Note: "Golden Bull Limited" changed their name to "Bit Digital" in September 2020. Again, "Golden Bull Limited" changed their company name to "Bit Digital" in September 2020.
The “JOBS” act (Jumpstart Our Business Startups Act) was signed into law on April 5th, 2012 by the U.S. President Barack Obama. What is the "JOBS'' act? Well the "JOBS" act is a piece of american legislation that makes it easier for small businesses and companies to offer stock on american exchanges. The "JOBS'' act loosened regulations implemented by the SEC on companies and small businesses, such as lowering disclosure and reporting requirements if you’re a company that makes less than $1 billion in revenue. Essentially the goal of the "JOBS'' act was to make it easier for smaller companies to raise money and to allow "retail investors" to have the ability to invest in small businesses/ smaller startups. These small businesses/startups fell under a category called "emerging growth companies", which is a company that issues stock with a yearly revenue of less than $1 Billion. The "JOBS'' act loosened the reporting and oversight requirements for these "emerging growth companies". What I find most interesting about the "JOBS" act is the expansion of a rule called "Regulation A", which gave companies the ability to issue stock without having to go through the process of registering with the SEC. In the "JOBS '' act this rule was expanded, so companies can issue up to $50 million in stock annually without having to meet the regular SEC requirements. This was seen as a great thing because it opened up the opportunity for "retail investors'' to invest in "emerging growth companies". This opportunity would've only been available to "Accredited Investors'' had the "JOBS" act not been signed into law. But when you increase the chances for people to make money off investments, you also increase the chances for people to lose money off investments and now I want to segue to a company called Golden Bull Limited.
On March 20th, 2018, Golden Bull Limited filed their Prospectus with the SEC. In this, they announced an IPO of 1,550,000 shares at $4.00 a share. Also in this SEC Filing, they describe their business:
"We are an online finance marketplace, or “peer-to-peer” lending company, in China that provides borrowers access to short-term loans. The loans that we are currently arranging generally range from 30 days to 90 days, and are secured by borrowers’ automobiles. Through our online marketplace, we connect individual lenders with individual and small business borrowers. We currently conduct our business operations exclusively in China."
So they are a P2P money lending platform. They do not lend money to borrowers, they simply provide a marketplace to connect money lenders and borrowers. But what about if borrowers default on the loans lent to them by money lenders on the Golden Bull Limited platform? Well Golden Bull Limited said this:
"We currently facilitate loans exclusively to borrowers that provide an automobile as security to lenders..."
So Golden Bull Limited had the borrowers on their platform put up their car as collateral when receiving loans from money lenders. That sounds a bit too messy like how did Golden Bull Limited know the car wasn't stolen or recently been totaled or that borrowers weren't using stolen identities? These are some concerns i would’ve thought of when researching them but Golden Bull addresses this when they said,
"However, since none of the loans facilitated through our platform has defaulted to date, neither our collateralization standards nor our collection efforts have been tested in practice."
That sounds amazing. Considering Golden Bull Limited was in business for about 2.5 years up to the date of this statement ("From our inception in November 2015..."), no defaults on the loans of the borrowers who use their platform was a great sign and an enticing lure in their IPO. But one may raise some concerns about Golden Bull Limiteds' business model, such as what happens in the event of an economic crisis in China where money lending is decreased and borrowing demand is increased? (otherwise known as a credit crunch) What about the Chinese government potentially instituting tighter regulations on the practice of money lending? (this did eventually occur not long after their IPO) Considering China doesn't have a credit scoring system like the FICO system in the U.S., how do they know the probabilities of borrowers defaulting on loans? But all these concerns wouldn't even be addressing a big red flag with Golden Bull Limited. From the same SEC Filing (their Prospectus; links of my resources are down below in the comments), Golden Bull Limited discloses this:
"For the six months ended June 30, 2017, fees generated from loans provided to two borrowers accounted for 30.4% and 14.5% of our revenues, respectively."
So the most recent financial reporting given by Golden Bull up until their IPO on March 20th 2018, Golden Bull says that 45% of their total revenues came from the fees they collected from just two borrowers. So essentially two people who borrowed money on their platform (again, they didn’t borrow money from Golden Bull, Golden Bull simply was the middleman for the money lending and made revenue by collecting fees from each loan lent on their platform) contributed to 45% of their entire revenue. This revenue stream clearly wasn't sustainable, as these two borrowers could've left the Golden Bull platform for another platform, and Golden Bull would have their revenue nearly slashed in half (45%). So no surprise that Golden Bull Limited struggled to have a strong influence in the american stock market, but their share price never went below their IPO price of $4.00 until May 2019. From August 2019 to early April 2020, the stock of Golden Bull fell to as low as $0.28 a share and never went above $1.00 a share. If you see the chart of Golden Bull, you'll see that it had maintained a stock price movement between ~$3.00 and ~$10.00 a share over the course of early 2018 to mid 2019. But then they had a dramatic decrease in share price in August 2019 and the stock stayed below $1.00 a share for about another 8 months, with their all time low reaching $0.28. What was the catalyst for such sudden price movement downwards and the sustained low share price? Well...
On July 21st, 2019, Golden Bull Limited files a 6-k SEC Filing, in which they disclose this:
"Since May 2019, there have been a number of borrowers who borrowed funds via our online finance marketplace platform that maliciously defaulted on their debt repayment obligations (the “Defaulted Loans”)."
So the potential risks of the business model of Golden Bull came true and borrowers defaulted on their loans to the tune of "...(approximately USD13,500,000)".
That explains their stock plummeting in August 2019. But what was the reason for the stock staying under $1.00 for the next ~8 months? I’ll get to that later. But they also disclose something else in the same SEC Filing,
" ...we established Shanghai Youwang Vehicle Rental Limited...in order to start our car leasing business."
That's some positive news. Maybe Golden Bull can get into the car rental business after their p2p money lending platform just went up in flames.
"On July 1, 2019, the Chinese government implemented a new emission standard which requires vehicles to have better filtering systems. As such, our supplier may not be able to deliver the vehicles we purchased as previously scheduled. Management expects to launch the car leasing operations in the first quarter of 2020,. As of the date of this report, Shanghai Youwang has no substantive operations." (Date of SEC Filing: July 21st, 2019)
So essentially Golden Bull will not be making any sort of significant revenue until their car rental business launches in Q1 of 2020, which would've been about 5-7 months after the date of this SEC Filing (July 21st, 2019). So that perfectly explains the low share prices of Golden Bull from mid-2019 to mid 2020. But wait, there’s more.
In an 6-K SEC Filing Golden Bull filed on October 31st, 2019, they revealed that a Public Security Bureau (a government office in China that can be likened to a criminal law enforcement entity) in Shanghai finished their investigations into one of Golden Bull's subsidiary called "...Shanghai Dianniu Internet Finance Information Service Co., Ltd. (“Dianniu”)".
Dianniu was an arm of the Golden Bull company (Dianniu were in the business of “IoT”). In Golden Bulls' prospectus SEC Filing i discussed earlier it discloses 53% of Dianniu was owned by Xiaohui Liu (A top executive of Golden Bull), 21% owned by Zeng Erxin (the CEO of Golden Bull), 19% owned by Qian Lai Qian Wang Equity Investment Fund Management, and 7% owned by Huishi Equity Investment Fund Management. So these aforementioned entities, which consisted of the CEO (Erxin Zeng) and the Director (Xiaohui Liu) of Golden Bull, made up the owners of Dianniu. So now knowing the ownership structure of Dianniu, you'll understand that almost all of the management team of Golden Bull were charged with a criminal offense when a Public Security Bureau deemed Dianniu to have illegally collected public deposits.
"The Public Security Bureau has taken criminal enforcement measures against 17 suspects in this case, and have thus far detained 6 suspects. The Company’s management believes that the Company’s Chief Financial Officer, Jing Leng, and Director, Xiaohui Liu, as well as several members of Dianniu’s management may have been the subject of such criminal enforcement measures. The Public Security Bureau also has initiated online hunting for Mr. Erxin Zeng, CEO of the Company."
Essentially their entire executive and upper management team were suspected of committing acts illegal in the eyes of the Chinese law.
In an SEC Filing filed in November 2019, the new Management team of Golden Bull disclosed their intentions to enter into the crypto-mining business:
"The Company is planning to purchase bitcoin mining computers in December 2019 when funds are available."
But one hurdle Golden Bull would've had to get past was the fact that in April 2020, Golden Bull released their 2019 financial results. In this, Golden Bull reveals that they had less than $35,000 in cash and cash equivalents. If the new management team of Golden Bull purchased a significant amount of BTC-mining rigs in December 2019, that would severely impact Golden Bull financially as they ended 2019 with less than $35,000 in cash and cash equivalents.
So it's not looking great for Golden Bull. Their entire executive team was criminally charged by Chinese law enforcement or evading the capture of law enforcement. They now have to build up the company again from scratch. So what's their first order of business? Appoint a someone who they claim has expertise in the crypto/blockchain space to lead them into the crypto-mining space. Golden Bull appoints Mr. Huang as CFO (Chief Financial Officer) and gives him a seat on the board of directors. Mr. Huang is to be paid $60,000 annually and $100,000 annually for his employment of the aforementioned roles. Mr. Huang is said to have had expertise in the crypto space and has a good employment history in the financial/investment sector.
"Mr. Huang has served as the Co-Founder and Advisor of Long Soar Technology Limited since August 2019 and as the Founder/CEO of Bitotem Investment Management Limited since May 2018. From June 2016 to May 2018, Mr. Huang served as the Investment Manager of Guojin Capital. From August 2015 to May 2016, Mr. Huang served as an Analyst for Zhengshi Capital. Huang served as a Program Officer of Southwest Jiaotong University from February 2015 to August 2015. From March 2013 to November 2014, Mr. Huang served as the Engineering Analyst Team Leader of Crowncastle International. Mr. Huang received his bachelor’s degree in Environmental Engineering from Southwest Jiaotong University in 2011, and received his master’s degree in Civil & Environmental Engineering from Carnegie Mellon University in 2012."
So this seems like a step in the right direction for Golden Bull. So they have their CFO appointed, but what about their vacant CEO position?
Mr. Hu is appointed CEO and is to be paid $80,000 annually for his role as CEO and $100,000 annually for his role in being a part of the board of directors. What does Mr. Hu's employment history look like? Well... "Mr. Hu has served as the Business Manager of Weihua Liquor Company since 2011. From 2009 to 2011, Mr. Hu served as the General Manager of Xuejiawan Huafeng Wholesale Market Company. Mr. Hu served as a Manager of Eastern Hair Growth Center Company from 2002 to 2009. Mr. Hu received his bachelor’s degree in Law from Qingdao Qiushi College of Arts and Sciences in 2000."
Needless to say that is not an employment history of a CEO that instills confidence in me as a potential investor considering the company plans to move into the crypto-mining space. In the aftermath of the near self-destruction of Golden Bull, the Nasdaq halted trading of Golden Bull Limited stock. This was due to the mess of a company that Golden Bull was at that moment in time and was also due to the delay from Golden Bull in reporting their 2019 financial results. This Nasdaq trading halt wasn't lifted until April 2020, when Golden Bull released their 2019 financial results.
Despite all this, Golden Bull was still funding their crypto-mining operations. A quote from one article who discusses Golden Bull raises concerns about the future of their company: "...but only $35k in the bank as of 1/1/20 and no ability to generate cash flow with its car rental business (per today's filing), we are left to wonder how this business is being funded. I am also curious to know if the company has had any contact with the executives that were fired in October, the two people who own 58% of the company's stock."
In January 2021, J Capital Research issued a scathing report on Bit Digital (previously Golden Bull), where they allege that Bit Digital does not have the miners they claim they do and J Capital Research also allege that they spoke with the sellers of the mining rigs that Bit Digital claimed they bought their mining rigs from and they say that the sellers had never done any business with Bit Digital. There are a lot of other allegations made by J Capital in their report which i won't be getting into as they are currently only allegations. Bit Digital has refuted the allegations brought by J Capital Research and today I will stick to combing through SEC Filings and articles in my research of Bit Digital (formerly Golden Bull).
Bit Digital (formerly Golden Bull) has 40,865 miners and has mined 1,510.19 Bitcoin (According to their own website as of February 21st, 2021).
Summary of my research: The history of Bit Digital (formerly known as Golden Bull) is an interesting one and showed some of the same red flags that I have found in researching several companies that were similar to Golden Bull. Golden Bull Limited was a P2P Money lending platform operating in China that provided borrowers and money lenders with a marketplace to issue loans. Golden Bull Limited connected money lenders with borrowers, and made revenue by collecting fees off of the loans being transacted on their platform. Up until their IPO, Golden Bull disclosed that they did not have any users on their platform default on the loans they were lent. 45% of their total revenue from a six month period ending June 2017 came from the fees they collected from just two borrowers. (Note: China does not have a credit scoring system like the FICO scoring system in the U.S.) Golden Bull had their IPO in March of 2018 and had a stable share price movement up until August of 2019, when it was revealed that borrowers had started defaulting on their loans en masse. (Note: Golden Bull was not a money lender or a borrower. They were simply the platform in which money lenders and borrowers transacted. But when many borrowers on their platform start to default on their loans in a short amount of time, their revenue stream gets impacted severely as they make money off the fees of the loans being lent on their platform. Less revenue leads to a increased inability to cover operating expenses, which leads to more headwinds) The share price of Golden Bull plummeted to less than $1.00 a share and the company revealed even worse news in an SEC Filing filed by Golden Bull on October 31st, 2019 where they disclose that on the 24th of October 2019, a Chinese law enforcement agency had suspected all of Golden Bull upper management of illegally collecting public deposits through a subsidiary of Golden Bull called Dianniu. The CEO of Golden Bull Erxin Zeng, who had a 21% stake in Dianniu, had gone on the run and initially evaded the capture of the Chinese law enforcement agency. Money lenders who had their loans defaulted on by borrowers on the Golden Bull platform and couldn’t receive the collateral that borrowers supposedly were required to post (the collateral that borrowers were required to post was their car) sued Dianniu in an effort to get recover their defaulted loans. In the aftermath, all of the executives of Golden Bull were arrested and jailed for their involvement in the illegal activities of illegally collecting public deposits. Needing to fill the vacancies of the executive team, Golden Bull appointed a new CFO, who had experience in the finance/investing sector. But their appointment of the new CEO was not an inspiring one, as his employment history consisted of this:
“Mr. Hu has served as the Business Manager of Weihua Liquor Company since 2011. From 2009 to 2011, Mr. Hu served as the General Manager of Xuejiawan Huafeng Wholesale Market Company. Mr. Hu served as a Manager of Eastern Hair Growth Center Company from 2002 to 2009. Mr. Hu received his bachelor’s degree in Law from Qingdao Qiushi College of Arts and Sciences in 2000.”
When you consider that Golden Bull wanted to enter the crypto-mining space but their cash and cash equivalents on their balance sheet ending January 1st 2020 was $35,000, and they couldn’t generate any cash flow from their only proposed business (that being the car rental business) and their newly appointed CEO in November 2019 had no expertise in the cryptocurrency/blockchain space, then you’ll see the concerns i had/ still have as a potential investor in Bit Digital. In July 2020, Golden Bull “...completed the sale of 21,500,000 shares of common stock at $0.80 per share, for gross proceeds of $17,200,000.” So Bit Digital raised over $17,000,000 (which was used to finance their crypto-mining venture) by issuing more stock, which dilutes shareholders but its a better alternative than taking on debt to raise capital and issuing additional stock is a common occurrence among low-cap companies (Golden Bull changed their name in September 2020 to Bit Digital). When I look into a company, I try to delve deep into their past and Bit Digital's past is not pretty. But some recent developments in Bit Digital is that in early February the CEO of Bit Digital was removed by the board of directors (the same board that the CEO sat on), and a board member stepped down from their position in the board of directors. Here is a quote from an article announcing the news: “Bit Digital (BTBT), which has been battling allegations of fraud, said its board of directors has removed Min Hu as CEO. The bitcoin mining company also said Ping Liu resigned as chairwoman of the board due to “health reasons.”
Bit Digital is also facing a class action lawsuit filed in the U.S. Southern District Court of New York on January 22nd, 2021, which “...allege the mining company made false and/or misleading statements and failed to disclose the true extent of its mining operations, which it said had 22,869 bitcoin machines in China, per the filing.”
As of the making of this post, 2/21/21, Bit Digital says it has 40,865 Bitcoin miners which have mined 1,510.19 Bitcoin. I am not interested in delving into the allegations made by J Capital Research as I tend to stay away from allegations and instead choose to focus on the official SEC Filings and press releases. Of course that does not mean you shouldn’t look at every information available to you when researching a company. I just wont go into the J Capital Research in this post, but feel free to do so on your own accord. I apologize for the length of this post but i don’t like to leave too many stones unturned when researching a company, and i most certainly have missed something that may have proved useful in my research as i am one person and do not have a team working for me.
Disclosure: I am not a financial advisor, and I have not recommended any trades on Bit Digital (Nasdaq: BTBT) or any stock mentioned. I have not recommended to buy, sell, short, or buy options on Bit Digital or any stock mentioned. I am not defending any company or attacking any company. I do not have any open positions in Bit Digital and I never have had positions in Bit Digital prior to making this post. No one has paid me to make this post or any previous post of mine. I will never accept money to make a post for someone. I've been researching companies for a while now and only recently has it struck me that i should turn my research into a post for others to discuss, agree, disagree, dispute, correct information, etc. This post was me going into researching Bit Digital as a potential investor and posting some concerns of mine that I found. I do not stand to gain any financial benefit from Bit Digital share price increasing or decreasing. All that was discussed in this post was publicly available information. Please do your own research. Use the resources i link in the comments below to check everything i quote in my post.
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