Exhibit 99.1
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022 (UNAUDITED)
INDEX
- - - - - - - - - - - - - - - - - - - -
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
(In thousands of U.S. dollars)
Note | June 30, 2022 | December 31, 2021 | ||||||||
ASSETS | ||||||||||
CURRENT ASSETS: | ||||||||||
Cash | $ | 45,982 | $ | 125,595 | ||||||
Trade receivables | 644 | 1,038 | ||||||||
Other assets | 4 | 5,007 | 6,427 | |||||||
Taxes receivable | 9,757 | — | ||||||||
Digital assets | 5 | 10,801 | 66,031 | |||||||
Digital assets - pledged as collateral | 5, 10 | 51,403 | 86,825 | |||||||
Assets held for sale | 6b | 1,081 | 1,211 | |||||||
TOTAL CURRENT ASSETS | 124,675 | 287,127 | ||||||||
NON-CURRENT ASSETS: | ||||||||||
Property, plant and equipment | 6, 19b | 228,866 | 136,850 | |||||||
Right-of-use assets | 12 | 14,928 | 9,397 | |||||||
Long-term deposits, equipment prepayments and other | 8 | 103,868 | 86,681 | |||||||
Intangible assets | 7 | 798 | 1,681 | |||||||
Goodwill | 3 | — | 16,955 | |||||||
Deferred tax asset | 13a | — | 3,896 | |||||||
TOTAL NON-CURRENT ASSETS | 348,460 | 255,460 | ||||||||
TOTAL ASSETS | $ | 473,135 | $ | 542,587 | ||||||
LIABILITIES AND EQUITY | ||||||||||
CURRENT LIABILITIES: | ||||||||||
Trade payables and accrued liabilities | 9 | $ | 12,722 | $ | 14,480 | |||||
Current portion of long-term debt | 11 | 41,126 | 10,257 | |||||||
Current portion of lease liabilities | 12 | 3,790 | 4,346 | |||||||
Credit facility | 10 | 38,780 | 60,002 | |||||||
Taxes payable | — | 12,093 | ||||||||
TOTAL CURRENT LIABILITIES | 96,418 | 101,178 | ||||||||
NON-CURRENT LIABILITIES: | ||||||||||
Long-term debt | 11 | 26,108 | 910 | |||||||
Lease liabilities | 12 | 13,831 | 9,227 | |||||||
Asset retirement provision | 14 | 1,593 | 239 | |||||||
Deferred tax liability | 13a | — | 8,451 | |||||||
TOTAL NON-CURRENT LIABILITIES | 41,532 | 18,827 | ||||||||
TOTAL LIABILITIES | 137,950 | 120,005 | ||||||||
EQUITY: | ||||||||||
Share capital | 414,853 | 378,893 | ||||||||
Contributed surplus | 57,746 | 43,704 | ||||||||
Accumulated deficit | (137,414 | ) | (15 | ) | ||||||
TOTAL EQUITY | 335,185 | 422,582 | ||||||||
TOTAL LIABILITIES & EQUITY | $ | 473,135 | $ | 542,587 |
The interim condensed consolidated financial statements should be read in conjunction with the accompanying notes.
2 |
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND COMPREHENSIVE PROFIT OR LOSS |
(In thousands of U.S. dollars, except earnings per share data)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
Revenues | 5, 19a | $ | 41,815 | $ | 36,687 | $ | 82,144 | $ | 65,119 | |||||||||
Cost of sales | 18a | 32,311 | 13,332 | 55,603 | 22,452 | |||||||||||||
Gross profit | 9,504 | 23,355 | 26,541 | 42,667 | ||||||||||||||
General and administrative expenses | 18b | 15,392 | 10,607 | 29,235 | 13,426 | |||||||||||||
Realized loss (gain) on disposition of digital assets | 5 | 77,880 | (47 | ) | 77,914 | (25 | ) | |||||||||||
Unrealized loss on revaluation of digital assets | 5 | 70,475 | 14,885 | 66,773 | 14,885 | |||||||||||||
Loss (gain) on disposition of property, plant and equipment | 948 | (146 | ) | 936 | (165 | ) | ||||||||||||
Impairment on goodwill | 3 | 17,900 | — | 17,900 | — | |||||||||||||
Operating income (loss) | (173,091 | ) | (1,944 | ) | (166,217 | ) | 14,546 | |||||||||||
Net financial expenses (income) | 18c | (11,857 | ) | 1,127 | (15,940 | ) | 24,552 | |||||||||||
Net loss before income taxes | (161,234 | ) | (3,071 | ) | (150,277 | ) | (10,006 | ) | ||||||||||
Income tax expense (recovery) | 13b | (19,316 | ) | 604 | (12,878 | ) | 1,274 | |||||||||||
Net loss | $ | (141,918 | ) | $ | (3,675 | ) | $ | (137,399 | ) | $ | (11,280 | ) | ||||||
Other comprehensive loss | ||||||||||||||||||
Items that may be reclassified to profit or loss: | ||||||||||||||||||
Revaluation loss on digital assets, net of tax | — | (5,128 | ) | — | — | |||||||||||||
Total comprehensive loss, net of tax | $ | (141,918 | ) | $ | (8,803 | ) | $ | (137,399 | ) | $ | (11,280 | ) | ||||||
Net loss per share (in U.S. dollars) | 18d | |||||||||||||||||
Basic and diluted net loss per share | $ | (0.70 | ) | $ | (0.02 | ) | $ | (0.69 | ) | $ | (0.08 | ) | ||||||
Basic and diluted weighted average number of shares | 203,503,237 | 151,954,612 | 200,514,687 | 138,033,267 |
The interim condensed consolidated financial statements should be read in conjunction with the accompanying notes.
3 |
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
(In thousands of U.S. dollars, except for quantity of shares)
Quantity of shares | Share capital | Contributed surplus | Accumulated deficit | Total equity | ||||||||||||||||
Balance as of January 1, 2022 | 194,805,893 | $ | 378,893 | $ | 43,704 | $ | (15 | ) | $ | 422,582 | ||||||||||
Net loss | — | — | — | (137,399 | ) | (137,399 | ) | |||||||||||||
Share-based payment (Note 17) | — | — | 14,032 | — | 14,032 | |||||||||||||||
Issuance of common shares and warrants (Note 15) | 11,478,427 | 35,925 | 22 | — | 35,947 | |||||||||||||||
Exercise of stock options (Note 17) | 55,000 | 35 | (12 | ) | — | 23 | ||||||||||||||
Balance as of June 30, 2022 | 206,339,320 | $ | 414,853 | $ | 57,746 | $ | (137,414 | ) | $ | 335,185 | ||||||||||
Balance as of January 1, 2021 | 88,939,359 | $ | 32,004 | $ | 5,588 | $ | (22,145 | ) | $ | 15,447 | ||||||||||
Net loss | — | — | — | (11,280 | ) | (11,280 | ) | |||||||||||||
Share-based payment | — | — | 6,762 | — | 6,762 | |||||||||||||||
Issuance of common shares and warrants | 40,188,892 | 84,898 | 26,781 | — | 111,679 | |||||||||||||||
Conversion of long-term debt | 8,474,577 | 5,110 | (110 | ) | — | 5,000 | ||||||||||||||
Exercise of warrants and stock options | 24,480,524 | 80,713 | (7,393 | ) | — | 73,320 | ||||||||||||||
Balance as of June 30, 2021 | 162,083,352 | $ | 202,725 | $ | 31,628 | $ | (33,425 | ) | $ | 200,928 |
The interim condensed consolidated financial statements should be read in conjunction with the accompanying notes.
4 |
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In thousands of U.S. dollars)
Six months ended June 30, | ||||||||||
Note | 2022 | 2021 | ||||||||
Cash flows from (used in) operating activities: | ||||||||||
Net loss | $ | (137,399 | ) | $ | (11,280 | ) | ||||
Adjustments for: | ||||||||||
Depreciation and amortization | 18a | 30,923 | 7,928 | |||||||
Impairment on goodwill | 3 | 17,900 | — | |||||||
Net financial expenses (income) | 18c | (15,940 | ) | 24,552 | ||||||
Digital assets mined | 5 | (80,773 | ) | (62,542 | ) | |||||
Proceeds from sale of digital assets mined | 5 | 58,459 | 2,353 | |||||||
Realized loss (gain) on disposition of digital assets | 5 | 77,914 | (25 | ) | ||||||
Unrealized loss on revaluation of digital assets | 5 | 66,773 | 14,885 | |||||||
Share-based payment | 17 | 14,032 | 6,762 | |||||||
Interest and financial expenses paid | (8,982 | ) | (1,547 | ) | ||||||
Deferred taxes | 13b | (4,545 | ) | (514 | ) | |||||
Gain on disposition of marketable securities | 18c | 30,642 | — | |||||||
Loss (gain) on disposition of property, plant and equipment | 936 | (165 | ) | |||||||
Current taxes | 13b | (8,333 | ) | 1,790 | ||||||
Income taxes paid | (13,170 | ) | — | |||||||
Changes in non-cash working capital components | 20 | (9,540 | ) | 507 | ||||||
Net change in cash related to operating activities | 18,897 | (17,296 | ) | |||||||
Cash flows used in investing activities: | ||||||||||
Purchase of property, plant and equipment | (101,895 | ) | (28,806 | ) | ||||||
Proceeds from sale of property, plant and equipment | 754 | 44 | ||||||||
Purchase of marketable securities | 18c | (36,425 | ) | — | ||||||
Proceeds from disposition of marketable securities | 18c | 67,067 | — | |||||||
Purchase of digital assets | 5 | (43,237 | ) | — | ||||||
Proceeds from sale of digital assets purchased | 5 | 11,516 | — | |||||||
Equipment and construction prepayments and other | 8 | (64,172 | ) | (73,373 | ) | |||||
Net change in cash related to investing activities | (166,392 | ) | (102,135 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Issuance of common shares and warrants | 15 | 35,912 | 114,488 | |||||||
Exercise of warrants and stock options | 15, 17 | 23 | 43,545 | |||||||
Repayment of credit facility | 10 | (61,846 | ) | — | ||||||
Repayment of lease liabilities | 12 | (2,244 | ) | (2,427 | ) | |||||
Repayment of long-term debt | (11,103 | ) | (15,191 | ) | ||||||
Proceeds from long-term debt | 11 | 67,168 | 9,277 | |||||||
Proceeds from credit facility | 10 | 40,000 | — | |||||||
Net change in cash related to financing activities | 67,910 | 149,692 | ||||||||
Exchange rate differences on currency translation | (28 | ) | 8 | |||||||
Net change in cash | (79,613 | ) | 30,269 | |||||||
Cash at the beginning of the period | 125,595 | 5,947 | ||||||||
Cash at the end of the period | $ | 45,982 | $ | 36,216 |
The interim condensed consolidated financial statements should be read in conjunction with the accompanying notes.
5 |
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 1: REPORTING ENTITY AND LIQUIDITY
a. | Bitfarms was incorporated under the Canada Business Corporation Act on October 11, 2018 and continued under the Ontario Corporations Business Act on August 27, 2021. The interim condensed consolidated financial statements of the corporation comprise the accounts of Bitfarms Ltd. and its wholly owned subsidiaries (together referred to as the “Company” or “Bitfarms”). The activities of the Company mainly consist of cryptocurrency mining and are divided into multiple jurisdictions described in Note 19 “Geographical Information”. The Company’s operations are predominantly in Canada and the United States, with new operations having commenced in Paraguay in 2022 and construction of a new facility having commenced in Argentina in 2021. 9159-9290 Quebec Inc. (“Volta”), a wholly owned subsidiary, assists the Company in building and maintaining its server farms and provides electrician services to both commercial and residential customers in Quebec. |
The common shares of the Company are listed under the trading symbol BITF on the Nasdaq and TSX exchanges.
b. | Bitfarms is primarily engaged in the cryptocurrency mining industry, a highly volatile market with significant inherent risk. Further declines in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, delays in the delivery of mining equipment, changes in the regulatory environment and adverse changes in other inherent risks can significantly and negatively impact the Company’s operations and cash flows, and its ability to maintain sufficient liquidity to meet its commitments and minimum collateral requirements for its revolving credit facility, as described in Note 8 and Note 10, respectively. In addition, adverse changes to the factors mentioned above may impact the recoverability of the Company’s digital assets and property, plant and equipment, resulting in impairment charges being recorded. |
The Company’s current operating budget and future estimated cash flows for the twelve-month period, based on current BTC prices, indicate that it will generate positive cash flow from operations in excess of required interest and principal payments due on its long-term debt and credit facility. Subsequent to the end of the quarter, the Company negotiated postponement of delivery and payment, without penalty, of certain Blockchain Verification and Validation Equipment (“BVVE”) to 2023 so as to avoid under-deployment of miners and to better align the receipt of miners with the availability of completed infrastructure to utilize the miners.
At current Bitcoin (“BTC”) prices, the Company’s existing cash resources and the proceeds from any sale of its treasury and mined BTC will not be sufficient to fund its capital investments to support its growth objectives. The Company would be required to raise additional funds from external sources to meet these requirements if the BTC price does not increase. There is no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all.
If the Company raises additional funds by issuing securities, existing shareholders may be diluted. If the Company were unable to obtain such financing, or if funds from operations and proceeds from any sale of the Company’s BTC holdings continue to be negatively impacted by the BTC price, the Company will have difficulty meeting its payment obligations which could result in the loss of equipment prepayments and deposits paid by the Company under its purchase agreements and be subject to remedial legal measures taken against the Company. Such measures could include damages and forced continuance of the contractual arrangements. Under these circumstances, the Company’s growth plans and ongoing operations could be adversely impacted.
6 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 1: REPORTING ENTITY AND LIQUIDITY (Continued)
c. | In March 2020, the World Health Organization declared COVID-19 a pandemic. The potential impacts that COVID-19 may have on the Company in the future include increases in cryptocurrency price volatility and delays in receiving future orders of mining hardware and construction materials required to achieve the Company’s growth objectives. The Company has been, and is expected to continue to be, operating throughout the pandemic. No significant impact of COVID-19 has been observed on the Company’s existing operations for the six months ended June 30, 2022. However, the Company has observed longer than usual lead times and greater price fluctuations than usual in procuring mining equipment and construction materials required for the Company’s growth objectives. It is not possible to reliably estimate the length and severity of these developments as well as their impact on the financial results and position of the Company and its operating subsidiaries in future periods. |
d. | In these financial statements, the following terms shall have the following definitions: |
1 | Backbone | Backbone Hosting Solutions Inc. |
2 | Volta | 9159-9290 Quebec Inc. |
3 | Backbone Argentina | Backbone Hosting Solutions SAU |
4 | Backbone Paraguay | Backbone Hosting Solutions Paraguay SA |
5 | Backbone Mining | Backbone Mining Solutions LLC |
6 | CAD | Canadian Dollars |
7 | ARS | Argentine Pesos |
7 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 2: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
a. | These interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34, Interim Financial Reporting. |
These interim condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the audited annual consolidated financial statements of the Company and the notes thereto for the year ended December 31, 2021. These interim condensed consolidated financial statements were approved by the Board of Directors on August 12, 2022.
b. | The interim condensed consolidated financial statements have been prepared following the same accounting policies used in the audited annual consolidated financial statements for the year ended December 31, 2021. |
The accounting policies have been applied consistently by the Company’s entities and to all periods presented in these interim condensed consolidated financial statements, unless otherwise indicated.
NOTE 3: BUSINESS COMBINATION
On November 9, 2021, the Company acquired a cryptocurrency mining facility in Washington state through its wholly owned subsidiary, Backbone Mining Solutions LLC, comprising land, buildings, 17 megawatts of electrical infrastructure, power purchase agreements totaling 12 megawatts and in process power purchase agreement applications totaling 12 megawatts with a local hydro-electric utility producer. The consideration transferred was $26,676, including $23,000 of cash consideration and 414,508 Common shares with a value of $3,676 on the closing date. The seller entered into a consulting agreement with the Company in the amount of $2,000 for services relating to the operation of the facility. The Company also entered into a one-year lease agreement with the seller for a 5 megawatt cryptocurrency mining facility with monthly payments of $110.
The primary reason for the acquisition was to expand the Company’s energy portfolio with existing infrastructure to accommodate the Company’s expected delivery schedule of mining equipment.
8 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 3: BUSINESS COMBINATION (Continued)
The following are the fair values of the identifiable assets of the date of the acquisition:
November 9, | ||||
2021 | ||||
Consideration transferred | ||||
Cash paid at closing | $ | 23,000 | ||
Value of 414,508 common shares transferred at closing | 3,676 | |||
Fair value of total consideration transferred | $ | 26,676 | ||
Recognized amounts of identifiable assets acquired | ||||
Electrical components | $ | 5,954 | ||
Buildings | 748 | |||
Land | 74 | |||
Intangible assets - favorable lease | 2,000 | |||
Total identifiable assets acquired | $ | 8,776 | ||
Goodwill | $ | 17,900 |
Goodwill consists mainly of the benefit the Company expects to receive from acquiring a turnkey facility with active power purchase agreements compared to the timeline and process the Company would undertake to procure new power purchase agreements, the materials and equipment required to build a facility and complete the construction process in order to increase the Company’s share of the BTC network hashrate. The entire amount of goodwill is expected to be deductible for tax purposes.
The total assets recognized in the consolidated financial statements for the year ended December 31, 2021 were based on a provisional assessment of their fair value while the Company completed their valuation with the assistance of independent valuators for the electrical components acquired. The valuation had not been finalized by the date at which the consolidated financial statements for the year ended December 31, 2021 were approved for issuance by the Board of Directors.
In May 2022, the valuation was finalized, resulting in measurement period adjustments. The acquisition date fair value of the electrical components was $5,954, a decrease of $1,127 compared to the provisional value. In addition, the fair value at the acquisition date of buildings decreased by $7, land decreased by $11 and intangible assets (favourable lease) increased by $200. The cumulative impact of these measurement period adjustments was recognized in the interim financial statement as at and for the three months ended March 31, 2022. The impact on the prior period was considered insignificant. As a result, there was a corresponding increase in goodwill of $945, resulting in $17,900 of total goodwill arising from the acquisition.
The Company generated $7,690 and $17,069 of revenues mainly from using the S19j pros installed at the Washington state facility, from November 9, 2021 to December 31, 2021. Prior to the acquisition, the Company incurred hosting fees of $3,907 during the year ended December 31, 2021.
9 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 3: BUSINESS COMBINATION (Continued)
Impairment of goodwill
As at June 30, 2022, as a result of the decline in the BTC price during the quarter, the Company performed an evaluation of the recoverable amount of the property, plant and equipment and intangible assets for the Washington state cryptocurrency mining facility. As these groups of assets do not generate cash inflows that are independent of each other, the recoverable amount was calculated for the cash-generating unit (“CGU”) comprised of the assets of BVVE and electrical equipment, long-term electricity deposits, land, building and favourable lease used in the cryptocurrency mining facility in Washington state.
Based on its calculation, the Company recorded an impairment loss on its Washington state cryptocurrency mining CGU resulting in an impairment charge to goodwill of $17,900. The impairment loss was recognized in profit or loss under Impairment on goodwill. The value in use of the CGU was determined based on the present value of the expected cash flows over a four-year period discounted at an annual pre-tax rate of 24.75% in varying scenarios.
The key assumptions used in the value in use calculation are as follows:
Revenues – Two optimistic and two pessimistic scenarios and one status quo scenario, each with estimated future BTC price and network difficulty, were used to project revenues and associated cash flows from cryptocurrency mining. Management assigned probabilities to each scenario to calculate weighted average expected outcomes. The weighted average daily revenue per Terahash used in the value in use calculation was $0.12/Terahash.
Discount rate – The discount rate reflects management’s assumptions regarding the unit’s specific risk. The pre-tax discount rate used was estimated at 24.75%, with some of the risk already being implicitly reflected through management’s allocation of probabilities to the various scenarios included in the revenue calculation.
Energy prices – Management estimates that energy prices for the duration of the forecasted years will be approximately $0.027 per kilowatt hour.
Terminal value – Management estimated the terminal value of the miners included in the CGU for the purposes of the impairment testing to be the daily revenue per Terahash in effect at the end of the value in use calculation multiplied by the ending hashrate for a period of approximately 6 months.
Changes in BTC price and BTC network difficulty that can lead to changes in expected revenues were considered in the various scenarios listed above. A decrease of 1% in revenues and an increase of one percentage point in the discount rate would result in impairment on the other assets of the CGU by $394 and $1,040, respectively. A sensitivity analysis was not performed for a change in energy prices as they are considered to be stable.
10 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 4: OTHER ASSETS
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Electrical component inventory | $ | 607 | $ | 548 | ||||
Sales taxes receivable | 1,153 | 1,980 | ||||||
Prepaid expenses and other | 3,068 | 3,202 | ||||||
Insurance refund and other receivables | 179 | 697 | ||||||
$ | 5,007 | $ | 6,427 |
NOTE 5: DIGITAL ASSETS
BTC transactions and the corresponding values for the three and six months ended June 30, 2022, and 2021 were as follows:
Three months ended June 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Quantity | Value | Quantity | Value | |||||||||||||
Balance of digital assets including digital assets pledged as collateral as of April 1, | 5,244 | $ | 238,792 | 548 | $ | 32,428 | ||||||||||
BTC mined* | 1,257 | 41,048 | 759 | 35,352 | ||||||||||||
BTC exchanged for cash and services | (3,357 | ) | (69,281 | ) | (14 | ) | (636 | ) | ||||||||
Realized gain (loss) on disposition of digital assets | — | (77,880 | ) | — | 47 | |||||||||||
Unrealized loss on revaluation of digital assets | — | (70,475 | ) | (21,862 | ) | |||||||||||
Balance of digital assets as of June 30, | 3,144 | 62,204 | 1,293 | 45,329 | ||||||||||||
Less digital assets pledged as collateral as of June 30,** | (2,598 | ) | (51,403 | ) | — | — | ||||||||||
Balance of digital assets excluding digital assets pledged as collateral as of June 30, | 546 | $ | 10,801 | 1,293 | $ | 45,329 |
11 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 5: DIGITAL ASSETS (Continued)
Six months ended June 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Quantity | Value | Quantity | Value | |||||||||||||
Balance of digital assets including digital assets pledged as collateral as of January 1, | 3,301 | $ | 152,856 | — | $ | — | ||||||||||
BTC mined* | 2,218 | 80,773 | 1,357 | 62,542 | ||||||||||||
BTC purchased | 1,000 | 43,237 | — | — | ||||||||||||
BTC exchanged for cash and services | (3,375 | ) | (69,975 | ) | (17 | ) | (807 | ) | ||||||||
BTC exchanged for long-term debt repayment | — | — | (47 | ) | (1,546 | ) | ||||||||||
Realized gain (loss) on disposition of digital assets | — | (77,914 | ) | — | 25 | |||||||||||
Unrealized loss on revaluation of digital assets | — | (66,773 | ) | — | (14,885 | ) | ||||||||||
Balance of digital assets as of June 30, | 3,144 | 62,204 | 1,293 | 45,329 | ||||||||||||
Less digital assets pledged as collateral as of June 30,** | (2,598 | ) | (51,403 | ) | — | — | ||||||||||
Balance of digital assets excluding digital assets pledged as collateral as of June 30, | 546 | $ | 10,801 | 1,293 | $ | 45,329 |
* | Management estimates the fair value of BTC mined on a daily basis as the quantity of cryptocurrency received multiplied by the price quoted on www.coinmarketcap.com (“Coinmarketcap”) on the day it was received. Management considers the prices quoted on Coinmarketcap to be a level 2 input under IFRS 13 Fair Value Measurement. |
** | See Note 10 for details of the Company’s credit facility and BTC pledged as collateral. |
12 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
a. | As at June 30, 2022, and December 31, 2021, property, plant and equipment consisted of the following: |
BVVE and electrical components | Mineral assets | Land and buildings | Leasehold improvements | Vehicles | Total | |||||||||||||||||||
Cost: | ||||||||||||||||||||||||
Balance as of January 1, 2022 | $ | 156,647 | $ | 9,000 | $ | 4,549 | $ | 5,783 | $ | 547 | $ | 176,526 | ||||||||||||
Measurement period adjustment to business combination (Note 3) | (1,127 | ) | — | (18 | ) | — | — | (1,145 | ) | |||||||||||||||
Additions during the period | 107,809 | — | 2,234 | 12,845 | 283 | 123,171 | ||||||||||||||||||
Dispositions during the period | (1,707 | ) | — | — | — | — | (1,707 | ) | ||||||||||||||||
Transfer to assets held for sale | (2,962 | ) | — | — | — | — | (2,962 | ) | ||||||||||||||||
Balance as of June 30, 2022 | 258,660 | 9,000 | 6,765 | 18,628 | 830 | 293,883 | ||||||||||||||||||
Balance as of January 1, 2021 | 52,676 | 9,000 | 3,263 | 2,707 | 448 | 68,094 | ||||||||||||||||||
Additions through business combination (Note 3) | 7,081 | — | 840 | — | — | 7,921 | ||||||||||||||||||
Additions during the period | 114,323 | — | 470 | 3,265 | 136 | 118,194 | ||||||||||||||||||
Dispositions during the period | (6,146 | ) | — | (24 | ) | (189 | ) | (37 | ) | (6,396 | ) | |||||||||||||
Transfer to assets held for sale | (11,287 | ) | — | — | — | — | (11,287 | ) | ||||||||||||||||
Balance as of December 31, 2021 | 156,647 | 9,000 | 4,549 | 5,783 | 547 | 176,526 | ||||||||||||||||||
Accumulated Depreciation: | ||||||||||||||||||||||||
Balance as of January 1, 2022 | 35,766 | 1,800 | 286 | 1,560 | 264 | 39,676 | ||||||||||||||||||
Depreciation | 28,109 | — | 90 | 716 | 42 | 28,957 | ||||||||||||||||||
Dispositions during the period | (1,285 | ) | — | — | — | — | (1,285 | ) | ||||||||||||||||
Transfer to assets held for sale | (2,331 | ) | — | — | — | — | (2,331 | ) | ||||||||||||||||
Balance as of June 30, 2022 | 60,259 | 1,800 | 376 | 2,276 | 306 | 65,017 | ||||||||||||||||||
Balance as of January 1, 2021 | 30,042 | — | 185 | 1,861 | 213 | 32,301 | ||||||||||||||||||
Depreciation | 22,233 | — | 104 | 396 | 79 | 22,812 | ||||||||||||||||||
Dispositions during the period | (5,172 | ) | — | (3 | ) | (148 | ) | (28 | ) | (5,351 | ) | |||||||||||||
Transfer to assets held for sale | (10,026 | ) | — | — | — | — | (10,026 | ) | ||||||||||||||||
Impairment | — | 1,800 | — | — | — | 1,800 | ||||||||||||||||||
Impairment reversal | (1,311 | ) | — | — | (549 | ) | — | (1,860 | ) | |||||||||||||||
Balance as of December 31, 2021 | 35,766 | 1,800 | 286 | 1,560 | 264 | 39,676 | ||||||||||||||||||
Net book value as of | ||||||||||||||||||||||||
June 30, 2022 | $ | 198,401 | $ | 7,200 | $ | 6,389 | $ | 16,352 | $ | 524 | $ | 228,866 | ||||||||||||
December 31, 2021 | $ | 120,881 | $ | 7,200 | $ | 4,263 | $ | 4,223 | $ | 283 | $ | 136,850 |
13 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT (Continued)
b. | Assets held for sale |
During the year ended December 31, 2021, the Company ceased using its Antminer S9 miners and has plans to dispose of them within the next 12 months. During the three and six months ended June 30, 2022, 3,982 Antimer S9 miners with a carrying amount of $779 were disposed for net proceeds of $101 resulting in a loss of $678. Management determined that the Antminer S9 miners continue to meet the criteria to be classified as held for sale as at June 30, 2022.
During the three and six months ended June 30, 2022, the Company ceased using Innosilicon T2T miners, Canaan Avalon A10 miners, Antminer T15 miners and Antminer S15 miners with plans to dispose of them within the next 12 months. Management has determined that these miners meet the criteria to be classified as held for sale and determined that the carrying amount was less than their estimated fair value less costs to sell.
In addition, the Company had an agreement to sell 600 Whatsminer M20s miners. As of June 30 2022, the Company received proceeds in advance for 492 of the 600 Whatsminer M20s miners. The proceeds received of $468 were recorded as deferred revenue included in trade payables and accrued liabilities as the miners were not shipped before June 30, 2022.
c. | Impairment testing |
As at June 30, 2022, as a result of the decline in the BTC price during the quarter, the Company performed an evaluation of the recoverable amount of the property, plant and equipment for the cryptocurrency mining facilities in Quebec. As these groups of assets do not generate cash inflows that are independent of each other, the recoverable amount was calculated for the CGU comprised of the property, plant and equipment, right-of-use assets and long-term electricity deposits used in the cryptocurrency mining facilities in Quebec.
Based on its calculation, the Company determined that no impairment charge should be recorded on its Quebec cryptocurrency mining CGU. The value in use of the CGU was determined based on the present value of the expected cash flows over a five-year period discounted at an annual pre-tax rate of 23.75% in varying scenarios.
The key assumptions used in the value in use calculation are as follows:
Revenues – Two optimistic and two pessimistic scenarios and one status quo scenario, each with estimated future BTC price and network difficulty, were used to project revenues and associated cash flows from cryptocurrency mining. Management assigned probabilities to each scenario to calculate weighted average expected outcomes. The weighted average daily revenue per Terahash used in the value in use calculation was $0.12/Terahash.
Discount rate – The discount rate reflects management’s assumptions regarding the unit’s specific risk. The discount pre-tax rate used was estimated at 23.75%, with some of the risk already being implicitly reflected through management’s allocation of probabilities to the various scenarios included in the revenue calculation.
Energy prices – Management estimates that energy prices for the duration of the forecasted years will be approximately $0.048 per kilowatt hour.
14 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT (Continued)
Terminal value – Management estimated the terminal value of the miners included in the CGU for the purposes of the impairment testing to be the daily revenue per Terahash in effect at the end of the value in use calculation multiplied by the ending hashrate for a period of approximately 6 months.
Management conducted a sensitivity analysis and determined that a reasonable fluctuation in any of the key assumptions would not result in an impairment charge.
d. | Further details of the quantity and models of BVVE held by the Company are as follows : |
MicroBT Whatsminer (BTC)* | Bitmain S19j Pro | Innosilicon T3 & T2T (BTC)** | Canaan Avalon A10 (BTC) | Other Bitmain Antminers (BTC)*** | Total | |||||||||||||||||||
Quantity as of January 1, 2022 | 18,675 | 7,172 | 6,446 | 1,024 | 8,073 | 41,390 | ||||||||||||||||||
Additions during the period | 20,225 | — | — | — | — | 20,225 | ||||||||||||||||||
Dispositions during the period | — | — | — | (880 | ) | (5,376 | ) | (6,256 | ) | |||||||||||||||
Quantity as of June 30, 2022 | 38,900 | 7,172 | 6,446 | 144 | 2,697 | 55,359 |
* | Includes 4,311 M20S (of which 600 M20S were classified as assets held for sale as described in Note 6b), 21,936 M30S, 6,391 M31S and 6,262 M31S+ miners. |
** | Includes 5,082 T3 and 1,364 T2T miners that were classified as assets held for sale as described in Note 6b. |
*** | Includes 442 Antminer T15 and 101 Antminer S15, and 2,154 Antminer S9 miners that were classified as assets held for sale as described in Note 6b. |
Included in the BVVE and electrical equipment listed above are right-of-use assets consisting of 3,000 Whatsminer M31S+ with a net book value of approximately $4,346 as described in Note 12.
15 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 7: INTANGIBLE ASSETS
Systems software | Favourable lease | Total | ||||||||||
Cost: | ||||||||||||
Balance as of January 1, 2022 | $ | 5,150 | $ | 1,800 | $ | 6,950 | ||||||
Measurement period adjustment to business combination (Note 3) | — | 200 | 200 | |||||||||
Balance as of June 30, 2022 | 5,150 | 2,000 | 7,150 | |||||||||
Balance as of January 1, 2021 | 5,150 | — | 5,150 | |||||||||
Additions through business combination (Note 3) | — | 1,800 | 1,800 | |||||||||
Balance as of December 31, 2021 | 5,150 | 1,800 | 6,950 | |||||||||
Accumulated amortization and impairment : | ||||||||||||
Balance as of January 1, 2022 | 5,008 | 261 | 5,269 | |||||||||
Amortization | 67 | 1,016 | 1,083 | |||||||||
Balance as of June 30, 2022 | 5,075 | 1,277 | 6,352 | |||||||||
Balance as of January 1, 2021 | 4,773 | — | 4,773 | |||||||||
Amortization | 235 | 261 | 496 | |||||||||
Balance as of December 31, 2021 | 5,008 | 261 | 5,269 | |||||||||
Net book value as of | ||||||||||||
June 30, 2022 | $ | 75 | $ | 723 | $ | 798 | ||||||
December 31, 2021 | $ | 142 | $ | 1,539 | $ | 1,681 |
NOTE 8: LONG-TERM DEPOSITS, EQUIPMENT PREPAYMENTS, OTHER AND COMMITMENTS
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
VAT receivable* | $ | 2,705 | $ | 2,067 | ||||
Security deposits for energy, insurance and rent | 3,165 | 1,555 | ||||||
Equipment and construction prepayments** | 97,998 | 83,059 | ||||||
$ | 103,868 | $ | 86,681 |
* | See Note 18c for more details about the provision applied to the Argentine value-added tax (VAT) receivable. |
** | The Company has deposits on BVVE and electrical components in the amount of $75,284, mainly for outstanding orders placed consisting of 48,000 Whatsminer miners with expected delivery in 2022 and the first nine months of 2023. In addition, the Company has deposits for construction work and materials in the amount of $22,714, mainly for the Argentina expansion. The Company is exposed to counterparty risk through the significant deposits it places with suppliers of mining hardware to secure orders and delivery dates as well as deposits it places with construction companies and suppliers of electrical components and construction materials. The risk of a supplier failing to meet its contractual obligations may result in late deliveries or long-term deposits and equipment and construction prepayments that are not realized. The Company attempts to mitigate this risk by procuring mining hardware from larger, more established suppliers and with whom the Company has existing relationships and knowledge of their reputation in the market as well as insuring deposits placed for construction work and materials. |
16 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 8: LONG-TERM DEPOSITS, EQUIPMENT PREPAYMENTS, OTHER AND COMMITMENTS (Continued)
The Company’s remaining payment obligations in connection with the 48,000 unit purchase agreement and an additional purchase agreement for 1,200 Antminer miners are outlined below:
June 30, | ||||
2022 | ||||
Three months ending September 30, 2022 | $ | 18,590 | ||
Three months ending March 31, 2023 | 13,447 | |||
Three months ending June 30, 2023 | 13,313 | |||
Three months ending September 30, 2023 | 12,128 | |||
$ | 57,478 |
The Company may require additional sources of financing to meet the payment obligations included in the table above, as described in Note 1.
NOTE 9: TRADE PAYABLES AND ACCRUED LIABILITIES
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Trade accounts payable and accrued liabilities | $ | 6,639 | $ | 9,873 | ||||
Government remittances | 6,083 | 4,607 | ||||||
$ | 12,722 | $ | 14,480 |
17 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 10: CREDIT FACILITY
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Revolving credit facility | $ | 38,154 | $ | 60,000 | ||||
Interest payable on revolving credit facility | 626 | 2 | ||||||
$ | 38,780 | $ | 60,002 |
On December 30, 2021, the Company entered into a secured revolving credit facility up to $100,000 (the “Credit Facility” or the “Facility”) for a term of 6 months with Galaxy Digital LLC (the “Facility Lender”). The Credit Facility bears interest at a rate of 10.75% per annum with a commitment fee of 0.75% per annum charged on the unused portion of the $100,000 Facility.
During the three months ended March 31, 2022, the Company drew an additional $40,000 on the Credit Facility, bringing the total amount drawn to $100,000 as of March 31, 2022. During the three months ended June 30, 2022, the Company repaid $61,846 of the Credit Facility, bringing the total amount drawn to $38,154 as of June 30, 2022.
On June 30, 2022, the Company amended its Credit Facility and extended its maturity date to October 1, 2022. Under the new terms, the maximum limit of the amended Facility is $40,000, bears interest at 11.25% per annum and has a commitment fee of 0.25% per annum charged on the unused portion of the Facility. The amended Facility also includes a provision which allows the Company to repay up to $15,000 of the Facility prior to July 30, 2022, without incurring any prepayment penalty.
The Facility is secured by BTC, with the minimum value of BTC pledged as collateral calculated as 143% of the amount borrowed. The Company is required to contribute additional collateral to the Facility Lender any time the value of the BTC pledged as collateral is below 133% of the amount borrowed. The Company also has the right to require the Facility Lender to return any BTC when the value of the BTC pledged as collateral exceeds 143% of the amount borrowed. A substantial decrease in BTC price may result in the Company being unable to meet the minimum BTC collateral requirements, which could result in the disposition of the Company’s BTC pledged as collateral by the Facility Lender, or repayment of the Facility in fiat currency on demand. The Company is exposed to counterparty risk as it is reliant on the Facility Lender to return the BTC collateral upon extinguishment of the Credit Facility. The Facility Lender cannot rehypothecate the BTC collateral except during an event of default.
The Credit Facility contains an affirmative covenant where the ending balance of the Company’s net asset value, defined as the total value of all assets minus any liabilities divided by the number of outstanding shares in any calendar month, cannot decline by:
a. | 25% or more compared to the previous month; |
b. | 50% or more compared to three months ago; or |
c. | 50% or more compared to any calendar month in the immediately preceding calendar year. |
As of July 31, 2022, the most recently completed calendar month, the Company was in compliance with all of the covenants described above.
The Company pledged 2,598 BTC as collateral with a fair market value of $51,403 as of June 30, 2022. The pledged BTC is held in a segregated Coinbase Custody account owned by the Facility Lender.
18 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 11: LONG-TERM DEBT
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Equipment financing | 67,112 | 11,039 | ||||||
Volta note payable | 122 | 128 | ||||||
Total long-term debt | 67,234 | 11,167 | ||||||
Less current portion of long-term debt | (41,126 | ) | (10,257 | ) | ||||
Non-current portion of long-term debt | $ | 26,108 | $ | 910 |
Equipment financing
In February 2022, the Company entered into an equipment financing agreement for gross proceeds of $32,000 collateralized by 6,100 Bitmain S19j Pro miners referred to as the “Blockfi Loan”. The net proceeds received by the Company were $30,994 after capitalizing origination, closing and other transaction fees of $1,006.
In June 2022, the Company entered into an equipment financing agreement for gross proceeds of $36,860 collateralized by 10,395 MicroBT Whatsminer M30S miners referred to as the “NYDIG Loan”. The net proceeds received by the Company were $36,123 net of origination and closing fees of $737. As part of the agreement, the Company must maintain in an identified wallet an approximate quantity of BTC whose value equates to one month of interest and principal payments on the outstanding loan.
Details of the equipment financing and the balance of the loans and the net book value (“NBV”) of their related collateral, as of June 30, 2022, are as follows:
Maturity date | Stated rate | Effective rate* | Monthly repayment | Long-term debt balance | NBV of Collateral | Collateral** | ||||||||||||||||||||
Blockfills loan #1 | August 2022 | 22.2 | % | 22.2 | % | $ | 92 | $ | 145 | $ | 788 | 1,000 | ||||||||||||||
Blockfills loan #2 | September 2022 | 17.8 | % | 17.8 | % | 134 | 331 | 1,359 | 2,000 | |||||||||||||||||
Blockfills loan #3 | October 2022 | 18.6 | % | 18.6 | % | 67 | 210 | 777 | 1,000 | |||||||||||||||||
Foundry loan #1 | September 2022 | 16.5 | % | 18.6 | % | 530 | 1,547 | 6,345 | 1,465 | |||||||||||||||||
Foundry loan #2 | March 2023 | 16.5 | % | 16.5 | % | 98 | 739 | 1,568 | 300 | |||||||||||||||||
Foundry loan #3 | April 2023 | 16.5 | % | 16.5 | % | 92 | 772 | 1,307 | 300 | |||||||||||||||||
Foundry loan #4 | May 2023 | 16.5 | % | 16.5 | % | 104 | 968 | 1,542 | 400 | |||||||||||||||||
Blockfi Loan | February 2024 | 14.5 | % | 18.1 | % | 1,505 | 26,060 | 35,511 | 6,100 | |||||||||||||||||
NYDIG Loan | February 2024 | 12.0 | % | 14.4 | % | 2,043 | 36,340 | 42,469 | 10,395 | |||||||||||||||||
Total | $ | 4,665 | $ | 67,112 | $ | 91,666 | 22,960 |
* | Represents the implied interest rate after capitalizing financing and origination fees. |
** | Represents the quantity of Whatsminers and Bitmain S19j Pros received in connection with the equipment financing and pledged as collateral for the related loan. |
19 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 12: LEASES
Set out below are the carrying amounts of the Company’s right-of-use assets and lease liabilities and their activity during the six months ended June 30, 2022:
Leased premises | Vehicles | Other equipment | Total ROU assets | Lease liabilities | ||||||||||||||||
As at January 1, 2022 | $ | 9,038 | $ | 283 | $ | 76 | $ | 9,397 | $ | 13,573 | ||||||||||
Additions and extensions to ROU assets | 6,497 | 29 | — | 6,526 | 6,526 | |||||||||||||||
Depreciation | (805 | ) | (61 | ) | (17 | ) | (883 | ) | — | |||||||||||
Lease termination | (108 | ) | (4 | ) | — | (112 | ) | (109 | ) | |||||||||||
Payments | — | — | — | — | (2,904 | ) | ||||||||||||||
Interest | — | — | — | — | 660 | |||||||||||||||
Foreign exchange | — | — | — | — | (125 | ) | ||||||||||||||
As at June 30, 2022 | $ | 14,622 | $ | 247 | $ | 59 | $ | 14,928 | $ | 17,621 | ||||||||||
Less current portion of lease liabilities | (3,790 | ) | ||||||||||||||||||
Non-current portion of lease liabilities | $ | 13,831 |
The Company maintains one lease agreement for mining hardware, consisting of 3,000 Whatsminer M31S+, with a net book value of approximately $4,346, classified as property, plant and equipment under BVVE and electrical equipment as described in Note 6.
NOTE 13: INCOME TAXES
a. | Deferred taxes |
Deferred taxes are computed at a tax rate of 26.5% based on tax rates expected to apply at the time of realization. Deferred taxes relate primarily to the timing differences on recognition of expenses relating to the depreciation of fixed assets, loss carryforwards and professional fees relating to the Company’s equity activity that are recorded as a reduction of equity.
As at June 30, 2022, the recoverability of the net deferred tax asset, due to the impact of the decrease in BTC prices as described in Note 1b, was uncertain and as a result, the net deferred tax asset of $20,580 was not recognized. The Company will evaluate the likelihood of recoverability at each balance sheet date, and will recognize net deferred tax asset when and if appropriate.
20 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 13: INCOME TAXES (Continued)
b. | Taxes included in profit or loss: |
Six months ended June 30, | ||||||||
2022 | 2021 | |||||||
Current tax (recovery) expense: | ||||||||
Current year | $ | (8,401 | ) | $ | 1,788 | |||
Prior year | 68 | — | ||||||
Deferred tax (recovery) expense: | ||||||||
Current year | (4,451 | ) | (514 | ) | ||||
Prior year | (94 | ) | — | |||||
$ | (12,878 | ) | $ | 1,274 |
The 2022 current tax recovery represents the expected tax refund as a result of losses realized in the current period that will be carried back to offset prior period taxable income.
c. | Effective tax rate for the six months ended June 30: |
2022 | ||||
Income tax expense at statutory rate of 26.5% | $ | (39,823 | ) | |
Increase in taxes resulting from: | ||||
Foreign tax rate differential | 4,010 | |||
Prior year | (27 | ) | ||
Non-deductible expenses and other | 2,382 | |||
Deferred tax asset not recognized | 20,580 | |||
$ | (12,878 | ) |
NOTE 14: ASSET RETIREMENT PROVISION
As of June 30, 2022, the Company estimated the costs of restoring its leased premises to their original state at the end of their respective lease terms to be $3,233, discounted to present value of $1,593 using discount rates between 8% and 10% over the lease periods, which were estimated to range from five to seven years depending on the location.
21 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 15: SHARE CAPITAL
Authorized | Issued and outstanding at | |||||||||
June 30, 2022 | June 30, 2022 | December 31, 2021 | ||||||||
Number of shares | ||||||||||
Common shares of no par value | Unlimited | 206,339,320 | 194,805,893 |
Details of the outstanding warrants are as follows:
2022 | 2021 | |||||||||||||||
Number of warrants | Weighted average exercise price (USD) | Number of warrants | Weighted average exercise price (USD) | |||||||||||||
Outstanding, January 1, | 19,427,797 | $ | 4.16 | 6,052,918 | $ | 0.41 | ||||||||||
Granted | 25,000 | 3.47 | 38,732,279 | 3.34 | ||||||||||||
Exercised | — | — | (20,748,601 | ) | 1.95 | |||||||||||
Outstanding, June 30, | 19,452,797 | $ | 4.16 | 24,036,596 | $ | 3.80 |
The weighted average contractual life of the warrants as at June 30, 2022 was 1.9 years (June 30, 2021: 2.9 years).
Garlock Acquisition
During the three months ended March 31, 2022, the Company acquired a building in Quebec referred to as “Garlock” in exchange for cash consideration of $1,783 and the issuance of 25,000 warrants granted with a strike price of USD$3.47 that have a contractual life of 2 years.
At-The-Market Equity Program
Bitfarms commenced an at-the-market equity program on August 16, 2021, pursuant to which the Company may, at its discretion and from time-to-time, sell common shares of the Company, resulting in the Company receiving aggregate proceeds of up to $500,000. During the year ended December 31, 2021, the Company issued 23,922,928 common shares in exchange for gross proceeds of $150,296 at an average share price of approximately USD$6.28. The Company received net proceeds of $145,601 after paying commissions of $4,509 to the Company’s agent, in addition to $186 of other transaction fees. During the six months ended June 30, 2022, the Company issued 11,478,427 common shares in exchange for gross proceeds of $37,165 at an average share price of approximately USD$3.24. The Company received net proceeds of $35,912 after paying commissions of $1,115 to the Company’s agent and $138 in other transaction costs.
22 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 16: TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a. | Balances with related parties: |
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Trade payables and accrued liabilities: | ||||||||
Directors’ remuneration | $ | — | $ | 19 | ||||
Director and senior management incentive plan | 169 | 1,465 | ||||||
$ | 169 | $ | 1,484 | |||||
Lease liabilities: | ||||||||
Companies controlled by directors | $ | 1,088 | $ | 1,357 |
Amounts due to related parties, other than lease liabilities, are unsecured, non-interest bearing and payable on demand.
b. | Transactions with related parties during the three and six months ended June 30, 2022: |
1. | The Company made rent payments totaling approximately $57 and $178 for the three and six months ended June 30, 2022, respectively (for the three and six months ended June 30, 2021: $121 and $237, respectively) to companies controlled by certain directors. The rent payments were classified as interest included in financial expenses and principal repayment of lease liabilities. |
2. | The Company entered into consulting agreements with two directors. The consulting fees totaled approximately $226 and $426 for the three and six months ended June 30, 2022, respectively (for the three and six months ended June 30, 2021: $145 and $269, respectively). |
The transactions described above were incurred in the normal course of operations. These transactions are included in consolidated statements of profit or loss and comprehensive profit and loss as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
General and administrative expenses | $ | 226 | $ | 145 | $ | 426 | $ | 269 | ||||||||
Net financial expenses | 17 | 33 | 44 | 66 | ||||||||||||
$ | 243 | $ | 178 | $ | 470 | $ | 335 |
23 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 17: SHARE-BASED PAYMENT
The share-based payment expense recognized in the financial statements for employee services received is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Equity-settled share-based payment plans | $ | 7,927 | $ | 6,342 | $ | 14,032 | $ | 6,762 |
The share-based payment transactions entered into between the Company and its directors, employees and service providers during the six months ended June 30, 2022 are described below. During the six months ended June 30, 2022, the Board of Directors approved stock option grants to purchase up to 5,522,500 common shares in accordance with the Long-Term Incentive Plan (the “LTIP Plan”) adopted on May 18, 2021. All options issued according to the LTIP Plan become exercisable when they vest and can be exercised for a maximum period of 5 years from the date of the grant. In addition, on May 19, 2022, the Board of Directors approved the grant of 200,000 Restricted Stock Units (“RSUs”) to certain members of senior management which vest ratably, on an annual basis, over a three-year period. The value of the RSUs on the grant date was $1.91 per unit.
The inputs used to value the option grants using the Black-Scholes model are as follows:
Grant date | March 31, 2022 | May 19, 2022 | June 30, 2022 | |||||||||
Dividend yield (%) | — | — | — | |||||||||
Expected share price volatility (%) | 105 | % | 106 | % | 102 | % | ||||||
Risk-free interest rate (%) | 2.49 | % | 2.78 | % | 2.99 | % | ||||||
Expected life of stock options (years) | 3 | 3 | 3 | |||||||||
Share price (CAD) | 4.71 | 2.45 | 1.50 | |||||||||
Exercise price (CAD) | 4.71 | 2.45 | 1.50 | |||||||||
Fair value of options (USD) | 2.40 | 1.21 | 0.72 | |||||||||
Vesting period (years) | 1.5 | 1.5 | 1.5 | |||||||||
Quantity of options granted | 120,000 | 5,382,500 | 20,000 |
24 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 17: SHARE-BASED PAYMENT (Continued)
Details of the outstanding stock options are as follows:
Six months ended June 30, 2022 | ||||||||
Number of Options | Weighted Average Exercise Price ($CAD) | |||||||
Outstanding, January 1, 2022 | 12,546,733 | 5.06 | ||||||
Granted | 5,522,500 | 2.50 | ||||||
Exercised | (55,000 | ) | 0.42 | |||||
Forfeited | (170,000 | ) | 6.16 | |||||
Outstanding, June 30, 2022 | 17,844,233 | 4.27 | ||||||
Exercisable, June 30, 2022 | 10,237,361 | 4.40 |
The weighted average contractual life of the stock options as at June 30, 2022 was 4.3 years (June 30, 2021: 4.5 years).
NOTE 18: ADDITIONAL DETAILS TO THE STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE PROFIT OR LOSS
a. | Additional details to the components of cost of sales are as follows: |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Energy and infrastructure | $ | 13,891 | $ | 7,400 | $ | 23,481 | $ | 12,869 | ||||||||
Depreciation and amortization | 17,857 | 4,920 | 30,923 | 7,928 | ||||||||||||
Purchases of electrical components | 257 | 557 | 564 | 813 | ||||||||||||
Electrician salaries and payroll taxes | 306 | 455 | 635 | 842 | ||||||||||||
$ | 32,311 | $ | 13,332 | $ | 55,603 | $ | 22,452 |
b. | Additional details to the components of general and administrative expenses are as follows: |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Salaries and share based payment | $ | 9,891 | $ | 7,496 | $ | 17,551 | $ | 8,795 | ||||||||
Professional services | 2,501 | 2,028 | 4,624 | 3,013 | ||||||||||||
Advertising and promotion | 69 | 78 | 119 | 80 | ||||||||||||
Insurance, duties and other | 2,394 | 838 | 5,959 | 1,285 | ||||||||||||
Travel, motor vehicle and meals | 346 | 81 | 661 | 108 | ||||||||||||
Hosting and telecommunications | 191 | 86 | 321 | 145 | ||||||||||||
$ | 15,392 | $ | 10,607 | $ | 29,235 | $ | 13,426 |
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BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 18: ADDITIONAL DETAILS TO THE STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE PROFIT OR LOSS (Continued)
c. | Additional details to the components of net financial expenses (income) are as follows: |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Loss on revaluation of warrants | $ | — | $ | — | $ | — | $ | 19,524 | ||||||||
Loss on embedded derivative | — | — | — | 2,641 | ||||||||||||
Gain on disposition of marketable securities* | (19,705 | ) | — | (30,642 | ) | — | ||||||||||
Loss (gain) on currency exchange | 1,018 | 216 | 1,876 | (106 | ) | |||||||||||
Interest on credit facility and long-term debt | 4,191 | 387 | 6,896 | 861 | ||||||||||||
Interest on lease liabilities | 355 | 510 | 660 | 934 | ||||||||||||
Warrant issuance costs | — | — | — | 668 | ||||||||||||
Provision on VAT receivable** | 2,091 | — | 5,010 | — | ||||||||||||
Other financial expenses | 193 | 14 | 260 | 30 | ||||||||||||
$ | (11,857 | ) | $ | 1,127 | $ | (15,940 | ) | $ | 24,552 |
* | During the three and six months ended June 30, 2022, the Company has continued to fund its expansion in Argentina through the acquisition of marketable securities and in-kind contribution of these securities to a subsidiary in Argentina that it controls. The subsequent disposition of these marketable securities in exchange for Argentine Pesos gave rise to a gain as the amount received in ARS exceeds the amount of ARS the Company would have received from a direct foreign currency exchange. |
** | The majority of Argentine VAT is not expected to be settled within the next 12 months and therefore, it has been classified as a long-term receivable in Note 8 with the short-term portion being included in sales tax receivable in note 4. The Company has recorded a provision on this VAT receivable, which is classified within net financial expenses (income) during the three and six months ended June 30, 2022. Historically, ARS has devalued significantly when compared to USD due to high levels of inflation in Argentina, which may result in the Company recording future foreign exchange losses on its Argentina VAT receivable. |
d. | Earnings per share: |
For the three and six months ended June 30, 2022 and 2021, potentially dilutive securities have not been included in the calculation of diluted earnings (loss) per share because their effect is antidilutive. The additional potentially dilutive securities that would have been included in the calculation for diluted earnings per share had their effect not been anti-dilutive, for the three and six months ended June 30, 2022, would have been approximately 205,416,844 and 202,728,920, respectively (June 30, 2021: 17,677,251 and 21,347,997, respectively).
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BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 19: GEOGRAPHICAL INFORMATION
a. | Revenues |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Canada | $ | 33,169 | $ | 34,430 | $ | 63,095 | $ | 62,562 | ||||||||
USA | 7,264 | 2,257 | 17,069 | 2,557 | ||||||||||||
Paraguay | 1,382 | — | 1,980 | — | ||||||||||||
$ | 41,815 | $ | 36,687 | $ | 82,144 | $ | 65,119 |
b. | Property, Plant and Equipment |
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Canada | $ | 150,832 | $ | 83,402 | ||||
USA | 44,780 | 51,672 | ||||||
Argentina | 31,247 | 665 | ||||||
Paraguay | 2,007 | 1,111 | ||||||
$ | 228,866 | $ | 136,850 |
NOTE 20: ADDITIONAL DETAILS TO THE STATEMENT OF CASH FLOWS
Six months ended June 30, | ||||||||
2022 | 2021 | |||||||
Changes in working capital components: | ||||||||
Decrease in trade receivables, net | $ | 394 | $ | 223 | ||||
Decrease (increase) in other current assets | 6,350 | (2,682 | ) | |||||
Increase in long-term deposits | (7,258 | ) | (145 | ) | ||||
Increase (decrease) in trade payables and accrued liabilities | (8,375 | ) | 3,111 | |||||
Decrease in taxes payable | (651 | ) | — | |||||
$ | (9,540 | ) | $ | 507 | ||||
Significant non-cash transactions: | ||||||||
Addition of right-of-use assets, property, plant and equipment and related lease liabilities | $ | 6,526 | $ | 7,786 | ||||
Purchase of property, plant and equipment financed by short-term credit | $ | 4,190 | $ | 1,201 | ||||
Extinguishment of warrant liability and long-term debt through share issuance | $ | — | $ | 24,322 | ||||
Equipment prepayments realized as additions to property, plant and equipment | $ | 49,234 | $ | — |
27 |
BITFARMS LTD.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 21: SUBSEQUENT EVENTS
At-The-Market Equity Program
During the period from July 1, 2022, to August 12, 2022, the Company issued 2,903,096 common shares in exchange for gross proceeds of $4,247 at an average share price of approximately USD$1.46. The Company received net proceeds of $4,109 after paying commissions of $138 to the Company’s agent. See Note 15 for further details to the Company’s at-the-market equity program.
Credit Facility
During the period from July 1, 2022, to August 12, 2022, the Company repaid $15,017 of the Credit Facility, reducing the total amount drawn to $23,137, by liquidating 670 BTC. As a result of the repayment and increase in BTC price during the period, which allowed the Company to request the Facility Lender to return 511 BTC pledged as collateral, the Company’s collateral BTC decreased from 2,598 BTC to 1,417 BTC.
Disposition of Miners
During the period from July 1, 2022, to August 12, 2022, the Company received proceeds of $103 for the remaining 108 Whatsminer M20s miners held for sale and shipped all 600 miners described in note 6b, resulting in a gain on disposition of $230. The Company sold an additional 240 Whatsminer M20s miners for proceeds of $249 and 190 Bitmain S19 XP miners for proceeds of $1,202 resulting in a gain (loss) on disposition of $112 and $(969), respectively.
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