REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
Title of each class |
Trading Symbol |
Name of each exchange on which registered | ||
* |
Not for trading, but only in connection with the registration of American Depositary Shares representing such Class A ordinary shares pursuant to the requirements of the Securities and Exchange Commission. |
Large accelerated filer |
☐ |
☒ |
Non-accelerated filer |
☐ |
Emerging growth company |
† |
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. |
☒ |
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ |
Other |
☐ |
• | “ADR” are to American depositary receipts, which, if issued, evidence the ADSs; |
• | “ADSs” are to the American depositary shares, each of which represents 15 of our Class A ordinary shares; |
• | “China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan, the Hong Kong Special Administrative Region and the Macao Special Administrative Region; |
• | “RMB” or “Renminbi” are to the legal currency of China; |
• | “US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States; and |
• | “we,” “us,” “our company,” “our” and “Canaan” are to Canaan Inc. and its subsidiaries, as the context requires. |
• | “AI” are to artificial intelligence; |
• | “ASICs” are to application-specific ICs, meaning ICs designed for a specific application; |
• | “CPU” are to computing processing unit; |
• | “GPU” are to graphic processing unit; |
• | “edge computing” are to a method of optimizing cloud computing systems by performing data processing at the edge of the network, near the source of the data; |
• | “FPGA” are to field programmable gate array, an integrated circuit designed to be configured by a customer or a designer after manufacturing; |
• | “hash” are to a function used to map data of arbitrary size to data of fixed size and, in the context of Bitcoin mining, a function to solve the mining puzzle; |
• | “hash rate” are to the processing power of the Bitcoin network and represents the number of computations that is processed by the network in a given time period; |
• | “ICs” or “chips” are to integrated circuits; |
• | “IoT” are to Internet-of-Things, |
• | “ISO” are to the International Organization of Standardization; |
• | “network computing power” are to the processing power of all the machines in the Bitcoin network; |
• | “neural-network accelerator” are to a class of microprocessor designed as hardware acceleration for AI applications; |
• | “nm” are to nanometer; |
• | “PMU” are to power management unit, which is a microcontroller that governs power functions; |
• | “POW” are to proof-of-work; |
• | “Risc-V” are to an open source instruction set architecture, which is a set of instructions that describes the way in which software talks to an underlying processor, and Risc-V’s open source nature means that anyone can build a processor to support it without paying high royalty fees; |
• | “SoC” are to a chip that integrates all components of a computer or other electronic systems; |
• | “tape-out” are to the final result of the design process for ICs when the graphic for the photomask of the IC is sent to the fabrication facility, and a successful tape-out means all the stages in the design and verification process of ICs have been completed; |
• | “Thash” are to Terahash, the measuring unit of the processing power of the Bitcoin mining machine; and |
• | “Thash/s” or “TH/s”, “GH/s” are to the measuring unit of hash rate. 1 TH/s = 1,000 GH/s; |
• | our goal and strategies; |
• | our expansion plans; |
• | our future business development, financial condition and results of operations; |
• | our expectations regarding demand for, and market acceptance of, our products; and |
• | general economic and business conditions. |
ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. |
KEY INFORMATION |
A. |
Selected Financial Data |
Year ended December 31, |
||||||||||||||||||||
2017 |
2018 |
2019 |
2020 |
|||||||||||||||||
RMB |
RMB |
RMB |
RMB |
US$ |
||||||||||||||||
(in millions) |
||||||||||||||||||||
Net revenues: |
||||||||||||||||||||
Products revenue |
1,303.1 | 2,698.6 | 1,392.9 | 427.5 | 65.5 | |||||||||||||||
Leases revenue |
— | — | 24.5 | 19.0 | 2.9 | |||||||||||||||
Service revenue |
4.7 | 6.0 | 2.7 | 0.3 | 0.0 | |||||||||||||||
Other revenues |
0.3 | 0.7 | 2.5 | 0.9 | 0.1 | |||||||||||||||
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|
|
|
|
|
|
|
|||||||||||
Total net revenues |
1,308.1 |
2,705.3 |
1,422.6 |
447.7 |
68.6 |
|||||||||||||||
Cost of revenues |
(703.7 | ) | (2,197.2 | ) | (1,938.6 | ) | (409.9 | ) | (62.8 | ) | ||||||||||
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|
|
|
|
|
|
|
|
|||||||||||
Gross profit (loss) |
604.4 |
508.1 |
(516.0 |
) |
37.8 |
5.8 |
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|
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|
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|
|||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development expenses (1) |
(99.8 | ) | (189.7 | ) | (169.0 | ) | (140.0 | ) | (21.5 | ) | ||||||||||
Sales and marketing expenses (1) |
(20.7 | ) | (38.7 | ) | (21.9 | ) | (20.0 | ) | (3.0 | ) | ||||||||||
General and administrative expenses (1) |
(125.3 | ) | (146.7 | ) | (347.6 | ) | (131.6 | ) | (20.2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
(245.8 |
) |
(375.1 |
) |
(538.5 |
) |
(291.6 |
) |
(44.7 |
) | ||||||||||
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|
|
|
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|
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|
|||||||||||
Income (loss) from operations: |
||||||||||||||||||||
Interest income |
0.2 | 4.2 | 3.9 | 3.2 | 0.5 | |||||||||||||||
Investment income |
5.6 | 3.2 | 3.1 | 5.8 | 0.9 | |||||||||||||||
Interest expense and guarantee fee |
— | (53.1 | ) | (20.0 | ) | (3.6 | ) | (0.6 | ) | |||||||||||
Foreign exchange (loss) gain, net |
(1.2 | ) | (1.2 | ) | 6.8 | 2.4 | 0.4 | |||||||||||||
Value added tax refunds |
38.8 | 110.2 | 1.3 | — | — | |||||||||||||||
Other (loss) income, net |
(1.1 | ) | 3.8 | 25.1 | 31.0 | 4.7 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income tax expenses |
401.0 |
200.2 |
(1,034.5 |
) |
(215.1 |
) |
(33.0 |
) | ||||||||||||
Income tax expense |
(25.2 | ) | (77.8 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
375.8 |
122.4 |
(1,034.5 |
) |
(215.1 |
) |
(33.0 |
) | ||||||||||||
|
|
|||||||||||||||||||
Foreign currency translation adjustment, net of nil tax |
— | (65.2 | ) | 9.7 | (24.2 | ) | (3.7 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) |
375.8 |
57.2 |
(1,024.8 |
) |
(239.3 |
) |
(36.7 |
) | ||||||||||||
|
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|
|
|
|
|
|
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|
Note: |
(1) | Share-based compensation expenses were allocated to the following expense items: |
Year ended December 31, |
||||||||||||||||||||
2017 |
2018 |
2019 |
2020 |
|||||||||||||||||
RMB |
RMB |
RMB |
RMB |
US$ |
||||||||||||||||
(in millions) |
||||||||||||||||||||
Research and development expenses |
25.1 | 9.6 | 22.5 | 0.7 |
0.1 |
|||||||||||||||
Sales and marketing expenses |
0.1 | 1.1 | 0.4 | 0.0 |
0.0 |
|||||||||||||||
General and administrative expenses |
70.3 | 7.9 | 247.4 | 2.3 |
0.3 |
As of December 31, |
||||||||||||||||||||
2017 |
2018 |
2019 |
2020 |
|||||||||||||||||
RMB |
RMB |
RMB |
RMB |
US$ |
||||||||||||||||
(in millions) |
||||||||||||||||||||
Cash and cash equivalents |
176.5 | 258.9 | 516.6 | 391.3 | 60.0 | |||||||||||||||
Restricted cash |
— | 286.3 | 8.2 | 4.5 | 0.7 | |||||||||||||||
Accounts receivable |
1.3 | 23.7 | 2.9 | 7.1 | 1.1 | |||||||||||||||
Inventories |
259.8 | 585.7 | 196.1 | 225.5 | 34.6 | |||||||||||||||
Prepayments and other current assets |
636.4 | 186.7 | 206.0 | 316.4 | 48.5 | |||||||||||||||
Income tax receivable |
— | 27.1 | — | — | — | |||||||||||||||
Property, equipment and software |
18.4 | 27.9 | 22.6 | 12.2 | 1.9 | |||||||||||||||
Total assets |
1,203.2 |
1,402.7 |
991.4 |
1,036.4 |
158.8 |
|||||||||||||||
Short-term debts |
— | 1,049.0 | 99.9 | 34.8 | 5.3 | |||||||||||||||
Contract liabilities |
202.5 | 6.9 | 8.3 | 430.4 | 66.0 | |||||||||||||||
Accrued liabilities and other current liabilities |
69.2 | 58.0 | 40.7 | 63.3 | 9.7 | |||||||||||||||
Total liabilities |
346.0 |
1,161.7 |
298.6 |
603.8 |
92.5 |
|||||||||||||||
Total shareholders’ equity |
857.2 |
241.0 |
692.8 |
432.6 |
66.3 |
|||||||||||||||
Total liabilities and shareholders’ equity |
1,203.2 |
1,402.7 |
991.4 |
1,036.4 |
158.8 |
Year ended December 31, |
||||||||||||||||||||
2017 |
2018 |
2019 |
2020 |
|||||||||||||||||
RMB |
RMB |
RMB |
RMB |
US$ |
||||||||||||||||
(in millions) |
||||||||||||||||||||
Net cash provided by / (used in) operating activities |
91.2 | (12.7 | ) | (280.1 | ) | 42.3 | 6.5 | |||||||||||||
Net cash (used in)/ provided by investing activities |
(86.8 | ) | 84.0 | (16.3 | ) | (49.6 | ) | (7.6 | ) | |||||||||||
Net cash provided by/ (used in) financing activities |
150.0 | 295.2 | 278.0 | (111.9 | ) | (17.2 | ) | |||||||||||||
Net increase/(decrease) in cash and cash equivalents, restricted cash |
154.4 |
366.4 |
(18.4 |
) |
(119.2 |
) |
(18.3 |
) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents, restricted cash |
(1.3 | ) | 2.3 | (1.9 | ) | (9.8 | ) | (1.5 | ) | |||||||||||
|
|
|||||||||||||||||||
Cash and cash equivalents, restricted cash at the beginning of year |
23.4 | 176.5 | 545.2 | 524.8 | 80.4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, restricted cash at the end of year |
176.5 |
545.2 |
524.8 |
395.8 |
60.7 |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
||||||||||||||||||||
2017 |
2018 |
2019 |
2020 |
|||||||||||||||||
RMB |
RMB |
RMB |
RMB |
US$ |
||||||||||||||||
(in millions) |
||||||||||||||||||||
Net income (loss) |
375.8 |
122.4 |
(1,034.5 |
) |
(215.1 |
) |
(33.0 |
) | ||||||||||||
Add: |
||||||||||||||||||||
Share-based compensation expenses |
95.5 | 18.6 | 270.2 | 3.0 | 0.4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Adjusted net income (loss) |
471.3 |
141.0 |
(764.3 |
) |
(212.1 |
) |
(32.6 |
) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
||||||||||||||||||||||||||||||||
2017 |
2018 |
2019 |
2020 |
|||||||||||||||||||||||||||||
Volume |
ASP |
Volume |
ASP |
Volume |
ASP |
Volume |
ASP |
|||||||||||||||||||||||||
set |
RMB |
set |
RMB |
set |
RMB |
set |
RMB |
|||||||||||||||||||||||||
A7 series (1) |
294,523 | 4,402 | 20,576 | 3,710 | — | — | — | — | ||||||||||||||||||||||||
A8 series (2) |
— | — | 503,237 | 4,842 | 276,571 | 1,189 | 47,993 | 130 | ||||||||||||||||||||||||
A9 series (3) |
— | — | 35,324 | 3,665 | 88,347 | 2,068 | 2,551 | 650 | ||||||||||||||||||||||||
A10 series (4) |
— | — | — | — | 122,134 | 7,082 | 116,550 | 3,010 | ||||||||||||||||||||||||
A11 series (5) |
— | — | — | — | — | — | 3,898 | 10,437 | ||||||||||||||||||||||||
A12 series (6) |
— | — | — | — | — | — | 967 | 14,633 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total |
294,523 |
4,402 |
559,137 |
4,726 |
487,052 |
2,826 |
171,959 |
2,405 |
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Notes: |
(1) | Mainly includes our A721, A741 and A761 Bitcoin mining machines. |
(2) | Mainly includes our A821, A841, A851 and A852 Bitcoin mining machines. |
(3) | Mainly includes our A921 and A911 Bitcoin mining machines. |
(4) | Mainly includes our A1047, A1066 and A1066 Pro Bitcoin mining machines. |
(5) | Mainly includes our A1146 Pro, A1166 and A1166 Pro Bitcoin mining machines. |
(6) | Mainly includes our A1246 Bitcoin mining machines. |
Year ended December 31 |
||||||||||||||||||||||||||||||||
2017 |
2018 |
2019 |
2020 |
|||||||||||||||||||||||||||||
Total Computing Power Sold |
ASP per Thash |
Total Computing Power Sold |
ASP per Thash |
Total Computing Power Sold |
ASP per Thash |
Total Computing Power Sold |
ASP per Thash |
|||||||||||||||||||||||||
Thash/s |
RMB |
Thash/s |
RMB |
Thash/s |
RMB |
Thash/s |
RMB |
|||||||||||||||||||||||||
A7 series (1) |
2,114,637 | 613 | 151,131 | 505 | — | — | — | — | ||||||||||||||||||||||||
A8 series (2) |
— | — | 6,305,119 | 386 | 4,025,762 | 82 | 699,292 | 9 | ||||||||||||||||||||||||
A9 series (3) |
— | — | 702,416 | 184 | 1,645,421 | 111 | 47,536 | 35 | ||||||||||||||||||||||||
A10 series (4) |
— | — | — | — | 4,856,618 | 178 | 5,477,423 | 64 | ||||||||||||||||||||||||
A11 series (5) |
— | — | — | — | — | — | 297,170 | 137 | ||||||||||||||||||||||||
A12 series (6) |
— | — | — | — | — | — | 79,307 | 178 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total |
2,114,637 |
613 |
7,158,666 |
369 |
10,527,801 |
131 |
6,600,729 |
63 |
||||||||||||||||||||||||
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|
|
|
|
|
|
Notes: |
(1) | Mainly includes our A721, A741 and A761 Bitcoin mining machines. |
(2) | Mainly includes our A821, A841, A851 and A852 Bitcoin mining machines. |
(3) | Mainly includes our A921 and A911 Bitcoin mining machines. |
(4) | Mainly includes our A1047, A1066 and A1066 Pro Bitcoin mining machines. |
(5) | Mainly includes our A1146 Pro, A1166 and A1166 Pro Bitcoin mining machines. |
(6) | Mainly includes our A1246 Bitcoin mining machines. |
Year ended December 31 |
||||||||||||||||||||||||||||||||||||||||||||||||
2017 |
2018 |
2019 |
2020 |
|||||||||||||||||||||||||||||||||||||||||||||
Cost (1) |
Per unit cost |
Cost per Thash |
Cost (1) |
Per unit cost |
Cost per Thash |
Cost (1) |
Per unit cost |
Cost per Thash |
Cost (1) |
Per unit cost |
Cost per Thash |
|||||||||||||||||||||||||||||||||||||
RMB in millions |
RMB |
RMB |
RMB in millions |
RMB |
RMB |
RMB in millions |
RMB |
RMB |
RMB in millions |
RMB |
RMB |
|||||||||||||||||||||||||||||||||||||
A7 series(2) |
693.3 | 2,354 | 328 | 51.1 | 2,482 | 338 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
A8 series(3) |
— | — | — | 1,243.9 | 2,472 | 197 | 689.1 | 2,492 | 171 | 119.6 | 2,492 | 171 | ||||||||||||||||||||||||||||||||||||
A9 series(4) |
— | — | — | 154.9 | 4,385 | 221 | 370.4 | 4,193 | 225 | 10.7 | 4,193 | 225 | ||||||||||||||||||||||||||||||||||||
A10 series(5) |
— | — | — | — | — | — | 672.4 | 5,506 | 138 | 838.2 | 7,191 | 153 | ||||||||||||||||||||||||||||||||||||
A11 series(6) |
— | — | — | — | — | — | — | — | — | 47.1 | 12,077 | 158 | ||||||||||||||||||||||||||||||||||||
A12 series(7) |
— | — | — | — | — | — | — | — | — | 8.4 | 8,680 | 106 | ||||||||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||
Total |
693.3 |
2,354 |
328 |
1,449.9 |
2,593 |
203 |
1,731.9 |
3,556 |
165 |
1,023.9 |
5,954 |
155 |
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Notes: |
(1) | Without taking into consideration the inventory and prepayment write down provision of nil, RMB786.0 million, RMB729.0 million, |
(2) | Mainly includes our A721, A741 and A761 Bitcoin mining machines. |
(3) | Mainly includes our A821, A841, A851 and A852 Bitcoin mining machines. |
(4) | Mainly includes our A921 and A911 Bitcoin mining machines. |
(5) | Mainly includes our A1047, A1066 and A1066 Pro Bitcoin mining machines. |
(6) | Mainly includes our A1146 Pro, A1166 and A1166 Pro Bitcoin mining machines. |
(7) | Mainly includes our A1246 Bitcoin mining machines. |
B. |
Capitalization and Indebtedness |
C. |
Reasons for the Offer and Use of Proceeds |
D. |
Risk Factors |
• | Our results of operations have been and are expected to continue to be negatively impacted by sharp Bitcoin price decreases. |
• | We derive a significant portion of our revenues from our Bitcoin mining machines. If the market for Bitcoin mining machines ceases to exist or diminishes significantly, our business and results of operations would be materially harmed. |
• | If we fail to succeed in the AI market or other new application markets we seek to penetrate into, our revenues, growth prospects and financial condition could be materially and adversely affected. |
• | The industries in which we operate are characterized by constant changes. If we fail to continuously innovate and to provide products that meet the expectations of our customers, we may be unable to attract new customers or retain existing customers, and hence our business and results of operations may be adversely affected. |
• | We are subject to risks associated with legal, political or other conditions or developments regarding holding, using or mining of Bitcoins, which could negatively affect our business, results of operations and financial position. |
• | The outbreak of the novel coronavirus (“COVID-19”) could have a material adverse effect on our business operations, results of operations, cash flows and financial position. |
• | A substantial majority of our revenues are generated from sales to customers in the PRC. Any adverse development in the regulatory environment in the PRC could have a negative impact on our business. |
• | Changes in the Bitcoin algorithm or the mining mechanism may materially and adversely affect our business and results of operations. |
• | Substantial increases in the supply of mining machines connected to the Bitcoin network would lead to an increase in network 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. |
• | We may be unable to make the substantial research and development investments that are required to remain competitive in our business. |
• | We face intense competition and our competitors may employ aggressive pricing strategies, which can lead to a price reduction of our products and material adverse effect on our results of operations. |
• | Our Bitcoin mining machine business depends on supplies from very few third-party foundry partners, and any failure to obtain sufficient foundry capacity from these third-part foundry partners would significantly delay the shipment of our products. |
• | Failure to maintain inventory levels in line with the approximate level of demand for our products could cause us to lose sales, expose us to increased inventory risks and subject us to increases in holding costs, risk of inventory obsolescence, increases in markdown allowances and write- offs, any of which could have a material adverse effect on our business, financial condition and results of operations. |
• | 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 may be unable to execute our growth strategies or effectively maintain our rapid growth trends. |
• | We rely on a limited number of third parties to package and test our products. |
• | 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 Bitcoin mining machines. |
• | 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 have incurred negative cash flows from operating activities and net losses in the past and can provide no assurance of our future operating results. |
• | Shortages in, or increases in the prices of, the components of our products may adversely affect our business. |
• | Our prepayments to suppliers may subject us to counterparty risk associated with such suppliers and negatively affect our liquidity and cash position. |
• | If we experience difficulty in collecting our trade receivables, our liquidity, financial condition and results of operations would be negatively impacted. |
• | Failure at tape-out or failure to achieve the expected final test yields for our ASICs could negatively impact our operating results. |
• | The administrators of the Bitcoin network’s source code could propose amendments to the Bitcoin network’s protocols and software that, if accepted and authorized by the Bitcoin network’s community, could adversely affect our business, results of operations and financial condition. |
• | 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. |
• | AI technologies are constantly evolving, and any flaws in or misuse of AI, even if committed by other third parties, could have a negative impact on our business, reputation, brands and the general acceptance of AI solutions by society. |
• | Any failure of our products to meet the necessary quality standards could adversely affect our reputation, business and results of operation. |
• | Our Bitcoin mining machines use open source software and hardware as their basic controller system, which may subject us to certain risks. |
• | Power shortages, labor disputes and other factors may result in constraints on our production activities. |
• | If we fail to adequately protect our IP rights, our ability to compete effectively or to defend ourselves from litigation could be impaired, which could reduce our total revenue and increase our costs. |
• | We may face IP 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. |
• | Cyber-security incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging our reputation or exposing us to liability. |
• | We require various approvals, licenses, permits and certifications to operate our business. 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. |
• | We may be involved in legal and other disputes from time to time, whether arising out of our operations, including disputes with our raw material or component suppliers, production partners, customers or employees, or class action lawsuits from our shareholders. |
• | Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditors who are located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections. |
• | Another cryptocurrency displaces Bitcoin as the mainstream cryptocurrency, thereby causing Bitcoin to lose value or become worthless, which could adversely affect the sustainability of our business; |
• | Bitcoin fails to gain wide market acceptance and fails to become a generally accepted medium of exchange in the global economy due to certain inherent limitations to cryptocurrencies; |
• | Over time, the reward for Bitcoin mining (in terms of the amount of Bitcoin awarded) will decline, which may reduce the incentive to mine Bitcoin. Specifically, the halving event occurred in May 2020, and Bitcoins are expected to be fully mined out by the year 2140. Therefore, Bitcoin mining machines may become less productive as the available rewards for Bitcoin mining decrease. |
• | limited control over delivery schedules, quality assurance, final test yields and production costs; |
• | potential failure to obtain, or delay in obtaining, key process technologies; |
• | failure by us to find an alternative supplier; |
• | capacity shortages during periods of high demand; |
• | shortages of materials; |
• | unauthorized use of our IP; |
• | limited warranties on ICs or products supplied to us; and |
• | potential increases in prices. |
• | we have a limited customer base and limited sales and relationships with international customers; |
• | difficulty in managing multinational operations; |
• | we may face competitors in the overseas markets who are more dominant and have stronger ties with customers and greater financial and other resources; |
• | fluctuations in currency exchange rates; |
• | challenges in providing customer services and support in these markets; |
• | challenges in managing our international sales channels effectively; |
• | unexpected transportation delays or interruptions or increases in international transportation costs; |
• | 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; |
• | difficulty in ensuring that our customers comply with the sanctions imposed by the Office of Foreign Assets Control, or OFAC, on various foreign states, organizations and individuals; |
• | inability to obtain, maintain or enforce intellectual property rights; |
• | inability to effectively enforce contractual or legal rights or intellectual property rights in certain jurisdictions under which we operate, including contracts with our existing and future customers and partners; |
• | changes in a specific country or region’s political or economic conditions or policies; |
• | unanticipated changes in prevailing economic conditions and regulatory requirements; and |
• | 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 exit of the United Kingdom from the European Union, a worldwide trend in favor of nationalism and protectionist trade policy and the ongoing trade dispute between the United States and China as well as other potential international trade disputes, all of which could cause turbulence in international markets. These government policies or trade barriers could increase the prices of our products and make us less competitive in such countries. |
• | cease the manufacturing, use or sale of the infringing products, processes or technologies; |
• | stop shipment to certain geographic areas; |
• | pay substantial damages for infringement; |
• | expend significant resources to develop non-infringing processes, technologies or products; |
• | license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all; |
• | 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 |
• | pay substantial damages to our customers to discontinue their use of or replace infringing products sold to them with non-infringing products. |
• | political structure; |
• | level of government involvement and control; |
• | growth rate and level of development; |
• | level and control of capital investment and reinvestment; |
• | control of foreign exchange; and |
• | allocation of resources. |
• | variations in our revenues, earnings and cash flow; |
• | announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
• | announcements of new offerings, solutions and expansions by us or our competitors; |
• | changes in financial estimates by securities analysts; |
• | detrimental adverse publicity about us, our products or our industry; |
• | additions or departures of key personnel; |
• | the release of lockup or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and |
• | potential litigation or regulatory investigations. |
• | 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; |
• | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
• | 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 |
• | the selective disclosure rules by issuers of material nonpublic information under Regulation FD. |
• | at least 75% of our gross income is passive income; or |
• | at least 50% of the value (determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. |
ITEM 4. |
INFORMATION ON THE COMPANY |
A. |
Our History |
B. |
Business Overview |
• | Our mastery of the whole IC design process; |
• | Our years of accumulated engineering experience in applying theoretical research to the mass production of new products, producing in aggregate over 217 million chips in 2018, 2019, and 2020; |
• | Our ability to achieve a fast time-to-market |
• | Our breakthroughs in various technological fields to improve ASIC performance, such as low voltage and high power efficiency operations and high computing density, all of which are crucial features for ASICs for blockchain and AI solutions; |
• | Our ownership of most of the intellectual property we employ, and our accumulation of valuable know-how and multiple generations of proprietary silicon data through our years of ASIC design experience; |
• | Our ability to provide a holistic AI solution to our customers, including AI chips, algorithm development and optimization, hardware module, end-product and software services; and |
• | Our close and trusted partnerships with leading global suppliers, which have enabled us to achieve high-quality, high yield rate and stable production. |
ASICS |
Status and expected timeline* | |
28nm | • Production end of life | |
16nm, First Generation | • Production end of life | |
16nm, Second Generation | • Mass production of final products in 4th quarter 2017 | |
16nm, Third Generation | • Mass production of final products in 2nd quarter 2018 | |
7nm, First Generation | • Mass production of final products in 3rd quarter 2018 | |
16nm, Fourth Generation | • Mass production of final products in 2nd quarter 2019 | |
8nm, First Generation | • Mass production of final products in 1st quarter 2020 | |
14nm, First Generation | • Mass production in 2nd quarter 2020 | |
N+1nm, First Generation | • Mass production in 3rd quarter 2020 |
* | The expected timeline of the mass production of 14nm ASICs is based on our best estimates, which can be affected by factors beyond our control, including but not limited to, delays cause by our suppliers. |
Bitcoin Mining Machine | Release Date | ASICs | Number of ASICs in Each Product |
Computing Power (GH/s) |
Power Consumption (W/GHs) | |||||
A841 |
March 2018 | 16nm, Second Generation | 104 | 13,000 | 0.10 | |||||
A851 |
July 2018 | 16nm, Third Generation | 104 | 14,500 | 0.10 | |||||
A852 |
April 2019 | 16nm, Third Generation | 104 | 15,000 | 0.10 | |||||
A921 |
August 2018 | 7nm, First Generation | 104 | 20,000 | 0.09 | |||||
A911 |
January 2019 | 16nm, Third Generation | 204 | 19,500 | 0.09 | |||||
A1047 |
April 2019 | 16nm, Fourth Generation | 240 | 37,000 | 0.07 | |||||
A1066 |