessible from, the internet and/or networked with other computers, or “cold storage,” to minimize the risk of loss, damage and theft, and we update such security procedures whenever reasonably practicable, there is no guarantee that the prevention of such loss, damage or theft, whether caused intentionally, accidentally or by an act of God.
Additionally, outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event, and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. As technological change occurs, the security threats to our Bitcoin will likely adapt and previously unknown threats may emerge. Our ability to adopt technology in response to changing security needs or trends may pose a challenge to the safekeeping of our cryptocurrencies. To the extent we are unable to identify and mitigate or stop new security threats, our cryptocurrencies may be subject to theft, loss, destruction or other attacks.
Any of these events could expose us to liability, damage our reputation, reduce customer confidence in our products and services and otherwise have a material adverse effect on our business, financial condition and results of operations. Furthermore, we believe that as our assets grow, we may become a more appealing target for security threats, such as hackers and malware. If an actual or perceived breach of our cryptocurrency accounts occurs, the market perception of our effectiveness could be harmed.
The impact of geopolitical, economic or other events on the supply of and demand for cryptocurrencies is uncertain, but could motivate large-scale sales of cryptocurrencies, which could result in a reduction in the price of such cryptocurrencies and could have a material adverse effect on our business, financial condition and results of operations.
As an alternative to fiat currencies that are backed by central governments, cryptocurrencies, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services. It is unclear how this supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of cryptocurrencies either globally or locally. Large-scale sales of cryptocurrencies likely would result in a reduction in the price of the subject cryptocurrency and could have a material adverse effect on our business, financial condition and results of operations.
In addition, the price of cryptocurrencies may be affected by the buying and selling of a significant amount of cryptocurrencies by a holder, or a group of holders. Any unforeseen actions by holders of a significant amount of cryptocurrencies, could have a material adverse effect on our business, financial condition and results of operations.
Cryptocurrencies, including Bitcoin, face significant scaling obstacles that can lead to high fees or slow transaction settlement times and any mechanisms of increasing the scale of cryptocurrency settlement may significantly alter the competitive dynamics in the market.
Many 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
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cryptocurrencies, and particularly Bitcoin, is essential to the widespread acceptance of cryptocurrencies as a means of payment, which is necessary to the growth and development of our business.
Many cryptocurrency networks face significant scaling challenges. For example, cryptocurrencies are limited with respect to how many transactions can occur per second. In this respect, Bitcoin may be particularly affected as it relies on the PoW validation, which due to its inherent characteristics may be particularly hard to scale to allow simultaneous processing of multiple daily transactions by users. Participants in the cryptocurrency 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 “sharding,” which is a term for 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.
There is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement of cryptocurrency transactions will be effective, how long they will take to become effective or whether such mechanisms will be effective for all cryptocurrencies. There is also a risk that any mechanisms of increasing the scale of cryptocurrency settlements may significantly alter the competitive dynamics in the cryptocurrency market, and may adversely affect the value of Bitcoin and the price of our Ordinary Shares, any of which could have a material adverse effect on our business, prospects, financial condition, and operating results.
To the extent that any miners cease to record transactions in solved blocks, transactions that do not include the payment of a transaction fee will not be recorded on the blockchain until a block is solved by a miner who does not require the payment of transaction fees. Any widespread delays in the recording of transactions could result in a loss of confidence in that cryptocurrency network, which could adversely impact an investment in us.
To the extent that any miners cease to record transactions in solved blocks, such transactions will not be recorded on the blockchain. Currently, there are no known incentives for miners to elect to exclude the recording of transactions in solved blocks; however, to the extent that any such incentives arise (e.g., a collective movement among miners or one or more mining pools forcing Bitcoin users to pay transaction fees as a substitute for or in addition to the award of new Bitcoins upon the solving of a block), actions of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the blockchain.
Any systemic delays in the recording and confirmation of transactions on the blockchain could result in greater exposure to double-spending transactions and a loss of confidence in certain or all cryptocurrency networks, which could have a material adverse effect on our business, prospects, financial condition, and operating results.
Network congestion could result in high fees, delayed transactions, and a loss of confidence in that cryptocurrency network, which could adversely impact an investment in us.
Rising adoption of blockchain networks leads to network congestion, as space on decentralized ledgers is inherently scarce. From a design standpoint, striking a balance between security, decentralization, and scalability (or transactional throughput) is the subject of great debate among innovators and has led to the creation of a variety of networks that make different trade-offs to achieve different outcomes. If network congestion rises to the point where transaction fees make it prohibitively expensive for average users to operate on the network, those users may stop using the network, and application developers may seek to build on other networks where users can afford to transact.
Increasing growth and popularity of cryptocurrencies, initial coin offerings (“ICOs”) and security token offerings, as well as non-digital asset-related applications that utilize blockchain technology on certain networks, can cause congestion and backlog, and as result, increase latency on such networks. An increase in congestion and backlogs could result in longer transaction confirmation times, an increase in unconfirmed transactions (that is, transactions that have yet to be included in a block on a network and therefore are not yet completed transactions), higher transaction fees and an overall decrease in confidence in a particular network, which could ultimately affect our ability to transact on that particular network and, in turn, could have a material adverse effect on our business, financial condition and results of operations.
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We may diversify our business by mining or investing in additional cryptocurrencies which could require significant investment or expose us to trading risks.
The field of cryptocurrencies is constantly expanding with around 10,000 types of cryptocurrencies in existence as of December 2022. We intend to evaluate the potential for mining or investing in existing, new and alternative cryptocurrencies. To the extent we elect to commence activities to generate cryptocurrencies, we would be required to invest our assets either to obtain mining equipment configured to generate cryptocurrencies based on a PoW protocol or to post “stakes” to generate cryptocurrencies based on a PoS protocol. In addition, or in the alternative, we may trade our cryptocurrencies for other cryptocurrencies on centralized or decentralized exchanges. Optimization of such trades may vary depending on the exchange on which the trade is conducted because we may not have access to all exchanges on which such trades are available. Further, trading on centralized and decentralized exchanges may expose us to additional risks if such exchanges experience breaches of security measures, system errors or vulnerabilities, software corruption, hacking or other irregularities. Any new cryptocurrency obtained through generation or trading may be more volatile or fail to increase in value compared to cryptocurrencies we currently hold. As a result, any investment in different cryptocurrencies may not achieve our goals, may be viewed negatively by analysts or investors and may negatively affect our revenue and results of operations.
If the transaction fees for recording cryptocurrencies in a blockchain increase, demand for cryptocurrencies may be reduced and prevent the expansion of the networks to retail merchants and commercial businesses, resulting in a reduction in the acceptance or price of cryptocurrencies.
As the number of cryptocurrencies awarded for solving a block in a blockchain decreases, the incentive for mining participants to contribute processing power to networks will transition from a set reward to transaction fees. In order to incentivize mining participants to continue to contribute processing power to the networks, the network may transition from a set reward to transaction fees earned upon solving for a block.
If mining participants demand higher transaction fees to record transactions in a blockchain or a software upgrade automatically charges fees for all transactions, the cost of using cryptocurrencies may increase and the marketplace may be reluctant to accept cryptocurrencies as a means of payment. Existing users may be motivated to switch from one cryptocurrency to another or back to fiat currency. Decreased use and demand for cryptocurrencies may adversely affect their value and result in a reduction in the value of our common stock.
If the award of new cryptocurrencies and/or transaction fees for solving blocks is not sufficiently high to incentivize miners, such processors may reduce or cease expending processing power on a particular network, which could negatively impact the utility of the network, reduce the value of our cryptocurrencies and have a material adverse effect on our business, financial condition and results of operations.
As the number of cryptocurrencies rewarded to miners for validating blocks in a network decreases, the incentive for miners to continue contributing processing power to the network may shift toward transaction fees. Such a shift may increase the transaction fees on a network. Higher transaction fees may reduce the utility of a network for an end user, which may cause end users to reduce or stop their use of that network. In such case, the price of the relevant cryptocurrency may decline substantially and could go to zero. Such reduced price and demand for, and use of, the relevant cryptocurrency and network, either as it applies to our transaction processing services or to those of our potential hosting customers, may have a material adverse effect on our business, financial condition and results of operations.
Miners may sell a substantial number of cryptocurrencies into the market, which may exert downward pressure on the price of the applicable cryptocurrency and, in turn, could have a material adverse effect on our business, financial condition and results of operations.
Transaction processing requires the investment of significant capital for the acquisition of hardware, leasing or purchasing space, involves substantial electricity costs and requires the employment of personnel to operate the data facilities, which may lead transaction processing operators to liquidate their positions in cryptocurrencies to fund these capital requirements. In addition, if the reward of new cryptocurrencies for transaction processing declines, and/or if transaction fees are not sufficiently high, profit margins for transaction processing operators may be reduced, and such operators may be more likely to sell a
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higher percentage of their cryptocurrencies. Whereas it is believed that individual operators in past years were more likely to hold cryptocurrencies for more extended periods, the immediate selling of newly transacted cryptocurrencies by operators may increase the supply of such cryptocurrencies on the applicable exchange market, which could create downward pressure on the price of the cryptocurrencies and, in turn, could have a material adverse effect on our business, financial condition and results of operations.
To the extent that the profit margins of cryptocurrency mining operations are not high, mining participants are more likely to sell their earned Bitcoin, which could constrain Bitcoin prices.
Over the past few years, cryptocurrency mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation application-specific integrated circuit (“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 to acquire this hardware, to lease operating space (often in datacenters or warehousing facilities), and to pay the costs of electricity and labor to operate the mining datacenters. As a result, professionalized mining operations are of a greater scale than prior mining operations 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 cryptocurrencies. To the extent the price of cryptocurrencies declines and such profit margin is constrained, professionalized mining participants are incentivized to more immediately sell cryptocurrencies earned from mining operations, whereas it is believed that individual mining participants in past years were more likely to hold newly mined cryptocurrencies for more extended periods. The immediate selling of newly mined cryptocurrencies greatly increases the trading volume of the cryptocurrencies, creating downward pressure on the market price of cryptocurrency rewards. The extent to which the value of cryptocurrencies 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 cryptocurrencies 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 cryptocurrency prices. Lower cryptocurrency prices could result in further tightening of profit margins for professionalized mining operations creating a network effect that may further reduce the price of cryptocurrencies until mining operations with higher operating costs become unprofitable forcing them to reduce mining power or cease mining operations temporarily. Such circumstances could have a material adverse effect on our business, prospects or operations and potentially the value of Bitcoin and any other cryptocurrencies we mine or otherwise acquire or hold for our own account.
Risks Related to Regulatory Compliance and Other Legal Matters
We are subject to a highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our business, reputation, prospects or operations.
Until recently, relatively little regulatory attention has been directed toward the crypto assets market by U.S. federal and state governments, non-U.S. governments and self-regulatory agencies. As crypto assets have grown in popularity and in market size, the U.S. regulatory regime — namely the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the SEC, the U.S. Commodity Futures Trading Commission (the “CFTC”), the Financial Crimes Enforcement Network (the “FinCEN”) and the Federal Bureau of Investigation), and local and foreign governmental organizations, consumer agencies and public advocacy groups have been examining the operations of crypto networks, users and platforms, with a focus on how crypto assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist enterprises, and the safety and soundness of platforms and other service providers that hold crypto assets for users. Many of these entities have called for heightened regulatory oversight, and have issued consumer advisories describing the risks posed by crypto assets to users and investors. For instance, in March 2022, Federal Reserve Chair Jerome Powell expressed the need for regulation to prevent “cryptocurrencies from serving as a vehicle for terrorist finance and just general criminal behavior”. On March 8, 2022, President Biden announced an executive order on cryptocurrencies which seeks to establish a unified federal regulatory regime for cryptocurrencies. The complexity and evolving nature of our business and the significant uncertainty surrounding the regulation of the crypto assets industry requires us to exercise our judgment as to whether
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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, revocation of licenses, limitations on our products and services, reputational harm, and other regulatory consequences, each of which may be significant and could adversely affect our business, operating results, and financial condition.
Additionally, the recent bankruptcy filings of FTX, the third largest digital asset exchange by volume at the time of its filing, and its affiliated hedge fund Alameda Research LLC, in addition to other bankruptcy filings of crypto companies throughout calendar year 2022, will likely attract heightened regulatory scrutiny from U.S. regulatory agencies such as the SEC and CFTC. Increasing regulation and regulatory scrutiny may result in additional costs for us and our management having to devote increased time and attention to regulatory matters, change aspects of our business or result in limits on the utility of Bitcoin. In addition, regulatory developments and/or our business activities may require us to comply with certain regulatory regimes. Increasingly strict legal and regulatory requirements and any regulatory investigations and enforcement may result in changes to our business, as well as increased costs, supervision and examination. Moreover, new laws, regulations, or interpretations may result in additional litigation, regulatory investigations, and enforcement or other actions. Adverse changes to, or our failure to comply with, any laws and regulations may have, an adverse effect on our reputation and brand and our business, operating results, and financial condition.
Although we are not directly connected to the recent cryptocurrency market events, we may still suffer reputational harm due to our association with the cryptocurrency industry in light of the recent disruption in the crypto asset markets. Ongoing and future regulation and regulatory actions could significantly restrict or eliminate the market for or uses of Bitcoin and/or may adversely affect our business, reputation, financial condition and results of operations.
The nature of our business requires the application of complex financial accounting rules, and there is limited guidance from accounting standard setting bodies. If financial accounting standards undergo significant changes, our operating results could be adversely affected.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the IASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. Recent actions and public comments from the SEC have focused on the integrity of financial reporting and internal controls. In addition, many companies’ accounting policies are being subject to heightened scrutiny by regulators and the public. Further, there has been limited precedents for the financial accounting of cryptocurrency-related transactions. As such, there remains significant uncertainty on how companies can account for crypto assets transactions, crypto assets, and related revenue. Uncertainties in or changes to regulatory or financial accounting standards could result in the need to change our accounting methods and restate our financial statements and impair our ability to provide timely and accurate financial information, which could adversely affect the accuracy of our financial statements, result in a loss of investor confidence, and more generally impact our business, operating result, and financial condition.
Our interactions with a blockchain may expose us to specially designated nationals (“SDN”) or blocked persons or cause us to violate provisions of law that did not contemplate distribute ledger technology.
The OFAC requires us to comply with its sanction program and not conduct business with persons named on its 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. Our internal policies prohibit any transactions with such SDN individuals, but we may not be adequately capable of determining the ultimate identity of the individual with whom we transact with respect to our cryptocurrency mining-related products and services. In addition, in the future, OFAC or another regulator, may require us to screen transactions for OFAC addresses or other bad actors before including such transactions in a block, which may increase our compliance costs, decrease our anticipated transaction fees and lead to decreased traffic on our network. Any of these factors, consequently, could have a material adverse effect on our business, prospects, financial condition, and operating results.
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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 embedded 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 literally 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 could have a material adverse effect on our business, prospects, financial condition, and operating results.
Our mining datacenters may be located on property whose owner has not obtained the approval of relevant authorities, and we may be ordered to relocate from that property.
Our mining datacenters where mining machines operate are located in different places around the world. Due to the unexpectable regulations that the governments may impose on the development of cryptocurrencies or cryptocurrency mining, the properties we are renting currently may not be in accordance with local zoning ordinance. Such mining datacenters may be considered to be in violation of relevant zoning laws and the government may order the demolition or relocation of such datacenters. If we are evicted from such property, we may need to find alternative properties and relocate our mining datacenters. Unless we are able to make timely alternative arrangements for relocating, we may not be able to fulfill purchase orders received, which may have a material and adverse effect on our business, results of operations and financial condition.
We may be involved in legal and other disputes from time to time arising out of our operations, including disputes with our suppliers, business partners, customers or employees.
We may from time to time be involved in disputes with various parties arising out of our operations, including mining machines or electricity suppliers, business partners, customers or employees. These disputes may lead to protests or legal or other proceedings and may result in damage to our reputation, substantial costs and diversion of resources and management’s attention from our core business activities. In addition, we may encounter compliance issues with regulatory bodies in the course of our operations, in respect of which we may face administrative proceedings or unfavorable rulings that may result in liabilities and cause delays or disruptions to our services. We may be involved in other proceedings or disputes in the future that may have a material adverse effect on our business, financial condition, results of operations or cash flows.
We may increasingly become a target for public scrutiny, including complaints to regulatory agencies, negative media coverage, and malicious allegations, all of which could severely damage our reputation and materially and adversely affect our business and prospects.
Certain features of cryptocurrency networks, such as decentralization, independence from sovereignty and anonymity of transactions, create the possibility of heightened attention from the public, regulators and the media. Heightened regulatory and public concerns over cryptocurrency-related issues may subject us to additional legal and social responsibilities and increased scrutiny and negative publicity over these issues and even boycott by the rest of the mining community, due to our leading position in the cryptocurrency mining industry. From time to time, these allegations, regardless of their veracity, may result in consumer dissatisfaction, public protests or negative publicity, which could result in government inquiry or substantial harm to our brand, reputation and operations. Moreover, as our business expands and grows, we may be exposed to heightened public scrutiny in jurisdictions where we already operate as well as in new jurisdictions where we may operate. There is no assurance that we would not become a target for regulatory or public scrutiny in the future or that scrutiny and public exposure would not severely damage our reputation as well as our business and prospects.
Our insurance coverage is limited and may not be adequate to cover potential losses and liabilities. A significant uninsured loss or a loss in excess of our insurance coverage could have a material adverse effect on our results of operations and financial condition.
Risks associated with our business and operations include, but are not limited to, business interruption due to regulatory changes, power shortages or network failure, product liability claims and losses of key
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personnel, any of which may result in significant costs or business disruption. In line with general market practice, we do not have any business liability or disruption insurance to cover our operations. However, our current insurance policies may be insufficient in the event of a prolonged or catastrophic event. The occurrence of any such event that is not entirely covered by our insurance policies may result in interruption of our operations, subject us to significant losses or liabilities and damage our reputation as a provider of business continuity services. In addition, the property, transit and director and officer insurance policies we have obtained may not cover all risks associated with our business. It may not be possible, either because of a lack of available policies, limits on coverage or prohibitive cost, for us to obtain insurance of any type that would cover losses associated with our cryptocurrency portfolio. The occurrence of certain incidents including severe weather, earthquake, fire, war, power outages, flooding and the consequences resulting from them may not be covered by our insurance policies adequately, or at all. If we were subject to substantial liabilities that were not covered by our insurance, we could incur costs and losses that could materially and adversely affect our results of operations and financial condition.
The cryptocurrencies held by us are not insured. Therefore, a loss may be suffered with respect to our cryptocurrencies which is not covered by insurance and for which no person is liable in damages which could adversely affect our operations and, consequently, an investment in us.
Bitcoin mining activities are energy-intensive, which may restrict the geographic locations of mining machines and have a negative environmental impact.
Bitcoin mining activities are inherently energy-intensive and electricity costs account for a significant portion of the overall mining costs. The availability and cost of electricity will restrict the geographic locations of mining activities. 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, which may in turn decrease the sales of our Bitcoin mining machines 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. Any such development in the jurisdictions where we sell our cryptocurrency mining-related products and services could have a material and adverse effect on our business, financial condition and results of operations.
Our business operation and international expansion are subject to geopolitical risks.
Our business operation and international expansion are subject to geopolitical risks. Any significant deterioration in our business collaboration with our partners may have a negative impact on the ability of our business partners to produce or deliver the equipment or components we need, which could have a material and adverse effect on our business, financial condition and results of operations.
In addition, there might be significant changes to United States trade policies, treaties and tariffs, including trade policies and tariffs regarding the Europe Union or other major economy entities. Countries may respond by imposing retaliatory trade measures against the United States. For details about international trade relations, see the section entitled “ — Changes in international trade policies and international barriers to trade may have an adverse effect on our business and expansion plans.” Variations in the trade policies among different countries will significantly influence our worldwide business and regional business relationship, which will materially and adversely affect our business, financial condition and results of operations.
Our business operation and international expansion may have an intrinsic need for governmental interactions, and are therefore subject to higher corruption risks.
We require significant power resources and related infrastructures to support cryptocurrency mining, and that our business operates under a fast-changing regulatory landscape, both in terms of cryptocurrency and environmental regulations. Such business nature may pose an intrinsic need for us to frequently interact with government authorities by, for example, accessing natural resources and engaging in lobbying activities with respect to any relevant regulatory changes. Frequent governmental interactions may pose higher
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corruption and bribery risks to us. In addition, our plan to expand internationally, including into jurisdictions which are considered high-risk from an anti-bribery and anti-corruption perspective, also heightens the corruption risks for us.
We require certain approvals, licenses, permits and certifications to operate. Any failure to obtain or renew any of these approvals, licenses, permits or certifications could materially and adversely affect our business and results of operations.
In accordance with the laws and regulations in the jurisdictions in which we operate, we are required to maintain certain approvals, licenses, permits and certifications, such as obtaining certificates of occupancy and passing electrical inspection for our mining datacenters. Complying with such laws and regulations may require substantial expense, and any non-compliance may expose us to liability. In the event of non-compliance, we may have to incur significant expenses and divert substantial management time to rectify the incidents. In the future, if we fail to obtain all the necessary approvals, licenses, permits and certifications, we may be subject to fines or the suspension of operations of the production facilities and research and development facilities that do not have all the requisite approvals, licenses, permits and certifications, which could materially and adversely affect our business and results of operations. We may also experience adverse publicity arising from non-compliance with government regulations, which would negatively impact our reputation.
There is no assurance that we will be able to fulfill all the conditions necessary to obtain the required government approvals, or that relevant government officials will always, if ever, exercise their discretion in our favor, or that we will be able to adapt to any new laws, regulations and policies. There may also be delays on the part of government authorities in reviewing our applications and granting approvals, whether due to the lack of human resources or the imposition of new rules, regulations, government policies or their implementation, interpretation and enforcement. If we are unable to obtain, or experiences material delays in obtaining, necessary government approvals, our operations may be substantially disrupted, which could materially and adversely affect our business, financial condition and results of operations. We are not aware of any governmental licenses or authorizations required to offer our products and services to customers in the jurisdictions we offer such products and services. However, our hash rate sharing business may be subject to U.S. jurisdictions under certain circumstances. See the section entitled “— Our hash rate sharing business may be subject to U.S. jurisdiction if we are not able to avoid offering or selling our hash rate products to U.S. customers. Additionally, our hash rate sharing business may be deemed as securities offerings in other jurisdictions where it is offered.”
We may be subject to fines and other administrative penalties resulting from the operation of our business, which could materially and adversely affect our business, financial condition and results of operation.
We are a leading cryptocurrency mining service provider with a strong global presence. As of December 31, 2022, we operate five prime mining datacenters in the United States and Norway and served users across over 100 countries and regions around the globe, and may continue to expand our operations to more countries and regions. We are subject to regulation by the multiple government authorities in countries or regions where we have presence, and various jurisdictions may from time to time adopt laws, regulations or directives that affect our businesses. Moreover, the relevant regulatory authorities possess significant powers to enforce applicable regulatory requirements in the event of our non-compliance, including the imposition of fines, sanctions or the revocation of licenses or permits to operate our business. We are subject to regulatory risks with regards to mining, holding, using, or transferring cryptocurrencies, etc., and the uncertainty of the regulatory environment and our ability to anticipate and respond to potential changes in government policies and regulations will have a significant impact on our business operations in countries we operate in and our overall results of operations. Regulations have impacted or could impact, among others, the nature of and scope of offerings we are able to make available, the pricing of offerings on our platform, our relationship with, and incentives, fees and commissions provided to or charged from our business partners, our ability to operate in certain segments of our business. We expect that our ability to manage our relationships with regulators in each of our markets, as well as existing and evolving regulations will continue to impact our results in the future. Any misunderstanding or misinterpretation of the law and regulation could subject us to, among others, the non-compliance investigation by the government authorities. There is no guarantee that we
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will not face administrative fines or penalties concerning our operations or our subsidiaries, which could have a material adverse impact on our results of operation.
If counterfeit products and services are provided under our brand names and trademarks, our reputation and financial results could be materially and adversely affected.
Third-party service providers and dealers are separately responsible for sourcing counterfeit services that are performed under our brand names and trademarks. Counterfeit services may be dissatisfying or inferior in quality as compared to authentic services. If our customers are not satisfied by counterfeit services provided under our brand names and trademarks, we may be subject to reputational damage. We believe our brand and reputation are important to our success and competitive position. The discovery of counterfeit services provided under our brand names and trademarks may severally damage our reputation and cause customers to refrain from making future purchases from us, which would materially and adversely affect our business operations and financial results.
Our hash rate sharing business may be subject to U.S. jurisdiction if we are not able to avoid offering or selling our hash rate products to U.S. customers. Additionally, our hash rate sharing business may be deemed as securities offerings in other jurisdictions where it is offered.
To the extent that we are appropriately restricting U.S. persons from obtaining our hash rate products, such business should not be subject to U.S. securities laws. However, whether we are effective in avoiding U.S. jurisdiction by actually not offering or selling our hash rate products to U.S. customers would depend on, among others, the existence and effectiveness of measures adopted in practice against U.S. persons obtaining our services, such as screening mechanisms and/or contractual restrictions over transfers of the contracts to U.S. persons in the secondary market. If certain U.S. customers, or customers from other jurisdictions where our hash rate sharing may be deemed as securities offerings, end up obtaining access to our hash rate products, and we have not registered the offering of such products, we may be deemed in breach of applicable securities laws. Such breach may result in sizable fines, reputational harms, restrictions of certain businesses, and materially adversely affect our business operation and financial conditions.
If we were deemed an “investment company” under the Investment Company Act of 1940, as amended, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
An issuer will generally be deemed to be an “investment company” for purposes of the 1940 Act if:
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it is an “orthodox” investment company because 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
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it is an inadvertent investment company because, absent an applicable exemption, it owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
We believe we are not and will not be primarily engaged in the business of investing, reinvesting or trading in securities, and we do not hold ourself out as being engaged in those activities. We intend to hold ourself out as a cryptocurrency mining business. Accordingly, we do not believe that we are an “orthodox” investment company as described in the first bullet point above.
While certain cryptocurrencies may be deemed to be securities, we do not believe that certain other cryptocurrencies, in particular Bitcoin, are securities; therefore, we believe that less than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis will comprise cryptocurrencies that could be considered investment securities. Accordingly, we do not believe that we are an inadvertent investment company by virtue of the 40% inadvertent investment company test as described in the second bullet point above. Although we do not believe any of the cryptocurrencies we may own, acquire or mine are securities, there is still some regulatory uncertainty on the subject, see the section entitled “— There is no one unifying principle governing the regulatory status of cryptocurrencies nor whether cryptocurrencies are securities in any particular context. Regulatory changes or actions in one or more countries may alter the nature of an investment in us or restrict the use of cryptocurrencies, such as Bitcoins, in a manner that adversely affects our business, prospects or operations..” If certain cryptocurrencies, including Bitcoin, were
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to be deemed securities, and consequently, investment securities by the SEC, we could be deemed an inadvertent investment company. Investment company registration is time consuming and would require a restructuring of our business. Moreover, the operation of an investment company is very costly and restrictive, as investment companies are subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and the Investment Company Act filing requirements. The cost of such compliance would result in us incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact on our operations.
We intend to conduct our operations so that we are not required to register as an investment company under the 1940 Act. Specifically, we do not believe that cryptocurrencies, in particular Bitcoin, are securities. The SEC Staff has not provided guidance with respect to the treatment of these assets under the 1940 Act. To the extent the SEC Staff publishes new guidance with respect to these matters, we may be required to adjust our strategy or assets accordingly. There can be no assurance that we will be able to maintain our exclusion from registration as an investment company under the 1940 Act. In addition, as a consequence of our seeking to avoid the need to register under the 1940 Act on an ongoing basis, we may be limited in our ability to engage in cryptocurrency mining operations or otherwise make certain investments, and these limitations could result in us holding assets we may wish to sell or selling assets we may wish to hold, which could materially and adversely affect our business, financial condition and results of operations.
If we were to be deemed an inadvertent investment company, we may seek to rely on Rule 3a-2 under the 1940 Act, which allows an inadvertent investment company a grace period of one year from the earlier of (a) the date on which the issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis or (b) the date on which the issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We are putting in place policies that we expect will work to keep the investment securities held by us at less than 40% of our total assets, which may include acquiring assets with our cash, liquidating our investment securities or seeking no-action relief or exemptive relief from the SEC if we are unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner. As Rule 3a-2 is available to an issuer no more than once every three years, and assuming no other exclusion were available to us, we would have to keep within the 40% limit for at least three years after we cease being an inadvertent investment company. This may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. If we failed to take adequate steps within the one-year grace period for inadvertent investment companies, we would need to register with the SEC as an investment company under the Investment Company Act or cease almost all business, and our contracts would become voidable. In any event, we do not intend to become an investment company engaged in the business of investing and trading securities.
Finally, we believe we are not an investment company under Section 3(b)(1) of the 1940 Act because we are primarily engaged in a non-investment company business.
The 1940 Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to continue to conduct our operations so that we will not be deemed to be an investment company under the 1940 Act. However, if anything were to happen that would cause us to be deemed to be an investment company under the 1940 Act, requirements imposed by the 1940 Act, including limitations on our capital structure, ability to transact business with affiliates and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among us and our senior management team and materially and adversely affect our business, financial condition and results of operations.
There is no one unifying principle governing the regulatory status of cryptocurrencies nor whether cryptocurrencies are securities in any particular context. Regulatory changes or actions in one or more countries may alter the nature of an investment in us or restrict the use of cryptocurrencies, such as Bitcoins, in a manner that adversely affects our business, prospects or operations.
As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently, with certain governments deeming cryptocurrencies illegal, and others allowing their use
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and trade without restriction. In some jurisdictions, such as in the U.S., cryptocurrencies, such as Bitcoins, are subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements.
Bitcoin is the oldest and most well-known form of cryptocurrency. Bitcoin and other forms of cryptocurrencies have been the source of much regulatory consternation, resulting in differing definitional outcomes without a single unifying statement. Bitcoin and other cryptocurrencies are viewed differently by different regulatory and standards setting organizations globally as well as in the United States on the federal and state levels. For example, the Financial Action Task Force considers a cryptocurrency as currency or an asset, and the Internal Revenue Service (“IRS”) considers a cryptocurrency as property and not currency. Further, the IRS applies general tax principles that apply to property transactions to transactions involving virtual currency.
Furthermore, in the several applications to establish an exchange traded fund (“ETF”) of cryptocurrency, and in the questions raised by the Staff under the 1940 Act, no clear principles emerge from the regulators as to how they view these issues and how to regulate cryptocurrency under the applicable securities acts. It has been widely reported that the SEC has recently issued letters and requested various ETF applications be withdrawn because of concerns over liquidity and valuation and unanswered questions about absence of reporting and compliance procedures capable of being implemented under the current state of the markets for exchange traded funds. On April 20, 2021, the U.S. House of Representatives passed a bipartisan bill titled “Eliminate Barriers to Innovation Act of 2021” (H.R. 1602). If passed by the Senate and enacted into law, the bipartisan bill would create a cryptocurrency working group to evaluate the current legal and regulatory framework around cryptocurrencies in the United States and define when the SEC may have jurisdiction over a particular token or cryptocurrency (i.e., when it is a security) and when the CFTC may have jurisdiction (i.e., on derivatives of a cryptocurrency when it is a commodity).
If regulatory changes or interpretations require the regulation of Bitcoin or other cryptocurrencies under the securities laws of the United States or elsewhere, including the Securities Act, the Exchange Act, the 1940 Act, and the Bank Secrecy Act or similar laws of other jurisdictions and interpretations by the SEC, the CFTC, the IRS, Department of Treasury or other agencies or authorities, we may be required to register and comply with such regulations, including at a state or local level. To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in extraordinary expense or burdens to us. We may also decide to cease certain operations and change our business model. Any disruption of our operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to us.
A determination that any cryptocurrency is a “security” may adversely affect the value of such cryptocurrency and could therefore adversely affect our business, prospects or operations.
Depending on its characteristics, a cryptocurrency may be considered a “security” under the federal securities laws. The test for determining whether a particular cryptocurrency is a “security” is complex and difficult to apply, and the outcome is difficult to predict. Whether a cryptocurrency is a security under the federal securities laws depends on whether it is included in the lists of instruments making up the definition of “security” in the Securities Act, the Exchange Act and the Investment Company Act. Cryptocurrencies as such do not appear in any of these lists, although each list includes the terms “investment contract” and “note,” and the SEC has typically analyzed whether a particular cryptocurrency is a security by reference to whether it meets the tests developed by the federal courts interpreting these terms, known as the “Howey” and “Reves” tests, respectively. For many cryptocurrencies, whether or not the “Howey” or “Reves” tests are met is difficult to resolve definitively, and substantial legal arguments can often be made both in favor of and against a particular digital asset qualifying as a security under one or both of the “Howey” and “Reves” tests. Adding to the complexity, the SEC staff has indicated that the security status of a particular digital asset can change over time as the relevant facts evolve.
Current and future legislation and SEC-rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoin or other cryptocurrencies are viewed or treated for classification and clearing purposes. In particular, Bitcoin and other cryptocurrencies may not be excluded from the definition of “security” by SEC rulemaking or interpretation requiring registration of all transactions unless another exemption is available, including transacting in Bitcoin or other cryptocurrencies among owners and requiring registration of trading platforms
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as “exchanges.” Accordingly, cryptocurrencies such as Zcash may currently be a security, based on the facts as they exist today, or may in the future be found by the SEC or a federal court to be a security under the federal securities laws. Historically, we have generated minimum amount of mining yields from Zcash and held minimum amount of Zcash. We do not intend to hold or generate mining yield from cryptocurrencies in violation of the federal securities laws. Accordingly, if Zcash or other cryptocurrencies involved in our business is determined by us, the SEC or other regulatory authorities to be a security under the federal securities laws, it could result in interruption of our business operations.
Furthermore, the SEC may determine that certain cryptocurrencies or interests, for example tokens offered and sold in ICOs, may constitute securities under the Howey test as stated by the United States Supreme Court. As such, ICO offerings would require registration under the Securities Act or an available exemption therefrom for offers or sales in the United States to be lawful. Section 5(a) of the Securities Act provides that, unless a registration statement is in effect as to a security, it is unlawful for any person, directly or indirectly, to engage in the offer or sale of securities in interstate commerce. Section 5(c) of the Securities Act provides a similar prohibition against offers to sell, or offers to buy, unless a registration statement has been filed.
Although we do not intend to be engaged in the offer or sale of securities in the form of ICO offerings, and we do not believe our planned mining activities would require registration for us to conduct such activities and accumulate cryptocurrencies, the SEC, CFTC, Nasdaq, IRS or other governmental or quasi-governmental agency or organization may conclude that our activities involve the offer or sale of “securities,” or ownership of “investment securities,” and we may be subject to regulation or registration requirements under various federal laws and related rules. Such regulation or the inability to meet the requirements to continue operations, would have a material adverse effect on our business and operations. We may also face similar issues with various state securities regulators who may interpret our actions as subjecting us to regulation, or requiring registration, under state securities laws, banking laws, or money transmitter and similar laws, which are also an unsettled area or regulation that exposes us to risks.
Regulatory changes or actions may restrict the use of cryptocurrencies or the operation of cryptocurrency networks in a manner that may require us to cease certain or all operations, which could have a material adverse effect on our business, financial condition and results of operations.
Recently, there has been a significant amount of regulatory attention directed toward cryptocurrencies, cryptocurrency networks and other industry participants by United States federal and state governments, foreign governments and self-regulatory agencies. For example, as cryptocurrencies such as Bitcoin have grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., FinCEN, the SEC, the CFTC and the Federal Bureau of Investigation) have begun to examine the operations of the Bitcoin network, Bitcoin users and Bitcoin exchange markets.
In addition, local state regulators such as the Texas State Securities Board, the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth, the New Jersey Bureau of Securities, the North Carolina Secretary of State’s Securities Division and the Vermont Department of Financial Regulation have initiated actions against, and investigations of, individuals and companies involved in cryptocurrencies.
Also, in March 2018, the South Carolina Attorney General Office’s Security Division issued a cease-and-desist order against Genesis Mining and Swiss Gold Global, Inc., stating that both companies were to stop doing business in South Carolina and are permanently barred from offering securities in the state in the future since they offered unregistered securities via cloud mining contracts under the South Carolina Uniformed Securities Act of 2005, S.C. Code Ann. § 35-1-101, et seq. (the order against Genesis Mining was subsequently withdrawn). Neither the Company nor, to our knowledge, Matrixport Group, has any direct or indirect relationship with these two companies.
Further, the North Carolina Secretary of State’s Securities Division issued in March 2018 a Temporary Cease and Desist Order against Power Mining Pool (made permanent pursuant to a Final Order on April 19, 2018), ordering it to cease and desist, among other things, offering “mining pool shares,” which were deemed “securities” under N.C. Gen. Stat. 78A-2(11), in North Carolina until they are registered with the North Carolina Secretary of State or are offered for sale pursuant to an exemption from registration under the North Carolina Securities Act, N.C. Gen. Stat. Chapter 78A.
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Additionally, we rely on third-party mining pool service providers for mining revenue payouts from our mining operation, and certain of our potential hosting customers could be involved in, or could issue, cloud mining contracts or mining pool shares, and any regulatory restrictions on their practices could significantly reduce demand for our hosting services. Furthermore, it is possible that laws, regulations or directives that affect cryptocurrencies, cryptocurrency transaction processing or blockchain server hosting may change in a manner that may adversely affect our ability to conduct our business and operations in the relevant jurisdiction.
In addition, various foreign jurisdictions either have adopted or may adopt laws, regulations or directives that affect cryptocurrencies, cryptocurrency networks and their users and hosting service providers that fall within such jurisdictions’ regulatory scope. Such laws, regulations or directives may conflict with those of the United States, may negatively impact the acceptance of cryptocurrencies by users, merchants and service providers outside of the United States and may therefore impede the growth of cryptocurrency use. A number of countries, including India, South Korea and Russia, among others, currently have a more restrictive stance toward cryptocurrencies and, thereby, have reduced the rate of expansion of cryptocurrency use, as well as cryptocurrency transaction processing, in each of those countries.
Governments may in the future take regulatory actions that prohibit or severely restrict the right to acquire, own, hold, sell, use or trade cryptocurrencies or to exchange cryptocurrencies for fiat currency. Ownership of, holding or trading in cryptocurrencies may then be considered illegal and subject to sanction. Governments may also take regulatory action that may increase the cost and/or subject cryptocurrency mining companies to additional regulation.
By extension, similar actions by governments may result in the restriction of the acquisition, ownership, holding, selling, use or trading in the capital stock of cryptocurrency mining companies, including our common stock. Such a restriction could result in us liquidating our cryptocurrency inventory at unfavorable prices and may adversely affect our shareholders. The effect of any regulatory change, either by federal, state, local or foreign governments or any self-regulatory agencies, on us or our potential hosting customers is impossible to predict, but such change could be substantial and may require us or our potential hosting customers to cease certain or all operations and could have a material adverse effect on our business, financial condition and results of operations.
Current and future legislation and rulemaking regarding cryptocurrencies may result in extraordinary, non-recurring expenses and could have a material adverse effect on our business, financial condition and results of operations.
Current and future legislation and rulemaking by the CFTC and SEC or other regulators, including interpretations released by a regulatory authority, may impact the manner in which cryptocurrencies are treated. For example, cryptocurrencies derivatives are not excluded from the definition of “commodity future” by the CFTC. Furthermore, according to the CFTC, cryptocurrencies fall within the definition of a commodity under the Commodities Exchange Act (the “CEA”) and as a result, we may be required to register and comply with additional regulations under the CEA, including additional periodic reporting and disclosure standards and requirements. We may also be required to register as a commodity pool operator and to register as a commodity pool with the CFTC through the National Futures Association. If we are required to register with the CFTC or another governmental or self-regulatory authority, the scope of our business and operations may be constrained by the rules of such authority and we may be forced to incur additional expenses in the form of licensing fees, professional fees and other costs of compliance.
The SEC has issued guidance and made numerous statements regarding the application of securities laws to cryptocurrencies. For example, on July 25, 2017, the SEC issued a Report of Investigation (the “Report”) which concluded that tokens offered and sold by the Decentralized Autonomous Organization (“DAO”), a digital decentralized autonomous organization and investor-directed venture capital fund for cryptocurrencies, were issued for the purpose of raising funds. The Report concluded that these tokens were “investment contracts” within the meaning of Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act, and therefore securities subject to the federal securities laws. In December 2017, the SEC issued a cease-and-desist letter to Munchee Inc., ordering that the company stop its initial coin offering of MUN Tokens on the grounds that it failed to file a registration statement or qualify for an exemption from registration. Similar to the tokens issued by the DAO, the SEC found that the MUN Tokens satisfied the definition of an
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“investment contract,” and were therefore subject to the federal securities laws. In February 2018, both the SEC and CFTC further reiterated their concerns regarding cryptocurrencies in written testimony to the Senate Banking, Housing and Urban Affairs Committee. On March 7, 2018, the SEC released a “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets,” and reiterated that, if a platform “offers trading of cryptocurrencies that are securities” and “operates as ‘exchange,’ as defined by the federal securities laws,” the platform must register with the SEC as a national securities exchange or be exempt from registration. The SEC’s statement serves as a notice to operators of any platforms, including secondary market trading platforms, which the SEC is actively monitoring for potentially fraudulent or manipulative behavior in the market for security tokens, as the SEC has cautioned recently in the context of ICOs. On November 16, 2018, the SEC released a “Statement on Digital Asset Securities Issuance and Trading,” and emphasized that market participants must adhere to the SEC’s well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain. This has all been followed by additional statements and guidance from the SEC including no-action letters relating to specific blockchain-based projects, and a Framework for “Investment Contract” Analysis of Digital Assets published by the Division of Corporation Finance on April 3, 2019. In an August 2021 interview, SEC Chairman Gensler signaled the SEC is contemplating a robust regulatory regime for cryptocurrencies and reiterated the SEC’s position that many cryptocurrencies are unregulated securities.
The SEC has been active in asserting its jurisdiction over ICOs and cryptocurrencies and in bringing enforcement cases. The SEC has directed enforcement activity toward cryptocurrencies, and more specifically, ICOs. In September 2017, the SEC created a new division known as the “Cyber Unit” to address, among other things, violations involving distributed ledger technology and ICOs, and filed a civil complaint in the Eastern District of New York charging a businessman and two companies with defrauding investors in a pair of so-called ICOs purportedly backed by investments in real estate and diamonds (see Securities and Exchange Commission v. REcoin Group Foundation, LLC, et al., Civil Action NO. 17-cv- 05725 (E.D.N.Y, filed Sept. 29, 2017)). Subsequently, the SEC has filed several orders instituting cease-and-desist proceedings against (i) Carrier EQ, Inc., d/b/a AirFox and Paragon Coin, Inc. in connection with their unregistered offerings of tokens (see CarrierEQ, Inc., Rel. No. 33-10575 (Nov. 16, 2018) and Paragon Coin, Inc., Rel. No. 33-10574 (Nov. 16, 2018), respectively), (ii) Crypto Asset Management, LP for failing to register a hedge fund formed for the purpose of investing in cryptocurrencies as an investment company (see Crypto Asset Management, LP and Timothy Enneking, Rel. No. 33-10544 (Sept. 11, 2018)), (iii) TokenLot LLC for failing to register as a broker-dealer, even though it did not meet the definition of an exchange (see Tokenlot LLC, Lenny Kugel, and EliL. Lewitt, Rel. No. 33-10543 (Sept. 11, 2018)) and (iv) EtherDelta’s founder for failing either to register as a national securities exchange or to operate pursuant to an exemption from registration as an exchange after creating a platform that clearly fell within the definition of an exchange (see Zachary Coburn, Rel. No. 34-84553 (Nov. 8, 2018)).
On June 4, 2019, the SEC filed a complaint in the U.S. District Court for the Southern District of New York against Kik Interactive, Inc. with respect to its September 2017 offering of Kin. According to articles published by various news outlets, the SEC has allegedly issued numerous subpoenas and information requests to technology companies, advisers and individuals involved in the cryptocurrency space and ICOs, as part of a broad inquiry into the cryptocurrency market.
Recently, a number of proposed ICOs have sought to rely on Regulation A and have filed with the SEC a Form 1-A covering a distribution of a digital token. Two such offerings were qualified in July 2019. In addition, some token offerings have been commenced as private securities offerings intended to be exempt from SEC registration. Further, the SEC has yet to approve listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies. The SEC has taken various actions against persons or entities that have allegedly misused cryptocurrencies, engaged in fraudulent schemes (i.e., Ponzi scheme) and/or engaged in the sale of tokens that were deemed securities by the SEC.
Although our activities are not focused on raising capital or assisting others that do so, the federal securities laws are very broad. We cannot provide assurance as to whether the SEC will continue or increase its enforcement with respect to cryptocurrencies or ICOs, including taking enforcement action against any person engaged in the sale of unregistered securities in violation of the Securities Act or any person acting as an unregistered investment company in violation of the Investment Company Act. Because the SEC has held
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that certain cryptocurrencies are securities based on the current rules and law, we may be required to register and comply with the rules and regulations under federal securities laws.
We cannot be certain as to how future regulatory developments will impact the treatment of cryptocurrencies under the law, including, but not limited to, whether cryptocurrencies will be classified as a security, commodity, currency and/or new or other existing classification. Such additional regulations may result in extraordinary, non-recurring expenses, thereby materially and adversely affecting investment in us. If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease certain or all of our operations. Any such action could have a material adverse effect on our business, financial condition and results of operations.
Federal or state agencies may impose additional regulatory burdens on our business. Changing laws and regulations and changing enforcement policies and priorities have the potential to cause additional expenditures, restrictions, and delays in connection with our business operations.
Federal and state laws and regulations may be subject to change or changes in enforcement policies or priorities, including changes that may result from changes in the political landscape and changing technologies. Future legislation and regulations, changes to existing laws and regulations, or interpretations thereof, or changes in enforcement policies or priorities, could require significant management attention and cause additional expenditures, restrictions, and delays in connection with our business operations.
Increasing scrutiny and changing expectations from investors, lenders, customers, government regulators and other market participants with respect to our Environmental, Social and Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks.
Companies across all industries and around the globe are facing increasing scrutiny relating to their ESG policies. Investors, lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. In February 2021, the Acting Chair of the SEC issued a statement directing the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings and in March 2021 the SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement. The increased focus and activism related to ESG may hinder our access to capital, as investors and lenders may reconsider their capital investment allocation as a result of their assessment of our ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder expectations and standards and potential government regulations, which are evolving but may relate to the suitable deployment of electric power, or which are perceived to have not responded appropriately to the growing concern for ESG issues, our reputation may suffer which would have a material adverse effect on our business, financial condition and results of operations.
We may be subject to risks associated with misleading and/or fraudulent disclosure or use by the creators of cryptocurrencies.
Generally, we rely primarily on a combination of white papers and other disclosure documents prepared by the creators of applicable cryptocurrencies, as well as on our management’s ability to obtain adequate information to evaluate the potential implications of transacting in these cryptocurrencies. However, such white papers and other disclosure documents and information may contain misleading and/or fraudulent statements (which may include statements concerning the creators’ ability to deliver in a timely fashion the product and/or service disclosed in their white papers and other disclosure documents) and/or may not reveal any unlawful activities by the creators. Recently, there has been an increasing number of investigations and lawsuits by the SEC and the CFTC involving cryptocurrency creators for fraud and misappropriation, among other charges. Additionally, FinCEN has increased its enforcement efforts involving cryptocurrency creators regarding compliance with anti-money laundering and Know-Your-Customer laws.
To the extent that any of these creators make misleading and/or fraudulent disclosures or do not comply with federal, state or foreign laws, or if we are unable to uncover all material information about these cryptocurrencies and/or their creators, we may not be able to make a fully informed business decision relating to our transacting in or otherwise involving such cryptocurrencies, which could have a material adverse effect on our business, financial condition and results of operations.
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Our management and compliance personnel have limited experience handling a listed cryptocurrency mining-related services company, and our compliance program has a recent history only.
Our management and compliance personnel have limited experience in handling regulatory and compliance matters relating to a listed cryptocurrency mining-related services company. Our key compliance documents and compliance programs, such as AML and KYC procedures, also have a recent history only. We believe that we have measures designed to limit our counterparty risks. For example, we have been monitoring our investments closely and limiting our exposure to the investment risk by including in our operation strategy the requirements to invest only in robust wealth management products and that the investments need to be redeemed within the same fiscal quarter. In order to further limit our exposure to counterparty risk, we adopted an operation strategy in December 2022, pursuant to which we shall not enter into any digital asset based lending or wealth management products in the foreseeable future. While we have been devoting a substantial amount of time and resources to various compliance initiatives and risk management measures, including but not limited to, recruiting a dedicated team of compliance expertise, we cannot assure you the practical application and effectiveness of our compliance program and risk management measures, nor that there will not be a failure in detecting regulatory compliance issues or managing risk exposure, which may adversely affect our reputation, business, financial condition and results of operations.
Risks Related to Our Securities
A market for Class A Ordinary Shares may not develop, which would adversely affect the liquidity and price of Class A Ordinary Shares.
An active trading market for Class A Ordinary Shares may never develop or, if developed, it may not be sustained. You may be unable to sell your Class A Ordinary Shares unless a market can be established and sustained.
The market price of Class A Ordinary Shares may be volatile, and you may lose some or all of your investment.
The price of Class A Ordinary Shares may fluctuate due to a variety of factors, including:
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changes in the industries in which we operate;
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developments involving our competitors;
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changes in laws and regulations affecting our business;
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variations in our operating performance and the performance of our competitors in general;
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actual or anticipated fluctuations in our quarterly or annual operating results;
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publication of research reports by securities analysts about us or our competitors or our industry;
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the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
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actions by holders in respect of any of their Class A Ordinary Shares;
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additions and departures of key personnel;
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commencement of, or involvement in, litigation involving us;
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changes in our capital structure, such as future issuances of securities or the incurrence of debt;
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the volume of Class A Ordinary Shares available for public sale; and
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general economic and political conditions, such as the effects of the COVID-19 outbreak, recessions, volatility in the markets, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability, and acts of war or terrorism.
In particular, the market price of Class A Ordinary Shares could be subject to extreme volatility and fluctuations in response to industry-wide developments beyond our control, such as continued industry-wide fallout from the recent Chapter 11 bankruptcy filings of cryptocurrency exchanges FTX (including its affiliated hedge fund Alameda Research LLC), crypto hedge fund Three Arrows, crypto miners Compute
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North and Core Scientific and crypto lenders Celsius Network, Voyager Digital and BlockFi. Although, as mentioned elsewhere in this Report, we have no exposure to any of the cryptocurrency market participants that recently filed for Chapter 11 bankruptcy, or who are known to have experienced excessive redemptions, suspended redemptions or have crypto assets of their customers unaccounted for; and we do not have any assets, material or otherwise, that may not be recovered due to these bankruptcies or excessive or suspended redemptions; the price of Class A Ordinary Shares may still not be immune to unfavorable investor sentiment resulting from these recent developments in the broader cryptocurrency industry and you may experience depreciation of price of Class A Ordinary Shares.
We are a “controlled company” within the meaning of the applicable Nasdaq listing rules and, as a result, will qualify for exemptions from certain corporate governance requirements. If we rely on these exemptions, you will not have the same protections afforded to shareholders of companies that are subject to such requirements.
We are a “controlled company” within the meaning of applicable Nasdaq listing rules as a result of Mr. Jihan Wu’s controlling a majority of the voting power of our outstanding ordinary shares. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company.” For so long as we remain a “controlled company,” we may elect not to comply with certain corporate governance requirements, including the requirements:
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that a majority of the board of directors consists of independent directors;
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for an annual performance evaluation of the nominating, corporate governance and compensation committees;
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that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
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that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibility.
We currently intend to use these exemptions as appropriate, and we may continue to use all or some of these exemptions in the future. As a result, you may not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance requirements.
We may issue additional Class A Ordinary Shares or other equity or convertible debt securities without approval of the holders of Class A Ordinary Shares, which would dilute existing ownership interests and may depress the market price of Class A Ordinary Shares.
We will continue to require significant capital investment to support our business, and we may issue additional Class A Ordinary Shares or other equity or convertible debt securities of equal or senior rank in the future without approval of the holders of the Class A Ordinary Shares in certain circumstances.
Our issuance of additional Class A Ordinary Shares or convertible debt securities of equal or senior rank would have the following effects: (i) our existing holders’ of ordinary shares proportionate ownership interest in the Company may decrease, (ii) the amount of cash available per Ordinary Share, including for payment of dividends in the future, may decrease, (iii) the relative voting power of each previously outstanding Class A Ordinary Shares may be diminished and (iv) the market price of Class A Ordinary Shares may decline. Under certain circumstances, each Class V Ordinary Share will automatically convert into one Class A Ordinary Share (as adjusted for share splits, share combination and similar transactions occurring), but as the conversion ratio is one-to-one, such mandatory conversion would not have a dilutive effect.
Furthermore, employees, directors and consultants of the Company and our subsidiaries and affiliates hold, and are expected to be granted equity awards under the Company’s incentive plan. You will experience additional dilution when those equity awards become vested and exercised, for the Company’s Ordinary Shares.
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The dual-class structure of our ordinary shares may adversely affect price and liquidity of Class A Ordinary Shares.
S&P Dow Jones and FTSE Russell have recently announced changes to their eligibility criteria for inclusion of shares of public companies in certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class capital structures. As a result, the dual-class structure of our ordinary shares may prevent the inclusion of the Class A Ordinary Shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for the Class A Ordinary Shares. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of the Class A Ordinary Shares.
Volatility in the price of Class A Ordinary Shares could subject us to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
Future sales, or the possibility of future sales of, a substantial number of our Ordinary Shares may depress the price of such securities.
Future sales of a substantial number of our Ordinary Shares in the public market, or the perception that these sales might occur, could depress the market price of the Company’s Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities.
The requirements of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retain qualified board members.
We are subject to the reporting requirements of the Securities Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, Nasdaq listing requirements and other applicable securities rules and regulations. As such, we will incur additional legal, accounting and other expenses. These expenses may increase even more if we no longer qualify as an “emerging growth company,” as defined in Section 2(a) of the Securities Act. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We may need to hire more employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We expect these laws and regulations to increase our legal and financial compliance costs and to render some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty.
Many members of our management team will have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage the transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and regulations and the continuous scrutiny of securities analysts and investors. The need to establish the corporate infrastructure demanded of a public company may divert the management’s attention from implementing its growth strategy, which could prevent us from improving our
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business, financial condition and results of operations. Furthermore, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and consequently we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and prospects. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our finance and audit committee and nomination and compensation committee, and to attract and retain qualified executive officers.
As a result of disclosure of information in this Report and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and, even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could cause an adverse effect on our business, financial condition, results of operations, prospects and reputation.
Bitdeer has identified a material weakness in its internal control over financial reporting. In the event of any failure to maintain an effective system of disclosure controls and internal control over financial reporting, we may not be able to accurately report its financial results or prevent fraud. As a result, holders of the Class A Ordinary Shares could lose confidence in our financial and other public reporting, which is likely to negatively affect our business and the market price of the Class A Ordinary Shares.
Prior to the Closing of the Business Combination, Bitdeer has been a private company with limited accounting personnel and other resources with which to address Bitdeer’s internal controls and procedures. Bitdeer’s management has not completed an assessment of the effectiveness of Bitdeer’s internal control over financial reporting and Bitdeer’s independent registered public accounting firm has not conducted an audit of Bitdeer’s internal control over financial reporting.
Bitdeer identified a material weakness in the design and operating effectiveness over financial reporting with respect to the Internal Control — Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), concerning in particular the control environment due to lack of sufficient financial reporting and accounting personnel with appropriate knowledge to design, implement and operate key controls over financial reporting process to address complex and emerging technical accounting issues and related disclosures in accordance with IFRS. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Bitdeer’s annual or interim financial statements will not be prevented or detected on a timely basis. As a consequence of this material weakness, accounting errors were identified in Bitdeer’s combined and consolidated statements of operations and comprehensive loss and cash flows for the years ended December 31, 2020 and 2021 primarily related to revenue presentation in relation to the sales of mining machine business and the cash flow presentation related to the disposal of cryptocurrencies earned from revenue arrangements. The revenue and cost of revenue on the combined statements of operations and comprehensive loss and the operating and investing cash flows on the combined statements of cash flows have been restated as included in this Report. The material weakness could also result in other misstatements of Bitdeer’s accounts or disclosures, which may result in additional material misstatements in Bitdeer’s annual or interim financial statements that would not be prevented or detected.
Bitdeer has instituted plans to remediate the material weakness, including implementation of appropriate processes with the objective of improving the effectiveness of controls over financial reporting, and following the closing of the Business Combination, we expect to invest more resources in our design and execution of our Sarbanes-Oxley Act compliance program, such as reassessing existing entity-level controls and, as necessary, implementing enhancements to such controls. However, Bitdeer cannot predict the success of such plan or the outcome of its assessment of these plans at this time. If Bitdeer is unable to remediate the material weakness it has identified, or if it identifies additional material weaknesses in the future or otherwise fail to develop and maintain an effective system of internal controls, Bitdeer may not be able to produce timely and accurate financial statements. The failure to implement and maintain effective internal control over financial reporting could result in errors in Bitdeer’s financial statements that could result in a restatement of its financial statements, which in turn could have a material adverse effect on Bitdeer’s financial condition and results of operations.
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In addition, we cannot assure you that we will not identify material weaknesses after the Business Combination. Upon becoming a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable listing standards of the Nasdaq. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we are listed, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our financial condition and results of operations, and lead to a decline in the market price of the Class A Ordinary Shares.
Recent market volatility could impact the stock price and trading volume of the Class A Ordinary Shares.
The trading market for the Class A Ordinary Shares could be impacted by recent market volatility. While we do not believe that we are more likely to be affected by market volatility than other public companies, recent stock run-ups, divergences in valuation ratios relative to those seen during traditional markets, high short interest or short squeezes, and strong and atypical retail investor interest in the markets may impact the demand for the Class A Ordinary Shares.
A possible “short squeeze” due to a sudden increase in demand of Class A Ordinary Shares that largely exceeds supply may lead to price volatility in the Class A Ordinary Shares. Investors may purchase Class A Ordinary Shares to hedge existing exposure or to speculate on the price of the Class A Ordinary Shares. Speculation on the price of Class A Ordinary Shares may involve both long and short exposures. To the extent aggregate short exposure exceeds the number of Class A Ordinary Shares available for purchase (for example, in the event that large redemption requests dramatically affect liquidity), investors with short exposure may have to pay a premium to repurchase Class A Ordinary Shares for delivery to lenders. Those repurchases may in turn, dramatically increase the price of the Class A Ordinary Shares. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in the Class A Ordinary Shares that are not directly correlated to the operating performance of us.
It is not expected that we will pay dividends in the foreseeable future.
It is expected that we will retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, it is not expected that we will pay any cash dividends in the foreseeable future.
Our board of directors will have complete discretion as to whether to distribute dividends. Even if the board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on the future results of operations and cash flow, capital requirements and surplus, the amount of distributions, if any, received by us from subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by the board of directors. There is no guarantee that the Class A Ordinary Shares will appreciate in value or that the trading price of the Class A Ordinary Shares will not decline.
If securities and industry analysts do not publish research or publish inaccurate or unfavorable research or cease publishing research about us, the price and trading volume of Class A Ordinary Shares could decline significantly.
The trading market for Class A Ordinary Shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We may be unable to sustain coverage by well-regarded securities and industry analysts. If either none or only a limited number of securities or industry analysts maintain coverage of us, or if these securities or industry analysts are not widely respected within the general investment community, the demand for Class A Ordinary Shares could decrease, which might cause our price and trading volume to decline significantly. In the event that we obtain securities or industry analyst
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coverage, if one or more of the analysts who cover us downgrade their assessment of us or publish inaccurate or unfavorable research about our business, the market price and liquidity for Class A Ordinary Shares could be negatively impacted.
We are 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 domestic public companies in the United States.
Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards; these practices may afford less protection to holders of Class A Ordinary Shares than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.
We are an exempted company incorporated in the Cayman Islands listed on Nasdaq. Nasdaq market rules permit a foreign private issuer like us to follow the corporate governance practices of our home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from Nasdaq corporate governance listing standards applicable to domestic U.S. companies.
Among other things, we are not required to have: (i) a majority of the board of directors consist of independent directors; (ii) a compensation committee consisting of independent directors; (iii) a nominating committee consisting of independent directors; or (iv) regularly scheduled executive sessions with only independent directors each year.
Although not required and as may be changed from time to time, we intend to have a majority-independent board of directors, a majority-independent compensation committee and a nominating committee. Subject to the foregoing, we intend to rely on the exemptions listed above. As a result, you may not be provided with the benefits of certain corporate governance requirements of Nasdaq applicable to U.S. domestic public companies.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under the law of the Cayman Islands, we conduct a substantial portion of our operations and a majority of our directors and executive officers reside outside of the United States.
We are an exempted company limited by shares incorporated under the laws of the Cayman Islands, and will conduct a substantial portion of our operations through our subsidiary, Bitdeer, outside the United States. A substantial portion of our assets are located outside of the United States. A majority of our officers and directors reside outside the United States and a substantial portion of the assets of those persons are located outside of the United States. As a result, it could be difficult or impossible for you to bring an action against us or against these individuals outside of the United States in the event that you believe that your rights have been infringed upon under the applicable securities laws or otherwise. Even if you are successful in bringing an
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action of this kind, the laws of the Cayman Islands and of the jurisdictions that comprise the Southeast Asian region could render you unable to enforce a judgment against our assets or the assets of our directors and officers.
In addition, our corporate affairs will be governed by the amended and restated memorandum and articles of association of the Company, the Cayman Companies Act and 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 the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our ordinary shareholders and the fiduciary duties of our directors under Cayman Islands law may not be as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws than the United States. Some U.S. states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors will have discretion under the amended and restated memorandum and articles of association of the Company to determine whether or not, and under what conditions, our corporate records may be inspected by our ordinary shareholders, but we are not obliged to make them available to the ordinary shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder to motion or to solicit proxies from other shareholders in connection with a proxy contest.
Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow home country practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.
As a result of all of the above, our shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
We are an “emerging growth company,” as defined under the federal securities laws, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the Class A Ordinary Shares less attractive to investors.
We are an “emerging growth company,” as defined in the Securities Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, among other things, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding shareholder advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, holders of Ordinary Shares may not have access to certain information that they may deem important.
We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of the Business Combination, (b) in which we have total annual gross revenues of at least US$1.235 billion, (c) or in which we are deemed to be a large accelerated filer, which means the market value of our shares that is held by non-affiliates exceeds US$700 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we issued more than US$1.0 billion in non-convertible debt during the prior three-year period. If some investors find the Class A Ordinary Shares less attractive as a result, there may be a less active trading market for the Class A Ordinary Shares, the price of Class A Ordinary Shares may be more volatile and the price of the Class A Ordinary Shares may decline.
Risks Related to Taxation
We are subject to tax risks related to our multinational operations.
We are subject to taxes in various overseas jurisdictions where we operate. Tax laws and practices applicable in the various jurisdictions we operate in are complex and sophisticated, and we face risks of tax
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incompliance caused by misunderstanding of regional tax policies or different tax administration enforcement. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant changes. Our effective tax rates could be affected by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation.
We are also subject to the examination of tax returns and other tax matters by domestic and international tax authorities and governmental bodies. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to increase or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could be adversely affected.
We may be or become a PFIC, which could result in adverse U.S. federal income tax consequences to U.S. Holders of Class A Ordinary Shares.
In general, a non-U.S. corporation is a PFIC for U.S. federal income tax purposes for any taxable year in which (i) 50% or more of the average value of its assets (generally determined on the basis of a weighted quarterly average) consists of assets that produce, or are held for the production of, passive income, or (ii) 75% or more of its gross income consists of passive income. Passive income generally includes dividends, interest, royalties, rents, investment gains, net gains from the sales of property that does not give rise to any income and net gains from the sale of commodities (subject to certain exceptions, such as an exception for certain income derived in the active conduct of a trade or business). Cash and cash equivalents are, and cryptocurrency balances are likely, passive assets. The value of goodwill will generally be treated as an active or passive asset based on the nature of the income produced in the activity to which the goodwill is attributable. For purposes of the PFIC rules, a non-U.S. corporation that owns, directly or indirectly, at least 25% by value of the stock of another corporation is treated as if it held its proportionate share of the assets of the other corporation, and received directly its proportionate share of the income of the other corporation.
Based on the Company’s analysis of its income, assets, activities, and market capitalization, the Company believes that it was not a PFIC for its taxable year ended December 31, 2022. However, the Company’s PFIC status for any taxable year is a factual annual determination that can be made only after the end of that year and will depend on the composition of the Company’s income and assets and the value of its assets from time to time (including the value of its goodwill, which may be determined in large part by reference to the market price of the Class A Ordinary Shares from time to time, which could be volatile). In addition, the risk of the Company being a PFIC for any taxable year will increase if its market capitalization declines substantially during that year. Furthermore, whether and to which extent the Company’s income and assets, including goodwill, will be characterized as active or passive will depend on various factors that are subject to uncertainty, including the Company’s future business plan and the application of laws that are subject to varying interpretation. For example, there is no authority that directly addresses the proper treatment of certain items of the Company’s income, such as income from proprietary cryptocurrency mining, hash rate sharing, or hosting for purposes of the PFIC rules and, although the Company currently treats these items of income as active, such treatment is uncertain. Moreover, certain of the Company’s business activities generate passive income and, although the amount of such income is currently small, the Company’s risk of being a PFIC will increase if the proportion of the Company’s revenue earned from such business activities increases in future taxable years. Accordingly, there can be no assurances that the Company will not be a PFIC for its current or any future taxable year, and the Company’s U.S. counsel expresses no opinion with respect to the Company’s PFIC status for any taxable year.
If the Company is (or is treated with respect to a U.S. Holder as) a PFIC for any taxable year during which a U.S. Holder owns Class A Ordinary Shares, the U.S. Holder generally will be subject to adverse U.S. federal income tax consequences, including increased tax liability on disposition gains and certain “excess distributions” and additional reporting requirements. Prospective U.S. Holders of Class A Ordinary Shares should consult their tax advisers regarding the application of the PFIC rules in their particular circumstances.
Because under certain attribution rules the Company’s non-U.S. subsidiaries may be treated as controlled foreign corporations for U.S. federal income tax purposes, there could be adverse U.S. federal income tax consequences to certain U.S. Holders of Class A Ordinary Shares who own, directly or indirectly, ten percent or more of Class A Ordinary Shares.
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For U.S. federal income tax purposes, each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign corporation” (a “CFC”) generally is required to include in income such Ten Percent Shareholder’s pro rata share of the CFC’s “Subpart F income,” investment of earnings in U.S. property, and “global intangible low-taxed income,” even if the CFC has made no distributions to its shareholders. Subpart F income generally includes dividends, interest, rents, royalties, gains from the sale of securities and income from certain transactions with related parties, and “global intangible low-taxed income” generally consists of net income of the CFC, other than Subpart F income and certain other types of income, in excess of certain thresholds. A non-U.S. corporation generally will be classified as a CFC if Ten Percent Shareholders own, directly, indirectly or constructively (through attribution), more than 50% of either the total combined voting power of all classes of stock entitled to vote of such corporation or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a United States person (as defined by the Code) who owns or is considered to own, directly, indirectly or constructively, 10% or more of either the total combined voting power of all classes of stock entitled to vote of such corporation or the total value of the stock of such corporation. The determination of CFC status is complex and includes certain “downward attribution” rules pursuant to which the Company’s non-U.S. subsidiaries may be treated as constructively owned by the Company’s U.S. subsidiaries and, therefore, the Company’s non-U.S. subsidiaries may be treated as CFCs. Prospective holders of Class A Ordinary Shares that may be or become Ten Percent Shareholders should consult their tax advisors with respect to the application of the CFC rules in their particular circumstances.
Future changes to tax laws could materially and adversely affect the Company and reduce net returns to the Company’s shareholders.
The Company’s tax treatment is subject to changes in tax laws, regulations, and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration, and the practices of tax authorities in jurisdictions in which the Company operates. For instance, the Inflation Reduction Act of 2022 imposes, among other rules, a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on certain corporate stock repurchases. The income and other tax rules in the jurisdictions in which the Company operates are constantly under review by taxing authorities and other governmental bodies. Changes to tax laws (which changes may have retroactive application) could adversely affect the Company or its shareholders. The Company is unable to predict what tax proposals may be proposed or enacted in the future or what effect such changes would have on the Company’s business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect the Company’s financial position and overall or effective tax rates in the future in countries where the Company has operations and where the Company is organized or resident for tax purposes, and increase the complexity, burden and cost of tax compliance. The Company urges investors to consult with their legal and tax advisers regarding the implication of potential changes in tax laws on an investment in Class A Ordinary Shares.
Cryptocurrencies and transactions may be subject to further taxation in the future.
In recent years, the rise of cryptocurrency prices and transaction volume has attracted the attention of tax authorities. As the laws governing cryptocurrencies are still evolving, the tax treatment of cryptocurrencies in various jurisdictions is subject to change. New laws or legislations, such as the ones introduced in the United States under the “Infrastructure Investment and Jobs Act,” commonly referred to as the “infrastructure bill,” which was signed into law on November 15, 2021, will include tax reporting provisions that apply to cryptocurrencies. Introductions of more stringent provisions on reporting or surveillance of cryptocurrencies and cryptocurrencies will likely be an ongoing trend from authorities worldwide. We caution that these new provisions may direct or indirectly impact scrutiny and assessments in relation to taxation. While some countries have expressed an intention to or have imposed taxation on cryptocurrencies and transactions, other tax authorities have been silent. As there is considerable uncertainty over the taxation of cryptocurrencies, there is no guarantee that the cryptocurrencies and transactions denominated in cryptocurrencies will not be subject to further taxation in the future, including but not limited to additional taxes and increased tax rate. These events could reduce the economic return of cryptocurrency and increase the holding costs of cryptocurrencies, rendering the cryptocurrency mining solutions we provide less attractive to customers, which could materially and adversely affect our business, results of operations and financial condition.
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ITEM 4. INFORMATION ON THE COMPANY
A.
History and Development of the Company
The legal name of the Company is Bitdeer Technologies Group. The Company was incorporated as an exempted company limited by shares on December 8, 2021. The Company has been the consolidating entity for purposes of Bitdeer’s financial statements since the consummation of the Business Combination on April 13, 2023. The history and development of the Company and the material terms of the Business Combination are set forth in the Form F-4 in the sections entitled “Summary of the Proxy Statement/Prospectus,” “The Business Combination Proposal,” “Information related to BTG” and “Description of BTG Securities,” which are incorporated herein by reference. See “Explanatory Note” in this Report for additional information regarding the Company and the Business Combination. Certain information about the Company is set forth in “Item 4.B — Business Overview” and is incorporated herein by reference. The material terms of the Business Combination are set forth in Item 10 of this Report.
The Company’s registered office is c/o International Corporation Services Ltd., P.O. Box 472, Harbour Place, 2nd Floor, 103 South Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands, and its principal executive office is 08 Kallang Avenue, Aperia tower 1, #09-03/04, Singapore 339509. The Company’s principal website address is https://www.bitdeer.com. We do not incorporate the information contained on, or accessible through, the Company’s websites into this Report, and you should not consider it a part of this Report. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s website is www.sec.gov.
B.
Business Overview
The following discussion reflects the business of Bitdeer. Unless the context otherwise requires, all references in this section to the “Company,” “we,” “us,” “our” or “Bitdeer” refer collectively to Bitdeer Technologies Holding Company and its subsidiaries.
Overview
We are a world-leading technology company for the cryptocurrency mining community. We mine cryptocurrencies for our own account and serve the cryptocurrency mining community by providing innovative, reliable and easy-to-use cryptocurrency mining solutions. Headquartered in Singapore, we currently operate five proprietary mining datacenters in the United States and Norway with an aggregate electricity capacity of 775MW as of December 31, 2022. From these mining datacenters, we generate managing hash rate which is categorized into proprietary and hosting hash rate. As of December 31, 2022, our proprietary hash rate reached 4.1 EH/s. Together with the 9.9 EH/s hosting hash rate generated from mining machines hosted in our mining datacenters, we possessed a total of 14.0 EH/s of managing hash rate as of December 31, 2022.
To date, we primarily operate three business lines — “proprietary mining,” “hash rate sharing” and “hosting.” Proprietary mining refers to cryptocurrency mining for our own account, which allows us to directly capture the high appreciation potential of cryptocurrency. We offer two types of hash rate sharing solutions, Cloud Hash Rate and Hash Rate Marketplace. Through Cloud Hash Rate, we sell our proprietary hash rate to customers. We offer hash rate subscription plans at fixed price and share mining income with them under certain arrangements. Through Hash Rate Marketplace, we connect reliable third-party hash rate suppliers with hash rate users to facilitate hash rate sales and generate revenue from charging service fees. Our hosting services offer customers one-stop mining machine hosting solutions encompassing deployment, maintenance and management services for efficient cryptocurrency mining. Among a wide selection of hosting services, customers can either subscribe to our Cloud Hosting service for the specified mining machines from which they derive computing power under a “group-buying” model, or send their mining machines to our mining datacenters for hosting under the General Hosting option or the Membership Hosting option. All of our three business lines are supported by Minerplus, our self-developed integrated intelligent software platform, which offers software support to significantly reduce time needed for daily maintenance and mining machine upgrade and substantially decrease operation and maintenance headcount.
We source mining machines from a wide variety of manufacturers and traders with whom we have built robust relationships over the years. As a result, the majority of our mining machines are spot machines for the
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most recent and most commonly used models procured at a favorable price, which ensures high energy efficiency and stable hash rate supply both in quality and in quantum. We also engage in the sales of mining machines from time to time. We stay at the forefront of technology development. As a market player who is able to obtain a hash rate unit of 1TH/s through our hash rate slicing technology, we have been successfully maintaining a less than 1% fluctuation for 99% of our hash rate sales contracts.
As of December 31, 2022, we generated 4.1 EH/s proprietary hash rate from our proprietary mining machines and operated mining datacenters with an aggregate electricity capacity of 775MW. Our revenue increased by 111.7% from US$186.4 million for the year ended December 31, 2020 to US$394.7 million for the year ended December 31, 2021. For the year ended December 31, 2022, our total net revenue was US$333.3 million. We incurred net loss of US$55.8 million for the year ended December 31, 2020, generated net profit of US$82.6 million for the year ended December 31, 2021, and incurred net loss of US$60.4 million for the year ended December 31, 2022. Our adjusted EBITDA increased by 479.2% from US$48.7 million for the year ended December 31, 2020 to US$281.8 million for the year ended December 31, 2021. For the year ended December 31, 2022, our adjusted EBITDA was US$93.2 million. We incurred adjusted loss of US$55.8 million for the year ended December 31, 2020, and incurred adjusted profits of US$171.0 million and US$30.3 million for the year ended December 31, 2021 and 2022, respectively, where adjusted profit/(loss) is defined as profit/(loss) adjusted to exclude share-based payment expenses.
The crypto asset market, especially the price of Bitcoin, has been highly volatile. Recent industry-wide developments, including the continued industry-wide fallout from the recent Chapter 11 bankruptcy filings of cryptocurrency exchange FTX (including its affiliated hedge fund Alameda Research LLC), crypto hedge fund Three Arrows, crypto miners Compute North and Core Scientific and crypto lenders Celsius Network, Voyager Digital and BlockFi, are beyond our control. We are not directly affected by these recent incidents, as we do not have any counterparty credit exposure to the above-mentioned firms nor expect their potential bankruptcy to have any direct impact on our business or operations.
That being said, the decrease and volatility of Bitcoin price as a result of the recent industry-wide developments has affected our business, financial condition and results of operations. Specifically, our proprietary mining business has become less profitable due to the drop in Bitcoin price. For the hash rate sharing and hosting businesses, the demand for such products has become lower due to the relatively bearish market on Bitcoin and the crypto asset market in general. However, we believe that, as compared to many other participants in the crypto assets markets, we are more resilient to cryptocurrency price volatility as our “hash rate sharing” and “hosting” businesses allow us to smooth the impact of cryptocurrency price volatility, as compared to “proprietary mining.”
Our Strengths
We believe that the following strengths contribute to our success and differentiate us from our competitors.
World’s leading scale of proprietary hash rate
As of December 31, 2022, our proprietary hash rate operated in our global mining datacenters reached 4.1 EH/s. Our proprietary hash rate provides us with a clear edge across our business lines and anchors our unique business model. High proprietary hash rate increases our chance of success in obtaining cryptocurrency rewards. It also allows a stable supply of hash rate products to our customers through Cloud Hash Rate. Leveraging our track record of operating the Cloud Hash Rate business, we boosted user confidence in our brand and were able to launch Hash Rate Marketplace as our hash rate retail platform in 2021. In addition to proprietary hash rate, we also generate hosting hash rate, the other category of our total managing hash rate, from mining machines that are hosted in our mining datacenters. Together with the 9.9 EH/s hosting hash rate, we managed a total of 14.0 EH/s hash rate as of December 31, 2022. As of December 31, 2022, we operated five proprietary mining datacenters in the United States and Norway to support our proprietary and hosting hash rate.
Unique business model powers organic hash rate expansion by generating instant and continuous cash
We have established a business model that allows us to constantly reinforce our market-leading position and outpace our competitors in terms of scaling up our proprietary hash rate. A prevailing strategy to profit
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from proprietary hash rate is mining. The cryptocurrencies mined can be sold at a profit when their market value is high enough to cover the cost of mining machines, electricity fees and other mining-related expenses. While we remain engaged in proprietary mining business to capture the high appreciation potential of cryptocurrency, we strategically allocate a significant amount of proprietary hash rate to hash rate sales through Cloud Hash Rate, to enable instant cash payback upon customers’ subscription to our hash rate plans. We have successfully boosted sales for hash rate, in particular, for long-term hash rate subscription plans (i.e., plans with a term longer than 720 days) by providing an increasing amount of reliable and transparent hash rate supply. We generally generate proceeds from hash rate sales under long-term hash rate subscription plans that approximate the purchase cost of mining machines. Therefore, we are able to continuously grow our proprietary hash rate by funding the purchase of additional mining fleets with the instant cash collected from hash rate sales using our existing mining fleets, significantly reducing our payback period to one month, compared to the long payback period associated with cryptocurrency mining activities, which is typically from 6 to 18 months, according to Frost & Sullivan. This unique model also allows us to smooth the impact of cryptocurrency price volatility as our proceeds from hash rate sales are less directly related to cryptocurrency price compared to proprietary mining.
Ample power supply and low electricity cost secured by global mining datacenters
We strategically opened five mining datacenters in the United States and Norway. As of December 31, 2022, our mining datacenters had a power supply of 775MW. We plan to expand our footprints across the globe to increase our total electricity capacity to approximately 1,524MW, including 199MW power supply under construction and 550MW power supply “in the pipeline,” contracted or negotiated but not yet under active construction. We expect to generate 100MW out of the 550MW power supply from Bhutan, where the construction of mining datacenter is expected to begin in the second quarter of 2023 and complete in the third quarter of 2023. Our premier mining datacenters allowed us to reach an average electricity cost of our mining datacenters to US$50/MWh for the year ended December 31, 2022. Our ability to secure ample power supply with low electricity cost is underpinned by our top-notch experience and capabilities in global mining datacenters deployment and operation. We pioneer in deploying and operating mining datacenters globally. With experience in site selection, facility design, construction and maintenance in over 30 locations around the globe, our dedicated global team for mining datacenter construction understands the critical needs of Bitcoin mining as well as the complex and constantly evolving global landscape of electricity supply. They also have extensive connections with local electricity experts and power enterprises around the world. We are the first in the industry to develop the “PERT” approach to secure prime locations for our mining datacenters, which stands for a comprehensive site selection approach encompassing local electricity and cryptocurrency mining Policy, Electricity cost, Resources and connections, and Technical feasibility. We believe we can continue to apply this systematic approach, our insights and rich execution experience to global mining datacenter construction in the future, and hence achieve advantages in electricity capacity and electricity costs among our competitors.
Visionary management team with a proven track record of innovation and execution
Our success is driven by a passionate, visionary, tech-savvy and entrepreneurial management team with a proven execution track record. This management team is led by our founder, Mr. Jihan Wu, a pioneer and leading figure in the cryptocurrency industry. Mr. Wu is viewed as an early advocate of cryptocurrency who introduced the Bitcoin Whitepaper into the Sinophone world. Our management team has extensive experience in the cryptocurrency industry, encompassing research and development, mining and sales of mining machines, and many of them are pioneers in mining datacenters construction and operation.
Our Business Lines and Software Infrastructure
To date, we primarily operate three business lines — “proprietary mining,” “hash rate sharing” and “hosting,” all of which are supported by Minerplus, our self-developed integrated intelligent software platform, to enhance operational efficiency.
Proprietary mining
We mine cryptocurrencies, primarily Bitcoins, for our own account. Proprietary mining allows us to capture the high appreciation potential of cryptocurrency to support our future expansion and operation. For
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the years ended December 31, 2020, 2021 and 2022, respectively, we generated US$88.5 million, US$191.7 million and US$62.4 million in revenue from proprietary mining. Historically, around 50% to 60% of our proprietary hash rate was utilized to support our proprietary mining, with the rest available for sale to customers through Cloud Hash Rate. However, we retain the flexibility to allocate our proprietary hash rate to either proprietary mining or Cloud Hash Rate, primarily based on our view of the Bitcoin market trends.
Hash rate sharing
We offer two types of hash rate sharing solutions, Cloud Hash Rate and Hash Rate Marketplace, to support cryptocurrency mining activities globally with convenient, transparent and reliable hash rate.
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Cloud Hash Rate. Through Cloud Hash Rate, customers enter into hash rate contracts with us to subscribe to the hash rate derived from our proprietary mining machines, saving themselves from purchasing, installing or hosting mining machines. Cloud Hash Rate features authentic and transparent hash rate products as users can track the hash rate output on their chosen third-party mining pool, easily ascertain that they receive the right value and receive payments directly from mining pools. With our hash rate slicing and hash rate scheduling technologies, we are able to maintain a less than 1% fluctuation for 99% of our hash rate contracts and provide our customers 100% continuous online computing power for series of cryptocurrencies, including Bitcoin, Filecoin, Litecoin, Nervos CKB, Zcash, etc., subject to stable electricity supply. We offer our customers various hash rate subscription plans, primarily under (i) “classic mode” and (ii) “accelerator mode”, which enables customers to shorten investment costs recovery cycle. After a user subscribes to a cloud hash rate plan, mining pool operators connect the cloud hash rate generated from our mining machines to blockchain network for a period specified in the cloud hash rate plan subscribed to and cryptocurrency rewards are delivered directly to the crypto wallet of the Cloud Hash Rate customer. For plans under “classic mode”, we generate revenue from fees paid to subscribe the hash rate as well as electricity, which maintains the mining machines that produce the subscribed hash rate. For hash rate subscription plans under “accelerator mode”, while customers enjoy lower hash rate subscription fees compared to “classic mode”, on top of the aforementioned hash rate and electricity subscription fees, we are also entitled to sharing part of the mining rewards net of the electricity cost the customer paid for once that customer’s investment cost is recovered, which is defined as the cumulative mining reward received from the mining pool equals the amount of hash rate subscription fees paid upfront and the electricity fee paid and used to date. This unique model of selling cloud hash rate allows us to smooth the impact of Bitcoin price volatility as our income from hash rate sales are less directly related to cryptocurrency price compared to proprietary mining. When Bitcoin price appreciates, we can capture part of the benefits as the demand of hash rate will be driven up; when Bitcoin price depreciates, we are still able to recover costs or generate revenue from hash rate sales. We use standard agreement with our customer for Cloud Hash Rate. We generated revenue of US$78.3 million, US$124.2 million and US$121.3 million for the year ended December 31, 2020, 2021 and 2022, respectively, from Cloud Hash Rate.
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Hash Rate Marketplace. We connect supply of hash rate from mining machines owned by third parties, such as miners or mining datacenter owners, with our user base with hash rate demands, allowing such hash rate suppliers to access our large base of high-quality customers. With Hash Rate Marketplace, we offer a marketplace that is able to utilize excessive hash rate in the network and expand ways of monetization for third-party hash rate suppliers, accelerating their cash payback to support future expansion. For transactions completed on Hash Rate Marketplace, the third-party hash rate suppliers will be responsible for providing hash rate and post-sale services, pursuant to the negotiated terms between these third-party hash rate suppliers and customers, with which we have no involvement and we generate revenue by charging service fees. Revenue generated from Hash Rate Marketplace was immaterial prior to December 31, 2022.
Hosting
We offer three types of hosting services, Cloud Hosting, General Hosting and Membership Hosting, to meet customers’ diverse demands for professional hosting solutions and lower the prohibitive upfront investment costs associated with mining datacenter construction, deployment and operation.
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Cloud Hosting. We provide retail miner customers with one-stop mining machine hosting solutions, enabling them to gain access to stable supply of computing power from specified mining machines in a capital-light manner. Through Cloud Hosting, users participate in a customer group, pay an upfront fee for the computing power produced by the specified mining machines, and subscribe to the hosting service for the same mining machines. As such, customers may enjoy the computing power derived from specified mining machines over the life of such mining machines to generate cryptocurrency rewards. Traditionally, a miner has to purchase and physically possess a mining machine, deploy and operate it in a mining datacenter in order to gain access to all the computing power generated from that specified mining machine. Cloud Hosting provides an innovative alternative by providing hosting service for the specified mining machines that produce computing power for the Cloud Hosting customers, saving the customers the need to pick up the mining machine, construct one’s own mining datacenter, and operate and deploy the mining machine. Specifically, we are responsible for the operation and maintenance of mining datacenter that hosts the mining machines, as well as mining machine operation, maintenance and repair. As such, we significantly lower the upfront investment and expertise threshold for retail miners, providing them with the same opportunity of cryptocurrency returns as major and sophisticated miners. We also provide complete set of cloud hosting technical solutions and resources to ensure operational efficiency. Our first-of-its-kind “group-buying” model allows retail miners to purchase the computing service from and maintenance service for as little as one mining machine, further lessening the upfront investment burden. Similar to the Cloud Hash Rate “accelerator mode” subscription plans, in 2021, we launched the “accelerated payback mode” for Cloud Hosting, where customers can enjoy a favorable rate for the upfront fee compared to “classic mode” (i.e., the traditional arrangement). Under the standard agreements with our customers for Cloud Hosting, we charge customers an upfront fee so they can secure the procurement of computing power from the specified mining machines. We also charge a maintenance fee for our electricity supply, daily maintenance and repair care. We are entitled to a portion of the mining profit of an “accelerated payback mode” customer after the customer recovers the investment cost, which is defined as the mining reward earned from the mining pool equals the upfront fee paid and the maintenance fee and other fees incurred to date. We generated revenue of US$2.9 million, US$7.6 million and US$12.7 million for the year ended December 31, 2020, 2021 and 2022, respectively, from Cloud Hosting. We did not generate any revenue from mining profit sharing from plans under Cloud Hosting’s “accelerated payback mode” for the years ended December 31, 2021 and 2022.
•
General Hosting. We offer hosting solutions to professional miner customers who send their mining machines to our mining datacenters for hosting. Specifically, we provide server room, professional support from technical and managerial personnel, supporting power, network and security monitoring facilities, among others, and carry out routine maintenance, system configurations, troubleshooting and daily reporting to ensure a smooth operation of the hosted mining machines. At the customers’ option, we also provide assistance for deployment, installation and removal of hosted mining machines and repairment of mining machines. Under the standard agreements with General Hosting customers, we charge monthly service fees, which include costs of operating and maintaining the mining machines, costs of electricity and other costs mainly related to mining machine deployment and repair. We generated no revenue prior to December 31, 2020 and revenue of US$18.3 million and US$99.3 million for the year ended December 31, 2021 and 2022, respectively, from General Hosting.
•
Membership Hosting. We offer a membership program for large-scale miner customers who seek stable, long-term supply of hosting capacity and send their mining machines to our mining datacenters for hosting purpose. Unlike General Hosting where the customer’s access to mining datacenter capacity is subject to the availability of such capacity at the time the request was raised, a customer under Membership Hosting will be designated of certain capacity (i.e., designated capacity) exclusive for use by such customer, by signing a standard membership program agreement. We also provide other program benefits, if available, to customers under Membership Hosting, including, among other things, (i) early, priority and exclusive access to the newly available mining datacenter capacity that is sufficient for large-scale miners, upon a new mining datacenter becomes available and (ii) more favorable pricing terms for our services, such as mining machine management services, than the prevailing price in the local market. We charge an upfront fee for such program benefits. We also provide management services, such as infrastructure, custody, and utility, for the mining machines of a Membership Hosting
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customer up to designated capacity, pursuant to a separate management services agreement, and charge management services fee. We also charge additional fee, at our stand-alone selling price, for the subscription of our mining machine operation service. The management services fee and the mining machine operation fee, as applicable, are charged to the customer monthly based on the customer’s consumption of resources, such as the amount of electricity used in a period. For our Membership Hosting contracts, payment terms are individually negotiated and may differ among customers. Through this membership program, we seek to facilitate risk control and stable hosting income from large-scale miner customers by providing them reliable and long-term hosting capacity. We also intend to leverage our Membership Hosting to facilitate the growth of Hash Rate Marketplace as we encourage some of the Membership Hosting customers to become hash rate suppliers on our Hash Rate Marketplace. We generated no revenue prior to December 31, 2021 and revenue of US$26.1 million for the year ended December 31, 2022, from Membership Hosting.
The major differences among Cloud Hosting, General Hosting and Membership Hosting are the sources of mining machines, the target customers and the customers’ payment of hosting fees, as summarized below.
|
Hosting service
|
| |
Sources of mining
machines |
| |
Target customers
|
| |
Fees
|
|
|
Cloud Hosting
|
| |
Mining machines from our existing mining fleets
|
| |
Retail miners
|
| |
–
Upfront payment for subscription of computing power from our mining machines
–
Maintenance fees throughout the service process
|
|
|
General Hosting
|
| |
Mining machines from target customers
|
| | Professional miners | | |
–
Monthly payment for hosting service based on actual consumption of our mining datacenter resources, such as electricity
|
|
|
Membership Hosting
|
| |
Mining machines from target customers
|
| | Large-scale miners | | |
–
Upfront payment to secure our capacity
–
Monthly payment for management service based on the actual consumption of our mining datacenter resources, such as electricity, after the delivery of capacity.
|
|
In the near future, we expect to focus on further expanding General Hosting and Membership Hosting by allocating a greater portion of our growing mining datacenter capacity. We expect to continue offering existing Cloud Hosting plans but no longer as our mainstream product. We believe that focusing on General Hosting and Membership Hosting services will enable us to maximize assets utilization with minimal capital expenditure for our growing mining datacenter capacity, maximize overall scale of hash rate supported by our software platform Minerplus which may lead to future business opportunities, and improve the operational efficiency by serving professional customers.
Minerplus is our self-developed integrated intelligent software platform that offers software support to significantly reduce time needed for daily maintenance and mining machine upgrade and substantially decrease operation and maintenance headcount. The functions of Minerplus mainly encompasses real-time mining datacenter and hash rate monitoring as well as virus detection and removal. Minerplus enables intelligent management of our proprietary mining business and enhances product and service quality of Cloud Hash Rate and our hosting services. We also provide standalone Minerplus service to third-party mining datacenters.
Measures to prevent unauthorized or impermissible customer access
We have established anti-money laundering (“AML”) processes, know your customer (“KYC”) procedures and IP address geo-blocking measures, to prevent unauthorized and impermissible access to our hash rate products by U.S. customers and customers from other jurisdictions where we have identified laws or regulations that restrict the offering of our hash rate products. These measures generally encompass the following key steps: 1) following IP address and customer identification, IP addresses located in regions such as Cuba, Iran, North Korea, Syria, and Crimea Area, will be blocked, and IP addresses in most other areas, including the United States, will be asked to complete AML and KYC procedures prior to purchasing our
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products and services; 2) following and based on the results of customer due diligence process, customers from the United States or other applicable jurisdictions will be denied purchase of our hash rate products; 3) transactions and the KYC status of the customers will be subject to our monitoring and periodic review.
For a discussion of the risks relating to offering our hash rate products to U.S. customers and/or customers from other jurisdictions where such offering may be restricted, see the section entitled “Item 3.D — Key Information — Risk Factors — Risks Related to Regulatory Compliance and Other Legal Matters — Our hash rate sharing business may be subject to U.S. jurisdiction if we are not able to avoid offering or selling our hash rate products to U.S. customers. Additionally, our hash rate sharing business may be deemed as securities offerings in other jurisdictions where it is offered.”
Our Cryptocurrencies
Cryptocurrencies and Protocols Involved in Our Business
96.5%, 96.9% and 96.1% of our proprietary mining revenue for the years ended December 31, 2020, 2021 and 2022 respectively were generated from Bitcoin mining. The remaining mining yield were generated from Zcash, Ethereum, Dogecoin, Litecoin and other cryptocurrencies that are less mainstream, as illustrated below:
| | | |
For the Year Ended December 31,
|
| |||||||||||||||||||||||||||||||||
| | | |
2020
|
| |
2021
|
| |
2022
|
| |||||||||||||||||||||||||||
| | | |
US$
|
| |
%
|
| |
US$
|
| |
%
|
| |
US$
|
| |
%
|
| ||||||||||||||||||
| | | |
(in thousands, except for percentages)
|
| |||||||||||||||||||||||||||||||||
|
BTC
|
| | | | 85,355 | | | | | | 96.5 | | | | | | 185,656 | | | | | | 96.9 | | | | | | 59,845 | | | | | | 96.1 | | |
|
ZEC
|
| | | | 1,419 | | | | | | 1.6 | | | | | | 3,220 | | | | | | 1.7 | | | | | | 902 | | | | | | 1.4 | | |
|
ETH
|
| | | | 781 | | | | | | 0.9 | | | | | | 14 | | | | | | 0.0 | | | | | | 8 | | | | | | 0.0 | | |
|
LTC
|
| | | | 252 | | | | | | 0.3 | | | | | | 597 | | | | | | 0.3 | | | | | | 248 | | | | | | 0.4 | | |
|
BCH
|
| | | | 204 | | | | | | 0.2 | | | | | | 180 | | | | | | 0.1 | | | | | | 22 | | | | | | 0.0 | | |
|
CKB
|
| | | | 177 | | | | | | 0.2 | | | | | | 272 | | | | | | 0.1 | | | | | | 41 | | | | | | 0.1 | | |
|
DCR
|
| | | | 153 | | | | | | 0.2 | | | | | | 54 | | | | | | 0.0 | | | | | | 106 | | | | | | 0.2 | | |
|
ETC
|
| | | | 138 | | | | | | 0.1 | | | | | | — | | | | | | — | | | | | | 4 | | | | | | 0.0 | | |
|
DASH
|
| | | | 14 | | | | | | 0.0 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
DOGE
|
| | | | — | | | | | | — | | | | | | 1,239 | | | | | | 0.6 | | | | | | 590 | | | | | | 0.9 | | |
|
XCH
|
| | | | — | | | | | | — | | | | | | 165 | | | | | | 0.1 | | | | | | 73 | | | | | | 0.1 | | |
|
HNS
|
| | | | — | | | | | | — | | | | | | 137 | | | | | | 0.1 | | | | | | 47 | | | | | | 0.1 | | |
|
FIL
|
| | | | — | | | | | | — | | | | | | 129 | | | | | | 0.1 | | | | | | 458 | | | | | | 0.7 | | |
|
SC
|
| | | | — | | | | | | — | | | | | | 30 | | | | | | 0.0 | | | | | | — | | | | | | — | | |
|
NMC
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 11 | | | | | | 0.0 | | |
|
ELA
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 4 | | | | | | 0.0 | | |
| Total | | | | | 88,493 | | | | | | 100.0 | | | | | | 191,693 | | | | | | 100.0 | | | | | | 62,359 | | | | | | 100.0 | | |
84.5%, 93.4% and 95.7% of our Cloud Hash Rate revenue for the years ended December 31, 2020, 2021 and 2022 respectively were generated from hash rate plans subscribed for Bitcoin mining. We have commenced mining operation on a proprietary basis for Filecoin, which adopted PoST protocol, and also offered computing power sharing solutions regarding Filecoin mining under our Cloud Hash Rate business. While we intend to enrich our product and service portfolio by providing mining services covering new crypto protocols, including PoS, DPoS, PoST and PoC, we have not determined the type of cryptocurrency to expand our operations.
Policies and Procedures Related to Our Cryptocurrencies
We obtain cryptocurrencies from proprietary mining and also generally accept cryptocurrencies as payments for services available to customers, such as Cloud Hash Rate, Cloud Hosting, General Hosting and
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Membership Hosting. We generally do not hold cryptocurrencies obtained through business operation, including mining and otherwise, and promptly convert them into fiat currency. The cryptocurrencies held by us as of December 31, 2020, 2021 and 2022 were US$9.6 million, US$6.2 million and US$2.2 million, respectively and accounted for 5.2%, 1.6% and 0.7% of our total revenue in the corresponding periods. The table below shows the type and amount of digital assets held as of the end of each year:
| | | |
As of December 31,
|
| |||||||||||||||||||||||||||||||||
| | | |
2020
|
| |
2021
|
| |
2022
|
| |||||||||||||||||||||||||||
| | | |
US$
|
| |
%
|
| |
US$
|
| |
%
|
| |
US$
|
| |
%
|
| ||||||||||||||||||
| | | |
(in thousands, except for percentages)
|
| |||||||||||||||||||||||||||||||||
|
BTC
|
| | | | 6,536 | | | | | | 68.2 | | | | | | 692 | | | | | | 11.2 | | | | | | 208 | | | | | | 9.6 | | |
|
ETH
|
| | | | 452 | | | | | | 4.7 | | | | | | 13 | | | | | | 0.2 | | | | | | 5 | | | | | | 0.2 | | |
|
USDT
|
| | | | 1,414 | | | | | | 14.8 | | | | | | 3,904 | | | | | | 63.1 | | | | | | 162 | | | | | | 7.4 | | |
|
BCH
|
| | | | 247 | | | | | | 2.6 | | | | | | 4 | | | | | | 0.1 | | | | | | 2 | | | | | | 0.1 | | |
|
LTC
|
| | | | 292 | | | | | | 3.0 | | | | | | 5 | | | | | | 0.1 | | | | | | 8 | | | | | | 0.4 | | |
|
BSV
|
| | | | 194 | | | | | | 2.0 | | | | | | 137 | | | | | | 2.2 | | | | | | — | | | | | | — | | |
|
ZEC
|
| | | | 337 | | | | | | 3.5 | | | | | | 11 | | | | | | 0.2 | | | | | | 1 | | | | | | 0.0 | | |
|
DASH
|
| | | | 26 | | | | | | 0.3 | | | | | | 0* | | | | | | 0.0 | | | | | | 0* | | | | | | 0.0 | | |
|
DCR
|
| | | | 1 | | | | | | 0.0 | | | | | | 2 | | | | | | 0.0 | | | | | | 0* | | | | | | 0.0 | | |
|
DOGE
|
| | | | 10 | | | | | | 0.1 | | | | | | 1 | | | | | | 0.0 | | | | | | 6 | | | | | | 0.4 | | |
|
ETC
|
| | | | 7 | | | | | | 0.1 | | | | | | 0* | | | | | | 0.0 | | | | | | 0* | | | | | | 0.0 | | |
|
ETN
|
| | | | 0* | | | | | | 0.0 | | | | | | 0* | | | | | | 0.0 | | | | | | — | | | | | | 0.0 | | |
|
USDC
|
| | | | 55 | | | | | | 0.6 | | | | | | 99 | | | | | | 1.6 | | | | | | 89 | | | | | | 4.1 | | |
|
BCHA
|
| | | | — | | | | | | — | | | | | | 25 | | | | | | 0.4 | | | | | | — | | | | | | — | | |
|
CKB
|
| | | | 9 | | | | | | 0.1 | | | | | | 0* | | | | | | 0.0 | | | | | | 0* | | | | | | 0.0 | | |
|
BTM
|
| | | | 2 | | | | | | 0.0 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
FIL
|
| | | | — | | | | | | — | | | | | | 1,257 | | | | | | 20.3 | | | | | | 1,692 | | | | | | 77.8 | | |
|
XCH
|
| | | | — | | | | | | — | | | | | | 37 | | | | | | 0.6 | | | | | | 1 | | | | | | 0.0 | | |
|
ELA
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 1 | | | | | | 0.0 | | |
|
NMC
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 0* | | | | | | 0.0 | | |
|
SC
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 0* | | | | | | 0.0 | | |
| Total | | | | | 9,582 | | | | | | 100.0 | | | | | | 6,187 | | | | | | 100.0 | | | | | | 2,175 | | | | | | 100.0 | | |
*
Less than US$500 but not nil
We generally use service provided by Matrix Finance and Technologies Holding Group and its subsidiaries (“Matrixport Group”) for cryptocurrencies custody purpose. Please see the section entitled “— Our Cryptocurrencies Storage and Custodial Practices” below for more details on the related procedures in this regard.
Prior to June 30, 2021, we did not leverage cryptocurrencies that we held, including Bitcoin, to generate additional income, through lending, hedging or otherwise, nor did we convert our fiat currencies into cryptocurrencies for the same purposes. In the second half of 2021, we explored new options, such as short-term cryptocurrency lending and purchase of short-term wealth management products using cryptocurrencies converted from our fiat currencies, in addition to direct deposits of fiat currencies at fixed rates, in order to optimize our cash management cycle and generate a higher return on cash not otherwise used in our operating activities. Specifically, during the second half of 2021, we lent 30 million USDC, which we converted from our fiat currencies, to Matrixport Group at a fixed annual interest rate of 8.25% and received approximately US$0.7 million interest income; we also converted our fiat currencies into 30 million USDT and purchased a short-term wealth management product in the same amount from Matrixport Group. The wealth management product was an unsecured USDT fund offered by Matrixport Group at variable rates of
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return, and we received approximately US$0.7 million investment income from such product in the second half of 2021. Both the loan and the wealth management product were fully redeemed and collected by the end of 2021. In addition, because we generally do not hold cryptocurrencies, while the incomes we received were initially in cryptocurrencies, they were promptly converted into fiat currencies following receipt. During the year ended December 31, 2022, we lent loans in a total amount of approximately US$150 million to Matrixport Group and received approximately US$1.5 million interest income. We also purchased wealth management products in a total amount of approximately US$150.0 million from Matrixport Group and received approximately US$0.3 million in return. Both the loans and the wealth management products were fully collected and redeemed as of December 31, 2022. To date, we have not experienced, either directly or indirectly, prohibitions from redeeming or withdrawing crypto assets. All of our cryptocurrency loans and cryptocurrency wealth management products had been fully redeemed by December 31, 2022, and we do not anticipate to actively participate in such activities in the foreseeable future.
As of the date of this Report, we do not have any outstanding cryptocurrency lending to Matrixport Group or any outstanding wealth management product purchased from Matrixport Group or otherwise. All lending or wealth management products previously purchased from Matrixport Group had been fully collected or redeemed by December 31, 2022. In light of recent concerns over the lack of regulations with regards to digital asset based products in general, we do not anticipate entering into any digital asset based lending or wealth management products with Matrixport Group or otherwise in the foreseeable future.
We are open to more options to generate additional income by leveraging our cryptocurrencies and fiat currencies in the future; however, we prioritize our operating activities in terms of cash usage and will ensure that our cash, short-term investment and anticipated proceeds from disposal of cryptocurrencies in connection with our principal business will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 18 months from the date of this Report. We do not anticipate to engage in crypto lending or investing activities in the foreseeable future. We monitor our investments closely and limit our exposure to the investment risk by including in our operation strategy the requirements to invest only in robust wealth management products.
We will evaluate each digital asset in our portfolio, or that we propose to hold or acquire in the future, to determine whether it would likely be considered a security as defined in Section 2(a)(1) of the Securities Act and consequences thereof, in consultation with outside counsel, as applicable at the time. We will base our analysis on relevant case law, applying the frameworks established by the U.S. Supreme Court and taking into consideration relevant guidance by the SEC and its staff, including the SEC’s “Framework for ‘Investment Contract’ Analysis of Digital Assets” issued by the Strategic Hub for Innovation and Financial Technology. Prior to holding or acquiring any digital assets, we would undertake customary due diligence regarding the digital asset in order to gather facts necessary to make such a determination.
However, such framework adopted by us to determine whether certain digital assets are “securities” involves risk-based judgements by us, is not based on a legal standard or determination binding on any regulatory body, and therefore is inherently associated with a number of risks. As of the date of this Report, 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. 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. It is 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.
Thus, 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. Current and future legislation and SEC-rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoin or other cryptocurrencies are viewed or treated for classification and clearing purposes. In particular, Bitcoin and other cryptocurrencies may not be excluded from the definition of “security” by SEC rulemaking or interpretation requiring registration of all transactions unless another exemption is available, including transacting in Bitcoin or other cryptocurrencies among owners and requiring registration of trading platforms as “exchanges.” It will then likely become difficult or impossible for the
65
digital asset to be traded, cleared or custodied in the United States through the same channels used by non-security digital assets, which in addition to materially and adversely affecting the trading value of the digital asset is likely to cause substantial volatility and significantly impact its liquidity and market participants’ ability to convert the digital asset into U.S. dollars.
For a more comprehensive discussion of the relevant risks, please see the sections entitled “Item 3. Key Information — D. Risk Factors — Risks Related to Cryptocurrencies — There is no one unifying principle governing the regulatory status of cryptocurrencies nor whether cryptocurrencies are securities in any particular context. Regulatory changes or actions in one or more countries may alter the nature of an investment in us or restrict the use of cryptocurrencies, such as Bitcoins, in a manner that adversely affects our business, prospects or operations” and “Item 3. Key Information — D. Risk Factors — Risks Related to Cryptocurrencies — If we were deemed an ‘investment company’ under the Investment Company Act of 1940, as amended, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.”
Our Cryptocurrencies Storage and Custodial Practices
During the years ended December 31, 2020, 2021 and 2022, substantially all of our cryptocurrencies were held in custody by Matrixport Group and our disposal of cryptocurrencies, at spot price on the date of disposal, was primarily to Matrixport Group, a related party. Following our separation from BitMain Technologies Holding Company (collectively with its subsidiaries, “Bitmain”), we entered into two custody agreements with Matrixport Group on February 10, 2021 through our subsidiaries, pursuant to which we appointed Matrixport Group to (i) establish a custody account for the deposit of cryptocurrencies to be held by Matrixport Group on our behalf, and (ii) act as the custodian of the cryptocurrencies that are delivered to the designated blockchain address under our custody accounts. For more information, please see the section entitled “Item 3. Key Information — D. Risk Factors — We may not have adequate sources of recovery if the cryptocurrencies held it us are lost, stolen or destroyed due to third-party cryptocurrencies custodial services or if we cannot redeem or withdraw its cryptocurrencies invested in crypto lending or investing activities. Such incidents could have a material adverse effect on our business, financial condition and results of operations.”
Our custody accounts in Matrixport Group are protected by username, password, and hardware tokens. We are able to view the assets in the custody account and relevant transfers via Matrixport Group’s custody system. We are able to receive, withdraw and dispose of cryptocurrencies with the custody account. Each withdrawal request is subject to verification by a person designated by us, and if withdrawal is up to certain limit, to additional verification procedure applied by Matrixport Group, including calling a separately designated person or requesting additional written confirmation. We note that Matrixport Group offers a robust security infrastructure designed to safeguard its custody clients from crypto fraud. The generation and storage of, and the transaction signing by, the private keys are all under encryption in hardware security modules (HSMs) that provide tamper evidence, tamper resistance and tamper responsiveness features to safeguard the private keys and make sure no staff of Matrixport Group or anyone can have access to plain text of private keys. In extreme cases, private keys can be recovered by Matrixport Group’s disaster recovery measure. Private keys have been sharding into eight pieces that will be stored in an encrypted hard disk which will then be kept in physical safe deposit boxes in different banks. These sharding pieces are accessible only to certain qualified employees of Matrixport Group, who must obtain prior permission and must follow “Segregation of Duty and Least Knowledge Principle” under which such employees have right to recover the private keys but no right to trigger the withdrawal function from customers’ designated accounts. All crypto transactions will be monitored by Matrixport Group’s central security system. If an unusual transaction is identified, an alert will be issued to the relevant customer in real time for transaction verification purposes.
All withdrawal and transfer of assets shall be permitted by applicable laws and regulations and Matrixport Group’s internal policies and procedures. Matrixport Group is obligated to keep and maintain, or cause to be kept, accurate books and records with respect to any custody account and assets in accordance with applicable law. Statements of assets, along with a ledger of receipts and disbursements of assets is available to us via Matrixport Group’s custody system. Under the custody agreements, we are obligated to pay to Matrixport custody fees as a percentage of the value of the cryptocurrencies in U.S. Dollars under custody, monthly management fees as negotiated, and withdrawal fees if applicable. We incurred approximately US$0.3 million and US$0.4 million service fees, respectively, including primarily custody fees, to Matrixport Group for
66
the years ended December 31, 2021 and 2022, while the service fees we paid to Matrixport Group for the year ended December 31, 2020 were immaterial.
Our Proprietary Mining Datacenters
We have built and currently operate three proprietary mining datacenters in the United States and two in Norway with an aggregate electricity capacity of 775MW in use as of December 31, 2022. We have initiated the expansion of our existing mining datacenters and expect to achieve access to a total electricity capacity of 1,524MW thereafter. The locations of our mining datacenters in use, under construction and “in the pipeline” are illustrated in the diagram below.
![[MISSING IMAGE: mp_mining-4c.jpg]](https://cdn.kscope.io/917df61d08776f888057fb85a282b6b3-mp_mining-4c.jpg)
(1)
As of December 31, 2022, 199MW capacity under construction to be completed
(2)
As of December 31, 2022
(3)
“In the pipeline” includes 550MW power supply contracted or negotiated but not yet under active construction
•
Texas Mining Datacenter. Our mining datacenter in Rockdale, Texas became operational in February 2019 and had 563MW electricity capacity in use and 179MW electricity capacity under construction as of December 31, 2022.
•
Norway Mining Datacenters. Our mining datacenters in Fræna municipality (Molde mining datacenter) and Tydal municipality (Tydal mining datacenter), Norway became operational in December 2019 and had 114MW electricity capacity in use as of December 31, 2022. There were also 20MW electricity capacity under construction in the Norway mining datacenters as of December 31, 2022. We plan to add additional 175MW of electricity capacity from the expansion of facilities of the mining datacenter in Tydal, Norway.
•
Tennessee Mining Datacenter. Our mining datacenter in Knoxville, Tennessee became operational in May 2020 and had 86MW electricity capacity in use as of December 31, 2022.
•
Washington Mining Datacenter. Our mining datacenter in Pangborn, Washington became operational in May 2018 and had 13MW electricity capacity in use as of December 31, 2022.
We have accumulated knowledge and expertise in the global landscape of electric power supply, which enables us to select prime locations to construct mining datacenters. Currently, we expect to open additional mining datacenters in Ohio and Bhutan and are negotiating power supply for these sites, as illustrated in the diagram above. In particular, we expect to generate 100MW out of the 550MW power supply “in the pipeline” from Bhutan, where the construction of mining datacenter is expected to begin in the second quarter of 2023 and complete in the third quarter of 2023. We are also exploring other sites for constructions of our mining datacenters with an initial focus on North America, North Europe, Central Asia and Southeast Asia.
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Agreements Related to Our Proprietary Mining Datacenters
Lease Agreement for the Mining Datacenter in Rockdale, Texas
On June 6, 2018, Dory Creek, LLC, our subsidiary (formerly as Bitmain Inc.’s subsidiary), entered into the Lease Agreement with Alcoa USA Corp. (“Alcoa”), as amended by the First Amendment to Lease dated October 18, 2018, the Second Amendment to Lease dated May 1, 2019, the Third Amendment to Lease dated May 11, 2021, the Fourth Amendment to the Lease dated May 11, 2021, the Fifth Amendment to Lease dated September 15, 2021 and the Sixth Amendment to Lease dated October 25, 2021 (the “Texas Lease Agreement”), pursuant to which we lease land, certain buildings and improvements on the land, a certain portion of Alcoa’s power delivery network (“PUN”) and the non-exclusive right to use certain common areas in Rockdale, Texas, for the operation of a blockchain data processing software and hardware center (“Data Center”) as well as the office use and a technology repair facility related to the Data Center. Alcoa sells and conveys to us a 100% ownership interest in a certain PUN power circuit and the associated downstream components, subject to certain power delivery restrictions. Upon termination of the Texas Lease Agreement, our interest and ownership in the PUN will revert to Alcoa. We have an option to extend the term of this lease for two successive periods of five years (each such period an “Extension Term”). If applicable, on each January 1 during the Extension Term, the annual fixed rent shall increase by the greater of 2.5% or the percentage of the change in the CPI, not to exceed 5% in any single year between the first month and the eleventh month during the previous year.
The Texas Lease Agreement was subsequently assigned by Alcoa to SLR Property I, LP (“SLR”), with whom Dory Creek, LLC entered into the Seventh Amendment to Lease, pursuant to which we lease certain buildings and access areas for storage/warehouse use (the “Storage Premises”, the premises under the Texas Lease Agreement except the Storage Premises, the “Remainder Premises”). Our lease with the Storage Premises (the “Storage Premises Lease”) automatically expires on the earlier of December 31, 2025 or the date that the Remainder Premises Lease expires or terminates (the “Storage Premises Initial Term”). To the extent the Remainder Premises Lease remains in effect beyond the expiration of the Storage Premises Initial Term, we have the option to extend the Storage Premises Lease for one successive renewal period (the “First Storage Premises Renewal Term”) till the earlier of December 31, 2030 or the date that the Remainder Premises Lease expires or terminates. To the extent the Remainder Premises Lease remains in effect beyond the expiration of the First Storage Premises Renewal Term, we have the option to extend the Storage Premises Lease for another successive renewal period till the earlier of December 31, 2035 or the date that the Remainder Premises Lease expires or terminates.
Land Lease Agreement for the Molde Mining Datacenter in Fræna Municipality, Norway
On November 15, 2019, we entered into the Land Lease Agreement with Troll Housing AS through Norway Hash Technologies AS, our subsidiary, as amended by Addendum No. 1 to the Land Lease Agreement, dated December 6, 2020 (the “Molde Lease Addendum No. 1”), Addendum No. 2 to the Land Lease Agreement, dated March 22, 2021 (the “Molde Lease Addendum No. 2”), and Addendum No. 3 to the Land Lease Agreement, dated March 22, 2021 (the “Molde Lease Addendum No. 1”) (collectively, the “Molde Lease Agreement”), pursuant to which we lease land located at Klempertåsvegen 1, 6440 Elnesvågen, Norway to support our Molde mining datacenter with 67MW capacity. For the existing 30MW specified in Addendum 1, land rent is calculated based on the installed capacity of datacenter, with a unit price of NOK0.01 per kW prior to January 1, 2021 and NOK0.02 per kW starting from January 1, 2021. For the subsequent expansion of 37MW specified in Molde Lease Addendum No. 2 and the future potential expansions referred to in Molde Lease Addendum No. 3, the land rent is invoiced monthly and comprises two components, Monthly Rent 1 and Monthly Rent 2. Monthly Rent 1 is calculated based on datacenter capacity, with a fixed unit price of NOK0.0060 per kWh. Monthly Rent 2 is calculated using floating unit price, being adjusted downwards as total energy use, from the total capacity of Molde and Tydal mining datacenters excluding the existing 30MW specified in Molde Lease Addendum No. 1, goes up. The floating unit price for Monthly Rent 2 is NOK0.014 per kWh, NOK0.012 per kWh, NOK0.008 per kWh and NOK0.004 per kWh when energy used from datacenter capacity is high than 30MW and lower than 107MW, higher than or equal to 107MW and lower than 247MW, higher than or equal to 247MW and lower than 427MW, and higher than and equal to 427MW, respectively. The land lease for the corresponding expansion will be invoiced upon the relevant mining datacenter expansions are finished and delivered to us, the expansion passes the inspection
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before power-on and the power grid company completes the corresponding 132-22kV transformer upgrade. The term of the Molde Lease Agreement is from December 1, 2019 to December 31, 2029, renewable within the term.
Land Lease Agreement for the Tydal Mining Datacenter in Tydal Municipality, Norway
On April 8, 2021, we entered into the Land Lease Agreement with Tydal Datacenter AS through Norway Hash Technologies AS, our subsidiary (the “Tydal Lease Agreement”), pursuant to which we lease land located at Kirkvollen Industriområde, 7590 Tydal, Norway to support our Tydal mining datacenter. The land lease will be invoiced upon the relevant mining datacenter expansions are finished and delivered to us, the expansion passes the inspection before power-on and the power grid company completes the corresponding 132-22kV transformer upgrade. The land rent comprises two components, Monthly Rent 1 and Monthly Rent 2. Monthly Rent 1 is calculated based on datacenter capacity, with a fixed unit price of NOK0.0060 per kWh. Monthly Rent 2 is calculated according to Molde Lease Addendum No. 3. See the section entitled “— Land Lease Agreement for the Molde Mining Datacenter in Fræna Municipality, Norway” above. The term of the Tydal Lease Agreement is from April 1, 2021 to March 31, 2031, renewable within the term.
Commercial Purchase and Sale Agreement for the Mining Datacenter in Knoxville, Tennessee
On February 26, 2018, Bitmain Inc. entered into the Commercial Purchase and Sale Agreement with Kemet Foil Manufacturing LLC, FKA Cornell Dublilier pursuant to which it purchased from Kemet Foil Manufacturing LLC, FKA Cornell Dublilier a tract of land of approximately 9.88 acres improved with a 77,678 square foot industrial building together with all fixtures, landscaping, improvements, and appurtenances, located at 5101 S. National Drive, Knoxville, Tennessee, 37914, for a consideration of US$3.6 million. On March 20, 2018, Bitmain Inc. transferred a quitclaim deed of the afore-mentioned track of land to Carpenter Creek LLC, our subsidiary, in consideration of the sum of one dollar and other good and valuable considerations.
Vacant Land Purchase and Sale Agreement for the Mining Datacenter in Pangborn, Washington
On August 3, 2017, we entered into the Vacant Land Purchase and Sale Agreement with Blackhawk Development Inc through Ant Creek, LLC, our subsidiary, pursuant to which we purchased from Blackhawk Development Inc a tract of land of 3 acres located at BLA of Parent Parcel 93700000002, East Wenatchee, WA 98802 for a consideration of US$0.4 million. We use the land to support the operation of our mining datacenter in Pangborn, Washington.
Energy
We have built, and will continue to make significant investment in building strong partnerships with local electricity experts and power enterprises. Through these partnerships, we reached an average electricity cost of our proprietary mining datacenters to US$50/MWh for the year ended December 31, 2022. We entered into electric power supply agreements with electricity suppliers to secure low electricity costs for our mining datacenters in Rockdale, Texas, and in Norway.
We consider environmental protection vitally important and have implemented measures in the operation of our business, in particular mining datacenters, to ensure our compliance with all applicable laws and regulations in the United States, Norway and other applicable jurisdictions. Our hash rate expansion strategy is energy conscious. We constantly monitor the operation of our mining machines and replace old mining machines models with new ones periodically to optimize energy efficiency. As a result, we successfully lowered our average energy consumption from 47.3j/T as of December 31, 2020 to 39.2j/T as of December 31, 2021 and further to 36.5j/T as of December 31, 2022. Through years of experience in and deep insight into the global power supply market, we are able to discover outstanding mining construction resources that are both cost-efficient and environmentally friendly.
We stick with high environmental, social and governance (ESG) standards and strive to constantly increase the ratio of power supply generated from carbon-free energy. The ratio of our carbon-free power supply reached approximately 52% as of December 31, 2022, and is expected to be remain at around 53% upon completing the construction of all mining datacenters “in the pipeline”. The ratio of our carbon-free
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power supply, as used herein, represents the weighted average ratio of carbon-free power supply at our datacenters, weighting in the respective electricity capacity at each datacenter. To be more specific, it is calculated by dividing (x) the sum of ratio of carbon-free power supply multiple by electricity capacity at each of our datacenters, by (y) the total electricity capacity contributed by all our datacenters.
According to the latest available statistics regarding energy structure of power supply from respective local authorities or suppliers as of December 31, 2022, (i) the power supply in our mining datacenter in Pangborn, Washington was 100% carbon-free, almost entirely supported by hydroelectric resources, (ii) the power supply in our mining datacenters in Molde and Tydal, Norway was 100% carbon-free, primarily supported by wind and hydroelectric resources, (iii) the power supply in our mining datacenter in Rockdale, Texas was approximately 40% carbon-free, supported by clean energy resources such as wind, nuclear, solar and hydroelectric, as well as traditional energy resources such as gas and coal, and (iv) the power supply in our mining datacenter in Knoxville, Tennessee was approximately 60% carbon-free, supported by clean energy resources, such as unclear, hydroelectric and solar, as well as traditional energy resources such as clean-burning natural gas units. To further improve the ratio of our carbon-free power supply, we intend to engage a carbon offset strategy consultant to formulate a carbon emissions offsetting plan for our mining datacenters in Texas.
Sales and Marketing
Historically, we attracted and retained our customers by offering high-quality products and services, without heavily relying on online or offline advertising campaigns to promote the sales of our products and services. The quality of our products and services is demonstrated by the 100% continuous hash rate online rate and minimum customer complaints.
Technologies
We stay at the forefront of technology development and have built prominent research and development capabilities. We benefit from our continuous investment in research and development as well as our strong and expanding research and development talent pool. Our core technical team has an average of over eight years of experience in major market players in the cryptocurrency industry. We have obtained patents to support key technologies underpinning our operations.
Our technology capabilities drive the differentiation of our business. In particular, the following technologies enable us to constantly improve our proprietary mining efficiency, offer differentiated and quality products and services, and minimize impacts to the environment.
•
Hash rate slicing. We supply our customers the subscribed amount of hash rate by first dividing hash rate into “time slices,” each encompasses a certain number of calculations over a period of time. Through hash rate slicing, hash rate is divided into “time slices” by algorithm instead of by manual intervention and then submitted to multiple mining pool accounts to support multiple users. Our ability to generate a minimum hash rate unit of 1TH/s enables us to adjust hash rate allocation accurately and dynamically, and optimize operating metrics automatically in order to minimize fluctuations in terms of quantum in hash rate supply under Cloud Hash Rate.
•
Hash rate scheduling. We are able to achieve redeployment of hash rate across different mining machines through hash rate scheduling. When a single machine fails, hash rate from other mining machines can be instantly dispatched to ensure timing stability of hash rate supply. As a result, we are able to maintain a hash rate online rate of 100% under Cloud Hash Rate.
•
Real-time monitoring. Minerplus supports efficient and constant monitoring, automated operation and maintenance as well as data analysis for mining machines of different models under different brands, located in mining datacenters of different sizes in different locations. We have developed a highly efficient monitoring model adopting a procedure of prediction — feature analysis — data processing — reverse operation, which is able to accurately identify and quickly scan the monitored objects, and return operating data of the mining machine in real-time.
•
Clean energy. We have taken various measures to increase the ratio of clean energy in support of the operations of our mining datacenters. As of December 31, 2022, our non-carbon energy supply ratio
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was approximately 52%. Our research and development team has started the feasibility assessment of the use of solar power to support our mining datacenters. We have also spent considerable efforts in minimizing the impact on the local environment. For example, instead of building new plants from the ground, we renovated abandoned or deserted plants on sites when constructing our mining datacenters in Tennessee and Texas. See the section entitled “— Energy” above for more details.
Competition
For our proprietary mining business, we compete with mining operations throughout the world. We compete to solve new blocks on the basis of our total number of mining machines, the degree of mining difficulty and the efficiency of our mining. We also compete to acquire new mining machines, to obtain access to facilities and prime location of mining operations, to electricity, to develop or acquire new technologies and to raise capital.
For our hash rate sharing business line, we compete on both the quantity and the quality of our hash rate supply, which depends on our mining datacenter resources, the total number of our mining machines, our ability to involve third-party hash rate suppliers and our access to technologies to maintain hash rate supply stability. While we face competition from hash rate suppliers like FROGBT, we also seek cooperation with these third-party hash rate suppliers and build synergy-generating relationships by introducing them to our Hash Rate Marketplace and connecting them to our hash rate users. Together with other market players, we make available diverse and quality hash rate products on our Hash Rate Marketplace, facilitate the growth of our user base, and both third-party hash rate suppliers and ourselves can enjoy the faster cash payback enabled by a thriving Hash Rate Marketplace.
For our hosting service, we compete with other hosting operations globally. Our competitiveness depends on our ability to supply hosting space and power, our deployment, management and operation capabilities, the value of our service offering to customers, the availability of mining equipment and technologies, etc. Our innovative computing and hosting service “group-buying” model under Cloud Hosting gives us a clear advantage. We also enjoy the first-mover advantage in mining datacenter deployment and operation as well as mining machine management.
We operate in highly competitive industries for cryptocurrency mining and related services. Our competitors include Argo Blockchain PLC, Bit Digital, Inc., Bitcoin Investment Trust, Bitfarms Technologies Ltd., Blockchain Industries, Inc, Cipher Mining Inc., Coinbase, Inc., Digihost International, Inc., DMG Blockchain Solutions Inc., DPW Holdings, Inc., HashChain Technology, Inc., Hive Blockchain Technologies Inc., Greenidge Generation Holdings Inc., Hut 8 Mining Corp., Layer1 Technologies, Inc., Marathon Digital Holdings, Inc., MGT Capital Investments, Inc., Northern Data AG, Overstock.com Inc., Riot Blockchain, Inc. and TeraWulf Inc. Many of our competitors are well-known worldwide players and we face competitors that are larger than us and have advantages over us in terms of economies of scale and financial and other resources. Some of our competitors may also have stronger brand names, greater access to capital, longer histories, longer relationships with their suppliers or customers and more resources than we do. Furthermore, these competitors may be able to adapt to changes in the industry more promptly and efficiently. As such, we expect that competition in our markets will continue to be intense.
Intellectual Property
As of December 31, 2022, we owned eight registered patents, 10 registered copyrights, 138 registered trademarks and 171 registered domain names. We are also in the process of applying for eight registered patents. The protection of our intellectual property and all corresponding rights throughout the world, including our trademarks, service marks, trade dress, logos, trade names, domain names, goodwill, patents, copyrights, works of authorship (whether or not copyrightable), software and trade secrets, know-how, and proprietary and other confidential information, together with all applications, registrations, renewals, extensions, improvements and counterparts in connection with any of the foregoing, is important to the success of our business. We seek to protect our intellectual property rights by filing applications in various patent, trademark and other government offices, and relying on applicable laws and regulations in the U.S. and internationally, as well as a variety of administrative procedures. We have routinely entered into confidentiality and invention disclosure and assignment agreements with our employees and contractors, and
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non-disclosure agreements with external parties with whom we conduct business to control access to, and use and disclosure of, our proprietary information.
Seasonality
Our hash rate level is typically slightly lower in summer as temperature affects mining machine performance regarding hash rate generation.
Government Regulation
Due to the relatively short history of cryptocurrencies, and their emergence as a new asset class, government regulation of blockchain and cryptocurrencies is constantly evolving, with increased interest expressed by U.S. and internal regulators. For example, the Cyber-Digital Task Force of the U.S. Department of Justice published a report entitled “Cryptocurrency: An Enforcement Framework” in October 2020 that detailed the Department’s view with respect to cryptocurrencies and the tools at the Department’s disposal to deal with threats posed by cryptocurrencies. In March 2021, the nominee for Chair of the SEC expressed the need for investor protection along with promotion of innovation in the cryptocurrency space.
Government regulation of blockchain and cryptocurrencies is under active consideration by the United States federal government via its agencies and regulatory bodies, as well as by similar entities in other countries and transnational organizations, such as the European Union. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Other governmental or semi-governmental regulatory bodies have shown an interest in regulating or investigating companies engaged in blockchain or cryptocurrency businesses. For instance, the SEC has taken an active role in regulating the use of public offerings of proprietary coins (so-called “initial coin offerings”) and has made statements and official promulgations as to the status of certain cryptocurrencies as “securities” subject to regulation by the SEC.
The effect of any regulatory change, either by the Federal, state, local or foreign governments or any self-regulatory agencies on us is impossible to predict, but such change could be substantial and may have a material adverse effect on our business, financial condition and results of operations. While we are unaware of significant adverse governmental or regulatory action adverse to Bitcoin or Ethereum mining in the United States, there is no guarantee that future regulation or adverse action will not take place and interpretation of existing regulations in a manner adverse to our business is possible.
In addition, various foreign jurisdictions either have adopted, or may adopt, laws, regulations or directives that affect cryptocurrencies, cryptocurrency networks, and their users and participants. Such laws, regulations or directives may conflict with those of the United States, may negatively impact the acceptance of cryptocurrencies by users, merchants and service providers outside of the United States, and may therefore impede the growth of cryptocurrencies. A number of Eastern European and Asian countries currently have a more restrictive stance toward cryptocurrencies and, thereby, have reduced the rate of expansion of cryptocurrency use, as well as cryptocurrency transaction processing, in each of those countries. Presently, we do not believe any U.S. or State regulatory body has taken any action or position adverse to our main cryptocurrency, Bitcoin, with respect to its production, sale, and use as a medium of exchange; however, future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability.
As the regulatory and legal environment evolves, we may become subject to new laws, such as further regulation by the SEC and other agencies, which may affect our mining and other activities.
C.
Organizational Structure
Upon consummation of the Business Combination, Bitdeer and BSGA became wholly-owned subsidiaries of the Company. The following diagram depicts a simplified organizational structure of the Company as of the date hereof. These subsidiaries are also set forth in Exhibit 8.1 to this Report.
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|
Name*
|
| |
Jurisdiction
|
| |
% of Ownership Interest Held by
Bitdeer Technologies Group |
|
| Bitdeer Technologies Holding Company | | | Cayman Islands | | |
100%
|
|
| STRAITDEER PTE. LTD. | | | Singapore | | |
100%
|
|
| Sharpening Technology Limited | | | British Virgin Islands | | |
100%
|
|
| Bitdeer Technologies Limited | | | Hong Kong | | |
100%
|
|
| Bitdeer Netherlands B.V. | | | Netherlands | | |
100%
|
|
| Bitdeer Norway AS | | | Norway | | |
100%
|
|
| Norway Hash Technologies AS | | | Norway | | |
100%
|
|
| Bitdeer Inc. | | | United States of America | | |
100%
|
|
| Bitdeer Equipment (Canada) Inc. | | | Canada | | |
100%
|
|
| Carpenter Creek. LLC | | | United States of America | | |
100%
|
|
| Ant Creek, LLC | | | United States of America | | |
100%
|
|
| Dory Creek, LLC | | | United States of America | | |
100%
|
|
| Z Engineers, LLC | | | United States of America | | |
100%
|
|
| Bitdeer Sales (USA) Inc. | | | United States of America | | |
100%
|
|
| Brock Creek LLC | | | United States of America | | |
100%
|
|
*
Other subsidiaries of the Company, including BSGA, have been omitted because, in the aggregate, they would not be a “significant subsidiary” as defined in rule 1-02(w) of Regulation S-X as of the completion of the Business Combination.
D.
Property, Plants and Equipment
Our property, plants and equipment are held through Bitdeer. Information regarding Bitdeer’s property, plants and equipment is set forth in the Form F-4 in the sections entitled “Information Related to Bitdeer — Our Proprietary Mining Datacenters” and “Information Related to Bitdeer — Facilities,” which are incorporated herein by reference.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A.
Operating Results
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties about our business and operations. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we describe under “Item 3. Key Information — D. Risk Factors” and elsewhere in this Report.
Recent Developments
Recent events impacting our business are as follows:
Business Combination
We consummated the Business Combination on April 13, 2023. Our Class A Ordinary Shares commenced trading on the Nasdaq on April 14, 2023, under the symbol “BTDR.”
Key Performance Metrics
We regularly review a number of metrics, including the key metrics presented below, to evaluate our business and performance.
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Hash Rate
We believe hash rate is an important metric for assessing the strength of our business. “Hash rate” is a measure of computational power that is being used to mine and process transactions on a PoW blockchain, such as Bitcoin, representing the number of calculations per second that can be performed. Cryptocurrency mining is a competitive process in that only the first miner who solves a particular mining puzzle through numerous calculations can get the mining reward. Accordingly, the more hash rate we possess, as a percentage of the entire network hash rate for a particular cryptocurrency, the higher possibility we have in resolving a block on the network blockchain, and hence a greater chance of success in obtaining cryptocurrency rewards. We calculate and report our hash rate in EH/s. One exahash equals one quintillion hashes per second. As of December 31, 2022, we possessed proprietary hash rate of 4.1 EH/s.
Electricity Capacity
Electricity capacity is another key metric to evaluate our business and operation given the energy intensive nature of cryptocurrency mining. Cryptocurrency mining is conducted through intensive computations, and the generation of the hash rate used in such computations requires large amounts of electricity. As a result, the growth of our business, such as proprietary mining and hash rate sales through Cloud Hash Rate, relies on a sustainable and increasing supply of a significant amount of electricity, which is currently supported by our proprietary mining datacenters. As of December 31, 2022, our electricity capacity was 775MW.
Electricity Cost
As our business operations consume a large amount of electricity and electricity cost in operating mining machines accounts for a significant portion of our overall cost of revenue, we strive to maintain our leadership position in the global electricity cost curve by building mining datacenters worldwide, where low electricity cost supports stable operations. As such, we see electricity cost a key indicator of our business performance. Our premier mining datacenters allowed us to reach an average electricity cost of our mining datacenters to US$50/MWh for the year ended December 31, 2022.
Non-IFRS Financial Measures
In evaluating our business, we consider and use non-IFRS measures, adjusted EBITDA and adjusted profit/(loss), as supplemental measures to review and assess our operating performance. We define adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, further adjusted to exclude share-based payment expenses under IFRS 2, and define adjusted profit/(loss) as profit/(loss) adjusted to exclude share-based payment expenses under IFRS 2. We present these non-IFRS financial measures because they are used by our management to evaluate our operating performance and formulate business plans. We also believe that the use of these non-IFRS measures facilitate investors’ assessment of our operating performance. These measures are not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider these measures in isolation from, or as a substitute analysis for, our profit/(loss) for the periods, as determined in accordance with IFRS.
We compensate for these limitations by reconciling these non-IFRS financial measures to the nearest IFRS performance measure, all of which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on a single financial measure.
The following table presents a reconciliation of profit/(loss) for the relevant period to adjusted EBITDA and adjusted profit/(loss), for the years ended December 31, 2020, 2021 and 2022.
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| | | |
For the Year Ended December 31
|
| |||||||||||||||
| | | |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
| | | |
US$
|
| |
US$
|
| |
US$
|
| |||||||||
| | | |
(in thousands)
|
| |||||||||||||||
| Adjusted EBITDA | | | | | | | | | | | | | | | | | | | |
|
Profit/(loss) for the year
|
| | | | (55,826) | | | | | | 82,643 | | | | | | (60,366) | | |
| Add: | | | | | | | | | | | | | | | | | | | |
|
Depreciation and amortization
|
| | | | 112,037 | | | | | | 63,055 | | | | | | 66,424 | | |
|
Income tax expenses/(benefit)
|
| | | | (7,961) | | | | | | 48,246 | | | | | | (4,400) | | |
|
Interest expense/(income), net
|
| | | | 404 | | | | | | (504) | | | | | | 912 | | |
|
Share-based payment expenses
|
| | | | — | | | | | | 88,355 | | | | | | 90,648 | | |
|
Adjusted EBITDA
|
| | | | 48,654 | | | | | | 281,795 | | | | | | 93,218 | | |
| Adjusted Profit/(Loss) | | | | | | | | | | | | | | | | | | | |
|
Profit/(loss) for the year
|
| | | | (55,826) | | | | | | 82,643 | | | | | | (60,366) | | |
| Add: | | | | | | | | | | | | | | | | | | | |
|
Share-based payment expenses
|
| | | | — | | | | | | 88,355 | | | | | | 90,648 | | |
|
Adjusted profit/(loss)
|
| | | | (55,826) | | | | | | 170,998 | | | | | | 30,282 | | |
Key Factors Affecting Our Results of Operations
The following factors are the principal factors that have affected and will continue to affect our business, financial condition, results of operations and prospects.
Price and volatility of Bitcoin
We derive, and expect to continue to derive, a significant portion of revenue from proprietary mining of cryptocurrency, primarily Bitcoin. Hence, our ability to generate revenue from this business line is directly affected by the market price of Bitcoin. The Bitcoin price may also impact the use of our mining machines. Our proprietary mining business breaks even so long as it is economically beneficial for us to continue to operate our mining machines, and that is essentially when the mining machines contribute positive cash flow (i.e., when the variable cost to mine one Bitcoin, namely the electricity cost, equals the market price of a Bitcoin, which we refer to as “shutdown Bitcoin price” for our proprietary mining business). So long as the Bitcoin price is higher than the “shutdown Bitcoin price,” we would continue to operate our mining machines and such operation would be economically beneficial to us. See the section entitled “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business, Operations, Industry and Financial Condition — Our results of operations have been and are expected to continue to be significantly impacted by Bitcoin price fluctuation.” In addition, the depreciation and impairment potential of our mining machines may be affected by the volatility of the market prices of Bitcoin and other cryptocurrencies. See the section entitled “— Our ability to procure mining machines at a lower cost” below. On the other hand, a drop in Bitcoin price may also create an opportunity for us to add cheaper mining machines to our mining fleets. We also generate a large percentage of revenue from Cloud Hash Rate, which offers hash rate to be utilized by third-party miners. As a result, revenue from this business line is also correlated with Bitcoin price and volatility.
However, there are a number of other factors that contribute to changes in Bitcoin price and volatility, including, but not limited to, Bitcoin market sentiment, macroeconomic factors, utility of Bitcoin, and idiosyncratic events such as exchange outages or social media. These factors have contributed to the depreciation of Bitcoin. For example, recent industry-wide developments, including the continued industry-wide fallout from the recent Chapter 11 bankruptcy filings of cryptocurrency exchanges FTX (including its affiliated hedge fund Alameda Research LLC), crypto hedge fund Three Arrows, crypto miners Compute North and Core Scientific and crypto lenders Celsius Network, Voyager Digital and BlockFi, have led to a drop in Bitcoin price. The Bitcoin price has dropped significantly from its last peak on November 9, 2021 to US$15,986 on November 22, 2022, its lowest point since the last peak, and returned to US$29,923, as of April 18, 2023.
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Despite the recent market volatility, the appreciation potential of Bitcoin remains high due to several factors. Bitcoins are inherently scarce, given they are designed to have a finite supply of 21 million associated with a depreciating rewarding mechanism, termed “halving,” under which the reward for mining Bitcoin transactions is reduced in half every four years. The growing recognition of Bitcoins also attracts large investment into the Bitcoin economy, as evidenced by an increasing installed network hash rate of Bitcoin globally, and increasing adoption of Bitcoin as an investment instrument and a payment method. Further, more countries are establishing clear and robust regulations to create a more stable environment for Bitcoin mining and trading, which may facilitate the demand for Bitcoins and Bitcoin price appreciation. The Bitcoin price has soared by 236% from the last peak at US$20,089 on December 17, 2017 to US$67,562 on November 9, 2021, according to Frost & Sullivan.
While we have seen clear growth in both of our proprietary mining and Cloud Hash Rate business, we have limited ability to predict Bitcoin price and its volatility, which we expect to continue to affect our future earnings and cash flows.
Our ability to maintain our leadership position in proprietary hash rate
A prevailing strategy to profit from proprietary hash rate is mining. The cryptocurrencies mined can be sold at a profit when their market value is high enough to cover the cost of mining machines, electricity fees and other mining-related expenses. Bitcoins are intentionally designed to be resource-intensive and difficult to mine, rendering hash rate critical in the mining industry. Possessing a higher share of network hash rate translates to a higher likelihood of generating mining awards.
We strive to maintain our leadership position in proprietary hash rate. In particular, we have established a business model that allows us to constantly reinforce our market-leading position and outpace our competitors in terms of scaling up our proprietary hash rate. We strategically allocate a significant amount of proprietary hash rate to hash rate sales through our Cloud Hash Rate business, to enable instant cash payback upon customers’ subscription to our hash rate plans. We generally generate proceeds from hash rate sales under long-term hash rate subscription plans that approximate the purchase cost of mining machines. We are able to achieve such a premium against mining machine purchase cost as our hash rate subscription plans save hash rate buyers the efforts from complex mining operation and maintenance and have built brand recognition among customers. Therefore, we are able to continuously grow our proprietary hash rate by funding the purchase of additional mining fleets with the instant cash collected from hash rate sales using our existing mining fleets, significantly reducing our payback period to one month, compared to the long payback period associated with cryptocurrency mining activities, which is typically from 6 to 18 months, according to Frost & Sullivan. We intend to continuously scale up our infrastructure and proprietary hash rate in this efficient manner in order to maintain and reinforce our leading position in proprietary hash rate. However, whether we can achieve a premium through this model depends on various factors, such as the supply and demand in both mining machines and global mining datacenters, whether miners prefer conducting mining operations on their own and technology advancements. Short-term Bitcoin price fluctuations is another contributing factor as quickly adjusting the pricing of our hash rate subscriptions plans to reflect such price change is difficult, if not impossible. Whether this approach will remain effective will affect our ability to add more mining fleets to support the scale-up of our infrastructure and hash rate.
Our ability to procure mining machines at a lower cost
Depreciation of mining machines remained one of the few largest costs we incurred in our business operations for the years ended December 31, 2020, 2021 and 2022. Depreciation of mining machines is directly affected by the purchase price of these machines.
If the market value of cryptocurrencies increases, the demand for the most recent and efficient mining machines has also increased, leading to scarcity in the supply of and thereby an increase in the price of mining machines. As a result, the cost of new machines can be unpredictable, and could also be significantly higher than our historical cost for new mining machines. Based on our well-established network with upstream mining machine suppliers and traders, we believe that we are able to secure spot machines for the most recent and most commonly used models at a relatively low price for a majority of our mining machines and thereby lowering depreciation of mining machines. On the other hand, a decrease in market value of cryptocurrencies may present opportunities for us to procure cheaper mining machines. For example, in light of the recent
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decrease and volatility of Bitcoin price, we are in the process of establishing a fund to purchase mining machines from financially distressed miners, if the value and quality of such mining machines are satisfactory to us.
However, whether we are able to successfully procure mining machines at a low price is subject to a number of factors, including our brand strength, our mining machine purchase channels, and supply and demand of mining machines, some of which may not be entirely within our control. Even if we are able to procure mining machines at a lower cost, the depreciation and impairment potential of our mining machines may nevertheless be affected by the volatility of the market prices of Bitcoin and other cryptocurrencies. We may need to reconsider the appropriateness of the current useful life, the residual value and the depreciation method of our mining machines based on the change in cryptocurrency prices on a yearly or more frequently basis. In addition to the reassessment of depreciation, we may also need to assess whether any indications are present which will result in impairments of our mining machines. For example, impairments may be necessary if the expected operating profits from the mining machines show a significant decline from previous forecasts, which may be caused if the market price of Bitcoin drops below the mining machine shut-down price.
Our ability to effectively maintain our leadership position in the global electricity cost curve
Electricity cost was the other largest cost, besides depreciation of mining machines, that we incurred in our business operations for the years ended December 31, 2020, 2021 and 2022.
Our ability to secure ample power supply with low electricity cost is underpinned by our top-notch global mining datacenters deployment and operation experience and capabilities. We pioneer in deploying and operating mining datacenters globally. Our dedicated global team for mining datacenter construction understands the critical needs of mining as well as the complex and continuously evolving global landscape of electricity supply. They also have extensive connections with local electricity experts and power enterprises around the world, giving us a clear advantage in mining datacenter construction, and hence in electricity capacity and electricity costs among our competitors. We were able to optimize our electricity cost structure and reach an average electricity cost of our proprietary mining datacenters to US$50/MWh for the year ended 2022. Whether our current cost-saving efforts or our forward strategy in this regard is effective for maintaining our leadership position in the global electricity cost curve will affect our ability to control our costs.
Our business judgments regarding pricing strategy and resource allocation
Our business operations involve constant and important decision-making regarding the pricing of our products and services as well as allocation of mining resources. Our pricing strategy is based on our estimates of market trends. As we operate three business lines, we have to decide the allocation of proprietary hash rate between “proprietary mining” and “hash rate sharing” as well as the allocation of mining datacenter capacity among “proprietary mining”, “hash rate sharing” and “hosting”. While allocating more mining resources to “hash rate sharing” and “hosting” services may facilitate cash payback and mining datacenter expansion, we have to forgo Bitcoin’s huge appreciation potential to some extent as we could earn more Bitcoins by allocating the same mining resources to “proprietary mining”, and vice versa. We spend great efforts in making decisions in the Company’s best interest, taking into account Bitcoin price, network hash rate, the amount of cash we need and our view on the market opportunities for acquiring mining machines or expanding mining datacenters at low cost, etc. However, we cannot guarantee that our decisions could bring the Company the best results every time, and we anticipate our business judgments will continue to affect the results of our operations.
Our ability to upgrade and expand our offerings
Crypto-economy is characterized by continuous fluctuations and frequent innovations. Therefore, our future success is dependent on our ability to diversify our income structure to reduce exposure to fluctuations of the price of Bitcoin, the most significant type of cryptocurrency involved in our business operation, and maintain our market-leading position by upgrading and expanding our offerings. We launched Minerplus in January 2021 to improve operational efficiency for our proprietary mining business and miner customers. We expect to further expand our hosting service and generate more revenue from the service. We are in the process of building an efficient hash rate trading marketplace connecting third-party hash rate suppliers and hash rate buyers. We intend to enrich our product and service portfolio by providing mining services covering new
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crypto protocols, including Proof-of-Stake (“PoS”), Delegated Proof-of-Stake (“DPoS”), Proof-of-Spacetime (“PoSt”) and Proof-of-Capacity (“PoC”), and steadily increase the weight of new business to diversify revenue streams and attract new customers who are users of these new crypto protocols.
Although we have accumulated extensive expertise and know-how in the cryptocurrency industry, we are only at an earlier stage of executing our offering expansion plan. Upgrading existing offerings and commencing new businesses may incur significant costs and experience a prolonged ramp-up period. Although we expect these investments to benefit our business over the long term, we also expect our total operating expenses will increase for the foreseeable future. If any adverse development in such new businesses arises, we may not be able to develop those new businesses as successfully as contemplated, or at all, and our results of operations and prospects may be significantly and negatively affected as a result.
Regulatory environment
We are a leading cryptocurrency mining service provider with a strong global presence. As of December 31, 2022, we operated five prime mining datacenters in the United States and Norway and had served users across over 100 countries and regions around the globe, and may continue to expand our operations to more countries and regions. Each of our business lines is subject to government regulation in each jurisdiction in which we operate and various jurisdictions may from time to time adopt laws, regulations or directives that affect our businesses. We are subject to regulatory risks with regards to mining, holding, using, or transferring cryptocurrencies, etc., and the uncertainty of the regulatory environment and our ability to anticipate and respond to potential changes in government policies and regulations will have a significant impact on our business operations in countries we operate in and our overall results of operations. Regulations have impacted or could impact, among others, the nature of and scope of offerings we are able to make available, the pricing of offerings on our platform, our relationship with, and incentives, fees and commissions provided to or charged from our business partners, our ability to operate in certain segments of our business. We expect that our ability to manage our relationships with regulators in each of our markets, as well as existing and evolving regulations will continue to impact our results in the future.
Impact of COVID-19
The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020, and the subsequent restrictive measures imposed by the governments around the world have caused disruption to businesses and resulted in significant global economic impacts. COVID-19 has also historically impacted the payment efficiency of certain of our customers. The effects the pandemic are subsiding and we, at present, are conducting business and operations as usual. As of the date of this Report, these impacts have not had a significant effect on our financial results or operations and liquidity. See the section entitled “Item 3. Key Information — D. Risk Factors — The COVID-19 pandemic has brought a significantly negative impact on the global economy, industry and market conditions. The ongoing development and the global control on the pandemic are unclear, which may increase the instability of Bitdeer’s development, materially and adversely affecting Bitdeer’s results of operations” for further details regarding risks related to the COVID-19 pandemic.
Key Components of Our Results of Operations
Revenue
We generate revenue from (i) proprietary mining, (ii) hash rate sales through Cloud Hash Rate, (iii) Cloud Hosting, (iv) General Hosting, (v) Membership Hosting, (vi) sales of mining machines and (vii) others, which mainly consist of the provision of technical and human resources service, repairment services of hosted mining machines, lease of investment properties and the sale of mining machine peripherals. Historically, we only accepted cryptocurrency for Cloud Hosting. For our other products and services available to customers, we accept both fiat currency and cryptocurrencies as payments.
Proprietary Mining
We enter into contracts with mining pool operators to provide computing power generated from our own mining machines to the mining pools. The contracts with mining pool operators are terminable at any time by either party. In exchange for providing computing power to the mining pool, we are entitled to cryptocurrency
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rewards from the mining pool operators, which is a variable consideration calculated based on a predetermined formula agreed by us and the mining pool operator as a part of the arrangement. The variable consideration is constrained until we can reasonably estimate the amount of mining rewards by the end of a given day based on the actual amount of computing power provided to the mining pool operators. By then, we consider it is highly probable that a significant reversal in the amount of revenues will not occur and includes such variable consideration in the transaction price. Providing computing power is an output of our ordinary activities and the only performance obligation in our contracts with mining pool operators. We recognize the revenue when the variable consideration is no longer constrained and the performance obligation of providing computing power has been satisfied. As a result, we do not present disaggregated revenue information on block rewards and transaction verification fees.
Cloud Hash Rate
Through Cloud Hash Rate, customers can subscribe to a specified amount of computing power derived from the mining machines held by us for a period of time through a wide selection of hash rate subscription plans offered by us, differentiated by plan duration and the type of cryptocurrency to be mined. By subscribing to the hash rate subscription plan, the customers are able to direct the computing power provided by us to be connected to a customer-designated mining pool for a period of time. As a result of directing the connection of such computing power to the mining pools, the customers are entitled to the mining rewards, which are directly transferred from mining pools to the customer-designated cryptocurrency wallets. Customers pay a fixed amount for the subscribed hash rate at the commencement of the plans. The revenue related to hash rate subscriptions is amortized ratably throughout the duration of the plan. The customer also needs to separately pay for electricity subscriptions to maintain the mining machines that produce the subscribed hash rate. The revenue related to electricity subscriptions is recognized ratably throughout the duration of each respective electricity subscription. The price of electricity subscription is fixed at the commencement of each electricity subscription. The hash rate subscription plans are offered under two modes. Under the classic mode, the customer receives all of the mining rewards from the mining pool. Under the accelerator mode, the customer pays a relatively lower computing power subscription fee. In exchange, we are entitled to additional consideration once the customer’s cost is recovered. The additional consideration is determined as a percentage of a customer’s mining profit derived from the subscribed computing power. We accept both cryptocurrency and fiat currency as payments under the Cloud Hash Rate arrangements.
Cloud Hosting
Through Cloud Hosting, we provide our customers one-stop mining machines hosting solution that integrates the provision of computing power generated from the specified second-hand mining machines and the provision of maintenance service, which primarily includes electricity supply and daily maintenance and repair care. We charge our customers an upfront amount at the commencement of the Cloud Hosting arrangements so the customers can secure the procurement of the computing power from the specified mining machines and the corresponding revenue is recognized ratably over the term of the service, which approximates to the life of the specified mining machines and is estimated to be two years, and maintenance service fee, based on the consumption of resources, such as electricity, and the corresponding revenue is recognized across each service cycle. The estimated life of these mining machines is reviewed at least at each financial year-end and adjusted if the expectation of the realization of economic benefits from the specified mining machines is different from the previous estimate. The Cloud Hosting arrangements are offered under two modes. Under the classic mode, the customer receives all of the mining rewards from the mining pool. Under the accelerator mode, the customer is charged with a lower upfront amount and enjoys a quicker recovery of the costs. In exchange, we are entitled to additional consideration once a customer’s cost is recovered. The additional consideration, which is variable, is determined as a percentage of a customer’s mining profit derived from the computing power of the specified mining machines and constrained until the mining pool operator finishes the calculation of the mining reward related to the mining activity in a given day. We include such additional consideration in the transaction price and recognizes revenues when we can reasonably calculate the amount and determine it is probable a significant reversal will not occur. We did not generate any revenue from the additional consideration from Cloud Hosting arrangements offered under the “accelerated payback mode” for the years ended December 31, 2020, 2021 and 2022. We historically only accept cryptocurrency as payments for services under the Cloud Hosting arrangements. Under the Cloud Hosting arrangements, our customers’ ability to direct the use of, and to obtain substantially all of the remaining benefits from, the mining machines
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is limited while the mining machines are in our possession. We have determined that we still retain control over the mining machines and consequently, the mining machines under the Cloud Hosting arrangements were not derecognized from our book.
General Hosting
We provide General Hosting services that enable our customers to run blockchain computing operations. The service fee is charged to our customers monthly on a consumption basis, such as the amount of electricity used in a period, based on the customer’s use of such resources. Revenue from the General Hosting service is recognized across each service cycle. We accept both cryptocurrency and fiat currency as payments for the provision of custody and hosting service.
Membership Hosting
We offer Membership Hosting services to our large-scale miner customers by entering into a series of contracts, which includes a membership program agreement and a management services agreement. These contracts are signed with the same customer at or near the same time, and they are combined and accounted for as a single contract.
Unlike General Hosting where the customer’s access to mining datacenter capacity is subject to the availability of such capacity at the time the request was raised, a customer under Membership Hosting will be designated of certain capacity (i.e., designated capacity) exclusive for use by such customer, by signing a standard membership program agreement. We also provide other program benefits, if available, to customers under Membership Hosting, including, among other things, (i) early, priority and exclusive access to the newly available mining datacenter capacity that is sufficient for large-scale miners, upon a new mining datacenter becomes available and (ii) more favorable pricing terms for our services, such as mining machine management services, than the prevailing price in the local market. We charge an upfront fee for such program benefits.
We also provide management services, such as infrastructure, custody, and utility, for the mining machines of a Membership Hosting customer up to designated capacity, pursuant to a separate management services agreement, and charge management services fee. We also charge additional fee, at our stand-alone selling price, for the subscription of our mining machine operation service. The management services fee and the mining machine operation fee, as applicable, are charged to the customer monthly based on the customer’s consumption of resources, such as the amount of electricity used in a period.
Our promises offered in the membership program agreement and management services agreement are not separately identifiable and treated as a single performance obligation recognized over a period of time. Revenue associated with the upfront fee for the program benefits is recognized over the program subscription period and revenue associated with the management service is recognized over each distinct service period. The promise to provide the mining machine operation service, if subscribed to by a customer, is accounted for as a separate performance obligation and the associated revenue is recognized over each distinct service period at their respective stand-alone selling price. We accept both cryptocurrency and fiat currency as payments for the membership hosting arrangements.
Sales of Mining Machines
We may engage in the sales of mining machines on hand from time to time, depending on market conditions, capacity availability in our mining datacenters and the availability of new-generation mining machines that are more efficient. While not part of our three primary business lines, we sell mining machines on hand when, based on our judgement, selling machines of older models can (i) facilitate cash payback while maintaining a reasonable profit range compared to utilizing them for our own operations and (ii) optimize the efficiency of our mining fleets. Factors we considered include market conditions, capacity availability in our mining datacenters and the availability of new-generation mining machines that are more efficient. We recognize revenue from sales of mining machines to customers at the point in time when control of the mining machines is transferred to our customers, which generally occurs upon shipment of the mining machines as defined in the contract. We accept both cryptocurrency and fiat currency as payments for mining machine purchase.
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Others
We also generate from other operations, mainly including the provision of technical and human resources service, repairment services of hosted mining machines, lease of investment properties and the sale of mining machine peripherals. The revenue generated from these operations was individually immaterial for all periods under discussion.
Cost of Revenue
Our cost of revenue consists primarily of (i) electricity expenses incurred for operating our mining machines in its revenue-generating activities, (ii) depreciation expense from the mining machines and datacenters hosting those mining machines, (iii) costs of mining machines sold to customers and (iv) compensation expenses incurred by mining datacenter personnel.
Electricity Cost in Operating Mining Machines
We incur electricity costs when (i) operating proprietary mining machines for cryptocurrency mining, (ii) generating hash rate for sales under Cloud Hash Rate, (iii) operating specified mining machines for customers under Cloud Hosting and (iv) operating customer-owned mining machines during the provision of General Hosting and Membership Hosting services.
Depreciation of Mining Machines and Mining Datacenters
Depreciation on our mining machines is calculated using the straight-line method to allocate costs up to residual values over the estimated useful lives of the assets. We review the useful lives and residual values at least at each financial year-end and adjusted, if appropriate, to ensure that the method and rates of depreciation are consistent with the expected pattern of realization of economic benefits from mining machines. We estimate the useful lives of mining machines based on historical experience, taking into account anticipated technological changes. If there are significant changes from previously estimated useful lives, the amount of depreciation expenses may change.
The useful life for mining machines was changed from one year to one to two years since the year ended December 31, 2021 for the mining machines of newer models that were purchased in 2021 as a result of the review conducted in July 2021.
Depreciation of mining datacenters is calculated using the straight-line method based on the estimated useful lives of the assets comprised thereof, such as buildings, machinery, electronic equipment and leasehold improvement, and is recorded under depreciation of property, plant, and equipment. The depreciation method, useful life and residual value of these assets are reviewed at least at each financial year-end and adjusted if appropriate.
Compensation Expenses Incurred by Mining Datacenter Personnel
The compensation expenses incurred by mining datacenter personnel consists primarily of (i) share-based payment expenses related to mining datacenter personnel as a result of the grant of options under the 2021 Share Incentive Plan and (ii) staff costs, including salaries, wages and other benefits in relation to mining datacenter personnel.
Cost of Mining Machines Sold
The cost of mining machines sold is incurred when we sell our mining machines that have been used for our business operations. It is recognized at the net book value of the associated mining machines.
Gross Profit/(Loss)
Our gross profit or loss is primarily affected by (i) Bitcoin prices, which have a significant and direct effect on the amount of revenue we recognized from our operations, (ii) depreciation of mining machines, which is directly related to the mining machine purchases we made, (iii) electricity costs, (iv) staff cost, including salaries, wages and other benefits and (v) share-based payment expenses.
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Operating Expenses/(Income)
Selling Expenses
Our selling expenses primarily consist of (i) staff costs, including wages, bonuses and benefits to sales personnel, (ii) promotional expenses, which primarily represent expenses incurred for online and offline marketing activities and other promotional activities to reach more customers, and (iii) share-based payment expenses related to marketing personnel.
General and Administrative Expenses
Our general and administrative expenses primarily consist of (i) staff costs, including wages, bonuses and benefits to general and administrative personnel, (ii) consulting service expenses, (iii) share-based payment expenses related to administrative personnel, (iv) insurance expenditure, and (v) travel expenses and office expenses incurred during our daily operation.
Research and Development Expenses
Our research and development expenses primarily consist of (i) staff costs, including wages, bonuses and benefits to research and development personnel, and (ii) share-based payment expenses related to research and development personnel. We invest significant research and development resources in improving technology related to our Cloud Hash Rate business including hash rate slicing, developing Hash Rate Marketplace and improve our Minerplus features like virus detection and hash rate monitoring. We also spent R&D efforts on utilizing renewable energy and increasing energy efficiency.
Other Operating Income/(Expenses)
Our other operating income/expenses primarily consist of (i) net gain/losses on disposal of cryptocurrencies, (ii) net loss on disposal of mining machine and (iii) write-off of receivables from a related party.
Other Net Gain/(Loss)
Other net gain/loss primarily consist of (i) loss in fair value change of financial assets at fair value through profit or loss, (ii) net gain on disposal of other financial assets, (iii) net gain on disposal of property, plant and equipment and intangible assets, (iv) impairment loss of a pre-matured investment, and (v) net gain on settlement of balances between Bitmain.
Results of Operations
The following tables summarizes our results of operations, revenue breakdown, and expenses by nature for the years ended December 31, 2020, 2021 and 2022. This information should be read together with our consolidated financial statements and related notes included elsewhere in this Report. The results of operations in any particular period are not necessarily indicative of our future trends.
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The following table summarizes our results of operations for the years indicated:
| | | |
For the Year Ended December 31
|
| |||||||||||||||
| | | |
2020
(Restated) |
| |
2021
|
| |
2022
|
| |||||||||
| | | |
US$
|
| |
US$
|
| |
US$
|
| |||||||||
| | | |
(in thousands)
|
| |||||||||||||||
| Revenue | | | | | 186,387 | | | | | | 394,661 | | | | | | 333,342 | | |
|
Cost of revenue
|
| | | | (209,564) | | | | | | (153,255) | | | | | | (250,090) | | |
|
Gross profit/(loss)
|
| | | | (23,177) | | | | | | 241,406 | | | | | | 83,252 | | |
|
Selling expenses
|
| | | | (5,567) | | | | | | (8,448) | | | | | | (11,683) | | |
|
General and administrative expenses
|
| | | | (20,268) | | | | | | (89,735) | | | | | | (93,453) | | |
|
Research and development expenses
|
| | | | (9,790) | | | | | | (29,501) | | | | | | (35,430) | | |
|
Other operating incomes / (expenses)
|
| | | | (2,045) | | | | | | 14,625 | | | | | | (3,628) | | |
|
Other net gain / (loss)
|
| | | | (2,560) | | | | | | 2,483 | | | | | | 357 | | |
|
Profit / (loss) from operations
|
| | | | (63,407) | | | | | | 130,830 | | | | | | (60,585) | | |
|
Finance income / (expenses)
|
| | | | (380) | | | | | | 59 | | | | | | (4,181) | | |
|
Profit / (loss) before taxation
|
| | |
|
(63,787)
|
| | | |
|
130,889
|
| | | | | (64,766) | | |
|
Income tax benefit / (expenses)
|
| | | | 7,961 | | | | | | (48,246) | | | | | | 4,400 | | |
|
Profit / (loss) for the year
|
| | | | (55,826) | | | | | | 82,643 | | | | | | (60,366) | | |
The following table sets forth a breakdown of our revenue, for the years indicated.
| | | |
For the Year Ended December 31,
|
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| | | |
2020
(Restated) |
| |
2021
|
| |
2022
|
| |||||||||||||||||||||||||||
| | | |
US$
|
| |
%
|
| |
US$
|
| |
%
|
| |
US$
|
| |
%
|
| ||||||||||||||||||
| | | |
(in thousands, except for percentages)
|
| |||||||||||||||||||||||||||||||||
| Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Proprietary mining
|
| | | | 88,493 | | | | | | 47.5 | | | | | | 191,693 | | | | | | 48.6 | | | | | | 62,359 | | | | | | 18.7 | | |
|
Cloud hash rate
|
| | | | 78,288 | | | | | | 42.0 | | | | | | 124,205 | | | | | | 31.5 | | | | | | 121,341 | | | | | | 36.4 | | |
|
Hash rate subscription
|
| | | | 31,389 | | | | | | 16.8 | | | | | | 53,952 | | | | | | 13.7 | | | | | | 77,862 | | | | | | 23.3 | | |
|
Electricity subscription
|
| | | | 45,242 | | | | | | 24.3 | | | | | | 35,113 | | | | | | 8.9 | | | | | | 39,525 | | | | | | 11.9 | | |
|
Additional consideration from Cloud Hash Rate arrangements offered under accelerator mode
|
| | | | 1,657 | | | | | | 0.9 | | | | | | 35,140 | | | | | | 8.9 | | | | | | 3,954 | | | | | | 1.2 | | |
|
Sales of mining machines
|
| | | | 15,844 | | | | | | 8.5 | | | | | | 45,693 | | | | | | 11.6 | | | | | | 705 | | | | | | 0.2 | | |
|
Cloud Hosting arrangements(1)
|
| | | | 2,929 | | | | | | 1.6 | | | | | | 7,568 | | | | | | 1.9 | | | | | | 12,723 | | | | | | 3.8 | | |
|
General Hosting
|
| | | | — | | | | | | — | | | | | | 18,312 | | | | | | 4.6 | | | | | | 99,251 | | | | | | 29.8 | | |
|
Membership hosting
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 26,056 | | | | | | 7.8 | | |
| Others(2) | | | | | 833 | | | | | | 0.4 | | | | | | 7,190 | | | | | | 1.8 | | | | | | 10,907 | | | | | | 3.3 | | |
|
Total revenue
|
| | | | 186,387 | | | | | | 100.0 | | | | | | 394,661 | | | | | | 100.0 | | | | | | 333,342 | | | | | | 100.0 | | |
(1)
We did not generate any revenue from the additional consideration from Cloud Hosting arrangements offered under “accelerated payback mode” for the years ended December 31, 2020, 2021 and 2022.
(2)
Others include revenue generated primarily from providing technical and human resources service, repairment services of hosted mining machines, lease of investment properties, and the sale of mining machine peripherals.
The following table sets forth a breakdown by nature of our cost of revenue, selling, general and administrative, and research and development expenses for the years indicated.
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| | | |
For the Year Ended December 31,
|
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| | | |
2020
(Restated) |
| |
2021
|
| |
2022
|
| |||||||||||||||||||||||||||
| | | |
US$
|
| |
%
|
| |
US$
|
| |
%
|
| |
US$
|
| |
%
|
| ||||||||||||||||||
| | | |
(in thousands, except for percentages)
|
| |||||||||||||||||||||||||||||||||
|
Staff costs: salaries, wages and other benefits
|
| | | | 33,041 | | | | | | 13.5 | | | | | | 37,730 | | | | | | 13.4 | | | | | | 50,132 | | | | | | 12.8 | | |
|
Share-based payments
|
| | | | — | | | | | | — | | | | | | 88,355 | | | | | | 31.4 | | | | | | 90,648 | | | | | | 23.2 | | |
|
Amortization of intangible assets
|
| | | | 111 | | | | | | 0.0 | | | | | | 146 | | | | | | 0.1 | | | | | | 97 | | | | | | 0.0 | | |
| Depreciation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Mining machines
|
| | | | 98,136 | | | | | | 40.0 | | | | | | 43,857 | | | | | | 15.6 | | | | | | 29,281 | | | | | | 7.5 | | |
|
Property, plant and equipment
|
| | | | 9,807 | | | | | | 4.0 | | | | | | 14,416 | | | | | | 5.1 | | | | | | 30,438 | | | | | | 7.8 | | |
|
Investment properties
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 1,237 | | | | | | 0.3 | | |
|
Right-of-use assets
|
| | | | 3,983 | | | | | | 1.6 | | | | | | 4,636 | | | | | | 1.7 | | | | | | 5,371 | | | | | | 1.4 | | |
|
Electricity cost in operating mining machines
|
| | | | 72,078 | | | | | | 29.4 | | | | | | 58,447 | | | | | | 20.8 | | | | | | 139,469 | | | | | | 35.7 | | |
|
Cost of mining machines sold
|
| | | | 17,537 | | | | | | 7.2 | | | | | | 5,978 | | | | | | 2.1 | | | | | | 1,002 | | | | | | 0.3 | | |
|
Consulting service fee
|
| | | | 1,039 | | | | | | 0.4 | | | | | | 8,787 | | | | | | 3.1 | | | | | | 6,797 | | | | | | 1.7 | | |
|
Tax and surcharge
|
| | | | 3,085 | | | | | | 1.3 | | | | | | 2,202 | | | | | | 0.8 | | | | | | 3,355 | | | | | | 0.9 | | |
|
Advertising expenses
|
| | | | 2,189 | | | | | | 0.9 | | | | | | 880 | | | | | | 0.3 | | | | | | 737 | | | | | | 0.2 | | |
|
Office expenses
|
| | | | 543 | | | | | | 0.2 | | | | | | 2,219 | | | | | | 0.8 | | | | | | 3,124 | | | | | | 0.8 | | |
|
Research and development technical service fees
|
| | | | 681 | | | | | | 0.3 | | | | | | 1,964 | | | | | | 0.7 | | | | | | 1,313 | | | | | | 0.3 | | |
|
Expenses of low-value consumables
|
| | | | 971 | | | | | | 0.4 | | | | | | 1,662 | | | | | | 0.6 | | | | | | 4,025 | | | | | | 1.0 | | |
|
Expenses of variable payment lease
|
| | | | — | | | | | | — | | | | | | 610 | | | | | | 0.2 | | | | | | 639 | | | | | | 0.2 | | |
|
Expenses of short-term leases
|
| | | | 372 | | | | | | 0.2 | | | | | | 351 | | | | | | 0.1 | | | | | | 527 | | | | | | 0.1 | | |
|
Impairment loss of mining machines
|
| | | | — | | | | | | — | | | | | | 106 | | | | | | 0.0 | | | | | | — | | | | | | — | | |
|
Logistic expenses
|
| | | | 339 | | | | | | 0.1 | | | | | | 1,391 | | | | | | 0.5 | | | | | | 3,060 | | | | | | 0.8 | | |
|
Travel expenses
|
| | | | 52 | | | | | | 0.0 | | | | | | 1,393 | | | | | | 0.5 | | | | | | 3,202 | | | | | | 0.8 | | |
|
Insurance fee
|
| | | | 459 | | | | | | 0.2 | | | | | | 983 | | | | | | 0.3 | | | | | | 3,446 | | | | | | 0.9 | | |
|
Others
|
| | | | 766 | | | | | | 0.3 | | | | | | 4,826 | | | | | | 1.9 | | | | | | 12,756 | | | | | | 3.3 | | |
|
Total cost of revenue, selling, general and administrative
and research and development expenses |
| | | | 245,189 | | | | | | 100.0 | | | | | | 280,939 | | | | | | 100.0 | | | | | | 390,656 | | | | | | 100.0 | | |
Comparison of Years Ended December 31, 2021 and 2022
Revenue
Our revenue decreased by 15.6% from US$394.7 million for the year ended December 31, 2021 to US$333.3 million for the year ended December 31, 2022, primarily driven by (i) a decrease in revenue generated from proprietary mining, (ii) a decrease in revenue generated from sales of mining machines and (iii) a decrease in revenue generated from Cloud Hash Rate, partially offset by (i) an increase in revenue generated from Cloud Hosting, (ii) an increase in revenue generated from General Hosting, and (iii) Membership Hosting which began to generate revenue in the second half of 2022.
•
Revenue generated from our proprietary mining business decreased by 67.4% from US$191.7 million for the year ended December 31, 2021 to US$62.4 million for the year ended December 31, 2022. The change was mainly driven by (i) the price drop of Bitcoin, the most significant type of cryptocurrency involved in our business operation and (ii) a decrease in the comparative number of Bitcoin mined from proprietary mining, resulting from a decrease in the amount of hash rate allocated to our proprietary mining business as a percentage of the total network hash rate. The hash rate used for proprietary mining, calculated on a twelve-month monthly average basis, was approximately 2.4EH/s for the year ended December 31, 2022, which slightly increased compared to 2.2EH/s for the year
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ended December 31, 2021. We expect to remain flexible in allocating hash rate between proprietary mining and hash rate sales through Cloud Hash Rate, depending on the market condition.
•
Revenue generated from sales of mining machines decreased by 98.5% from US$45.7 million for the year ended December 31, 2021 to US$0.7 million for the year ended December 31, 2022, which was mainly attributable to a decrease in the number of mining machines we sold for the year ended December 31, 2022 as we had sold most of our mining machines of older models for the year ended December 31, 2021. We currently do not expect to sell mining machines in the near-future.
•
Revenue generated from Cloud Hash Rate decreased by 2.3% from US$124.2 million for the year ended December 31, 2021 to US$121.3 million for the year ended December 31, 2022, which was mainly attributable to an increase in (i) revenue from hash rate subscription and (ii) revenue from electricity subscription, offset by a decrease in revenue from additional consideration from acceleration plan arrangements. Sales price of hash rate subscription is primarily priced with reference to Bitcoin price and overall network hash rate at the time of sales and revenue generated from the subscription is recognized evenly over the duration of the subscription. As a result, revenue from hash rate subscription for the year ended December 31, 2022 did not only consist of new sales during the year ended December 31, 2022 but also the amortized revenue from sales before 2022 and that captured the Bitcoin price appreciation during 2021. With the gradual expiration of the hash rate subscription, we have also slightly decreased hash rate allocated to Cloud Hash Rate, calculated on a twelve-month monthly average basis, from 2.0EH/s for the year ended December 31, 2021 to 1.8EH/s for the year ended December 31, 2022. The increase in electricity subscription was as a result of increase in electricity price in 2022 for existing customers of Cloud Hash Rate. The decrease in revenue from additional consideration from Cloud Hash Rate arrangements offered under accelerator mode was due to the expiration of our existing revenue sharing arrangements subscribed in the prior year and a delay in reaching the condition for revenue sharing due to generally longer subscription periods and lower-than-expected mining rewards.
•
Revenue generated from Cloud Hosting increased by 67.1% from US$7.6 million for the year ended December 31, 2021 to US$12.7 million for the year ended December 31, 2022, which was primarily because nearly half of orders of Cloud Hosting in 2021 were subscribed in the second half of 2021, which contributed to the revenue in 2022, while nearly all orders of Cloud Hosting in 2022 contributed to the revenue in 2022.
•
Revenue generated from General Hosting increased significantly from US$18.3 million for the year ended December 31, 2021 to US$99.3 million for the year ended December 31, 2022, primarily driven by an increase in the mining site capacity as a result of the expansion of our mining datacenter operations.
•
We began to generate revenue from Membership Hosting in the second half of 2022 when our mining datacenter in North America began to deliver capacity, and recorded revenue in the amount of US$26.1 million for the year ended December 31, 2022.
Cost of Revenue
Our cost of revenue increased by 63.1% from US$153.3 million for the year ended December 31, 2021 to US$250.1 million for the year ended December 31, 2022, primarily driven by an increase in (i) electricity cost in operating mining machines, (ii) salaries, wages and other benefits and (iii) depreciation of property, plant and equipment, partially offset by a decrease in (i) depreciation of mining machines and (ii) cost of mining machines sold and accessories sold.
•
Depreciation of mining machines decreased by 33.3% from US$43.9 million for the year ended December 31, 2021 to US$29.3 million for the year ended December 31, 2022, primarily because (i) a significant number of the mining machines procured prior to 2021 as a result of our expanded hash rate capacity are fully depreciated by 2021, and (ii) we changed the useful life for mining machines from one year to two years for the mining machines of newer models that were purchased starting from July 2021, which leads to lower depreciation afterwards.
•
Electricity cost in operating mining machines increased by 138.9% from US$58.4 million for the year ended December 31, 2021 to US$139.5 million for the year ended December 31, 2022, which was
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attributed to the increased overall energy consumption related to the expansion of our mining datacenter operations in North America and Norway.
•
Cost of mining machines sold and accessories sold decreased by 83.3% from US$6.0 million for the year ended December 31, 2021 to US$1.0 million for the year ended December 31, 2022, primarily driven by the decrease in the number of mining machines we sold for the year ended December 31, 2022 as we had sold most of our mining machines of older models for the year ended December 31, 2021. We currently do not expect to sell mining machines in the near-future.
•
Salaries, wages and other benefits attributed to cost of revenue increased by 89.4% from US$9.4 million for the year ended December 31, 2021 to US$17.8 million for the year ended December 31,2022, which was due to the increase in employees and in salaries, wages and other benefits to attract and retain quality employees as a result of the expansion of our mining datacenter operations in North America.
•
Depreciation of property, plant and equipment attributed to cost of revenue increased by 114.3% from US$14.0 million for the year ended December 31, 2021 to US$30.0 million for the year ended December 31, 2022, primarily as a result of the expansion of our mining datacenters and mining facilities in North America and Norway.
Selling Expenses
Our selling expenses increased from US$8.4 million for the year ended December 31, 2021 to US$11.7 million for the year ended December 31, 2022, primarily due to (i) the US$2.3 million increase in share-based payment expenses as a result of the new grant of options to sales personnel in 2022 under the 2021 Share Incentive Plan approved in July 2021, and (ii) the US$0.4 million increase in staff costs, including salaries, wages and benefits to sales personnel.
General and Administrative Expenses
Our general and administrative expenses increased by 4.2% from US$89.7 million for the year ended December 31, 2021 to US$93.5 million for the year ended December 31, 2022, primarily due to (i) the US$6.4 million increase in travel, insurance, utilities and other expenses related to our daily operation and (ii) the US$3.2 million increase in staff costs, including salaries, wages and benefits to general and administrative personnel, partially offset by the US$5.6 million decrease in share-based payment expenses as a result of the grant of option to administrative personnel under the 2021 Share Incentive Plan approved in July 2021 because most of the options were granted in 2021.
Research and Development Expenses
Our research and development expenses increased by 20.0% from US$29.5 million for the year ended December 31, 2021 to US$35.4 million for the year ended December 31, 2022, primarily attributable to the US$6.0 million increase in share-based payment expenses as a result of the new grant of option in 2022 to research and development personnel under the 2021 Share Incentive Plan approved in July 2021.
Other Operating Income /(Expenses)
We generated other operating income of US$14.6 million and incurred other operating expenses of US$3.6 million for the year ended December 31, 2021 and 2022, respectively. This change was primarily because we recorded US$18.7 million gain on disposal of cryptocurrencies for the year ended December 31, 2021, compared to US$3.1 million loss on disposal of cryptocurrencies for the year ended December 31, 2022, which is associated with Bitcoin price drop prior to such disposal given we typically sell Bitcoins earned from our principal business lines within the next few days.
Other Net Gain/(Loss)
We recorded other net gain of US$0.36 million for the year ended December 31, 2022, which primarily included (i) net gains on disposal of property, plant and equipment and intangible assets of US$0.66 million and (ii) other gains of US$0.5 million, which mainly included return of wealth management product and other minor gains from disposal of investments in unlisted debt instruments, partially offset by the loss of
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US$0.8 million which mainly included the fair value change of investments in unlisted equity and debt instruments. We recorded other net gain of US$2.5 million for the year ended December 31, 2021, which primarily included a net gain of approximately US$4.5 million on settlement of balances with Bitmain, partially offset by a one-off impairment loss of approximately US$2.0 million resulting from a pre-mature investment.
Profit/(Loss) from Operations
As a result of the foregoing, we recorded a loss from operations of US$60.6 million for the year ended December 31, 2022 and a profit from operations of US$130.8 million for the year ended December 31, 2021.
Income Tax Benefit/(Expenses)
We recorded income tax expenses of US$48.2 million and income tax benefit of US$4.4 million for the year ended December 31, 2021 and 2022.
Net Profit/(Loss)
As a result of the foregoing, we incurred a net loss of US$60.4 million for the year ended December 31, 2022 and a net profit of US$82.6 million for the year ended December 31, 2021.
Comparison of Years Ended December 31, 2020 and 2021
Revenue
Our revenue increased by 111.7% from US$186.4 million for the year ended December 31, 2020 to US$394.7 million for the year ended December 31, 2021.
•
Revenue generated from our proprietary mining business increased by 116.6% from US$88.5 million for the year ended December 31, 2020 to US$191.7 million for the year ended December 31, 2021. The change was mainly driven by price appreciation of Bitcoin, the most significant type of cryptocurrency involved in our business operation, partially offset by a decrease in the number of Bitcoin mined, primarily resulting from the Bitcoin halving event on May 11, 2020 and a slight decrease in the hash rate allocated to proprietary mining. The average price of Bitcoin for the year ended December 31, 2021 was US$47,385 compared to US$11,057 for the year ended December 31, 2020, representing an increase of 328.5%, according to Frost & Sullivan. The hash rate used for proprietary mining, calculated on a twelve-month monthly average basis, was approximately 2.2EH/s for the year ended December 31, 2021, which was slightly decreased compared to 2.3EH/s for the year ended December 31, 2020.
•
Revenue generated from Cloud Hash Rate increased by 58.7% from US$78.3 million for the year ended December 31, 2020 to US$124.2 million for year ended December 31, 2021, which was mainly attributable to the increase in (i) revenue from additional consideration from acceleration plan arrangements and (ii) revenue from hash rate subscription, partially offset by a decrease in electricity charges as a result of lower hash rate allocated to Cloud Hash Rate in 2021. The increase in revenue generated from additional consideration from acceleration plan arrangements was due to the launch of subscription plans under “accelerator mode” in 2020, an increase in the number of customers who recovered their investment costs in 2021 as well as Bitcoin price appreciation. The increase in revenue from hash rate subscription was mainly driven by the higher sales price of hash rate subscription and the higher demand for Cloud Hash Rate, both of which were primarily attributable to (i) Bitcoin price appreciation, and (ii) our increased brand recognition as a result of our expanding scale of operations as well as diverse hash rate subscription plans and high-quality hash rate. The hash rate allocated to Cloud Hash Rate, calculated on a twelve-month monthly average basis, was approximately 2.0EH/s for the year ended December 31, 2021, which was slightly decreased compared to 2.1EH/s for the year ended December 31, 2020.
•
Revenue generated from sales of mining machines increased by 188.4% from US$15.8 million for the year ended December 31, 2020 to US$45.7 million for the year ended December 31, 2021, which was
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mainly attributable to the higher sales price of mining machines driven by Bitcoin price appreciation, offset by the decrease in the number of mining machines we sold in 2021.
•
Revenue generated from Cloud Hosting increased by 158.4% from US$2.9 million for the year ended December 31, 2020 to US$7.6 million for the year ended December 31, 2021, which was mainly attributable to an increase in the customer base of Cloud Hosting following the launch of Cloud Hosting service in 2020.
•
Revenue generated from General Hosting increased from nil for the year ended December 31, 2020 to US$18.3 million for the year ended December 31, 2021, primarily driven by (i) professional miners’ higher demand for hosting services in 2021, (ii) the increase in mining site capacity as a result of the expansion of our mining datacenter operations and (iii) our efforts to attract more hosting customers to diversify our revenue stream.
Cost of Revenue
Our cost of revenue decreased by 26.9% from US$209.6 million for the year ended December 31, 2020 to US$153.3 million for the year ended December 31, 2021, primarily driven by decrease in (i) depreciation of mining machines, (ii) the electricity cost in operating mining machines and (iii) cost of mining machine sold, partially offset by an increase in share-based payment expenses attributed to cost of revenue, increase in salaries, wages, and other benefits attributed to cost of revenue and increase in depreciation of property, plant and equipment attributed to cost of revenue.
•
Depreciation of mining machines decreased by 55.3% from US$98.1 million for the year ended December 31, 2020 to US$43.9 million for the year ended December 31, 2021, primarily because (i) the mining machines procured at the beginning of 2020 as a result of our expanded hash rate capacity contributed large depreciation amount for the year ended December 31, 2020, and are fully depreciated by the first half of 2021 as those mining machines were depreciated in one year on a straight-line basis, and (ii) we changed the useful life for mining machines from one year to one to two years for the mining machines of newer models that were purchased in 2021 starting from July 2021, which leads to lower depreciation for the year ended December 31, 2021.
•
Electricity cost in operating mining machines decreased by 18.9% from US$72.1 million for the year ended December 31, 2020 to US$58.4 million for the year ended December 31, 2021, primarily driven by the lowered overall energy consumption of 39.2 j/T as of December 31, 2021, compared to 48 j/T as of December 31, 2020 for our mining machines, partially offset by the increase in managing hash rate calculated on a twelve-month average basis from approximately 4.6EH/s for the year ended December 31, 2020 to approximately 5.7EH/s for the year ended December 31, 2021.
•
Cost of mining machines sold decreased by 65.9% from US$17.5 million for the year ended December 31, 2020 to US$6.0 million for the year ended December 31, 2021, primarily driven by (i) the lower carrying book value of the mining machines sold in 2021 as the mining machines sold in 2021 were used for a longer period with most of their costs depreciated compared to the ones sold in 2020 and (ii) decrease in the number of mining machines sold in 2021.
•
Share-based payment expenses attributed to cost of revenue increased from nil for the year ended December 31, 2020 to US$10.4 million for the year ended December 31, 2021, which was due to the grant of options under the 2021 Share Incentive Plan to mining datacenter personnel in the second half of 2021.
•
Salaries, wages and other benefits attributed to cost of revenue increased by 99.4% from US$4.7 million for the year ended December 31, 2020 to US$9.4 million for the year ended December 31, 2021, which was due to the increase in salaries, wages and other benefits to mining datacenter personnel as a result of the expansion of our mining datacenter operations.
•
Depreciation of property, plant and equipment attributed to cost of revenue increased by 47.0% from US$9.5 million for the year ended December 31, 2020 to US$14.0 million for the year ended December 31, 2021, primarily attributable to our expansion of the mining datacenter.
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Selling Expenses
Our selling expenses increased by 51.8% from US$5.6 million for the year ended December 31, 2020 to US$8.4 million for the year ended December 31, 2021, primarily due to the US$5.2 million increase in share-based payment expenses attributed to selling expense as a result of the grant of options to sales personnel under the 2021 Share Incentive Plan in the second half of 2021, partially offset by US$1.4 million decrease in staff costs, including salaries, wages and benefits to sales personnel and the US$1.3 million decrease in advertising expenses, as we conducted fewer marketing activities. As a result of price appreciation of Bitcoin, the most significant cryptocurrency involved in our business operation, and wider market recognition of our brand name, we are able to achieve satisfying sales performance without engaging in proactive marketing activities.
General and Administrative Expenses
Our general and administrative expenses increased by 342.7% from US$20.3 million for the year ended December 31, 2020 to US$89.7 million for the year ended December 31, 2021, primarily due to (i) US$54.5 million increase in share-based payment expenses attributed to general and administrative expenses as a result of the grant of option to administrative personnel under the 2021 Share Incentive Plan in the second half of 2021, (ii) US$7.5 million increase in consulting service fees attributed to general and administrative expenses charged by professional parties due to our efforts in capital market activities.
Research and Development Expenses
Our research and development expenses increased by 201.3% from US$9.8 million for the year ended December 31, 2020 to US$29.5 million for the year ended December 31, 2021, primarily attributable to (i) US$18.2 million increase in share-based payment expenses attributed to research and development expenses of as a result of the grant of options to research and development personnel under the 2021 Share Incentive Plan in the second half of 2021 and (ii) US$1.3 million increase in research and development technical service fees.
Other Operating Income /(Expenses)
We incurred other operating expenses of US$2.0 million and generated other operating income of US$14.6 million for the years ended December 31, 2020 and 2021, respectively. This change was primarily attributable to (i) US$16.0 million increase in net gain on disposal of cryptocurrencies for the year ended December 31, 2021, which is associated with Bitcoin price change prior to such disposal given we typically sell Bitcoins earned from our principal business lines within the next few days, (ii) US$3.7 million losses from change in fair value of cryptocurrencies lent, (iii) US$2.9 million decrease in net loss on disposal of mining machine at scrap value, as a result of fewer mining machines disposals in 2021 because the new mining machines we purchased in 2021 were of more recent models and in a more stable condition and (iv) US$2.0 million write-off of receivables from a related party for the year ended December 31, 2020, compared to nil for the year ended December 31, 2021.
Other Net Gain/(Loss)
We recorded other net gain of US$2.5 million for the year ended December 31, 2021, compared to other net loss of US$2.6 million for the year ended December 31, 2020. This change was primarily due to (i) the net gain on settlement of balances between Bitmain of US$4.5 million for the year ended December 31, 2021 compared to nil for the year ended December 31, 2020 and (ii) an impairment of property, plant and equipment of US$2.2 million for the year ended December 31, 2020, compared to nil for the year ended December 31, 2021, partially offset by the impairment loss of a pre-matured investment of US$2.0 million associated with a forfeited investment project of US$2.0 million for the year ended December 31, 2021, while we did not conduct similar transaction or incur such cost for the year ended December 31, 2020.
Profit/(Loss) from Operations
As a result of the foregoing, we recorded a loss from operations of US$63.4 million for the year ended December 31, 2020 and a profit from operations of US$130.8 million for the year ended December 31, 2021.
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Income Tax Benefit/(Expenses)
We recorded an income tax benefit of US$8.0 million for the year ended December 31, 2020 and an income tax expenses of US$48.2 million for the year ended December 31, 2021, primarily because we achieved profit before taxation of US$130.9 million for the year ended December 31, 2021, compared to loss before taxation of US$63.8 million for the year ended December 31, 2020.
Net Profit/(Loss)
As a result of the foregoing, we recorded a net loss of US$55.8 million for the year ended December 31, 2020 and a net profit of US$82.6 million for the year ended December 31, 2021.
Liquidity and Capital Resources
As of December 31, 2022, we had cash and cash equivalents of US$231.4 million and fiat currency investment of US$31.1 million in unlisted debt instruments, redeemable on demand. Since our separation from Bitmain, we have financed our operations primarily with cash flow from disposal of cryptocurrencies earned from principal business operations. We believe that our cash, short-term investment and anticipated proceeds from disposal of cryptocurrencies in connection with our principal business will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 18 months from the date of this Report. Our cash and cash equivalents decreased to US$231.4 million as of December 31, 2022 from US$372.1 million as of December 31, 2021, primarily attributable to our active construction of mining datacenters in North America and Norway, purchase of investment property assets through the acquisition of Asia Freeport Holdings Pte. Ltd. and investment in unlisted equity and debt instruments. Our cash and cash equivalents increased from US$44.8 million as of December 31, 2020 to US$372.1 million as of December 31, 2021, primarily attributable to the increase in adjusted EBITDA, which is a non-IFRS financial measure defined as earnings before interest, taxes, depreciation and amortization, further adjusted to exclude share-based payment expenses under IFRS 2. A reconciliation of profit/(loss), the most comparable IFRS measure, to adjusted EBITDA is set forth in “— Non-IFRS Financial Measures” above.
To date, we have not seen a material impact on our liquidity from events related to the COVID-19 pandemic.
Our material cash requirements as of December 31, 2022 and any subsequent interim period primarily include our purchase of plant, property and equipment, lease obligations, and borrowings. Other than those as discussed below, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2022.
Purchase of property, plant and equipment and intangible assets. Purchase of property, plant and equipment and intangible assets primarily consist of the purchase of machinery, equipment and other expenditure associated with mining datacenter construction and operations. The total cash outflow for the purchase of property, plant and equipment and intangible assets were US$19.9 million, US$62.9 million and US$63.2 million for the years ended 2020, 2021 and 2022. As of December 31, 2022, we had commitments that are scheduled to be paid within 12 months for the construction of mining datacenters of approximately US$8.3 million.
Lease obligations. We occupy most of our office premises and certain mining datacenter under lease arrangements, which generally have an initial lease term between one and a half to seven years. Lease contracts are typically made for fixed periods but may have extension options. Any extension options in these leases have not been included in the lease liabilities unless we are reasonably certain to exercise the extension option. Periods after termination options are only included in the lease term if the lease is reasonably certain not to be terminated. The total cash outflow for leases, including the capital element of lease rentals paid and interests paid on leases for the years ended December 31, 2020, 2021 and 2022 was approximately US$5.4 million, US$5.4 million and US$6.3 million, respectively. As of December 31, 2022, lease liabilities mature based on contractual undiscounted payments within 12 months and over 12 months were US$7.5 million and US$80.6 million, respectively.
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Borrowings. Our borrowings as of December 31, 2022 represented a commitment of US$29.8 million relating to the principal amount and interests in connection with the issuance of the Bitdeer Convertible Note, a US$30 million convertible note, on July 23, 2021, bearing an annual interest rate of 8%, which will mature on July 23, 2023.
We intend to fund our existing and future material cash requirements primarily with our cash, short-term investment and anticipated proceeds from disposal of cryptocurrencies in connection with our principal business, which is classified as an investing activity. However, our future capital requirements will depend on many factors, including market acceptance of cryptocurrency, our growth, our ability to scale up our infrastructure and hash rate, our ability to effectively control costs, our ability to attract and retain customers, the continuing market acceptance of our offerings, expansion of sales and marketing activities and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. In the event that additional financing is required from outside sources, there is a possibility we may not be able to raise it on term acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operations and financial condition could be adversely affected.
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
Cash Flows
The following table presents our consolidated statements of cash flows for the years ended December 31, 2020, 2021 and 2022:
| | | |
For the Year Ended December 31,
|
| |||||||||||||||
| | | |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
| | | |
US$
|
| |
US$
|
| |
US$
|
| |||||||||
| | | |
(in thousands)
|
| |||||||||||||||
|
Net cash used in operating activities
|
| | | | (109,176) | | | | | | (52,466) | | | | | | (268,037) | | |
|
Net cash generated from investing activities
|
| | | | 62,742 | | | | | | 394,569 | | | | | | 133,793 | | |
|
Net cash generated from / (used in) financing activities
|
| | | | 30,776 | | | | | | (14,426) | | | | | | (3,884) | | |
|
Net (decrease) / increase in cash and cash equivalents
|
| | | | (15,658) | | | | | | 327,677 | | | | | | (138,128) | | |
|
Cash and cash equivalents at the beginning of the period
|
| | | | 59,826 | | | | | | 44,753 | | | | | | 372,088 | | |
|
Effect of movements in exchange rates on cash and cash equivalents held
|
| | | | 585 | | | | | | (342) | | | | | | (2,598) | | |
|
Cash and cash equivalents at the end of the year
|
| | | | 44,753 | | | | | | 372,088 | | | | | | 231,362 | | |
Operating Activities
Net cash used in operating activities was US$268.0 million for the year ended December 31, 2022. The difference between our net loss of US$60.4 million and the net cash used in operating activities was primarily attributable to (i) adjustments for revenues recognized on acceptance of cryptocurrencies of US$305.0 million, (ii) changes in prepayments and other assets of US$21.9 million primarily associated with deposits and prepayments made to suppliers following the expansion of our business during this period, (iii) changes in deferred revenue of US$9.2 million primarily associated with the recognition of revenue, (iv) income tax prepaid of US$20.0 million, and (v) an adjustment for income tax benefit of US$4.4 million, partially offset by (i) an adjustment for share-based payment expenses of US$90.6 million for the issuance of options
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following the adoption of the Bitdeer’s 2021 Share Incentive Plan in July 2021, and (ii) an adjustment for depreciation and amortization of US$66.4 million primarily relating to the depreciation of mining machines used in our principal business operations and property, plant and equipment used in connection with the expansion of our mining datacenters during this period.
Net cash used in operating activities was US$52.5 million for the year ended December 31, 2021. The difference between our net profit of US$82.6 million and the net cash used in operating activities was primarily attributable to (i) adjustments for the revenue recognized on acceptance of cryptocurrencies of US$333.7 million and (ii) gain on disposal of cryptocurrencies of US$18.7 million, partially offset by (i) an adjustment for share-based payment expenses of US$88.4 million, (ii) an adjustment for depreciation and amortization of US$63.1 million primarily relating to the depreciation of mining machines used in our principal business operations and property, plant and equipment used in connection with the expansion of our mining datacenters during this period and (iii) an adjustment for income tax expenses of US$48.2 million.
Net cash used in operating activities was US$109.2 million in the year ended December 31, 2020. The difference between our net loss of US$55.8 million and the net cash used in operating activities was primarily attributable to an adjustment for revenue recognized on acceptance of cryptocurrencies of US$170.2 million, partially offset by an adjustment for depreciation and amortization of US$112.0 million primarily relating to the depreciation of mining machines used in our principal business operations and property, plant and equipment used in connection with the expansion of our mining datacenters during this period.
Investing Activities
Net cash generated from investing activities was US$133.8 million for the year ended December 31, 2022, primarily attributable to proceeds from disposal of cryptocurrencies of US$561.0 million, partially offset by (i) purchase of cryptocurrencies of US$286.0 million for investment (lending and purchase of wealth management product) purposes, (ii) purchase of property, plant and equipment and intangible assets of US$63.2 million, (iii) net fiat currency investment cash outflow of US$30.8 million in unlisted debt instruments, redeemable on demand, (iv) investment in unlisted equity instruments of US$29.5 million and (v) cash paid for asset acquisition, net of cash acquired of US$26.7 million.
Net cash generated from investing activities was US$394.6 million for the year ended December 31, 2021, primarily attributable to (i) proceeds from disposal of cryptocurrencies of US$568.6 million and (ii) repayments from related parties of US$21.7 million, partially offset by (i) purchase of property, plant and equipment and intangible assets of US$62.9 million, (ii) purchase of cryptocurrencies for loan and investment of US$60.0 million, (iii) loans to related parties of US$32.2 million and (iv) purchase of mining machines of US$26.6 million.
Net cash generated from investing activities was US$62.7 million for the year ended December 31, 2020, primarily attributable to (i) repayments from related parties of US$194.4 million and (ii) proceeds from disposal of cryptocurrencies of US$173.1 million, partially offset by (i) loans to related parties of US$161.0 million and (ii) purchase of mining machines of US$124.0 million.
Financing Activities
Net cash used in financing activities was US$3.9 million for the year ended December 31, 2022, which was entirely attributable to capital element of lease rentals paid.
Net cash used in financing activities was US$14.4 million for the year ended December 31, 2021, which was attributable to (i) repayments of borrowing from related parties of US$29.3 million, (ii) deemed distribution to related parties of US$10.9 million and (iii) capital element of lease rentals paid of US$4.2 million, offset by proceeds from convertible debt of US$30.0 million.
Net cash generated from financing activities was US$30.8 million for the year ended December 31, 2020, primarily attributable to (i) capital contribution received from related party of US$420.0 million, as a result of our then-expected spin-off, and (ii) borrowings from related parties of US$9.2 million, offset by deemed distribution to related parties of US$394.8 million and capital element of lease rentals paid of US$4.5 million.
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Recent Accounting Pronouncements
As from January 1, 2022, we adopted the following recently issued or amended standards. These new standards are not expected to have any significant impact on our financial statements:
|
Standard/Interpretation
|
| |
Application Date
of Standard |
| |
Application Date
for our group |
|
| Amendments to IFRS 1, Subsidiary as a First-time Adopter | | |
January 1, 2022
|
| |
January 1, 2022
|
|
| Amendments to IFRS 9, Derecognition of Financial Liabilities | | |
January 1, 2022
|
| |
January 1, 2022
|
|
| Amendments to IFRS 3, Reference to the Conceptual Framework | | |
January 1, 2022
|
| |
January 1, 2022
|
|
| Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended Use | | |
January 1, 2022
|
| |
January 1, 2022
|
|
| Amendments to IAS 37, Onerous Contracts – Cost of Fulfilling a Contract | | |
January 1, 2022
|
| |
January 1, 2022
|
|
Up to the date of issue of these financial statements, the IASB has issued a number of amendments and a new standard, IFRS 17, Insurance contracts, which are not yet effective for the year ended December 31, 2021 and which have not been adopted in these financial statements. We are in the process of making an assessment of what the impact of these new and amended standards and interpretations would be in the period of initial application. So far, we have concluded that the adoption of them is unlikely to have a significant impact on our financial position.
|
Standard/Interpretation
|
| |
Application
Date for our group |
|
| IFRS 17, Insurance Contracts and Amendments to Address Concerns and Implementation Challenges | | |
January 1, 2023
|
|
| Amendments to IFRS 4, Expiry Date of the Deferral Approach | | |
January 1, 2023
|
|
| Amendments to IAS 1, Making Materiality Judgement | | |
January 1, 2023
|
|
| Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of Accounting Policies | | |
January 1, 2023
|
|
| Amendments to IAS 8, Definition of Accounting Estimates | | |
January 1, 2023
|
|
| Amendments to IAS 12, Deferred Tax related to Assets and Liabilities arising from a Single Transaction | | |
January 1, 2023
|
|
| Initial Application of IFRS 17 and IFRS 9 – Comparative Information | | |
January 1, 2023
|
|
| Amendments to IAS 1, Classification of Liabilities as Current or Non-current and Disclosure of Accounting Policies | | |
January 1, 2024
|
|
| Amendments to IAS 1, Classification of Debt with Covenants | | |
January 1, 2024
|
|
| Amendments to IFRS 16, Subsequent Measurement of Sale and Leaseback Transactions by a Seller-lessee | | |
January 1, 2024
|
|
Critical Accounting Policies and Significant Judgments and Estimates
We prepare our consolidated financial statements for the years ended December 31, 2020, 2021 and 2022 in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
In preparing the financial statements, our management has made judgments and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, profit and loss. Estimates and judgments are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. We make estimates and assumptions concerning the future. The resulting accounting estimates may not be equal to the related actual results.
We believe the accounting policies related to the depreciation of mining machines, cryptocurrency accounting, revenue from the proprietary mining business, income taxes, share-based payments, fair value of
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financial assets at fair value through profit or loss, and assessment of the asset acquisition for the years ended December 31, 2020 and 2021 and 2022 involve significant judgments and estimates used in the preparation of our financial statements. Our use of judgements and estimates is disclosed in the Note 3 and the related accounting policies are disclosed in Note 2 to the consolidated financial statements included elsewhere in this Report. When reviewing our financial statements, you should consider our selection of critical accounting policies, our significant judgments and other uncertainties affecting our applications of those policies and the sensitivity of reported results to changes of such policies, judgments and uncertainties. You should read the descriptions of these significant judgments and estimates in conjunction with other disclosures included in this Report.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b).
Holding Company Structure
Bitdeer Technologies Group is a limited liability company incorporated in the Cayman Islands on December 8, 2021 with no material operations of its own. We currently conduct our operations primarily through our subsidiaries. As a result, our ability to pay dividends primarily depends upon dividends paid by our subsidiaries. If our existing subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The Company’s directors and executive officers upon the consummation of the Business Combination are set forth in the Form F-4 in the section entitled “BTG’s Directors and Officers Following the Business Combination,” which are incorporated herein by reference.
B.
Compensation
Information pertaining to the compensation of the Company’s directors and executive officers is set forth in the Form F-4 in the section entitled “BTG’s Directors and Officers Following the Business Combination — Employment Agreements and Indemnification Agreements,” which is incorporated herein by reference.
C.
Board Practices
Information pertaining to the Company’s board practices is set forth in the Form F-4 in the section entitled “BTG’s Directors and Officers Following the Business Combination — Board Committees,” which is incorporated herein by reference.
D.
Employees
Following and as a result of the contemplation of the Business Combination, the business of the Company is conducted through Bitdeer Technologies Holding Company.
We had approximately 142 and 183 full-time employees as of December 2021 and 2022, respectively. We did not have full-time employees as of December 31, 2020 as we operated as part of Bitmain until January 2021. We also hire part-time employees from time to time. Of the 183 full-time employees as of December 31, 2022, approximately 34 were engaged in research and development activities and 149 were engaged in business development, finance, information system, facilities, human resources or administrative support. Most of our employees are located in Singapore and United States. None of our employees is
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represented by a labor union or subject to a collective bargaining agreement. We believe that we maintain a good working relationship with our employees, and we have not experienced any material disputes with our employees in our history.
E.
Share Ownership
Ownership of the Company’s shares by its directors and executive officers upon consummation of the Business Combination is set forth in Item 7.A of this Report.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
The following table sets forth information regarding the beneficial ownership of Ordinary Shares as of the date hereof by:
•
each person known by us to be the beneficial owner of more than 5% of Ordinary Shares;
•
each of our directors and executive officers; and
•
all our directors and executive officers as a group.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if that person possesses sole or shared voting or investment power over that security. A person is also deemed to be a beneficial owner of securities that person has a right to acquire within 60 days including, without limitation, through the exercise of any option, warrant or other right or the conversion of any other security. Such securities, however, are deemed to be outstanding only for the purpose of computing the percentage beneficial ownership of that person but are not deemed to be outstanding for the purpose of computing the percentage beneficial ownership of any other person. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities.
As of the date of this Report, there are 62,888,683 Class A Ordinary Shares and 48,399,922 Class V Ordinary Shares issued and outstanding.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all shares of voting shares beneficially owned by them.
| | | |
Ordinary Shares Beneficially Owned Immediately
After Closing of the Business Combination(2) |
| |||||||||||||||||||||
| | | |
Class A
Ordinary Shares |
| |
Class V
Ordinary Shares |
| |
% of Total
Ordinary Shares |
| |
% of
Voting Power |
| ||||||||||||
| Directors and Executive Officers(1) | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Jihan Wu(3)
|
| | | | — | | | | | | 48,399,922 | | | | | | 41.0 | | | | | | 87.4 | | |
|
Linghui Kong
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Xiaoni Meng
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Jianchun Liu
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Huaxin Wen
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Naphat Sirimongkolkasem
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Sheldon Trainor-Degirolamo
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Guang Yang
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
All executive officers and directors as a group (eight individuals)
|
| | | | — | | | | | | 48,399,922 | | | | | | 41.0 | | | | | | 87.4 | | |
| 5.0% Shareholders | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Zhaofeng Zhao(4)
|
| | | | 15,326,416 | | | | | | — | | | | | | 13.0 | | | | | | 2.8 | | |
|
Yuesheng Ge(5)
|
| | | | 10,214,395 | | | | | | — | | | | | | 8.7 | | | | | | 1.8 | | |
|
Yishuo Hu(6)
|
| | | | 10,214,395 | | | | | | — | | | | | | 8.7 | | | | | | 1.8 | | |
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(1)
The business address for the directors and executive officers of the Company will be 08 Kallang Avenue, Aperia tower 1, #09-03/04, Singapore 339509.
(2)
For each person and group included in this column, the percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of Ordinary Shares as a single class. In respect of matters requiring a shareholder vote, each Class A Ordinary Shares will be entitled to one vote and each Class V Ordinary Share will be entitled to ten (10) votes. Each Class V Ordinary Share shall automatically convert into one (1) Class A Ordinary Share if transferred from a Founder Entity to a non-Founder Entity, except under certain circumstances.
(3)
Represents shares held through Victory Courage Limited.
(4)
Represents shares held through Shinning Stone Invest Co., Ltd.
(5)
Represents shares held through Mega Galaxy International Limited.
(6)
Represents shares held through Golden Navigate Investments Limited.
As of the date of this Report, to our knowledge, approximately 0.81% of our total issued and outstanding Class A Ordinary Shares were held by three record shareholders in the United States.
We have experienced significant changes in the percentage ownership held by major shareholders as a result of the Business Combination. Prior to the consummation of the Business Combination, the sole shareholder of our Company is C100 Holding Company, a Cayman Islands exempted company.
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B.
Related Party Transactions
Information pertaining to the Company’s related party transactions is set forth in the Form F-4 in the section entitled “Certain Relationships and Related Person Transactions — Related Person Transaction Policy — Related Person Transaction Policy of BTG upon Consummation of the Business Combination,” which is incorporated herein by reference.
C.
Interests of Experts and Counsel
None.
ITEM 8. FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
Financial Statements
Consolidated financial statements have been filed as part of this Report. See Item 18 “Financial Statements.”
Legal Proceedings
We are currently not a party to any material legal or administrative proceedings. We have been, and may from time to time in the future, be subject to various legal and administrative proceedings arising in the ordinary course of our business. Such claims or legal actions, even if without merit, could result in the expenditure of significant financial and management resources and potentially result in civil liability for damages.
Dividend Policy
The Company’s policy on dividend distributions is set forth in the Form F-4 in the section entitled “Price Range of Securities and Dividends — Dividend Policy,” which is incorporated herein by reference.
B.
Significant Changes
A discussion of significant changes since December 31, 2021 and June 30, 2022, respectively, is provided under Item 4 of this Report and is incorporated herein by reference.
ITEM 9. THE OFFER AND LISTING
A.
Offer and Listing Details
Class A Ordinary Shares are listed on Nasdaq under the symbol “BTDR.” Holders of Class A Ordinary Shares should obtain current market quotations for their securities.
B.
Plan of Distribution
Not applicable.
C.
Markets
Class A Ordinary Shares are listed on Nasdaq under the symbol “BTDR.”
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
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F.
Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A.
Share Capital
As of the date of this Report, subsequent to the closing of the Business Combination, there were 62,888,683 Class A Ordinary Shares and 48,399,922 Class V Ordinary Shares that were outstanding and issued.
B.
Memorandum and Articles of Association
The articles of association of the Company effective as of April 13, 2023 are filed as part of this Report.
The description of the articles of association of the Company set forth in the Form F-4 in the section entitled “Description of BTG Securities” is incorporated herein by reference.
C.
Material Contracts
Material Contracts Relating to the Company’s Operations
Information pertaining to the Company’s material contracts is set forth in the Form F-4, in the sections entitled “Information Related to Bitdeer,” “Risk Factors — Risks Relating to Bitdeer,” and “Certain Relationships and Related Person Transactions,” each of which is incorporated herein by reference.
Material Contracts Relating to the Business Combination
Merger Agreement
The description of the Amended and Restated Merger Agreement in set forth in the Form F-4 in the section entitled “The Business Combination Proposal — The Merger Agreement,” which is incorporated herein by reference.
Related Agreements
The description of the material provisions of certain additional agreements entered into or to be entered into pursuant to the Amended and Restated Merger Agreement is set forth in the Form F-4 in the section entitled “The Business Combination Proposal — Related Agreements,” which is incorporated herein by reference.
D.
Exchange Controls
There are no governmental laws, decrees, regulations or other legislation in the Cayman Islands that may affect the import or export of capital, including the availability of cash and cash equivalents for use by the Company, or that may affect the remittance of dividends, interest, or other payments by the Company to non-resident holders of its ordinary shares, assuming the absence of applicable United Nations sanctions as implemented or otherwise adopted under the laws of the Cayman Islands. There is no limitation imposed by laws of Cayman Islands or in the Company’s articles of association on the right of non-residents to hold or vote shares.”
E.
Taxation
Information pertaining to tax considerations is set forth in the Form F-4 in the section entitled “Material Tax Considerations,” which is incorporated herein by reference.
F.
Dividends and Paying Agents
Information regarding the Company’s policy on dividends is set forth in the Form F-4 in the section entitled “Price Range of Securities and Dividends — Dividend Policy,” which is incorporated herein by reference. The Company has not identified a paying agent.
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G.
Statement by Experts
Not applicable.
H.
Documents on Display
We are subject to certain of the informational filing requirements of the Exchange Act. Since we are a “foreign private issuer,” we are exempt from the rules and regulations under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchase and sale of our shares. In addition, we are not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we are required to file with the SEC an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We may, but are not required, to furnish to the SEC, on Form 6-K, unaudited financial information after each of our first three fiscal quarters. The SEC also maintains a website at http://www.sec.gov that contains reports and other information that we file with or furnish electronically with the SEC. You may read and copy any report or document we file, including the exhibits, at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.
I.
Subsidiary Information
Not applicable.
J.
Annual Report to Security Holders
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cryptocurrency Risk
We are exposed to cryptocurrency risk as we yield cryptocurrencies from certain revenue arrangements. We recognize revenue based on the spot fair value of cryptocurrencies on the day they are earned, but the value of the cryptocurrencies is subject to change on the date they are disposed for fiat currency.
Cryptocurrency prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. Our profitability is highly correlated to the current and future market price of cryptocurrencies and a decline in the market prices for cryptocurrencies could negatively impact our future operations. In addition, we may not be able to liquidate our holdings of cryptocurrencies at our desired price if required, or, in extreme market conditions, we may not be able to liquidate our holdings of cryptocurrencies at all.
Cryptocurrencies have a limited history, and the fair value of cryptocurrencies has been very volatile. The historical performance of cryptocurrencies is not indicative of their future price performance. The cryptocurrencies involved in our operation are currently primarily based on bitcoin and USDT. We currently do not use any derivative contracts to hedge our exposure to cryptocurrency risk, but our management closely monitors the impact of the mainstream cryptocurrency exchange market on the change of exchange rates from cryptocurrency to fiat currency. We limit our exposure to the cryptocurrency risk by including in our operation strategy to dispose of the cryptocurrencies for fiat currency shortly after they are earned.
Fluctuations in the market price of Bitcoin and/or other cryptocurrencies may have a more linear and quantifiable impact on some of our businesses than others. A 10% increase or decrease in the average market price of Bitcoin and/or other cryptocurrencies over 2020, 2021 and 2022, without considering other factors, would have had the following impact on our revenue: (i) an increase or decrease in our revenue from proprietary mining by 10%; (ii) an increase or decrease in our revenue from Cloud Hash Rate in general, as the price of Bitcoin is a key factor in determining the hash rate subscription fee, provided however, the precise impact is subject to other factors, such as the expected mining rewards at the time of subscription, contract
99
terms, allocation of hash rate between classic and accelerator mode, and electricity price; and (iii) an increase or decrease in revenue from Cloud Hosting, provided that the overall impact is less linear as compared to in the case of proprietary mining. The impact on the revenue from sales of mining machines depends on market sentiments towards Bitcoin at the relevant point in time, in addition to the actual price of Bitcoin. A change in the market price of Bitcoin and/or other cryptocurrencies would not have had a material effect on our revenue from other sources.
In addition, Bitcoin and other cryptocurrencies accounted for 1.0% and 0.3% of our total assets as of December 31, 2021 and 2022, respectively. Since we dispose cryptocurrencies in a relatively short period of time, a 10% increase or decrease in the market price of Bitcoin and other cryptocurrencies as of December 31, 2020, December 31, 2021 and December 31, 2022, respectively, would not have had a material effect on our total assets at these dates.
Interest Rate Risk
Our interest rate risk is primarily attributable to bank deposits, restricted cash and borrowings. Bank deposits, restricted cash and borrowings at variable rates and at fixed rates expose us to cash flow interest rate risk and fair value interest rate risk respectively. Our management closely monitors the fluctuation of such rates periodically. If the interest rates had been higher or lower by 1% with all other variables including tax rate being held constant, the profit/(loss) before tax would have been higher or lower by US$0.5 million, US$3.5 million and US$2.1 million for the years ended December 31, 2020, 2021 and 2022, respectively.
Investment Risk
We are exposed to investment risk from investment transactions such as investment in financial assets at fair value through profit or loss. These investments are not principal-guaranteed, and we may suffer material loss from such investments. We monitor our investments closely and limits our exposure to the investment risk by including in its operation strategy the requirements to perform due diligence on the prospective investees to evaluate the business soundness before making an investment, and communicate regularly with the investee, review management report and the latest financial statements, if any, to evaluate the stage of investment and whether any action should be taken regarding the investment.
Foreign Currency Risk
We are exposed to foreign currency risk as we conduct transactions which give rise to payables and cash balances that are denominated in foreign currencies and the fair value or future cash flows of our financial instrument may fluctuate due to movement in foreign exchange rates of these foreign currencies. The volatility of exchange rates depends on many factors that we are not able to accurately forecast. Our management is closely monitoring our exposure to currency risk and seeks to minimize its exposure to such risk. We were not exposed to material foreign currency risk during the years ended December 31, 2020 and 2021 and 2022.
Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to us. Our credit risk currently arises mainly from cash deposited in the banks and cryptocurrencies deposited in custody.
To manage risk arising from cash, cash equivalents and restricted cash, we only transact with reputable financial institutions, which have no recent history of default. As such, we are not subject to material credit risk arising from cash, cash equivalents and restricted cash.
For the years ended December 31, 2020, 2021 and 2022, substantially all of our cryptocurrencies are stored in wallets held in the custody by Matrix Finance and Technologies Holding Company (“Matrixport Group”), a related party. To limit exposure to credit risk relating to cryptocurrencies under custody, we evaluate the system security design of the custody service provider and regularly reviews the exposure of cryptocurrencies held in custody. We have further implemented internal controls to ensure the appropriate access to the cryptocurrencies under custody and adopted the operating strategy of disposing of the
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cryptocurrency for fiat currency shortly after they are earned. We expect that there is no significant credit risk from non-performance by Matrixport Group.
However, Bitcoin and other blockchain-based cryptocurrencies have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. A successful security breach or cyberattack could result in a partial or total loss of our cryptocurrencies and such a loss could have a material adverse effect on our financial condition and results of operations.
Liquidity Risk
Liquidity risk arises in situations where we have difficulties in fulfilling financial liabilities when they become due. Prudent liquidity risk management implies maintaining sufficient cash in order to meet our financial obligations. Our liquidity risk is minimal. We currently have sufficient reserve of cash. As of December 31, 2022, we recorded cash and cash equivalents of US$231.4 million and fiat currency investment of US$31.1 million in unlisted debt instruments, which is redeemable on demand. During the year ended December 31, 2022, our net cash used in operating activities was US$268.0 million. We believe that our cash, short-term investment and anticipated proceeds from disposal of cryptocurrencies in connection with our principal business will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 18 months from the date of this Report. We manage our liquidity risk by monitoring cash flow generated from operations, available borrowing capacity, and by managing the maturity profiles of our long-term loans. We expect to continue our low-leverage strategy and plan to lower our liquidity risk by expanding our capital expenditure-light businesses such as Hash Rate Marketplace.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
None.
PART II
Not applicable.
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PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The audited consolidated financial statements of Bitdeer as of December 31, 2021 and for each of the two years in the period ended December 31, 2021, contained in the Form F-4 between pages F-49 and F-101 are incorporated herein by reference.
The audited consolidated financial statements of Bitdeer as of December 31, 2022 and for the year ended December 31, 2022 are filed as part of this Report beginning on page F-1.
The audited financial statements of BSGA as of December 31, 2021 and 2022, and for the year ended December 31, 2022 and for the period from February 23, 2021 (inception) through December 31, 2021 contained in the Form F-4 between pages F-2 and F-18 are incorporated herein by reference.
The unaudited pro forma condensed combined financial information of Bitdeer and BSGA are attached as Exhibit 15.1 to this Report.
ITEM 19. EXHIBITS
EXHIBIT INDEX
| |
EXHIBIT
NUMBER |
| |
DESCRIPTION
|
|
| | 1.1* | | | | |
| | 2.1 | | | | |
| | 4.1 | | | | |
| | 4.2 | | | | |
| | 4.3 | | | | |
| | 4.4 | | | | |
| | 4.5 | | | | |
| | 4.6†* | | | Bitdeer Technologies Group Share Incentive Plan, effective on April 13, 2023. | |
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| |
EXHIBIT
NUMBER |
| |
DESCRIPTION
|
|
| | 4.7† | | | | |
| | 4.8† | | | | |
| | 4.9# | | | | |
| | 4.10# | | | | |
| | 4.11# | | | | |
| | 4.12# | | | | |
| | 4.13# | | | | |
| | 4.14# | | | | |
| | 4.15# | | | | |
| | 4.16*# | | | | |
| | 4.17# | | | | |
| | 4.18# | | | | |
| | 4.19# | | | | |
| | 4.20# | | | |
103
| |
EXHIBIT
NUMBER |
| |
DESCRIPTION
|
|
| | 4.21# | | | | |
| | 4.22# | | | | |
| | 4.23# | | | | |
| | 4.24# | | | | |
| | 4.25# | | | | |
| | 4.26# | | | | |
| | 8.1 | | | | |
| |
11.1
|
| | | |
| | 15.1* | | | Unaudited Pro Forma Condensed Combined Financial Information of Bitdeer and BSGA | |
| | 15.2* | | | Consent of Marcum LLP | |
*
Filed herewith.
†
Indicates a management contract or any compensatory plan, contract or arrangement.
#
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K on the basis that the Company customarily and actually treats that information as private or confidential and the omitted information is not material.
104
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this report on its behalf.
| | | | | Bitdeer Technologies Group | | ||||||
| | April 19, 2023 | | | By: | | |
/s/ Jihan Wu
|
| |||
| | | | | | | | Name: | | | Jihan Wu | |
| | | | | | | | Title: | | | Director and Chairman of the Board | |
INDEX TO FINANCIAL STATEMENTS
| | | |
Page
|
| |||
|
Consolidated Financial Statements as of December 31, 2021 and 2022 and for each of the Three Years in the Period Ended December 31, 2022
|
| | | | | | |
| | | | | F-2 | | | |
| | | | | F-3 | | | |
| | | | | F-4 | | | |
| | | | | F-5 | | | |
| | | | | F-6 | | | |
| | | | | F-8 | | | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Bitdeer Technologies Holding Company
Bitdeer Technologies Holding Company
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Bitdeer Technologies Holding Company and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive income / (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Restatement of the 2021 and 2020 Financial Statement
As discussed in Note 2(a) to the financial statements, the accompanying consolidated statements of operation and comprehensive income / (loss) and cash flows for the years ended December 31, 2021 and 2020 have been restated to correct certain misstatements.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company’s auditor since 2021.
Houston, Texas
April 19, 2023
We have served as the Company’s auditor since 2021.
Houston, Texas
April 19, 2023
F-2
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in tables are stated in thousands of U.S. Dollar)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in tables are stated in thousands of U.S. Dollar)
| | | |
Note
|
| |
December 31,
2021 |
| |
December 31,
2022 |
| ||||||
| ASSETS | | | | | | | | | | | | | | | | |
|
Cash and cash equivalents
|
| |
6
|
| | | | 372,088 | | | | | | 231,362 | | |
|
Cryptocurrencies
|
| |
7
|
| | | | 6,187 | | | | | | 2,175 | | |
|
Trade receivables
|
| | | | | | | 8,238 | | | | | | 18,304 | | |
|
Amounts due from a related party
|
| |
20
|
| | | | 1,500 | | | | | | 397 | | |
|
Mining machines
|
| |
10
|
| | | | 46,469 | | | | | | 27,703 | | |
|
Prepayments and other assets
|
| |
8
|
| | | | 34,637 | | | | | | 59,576 | | |
|
Financial assets at fair value through profit or loss
|
| |
9
|
| | | | 1,250 | | | | | | 60,959 | | |
|
Restricted cash
|
| |
6
|
| | | | 10,310 | | | | | | 11,494 | | |
|
Right-of-use assets
|
| |
13
|
| | | | 58,941 | | | | | | 60,082 | | |
|
Property, plant and equipment
|
| |
11
|
| | | | 102,617 | | | | | | 138,636 | | |
|
Investment properties
|
| |
12
|
| | | | — | | | | | | 35,542 | | |
|
Intangible assets
|
| | | | | | | 115 | | | | | | 322 | | |
|
Deferred tax assets
|
| |
19
|
| | | | 4,622 | | | | | | 4,857 | | |
|
TOTAL ASSETS
|
| | | | | | | 646,974 | | | | | | 651,409 | | |
| LIABILITIES | | | | | | | | | | | | | | | | |
|
Trade payables
|
| | | | | | | 17,740 | | | | | | 15,768 | | |
|
Other payables and accruals
|
| |
15
|
| | | | 17,258 | | | | | | 22,176 | | |
|
Amounts due to a related party
|
| |
20
|
| | | | 19 | | | | | | 316 | | |
|
Income tax payables
|
| | | | | | | 10,454 | | | | | | 657 | | |
|
Deferred revenue
|
| | | | | | | 213,449 | | | | | | 182,297 | | |
|
Borrowings
|
| |
14
|
| | | | 29,460 | | | | | | 29,805 | | |
|
Lease liabilities
|
| |
13
|
| | | | 62,968 | | | | | | 70,425 | | |
|
Deferred tax liabilities
|
| |
19
|
| | | | 7,547 | | | | | | 11,626 | | |
|
TOTAL LIABILITIES
|
| | | | | | | 358,895 | | | | | | 333,070 | | |
|
NET ASSETS
|
| | | | | | | 288,079 | | | | | | 318,339 | | |
| EQUITY | | | | | | | | | | | | | | | | |
|
Share capital
|
| |
18
|
| | | | 1 | | | | | | 1 | | |
|
Retained earnings
|
| |
18
|
| | | | 67,169 | | | | | | 6,803 | | |
|
Reserves
|
| |
18
|
| | | | 220,909 | | | | | | 311,535 | | |
|
TOTAL EQUITY
|
| | | | | | | 288,079 | | | | | | 318,339 | | |
The accompanying notes form an integral part of these consolidated financial statements.
F-3
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
(Amounts in tables are stated in thousands of U.S. Dollar, except for per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
(Amounts in tables are stated in thousands of U.S. Dollar, except for per share data)
| | | | | | |
Years ended December 31,
|
| |||||||||||||||
| | | |
Note
|
| |
2020
(Restated) |
| |
2021
|
| |
2022
|
| |||||||||
|
Revenue
|
| |
2(a), 2(q)
|
| | |
|
186,387
|
| | | |
|
394,661
|
| | | |
|
333,342
|
| |
|
Cost of revenue
|
| |
2(a), 16(a)
|
| | | | (209,564) | | | | | | (153,255) | | | | | | (250,090) | | |
|
Gross profit / (loss)
|
| | | | | | | (23,177) | | | | | | 241,406 | | | | | | 83,252 | | |
|
Selling expenses
|
| |
16(a)
|
| | | | (5,567) | | | | | | (8,448) | | | | | | (11,683) | | |
|
General and administrative expenses
|
| |
16(a)
|
| | | | (20,268) | | | | | | (89,735) | | | | | | (93,453) | | |
|
Research and development expenses
|
| |
16(a)
|
| | | | (9,790) | | | | | | (29,501) | | | | | | (35,430) | | |
|
Other operating income / (expenses)
|
| |
16(b)
|
| | | | (2,045) | | | | | | 14,625 | | | | | | (3,628) | | |
|
Other net gain / (loss)
|
| |
16(c)
|
| | | | (2,560) | | | | | | 2,483 | | | | | | 357 | | |
|
Profit / (loss) from operations
|
| | | | | | | (63,407) | | | | | | 130,830 | | | | | | (60,585) | | |
|
Finance income / (expenses)
|
| |
16(d)
|
| | | | (380) | | | | | | 59 | | | | | | (4,181) | | |
|
Profit / (loss) before taxation
|
| | | | | | | (63,787) | | | | | | 130,889 | | | | | | (64,766) | | |
|
Income tax benefit / (expenses)
|
| |
19
|
| | | | 7,961 | | | | | | (48,246) | | | | | | 4,400 | | |
|
Profit / (loss) for the year
|
| | | | | | | (55,826) | | | | | | 82,643 | | | | | | (60,366) | | |
| Other comprehensive income / (loss) | | | | | | | | | | | | | | | | | | | | | | |
|
Profit / (loss) for the year
|
| | | | | | | (55,826) | | | | | | 82,643 | | | | | | (60,366) | | |
| Other comprehensive income / (loss) for the year | | | | | | | | | | | | | | | | | | | | | | |
| Item that may be reclassified to profit or loss | | | | | | | | | | | | | | | | | | | | | | |
|
– Exchange differences on translation of financial statements
|
| | | | | | | 905 | | | | | | (195) | | | | | | (22) | | |
|
Other comprehensive income / (loss) for the year, net of
tax |
| | | | | | | 905 | | | | | | (195) | | | | | | (22) | | |
|
Total comprehensive income / (loss) for the year
|
| | | | | | | (54,921) | | | | | | 82,448 | | | | | | (60,388) | | |
| Earnings / (loss) per share | | | | | | | | | | | | | | | | | | | | | | |
|
Basic
|
| |
21
|
| | | | (0.00) | | | | | | 0.01 | | | | | | (0.00) | | |
|
Diluted
|
| |
21
|
| | | | (0.00) | | | | | | 0.01 | | | | | | (0.00) | | |
|
Weighted average number of shares outstanding (thousand shares)
|
| | | | | | | | | | | | | | | | | | | | | |
|
Basic
|
| |
21
|
| | | | 12,662,126 | | | | | | 12,662,126 | | | | | | 12,662,126 | | |
|
Diluted
|
| |
21
|
| | | | 12,662,126 | | | | | | 12,977,177 | | | | | | 12,662,126 | | |
The accompanying notes form an integral part of these consolidated financial statements.
F-4
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in tables are stated in thousands of U.S. Dollar)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in tables are stated in thousands of U.S. Dollar)
| | | |
Note
|
| |
Share
Capital |
| |
Retained
Earnings |
| |
Exchange
Reserve |
| |
Other
Reserve |
| |
Invested
Capital |
| |
Total
Equity |
| ||||||||||||||||||
|
Balance at January 1, 2020
|
| | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (61,618) | | | | | | (61,618) | | |
|
Loss for the year
|
| | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (55,826) | | | | | | (55,826) | | |
|
Other comprehensive income
|
| | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 905 | | | | | | 905 | | |
|
Capital contribution received from related party
|
| | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 420,000 | | | | | | 420,000 | | |
|
Deemed distribution to related parties
|
| | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (157,557) | | | | | | (157,557) | | |
|
Balance at December 31, 2020 and January 1, 2021
|
| | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 145,904 | | | | | | 145,904 | | |
|
Profit for the year
|
| | | | | | | — | | | | | | 67,169 | | | | | | — | | | | | | — | | | | | | 15,474 | | | | | | 82,643 | | |
|
Other comprehensive loss
|
| | | | | | | — | | | | | | — | | | | | | (195) | | | | | | — | | | | | | — | | | | | | (195) | | |
|
Capital share allotment relating to the Reorganization
|
| | | | | | | 1 | | | | | | — | | | | | | — | | | | | | (1) | | | | | | — | | | | | | — | | |
|
Share-based payments
|
| |
17
|
| | | | — | | | | | | — | | | | | | — | | | | | | 88,355 | | | | | | — | | | | | | 88,355 | | |
|
Recognition of equity component of convertible debt
|
| |
14
|
| | | | — | | | | | | — | | | | | | — | | | | | | 683 | | | | | | — | | | | | | 683 | | |
|
Deemed distribution to related parties
|
| | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (29,311) | | | | | | (29,311) | | |
|
Reclassification of invested capital
|
| | | | | | | — | | | | | | — | | | | | | — | | | | | | 132,067 | | | | | | (132,067) | | | | | | — | | |
|
Balance at December 31, 2021 and January 1, 2022
|
| | | | | | | 1 | | | | | | 67,169 | | | | | | (195) | | | | | | 221,104 | | | | | | — | | | | | | 288,079 | | |
|
Loss for the year
|
| | | | | | | — | | | | | | (60,366) | | | | | | — | | | | | | — | | | | | | — | | | | | | (60,366) | | |
|
Other comprehensive loss
|
| | | | | | | — | | | | | | — | | | | | | (22) | | | | | | — | | | | | | — | | | | | | (22) | | |
|
Share-based payments
|
| |
17
|
| | | | — | | | | | | — | | | | | | — | | | | | | 90,648 | | | | | | — | | | | | | 90,648 | | |
|
Balance at December 31, 2022
|
| | | | | | | 1 | | | | | | 6,803 | | | | | | (217) | | | | | | 311,752 | | | | | | — | | | | | | 318,339 | | |
The accompanying notes form an integral part of these consolidated financial statements.
F-5
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in tables are stated in thousands of U.S. Dollar)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in tables are stated in thousands of U.S. Dollar)
| | | |
Years ended December 31,
|
| |||||||||||||||
| | | |
2020
(Restated) |
| |
2021
(Restated) |
| |
2022
|
| |||||||||
| Cash flows from operating activities | | | | | | | | | | | | | | | | | | | |
|
Profit / (loss) for the year
|
| | | | (55,826) | | | | | | 82,643 | | | | | | (60,366) | | |
| Adjustments for: | | | | | | | | | | | | | | | | | | | |
|
Revenues recognized on acceptance of cryptocurrencies
|
| | | | (170,228) | | | | | | (333,668) | | | | | | (304,962) | | |
|
Depreciation and amortization
|
| | | | 112,037 | | | | | | 63,055 | | | | | | 66,424 | | |
|
Share-based payment expenses
|
| | | | — | | | | | | 88,355 | | | | | | 90,648 | | |
|
Loss / (gain) on disposal of property, plant and equipment and intangible assets
|
| | | | (66) | | | | | | (56) | | | | | | (662) | | |
|
Changes in fair value of financial assets at fair value through profit or loss
|
| | | | — | | | | | | — | | | | | | 841 | | |
|
Net gain on disposal of financial assets at fair value through profit or loss
|
| | | | — | | | | | | — | | | | | | (213) | | |
|
Loss on disposal of mining machines
|
| | | | 2,984 | | | | | | 36 | | | | | | 497 | | |
|
Loss / (gain) on disposal of cryptocurrencies
|
| | | | (2,716) | | | | | | (18,725) | | | | | | 3,131 | | |
|
Change in fair value of cryptocurrency lent
|
| | | | — | | | | | | 3,735 | | | | | | — | | |
|
Impairment charges
|
| | | | 4,236 | | | | | | 2,567 | | | | | | — | | |
|
Loss / (gain) on foreign currency transactions
|
| | | | (618) | | | | | | 226 | | | | | | 2,881 | | |
|
Gain on extinguishment of debt
|
| | | | — | | | | | | (880) | | | | | | — | | |
|
Gain on settlement of balance with Bitmain
|
| | | | — | | | | | | (4,468) | | | | | | — | | |
|
Loss on disposal of subsidiaries
|
| | | | — | | | | | | 8 | | | | | | — | | |
|
Interest income
|
| | | | (419) | | | | | | (2,947) | | | | | | (4,291) | | |
|
Interest expense on bank loan
|
| | | | 6 | | | | | | 3 | | | | | | — | | |
|
Interest accretion on lease liabilities
|
| | | | 817 | | | | | | 1,217 | | | | | | 2,425 | | |
|
Interest expense on convertible debt
|
| | | | — | | | | | | 1,223 | | | | | | 2,778 | | |
|
Gain on lease modification
|
| | | | (6) | | | | | | (205) | | | | | | — | | |
|
Income tax expenses / (benefit)
|
| | | | (7,961) | | | | | | 48,246 | | | | | | (4,400) | | |
| Changes in: | | | | | | | | | | | | | | | | | | | |
|
Restricted cash
|
| | | | (2,622) | | | | | | (2,971) | | | | | | (1,184) | | |
|
Trade receivables
|
| | | | — | | | | | | (13,258) | | | | | | (5,350) | | |
|
Prepayments and other assets
|
| | | | (5,381) | | | | | | (4,070) | | | | | | (21,913) | | |
|
Mining machines held for sale
|
| | | | 17,440 | | | | | | 5,957 | | | | | | 1,002 | | |
|
Amounts due from a related party
|
| | | | — | | | | | | (413) | | | | | | 337 | | |
|
Trade payables
|
| | | | 512 | | | | | | 12,508 | | | | | | (6,018) | | |
|
Deferred revenue
|
| | | | (2,151) | | | | | | 6,782 | | | | | | (9,159) | | |
|
Amount due to a related party
|
| | | | — | | | | | | 19 | | | | | | 297 | | |
|
Other payables and accruals
|
| | | | 1,670 | | | | | | 12,667 | | | | | | 1,299 | | |
|
Cash used in operating activities:
|
| | | | (108,292) | | | | | | (52,414) | | | | | | (245,958) | | |
|
Interest paid on leases
|
| | | | (842) | | | | | | (1,217) | | | | | | (2,425) | | |
|
Interest paid on convertible debt
|
| | | | — | | | | | | (1,080) | | | | | | (2,433) | | |
|
Interest received
|
| | | | 340 | | | | | | 2,202 | | | | | | 2,791 | | |
|
Income taxes paid
|
| | | | (382) | | | | | | (19) | | | | | | (20,012) | | |
|
Income tax refunded
|
| | | | — | | | | | | 62 | | | | | | — | | |
|
Net cash used in operating activities
|
| | | | (109,176) | | | | | | (52,446) | | | | | | (268,037) | | |
The accompanying notes form an integral part of these consolidated financial statements.
F-6
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in tables are stated in thousands of U.S. Dollar)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in tables are stated in thousands of U.S. Dollar)
| | | |
Years ended December 31,
|
| |||||||||||||||
| | | |
2020
(Restated) |
| |
2021
(Restated) |
| |
2022
|
| |||||||||
| Cash flows from investing activities | | | | | | | | | | | | | | | | | | | |
|
Purchase of property, plant and equipment and intangible assets
|
| | | | (19,851) | | | | | | (62,882) | | | | | | (63,200) | | |
|
Purchase of mining machine
|
| | | | (124,033) | | | | | | (26,611) | | | | | | — | | |
|
Purchase of financial assets at fair value through profit or loss
|
| | | | — | | | | | | — | | | | | | (61,550) | | |
|
Proceeds from disposal of financial assets at fair value through profit or loss
|
| | | | — | | | | | | — | | | | | | 1,213 | | |
|
Purchase of cryptocurrencies
|
| | | | — | | | | | | (60,045) | | | | | | (285,990) | | |
|
Loans to related parties
|
| | | | (161,000) | | | | | | (32,166) | | | | | | (322) | | |
|
Repayments from related parties
|
| | | | 194,353 | | | | | | 21,698 | | | | | | 1,087 | | |
|
Lending to a third party
|
| | | | — | | | | | | — | | | | | | (2,546) | | |
|
Proceeds from disposal of property, plant and equipment and intangible
assets |
| | | | 159 | | | | | | 877 | | | | | | 962 | | |
|
Proceeds from disposal of cryptocurrencies
|
| | | | 173,063 | | | | | | 568,553 | | | | | | 560,988 | | |
|
Proceeds from disposal of mining machines
|
| | | | 51 | | | | | | — | | | | | | — | | |
|
Disposal of subsidiaries, net of cash disposed of
|
| | | | — | | | | | | (14,855) | | | | | | 9,881 | | |
|
Cash paid for asset acquisition, net of cash acquired
|
| | | | — | | | | | | — | | | | | | (26,730) | | |
|
Net cash generated from investing activities
|
| | | | 62,742 | | | | | | 394,569 | | | | | | 133,793 | | |
| Cash flows from financing activities | | | | | | | | | | | | | | | | | | | |
|
Proceeds from bank loan
|
| | | | 871 | | | | | | — | | | | | | — | | |
|
Capital element of lease rentals paid
|
| | | | (4,517) | | | | | | (4,181) | | | | | | (3,884) | | |
|
Capital contribution received from related party
|
| | | | 420,000 | | | | | | — | | | | | | — | | |
|
Deemed distribution to related parties
|
| | | | (394,772) | | | | | | (10,943) | | | | | | — | | |
|
Repayments of borrowings from related parties
|
| | | | — | | | | | | (29,302) | | | | | | — | | |
|
Proceeds from convertible debt
|
| | | | — | | | | | | 30,000 | | | | | | — | | |
|
Borrowings from related parties
|
| | | | 9,194 | | | | | | — | | | | | | — | | |
|
Net cash generated from / (used in) financing activities
|
| | | | 30,776 | | | | | | (14,426) | | | | | | (3,884) | | |
|
Net (decrease) / increase in cash and cash equivalents
|
| | | | (15,658) | | | | | | 327,677 | | | | | | (138,128) | | |
|
Cash and cash equivalents at January 1
|
| | | | 59,826 | | | | | | 44,753 | | | | | | 372,088 | | |
|
Effect of movements in exchange rates on cash and cash equivalents held
|
| | | | 585 | | | | | | (342) | | | | | | (2,598) | | |
|
Cash and cash equivalents at December 31
|
| | | | 44,753 | | | | | | 372,088 | | | | | | 231,362 | | |
| | |||||||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
F-7
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
General information
Bitdeer Technologies Holding Company (the “Company” or “Bitdeer”) is a limited liability company incorporated in the Cayman Islands on November 18, 2020. The address of its registered office is 89 Nexus Way, Camana Bay, Grand Cayman KY1-9009, Cayman Islands.
The Company does not conduct any substantive operations on its own but conducts its primary operations through its subsidiaries. The Company and its subsidiaries (together, the “Group”) are principally engaged in the following business activities:
•
Offering to its customers plan subscriptions, from which the customers receive computing service in quantity measured in hash rate and benefit from such service as a result of directing the computing service to mining pools and receiving cryptocurrency rewards (the “Cloud Hash Rate business”);
•
Using the Group’s mining machines to provide computing power to mining pools in exchange for cryptocurrencies rewards (the “Proprietary Mining business”); and
•
Providing dynamic hosting solutions in the Group’s mining datacenters (the “Hosting business”, together with Cloud Hash Rate business and Proprietary Mining business, the “Bitdeer Business”).
Reorganization
Separation from Bitmain
For the year ended December 31, 2020, and the period from January 1, 2021 to January 26, 2021, the Bitdeer Business and the mining pool business, including the ownership of and registration right to the domain name btc.com (the “BTC.com Pool Business” or “BTC”), were operated through a number of entities controlled by BitMain Technologies Holding Company (collectively with its subsidiaries, “Bitmain”). The Company was created to separate the Bitdeer Business and the BTC.com Pool Business following a corporate reorganization of Bitmain to effectuate the separation. The separation from Bitmain resulted in the transfer of certain assets, liabilities and contracts related to the Bitdeer Business and the BTC.com Pool Business at their historical book values from Bitmain to the Company on January 26, 2021, when Bitmain distributed by way of dividend in kind the shares of the Company to the then existing Bitmain shareholders and the Company and its subsidiaries began to operate on a stand-alone basis.
Separation of the BTC.com Pool Business
In February 2021, the Group established Blockchain Alliance Technologies Holding Company (“Blockchain Alliance”) to separate the BTC.com Pool Business following a corporate reorganization of the Group to effectuate the separation. The separation was consummated on April 15, 2021, when the Group distributed by way of dividend in kind the shares of Blockchain Alliance to the then existing shareholders of the Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of preparation
The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated historical financial statements comprise the following financial information:
•
the combined results of operations of the Bitdeer Business during the year ended December 31, 2020, and the period from January 1, 2021 to April 15, 2021 (the “Carve-out Period”), which have been prepared on a carve-out basis; and
F-8
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
•
the consolidated financial position of the Group as of December 31, 2021 and 2022 and the consolidated results of operations of the Group for the period from April 16, 2021 to December 31, 2021 and for the year ended December 31, 2022, which have been prepared on a consolidated basis (together, the “consolidated financial statements”).
Preparing combined financial statements of Bitdeer Business on a carve-out basis
Pursuant to the Reorganization discussed in Note 1, the Group prepared the combined financial statements to capture the stand-alone Bitdeer Business, which has historically operated as part of Bitmain. The Group also excluded the assets, liabilities, operation results and cash flows of BTC.com Pool Business from its combined financial statements as a result of the Reorganization. The combined financial statements have not historically been prepared for the Bitdeer business.
In preparing the combined historical financial information, certain accounting conventions commonly used for the preparation of combined historical financial information have been applied. The term “combined financial statements” is used when referring to financial information prepared by aggregating financial statements of separate entities or components of groups that fail to meet the definition of a “group” under IFRS 10 Consolidated financial statements. A key assumption underlying the preparation of combined financial statements is that there is a binding element for the economic activities throughout the period presented. The combined financial statements of the Group have been prepared by aggregating the financial information of the Bitdeer Business that was bound together by common control but was not a legal group. Intra-group transactions and the balances and unrealized gains or losses have been eliminated in the preparation of the combined financial statements.
The combined financial statements of the Bitdeer Business are derived from the historical accounting records of Bitmain on the following basis:
(i)
The combined statements of operations and comprehensive income / (loss) of the Bitdeer Business include all revenues and costs directly attributable to the Bitdeer Business. These include certain common operating and administrative expenses incurred by the Bitdeer Business in conjunction with other business operations of Bitmain and BTC, including financial, human resources, office administration and other support functions. These costs have been allocated on a basis considered reasonable by management using either specific identification or proportional allocations based on usage, headcount, or other reasonable methods of allocation. Income tax expense was estimated based on the statutory tax rate, adjusted as appropriate for the effects of known non-taxable and non-deductible items reported in the combined statements of operations and comprehensive income / (loss) as described above. However, the combined financial statements of the Bitdeer Business may not reflect the actual costs that would have been incurred and may not be indicative of the Bitdeer Business’s combined results of operations, financial position, and cash flows had it been operating on a separate, stand-alone basis during the periods presented.
(ii)
The Bitdeer Business did not comprise a separate legal entity or group of entities during the Carve-out Period. Therefore, it is not meaningful to present share capital or an analysis of reserves. The Group’s equity balance represented the excess or deficits of total assets over total liabilities and was presented as invested capital in the consolidated statements of financial position. Transactions between the Bitdeer Business, Bitmain and BTC during the Carve-out Period were accounted for as related party transactions. Changes in net assets attributed to the Group are presented separately in the consolidated statement of changes in invested capital and equity through the line item “deemed contribution from / (distribution to) related parties”. Equity transactions reflecting the internal financing between Bitdeer Business, Bitmain and BTC are included in the financing activities, presented as deemed contribution from / (distribution to) related parties, in the consolidated statements of cash flows.
F-9
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Consolidation
Subsequent to the Carve-out Period, the Group’s financial information is prepared on a consolidated basis, for which the consolidation policies are described below.
Subsidiaries are all entities over which the Group has control. The Group controls an entity where the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Inter-company transactions, balances and unrealized gains on transactions between the Company and its subsidiaries are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Restatement of prior years’ financial statements
Presentation on the sale of mining machines
During 2021, the Group identified an error in presenting the revenue from the sale of the mining machine as the difference between the selling price and the remaining net book value of the associated mining machine under IAS 16 Property, plant and equipment. As the sale of mining machines represents contracts with customers in the Group’s ordinary course of business, the transactions should have been accounted for under IFRS 15 Revenue from contracts with customers. Revenue from the sale of mining machines should have been recognized at the amount of promised consideration to which the Group is expected to be entitled, and the cost of revenue should have been recognized at the net book value of the mining machines sold. See Note 2(q) for a detailed discussion on the revenue recognition policy associated with the sale of mining machines. The previously reported combined financial statements for the year ended December 31, 2020 are restated to correct the above error.
Cash flow presentation on the disposal of cryptocurrencies earned from revenue arrangements
The Group restated the presentation of disposal of cryptocurrencies earned from revenue arrangements from operating activities to investing activities for the year ended December 31, 2021 as IAS 7 has indicated receipts from sales of intangible assets and debt investments are expected to be classified as investing activities. See Note 2(h) for the accounting policy related to the disposal of cryptocurrencies. The previously reported combined statements of cash flows for the year ended December 31, 2020 have been presented consistently with the current period’s presentation.
The effects of the above adjustments on the consolidated statements of operations and comprehensive income / (loss) for the year ended December 31, 2020 and the consolidated statements of cash flows for the years ended December 31, 2020 and 2021 are presented below. These adjustments did not have any impact on the net loss or the consolidated statement of financial position for the periods presented.
Restated consolidated statements of operations and comprehensive income / (loss)
| | | |
2020
|
| |
2020
|
| |
2020
|
| |||||||||
|
In thousands of USD
|
| |
As previously
reported |
| |
Effect of
adjustment – sale of mining machines |
| |
As restated
|
| |||||||||
|
Revenue
|
| | | | 168,850 | | | | | | 17,537 | | | | | | 186,387 | | |
|
Cost of revenue
|
| | | | (192,027) | | | | | | (17,537) | | | | | | (209,564) | | |
F-10
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Restated consolidated statements of cash flows
| | | |
2020
|
| |
2020
|
| |
2020
|
| |||||||||
|
In thousands of USD
|
| |
As previously
reported |
| |
Effect of
adjustment – sale of mining machines |
| |
As restated
|
| |||||||||
|
Cash flows from operating activities
|
| | | | (124,395) | | | | | | 15,219 | | | | | | (109,176) | | |
|
Cash flows from investing activities
|
| | | | 77,961 | | | | | | (15,219) | | | | | | 62,742 | | |
| | | |
2021
|
| |
2021
|
| |
2021
|
| |||||||||
|
In thousands of USD
|
| |
As previously
reported |
| |
Effect of
adjustment – disposal of cryptocurrencies |
| |
As restated
|
| |||||||||
|
Cash flows from operating activities
|
| | | | 454,656 | | | | | | (507,122) | | | | | | (52,466) | | |
|
Cash flows from investing activities
|
| | | | (112,553) | | | | | | 507,122 | | | | | | 394,569 | | |
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings and financial position.
b. Basis of accounting
The consolidated financial statements, except for the consolidated statements of cash flows, are prepared on the accrual basis. The measurement basis used is historical cost, except for certain accounts which are measured using the basis mentioned in the relevant notes herein.
The consolidated statements of cash flows are prepared using the indirect method and present the changes in cash from operating, investing, and financing activities.
The consolidated financial statements provide comparative information in respect of the previous period.
c. Foreign currency translation
Functional and presentation currency
Items included in the consolidated financial statements of each of the Group’s subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the “functional currency”). The Group presents its consolidated financial statements in United States Dollars (“USD”, “US$”, or “$”).
Transactions and balances
Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognized in profit or loss.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. The transaction date is the date on which the Group initially recognizes such non-monetary assets or liabilities.
F-11
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Foreign currency translation
The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
•
assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate at the date of that balance sheet,
•
income and expenses for each consolidated statement of operations and comprehensive income / (loss) are translated at average exchange rates, and
•
all resulting exchange differences are recognized in invested capital and reserves.
d.
Use of estimates and judgments
The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgments made by management in the application of IFRSs that have significant effects on the financial statements and major sources of estimation uncertainty are discussed in Note 3.
e.
Related parties
A party is considered to be related to the Group if:
(a)
the party is a person or a close member of that person’s family and that person
i)
has control or joint control over the Group;
ii)
has significant influence over the Group; or
iii)
is a member of the key management personnel of the Group or a parent of the Group;
(b)
the party is an entity where any of the following conditions applies:
i)
the entity and the Group are members of the same Group;
ii)
one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
iii)
the entity and the Group are joint ventures of the same third party;
iv)
one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
v)
the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
vi)
the entity is controlled or jointly controlled by a person identified in (a);
F-12
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
vii)
a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); or
viii)
the entity, or any member of the Group of which it is a part, provides key management personnel services to the Group or the parent of the Group.
Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
f.
Cash, cash equivalents and restricted cash
Cash and cash equivalents comprise cash in banks and on hand and short-term, highly liquid investments that are readily convertible into known amounts of cash which are subject to an insignificant risk of changes in value and are within three months of maturity at acquisition. Cash and cash equivalents are assessed for expected credit losses. See further discussion regarding expected credit loss in Note 2(u).
The Group is required to hold a defined amount of cash as security under the terms of standby letters of credits arrangement. See further discussion in Note 6.
g.
Trade receivables
Trade receivables are recognized when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due. Trade receivables are stated at amortized cost, less a loss allowance based on lifetime expected credit losses at each reporting date. See further discussion regarding expected credit loss in Note 2(u).
h.
Cryptocurrencies
Cryptocurrencies include USD Coin (“USDC”) and cryptocurrencies other than USDC held in the Group’s cryptocurrency wallets.
USDC
USDC is accounted for as a financial instrument as one USDC can be redeemed for one U.S. dollar on demand from the issuer. USDC, classified as a debt investment, is measured at fair value through profit or loss.
Cryptocurrencies other than USDC
Cryptocurrencies other than USDC are, by their nature, identifiable non-monetary assets that lack physical substance. Future economic benefits attributable to these cryptocurrencies are expected to flow to the Group because these cryptocurrencies can be exchanged for fiat currencies. Furthermore, the cost of the Group’s cryptocurrencies other than USDC can be measured using the quoted price of such cryptocurrencies at the time the fair value is being measured.
The Group accounts for the cryptocurrencies other than USDC as intangible assets with indefinite useful lives in its consolidated statements of financial position because, at the time of assessment, there is no foreseeable limit to the period over which such assets are expected to generate cash flows.
F-13
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group further adopts the cost model to account for cryptocurrencies other than USDC and reviews their useful life and impairment at each reporting date in accordance with IAS 38 Intangible Assets. The Group accounts for cryptocurrencies other than USDC at cost, instead of revaluing these cryptocurrencies at their fair value on each accounting reference date, because the latter model is subject to inherent and substantial volatility in the value of these cryptocurrencies from time to time. In addition, the Group believes that the cost model better reflects the Group’s business model, as the Group is not engaged in the cryptocurrency trading business.
Gains or losses arising from the disposal of cryptocurrencies other than USDC are determined as the difference between the net disposal proceeds and the carrying amount of the assets. The Group recognizes realized gains or losses on the date of the disposal using the first-in-first-out method of accounting.
Cryptocurrency lending arrangements
The Group enters into arrangements with counterparties to lend cryptocurrencies on an unsecured basis. No collateral is held for the cryptocurrencies lent. Upon lending, the Group derecognizes the cryptocurrencies lent and concurrently recognizes cryptocurrency receivables which are measured at the fair value of the cryptocurrencies lent based on their respective quoted prices initially and subsequently on the measurement date and adjusted for expected credit losses. Any differences between the carrying amount of the derecognized cryptocurrencies and the initial measurement of the cryptocurrency receivables, if applicable, and the change in fair value of the cryptocurrencies lent, are recognized in other operating income / (expenses) on the consolidated statements of operations and comprehensive income / (loss). See further discussion regarding credit losses from cryptocurrency receivables in Note 2(u). Also refer to Note 20 for more information.
Cryptocurrency-denoted wealth management products
The Group purchased two types of wealth management products during the year ended December 31, 2022.
Wealth management product type A
The Group enters into arrangements with the Matrixport Group, a related party, to purchase cryptocurrency-denoted wealth management products which represent units of interest in the underlying cryptocurrency trading account and the value of the units is based on the performance of the trading account managed by the Matrixport Group. The Group derecognizes the cryptocurrencies paid and concurrently recognizes a cryptocurrency receivable which gives rise to a variable return linked to the performance of the underlying trading account. The receivable contains an embedded derivative which is accounted for separately as an asset or liability based on the change in the fair value of the trading account. The cryptocurrency receivable is measured at the fair value of the cryptocurrencies invested based on their respective quoted prices on the measurement date and adjusted for expected credit losses. Any differences between the carrying amount of the derecognized cryptocurrencies and the initial measurement of the cryptocurrency receivables, if applicable, and the change in fair value of the cryptocurrencies invested, are recognized in other operating income / (expenses) on the consolidated statements of operations and comprehensive income / (loss).
Wealth management product type B
The Group enters into arrangements with the Matrixport Group, a related party, to purchase cryptocurrency-denoted wealth management products which represent variable-interest cryptocurrency deposit at Matrixport Group. The deposit is not protected by any deposit insurance scheme and non-secured, and the Group may lose some or all of the amount deposited in extreme market conditions. Upon withdrawal, the Group receives the same type of cryptocurrency in the
F-14
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
same quantity in principle plus additional interest returns. The deposit can be withdrawn on demand and is generally delivered to the Group within 72 hours. The nature of the wealth management product type B is, in essence, a cryptocurrency lending arrangement. Refer to the discussion on the accounting of cryptocurrency lending arrangements above.
See further discussion regarding credit losses from cryptocurrency receivables in Note 2(u). Also refer to Note 20 for more information.
The Group presents the revenue recognized on the acceptance of cryptocurrencies, which is a non-cash item, as an adjustment to remove the non-cash item for the cash flows from operating activities and the disposals of cryptocurrencies received in revenue arrangements are presented as cash flows from investing activities in the consolidated statements of cash flows. The purchases and disposals of cryptocurrencies associated with investment or lending transactions are presented as investing activities in the consolidated statements of cash flows.
i.
Prepaid expenses and other assets
Prepaid expenses represent prepayments made for operational purposes, such as prepaid utility fees and insurance expenses. Prepaid expenses are amortized over their future beneficial periods using the straight-line method or at a point in time upon the Group’s receipt of the underlying goods or service.
Other assets generally consisted of deposits paid to various service providers, such as lessors and electricity vendors.
j.
Intangible assets
Intangible assets acquired by the Group are stated at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses.
Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful life, which is the period over which an asset is expected to be available for use. The estimates and associated assumptions of useful life determined by the Group are based on technical or commercial obsolescence, legal or contractual limits on the use of the asset, and other relevant factors. The following intangible assets with finite useful lives are amortized from the date they are available for use and their estimated useful lives are as follows:
| |
•
Software
|
| | 3 years | |
Both the period and method of amortization are reviewed annually.
Intangible assets are not amortized while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortization of intangible assets with finite lives as set out above.
k.
Property, plant and equipment
Property, plant and equipment are measured at cost, less accumulated depreciation and impairment losses, if any.
Property, plant and equipment are recorded at purchase cost. Direct labor and other directly attributable costs incurred to construct new assets and upgrade existing assets are capitalized. Repairs and maintenance expenditures are recognized in the consolidated statements of operations and comprehensive income / (loss) as incurred. Significant renewals and betterments are capitalized.
F-15
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Property, plant and equipment are depreciated using the straight-line method based on the estimated useful lives of the assets as follows:
| |
•
Buildings
|
| |
20 years
|
|
| |
•
Land
|
| |
Unlimited
|
|
| |
•
Machinery
|
| |
3 – 10 years
|
|
| |
•
Electronic equipment
|
| |
3 – 7 years
|
|
| |
•
Leasehold improvements
|
| |
3 years
|
|
Land acquired by the Group has an unlimited useful life and therefore is not depreciated.
The depreciation method, useful life and residual value of an asset are reviewed at least at each financial year-end and adjusted, if appropriate.
When assets are retired or otherwise disposed of, their cost and the related accumulated depreciation are derecognized from the consolidated statements of financial position and the resulting gains or losses on the disposal or sale of the assets are recognized in the consolidated statements of operations and comprehensive income / (loss).
An asset under construction is stated at cost until the construction is completed, at which time it is reclassified to the property, plant and equipment account to which it relates. During the construction period until the asset is ready for its intended use or sale, borrowing costs, which include interest expense and foreign currency exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest expense, are capitalized in proportion to the average amount of accumulated expenditures during the period. Capitalization of borrowing costs ceases when the construction is completed, and the asset is ready for its intended use or sale.
l.
Investment properties
Investment properties are properties owned or leased to earn rental income or for capital appreciation. Investment properties include right-of-use assets relating to properties that meet the definition of investment properties.
Investment properties other than the ones acquired through leases are measured, under the cost model, initially at cost, including transaction costs and subsequently at cost less accumulated depreciation and impairment loss.
Investment properties acquired through leases are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made on or before the commencement date, plus initial direct costs incurred and an estimate of costs needed to restore the underlying assets, less any lease incentives received. These investment properties are subsequently measured at cost less accumulated depreciation and accumulated impairment loss and adjusted for any remeasurement of the lease liabilities.
Depreciation begins when the investment property is available for use and is calculated using a straight-line method to allocate the depreciable amounts over the estimated useful lives as follows:
| |
•
Buildings
|
| |
15 years
|
|
| |
•
Leasehold land
|
| |
15 years
|
|
| |
•
Machinery, fixtures as part of the buildings
|
| |
3 – 8 years
|
|
The residual values, useful lives and depreciation method of investment properties are reviewed at least at each financial year-end and adjusted, if appropriate.
An investment property is derecognized when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its
F-16
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
disposal. Any gains or losses on the disposal or retirement of an investment property are recognized in the consolidated statement of operations and comprehensive income / (loss) in the year of disposal or retirement. A transfer to, or from, an investment property is made when, and only when, there is evidence of a change in use.
m.
Mining machines
Mining machines refer to the electronic equipment designed for the sole purpose of completing complex mathematical functions to verify transactions on the blockchain. Mining machines are stated at cost less accumulated depreciation and impairment losses, if any. The Group estimated the useful lives of the mining machines to be one to two years. This estimate is primarily based on the historical measures of (i) the period when each mining machine is able to deliver expected performance and (ii) the frequency of technological advancement, which leads to a new generation of mining machines. The Group also estimates the residual value of the mining machines at the expected time of disposal, taking into consideration factors such as make and model. Depreciation is recorded on a straight-line basis over the estimated useful lives. The depreciation method, useful life and residual value of the mining machines are reviewed at least at each financial year-end and adjusted, if appropriate.
The Group routinely sells used mining machines to customers. The net carrying values of the associated mining machines were reclassified as inventories when the Group identified such mining machines for sale and were recognized as cost of revenue on the consolidated statements of operations and comprehensive income / (loss) upon the sale. See Note 2(q).
When mining machines are retired, their costs and the related accumulated depreciation are derecognized from the consolidated statements of financial position and the resulting gains or losses on the disposal of the assets are recognized in the consolidated statements of operations and comprehensive income / (loss).
n.
Leases
As a lessee
The Group accounts for leases under IFRS 16 Leases. At the inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
At inception or on a reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices.
At the lease commencement date, the Group recognizes a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets which, for the Group, are primarily vehicles. When the Group enters into a lease in respect of a low-value asset, the Group decides whether to capitalize the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalized are recognized as an expense on a systematic basis over the lease term.
Where the lease is capitalized, the lease liability is initially recognized at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortized cost and interest expense is calculated using the effective interest method. Variable lease payments linked to the use of an underlying asset are excluded from the measurement of lease liabilities.
F-17
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The right-of-use asset recognized when a lease is capitalized is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses, if any. Right-of-use assets are subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the unexpired term of the lease. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment.
Provisions for the costs to restore leased assets to their original condition, as required by the terms and conditions of the lease, are recognized when the obligation is incurred, either at the commencement date or as a consequence of having used the underlying asset during a particular period of the lease, at the Group’s best estimate of the expenditure that would be required to restore the assets. Estimates are regularly reviewed and adjusted as appropriate for new circumstances.
Whenever the Group incurs an obligation for costs to restore a leased asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset.
The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
As a lessor
At the commencement date of the lease, leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the consolidated statement of operations and comprehensive income / (loss).
o.
Trade payables and other payables and accruals
Trade payables are obligations to pay for goods and/or services that have been acquired from suppliers in the ordinary course of business. Other payables and accruals primarily represent obligations to pay staff costs, surtaxes and value-added tax, and other operating service providers.
Trade payables and other payables and accruals are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.
p.
Share-based payments
Employees (including senior executives and members of the board of directors) and certain service providers of the Company receive remuneration in the form of share-based payment transactions, whereby they render services as consideration for equity instruments (“equity-settled transactions”).
The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the beneficiary becomes fully entitled to the equity-settled transactions (the
F-18
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
“vesting date”). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity-settled transactions that will ultimately vest which includes assumptions on the number of equity-settled transactions to be forfeited due to the grantees’ failing to fulfill the service condition, and forfeitures following the non-completion of performance conditions.
q.
Revenue recognition
The Group’s revenues are derived principally from the cloud hash rate arrangements, the proprietary mining arrangements, the cloud hosting arrangements, the sales of mining machines, the general hosting arrangements and the membership hosting arrangements.
Revenue is recognized when control over goods or services is transferred to the customer, at the amount of promised consideration to which the Group is expected to be entitled. Revenue excludes value-added tax (“VAT”) or other sales taxes and is after deduction of trade discount, if any.
Revenue is recognized applying the following five steps:
i)
Identify the contract with a customer;
ii)
Identify the performance obligations in the contract;
iii)
Determine the transaction price;
iv)
Allocate the transaction price to the performance obligations in the contract; and
v)
Recognize revenue when (or as) the Group satisfies a performance obligation.
For arrangements priced at fiat currency, the Group recognizes revenue based on the contract price. For arrangement priced at cryptocurrency, the Group recognizes revenue based on the spot price of the cryptocurrency to fiat currency on the date when it is earned.
When another party is involved in providing services to a customer, the Group is the principal if it controls the specified services before those services are transferred to the customer.
The primary sources of Group’s revenues are recognized as follows:
Cloud Hash Rate
The Group enters into Cloud Hash Rate arrangements with its customers by offering hash rate subscription plans to provide computing power in a specified quantity, measured by computing power per second, or hash rate, derived from the mining machines held by the Group, for a specified period of time. The customer also needs to pay for electricity subscriptions, which are billed separately, to maintain the mining machines that produce the subscribed hash rate over the contract period. The Group connects such computing power to a customer-designated mining pool under the instructions of the customer to simplify the customer’s mining experiences. As a result of directing the connection of such computing power to the mining pools, the customers are entitled to the mining rewards, which are directly transferred from mining pools to the customer-designated cryptocurrency wallets.
The Group offers a number of different hash rate subscription plans by plan duration and type of cryptocurrency to be mined. The Group offers electricity subscriptions in short durations and a customer needs to purchase electricity subscriptions multiple times to cover the duration of the hash rate subscription plan. The price of the electricity subscription is fixed at the commencement of each electricity subscription period but subject to adjustment from period to period. Both cryptocurrency and fiat currency are accepted as payments under the Cloud Hash Rate
F-19
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
arrangements. Furthermore, the hash rate subscription plans are offered under two modes. Under the classic mode, the customer receives all of the mining rewards from the mining pool. Under the accelerator mode, the customer pays a relatively lower computing power subscription fee. In exchange, the Group is entitled to additional consideration once the customer’s cost is recovered.
The Group offers two promises under the Cloud Hash Rate arrangement. One is to provide a specified quantity of computing power during a period of time and the other is to provide maintenance services for computing power generation for a period of time. The two promises are highly interrelated and are not separately identifiable because the customers expect to receive the computing power as a combined output from the hash rate subscription plan and the electricity subscription plan. The two promises provide a series of distinct services, which are substantially the same and have the same pattern of transfer to the customer, over a period of time. As a result, the promises are treated as a single performance obligation satisfied over time.
The transaction price of the performance obligation includes the subscription prices for the hash rate subscription plans and the electricity subscription plans. As the price for the electricity subscription plans may change each electricity subscription period, the Group allocates the variable consideration to each electricity subscription period.
The control of the computing power has been transferred to the customers simultaneously as the customers consume the benefits from the computing power. The revenue is recognized over time where the consideration related to the hash rate subscription is recognized evenly over the contract term and the electricity subscription is allocated to and recognized evenly over each electricity subscription period.
For plans under the accelerator mode, besides the aforementioned subscription prices, the transaction price also includes the additional consideration once the customer’s cost is recovered. The additional consideration, which is variable, is determined as a percentage of a customer’s mining profit derived from the subscribed computing power and constrained until the mining pool operator finishes the calculation of the mining reward related to the mining activity in a given day. The Group includes such additional consideration in the transaction price and recognizes the revenue when the Group can reasonably calculate the amount and determine it is probable a significant reversal will not occur.
Proprietary Mining
The Group enters into contracts with mining pool operators to provide computing power generated from the Group’s own mining machines to the mining pools. The contracts with mining pool operators are terminable at any time by either party. In exchange for providing computing power to the mining pool, the Group is entitled to cryptocurrency rewards from the mining pool operators, which is a variable consideration calculated based on a predetermined formula agreed by the Group and the mining pool operator as a part of the arrangement. The variable consideration is constrained until the Group can reasonably estimate the amount of mining rewards by the end of a given day based on the actual amount of computing power provided to the mining pool operators. By then, the Group considers it is highly probable that a significant reversal in the amount of revenues will not occur and includes such variable consideration in the transaction price. Providing computing power is an output of the Group’s ordinary activities and the only performance obligation in the Group’s contracts with mining pool operators. The Group recognizes the revenue when the variable consideration is no longer constrained and the performance obligation of providing computing power has been satisfied. Although the cryptocurrency rewards the mining pool operators receive from the blockchain networks include both the block rewards and the transaction verification fees, the transaction price the Group receives is an aggregate amount and primarily includes the block rewards. As a result, the Group does not present disaggregated revenue information on block rewards and transaction verification fees.
F-20
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Cloud Hosting
The Group provides its customers, through subscription of Cloud Hosting orders, one-stop mining machines hosting solution which integrates the provision of computing power generated from specified second-hand mining machines and the provision of maintenance service, primarily including electricity supply and daily maintenance and repair care. The Group charges the customer an upfront fixed amount at the commencement of the Cloud Hosting arrangement for the customer to secure the procurement of the computing power from the specified mining machines, as well as the variable fees for the provision of maintenance service based on the consumption of resources such as electricity throughout the duration of the service. The Group historically only accepts cryptocurrency as payments for services under the Cloud Hosting arrangement.
The Cloud Hosting arrangements are offered under two modes. Under the classic mode, the customer receives all of the mining rewards from the mining pool. Under the accelerator mode, the customer is charged with a lower upfront amount and enjoys a quicker recovery of the costs. In exchange, the Group is entitled to additional consideration once a customer’s cost is recovered.
Two promises are offered under the Cloud Hosting arrangements. One is to provide the computing power generated from the specified mining machines and the other is to perform maintenance services over the life of the mining machines. The two promises are not separately identifiable because the customer expects to receive a steady operation of the mining machines specified in the Cloud Hosting order, which is a combined output of the provision of computing power from the specified mining machines and the provision of maintenance service of the specified mining machines. The two promises provide a series of distinct services, which are substantially the same and have the same pattern of transfer to the customer, over a period of time. As a result, the promises are treated as a single performance obligation satisfied over time.
The transaction price of the performance obligation includes an upfront fee paid upon placement of the Cloud Hosting order and periodical maintenance fees. The periodical maintenance fee is variable in each maintenance period based on the electricity consumption. The Group allocates the variable consideration to each distinct maintenance service period.
The revenue is recognized over time where the fixed upfront fee is recognized evenly over the contract term and the periodical maintenance fee is recognized over each respective service period. The contract term approximates to the life of the specified mining machines and is estimated to be two years. The estimated life of these mining machines is reviewed at least at each financial year-end and adjusted if the expectation of the realization of economic benefits from the specified mining machines is different from the previous estimate.
For plans under the accelerator mode, besides the aforementioned fees, the transaction price also includes the additional consideration once the customer’s cost is recovered. The additional consideration, which is variable, is determined as a percentage of a customer’s mining profit derived from the computing power of the specified mining machines and constrained until the mining pool operator finishes the calculation of the mining reward related to the mining activity in a given day. The Group includes such additional consideration in the transaction price and recognizes revenues when the Group can reasonably calculate the amount and determine it is probable a significant reversal will not occur. For all the periods presented, no revenue was generated from the additional consideration from Cloud Hosting arrangements offered under the accelerator mode.
Sale of Mining Machines
The Group recognizes revenue from sales of mining machines to customers at the point in time when control of the mining machines is transferred to the customer, which generally occurs upon shipment of the mining machines as defined in the revenue contract. Sale of mining machine is the sole performance obligation in this type of arrangement. The Group accepts both cryptocurrency and fiat currency as payments for sales of mining machines.
F-21
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
General Hosting
The Group provides general hosting services, which is a combined service package including custody and hosting of the customers’ mining machines, electricity and network maintenance and other services, that enable customers to run blockchain computing operations. The customer is only able to benefit from the hosting service as a package and the Group has a single performance obligation. The hosting service fee is charged to the customer monthly as a single fee based on the customer’s consumption of resources, such as the amount of electricity used in a period. Revenue from the general hosting service is recognized across each service cycle. The Group accepts both cryptocurrency and fiat currency as payments for the hosting services.
Membership Hosting
The Group offers its large-scale miner customers membership hosting services by entering into a series of contracts, which includes a membership program agreement and a management services agreement. These contracts are signed with the same customer at or near the same time, and they are combined and accounted for as a single contract.
Pursuant to the membership program agreement, a customer subscribing the program is entitled to the program benefit of receiving mining machine management services, as described below, within a predetermined capacity measured by energy consumption (i.e., Kilowatts, or KW) (the “designated capacity”). The Group provides such designated capacity in a leased mining datacenter and the program subscription period starts from the time when the designated capacity is made available to the customer and ends when the Group no longer operates the mining datacenter. In addition, the Group also agrees to provide other program benefits, if available, to the customer, including, among other things, (i) early, priority and exclusive access to the newly available mining datacenter capacity that is sufficient for large-scale miners, upon a new mining datacenter becomes available and (ii) more favorable pricing terms for the Group’s services, such as mining machine management services, than the prevailing price in the local market. The Group charges an upfront fee for the program benefits subscribed.
Pursuant to the management services agreement, the Group provides management services for the customer’s mining machines up to the capacity subscribed in the membership program agreement. In exchange for the management services fee, the Group promises to deliver a package of services to provide an infrastructure for the mining machines, such as a premise for the custody of mining machines, and network and utility to support the operation of the mining machines. Unlike the general hosting service where the Group includes in its service package to host or operate the customer’s mining machines under the customer’s instructions so that the mining machines keep running and remain connected to the customer designated mining pools (the “mining machine operation service”), under the management services agreement, a customer has the discretion to subscribe to the mining machine operation service or choose to operate the mining machines using the customer’s own resource. The Group charges additional fee, at its stand-alone selling price, for the subscription of the Group’s mining machine operation service. The management services fee and the mining machine operation fee, as applicable, are charged to the customer monthly based on the customer’s consumption of resources, such as the amount of electricity used in a period.
The Group’s promise associated with the membership program agreement is to stand ready to provide services, and the Group’s promise associated with the management services agreement is to provide an infrastructure for the mining machines through the set of services provided under the management services agreement. The two promises are not separately identifiable because the customer expects to receive mining machines management services for the mining machines up to the designated capacity, which is a combined output of the program benefit and management services provided by the Group as a package. The two promises provide a series of distinct services that have the same pattern of transfer to the customer over a period of time. As a result, the promises are treated as a single performance obligation satisfied over time. Revenue associated with the upfront
F-22
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
fee for the program benefits is recognized over the program subscription period and revenue associated with the management services is recognized over each distinct service period. The promise to provide the mining machine operation service, if subscribed to by a customer, is accounted for as a separate performance obligation and the associated revenue is recognized over each distinct service period at their respective stand-alone selling price. The Group accepts both cryptocurrency and fiat currency as payments for the membership hosting arrangements. The contract term approximates the lease term of the mining datacenter and is estimated to be 13 years. The estimated lease term is adjusted when there is an indication that the Group is reasonably certain to renew or terminate the lease.
Details of revenues for each category are as follows:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
(Restated) |
| |
2021
|
| |
2022
|
| |||||||||
|
Proprietary mining
|
| | | | 88,493 | | | | | | 191,693 | | | | | | 62,359 | | |
| Cloud hash rate | | | | | | | | | | | | | | | | | | | |
|
Hash rate subscription
|
| | | | 31,389 | | | | | | 53,952 | | | | | | 77,862 | | |
|
Electricity subscription
|
| | | | 45,242 | | | | | | 35,113 | | | | | | 39,525 | | |
|
Additional consideration from Cloud Hash Rate arrangements
under acceleration mode |
| | | | 1,657 | | | | | | 35,140 | | | | | | 3,954 | | |
|
Sales of mining machines
|
| | | | 15,844 | | | | | | 45,693 | | | | | | 705 | | |
|
Cloud hosting arrangements(2)
|
| | | | 2,929 | | | | | | 7,568 | | | | | | 12,723 | | |
|
General hosting
|
| | | | — | | | | | | 18,312 | | | | | | 99,251 | | |
|
Membership hosting
|
| | | | — | | | | | | — | | | | | | 26,056 | | |
| Others(1) | | | | | 833 | | | | | | 7,190 | | | | | | 10,907 | | |
|
Total revenues
|
| | | | 186,387 | | | | | | 394,661 | | | | | | 333,342 | | |
(1)
Others include revenue generated primarily from providing technical and human resources service, repairment services of hosted mining machines, lease of investment properties, and the sale of mining machine peripherals.
(2)
The Group did not generate any revenue from the additional consideration from Cloud Hosting arrangements offered under accelerator mode for the years ended December 31, 2020, 2021 and 2022.
For the years ended December 31, 2020, 2021 and 2022, the revenue generated from Bitmain under the brand of AntPool representing 24.44%, 0.72% and 0.24% of total revenue respectively; the revenue generated from BTC representing 22.81%, 44.68% and 14.94% of total revenue respectively; and the revenue generated from one customer representing nil, 1.53% and 20.07% of total revenue respectively. The Group did not have any other customer that accounts for 10% or more of total revenue in the years ended December 31, 2020, 2021 and 2022.
Contract assets and liabilities
A contract asset is recognized when the Group recognizes revenue before being unconditionally entitled to the consideration under the payment terms set out in the contract. Contract assets are assessed for expected credit losses and are reclassified to receivables when the right to the consideration has become unconditional. As of December 31, 2021 and 2022, the Group did not have any contract assets.
A contract liability is recognized when the customer pays consideration for goods or services before the Group recognizes the related revenue. A contract liability would also be recognized if the Group has an unconditional right to receive non-refundable consideration before the Group recognizes the related revenue. In such cases, a corresponding receivable would also be recognized. As of
F-23
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2022, the Group had contract liabilities, presented as deferred revenue on the consolidated statements of financial position, of approximately US$213.4 million and US$182.3 million. Approximately US$10.3 million, US$11.1 million and US$102.3 million, included in the deferred revenue balance at January 1, 2020, 2021 and 2022, respectively, was recognized as revenue during the years ended December 31, 2020, 2021 and 2022.
r.
Cost of revenue
Cost of revenue consists primarily of electricity expenses incurred for operating the Group’s mining machines in its revenue-generating activities, depreciation expense from the mining machines and datacenters hosting those mining machines, costs of mining machines sold to customers, and compensation expenses incurred by mining datacenter personnel.
s.
Taxes
Income tax
Current and deferred income taxes are recognized as income or expense and included in the consolidated statements of operations and comprehensive income / (loss), except to the extent that the income tax relates to items recognized in comprehensive income / (loss) or directly in equity, in which case the relevant amounts of tax are recognized in comprehensive income / (loss) or directly in equity, respectively.
Current income tax assets and liabilities are measured at the amounts expected to be recovered or paid by using the tax rates and tax laws that have been enacted or substantively enacted at each reporting date. Management periodically evaluates positions taken in the tax reporting process with respect to situations in which applicable tax regulation is subject to interpretation. Where appropriate, management establishes provisions based on the amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
Apart from the temporary differences arising from goodwill not deductible for tax purposes, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilized, are recognized. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates and tax laws at each reporting date which are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced if it is no longer probable that sufficient taxable profit will be available to compensate part or all of the benefits of deferred tax assets. Unrecognized deferred tax assets are re-assessed at each reporting date and recognized if it is probable that future taxable profits will be available for recovery. Tax deductions arising from the reversal of deferred tax assets are excluded from estimates of future taxable income.
Deferred taxes on transactions which are recognized outside profit or loss are recognized outside profit or loss. Therefore, deferred taxes on these transactions are recognized either in comprehensive income / (loss) or recognized directly in equity.
Deferred tax assets and liabilities are offset in the consolidated statements of financial position, if and only if it has a legally enforceable right to set off current tax assets and liabilities and the deferred
F-24
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
tax assets and liabilities relate to income taxes levied by the same Tax Authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.
Uncertainty over income tax treatments
The Group determines the recognition and measurement of tax assets and liabilities that contain uncertainty over income tax by considering the assumptions used in the examination of tax treatments by the tax authorities, the probability that the tax authorities will accept uncertain tax treatment and re-consideration or estimation if there is a change in facts and circumstances.
If the acceptance of tax treatment is probable, the measurement is in line with income tax fillings. If the acceptance of tax treatment is not probable, the Group uses tax amounts using the method that provides a better prediction of resolution (i.e., most likely amount or expected value). Due to the complexity of some of these uncertainties, their ultimate resolution may result in payments that are materially different from current estimates. Any such differences will be reflected as adjustments to income tax expenses in the periods in which they are determined.
t.
Financial instruments
Financial assets
The Group classifies its financial assets in the following measurement categories:
•
those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and
•
those to be measured at amortized cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual cash flow characteristics.
Purchases and sales of financial assets are recognized on trade-date, the date on which the Group commits to purchase or sell the assets. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or the Group has transferred substantially all the risks and rewards of ownership of the assets.
At initial recognition, the Group measures a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.
Debt instruments
Initial recognition and subsequent measurement of debt instruments depend on the Group’s business model for managing the asset and the contractual cash flow characteristics of the asset, and the Group reclassifies debt investments only when its business model for managing those assets changes. There are three categories into which the Group classifies its debt instruments:
•
Amortized cost: Financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are classified as and measured at amortized cost. A gain or loss on a debt investment measured at amortized cost which is not part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is recognized using the effective interest rate method.
F-25
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
•
Fair value through other comprehensive income: Financial assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are classified as and measured at fair value through other comprehensive income. Movements in the carrying amount of these financial assets are taken through other comprehensive income, except for the recognition of impairment losses or reversals, interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Interest income from these financial assets is recognized using the effective interest rate method.
•
Fair value through profit or loss: Financial assets that do not meet the criteria for amortized cost or fair value through other comprehensive income are classified as and measured at fair value through profit or loss. A gain or loss on a debt investment measured at fair value through profit or loss which is not part of a hedging relationship is recognized in profit or loss for the period in which it arises.
Equity instruments
The Group subsequently measures all equity investments at fair value through profit or loss or other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. Dividends from such investments continue to be recognized in profit or loss when the Group’s right to receive payments is established.
•
Changes in the fair value of financial assets at fair value through profit or loss are recognized in profit or loss as applicable.
Financial liabilities
The Group’s financial liabilities are classified and measured at amortized cost using the effective interest method.
Financial liabilities are derecognized when, and only when, the Group’s obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
Financial assets and financial liabilities are offset, and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
Convertible debt
As disclosed in Note 14, in 2021, the Group issued a convertible debt that can be converted into ordinary shares of the Group at the option of the holder. The number of shares to be issued is fixed and does not vary with changes in fair value. The Group accounts for the components of this compound financial instrument separately as a financial liability and an equity instrument. The liability component of the convertible debt is initially recognized at the fair value of a similar liability that does not have an equity conversion option. The equity component is initially recognized at the difference between the fair value of the convertible debt as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of the convertible debt is measured at amortized cost using the effective interest method. The equity component is not remeasured.
F-26
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Interest related to financial liabilities is recognized in profit or loss. Upon conversion, the financial liability is reclassified to equity and no gain or loss will be recognized.
u.
Credit losses and impairment of assets
(i)
Credit losses from financial instruments at amortized cost
The Group recognizes a loss allowance for expected credit losses (“ECL”) on financial assets, such as cash and cash equivalents, restricted cash and trade receivable, which are measured at amortized cost;
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e., the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:
•
fixed-rate financial assets, trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof;
•
variable-rate financial assets: current effective interest rate.
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.
ECLs are measured on either of the following bases:
•
12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
•
lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.
Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs. ECL on this type of financial asset is estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.
For all other financial instruments, the Group recognizes a loss allowance equal to 12-month ECLs unless there has been a significant increase in the credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.
Significant increases in credit risk
In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when the borrower is unlikely to pay its credit obligations to the Group in full and without recourse. The Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.
F-27
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:
•
failure to make payments of principal or interest on their contractually due dates;
•
an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);
•
an actual or expected significant deterioration in the operating results of the debtor; and
•
existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group.
Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past-due status and credit risk ratings.
ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognized as an impairment gain or loss in profit or loss.
The Group recognizes an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.
Impairment and write-off policy
At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable events:
•
significant financial difficulties of the debtor;
•
a breach of contract, such as a default or delinquency in interest or principal payments;
•
is becoming probable that the borrower will enter into bankruptcy or other financial reorganization;
•
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or
•
the disappearance of an active market for a security because of financial difficulties of the issuer.
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.
Subsequent recoveries of an asset that was previously written off are recognized as a reversal of impairment in profit or loss in the period in which the recovery occurs.
(ii)
Credit losses from cryptocurrency receivables
The Group recognizes an allowance for cryptocurrency receivables using the general expected credit losses model in manner a similar to the model and consideration used for assessing credit losses from financial instruments discussed above. Under this model, the Group calculates the allowance for credit losses by considering on a discounted basis, all expected shortfalls which are the difference
F-28
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
between the quantity of cryptocurrency due to the Group in accordance with the contract and the quantity of cryptocurrency that the Group expects to receive, in various default scenarios for prescribed future periods and multiplying the shortfalls by the probability of each scenario occurring. The allowance on the financial asset is the sum of these probability-weighted outcomes.
The Group considers both internal and external, and quantitative and qualitative factors when estimating ECL for cryptocurrency receivables such as the creditworthiness of the counterparty, the result of the historical transactions with the counterparty, the business practice of the counterparty, regulatory development relating to the industry, liquidity of the underlying cryptocurrency, and the trend of the general economy.
The Group recognizes an impairment gain or loss for expected credit losses from cryptocurrency receivables with a corresponding adjustment to their carrying amount through a loss allowance account. Subsequent recoveries of cryptocurrency receivables previously written off are recognized as a reversal of impairment in profit or loss in the period in which the recovery occurs.
As of December 31, 2021 and 2022, the balance of cryptocurrency receivables was nil and no cryptocurrency receivable was past due. No allowance, write-offs or recoveries were recognized against the cryptocurrency receivables for the years ended December 31, 2020, 2021 and 2022.
(iii)
Impairment of other assets
Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, an impairment loss previously recognized no longer exists or may have decreased:
•
property, plant and equipment;
•
lease right-of-use assets;
•
investment properties;
•
intangible assets; and
•
cryptocurrencies other than USDC.
If any such indication exists, the asset’s recoverable amount is estimated. In addition, for cryptocurrencies other than USDC, the recoverable amount is estimated at each reporting date whether or not there is any indication of impairment.
•
Calculation of recoverable amount
The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e., a cash-generating unit).
The recoverable amount of cryptocurrencies other than USDC is based on the fair value less costs of disposal. The fair value of these cryptocurrencies is measured using the quoted price of these cryptocurrencies at the time the fair value is being measured.
•
Recognition of impairment losses
An impairment loss is recognized in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill (if any) allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount
F-29
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
of the other assets in the unit (or group of units) on a pro-rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).
•
Reversals of impairment losses
An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount.
A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognized.
v.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The timing or amount of the outflow may still be uncertain. Provisions are measured using the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account risks and uncertainties associated with the obligation. Provisions are discounted where the time value of money is considered material.
w.
Segment information
Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performances.
An operating segment is a component of an entity:
•
that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to the transactions with other components of the same entity);
•
whose operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segments and assess its performance; and
•
for which discrete financial information is available.
The chief operating decision maker makes resource allocation decisions based on internal management functions and assesses the Group’s business performance as one integrated business instead of by separate business lines or geographical regions. Accordingly, the Group has only one operating segment and therefore, no segment information is presented.
Disaggregated revenue data by geographical region in terms of the customer’s location within the operating segment is as follows:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
(Restated) |
| |
2021
|
| |
2022
|
| |||||||||
|
Singapore
|
| | | | 90,808 | | | | | | 79,537 | | | | | | 27,591 | | |
|
Asia, excluding Singapore
|
| | | | 57,146 | | | | | | 211,805 | | | | | | 136,901 | | |
|
North America
|
| | | | 24,063 | | | | | | 75,559 | | | | | | 141,174 | | |
|
Europe
|
| | | | 7,755 | | | | | | 15,487 | | | | | | 19,075 | | |
F-30
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
(Restated) |
| |
2021
|
| |
2022
|
| |||||||||
|
Others
|
| | | | 6,615 | | | | | | 12,273 | | | | | | 8,601 | | |
|
Total
|
| | | | 186,387 | | | | | | 394,661 | | | | | | 333,342 | | |
| | |||||||||||||||||||
Selected assets of mining machines, property, plant and equipment, investment properties, right-of-use assets and intangible assets by geographical region within the operating segment is as follows:
| | | |
At December 31,
|
| |||||||||
| | | |
2021
|
| |
2022
|
| ||||||
|
Singapore
|
| | | | 7,481 | | | | | | 46,306 | | |
|
North America
|
| | | | 181,864 | | | | | | 170,439 | | |
|
Europe
|
| | | | 18,797 | | | | | | 45,540 | | |
|
Total
|
| | | | 208,142 | | | | | | 262,285 | | |
x.
Earnings per share
Basic earnings per share is computed by dividing the income attributable to equity shareholders of the Group by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is computed by dividing the income attributable to equity shareholders of the Group by the weighted average number of ordinary shares outstanding during the period, after adjusting for the effects of the dilutive potential ordinary shares.
When calculating basic loss per share for the years ended December 31, 2020, the denominator for the period prior to the Reorganization included the number of shares issued in the Reorganization, as if the Reorganization occurred prior to or as of January 1, 2020.
y.
Asset acquisition
Asset acquisitions are acquisitions that do not qualify as business combinations under IFRS 3. IFRS 3 allows the use of an optional concentration test to determine if an acquisition is a business combination or an asset acquisition. Under the optional concentration test, if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the test is met, and the integrated asset of assets and activities acquired is not a business.
Assets acquired in an asset acquisition are initially recognized, at the date of acquisition, at cost. Costs directly attributable to the acquisition of such assets are included in the initial carrying amount.
z.
Initial application of new or amended standards during the reporting periods
As from January 1, 2022, the Group adopted the following recently issued or amended standards. These new standards are not expected to have any significant impact on the Group’s financial statements:
|
Standard/Interpretation
|
| |
Application Date
of Standard |
| |
Application Date
for the Group |
|
|
Amendments to IFRS 1, Subsidiary as a First-time Adopter
|
| |
January 1, 2022
|
| |
January 1, 2022
|
|
| Amendments to IFRS 9, Derecognition of Financial | | |
January 1, 2022
|
| |
January 1, 2022
|
|
F-31
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
Standard/Interpretation
|
| |
Application Date
of Standard |
| |
Application Date
for the Group |
|
| Liabilities | | | | | | | |
| Amendments to IFRS 3, Reference to the Conceptual Framework | | |
January 1, 2022
|
| |
January 1, 2022
|
|
| Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended Use | | |
January 1, 2022
|
| |
January 1, 2022
|
|
| Amendments to IAS 37, Onerous Contracts – Cost of Fulfilling a Contract | | |
January 1, 2022
|
| |
January 1, 2022
|
|
aa.
New standards and interpretations not yet adopted
Up to the date of issue of these financial statements, the IASB has issued a number of amendments and a new standard, IFRS 17, Insurance contracts, which are not yet effective for the year ended December 31, 2022 and which have not been adopted in these financial statements.
|
Standard/Interpretation
|
| |
Application Date
for the Group |
|
| IFRS 17, Insurance Contracts and Amendments to Address Concerns and Implementation Challenges | | |
January 1, 2023
|
|
| Amendments to IFRS 4, Expiry Date of the Deferral Approach | | |
January 1, 2023
|
|
| Amendments to IAS 1, Making Materiality Judgement | | |
January 1, 2023
|
|
| Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of Accounting Policies | | |
January 1, 2023
|
|
| Amendments to IAS 8, Definition of Accounting Estimates | | |
January 1, 2023
|
|
| Amendments to IAS 12, Deferred Tax related to Assets and Liabilities arising from a Single Transaction | | |
January 1, 2023
|
|
| Initial Application of IFRS 17 and IFRS 9 – Comparative Information | | |
January 1, 2023
|
|
| Amendments to IAS 1, Classification of Liabilities as Current or Non-current and Disclosure of Accounting Policies | | |
January 1, 2024
|
|
| Amendments to IAS 1, Classification of Debt with Covenants | | |
January 1, 2024
|
|
| Amendments to IFRS 16, Subsequent Measurement of Sale and Leaseback Transactions by a Seller-lessee | | |
January 1, 2024
|
|
The Group is in the process of making an assessment of what the impact of these new and amended standards and interpretations would be in the period of initial application. So far, the Group has concluded that the adoption of these standards and interpretations is unlikely to have a significant impact on the Group’s financial position.
3. USE OF JUDGMENTS AND ESTIMATES
Estimates and judgments are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates may not be equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Depreciation of mining machines
Depreciation on the Group’s mining machines is calculated using the straight-line method to allocate costs up to residual values over the estimated useful lives of the assets. The Group reviews the useful lives and
F-32
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
residual values at least at each financial year-end and adjusted, if appropriate, to ensure that the method and rates of depreciation are consistent with the expected pattern of realization of economic benefits from mining machines. The Group estimates the useful lives of mining machines based on historical experience, taking into account anticipated technological changes. If there are significant changes from previously estimated useful lives, the amount of depreciation expenses may change.
The useful life of mining machines is changed from one year to one to two years as a result of the review conducted in July 2021.
Cryptocurrency accounting
The cryptocurrency market is still a new market and is highly volatile and historical prices are not necessarily indicative of future value. A significant change in the market prices for cryptocurrencies would have a significant impact on the Group’s earnings and financial position.
If circumstances indicate that the carrying amount of cryptocurrencies other than USDC may not be recoverable, the assets may be considered “impaired”, and an impairment loss may be recognized in accordance with the accounting policy for impairment of cryptocurrencies other than USDC as described in Note 2(u).
When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is based on the fair value less costs of disposal. Furthermore, for USDC, the carrying balance of USDC at the date of the consolidated statements of financial position is adjusted to its fair value with changes recorded through profit or loss.
The fair value of the cryptocurrencies is measured at quoted price at the time the fair value of cryptocurrencies is being measured, which the Group considers to be predominantly a Level 1 fair value input under IFRS 13 Fair Value Measurement fair value hierarchy. The fair value measurement of the cryptocurrencies lent or invested and the embedded derivatives related to cryptocurrency lending arrangements and cryptocurrency-denoted wealth management product purchases are discussed in Note 4. Changes in these estimates could have a significant impact on the amount of the assets and could result in additional impairment charges or reversal of impairment and gain or loss from changes in fair value in future periods.
With respect to the cryptocurrency receivables recognized for the cryptocurrency lending or wealth management products, the Group evaluates the expected credit losses on such receivables by considering both internal and external, quantitative and qualitative factors and utilizing the general expected credit losses model as described in Note 2(u).
Revenue from the proprietary mining business
There is currently no specific definitive guidance in IFRS or alternative accounting frameworks for the accounting for the revenue from the proprietary mining business. The Group’s management has exercised significant judgment in determining appropriate accounting treatment for the recognition of revenue from the proprietary mining business. Management has examined various factors surrounding the substance of the Group’s operations, such as the reliability of the measurement of the cryptocurrencies received.
Income taxes
Income tax expense, deferred tax assets and liabilities, and reserves for uncertain tax positions reflect management’s best assessment of estimated future taxes to be paid. The Group is subject to income taxes in Singapore and numerous other jurisdictions. Significant judgments and estimates are required in determining the income tax expense.
In determining the current income tax provision, management assesses temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in the consolidated statements of financial position. When
F-33
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
management assesses deductible temporary differences, including those originating from tax losses carried forward, management must assess the probability that these will be recovered through adjustments to future taxable income. To the extent the management believes recovery is not probable, no deferred tax asset is recognized.
Forecasting future income requires the use of a significant amount of judgment. In estimating future income, management uses internal operating budgets and long-range planning projections. Management develops its budgets and long-range projections based on recent results, trends and economic and industry forecasts influencing the Group’s performance. Significant changes in management’s judgment related to the expected realizability of deductible temporary differences result in an adjustment to the associated deferred tax asset.
The calculation of income tax expense involves dealing with uncertainties in the application of complex tax laws and regulations in numerous jurisdictions in which the Group operates. Management recognizes tax benefits related to uncertain tax positions when, in management’s judgment, it is more likely than not that such positions will be sustained on examination, including resolutions of any related appeals or litigation, based on the technical merits. Management adjusts liabilities for uncertain tax positions when its judgment changes as a result of new information previously unavailable. Due to the complexity of some of these uncertainties, their ultimate resolution may result in payments that are materially different from current estimates. Any such differences will be reflected as adjustments to income tax expenses in the periods in which they are determined.
Share-based payments
The determination of the fair value of the Group’s ordinary shares and the share awards granted under the 2021 Share Incentive Plan involves significant judgment and estimates. The Group determined the fair value of the share awards using the Binomial option valuation model. Estimates such as stock price, volatility of the Group’s ordinary shares, risk-free interest rate, exercise multiple and the expected dividend yield were used in the valuation model.
The Group determined the fair value of the Group’s ordinary shares, or the stock price, used in the determination of the fair value of the share awards, using the discounted cash flow model. Estimates such as the Group’s stage of development, financial condition and operating results, general market conditions and the lack of marketability of the Group’s ordinary shares were used in the valuation model.
The fair value of the Group’s ordinary shares and the share awards were determined by the Group with the assistance of an independent third-party valuation firm.
Fair value of financial assets at fair value through profit or loss
Fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety. The type and level of judgment required is dependent on the amount of observable market-based data available to the Group. For financial assets valued using valuation models and techniques that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In determining the estimate of fair value for an instrument within level 3, the management firstly determines the appropriate and reasonable valuation model and technique to use. Second, the lack of availability of market-based data requires management to assess relevant empirical data in deriving valuation inputs with significant judgements and assumption. Details of the significant unobservable inputs used in the level 3 valuation are presented in Note 4.
Estimation of unobservable market inputs or other factors can affect the amount of gain or loss recorded in the reporting period and the amount of the position as at year end. The Group believes the estimates
F-34
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
applied to be based on reasonable assumptions, but which are inherently uncertain. As a result, actual results may differ from the assumptions and judgments used to determine fair value of the financial instruments acquired. Changes in these estimates and assumptions and valuation model or techniques may have a material effect on the Group’s financial condition and results of operations.
Assessment of the asset acquisition
The acquisition of Asia Freeport Holdings Pte. Ltd. was assessed as an asset acquisition by applying the optional concentration test described In Note 2(y). Management applied judgment in identifying the assets acquired, their relative fair value, and if the “substantially all” criterion has been met, based on the previous elements.
To apply the optional concentration test, the Group estimated the fair value of investment properties at the closing date using the discounted cash flow model under the income approach with the assistance of an independent valuation specialist. The key input to the model used for determining the value of the investment properties include the operation projection and the discount rate, which is 7.75%.
4. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial risk factors
The Group is exposed to various market risks including cryptocurrency risk, interest rate risk, investment risk and foreign currency risk, as well as credit risk and liquidity risk. The Group has designed and implemented various risk management strategies, discussed further below, to ensure the exposure to these risks is consistent with its risk tolerance and business objectives.
a. Market risk
i. Cryptocurrency risk
The Group is exposed to cryptocurrency risk as it yields cryptocurrencies from certain revenue arrangements. The Group recognizes revenue based on the spot fair value of cryptocurrencies on the day they are earned, but the value of the cryptocurrencies is subject to change on the date they are disposed of for fiat currency.
Cryptocurrency prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. The profitability of the Group is highly correlated to the current and future market price of cryptocurrencies and a decline in the market prices for cryptocurrencies could negatively impact the Group’s future operations. In addition, the Group may not be able to liquidate its holdings of cryptocurrencies at its desired price if required, or, in extreme market conditions, the Group may not be able to liquidate its holdings of cryptocurrencies at all.
Cryptocurrencies have a limited history, and the fair value of cryptocurrencies has been very volatile. The historical performance of cryptocurrencies is not indicative of their future price performance. The cryptocurrencies involved in the Group’s operation are currently primarily based on bitcoin and USDT. The Group currently does not use any derivative contracts to hedge its exposure to cryptocurrency risk, but management closely monitors the impact of the mainstream cryptocurrency exchange market on the change of exchange rates from cryptocurrency to fiat currency. The Group limits its exposure to the cryptocurrency risk by including in its operation strategy to dispose of the cryptocurrencies for fiat currency shortly after they are earned.
ii. Interest rate risk
The Group’s interest rate risk is primarily attributable to bank deposits, restricted cash and borrowings. Bank deposits, restricted cash and borrowings at variable rates and fixed rates
F-35
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. Management closely monitors the fluctuation of such rates periodically.
iii. Investment risk
The Group is exposed to investment risk from investment transactions such as the purchase of cryptocurrency-denoted wealth management products and investment in financial assets at fair value through profit or loss. These investments are not principal-guaranteed, and the Group may suffer material loss from such investments. The Group monitors its investments closely and limits its exposure to the investment risk by including in its operation strategy the requirements to, with regard to the purchase of cryptocurrency-denoted wealth management products, invest only in robust wealth management products and the investments need to be redeemed within the same fiscal quarter, and, with regard to the investment in financial assets at fair value through profit or loss, perform due diligence on the prospect investees to evaluate the business soundness before making an investment, and communicate regularly with the investee, review management report and the latest financial statements, if any, to evaluate the stage of investment and whether any action should be taken regarding the investment.
iv. Foreign currency risk
The Group is exposed to foreign currency risk as it conducts transactions which give rise to payables and cash balances that are denominated in foreign currencies and the fair value or future cash flows of the Group’s financial instrument may fluctuate due to movement in foreign exchange rates of these foreign currencies. The volatility of exchange rates depends on many factors that the Group is not able to accurately forecast. Management is closely monitoring the Group’s exposure to currency risk and seeks to minimize its exposure to such risk. The Group was not exposed to material foreign currency risk during the years ended December 31, 2020, 2021 and 2022.
b.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. Credit risk arises mainly from cash deposited in the banks and cryptocurrencies held in custody, cryptocurrency lending transactions and cryptocurrency-denoted wealth management product purchases.
To manage risk arising from cash, cash equivalents and restricted cash, the Group only transacts with reputable financial institutions. There has been no recent history of default in relation to these financial institutions.
For the years ended December 31, 2020, 2021 and 2022, substantially all of the Group’s cryptocurrencies are stored in wallets held in the custody of Matrix Finance and Technologies Holding Company (“Matrixport Group”), a related party. To limit exposure to credit risk relating to cryptocurrencies under custody, the Group evaluates the system security design of the custody service provider and regularly reviews the exposure of cryptocurrencies held in custody. The Group has further implemented internal controls to ensure the appropriate access to the cryptocurrencies under custody and adopted the operating strategy of disposing of the cryptocurrency for fiat currency shortly after they are earned. The Group expects that there is no significant credit risk from non-performance by Matrixport Group.
However, bitcoin and other blockchain-based cryptocurrencies have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. A successful security breach or cyberattack could result in a partial or total loss of the Group’s cryptocurrencies and such a loss could have a material adverse effect on the Group’s financial condition and results of operations.
The Group also has credit exposure to cryptocurrency lending transactions and cryptocurrency-denoted wealth management product purchases. The Group assesses such credit risk both at contract
F-36
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
inception and each quarter or in shorter interval by considering the past collection experience and any indications that the corresponding amount may not be fully collected. To manage such exposure, the Group continuously monitors the relevant factors, such as the liquidity of the underlying cryptocurrencies, negative report related to the counterparty, and deals only with creditworthy counterparties and includes in its operation strategy that the lending needs to be collected, and the wealth management products need to be redeemed within the same fiscal quarter. Currently, the Group only conducts such transactions with the Matrixport Group. The Group has never experienced credit losses and has no existing exposures to such credit risk as of each end date of the consolidated statement of financial position. Consequently, credit exposure to these transactions is not considered material.
c.
Liquidity risk
Liquidity risk arises in situations where the Group has difficulties in fulfilling financial liabilities when they become due.
Prudent liquidity risk management implies maintaining sufficient cash in order to meet the Group’s financial obligations. The Group manages its liquidity risk by monitoring cash flow generated from operations and available borrowing capacity, and by managing the maturity profiles of its long-term loans.
The following is the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:
| | | |
At December 31, 2021
|
| |||||||||||||||||||||||||||||||||
|
In thousands of USD
|
| |
Within 1
year or on-demand |
| |
More than
1 year but less than 2 years |
| |
More than
2 years but less than 5 years |
| |
More than
5 years |
| |
Total
|
| |
Carrying
amount at December 31 |
| ||||||||||||||||||
|
Trade payables
|
| | | | 17,740 | | | | | | — | | | | | | — | | | | | | — | | | | | | 17,740 | | | | | | 17,740 | | |
|
Other payables and accruals
|
| | | | 17,258 | | | | | | — | | | | | | — | | | | | | — | | | | | | 17,258 | | | | | | 17,258 | | |
|
Amount due to a related party
|
| | | | 19 | | | | | | — | | | | | | — | | | | | | — | | | | | | 19 | | | | | | 19 | | |
|
Borrowings
|
| | | | — | | | | | | 29,460 | | | | | | — | | | | | | — | | | | | | 29,460 | | | | | | 29,460 | | |
|
Lease liabilities
|
| | | | 5,489 | | | | | | 5,516 | | | | | | 16,275 | | | | | | 53,254 | | | | | | 80,534 | | | | | | 62,968 | | |
| | | | | | 40,506 | | | | | | 34,976 | | | | | | 16,275 | | | | | | 53,254 | | | | | | 145,011 | | | | | | 127,445 | | |
| | | |
At December 31, 2022
|
| |||||||||||||||||||||||||||||||||
|
In thousands of USD
|
| |
Within 1
year or on-demand |
| |
More than
1 year but less than 2 years |
| |
More than
2 years but less than 5 years |
| |
More than
5 years |
| |
Total
|
| |
Carrying
amount at December 31 |
| ||||||||||||||||||
|
Trade payables
|
| | | | 15,768 | | | | | | — | | | | | | — | | | | | | — | | | | | | 15,768 | | | | | | 15,768 | | |
|
Other payables and accruals
|
| | | | 22,176 | | | | | | — | | | | | | — | | | | | | — | | | | | | 22,176 | | | | | | 22,176 | | |
|
Amount due to a related party
|
| | | | 316 | | | | | | — | | | | | | — | | | | | | — | | | | | | 316 | | | | | | 316 | | |
|
Borrowings
|
| | | | 29,805 | | | | | | — | | | | | | — | | | | | | — | | | | | | 29,805 | | | | | | 29,805 | | |
|
Lease liabilities
|
| | | | 7,471 | | | | | | 6,967 | | | | | | 20,290 | | | | | | 53,347 | | | | | | 88,075 | | | | | | 70,425 | | |
| | | | | | 75,536 | | | | | | 6,967 | | | | | | 20,290 | | | | | | 53,347 | | | | | | 156,140 | | | | | | 138,490 | | |
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair values are estimated at a specific point in time, by discounting expected cash flows at rates for assets and liabilities of the same remaining maturities
F-37
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
and conditions. These estimates are subjective in nature and involve uncertainties and significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques:
•
Level 1 valuation: unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
•
Level 2 valuation: inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.
•
Level 3 valuation: fair value measured using significant unobservable inputs.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
As of December 31, 2021 and 2022, except for the investments in financial assets at fair value through profit or loss and USDC, substantially all of the Group’s financial assets and financial liabilities are carried at amortized costs and the carrying amounts approximate their fair values.
The fair value of financial instruments traded in active markets is determined with reference to quoted market prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. These instruments are included in level 1.
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a financial instrument are observable, the instrument is included in level 2. If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3.
For the years ended December 31, 2021 and 2022, the fair value of the cryptocurrencies lent or invested is measured on a recurring basis at quoted price at the time the fair value of the underlying cryptocurrencies is being measured, which the Group considers to be a Level 1 fair value input. The fair value of the embedded derivative relating to the wealth management product is measured on a recurring basis by taking the net asset value provided by the counterparty, which the Group considers to be a Level 2 fair value input.
The Group’s finance department performs valuations of financial instruments. The finance department reports directly to the chief financial officer and discusses valuation processes and results with the chief financial officer in order to comply with the Group’s accounting and reporting requirements.
The valuation procedures applied include consideration of recent transactions in the same security or financial instrument, recent financing of the investee companies, economic and market conditions, current and projected financial performance of the investee companies, and the investee companies’ management team as well as potential future strategies to realize the investments.
The fair value measurement hierarchy for the Group’s financial instruments measured at fair value is as follows:
|
In thousands of USD
|
| |
Valuation technique(s)
and key input |
| |
December 31,
2021 |
| |
Level 1
|
| |
Level 2
|
| |
Level 3
|
| ||||||||||||
|
USDC
|
| |
Quoted price
|
| | | | 99 | | | | | | 99 | | | | | | — | | | | | | — | | |
|
Investments A and B in unlisted equity instruments
|
| |
Recent transaction price
|
| | | | 1,250 | | | | | | — | | | | | | — | | | | | | 1,250 | | |
F-38
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
In thousands of USD
|
| |
Valuation technique(s)
and key input |
| |
December 31,
2022 |
| |
Level 1
|
| |
Level 2
|
| |
Level 3
|
| ||||||||||||
|
USDC
|
| |
Quoted price
|
| | | | 89 | | | | | | 89 | | | | | | — | | | | | | — | | |
|
Investments A, B and D in unlisted equity instruments
|
| |
Net asset value
|
| | | | 18,348 | | | | | | — | | | | | | — | | | | | | 18,348 | | |
|
Investments C and E in unlisted equity instruments
|
| |
Recent transaction price
|
| | | | 11,500 | | | | | | — | | | | | | — | | | | | | 11,500 | | |
|
Investment in unlisted debt instrument
|
| |
Net asset value
|
| | | | 31,111 | | | | | | — | | | | | | — | | | | | | 31,111 | | |
For the year ended December 31, 2022, there was no transfer between levels. Transfers between levels of the fair value hierarchy, if any, are deemed to occur at the end of each reporting period. The Group did not hold any financial assets at fair value through profit or loss in the year ended December 31, 2020.
| | | |
Years ended December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
|
Unlisted equity instruments and debt instrument at fair value through profit or loss measured using significant unobservable inputs:
|
| | | | | | | | | | | | |
|
At January 1,
|
| | | | — | | | | | | 1,250 | | |
|
Additions
|
| | | | 1,250 | | | | | | 61,550 | | |
|
Disposals
|
| | | | — | | | | | | (1,213) | | |
|
Net gain on disposal of financial assets at fair value through profit or loss
|
| | | | — | | | | | | 213 | | |
|
Net fair value changes recognized in profit or loss
|
| | | | — | | | | | | (841) | | |
|
At December 31,
|
| | | | 1,250 | | | | | | 60,959 | | |
5.
ASSET ACQUISITION
On June 17, 2022, the Group entered into a sale and purchase agreement with Worldwide VGS B.V. and Yves Charles Edgar Bouvier, the ultimate beneficial owner of Worldwide VGS B.V., pursuant to which the Group agreed to purchase the 100% equity interest of Asia Freeport Holdings Pte. Ltd. and its subsidiaries (collectively, “AFH”), which was previously controlled by Worldwide VGS B.V., and the sculpture “Cage Sans Frontieres” created by Ron Arad, which was previously owned by Yves Charles Edgar Bouvier. The acquisition was closed on July 1, 2022.
As the sculpture was placed in an investment property building owned by AFH and cannot be removed or used separately without incurring significant costs, the sculpture is considered attached to the building of AFH. In addition, because Yves Charles Edgar Bouvier is the ultimate beneficial owner of Worldwide VGS B.V., the acquisition of AFH and the sculpture is treated as a single transaction. AFH is based in Singapore and conducts business in providing leases to customers. This transaction has been accounted for as an asset acquisition as the optional concentration test under IFRS 3 has been met.
The total purchase consideration of approximately US$27 million consisted of cash payment of approximately US$6 million and settlement of liabilities in the amount of approximately US$21 million. The Group has measured the group of assets and liabilities acquired based on their fair value at the date of the transaction and allocated the purchase consideration of the group of assets and liabilities to the individual identifiable assets and liabilities acquired on the basis of their relative fair value at the date of purchase.
F-39
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Details of the net identifiable assets acquired, and purchase consideration are as follows:
|
Net identifiable assets
In thousands of USD |
| |
At July 1,
2022 |
| |||
|
Investment properties
|
| | | | 34,986 | | |
|
Other assets
|
| | | | 529 | | |
|
Other liabilities
|
| | | | 8,727 | | |
|
Net identifiable assets
|
| | | | 26,788 | | |
|
Purchase consideration
In thousands of USD |
| |
At July 1,
2022 |
| |||
|
Cash consideration paid
|
| | | | 5,187 | | |
|
Liabilities settled
|
| | | | 21,107 | | |
|
Transaction costs
|
| | | | 494 | | |
|
Total consideration
|
| | | | 26,788 | | |
6.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The breakdown of cash and cash equivalents is as follows:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
|
US dollar
|
| | | | 368,115 | | | | | | 211,253 | | |
|
Singapore dollar
|
| | | | 2,829 | | | | | | 2,234 | | |
|
Chinese renminbi
|
| | | | 37 | | | | | | 2,484 | | |
|
Norwegian krone
|
| | | | 1,104 | | | | | | 12,589 | | |
|
Euro
|
| | | | 3 | | | | | | 2,791 | | |
|
Hongkong dollar
|
| | | | — | | | | | | 11 | | |
|
Total cash and cash equivalents by currency
|
| | | | 372,088 | | | | | | 231,362 | | |
|
Restricted cash
|
| | | | 10,310 | | | | | | 11,494 | | |
|
Total restricted cash
|
| | | | 10,310 | | | | | | 11,494 | | |
As of December 31, 2022 the Group owned short-term deposits, which were classified as cash equivalents, in an amount of approximately US$37 million with maturities ranging from January to February 2023, and interest ranging from 0.6% to 4.2%. The Group did not own any such short-term deposits as of December 31, 2021.
The Group’s restricted cash primarily relates to the application of standby letters of credit. The Group has applied a total of three standby letters of credits (“SLCs”) from the Signature Bank and CTBC Bank associated with property leased and electricity service subscribed. The SLCs provide the beneficiaries, which are the service providers, the ability to draw from the banks for a designated maximum aggregate amount (the “Draw Amount”). The details of SLCs are as follows:
| | | |
At December 31,
|
| |||
| | | |
2021
|
| |
2022
|
|
|
Draw Amount (In thousands of USD)
|
| |
10,293
|
| |
11,477
|
|
|
Range of expiration dates
|
| |
July 2022 to June 2025
|
| |
July 2023 to June 2025
|
|
The amount and expiration dates of the SLCs are amended, from time to time, by the Group and beneficiaries, as a result of the amendments to the associated service agreements. In connection with the
F-40
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
issuance of the SLCs, the banks held the Group’s cash balance equal to the Draw Amount as security. As of December 31, 2021 and 2022, none was utilized by the beneficiaries from the standby letters of credits.
7.
CRYPTOCURRENCIES
As of December 31, 2021 and 2022, the Group’s cryptocurrencies consist of the following:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
|
Cryptocurrencies other than USDC
|
| | | | 6,088 | | | | | | 2,086 | | |
|
USDC
|
| | | | 99 | | | | | | 89 | | |
|
Total cryptocurrencies
|
| | | | 6,187 | | | | | | 2,175 | | |
The details of cryptocurrencies are as follows:
| | | |
At December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
| Cost: | | | | | | | | | | | | | | | | | | | |
|
Beginning balances
|
| | | | 1,194 | | | | | | 9,656 | | | | | | 6,697 | | |
|
Additions
|
| | | | 172,530 | | | | | | 655,028 | | | | | | 865,333 | | |
|
Cryptocurrencies received on behalf of related parties(1)
|
| | | | 6,312 | | | | | | — | | | | | | — | | |
|
Cryptocurrencies paid on behalf of related parties(1)
|
| | | | — | | | | | | (24,852) | | | | | | — | | |
|
Disposals
|
| | | | (170,380) | | | | | | (562,894) | | | | | | (569,854) | | |
|
Loan to a third party(2)
|
| | | | — | | | | | | (10,222) | | | | | | — | | |
|
Purchase of cryptocurrency-denoted wealth management product from a related party(4)
|
| | | | — | | | | | | (30,004) | | | | | | (149,972) | | |
|
Loan to a related party(3)
|
| | | | — | | | | | | (30,015) | | | | | | (150,025) | | |
|
Ending balances
|
| | | | 9,656 | | | | | | 6,697 | | | | | | 2,179 | | |
| Impairment: | | | | | | | | | | | | | | | | | | | |
|
Beginning balances
|
| | | | (107) | | | | | | (74) | | | | | | (510) | | |
|
Additions
|
| | | | — | | | | | | (436) | | | | | | — | | |
|
Disposals
|
| | | | 33 | | | | | | — | | | | | | 506 | | |
|
Ending balances
|
| | | | (74) | | | | | | (510) | | | | | | (4) | | |
| Net book value: | | | | | | | | | | | | | | | | | | | |
|
Beginning balances
|
| | | | 1,087 | | | | | | 9,582 | | | | | | 6,187 | | |
|
Ending balances
|
| | | | 9,582 | | | | | | 6,187 | | | | | | 2,175 | | |
F-41
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The supplemental information of cryptocurrencies other than USDC is as follows:
| | | |
At December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
| Cost: | | | | | | | | | | | | | | | | | | | |
|
Beginning balances
|
| | | | 1,194 | | | | | | 9,601 | | | | | | 6,598 | | |
|
Additions
|
| | | | 172,475 | | | | | | 575,730 | | | | | | 586,117 | | |
|
Cryptocurrencies other than USDC received on behalf of related parties(1)
|
| | | | 6,312 | | | | | | — | | | | | | — | | |
|
Cryptocurrencies other than USDC paid on behalf of related parties(1)
|
| | | | — | | | | | | (24,852) | | | | | | — | | |
|
Disposals
|
| | | | (170,380) | | | | | | (513,655) | | | | | | (425,649) | | |
|
Loan to a third party(2)
|
| | | | — | | | | | | (10,222) | | | | | | — | | |
|
Purchase of cryptocurrency-denoted wealth management product from a
related party(4) |
| | | | — | | | | | | (30,004) | | | | | | (149,972) | | |
|
Loan to a related party(3)
|
| | | | — | | | | | | — | | | | | | (15,004) | | |
|
Ending balances
|
| | | | 9,601 | | | | | | 6,598 | | | | | | 2,090 | | |
| Impairment: | | | | | | | | | | | | | | | | | | | |
|
Beginning balances
|
| | | | (107) | | | | | | (74) | | | | | | (510) | | |
|
Additions
|
| | | | — | | | | | | (436) | | | | | | — | | |
|
Disposals
|
| | | | 33 | | | | | | — | | | | | | 506 | | |
|
Ending balances
|
| | | | (74) | | | | | | (510) | | | | | | (4) | | |
| Net book value: | | | | | | | | | | | | | | | | | | | |
|
Beginning balances
|
| | | | 1,087 | | | | | | 9,527 | | | | | | 6,088 | | |
|
Ending balances
|
| | | | 9,527 | | | | | | 6,088 | | | | | | 2,086 | | |
(1)
Cryptocurrencies or cryptocurrencies other than USDC received and paid on behalf of related parties represent the net effect of cryptocurrency or cryptocurrencies other than USDC transferred through the wallets held by the Group relating to transactions arising from Bitmain and BTC’s businesses during the Carve-out Period.
(2)
Represent an unsecured, interest-free cryptocurrency loan the Group made to a third party. The lending was collected in full as of December 31, 2021. The Group recorded approximately US$3,735,000 loss on change in fair value of cryptocurrencies lent for the year ended December 31, 2021.
(3)
Represent cryptocurrency loans made to the Matrixport Group, a related party. All loans were fully collected as of December 31, 2021 and 2022 and the collections are included in the additions of cryptocurrencies above. Also see Note 20.
(4)
Represent cryptocurrency-denoted wealth management products purchased from the Matrixport Group, a related party. All such wealth management products were fully redeemed as of December 31, 2021 and 2022 and the redemptions are included in the additions of cryptocurrencies above. Also see Note 20.
The management’s estimates of impairment provision of cryptocurrencies other than USDC are made based on the current market prices of cryptocurrencies as of each balance sheet date. Fluctuations in the market price of cryptocurrencies after the balance sheet date are not considered in determining the provision for impairment of cryptocurrencies other than USDC.
F-42
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. PREPAYMENTS AND OTHER ASSETS
The breakdown of prepayments and other assets is as follows:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
|
Prepayments to suppliers
|
| | | | 14,450 | | | | | | 9,664 | | |
|
Deposits
|
| | | | 6,669 | | | | | | 26,577 | | |
|
Deductible input value-added tax
|
| | | | 760 | | | | | | 757 | | |
|
Prepayments of income tax
|
| | | | — | | | | | | 18,459 | | |
|
Receivable from a third party(2)
|
| | | | — | | | | | | 2,546 | | |
|
Receivable from the disposed subsidiaries(1)
|
| | | | 10,203 | | | | | | — | | |
|
Others
|
| | | | 2,555 | | | | | | 1,573 | | |
|
Total
|
| | | | 34,637 | | | | | | 59,576 | | |
(1)
Represent balance due from two subsidiaries which the Group disposed of in December 2021. The receivables have been fully collected by March 2022.
(2)
Represent balance due from Blue Safari Acquisition Corp. (“BSGA”), a special purpose acquisition company who has signed a merger agreement with the Group. Associated with the anticipated merger, the Group agreed to lend BSGA an aggregate principal amount of US$1.99 million in two tranches and additional US$2.58 million in four tranches to fund any and all amounts required to extend the period of time BSGA has to complete the merger for up to two times for an additional three month period each time. The lending bears no interest and is repayable only at the closing of the merger by BSGA. The merger was closed in April 2023. See Note 23.
During the years ended December 31, 2020, 2021 and 2022, the Group did not recognize any allowance for expected credit losses for prepayments and other assets.
9. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The breakdown of financial assets at fair value through profit or loss is as follows:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
| Investments in unlisted equity instruments | | | | | | | | | | | | | |
|
– Investment A
|
| | | | 1,000 | | | | | | 1,000 | | |
|
– Investment B
|
| | | | 250 | | | | | | 1,000 | | |
|
– Investment C
|
| | | | — | | | | | | 10,000 | | |
|
– Investment D – investment in a limited partnership set up by Matrixport Group(1)
|
| | | | — | | | | | | 16,348 | | |
|
– Investment E
|
| | | | — | | | | | | 1,500 | | |
|
Investments in unlisted debt instruments
|
| | | | — | | | | | | 31,111 | | |
|
Total
|
| | | | 1,250 | | | | | | 60,959 | | |
(1)
See Note 20.
The above investments in unlisted debt and equity instruments at December 31, 2021 and 2022 were investments in funds and privately-held enterprises. These financial assets at fair value through profit or loss are measured at fair value using Levels 3 inputs. Refer to Note 4 for more information. The Group does not have control or significant influence over the privately-held enterprises.
F-43
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. MINING MACHINES
The details of mining machines are as follows:
|
In thousands of USD
|
| |
Mining
Machines |
| |||
| Cost: | | | | | | | |
|
At January 1, 2020
|
| | | | 81,482 | | |
|
Additions
|
| | | | 133,335 | | |
|
Disposals
|
| | | | (87,597) | | |
|
Exchange adjustments
|
| | | | 2,026 | | |
|
At December 31, 2020
|
| | | | 129,246 | | |
| Accumulated depreciation: | | | | | | | |
|
At January 1, 2020
|
| | | | (32,357) | | |
|
Charge for the year
|
| | | | (98,136) | | |
|
Disposals
|
| | | | 67,113 | | |
|
Exchange adjustments
|
| | | | (1,066) | | |
|
At December 31, 2020
|
| | | | (64,446) | | |
| Impairment: | | | | | | | |
|
At January 1, 2020
|
| | | | (9) | | |
|
Disposals
|
| | | | 9 | | |
|
At December 31, 2020
|
| | | | — | | |
| Net book value: | | | | | | | |
|
At December 31, 2020
|
| | | | 64,800 | | |
| Cost: | | | | | | | |
|
At January 1, 2021
|
| | | | 129,246 | | |
|
Additions
|
| | | | 31,645 | | |
|
Disposals
|
| | | | (37,998) | | |
|
Exchange adjustments
|
| | | | 243 | | |
|
At December 31, 2021
|
| | | | 123,136 | | |
| Accumulated depreciation: | | | | | | | |
|
At January 1, 2021
|
| | | | (64,446) | | |
|
Charge for the year
|
| | | | (43,857) | | |
|
Disposals
|
| | | | 32,005 | | |
|
Exchange adjustments
|
| | | | (263) | | |
|
At December 31, 2021
|
| | | | (76,561) | | |
| Impairment: | | | | | | | |
|
At January 1, 2021
|
| | | | — | | |
| Additions(1) | | | | | (106) | | |
|
At December 31, 2021
|
| | | | (106) | | |
| Net book value: | | | | | | | |
|
At December 31, 2021
|
| | | | 46,469 | | |
F-44
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
In thousands of USD
|
| |
Mining
Machines |
| |||
| Cost: | | | | | | | |
|
At January 1, 2022
|
| | | | 123,136 | | |
|
Additions
|
| | | | 12,016 | | |
|
Disposals
|
| | | | (12,949) | | |
|
At December 31, 2022
|
| | | | 122,203 | | |
| Accumulated depreciation: | | | | | | | |
|
At January 1, 2022
|
| | | | (76,561) | | |
|
Charge for the year
|
| | | | (29,281) | | |
|
Disposals
|
| | | | 11,443 | | |
|
At December 31, 2022
|
| | | | (94,399) | | |
| Impairment: | | | | | | | |
|
At January 1, 2022
|
| | | | (106) | | |
|
Disposal
|
| | | | 5 | | |
|
At December 31, 2022
|
| | | | (101) | | |
| Net book value: | | | | | | | |
|
At December 31, 2022
|
| | | | 27,703 | | |
| | |||||||
(1)
Included in the cost of revenue
F-45
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. PROPERTY, PLANT AND EQUIPMENT
The details of property, plant and equipment are as follows:
|
In thousands of USD
|
| |
Construction
in progress |
| |
Building
|
| |
Land
|
| |
Machinery
|
| |
Electronic
equipment |
| |
Leasehold
improvements |
| |
Others
|
| |
Total
|
| ||||||||||||||||||||||||
| Cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2020
|
| | | | 12,596 | | | | | | 16,209 | | | | | | 484 | | | | | | 5,445 | | | | | | 1,070 | | | | | | 13,889 | | | | | | 637 | | | | | | 50,330 | | |
|
Additions
|
| | | | 18,263 | | | | | | — | | | | | | — | | | | | | 12 | | | | | | 832 | | | | | | — | | | | | | 307 | | | | | | 19,414 | | |
|
Construction in progress transferred in
|
| | | | (27,486) | | | | | | 6,354 | | | | | | — | | | | | | 3,858 | | | | | | 895 | | | | | | 15,195 | | | | | | 1,184 | | | | | | — | | |
|
Disposals
|
| | | | — | | | | | | — | | | | | | — | | | | | | (172) | | | | | | (755) | | | | | | (158) | | | | | | (132) | | | | | | (1,217) | | |
|
At December 31, 2020
|
| | | | 3,373 | | | | | | 22,563 | | | | | | 484 | | | | | | 9,143 | | | | | | 2,042 | | | | | | 28,926 | | | | | | 1,996 | | | | | | 68,527 | | |
| Accumulated depreciation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2020
|
| | | | — | | | | | | (333) | | | | | | — | | | | | | (83) | | | | | | (278) | | | | | | (3,368) | | | | | | (301) | | | | | | (4,363) | | |
|
Charge for the year
|
| | | | — | | | | | | (955) | | | | | | — | | | | | | (1,115) | | | | | | (546) | | | | | | (7,177) | | | | | | (305) | | | | | | (10,098) | | |
|
Disposals
|
| | | | — | | | | | | — | | | | | | — | | | | | | 5 | | | | | | 121 | | | | | | 127 | | | | | | 50 | | | | | | 303 | | |
|
At December 31, 2020
|
| | | | — | | | | | | (1,288) | | | | | | — | | | | | | (1,193) | | | | | | (703) | | | | | | (10,418) | | | | | | (556) | | | | | | (14,158) | | |
| Impairment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2020
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Additions
|
| | | | (2,211) | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (2,211) | | |
|
At December 31, 2020
|
| | | | (2,211) | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (2,211) | | |
| Net book value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At December 31, 2020
|
| | | | 1,162 | | | | | | 21,275 | | | | | | 484 | | | | | | 7,950 | | | | | | 1,339 | | | | | | 18,508 | | | | | | 1,440 | | | | | | 52,158 | | |
| Cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2021
|
| | | | 3,373 | | | | | | 22,563 | | | | | | 484 | | | | | | 9,143 | | | | | | 2,042 | | | | | | 28,926 | | | | | | 1,996 | | | | | | 68,527 | | |
|
Additions
|
| | | | 59,524 | | | | | | 886 | | | | | | — | | | | | | 479 | | | | | | 3,228 | | | | | | — | | | | | | 1,329 | | | | | | 65,446 | | |
|
Construction in progress transferred in
|
| | | | (27,097) | | | | | | — | | | | | | — | | | | | | 6,133 | | | | | | 936 | | | | | | 19,646 | | | | | | 382 | | | | | | — | | |
|
Disposals
|
| | | | (2,211) | | | | | | — | | | | | | — | | | | | | (21) | | | | | | (871) | | | | | | (147) | | | | | | (185) | | | | | | (3,435) | | |
|
At December 31, 2021
|
| | | | 33,589 | | | | | | 23,449 | | | | | | 484 | | | | | | 15,734 | | | | | | 5,335 | | | | | | 48,425 | | | | | | 3,522 | | | | | | 130,538 | | |
| Accumulated depreciation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2021
|
| | | | — | | | | | | (1,288) | | | | | | — | | | | | | (1,193) | | | | | | (703) | | | | | | (10,418) | | | | | | (556) | | | | | | (14,158) | | |
|
Charge for the year
|
| | | | — | | | | | | (1,100) | | | | | | — | | | | | | (1,235) | | | | | | (793) | | | | | | (10,805) | | | | | | (501) | | | | | | (14,434) | | |
|
Disposals
|
| | | | — | | | | | | — | | | | | | — | | | | | | 1 | | | | | | 462 | | | | | | 112 | | | | | | 96 | | | | | | 671 | | |
|
At December 31, 2021
|
| | | | — | | | | | | (2,388) | | | | | | — | | | | | | (2,427) | | | | | | (1,034) | | | | | | (21,111) | | | | | | (961) | | | | | | (27,921) | | |
| Impairment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2021
|
| | | | (2,211) | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (2,211) | | |
|
Disposals
|
| | | | 2,211 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,211 | | |
|
At December 31, 2021
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Net book value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At December 31, 2021
|
| | | | 33,589 | | | | | | 21,061 | | | | | | 484 | | | | | | 13,307 | | | | | | 4,301 | | | | | | 27,314 | | | | | | 2,561 | | | | | | 102,617 | | |
F-46
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
In thousands of USD
|
| |
Construction
in progress |
| |
Building
|
| |
Land
|
| |
Machinery
|
| |
Electronic
equipment |
| |
Leasehold
improvements |
| |
Others
|
| |
Total
|
| ||||||||||||||||||||||||
| Cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2022
|
| | | | 33,589 | | | | | | 23,449 | | | | | | 484 | | | | | | 15,734 | | | | | | 5,335 | | | | | | 48,425 | | | | | | 3,522 | | | | | | 130,538 | | |
|
Additions
|
| | | | 54,107 | | | | | | — | | | | | | — | | | | | | 1,228 | | | | | | 4,681 | | | | | | 2,431 | | | | | | 4,295 | | | | | | 66,742 | | |
|
Additions related to asset acquisition (See Note 5)
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 1 | | | | | | — | | | | | | 14 | | | | | | 15 | | |
|
Construction in progress transferred in
|
| | | | (71,184) | | | | | | — | | | | | | — | | | | | | 16,132 | | | | | | 794 | | | | | | 53,661 | | | | | | 597 | | | | | | — | | |
|
Disposals
|
| | | | — | | | | | | — | | | | | | — | | | | | | (222) | | | | | | (187) | | | | | | — | | | | | | — | | | | | | (409) | | |
|
At December 31, 2022
|
| | | | 16,512 | | | | | | 23,449 | | | | | | 484 | | | | | | 32,872 | | | | | | 10,624 | | | | | | 104,517 | | | | | | 8,428 | | | | | | 196,886 | | |
| Accumulated depreciation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2022
|
| | | | — | | | | | | (2,388) | | | | | | — | | | | | | (2,427) | | | | | | (1,034) | | | | | | (21,111) | | | | | | (961) | | | | | | (27,921) | | |
|
Charge for the year
|
| | | | — | | | | | | (1,137) | | | | | | — | | | | | | (4,392) | | | | | | (1,532) | | | | | | (21,892) | | | | | | (1,485) | | | | | | (30,438) | | |
|
Disposals
|
| | | | — | | | | | | — | | | | | | — | | | | | | 16 | | | | | | 93 | | | | | | — | | | | | | — | | | | | | 109 | | |
|
At December 31, 2022
|
| | | | — | | | | | | (3,525) | | | | | | — | | | | | | (6,803) | | | | | | (2,473) | | | | | | (43,003) | | | | | | (2,446) | | | | | | (58,250) | | |
| Net book value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At December 31, 2022
|
| | | | 16,512 | | | | | | 19,924 | | | | | | 484 | | | | | | 26,069 | | | | | | 8,151 | | | | | | 61,514 | | | | | | 5,982 | | | | | | 138,636 | | |
Construction in progress primarily represents the construction of mining datacenters.
For the year ended December 2020, and the period from January 1, 2021 to January 26, 2021, approximately US$0.3 million and US$0.02 million of depreciation expense was allocated to Bitmain and included in changes in invested capital, respectively.
12.
INVESTMENT PROPERTIES
The detail of investment properties is as follows:
|
In thousands of USD
|
| |
Leasehold
land |
| |
Building
|
| |
Others
|
| |
Total
|
| ||||||||||||
| Cost: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At July 1, 2022*
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Acquisition of assets
|
| | | | 4,833 | | | | | | 29,773 | | | | | | 380 | | | | | | 34,986 | | |
|
Additions
|
| | | | 730 | | | | | | — | | | | | | — | | | | | | 730 | | |
|
Exchange adjustments
|
| | | | 183 | | | | | | 906 | | | | | | 14 | | | | | | 1,103 | | |
|
At December 31, 2022
|
| | | | 5,746 | | | | | | 30,679 | | | | | | 394 | | | | | | 36,819 | | |
| Accumulated depreciation: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At January 1, 2022
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Charge for the year
|
| | | | (192) | | | | | | (1,019) | | | | | | (26) | | | | | | (1,237) | | |
|
Exchange adjustments
|
| | | | (7) | | | | | | (32) | | | | | | (1) | | | | | | (40) | | |
|
At December 31, 2022
|
| | | | (199) | | | | | | (1,051) | | | | | | (27) | | | | | | (1,277) | | |
| Net book value: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
At December 31, 2022
|
| | | | 5,547 | | | | | | 29,628 | | | | | | 367 | | | | | | 35,542 | | |
*
The investment properties were acquired from the acquisition of AFH, which was closed on July 1, 2022. See Note 5
F-47
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Leasehold land included in investment properties were right-of-use assets associated with leasehold land under operating leases where the building was constructed on. See Note 13.
The Group leases the investment properties to its customers under operating leases for terms ranging from 1 to 12 years, with an option to extend for an additional lease term. The lease contracts contain market review clauses in the event that the lessees exercise their options to extend. The lessees do not have bargain purchase options to acquire the investment properties at the expiry of the lease term.
The maturity analysis of lease payments receivable under operating leases of investment properties was as follows:
|
In thousands of USD
|
| |
At December 31,
2022 |
| |||
|
2023
|
| | | | 3,600 | | |
|
2024
|
| | | | 3,701 | | |
|
2025
|
| | | | 3,229 | | |
|
2026
|
| | | | 2,492 | | |
|
2027
|
| | | | 1,855 | | |
|
Thereafter
|
| | | | 4,711 | | |
|
Total
|
| | | | 19,588 | | |
The Group has no restrictions on the use of its investment properties and no contractual obligations to each investment property purchased or for repairs, maintenance and enhancements.
The fair value of investment properties of the Group as of December 31, 2022 was determined using the income approach with the assistance of an independent valuation specialist. The investment properties were classified as Level 3 in the fair value hierarchy.
Under the income approach, the estimated fair value of the investment properties is based on the operation projection and the discount rate. The fair value of investment properties as of December 31, 2022 was approximately US$36.2 million.
The Group did not record any impairment related to investment properties in the year ended December 31, 2022.
13. LEASES
The Group occupies most of its office premises and certain mining datacenter under lease arrangements, which generally have an initial lease term between one and a half years to 30 years. Lease contracts are typically made for fixed periods but may have extension options. The Group accounts for lease and non-lease components separately, where the non-lease component is charged to expenses as they incur. Any extension options in these leases have not been included in the lease liabilities unless the Group is reasonably certain to exercise the extension option. In addition, periods after termination options are only included in the lease term if the lease is reasonably certain not to be terminated. The Group does not have an option to purchase these leased assets at the expiration of the lease periods.
The consolidated statements of financial position show the following amounts relating to the right-of-use assets:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
| Right-of-use assets | | | | | | | | | | | | | |
|
– Land and buildings
|
| | | | 58,941 | | | | | | 60,082 | | |
| Investment properties | | | | | | | | | | | | | |
|
– Leasehold land
|
| | | | — | | | | | | 5,547 | | |
F-48
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Addition to the right-of-use assets for the years ended December 31, 2020, 2021 and 2022 was approximately US$1.2 million, US$47.2 million and US$7.3 million, respectively. In addition, approximately US$4.8 million right-of-use asset for the years ended December 31, 2022 was acquired as a result of the acquisition of AFH (See Note 5), the balance of the underlying right-of-use asset was included in investment properties. See Note 12.
The Group has an obligation to complete the site restoration of its leased land held by AFH in Singapore in relation to the Group’s acquisition of AFH in July 2022 (See Note 5). The provision for the site restoration is updated annually.
The following table represents the movement of the restoration provision:
|
In thousands of USD
|
| | | | | | |
|
Restoration provision at December 31, 2021
|
| | | | — | | |
|
Recognition through asset acquisition
|
| | | | 1,343 | | |
|
Change in provision
|
| | | | — | | |
|
Restoration provision at December 31, 2022
|
| | | | 1,343 | | |
The consolidated statements of financial position show the following amounts relating to the lease liabilities:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
|
Lease liabilities mature within 12 months
|
| | | | 3,287 | | | | | | 4,973 | | |
|
Lease liabilities mature over 12 months
|
| | | | 59,681 | | | | | | 65,452 | | |
|
Total lease liabilities*
|
| | | | 62,968 | | | | | | 70,425 | | |
*
Lease liabilities in amount of approximately US$4.7 million was related to the leasehold land included in the investment properties. See Note 12.
Amounts recognized in profit or loss:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Depreciation expense of right-of-use assets*
|
| | | | 3,983 | | | | | | 4,636 | | | | | | 5,371 | | |
|
Gain on lease modification
|
| | | | (6) | | | | | | (205) | | | | | | — | | |
|
Interest expense*
|
| | | | 817 | | | | | | 1,217 | | | | | | 2,425 | | |
|
Expenses relating to variable payment leases
|
| | | | — | | | | | | 610 | | | | | | 639 | | |
|
Expenses relating to short-term leases
|
| | | | 372 | | | | | | 351 | | | | | | 527 | | |
|
Total
|
| | | | 5,166 | | | | | | 6,609 | | | | | | 8,962 | | |
*
Depreciation expense of right-of-use asset of approximately $0.2 million and interest expense of approximately $0.1 million was related to the leasehold land included in the investment properties. See Note 12.
The total cash outflow for leases, including the capital element of lease rentals paid and interests paid on leases for the years ended December 31, 2020, 2021 and 2022 was approximately US$5.4 million, US$5.4 million and US$6.3 million, respectively.
F-49
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14.
BORROWINGS
Borrowings consist of the following:
| | | |
At December 31
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
|
Convertible debt(1)
|
| | | | 29,460 | | | | | | 29,805 | | |
|
Total
|
| | | | 29,460 | | | | | | 29,805 | | |
(1)
The Group issued a US$30 million promissory note on July 23, 2021. The promissory note is non-secured, bears an annual interest rate of 8%, matures on July 23, 2023 and provides the holder an option to convert all or any portion of the note into the Group’s ordinary shares at US$0.0632 per share at any time from the issuance of the note to the second anniversary of the date of issuance. Approximately US$683,000 was recognized as an equity component. The unamortized discount as of December 31, 2021 and 2022 was approximately US$524,000 and US$195,000.
15.
OTHER PAYABLES AND ACCRUALS
Other payables and accruals consist of the following:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
|
Payables for surtaxes
|
| | | | 8,184 | | | | | | 8,928 | | |
|
Accrued operating expenses
|
| | | | 2,108 | | | | | | 5,539 | | |
|
Payables for staff-related costs
|
| | | | 5,839 | | | | | | 2,182 | | |
|
Deposit from hosting customers
|
| | | | — | | | | | | 2,911 | | |
|
Restoration provision for leasehold land
|
| | | | — | | | | | | 1,343 | | |
|
Others
|
| | | | 1,127 | | | | | | 1,273 | | |
|
Total
|
| | | | 17,258 | | | | | | 22,176 | | |
All other payables and accruals are expected to be settled within one year or are repayable on demand.
F-50
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. EXPENSES BY NATURE AND OTHER INCOME AND EXPENSES ITEMS
(a)
Expenses by nature
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
(Restated) |
| |
2021
|
| |
2022
|
| |||||||||
| Staff cost | | | | | | | | | | | | | | | | | | | |
|
– salaries, wages and other benefits
|
| | | | 33,041 | | | | | | 37,730 | | | | | | 50,132 | | |
|
Share-based payments
|
| | | | — | | | | | | 88,355 | | | | | | 90,648 | | |
| Amortization | | | | | | | | | | | | | | | | | | | |
|
– intangible assets
|
| | | | 111 | | | | | | 146 | | | | | | 97 | | |
| Depreciation | | | | | | | | | | | | | | | | | | | |
|
– mining machines
|
| | | | 98,136 | | | | | | 43,857 | | | | | | 29,281 | | |
|
– property, plant and equipment
|
| | | | 9,807 | | | | | | 14,416 | | | | | | 30,438 | | |
|
– investment properties
|
| | | | — | | | | | | — | | | | | | 1,237 | | |
|
– right-of-use assets
|
| | | | 3,983 | | | | | | 4,636 | | | | | | 5,371 | | |
|
Electricity cost in operating mining machines
|
| | | | 72,078 | | | | | | 58,447 | | | | | | 139,469 | | |
|
Cost of mining machines sold
|
| | | | 17,537 | | | | | | 5,978 | | | | | | 1,002 | | |
|
Consulting service fee
|
| | | | 1,039 | | | | | | 8,787 | | | | | | 6,797 | | |
|
Tax and surcharge
|
| | | | 3,085 | | | | | | 2,202 | | | | | | 3,355 | | |
|
Advertising expenses
|
| | | | 2,189 | | | | | | 880 | | | | | | 737 | | |
|
Office expenses
|
| | | | 543 | | | | | | 2,219 | | | | | | 3,124 | | |
|
Research and development technical service fees
|
| | | | 681 | | | | | | 1,964 | | | | | | 1,313 | | |
|
Expenses of low-value consumables
|
| | | | 971 | | | | | | 1,662 | | | | | | 4,025 | | |
|
Expenses of variable payment lease
|
| | | | — | | | | | | 610 | | | | | | 639 | | |
|
Expenses of short-term leases
|
| | | | 372 | | | | | | 351 | | | | | | 527 | | |
|
Impairment loss of mining machines
|
| | | | — | | | | | | 106 | | | | | | — | | |
|
Logistic expenses
|
| | | | 339 | | | | | | 1,391 | | | | | | 3,060 | | |
|
Travel expenses
|
| | | | 52 | | | | | | 1,393 | | | | | | 3,202 | | |
|
Insurance fee
|
| | | | 459 | | | | | | 983 | | | | | | 3,446 | | |
|
Others
|
| | | | 766 | | | | | | 4,826 | | | | | | 12,756 | | |
|
Total cost of revenue, selling, general and administrative and research and development expenses
|
| | | | 245,189 | | | | | | 280,939 | | | | | | 390,656 | | |
(b)
Other operating income / (expenses)
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Net gain / (losses) on disposal of cryptocurrencies
|
| | | | 2,716 | | | | | | 18,725 | | | | | | (3,131) | | |
|
Impairment loss of cryptocurrencies
|
| | | | — | | | | | | (436) | | | | | | — | | |
|
Change in fair value of cryptocurrencies lent
|
| | | | — | | | | | | (3,735) | | | | | | — | | |
|
Net loss on disposal of mining machine
|
| | | | (2,984) | | | | | | (36) | | | | | | (497) | | |
|
Write-off of receivables from a related party(1)
|
| | | | (2,025) | | | | | | — | | | | | | — | | |
|
Others
|
| | | | 248 | | | | | | 107 | | | | | | — | | |
| Total | | | | | (2,045) | | | | | | 14,625 | | | | | | (3,628) | | |
F-51
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1)
In 2020, Bishkek Maker Cloud Technologies Co., Ltd. (“Bishkek”), an entity of the Bitdeer Business, waived a receivable of approximately US$2.0 million from one of the subsidiaries of Bitmain. Bishkek was disposed of in July 2021.
(c)
Other net gain / (loss)
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Loss on impairment of property, plant and equipment
|
| | | | (2,211) | | | | | | — | | | | | | — | | |
|
Gain on extinguishment of debt
|
| | | | — | | | | | | 880 | | | | | | — | | |
|
Net gain on disposal of property, plant and equipment and intangible assets
|
| | | | 66 | | | | | | 56 | | | | | | 662 | | |
|
Government grants
|
| | | | 307 | | | | | | 35 | | | | | | 42 | | |
|
Changes in fair value of financial assets at fair value through profit or loss
|
| | | | — | | | | | | — | | | | | | (841) | | |
|
Net gain on disposal of other financial assets
|
| | | | — | | | | | | — | | | | | | 213 | | |
|
Impairment loss of a pre-matured investment(1)
|
| | | | — | | | | | | (2,025) | | | | | | — | | |
|
Net gain on settlement of balances with Bitmain
|
| | | | — | | | | | | 4,468 | | | | | | — | | |
|
Others
|
| | | | (722) | | | | | | (931) | | | | | | 281 | | |
|
Total
|
| | | | (2,560) | | | | | | 2,483 | | | | | | 357 | | |
(1)
The Group signed a project investment agreement with a third party in April 2021 and made a payment of approximately $2 million. The project was later forfeited, and the Group is actively collecting the paid amount, which was impaired as of June 30, 2021 based on management’s estimate over the likelihood of collection at current stage.
(d)
Finance income / (expenses)
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Interest on lease liabilities
|
| | | | (817) | | | | | | (1,217) | | | | | | (2,425) | | |
|
Cryptocurrency transaction service fee
|
| | | | (458) | | | | | | (109) | | | | | | (159) | | |
|
Gain / (loss) on foreign currency transactions
|
| | | | 618 | | | | | | (226) | | | | | | (2,881) | | |
|
Interest income
|
| | | | 419 | | | | | | 2,947 | | | | | | 4,291 | | |
|
Interest expenses on bank loan
|
| | | | (6) | | | | | | (3) | | | | | | — | | |
|
Interest expense on convertible debt
|
| | | | — | | | | | | (1,223) | | | | | | (2,778) | | |
|
Others
|
| | | | (136) | | | | | | (110) | | | | | | (229) | | |
|
Total
|
| | | | (380) | | | | | | 59 | | | | | | (4,181) | | |
17.
SHARE-BASED PAYMENTS
In July 2021, the Board of Directors of the Group approved the adoption of the 2021 Share Incentive Plan (the “2021 Plan”). The Group granted a total of 1,097,852,000 share awards in two batches in August and November 2021 in the year ended December 31, 2021, and a total of 139,690,400 share awards in four batches in January, April, July and October 2022 in the year ended December 31, 2022, to the designated recipients under the 2021 Plan. Each share award grants an option for the recipient to purchase one share of the Group’s ordinary shares at an exercise price of US$0.03 per share. The majority of the share awards vest in two to seven years and certain share awards vest immediately upon issuance. The recipient shall continue to provide services to the Group by each vesting date. All share awards granted in 2021 and 2022 expire on July 20, 2031.
F-52
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates the number of shares and weighted average exercise prices of, and movements in, share awards:
| | | |
Number of
options (’000) |
| |
Average
exercise price per share option (US$) |
| |
Average
fair value per share option (US$) |
| |||||||||
|
As at January 1, 2021
|
| | | | — | | | | | | — | | | | | | — | | |
|
Granted during the year
|
| | | | 1,097,852 | | | | | | 0.03 | | | | | | 0.23 | | |
|
As at December 31, 2021
|
| | | | 1,097,852 | | | | | | 0.03 | | | | | | 0.23 | | |
|
Granted during the year
|
| | | | 139,690 | | | | | | 0.03 | | | | | | 0.16 | | |
|
Forfeited
|
| | | | (25,597) | | | | | | 0.03 | | | | | | 0.22 | | |
|
As at December 31, 2022
|
| | | | 1,211,945 | | | | | | 0.03 | | | | | | 0.22 | | |
|
Vested and exercisable at December 31, 2022
|
| | | | 417,767 | | | | | | 0.03 | | | | | | 0.22 | | |
The expense recognized for share awards during the year ended December 31, 2021 and 2022 was approximately US$88.4 million and US$90.6 million. The breakdown is as follows:
| | | |
Year ended December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
|
Cost of revenue
|
| | | | 10,424 | | | | | | 10,050 | | |
|
General and administrative expenses
|
| | | | 54,458 | | | | | | 48,850 | | |
|
Research and development expenses
|
| | | | 18,246 | | | | | | 24,258 | | |
|
Selling expenses
|
| | | | 5,227 | | | | | | 7,490 | | |
|
Total
|
| | | | 88,355 | | | | | | 90,648 | | |
The fair value of the share awards is estimated at the grant date using the binomial model with the assistance of an independent valuation specialist. The following table provides the inputs to the model used for determining the value of the grant for the years ended December 31, 2021 and 2022:
| | | |
At August 1,
2021 |
| |
At November 1,
2021 |
| ||||||
|
Dividend yield (%)
|
| | | | — | | | | | | — | | |
|
Expected volatility (%)
|
| | | | 130.19% | | | | | | 130.23% | | |
|
Risk-free interest rate (%)
|
| | | | 1.24% | | | | | | 1.57% | | |
|
Exercise multiple
|
| | | | 2.20 – 2.80 | | | | | | 2.20 | | |
| | | |
At January 1,
2022 |
| |
At April 1,
2022 |
| |
At July 1,
2022 |
| |
At October 1,
2022 |
| ||||||||||||
|
Dividend yield (%)
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Expected volatility (%)
|
| | | | 128% | | | | | | 123% | | | | | | 120% | | | | | | 121% | | |
|
Risk-free interest rate (%)
|
| | | | 1.618% | | | | | | 2.415% | | | | | | 2.893% | | | | | | 3.886% | | |
|
Exercise multiple
|
| | | | 2.20 – 2.80 | | | | | | 2.20 | | | | | | 2.20 | | | | | | 2.20 | | |
The above inputs for the binomial model have been determined based on the following:
•
Dividend return is estimated by reference to the Group’s plan to distribute dividends in the near future. Currently, this is estimated to be zero as the Group plans to retain all profit for corporate expansion;
•
Expected volatility is estimated based on the daily close price volatility of a number of comparable companies to the Group;
F-53
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
•
Risk-free interest rate is based on the yield to maturity of U.S. treasury bills denominated in US$ at the option valuation date;
•
Exercise multiple is based on empirical research on typical share award exercise behavior.
18. EQUITY
Invested capital
The consolidated financial statements were prepared in accordance with principles described in Note 2. No share capital is presented for the 2020 historical periods. Invested capital is derived by aggregating the net assets of the Bitdeer Business’s direct and indirect subsidiaries and the net assets of the Bitdeer business activities conducted in direct and indirect subsidiaries of Bitmain as well as BTC. Invested capital also includes changes in reserve due to the effect of foreign currency translation adjustments and capital funding. For the year ended December 31, 2021, invested capital includes the net assets of the activities Bitdeer Business conducted in direct and indirect subsidiaries of Bitmain between January 1, 2021 and January 26, 2021, as well as BTC between January 1, 2021 and April 15, 2021. The balance of invested capital was reclassified to other reserve upon completion of the Reorganization.
Issued share capital
The authorized share capital of the Group is US$50,000 divided into: (i) 497,354,466,516 ordinary shares with a par value of US$0.0000001 each, (ii) 461,033,549 Series A preferred shares with a par value of US$0.0000001 each, (iii) 870,232,230 Series B preferred shares with a par value of US$0.0000001 each, and (iv)1,314,267,705 Series B+ preferred shares with a par value of US$0.0000001 each.
In August 2021, The Group divided the 497,354,466,516 ordinary shares into (i) 491,722,670,897 Class A ordinary shares, each with a par value of US$0.0000001 and 1 vote on all matters in any shareholders meeting of the Group and (ii) 5,631,795,619 Class B ordinary shares, each with a par value of US$0.0000001 and 10 votes on all matters in any shareholders meeting of the Group. All issued and outstanding Series A, Series B and Series B+ preferred shares remain the same and unchanged. In connection with the division of ordinary shares, the Group redesignated the 5,631,795,619 ordinary shares held by Victory Courage Limited, an entity controlled by the Chairman of the Board of Directors of the Group, as Class B ordinary shares, and the remaining outstanding ordinary shares held by various shareholders as Class A ordinary shares.
Each share of Class A ordinary shares, Series A preferred shares, Series B preferred shares and Series B+ preferred shares is granted 1 vote and each share of Class B ordinary shares is granted 10 votes. All classes of shares are entitled to dividend and rank pari passu except for voting rights.
| | | |
Class A
Ordinary Shares |
| |
Amount
in USD |
| |
Class B
Ordinary Shares |
| |
Amount
in USD |
| ||||||||||||
|
At January 1, 2021, shares issued and outstanding
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Share allotment upon Reorganization
|
| | | | 10,016,592,322 | | | | | | 1,002 | | | | | | — | | | | | | — | | |
|
Redesignation of ordinary shares
|
| | | | (5,631,795,619) | | | | | | (563) | | | | | | 5,631,795,619 | | | | | | 563 | | |
|
At December 31, 2021, shares issued and outstanding
|
| | | | 4,384,796,703 | | | | | | 439 | | | | | | 5,631,795,619 | | | | | | 563 | | |
|
At December 31, 2022, shares issued and outstanding
|
| | | | 4,384,796,703 | | | | | | 439 | | | | | | 5,631,795,619 | | | | | | 563 | | |
F-54
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| | | |
Series A
Preferred Shares |
| |
Amount
in USD |
| |
Series B
Preferred Shares |
| |
Amount
in USD |
| |
Series B+
Preferred Shares |
| |
Amount
in USD |
| ||||||||||||||||||
|
At January 1, 2021, shares issued
and outstanding |
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
|
Share allotment upon Reorganization
|
| | | | 461,033,549 | | | | | | 46 | | | | | | 870,232,230 | | | | | | 87 | | | | | | 1,314,267,705 | | | | | | 131 | | |
|
At December 31, 2021, shares issued and outstanding
|
| | | | 461,033,549 | | | | | | 46 | | | | | | 870,232,230 | | | | | | 87 | | | | | | 1,314,267,705 | | | | | | 131 | | |
|
At December 31, 2022, shares issued and outstanding
|
| | | | 461,033,549 | | | | | | 46 | | | | | | 870,232,230 | | | | | | 87 | | | | | | 1,314,267,705 | | | | | | 131 | | |
Retained earnings
The Group’s retained earnings include the result of the Group’s operations for the years ended December 31, 2021 and 2022 excluding the activities Bitdeer Business conducted in direct and indirect subsidiaries of Bitmain and BTC, which were included in invested capital as discussed above.
Reserves
The Group’s reserves include the following:
(i)
Share premium, which effectively represents the share subscription amount paid over the par value of the shares. The application of the share premium account is governed by Section 34 of the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands as amended, supplemented or otherwise modified from time to time.
(ii)
Invested capital reclassified upon completion of the Reorganization.
(iii)
All foreign exchange differences arising from the translation of the financial statements of foreign operations, excluding the effects resulting from the activities the Bitdeer Business conducted in direct and indirect subsidiaries of Bitmain and BTC, which were included in invested capital.
(iv)
The value of the conversion option of the equity component embedded in the convertible debt.
(v)
The accumulated share-based payment expenses.
Capital management
The Group’s primary objective in terms of managing capital is to
•
safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, mainly by pricing products and services commensurate with the level of risk.
•
To support the Group’s stability and growth
•
To provide capital for the purpose of strengthening the Group’s risk management capability
The Group’s business and financial condition are highly correlated with the market price of cryptocurrencies. For the years ended December 31, 2020, 2021 and 2022, the Group’s revenue is substantially generated from cryptocurrency-related operations. The Group has adopted various measures to minimize the risk associated with the fluctuation in the market price of cryptocurrencies, specifically, the Group has implemented an internal strategy requiring prompt conversion of all the cryptocurrencies received from ordinary operations into fiat currencies.
F-55
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In order to maintain or adjust the capital structure, the Group reviews and manages its capital structure actively and regularly to ensure optimal capital structure and shareholder returns, taking into account the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities.
The Group is not subject to externally imposed capital requirements.
19. TAXATION
The subsidiaries of the Group incorporated in the Cayman Islands and British Virgin Islands (“BVI”) are not subject to tax on income or capital gain. In addition, payments of dividends by the Group to its shareholders are not subject to withholding tax in the Cayman Islands.
The subsidiaries of the Group incorporated in other countries are subject to income tax pursuant to the rules and regulations of their respective countries of incorporation.
The provisions for income taxes for the years ended December 31, 2020, 2021 and 2022 are summarized as follows:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Current income tax expenses
|
| | | | 52 | | | | | | 13,125 | | | | | | (8,244) | | |
|
Deferred income tax (benefit) / expenses
|
| | | | (8,013) | | | | | | 35,121 | | | | | | 3,844 | | |
| Total | | | | | (7,961) | | | | | | 48,246 | | | | | | (4,400) | | |
The reconciliation between the income tax benefit / (expenses) calculated by applying the applicable tax rate of 17% to the profit / (loss) before income tax and the net income tax benefit / (expenses) as shown in the statements of operations and comprehensive income / (loss)for the years ended December 31, 2020, 2021 and 2022 is as follows.
| | | |
Years ended December 31,
|
| |||||||||||||||
| | | |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Statutory income tax rate
|
| | | | 17.00% | | | | | | 17.00% | | | | | | 17.00% | | |
|
Effect of expenses not deductible for tax purpose
|
| | | | (0.35)% | | | | | | 11.99% | | | | | | (22.71)% | | |
|
Effect of income tax difference under different tax jurisdictions
|
| | | | 2.55% | | | | | | 5.64% | | | | | | (4.03)% | | |
|
Effect of tax losses not recognized in deferred tax assets
|
| | | | (7.39)% | | | | | | 0.63% | | | | | | 0.75% | | |
|
Prior year true-ups
|
| | | | — | | | | | | 2.11% | | | | | | 16.05% | | |
|
Effect of non-taxable income
|
| | | | 0.50% | | | | | | (0.60)% | | | | | | — | | |
|
Others
|
| | | | 0.17% | | | | | | 0.09% | | | | | | (0.27)% | | |
|
Total
|
| | | | 12.48% | | | | | | 36.86% | | | | | | 6.79% | | |
F-56
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets / (liabilities) as of December 31, 2021 and 2022 comprise the following:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
| Deferred tax assets | | | | | | | | | | | | | |
|
Net operating losses
|
| | | | 4,362 | | | | | | 4,324 | | |
|
Share-base payments
|
| | | | — | | | | | | 2,672 | | |
|
Property, plant and equipment and intangible assets
|
| | | | 260 | | | | | | 533 | | |
|
Total deferred tax assets
|
| | | | 4,622 | | | | | | 7,529 | | |
|
Set-off of deferred tax positions relate to income taxes levied by the same tax authority
|
| | | | — | | | | | | (2,672) | | |
|
Deferred tax assets
|
| | | | 4,622 | | | | | | 4,857 | | |
| Deferred tax liabilities | | | | | | | | | | | | | |
|
Property, plant and equipment
|
| | | | (7,547) | | | | | | (14,298) | | |
|
Set-off of deferred tax positions relate to income taxes levied by the same tax
authority |
| | | | — | | | | | | 2,672 | | |
|
Deferred tax liabilities
|
| | | | (7,547) | | | | | | (11,626) | | |
|
Net deferred tax assets / (liabilities)
|
| | | | (2,925) | | | | | | (6,769) | | |
The movements in the net deferred tax assets during the years ended December 31, 2020, 2021 and 2022 are as follows:
|
In thousands of USD
|
| |
January 1,
2020 |
| |
Recognized
in profit or loss |
| |
Charged
to invested capital(1) |
| |
December 31,
2020 |
| ||||||||||||
|
Tax losses carried forward
|
| | | | 19,292 | | | | | | 2,015 | | | | | | 2,285 | | | | | | 23,592 | | |
|
Accrued expenses
|
| | | | 704 | | | | | | — | | | | | | — | | | | | | 704 | | |
|
Property, plant and equipment
|
| | | | (192) | | | | | | 5,998 | | | | | | — | | | | | | 5,806 | | |
|
Net deferred tax assets
|
| | | | 19,804 | | | | | | 8,013 | | | | | | 2,285 | | | | | | 30,102 | | |
|
In thousands of USD
|
| |
January 1,
2021 |
| |
Recognized
in profit or loss |
| |
Charged
to invested capital(1) |
| |
December 31,
2021 |
| ||||||||||||
|
Tax losses carried forward
|
| | | | 23,592 | | | | | | (21,324) | | | | | | 2,094 | | | | | | 4,362 | | |
|
Accrued expenses
|
| | | | 704 | | | | | | (704) | | | | | | — | | | | | | — | | |
|
Property, plant and equipment
|
| | | | 5,806 | | | | | | (13,093) | | | | | | — | | | | | | (7,287) | | |
|
Net deferred tax assets / (liabilities)
|
| | | | 30,102 | | | | | | (35,121) | | | | | | 2,094 | | | | | | (2,925) | | |
|
In thousands of USD
|
| |
January 1,
2022 |
| |
Recognized
in profit or loss |
| |
Charged
to invested capital(1) |
| |
December 31,
2022 |
| ||||||||||||
|
Tax losses carried forward
|
| | | | 4,362 | | | | | | (38) | | | | | | — | | | | | | 4,324 | | |
|
Share-base payments
|
| | | | — | | | | | | 2,672 | | | | | | — | | | | | | 2,672 | | |
|
Property, plant and equipment
|
| | | | (7,287) | | | | | | (6,478) | | | | | | — | | | | | | (13,765) | | |
|
Net deferred tax liabilities
|
| | | | (2,925) | | | | | | (3,844) | | | | | | — | | | | | | (6,769) | | |
(1)
Deferred tax assets charged to invested capital is due to the Group recognizing deferred tax assets related to tax losses carried forward based on the tax losses available to the individual legal entities within the Group during the Carve-out Period, which creates differences between the income tax benefit or expense determined based on the operation results of the Bitdeer Business.
F-57
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group has not recognized deductible temporary differences and a portion of the tax loss carryforward because the criteria for recognition (i.e., the probability of future taxable profits) were not met. The amount of such unused tax losses will expire as follows:
|
Tax Jurisdiction
|
| |
Amount in
thousands of USD |
| |
Earliest
year of expiration if not utilized |
| ||||||
|
Singapore
|
| | | | 3,555 | | | | | | Indefinitely | | |
|
Hong Kong
|
| | | | 4,694 | | | | | | Indefinitely | | |
|
United States
|
| | | | 88,438 | | | | | | Indefinitely | | |
| Total | | | | | 96,687 | | | | | | | | |
20. RELATED PARTY TRANSACTIONS
Compensation for key management and Board of Directors
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Salaries and other emoluments
|
| | | | 10,175 | | | | | | 11,627 | | | | | | 11,969 | | |
|
Total
|
| | | | 10,175 | | | | | | 11,627 | | | | | | 11,969 | | |
Balances and transactions with Bitmain and BTC
During the Carve-out Period, the Group and BTC were integrated into the group-wide operation directed by Bitmain before the completion of the Reorganization.
Bitmain’s business model includes a combination of stand-alone and combined business functions between Bitmain, BTC and the Group, varying by service line and country. The consolidated financial statements of the Group include allocations of certain costs between Bitmain, BTC and the Group. Such allocations are estimates, and also may not represent the cost of such services if performed on a stand-alone basis. See further description of cost allocations in Note 2.
The invested capital in the consolidated statements of financial position represents Bitmain’s historical investment in the Group, the net effect of allocations from transactions with Bitmain and BTC, and the Group’s accumulated retained earnings.
Upon completion of the Reorganization, the Group started operating on a stand-alone basis and Bitmain and BTC no longer hold equity interest, exercise significant influence over, or act as an affiliate of the Group and its operations. As a result, Bitmain and BTC ceased to be related parties to the Group.
The activities between the Group and Bitmain and BTC before the completion date of the Reorganization were presented as related party transactions in the consolidated statements of operations and comprehensive income / (loss), cash flows and changes in invested capital and equity for all periods presented.
F-58
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of deemed distribution to related parties to the corresponding amounts presented in the consolidated statement of cash flows for all periods presented is as follows:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Deemed distribution to related parties per consolidated statements of changes in invested capital and equity
|
| | | | (157,557) | | | | | | (29,311) | | | | | | — | | |
|
Corporate allocations
|
| | | | (1,709) | | | | | | (2,167) | | | | | | — | | |
|
Net effect of attribution of the assets and liabilities from Bitmain’s business transferred to the Group during the Reorganization
|
| | | | (235,506) | | | | | | 20,535 | | | | | | — | | |
|
Total deemed distribution to related parties per consolidated statements of cash flows
|
| | | | (394,772) | | | | | | (10,943) | | | | | | — | | |
Balances and transactions with Bitmain and BTC
As of December 31, 2021 and 2022, balances with Bitmain and BTC are nil.
Transactions with Bitmain and BTC before the completion date of the Reorganization were disclosed as below:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Revenue from Bitmain and BTC(1)
|
| | | | 88,054 | | | | | | 73,522 | | | | | | — | | |
(1)
Revenue from Bitmain and BTC arise from the Group’s normal course of business, See Note 2.
Other related party balances and transactions
The following set forth other significant related parties and their relationships with the Group:
|
Name of related parties
|
| |
Relationship with the Group
|
|
| Matrix Finance and Technologies Holding Group and its subsidiaries (“Matrixport Group”) | | | The Group’s controlling person is the co-founder and chairman of the board of directors of Matrixport Group and has significant influence over Matrixport Group. | |
Details of due from related party are as follows:
| | | |
At December 31,
|
| |||||||||
|
In thousands of USD
|
| |
2021
|
| |
2022
|
| ||||||
| Due from related party | | | | | | | | | | | | | |
|
– Trade receivables
|
| | | | 413 | | | | | | 75 | | |
|
– Loans to a related party(1)
|
| | | | 1,087 | | | | | | 322 | | |
|
Total due from related party
|
| | | | 1,500 | | | | | | 397 | | |
| Due to related party | | | | | | | | | | | | | |
|
– Other payables(2)
|
| | | | 19 | | | | | | 316 | | |
|
Total due to related party
|
| | | | 19 | | | | | | 316 | | |
(1)
Loans to a related party represent unsecured, interest-free loans made to the related party. These loans are due on demand.
(2)
Other payables represent the accrued service expense related to the custody and other services provided by the related party.
F-59
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Details of transactions with the related party are as follows:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
– Provide service to a related party
|
| | | | — | | | | | | 530 | | | | | | 3,076 | | |
|
– Receive service from a related party
|
| | | | — | | | | | | 294 | | | | | | 425 | | |
|
– Interest earned from a related party
|
| | | | — | | | | | | 1,552 | | | | | | 1,499 | | |
|
– Return of wealth management products from a related party
|
| | | | — | | | | | | 737 | | | | | | 283 | | |
|
– Changes in fair value of financial assets at fair value through profit or loss
|
| | | | — | | | | | | — | | | | | | (952) | | |
During the years ended December 31, 2020, 2021 and 2022, substantially all of the Group’s cryptocurrencies were held in custody by Matrixport Group, and the Group’s disposal of cryptocurrencies, at spot price on the date of disposal, was primarily to Matrixport Group.
In February 2021, the Group signed a loan agreement with Matrixport Group, pursuant to which the Group agreed to grant a revolving line of credit with a maximum amount of US$20 million charged with an annual interest of 12.5% by the Group, each tranche of credit utilized shall be repaid within 60 days. The credit line has expired, and the loan has been fully repaid in June 2021. The Group received an interest of approximately US$0.8 million associated with the loan.
In July 2022, the Group signed an agreement with Matrixport Group, which is the general partner of a limited partnership set up by the Matrixport Group, to subscribe a limited partner interest in the limited partnership and the capital commitment is amounting to US$20 million. The Group does not have control over the limited partnership. As of December 31, 2022, the capital contribution made by the Group to the limited partnership is US$17 million. The Group recorded approximately US$952,000 loss on change in fair value of financial assets at fair value through profit or loss for the year ended December 31, 2022.
During the years ended December 31, 2021 and 2022, the Group made non-secured lending to, and purchased non-principal guaranteed wealth management products from Matrixport Group in cryptocurrencies. The summary of transactions is as follows:
| | | |
Type of
cryptocurrency |
| |
Amount in
thousands of cryptocurrencies |
| |
Date of
purchase / lending |
| |
Date of
redemption / collection |
| |
Effective
annual yield of return / interest rate |
| |||||||||
|
Loan
|
| | | | USDC | | | | | | 30,000 | | | |
September 8, 2021
|
| |
December 27, 2021
|
| | | | 8.25% | | |
|
Wealth management product – type A
|
| | | | USDT | | | | | | 30,000 | | | |
October 20, 2021
|
| |
December 28, 2021
|
| | | | 13.00% | | |
|
Wealth management product – type A
|
| | | | USDT | | | | | | 80,000 | | | |
January 14, 2022
|
| |
March 27, 2022
|
| | | | 1.00% | | |
|
Loan
|
| | | | USDT | | | | | | 15,000 | | | |
April 1, 2022
|
| |
June 28, 2022
|
| | | | 5.83% | | |
|
Loan
|
| | | | USDC | | | | | | 5,000 | | | |
April 1, 2022
|
| |
June 28, 2022
|
| | | | 7.00% | | |
|
Wealth management product – type A
|
| | | | USDT | | | | | | 10,000 | | | |
April 15, 2022
|
| |
June 17, 2022
|
| | | | 3.06% | | |
|
Loan
|
| | | | USDC | | | | | | 30,000 | | | |
May 12, 2022
|
| |
May 19, 2022
|
| | | | 15.00% | | |
|
Wealth management product – type B
|
| | | | USDT | | | | | | 10,000 | | | |
June 17, 2022
|
| |
June 28, 2022
|
| | | | 5.70% | | |
|
Wealth management product – type B
|
| | | | USDT | | | | | | 50,000 | | | |
June 20, 2022
|
| |
June 28, 2022
|
| | | | 5.92% | | |
|
Loan
|
| | | | USDC | | | | | | 80,000 | | | |
July 1, 2022
|
| |
September 28, 2022
|
| | | | 4.13% | | |
|
Loan
|
| | | | USDC | | | | | | 20,000 | | | |
October 11, 2022
|
| |
December 28, 2022
|
| | | | 3.50% | | |
F-60
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and 2022, the balances of cryptocurrency receivables and embedded derivative were both nil. The change in fair value of the cryptocurrencies lent or invested, and the embedded derivative relating to the wealth management product type A are immaterial as the arrangements are short term in nature and the quoted prices of USDT and USDC are relatively stable.
To facilitate the lending and wealth management products purchases, the Group purchased the aforementioned cryptocurrencies using approximately nil and US$286 million for the years ended December 31, 2021 and 2022, respectively. The total receipts from the collection of lending and redemption of wealth management products were disposed of by the Group for approximately US$61 million and US$302 million during the years ended December 31, 2021 and 2022, respectively.
21. EARNINGS / (LOSS) PER SHARE
The calculation of basic earnings / (loss) per share is based on the profit or loss attributable to ordinary equity shareholders of the Group and the weighted average number of ordinary shares in issue for the year ended December 31, 2021 and 2022.
Diluted earnings / (loss) per share is computed using the weighted average number of ordinary shares and dilutive potential ordinary shares outstanding during the respective periods.
As the Group incurred losses for the year ended December 31, 2022, the potential ordinary shares related to the outstanding share awards exercisable into approximately 1.2 billion ordinary shares and convertible debt convertible into approximately 475 million ordinary shares were not included in the calculation of dilutive loss per share, as their inclusion would be anti-dilutive.
The following reflects the income and share data used in the basic and diluted earnings / (loss) per ordinary share computations:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD, except for the per share data
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
Profit / (loss) attributable to ordinary equity shareholders of the Group
|
| | | | (55,826) | | | | | | 82,643 | | | | | | (60,366) | | |
|
Weighted average number of ordinary shares outstanding (thousand shares)
|
| | | | 12,662,126 | | | | | | 12,662,126 | | | | | | 12,662,126 | | |
|
Basic earnings / (loss) per share (In USD)
|
| | | | (0.00) | | | | | | 0.01 | | | | | | (0.00) | | |
|
Profit / (loss) attributable to ordinary equity shareholders of the Group
|
| | | | (55,826) | | | | | | 82,643 | | | | | | (60,366) | | |
|
Increase in profit attributable to ordinary equity shareholders of the Group resulted from conversion of convertible debt
|
| | | | — | | | | | | 1,223 | | | | | | — | | |
|
Profit / (loss) attributable to ordinary equity shareholders of the Group for diluted EPS
|
| | | | (55,826) | | | | | | 83,866 | | | | | | (60,366) | | |
|
Weighted average number of ordinary shares outstanding (thousand shares)
|
| | | | 12,662,126 | | | | | | 12,662,126 | | | | | | 12,662,126 | | |
| Adjusted for: | | | | | | | | | | | | | | | | | | | |
|
– Assumed conversion of convertible debt
|
| | | | — | | | | | | 210,681 | | | | | | — | | |
|
– Assumed exercise of share awards
|
| | | | — | | | | | | 104,370 | | | | | | — | | |
|
Weighted average number of shares outstanding for diluted EPS (thousand shares)
|
| | | | 12,662,126 | | | | | | 12,977,177 | | | | | | 12,662,126 | | |
|
Diluted earnings / (loss) per share (In USD)
|
| | | | (0.00) | | | | | | 0.01 | | | | | | (0.00) | | |
(1)
Each share of Class A ordinary shares, Series A preferred shares, Series B preferred shares and Series B+ preferred shares is
F-61
BITDEER TECHNOLOGIES HOLDING COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
granted 1 vote and each share of Class B ordinary shares is granted 10 votes. All classes of shares are entitled to dividend and rank pari passu except for voting rights. They are included in the ordinary shares and the shareholders of these preferred shares are referred to as the ordinary equity shareholders in the context of notes and presentations of earnings per share.
22. SUPPLEMENTAL CASH FLOW INFORMATION
The non-cash investing and financing activities are as follows:
| | | |
Years ended December 31,
|
| |||||||||||||||
|
In thousands of USD
|
| |
2020
|
| |
2021
|
| |
2022
|
| |||||||||
|
NON-CASH INVESTING AND FINANCING TRANSACTIONS
|
| | | | | | | | | | | | | | | | | | |
|
Liabilities assumed in connection with acquisition of mining machines from related party
|
| | | | 9,302 | | | | | | — | | | | | | 7,212 | | |
|
Operating lease right-of-use assets obtained in exchange for operating lease liabilities
|
| | | | 1,174 | | | | | | 47,178 | | | | | | 7,270 | | |
|
Payment for purchase of mining machines in form of cryptocurrencies
|
| | | | — | | | | | | 11,986 | | | | | | 4,805 | | |
|
Cryptocurrencies received on behalf of related parties
|
| | | | 6,312 | | | | | | — | | | | | | — | | |
|
Cryptocurrencies paid on behalf of related parties
|
| | | | — | | | | | | 24,852 | | | | | | — | | |
|
Lending made to a third party in form of cryptocurrencies
|
| | | | — | | | | | | 10,222 | | | | | | — | | |
|
Collection of lending from a third party in form of cryptocurrencies
|
| | | | — | | | | | | 6,487 | | | | | | — | | |
|
Lending made to related party in form of cryptocurrencies
|
| | | | — | | | | | | 30,015 | | | | | | 150,025 | | |
|
Collection of lending from related party in form of cryptocurrencies
|
| | | | — | | | | | | 30,735 | | | | | | 151,525 | | |
|
Purchase of wealth management products using cryptocurrencies
|
| | | | — | | | | | | 30,004 | | | | | | 149,972 | | |
|
Redemption of wealth management products in form of cryptocurrencies
|
| | | | — | | | | | | 30,724 | | | | | | 150,268 | | |
|
Receivable on disposal of property, plant and equipment
|
| | | | 850 | | | | | | — | | | | | | — | | |
|
Liabilities assumed in connection with acquisition of property, plant and equipment
|
| | | | 156 | | | | | | 3,494 | | | | | | — | | |
23. SUBSEQUENT EVENTS
In January and April 2023, the Group granted a total of approximately 46,806,000 share awards in two batches to the designated recipients under the 2021 Plan. Each share award grants an option for the recipient to purchase one share of the Group’s ordinary shares at an exercise price of $0.03 per share. The share awards vest in five years, and the recipient shall continue to provide services to the Group by each vesting date.
In April 2023, the Group completed the business combination with BSGA and Bitdeer Technologies Group (“BTG”) via a multiple-merger structure (the “Business Combination”). Upon completion of the Business Combination, both the Group and BSGA became a wholly-owned subsidiary of Bitdeer Technologies Group (“BTG”), the ultimate holding company, and the then issued and outstanding shares of the Group were cancelled in exchange for newly issued shares of BTG at an exchange ratio of approximately 0.00858. The Business Combination is accounted for as a “reverse recapitalization” in accordance with IFRS. Under this method of accounting, the Group will be treated as the accounting acquirer for financial reporting purposes.
There were no other material subsequent events during the period from December 31, 2022 to the approval date of this consolidated financial statements on April 19, 2023.
F-62
Exhibit 1.1
THE COMPANIES ACT (AS REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
BITDEER TECHNOLOGIES GROUP
(Adopted by a Special Resolution passed on March 8, 2023 and effective at the Acquisition Merger Effective Time (as defined herein))
| 1. | The name of the Company is Bitdeer Technologies Group. |
| 2. | The Registered Office of the Company will be at the offices of International Corporation Services Ltd., P.O. Box 472, Harbour Place, 2nd Floor, 103 South Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands, or at such other location within the Cayman Islands as the Directors may from time to time determine. |
| 3. | The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Act or any other law of the Cayman Islands. |
| 4. | The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by the Companies Act. |
| 5. | The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands. |
| 6. | The liability of each Shareholder is limited to the amount, if any, unpaid on the Shares held by such Shareholder. |
| 7. | The authorized share capital of the Company is US$50,000.00 divided into 500,000,000,000 shares of a par value of US$0.0000001 each comprising: |
| (a) | 499,600,000,000 Class A Ordinary Shares of a par value of US$0.0000001 each, |
| (b) | 200,000,000 Class V Ordinary Shares of a par value of US$0.0000001 each, and |
| (c) | 200,000,000 undesignated shares of a par value of US$0.0000001 each, of such class or classes (however designated) as the board of directors may determine in accordance with Articles 8 and 9 of the Articles of Association of the Company. |
Subject to the Companies Act and the Articles, the board of directors shall have power to redeem or purchase any of the Company’s Shares and to increase or reduce its authorized share capital and to sub-divide or consolidate the said Shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be ordinary, preference or otherwise shall be subject to the powers on the part of the board of directors hereinbefore provided.
| 8. | The Company has the power contained in the Companies Act to deregister in the Cayman Islands and be registered by way of continuation in some other jurisdiction. |
| 9. | Capitalized terms that are not defined in this Memorandum of Association bear the same meanings as those given in the Articles of Association of the Company. |
1
THE COMPANIES ACT (AS REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
BITDEER TECHNOLOGIES GROUP
(Adopted by a Special Resolution passed on March 8, 2023 and effective at the Acquisition Merger Effective Time (as defined herein))
TABLE A
The regulations contained or incorporated in Table ‘A’ in the First Schedule of the Companies Act shall not apply to the Company and the following Articles shall comprise the Articles of Association of the Company.
INTERPRETATION
| 1. | In these Articles the following defined terms will have the meanings ascribed to them, if not inconsistent with the subject or context: |
| “Acquisition Merger Effective Time” | means the “Acquisition Merger Effective Time” as defined under the Amended and Restated Agreement and Plan of Merger as of December 15, 2021, by and among Bitdeer Technologies Group, Bitdeer Technologies Holding Company, Blue Safari Group Acquisition Corp., Blue Safari Merge Limited, Blue Safari Merge II Limited, Bitdeer Merge Limited, and Blue Safari Mini Corp., as amended from time to time; |
| “ADS” | means an American Depositary Share representing Ordinary Shares; |
| “Affiliate” | means in respect of a Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and (i) in the case of a natural person, shall include, without limitation, such person’s spouse, parents, children, siblings, mother-in-law, father-in-law, brothers-in-law and sisters-in-law, a trust for the benefit of any of the foregoing, and a corporation, partnership or any other entity wholly or jointly owned by any of the foregoing, and (ii) in the case of an entity, shall include a partnership, a corporation or any other entity or any natural person which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such entity. The term “control” shall mean the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, securities having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity; |
2
| “Articles” | means these articles of association of the Company, as from time to time altered or added to in accordance with the Companies Act and these Articles; |
| “Beneficial Ownership,” “Beneficially Own” | or similar references have the same meaning ascribed to such terms under Rule 13d-3 of the Securities Exchange Act of 1934; |
| “Board” and “Board of Directors” and “Directors” | means the directors of the Company for the time being, or as the case may be, the directors assembled as a board or as a committee thereof; |
| “Chairman” | means the chairman of the Board of Directors; |
| “Class” or “Classes” | means any class or classes of Shares as may from time to time be issued by the Company; |
| “Class A Ordinary Share” | means a Class A Ordinary Share of a par value of US$0.0000001 in the capital of the Company and having the rights provided for in these Articles; |
| “Class V Ordinary Share” | means a Class V Ordinary Share of a par value of US$0.0000001 in the capital of the Company and having the rights provided for in these Articles; |
| “Commission” | means the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act; |
| “Communications Facilities” | means technology (including without limitation video, video-conferencing, internet or online conferencing applications, telephone or tele-conferencing and/or other video-communications, internet or online conferencing application or telecommunications facilities) by which natural persons are capable of hearing and being heard by each other; |
| “Company” | means Bitdeer Technologies Group, a Cayman Islands exempted company; |
| “Companies Act” | means the Companies Act (As Revised) of the Cayman Islands and any statutory amendment or re-enactment thereof; |
| “Company’s Website” | means the main corporate/investor relations website of the Company, the address or domain name of which has been disclosed in any registration statement filed by the Company with the Commission in connection with its initial public offering of ADSs, or which has otherwise been notified to Shareholders; |
| “Depositary” | means an entity appointed to perform the depositary functions under a deposit agreement to which the Company is a party; |
3
| “Designated Stock Exchange” | means the stock exchange in the United States on which any Shares and/or ADSs are listed for trading; |
| “Designated Stock Exchange Rules” | means the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares and/or ADSs on the Designated Stock Exchange; |
| “electronic” | has the meaning given to it in the Electronic Transactions Act and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor; |
| “electronic communication” | means electronic posting to the Company’s Website, transmission to any number, address or internet website or other electronic delivery methods as otherwise decided and approved by not less than two-thirds of the vote of the Board; |
| “Electronic Transactions Act” | means the Electronic Transactions Act (As Revised) of the Cayman Islands and any statutory amendment or re-enactment thereof; |
| “electronic record” | has the meaning given to it in the Electronic Transactions Act and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor; |
| “Founder” | means WU Jihan; |
| “Founder Entities” | means, collectively, (i) Founder, (ii) all limited partnerships, private companies or other vehicles of which more than 50% beneficial ownership or voting power are held directly or indirectly by the Founder, and (iii) a trust controlled by the Founder for the benefit of the Founder or his family, and all limited partnership, private companies or other vehicles wholly owned by such trust , including without limitation, Victory Courage Limited; |
| “Incapacity” |
means, in relation to an individual, that either:
(a) a court of competent jurisdiction has determined that the individual is incapable, by reason of mental disorder, of managing and administering his property and affairs (or the equivalent, applying the relevant test in that jurisdiction); or
(b) in the absence of a determination by a court of competent jurisdiction, an appropriately qualified medical practitioner approved by the Board of Directors has determined in writing that the individual is incapable, by reason of mental disorder, of managing and administering his property and affairs,
(c) and that determination has not been reversed by a court of competent jurisdiction or by the same or another such medical practitioner. The Directors have no duty to enquire into the mental incapacity of any individual unless they have actual knowledge of circumstances which call for enquiry; |
| “Memorandum of Association” | means the memorandum of association of the Company, as amended or substituted from time to time; |
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| “Ordinary Resolution” |
means a resolution:
(a) passed by a simple majority of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorized representatives, at a general meeting of the Company held in accordance with these Articles; or
(b) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed; |
| “Ordinary Shares” | means the Class A Ordinary Shares and the Class V Ordinary Shares; |
| “paid up” | means paid up as to the par value in respect of the issue of any Shares and includes credited as paid up; |
| “Person” | means any natural person, firm, company, joint venture, partnership, corporation, association or other entity (whether or not having a separate legal personality) or any of them as the context so requires; |
| “Present” | means, in respect of any Person, such Person's presence at a general meeting of Shareholders, which may be satisfied by means of such Person or, if a corporation or other non-natural Person, its duly authorized representative (or, in the case of any Shareholder, a proxy which has been validly appointed by such Shareholder in accordance with these Articles), being: (a) physically present at the venue specified in the notice convening the meeting; or (b) in the case of any meeting at which Communications Facilities are permitted in accordance with these Articles, including any Virtual Meeting, connected by Communication Facilities in accordance with procedures specified in the notice convening such general meeting; and "Presence" shall be construed accordingly; |
| “RADSs” | means ADSs of the Company subject to transfer restrictions imposed pursuant to the deposit agreement under which such ADSs are issued; |
| “Register” | means the register of Members of the Company maintained in accordance with the Companies Act; |
| “Registered Office” | means the registered office of the Company as required by the Companies Act; |
| “Seal” | means the common seal of the Company (if adopted) including any facsimile thereof; |
| “Secretary” | means any Person appointed by the Directors to perform any of the duties of the secretary of the Company; |
| “Securities Act” | means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time; |
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| “Share” | means a share in the capital of the Company. All references to “Shares” herein shall be deemed to be Shares of any or all Classes as the context may require. For the avoidance of doubt in these Articles the expression “Share” shall include a fraction of a Share; |
| “Shareholder” or “Member” | means a Person who is registered as the holder of one or more Shares in the Register; |
| “Share Premium Account” | means the share premium account established in accordance with these Articles and the Companies Act; |
| “signed” | means bearing a signature or representation of a signature affixed by mechanical means or an electronic symbol or process attached to or logically associated with an electronic communication and executed or adopted by a Person with the intent to sign the electronic communication; |
| “Special Resolution” |
means a special resolution of the Company passed in accordance with the Companies Act, being a resolution:
(a) passed by not less than two-thirds of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorized representatives, at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given; or
(b) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed; |
| “Treasury Share” | means a Share held in the name of the Company as a treasury share in accordance with the Companies Act; |
| “United States” | means the United States of America, its territories, its possessions and all areas subject to its jurisdiction; and |
| “Virtual Meeting” | means any general meeting of the Shareholders at which the Shareholders (and any other permitted participants of such meeting, including without limitation the chairman of the meeting and any Directors) are permitted to be Present solely by means of Communications Facilities. |
| 2. | In these Articles, save where the context requires otherwise: |
| (a) | words importing the singular number shall include the plural number and vice versa; |
| (b) | words importing the masculine gender only shall include the feminine gender and any Person as the context may require; |
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| (c) | the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative; |
| (d) | reference to a dollar or dollars (or US$) and to a cent or cents is reference to dollars and cents of the United States of America; |
| (e) | reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force; |
| (f) | reference to any determination by the Directors shall be construed as a determination by the Directors in their sole and absolute discretion and shall be applicable either generally or in any particular case; |
| (g) | reference to “in writing” shall be construed as written or represented by any means reproducible in writing, including any form of print, lithograph, email, facsimile, photograph or telex or represented by any other substitute or format for storage or transmission for writing including in the form of an electronic record or partly one and partly another; |
| (h) | any requirements as to delivery under the Articles include delivery in the form of an electronic record or an electronic communication; |
| (i) | any requirements as to execution or signature under the Articles, including the execution of the Articles themselves, can be satisfied in the form of an electronic signature as defined in the Electronic Transaction Act; and |
| (j) | Sections 8 and 19(3) of the Electronic Transactions Act shall not apply. |
| 3. | Subject to the last two preceding Articles, any words defined in the Companies Act shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. |
PRELIMINARY
| 4. | The business of the Company may be conducted as the Directors see fit. |
| 5. | The Registered Office shall be at such address in the Cayman Islands as the Directors may from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine. |
| 6. | The expenses incurred in the formation of the Company and in connection with the offer for subscription and issue of Shares shall be paid by the Company. Such expenses may be amortized over such period as the Directors may determine and the amount so paid shall be charged against income and/or capital in the accounts of the Company as the Directors shall determine. |
| 7. | The Directors shall keep, or cause to be kept, the Register at such place as the Directors may from time to time determine and, in the absence of any such determination, the Register shall be kept at the Registered Office. |
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SHARES
| 8. | Subject to these Articles, all Shares for the time being unissued shall be under the control of the Directors who may, in their absolute discretion and without the approval of the Members, cause the Company to: |
| (a) | issue, allot and dispose of Shares (including, without limitation, preferred shares) (whether in certificated form or non-certificated form) to such Persons, in such manner, on such terms and having such rights and being subject to such restrictions as they may from time to time determine; |
| (b) | grant rights over Shares or other securities to be issued in one or more classes or series as they deem necessary or appropriate and determine the designations, powers, preferences, privileges and other rights attaching to such Shares or securities, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers, preferences, privileges and rights associated with the then issued and outstanding Shares, at such times and on such other terms as they think proper; and |
| (c) | grant options with respect to Shares and issue warrants or similar instruments with respect thereto. |
| 9. | The Directors may authorize the division of Shares into any number of Classes and the different Classes shall be authorized, established and designated (or re-designated as the case may be) and the variations in the relative rights (including, without limitation, voting, dividend and redemption rights), restrictions, preferences, privileges and payment obligations as between the different Classes (if any) may be fixed and determined by the Directors or by a Special Resolution. The Directors may issue Shares with such preferred or other rights, all or any of which may be greater than the rights of Ordinary Shares, at such time and on such terms as they may think appropriate. Notwithstanding Article 17, the Directors may issue from time to time, out of the authorized share capital of the Company (other than the authorized but unissued Ordinary Shares), series of preferred shares in their absolute discretion and without approval of the Members; provided, however, before any preferred shares of any such series are issued, the Directors shall by resolution of Directors determine, with respect to any series of preferred shares, the terms and rights of that series, including: |
| (a) | the designation of such series, the number of preferred shares to constitute such series and the subscription price thereof if different from the par value thereof; |
| (b) | whether the preferred shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited; |
| (c) | the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of any other class or any other series of shares; |
| (d) | whether the preferred shares of such series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption; |
| (e) | whether the preferred shares of such series shall have any rights to receive any part of the assets available for distribution amongst the Members upon the liquidation of the Company, and, if so, the terms of such liquidation preference, and the relation which such liquidation preference shall bear to the entitlements of the holders of shares of any other class or any other series of shares; |
| (f) | whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; |
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| (g) | whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or any other series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; |
| (h) | the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of, the existing shares or shares of any other class of shares or any other series of preferred shares; |
| (i) | the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional shares, including additional shares of such series or of any other class of shares or any other series of preferred shares; and |
| (j) | any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof; |
and, for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued. The Company shall not issue Shares to bearer.
| 10. | The Company may insofar as may be permitted by law, pay a commission to any Person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares. Such commissions may be satisfied by the payment of cash or the lodgment of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also pay such brokerage as may be lawful on any issue of Shares. |
| 11. | The Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason. |
CLASS A ORDINARY SHARES AND CLASS V ORDINARY SHARES
| 12. | Subject to Article 18, holders of Class A Ordinary Shares and Class V Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members. Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings or class meetings of the Company, and each Class V Ordinary Share shall entitle the holder thereof to ten (10) votes on all matters subject to vote at general meetings or class meetings of the Company. |
| 13. | Class V Ordinary Shares shall only be held by Founder Entities; provided, however, the Class V Ordinary Shares are deemed to be “held by Founder Entities” if the Depositary holds Class V Ordinary Shares and issues RADSs to Founder Entities representing such Class V Ordinary Shares. Each Class V Ordinary Share shall automatically convert into one (1) Class A Ordinary Share in accordance with these Articles (as adjusted for share splits, share combinations and similar transactions) on any transfer by a Founder Entity to a Person (that is not a Founder Entity) of any Beneficial Ownership of, or economic interest in, such Class V Ordinary Share or the control over the voting rights attached to such Class V Ordinary Share (through any contracts, voting proxies or otherwise); provided, however, that on the grant by a Founder Entity of any lien, charge, mortgage or other encumbrance (a “Security Interest”) over the Class V Ordinary Shares held by it, unless and until the legal ownership of such shares is transferred pursuant to such Security Interest (including any enforcement or foreclosure in connection therewith). |
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| 14. | Each Class V Ordinary Share is convertible into one (1) Class A Ordinary Share (as adjusted for share splits, share combinations and similar transactions) at any time at the option of the holder thereof. |
| 15. | Each Class V Ordinary Share held by a Founder Entity shall automatically convert into one (1) Class A Ordinary Share in accordance with these Articles (as adjusted for share splits, share combinations and similar transactions) upon the death or Incapacity of the Founder. |
| 16. | Any conversion of Class V Ordinary Shares into Class A Ordinary Shares pursuant to these Articles shall be effected by means of the re-designation of each relevant Class V Ordinary Share as a Class A Ordinary Share. Such conversion shall become effective forthwith upon entries being made in the Register to record the re-designation of the relevant Class V Ordinary Shares as Class A Ordinary Shares. |
| 17. | Save and except for voting rights and conversion rights as set out in Articles 12 to 15 (inclusive), the Class A Ordinary Shares and the Class V Ordinary Shares shall rank pari passu with one another and shall have the same rights, preferences, privileges and restrictions. |
MODIFICATION OF RIGHTS
| 18. | Whenever the capital of the Company is divided into different Classes, the rights attached to any such Class (unless otherwise provided by the terms of issue of the Shares of that Class), whether or not the Company is being wound-up, may be varied with the consent in writing of the holders of two-thirds of the issued Shares of that Class or with the sanction of a Special Resolution passed at a separate meeting of the holders of the Shares of that Class. To every such separate meeting all the provisions of these Articles relating to general meetings of the Company or to the proceedings thereat shall, mutatis mutandis, apply, except that the necessary quorum shall be one or more Persons holding or representing by proxy at least one-third in nominal or par value amount of the issued Shares of the relevant Class (but so that if at any adjourned meeting of such holders a quorum as above defined is not present, those Shareholders who are present shall form a quorum) and that, subject to any rights or restrictions for the time being attached to the Shares of that Class, every Shareholder of the Class shall on a poll have one vote for each Share of the Class held by him. For the purposes of this Article the Directors may treat all the Classes or any two or more Classes as forming one Class if they consider that all such Classes would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate Classes. Notwithstanding anything to the contrary in this Article 18, if holders of Class A Ordinary Shares and Class V Ordinary Shares vote as one class, each Class A Ordinary Share shall entitle the holder thereof to one (1) vote and each Class V Ordinary Share shall entitle the holder thereof to ten (10) votes on all matters subject to vote at meetings of the holders of Shares of the relevant Class(es). |
| 19. | The rights conferred upon the holders of the Shares of any Class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issuance of the Shares of that Class, be deemed to be varied by, inter alia, the creation or issue of further Shares ranking pari passu with or subsequent to such existing Class of Shares, or the redemption or purchase of any Shares of any Class by the Company. The rights of the holders of Shares shall not be deemed to be varied by the creation or issue of Shares with preferred or other rights including, without limitation, the creation of Shares with enhanced or weighted voting rights. |
CERTIFICATES
| 20. | Every Person whose name is entered as a Member in the Register may, without payment and upon its written request, request a certificate within two calendar months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) in the form determined by the Directors. All certificates shall specify the Share or Shares held by that Person, provided that in respect of a Share or Shares held jointly by several Persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a Share to one of several joint holders shall be sufficient delivery to all. All certificates for Shares shall be delivered personally or sent through the post addressed to the Member entitled thereto at the Member’s registered address as appearing in the Register. |
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| 21. | Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act. |
| 22. | Any two or more certificates representing Shares of any one Class held by any Member may at the Member’s request be cancelled and a single new certificate for such Shares issued in lieu on payment (if the Directors shall so require) of one U.S. dollar (US$1.00) or such smaller sum as the Directors shall determine. |
| 23. | If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed, a new certificate representing the same Shares may be issued to the relevant Member upon request, subject to delivery up of the old certificate or (if alleged to have been lost, stolen or destroyed) compliance with such conditions as to evidence and indemnity and the payment of out-of-pocket expenses of the Company in connection with the request as the Directors may think fit. |
| 24. | In the event that Shares are held jointly by several Persons, any request may be made by any one of the joint holders and if so made shall be binding on all of the joint holders. |
FRACTIONAL SHARES
| 25. | The Directors may issue fractions of a Share and, if so issued, a fraction of a Share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contributions, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without prejudice to the generality of the foregoing, voting and participation rights) and other attributes of a whole Share. If more than one fraction of a Share of the same Class is issued to or acquired by the same Shareholder such fractions shall be accumulated. |
LIEN
| 26. | The Company has a first and paramount lien on every Share (whether or not fully paid) for all amounts (whether presently payable or not) payable at a fixed time or called in respect of that Share. The Company also has a first and paramount lien on every Share registered in the name of a Person indebted or under liability to the Company (whether he is the sole registered holder of a Share or one of two or more joint holders) for all amounts owing by him or his estate to the Company (whether or not presently payable). The Directors may at any time declare a Share to be wholly or in part exempt from the provisions of this Article. The Company’s lien on a Share extends to any amount payable in respect of it, including but not limited to dividends. |
| 27. | The Company may sell, in such manner as the Directors in their absolute discretion think fit, any Share on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of fourteen calendar days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the Share, or the Persons entitled thereto by reason of his death or bankruptcy. |
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| 28. | For giving effect to any such sale the Directors may authorize a Person to transfer the Shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the Shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. |
| 29. | The proceeds of the sale after deduction of expenses, fees and commissions incurred by the Company shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the Shares prior to the sale) be paid to the Person entitled to the Shares immediately prior to the sale. |
CALLS ON SHARES
| 30. | Subject to the terms of the allotment, the Directors may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their Shares, and each Shareholder shall (subject to receiving at least fourteen calendar days’ notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on such Shares. A call shall be deemed to have been made at the time when the resolution of the Directors authorizing such call was passed. |
| 31. | The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof. |
| 32. | If a sum called in respect of a Share is not paid before or on the day appointed for payment thereof, the Person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part. |
| 33. | The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the amount of the Share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified. |
| 34. | The Directors may make arrangements with respect to the issue of partly paid Shares for a difference between the Shareholders, or the particular Shares, in the amount of calls to be paid and in the times of payment. |
| 35. | The Directors may, if they think fit, receive from any Shareholder willing to advance the same all or any part of the moneys uncalled and unpaid upon any partly paid Shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction of an Ordinary Resolution, eight percent per annum) as may be agreed upon between the Shareholder paying the sum in advance and the Directors. No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable. |
FORFEITURE OF SHARES
| 36. | If a Shareholder fails to pay any call or instalment of a call in respect of partly paid Shares on the day appointed for payment, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued. |
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| 37. | The notice shall name a further day (not earlier than the expiration of fourteen calendar days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the Shares in respect of which the call was made will be liable to be forfeited. |
| 38. | If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect. |
| 39. | A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit. |
| 40. | A Person whose Shares have been forfeited shall cease to be a Shareholder in respect of the forfeited Shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the Shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount unpaid on the Shares forfeited. |
| 41. | A certificate in writing under the hand of a Director that a Share has been duly forfeited on a date stated in the certificate shall be conclusive evidence of the facts in the declaration as against all Persons claiming to be entitled to the Share. |
| 42. | The Company may receive the consideration, if any, given for a Share on any sale or disposition thereof pursuant to the provisions of these Articles as to forfeiture and may execute a transfer of the Share in favor of the Person to whom the Share is sold or disposed of and that Person shall be registered as the holder of the Share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the disposition or sale. |
| 43. | The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a Share becomes due and payable, whether on account of the amount of the Share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified. |
TRANSFER OF SHARES
| 44. | The instrument of transfer of any Share shall be in writing and in any usual or common form or such other form as the Directors may, in their absolute discretion, approve and be executed by or on behalf of the transferor and if in respect of a nil or partly paid up Share, or if so required by the Directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the Shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a Shareholder until the name of the transferee is entered in the Register in respect of the relevant Shares. |
| 45. | (a) | The Directors may in their absolute discretion decline to register any transfer of Shares which is not fully paid up or on which the Company has a lien. |
| (b) | The Directors may also decline to register any transfer of any Share unless: |
| (i) | the instrument of transfer is lodged with the Company, accompanied by the certificate for the Shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; |
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| (ii) | the instrument of transfer is in respect of only one Class of Shares; |
| (iii) | the instrument of transfer is properly stamped, if required; |
| (iv) | in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four; and |
| (v) | a fee of such maximum sum as the Designated Stock Exchange may determine to be payable, or such lesser sum as the Board of Directors may from time to time require, is paid to the Company in respect thereof. |
| 46. | The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers, by electronic means or by any other means in accordance with the Designated Stock Exchange Rules, be suspended and the Register closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the Register closed for more than thirty calendar days in any calendar year. |
| 47. | All instruments of transfer that are registered shall be retained by the Company. If the Directors refuse to register a transfer of any Shares, they shall within three calendar months after the date on which the transfer was lodged with the Company send notice of the refusal to each of the transferor and the transferee. |
TRANSMISSION OF SHARES
| 48. | The legal personal representative of a deceased sole holder of a Share shall be the only Person recognized by the Company as having any title to the Share. In the case of a Share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only Person recognized by the Company as having any title to the Share. |
| 49. | Any Person becoming entitled to a Share in consequence of the death or bankruptcy of a Shareholder shall, upon such evidence being produced as may from time to time be required by the Directors, have the right either to be registered as a Shareholder in respect of the Share or, instead of being registered himself, to make such transfer of the Share as the deceased or bankrupt Person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the deceased or bankrupt Person before the death or bankruptcy. |
| 50. | A Person becoming entitled to a Share by reason of the death or bankruptcy of a Shareholder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered Shareholder, except that he shall not, before being registered as a Shareholder in respect of the Share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company, provided however, that the Directors may at any time give notice requiring any such Person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within ninety calendar days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with. |
REGISTRATION OF EMPOWERING INSTRUMENTS
| 51. | The Company shall be entitled to charge a fee not exceeding one U.S. dollar (US$1.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument. |
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ALTERATION OF SHARE CAPITAL
| 52. | The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into Shares of such Classes and amount, as the resolution shall prescribe. |
| 53. | The Company may by Ordinary Resolution: |
| (a) | increase its share capital by new Shares of such amount as it thinks expedient; |
| (b) | consolidate and divide all or any of its share capital into Shares of a larger amount than its existing Shares; |
| (c) | subdivide its Shares, or any of them, into Shares of an amount smaller than that fixed by the Memorandum, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in case of the Share from which the reduced Share is derived; and |
| (d) | cancel any Shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any Person and diminish the amount of its share capital by the amount of the Shares so cancelled. |
| 54. | The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorized by law. |
REDEMPTION, PURCHASE AND SURRENDER OF SHARES
| 55. | Subject to the provisions of the Companies Act and these Articles, the Company may: |
| (a) | issue Shares that are to be redeemed or are liable to be redeemed at the option of the Shareholder or the Company. The redemption of Shares shall be effected in such manner and upon such terms as may be determined, before the issue of such Shares, by either the Board or by the Shareholders by Special Resolution; |
| (b) | purchase its own Shares (including any redeemable Shares) on such terms and in such manner and terms as have been approved by the Board or by the Members by Ordinary Resolution, or are otherwise authorized by these Articles; and |
| (c) | make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Companies Act, including out of capital. |
| 56. | The purchase of any Share shall not oblige the Company to purchase any other Share other than as may be required pursuant to applicable law and any other contractual obligations of the Company. |
| 57. | The holder of the Shares being purchased shall be bound to deliver up to the Company the certificate(s) (if any) thereof for cancellation and thereupon the Company shall pay to him the purchase or redemption monies or consideration in respect thereof. |
| 58. | The Directors may accept the surrender for no consideration of any fully paid Share. |
TREASURY SHARES
| 59. | The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share. |
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| 60. | The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration). |
GENERAL MEETINGS
| 61. | All general meetings other than annual general meetings shall be called extraordinary general meetings. |
| 62. | (a) | The Company may (but shall not be obliged to) in each calendar year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as may be determined by the Directors. |
| (b) | At these meetings the report of the Directors (if any) shall be presented. |
| 63. | (a) | The Chairman or a majority of the Directors may call general meetings, and they shall on a Shareholders’ requisition forthwith proceed to convene an extraordinary general meeting of the Company. |
| (b) | A Shareholders' requisition is a requisition of Members holding at the date of deposit of the requisition Shares which carry in aggregate not less than one-third (1/3) of all votes attaching to all issued and outstanding Shares of the Company that as at the date of the deposit carry the right to vote at general meetings of the Company. |
| (c) | The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists. |
| (d) | If there are no Directors as at the date of the deposit of the Shareholders’ requisition, or if the Directors do not within twenty-one calendar days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one calendar days, the requisitionists, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three calendar months after the expiration of the said twenty-one calendar days. |
| (e) | A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. |
NOTICE OF GENERAL MEETINGS
| 64. | At least ten (10) calendar days’ notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place (except in the case of a Virtual Meeting), the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of these Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed: |
| (a) | in the case of an annual general meeting, by all the Shareholders (or their proxies) entitled to attend and vote thereat; and |
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| (b) | in the case of an extraordinary general meeting, by two-thirds (2/3rd) of the Shareholders having a right to attend and vote at the meeting, Present at the meeting. |
| 65. | The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting. |
PROCEEDINGS AT GENERAL MEETINGS
| 66. | No business except for the appointment of a chairman for the meeting shall be transacted at any general meeting unless a quorum of Shareholders is Present at the time when the meeting proceeds to business. One or more Shareholders holding Shares which carry in aggregate (or representing by proxy) not less than fifty percent (50%) of all votes attaching to all Shares in issue and entitled to vote at such general meeting, Present at the meeting, shall be a quorum for all purposes. |
| 67. | If within half an hour from the time appointed for the meeting a quorum is not Present, the meeting shall be dissolved. |
| 68. | If the Directors so determine in respect of a specific general meeting or all general meetings of the Company, Presence at the relevant general meeting may be by means of Communications Facilities. The Directors may determine that any general meeting may be held as a Virtual Meeting. The notice of any general meeting at which Communications Facilities may be utilized (including any Virtual Meeting) must disclose the Communications Facilities that will be used, including the procedures to be followed by any Shareholder or other participant of the general meeting utilizing such Communications Facilities. |
| 69. | The Chairman, if any, shall preside as chairman at every general meeting of the Company. |
| 70. | If there is no such Chairman, or if at any general meeting he is not Present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman of the meeting, any Director or Person nominated by the Directors shall preside as chairman of that meeting, failing which the Shareholders Present shall choose any Person Present to be chairman of that meeting. |
| 71. | The chairman of any general meeting shall be entitled to participate at any such general meeting by Communication Facilities, and to act as the chairman of such general meeting, in which event the following provisions shall apply: |
| (a) | the chairman shall be deemed to be Present at the general meeting; and |
| (b) | if the Communication Facilities fail to enable the chairman of the general meeting to hear and be heard by other Persons participating in the meeting, then the other Directors Present at the general meeting shall choose another Director Present to act as chairman of the general meeting for (or for the remainder of) the general meeting; provided that if no other Director is Present at the general meeting, or if all the Directors Present decline to take the chair, then the general meeting shall be automatically adjourned to the same day in the next week and at such time and place as shall be decided by the Directors. |
| 72. | The chairman of any general meeting at which a quorum is Present may with the consent of the meeting (and shall if so directed by the meeting) adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting, or adjourned meeting, is adjourned for fourteen calendar days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. |
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| 73. | The Directors may cancel or postpone any duly convened general meeting at any time prior to such meeting, except for general meetings requisitioned by the Shareholders in accordance with these Articles, for any reason or for no reason, upon notice in writing to Shareholders. A postponement may be for a stated period of any length or indefinitely as the Directors may determine. |
| 74. | At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman of the meeting or any Shareholder holding not less than ten per cent (10%) of the votes attaching to the Shares Present at the meeting, and unless a poll is so demanded, a declaration by the chairman of the meeting that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of, or against, that resolution. |
| 75. | If a poll is duly demanded it shall be taken in such manner as the chairman of the meeting directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. |
| 76. | All questions submitted to a meeting shall be decided by an Ordinary Resolution except where a greater majority is required by these Articles or by the Companies Act. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote. |
| 77. | A poll demanded on the election of a chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs. |
VOTES OF SHAREHOLDERS
| 78. | Subject to any rights and restrictions for the time being attached to any Share, at a general meeting of the Company, (i) on a show of hands and/or (ii) on a poll, every Shareholder Present at the meeting shall have one (1) vote for each Class A Ordinary Share and ten (10) votes for each Class V Ordinary Share of which such Shareholder is the holder, as provided in Article 12. |
| 79. | In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy (or, if a corporation or other non-natural person, by its duly authorized representative or proxy) shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register. |
| 80. | Shares carrying the right to vote that are held by a Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may be voted, whether on a show of hands or on a poll, by his committee, or other Person in the nature of a committee appointed by that court, and any such committee or other Person may vote in respect of such Shares by proxy. |
| 81. | No Shareholder shall be entitled to vote at any general meeting of the Company unless all calls, if any, or other sums presently payable by him in respect of Shares carrying the right to vote held by him have been paid. |
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| 82. | On a poll votes may be given either personally or by proxy. |
| 83. | Each Shareholder, other than a recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)), may only appoint one proxy on a show of hand. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under Seal or under the hand of an officer or attorney duly authorized. A proxy need not be a Shareholder. |
| 84. | An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve. |
| 85. | The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company: |
| (a) | not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote; or |
| (b) | in the case of a poll taken more than 48 hours after it is demanded, be deposited as aforesaid after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll; or |
| (c) | where the poll is not taken forthwith but is taken not more than 48 hours after it was demanded be delivered at the meeting at which the poll was demanded to the chairman of the meeting or to the secretary or to any Director; |
provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company, direct that the instrument appointing a proxy may be deposited at such other time (no later than the time for holding the meeting or adjourned meeting) at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company. The chairman of the meeting may in any event at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted shall be invalid.
| 86. | The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. |
| 87. | A resolution in writing signed by all the Shareholders for the time being entitled to receive notice of and to attend and vote at general meetings of the Company (or being corporations by their duly authorized representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. |
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS
| 88. | Any corporation which is a Shareholder or a Director may by resolution of its directors or other governing body authorize such Person as it thinks fit to act as its representative at any meeting of the Company or of any meeting of holders of a Class or of the Directors or of a committee of Directors, and the Person so authorized shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholder or Director. |
DEPOSITARY AND CLEARING HOUSES
| 89. | If a recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) is a Member of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorize such Person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any Class of Shareholders provided that, if more than one Person is so authorized, the authorization shall specify the number and Class of Shares in respect of which each such Person is so authorized. A Person so authorized pursuant to this Article shall be entitled to exercise the same powers on behalf of the recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) which he represents as that recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) could exercise if it were an individual Member holding the number and Class of Shares specified in such authorization, including the right to vote individually on a show of hands. |
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DIRECTORS
| 90. | Unless otherwise determined by the Company in general meeting, the number of Directors shall be no less than three (3) and no more than twelve (12). The Directors shall be appointed and removed as follows: |
| 90.1 | The Company may by Ordinary Resolution appoint any person to be a Director. |
| 90.2 | The Board may, by the affirmative vote of a simple majority of the Directors present and voting at a Board meeting, appoint any person as a Director, to fill a casual vacancy on the Board or as an addition to the existing Board. |
| 90.3 | An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the Company and the Director, if any; but no such term shall be implied in the absence of express provision. Each Director whose term of office expires shall be eligible for re-election at a meeting of the Shareholders or re-appointment by the Board. |
| 90.4 | A Director may be removed from office by Ordinary Resolution, notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement). A vacancy on the Board created by the removal of a Director under the previous sentence may be filled by Ordinary Resolution or by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting. |
| 91. | The Board of Directors may elect and appoint a Chairman by a majority of the Directors then in office. The period for which the Chairman will hold office will also be determined by a majority of all of the Directors then in office. The Chairman shall preside as chairman at every meeting of the Board of Directors. To the extent the Chairman is not present at a meeting of the Board of Directors within fifteen minutes after the time appointed for holding the same, the attending Directors may choose one of their number to be the chairman of the meeting. |
| 92. | The Board may, from time to time, and except as required by applicable law or Designated Stock Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives of the Company and determine on various corporate governance related matters of the Company as the Board shall determine by resolution of Directors from time to time. |
| 93. | A Director shall not be required to hold any Shares in the Company by way of qualification. A Director who is not a Member of the Company shall nevertheless be entitled to attend and speak at general meetings. |
| 94. | The remuneration of the Directors may be determined by the Directors or by Ordinary Resolution. |
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| 95. | The Directors shall be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive such fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other. |
ALTERNATE DIRECTOR OR PROXY
| 96. | Any Director may in writing appoint another Person to be his alternate and, save to the extent provided otherwise in the form of appointment, such alternate shall have authority to sign written resolutions on behalf of the appointing Director, but shall not be required to sign such written resolutions where they have been signed by the appointing director, and to act in such Director’s place at any meeting of the Directors at which the appointing Director is unable to be present. Every such alternate shall be entitled to attend and vote at meetings of the Directors as a Director when the Director appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall be deemed for all purposes to be a Director and shall not be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them. |
| 97. | Any Director may appoint any Person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting. |
POWERS AND DUTIES OF DIRECTORS
| 98. | Subject to the Companies Act, these Articles and to any resolutions passed in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution passed by the Company in general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been passed. |
| 99. | Subject to these Articles, the Directors may from time to time appoint any natural person or corporation, whether or not a Director to hold such office in the Company as the Directors may think necessary for the administration of the Company, including but not limited to, chief executive officer, one or more other executive officers, president, one or more vice presidents, treasurer, assistant treasurer, manager or controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. Any natural person or corporation so appointed by the Directors may be removed by the Directors. The Directors may also appoint one or more of their number to the office of managing director upon like terms, but any such appointment shall ipso facto terminate if any managing director ceases for any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated. |
| 100. | The Directors may appoint any natural person or corporation to be a Secretary (and if need be an assistant Secretary or assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or assistant Secretary so appointed by the Directors may be removed by the Directors or by the Company by Ordinary Resolution. |
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| 101. | The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. |
| 102. | The Directors may from time to time and at any time by power of attorney (whether under Seal or under hand) or otherwise appoint any company, firm or Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys or authorized signatory (any such person being an “Attorney” or “Authorized Signatory”, respectively) of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such Attorney or Authorized Signatory as the Directors may think fit, and may also authorize any such Attorney or Authorized Signatory to delegate all or any of the powers, authorities and discretion vested in him. |
| 103. | The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following Articles shall not limit the general powers conferred by this Article. |
| 104. | The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any natural person or corporation to be a member of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any such natural person or corporation. |
| 105. | The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorize the members for the time being of any such local board, or any of them to fill any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any natural person or corporation so appointed and may annul or vary any such delegation, but no Person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. |
| 106. | Any such delegates as aforesaid may be authorized by the Directors to sub-delegate all or any of the powers, authorities, and discretion for the time being vested in them. |
BORROWING POWERS OF DIRECTORS
| 107. | The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. |
THE SEAL
| 108. | The Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixing of the Seal. The Seal shall be affixed in the presence of a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose and every Person as aforesaid shall sign every instrument to which the Seal is so affixed in their presence. |
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| 109. | The Company may maintain a facsimile of the Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixing of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such Person or Persons as the Directors shall for this purpose appoint and such Person or Persons as aforesaid shall sign every instrument to which the facsimile Seal is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Seal had been affixed in the presence of and the instrument signed by a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose. |
| 110. | Notwithstanding the foregoing, a Secretary or any assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company. |
DISQUALIFICATION OF DIRECTORS
| 111. | The office of Director shall be vacated, if the Director: |
| (a) | becomes bankrupt or makes any arrangement or composition with his creditors; |
| (b) | dies or is found to be or becomes of unsound mind; |
| (c) | resigns his office by notice in writing to the Company; |
| (d) | without special leave of absence from the Board, is absent from meetings of the Board for three consecutive meetings and the Board resolves that his office be vacated; or |
| (e) | is removed from office pursuant to any other provision of these Articles. |
PROCEEDINGS OF DIRECTORS
| 112. | The Directors may meet together (either within or outside of the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. At any meeting of the Directors, each Director present in person or represented by his proxy or alternate shall be entitled to one vote. In case of an equality of votes the Chairman shall have a second or casting vote. A Director may, and a Secretary or assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. |
| 113. | A Director may participate in any meeting of the Directors, or of any committee appointed by the Directors of which such Director is a member, by means of telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting. |
| 114. | The quorum necessary for the transaction of the business of the Board may be fixed by the Directors, and unless so fixed, the quorum shall be a majority of Directors then in office. A Director represented by proxy or by an alternate Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present. |
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| 115. | A Director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated. A Director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or transaction or proposed contract or transaction shall come before the meeting for consideration. |
| 116. | A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting of the Directors whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement. |
| 117. | Any Director may act by himself or through his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorize a Director or his firm to act as auditor to the Company. |
| 118. | The Directors shall cause minutes to be made for the purpose of recording: |
| (a) | all appointments of officers made by the Directors; |
| (b) | the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and |
| (c) | all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors. |
| 119. | When the chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings. |
| 120. | A resolution in writing signed by all the Directors or all the members of a committee of Directors entitled to receive notice of a meeting of Directors or committee of Directors, as the case may be (an alternate Director, subject as provided otherwise in the terms of appointment of the alternate Director, being entitled to sign such a resolution on behalf of his appointer), shall be as valid and effectual as if it had been passed at a duly called and constituted meeting of Directors or committee of Directors, as the case may be. When signed a resolution may consist of several documents each signed by one or more of the Directors or his duly appointed alternate. |
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| 121. | The continuing Directors may act notwithstanding any vacancy in their body but if and for so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose. |
| 122. | Subject to any regulations imposed on it by the Directors, a committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within fifteen minutes after the time appointed for holding the meeting, the committee members present may choose one of their number to be chairman of the meeting. |
| 123. | A committee appointed by the Directors may meet and adjourn as it thinks proper. Subject to any regulations imposed on it by the Directors, questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall have a second or casting vote. |
| 124. | All acts done by any meeting of the Directors or of a committee of Directors, or by any Person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or Person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and was qualified to be a Director. |
PRESUMPTION OF ASSENT
| 125. | A Director who is present at a meeting of the Board of Directors at which an action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. |
DIVIDENDS
| 126. | Subject to any rights and restrictions for the time being attached to any Shares, the Directors may from time to time declare dividends (including interim dividends) and other distributions on Shares in issue and authorize payment of the same out of the funds of the Company lawfully available therefor. |
| 127. | Subject to any rights and restrictions for the time being attached to any Shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors. |
| 128. | The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of the Directors, be applicable for meeting contingencies or for equalizing dividends or for any other purpose to which those funds may be properly applied, and pending such application may in the absolute discretion of the Directors, either be employed in the business of the Company or be invested in such investments (other than Shares of the Company) as the Directors may from time to time think fit. |
| 129. | Any dividend payable in cash to the holder of Shares may be paid in any manner determined by the Directors. If paid by cheque it will be sent by mail addressed to the holder at his address in the Register, or addressed to such person and at such addresses as the holder may direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the Register in respect of such Shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. |
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| 130. | The Directors may determine that a dividend shall be paid wholly or partly by the distribution of specific assets (which may consist of the shares or securities of any other company) and may settle all questions concerning such distribution. Without limiting the generality of the foregoing, the Directors may fix the value of such specific assets, may determine that cash payment shall be made to some Shareholders in lieu of specific assets and may vest any such specific assets in trustees on such terms as the Directors think fit. |
| 131. | Subject to any rights and restrictions for the time being attached to any Shares, all dividends shall be declared and paid according to the amounts paid up on the Shares, but if and for so long as nothing is paid up on any of the Shares dividends may be declared and paid according to the par value of the Shares. No amount paid on a Share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the Share. |
| 132. | If several Persons are registered as joint holders of any Share, any of them may give effective receipts for any dividend or other moneys payable on or in respect of the Share. |
| 133. | No dividend shall bear interest against the Company. |
| 134. | Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by the Board of Directors and, if so forfeited, shall revert to the Company. |
ACCOUNTS, AUDIT AND ANNUAL RETURN AND DECLARATION
| 135. | The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors. |
| 136. | The books of account shall be kept at the Registered Office, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors. |
| 137. | The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right to inspect any account or book or document of the Company except as conferred by law or authorized by the Directors or by Ordinary Resolution. |
| 138. | The accounts relating to the Company’s affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Directors or failing any determination as aforesaid shall not be audited. |
| 139. | The Directors may appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration. |
| 140. | Every auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors. |
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| 141. | The auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment, and at any time during their term of office, upon request of the Directors or any general meeting of the Members. |
| 142. | The Directors in each calendar year shall prepare, or cause to be prepared, an annual return and declaration setting forth the particulars required by the Companies Act and deliver a copy thereof to the Registrar of Companies in the Cayman Islands. |
CAPITALISATION OF RESERVES
| 143. | Subject to the Companies Act, the Directors may: |
| (a) | resolve to capitalize an amount standing to the credit of reserves (including a Share Premium Account, capital redemption reserve and profit and loss account), which is available for distribution; |
| (b) | appropriate the sum resolved to be capitalized to the Shareholders in proportion to the nominal amount of Shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards: |
| (i) | paying up the amounts (if any) for the time being unpaid on Shares held by them respectively, or |
| (ii) | paying up in full unissued Shares or debentures of a nominal amount equal to that sum, |
and allot the Shares or debentures, credited as fully paid, to the Shareholders (or as they may direct) in those proportions, or partly in one way and partly in the other, but the Share Premium Account, the capital redemption reserve and profits which are not available for distribution may, for the purposes of this Article, only be applied in paying up unissued Shares to be allotted to Shareholders credited as fully paid;
| (c) | make any arrangements they think fit to resolve a difficulty arising in the distribution of a capitalized reserve and in particular, without limitation, where Shares or debentures become distributable in fractions the Directors may deal with the fractions as they think fit; |
| (d) | authorize a Person to enter (on behalf of all the Shareholders concerned) into an agreement with the Company providing for either: |
| (i) | the allotment to the Shareholders respectively, credited as fully paid, of Shares or debentures to which they may be entitled on the capitalization, or |
| (ii) | the payment by the Company on behalf of the Shareholders (by the application of their respective proportions of the reserves resolved to be capitalized) of the amounts or part of the amounts remaining unpaid on their existing Shares, |
and any such agreement made under this authority being effective and binding on all those Shareholders; and
| (e) | generally do all acts and things required to give effect to the resolution. |
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| 144. | Notwithstanding any provisions in these Articles, the Directors may resolve to capitalize an amount standing to the credit of reserves (including the share premium account, capital redemption reserve and profit and loss account) or otherwise available for distribution by applying such sum in paying up in full unissued Shares to be allotted and issued to: |
| (a) | employees (including Directors) or service providers of the Company or its subsidiaries or group companies upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members; |
| (b) | any trustee of any trust or administrator of any share incentive scheme or employee benefit scheme to whom shares are to be allotted and issued by the Company in connection with the operation of any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or Members; or |
| (c) | any depositary of the Company for the purposes of the issue, allotment and delivery by the depositary of ADSs to employees (including Directors) or service providers of the Company or its subsidiaries or group companies upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members. |
SHARE PREMIUM ACCOUNT
| 145. | The Directors shall in accordance with the Companies Act establish a Share Premium Account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any Share. |
| 146. | There shall be debited to any Share Premium Account on the redemption or purchase of a Share the difference between the nominal value of such Share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by the Companies Act, out of capital. |
NOTICES
| 147. | Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the Person entitled to give notice to any Shareholder either personally, or by posting it by airmail or a recognized courier service in a prepaid letter addressed to such Shareholder at his address as appearing in the Register, or by electronic mail to any electronic mail address such Shareholder may have specified in writing for the purpose of such service of notices, or by facsimile to any facsimile number such Shareholder may have specified in writing for the purpose of such service of notices, or by placing it on the Company’s Website should the Directors deem it appropriate. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders. |
| 148. | Notices sent from one country to another shall be sent or forwarded by prepaid airmail or a recognized courier service. |
| 149. | Any Shareholder Present at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened. |
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| 150. | Any notice or other document, if served by: |
| (a) | post, shall be deemed to have been served five calendar days after the time when the letter containing the same is posted; |
| (b) | facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient; |
| (c) | recognized courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service; or |
| (d) | electronic means, shall be deemed to have been served immediately (i) upon the time of the transmission to the electronic mail address supplied by the Shareholder to the Company or (ii) upon the time of its placement on the Company’s Website. |
In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.
| 151. | Any notice or document delivered or sent by post to or left at the registered address of any Shareholder in accordance with the terms of these Articles shall notwithstanding that such Shareholder be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Shareholder as sole or joint holder, unless his name shall at the time of the service of the notice or document have been removed from the Register as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share. |
| 152. | Notice of every general meeting of the Company shall be given to: |
| (a) | all Shareholders holding Shares with the right to receive notice and who have supplied to the Company an address for the giving of notices to them; and |
| (b) | every Person entitled to a Share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting. |
No other Person shall be entitled to receive notices of general meetings.
INFORMATION
| 153. | Subject to the relevant laws, rules and regulations applicable to the Company, no Member shall be entitled to require discovery of any information in respect of any detail of the Company’s trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the Members of the Company to communicate to the public. |
| 154. | Subject to due compliance with the relevant laws, rules and regulations applicable to the Company, the Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Members including, without limitation, information contained in the Register and transfer books of the Company. |
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INDEMNITY
| 155. | Every Director (including for the purposes of this Article any alternate Director appointed pursuant to the provisions of these Articles), Secretary, assistant Secretary, or other officer for the time being and from time to time of the Company (but not including the Company’s auditors) and the personal representatives of the same (each an “Indemnified Person”) shall be indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person’s own dishonesty, willful default or fraud, in or about the conduct of the Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere. |
| 156. | No Indemnified Person shall be liable: |
| (a) | for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company; or |
| (b) | for any loss on account of defect of title to any property of the Company; or |
| (c) | on account of the insufficiency of any security in or upon which any money of the Company shall be invested; or |
| (d) | for any loss incurred through any bank, broker or other similar Person; or |
| (e) | for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Indemnified Person’s part; or |
| (f) | for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or discretions of such Indemnified Person’s office or in relation thereto; |
unless the same shall happen through such Indemnified Person’s own dishonesty, willful default or fraud.
FINANCIAL YEAR
| 157. | Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31st in each calendar year and shall begin on January 1st in each calendar year. |
NON-RECOGNITION OF TRUSTS
| 158. | No Person shall be recognized by the Company as holding any Share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any Share or (except only as otherwise provided by these Articles or as the Companies Act requires) any other right in respect of any Share except an absolute right to the entirety thereof in each Shareholder registered in the Register. |
WINDING UP
| 159. | If the Company shall be wound up the liquidator may, with the sanction of a Special Resolution and any other sanction required by the Companies Act, divide amongst the Members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability. |
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| 160. | If the Company shall be wound up, and the assets available for distribution amongst the Members shall be insufficient to repay the whole of the share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the par value of the Shares held by them. If in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst the Members in proportion to the par value of the Shares held by them at the commencement of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. This Article is without prejudice to the rights of the holders of Shares issued upon special terms and conditions. |
AMENDMENT OF ARTICLES OF ASSOCIATION
| 161. | Subject to the Companies Act, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part. |
CLOSING OF REGISTER OR FIXING RECORD DATE
| 162. | For the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at any meeting of Shareholders or any adjournment thereof, or those Shareholders that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Shareholder for any other purpose, the Directors may provide that the Register shall be closed for transfers for a stated period which shall not exceed in any case thirty calendar days in any calendar year. |
| 163. | In lieu of or apart from closing the Register, the Directors may fix in advance a date as the record date for any such determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of the Shareholders and for the purpose of determining those Shareholders that are entitled to receive payment of any dividend the Directors may, at or within ninety calendar days prior to the date of declaration of such dividend, fix a subsequent date as the record date for such determination. |
| 164. | If the Register is not so closed and no record date is fixed for the determination of those Shareholders entitled to receive notice of, attend or vote at a meeting of Shareholders or those Shareholders that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders. When a determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof. |
REGISTRATION BY WAY OF CONTINUATION
| 165. | The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. |
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DISCLOSURE
| 166. | The Directors, or any service providers (including the officers, the Secretary and the registered office provider of the Company) specifically authorized by the Directors, shall be entitled to disclose to any regulatory or judicial authority any information regarding the affairs of the Company including without limitation information contained in the Register and books of the Company. |
EXCLUSIVE FORUM
| 167. | Unless the Company consents in writing to the selection of an alternative forum, to the fullest extent permitted by relevant law, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, regardless of whether such legal suit, action, or proceeding also involves parties other than the Company. |
| 168. | Unless the Company consents in writing to the selection of an alternative forum, the courts of the Cayman Islands shall have exclusive jurisdiction to hear, settle and/or determine any dispute, controversy or claim (including any non-contractual dispute, controversy or claim) whether arising out of or in connection with these Articles or otherwise, including any questions regarding their existence, validity, formation or termination. For the avoidance of doubt and without limiting the jurisdiction of the courts of the Cayman Islands to hear, settle and/or determine disputes related to the Company, the courts of the Cayman Islands shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any Director, officer or other employee of the Company to the Company or the Company’s Shareholders, (iii) any action or petition asserting a claim arising pursuant to any provision of the Law or these Articles including but not limited to any purchase or acquisition of Shares, securities or guarantee provided in consideration thereof, or (iv) any action asserting a claim against the Company which if brought in the United States would be a claim arising under the internal affairs doctrine (as such concept is recognized under the laws of the United States from time to time). This Article 165 shall not apply to claims or causes of action brought to enforce a duty or liability created by the Securities Act or the Securities Exchange Act of 1934, as amended, or any other claim based on securities laws for which claim the federal district courts of the United States have exclusive jurisdiction. |
| 169. | Any person or entity purchasing or otherwise acquiring any Share or other securities in the Company, or purchasing or otherwise acquiring ADSs issued pursuant to relevant deposit agreements, whether such acquisition be by transfer, sale, operation of law or otherwise, shall be deemed to have notice of, irrevocably agreed and consented to the provisions of this Article and Articles 166 and 167 above. Without prejudice to the foregoing, if any part of this Article, Article 166 and/or Article 167 are held to be illegal, invalid or unenforceable under applicable law, the legality, validity or enforceability of the rest of these Articles shall not be affected nor be impaired and this Article, Article 166 and/or Article 167 shall be interpreted and construed to the maximum extent possible to apply in the relevant jurisdiction with whatever modification or deletion as may be necessary so as best to give effect to the intention of the Company. |
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Exhibit 4.6
BITDEER TECHNOLOGIES GROUP
2023 SHARE INCENTIVE PLAN
ARTICLE 1
PURPOSE
The purpose of this 2023 SHARE INCENTIVE PLAN is to promote the success and enhance the valueof Bitdeer Technologies Group, a business company formed under the laws of the Cayman Islands (the “Company”), by linking the personal interests of the Directors, Employees, Consultants, and other Persons to those of the Company’s shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s shareholders. The Plan is furtherintended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of the above individuals upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1 “Applicable Laws” means the legal requirements relating to the Plan and the Awards under applicable provisions of the corporate, securities, tax and other laws, rules, regulations and government orders, and the rules of any applicable stock exchange or national market system, of any jurisdiction applicable to Awards granted to residents therein.
2.2 “A&R Merger Agreement” means the Amended and Restated Agreement and Plan of Merger, dated as of December 15, 2021, by and among Bitdeer Technologies Holding Company, an exempted company with limited liability incorporated under the laws of the Cayman Islands, the Company, Blue Safari Merge Limited, a British Virgin Islands business company and a wholly-owned subsidiary of the Company, Blue Safari Merge II Limited, a British Virgin Islands business company and a wholly-owned subsidiary of the Company, Bitdeer Merge Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of the Company, Blue Safari Group Acquisition Corp., a British Virgin Islands business company and Blue Safari Mini Corp, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of Blue Safari Group Acquisition Corp.
2.3 “Award” means an Option, Restricted Share or Restricted Share Unit award(s) granted to a Participant pursuant to the Plan, and an Award may consist of one such security or benefit, or two or more of them in any combination or alternative.
2.4 “Board” means the board of directors of the Company.
2.5 “Cause” with respect to a Participant means (unless otherwise expressly provided in the applicable Notice of Grant, or another applicable contract with the Participant that defines such term for purposes of determining the effect that a “for cause” termination has on the Participant’s Awards) each of the following and the determination of the existence of Cause shall be determined by the Committee:
(a) the Participant has been negligent in the discharge of his or her duties to the Service Recipient, has refused to perform stated or assigned duties or is incompetent in or (other than by reason of a disability or analogous condition) incapable of performing those duties;
(b) the Participant has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of confidentiality, an unauthorized disclosure or use of inside information, customer lists, trade secrets or other confidential information;
(c) the Participant has breached a fiduciary duty, or willfully and materially violated any other duty, law, rule, regulation, or policy of the Service Recipient; or has been convicted of, or plead guilty or nolo contendere to, a felony or misdemeanor (other than minor traffic violations or similar offenses);
(d) the Participant has materially breached any of the provisions of any agreement with the Service Recipient;
(e) the Participant has engaged in unfair competition with, or otherwise acted intentionally in a manner injurious to the reputation, business, or assets of, the Service Recipient; or
(f) the Participant has improperly induced a vendor or customer to break or terminate any contract with the Service Recipient or induced a principal for whom the Service Recipient acts as agent to terminate such agency relationship.
A termination for Cause shall be deemed to occur (subject to reinstatement upon a contrary final determination by the Committee) on the date on which the Service Recipient first delivers written notice to the Participant of a finding of termination for Cause.
2.6 “ Code” means the Internal Revenue Code of 1986 of the United States, as amended.
2.7 “ Committee” means a committee of the Board described in Article 10.
2.8 “Consultant” means any Person who renders services directly or indirectly to a Service Recipient and recognized by the Committee; provided that such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.
2.9 “Corporate Transaction”, unless otherwise defined in a Notice of Grant, means any of the following transactions, provided, however, that the Committee may determine, under (d) and (e) whether multiple transactions are related, and its determination shall be final, binding and conclusive:
(a) an amalgamation, arrangement or consolidation or scheme of arrangement (i) in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which the Company is incorporated or (ii) following which the holders of the voting securities of the Company do not continue to hold more than 50% of the combined voting power of the voting securities of the surviving entity;
(b) the sale, transfer or other disposition of all or substantially all of the assets of the Company;
(c) the complete liquidation or dissolution of the Company;
(d) any reverse takeover or series of related transactions culminating in a reverse takeover (including, but not limited to, a tender offer followed by a reverse takeover) in which the Company is the surviving entity but (A) the Company’s equity securities outstanding immediately prior to such takeover are converted or exchanged by virtue of the takeover into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a Person or Persons different from those who held or beneficially owned such securities immediately prior to such takeover or the initial transaction culminating in such takeover, but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction; or
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(e) acquisition in a single or series of related transactions by any Person or related group of Persons (other than the Company, or a person that directly or indirectly controls, is controlled by or is under common control with the Company, or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction.
2.10 “Director” means a member of the Board or a member of the board of directors of any Parent, Subsidiary or Related Entity of the Company.
2.11 “Disability”, unless otherwise defined in a Notice of Grant, means that the Participant qualifies to receive long-term disability payments under the Service Recipient’s long-term disability insurance program, as it may be amended from time to time, to which the Participant provides services regardless of whether the Participant is covered by such policy. If the Service Recipient to which the Participant provides service does not have a long-term disability plan in place, “Disability” means that a Participant is unable to carry out the responsibilities and functions of the position held by the Participant by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days. A Participant will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Committee in its discretion.
2.12 “Effective Date” shall have the meaning set forth in Section 11.1.
2.13 “Employee” means any person, including an officer of the Company or any Parent, Subsidiary or Related Entity of the Company, who is in the employment of a Service Recipient, subject to the control and direction of the Service Recipient as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by a Service Recipient shall not be sufficient to constitute “employment” by the Service Recipient.
2.14 “Exchange Act” means the Securities Exchange Act of 1934 of the United States, as amended.
2.15 “Fair Market Value” means, as of any date, the value of Shares determined as follows:
(a) If the Shares are listed on one or more established stock exchanges or national market systems, including without limitation, The New York Stock Exchange and The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such shares (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Shares are listed (as determined by the Committee) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable;
(b) If the Shares are regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such shares as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Shares on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable; or
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(c) In the absence of an established market for the Shares of the type described in (a) and (b), above, the Fair Market Value thereof shall be determined by the Committee in good faith and in its discretion by reference to one or more of the following and such Fair Market Value shall be binding on all participants: (i) the placing price of the latest private placement of the Shares and the development of the Company’s business operations and the general economic and market conditions since such latest private placement, (ii) other third party transactions involving the Shares and the development of the Company’s business operation and the general economic and market conditions since such sale, (iii) an independent valuation of the Shares, or (iv) such other methodologies or information as the Committee determines, to be indicative of Fair Market Value and relevant.
2.16 “Incentive Share Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.
2.17 “Independent Director” means (i) before the Shares or other securities representing the Shares are listed on a stock exchange, a member of the Board who is a Non-Employee Director; and (ii) after the Shares or other securities representing the Shares are listed on a stock exchange, a member of the Board who meets the independence standards under the applicable corporate governance rules of the stock exchange.
2.18 “Non-Employee Director” means a member of the Board who qualifies as a “Non- Employee Director” as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.
2.19 “Non-Qualified Share Option” means an Option that is not intended to be an Incentive Share Option.
2.20 “Notice of Grant” means the notice of grant to be sent from the Committee, on behalf of the Company, to the Participant evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Committee may determine consistent with the Plan.
2.21 “Option” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of Shares at a specified price during specified time periods. An Option may be either an Incentive Share Option or a Non-Qualified Share Option.
2.22 “Participant” means a Person who has been granted an Award as determined by the Committee pursuant to the Plan, including but not limited to a Director, Employee, and Consultant, etc.
2.23 “Parent” means a parent corporation under Section 424(e) of the Code.
2.24 “Person” means any individual, general partnership, limited partnership, limited liability partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative or association and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so permits.
2.25 “Plan” means this 2023 Share Incentive Plan, as it may be amended from time to time.
2.26 “Related Entity” means any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or Subsidiary of the Company holds a substantial ownership interest, directly or indirectly, but which is not a Subsidiary and which the Committee designates as a Related Entity for purposes of the Plan.
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2.27 “Restricted Share” means a Share awarded to a Participant pursuant to Article 6 that is subject to certain restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions and other terms and conditions established by the Committee and may be subject to risk of forfeiture.
2.28 “Restricted Share Unit” means the right granted to a Participant pursuant to Article 7 to receive a Share at a future date.
2.29 “Securities Act” means the Securities Act of 1933 of the United States, as amended.
2.30 “Service Recipient” means the Company, any Parent, Subsidiary or Related Entity of the Company, to which a Participant provides services as an Employee, a Consultant or a Director.
2.31 “Share” means ordinary shares of the Company, and such other securities of the Company that may be substituted for Shares pursuant to Article 9.
2.32 “Subsidiary” means any corporation or other entity of which a majority of the outstanding voting shares or voting power is beneficially owned directly or indirectly by the Company.
2.33 “Trading Date” means the closing of the first sale to the general public of the Shares pursuant to a registration statement filed with and declared effective by the U.S. Securities and Exchange Commission under the Securities Act.
ARTICLE 3
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares.
(a) Subject to the provisions of Article 9 and Section 3.1(b), the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Share Options) shall initially be 21,895,336 ordinary shares of the Company (the “Share Limit”).
(b) To the extent that an Award terminates, expires, or lapses for any reason, any Shares subject to the Award shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by Applicable Laws, Shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form or combination by the Company or any Parent or Subsidiary of the Company shall not be counted against Shares available for grant pursuant to the Plan. Shares delivered by the Participant or withheld by the Company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a). If any Awards are forfeited by the Participant or repurchased by the Company, the Shares underlying such Awards may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a). Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted, or awarded if such action would cause an Incentive Share Option to fail to qualify as an Incentive Share Option under Section 422 of the Code.
3.2 Shares Distributed. Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares, treasury shares (subject to Applicable Laws) or Shares purchased on the open market. Additionally, if applicable, in the discretion of the Committee, American Depository Shares in an amount equal to the number of Shares which otherwise would be distributed pursuant to an Award may be distributed in lieu of Shares in settlement of any Award. If the number of Shares Represented by an American Depository Share is other than on a one-to-one basis, the Share Limit of Section 3.1 shall be adjusted to reflect the distribution of American Depository Shares in lieu of Shares.
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ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Persons eligible to participate in this Plan include Persons recognized by the Committee, e.g., Directors, Employees and Consultants, as determined by the Committee.
4.2 Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible individuals, those to whom Awards shall be granted and determine the nature and amount of each Award. No individual shall have any right to be granted an Award pursuant to this Plan, unless otherwise determined by the Committee in accordance with the Plan.
4.3 Jurisdictions. In order to assure the viability of Awards granted to Participants employed in various jurisdictions, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom applicable in the jurisdiction in which the Participant resides or is employed. Moreover, the Committee may approve such supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements, or alternative versions shall increase the Share Limit contained in Section 3.1 of the Plan. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate any Applicable Laws.
ARTICLE 5
OPTIONS
5.1 General. The Committee is authorized to grant Options to Participants on the following terms and conditions:
(a) Exercise Price. The exercise price per Share subject to an Option shall be determined by the Committee and set forth in the Notice of Grant which may be a fixed or variable price related to the Fair Market Value of the Shares. The exercise price per Share subject to an Option may be amended or adjusted in the absolute discretion of the Committee, the determination of which shall be final, binding, and conclusive. For the avoidance of doubt, to the extent not prohibited by Applicable Laws or any exchange rule, a downward adjustment of the exercise prices of Options mentioned in the preceding sentence may be effective without the approval of the Company’s shareholders or the approval of the affected Participants.
(b) Time and Conditions of Exercise. The Committee may determine the time or times at which an Option may be exercised in whole or in part, including exercise prior to vesting; provided that the term of any Option granted under the Plan shall not exceed ten years, except as provided in Section 12.1. The Committee may also determine any conditions, if any, that must be satisfied before all or part of an Option may be exercised.
(c) Payment. The Committee may determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation (i) cash or check denominated in U.S. Dollars, (ii) to the extent permissible under the Applicable Laws, cash or check in Chinese Renminbi, (iii) cash or check denominated in any other local currency as approved by the Committee, (iv) Shares held for such period of time as may be required by the Committee in order to avoid adverse financial accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, (v) after the Trading Date the delivery of a notice that the Participant has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale, (vi) other property acceptable to the Committee with a Fair Market Value equal to the exercise price, or (vii) any combination of the foregoing. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option in any method which would violate Section 13(k) of the Exchange Act.
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(d) Evidence of Grant. All Options shall be evidenced by a Notice of Grant sent from the Committee on behalf of the Company to the Participant. The Notice of Grant shall include such additional provisions as may be specified by the Committee.
(e) Effects of Termination of Employment or Service on Options. Termination of employment or service shall have the following effects on Options granted to the Participants:
(i) Dismissal for Cause. Unless otherwise provided in the Notice of Grant, if a Participant’s employment by or service to the Service Recipient is terminated by the Service Recipient for Cause, the Participant’s Options will terminate upon such termination, whether or not the Option is then vested and/or exercisable;
(ii) Death or Disability. Unless otherwise provided in the Notice of Grant, if a Participant’s employment by or service to the Service Recipient terminates as a result of the Participant’s death or Disability:
(1) the Participant (or his or her legal representative or beneficiary, in the case of the Participant’s Disability or death, respectively), will have the right to exercise the Participant’s Options (or portion thereof) until the tenth anniversary of the grant date to the extent that such Options were vested and exercisable on the date of the Participant’s termination of Employment on account of death or Disability;
(2) the Options, to the extent not vested and exercisable on the date of the Participant’s termination of Employment or service, shall immediately terminate for nil consideration upon the Participant’s termination of Employment or service on account of death or Disability; and
(3) the Options, to the extent exercisable on the date of the Participant’s termination of Employment on account of death or Disability and not exercised prior to the tenth anniversary of the grant date, shall terminate at the close of business on the tenth anniversary of the grant date.
(iii) Other Terminations of Employment or Service. Unless otherwise provided in the Notice of Grant, if a Participant’s employment by or service to the Service Recipient terminates for any reason other than a termination by the Service Recipient for Cause or because of the Participant’s death or Disability:
(1) the Participant will have the right to exercise his or her Options (or portion thereof) until the tenth anniversary of the grant date to the extent that such Options were vested and exercisable on the date of the Participant’s termination of Employment or service;
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(2) the Options, to the extent not vested and exercisable on the date of the Participant’s termination of Employment or service, shall terminate upon the Participant’s termination of Employment or service; and
(3) the Options, to the extent exercisable on the date of the Participant’s termination of Employment or service and not exercised prior to the tenth anniversary of the grant date, shall terminate at the close of business on the tenth anniversary of the grant date.
5.2 Incentive Share Options. Incentive Share Options may be granted to Employees of the Company, a Parent or Subsidiary of the Company. Incentive Share Options may not be granted to Employees of a Related Entity or to Independent Directors or Consultants. The terms of any Incentive Share Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the following additional provisions of this Section 5.2:
(a) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares with respect to which Incentive Share Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Share Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Share Options.
(b) Exercise Price. The exercise price of an Incentive Share Option shall be equal to the Fair Market Value on the date of grant. However, the exercise price of any Incentive Share Option granted to any individual who, at the date of grant, owns Shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company may not be less than 110% of Fair Market Value on the date of grant and such Option may not be exercisable for more than five years from the date of grant.
(c) Transfer Restriction. The Participant shall give the Committee prompt notice of any disposition of Shares acquired by exercise of an Incentive Share Option within (i) two years from the date of grant of such Incentive Share Option or (ii) one year after the transfer of such Shares to the Participant.
(d) Expiration of Incentive Share Options. No Award of an Incentive Share Option may be made pursuant to this Plan after the tenth anniversary of the Effective Date.
(e) Right to Exercise. During a Participant’s lifetime, an Incentive Share Option may be exercised only by the Participant.
ARTICLE 6
RESTRICTED SHARES
6.1 Grant of Restricted Shares. The Committee, at any time and from time to time, may grant Restricted Shares to Participants as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, may determine the number of Restricted Shares to be granted to each Participant.
6.2 Restricted Shares Notice of Grant. Each Award of Restricted Shares shall be evidenced by a Notice of Grant that shall specify the period of restriction, the number of Restricted Shares granted, the vesting schedule and such other terms and conditions as the Committee, in its sole discretion, may determine. Unless the Committee determines otherwise, Restricted Shares shall be held by the Company as escrow agent until the restrictions on such Restricted Shares have lapsed.
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6.3 Issuance and Restrictions. Restricted Shares shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on transfer, right of first refusal, repurchase provisions, forfeiture provisions, the right to vote Restricted Shares or the right to receive dividends on the Restricted Share). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.
6.4 Forfeiture/Repurchase. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, the unvested Restricted Shares and the Restricted Shares that are at that time subject to restrictions shall be forfeited or repurchased in accordance with the Notice of Grant; provided, however, the Committee may (a) provide in any Restricted Share Notice of Grant that restrictions or forfeiture and repurchase conditions relating to Restricted Shares will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Shares.
6.5 Certificates for Restricted Shares. Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Committee may determine. If certificates representing Restricted Shares are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Shares, and the Committee may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.
6.6 Removal of Restrictions. Except as otherwise provided in this Article 6, Restricted Shares granted under the Plan shall be released from escrow as soon as practicable after the last day of the period of restriction. The Committee, in its discretion, may accelerate the time at which any restrictions shall lapse or be removed. After the restrictions have lapsed, the Participant shall be entitled to have any legend or legends under Section 6.5 removed from his or her Share certificate, and the Shares shall be freely transferable by the Participant, subject to applicable legal restrictions. The Committee (in its discretion) may establish procedures regarding the release of Shares from escrow and the removal of legends, as necessary or appropriate to minimize administrative burdens on the Company.
ARTICLE 7
RESTRICTED SHARE UNITS
7.1 Grant of Restricted Share Units. The Committee, at any time and from time to time, may grant Restricted Share Units to Participants as the Committee, in its sole discretion, may determine. The Committee, in its sole discretion, may determine the number of Restricted Share Units to be granted to each Participant.
7.2 Restricted Share Units Notice of Grant. Each Award of Restricted Share Units shall be evidenced by a Notice of Grant that shall specify any vesting conditions, the number of Restricted Share Units granted, the vesting schedule and the delivery schedule (which may include deferred delivery later than the vesting date) and such other terms and conditions as the Committee, in its sole discretion, may determine.
7.3 Performance Objectives and Other Terms. The Committee, in its discretion, may set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of Restricted Share Units that will be paid out to the Participants.
7.4 Form and Timing of Payment of Restricted Share Units. At the time of grant, the Committee may specify the date or dates on which the Restricted Share Units shall become fully vested and nonforfeitable. Upon vesting, the Committee, on behalf of the Company, may pay Restricted Share Units in the form of cash, in Shares, or other forms of payment or in any combination of the foregoing, as agreed in the Notice of Grant.
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7.5 Forfeiture/Repurchase. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period or for other reasons recognized by the Committee, Restricted Share Units that are at that time unvested shall be forfeited or repurchased by the Company in accordance with the Notice of Grant; provided, however, the Committee may (a) provide in any Restricted Share Notice of Grant that restrictions or forfeiture and repurchase conditions relating to Restricted Share Units will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Share Units.
ARTICLE 8
PROVISIONS APPLICABLE TO AWARDS
8.1 Notice of Grant. Awards under the Plan shall be evidenced by Notice of Grant that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel, or rescind an Award.
8.2 No Transferability; Limited Exception to Transfer Restrictions.
8.2.1 Limits on Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 8.2, by Applicable Law and by the Notice of Grant, as the same may be amended: all Awards are non-transferable and will not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance, or charge;
(a) Awards will be exercised only by the Participant or the Participant’s legal representative or beneficiary in the case of the Participant’s Disability or death, respectively, as set forth under Section 5.1(e)(ii); and
(b) amounts payable or shares issuable pursuant to an Award will be delivered only to (or for the account of), and, in the case of Shares, registered in the name of, the Participant.
In addition, the Shares shall be subject to the restrictions set forth in the applicable Notice of Grant.
8.2.2 Further Exceptions to Limits on Transfer. The exercise and transfer restrictions in Section 8.2.1 will not apply to:
(a) transfers to the Company or a Subsidiary;
(b) transfers by gift to “immediate family” as that term is defined in SEC Rule 16a-1(e) promulgated under the Exchange Act;
(c) the designation of a beneficiary to receive benefits if the Participant dies or, if the Participant has died, transfers to or exercises by the Participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution; or
(d) if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by the Participant’s duly authorized legal representative; or
(e) subject to the prior approval of the Committee or an executive officer or director of the Company authorized by the Committee, transfer to one or more natural persons who are the Participant’s family members or entities owned and controlled by the Participant and/or the Participant’s family members, including but not limited to trusts or other entities whose beneficiaries or beneficial owners are the Participant and/or the Participant’s family members, or to such other Persons as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee or may establish. Any permitted transfer shall be subject to the condition that the Committee receives evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes and on a basis consistent with the Company’s lawful issue of securities.
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Notwithstanding anything else in this Section 8.2.2 to the contrary, but subject to compliance with all Applicable Laws, Incentive Share Options, Restricted Shares and Restricted Share Units will be subject to any and all transfer restrictions under the Code applicable to such Awards or necessary to maintain the intended tax consequences of such Awards. Notwithstanding clause (b) above but subject to compliance with all Applicable Laws, any contemplated transfer by gift to “immediate family” as referenced in clause (b) above is subject to the condition precedent that the transfer be approved by the Committee in order for it to be effective.
8.3 Beneficiaries. Notwithstanding Section 8.2, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other Person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Notice of Grant applicable to the Participant, except to the extent the Plan and Notice of Grant otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a Person other than the Participant’s spouse as his or her beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the Person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.
8.4 Share Certificates. Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing the Shares pursuant to the exercise of any Award, unless and until the Committee has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all Applicable Laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the Shares are listed or traded. All Share certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with all Applicable Laws, and the rules of any national securities exchange or automated quotation system on which the Shares are listed, quoted, or traded. The Committee may place legends on any Share certificate to reference restrictions applicable to the Shares. In addition to the terms and conditions provided herein, the Committee may require that a Participant make such reasonable covenants, agreements, and representations as the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.
8.5 Paperless Administration. Subject to Applicable Laws, the Committee may make Awards, provide applicable disclosure and procedures for exercise of Awards by an internet website or interactive voice response system for the paperless administration of Awards.
8.6 Payment Method. In the event the exercise price for an Award is paid in a currency other than U.S. dollars or any other form of payment as permitted in the Notice of Grant, the amount payable will be determined by conversion from U.S. dollars at the exchange rates set forth in the Notice of Grant or as selected by the Committee on the date of exercise. A Participant (or his or her legal representative or beneficiary, in the case of the Participant’s Disability or death, respectively), may be required to provide evidence that any currency used to pay the exercise price of any Award was acquired and taken out of the jurisdiction in which the Participant resides in accordance with Applicable Laws, including foreign exchange control laws and regulations.
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ARTICLE 9
CHANGES IN CAPITAL STRUCTURE
9.1 Adjustments. In the event of any dividend, share split, combination or exchange of Shares, amalgamation, arrangement or consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to its shareholders, or any other change affecting the shares of Shares or the share price of a Share, the Committee may, make such proportionate and equitable adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the Share Limit in Section 3.1); (b) the terms and conditions of any issued and outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any issued and outstanding Awards under the Plan.
9.2 Corporate Transactions. Except as may otherwise be provided in any Notice of Grant or any other written agreement entered into by and between the Company and a Participant, if the Committee anticipates the occurrence, or upon the occurrence, of a Corporate Transaction, the Committee may, in its sole discretion, provide for (i) any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Participant the right to exercise the vested portion of such Awards during a period of time as the Committee may determine, or (ii) the purchase of any Award for an amount of cash, as determined by the Committee in good faith, which may equal to the amount that could have been attained upon the exercise of such Award (and, for the avoidance of doubt, if as of such date the Committee determines in good faith that no amount would have been attained upon the exercise of such Award, then such Award may be terminated by the Company without payment), or (iii) the replacement of such Award with other rights or property selected by the Committee in its sole discretion or the assumption of or substitution of such Award by the successor or surviving corporation, or a Parent or Subsidiary thereof, with appropriate adjustments as to the number and kind of Shares and prices, which will preserve the rights under the affected Awards previously granted hereunder, or (iv) payment of Award in cash based on the value of Shares on the date of the Corporate Transaction plus reasonable interest on the Award through the date when such Award would otherwise be vested or have been paid in accordance with its original terms, if necessary to comply with Section 409A of the Code.
9.3 Outstanding Awards – Other Changes. In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 9, the Committee may, in its absolute discretion, make such adjustments in the number and class of shares subject to Awards issued and outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights.
9.4 No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of Shares of any class, the payment of any dividend, any increase or decrease in the number of shares of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares subject to an Award or the grant or exercise price of any Award.
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ARTICLE 10
ADMINISTRATION
10.1 Committee. The Plan shall be administered by a committee of one or more members of the Board to whom the Board shall delegate the authority to grant or amend Awards to Participants other than any of the Committee members.
10.2 Action by the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to it by any officer or other employee of the Company or any Parent, Subsidiary or Related Entity of the Company, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
10.3 Authority of the Committee. Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:
(a) designate Participants to receive Awards;
(b) determine the type or types of Awards to be granted to each Participant;
(c) determine the number of Awards to be granted and the number of Shares to which an Award will relate;
(d) determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;
(e) determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(f) prescribe the form of each Notice of Grant, which need not be identical for each Participant;
(g) decide all other matters that must be determined in connection with an Award;
(h) correct any defect, supply any omission and reconcile any inconsistency in the Plan or any Award, in the manner and to the extent it shall deem desirable to carry the Plan into effect;
(i) establish, adopt, waive, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
(j) interpret the terms of, and any matter arising pursuant to, the Plan or any Notice of Grant;
(k) reduce the exercise price per Share underlying an Option; and
(l) make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.
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10.4 Decisions Binding. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Notice of Grant and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties, including but not limited to the Company, its shareholders, Participants and any beneficiaries thereof.
ARTICLE 11
EFFECTIVE AND EXPIRATION DATE
11.1 Effective Date. The Plan is effective on the Acquisition Merger Effective Time as defined in the A&R Merger Agreement (the “Effective Date”).
11.2 Expiration Date. The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the Effective Date, unless otherwise determined by the Committee. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Notice of Grant.
ARTICLE 12
AMENDMENT, MODIFICATION, AND TERMINATION
12.1 Amendment, Modification, And Termination. With the approval of the Board, at any time and from time to time, the Committee may, terminate, amend, modify, alter, suspend or discontinue the Plan or any portion thereof.
12.2 Awards Previously Granted. Except with respect to amendments made pursuant to Section 12.1, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant, except to the extent any such amendment, alteration, suspension, discontinuance or termination is made to cause the Plan to comply with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations.
ARTICLE 13
GENERAL PROVISIONS
13.1 No Rights to Awards. No Participant, Employee, Director, Consultant or other Person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Participants, Employees, Directors, Consultants and other Persons uniformly. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participant is similarly situated).
13.2 No Shareholders Rights. No Award gives the Participant any of the rights of a Shareholder of the Company unless and until Shares are in fact issued to such Person in connection with such Award.
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13.3 Taxes. No Shares shall be delivered under the Plan to any Participant until such Participant has made arrangements acceptable to the Committee for the satisfaction of any income and employment tax withholding obligations under Applicable Laws. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy all applicable taxes (including the Participant’s payroll tax obligations) required or permitted by Applicable Laws to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the return of Shares) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of Shares which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award after such Shares were acquired by the Participant from the Company) in order to satisfy any income and payroll tax liabilities applicable to the Participant with respect to the issuance, vesting, exercise or payment of the Award shall, unless specifically approved by the Committee, be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for the applicable in come and payroll tax purposes that are applicable to such supplemental taxable income.
13.4 No Right to Employment or Services. Nothing in the Plan or any Notice of Grant shall interfere with or limit in any way the right of the Service Recipient to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employment or services of any Service Recipient.
13.5 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Notice of Grant shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.
13.6 Indemnification. To the extent allowable pursuant to Applicable Laws, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Persons may be entitled pursuant to the Company’s Memorandum of Association and Articles of Association, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
13.7 Relationship to other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
13.8 Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
13.9 Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
13.10 Fractional Shares. No fractional Shares shall be issued and the Committee may determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down as appropriate.
13.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by the Applicable Laws, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
15
13.12 Government and Other Regulations. The obligation of the Company to make payment of awards in Shares or otherwise shall be subject to all Applicable Laws, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register any of the Shares paid pursuant to the Plan under the Securities Act or any other similar law in any applicable jurisdiction. If the Shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act or other Applicable Laws, the Company may restrict the transfer of such Shares in such manner as it deems advisable to ensure the availability of any such exemption.
13.13 Governing Law. The Plan and all Notice of Grant shall be construed in accordance with and governed by the laws of the Cayman Islands.
13.14 Section 409A. To the extent that the Committee determines that any Award granted under the Plan is or may become subject to Section 409A of the Code, the Notice of Grant evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and the Notice of Grant shall be interpreted in accordance with Section 409A of the Code and the U.S. Department of Treasury regulations and other interpretative guidance issued thereunder, including without limitation any such regulation or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Notice of Grant or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related U.S. Department of Treasury guidance.
13.15 Appendices. The Committee may approve such supplements, amendments, or appendices to the Plan as it may consider necessary or appropriate for purposes of compliance with Applicable Laws or otherwise and such supplements, amendments or appendices shall be considered a part of the Plan; provided, however, that no such supplements shall increase the Share Limit contained in Section 3.1 of the Plan without the approval of the Board.
16
Exhibit 4.16
Certain confidential information contained in this document, marked by [***], has been omitted because such information is both not material and is the type that Bitdeer Technologies Group customarily and actually treats that as private or confidential.
DORY CREEK
LEASE AGREEMENT
SEVENTH LEASE AMENDMENT
This Seventh Lease Amendment (“Seventh Amendment”) is entered into and effective as of October 1, 2022 (the “Effective Date”), by and between SLR Property I, LP (“Landlord”), and Dory Creek LLC a wholly owned subsidiary of Bitdeer Inc. (formerly known as Bitmain Inc.) (“Tenant”). Landlord and Tenant are individually referred to as a “Party” and collectively referred to as “Parties.”
RECITALS
WHEREAS, Alcoa USA Corp. (as the original landlord) and Tenant entered into a Lease Agreement dated June 6, 2018 (the “Original Lease”) along with a First Lease Amendment dated October 18, 2018 (“First Amendment”), a Second Lease Amendment dated May 1, 2019 (“Second Amendment”), a Third Amendment of Lease dated May 11, 2021(“Third Amendment”), a Fourth Amendment to the Lease dated May 11, 2021(“Fourth Amendment”), a Fifth Amendment to Lease dated August 30, 2021 (“Fifth Amendment”), and by the Sixth Amendment to Lease dated October 25, 2021 (“Sixth Amendment”), (collectively together called the “Lease”), whereby Tenant leased certain real estate and associated facilities owned by Landlord as more fully-described in the Lease;
WHEREAS, effective as of October 29, 2021, Alcoa USA Corp. assigned the Lease to Landlord;
WHEREAS, Landlord and Tenant wish to amend the Lease as set forth in this Seventh Amendment.
NOW THEREFORE, in consideration of the mutual promises herein, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree to modify the Lease as follows:
| 1. | The following buildings and access areas are hereby added to the Premises covered by the Lease: (a) Buildings 405 and 408 as legally described on the attached Exhibit 7A-1 (collectively, the “Storage Buildings”); and (b) the non-exclusive use of access roads and access points as legally described on the attached Exhibit 7A-1 (the “Non-Exclusive Access Area”). The Storage Buildings and the Non-Exclusive Access Area are collectively referred to herein as the “Storage Premises”). The sole permitted use of the Storage Buildings shall be for storage/warehouse use only, in compliance with all applicable laws and all other provisions of the Lease. The sole permitted use of the Non- Exclusive Access Area shall be for vehicular and pedestrian access to the Storage Buildings only, in compliance with all applicable laws and all other provisions of the Lease. The Storage Premises shall constitute a portion of the “Premises” described in the Lease and shall be subject to all of the provisions, conditions and restrictions contained in the Lease (including, but not limited to, Article 5 (Taxes), Article 7 (Net Lease), Article 8 (Repairs and Maintenance), Article 9 (Compliance with Laws), Article 10 (Insurance), Article 15 (Indemnity), and Article 16 (Non-Liability; Environmental and Indemnification)), except as otherwise expressly provided in this Seventh Amendment. |
| 1 |
| 2. | Tenant shall pay Fixed Rent for the Storage Premises (the “Storage Premises Fixed Rent”) as described in Table 2 below: |
Table 2
| Building Identification |
Rent Per Square Foot |
Building Square Footage |
Total Rent for Balance of 2022 |
Monthly Rent for 2022 |
Annual Rent as of Jan 1, 2023 |
Monthly Rent for 2023 |
| [***] | $[***] | [***] | $[***] | $[***] | $[***] | $[***] |
| [***] | $[***] | [***] | $[***] | $[***] | $[***] | $[***] |
| Totals | [***] | $[***] | $[***] | $[***] | $[***] | |
The Storage Premises Fixed Rent is subject to the escalation provided in Section 1.06 (b) of the Lease, with such first escalation occurring with respect to the Storage Premises Fixed Rent on January 1, 2024. Tenant shall pay to Landlord the current Monthly Rent for October 2022 (as identified in Table 2 above) on or before October 7, 2022. Both Parties confirm that as of the Effective Date of this Seventh Amendment, Tenant has paid to Landlord a total of $[***], and among them the payment of $[***] has been applied to all of the amount due under rent invoices for October through December. Landlord hereby agrees that the remaining credit balance of $[***] shall be applied as credit to the actual costs incurred for interior surface water wash down of the Storage Buildings (Item #7). Thereafter, the Monthly Rent shall be paid on or before the first day of each calendar month during the term hereof.
| 3. | The Lease with respect to the Storage Premises only (and not with respect to any other Premises leased by Tenant pursuant to the Lease) will automatically expire on the earlier to occur of (a) December 31, 2025, or (b) the date that the Lease expires or is earlier terminated with respect to the Remainder Premises (defined below) (the earlier to occur of (a) or (b) above is referred to herein as the “Storage Premises Initial Term”). So long as the Lease will remain in effect with respect to the Remainder Premises beyond the expiration date of the Storage Premises Initial Term, Tenant shall have an option to extend the term of the Lease with respect to the Storage Premises beyond the Storage Premises Initial Term for [***] (the “First Storage Premises Renewal Term”), which First Storage Premises Renewal Term will automatically expire on the earlier to occur of (i) December 31, 2030, or (ii) the date that the Lease expires or is earlier terminated with respect to the Remainder Premises. In order to exercise the foregoing renewal option, Tenant must deliver written notice of such exercise to Landlord no later than [***] prior to the expiration of the Storage Premises Initial Term. So long as the Lease will remain in effect with respect to the Remainder Premises beyond the expiration date of the First Storage Premises Renewal Term, Tenant shall have an option to extend the term of the Lease with respect to the Storage Premises beyond the First Storage Premises Renewal Term for [***] (the “Second Storage Premises Renewal Term”), which Second Storage Premises Renewal Term will automatically expire on the earlier to occur of (A) December 31, 2035, or (B) the date that the Lease expires or is earlier terminated with respect to the Remainder Premises. In order to exercise the foregoing renewal option, Tenant must deliver written notice of such exercise to Landlord no later than [***] prior to the expiration of the First Storage Premises Renewal Term. Notwithstanding the foregoing, Landlord may, at any time by providing Tenant with at least [***] prior written notice, terminate the Lease with respect to the Storage Premises only (and not with respect to any other Premises leased by Tenant pursuant to the Lease); provided, however, that Landlord shall not, pursuant to this section, be entitled to terminate the Lease with respect to the Storage Premises prior to October 1, 2024. The term “Remainder Premises” as used herein means all of the Premises under the Lease except the Storage Premises. |
| 2 |
| 4. | Tenant acknowledges that the Storage Premises are being leased to Tenant in AS-IS- WHERE-IS condition with absolutely no representations or warranties from Landlord whatsoever, and with no obligation on the part of the Landlord to make any improvements or provide any maintenance, repairs, or replacements to the Storage Premises. |
| 5. | Tenant acknowledges that the Storage Buildings are not currently served by any utility services (potable water, sanitary waste, electricity, or non-potable treated water) and Landlord will not supply utilities to the Storage Buildings at any time in the future. |
| 6. | Tenant may not make any alterations or modifications to the Storage Premises without the prior written approval of Landlord, which approval may be granted or withheld in Landlord’s sole discretion. |
| 7. | Prior to Tenant’s occupancy of the Storage Buildings, Landlord shall perform an interior surface water wash down of the Storage Buildings. Tenant, at Tenant’s sole cost, shall reimburse Landlord for Landlord’s out of pocket costs incurred in performing the interior surface water wash down of the Storage Buildings within [***] of Landlord’s delivery to Tenant of an invoice detailing the actual costs incurred. Notwithstanding the foregoing, in no event will Tenant be required to reimburse Landlord pursuant to this section for an aggregate amount in excess of $[***]. |
| 8. | Except as specifically amended herein, all other terms and conditions of the Lease remain in full force and effect. |
| 9. | This Seventh Amendment is binding upon the successors and assigns of the respective parties. |
| 10. | This Seventh Amendment may be executed in counterparts, each of which shall be deemed to be an original, but which together shall be deemed to constitute a single document. Signed copies of this Seventh Amendment exchanged by electronic pdf signatures via email shall be binding as if the same were an original signature. |
Signature page to follow.
| 3 |
IN WITNESS WHEREOF, the Parties have caused this Seventh Amendment to be executed by its duly authorized representative as of the day and year first above written.
LANDLORD:
SLR Property I, LP
| By: | SLR Property I GP, LLC, | |
| a Delaware limited liability company, its general partner |
| By: | /s/ Jay Soni | |
| Name: | Jay Soni | |
| Title: | Authorized Signatory |
TENANT:
Dory Creek LLC
| By: | /s/ Baoqing Liang | |
| Name: | Baoqing Liang | |
| Title: | Technical Director |
| 4 |
Exhibit 7A-1
[***]
Exhibit 15.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information present the combination of the financial information of Bitdeer Technologies Holding Company (“Bitdeer”) and Blue Safari Group Acquisition Corp. (“BSGA”) adjusted to give effect to the Business Combination. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X.
The unaudited pro forma condensed combined statement of financial position as of December 31, 2022 combines the consolidated statement of financial position of Bitdeer as of December 31, 2022 and the balance sheet of BSGA as of December 31, 2022, on a pro forma basis as if the Business Combination had been consummated on December 31, 2022. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 combine the consolidated statement of operations and comprehensive loss of Bitdeer for the year ended December 31, 2022 and the statement of operations of BSGA for the year ended December 31, 2022, on a pro forma basis as if the Business Combination had been consummated on January 1, 2022, the beginning of the earliest period presented.
The unaudited pro forma condensed combined statement of financial position as of December 31, 2022 has been prepared using, and should be read in conjunction with, the following:
| • | Bitdeer’s consolidated statement of financial position as of December 31, 2022 and the related notes included in the shell company report of Bitdeer Technologies Group (the “Company”) on Form 20-F filed with the SEC on April 19, 2023; and |
| • | BSGA’s balance sheet as of December 31, 2022 and the related notes included in the annual report of BSGA on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 6, 2023. |
The unaudited pro forma condensed combined statement of operations and comprehensive loss for the year ended December 31, 2022 has been prepared using, and should be read in conjunction with, the following:
| • | Bitdeer’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2022 and the related notes included in the shell company report of the Company on Form 20-F filed with the SEC on April 19, 2023; and |
| • | BSGA’s statement of operations for the year ended December 31, 2022 and the related notes included in the annual report of BSGA on Form 10-K for the year ended December 31, 2022 filed on March 6, 2023. |
The Business Combination
On April 13, 2023 (the “Closing Date”), the Company consummated the previously announced business combination pursuant to the Amended and Restate Agreement and Plan of Merger, dated December 15, 2021, by and among (i) the Company, (ii) Bitdeer, (iii) BSGA, (iv) Blue Safari Merge Limited, a British Virgin Islands business company and a wholly-owned subsidiary of the Company (“BSGA Merger Sub 1”), (v) Blue Safari Merge II Limited, a British Virgin Islands business company and a wholly-owned subsidiary of the Company (“BSGA Merger Sub 2”), (vi) Bitdeer Merge Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of the Company (“Bitdeer Merger Sub”) and (vii) Blue Safari Mini Corp., an exempted company incorporated with limited liability under the laws of the Cayman Islands and a wholly-owned subsidiary of BSGA, as amended by (a) the First Amendment to Amended and Restate Agreement and Plan of Merger, dated May 30, 2022, (b) the Second Amendment to Amended and Restated Agreement and Plan of Merger, dated December 2, 2022 and (c) the Third Amendment to Amended and Restated Agreement and Plan of Merger, dated March 7, 2023, each by and among the same parties (the “Merger Agreement”).
Pursuant to the Merger Agreement, the transactions contemplated under the Merger Agreement were consummated via a multiple-merger structure, including (i) BSGA Merger Sub 1 merging with and into BSGA with BSGA being the surviving entity and becoming a wholly-owned subsidiary of the Company (the “First SPAC Merger”, and the surviving entity, the “Initial SPAC Surviving Sub”), (ii) immediately following the First SPAC Merger, Initial SPAC Surviving Sub merging with and into BSGA Merger Sub 2, with BSGA Merger Sub 2 being the surviving entity (the “Second SPAC Merger”, and together with the First SPAC Merger, the “Initial Mergers”), and (iii) following the Initial Mergers, Bitdeer Merger Sub merging with and into Bitdeer, with Bitdeer being the surviving entity and becoming a wholly-owned subsidiary of the Company (the “Acquisition Merger”, and together with the Initial Mergers and other transactions contemplated by the Merger Agreement, the “Business Combination”).
Immediately prior to the effective time of the First SPAC Merger (the “First SPAC Merger Effective Time”), (i) each unit of BSGA (“BSGA Unit”) issued and outstanding immediately prior to the First SPAC Merger Effective Time was automatically detached into one Class A ordinary shares, no par value, of BSGA (the “BSGA Class A Ordinary Share”) and one right convertible into one-tenth (1/10) of a BSGA Class A Ordinary Share (the “BSGA Right”) and (ii) each BSGA Right outstanding immediately prior to the First SPAC Merger Effective Time (and immediately subsequent to the detachment of the BSGA Units) was cancelled and ceased to exist in exchange for the right to receive, without interest, one-tenth (1/10) of a BSGA Class A Ordinary Share.
At the First SPAC Merger Effective Time, each ordinary share, no par value, of BSGA (the “BSGA Ordinary Share”) issued and outstanding immediately prior to the First SPAC Merger Effective Time was automatically cancelled and ceased to exist in exchange for the right to receive, without interest, one Class A ordinary shares of the Company, par value US$0.0000001 per share (the “Class A Ordinary Share”).
At the effective time of the Acquisition Merger (the “Acquisition Merger Effective Time”), (i) each ordinary share of Bitdeer, par value US$0.0000001 per share (the “Bitdeer Ordinary Share”) and each preferred share of Bitdeer, par value US$0.0000001 per share, (together with Bitdeer Ordinary Share, the “Bitdeer Shares”) issued and outstanding immediately prior to the Acquisition Merger Effective Time (other than the Bitdeer Shares beneficially owned by Mr. Jihan Wu, founder of Bitdeer, through Victory Courage Limited, the “Key Executive Shares”) was automatically cancelled and ceased to exist in exchange for the right to receive, without interest, such number of Class A Ordinary Shares that is equal to the Exchange Ratio (as defined below), (ii) each Key Executive Share issued and outstanding immediately prior to the Acquisition Merger Effective Time was automatically cancelled and ceased to exist in exchange for the right to receive, without interest, such number of Class V ordinary shares of the Company (“Class V Ordinary Shares”) that is equal to Exchange Ratio (as defined below), (iii) each restricted share unit to acquire Bitdeer Shares issued pursuant to an award granted under Bitdeer’s 2021 Share Incentive Plan (“Bitdeer RSU”) outstanding immediately prior to the Acquisition Merger Effective Time, whether vested or unvested, was assumed by the Company and converted into an award of restricted share units (each an “Assumed RSU”) representing the rights to receive, on the same terms and conditions (including applicable vesting, settlement and expiration provisions) as applied to each such Bitdeer RSU immediately prior to the Acquisition Merger Effective Time, Class A Ordinary Shares, except that the number of Class A Ordinary Shares subject to such Assumed RSU equals the product of (A) the number of Bitdeer Ordinary Shares that were subject to such Bitdeer RSU immediately prior to the Acquisition Merger Effective Time, multiplied by (B) the Exchange Ratio (as defined below), rounded down to the nearest whole share and (iv) the convertible note issued by Bitdeer that is convertible into the Bitdeer Ordinary Shares (the “Bitdeer Convertible Note”) outstanding immediately prior to the Acquisition Merger Effective Time was assumed by the Company and represented the rights to receive, on the same terms and conditions as applied to such Bitdeer Convertible Note, Class A Ordinary Shares, except that the number of Class A Ordinary Shares to be received upon conversion of the Bitdeer Convertible Note equals the product of the number of Bitdeer Ordinary Shares issuable upon conversion of the Bitdeer Convertible Note multiplied by the Exchange Ratio (as defined below), rounded down to the nearest whole share.
As used herein, “Exchange Ratio” means the quotient obtained by dividing (A) 118,000,000 by (B) the Bitdeer Total Shares, and is approximately 0.00858; and “Bitdeer Total Share” equals, as of immediately prior to the Acquisition Merger Effective Time, the sum of (x) the number of issued and outstanding Bitdeer Shares (on an as-converted basis), (y) the aggregate number of Bitdeer Shares (on an as-converted basis) issuable upon the settlement of all vested Bitdeer RSUs as of immediately prior to the Acquisition Merger Effective Time (including after giving effect to the consummation of the Acquisition Merger or any acceleration of any unvested Bitdeer RSUs in connection with the consummation of the Acquisition Merger) and (z) the aggregate number of Bitdeer Shares (on an as-converted basis) issuable upon conversion of the Bitdeer Convertible Note.
On April 14, 2023, Class A Ordinary Shares commenced trading on the Nasdaq Stock Market (“Nasdaq”) under the symbol “BTDR.”
Accounting for the Business Combination
The Business Combination will be accounted for as a “reverse recapitalization” in accordance with IFRS. Under this method of accounting, BSGA will be treated as the “acquired” company for financial reporting purposes. This determination is primarily based on the fact that subsequent to the Business Combination, the Bitdeer’s shareholders are expected to have a majority of the voting power of the Company, Bitdeer will comprise all of the ongoing operations of combined company, Bitdeer will comprise a majority of the governing body of combined company, and Bitdeer’s senior management will comprise all of the senior management of the combined company. Since BSGA does not meet the definition of a business under IFRS, the transaction is outside the scope of IFRS 3, “Business Combinations”, and it is accounted for as an equity-settled, share-based payment transaction in accordance with IFRS 2, “Share-based Payments”. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of Bitdeer issuing shares for the net assets of BSGA, accompanied by a recapitalization. The net assets of BSGA will be stated at historical costs. Any difference in the fair value of the consideration deemed to have been issued by Bitdeer and the fair value of BSGA’s identifiable net assets represents a listing service received by Bitdeer and is recorded through profit and loss. No goodwill or other intangible assets will be recorded. Operations prior to the Business Combination will be those of Bitdeer.
Basis of Pro Forma Presentation
The unaudited pro forma combined financial information included in this Exhibit has been prepared using actual redemption of BSGA Ordinary Shares into cash.
Bitdeer is providing this information to aid you in your analysis of the financial aspects of the Business Combination. The unaudited pro forma condensed combined financial statements described above and the assumption and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial statements should be read in conjunction with Bitdeer’s and BSGA’s historical financial statements and the related notes thereto.
The pro forma adjustments are preliminary, and the unaudited pro forma information have been presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that may have actually occurred had the Business Combination taken place on the dates noted, or of Bitdeer’s future financial position or operating results. Further, the unaudited pro forma condensed combined financial statements do not purport to project the future operating results or financial position of Bitdeer following the completion of the Business Combination. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2022
(In thousand of U.S. Dollar)
| (1) | (2) | |||||||||||||||||||||||||||||||||||||
| Bitdeer | BSGA | Actual Redemptions | ||||||||||||||||||||||||||||||||||||
| Transaction | Transaction | |||||||||||||||||||||||||||||||||||||
| Accounting | Accounting | Pro Forma | Pro Forma | |||||||||||||||||||||||||||||||||||
| (Historical) | Adjustments | Note | (Pro Forma) | (Historical) | Adjustments | Note | (Pro Forma) | Adjustments | Note | Combined | ||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | US$ | 231,362 | US$ | (258) | (A) | US$ | 231,104 | US$ | 487 | US$ | - | US$ | 487 | US$ | 2,135 | (C) | US$ | 213,416 | ||||||||||||||||||||
| (2,013 | ) | (E) | ||||||||||||||||||||||||||||||||||||
| (10,200 | ) | (F) | ||||||||||||||||||||||||||||||||||||
| (8,097 | ) | (H) | ||||||||||||||||||||||||||||||||||||
| Cryptocurrencies | 2,175 | - | 2,175 | - | - | - | - | 2,175 | ||||||||||||||||||||||||||||||
| Trade receivables | 18,304 | - | 18,304 | - | - | - | - | 18,304 | ||||||||||||||||||||||||||||||
| Amounts due from a related party | 397 | - | 397 | - | - | - | - | 397 | ||||||||||||||||||||||||||||||
| Mining machines | 27,703 | - | 27,703 | - | - | - | - | 27,703 | ||||||||||||||||||||||||||||||
| Prepayments and other assets | 59,576 | 258 | (A) | 59,834 | 160 | - | 160 | (2,804 | ) | (J) | 57,190 | |||||||||||||||||||||||||||
| Financial assets at fair value through profit or loss | 60,959 | - | 60,959 | - | - | - | - | 60,959 | ||||||||||||||||||||||||||||||
| Restricted cash | 11,494 | - | 11,494 | - | - | - | - | 11,494 | ||||||||||||||||||||||||||||||
| Right-of-use assets | 60,082 | - | 60,082 | - | - | - | - | 60,082 | ||||||||||||||||||||||||||||||
| Property, plant and equipment | 138,636 | - | 138,636 | - | - | - | - | 138,636 | ||||||||||||||||||||||||||||||
| Investment properties | 35,542 | - | 35,542 | - | - | - | - | 35,542 | ||||||||||||||||||||||||||||||
| Intangible assets | 322 | - | 322 | - | - | - | - | 322 | ||||||||||||||||||||||||||||||
| Deferred tax assets | 4,857 | - | 4,857 | - | - | - | - | 4,857 | ||||||||||||||||||||||||||||||
| Cash held in Trust Account | - | - | - | 18,238 | 258 | (A) | 18,496 | (16,361 | ) | (B) | - | |||||||||||||||||||||||||||
| (2,135 | ) | (C) | ||||||||||||||||||||||||||||||||||||
| TOTAL ASSETS | US$ | 651,409 | US$ | - | US$ | 651,409 | US$ | 18,885 | US$ | 258 | US$ | 19,143 | US$ | (39,475 | ) | US$ | 631,077 | |||||||||||||||||||||
| LIABILITIES | ||||||||||||||||||||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||||||||||||||||||||
| Trade payables | US$ | 15,768 | US$ | - | US$ | 15,768 | US$ | - | US$ | - | US$ | - | US$ | - | US$ | 15,768 | ||||||||||||||||||||||
| Other payables and accruals | 22,176 | - | 22,176 | 4,083 | - | 4,083 | (400 | ) | (F) | 21,957 | ||||||||||||||||||||||||||||
| - | (3,902 | ) | (H) | |||||||||||||||||||||||||||||||||||
| Amounts due to a related party | 316 | - | 316 | 420 | - | 420 | - | 736 | ||||||||||||||||||||||||||||||
| Promissory note - related party | - | - | - | 200 | - | 200 | - | 200 | ||||||||||||||||||||||||||||||
| Promissory note - Bitdeer | - | - | - | 2,546 | 258 | (A) | 2,804 | (2,804 | ) | (J) | - | |||||||||||||||||||||||||||
| Income tax payables | 657 | - | 657 | - | - | - | - | 657 | ||||||||||||||||||||||||||||||
| Deferred revenue | 182,297 | - | 182,297 | - | - | - | - | 182,297 | ||||||||||||||||||||||||||||||
| Borrowings | 29,805 | - | 29,805 | - | - | - | - | 29,805 | ||||||||||||||||||||||||||||||
| Lease liabilities | 70,425 | - | 70,425 | - | - | - | - | 70,425 | ||||||||||||||||||||||||||||||
| Deferred tax liabilities | 11,626 | - | 11,626 | - | - | - | - | 11,626 | ||||||||||||||||||||||||||||||
| Deferred underwriters discount | - | - | - | 2,013 | - | 2,013 | (2,013 | ) | (E) | - | ||||||||||||||||||||||||||||
| TOTAL LIABILITIES | 333,070 | - | 333,070 | 9,262 | 258 | 9,520 | (9,119 | ) | 333,471 | |||||||||||||||||||||||||||||
| NET ASSETS | US$ | 318,339 | US$ | - | US$ | 318,339 | US$ | 9,623 | US$ | - | US$ | 9,623 | US$ | (30,356 | ) | US$ | 297,606 | |||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||||||||||||||||||||||
| Class A ordinary shares subject to possible redemption | - | - | - | 18,238 | 258 | (A) | 18,496 | (16,361 | ) | (B) | - | |||||||||||||||||||||||||||
| (2,135 | ) | (D) | ||||||||||||||||||||||||||||||||||||
| EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||||||||
| Class A ordinary shares | - | - | - | 3,404 | - | 3,404 | (3,404 | ) | (D) | - | ||||||||||||||||||||||||||||
| Class B ordinary shares | - | - | - | 25 | - | 25 | (25 | ) | (D) | - | ||||||||||||||||||||||||||||
| Share capital | 1 | - | 1 | - | - | - | (1 | ) | (G) | - | ||||||||||||||||||||||||||||
| Retained earnings (accumulated deficit) | 6,803 | - | 6,803 | (12,044 | ) | (258 | ) | (A) | (12,302 | ) | 12,302 | (D) | (34,400 | ) | ||||||||||||||||||||||||
| (4,195 | ) | (H) | ||||||||||||||||||||||||||||||||||||
| (37,008 | ) | (I) | ||||||||||||||||||||||||||||||||||||
| Reserves | 311,535 | - | 311,535 | - | - | - | (6,738 | ) | (D) | 332,006 | ||||||||||||||||||||||||||||
| (9,800 | ) | (F) | ||||||||||||||||||||||||||||||||||||
| 1 | (G) | |||||||||||||||||||||||||||||||||||||
| 37,008 | (I) | |||||||||||||||||||||||||||||||||||||
| TOTAL TEMPORARY EQUITY AND EQUITY (DEFICIT) | US$ | 318,339 | US$ | - | US$ | 318,339 | US$ | 9,623 | US$ | - | US$ | 9,623 | US$ | (30,356 | ) | US$ | 297,606 | |||||||||||||||||||||
(1) Derived from the consolidated statement of financial position of Bitdeer as of December 31, 2022.
(2) Derived from the balance sheet of BSGA as of December 31, 2022.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
(In thousand of U.S. Dollar, except for number of shares and per share data)
| Actual Redemptions | ||||||||||||||||||
| (1) | (2) | Pro Forma | Pro Forma | |||||||||||||||
| Bitdeer | BSGA | Adjustments | Note | Combined | ||||||||||||||
| Revenue | US$ | 333,342 | US$ | - | US$ | - | US$ | 333,342 | ||||||||||
| Cost of revenue | (250,090 | ) | - | - | (250,090 | ) | ||||||||||||
| Gross profit | 83,252 | - | - | 83,252 | ||||||||||||||
| Selling expenses | (11,683 | ) | - | - | (11,683 | ) | ||||||||||||
| General and administrative expenses | (93,453 | ) | (4,660 | ) | (4,195 | ) | (AA) | (102,308 | ) | |||||||||
| Recapitalization transaction expenses | - | - | (37,008 | ) | (BB) | (37,008 | ) | |||||||||||
| Research and development expenses | (35,430 | ) | - | - | (35,430 | ) | ||||||||||||
| Other operating expenses | (3,628 | ) | - | - | (3,628 | ) | ||||||||||||
| Other net gain | 357 | - | - | 357 | ||||||||||||||
| Loss from operations | (60,585 | ) | (4,660 | ) | (41,203 | ) | (106,448 | ) | ||||||||||
| Finance income / (expenses) | (4,181 | ) | 742 | (742 | ) | (CC) | (4,181 | ) | ||||||||||
| Loss before taxation | (64,766 | ) | (3,918 | ) | (41,945 | ) | (110,629 | ) | ||||||||||
| Income tax benefit | 4,400 | - | 2,514 | (BB) | 6,914 | |||||||||||||
| Loss for the year | US$ | (60,366) | US$ | (3,918) | US$ | (39,431) | US$ | (103,715) | ||||||||||
| Basic and diluted weighted average shares outstanding, Class A ordinary shares subject to possible redemption | 5,750,000 | |||||||||||||||||
| Basic and diluted net loss per share, Class A ordinary shares subject to possible redemption | US$ | (0.52 | ) | |||||||||||||||
| Basic and diluted weighted average shares outstanding, Class B ordinary shares and Class A shares not subject to possible redemption | 1,787,500 | |||||||||||||||||
| Basic and diluted net loss per share, Class B ordinary shares and Class A ordinary shares not subject to possible redemption | US$ | (0.52 | ) | |||||||||||||||
| Basic and diluted weighted average shares outstanding | 12,662,125,806 | |||||||||||||||||
| Basic and diluted loss per share per nonredeemable ordinary share | US$ | (0.00 | ) | |||||||||||||||
| Basic and diluted pro forma weighted average shares outstanding | 111,288,605 | |||||||||||||||||
| Basic and diluted pro forma loss per share | US$ | (0.93 | ) | |||||||||||||||
(1) Derived from the consolidated statement of operations and comprehensive loss of Bitdeer for the year ended December 31, 2022.
(2) Derived from the statement of operations of BSGA for the year ended December 31, 2022.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1 — Basic of Presentation
The unaudited pro forma condensed combined statement of financial position as of December 31, 2022 gives pro forma effect to the Business Combination as if it had been consummated on December 31, 2022. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2022 give pro forma effect to the Business Combination as if it had been consummated on January 1, 2022, the beginning of the earliest period presented in the unaudited pro forma condensed combined statements of operations.
The unaudited pro forma condensed combined statement of financial position as of December 31, 2022 has been prepared using Bitdeer’s consolidated statement of financial position as of December 31, 2022 and BSGA’s balance sheet as of December 31, 2022.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 has been prepared using Bitdeer’s consolidated statement of operations and loss for the year ended December 31, 2022 and BSGA’s statement of operations for the year ended December 31, 2022.
The historical financial statements of Bitdeer have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) and in its presentation and reporting currency of the United States dollars (US$). The historical financial statements of BSGA have been prepared in accordance with the Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) in its presentation and reporting currency of United States dollars (US$).
Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.
The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and based on certain assumptions and methodologies that management believes are reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and analyses are performed. Therefore, the actual adjustments may materially differ from the pro forma adjustments. Management considers this basis of presentation to be reasonable under the circumstances.
The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements and notes thereto of Bitdeer and BSGA.
Note 2 — Adjustments to Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and has been prepared for informational purposes only.
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Bitdeer has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the following unaudited pro forma condensed combined financial statements.
Bitdeer and BSGA have not had any historical relationship prior to the Business Combination other than item as described in (A) below. Accordingly, such transaction accounting adjustments were required to eliminate activities between the companies.
Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statement of Financial Position
The transaction accounting adjustments included in the unaudited pro forma condensed combined statement of financial position as of December 31, 2022 are as follows:
| (A) | Reflects a $257,758 non-interest bearing loans from Bitdeer to BSGA and deposited into the trust account in order to extend the available time to complete the Business Combination; |
| (B) | Reflects the redemption of 1,502,640 BSGA Class A Ordinary Shares at redemption value of $10.89 per share; |
| (C) | Reflects the reclassification of cash held in the Trust Account that becomes available for general use following the Business Combination; |
| (D) | Reflects the elimination of BSGA’s historical ordinary shares value and accumulated deficit, which include a) the issuance 215,748 Class A Ordinary Shares from the conversion of the unredeemed 215,748 BSGA Class A Ordinary Shares, b) the issuance of 1,759,250 Class A Ordinary Shares resulted from i) the conversion of the 1,437,500 BSGA Class A Ordinary Shares held by the Sponsor, ii) the conversion of the 292,500 BSGA Class B Ordinary Shares held by the Sponsor and iii) the issuance of the 29,250 Class A Ordinary Shares from the conversion of 292,500 BSGA Rights held by the Sponsor upon consummation of the Business Combination, c) the issuance of 575,000 Class A Ordinary Shares from the conversion of 5,750,000 BSGA Rights upon consummation of the Business Combination and d) the issuance of 57,500 Class A Ordinary Shares from the conversion of the 57,500 Class A Ordinary Shares held by the underwriter; |
| (E) | Reflects the settlement of approximately $2.0 million deferred underwriters discount that become due and payable upon consummation of the Business Combination; |
| (F) | Reflects the settlement of approximately $10.2 million of Bitdeer’s transaction costs related to the Business Combination, of which, 1) approximately $0.4 million of transaction costs accrued as of the date of the unaudited pro forma condensed combined statement of financial position and 2) approximately $9.8 million subsequently reclassify to reserves upon the close of the Business Combination; |
| (G) | Reflects the recapitalization of Bitdeer’s equity as consideration for the reverse recapitalization with 1) the issuance of 48.4 million Class V Ordinary Shares and 2) the issuance of 60.3 million Class A Ordinary Shares; |
| (H) | Reflects the settlement of approximately $8.1 million of BSGA’s total estimated professional fees related to the Business Combination, of which, 1) approximately $3.9 million of transaction costs accrued as of the date of unaudited pro forma condensed combined statement of financial position and 2) approximately $4.2 million of BSGA’s transaction costs as an adjustment to accumulated deficit; |
| (I) | Reflects the estimated expense recognized, in accordance with IFRS 2, for the excess of the fair value of BSGA Ordinary Shares issued over the fair value of BSGA’s identifiable net assets at the date of the Business Combination, resulting in $36.8 million decrease to accumulated deficit based on actual redemption; and |
| Total BSGA Ordinary Shares outstanding as of April 13, 2023 | 2,607,498 | ||
| Fair value of shares as of April 13, 2023 | US$ | 10.00 | |
| Estimated market value of shares (in thousands) | US $ | 26,075 | |
| Pro forma net assets of BSGA as of December 31, 2022 (in thousands) | US $ | 9,623 | |
| Less: Effect of actual redemption of 1,502,640 BSGA Class A Ordinary Shares (in thousands) | US $ | (16,361 | ) |
| Less: BSGA’s transaction costs (in thousands) | US $ | (4,195 | ) |
| Adjusted pro forma net assets (liabilities) of BSGA as of December 31, 2022 (in thousands) | US $ | (10,933 | ) |
| Difference – being IFRS 2 charge for listing services (in thousands) | US $ | 37,008 |
| (J) | Reflects the elimination of promissory notes between Bitdeer and BSGA. |
Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
The transaction accounting adjustments included in the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2022 are as follows:
| (AA) | Reflects the approximately $4.2 million of BSGA’s transaction costs incurred subsequent to December 31, 2022 as if the Business Combination had been consummated on January 1, 2022, the date the Business Combination occurred for the purposes of the pro forma combined statement of operations. This is a non-recurring item; | |
| (BB) | Represents $37.0 million of expense recognized with income tax effect of approximately $2.5 million in accordance with IFRS 2, for the excess of the fair value of BSGA Ordinary Shares issued over the fair value of BSGA’s identifiable net assets, as described in (I), for the year ended December 31, 2022. These costs are a nonrecurring item; and | |
| (CC) | Represents the elimination of interest income earned from the Trust Account for the year ended December 31, 2022. |
Note 3 — Loss per Share
Represents the loss per share (“EPS”) calculated using the historical weighted average shares outstanding, and the change in number of shares in connection with the Business Combination, assuming the shares were outstanding at the beginning of the period presented. As the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted loss per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entire period presented.
Loss per share is computed by dividing pro forma loss for the periods by the weighted average number of ordinary shares outstanding during the periods using the two-class method. Using the two-class method, net loss for the periods are allocated between the Class A Ordinary Shares, the Class V Ordinary Shares and other participating securities (i.e. preference shares) based on their participating rights. Except for voting rights, the Class A Ordinary Shares and the Class V Ordinary Shares have all the same rights and therefore the pro forma loss per share for both classes of shares are identical. The pro forma loss per share amounts are the same for Class A Ordinary Shares and the Class V Ordinary Shares because the holders of each class are entitled to equal per share dividends or distributions in liquidation.
The unaudited pro forma condensed combined has been prepared on actual redemption for the year ended December 31, 2022:
| (in thousands, except share and per share data) | Actual Redemption | |||
| Pro forma net loss for the year (in thousands) | US$ | (103,715 | ) | |
| Weighted average shares outstanding – basic and diluted | 111,288,605 | |||
| Pro forma loss per share – basic and diluted | US$ | (0.93 | ) | |
| Weighted average shares calculation, basic and diluted | ||||
| Class A Ordinary Shares | ||||
| BSGA Class A Ordinary Shares | 215,748 | |||
| BSGA Class A Ordinary Shares converted from rights | 575,000 | |||
| BSGA Class A Ordinary Shares held by Sponsor, BSGA Class A Ordinary Shares converted from rights held by Sponsor, and Class B Ordinary Shares held by Sponsor | 1,759,250 | |||
| BSGA Class A Ordinary Shares held by underwriter | 57,500 | |||
| Bitdeer Shares in the Business Combination | 60,281,185 | |||
| Subtotal – Class A Ordinary Shares | 62,888,683 | |||
| Class V Ordinary Shares | ||||
| Bitdeer Shares in the Business Combination | 48,399,922 | |||
| Total weighted average shares outstanding | 111,288,605 | |||
Exhibit 15.2
Independent Registered Public Accounting Firm’s Consent
We consent to the incorporation by reference in this Shell Company Report of Bitdeer Technologies Group on Form 20-F of our report dated March 3, 2023, which includes an explanatory paragraph as to the ability of Blue Safari Group Acquisition Corp. to continue as a going concern, with respect to our audits of the consolidated financial statements of Blue Safari Group Acquisition Corp. as of December 31, 2022 and 2021, and for the year ended December 31, 2022 and for the period from February 23, 2021 (inception) through December 31, 2021, appearing in the Registration Statement on Form F-4 (File No. 333-270345) of Bitdeer Technologies Group filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2023.
/s/ Marcum llp
Marcum llp
Houston, Texas
April 19, 2023