BTC.com(BTCM) - 2020 Q4 - Annual Report

EXPLANATORY NOTE The company changed its name to "BIT Mining Limited" and its ticker symbol to "BTCM" in April 2021 - Company changed its English name to "BIT Mining Limited" effective April 8, 2021[6] - New ticker symbol "BTCM" is effective at the opening of trading on Tuesday, April 20, 2021[6] CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F This section defines key terms and abbreviations used throughout the annual report PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS This item states that information regarding the identity of directors, senior management, and advisers is not applicable ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE This item states that information regarding offer statistics and expected timetable is not applicable ITEM 3. KEY INFORMATION This section provides key financial data and a comprehensive overview of risk factors related to the business A. Selected Financial Data This section summarizes the company's consolidated financial performance and position from 2016 through 2020 Consolidated Statement of Comprehensive Loss Data (RMB in thousands) | Metric (RMB in thousands) | 2016 | 2017 | 2018 | 2019 | 2020 | 2020 (US$) | |:------------------------------------------|:-----|:-----|:-----|:-----|:-----|:-----------| | Net revenues | 5,259 | 71,858 | 126,089 | 39,688 | 21,815 | 3,343 | | Total operating expenses | (374,296) | (383,691) | (485,775) | (374,227) | (216,264) | (33,145) | | Operating loss from continuing operations | (368,183) | (338,531) | (344,488) | (642,839) | (190,792) | (29,241) | | Net loss attributable to BIT Mining Limited | (202,965) | (317,099) | (451,673) | (651,268) | (223,226) | (34,211) | | Basic Net loss per share | (0.489) | (0.78) | (1.10) | (1.52) | (0.52) | (0.08) | Consolidated Balance Sheets Data (RMB in thousands) | Metric (RMB in thousands) | 2016 | 2017 | 2018 | 2019 | 2020 | 2020 (US$) | |:------------------------------------------|:-----|:-----|:-----|:-----|:-----|:-----------| | Total current assets | 1,707,032 | 737,022 | 601,585 | 430,326 | 335,853 | 51,472 | | Total assets | 2,049,392 | 1,754,559 | 1,246,584 | 695,779 | 470,473 | 72,103 | | Total current liabilities | 181,975 | 175,937 | 99,694 | 77,162 | 73,620 | 11,284 | | Total liabilities | 241,349 | 223,197 | 111,634 | 111,861 | 79,953 | 12,255 | | Total BIT Mining Limited shareholders' equity | 1,709,531 | 1,409,774 | 1,116,605 | 584,456 | 403,777 | 61,880 | - Non-GAAP adjusted net loss attributable to BIT Mining Limited was RMB (138,460) thousand (US$ (21,220) thousand) in 2020, adjusted for share-based compensation, impairment of intangible assets, goodwill, long-term investments, and deferred tax benefit[13][14] B. Capitalization and Indebtedness This item states that information regarding capitalization and indebtedness is not applicable C. Reasons for the Offer and Use of Proceeds This item states that information regarding reasons for the offer and use of proceeds is not applicable D. Risk Factors The company faces significant risks from its evolving business model, regulatory uncertainties, and geopolitical tensions - The company's business model has changed multiple times, including suspending online lottery services and entering the cryptocurrency industry, making business evaluation difficult[16][197] - Online lottery sales services have been suspended since April 4, 2015, with no clear indication of when they will resume, materially impacting financial results[16][17][20] - European online gaming operations are subject to evolving and potentially restrictive government regulations, which could severely impact business[24][226] - The ongoing COVID-19 pandemic could materially and adversely affect business, results of operations, and financial condition[26] - The success of the cryptocurrency mining business depends heavily on the volatile value of Bitcoin[103] - Cryptocurrency mining operations are costly and susceptible to technological obsolescence, supply chain disruptions, and significant power requirements[100][112] - Chinese government policies aimed at carbon neutralization and financial risk prevention may restrict or prohibit cryptocurrency mining operations in China[117][119] - The company relies on contractual arrangements with its consolidated affiliated entities in China due to foreign ownership restrictions, which may not be as effective as direct ownership[125][128] - Political tensions between the United States and China could adversely affect the company's business and the trading price of its ADSs[67] - The company's auditor is not subject to inspection by the PCAOB due to PRC regulations, which could lead to delisting under new U.S. standards[154][156] ITEM 4. INFORMATION ON THE COMPANY This section details the company's history, business evolution, current services, and organizational structure A. History and Development of the Company The company has pivoted from online lottery services to online gaming and recently to cryptocurrency mining - Company began online lottery services in 2001, suspended them in April 2015, and has not generated revenue from them since[178] - Acquired 93% equity in The Multi Group (TMG) in July 2017, and the remaining 7% in April 2020, to operate online gaming sites in Europe[182] - Announced entry into the cryptocurrency industry in December 2020 through multiple acquisitions and agreements[182][184][186] - Completed acquisition of bitcoin mining machines with ~918.5 PH/S hash power in March 2021 and began generating revenue from cryptocurrency mining in February 2021[184] - Acquired 54.2% ownership of Loto Interactive Limited in March 2021, which operates big data centers for cryptocurrency mining[180] - Board resolved to change the company's English name to "BIT Mining Limited" and ticker symbol to "BTCM", effective April 2021, and relocate headquarters to Singapore[186] - Entered into a share exchange agreement in April 2021 to acquire Bee Computing (HK) Limited, a 7-nanometer mining machine manufacturer, for US$100 million in Class A ordinary shares[186] - Mr. Man San Vincent Law's aggregate voting power increased to approximately 60.28% after the issuance of 65,000 Class A preference shares to his wholly-owned company[191] B. Business Overview This section details the company's transition to online gaming and cryptocurrency mining, outlining services and the regulatory environment Our Services The company's services have evolved from suspended online lottery sales to online gaming, with a current focus on cryptocurrency mining - Current services include online gaming, sports information, and financial technology[199][202][204][205] - As of the report date, 50,113 mining machines are deployed, producing approximately three bitcoins daily, with a total of 398 bitcoins owned[198] - TMG's online gaming services generated RMB14.9 million (US$2.3 million) in 2020, a decrease from RMB35.6 million in 2019[202][297] - Sports information services generated RMB6.9 million (US$1.1 million) in 2020, an increase from RMB3.3 million in 2019[204][297] Our Revenue Model The company generates revenue from online gaming, sports information subscriptions, and financial technology trading commissions - Online gaming revenue is derived from the net difference between users' real money gaming wins/losses and 'bonus' gaming bets/wins[210] - Sports information revenue comes from monthly subscriptions and a percentage fee on pay-per-view content[210][212] - Financial technology revenue is generated from trading commissions on online spot commodity trades[213] User Support Operations User support operations are divided into customer service and online security teams handling inquiries and monitoring transactions - Customer service handles inquiries, assesses needs, builds relationships, and performs Know Your Customer (KYC) checks[215] - The Fraud and Payments team processes withdrawals, monitors for suspicious transactions, and reports anti-money laundering activities[217] Sales, Marketing and Branding The company leverages online and offline marketing to maintain and enhance its brand reputation, particularly its '500wan' brand - The company utilizes both in-house and external online marketing, as well as traditional offline advertising, to target specific audiences[218] Competition The company operates in a intensely competitive environment, facing rivals in European lottery and online casino operations - Main competitors in European lottery include TheLotter, LottoLand, and 25Lotto[218] - Main competitors in online and live casino operations include Betsson, LeoVegas, Casumo, and Mr. Green[218] Product Development The product development team focuses on enhancing existing services and developing new technologies - As of December 31, 2020, the product development team had 61 employees, representing 44.2% of total employees[219] - Focus areas include server capacity, user interface, mobile software, infrastructure optimization, and user data mining[219] Legal and Administrative Proceedings The company has been involved in several legal proceedings, including a settled class action and an ongoing securities lawsuit - Settled a stockholder class action lawsuit in 2016 for US$1.5 million (company paid) and US$1.0 million (insurance covered)[220] - Settled an arbitration dispute to purchase the remaining 7% equity interest in TMG for EUR1.9 million in April 2020[222] - An internal investigation into alleged illegal money transfers in Japan concluded in October 2020, finding no sufficient basis for a U.S. FCPA violation[222] - A securities class action lawsuit filed in February 2020, alleging misleading statements regarding anti-corruption compliance, is ongoing[222] Regulation of Our Industry The company's operations are subject to complex and evolving regulatory frameworks in China and Europe Regulations on Online Gaming in Europe Online gaming operations in Europe are subject to licenses from various jurisdictions, with regulatory changes posing significant risks - TMG holds online gaming licenses from Curacao, Malta, the United Kingdom, Ireland, and Sweden, requiring periodic renewal[226] - TMG ceased operations in Ireland (July 2019) and the United Kingdom (September 2019) and temporarily suspended operations in Sweden (January-September 2020) due to license issues[226] - Uncertainty in European online gaming regulations could severely impact business, revenues, and financial condition[226] Regulations on Lottery Services Industry and Online Lottery Sales The PRC lottery industry is highly regulated, with the company's online lottery sales services suspended since April 2015 - Online lottery sales in China require MOF approval and a Lottery Agency License[228][229] - The company voluntarily suspended all online lottery sales services on April 4, 2015, in response to regulatory mandates[229][231] - Despite receiving MOF approval in 2012, the suspension continues with no clear indication of when it will be lifted[229][232] Chinese Regulations and Policies Relating to Blockchain, Cryptocurrency and Cryptocurrency Mining China's regulatory stance on cryptocurrencies is complex, with prohibitions on related financial business and increasing scrutiny on mining - Bitcoin is considered a virtual commodity, not legal currency, and financial institutions are prohibited from engaging in bitcoin-related business in China[239] - Activities like ICOs are forbidden in China, deemed illegal public financing activities[239] - Cryptocurrency mining is subject to an unclear and evolving regulatory framework, with local governments guided to encourage an orderly exit[242] - Inner Mongolia mandated the complete shutdown of cryptocurrency mining projects by the end of April 2021, signaling potential broader restrictions[242] - Blockchain information service providers in China are required to register with the Cyberspace Administration of China[243] Regulation of Telecommunication Services The telecommunication industry in China is highly regulated, requiring operating licenses for basic and value-added services - Telecommunication services in China are categorized as basic or value-added, both requiring operating licenses[245] - Internet content provision (ICP) services are classified as value-added telecommunication services (VAS) and require a VAS license[245][246] Regulations on Value-Added Telecommunication and Internet Information Services Commercial ICP service operators in China must obtain a VAS license and monitor content for prohibited categories - Commercial ICP service operators must obtain a VAS license and display its number on their website[246] - E-Sun Sky Network holds a VAS license for Internet information services, effective until September 5, 2022[247] Regulations on Internet Content Services ICP service operators are required to monitor and censor content on their websites, with violations leading to severe penalties - ICP operators must monitor and remove content that compromises state security, spreads false information, or promotes illegal activities[248] - Violations of content restrictions can result in website shutdowns or VAS license revocation[248] Regulations on Internet Data Center Services Internet Data Center (IDC) services require VAS licenses, which the company's controlled entities hold for its mining farms - IDC services, including server hosting and internet resource collaboration, require VAS licenses[249] - The company's mining farms are considered IDCs, and three Loto Interactive-controlled entities hold VAS licenses for IDC services[249] Regulations on Foreign Investment in Lottery and Value-Added Telecommunications Services PRC laws prohibit foreign investment in the lottery industry and restrict it in value-added telecommunication services - Foreign invested entities are not allowed to operate in the lottery industry in China[250] - Foreign ownership in value-added telecommunication services is limited to 50% in China[252] - The company uses contractual arrangements with consolidated affiliated entities to operate in China, circumventing foreign investment restrictions[252] Regulations on Anti-money Laundering The PRC Anti-money Laundering Law requires institutions to adopt precautionary measures and report suspicious transactions - PRC Anti-money Laundering Law requires client identification, record retention, and suspicious transaction reporting[253] - The unclear legal nature of cryptocurrencies in China creates uncertainty regarding compliance with future anti-money laundering laws[253] Regulations on Internet Information Security China's internet security laws mandate network operators to ensure secure operations and protect data integrity - Network operators must ensure secure and stable network operations, prevent cybercrimes, and protect data integrity, confidentiality, and availability[256] - Violators of internet security laws may face criminal punishment or revocation of operating licenses[254] Regulations on Intellectual Property Intellectual property in China is protected by laws covering trademarks, software copyrights, and domain names - PRC Trademark Law protects registered trademarks for an initial term of ten years, renewable thereafter[257] - Computer software copyrights are registered with the National Copyright Administration of the PRC[258] - Domain names are regulated by CNNIC and MIIT, with dispute resolution mechanisms in place[258] Regulations on Foreign Exchange PRC foreign exchange regulations control the convertibility of Renminbi, particularly for capital account items - Renminbi is freely convertible only for current account items; capital account items require SAFE approval for foreign currency conversion[264] - PRC residents participating in overseas share incentive plans must register with SAFE[261][262] - Failure to comply with SAFE Circular 37 by PRC resident beneficial owners could lead to fines and restrictions on profit distribution[260] Regulations on Employee Stock Option Granted by Offshore Listed Companies PRC residents participating in share incentive plans of overseas listed companies are required to register with SAFE - PRC residents with share options in overseas listed companies must register with SAFE and use a PRC agent for procedures[261][262] - The company and its PRC citizen employees are currently applying for registration with the Shenzhen branch of SAFE[262] M&A Regulations and Overseas Listings The 2006 M&A Rules establish complex procedures for foreign acquisitions of Chinese companies, posing risks to the company's VIE structure - The 2006 M&A Rules require MOFCOM approval for certain acquisitions of Chinese companies by offshore entities for overseas listing purposes[263] - Uncertainty exists regarding the application of these rules to the company's VIE structure, potentially leading to severe penalties[263] Regulations on Foreign Currency Exchange PRC regulations restrict foreign currency conversion for capital account items and the use of converted RMB capital - Capital account items require prior approval from SAFE for Renminbi conversion into foreign currency[264] - SAFE Circular 19 restricts the use of RMB funds converted from foreign exchange capital by foreign-invested enterprises[266] Regulations on Dividend Distribution PRC Company Law requires companies to allocate a portion of after-tax profits to a non-distributable statutory common reserve - PRC companies must allocate 10% of after-tax profits to a statutory common reserve until it reaches 50% of registered capital[267] - Statutory reserve funds are non-distributable as cash dividends and are restricted to specific purposes[192] Regulations Regarding the Enterprise Income Tax, Individual Income Tax and Withholding Tax The EIT Law imposes a 25% income tax on Chinese enterprises and a 10% withholding tax on dividends to non-resident enterprises - The EIT Law imposes a 25% enterprise income tax rate on Chinese enterprises and a 10% withholding tax on dividends to non-resident enterprises[268][270] - If the company is deemed a PRC resident enterprise, its worldwide income and dividends/capital gains for foreign investors could be subject to PRC taxation[268][269][270] - Non-resident individual investors may face a 20% PRC tax on dividends or capital gains if deemed PRC-sourced income[270] - SAT Circular 7 addresses indirect transfers of equity interests in PRC resident enterprises, potentially subjecting gains to PRC withholding tax[149][271] PRC Business Tax and Value-added Tax China's VAT reform program replaced the business tax with a 6% VAT for certain services provided by the company's entities - A 6% VAT applies to certain services provided by E-Sun Sky Computer and E-Sun Sky Network since November 2012[274] - Other VIEs are subject to a 3% VAT since June 2014[274] C. Organizational Structure The company's structure involves a holding company, PRC subsidiaries, and VIEs to comply with foreign ownership restrictions Contractual Arrangements with Our Consolidated Affiliated Entities The company relies on contractual arrangements with its VIEs in China to operate its business and circumvent foreign ownership restrictions - Contractual arrangements with VIEs enable the company to exercise effective control and receive economic benefits, leading to consolidation under U.S. GAAP[278][280] - Key agreements include Exclusive Business Cooperation, Exclusive Option, Equity Interests Pledge, and Shareholder's Voting Power Assignment Agreements[281][282][283][284] - The company provides unconditional financial support to VIEs through nominee shareholders[284] - PRC legal counsel advises that the corporate structure and contractual arrangements comply with applicable PRC laws, but uncertainties exist[286] D. Property, Plant and Equipment The company's principal executive offices are located in Shenzhen, China, with additional offices in Hong Kong and Malta - Principal executive offices are in Shenzhen, China, covering 2,176 square meters[288] - Leased office space was reduced from 9,659 to 2,176 square meters between August 2020 and January 2021[288] - Expected annual rental expense increase of 5%[288] ITEM 4A. UNRESOLVED STAFF COMMENTS This item states that there are no unresolved staff comments ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes the company's financial condition and results, highlighting a shift in revenue streams and changes in operating expenses A. Operating Results Operating results reflect a shift to online gaming and cryptocurrency mining, with decreased revenues and operating losses in 2020 Overview The company's revenue streams have diversified from online lottery to online gaming, with a recent strategic shift to cryptocurrency mining - No net revenues from sports lottery sales from 2016 to 2020 due to suspension[291] Net Revenues from Continuing Operations (RMB in thousands) | Service Type | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (US$) | |:-------------|:-----------|:-----------|:-----------|:-----------| | Online gaming services | 105,511 | 35,596 | 14,929 | 2,288 | | Sports information services | 16,036 | 3,345 | 6,921 | 1,060 | | Financial technology services | 401 | 148 | 5 | 1 | | Total net revenues | 126,089 | 39,688 | 21,815 | 3,343 | - Net revenues from continuing operations decreased by 68.5% from 2018 to 2019 and by 45.1% from 2019 to 2020[294] - Net loss from continuing operations attributable to BIT Mining Limited decreased by 65.7% from RMB651.3 million in 2019 to RMB223.2 million (US$34.2 million) in 2020[294] - The company officially began generating revenue from cryptocurrency mining operations as of February 26, 2021[293] Description of Key Statement of Operations Items from Continuing Operation This section details the components of net revenues and operating expenses, showing declines in online gaming revenue and most expense categories Net Revenues by Service Type (RMB in thousands) | Service Type | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (US$) | |:-------------|:-----------|:-----------|:-----------|:-----------| | Online gaming services in Europe and beyond | 105,511 | 35,596 | 14,929 | 2,288 | | Mobile gaming | 3,954 | 7 | — | — | | Sports information services | 16,036 | 3,345 | 6,921 | 1,060 | | Financial technology services | 401 | 148 | 5 | 1 | | Physical sales of sports lottery tickets | 187 | 592 | (40) | (6) | | Total revenues | 126,089 | 39,688 | 21,815 | 3,343 | - Online gaming services accounted for 83.7% of net revenues in 2018, decreasing to 68.4% in 2020[297] Operating Expenses from Continuing Operations (RMB in thousands) | Expense Category | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (US$) | |:-----------------|:-----------|:-----------|:-----------|:-----------| | Cost of services | (80,017) | (59,410) | (16,774) | (2,571) | | Sales and marketing | (92,465) | (42,445) | (16,748) | (2,567) | | General and administrative | (251,384) | (223,758) | (152,541) | (23,378) | | Service development | (61,909) | (48,614) | (30,201) | (4,629) | | Total operating expenses | (485,775) | (374,227) | (216,264) | (33,145) | - Cost of services decreased by 71.7% in 2020, mainly due to reduced depreciation/amortization after full impairment of TMG intangible assets in 2019[300] - Sales and marketing expenses decreased by 60.6% in 2020, driven by reduced salary, promotional expenses, and share-based compensation[300] - General and administrative expenses decreased by 31.9% in 2020, primarily due to lower share-based compensation and salary expenses[300][317][318] - Impairment of intangible assets and goodwill in 2019 (RMB181.8 million and RMB129.8 million, respectively) was related to TMG's temporary suspension in Sweden[301] - Impairment of long-term investments increased by 47.3% to RMB33.0 million (US$5.1 million) in 2020, primarily related to the equity interest in Loto Interactive[303][319] Results of Operations Net revenues decreased significantly in 2020, while a substantial reduction in operating expenses led to a lower net loss Consolidated Statement of Comprehensive Loss Data (RMB in thousands) | Metric (RMB in thousands) | 2018 | 2019 | 2020 | 2020 (US$) | |:------------------------------------------|:-----|:-----|:-----|:-----------| | Net Revenues | 126,089 | 39,688 | 21,815 | 3,343 | | Total operating expenses | (485,775) | (374,227) | (216,264) | (33,145) | | Operating loss from continuing operations | (344,488) | (642,839) | (190,792) | (29,241) | | Loss before income taxes from continuing operations | (491,339) | (661,928) | (224,750) | (34,445) | | Net loss from continuing operations | (471,737) | (654,286) | (221,096) | (33,885) | | Net loss attributable to BIT Mining Limited | (451,673) | (651,268) | (223,226) | (34,211) | - Net revenues decreased by 45.1% from RMB39.7 million in 2019 to RMB21.8 million in 2020, mainly due to TMG's temporary suspension in Sweden[316] - Operating expenses decreased by 42.2% from RMB374.2 million in 2019 to RMB216.3 million in 2020, driven by cost reduction measures[316] - Operating loss from continuing operations decreased by RMB452.0 million to RMB190.8 million in 2020, compared to RMB642.8 million in 2019[319] - Net loss from continuing operations decreased to RMB221.1 million in 2020, from RMB654.3 million in 2019[321] B. Liquidity and Capital Resources The company's liquidity is from operations and equity issuances, with sufficient cash expected to cover needs for the next 12 months Cash Flow Summary (RMB in thousands) | Metric (RMB in thousands) | 2018 | 2019 | 2020 | 2020 (US$) | |:------------------------------------------|:-----|:-----|:-----|:-----------| | Net cash used in operating activities | (144,127) | (160,024) | (68,056) | (10,431) | | Net cash (used in) provided by investing activities | (15,604) | 66,817 | 21,714 | 3,330 | | Net cash provided by financing activities | 54,791 | 17,105 | 26 | 4 | | Cash, cash equivalents and restricted cash at end of the year | 436,387 | 365,796 | 312,505 | 47,894 | - As of December 31, 2020, cash and cash equivalents were RMB308.7 million (US$47.3 million)[323][451] - Net cash used in operating activities decreased to RMB68.1 million in 2020, primarily due to lower net loss and various adjustments[325] - Capital expenditures were RMB1.5 million (US$0.2 million) in 2020, a significant decrease from RMB36.7 million in 2018[330] - PRC subsidiaries' ability to pay dividends is restricted by PRC laws and regulations[323] C. Research and Development The company does not anticipate significant future expenditures on research and development activities - No significant R&D expenditures expected in the future due to the suspension of online sports lottery sales services[351] D. Trend Information No material adverse trends are reported for 2020 other than those already disclosed in the annual report E. Off-Balance Sheet Arrangements The company does not engage in off-balance sheet arrangements F. Tabular Disclosure of Contractual Obligations As of December 31, 2020, the company's primary contractual obligations consist of future minimum payments under operating leases Future Minimum Payments Under Non-Cancelable Operating Leases (RMB in thousands) | Year | RMB (in thousands) | US$ (in thousands) | |:-----|:-------------------|:-------------------| | 2021 | 3,830 | 587 | | 2022 | 3,835 | 588 | | 2023 | 2,684 | 411 | | Total | 10,349 | 1,586 | | Less: imputed interest | (832) | (127) | | Present value of lease liabilities | 9,517 | 1,459 | - No long-term debt obligations or purchase obligations as of December 31, 2020[355] G. Safe Harbor This section provides a safe harbor statement for forward-looking statements in the annual report - Forward-looking statements are based on current expectations and projections, subject to risks and uncertainties[355] - Key areas of forward-looking statements include business development, financial condition, market growth, and government policies[355] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section provides information on the company's directors, executive officers, compensation, and board practices A. Directors and Senior Management The company's leadership team includes a chairman, executive director, CEO, COO, CFO, and four independent directors Directors and Executive Officers | Name | Age | Position/Title | |:-----|:----|:---------------| | Shengwu Wu | 48 | Chairman | | Man San Vincent Law | 53 | Executive Director | | Xianfeng Yang | 52 | Chief Executive Officer | | Bo Yu | 53 | Director, Chief Operating Officer | | Qian Sun | 48 | Independent Director | | Honghui Deng | 52 | Independent Director | | Yu Wei | 52 | Independent Director | | Wong, Yan Ki Angel | 49 | Independent Director | | Qiang Yuan | 48 | Chief Financial Officer | - Mr. Man San Vincent Law, the founder, was appointed Executive Director in April 2021, and Mr. Xianfeng Yang was appointed CEO in December 2020[360] B. Compensation In 2020, aggregate cash compensation for directors and executive officers was RMB4.7 million (US$0.7 million) Share Incentive Plans The company utilizes 2011 and 2021 Share Incentive Plans to grant options and restricted shares to employees and directors - Aggregate cash compensation for directors and executive officers was RMB4.7 million (US$0.7 million) in 2020[362] - The 2011 Share Incentive Plan expired in March 2021, and a new 2021 Share Incentive Plan was adopted, authorizing issuance of up to 12% of outstanding ordinary shares[370] Share Options Outstanding (as of Dec 31, 2020) | Metric | Number of options | Weighted average exercise price (US$/Share) | Weighted average grant date fair value per share (US$) | Weighted average remaining contractual year (Years) | Aggregated intrinsic value (US$'000) | |:-------|:------------------|:--------------------------------------------|:-------------------------------------------------------|:----------------------------------------------------|:-------------------------------------| | Outstanding | 7,259,020 | 0.99 | 1.09 | 0.51 | 907 | | Vested and expected to vest | 7,259,020 | 0.99 | 1.08 | 0.52 | 907 | | Exercisable | 7,259,020 | 0.99 | 1.08 | 0.52 | 907 | Restricted Shares Outstanding (as of Dec 31, 2020) | Metric | Number of options | Weighted average grant date fair value per share (US$) | Weighted average remaining contractual year (Years) | Aggregated intrinsic value (US$'000) | |:-------|:------------------|:-------------------------------------------------------|:----------------------------------------------------|:-------------------------------------| | Outstanding | 30,884,300 | 0.62 | 8.98 | 27,796 | | Vested and expected to vest | 30,884,300 | 0.62 | 8.98 | 27,796 | | Exercisable | 30,884,300 | 0.62 | 8.98 | 27,796 | - Total share-based compensation expenses for employees and directors were RMB55.424 million (US$8.494 million) in 2020[638] C. Board Practices The board of directors comprises six members and operates through several committees Committees of the Board of Directors The board has an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, and a Strategy Committee - The Audit Committee oversees accounting, financial reporting, and independent auditor selection[374][376] - The Compensation Committee reviews and determines executive and director compensation[377] - The Nominating and Corporate Governance Committee identifies qualified director and executive officer candidates[380] - The Strategy Committee guides management and the board on strategic transactions and business planning[381] Terms of Directors and Executive Officers Directors are appointed or removed by shareholder resolution, while executive officers serve at the discretion of the board - Directors hold office until removed by shareholder resolution or board resolution[382] - Executive officers are appointed and removed by a majority vote of the board of directors[382] Employment Agreements Employment agreements with executive officers allow for termination for cause without notice or remuneration - Executive officers' employment can be terminated for cause without notice or remuneration[384] - Termination without cause requires one-month prior written notice or one-month salary compensation[384] D. Employees The company had 138 employees as of December 31, 2020, a decrease from 282 in 2018 Number of Employees by Function (as of Dec 31, 2020) | Function | Number of employees | |:-------------------------------|:--------------------| | Management and Administration | 9 | | Sales, Marketing and Website Operation | 28 | | Service and User Support | 5 | | Technology and Product Development | 61 | | Administrative Support | 35 | | Total | 138 | - Total employees decreased from 282 in 2018 to 138 in 2020[384] - Employees participate in government-mandated social insurance and housing fund plans in China[384] E. Share Ownership As of April 5, 2021, founder Mr. Man San Vincent Law held 61.7% of total voting power Beneficial Ownership of Ordinary Shares (as of April 5, 2021) | Shareholder | Shares Beneficially Owned (Number) | Percentage of Shares | Percentage of Votes Held | |:------------------------------------|:-----------------------------------|:---------------------|:-------------------------| | Man San Vincent Law | 96,791,039 | 17.3 % | 61.7 % | | Directors and Executive Officers as a Group | 106,969,979 | 19.0 % | 62.5 % | | Tsinghua Unigroup Co., Ltd. | 140,141,810 | 25.0 % | 11.6 % | | Sequoia Capital 2010 CGF Holdco, Ltd. | 35,042,735 | 6.3 % | 2.9 % | - Mr. Man San Vincent Law's voting power increased to approximately 60.28% after the issuance of 65,000 Class A preference shares to his wholly-owned company[191][386] - Tsinghua Unigroup Co., Ltd. is a major shareholder, holding 25.0% of shares and 11.6% of votes[387][389] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section outlines major shareholders and details related party transactions A. Major Shareholders Information on major shareholders is referenced from 'Item 6.E. Share Ownership' B. Related Party Transactions The company had no outstanding non-interest-bearing borrowings from related parties as of December 31, 2020 - No outstanding non-interest-bearing borrowings from related parties as of December 31, 2020[390] - A RMB10.0 million loan to Loto Interactive Information Technology (Shenzhen) Limited was fully repaid in 2020[390] Related Party Transactions (RMB in thousands) | Transaction Type | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (US$) | |:------------------------------------------|:-----------|:-----------|:-----------|:-----------| | Interest from loan to Loto Interactive Information Technology (Shenzhen) Limited | — | 218 | 137 | 21 | | Other operating income from management service provided to Loto Interactive Information Technology (Shenzhen) Limited | — | 320 | 217 | 33 | | Total | — | 538 | 354 | 54 | C. Interests of Experts and Counsel This item states that information regarding interests of experts and counsel is not applicable ITEM 8. FINANCIAL INFORMATION This section confirms the inclusion of consolidated financial statements and outlines the company's dividend policy A. Consolidated Statements and Other Financial Information The company intends to reinvest all available funds and does not expect to pay cash dividends in the foreseeable future - Consolidated financial statements are included at the end of this annual report[393] - The company intends to permanently reinvest all available funds and future earnings, with no expectation of paying cash dividends[393] - Dividend payments from PRC subsidiaries are subject to PRC taxes and statutory reserve fund requirements[393] B. Significant Changes The company has not experienced any significant changes since the date of its audited consolidated financial statements ITEM 9. THE OFFER AND LISTING This section provides details on the company's ADSs listing on the NYSE A. Offering and Listing Details The company's ADSs have been listed on the NYSE under the symbol "WBAI" since November 22, 2013 - ADSs listed on NYSE under symbol "WBAI" since November 22, 2013[395] - As of the report date, 55,993,405 ADSs (representing 559,934,055 Class A ordinary shares) were outstanding[395] B. Plan of Distribution This item states that information regarding the plan of distribution is not applicable C. Markets The company's ADSs are listed on the NYSE under the symbol "WBAI" - ADSs are listed on the NYSE under the symbol "WBAI"[127][395] D. Selling Shareholders This item states that information regarding selling shareholders is not applicable E. Dilution This item states that information regarding dilution is not applicable F. Expenses of the Issue This item states that information regarding expenses of the issue is not applicable ITEM 10. ADDITIONAL INFORMATION This section provides additional information on share capital, material contracts, exchange controls, and taxation A. Share Capital This item states that information regarding share capital is not applicable B. Memorandum and Articles of Association The company's memorandum and articles of association were adopted upon its IPO and amended in December 2016 - Memorandum and articles of association were adopted upon IPO completion (November 2013) and amended in December 2016[396] C. Material Contracts Material contracts include a settlement agreement for TMG's equity and a share subscription agreement settled partly in bitcoin - A shareholders' agreement with Helmet Limited for TMG's 7% equity interest was settled in April 2020 for EUR1.9 million[396] - A share subscription agreement in December 2020 for 85,572,963 Class A ordinary shares (US$23 million total) was settled 50% in U.S. dollars and 50% in bitcoin[396] D. Exchange Controls This item refers to 'Item 4.B. Business Overview—Regulation of Our Industry' for details on exchange controls E. Taxation This section details the tax implications across various jurisdictions where the company operates - The Cayman Islands levies no taxes on profits, income, gains, or appreciation[397] - PRC EIT Law imposes a 25% income tax on Chinese enterprises and a 10% withholding tax on dividends to non-PRC enterprise shareholders[399] - If deemed a PRC 'resident enterprise', the company could be subject to 25% EIT on its global income, and dividends/capital gains for foreign investors could be subject to PRC taxation[399][400] - Malta profits tax is 35%, but a 6/7 refund can effectively reduce it to 5% for holding companies[304][600] - Curacao profits tax is generally 2% of taxable income[304][600] - U.S. federal income tax consequences for ADSs/ordinary shares include dividends being taxable as ordinary income and capital gains/losses on disposition[403][409] - The company does not believe it was a Passive Foreign Investment Company (PFIC) for 2020, but PFIC status is determined annually[165][405] F. Dividends and Paying Agents This item states that information regarding dividends and paying agents is not applicable G. Statement by Experts This item states that information regarding statements by experts is not applicable H. Documents on Display The company has filed this annual report and exhibits with the SEC, which are available for public inspection - The annual report and exhibits are filed with the SEC and accessible at its Public Reference Room and website (www.sec.gov)[410](index=410&type=chunk)[412] - As a foreign private issuer, the company is exempt from certain quarterly reporting and proxy statement rules under the Exchange Act[412] I. Subsidiary Information This item states that information regarding subsidiary information is not applicable ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to foreign exchange risk, minimal interest rate risk, and inflation risk - Exposed to foreign exchange risk from operations in multiple regions, with TMG's functional currency being EUR[413] - RMB/USD exchange rate fluctuations can materially affect reported results; RMB appreciated 6.3% against USD in 2020[415] Cash and Cash Equivalents by Currency (as of Dec 31, 2020) | Currency | Amount (RMB in thousands) | Amount (US$ in thousands) | |:---------|:--------------------------|:--------------------------| | Renminbi | 191,900 | 29,409 | | EUR | 900 | 138 | | U.S. dollar | 109,620 | 16,800 | | Total | 302,420 | 46,347 | - A 10% depreciation of RMB and EUR against the U.S. dollar would reduce the total U.S. dollar cash balance from US$47.4 million to US$44.6 million[415] - Minimal exposure to interest rate risk, primarily from interest-bearing bank accounts[415] - China's inflation rate (CPI) was 2.5% in 2020, not materially affecting the company in the past[415] ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES This section details the fees and charges associated with American Depositary Shares (ADSs) for holders A. Debt Securities This item states that information regarding debt securities is not applicable B. Warrants and Rights This item states that information regarding warrants and rights is not applicable C. Other Securities This item states that information regarding other securities is not applicable D. American Depositary Shares Holders of ADSs are subject to various fees charged by the depositary, including issuance, transfer, and administrative fees - The depositary may charge US$5.00 per 100 ADSs for issuance, delivery, reduction, cancellation, or surrender[417] - Additional charges include up to US$1.50 per ADR for transfers and US$0.05 per ADS for cash distributions and administrative services[417] - The company pays other charges and expenses of the depositary and its agents, and reimburses for ADR program-related expenses[418] PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES This item states that there are no defaults, dividend arrearages, or delinquencies ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS There have been no material modifications to the rights of security holders, and proceeds from offerings have been used for capital expenditures - No material modifications to the rights of security holders[419] - Net proceeds from IPO (US$80.5 million) and a subsequent share purchase (US$123.8 million) were used for capital expenditures[420] - Approximately RMB841.7 million (US$129.0 million) of net proceeds were used for capital expenditures as of December 31, 2020[420] ITEM 15. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[421] - Management concluded that internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[422] - The independent registered public accounting firm audited and attested to the effectiveness of internal control over financial reporting as of December 31, 2020[424][444] - New internal control procedures were implemented for the adoption of ASC 842 (Leases) on January 1, 2019[424] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Wong, Yan Ki Angel has been determined to qualify as an "audit committee financial expert" - Wong, Yan Ki Angel is designated as an "audit committee financial expert"[425] ITEM 16B. CODE OF ETHICS The board of directors has adopted a code of ethics applicable to all directors, officers, employees, and agents - A code of ethics applies to directors, officers, employees, and agents, with specific provisions for senior financial officers[425] ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES This section details the aggregate fees paid to the independent registered public accounting firms for audit and audit-related services Principal Accountant Fees and Services (RMB in thousands) | Fee Category | 2019 (RMB) | 2020 (RMB) | 2020 (US$) | |:-------------|:-----------|:-----------|:-----------| | Audit fees | 3,276 | 8,222 | 1,260 | | Audit related fees | 1,044 | 587 | 90 | | Total | 4,320 | 8,809 | 1,350 | - The audit committee's policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm[426] ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES This item states that there are no exemptions from the listing standards for audit committees ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS The company had a share repurchase program but made no repurchases in 2020 - A share repurchase program was approved in February 2015 for up to US$30 million[427] - Repurchased ADSs in 2015 (US$1.43 million), 2016 (US$17.24 million), and 2017 (US$3.0 million)[427] - No ADSs were repurchased in 2020[427] ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT Friedman LLP resigned as the company's auditor in September 2020 and was replaced by MaloneBailey, LLP - Friedman LLP resigned as auditor on September 23, 2020, due to a disagreement over internal control effectiveness[428] - Friedman LLP advised that its audit reports for 2017 and 2018 should no longer be relied upon[428] - MaloneBailey, LLP was appointed as the new auditor on September 27, 2020[428] - The Special Investigation Committee found no sufficient basis to establish a violation of the U.S. FCPA[428] ITEM 16G. CORPORATE GOVERNANCE The company adheres to NYSE Corporate Governance Rules - The company follows NYSE Corporate Governance Rules with no significant differences from domestic companies' practices[430] ITEM 16H. MINE SAFETY DISCLOSURE This item states that mine safety disclosure is not applicable PART III ITEM 17. FINANCIAL STATEMENTS The company has elected to provide its financial statements pursuant to Item 18 of this annual report ITEM 18. FINANCIAL STATEMENTS The company's consolidated financial statements are included at the end of this annual report - Consolidated financial statements are included at the end of this annual report[432] ITEM 19. EXHIBITS This section lists all exhibits filed with the annual report, including corporate governance documents and material agreements - Exhibits include Amended and Restated Memorandum and Articles of Association, Share Incentive Plans, Employment Agreements, and various contractual arrangements[434][435][437] - Key exhibits also include the Share Purchase Agreement with Good Luck Information Technology Co., Limited and the Registrant's 2021 Share Incentive Plan[437] - Certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 are included[437] REPORT OF CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM MaloneBailey, LLP issued an unqualified opinion on the company's consolidated financial statements and internal controls - MaloneBailey, LLP issued an unqualified opinion on the consolidated financial statements for the three-year period ended December 31, 2020[444] - MaloneBailey, LLP also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[444] - No critical audit matters were identified[446] AUDITED CONSOLIDATED FINANCIAL STATEMENTS This section presents the audited consolidated financial statements for the periods ended December 31, 2018, 2019, and 2020 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2019 AND 2020 The consolidated balance sheets show a decrease in total assets and total liabilities in 2020 compared to 2019 Consolidated Balance Sheets (RMB in thousands) | Metric (RMB in thousands) | As of Dec 31, 2019 | As of Dec 31, 2020 | As of Dec 31, 2020 (US$) | |:------------------------------------------|:-------------------|:-------------------|:-------------------------| | Total current assets | 430,326 | 335,853 | 51,472 | | Total assets | 695,779 | 470,473 | 72,103 | | Total current liabilities | 77,162 | 73,620 | 11,284 | | Total liabilities | 111,861 | 79,953 | 12,255 | | Total BIT Mining Limited shareholders' equity | 584,456 | 403,777 | 61,880 | | Total shareholders' equity | 569,069 | 390,520 | 59,848 | CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020 The statements show a decrease in net revenues and a reduction in net loss in 2020 compared to 2019 Consolidated Statements of Comprehensive Loss (RMB in thousands) | Metric (RMB in thousands) | 2018 | 2019 | 2020 | 2020 (US$) | |:------------------------------------------|:-----|:-----|:-----|:-----------| | Net Revenues | 126,089 | 39,688 | 21,815 | 3,343 | | Operating loss from continuing operations | (344,488) | (642,839) | (190,792) | (29,241) | | Loss before income taxes from continuing operations | (491,339) | (661,928) | (224,750) | (34,445) | | Net loss from continuing operations | (471,737) | (654,286) | (221,096) | (33,885) | | Net loss attributable to BIT Mining Limited | (451,673) | (651,268) | (223,226) | (34,211) | | Basic Net loss per share | (1.10) | (1.52) | (0.52) | (0.08) | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020 Net cash used in operating activities decreased in 2020, while investing activities provided cash Consolidated Statements of Cash Flows (RMB in thousands) | Metric (RMB in thousands) | 2018 | 2019 | 2020 | 2020 (US$) | |:------------------------------------------|:-----|:-----|:-----|:-----------| | Net cash used in operating activities | (144,127) | (160,024) | (68,056) | (10,431) | | Net cash (used in) provided by investing activities | (15,604) | 66,817 | 21,714 | 3,330 | | Net cash provided by financing activities | 54,791 | 17,105 | 26 | 4 | | Cash, cash equivalents and restricted cash at end of the year | 436,387 | 365,796 | 312,505 | 47,894 | - Net cash used in operating activities decreased by 57.47% from 2019 to 2020[457] - Net cash provided by investing activities in 2020 was RMB21.7 million, primarily from return of time deposits and repayment of loans[329][457] CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020 Total shareholders' equity decreased from 2018 to 2020,