Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in the ADSs. You should carefully read the entire prospectus, including “Risk Factors” and the financial statements, before making an investment decision. This prospectus contains information from an industry report commissioned by us and prepared by Frost & Sullivan, an independent research firm, to provide information regarding our industry and our market position in China.Overview
We provide supercomputing solutions through our proprietary high performance computing ASICs. Our visionary management team has a clear strategy to commercialize supercomputing technology. In January 2013, Mr. Nangeng Zhang, our chairman and chief executive officer, and his team, invented and delivered one of the first cryptocurrency mining machines incorporating ASIC technology. We initially dedicated our research and development efforts to ASIC applications for Bitcoin mining, which rapidly built up our know-how of ASIC design. Such experience provided us with a solid foundation in terms of both technology and capital resources, which better prepared us for further research and development involving AI chips. We were the second largest designer and manufacturer of Bitcoin mining machines globally in terms of computing power sold in the six months ended June 30, 2019, according to Frost & Sullivan. During the same period, our Bitcoin mining machines sold accounted for 21.9% of the combined computing power of all the Bitcoin mining machines sold globally, according to Frost & Sullivan. In September 2018, we became the first in the industry to deliver commercial edge computing AI chips based on Risc-V architecture, which is a set of instructions that describes the way in which software talks to an underlying processor, and self-developed neural-network accelerator, which is a class of microprocessor designed as hardware acceleration for AI applications, with outstanding performance. As we are a fabless IC designer, the ICs that we design are manufactured, packaged and tested by industry-leading suppliers, including TSMC, Samsung, STATS ChipPac, ASE and SPIL.
We have developed significant advantages in our business and technological capabilities, including the following:
The price of Bitcoin experienced a significant drop in 2018 and remained relatively low through the end of the first quarter of 2019, while experiencing some recovery starting from the second quarter of 2019. The price of Bitcoin has a direct impact on the market demand for our Bitcoin mining machines, in terms of both the price and the quantity, and we expect this trend to continue. Furthermore, the significant drop in the Bitcoin price has had a negative effect on the value of our Bitcoin mining machine inventory. We expect our results of operations to improve along with the recovery of the Bitcoin price, but our results of operations generally lag behind the increase in the Bitcoin price. Furthermore, fluctuation in Bitcoin price can have direct impact on the trading price of the ADSs.
Our total revenues increased by 106.8% from RMB1,308.1 million in 2017 to RMB2,705.3 million (US$394.1 million) in 2018. During the same period, our net income decreased by 67.4% from RMB375.8 million to RMB122.4 million (US$17.8 million). Our total revenues decreased by 85.2% from RMB1,947.1 million in the six months ended June 30, 2018 to RMB288.8 million (US$42.1 million) in the six months ended June 30, 2019. Our net income was RMB216.8 million in the six months ended June 30, 2018 and our net loss was RMB330.9 million (US$48.2 million) in the six months ended June 30, 2019. Our adjusted net income (loss), a non-GAAP measure defined as net income (loss) excluding share-based compensation, was RMB471.3 million of adjusted net income in 2017 as compared to RMB141.0 million (US$20.5 million) of adjusted net income in 2018, and RMB226.2 million of adjusted net income in the six months ended June 30, 2018 as compared to RMB109.9 million (US$16.0 million) of adjusted net loss in the six months ended June 30, 2019. See “Summary Consolidated Financial and Operating Data—Non-GAAP Financial Measures.”
Our Competitive Strengths
We believe that the following strengths contribute to our success and differentiate us from our competitors:
Our Growth Strategies
We intend to grow our business using the following key strategies:
Our Challenges
Our ability to execute our strategies is subject to risks and uncertainties, including:
Our History and Corporate Structure
We are a Cayman Islands holding company and conduct our operations in China through our PRC subsidiaries. We first started our business developing Bitcoin mining machines incorporating ASIC technology in 2013 through Beijing Canaan Creative Information Technology Co., Ltd., which was subsequently renamed Hangzhou Canaan Creative Information Technology Co., Limited, or Hangzhou Canaan, in September 2015. Empowered by the academic training and technical expertise of our co-founders, we have focused on the design of high performance, repeated computing ICs since our inception. As we further developed, Hangzhou Canaan went through a series of capital injections and became a holding company for our PRC operating subsidiaries.
With the growth of our business and in order to facilitate international capital investment in us, we underwent an offshore reorganization in the first quarter of 2018. In February 2018, Canaan Cayman Holdings Ltd. was incorporated under the laws of the Cayman Islands as an exempted company with limited liability. It was later renamed Canaan Inc. in April 2018. In March 2018, in order to mirror the shareholding structure of the then shareholders of Hangzhou Canaan, we issued and allotted our ordinary shares at par value to investment holding companies held by the then shareholders of Hangzhou Canaan. Further, an intermediate holding company, Canaan Creative (HK) Holdings Limited, or Canaan HK, our wholly-owned subsidiary, was also established in Hong Kong in February 2018. In March 2018, Canaan HK acquired a 100% equity interest in Hangzhou Canaan and Canaan Inc. became our ultimate holding company.
The following diagram illustrates our corporate structure as of the date of this prospectus. It omits certain entities that are immaterial to our results of operations, business and financial condition. Unless otherwise indicated, equity interests depicted in this diagram are 100%-owned.
Our Corporate Information
Our principal executive offices are located at 30/F, Dicara Silver Tower, 29 Jiefang East Road, Jianggan District, Hangzhou, People’s Republic of China. Our telephone number at this address is +86-571-8999-5063. Our registered office in the Cayman Islands is located at the offices of Sertus Chambers, Suite #5-204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1-1104, Cayman Islands. Investors should submit any inquiries to the address and telephone number of our principal executive offices set forth above.
Our corporate website is www.canaan-creative.com, and the information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Cogency Global Inc.
Implications of Being an Emerging Growth Company
As a company with less than US$1.07 billion in revenue for the last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise not applicable generally to public companies. These provisions include an exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, related to the assessment of the effectiveness of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We intend to avail ourselves of the extended transition period for complying with new or revised accounting standards provided under the JOBS Act. As a result, as we are an emerging growth company, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies.
We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the previous three year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Conventions That Apply to This Prospectus
Unless we indicate otherwise, references in this prospectus to:
Our reporting currency is the Renminbi. This prospectus also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi into U.S. dollars were made at RMB6.8650 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 28, 2019. We make no representation that the Renminbi or U.S. dollars amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On October 18, 2019, the noon buying rate for Renminbi was RMB7.0805 to US$1.00.
Except as otherwise indicated, all information in this prospectus assumes:
Glossary of Technical Terms
This glossary contains explanations of certain terms used in this prospectus in connection with our company and our business. Unless we indicate otherwise, references in this prospectus to: