Item 1A. Risk Factors
Ownership of our securities involves a high degree of risk. You should carefully consider the risks described below, together with all other information contained in or incorporated by reference into this Annual Report on Form 10-K, including our audited financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following discussion highlights material risks that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, prospects and the trading price of our Ordinary Shares.
The Company may be subject to various legal and operational risks as a result of its previously being a China-based Issuer with substantial amounts of the Company’s operations previously in China and Hong Kong. The legal and regulatory environment in China is in many respects different from the United States. These risks and others could result in a material change in the value of our securities and/or significantly limit or completely limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the risks actually occur, our business could be materially harmed and the market price of our ordinary shares could decline, and you could lose all or part of your investment.
General Risks
We have a history of operating losses, and we may not be able to sustain profitability; we have recently shifted our emphasis from our digital assets mining business to the ETH staking and treasury business and we may not be continuously successful in this business.
Although we have experienced profitability from our cloud services and HPC data centers, which are presently operated by our subsidiary WhiteFiber, Inc., our current business, including our growth strategy for our business, involves industries that are new and constantly evolving and is subject risks, many of which are discussed below. See “Risks Related to Digital Asset Prices, Network Dynamics and Treasury Holdings” below.
Our results of operations may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our results of operations, including the levels of our net revenues, expenses, net loss and other key metrics, may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period comparisons of our operating results may not be meaningful, especially given our limited operating history in the area of digital assets. As a result of adverse factors described below, there can be no assurance we will achieve and maintain profitability.
The results for any one quarter are not necessarily an indication of future performance. Fluctuations in quarterly results may adversely affect the market price of our Ordinary Shares. Factors that may cause fluctuations in our annual financial results include:
the amount and timing of operating expenses related to our new business operations and infrastructure; and
general economic, industry and market conditions.
We may acquire other businesses, form joint ventures or acquire other companies or businesses that could negatively affect our operating results, dilute our shareholders’ ownership, increase our debt or cause us to incur significant expense; notwithstanding the foregoing, our growth may depend on our success in uncovering and completing such transactions.
We seek to acquire digital asset-related businesses around the globe. However, we cannot offer any assurance that acquisitions of businesses, assets and/or entering into strategic alliances or joint ventures will be successful. We may not be able to find suitable partners or acquisition candidates and may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing infrastructure. In addition, in the event we acquire any existing businesses, we could assume unknown or contingent liabilities.
Any future acquisitions also could result in the issuance of shares, incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a negative impact on our cash flows, financial condition and results of operations. Integration of an acquired company may also disrupt ongoing operations and require management resources that otherwise would be focused on developing and expanding our existing business. We may experience losses related to potential investments in other companies, which could harm our financial condition and results of operations. Further, we may not realize the anticipated benefits of any acquisition, strategic alliance or joint venture if such investments do not materialize.
To finance any acquisitions or joint ventures, we may choose to issue Ordinary Shares, Preference Shares or a combination of debt and equity as consideration, which could significantly dilute the ownership of our existing shareholders or provide rights to such preferred shareholders in priority over our Ordinary Shareholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our Ordinary Shares is low or volatile, we may not be able to acquire other companies or fund a joint venture project using shares as consideration.
From time to time we may evaluate and potentially consummate strategic investments, combinations, joint-ventures, acquisitions or alliances, which could require significant management attention, disrupt our business and adversely affect our financial results.
We may evaluate and consider strategic investments, combinations, joint-ventures, acquisitions or alliances in the digital asset “ecosystem” and related businesses around the globe. These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction.
Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:
difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business;
inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits;
difficulties in retaining, training, motivating and integrating key personnel;
diversion of management’s time and resources from our normal daily operations;
difficulties in successfully incorporating licensed or acquired technology and rights into our businesses;
difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;
difficulties in retaining relationships with customers, employees and suppliers of the acquired business;
risks of entering markets, in parts of the United States or abroad, in which we have limited or no prior experience;
regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability;
failure to successfully further develop the acquired technology;
liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;
potential disruptions to our ongoing businesses; and
unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.
We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will achieve market acceptance or prove to be profitable.
Any future acquisitions also could result in the issuance of shares, incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a negative impact on our cash flows, financial condition and results of operations. Integration of an acquired company may also disrupt ongoing operations and require management resources that otherwise would be focused on developing and expanding our existing business. We may experience losses related to potential investments in other companies, which could harm our financial condition and results of operations. Further, we may not realize the anticipated benefits of any acquisition, strategic alliance or joint venture if such investments do not materialize.
To finance any acquisitions or joint ventures, we may choose to issue Ordinary Shares, Preference Shares or a combination of debt and equity as consideration, which could significantly dilute the ownership of our existing shareholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our ordinary shares is low or volatile, we may not be able to acquire other companies or fund a joint venture project using shares as consideration.
Our new services and changes to existing services could fail to attract or retain users or generate revenue and profits, or otherwise adversely affect our business.
Our ability to retain, increase, and engage our user base and to increase our revenue depends heavily on our ability to continue to evolve our existing services and to create successful new services, both independently and in conjunction with developers or other third parties. We may introduce significant changes to our existing services or acquire or introduce new and unproven services, including using technologies with which we have little or no prior development or operating experience. These efforts, including the introduction of new services or changes to existing services, may result in new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns, or other complications that could adversely affect our business, reputation, or financial results. If our new services fail to engage users or developers, or if our business plans are unsuccessful, we may fail to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be adversely affected.
The loss of any member of our management team, our inability to execute an effective succession plan, or our inability to attract and retain qualified personnel could adversely affect our business.
Our success and future growth will depend to a significant degree on the skills and services of our management team, including Mr. Sam Tabar, our Chief Executive Officer, Mr. Erke Huang, our Chief Financial Officer and Mr. Justin Zhu, our Chief Accounting Officer and Senior Vice President of Finance. We will need to continue to grow our management in order to alleviate pressure on our existing team and in order to continue to develop our business. If our management team, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed. Furthermore, if we fail to execute an effective contingency or succession plan with the loss of any member of management, the loss of such management personnel may significantly disrupt our business.
The loss of key members of management could inhibit our growth prospects. Our future success also depends in large part on our ability to attract, retain and motivate key management and operating personnel. As we continue to develop and expand our operations, we may require personnel with different skills and experiences, and who have a sound understanding of our business and the digital asset industry. The market for highly qualified personnel in this industry is very competitive, and we may be unable to attract or retain such personnel. If we are unable to attract or retain such personnel, our business could be harmed.
We incur significant costs and demands upon management and accounting and finance resources as a result of complying with the laws and regulations affecting public companies; if we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements and otherwise make timely and accurate public disclosure could be impaired, which could harm our operating results, our ability to operate our business and our reputation.
As a public company, we are required to, among other things, maintain a system of effective internal control over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis which is a costly and time-consuming effort that needs to be re-evaluated frequently. Substantial work will continue to be required to further implement, document, assess, test and remediate our system of internal controls.
If our internal control over financial reporting or our disclosure controls are not effective, we may be unable to issue our financial statements in a timely manner, we may be unable to obtain the required audit or review of our financial statements by our independent registered public accounting firm in a timely manner or we may be otherwise unable to comply with the periodic reporting requirements of the SEC, our Ordinary Shares listing on Nasdaq could be suspended or terminated and our share price could materially suffer. In addition, we or members of our management could be subject to investigation and sanction by the SEC and other regulatory authorities and to shareholder lawsuits, which could impose significant additional costs on us and divert management attention.
As of December 31, 2025, we concluded that our internal control over financial reporting contained no material weaknesses. We will continue to periodically review our internal control over financial reporting as part of our ongoing efforts to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.
If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business.
We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork and cultivates creativity. As we continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.
We do not have any business interruption or disruption insurance coverage.
Currently, we do not have any business liability or disruption insurance to cover our operations, other than director’s and officer’s liability insurance. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.
Cyberattacks and security breaches of our systems, or those impacting our third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition.
As a result, any actual or perceived security breach of our systems or our third-party partners may:
harm our reputation and brand;
interrupt our operations;
result in improper disclosure of data and violations of applicable privacy and other laws;
result in significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, and financial exposure;
cause us to incur significant remediation costs;
divert the attention of management from the operation of our business; and
adversely affect our business and operating results.
Further, any actual or perceived breach or cybersecurity attack, whether or not we are directly impacted, could lead to a general loss of customer confidence in the digital asset industry or in the use of technology to conduct financial transactions, which could negatively impact us, including the market perception of the effectiveness of our security measures and technology infrastructure.
An increasing number of organizations, including large merchants, businesses, technology companies, and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications, and infrastructure.
Attacks upon systems across a variety of industries, including cloud services, are increasing in their frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded, and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including customers and partners’ personal data, AI algorithms, disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our cloud services or those of our third-party service providers or partners. Certain types of cyberattacks could harm us even if our systems are left undisturbed. For example, attacks may be designed to deceive employees and service providers into releasing control of our systems to a hacker, while others may aim to introduce computer viruses or malware into our cloud services with a view to stealing confidential or proprietary data. Additionally, certain threats are designed to remain dormant or undetectable until launched against a target and we may not be able to implement adequate preventative measures.
Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security breaches, effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks. We have experienced from time to time, and may experience in the future, breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities, or other irregularities. Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to its systems and facilities, as well as those of our customers, partners, and third-party service providers, through various means, including hacking, social engineering, phishing, and attempting to fraudulently induce individuals (including employees, service providers, and our customers) into disclosing usernames, passwords, payment card information, or other sensitive information, which may, in turn, be used to access our cloud services. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. Certain threat actors may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. As a result, our costs and the resources we devote to protecting against these advanced threats and their consequences may continue to increase over time.
Our operations may be negatively affected if we are unable to obtain, develop and retain key personnel and skilled labor forces.
We must attract, develop and retain executive officers and other professional, technical and labor forces with the skills and experience necessary to successfully manage, operate and grow. We have recently hired certain key personnel for the Company. However, competition for these employees is high, due, in part, to the nascent workforce in the digital asset “ecosystem.” In some cases, competition for these employees is on a regional, national, or global basis. At times of low unemployment, it can be difficult for us to attract and retain qualified and affordable personnel. A shortage in the supply of skilled personnel creates competitive hiring markets, increased labor expenses, decreased productivity and potentially lost business opportunities to support our operating and growth strategies. Additionally, if we are unable to hire employees with the requisite skills, we may be forced to incur significant training expenses. As a result, our ability to maintain productivity, relationships with customers, competitive costs, and quality services is limited by the ability to employ, retain and train the necessary skilled personnel and could negatively affect its results of operations, financial position and cash flows.
We have an evolving business model which is subject to various uncertainties.
As digital asset platforms become more widely available, we expect the services and products associated with them to evolve. In order to stay current with the industry, our business model requires us to evolve as well. From time to time, we have modified and will continue to modify aspects of our business model relating to our strategy. We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to our business. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. Further, we cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities in this business sector, and we may lose out on those opportunities. Such circumstances could have a material adverse effect on our business, prospects or operations.
We may be negatively impacted by future litigation, claims or investigations.
We may become party to, among other things, environmental, commercial, contract, warranty, antitrust, tax, property entitlements and land use, product liability, health and safety, and employment claims. The outcome of any future lawsuits, claims, investigations or proceedings is often difficult to predict and could be adverse and material in amount. In addition to the monetary cost, litigation can divert management’s attention from its core business opportunities. Development of new information in these matters can often lead to changes in management’s estimated liabilities associated with these proceedings including the judge’s rulings or judgements, jury verdicts, settlements or changes in applicable law. The outcome of such matters is often difficult to predict and unfavorable outcomes could have a material impact to our results of operations, financial position and cash flows.
Changes in tax law may negatively affect our business.
Changes to federal, state, local and foreign tax laws have the ability to benefit or adversely affect our earnings and our customer costs. Significant changes to corporate tax rates could result in the impairment of deferred tax assets that are established based on existing law at the time of deferral. A number of factors may increase WhiteFiber’s future effective income tax rate, including:
Governmental authorities increasing taxes or eliminating deductions, particularly the depletion deduction.
The jurisdictions in which earnings are taxed.
The resolution of issues arising from tax audits with various tax authorities.
Changes in the valuation of our deferred tax assets and liabilities.
Adjustments to estimated taxes upon finalization of various tax returns.
Changes in available tax credits.
Changes in stock-based compensation.
Other changes in tax laws.
The interpretation of tax laws and/or administrative practices.
Our operations could be negatively impacted by import tariffs and/or other government mandates.
Our operations are subject to environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose us to environmental liabilities.
We are subject to environmental laws and regulations affecting many aspects of our operations, including those affecting the operation of digital asset platforms. These laws and regulations can increase capital, operating and other costs; cause delays as a result of litigation and administrative proceedings; and create environmental compliance, remediation, containment, monitoring and reporting obligations for construction materials facilities. Environmental laws and regulations can also require us to install pollution control equipment at facilities where it operates, and correct environmental hazards, including payment of all or part of the cost to remediate sites where activities of other parties, caused environmental contamination. These laws and regulations generally require us to obtain and comply with a variety of environmental licenses, permits, inspections and other approvals. Although we strive to comply with all applicable environmental laws and regulations, public and private entities and private individuals may interpret our legal or regulatory requirements differently and seek injunctive relief or other remedies against us. We cannot predict the outcome, financial or operational, of any such litigation or administrative proceedings.
Existing environmental laws and regulations may be revised and new laws and regulations seeking to protect the environment may be adopted or become applicable to us. These laws and regulations could require us to limit the use or output of certain facilities; prohibit or restrict new or existing services; retire and replace certain facilities; install pollution controls; remediate environmental impacts; remove or reduce environmental hazards; or forego or limit the development of resources and certain facilities where it operates. Revised or new laws and regulations that increase compliance and disclosure costs and/or restrict operations could adversely affect our results of operations, financial conditions and cash flows.
General risk factors that could impact our businesses.
The following are additional factors that should be considered for a better understanding of the risks to us. These factors may negatively impact our financial results in future periods:
Acquisition, disposal and impairments of assets or facilities.
The cyclical nature of large infrastructure projects.
Labor negotiations or disputes.
Inability of contract counterparties to meet their contractual obligations.
The inability to effectively integrate the operations and the internal controls of any acquired companies.
We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks that exceed the FDIC insurance limits. Bank failures, events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. For example, on March 10, 2023, Silicon Valley Bank failed and was taken into receivership by the FDIC. The failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S., or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.
Failure to manage our liquidity and cash flows may materially and adversely affect our financial conditions and results of operations. As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all.
In July 2025, we sold an aggregate of 22,000,000 ordinary shares at $3.06 per share pursuant to a registered direct offering. In October 2025, we sold an aggregate of $150 million of 4.0% convertible senior notes due 2030 pursuant to a registered offering. During the year ended December 31, 2025, we sold an aggregate of 30,189,161 ordinary shares for an aggregate price of $2.15, net of offering costs pursuant to an at-the-market offering. We had proceeds of $63.4 million, net of offering costs pursuant to an at-the-market offering.
We cannot assure you our business model will allow us to continue to generate positive cash, given our substantial expenses in relation to our revenue at this stage of our Company’s development. Our inability to offset our expenses with adequate revenue will adversely affect our liquidity, financial condition and results of operations. Although we believe we have adequate cash on hand and have an effective $2.5 billion at-the-market shelf registration statement and anticipated cash flows from operating activities are expected to be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months, we cannot assure you that will be the case. We expect to need additional cash resources in the future as we wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions in order to implement our business plan. We may evaluate financing opportunities from time to time, including through ETH-collateralized financing arrangements, related-party or other investor financing, and other debt or equity financings. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Further, if we seek to obtain financing through ETH-collateralized financing arrangements, we may be required to pledge a substantial portion of our ETH and satisfy margin maintenance and other collateral requirements. If the value of the pledged collateral declines, we could be required to post additional collateral, repay indebtedness earlier than anticipated or permit the liquidation of pledged ETH, which could adversely affect our liquidity, financial condition and results of operations.
Our cash balances are held at a number of financial institutions that expose us to their credit risk
We maintain our cash and cash equivalents at financial or other intermediary institutions. The combined account balances at each institution located in the United States typically exceed FDIC insurance coverage of $250,000 per depositor. The combined account balances at each institution located in Iceland typically exceed the deposit guarantee schemes of the equivalent of €100,000 in Icelandic Krona per depositor. As a result, there is a concentration of credit risk related to amounts on deposit in excess of the deposit insurance coverage amounts. At December 31, 2025, substantially all of our cash and cash equivalent balances held at financial institutions exceeded deposit insured limits. While we did not have any direct exposure to Silicon Valley Bank, Signature Bank, or First Republic, which suffered severe liquidity losses during 2023, if other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability, and the ability of our customers, clients and vendors, to access existing cash, cash equivalents and investments, or to access existing or enter into new banking arrangements or facilities, may be threatened and could have a material adverse effect on our business and financial condition.
Risks Related to Digital Asset Prices, Network Dynamics and Treasury Holdings
Volatility in the prices of ETH may materially and adversely affect our business, financial condition and results of operations.
Our revenues, gross margins, liquidity and ability to service obligations depend significantly on prevailing ETH prices and. Prolonged or sharp price declines, or heightened volatility, may impede ETH ecosystem growth or render BTC mining activities unprofitable, reduce the carrying value and liquidity of digital assets held, and decrease investor demand for our securities.
The future development and growth of digital assets are subject to a variety of factors that are difficult to predict and evaluate. If digital assets do not grow as we expect, our business, operating results and financial condition could be adversely affected.
Digital assets built on blockchain technology were only introduced in 2008 and remain in the early stages of development. In addition, different digital assets are designed for different purposes. Ethereum, for instance, was designed to serve as a smart contract and decentralized application platform, while Bitcoin was designed to serve as a peer-to-peer electronic cash system. Many other blockchain networks, ranging from cloud computing to tokenized securities networks, have only recently been established. The further growth and development of any digital assets and their underlying networks and other cryptographic and algorithmic protocols governing the creation, transfer and usage of digital assets and related assets represent a new and evolving paradigm that is subject to a variety of factors that are difficult to evaluate, including:
many digital assets and networks have limited operating histories, have not been validated in production, and are still in the process of developing and making significant decisions that will affect the design, supply, issuance, functionality, and governance of their respective digital assets and underlying blockchain networks, any of which could adversely affect their respective digital assets;
many blockchain networks are in the process of implementing software upgrades and other changes to their protocols, which could introduce bugs, security risks, or adversely affect the respective blockchain networks;
several large networks, including Ethereum and Bitcoin, are developing new features to address fundamental speed, scalability, and energy usage issues. If these issues are not successfully addressed, or if these networks do not achieve widespread adoption, it could adversely affect the underlying digital assets;
security issues, bugs, and software errors have been identified with many digital assets and their underlying blockchain networks, some of which have been exploited by malicious actors. There are also inherent security weaknesses in some digital assets, such as when creators of certain blockchain networks use procedures that could allow hackers to counterfeit tokens. Any weaknesses identified with a digital asset could adversely affect its price, security, liquidity, and adoption rate. If one or more malicious actors obtain a majority of the compute or staking power on a digital asset network, as has happened in the past, it may be able to engage in illicit activity, which could cause financial losses to holders, damage the network’s reputation and security, and adversely affect its value;
blockchain networks may have consolidated points of failure (such as concentrated ownership or an “admin key”), allowing a small group of holders to have significant unilateral control and influence over key decisions related to their blockchain networks, such as governance decisions and protocol changes, as well as the market price of such digital assets;
if rewards and transaction fees for miners or validators on any particular digital asset network are not sufficiently high to attract and retain miners or validators, a blockchain network’s security and speed may be adversely affected, increasing the likelihood of a malicious attack;
the governance of many decentralized blockchain networks is by voluntary consensus and open competition, and many developers are not directly compensated for their contributions. As a result, there may be a lack of consensus or clarity on the governance of any particular digital asset network, a lack of incentives for developers to maintain or develop the network, and other unforeseen issues, any of which could result in unexpected or undesirable errors, bugs, or changes, or stymie such network’s utility and ability to respond to challenges and grow; and
many blockchain networks are in the early stages of developing partnerships and collaborations, any or all of which may not succeed and adversely affect the usability and adoption of the respective digital assets.
Various other technical issues have also been uncovered from time to time that resulted in disabled functionalities, exposure of certain users’ personal information, theft of users’ assets, and other negative consequences, and which required resolution with the attention and efforts of their global miner, user, and development communities. If any such risks or other risks materialize, and in particular if they are not resolved, the development and growth of digital assets may be significantly affected and, as a result, our business, operating results, and financial condition could be adversely affected.
Ethereum-specific market, technology and regulatory developments may adversely affect the value and liquidity of our ETH holdings and our Treasury Strategy .
The Ethereum network is subject to rapidly evolving technology, competitive dynamics (including alternative Layer 1 and Layer 2 networks), and changing regulatory and market-structure frameworks. Adverse developments—including protocol upgrades with unintended consequences, forks or chain instability, validator concentration, consensus failures, smart contract vulnerabilities, L2 settlement failures, bridge exploits, or regulatory restrictions—could reduce the value or liquidity of ETH and impair our treasury strategy.
Our ETH treasury business model has multiple layers of corporate finance risks.
Our ETH Treasury Strategy has multiple layers of risk based on corporate finance principles and blockchain mechanics, including but not limited to the following:
Potential Premium Collapse : Our digital asset treasury relies on equity premiums to raise capital accretively. If share prices fall below NAV, treasury accumulation on our balance sheet may slow down or halt. Decreasing premiums paid for our shares may signal a lack of investor enthusiasm for our ETH Treasury Strategy.
Liquidity and Macro Sensitivity : Digital asset treasury company equities are typically high-beta assets. For example, a 20% ETH correction can result in 50% equity drawdowns due to leverage and collapsing premiums.
Dilution Fatigue : Repeated capital raises through may desensitize investors. Without yield growth or NAV accretion, new issuances risk being seen as opportunistic liquidity events rather than long-term expansion.
Together, these risks form the structural challenges of our ETH Treasury Strategy. Its success depends on maintaining perpetual premium expansion in a market that is inherently cyclical.
Our ETH Treasury Strategy and any decision to hold digital assets may increase our exposure to market volatility and potential uninsured losses.
Market conditions and operational needs may necessitate longer holding periods, increasing exposure to price swings. If we hold ETH or other digital assets under our treasury strategy, we would be exposed to additional volatility, regulatory, and market structure risks specific to those assets. We are currently exposed to potential uninsured losses to the extent digital asset balances exceed the custodian’s applicable insurance coverage.
Our strategic exposure to ETH may subject us to ETH-specific market, technology, and regulatory risks.
The Ethereum network has distinct market structure, technology, regulatory and liquidity considerations compared to Bitcoin. Adverse developments specific to ETH—including protocol changes, forks, validator dynamics, market dislocations, bridge or DeFi exploits, or regulatory actions—could impair the value or liquidity of our ETH holdings and related strategies.
Operational, Cybersecurity and Custody Risks
Any ETH staking and related activities may expose us to slashing, lock-ups, liquidity, counterparty and operational risks .
Staking requires operational reliability and adherence to protocol rules. Validators that act maliciously or suffer extended downtime can be “slashed,” resulting in a partial loss of staked principal. Staking may also involve unbonding or lock-up periods that reduce liquidity and flexibility, and, where conducted through third-party providers, introduces counterparty and operational risk. Liquid staking or restaking mechanisms may involve additional smart contract risk, rehypothecation or correlation risks, and market liquidity considerations for derivative tokens. Any failure in our validator operations or at a third-party staking provider could result in losses and reputational harm.
Smart contract, bridge, oracle and protocol vulnerabilities could result in loss of digital assets or business interruption.
Decentralized protocols and token standards underpin many Ethereum-based activities. Exploits or failures—whether in widely used standards, core protocol implementations, bridges, or oracles—can cause material losses or network instability. Even if we are not directly exposed to a compromised protocol, contagion effects can depress market prices, reduce liquidity, and disrupt counterparties or service providers on which we rely.
Market structure and liquidity for ETH could deteriorate, impacting our ability to transact or to accurately value our holdings .
We rely on a limited number of venues for price discovery and liquidity. Market events—including exchange or market-maker disruptions, de-platforming of digital asset participants by banks or service providers, stress in stablecoin markets, or regulatory actions that affect trading venues—could reduce liquidity and increase volatility. A lack of reliable liquidity may impair valuation, hedging, or the ability to rebalance our treasury.
ETH price declines or prolonged underperformance versus other digital assets could adversely affect our financial position and capital access .
Our strategy is focused on ETH as our primary treasury asset. Sustained price declines in ETH or underperformance relative to other assets could reduce the carrying value of our digital assets, increase the frequency or magnitude of impairment charges under applicable accounting policies, and diminish our ability to raise capital or maintain compliance with exchange listing standards.
Restaking and correlated risk exposures may amplify losses during stress events.
If we engage in restaking or similar activities that create stacked security obligations or re-use of staked collateral across protocols, we may face correlated losses across multiple positions in a single adverse event. Losses at one protocol could affect the security or liquidity of positions at another, and recovery pathways may be uncertain or prolonged.
Concentration and governance risks in the Ethereum ecosystem could create systemic vulnerabilities.
Concentration of validators among a small number of providers, reliance on a limited set of client implementations, or governance capture by large stakeholders could increase systemic risk. A critical bug in a dominant client, or adverse decisions by influential governance participants, could affect network stability, validator incentives, or ETH economics.
Our treasury strategy and any decision to hold digital assets may increase our exposure to market volatility and potential uninsured losses.
When we hold ETH or other digital assets under our treasury strategy, we are exposed to additional volatility, regulatory, and market structure risks specific to those assets. We are currently exposed to potential uninsured losses to the extent digital asset balances exceed the custodian’s applicable insurance coverage.
Our failure to securely store and manage our fiat currencies and digital assets could adversely affect our business, operating results and financial condition.
We hold cash and store digital assets for our treasury and hold fiat and digital assets for corporate investment and operating purposes. In addition, we store the majority of digital assets at third-party custodians for asset management products.
Securely storing cash and digital assets is integral to the trust we build with our stockholders and our customers. We believe our policies, procedures, operational controls and controls over financial reporting protect us from material risks surrounding the storing of these assets and conflicts of interest. Our controls over financial reporting include, among others, controls over the segregation of corporate digital assets, controls over the investment and staking processes of our treasury, and controls over digital asset withdrawals. Our financial statements and disclosures, as a whole, will be available through periodic filings on a quarterly basis, and compliant with annual audit requirements of Article 3 of Regulation S-X.
Any inability by us to maintain our procedures, perceived or otherwise, could harm our business, operating results and financial condition. Any material failure by us or our partners to maintain the necessary controls, policies, procedures or to manage the digital assets we hold for our own investment and operating purposes could also adversely affect our business, operating results and financial condition. Further, any material failure by us or our partners to maintain the necessary controls or to manage digital assets and funds appropriately and in compliance with applicable regulatory requirements could result in reputational harm, litigation, regulatory enforcement actions, significant financial losses, and result in significant penalties and fines and additional restrictions, which could adversely affect our business, operating results and financial condition.
Reliance on mining pools and other third-party service providers may expose us to counterparty failures, operational issues, and losses.
Our rewards are typically earned via pooled mining. We rely on pool operators to honestly and accurately account for our pro rata share of rewards, maintain operational security, and remit proceeds. Pools may lack insurance for theft or loss, and rewards may be held for varying durations. Any failure, insolvency, cyber event, mispricing, or suspension by a pool operator could delay or reduce our receipts or result in losses. A change in pool fee structures or terms could adversely affect yields.
The theft, loss or destruction of private keys required to access any digital assets held in custody for our own account or for our operational partners may be irreversible. If we are unable to access our private keys or if we experience a hack or other data loss relating to our ability to access any digital assets, it could cause regulatory scrutiny, reputational harm, and other losses.
Digital assets are generally controllable only by the possessor of the unique private key relating to the digital wallet in which the digital assets are held. While blockchain protocols typically require public addresses to be published when used in a transaction, private keys must be secured and kept private in order to prevent a third party from accessing the digital assets held in such a wallet. To the extent that any of the private keys relating to our wallets containing digital assets held for our own account or for our customers is lost, destroyed, or otherwise compromised or unavailable, and no backup of the private key is accessible, we will be unable to access the digital assets held in the related wallet. Further, we cannot provide assurance that our wallets will not be hacked or compromised. Digital assets and blockchain technologies have been, and may in the future be, subject to security breaches, hacking, or other malicious activities. Any loss of private keys relating to, or hack or other compromise of, digital wallets used to store our customers’ digital assets could adversely affect our customers’ ability to access or sell their digital assets, require us to reimburse our customers for their losses, and subject us to significant financial losses in addition to losing customer trust in us and our products. As such, any loss of private keys due to a hack, employee or service provider misconduct or error, or other compromise by third parties could hurt our brand and reputation, result in significant losses, and adversely affect our business, operating results, and financial condition.
We utilize custodians to mitigate the risks associated with the loss or theft of keys. Cold wallet private key materials are stored and secured at facilities within the United States and internationally. We store the substantial majority of our own digital asset holdings utilizing market-standard storage solution.
Risks Related to WhiteFiber’s Operations
WhiteFiber’ s business depends upon the demand for data centers.
WhiteFiber is in the business of owning, acquiring, developing and operating data centers. A reduction in the demand for data center space, power or connectivity would have a greater adverse effect on its business and financial condition than if its assets were devoted to a less specialized use. WhiteFiber’s substantial development activities make it particularly susceptible to general economic slowdowns, as well as adverse developments in the data center, Internet, AI and data communications and broader technology industries. It is not possible for WhiteFiber to predict the future level of demand for its services that will be generated by these customers or the future demand for the products and services of these customers. Any such slowdown or adverse development could lead to reduced corporate IT spending or reduced demand for data center space. Changes in industry practice or in technology could reduce demand for the physical data center space WhiteFiber provides. In addition, WhiteFiber’s customers may choose to develop new data centers or expand their own existing data centers or consolidate into data centers that WhiteFiber does not own or operate, which could reduce demand for WhiteFiber’s newly developed data centers or result in the loss of one or more key customers. If any of WhiteFiber’s key customers were to do so, it could result in a loss of business to WhiteFiber or put pressure on its pricing. Mergers or consolidations of technology companies could reduce further the number of its customers and potential customers and make WhiteFiber more dependent on a more limited number of customers. If WhiteFiber’s customers merge with or are acquired by other entities that are not its customers, they may discontinue or reduce the use of WhiteFiber’s data centers in the future. WhiteFiber’s financial condition, results of operations, cash flow, cash available for distribution and ability to satisfy its debt service obligations could be materially adversely affected as a result of any or all of these factors.
WhiteFiber depends upon third-party suppliers for power, and is vulnerable to service failures and price increases by such suppliers and to volatility in the supply and price of power in the open market.
WhiteFiber relies on third parties to provide power to its data centers, and it cannot ensure that these third parties will deliver such power in adequate quantities or on a consistent basis. WhiteFiber is also reliant on third parties to deliver additional power capacity to support the growth of our business. If the amount of power available to WhiteFiber is inadequate to support its customer requirements, it may be unable to satisfy its obligations to its customers or grow its business. In addition, WhiteFiber’s data centers may be susceptible to power shortages and planned or unplanned power outages caused by these shortages. Power outages may last beyond WhiteFiber’s backup and alternative power arrangements, which would harm its customers and its business. Any loss of services or equipment damage could adversely affect both WhiteFiber’s ability to generate revenues and its operating results, harm its reputation and potentially lead to customer disputes or litigation.
WhiteFiber’s purchase orders with hardware manufacturers include extended delivery schedules.
WhiteFiber relies on third parties to timely obtain an adequate delivery of hardware. WhiteFiber’s purchase orders with hardware manufacturers include extended delivery schedules spanning several months before the hardware is delivered to our facilities. These fluctuations in delivery timelines necessitate careful planning and advanced purchasing strategies to ensure WhiteFiber can acquire hardware well before their anticipated deployment. Failure to adequately plan for such fluctuations could have a material adverse effect on WhiteFiber’s business, prospects, results of operations and financial condition.
WhiteFiber depends on third parties to provide network connectivity to the customers in its data centers and any delays or disruptions in connectivity may materially adversely affect its operating results and cash flow.
WhiteFiber is not a telecommunications carrier. WhiteFiber believes that the availability of carrier capacity will directly affect its ability to achieve its projected results. Any carrier may elect not to offer its services within WhiteFiber’s data centers. Any carrier that has decided to provide network connectivity to WhiteFiber’s data centers may not continue to do so for any period of time. Further, some carriers are experiencing business difficulties or have announced consolidations. As a result, some carriers may be forced to downsize or terminate connectivity within WhiteFiber’s data centers, which could have an adverse effect on the business of WhiteFiber’s customers and, in turn, its own operating results.
WhiteFiber’s data centers may require construction and operation of a sophisticated redundant fiber network. The construction required to connect multiple carrier facilities to data centers is complex and involves factors outside of WhiteFiber’s control, including regulatory requirements and the availability of construction resources. WhiteFiber has obtained the right to use network resources owned by other companies, in order to attract telecommunications carriers and customers to its portfolio. If the establishment of highly diverse network connectivity to WhiteFiber’s data centers does not occur, is materially delayed or is discontinued, or is subject to failure, WhiteFiber’s operating results and cash flow may be materially adversely affected. Additionally, any hardware or fiber failures on this network may result in significant loss of connectivity to WhiteFiber’s data centers. This could negatively affect WhiteFiber’s ability to attract new customers or retain existing customers, which could have an adverse effect on its business, financial condition and results of operations.
Any failure of WhiteFiber’s physical or information technology or operational technology infrastructure or services could lead to significant costs and disruptions.
WhiteFiber’s business depends on providing customers with highly reliable services, including with respect to power supply, physical security, cybersecurity, and maintenance of environmental conditions. WhiteFiber may fail to provide such services because its operations are vulnerable to, among other things, mechanical or telecommunications failure, power outage, human error, physical or electronic security breaches, cyberattacks, ransomware attacks, war, terrorism, fire, earthquake, pandemics, hurricane, flood and other natural disasters, sabotage and vandalism.
Substantially all of WhiteFiber’s customer agreements include terms requiring it to meet certain service level commitments. Any failure to meet these or other commitments or any equipment damage in WhiteFiber’s data centers due to any reason could subject us to contractual liability, including service level credits against customer rent payments, legal liability and monetary damages, regulatory sanctions, or, in certain cases of repeated failures, the right by the customer to terminate the agreement. Service interruptions, equipment failures or security breaches could also materially impact our brand and reputation globally and lead to customer contract terminations or non-renewals and an inability to attract customers in the future.
Any disruption of service experienced by certain of WhiteFiber’s third-party service providers, or its ineffective management of relationships with third-party service providers could harm its business, financial condition, operating results, cash flows and prospects.
WhiteFiber relies on several third-party service providers for services that are essential to its business model, the most important of which are its suppliers of power, electrical equipment (including GPU servers), building materials, and construction services. Additionally, as WhiteFiber builds its cloud service business, it also expects to rely on third parties to lease or sell us equipment which it then leases to certain of its cloud service and colocation data center customers. In addition, it may depend upon outside advisors who may not be available on reasonable terms as needed, or at all. To supplement the business experience of its officers and directors, WhiteFiber may be required to employ technical experts, appraisers, attorneys, or other consultants or advisors. If these third parties or other outside advisors experience difficulty providing the services WhiteFiber requires, or if they experience disruptions or financial distress or cease operations temporarily or permanently, or if the products they supply are defective or cease to operate for any reason, it could make it difficult for WhiteFiber to execute its operations. If WhiteFiber is unsuccessful in identifying or finding highly qualified third-party service providers or employees, if WhiteFiber fails to negotiate cost-effective relationships with them or if WhiteFiber is ineffective in managing and maintaining these relationships, it could materially and adversely affect WhiteFiber’s business and its financial condition, operating results, cash flows and prospects.
Any delays or unexpected costs in the development of any new properties acquired for development may delay and harm WhiteFiber’s growth prospects, future operating results and financial condition.
WhiteFiber intends to build out additional WhiteFiber data centers in the future based on signed letters of intent at significant cost. WhiteFiber’s successful development of this and future projects is subject to many risks, including those associated with:
delays in construction, or changes to the plans or specifications;
budget overruns, increased prices for raw materials or building supplies, or lack of availability and/or increased costs for specialized data center components, including long lead time items such as generators;
construction site accidents and other casualties;
financing availability, including our ability to obtain construction financing and permanent financing, or increases in interest rates or credit spreads;
labor availability, costs, disputes and work stoppages with contractors, subcontractors or others that are constructing the project;
failure of contractors to perform on a timely basis or at all, or other misconduct on the part of contractors;
access to sufficient power and related costs of providing such power to our customers;
environmental issues;
supply chain constraints;
fire, flooding, earthquakes and other natural disasters;
pandemics;
geological, construction, excavation and equipment problems; and
delays or denials of entitlements or permits, including zoning and related permits, or other delays resulting from requirements of public agencies and utility companies, including as a result of local community resistance or protests in response to the development of new data centers.
In addition, development activities, regardless of whether they are ultimately successful, also typically require a substantial portion of management’s time and attention. This may distract WhiteFiber’s management from focusing on other operational activities of our business. If WhiteFiber is unable to complete development projects successfully and on a timely basis, its business may be adversely affected.
WhiteFiber’s ongoing investment in retrofitting data centers involves infrastructure and technologies which is inherently risky, and could divert management attention and harm its business, financial condition, and operating results.
WhiteFiber’s ongoing investments that it is making in infrastructure, research and development augment its data center capabilities, reflect WhiteFiber’s ongoing efforts to innovate and provide products and services that are helpful to its customers. However, these investments may not be commercially viable or may not result in an adequate return of capital. These endeavors involve significant risks and uncertainties, including diversion of resources and management attention from current operations, different monetization models, and the use of alternative investment, governance, or compensation structures that may fail to adequately align incentives across WhiteFiber or otherwise accomplish their objectives.
Even if this additional space available for lease at any one of its data centers, its ability to lease this space to existing or new customers could be constrained by its ability to provide sufficient electrical power.
As current and future customers increase their power footprint in WhiteFiber’s data centers over time, the corresponding reduction in available power could limit WhiteFiber’s ability to increase occupancy rates or network density within WhiteFiber’s existing or future data centers. Furthermore, WhiteFiber’s aggregate maximum contractual obligation to provide power and cooling to its customers may exceed the physical capacity at such data centers if customers were to quickly increase their demand for power and cooling. If WhiteFiber is not able to increase the available power and/or cooling or move the customer to another location within its data centers with sufficient power and cooling to meet such demand, it could lose the customer, as well as be exposed to liability under our customer agreements. In addition, our power and cooling systems are difficult and expensive to upgrade. Accordingly, WhiteFiber may not be able to efficiently upgrade or change these systems to meet new demands without incurring significant costs that it may not be able to pass on to our customers. Any such material loss of customers, liability or additional costs could adversely affect our business, financial condition and results of operations.
If WhiteFiber fails to effectively manage its growth, its business, financial condition and results of operations could be harmed.
WhiteFiber is a development stage company with a small management team and is subject to the strains of ongoing development and growth, which will place significant demands on its management and its operational and financial infrastructure. Although WhiteFiber may not grow as it expects, if it fails to manage its growth effectively or to develop and expand its managerial, operational and financial resources and systems, its business and financial results would be materially harmed.
Impact of advancements in AI on demand for AI and WhiteFiber data centers may reduce the need for HPCs and AI-specific data center infrastructure, which could have an adverse effect on WhiteFiber’s business, results of operations, and financial condition.
The AI industry is rapidly evolving, with continuous improvements in algorithms, software efficiencies, and hardware capabilities. Emerging AI technologies, such as demonstrated by DeepSeek, may allow for complex AI operations to be executed with significantly less computing power than is currently required. This reduction in computational intensity could decrease the demand for specialized computing and HPC data center services. If AI developers are able to achieve the same or better performance outcomes with more energy-efficient, cost-effective, or less resource-intensive technologies, they may adjust their need for large-scale, high capacity data center solutions. This shift could have an adverse effect on WhiteFiber’s business, results of operations, and financial condition. We continuously monitor industry trends and invest in innovation to mitigate these risks. However, there is no assurance that we will be able to anticipate or respond effectively to such changes, which could have an adverse effect on our business, results of operations, and financial condition.
WhiteFiber’s customers frequently make advance payments based on anticipated future usage.
In its cloud service business, customers often make advance payments as deposits for future usage of our services. If we are unable to meet the contract requirements or deliver GPU clusters to their satisfaction for any reason, we may be obligated to refund these deposits.
In its colocation Data Center Hosting Business, customers typically pay a month in advance based on their projected demand. If WhiteFiber is unable to provide the services as expected for any reason, it would be required to issue a credit or refund the difference to the customer. Any such refunds or issuances of credit could have an adverse effect on its business, results of operations, and financial condition.
Dependence on joint ventures and other local partners could adversely affect WhiteFiber’s profits.
WhiteFiber intends to conduct some operations through joint ventures in which unaffiliated third parties may control or have significant influence on the operations of the joint venture. As with any joint venture arrangement, differences in views among the joint venture participants may result in the joint venture operating in a manner that is contrary to WhiteFiber’s preference, delayed decisions or in failures to agree on major issues. These factors could have a material adverse effect on the business and results of operations of its joint ventures and, in turn, its business and combined results of operations. In addition to joint ventures, WhiteFiber may rely on local third-party partners in foreign jurisdiction, as it does in Iceland, to provide various services in support of its cloud services and HPC data center businesses, including installation, service and technical support, as well as the provision of equipment and personnel. If a local partner is unwilling or unable to deliver its services for any reason including, but not limited to, a dispute with WhiteFiber, the deterioration of its financial condition or a loss of personnel, WhiteFiber may be unable to engage an alternative partner or subcontractors to perform the same services, or on terms substantially similar to those with its existing partners. The failure to do so may cause us to breach the terms of existing contracts, impede WhiteFiber’s ability to complete orders, and/or result in damage to our customer relationships in that jurisdiction, any of which may damage WhiteFiber’s reputation and have a material adverse effect on its business in the impacted jurisdiction.
WhiteFiber’s operations may be negatively affected if it is unable to obtain, develop and retain key personnel and skilled labor forces.
WhiteFiber must attract, develop and retain executive officers and other professional, technical and labor forces with the skills and experience necessary to successfully manage, operate and grow. WhiteFiber has recently hired certain key personnel, as well as the management team of Enovum. However, competition for these employees is high, due, in part, to the nascent HPC Business workforce. In some cases, competition for these employees is on a regional, national, or global basis. At times of low unemployment, it may be difficult for WhiteFiber to attract and retain qualified and affordable personnel. A shortage in the supply of skilled personnel creates competitive hiring markets, increased labor expenses, decreased productivity and potentially lost business opportunities to support WhiteFiber’s operating and growth strategies. Additionally, if WhiteFiber is unable to hire employees with the requisite skills, it may be forced to incur significant training expenses. As a result, WhiteFiber’s ability to maintain productivity, relationships with customers, competitive costs, and quality services is limited by the ability to employ, retain and train the necessary skilled personnel and could negatively affect its results of operations, financial position and cash flows.
WhiteFiber faces intense competition in its data centers operations and may not be able to compete with other companies. If WhiteFiber does not continue to innovate in the design and management of data centers in order to offer innovative solutions to store, process and manage digital information, including artificial intelligence (“AI”) and machine learning (“ML”) applications, to its customers and partners, it may not remain competitive, which could harm its business, financial condition, data centers and operating results.
WhiteFiber may not be able to compete successfully against present or future competitors. WhiteFiber does not have the capital resources to compete with larger providers of similar data centers at this time. WhiteFiber’s data centers business environment is rapidly evolving and intensely competitive, and it faces frequent introductions of rival solutions and new technologies. To compete successfully, WhiteFiber must, among other things, accurately anticipate data center technology developments and innovate data centers’ design, management and technologies in a timely manner. As its data centers business evolves, the competitive pressure to innovate will encompass a wider range of technologies and solutions. WhiteFiber must continue to invest significant resources in personnel, technical infrastructure and R&D, including through acquisitions, in order to advance/innovate its data centers. With the limited resources WhiteFiber has available, it may experience difficulties in expanding and improving its data centers. Competition from existing and future competitors, particularly those better capitalized, could result in its inability to secure acquisitions and partnerships that it may need to expand its data centers business in the future. This competition from other entities with greater resources, experience and reputation may result in WhiteFiber’s failure to maintain or expand its data center business, as it may never be able to successfully execute its business plan. If WhiteFiber is unable to expand and remain competitive, its business could be negatively affected, which would have an adverse effect on the trading price of WhiteFiber Ordinary Shares, which would harm its investors.
Supply chain disruptions may adversely affect WhiteFiber’s new project development.
WhiteFiber is a provider of GPUs compute and purchases NVIDA H100, H200, B200, GB200 servers, as well as other servers, through OEMS, for example, Super Micro Computer Inc®, Dell, and Hewlett Packard Enterprise. Disruptions, shortages or delays in WhiteFiber’s ability to source GPUs and price increases from suppliers may occur, and adversely affect WhiteFiber’s planned expansions and new project timelines. Any material disruption at WhiteFiber’s facilities or those of its customers or suppliers or otherwise within its supply chain, whether as a result of downtime, work stoppages or facility damage could prevent WhiteFiber from meeting future customer demands or expected timelines, require it to incur unplanned capital expenditures, or cause other material disruptions to its operations, any of which could have a material adverse effect on WhiteFiber’s future operations, financial position and cash flows. Further, supply chain disruptions can occur from events out of WhiteFiber’s control, such as environmental incidents or other catastrophes.
WhiteFiber’s business has and is expected to continue to have significant customer concentration.
WhiteFiber generates a large portion of its revenue from a small number of customers. There are inherent risks whenever a large percentage of total revenue is concentrated with a limited number of customers. If WhiteFiber were to lose one or more of its customers, its operating results could be materially adversely affected.
As of December 31, 2025, WhiteFiber’s data center served fifteen customers. No one customer accounted for in excess of 50% of data center revenue in the 12 months ended December 31, 2025 or 2024. During fiscal year 2023, 12 customers accounted for all of WhiteFiber’s revenue. During 2025, WhiteFiber’s HPC data center in Iceland had contracts with twenty one customers. DNA Fund accounted for approximately 11.5% of cloud services revenue during the 12 months ended December 31, 2025. WhiteFiber did not generate any revenue from DNA Fund in 2024. WhiteFiber’s Initial Customer accounted for approximately 70.7% of cloud services revenue during the 12 months ended December 31, 2025 and 96.6% of cloud services revenues through December 31, 2024. As of the report date, WhiteFiber and the Initial Customer are engaged in ongoing discussions regarding a potential resolution of the existing service agreements following the agreed pause of services. No definitive agreement has been reached. Following the service pause, WhiteFiber has redeployed the GPUs previously allocated to the Initial Customer to three other customers. Based on WhiteFiber’s current customer mix and contracted capacity for 2026, a limited number of customers are expected to represent a significant portion of cloud services revenue. While WhiteFiber is actively expanding and diversifying its customer base, WhiteFiber’s results may continue to be influenced by the performance and contractual arrangements of these customers.
WhiteFiber expects that the limited number of customers will continue to account for a high percentage of its revenue for the foreseeable future. In addition, demand for WhiteFiber’s services generated by these customers may fluctuate significantly from quarter to quarter. The concentration of its customer base increases risks related to the financial condition of its customers, and the deterioration in financial condition of a single customer or the failure of a single customer to perform its obligations could have a material adverse effect on its results of operations and cash flow. In the event that any of WhiteFiber’s customers experience a decline in their equipment usage for any reason, or decide to discontinue the use of WhiteFiber’s facilities, we may be compelled to lower its prices or risk losing a significant customer. Such developments could adversely affect WhiteFiber’s profit margins and financial position, leading to a negative impact on its revenue and operational results.
Cloud Service Development Related Risks
WhiteFiber’s cloud service technology and infrastructure may not operate properly or as it expects them to, which could cause WhiteFiber to incur fines and monetary penalties, adversely affecting its business, results of operations, and financial condition.
The continuous development, maintenance, and operation of WhiteFiber’s cloud service technology and infrastructure is expensive and complex and may involve unforeseen difficulties, including material performance problems, undetected defects, or errors, particularly with new capabilities and system integrations. WhiteFiber may encounter technical obstacles, and it is possible that WhiteFiber may discover additional problems that prevent its technology and systems from operating properly. If WhiteFiber’s cloud services do not function reliably, it may incur fines and monetary penalties, as well as regulatory orders requiring remedial, injunctive, or other corrective actions.
Regulators may limit WhiteFiber’s ability to develop or implement its cloud services technology and infrastructure and/or may eliminate or restrict the confidentiality of its technology, which could have a material adverse effect on its financial condition and results of operations.
WhiteFiber’s future success depends on its ability to continue to develop and implement our cloud services technology, and to maintain the confidentiality of this technology. Changes to existing regulations, their interpretation or implementation, or new regulations could impede its use of this technology, or require that WhiteFiber disclose WhiteFiber’s technology to its competitors, which could impair its competitive position and result in a material adverse effect on its business, results of operations, and financial condition.
WhiteFiber faces intense competition in the cloud services industry and may not be able to compete with other companies. If WhiteFiber does not continue to innovate and provide cloud services to its customers and partners it may not remain competitive, which could harm our business, financial condition, cloud service and operating results.
WhiteFiber’s current and potential domestic and international competitors range from large and established companies to emerging start-ups. Some competitors have longer operating histories and well-established relationships in various sectors. They can use their experience and resources in ways that could affect WhiteFiber’s competitive position, including by making acquisitions and entering into other strategic arrangements; continuing to invest heavily in cloud services technical infrastructure, R&D, and in talent; initiating intellectual property and competition claims (whether or not meritorious). Further, discrepancies in enforcement of existing laws may enable WhiteFiber’s lesser known competitors to aggressively interpret those laws without commensurate scrutiny, thereby affording them competitive advantages. WhiteFiber’s competitors may also be able to innovate and provide cloud services faster than it can or may foresee the need for products and services before it does.
WhiteFiber is expanding its investment in research and development companywide. This includes generative AI and continuing to integrate AI capabilities into its products and services. Cloud service technology and services are highly competitive, rapidly evolving, and require significant investment, including development and operational costs, to meet the changing needs and expectations of WhiteFiber’s existing users and attract new users. WhiteFiber’s ability to deploy certain cloud service technologies critical for its products and services and for its business strategy may depend on the availability and pricing of third-party equipment and technical infrastructure. Additionally, other companies may develop cloud service products and technologies that are similar or superior to WhiteFiber’s technologies or more cost-effective to deploy. Other companies have, or in the future may obtain, patents or other proprietary rights that would prevent, limit, or interfere with WhiteFiber’s ability to make, use, or sell its own cloud services.
WhiteFiber’s financial condition and operating results may also suffer if its cloud services are not responsive to the evolving needs and desires of its customers and partners. As new and existing cloud service technologies continue to develop, competitors and new entrants may be able to offer experiences that are, or that are seen to be, substantially similar to or better than WhiteFiber’s. These technologies could reduce usage of WhiteFiber’s products and services, and force it to compete in different ways and expend significant resources to develop and operate equal or better products and services. Competitors’ success in providing compelling products and services or in attracting and retaining customers and partners could harm WhiteFiber’s financial condition and operating results.
WhiteFiber’s sales cycles can be long and unpredictable, and its sales efforts require considerable time and expense.
WhiteFiber’s go-to-market approach currently focuses on a top-down sales model to drive demand and pipeline from the large AI labs and AI enterprises. Sales to such customers involves longer and more unpredictable sales cycles. Customers often view the purchase of WhiteFiber’s platform as a significant strategic decision and, as a result, frequently require considerable time to evaluate, test, and qualify WhiteFiber’s platform prior to entering into or expanding a relationship with WhiteFiber. Large enterprises in particular, often undertake a significant evaluation process that further lengthens our sales cycle.
WhiteFiber’s direct sales team develops relationships with its customers, and works on account penetration, account coordination, sales, and overall market development. WhiteFiber spends substantial time and resources on its sales efforts without any assurance that its efforts will produce a sale. Cloud infrastructure capacity purchases are frequently subject to budget constraints, multiple approvals, and unanticipated administrative, processing, and other delays. As a result, it is difficult to predict whether and when a sale will be completed. The failure of WhiteFiber’s efforts to secure sales after investing resources in a lengthy sales process would adversely affect its business, operating results, financial condition, and future prospects.
WhiteFiber’s ability to maintain customer satisfaction depends in part on the quality of its customer support and cloud operations services. Its failure to maintain high-quality customer support and cloud operations services could have an adverse effect on its business, operating results, financial condition, and future prospects.
WhiteFiber believes that the successful use of its platform requires a high level of support and engagement for many of its customers. In order to deliver appropriate customer support and engagement, WhiteFiber must successfully assist its customers in deploying and continuing to use its platform, resolve performance issues, address interoperability challenges with the customers’ existing IT infrastructure, and respond to security threats and cyber-attacks and performance and reliability problems that may arise from time to time. Increased demand for customer support and cloud operations services, without corresponding increases in revenue, could increase its costs and adversely affect its business, operating results, financial condition, and future prospects.
Furthermore, there can be no assurance that WhiteFiber will be able to hire sufficient support personnel as and when needed, particularly if its sales exceed our internal forecasts. WhiteFiber expects to increase the number of its customers, and that growth may put additional pressure on its customer support and cloud operations services teams. WhiteFiber’s customer support and cloud operations services teams may need additional personnel to respond to customer demand. WhiteFiber may be unable to respond quickly enough to accommodate short-term increases in customer demand for services. To the extent that WhiteFiber is unsuccessful in hiring, training, and retaining adequate support resources, its ability to provide high-quality and timely support to its customers will be negatively impacted, and its customers’ satisfaction and their purchase of our infrastructure could be adversely affected.
In addition, as WhiteFiber continues to grow its operations and expand outside of the United States, need to be able to provide efficient services that meet its customers’ needs globally at scale, and its customer support and cloud operations services teams may face additional challenges, including those associated with operating the platforms and delivering support, training, and documentation in languages other than English and providing services across expanded time-zones. If WhiteFiber is unable to provide efficient customer support services globally at scale, its ability to grow its operations may be harmed, and WhiteFiber may need to hire additional services personnel which could increase its expenses, and negatively impact its business, financial condition, operating results, and future prospects.
The broader adoption, use, and commercialization of AI technology, and the continued rapid pace of developments in the AI field, are inherently uncertain. Failure by WhiteFiber’s customers to use its cloud services to support AI use cases in their systems, or its ability to keep up with evolving AI technology requirements and regulatory frameworks, could have a material adverse effect on WhiteFiber’s business, operating results, financial condition, and future prospects.
As part of WhiteFiber’s growth strategy, it seeks to attract and acquire customers requiring high-performance computing, such as AI, machine learning, and automated decision-making technologies, including proprietary AI algorithms and models (collectively, “AI Technologies”).
AI has been developing at a rapid pace, and continues to evolve and change. As demand continues for AI services, AI providers, including our customers, have sought increased compute capacity to enable advancements in their AI models and service the demands of end users. We cannot predict whether additional computing power will continue to be required to develop larger, more powerful AI models, or if the practical limits of AI technology will plateau in the future regardless of available compute capacity. Further, there have been recent advancements in AI technology, including open-source AI models, that may lead to compute and other efficiencies that may impact the demand for AI services, including our platform, solutions, and services, which may adversely impact our revenue and profitability. In the event that existing scaling laws do not continue to apply as they have in the past, demand by our customers for compute resources, including our solutions and services, may not continue to increase over time, or may decrease if overall demand for AI is impacted by a lack of further technological development. If we are unable to keep up with the changing AI landscape or in developing services to meet our customers’ evolving AI needs, or if the AI landscape does not develop to the extent we or our customers expect, our business, operating results, financial condition, and future prospects may be adversely impacted.
Additionally, we may incur significant costs and experience significant delays in developing new solutions and services or enhancing our current platform to adapt to the changing AI landscape, and may not achieve a return on investment or capitalize on the opportunities presented by demand for AI solutions. Moreover, while AI adoption is likely to continue and may accelerate, the long-term trajectory of this technological trend is uncertain. Further, market acceptance, understanding, and valuation of solutions and services that incorporate AI Technologies are uncertain and the perceived value of AI Technologies used and/or provided by our customers could be inaccurate. If AI is not broadly adopted by enterprises to the extent we expect, or if new use cases do not arise, then our opportunity may be smaller than we expect. Further, if the consumer perception and perceived value of AI Technologies is inaccurate this could have a material adverse effect on our customers, which in turn could have a material adverse effect on our business, operating results, financial condition, and future prospects.
Concerns relating to the responsible use by our customers of new and evolving technologies, such as AI, which are supported by our platform, may result in collateral reputational harm to us. AI may pose emerging ethical issues and if our platform enables customer solutions that draw controversy due to their perceived or actual impact on society, we may experience brand or reputational harm, competitive harm, or legal liability.
Furthermore, the rapid pace of innovation in the field of AI has led to developing and evolving regulatory frameworks globally, which are expected to become increasingly complex as AI continues to evolve. Regulators and lawmakers around the world have started proposing and adopting, or are currently considering, regulations and guidance specifically on the use of AI. Regulations related to AI Technologies have been introduced in the United States at the federal level and are also enacted and advancing at the state level. Additional regulations may impact our customers’ ability to develop, use and commercialize AI Technologies, which would impact demand for our platform, solutions, and services and may affect our business, operating results, financial condition, and future prospects.
AI and related industries, including cloud services, are under increasing scrutiny from regulators due to their concerns about market concentration, anti-competitive practices, and the pace of partnerships and acquisitions involving generative AI startups. As the industry continues to grow, transactions and business conduct will likely continue to draw scrutiny from regulators. Our customers may become subject to further AI regulations, including any restrictions on the total consumption of compute technology, which could cause a delay or impediment to the commercialization of AI technology and could lead to a decrease in demand for our customers’ AI infrastructure, and may adversely affect our business, operating results, financial condition, and future prospects.
A curtailment or disruption in energy supply in Iceland, Canada or the U.S. due to regulations and policies implemented by their respective governments, which prioritize energy supply, may cause a substantial disruption or discontinuance of WhiteFiber’s data center operations based in Iceland, Canada or prospectively in the U.S., and therefore impair WhiteFiber’s financial condition or results of operations.
Through WhiteFiber Iceland ehf, WhiteFiber established and has been providing cloud services since November 2023. As of December 31,2025, WhiteFiber had a fleet of 462 servers at a third-party data center located in Northern Iceland. Through WhiteFiber’s subsidiary, Enovum, which was acquired in October 2024, WhiteFiber has been operating its data center located in Montreal Canada (MTL-1), and commenced operations in the in the fourth quarter of 2025 at MTL-3. In May 2025, WhiteFiber purchased a former industrial manufacturing building and land outside of Greensboro, North Carolina which it expects to be operational in the second quarter of 2026.
In order to maintain its data center operations, WhiteFiber and its landlords in Iceland and in Montreal will need to acquire sufficient supplies of electricity generated by hydroelectric, and geothermal energy. In addition, WhiteFiber’s data centers need to also maintain reliable and adequate infrastructure and cooling systems to ensure optimal performance.
Currently, Icelandic and Canadian-based data centers and similar facilities, including the ones contracted with WhiteFiber, may face significant risks of energy disruption, curtailment or discontinuance due to low water levels. Water reservoirs are utilized by hydropower plants, which provide hydro-generated energy in the country. In the event of a water shortage, and therefore a shortage of hydro-generated energy, the prioritization framework for Icelandic energy favors residential and certain business uses over data centers and similar facilities. In addition, volcanic eruptions might interrupt the generation of electricity from geothermal energy, as occurred several times in 2023.
In addition, WhiteFiber may be subject to risks and unanticipated costs associated with obtaining power from various utility companies. Utilities that serve our data centers may be dependent on, and sensitive to price increases for, a particular type of fuel, including hydroelectric. In addition, the total cost of delivered electricity could increase as a result of: regulations intended to regulate carbon emissions and other pollutants, ratepayer surcharges related to recovering the cost of extreme weather events and natural disasters (including volcanoes in Iceland and floods in North Carolina), geopolitical conflicts, military conflicts, grid modernization charges, as well as other charges borne by ratepayers. Increases in the cost of power at any of WhiteFiber’s data centers could put those locations at a competitive disadvantage relative to data centers that are supplied power at a lower price.
Accordingly, the energy supply for WhiteFiber’s data centers may be subject to disruption and could become insufficient to support their operations. WhiteFiber’s financial condition or results of operations may be adversely affected if its WhiteFiber data centers are disrupted or discontinued due to a curtailment or interruption of the energy supply.
Establishing data centers in remote areas may adversely affect WhiteFiber’s ability to retain staff and increase its compensation costs.
If WhiteFiber establishes data centers in areas with lower populations such as Iceland or remote parts of North America, recruiting and retaining the necessary staff to operate its locations may pose a challenge. When WhiteFiber encounters a relatively low population, the pool of available employees is limited. In addition, some employers have offered significantly higher wages in order to fill vacant positions. This may adversely affect WhiteFiber’s ability to attract and retain qualified personnel and may increase its employee costs if it has to increase the compensation we pay in response to the market.
WhiteFiber’s data centers could be adversely impacted by climate change.
Severe weather events, such as tornadoes, hurricanes, rain, drought, fire, ice and snowstorms, and high-and low-temperature extremes, occur in regions in which WhiteFiber operates and maintains infrastructure. WhiteFiber’s principal data centers in Iceland and Canada are designed to provide year-round cool weather conditions. Nevertheless climate change could change the frequency and severity of weather events, which may create physical and financial risks to WhiteFiber. Such risks could have an adverse effect on WhiteFiber’s financial condition, results of operations and cash flows. Increases in severe weather conditions or extreme temperatures may cause infrastructure construction projects to be delayed or canceled and limit resources available for such projects resulting in decreased revenue or increased project costs. In addition, drought conditions could restrict the availability of water supplies or limit the ability to obtain water use permits, inhibiting the ability to conduct operations. To date, none of WhiteFiber’s WhiteFiber data centers in Iceland or Canada have experienced any material impacts to its financial condition, results of operations or cash flows due to the physical effects of climate change.
The broader adoption, use, and commercialization of AI technology, and the continued rapid pace of developments in the AI field, are inherently uncertain. Failure by our customers to use its cloud services to support AI use cases in their systems, or WhiteFiber’s ability to keep up with evolving AI technology requirements and regulatory frameworks, could have a material adverse effect on our business, operating results, financial condition, and future prospects.
As part of WhiteFiber’s growth strategy, it seeks to attract and acquire customers requiring high-performance computing, such as AI, machine learning, and automated decision-making technologies, including proprietary AI algorithms and models (collectively, “AI Technologies”).
AI has been developing at a rapid pace, and continues to evolve and change. As demand continues for AI services, AI providers, including WhiteFiber’s customers, have sought increased compute capacity to enable advancements in their AI models and service the demands of end users. We cannot predict whether additional computing power will continue to be required to develop larger, more powerful AI models, or if the practical limits of AI technology will plateau in the future regardless of available compute capacity. Further, there have been recent advancements in AI technology, including open-source AI models, that may lead to compute and other efficiencies that may impact the demand for AI services, including WhiteFiber’s platform, solutions, and services, which may adversely impact its revenue and profitability. In the event that existing scaling laws do not continue to apply as they have in the past, demand by our customers for compute resources, including our solutions and services, may not continue to increase over time, or may decrease if overall demand for AI is impacted by a lack of further technological development. If WhiteFiber is unable to keep up with the changing AI landscape or in developing services to meet its customers’ evolving AI needs, or if the AI landscape does not develop to the extent we or our customers expect, our business, operating results, financial condition, and future prospects may be adversely impacted.
Additionally, we may incur significant costs and experience significant delays in developing new solutions and services or enhancing our current platform to adapt to the changing AI landscape, and may not achieve a return on investment or capitalize on the opportunities presented by demand for AI solutions. Moreover, while AI adoption is likely to continue and may accelerate, the long-term trajectory of this technological trend is uncertain. Further, market acceptance, understanding, and valuation of solutions and services that incorporate AI technologies are uncertain and the perceived value of AI Technologies used and/or provided by WhiteFiber’s customers could be inaccurate. If AI is not broadly adopted by enterprises to the extent WhiteFiber expects, or if new use cases do not arise, then our opportunity may be smaller than it expects. Further, if the consumer perception and perceived value of AI Technologies is inaccurate this could have a material adverse effect on WhiteFiber’s customers, which, in turn, could have a material adverse effect on its business, operating results, financial condition, and future prospects.
Concerns relating to the responsible use by WhiteFiber’s customers of new and evolving technologies, such as AI, which are supported by its platform, may result in collateral reputational harm to WhiteFiber. AI may pose emerging ethical issues and if its platform enables customer solutions that draw controversy due to their perceived or actual impact on society, WhiteFiber may experience brand or reputational harm, competitive harm, or legal liability.
Furthermore, the rapid pace of innovation in the field of AI has led to developing and evolving regulatory frameworks globally, which are expected to become increasingly complex as AI continues to evolve. Regulators and lawmakers around the world have started proposing and adopting, or are currently considering, regulations and guidance specifically on the use of AI. Regulations related to AI Technologies have been introduced in the United States at the federal level and are also enacted and advancing at the state level. Additional regulations may impact our customers’ ability to develop, use and commercialize AI Technologies, which would impact demand for WhiteFiber’s platform, solutions, and services and may affect our business, operating results, financial condition, and future prospects.
AI and related industries, including cloud services, are under increasing scrutiny from regulators due to their concerns about market concentration, anti-competitive practices, and the pace of partnerships and acquisitions involving generative AI startups. As the industry continues to grow, transactions and business conduct will likely continue to draw scrutiny from regulators. WhiteFiber’s customers may become subject to further AI regulations, including any restrictions on the total consumption of compute technology, which could cause a delay or impediment to the commercialization of AI technology and could lead to a decrease in demand for WhiteFiber’s customers’ AI infrastructure, and may adversely affect our business, operating results, financial condition, and future prospects.
WhiteFiber operates in a capital-intensive industry and is subject to capital market and interest rate risks.
WhiteFiber’s operations require significant capital investment to purchase and maintain the property and equipment required to provide specialized infrastructures to support generative AI work streams. In addition, WhiteFiber’s operations include a significant level of fixed and semi-fixed costs. Consequently, WhiteFiber will rely on capital markets, as sources of liquidity for capital requirements for growth. If WhiteFiber is unable to access capital at competitive rates, the ability to implement business plans, make capital expenditures or pursue acquisitions it would otherwise rely on for future, growth may be adversely affected. For example, without obtaining additional debt financing, WhiteFiber will not have sufficient funds to retrofit NC-1 into a HPC data center or achieve its estimated 99 MW (gross) of total HPC data center capacity by May 2029 and other growth strategies. Market disruptions may increase the cost of borrowing or adversely affect WhiteFiber’s ability to access one or more financial markets. Such market disruptions could include:
a significant economic downturn;
the financial distress of unrelated industry leaders in the same line of business;
deterioration in capital market conditions;
turmoil in the financial services industry;
volatility in GPU prices;
terrorist attacks;
war; or
cyberattacks.
If one of its customers were to obtain exclusive rights to open source technologies that WhiteFiber employs across our businesses, its ability to realize significant operating efficiencies could be jeopardized.
WhiteFiber’s business model leverages its ability to share significant open source technological innovations across cloud services, its data centers and customers. If one of its customers were to obtain exclusive rights to what are now open source technologies WhiteFiber employs across its businesses, WhiteFiber could be limited in obtaining essential supplies at competitive costs and sharing research and development costs across its businesses. As a result, WhiteFiber’s ability to realize significant operating efficiencies by modifying its existing or new data centers utilizing these technologies and its ability to serve all its customers could be jeopardized, which could materially adversely affects WhiteFiber’s business, results of operations and future prospects.
WhiteFiber may be vulnerable to physical security breaches, which could disrupt its operations and have a material adverse effect on its business, financial condition and results of operations.
A party who is able to compromise the physical security measures protecting its facilities could cause interruptions or malfunctions in its operations and misappropriate our property or the property of its customers. As WhiteFiber provides assurances to our customers that its provided the highest level of security, such a compromise could be particularly harmful to its brand and reputation. WhiteFiber may be required to expend significant capital and resources to protect against such threats or to alleviate problems caused by breaches in security. As techniques used to breach security change frequently and are often not recognized until launched against a target, WhiteFiber may not be able to implement new security measures in a timely manner or, if and when implemented, WhiteFiber may not be certain whether these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, regulatory penalties, loss of existing or potential customers, harm to WhiteFiber’s reputation and increases in its security costs, which could have a material adverse effect on WhiteFiber’s business, financial condition and results of operations.
WhiteFiber has an evolving business model which is subject to various uncertainties.
As cloud services and WhiteFiber data centers become more widely available, it expects the services and products associated with them to evolve. In order to stay current with the industry, WhiteFiber’s business model requires it to evolve as well. From time to time, WhiteFiber has modified and will continue to modify aspects of its business model relating to its strategy. WhiteFiber cannot offer any assurance that these or any other modifications will be successful or will not result in harm to its business. WhiteFiber may not be able to manage growth effectively, which could damage its reputation, limit our growth and negatively affect our operating results. Further, as the markets in which WhiteFiber operates continue to evolve, new market participants have emerged and may continue to emerge and this may require WhiteFiber to further evaluate its business model and products and services. WhiteFiber cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities in this business sector, and it may lose out on those opportunities. Such circumstances could have a material adverse effect on its business, prospects or operations.
WhiteFiber does not have any business interruption or disruption insurance coverage.
Currently, WhiteFiber does not have any business liability or disruption insurance to cover our operations, other than director’s and officer’s liability insurance. WhiteFiber has determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for WhiteFiber to have such insurance. Any uninsured business disruptions may result in WhiteFiber incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.
WhiteFiber or Bit Digital may fail to perform under the Transition Services Agreement or WhiteFiber may fail to have necessary systems and services in place when the transition services agreement expires.
On July 30, 2025, prior to the consummation of its initial public offering, WhiteFiber and Bit Digital entered into the Transition Services Agreement pursuant to which Bit Digital will provide certain services to WhiteFiber, on a transitional basis. The Transition Services Agreement provides for the performance of certain services by Bit Digital for the benefit of WhiteFiber, or in some cases certain services provided by WhiteFiber for the benefit of Bit Digital, for a limited period of time after its initial public offering. WhiteFiber will rely on Bit Digital to satisfy its obligations under this agreement. If Bit Digital is unable to satisfy its obligations under this agreement, WhiteFiber could incur operational difficulties or losses. If WhiteFiber does not have agreements with other providers of these services once certain transaction agreements expire or terminate, WhiteFiber may not be able to operate its business effectively, which may have a material adverse effect on its financial position, results of operations and cash flows.
Cybersecurity incidents and threats including cyberattacks, ransomware attacks and security breaches of cloud services and our information systems, or those impacting our third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition.
WhiteFiber’s cloud services involve the collection, storage, processing, and transmission of confidential information, employee, service provider, and other personal data. WhiteFiber has built its cloud services on the premise that it maintains a secure way to secure, store, and transact in cloud services. As a result, any actual or perceived security breach of WhiteFiber or its third-party partners may:
harm our reputation and brand;
result in WhiteFiber’s cloud services being unavailable and interrupt our operations;
result in improper disclosure of data and violations of applicable privacy and other laws;
result in significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, and financial exposure;
result in exposure to claims for damages and other remedies by WhiteFiber’s customers and individuals whose personal data is the subject to a cybersecurity incident;
cause WhiteFiber to incur significant remediation and notification costs;
divert the attention of management from the operation of WhiteFiber’s business; and
adversely affect WhiteFiber’s business and operating results.
Further, any actual or perceived breach or cybersecurity incident or attack, whether or not WhiteFiber is directly impacted, could lead to a general loss of customer confidence in the digital asset industry or in the use of technology to conduct financial transactions, which could negatively impact WhiteFiber, including the market perception of the effectiveness of its security measures and technology infrastructure. Certain kinds of cybersecurity incidents and attacks, such as ransomware attacks, could result in the interruption of WhiteFiber’s cloud services and information systems, and result in the inability to access and loss of data.
An increasing number of organizations, including large merchants, businesses, technology companies, and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications, and infrastructure.
Cybersecurity incidents and attacks upon systems across a variety of industries, including cloud services, are increasing in their frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded, and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including customers and partners’ personal data, AI algorithms, disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on WhiteFiber’s cloud services or those of its third-party service providers or partners. Certain types of cyberattacks could harm us even if our systems are left undisturbed. For example, attacks may be designed to deceive employees and service providers into releasing control of our systems to a hacker, while others may aim to introduce computer viruses or malware into WhiteFiber’s cloud services with a view to stealing confidential or proprietary data. Additionally, certain threats are designed to remain dormant or undetectable until launched against a target and we may not be able to implement adequate preventative measures.
Although WhiteFiber has developed systems and processes designed to protect our information systems and the data it manages, prevents cybersecurity incidents, data loss and other security breaches, effectively responds to known and potential risks, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks. WhiteFiber has experienced from time to time, and may experience in the future, breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities, or other irregularities. Unauthorized parties have attempted, and WhiteFiber expects that they will continue to attempt, to gain access to its systems and facilities, as well as those of its customers, partners, and third-party service providers, through various means, including hacking, social engineering, phishing, and attempting to fraudulently induce individuals (including employees, service providers, and its customers) into disclosing usernames, passwords, payment card information, or other sensitive information, which may, in turn, be used to access WhiteFiber’s operations. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. Certain threat actors may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect.
WhiteFiber may be vulnerable to physical security breaches, which could disrupt its operations and have a material adverse effect on our business, financial condition and results of operations.
A party who is able to compromise the physical security measures protecting our facilities could cause interruptions or malfunctions in WhiteFiber’s operations and misappropriate its property or the property of its customers. As WhiteFiber provides assurances to its customers that it provides the highest level of security, such a compromise could be particularly harmful to WhiteFiber’s brand and reputation. WhiteFiber may be required to expend significant capital and resources to protect against such threats or to alleviate problems caused by breaches in security. As techniques used to breach security change frequently and are often not recognized until launched against a target, WhiteFiber may not be able to implement new security measures in a timely manner or, if and when implemented, WhiteFiber may not be certain whether these measures could be circumvented. Any breaches that may occur could expose WhiteFiber to increased risk of lawsuits, regulatory penalties, loss of existing or potential customers, harm to its reputation and increases in its security costs, which could have a material adverse effect on its business, financial condition and results of operations.
WhiteFiber’s inability to resolve favorably any disputes that arise between WhiteFiber and Bit Digital with respect to their past and ongoing relationships including potential conflicts of interests among management may adversely affect WhiteFiber’s operating results.
Certain key management and directors of both Bit Digital and WhiteFiber hold the same or similar positions in both companies. Those positions and their ownership of Bit Digital securities could create, or appear to create, potential conflicts of interest when WhiteFiber’s management and directors and Bit Digital’s management and directors face decisions that could have different implications for Bit Digital and WhiteFiber. Disputes may arise between WhiteFiber and Bit Digital in a number of areas relating to the various transaction agreements, including:
labor, tax, employee benefit, indemnification and other matters arising from WhiteFiber’s separation from Bit Digital;
employee retention and recruiting;
business combinations involving WhiteFiber; and
the nature, quality and pricing of services that WhiteFiber and Bit Digital have agreed to provide each other.
WhiteFiber may not be able to resolve potential conflicts, and even if it does, the resolution may be less favorable than if it were dealing with an unaffiliated party.
The agreements WhiteFiber enters into with Bit Digital may be amended upon agreement between the parties. While WhiteFiber is controlled by Bit Digital, it may not have the leverage to negotiate amendments to these agreements if required on terms as favorable to it as those it would negotiate with an unaffiliated third party.
WhiteFiber relies upon licenses of third-party intellectual property rights and may be unable to protect our software code.
WhiteFiber actively uses specific hardware and software for our cloud services and colocation data center operations. In certain cases, source code and other software assets may be subject to an open source license, as much technology development underway in this sector is open source. For these works, WhiteFiber intends to adhere to the terms of any license agreements that may be in place.
WhiteFiber does not currently own, and does not have any current plans to seek, any patents in connection with its existing and planned operations. WhiteFiber relies upon trade secrets, trademarks, service marks, trade names, copyrights and other intellectual property rights and expect to license the use of intellectual property rights owned and controlled by others. In addition, WhiteFiber has developed and may further develop certain software applications for purposes of its operations. Our open source licenses may not afford WhiteFiber the protection we need to protect our intellectual property.
Risks Related to Geopolitical Uncertainty
Changes in tariffs or import restrictions could have a material adverse effect on our business, financial condition and results of operations.
The U.S. government has adopted new approaches to trade policy and in some cases, may renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements. The U.S. government has also imposed tariffs on certain foreign goods and has raised the possibility of imposing significant, additional tariff increases or expanding the tariffs to capture other countries and types of foreign goods. Because WhiteFiber is developing data centers in Canada and the United States, the imposition of tariffs on imports between these countries or from other countries, such as a 50% tariff on copper imports announced in July 2025 by the U.S. government, could materially impact the cost, timeline, and feasibility of our projects. Tariffs imposed by the U.S. on imports from Mexico and Canada or from other countries, as well as reciprocal tariffs imposed by such countries on U.S. goods, could increase WhiteFiber’s costs for key construction materials, specialized equipment, and labor, potentially delaying deployments and reducing profitability.
Data center construction relies heavily on steel, aluminum, copper, electrical components and HVAC systems, some of which the Company is sourcing from Mexico and Canada. The tariffs the U.S. has imposed, or has considered imposing, on Canadian steel, aluminum and copper imports, are expected to increase the cost of WhiteFiber’s potential projects in the U.S. Similarly, if Canada imposes reciprocal tariffs on U.S. exports, WhiteFiber’s projects in Canada could see cost increases for imported power infrastructure, networking hardware, and construction equipment.
Additionally, several transformers, battery storage systems, and cooling systems used in our North American data centers are manufactured in or pass through Mexico. If the U.S. imposes new or additional tariffs on Mexican-manufactured electrical equipment, this could create supply chain bottlenecks and increase capital expenditures for both U.S. and Canadian facilities. Likewise, trade restrictions on Canadian-manufactured networking equipment or semiconductors would disrupt supply availability for our potential projects in the U.S.
Tariffs and trade tensions between the U.S., Mexico, and Canada could also indirectly impact the availability and cost of skilled labor. Many specialized contractors for data center construction, electrical work, and mechanical systems operate across borders. Increased trade friction could reduce labor mobility, increase wages, or limit access to essential expertise, slowing project execution.
Such higher costs for critical data center components, potential disruptions to equipment supply chains and labor and cross-border workforce challenges could have material adverse effects on our business, financial condition and results of operations.
Additionally, if tariffs increase the cost of building and operating data centers in the U.S. and Canada, our customers, hyperscalers and cloud providers, may shift expansion plans to more cost-effective regions, such as Europe or Asia. This could negatively impact short-term and long-term demand for WhiteFiber’s colocation and infrastructure services.
Finally, in response to tariffs, other countries have implemented retaliatory tariffs on U.S. goods. Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets, which could in turn have a material adverse impact on our business, financial condition and results of operations.
Uncertainty in the global economy and instability within international relations, including changes in governmental policies relating to technology, and any potential downturn in the semiconductor and electronics industries, may negatively impact our business .
There is inherent risk, based on the complex relationships between certain countries and within regions, that political, diplomatic or military events could result in trade disruptions and other disruptions in the markets and industries we serve and our supply chain. For example, the ongoing geopolitical and economic uncertainty between the U.S. and China, the unknown impact of current and future U.S. and Chinese trade regulations, and geopolitical risks between the U.S, Canada, where WhiteFiber’s data centers are located, between the U.S. and Mexico, where certain components are supplied, or between China and Taiwan where chips are manufactured, could, directly or indirectly, materially harm our business, financial condition and results of operations.
While overall semiconductor supply conditions have improved, WhiteFiber continues to monitor potential availability constraints for high-performance GPUs and related hardware, which may affect the timing of future deployments in our cloud services business.
Furthermore, political or economic conflicts between various global actors, and responsive measures that have been taken and could be taken in the future, have created and can further create significant global economic uncertainty that could prolong or expand such conflicts, which could have a lasting impact on regional and global economies and harm our business and operating results.
Failure to maintain exchange listing standards may reduce liquidity, increase financing costs, and negatively affect valuation.
Our listing on NASDAQ subjects us to continued quantitative and qualitative listing requirements. Failure to maintain minimum price, market capitalization, public float, shareholder equity, governance, or filing standards could result in warnings, additional costs, or delisting, reducing liquidity and potentially triggering defaults or investor redemptions.
Limited access to banking, payments and insurance services for digital asset-related businesses may create operational friction and liquidity risks.
Financial institutions may decline to provide deposit, treasury, lending, merchant, custody or other services to digital asset-related companies, leading to operational friction, delays in settlements, and heightened liquidity and operational risk. We may face increased fees, caps, or service interruptions.
Accounting, Financial Reporting and Internal Control Risks
Complex and evolving accounting for digital assets and related items may increase the volatility of our reported results and require significant judgment.
We make critical accounting estimates regarding impairment, fair value measurements, estimated useful lives of miners and infrastructure, revenue recognition (including principal-versus-agent considerations in pools), and the classification and presentation of digital assets. Changes in market inputs, evolving practice, or future GAAP guidance could materially affect our reported results.
Auditor transitions and internal control remediation may result in delays, increased costs, or identification of material weaknesses.
Auditor transitions increase the risk of delays, additional costs, and identification of control deficiencies. If we identify material weaknesses or significant deficiencies in internal control over financial reporting, we may incur substantial remediation costs, and our ability to report timely and accurately could be impacted.
If our breakeven metrics or related assumptions are inaccurate, investors may misinterpret our operating performance and risk profile.
Our breakeven metrics rely on multiple inputs, including energy costs, pool fees, uptime, difficulty, miner efficiency, depreciation and, where disclosed, estimates of financing costs. Assumptions may differ from actual results or from those used by peers, and estimates of financing costs may be imprecise given the nature of past capital raises.
Strategic, Counterparty and Concentration Risks
We operate in a highly competitive industry, and we compete against unregulated or less regulated companies and companies with greater financial and other resources, and our business, operating results, and financial condition could be adversely affected if we are unable to compete effectively.
The digital asset industry is highly innovative, rapidly evolving, and characterized by healthy competition, experimentation, changing customer needs, frequent introductions of new products and services, and subject to uncertain and evolving industry and regulatory requirements. In ETH staking we view our main competitors as Sharplink Gaming, Bitmine immersion Technologies and The Ether Machine. In Bitcoin mining our main competitors are MARA Holdings, Riot Platform and CleanSpark. We expect competition to intensify in the future as existing and new competitors introduce new products or enhance existing products. We face significant competition from a variety of companies around the world, ranging from digital asset-native companies, including decentralized exchanges, to large traditional financial services incumbents and financial technology providers.
Given the uneven enforcement by United States and foreign regulators, many of these competitors have been able to operate from offshore while offering large numbers of products and services to consumers, including in the United States, Europe, and other highly regulated jurisdictions, without complying with the relevant licensing and other requirements in these jurisdictions, and historically without penalty. Due to our regulated status in several jurisdictions and our commitment to legal and regulatory compliance, we have not been able to offer many popular products and services, including products and services that our unregulated or less regulated competitors are able to offer.
We also have expended significant managerial, operational, and compliance costs to comply with laws and regulations applicable to us in the jurisdictions in which we operate and expect to continue to incur significant costs to comply with these requirements, which these unregulated or less regulated competitors have not had to incur.
If we are unable to compete successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, operating results, and financial condition could be adversely affected.
Dependence on a limited number of counterparties and strategic partners may concentrate risk and exacerbate disruptions.
Our agreements with counterparties and strategic partners, including advisors and financial intermediaries, can concentrate risk. Failures, disputes, terminations, or changes in terms could disrupt operations or curtail growth. Certain arrangements may require bespoke governance or include preferential rights that constrain flexibility.
Loss of key personnel or inability to recruit and retain qualified employees may adversely affect our operations and growth.
The competition for experienced blockchain and digital asset professionals has intensified, driven by a widening gap between the high demand for specialized skills and a scarce pool of qualified talent. As the industry matures into 2026, companies are struggling to secure senior talent for critical, high-impact roles, often competing with both AI startups and traditional financial institutions. For example, despite a 395% growth in web3 job demand, qualified professionals remain rare, particularly those with experience in live, production-level, or large-scale, cross-chain, or security-focused projects. If we are unable to secure the necessary personnel, our financial condition may be impacted negatively.
Various actual and potential conflicts of interest may be detrimental to shareholders.
Certain conflicts of interest may exist, or be perceived to exist, between us and our directors or certain executive officers, who are also officers and/or directors of WhiteFiber. Each person must devote time, resources and attention to the affairs of WhiteFiber. This may conflict with such officer’s or director’s interest in WhiteFiber, including conflicting with interests in allocating resources, time and attention to our business and impacting decisions made on our behalf with respect to WhiteFiber. For example, it is expected that, until August 2027, Sam Tabar and Erke Huang will continue to serve as (i) Chief Executive Officer and (ii) Director and Chief Financial Officer, respectively, of WhiteFiber. Messrs. Tabar and Huang are expected to provide certain services, representing not more than approximately 30% of their working time, in respect of Bit Digital operations and have committed to provide the requisite time and effort to fulfill their responsibilities as a full-time officer of WhiteFiber, supervising a full staff. Actual or potential conflicts of interest could arise, for example, over matters such as the desirability of changes in our business and operations, funding and capital matters, regulatory matters, agreements with WhiteFiber relating to the Reorganization or otherwise, employee retention or recruiting or dividend policies.
Bit Digital has put specific procedures in place with respect to potential conflicts of interest, however, in determining with whom our officers or directors may have relationships and considering the risks and risk mitigation factors. As an example, we require that transactions with WhiteFiber involving our executive officers and directors be approved or ratified by our Audit Committee, and recognizing that Ms. Ichi Shih is also the Chair of the WhiteFiber Audit Committee. While we have a majority of independent directors on our Board in order to ensure that there are limitations on the risks of conflicts of interest impacting Board level decisions, since WhiteFiber is not operating a digital asset business, the effects of any such risks of conflicts of interest involving our separate business operations are limited in scope. We expect that as WhiteFiber adds officers and independent directors, the risks of conflicts of interest will become more limited over time. We cannot, however, guarantee that the conflicts of interest described above, or other future conflicts of interest, will not manifest in advice or decisions that negatively impact our financial results and our operations.
Litigation, arbitration or governmental proceedings may be costly, time-consuming, and disruptive, and adverse outcomes could result in significant liabilities.
From time to time, we may be subject to litigation, regulatory investigations, or other legal proceedings. Regardless of the legal merits of a claim, the validity of the allegations, or the eventual outcome of the case, defending against lawsuits involves significant risks, including:
Substantial Legal and Administrative Costs: Defending against lawsuits, including frivolous or meritless claims, requires significant financial resources, including high attorney fees, expert witness costs, and court fees.
Diversion of Management Time and Resources: Litigation is time-consuming and can divert the attention of our management team and employees away from our core business operations.
Reputational Damage: Even if a lawsuit is successfully defended or dismissed, the publicity surrounding the case can harm our reputation, brand image, and relationship with customers, partners, or investors.
Settlement Pressures: The high cost of defense and the distraction of litigation may lead us to settle cases that we believe are without merit to avoid further disruption and expense.
If we are unable to resolve these disputes favorably or if the costs of defending these claims are significant, it could have a material adverse effect on our financial condition, results of operations, and cash flows.
Our stock price may be highly volatile, and future sales or issuances of our securities could depress the trading price.
The market price of digital asset-related equities has experienced extreme volatility, influenced by digital asset prices, regulatory developments, investor sentiment, and macroeconomic conditions. Substantial sales by existing stockholders, issuances under our shelf or equity compensation, or short selling could cause the trading price to decline.
Risks Involving Intellectual Property
We use certain open source technology in our business. We may face claims from third parties claiming ownership of, or demanding the release of, the technology and any other intellectual property that we developed using or derived from such open-source technology.
We utilize a combination of open-source and licensed third-party technologies in the development and operation of our cloud services. While open-source technologies enable rapid development and cost efficiencies, they also pose potential risks, such as security vulnerabilities, lack of long-term support, and legal risks related to licensing terms. Similarly, reliance on licensed third-party technologies may expose us to risks associated with changes in licensing terms, costs, or discontinuation of the licensed products.
We intend to continue to use open-source technology in the future. There is a risk that open-source technology licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to offer our products. By the terms of certain open-source licenses, if we combine our proprietary software with open-source software in a certain manner, we could be required to release the source code of our proprietary software and make our proprietary software available under open-source licenses. Open-source licensors may also decide to change the conditions on which they make their open-source technology available for our use. Additionally, we may face claims from third parties claiming ownership of, or demanding the public release or free license of, the technology and any other intellectual property that it developed using or derived from such open-source technology. The terms of many open-source licenses have not been interpreted by United States courts. There is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our services. These claims could result in litigation and could require that we make our technology freely available, purchase a costly license or cease offering the implicated products or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant technology and product development resources, and we may not be able to complete the process successfully. Failure to adequately manage these risks could result in operational disruptions, legal liabilities, and adverse impacts on our business, results of operations, and financial condition.
Our internal systems rely on software that is highly technical, and, if it contains undetected errors, our business could be adversely affected.
Our internal systems rely on software that is highly technical and complex. In addition, our internal systems depend on the ability of such software to store, retrieve, process and manage immense amounts of data. The software on which we rely has contained, and may now or in the future contain, undetected errors or bugs. Some errors may only be discovered after the code has been released for external or internal use. Any errors, bugs or defects discovered in the software on which we rely could result in harm to our reputation, or liability for damages, any of which could adversely affect our business, results of operations and financial conditions.
We do not have any patents protecting our intellectual property and may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-compete agreements with our directors, officers and executive employees, to protect our proprietary rights. However, we do not have any non-compete agreements with our non-executive employees, nor do we have any patents protecting our intellectual property. Thus, we cannot assure you that any of our intellectual property rights would not be challenged, invalidated, circumvented or misappropriated, or such intellectual property will be sufficient to provide us with competitive advantages. In addition, because of the rapid pace of technological change in our industry, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms, or at all.
Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. To the extent that our employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related know-how and inventions. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be, from time to time in the future, subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or other aspects of our business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to defend against these claims, regardless of their merits. If we were found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. Moreover, the intellectual property ownership and license rights, including copyright, surrounding AI technologies has not been fully addressed by courts or laws or regulations, and the use or adoption of AI technologies into our offerings may result in exposure to claims of copyright infringement or other intellectual property misappropriation. As a result, our business and results of operations may be materially and adversely affected.
Risks Related to the United States Government Regulations
We are subject to governmental regulation and other legal obligations related to data privacy, data protection and information security. If we are unable to comply with these, we may be subject to governmental enforcement actions, litigation, fines and penalties or adverse publicity.
We collect and process data, including personal, financial and confidential information about individuals, including our employees and business partners; however, not of any customers or other third parties. The collection, use and processing of such data about individuals are governed by data privacy laws and regulations enacted in the U.S. (federal and state), and other jurisdictions around the world. These data privacy laws and regulations are complex, continue to evolve, and on occasion may be inconsistent between jurisdictions leading to uncertainty in interpreting such laws and it is possible that these laws, regulations and requirements may be interpreted and applied in a manner that is inconsistent with our existing information processing practices, and many of these laws are significantly litigated and/or subject to regulatory enforcement. The implication of this includes that various federal, state and foreign legislative or regulatory bodies may enact or adopt new or additional laws and regulations concerning data privacy, data retention, data transfer, and data protection. Such laws may continue to restrict or dictate how we collect, maintain, combine and disseminate information and could have a material adverse effect on our business, results of operations, financial condition and prospects.
In the United States, there are numerous federal and state laws and regulations that could apply to our operations or the operations of our partners, including data breach notification laws, financial information and other data privacy laws, and consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, and protection of personal information.
For example, California has enacted the California Consumer Privacy Act (“CCPA”) and the California Privacy Rights Act (“CPRA”), which, among other things, allows California consumers to request that certain companies disclose the types of personal information collected by such companies, to correct that information, to delete that information and to opt-out the sale or sharing of personal information for cross-context behavioral advertising. The California Privacy Protection Agency (“CPPA”) has proposed new regulations to require companies to conduct risk assessments, annual cybersecurity audits and set up notice and opt-out and access procedures for the use of automated decision-making technology. These proposed new requirements could increase our costs of compliance and impact our operations and the products and services we offer.
In addition, Iowa, Delaware, Maine, Virginia, Colorado, Utah, Oregon, Montana, Nebraska, New Hampshire, New Jersey, Texas, Utah and Connecticut enacted privacy and data protection laws in recent years that are currently in effect and grant similar rights and impose similar obligations as the CCPA. New privacy laws enacted in Maryland, Minnesota, Rhode Island, and Tennessee will take effect over the next couple years. Other states in the U.S. are also separately proposing laws to regulate privacy and security of personal data. Our failure, and/or the failure by the various third party vendors and service providers with which we do business, to comply with applicable privacy policies or federal or state laws or changes in applicable laws and regulations, or any compromise of security that results in the unauthorized release of personal information or other user data could damage our reputation and the reputation of our third party vendors and service providers, discourage potential users from trying their products and services and/or result in fines and/or proceedings by governmental agencies and/or consumers, any one or all of which could adversely affect our business, financial condition and results of operations and, as a result, our company. In addition, we, our subsidiaries or our business affiliates may not have adequate insurance coverage to compensate for losses.
Foreign data privacy laws, such as the General Data Protection Regulation (“GDPR”) in the European Union and the United Kingdom Data Protection Act (“UK GDPR”) impose data privacy and security requirements that may impact our ability to collect and process personal information of residents of the EU and the UK. The transfer of personal information from such jurisdictions may be subject to additional restrictions and require the use of transfer mechanisms recognized by GDPR and UK GDPR, such as the use of Standard Contractual Clauses, which impose numerous obligations on data importers and exporters. Violations of the GDPR or UK GDPR could impose us to fines of up to €20 million, or up to 4% of the annual worldwide turnover of the preceding financial year, whichever is greater.
Our business may be adversely affected by future changes in the European Union’s regulations related to AI, which could be reflected in Icelandic and European Union countries’ domestic laws and regulations.
While no current Icelandic legislation directly impacts colocation operations, Iceland, being a member of the European Economic Area, is likely to be influenced by forthcoming European Union acts such as the Artificial Intelligence Act and the AI Liability Directive. These acts may shape the future regulatory landscapes in Iceland and lead the Icelandic government to adopt such regulations domestically.
The potential adoption of said AI regulatory framework could introduce new compliance requirements for WhiteFiber data centers, as well as other legal and regulatory obligations, impacting operational practices and liability considerations for WhiteFiber data centers. This could ultimately adversely affect WhiteFiber’s business and financial results.
We incur significant costs and demands upon management and accounting and finance resources as a result of complying with the laws and regulations affecting public companies; if we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements and otherwise make timely and accurate public disclosure could be impaired, which could harm our operating results, our ability to operate our business and our reputation.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and are required to prepare its financial statements according to the rules and regulations required by the SEC. In addition, the Exchange Act requires that we file annual, quarterly and current reports. The Company’s failure to prepare and disclose this information in a timely manner or to otherwise comply with applicable law could subject it to penalties under federal securities laws, expose it to lawsuits and restrict its ability to access financing. In addition, the Sarbanes-Oxley Act requires that, among other things, we establish and maintain effective internal controls and procedures for financial reporting and disclosure purposes. Internal control over financial reporting is complex and may be revised over time to adapt to changes in WhiteFiber’s business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm will not be able to certify as to the effectiveness of internal control over financial reporting. We have been adhering to these laws and regulations.
Matters affecting our internal controls may cause it to be unable to report its financial information on a timely basis, or may cause it to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in the Company and the reliability of its financial statements. Confidence in the reliability of our financial statements is also likely to suffer if it or its independent registered public accounting firm reports a material weakness in its internal control over financial reporting. This could have a material and adverse effect on us by, for example, leading to a decline in the share price and impairing its ability to raise additional capital.
Existing and increasing legal and regulatory requirements could adversely affect our results of operations.
We are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that may apply to our products and online services offerings, and those that impose requirements related to user privacy, telecommunications, data storage and protection, advertising, and online content. Laws in several jurisdictions, including EU Member State laws under the European Electronic Communications Code, increasingly define certain of our services as regulated telecommunications services. This trend may continue and will result in these offerings being subjected to additional data protection, security, law enforcement surveillance, and other obligations. Regulators and private litigants may assert that our collection, use, and management of customer data and other information is inconsistent with their laws and regulations, including laws that apply to the tracking of users via technology such as cookies. New environmental, social, and governance laws and regulations are expanding mandatory disclosure, reporting, and diligence requirements. Legislative or regulatory action relating to cybersecurity requirements may increase the costs to develop, implement, or secure our products and services. Compliance with evolving digital accessibility laws and standards will require engineering and is important to our efforts to empower all people and organizations to achieve more. Legislative and regulatory action is emerging in the areas of AI and content moderation, which could increase costs or restrict opportunity. For example, in the EU, an AI Act has entered into force, and may entail increased costs or decreased opportunities for the operation of our AI services in the European market.
We are subject to extensive environmental, health and safety laws and regulations that may expose us to significant liabilities for penalties, damages or costs of remediation or compliance.
Our operations and properties are subject to extensive laws and regulations governing occupational health and safety, the discharge of pollutants into the environment or otherwise relating to health, safety and environmental protection requirements in the United States. These laws and regulations may impose numerous obligations that are applicable to our operations, including acquisition of a permit or other approval before conducting construction or regulated activities; restrictions on the types, quantities and concentration of materials that can be released into the environment; limitation or prohibition of construction and operating activities in environmentally sensitive areas, such as wetlands; imposing specific health and safety standards addressing worker protection; and imposition of significant liabilities for pollution resulting from our operations, including investigation, remedial and clean-up costs. Failure to comply with these requirements may expose us to fines, penalties and/or interruptions in our operations that could have a material adverse effect on our financial position, results of operations and cash flows. Certain environmental laws may impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed or otherwise released into the environment, even under circumstances where the hazardous substances were released by prior owners or operators or the activities conducted and from which a release emanated complied with applicable law. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by noise or the release of hazardous substances into the environment.
The trend in environmental regulation has been to place more restrictions and limitations on activities that may be perceived to impact the environment, and thus there can be no assurance as to the amount or timing of future expenditures for environmental regulation compliance or remediation. New or revised regulations that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our financial position, results of operations and cash flows.
Failure to comply with anti-corruption and anti-money laundering laws, including the Foreign Corrupt Practices Act (the “FCPA”) and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences.
We operate an international business and may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We are subject to the FCPA, and other applicable anti-corruption and anti-money laundering laws in certain countries in which we conduct activities. The FCPA prohibits providing, offering, promising, or authorizing, directly or indirectly, anything of value to government officials, political parties, or political candidates for the purpose of obtaining or retaining business or securing any improper business advantage. In addition, U.S. public companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. Since February 10, 2025, the enforcement of the FCPA has been paused for 180 days. The Company will monitor any upcoming guidance from the DOJ or the SEC in order to remain compliant with the FCPA.
In many foreign countries, including countries in which we may conduct business, it may be a local custom that businesses engage in practices that are prohibited by the FCPA, or other applicable laws and regulations. We face significant risks if we or any of our directors, officers, employees, contractors, agents or other partners or representatives fail to comply with these laws and governmental authorities in the United States and elsewhere could seek to impose substantial civil and/or criminal fines and penalties which could have a material adverse effect on our business, reputation, operating results, prospects and financial condition.
Any violation of applicable anti-corruption laws, anti-money laundering laws or the FCPA (when again enforceable) could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, any of which could have a materially adverse effect on our reputation, business, operating results, prospects and financial condition. In addition, responding to any enforcement action or internal investigation related to alleged misconduct may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.
In many foreign countries, including countries in which we may conduct business, it may be a local custom that businesses engage in practices that are prohibited by the FCPA, or other applicable laws and regulations. We face significant risks if we or any of our directors, officers, employees, contractors, agents or other partners or representatives fail to comply with these laws and governmental authorities in the United States and elsewhere could seek to impose substantial civil and/or criminal fines and penalties which could have a material adverse effect on our business, reputation, operating results, prospects and financial condition.
Any violation of the FCPA, other applicable anti-corruption laws, or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, any of which could have a materially adverse effect on our reputation, business, operating results, prospects and financial condition. In addition, responding to any enforcement action or internal investigation related to alleged misconduct may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.
Regulatory restrictions that target AI, including, but not limited to, export restrictions may have a material adverse impact on our intended operations.
The increasing focus on the strategic importance of AI technologies has already resulted in regulatory restrictions that target products and services capable of enabling or facilitating AI, and may in the future result in additional restrictions impacting some or all of our service offerings. Such restrictions could include additional unilateral or multilateral export controls on certain products or technology, including, but not limited to, AI technologies. As geopolitical tensions have increased, semiconductors associated with AI, including GPUs and associated products, are increasingly the focus of export control restrictions proposed by stakeholders in the U.S. and its allies, and it is likely that additional unilateral or multilateral controls will be adopted. Such controls may be very broad in scope and application, prohibit us from exporting our services to any or all customers in one or more markets or could impose other conditions that limit our ability to serve demand abroad and could negatively and materially impact our business, revenue, and financial results. Export controls targeting GPUs and semiconductors associated with AI, which are increasingly likely, would restrict our ability to export our technology, services even though competitors may not be subject to similar restrictions, creating a competitive disadvantage for us and negatively impacting our business and financial results. Increasing use of economic sanctions may also impact demand for our services, negatively impacting our business and financial results. Additional unilateral or multilateral controls are also likely to include deemed export control limitations that negatively impact the ability of our research and development teams to execute our roadmap or other objectives in a timely manner. Additional export restrictions may not only impact our ability to serve overseas markets, but also provoke responses from foreign governments, including China, that negatively impact our ability to provide our services to customers in all markets worldwide, which could also substantially reduce our revenue.
During the third quarter of fiscal year 2023, the U.S. government announced new export restrictions and export licensing requirements targeting China’s semiconductor and supercomputing industries. These restrictions impact exports of certain chips, as well as software, hardware, equipment, and technology used to develop, produce, and manufacture certain chips, to China (including Hong Kong and Macau) and Russia. The new license requirements also apply to any future NVIDIA integrated circuit achieving certain peak performance and chip-to-chip I/O performance thresholds, as well as any system or board that includes those circuits. There are also now licensing requirements to export a wide array of products, including networking products, destined for certain end users and for certain end uses in China.
Management of these new licenses and other requirements is complicated and time consuming. Our results and competitive position may be harmed if we are restricted in offering our services, if customers purchase services from competitors, if customers develop their own internal solution, if we are unable to provide contractual warranty or other extended service obligations, if the U.S. government does not grant licenses in a timely manner or denies licenses to significant customers, or if we incur significant transition costs. Even if the U.S. government grants any requested licenses, the licenses may be temporary or impose burdensome conditions that we cannot or choose not to fulfill. The new requirements may benefit certain of our competitors, as the licensing process will make our pre-sale and post-sale technical support efforts more cumbersome and less certain, and encourage customers to pursue alternatives to our services.
Our cloud services business is subject to complex and evolving U.S. and foreign laws and regulations regarding AI, machine learning, and automated decision making.
In recent years the use of machine learning, AI and automated decision making, has come under increased regulatory scrutiny, and governments and regulators in the United States, European Union, and other places have announced the need for greater regulation regarding the use of machine learning and AI generally. New laws, guidance, and decisions in this area may limit WhiteFiber’s cloud services business, or require WhiteFiber to make changes to its clouds service technology and infrastructure and its operations that may decrease its operational efficiency, result in an increase to operating costs and/or hinder its ability to provide or improve its cloud services.
For example, certain global privacy laws regulate the use of automated decision making and may require that the existence of automated decision making be disclosed to the data subject with a meaningful explanation of the logic used in such decision making in certain circumstances, and that safeguards must be implemented to safeguard individual rights, including the right to obtain human intervention and to contest any decision. Other global privacy laws allow individuals the right to opt out of certain automated processing of personal data and create other requirements that impact automated decision-making. At the federal level, the scope and extent of regulation of AI is uncertain, but the National Institute of Standards and Technology issued the NIST-AI-600-1, AI Risk Management Framework: Generative Artificial Intelligence Profile which will likely remain a standard that regulators may consider for determining whether companies have adequate assessed the risk of use of AI.
A number of states have issued or proposed laws that require developers and deployers of high risk AI tools and systems to conduct risk assessments and take steps to avoid algorithmic discrimination. In addition, these laws provide consumers with the right to pre-use notice and certain rights to opt-out of use of such tools for certain kinds of automated decisions and to seek human review for adverse decisions. These laws could impose additional obligations on us to comply with such requirements and limit the Company’s ability to use AI and automated decision making. Violations of such laws could expose the Company to fines and sanctions and consumer class actions.
In the European Union, the EU AI Act establishes a comprehensive, risk-based governance framework for AI in the EU market. The EU AI Act entered in force on August 1, 2024, and the majority of the substantive requirements will apply two years later (beginning 2026). The EU AI Act will apply to companies that develop, use and/or provide AI in the European Union and includes requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security, accuracy, general purpose AI and foundation models, and proposes fines for breach of up to 7% of worldwide annual turnover (revenue). Additionally, in September of 2022, the European Commission proposed two Directives seeking to establish a harmonized civil liability regime for AI in the European Union, in order to facilitate civil claims in respect of harm caused by AI and to include AI-enabled products within the scope of the European Union’s existing strict liability regime. Once fully applicable, the EU AI Act will have a material impact on the way AI is regulated in the European Union, and together with developing guidance and/or decisions in this area, may affect our use of AI and our ability to provide, improve, or commercialize our cloud services, and could require additional compliance measures and changes to our operations and processes.
Moreover, the protectability and ownership of intellectual property, including patent and copyright, resulting from the use of AI technologies has not been fully addressed by courts or laws or regulations. To the extent we use AI technologies to generate or develop other technology, we may have difficulty enforcing intellectual property rights in other such technology. In addition, the use or adoption of AI technologies into our offerings may result in exposure to claims of copyright infringement or other intellectual property misappropriation based on the inputs or outputs of such systems. As the legal and regulatory framework for AI and automated decision making evolves, we may not always be able to anticipate how to respond to these laws or regulations, and compliance may adversely impact our operations and involve significant expenditure and resources. Any failure by us to comply may result in significant liability, potential increases in civil claims against us, negative publicity, an erosion of trust, and/or increased regulation and could materially adversely affect our business, results of operations, and financial condition.
Issues in the development and use of AI may result in reputational or competitive harm or liability .
We provide infrastructure services, and we are also providing computing power for AI available for our customers to use in solutions that they build. We are providing supporting/computing power to clients, including our strategic partners who develop AI systems. We expect this integration of AI into our offerings and our business in general to grow. AI presents risks and challenges that could affect its adoption, and therefore our business. AI algorithms or training methodologies may be flawed. Datasets may be overbroad, insufficient, or contain biased information. Content generated by AI systems may be offensive, illegal, or otherwise harmful. Ineffective or inadequate AI development or deployment practices by our Company or others could result in incidents that impair the acceptance of AI solutions or cause harm to individuals, customers, or society, or result in our products and services not working as intended. Human review of certain outputs may be required. As a result of these and other challenges associated with innovative technologies, our implementation of AI systems could subject us to competitive harm, regulatory action, legal liability, including under new proposed legislation regulating AI in jurisdictions, new applications of existing data protection, privacy, intellectual property, and other laws, and brand or reputational harm. Some AI scenarios present ethical issues or may have broad impacts on society. If we provide supporting/computing AI services that have unintended consequences, unintended usage or customization by our customers and partners, or are controversial because of their impact on human rights, privacy, employment, or other social, economic, or political issues, we may experience brand or reputational harm, adversely affecting our business and consolidated financial statements.
We are subject to governmental regulation and other legal obligations related to data privacy, data protection and information security. If we are unable to comply with these, we may be subject to governmental enforcement actions, litigation, fines and penalties or adverse publicity.
We collect and process data, including personal, financial and confidential information about individuals, including our employees and business partners; however, not of any customers or other third parties. The collection, use and processing of such data about individuals are governed by data privacy laws and regulations enacted in the U.S. (federal and state), and other jurisdictions around the world. These data privacy laws and regulations are complex, continue to evolve, and on occasion may be inconsistent between jurisdictions leading to uncertainty in interpreting such laws and it is possible that these laws, regulations and requirements may be interpreted and applied in a manner that is inconsistent with our existing information processing practices, and many of these laws are significantly litigated and/or subject to regulatory enforcement. The implication of this includes that various federal, state and foreign legislative or regulatory bodies may enact or adopt new or additional laws and regulations concerning data privacy, data retention, data transfer, and data protection. Such laws may continue to restrict or dictate how we collect, maintain, combine and disseminate information and could have a material adverse effect on our business, results of operations, financial condition and prospects.
In the United States, there are numerous federal and state laws and regulations that could apply to our operations or the operations of our partners, including data breach notification laws, financial information and other data privacy laws, and consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, and protection of personal information.
Existing and increasing legal and regulatory requirements could adversely affect our results of operations.
We are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that may apply to our products and online services offerings, and those that impose requirements related to user privacy, telecommunications, data storage and protection, advertising, and online content. Laws in several jurisdictions, including EU Member State laws under the European Electronic Communications Code, increasingly define certain of our services as regulated telecommunications services. This trend may continue and will result in these offerings being subjected to additional data protection, security, law enforcement surveillance, and other obligations. Regulators and private litigants may assert that our collection, use, and management of customer data and other information is inconsistent with their laws and regulations, including laws that apply to the tracking of users via technology such as cookies. New environmental, social, and governance laws and regulations are expanding mandatory disclosure, reporting, and diligence requirements. Legislative or regulatory action relating to cybersecurity requirements may increase the costs to develop, implement, or secure our products and services. Compliance with evolving digital accessibility laws and standards will require engineering and is important to our efforts to empower all people and organizations to achieve more. Legislative and regulatory action is emerging in the areas of AI and content moderation, which could increase costs or restrict opportunity. For example, in the EU, an AI Act is being considered, and may entail increased costs or decreased opportunities for the operation of our AI services in the European market.
Regulatory and legislative developments related to climate change, may materially adversely affect our brand, reputation, business, operating results and financial condition.
A number of governments or governmental bodies have introduced or are contemplating legislative and regulatory changes in response to various climate change interest groups and the potential impact of climate change. Given the very significant amount of electrical power required to operate digital asset mining machines, as well the environmental impact of mining for the rare earth metals used in the production of mining servers, the digital asset mining industry may become a target for future environmental and energy regulation. For example, in June and July of 2021, the Chinese government prohibited the operation of mining machines and supply of energy to mining businesses, citing concerns regarding high levels of energy consumption, which resulted in our suspension of mining operations in China. U.S. legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations. Specifically, imposition of a carbon tax or other regulatory fee in a jurisdiction where we operate or on electricity that we purchase could result in substantially higher energy costs, and due to the significant amount of electrical power required to operate digital asset mining machines, could in turn put our facilities at a competitive disadvantage. Any future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Given the political significance and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation. Any of the foregoing could have a material adverse effect on our financial position, results of operations and cash flows.
A particular digital asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if a regulator disagrees with our characterization of a digital asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results and financial condition. Furthermore, a determination that Bitcoin or any other digital asset that we own or mine is a “security” may adversely affect the value of such digital asset and our business.
The SEC and its staff have taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given digital asset is a security, as described below, is a highly complex, fact-driven analysis that has evolved over time. Our determination that the digital assets we hold are not securities is a risk-based assessment and not a legal standard or one binding on regulators. As of the date of this report, with the exception of certain centrally issued digital assets that have received “no-action” letters from the SEC staff, bitcoin and ETH are the only digital assets which senior officials at the SEC have publicly stated are unlikely to be considered securities. As a digital asset mining company, we do not believe we are an issuer of any “securities” as defined under the federal securities laws. Our internal process for determining whether the digital assets we hold or plan to hold is based upon the public statements of the SEC and existing case law. The digital assets we hold or plan to hold, other than bitcoin and ETH, may have been created by an issuer as an investment contract under the Howey test, SEC v. Howey Co ., 328 U.S. 293 (1946), and may be deemed to be securities by the SEC. However, the Company was not the issuer that created these digital assets and is holding them on an interim basis until liquidated. Should the SEC state in the future that U.S. digital currency tokens or other digital assets we hold are securities, we may subject to additional securities laws’ requirements and may no longer be able to hold any of these digital assets. It will then likely become difficult or impossible for such digital assets to be traded, cleared or custodied in the United States through the same channels used by non-security digital assets, which in addition to materially and adversely affecting the trading value of the digital assets is likely to cause substantial volatility and significantly impact their liquidity and market participants’ ability to convert the digital assets into U.S. dollars. Our inability to exchange bitcoin for fiat currency or other digital assets (and vice versa) and to administer our treasury management objectives may decrease our earnings potential and have an adverse impact on our business and financial condition.
Under the Investment Company Act of 1940, as amended, a company may fall within the definition of an investment company under Section 3(c)(1)(A) thereof if it is or holds itself out as being engaged primarily, or proposes to engage primarily in the business of investing, reinvesting or trading in securities, or under Section 3(a)(1)(C) thereof if it is engaged or proposes to engage in business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire “investment securities” (as defined) having a value exceeding 40% of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. There is no authoritative law, rule or binding guidance published by the SEC regarding the status of digital assets as “securities” or “investment securities” under the Investment Company Act. Although we believe that we are not engaged in the business of investing, reinvesting, or trading in investment securities, and we do not hold ourselves out as being primarily engaged, or proposing to engage primarily, in the business of investing, reinvesting or trading in securities, to the extent the digital assets which we mine, own, or otherwise acquire may be deemed “securities” or “investment securities” by the SEC or a court of competent jurisdiction, we may meet the definition of an investment company. If we fall within the definition of an investment company under the Investment Company Act, we would be required to register with the SEC. If an investment company fails to register, it likely would have to stop doing almost all business, and its contracts would become voidable. Generally non-U.S. issuers may not register as an investment company without an SEC order.
The classification of a digital asset as a security under the applicable law has wide-ranging implications for the regulatory obligations that flow from the mining, sale and trading of such assets. For example, a digital asset that is a security in the United States may generally only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in digital assets that are deemed securities in the United States may be subject to registration with the SEC as a “broker” or “dealer.”
Although the March 17, 2026 SEC interpretive release provided a framework for evaluating which digital assets may constitute securities, updating the Howey analysis, and offering guidance on network-based economic activities, there still exists considerable regulatory uncertainty and potential enforcement exposure associated with digital asset holdings and transactions.
There can be no assurances that we will properly characterize any given digital asset as a security or non-security for purposes of determining which digital assets to mine, hold and trade, or that the SEC, or a court, if the question was presented to it, would agree with our assessment. We could be subject to judicial or administrative sanctions for failing to offer or sell digital assets in compliance with the registration requirements, or for acting as a broker or dealer without appropriate registration. Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Further, if bitcoin is deemed to be a security under the laws of any U.S. federal, state, or local jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such digital asset. For instance, all transactions in such supported digital asset would have to be registered with the SEC, or conducted in accordance with an exemption from registration, which could severely limit its liquidity, usability and transactability. For instance, all transactions in such supported digital asset would have to be registered with the SEC, or conducted in accordance with an exemption from registration, which could severely limit its liquidity, usability and transactability. Further, it could draw negative publicity and a decline in the general acceptance of the digital asset. Also, it may make it difficult for such digital asset to be traded, cleared, and custodied as compared to other digital assets that are not considered to be securities.
Enactment of the Infrastructure Investment and Jobs Act of 2021 (the “Infrastructure Act”) may have an adverse impact on our business and financial condition.
On November 15, 2021, President Joseph R. Biden signed the Infrastructure Act. Section 80603 of the Infrastructure Act modifies and amends the Internal Revenue Code of 1986 (the “Code”) by requiring brokers of digital asset transactions to report their customers to the IRS. This provision was included to enforce the taxability of digital asset transactions. Section 80603 defines “broker” as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” That could potentially include miners, validators, and developers of decentralized applications. These functions play a critical role in our business and in the functioning of the blockchain ecosystem. Importantly, these functions have no way of identifying their anonymous users. Indeed, bitcoin’s blockchain was designed for anonymity.
This reporting requirement took effect on January 1, 2023, and the implementation of these requirements is ongoing. The Company is closely monitoring the situation and waiting for more issuance of updated guidance from government agencies. The Company deems that it doesn’t qualify as “broker” under section 80603 and therefore it is not required to report its customers to the IRS under such provision. Disclosing the identity of our bitcoin mining operations and associated accounts to ensure they can be taxed by the IRS could cause a significant devaluing of our business, the bitcoin currency, and the entire digital assets market. Additionally, noncompliance with this provision could lead to significant fines and or regulatory actions against our company.
Risks related to material pending crypto legislation or regulations
On the federal level, by certain accounts, more than 100 bills were introduced in Congress to regulate cryptocurrency and digital assets. Except as described in other specific risk factors set forth herein, we do not believe that material pending crypto legislation or regulations would have a material effect on our business, financial condition and results of operations. Certain of the material pending bills are as follows:
Digital Commodity Exchange Act of 2022 (DCEA), introduced on April 28, 2022 in the House of Representatives, would create a regulatory overview for digital commodity developers, dealers and exchanges, none of which would currently apply to the Company;
Securities Clarity Act, introduced on July 16, 2021 in the House of Representatives, is intended to work with the proposed DCEA. The Securities Clarity Act would codify that an asset, whether tangible or intangible (including an asset in digital form), that is not per se a security, does not become a security as a result of being sold or otherwise transferred pursuant to an investment contract. Thus, certain digital assets which the Company may acquire, if sold pursuant to an investment contract, would not become securities, subject to SEC regulations;
Digital Trading Clarity Act of 2022, introduced on September 29, 2022 in the Senate, provides that if a federal court or the SEC determines that a digital asset is a security, the bill requires the SEC Division of Enforcement to request information from an intermediary listing that asset to determine if the intermediary meets the requirements in the bill texts. As stated elsewhere herein, the Company will conduct an extensive compliance review prior to holding any digital asset that may be deemed to be a security, and would need to avoid holding any such digital asset if this bill becomes law.
On March 17, 2026, the Securities and Exchange Commission (SEC) issued an interpretive release clarifying the application of federal securities laws to certain crypto assets and related transactions. This guidance provides the most detailed regulatory framework to date, including the following:
The SEC introduced a classification system for crypto assets, delineating assets that are likely considered securities from those less likely to fall under securities laws.
Digital assets are evaluated based on characteristics such as investor expectation of profit, decentralization of network controls, and contractual rights to returns or governance.
The release reaffirms and updates the Howey Test for digital assets, considering economic realities of token offerings and distribution structures.
Features such as profit-sharing, network pre-sale arrangements, and centralized management may indicate security status.
Activities such as staking, lending, and liquidity provision may trigger securities law obligations depending on whether they create an investment contract relationship.
Peer-to-peer network functionality that does not confer investor expectations of profits may be treated differently.
The guidance aligns with prior SEC-CFTC positions, noting potential overlap of regulatory authority, particularly for derivative-like products or commodities-related tokens.
Our interactions with a blockchain and mining pools may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distributive ledger technology.
The Office of Financial Assets Control of the U.S. Department of Treasury (“OFAC”) requires us to comply with its sanction program and not conduct business with persons named on its specially designated nationals (“SDN”) list. However, because of the pseudonymous nature of blockchain transactions we may inadvertently and without our knowledge engage in transactions with persons named on OFAC’s SDN list or from countries on OFAC’s sanctioned countries’ list. We also rely on a third-party mining pool service provider for our mining revenue payments and other participants in the mining pool, that, unknown to us, may also be persons from countries on OFAC’s SDN list or from countries on OFAC’s sanctioned countries list. Our Company’s policy prohibits any transactions with such SDN individuals or persons from sanctioned countries, but we may not be adequately capable of determining the ultimate identity of the individual with whom we transact with respect to selling bitcoin assets. Moreover, federal law prohibits any U.S. person from knowingly or unknowingly possessing any visual depiction commonly known as child pornography. Recent media reports have suggested that persons have imbedded such depictions on one or more blockchains. Because our business requires us to download and retain one or more blockchains to effectuate our ongoing business, it is possible that such digital ledgers contain prohibited depictions without our knowledge or consent. To the extent government enforcement authorities enforce these and other laws and regulations that are impacted by decentralized distributed ledger technology, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could harm our reputation and affect the value of our Ordinary Shares.
If regulatory changes or interpretations of our activities require our registration as a money services business (“MSB”) under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act (“BSA”), or otherwise under state laws, we may incur significant compliance costs, which could be substantial or cost-prohibitive. If we become subject to these regulations, our costs in complying with them may have a material negative effect on our business and the results of our operations.
To the extent that our activities cause us to be deemed a money service business (MSB) under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act, we may be required to comply with FinCEN regulations, including those that would mandate us to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records. The Digital Asset Anti-Money Laundering Act of 2022 (DAAMLA) was introduced on December 14, 2022 in the Senate. The bill would authorize FinCEN to designate digital asset wallet providers, miners, validators, and other network participants as MSBs. This designation would require these parties to register with FinCEN and would extend to these parties’ anti-money laundering (AML) responsibilities under the BSA.
To the extent that our activities cause us to be deemed an MSB and/or a “money transmitter” (“MT”) or equivalent designation, under state law in any state in which we operate , we may be required to seek a license or otherwise register with a state regulator and comply with state regulations that may include the implementation of AML programs, maintenance of certain records and other operational requirements. Such additional federal or state regulatory obligations may cause us to incur extraordinary expenses, possibly affecting an investment in our securities in a materially adverse manner. Furthermore, the Company and our service providers may not be capable of complying with certain federal or state regulatory obligations applicable to MSBs and MTs. If we are deemed to be subject to and determine not to comply with such additional regulatory and registration requirements, we may act to leave a particular state or the United States completely. Any such action would be expected to materially adversely affect our operations.
Because there has been limited precedent set for financial accounting of bitcoin and other digital assets, the determination that we have made for how to account for bitcoin and other digital assets transactions may be subject to change.
While there has been limited precedent set for the financial accounting of digital assets and related revenue recognition, on December 13, 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-08, which addresses the accounting and disclosure requirements for certain crypto assets. Under this new guidance, entities are required to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. Besides ASU 2023-08 issued, there has been little official guidance provided by the FASB, the Public Company Accounting Oversight Board (PCAOB) or the SEC, it is unclear how companies may in the future be required to account for bitcoin and other digital assets transactions and related revenue recognition. A change in regulatory or financial accounting standards could result in the necessity to change our accounting methods and restate our financial statements. Such a restatement could adversely affect the accounting for our newly mined bitcoin rewards and more generally negatively impact our business, prospects, financial condition and results of operation. Such circumstances would have a material adverse effect on our ability to continue as a going concern or to pursue our business strategy at all, which would have a material adverse effect on our business, prospects or operations as well as and potentially the value of any digital assets we hold or expects to acquire for our own account and harm investors.
Risks related to the PRC law.
We may be subject to fines and penalties for operating in China without registration.
Prior to the commencement of the Company’s bitcoin mining business, and before the involvement of any of the Company’s current directors, officers or employees, Golden Bull Limited formerly operated a peer-to-peer lending business in the PRC, as discussed below. Additionally, from February 2020 to June 2021, the Company operated its bitcoin mining business in the PRC, but completed the migration of all of its bitcoin mining operations out of China by September 2021.
Although the statute of limitations for non-compliance by our former business in the PRC is generally two years and the Company has not had any operations in PRC since September 2021, the authority may still find its prior bitcoin mining operations involved a threat to financial security. In such event, the two-year period would be extended to five years.
Pursuant to laws and regulations of the PRC, there are two ways for foreign legal persons/entities to be considered to be engaging in operation activities within the territory of China. One way is to establish a foreign-invested enterprise, that is incorporated, according to the Foreign Investment Law of PRC, within the territory of China and that is wholly or partly invested by a foreign investor. The organization form, institutional framework and standard of conduct of a foreign-invested enterprise are subject to the provisions of the Company Law of the PRC and the Partnership Enterprise Law of the PRC and other law related regulations. Another way to be deemed to be operating within China is to complete the approval and registration procedures with the relevant regulatory authorities in accordance with the provisions of Administrative Measures for the Registration of Enterprises of Foreign Countries (Regions) Engaging in Production and Operation Activities within the Territory of China (Revised in 2020), or Order No.31. However, in view of the ban on all new digital asset operations in China, we terminated the process of forming a subsidiary in mainland China. Since our Hong Kong subsidiary had not obtained business licenses in mainland China where Bit Digital Hong Kong used to carry out business, it may lead to a punishment of a warning, fine, confiscation of income and/or suspension of business for rectification.
Risks Related to Our Ordinary Shares
The trading price of our Ordinary Shares is subject to pricing factors that are not necessarily associated with traditional factors that influence stock prices or the value of non-bitcoin assets such as revenue, cash flows, profitability, growth prospects or business activity levels since the value and price, as determined by the investing public, may be influenced by future anticipated adoption or appreciation in value of digital assets or blockchains generally, factors over which we have little or no influence or control.
Other factors that could cause volatility in the market price of our Ordinary Shares include, but are not limited to:
actual or anticipated fluctuations in our financial condition and operating results or those of companies perceived to be similar to us;
actual or anticipated changes in our growth rate relative to our competitors;
commercial success and market acceptance of blockchain and bitcoin and other digital assets;
actions by our competitors, such as new business initiatives, acquisitions and divestitures;
strategic transactions undertaken by us;
additions or departures of key personnel;
prevailing economic conditions;
disputes concerning our intellectual property or other proprietary rights;
sales of our Ordinary Shares by our officers, directors or significant shareholders;
other actions taken by our shareholders;
future sales or issuances of equity or debt securities by us;
business disruptions caused by earthquakes, tornadoes or other natural disasters;
issuance of new or changed securities analysts’ reports or recommendations regarding us;
legal proceedings involving our company, our industry or both;
changes in market valuations of companies similar to ours;
the prospects of the industry in which we operate;
speculation or reports by the press or investment community with respect to us or our industry in general;
the level of short interest in our shares; and
other risks, uncertainties and factors described in this Annual Report for the year ended December 31, 2025 on Form 10-K.
I n addition, the stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of issuers. These broad market fluctuations may negatively impact the price or liquidity of our Ordinary Shares. When the price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer, and we have been impacted in that way. See the risk factor below titled “We defended and settled a securities class action litigation which resulted in significant costs for the Company .” The pending lawsuit has required significant management time and attention, resulting in significant legal expenses and potential damages.
We believe that we are, and there is a significant risk that we may continue to be, a passive foreign investment company (a “PFIC”), which could result in adverse U.S. federal income tax consequences to U.S. Holders of our Ordinary Shares.
A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either
at least 75% of our gross income for the year is passive income; or
the average percentage of our assets (determined at the end of each quarter) during the taxable year which produce passive income or which are held for the production of passive income is at least 50%.
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. Cash and cash equivalents are generally passive assets.
We have determined that more than 50% of the average quarterly value of the assets held by our Company produce (or are held to produce) passive income. Therefore, Bit Digital, Inc. was considered to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, within the meaning of Section 1297(a) of the Internal Revenue Code, for the taxable year ended December 31, 2025, and we may continue to be classified as a PFIC in future taxable years.
The determination of whether we are a PFIC is made annually and depends on the application of complex U.S. federal income tax statutes, regulations, interpretation, and the composition of our income and assets. For purposes of the asset test, the value of our assets may be determined, in part, by reference to the market price of our ordinary shares, which may fluctuate significantly. As a result, our PFIC status may change from year to year depending on stock price, the value of our digital asset holdings, and the composition of our operating assets.
If we are classified as a PFIC for any taxable year during which a U.S. holder owns our ordinary shares, such U.S. holder may be subject to adverse U.S. federal income tax consequences. These consequences may include the application of the excess distribution rules under Section 1291 of the Internal Revenue Code, under which gains on the disposition of our ordinary shares and certain distributions may be taxed at the highest applicable tax rates and may be subject to an interest charge on deferred tax liabilities. In addition, U.S. holders may be subject to additional reporting requirements, including the obligation to file IRS Form 8621.
U.S. holders may be able to mitigate certain of these adverse tax consequences by making a qualified electing fund (QEF) or a mark-to-market election with respect to our ordinary shares on a shareholder-by-shareholder basis. We intend to provide U.S. holders with the information necessary to make a QEF election for the 2025 taxable year. However, there can be no assurance that such information will be available on a timely basis or that making such election will be beneficial to any particular U.S. holder.
Prospective investors should consult their own tax advisors regarding the application of the PFIC rules to an investment in our ordinary shares, including the availability and consequences of making a QEF or mark-to-market election and the reporting obligations associated with such investment.
Our Chief Financial Officer and Chairman currently have voting power to control all significant corporate actions.
Erke Huang, our Chief Financial Officer and a director, and Zhaohui Deng, a director and our former Chairman, collectively beneficially own 1,000,000 preferred shares, each having fifty (50) votes, which equals approximately 15.3% of the voting power of our 326,577,219 outstanding Ordinary Shares as of March 24, 2026 or approximately 13.3% of all votes cast on an as-converted basis. The Board authorized the exchange by Messrs. Huang and Deng of 1,000,000 Ordinary Shares for an equivalent number of preferred shares, in the form of a poison pill, to enable them to carry out the Company’s business plan without the threat of a hostile takeover. Nevertheless, as a result of their shareholdings, Mr. Huang and Mr. Deng may be able to control the vote over decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, the election of directors, and other significant corporate actions. They may take action that is not in the best interests of our other shareholders. This concentration of voting power may discourage or delay our Company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of the sale of our Company and might reduce the market price of our Ordinary Shares. These actions may be taken even if they are opposed by our other shareholders.
Your percentage of ownership in the Company may be diluted in the future.
In the future, your percentage ownership in the Company may be diluted because of equity awards that the Company will be granting to its directors, officers and employees or otherwise as a result of equity issuances for acquisitions or capital market transactions. the Company anticipates that its Compensation Committee will grant additional stock-based awards to its directors, officers and employees. Such awards will have a dilutive effect on the Company’s earnings per share, which could adversely affect the market price of our shares.
In addition, the Company’s Amended and Restated Memorandum and Articles of Association authorizes it to issue additional preference shares of par value US$0.01 in the capital of the Company, which have enhanced rights relative to Ordinary Shares, including with respect to dividends, and liquidation preferences. Accordingly, issuing preference shares could affect the value of our Ordinary Shares.
We may be unable to comply with the applicable continued listing requirements of the Nasdaq Capital Market, which may adversely impact our access to capital markets and may cause us to default certain of our agreements.
Our Ordinary Shares are currently traded on the Nasdaq Capital Market. Nasdaq rules require us to maintain a minimum closing bid price of $1.00 per Ordinary Share. In the event that our Ordinary Shares are delisted from Nasdaq and are not eligible for quotation or listing on another market or exchange, trading of our Ordinary Shares could be conducted only on the over-the-counter market or on an electronic bulletin board established for unlisted securities, such as the OTC. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our Ordinary Shares, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our Ordinary Shares to decline further. In addition, our ability to raise additional capital may be severely impacted if our shares are delisted from Nasdaq, which may negatively affect our business plans and the results of our operations.
If securities or industry analysts do not publish research or publish unfavorable research about our business, our share price and trading volume could decline .
The trading market for our Ordinary Shares will be influenced by whether industry or securities analysts publish research and reports about us, our business, our market or our competitors and, if any analysts do publish such reports, what they publish in those reports. We may not obtain or maintain analyst coverage in the future. Any analysts that do cover us may make adverse recommendations regarding our shares, adversely change their recommendations from time to time and/or provide more favorable relative recommendations about our competitors. If analysts who may cover us in the future were to cease coverage of our company or fail to regularly publish reports on us, or if analysts fail to cover us or publish reports about us at all, we could lose (or never gain) visibility in the financial markets, which in turn could cause the share price of our Ordinary Shares or trading volume to decline. Moreover, if our operating results do not meet the expectations of the investor community, one or more of the analysts who cover our Company may change their recommendations regarding our Company, and our share price could decline.
Our Ordinary Shares may be thinly traded, and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Our Ordinary Shares may become “thinly-traded”, meaning that the number of persons interested in purchasing our Ordinary Shares at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we may not be well-known to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that, even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow a relatively unknown company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A broad or active public trading market for our Ordinary Shares may not develop or be sustained.
We defended and settled a securities class action litigation which resulted in significant costs for the Company.
The market for our Ordinary Shares may have, when compared to seasoned issuers, significant price volatility, and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. On January 20, 2021, a securities class action lawsuit was filed against the Company and its Chief Executive Officer and Chief Financial Officer titled Anthony Pauwels v. Bit Digital, Inc., Min Hu and Erke Huang (Case No. 1:21-cv-00515) (U.S.D.C. S.D.N.Y.). The class action was brought on behalf of persons that purchased or acquired our Ordinary Shares between December 21, 2020 and January 11, 2021, a period of volatility in our Ordinary Shares, as well as volatility in the price of bitcoin. On April 29, 2021, the Court consolidated several related cases under the caption In re Bit Digital, Inc. Securities Litigation . Joseph Franklin Monkam Nitcheu was appointed as lead plaintiff. On July 6, 2021, the lead plaintiff filed a consolidated class action complaint (the “Amended Complaint”). The Amended Complaint was still based primarily upon a January 11, 2021 short seller report and included, among other things, additional information concerning our previously discontinued peer to peer lending business. We filed a motion to dismiss the lawsuit and vigorously defended the action. While that motion was pending, the Company agreed with the lead plaintiff selected in the case to settle the class action by paying $2,100,000. The Company chose to do that to eliminate the burden, expense and uncertainties of further litigation. The Company continues to deny the allegations in the Amended Complaint and nothing in the settlement is evidence of any liability on the Company’s behalf.
On March 7, 2023, a final judgment in this matter was entered approving the settlement and certifying the class for purposes of enforcing the settlement and payment was then made by the Company.
We have not paid Ordinary Share dividends in the past and do not anticipate paying cash dividends in the foreseeable future.
We have never declared or paid any cash dividends with respect to our Ordinary Shares and do not intend to pay any cash dividends in the foreseeable future. The Preference Shares held by our former Chairman of the Board and our Chief Financial Officer provide for an eight (8%) percent ($800,000) annual dividend when and if declared by the Board. On February 19, 2026, the Board of Directors declared eight (8%) percent dividends on the preference shares to Geney Development Ltd., an entity beneficially owned by the Company’s Chief Financial Officer and our former Chairman for the year ended December 31, 2025. We currently plan to retain any future earnings to cover operating costs and otherwise fund the growth of our business. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our Ordinary Shares as a dividend. As a result, capital appreciation, if any, of our Ordinary Shares will be the sole source of gain for the foreseeable future. There is no guarantee that our Ordinary Shares will appreciate in value or even maintain the price at which a shareholder purchased such shareholder’s shares.
You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides less protection when compared to the laws of the United States and it may be difficult for a shareholder of ours to effect service of process or to enforce judgements obtained in the U.S. courts.
Our corporate affairs are governed by our amended and restated memorandum and articles of association and by the Companies Act (Revised) of the Cayman Islands and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law. Decisions of the Privy Council (which is the final court of appeal for British overseas territories, such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court of the United Kingdom and the Court of Appeal are generally of persuasive authority but are not binding on the courts of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States and provide less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the U.S. federal courts. The Cayman Islands courts are also unlikely (i) to recognize or enforce against us, judgments of courts of the United States obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is currently no statutory enforcement or treaty between the United States and the Cayman Islands providing for enforcement of judgments obtained in the United States. The courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive, given by a court of competent jurisdiction (the courts of the Cayman Islands will apply the rules of Cayman Islands private international law to determine whether the foreign court is a court of competent jurisdiction), and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands. Furthermore, it is uncertain that Cayman Islands courts would enforce: (1) judgments of U.S. courts obtained in actions against us or other persons that are predicated upon the civil liability provisions of the U.S. federal securities laws; or (2) original actions brought against us or other persons predicated upon the Securities Act. There is also uncertainty with regard to Cayman Islands law relating to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal, punitive in nature. A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against us or our officers, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management, and the ability of U.S. authorities to bring actions abroad.
Currently, a portion of our operations and of our assets and personnel are located outside the United States. Three of the five members of our Board of Directors are nationals or residents of jurisdictions other than the United States, and a substantial portion, if not all, of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. Foreign countries may have no arrangement for the reciprocal enforcement of judgments with the United States. As a result, recognition and enforcement in a foreign country of judgments of a court in the United States and any of the other jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible. Even if you sue successfully in a U.S. court or any other jurisdictions, you may not be able to collect on such judgment against us or our directors and officers. In addition, the SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or officers outside the United States.
As of January 1, 2025, we were no longer a foreign private issuer and we are required to comply with the provisions of the Exchange Act, and the rules of Nasdaq, applicable to U.S. domestic issuers, which will continue to require us to incur significant expenses and expend time and resources.
As of January 1, 2025, we were no longer a foreign private issuer, and we are required to comply with all of the provisions applicable to a U.S. domestic issuer under the Exchange Act, including filing an annual report on Form 10-K, quarterly periodic reports and current reports for certain events, complying with the sections of the Exchange Act regulating the solicitation of proxies, requiring insiders to file public reports of their share ownership and trading activities and insiders being liable for profit from trades made in a short period of time. We are also no longer exempt from the requirements of Regulation FD promulgated under the Exchange Act related to selective disclosures. We are also no longer permitted to follow our home country’s rules in lieu of the corporate governance obligations imposed by Nasdaq, and are required to comply with the governance practices required by U.S. domestic issuers listed on Nasdaq. We are also required to comply with all other rules of Nasdaq applicable to U.S. domestic issuers, including that our articles of association specify a quorum of no less than one-third of our outstanding ordinary shares for meetings of our common shareholders, the solicitation of proxies and the approval by our shareholders in connection with certain events such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control and certain private placements. The regulatory and compliance costs associated with the reporting and governance requirements applicable to U.S. domestic issuers may be significantly higher than the costs we previously incurred as a foreign private issuer.
The regulatory and compliance costs associated with the reporting and governance requirements applicable to U.S. domestic issuers may be significantly higher than the costs we previously incurred as a foreign private issuer. We expect to continue to incur significant legal, accounting, insurance and other expenses and to expend greater time and resources to comply with these requirements. In addition, we may need to develop our reporting and compliance infrastructure and may face challenges in complying with the new requirements applicable to us.
We incur significant costs as a result of being a public company and will continue to do so in the future, particularly as we cease to qualify as a “Smaller reporting company.”
We incur significant legal, accounting and other expenses as a public company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the NASDAQ Capital Market, impose various requirements on the corporate governance practices of public companies. We have been a “smaller reporting company,” and ceased to be a smaller reporting company on January 1, 2026. A smaller reporting company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. As a result of no longer being a smaller reporting company, we may incur additional costs which could have a material adverse effect on our financial condition.
