UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
☒ Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934
or
☐ Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
| For the fiscal year ended | Commission File Number |
Bitfarms Ltd.
(Exact name of Registrant as specified in its charter)
| Canada | 7379 | N/A | ||
| (Province or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
18 King Street East
Suite 902
Toronto, Ontario M5C 1C4
Canada
(647) 259-1790
(Address and telephone number of Registrant’s principal executive offices)
Cogency Global Inc.
122 E. 42nd Street, 18th Floor
New York, New York 10168
(800) 221-0102
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Shares | BITF | Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this Form:
| ☐ Annual information form | ☐ Audited annual financial statements |
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: N/A
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Yes ☐ No ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
EXPLANATORY NOTE
Bitfarms Ltd. (the “Registrant”) is a Canadian issuer whose common shares are listed on the TSX Venture Exchange and is eligible to file its registration statement pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 40-F pursuant to the U.S.-Canadian Multijurisdictional Disclosure System. The Registrant is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Registrant are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3.
FORWARD LOOKING STATEMENTS
The Exhibits incorporated by reference into this Registration Statement of the Registrant contain forward-looking statements. All statements, other than statements of historical fact, incorporated by reference are forward-looking information. Generally, forward-looking information may be identified by the use of forward-looking terminology such as “plans,” “expects” or “does not expect,” “proposed,” “is expected,” “budgets,” “scheduled,” “estimates,” “forecasts,” “intends,” “anticipates” or “does not anticipate,” or “believes,” or variations of such words and phrases, or by the use of words or phrases which state that certain actions, events or results may, could, would, or might occur or be achieved. There can be no assurance that such forward-looking information will prove to be accurate, and actual results and future events could differ materially from those anticipated in such forward-looking information. The Registrant’s forward-looking statements contained in the Exhibits incorporated by reference into this Registration Statement are made as of the respective dates set forth in such Exhibits and on assumptions the Registrant believed were reasonable as of such date. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Registrant to be materially different from those expressed or implied by such forward-looking information. Such risks and other factors may include, but are not limited to:
| ● | risks relating to the global economic climate; |
| ● | dilution; |
| ● | the Registrant’s limited operating history; |
| ● | future capital needs and uncertainty of additional financing; |
| ● | the competitive nature of the industry; |
| ● | currency exchange risks; |
| ● | the need for the Registrant to manage its planned growth and expansion; |
| ● | the effects of product development and need for continued technology change; |
| ● | protection of proprietary rights; |
| ● | the effect of government regulation and compliance on the Registrant and the industry; |
| ● | network security risks; |
| ● | the ability of the Registrant to maintain properly working systems; |
| ● | reliance on key personnel; |
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| ● | global economic and financial market deterioration impeding access to capital or increasing the cost of capital; |
| ● | volatile securities markets impacting security pricing unrelated to operating performance; |
| ● | the construction and operation of Blockchain infrastructure may not occur as currently planned, or at all; |
| ● | the Registrant’s expansion may not materialize as currently anticipated, or at all; |
| ● | the digital currency market; |
| ● | the ability to successfully mine digital currency; |
| ● | revenue may not increase as currently anticipated, or at all; |
| ● | it may not be possible to profitably liquidate the Registrant’s current or future digital currency inventory, or at all; |
| ● | a decline in digital currency prices may have a significant negative impact on operations; |
| ● | an increase in network difficulty may have a significant negative impact on operations; |
| ● | the volatility of digital currency prices; |
| ● | the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec and elsewhere including decisions of power regulators on rates and power access; |
| ● | any regulations or laws that will prevent the Registrant from operating its business including local laws relating to noise levels and other operational matters; |
| ● | historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and |
| ● | an inability to predict and counteract the effects of COVID-19 on the business of the Registrant, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labor and international travel and supply chains. |
A description of assumptions used to develop such forward-looking information and a description of additional risk factors that may cause actual results to differ materially from forward-looking information can be found in the Registrant’s disclosure documents, such as the Registrant’s Annual Information Form for the year ended December 31, 2020, dated April 7, 2021 (the “AIF”), on the SEDAR website at www.sedar.com, attached hereto as Exhibit 99.123. Although the Registrant has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. Readers are cautioned that the foregoing list of factors is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking information as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Forward-looking information contained in the Exhibits incorporated by reference are expressly qualified by this cautionary statement. The forward-looking information contained in the Exhibits incorporated by reference represents the expectations of the Registrant as of the date of such Exhibit and, accordingly, is subject to change after such date. However, the Registrant expressly disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.
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DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES
The Registrant is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this report in accordance with Canadian disclosure requirements, which are different from those of the United States. The Registrant prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, and the audit is subject to Canadian auditing standards. IFRS differs in certain respects from United States generally accepted accounting principles (“US GAAP”) and from practices prescribed by the SEC. Therefore, the Registrant’s financial statements filed with this registration statement may not be comparable to financial statements prepared in accordance with U.S. GAAP.
PRINCIPAL DOCUMENTS
In accordance with General Instruction B.(1) of Form 40-F, the Registrant hereby incorporates by reference Exhibits 99.1 through 99.138, inclusive, as set forth in the Exhibit Index attached hereto.
In accordance with General Instruction D.(9) of Form 40-F, the Registrant has filed the written consents of the independent auditors named in the foregoing Exhibits as Exhibits 99.137 and 99.138, as set forth in the Exhibit Index attached hereto.
TAX MATTERS
Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this registration statement on Form 40-F.
DESCRIPTION OF COMMON SHARES
The required disclosure is included under the heading “Description of Capital Structure” in the Registrant’s AIF, attached hereto as Exhibit 99.123.
CURRENCY
Unless otherwise indicated, all dollar amounts in this Registration Statement on Form 40-F are in United States dollars.
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CONTRACTUAL OBLIGATIONS
The following table lists information with respect to the Registrant’s known contractual obligations as of December 31, 2020.
| Payments due by period ($ in thousands) | ||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
| Long-Term Debt Obligations* | $ | 19,011 | $ | 18,840 | $ | 129 | $ | 42 | $ | - | ||||||||||
| Capital (Finance) Lease Obligations | $ | 6,051 | $ | 3,529 | $ | 2,512 | $ | 10 | $ | - | ||||||||||
| Operating Lease Obligations | $ | 7,700 | $ | 1,204 | $ | 2,299 | $ | 1,926 | $ | 2,271 | ||||||||||
| Purchase Obligations | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Other Long-Term Liabilities | $ | 209 | $ | - | $ | 78 | $ | - | $ | 131 | ||||||||||
| Total | $ | 32,971 | $ | 23,573 | $ | 5,018 | $ | 1,978 | $ | 2,402 | ||||||||||
*As disclosed in the Company’s Consolidated Financial Statements as of and for the years ended December 31, 2020 and 2019, dated March 24, 2021, attached hereto as Exhibit 99.112, Long-Term Debt Obligations presented in the Less than 1 year column in the table above, in the amount of $18,758, were repaid in full in January and February 2021.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
A. Undertaking. The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to Form 40-F or transactions in said securities.
B. Consent to Service of Process. The Registrant has concurrently filed a Form F-X in connection with the class of securities to which this Registration Statement relates. Any change to the name or address of the Registrant’s agent for service shall be communicated promptly to the Commission by amendment to the Form F-X referencing the file number of the Registrant.
EXHIBIT INDEX
The following documents are being filed with the Commission as Exhibits to this Registration Statement:
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized.
| BITFARMS LTD. | ||
| By: | /s/ L. Geoffrey Morphy | |
| Name: L. Geoffrey Morphy | ||
| Title: President | ||
Date: April 28, 2021
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Exhibit 99.1
BITFARMS LTD.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the special meeting (the “Meeting”) of shareholders of Bitfarms Ltd. (“Bitfarms” or the “Corporation”) will be held at the offices of McCarthy Tétrault LLP, 66 Wellington Street West, Suite 5300, Toronto, Ontario on Tuesday, February 4, 2020 at the hour of 9:30 a.m. (Toronto time), for the following purposes:
| 1. | TO CONSIDER and, if deemed appropriate, to pass, with or without variation, a special resolution of shareholders to authorize and approve an amendment to the articles of incorporation of the Corporation to allow for the creation of a new class of preferred shares to be designated as “Class A Preferred Shares”, as more particularly described in the accompanying management information circular (“Circular”); |
| 2. | to transact such further or other business as may properly come before the Meeting or any adjournment or adjournments thereof. |
Accompanying this notice is the Circular and a form of proxy. The accompanying Circular provides information relating to the matters to be addressed at the meeting and is incorporated into this Notice. Subject to section 190 of the Canada Business Corporation Act, dissenting shareholders are entitled to be paid the fair value of their shares.
Shareholders are entitled to vote at the Meeting either in person or by proxy in accordance with the procedures described in the Circular accompanying this Notice. Those who are unable to attend the meeting are requested to read, complete, sign and mail the enclosed form of proxy in accordance with the instructions set out in the proxy and in the Circular accompanying this Notice.
DATED at Toronto, Ontario, this 2nd of January, 2020.
| BY ORDER OF THE BOARD OF DIRECTORS | |
| (signed) “Nicolas Bonta” | |
| Nicolas Bonta | |
| Chairman of the Board |
Exhibit 99.2
BITFARMS LTD.
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS &
MANAGEMENT INFORMATION CIRCULAR
February 4, 2020 at 9:30 am (Toronto time)
Offices
of McCarthy Tétrault LLP, 66 Wellington Street West,
Suite 5300, Toronto, Ontario
BITFARMS LTD.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the special meeting (the “Meeting”) of shareholders of Bitfarms Ltd. (“Bitfarms” or the “Corporation”) will be held at the offices of McCarthy Tétrault LLP, 66 Wellington Street West, Suite 5300, Toronto, Ontario on Tuesday, February 4, 2020 at the hour of 9:30 a.m. (Toronto time), for the following purposes:
| 1. | TO CONSIDER and, if deemed appropriate, to pass, with or without variation, a special resolution of shareholders to authorize and approve an amendment to the articles of incorporation of the Corporation to allow for the creation of a new class of preferred shares to be designated as “Class A Preferred Shares”, as more particularly described in the accompanying management information circular (“Circular”); |
| 2. | to transact such further or other business as may properly come before the Meeting or any adjournment or adjournments thereof. |
Accompanying this notice is the Circular and a form of proxy. The accompanying Circular provides information relating to the matters to be addressed at the meeting and is incorporated into this Notice. Subject to section 190 of the Canada Business Corporation Act, dissenting shareholders are entitled to be paid the fair value of their shares.
Shareholders are entitled to vote at the Meeting either in person or by proxy in accordance with the procedures described in the Circular accompanying this Notice. Those who are unable to attend the meeting are requested to read, complete, sign and mail the enclosed form of proxy in accordance with the instructions set out in the proxy and in the Circular accompanying this Notice.
DATED at Toronto, Ontario, this 2nd of January, 2020.
| BY ORDER OF THE BOARD OF DIRECTORS | |
| (signed) “Nicolas Bonta” | |
| Nicolas Bonta | |
| Chairman of the Board |
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BITFARMS LTD.
MANAGEMENT INFORMATION CIRCULAR
(Containing information as at January 2nd, 2020 unless indicated otherwise)
I. SOLICITATION OF PROXIES
This Management Information Circular (the “Circular”) is furnished in connection with the solicitation of proxies by the management of Bitfarms Ltd. (“Bitfarms” or the “Corporation”) for use at the special meeting of holders (“Shareholders”) of common shares (“Common Shares”) of the Corporation and any adjournment thereof to be held at 9:30 a.m. (Toronto time) on February 4th, 2020 (the “Meeting”) at the place and for the purposes set forth in the accompanying notice of Meeting. The enclosed proxy is being solicited by the management of the Corporation.
While it is expected that the solicitation will be primarily by mail, proxies may be solicited personally, by facsimile or by telephone by the regular employees of the Corporation at nominal cost. All costs of solicitation by management will be borne by the Corporation. The Corporation may also retain, and pay a fee to, one or more professional proxy solicitation firms to solicit proxies from Shareholders.
The contents and the sending of this Circular have been approved by the directors of the Corporation. All references to the Corporation shall include its subsidiaries as the context may require.
II. APPOINTMENT OF PROXYHOLDER
The individuals named as proxyholders in the accompanying form of proxy are directors and/or officers of the Corporation. A REGISTERED SHAREHOLDER WISHING TO APPOINT SOME OTHER PERSON (WHO NEED NOT BE A SHAREHOLDER) TO REPRESENT HIM OR HER AT THE MEETING HAS THE RIGHT TO DO SO, EITHER BY STRIKING OUT THE NAMES OF THOSE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY AND INSERTING THE DESIRED PERSON’S NAME IN THE BLANK SPACE PROVIDED IN THE FORM OF PROXY AND SIGNING AND DATING THE PROXY, OR BY COMPLETING ANOTHER FORM OF PROXY. A proxy will not be valid unless the completed form of proxy is received by TSX Trust Company, 100 Adelaide Street West, Suite 301, Toronto, Ontario, M5H 4H1 not less than forty-eight (48) hours (excluding Saturdays, Sundays and holidays) before the time for holding the Meeting or, with respect to any matters to be dealt with at any adjournment of the Meeting, before the time of the re-commencement of the adjourned Meeting. Proxies delivered after such time(s) will not be accepted. The time limit for the deposit of proxies may be waived or extended by the Chairperson of the Meeting at his or her discretion without notice.
III. REVOCATION OF PROXIES
A Shareholder who has given a proxy may revoke it prior to its use by an instrument in writing executed by the Shareholder or by his attorney duly authorized in writing or, where the Shareholder is a corporation, by a duly authorized officer or attorney of such corporation, and delivered to the registered office of the Corporation, at 1376 Bayview Avenue, Unit 1, Toronto, Ontario, M4G 3A1 (Attention: General Counsel) at any time up to and including the last business day preceding the day of the Meeting, or if adjourned, preceding any reconvening thereof, or to the Chairperson of the Meeting on the day of the Meeting or, if adjourned, any reconvening thereof, or in any other manner provided by law. A revocation of a proxy does not affect any matter on which a vote has been taken prior to the revocation.
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IV. VOTING OF PROXIES
The Common Shares represented by a properly executed proxy in favour of persons designated as proxyholders in the enclosed form of proxy will:
| a. | be voted or withheld from voting in accordance with the instructions of the person appointing the proxyholder on any ballot that may be called for; and |
| b. | where a choice with respect to any matter to be acted upon has been specified in the form of proxy, be voted in accordance with the specifications made on such proxy. |
SUCH SHARES WILL BE VOTED IN FAVOUR OF EACH MATTER FOR WHICH NO CHOICE HAS BEEN SPECIFIED OR WHERE BOTH CHOICES HAVE BEEN SPECIFIED BY THE SHAREHOLDER.
The enclosed form of proxy, when properly completed and delivered and not revoked, confers discretionary authority upon the person appointed proxyholder thereunder to vote with respect to amendments or variations of matters identified in the notice of Meeting, and with respect to any other matters which may properly come before the Meeting. In the event that amendments or variations to matters identified in the notice of Meeting are properly brought before the Meeting or any further or other business is properly brought before the Meeting, it is the intention of the persons designated by management as proxyholders in the enclosed form of proxy to vote in accordance with their best judgment on such matters or business. At the time of the printing of this Circular, the management of the Corporation knows of no such amendment, variation or other matter that may be presented to the Meeting.
V. INFORMATION FOR NON-REGISTERED SHAREHOLDERS
Only registered Shareholders or proxyholders duly appointed by registered Shareholders are permitted to vote at the Meeting. Most Shareholders of the Corporation are “non-registered” shareholders because the Common Shares they own are not registered in their names but are instead registered in the name of a brokerage firm, bank or other intermediary or in the name of a clearing agency. Shareholders who do not hold their Common Shares in their own name (referred to herein as “Beneficial Shareholders”) should note that only registered Shareholders are entitled to vote at the Meeting. If Common Shares are listed in an account statement provided to a Shareholder by a broker, then in almost all cases those Common Shares will not be registered in such Shareholder’s name on the records of the Corporation. Such Common Shares will more likely be registered under the name of the Shareholder’s broker or an agent of that broker. In Canada, the vast majority of such Common Shares are registered under the name of CDS & Co. (the registration name for CDS Clearing and Depositary Services Inc., which company acts as nominee for many Canadian brokerage firms). Common Shares held by brokers (or their agents or nominees) on behalf of a broker’s client can only be voted (for or against resolutions) at the direction of the Beneficial Shareholder. Without specific instructions, brokers and their agents and nominees are prohibited from voting Common Shares for the brokers’ clients. Therefore, each Beneficial Shareholder should ensure that voting instructions are communicated to the appropriate person well in advance of the Meeting.
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Existing regulatory policy requires brokers and other intermediaries to seek voting instructions from Beneficial Shareholders in advance of Shareholders’ meetings. The various brokers and other intermediaries have their own mailing procedures and provide their own return instructions to clients, which should be carefully followed by Beneficial Shareholders in order to ensure that their Common Shares are voted at the Meeting. Often the form of proxy supplied to a Beneficial Shareholder by its broker is identical to the form of proxy provided by the Corporation to the registered Shareholders. However, its purpose is limited to instructing the registered Shareholder (i.e., the broker or agent of the broker) how to vote on behalf of the Beneficial Shareholder. The majority of brokers now delegate the responsibility for obtaining instructions from clients to Broadridge Financial Solutions Inc. (“Broadridge”). Broadridge typically prepares a machine-readable voting instruction form, mails those forms to the Beneficial Shareholders and asks Beneficial Shareholders to return the forms to Broadridge, or otherwise communicate voting instructions to Broadridge (by way of the internet or telephone, for example). Broadridge then tabulates the results of all instructions received and provides appropriate instructions respecting the voting of Common Shares to be represented at the Meeting. A Beneficial Shareholder who receives a Broadridge voting instruction form cannot use that form to vote Common Shares directly at the Meeting. The voting instruction form must be returned to Broadridge (or instructions respecting the voting of Common Shares must be communicated to Broadridge well in advance of the Meeting) in order to have the Common Shares voted.
The Meeting materials are being sent to both registered Shareholders and Beneficial Shareholders. Beneficial Shareholders fall into two categories – those who object to their identity being known to the issuers of securities which they own (“Objecting Beneficial Owners”, or “OBOs”) and those who do not object to their identity being made known to the issuers of the securities they own (“Non-Objecting Beneficial Owners”, or “NOBOs”). Subject to the provisions of National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer, issuers may request and obtain a list of their NOBOs from intermediaries via their transfer agents. If you are a Beneficial Shareholder, and the Corporation or its agent has sent proxy-related materials directly to you, your name, address and information about your holdings of Common Shares have been obtained in accordance with applicable securities regulatory requirements from the intermediary holding the Common Shares on your behalf.
The Corporation’s OBOs can expect to be contacted by Broadridge or their broker or their broker’s agents as set out above. Management of the Corporation does not intend to pay for intermediaries to forward proxy-related materials to OBOs, and OBOs will not receive the materials unless the OBOs’ intermediaries assume the cost of delivery.
Although Beneficial Shareholders may not be recognized directly at the Meeting for the purposes of voting Common Shares registered in the name of their broker, a Beneficial Shareholder may attend the Meeting as proxyholder for the registered Shareholder and vote the Common Shares in that capacity. Beneficial Shareholders who wish to attend the Meeting and indirectly vote their Common Shares as proxyholder for the registered Shareholder should enter their own names in the blank space on the proxy or voting instruction card provided to them and return the same to their broker (or the broker’s agent) in accordance with the instructions provided by such broker.
All references to Shareholders in this Circular and the accompanying form of proxy and notice of Meeting are to registered Shareholders unless specifically stated otherwise.
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VI. INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Other than as set forth in this Circular, no person who has been a director or executive officer of the Corporation at any time since January 1, 2019, being the beginning of the Corporation’s last completed financial year, nor any associate or affiliate of any of the foregoing, has or has had any material interest, directly or indirectly, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting.
VII. VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The Corporation is authorized to issue an unlimited number of Common Shares without par value. As at the date of this Circular, the Corporation had 83,624,980 issued and outstanding Common Shares, with each Common Share carrying one vote per Common Share. Only Shareholders of record at the close of business (Toronto time) on January 6, 2019 (the “Record Date”) who either personally attend the Meeting or who have completed and delivered a form of proxy in the manner and subject to the provisions described above shall be entitled to vote or to have their Common Shares voted at the Meeting. The list of Shareholders entitled to vote at the Meeting is available for inspection during normal business hours at the offices of the TSX Trust Company, 100 Adelaide Street West, Suite 301, Toronto, Ontario and will be available at the Meeting.
Other than as set out below, to the knowledge of the directors and executive officers of the Corporation, there are no persons or companies who beneficially own, or exercise control or direction over, directly or indirectly, Common Shares carrying more than ten percent (10%) of the voting rights attached to all outstanding Common Shares:
| Name of Beneficial Holder | Share Class | Quantity | % of Class | |||||||
| Emiliano Joel Grodzki | Common Shares | 11,820,772 | 14.14 | % | ||||||
| Nicolas Bonta | Common Shares | 11,210,706 | 13.41 | % | ||||||
| Mathieu Vachon(1) | Common Shares | 8,484,403 | 10.15 | % | ||||||
Notes:
| (1) | The shares of Matthieu Vachon are partially held by 9264-2644 Québec Inc. of which Mathieu Vachon is the sole beneficial shareholder. |
Each of Emiliano Joel Grodzki, Nicolas Bonta, and Mathieu Vachon (collectively, the “Founders”) have entered into supports agreement and have agreed to vote all Common Shares which they beneficially own, or exercise control or direction over, directly or indirectly (being an aggregate of 37.7% of the issued and outstanding Common Shares), in favour of the matters to be acted upon at the Meeting, including the special resolution to approval and authorization to amend the articles of incorporation of the Corporation to create a new class of Preferred Shares, all as described below under section X.
VIII. INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
At no time during the year ended December 31, 2019 (being the Corporation’s last completed financial year), was any director, executive officer, employee of the Corporation or any associate of any such director, executive officer or employee or any former director, executive officer or employee of the Corporation or any of its subsidiaries, indebted to the Corporation or any of its subsidiaries or indebted to another entity where such indebtedness is or has been the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Corporation or any of its subsidiaries, other than for routine indebtedness.
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IX. INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
No informed person (as defined in National Instrument 51-102 – Continuous Disclosure Obligations), director of the Corporation, or any associate or affiliate of any informed person or director of the Corporation has, since January 1, 2019 (being the commencement of the Corporation’s last completed financial year), had any material interest, direct or indirect, in any transactions which materially affected or would materially affect the Corporation or any of its subsidiaries.
X. PARTICULARS OF MATTERS TO BE ACTED UPON
Unless otherwise directed, it is the intention of management’s proxyholders to vote proxies in favour of the resolutions set forth herein.
Approval and authorization to amend the articles of incorporation of the Corporation to create a new class of Preferred Shares
Shareholders are being asked to consider and, if thought appropriate, adopt a special resolution (the “Preferred Share Resolution”) authorizing the filing of articles of amendment to create a new class of preferred shares to be designated as “Class A Preferred Shares” (the “Preferred Shares”). A “special resolution” means a resolution that is passed by at least two-thirds of the votes cast at the Meeting by the shareholders entitled to vote in person or by proxy on the resolution.
The Corporation would like to create the Preferred Shares to provide it with greater flexibility in its capital structure and in raising future capital. This proposed amendment to the articles will become effective upon the filing of articles of amendment reflecting the amendment pursuant to the Canada Business Corporations Act (Canada) (“CBCA”).
The Preferred Shares will be issuable in one or more series, where the Board will be authorized to fix the number of shares of each series, and to determine for each series, subject to the terms and conditions set out herein, the designation, rights, privileges, restrictions and conditions, including dividend rates, redemption prices, conversion rights and other matters. A summary of the terms of the Preferred Shares is included below. Note that the following is a summary only and reference should be made to the full text of the terms and conditions attaching to the Preferred Shares as set out in the special resolution in Appendix A hereto.
Ranking and Priority
Each series of Preferred Shares will be entitled to priority over the Common Shares and any other shares of the Corporation ranking junior to the Preferred Shares with respect to priority in the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, and any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs. The Preferred Shares of any series may also be given such other preferences, not inconsistent with the provisions hereof, over the Common Shares and any other shares of the Corporation ranking junior to the Preferred Shares, as may be determined by the Board.
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Parity Among Series
Each series of Preferred Shares will rank on a parity with every other series of Preferred Shares with respect to priority in the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, and any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs.
Participation Upon Liquidation, Dissolution or Winding Up
In the event of the liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs, the holders of the Preferred Shares will be entitled to receive from the assets of the Corporation any cumulative dividends, whether or not declared, or declared non-cumulative dividends or amounts payable on a return of capital which are not paid in full in respect of any Preferred Shares, before any amount is paid or any assets of the Corporation are distributed to the holders of any Common Shares or shares of any other class ranking junior to the Preferred Shares. After payment to the holders of the Preferred Shares of the amount so payable to them as above provided they will not be entitled to share in any further distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs.
Dividends
The holders of each series of Preferred Shares will be entitled to receive dividends (which may be cumulative or non-cumulative and variable or fixed) as and when declared by the Board.
Conversion
Preferred Shares may be convertible into any other class of shares, including another series of Preferred Shares.
Redemption
Each series of Preferred Shares may be redeemable by the Corporation on such terms as may be determined by the Board.
Voting
Holders of any series of Preferred Shares will not be entitled (except as otherwise provided by law and except for meetings of the holders of Preferred Shares or a series thereof) to receive notice of, attend at, or vote at any meeting of shareholders of the Corporation, unless the Board determines otherwise, in which case voting rights will only be provided in circumstances where the Corporation has failed to pay a certain number of dividends on such series of Preferred Shares, which determination and number of dividends and any other terms in respect of such voting rights, will be determined by the Board and set out in the designations, rights, privileges, restrictions and conditions of such series of Preferred Shares.
If shareholders approve the Preferred Share Resolution to create the new Preferred Shares and the Corporation’s articles are amended, no further shareholder approval will be required to issue Preferred Shares of any series if and when the Board decides to issue any Preferred Shares.
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The Board believes that amending the Corporation’s articles to authorize the issuance of the Preferred Shares will provide the Corporation with increased flexibility in its capital structure and in raising future capital. The creation of Preferred Shares would permit the Board to negotiate with potential investors regarding the rights and preferences of a series of Preferred Shares that may be issued to meet market conditions and financing opportunities as they arise, without the expense and delay in connection with calling a shareholders’ meeting to approve specific terms of any series of Preferred Shares. The Preferred Shares may be used by the Corporation for any appropriate corporate purpose, including, without limitation, as a means of obtaining additional capital for use in the Corporation’s business and operations or in connection with acquisitions.
The availability of undesignated Preferred Shares may have certain negative effects on the rights of the holders of Common Shares. The actual effect of the issuance of any Preferred Shares upon the rights of holders of Common Shares cannot be fully stated until the Board determines all specific rights of the particular series of Preferred Shares. However, the Corporation’s articles will set out certain terms and restrictions, as set out above, in respect of the Preferred Shares, and which provide the holders of Common Shares with an indication of the possible effects of an issuance of Preferred Shares, specifically with respect to dividends, liquidation, redemption, conversion and, voting rights. Such effects may include holders of Common Shares receiving less in the event of liquidation, dissolution or other winding-up of the Corporation, or a reduction in the amount of funds, if any, available for dividends on Common Shares.
The text of the special resolution authorizing the amendment to the Corporation’s articles as described above is attached to this circular as Appendix A. This proposed amendment to the articles will become effective upon the filing of articles of amendment reflecting the amendment pursuant to the CBCA.
The Board recommends that shareholders vote FOR the Preferred Share Resolution. Unless the shareholder directs that his or her Common Shares be otherwise voted, the persons named in the enclosed form of proxy will vote FOR the Preferred Share Resolution.
The Board can revoke the above special resolution before it is acted on, even it is passed by shareholders, in its sole discretion and without further notice to or approval of shareholders.
Dissenting Shareholders’ Rights
Pursuant to section 190 of the CBCA, a shareholder is entitled to dissent in respect of any Common Shares held and be paid the fair value of such shares if the shareholder objects to the Preferred Share Resolution and the Preferred Share Resolution is approved (a “Dissenting Shareholder”).
In order to dissent, a shareholder must (a) send to the registered office of the Corporation at 1376 Bayview Avenue, Unit 1, Toronto, Ontario, M4G 3A1 before the Meeting or deliver to the Corporation at the Meeting, a written objection (a “Dissent Notice”) to the Preferred Share Resolution from which the shareholder dissents (a proxy to vote against such resolution does not constitute a written objection thereto); (b) within 20 days after receipt from the Corporation of notice that the Preferred Share Resolution has been adopted or, if he or she does not receive such notice, within 20 days after he or she learns that the Preferred Share Resolution has been adopted, send to the Corporation a written notice containing: (i) his or her name and address, (ii) the number of shares in respect of which he or she dissents, (iii) a demand for payment of the fair value of such shares (the “Demand for Payment”); and (c) within 30 days thereafter, send to the Corporation the certificates representing such shares. A Dissenting Shareholder, on sending the notice containing the Demand for Payment, ceases to have any rights as a holder of such shares, other than the right to be paid the fair value of the shares, except where the Dissenting Shareholder withdraws such notice before the Corporation makes an offer to pay for such shares, or the Corporation fails to make such an offer to pay for such shares and the Dissenting Shareholder withdraws his or her notice, or the directors revoke the Preferred Share Resolution from which such Shareholder dissents, in any of such cases the Dissenting Shareholder’s rights as a holder of such shares are reinstated as of the day on which he or she sent the notice containing the Demand For Payment. A Dissenting Shareholder who fails to forward his or her Dissent Notice, Demand For Payment or share certificates within the times required loses any right to make a claim for payment of the fair value of his or her shares.
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The Corporation is required, within 10 days after the Preferred Share Resolution is adopted, to send to each holder of shares who has filed a Dissent Notice, a notice that the Preferred Share Resolution has been adopted. The Corporation is not required to send such notice to any holder of shares who voted for the Preferred Share Resolution or who has withdrawn his objection. The Corporation is also required to send an offer to the Dissenting Shareholder to pay for his shares in an amount considered by the Board to be the fair market value thereof, not more than seven days after the later of the completion of the transaction (the “Dissent Effective Date”) and the date of receipt of the Dissenting Shareholder’s Demand for Payment. If such offer is accepted by the Dissenting Shareholder, payment is required to be made within 10 days of acceptance. Any such offer lapses if not accepted within 30 days after it is made. If the Corporation fails to make such an offer, or if the Dissenting Shareholder fails to accept the offer, the Corporation may, within 50 days after the Dissent Effective Date or such further period as a court may allow, apply to a court to fix a fair value for the shares of the Dissenting Shareholder. If the Corporation fails to make such application, the Dissenting Shareholder may make a similar application within a further period of 20 days or such further period as the court may allow.
A Shareholder who complies with each of the steps required to dissent is entitled to be paid the fair value of the shares held by him in respect of which such Dissenting Shareholder dissents, determined as of the close of business on the day before the Preferred Share Resolution is adopted.
Notwithstanding the foregoing, the Corporation is not permitted to make a payment to a Dissenting Shareholder if there are reasonable grounds for believing that: (a) the Corporation is or would after the payment be unable to pay its liabilities as they become due; or (b) the realizable value of the Corporation’s assets would thereby be less than the aggregate of its liabilities.
A Shareholder may only exercise the right to dissent under section 190 of the CBCA in respect of shares which are registered in that Shareholder’s name. Failure by a Dissenting Shareholder to adhere strictly to the requirements of section 190 of the CBCA may result in the loss of such Dissenting Shareholder’s rights under that section. Beneficial Shareholders (for example, those persons who hold their shares through a broker, custodian, nominee or other intermediary) who wish to exercise dissent rights should be aware that only Registered Shareholders are entitled to dissent. A Beneficial Shareholder should ensure that his shares are registered in his name prior to the Meeting in order for his dissent to be properly made. A Registered Shareholder, such as a broker, who holds shares as nominee for several Beneficial Shareholders, some of whom wish to dissent, must ensure that such shares are validly registered in the names of such dissenting persons prior to the Meeting in order to ensure that dissent rights are not lost.
The foregoing is only a summary of section 190 of the CBCA, the full text of which is attached hereto as Appendix B. Shareholders considering exercising such right of dissent should specifically refer to section 190 of the CBCA. As failure to comply strictly with the provisions of the statute may prejudice the shareholder’s right of dissent, it is suggested that any shareholder seeking to exercise such right obtain his own legal advice as to the manner and the implications of exercising such right.
As described above, the Founders, who are disinterested Shareholders, have agreed to vote all Common Shares which they beneficially own, or exercise control or direction over, directly or indirectly, (being an aggregate of 37.7% of the issued and outstanding Common Shares) in favour of the Preferred Share Resolution.
XI. ADDITIONAL INFORMATION
Additional information regarding the Corporation and its business activities is available under the Corporation’s profile on the SEDAR website located at www.sedar.com. The Corporation’s financial information is provided in the Corporation’s audited consolidated financial statements and related management discussion and analysis for its most recently reported financial year is included in the Corporations prospectus dated June 12, 2019 and may be viewed on the Corporation’s profile on the SEDAR website at www.sedar.com. Copies of the Corporation’s consolidated financial statements and related management discussion and analysis are available upon request, free of charge to Shareholders of the Corporation, by contacting the Chief Financial Officer, at the Corporation’s principal office located at 1376 Bayview Avenue, Unit 1, Toronto, Ontario, M4G 3A1.
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APPENDIX “A”
SPECIAL
RESOLUTION AUTHORIZING AN AMENDMENT TO THE CORPORATION’S ARTICLES TO ADD
CLASS A PREFERRED SHARES
BE IT RESOLVED THAT:
| 1. | the articles of Bitfarms Ltd. (the “Corporation”) be amended to create a new class of preferred shares designated as “Class A Preferred Shares”, issuable in series, such Class A Preferred Shares having attached thereto the following rights, privileges, restrictions and conditions: |
| (a) | Series: The Class A Preferred Shares may at any time or from time to time be issued in one or more series. Subject to the provisions set out herein, the board of directors of the Corporation may from time to time before the issue thereof fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of, each series of Class A Preferred Shares. |
| (b) | Priority: The Class A Preferred Shares are entitled to priority over the common shares and all other shares ranking junior to the Class A Preferred Shares with respect to the payment of dividends and the distribution of assets of the Corporation in the event of any liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs. |
| (c) | Other Preferences: The Class A Preferred Shares of any series may also be given such other preferences, not inconsistent with the provisions hereof, over the common shares and any other shares of the Corporation ranking junior to the Class A Preferred Shares, as may be determined by the board of directors of the Corporation |
| (d) | Ranking of Each Series: The Class A Preferred Shares of each series will rank on a parity with the Class A Preferred Shares of every other series with respect to priority in the payment of dividends and in the distribution of assets of the Corporation in the event of any liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs. |
| (e) | Participation Upon Liquidation, Dissolution or Winding Up: In the event of the liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs, the holders of the Class A Preferred Shares will be entitled to receive from the assets of the Corporation any cumulative dividends, whether or not declared, or declared non- cumulative dividends or amounts payable on a return of capital which are not paid in full in respect of any Class A Preferred Shares, before any amount is paid or any assets of the Corporation are distributed to the holders of any common shares or shares of any other class ranking junior to the Class A Preferred Shares. After payment to the holders of the Class A Preferred Shares of the amount so payable to them as above provided they will not be entitled to share in any further distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs. |
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| (f) | Dividends: The holders of each series of Class A Preferred Shares will be entitled to receive dividends as and when declared by the board of directors of the Corporation in respect of such series. |
| (g) | Conversion Rights: Class A Preferred Shares may be convertible into any other class of shares of the Corporation, including convertible into another series of Class A Preferred Shares. |
| (h) | Redemption: Each series of Class A Preferred Shares may be redeemable by the Corporation on such terms as may be determined by the board of directors of the Corporation. |
| (i) | Voting: Holders of any series of Class A Preferred Shares will not be entitled (except as otherwise provided by law and except for meetings of the holders of Class A Preferred Shares or a series thereof) to receive notice of, attend at, or vote at any meeting of shareholders of the Corporation, unless the board of directors of the Corporation determines otherwise, in which case voting rights will only be provided in circumstances where the Corporation has failed to pay a certain number of dividends on such series of Class A Preferred Shares, which determination and number of dividends and any other terms in respect of such voting rights, will be determined by the board of directors of the Corporation and set out in the designations, rights, privileges, restrictions and conditions of such series of Class A Preferred Shares. |
| 2. | any officer or director of the Corporation be, and is hereby authorized, for and on behalf of the Corporation, to execute and deliver such documents and instruments and to take such other actions as such officer or director may determine to be necessary or advisable to implement this resolution and the matters authorized hereby including, without limitation, the execution and filing of articles of amendment under the Canada Business Corporations Act, such determination to be conclusively evidenced by the execution and delivery of such documents or instruments and the taking of any such actions. |
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APPENDIX “B”
SECTIONS 190 OF THE CANADA BUSINESS CORPORATIONS ACT (CANADA)
Right to dissent
190 (1) Subject to sections 191 and 241, a holder of shares of any class of a corporation may dissent if the corporation is subject to an order under paragraph 192(4)(d) that affects the holder or if the corporation resolves to
(a) amend its articles under section 173 or 174 to add, change or remove any provisions restricting or constraining the issue, transfer or ownership of shares of that class;
(b) amend its articles under section 173 to add, change or remove any restriction on the business or businesses that the corporation may carry on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188;
(e) sell, lease or exchange all or substantially all its property under subsection 189(3); or
(f) carry out a going-private transaction or a squeeze-out transaction.
Further right
(2) A holder of shares of any class or series of shares entitled to vote under section 176 may dissent if the corporation resolves to amend its articles in a manner described in that section.
If one class of shares
(2.1) The right to dissent described in subsection (2) applies even if there is only one class of shares.
Payment for shares
(3) In addition to any other right the shareholder may have, but subject to subsection (26), a shareholder who complies with this section is entitled, when the action approved by the resolution from which the shareholder dissents or an order made under subsection 192(4) becomes effective, to be paid by the corporation the fair value of the shares in respect of which the shareholder dissents, determined as of the close of business on the day before the resolution was adopted or the order was made.
No partial dissent
(4) A dissenting shareholder may only claim under this section with respect to all the shares of a class held on behalf of any one beneficial owner and registered in the name of the dissenting shareholder.
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Objection
(5) A dissenting shareholder shall send to the corporation, at or before any meeting of shareholders at which a resolution referred to in subsection (1) or (2) is to be voted on, a written objection to the resolution, unless the corporation did not give notice to the shareholder of the purpose of the meeting and of their right to dissent.
Notice of resolution
(6) The corporation shall, within ten days after the shareholders adopt the resolution, send to each shareholder who has filed the objection referred to in subsection (5) notice that the resolution has been adopted, but such notice is not required to be sent to any shareholder who voted for the resolution or who has withdrawn their objection.
Demand for payment
(7) A dissenting shareholder shall, within twenty days after receiving a notice under subsection
(6) or, if the shareholder does not receive such notice, within twenty days after learning that the resolution has been adopted, send to the corporation a written notice containing
(a) the shareholder’s name and address;
(b) the number and class of shares in respect of which the shareholder dissents; and
(c) a demand for payment of the fair value of such shares.
Share certificate
(8) A dissenting shareholder shall, within thirty days after sending a notice under subsection (7), send the certificates representing the shares in respect of which the shareholder dissents to the corporation or its transfer agent.
Forfeiture
(9) A dissenting shareholder who fails to comply with subsection (8) has no right to make a claim under this section.
Endorsing certificate
(10) A corporation or its transfer agent shall endorse on any share certificate received under subsection (8) a notice that the holder is a dissenting shareholder under this section and shall forthwith return the share certificates to the dissenting shareholder.
Suspension of rights
(11) On sending a notice under subsection (7), a dissenting shareholder ceases to have any rights as a shareholder other than to be paid the fair value of their shares as determined under this section except where
| o | (a) the shareholder withdraws that notice before the corporation makes an offer under subsection (12), |
B-2
| o | (b) the corporation fails to make an offer in accordance with subsection (12) and the shareholder withdraws the notice, or |
| o | (c) the directors revoke a resolution to amend the articles under subsection 173(2) or 174(5), terminate an amalgamation agreement under subsection 183(6) or an application for continuance under subsection 188(6), or abandon a sale, lease or exchange under subsection 189(9), |
in which case the shareholder’s rights are reinstated as of the date the notice was sent.
Offer to pay
(12) A corporation shall, not later than seven days after the later of the day on which the action approved by the resolution is effective or the day the corporation received the notice referred to in subsection (7), send to each dissenting shareholder who has sent such notice
(a) a written offer to pay for their shares in an amount considered by the directors of the corporation to be the fair value, accompanied by a statement showing how the fair value was determined; or
(b) if subsection (26) applies, a notification that it is unable lawfully to pay dissenting shareholders for their shares.
Same terms
(13) Every offer made under subsection (12) for shares of the same class or series shall be on the same terms.
Payment
(14) Subject to subsection (26), a corporation shall pay for the shares of a dissenting shareholder within ten days after an offer made under subsection (12) has been accepted, but any such offer lapses if the corporation does not receive an acceptance thereof within thirty days after the offer has been made.
Corporation may apply to court
(15) Where a corporation fails to make an offer under subsection (12), or if a dissenting shareholder fails to accept an offer, the corporation may, within fifty days after the action approved by the resolution is effective or within such further period as a court may allow, apply to a court to fix a fair value for the shares of any dissenting shareholder.
Shareholder application to court
(16) If a corporation fails to apply to a court under subsection (15), a dissenting shareholder may apply to a court for the same purpose within a further period of twenty days or within such further period as a court may allow.
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Venue
(17) An application under subsection (15) or (16) shall be made to a court having jurisdiction in the place where the corporation has its registered office or in the province where the dissenting shareholder resides if the corporation carries on business in that province.
No security for costs
(18) A dissenting shareholder is not required to give security for costs in an application made under subsection (15) or (16).
Parties
(19) On an application to a court under subsection (15) or (16),
| o | (a) all dissenting shareholders whose shares have not been purchased by the corporation shall be joined as parties and are bound by the decision of the court; and |
| o | (b) the corporation shall notify each affected dissenting shareholder of the date, place and consequences of the application and of their right to appear and be heard in person or by counsel. |
Powers of court
(20) On an application to a court under subsection (15) or (16), the court may determine whether any other person is a dissenting shareholder who should be joined as a party, and the court shall then fix a fair value for the shares of all dissenting shareholders.
Appraisers
(21) A court may in its discretion appoint one or more appraisers to assist the court to fix a fair value for the shares of the dissenting shareholders.
Final order
(22) The final order of a court shall be rendered against the corporation in favour of each dissenting shareholder and for the amount of the shares as fixed by the court.
Interest
(23) A court may in its discretion allow a reasonable rate of interest on the amount payable to each dissenting shareholder from the date the action approved by the resolution is effective until the date of payment.
Notice that subsection (26) applies
(24) If subsection (26) applies, the corporation shall, within ten days after the pronouncement of an order under subsection (22), notify each dissenting shareholder that it is unable lawfully to pay dissenting shareholders for their shares.
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Effect where subsection (26) applies
(25) If subsection (26) applies, a dissenting shareholder, by written notice delivered to the corporation within thirty days after receiving a notice under subsection (24), may
(a) withdraw their notice of dissent, in which case the corporation is deemed to consent to the withdrawal and the shareholder is reinstated to their full rights as a shareholder; or
(b) retain a status as a claimant against the corporation, to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the corporation but in priority to its shareholders.
Limitation
(26) A corporation shall not make a payment to a dissenting shareholder under this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its liabilities as they become due; or
(b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities.
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Exhibit 99.3
Bitfarms Ltd.
(the “Corporation”)
FORM OF PROXY (“PROXY”)
Special Meeting
February 4, 2020 at 9:30 a.m. (Toronto time)
Offices of McCarthy Tétrault LLP, 66 Wellington Street West
Suite 5300, Toronto, Ontario
(the “Meeting”)
| RECORD DATE: | January 6, 2020 | |
| CONTROL NUMBER: | ||
| SEQUENCE #: | ||
| FILING DEADLINE FOR PROXY: | January 31, 2020 at 9:30 a.m. (Toronto time) |
| VOTING METHOD | |
| INTERNET |
Go to www.voteproxyonline.com and enter the 12 digit control number above |
| FACSIMILE | 416-595-9593 |
| MAIL or HAND DELIVERY |
TSX Trust Company 301 - 100 Adelaide Street West |
The undersigned hereby appoints Ryan Hornby, General Counsel and Executive Vice President of the Corporation, whom failing Wes Fulford, Chief Executive Officer of the Corporation (the “Management Nominees”), or instead of any of them, the following Appointee
| Please print appointee name |
as proxyholder on behalf of the undersigned with the power of substitution to attend, act and vote for and on behalf of the undersigned in respect of all matters that may properly come before the Meeting and at any adjournment(s) or postponement(s) thereof, to the same extent and with the same power as if the undersigned were personally present at the said Meeting or such adjournment(s) or postponement(s) thereof in accordance with voting instructions, if any, provided below.
| - SEE VOTING GUIDELINES ON REVERSE - |
| RESOLUTIONS – MANAGEMENT VOTING RECOMMENDATIONS ARE INDICATED BY HIGHLIGHTED TEXT ABOVE THE BOXES |
| 1.Approval and authorization to amend the articles of incorporation of the Corporation to create a new class of Preferred Shares | FOR | AGAINST |
| To consider and, if deemed appropriate, to pass, with or without variation, a special resolution of shareholders to authorize and approve an amendment to the articles of incorporation of the Corporation to allow for the creation of a new class of preferred shares to be designated as “Class A Preferred Shares”, as more particularly described in the accompanying management information circular. |  |
|
This proxy revokes and supersedes all earlier dated proxies and MUST BE SIGNED
| PLEASE PRINT NAME | Signature of registered owner(s) | Date (MM/DD/YYYY) |
Proxy Voting – Guidelines and Conditions
| 1. | THIS PROXY IS SOLICITED BY MANAGEMENT OF THE CORPORATION. | |
| 2. | THIS PROXY SHOULD BE READ IN CONJUNCTION WITH THE MEETING MATERIALS PRIOR TO VOTING. | |
| 3. | If you appoint the Management Nominees to vote your securities, they will vote in accordance with your instructions or, if no instructions are given, in accordance with the Management Voting Recommendations highlighted for each Resolution on the reverse. If you appoint someone else to vote your securities, they will also vote in accordance with your instructions or, if no instructions are given, as they in their discretion choose. | |
| 4. | This proxy confers discretionary authority on the person named to vote in his or her discretion with respect to amendments or variations to the matters identified in the Notice of the Meeting accompanying the proxy or such other matters which may properly come before the Meeting or any adjournment or postponement thereof. | |
| 5. | Each security holder has the right to appoint a person other than the Management Nominees specified herein to represent them at the Meeting or any adjournment or postponement thereof. Such right may be exercised by inserting in the space labeled “Please print appointee name”, the name of the person to be appointed, who need not be a security holder of the Corporation. | |
| 6. | To be valid, this proxy must be signed. Please date the proxy. If the proxy is not dated, it is deemed to bear the date of its mailing to the security holders of the Corporation. | |
| 7. | To be valid, this proxy must be filed using one of the Voting Methods and must be received by TSX Trust Company before the Filing Deadline for Proxies, noted on the reverse or in the case of any adjournment or postponement of the Meeting not less than 48 hours (Saturdays, Sundays and holidays excepted) before the time of the adjourned or postponed meeting. Late proxies may be accepted or rejected by the Chairman of the Meeting in his discretion, and the Chairman is under no obligation to accept or reject any particular late proxy. | |
| 8. | If the security holder is a corporation, the proxy must be executed by an officer or attorney thereof duly authorized, and the security holder may be required to provide documentation evidencing the signatory’s power to sign the proxy. | |
| 9. | Guidelines for proper execution of the proxy are available at www.stac.ca. Please refer to the Proxy Protocol. |
Investor inSite
TSX Trust Company offers at no cost to security holders, the convenience of secure 24-hour access to all data relating to their account including summary of holdings, transaction history, and links to valuable security holder forms and Frequently Asked Questions.
To register, please visit
www.tsxtrust.com/investorinsite
Click on, “Register Online Now” and complete the registration form. Call us toll free at 1-866-600-5869 with any questions.
| www.tsxtrust.com VANCOUVER CALGARY TORONTO MONTRÉAL |
Exhibit 99.4
TSX TRUST COMPANY
VIA ELECTRONIC TRANSMISSION
January 14, 2020
TO ALL APPLICABLE EXCHANGES AND COMMISSIONS:
| RE: | BITFARMS LTD. |
We are pleased to confirm that copies of the following proxy-related materials were mailed on January 14, 2020 to the Registered Securityholders and the Non-Objecting Beneficial Owners (“NOBO”):
| 1 | Proxy - Registered Securityholders | |
| 2 | Voting Instruction Form - NOBOs | |
| 3 | Notice of Meeting Combined with Information Circular | |
| 4 | Proxy Return Envelope |
Yours truly,
TSX Trust Company
“Kieran Webb”
Relationship Manager
|
VANCOUVER 650 West Georgia Street, Vancouver, BC V6B 4N9
T 604 689-3334 |
CALGARY 300-5th Avenue SW, 10th floor
T 403 218-2800 |
TORONTO 301 - 100 Adelaide Street West
Toll Free 1-866-600-5869 T 416 361-0930 |
MONTRÉAL 1800 - 1190, avenue des
T 514 395-5964 |
Exhibit 99.5
BITFARMS LTD.
SPECIAL MEETING OF HOLDERS OF SHARES
HELD ON FEBRUARY 4, 2020
Report of Voting Results under Section 11.3 of National Instrument 51-102
The following matter was voted on at the special meeting of holders of common shares of Bitfarms Ltd. (the “Company”) held on February 4, 2020. Details of this matter is set out in the Company’s notice of meeting and management information circular dated January 2, 2020, issued in connection with the meeting.
1. Approval of Articles of Amendment to Create New Clause of Preferred Shares
A special resolution approving articles of amendment to create a new class of preferred shares was passed by shareholders. The vote was conducted by ballot. The number of shares voted by proxy for or against such resolution was as indicated below:
| Votes For | % Votes For | Votes Against | % Votes Against | |||
| 12,909,909 | 99.453 | 70,994 | 0.547 |
Dated February 4, 2020.
BITFARMS LTD.
| By: | “Ryan Hornby” | |
| Ryan Hornby | ||
| General Counsel and Corporate Secretary |
Exhibit 99.6
Bitfarms Reaffirms Commitment to Blockchain
Research at ETS, one of Quebec’s
Leading Engineering Schools
Toronto, Ontario and Brossard, Québec (February 20, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is pleased to announce and reaffirm its support to the “High-Performance Blockchain Infrastructure for IoT Applications” project at the École de technologie supérieure, ÉTS Montréal, University of Québec (“ETS”).
Bitfarms is committed to supporting ETS through monetary and in-kind contributions through to 2022. ETS will also receive funding for the project from the Natural Sciences and Engineering Research Council of Canada.
Under the leadership of Professor Kaiwen Zhang, the group of students is focused on developing novel blockchain applications including the following:
| ● | Development of an e-health blockchain platform | |
| ● | Survey of use cases and Proof-of-Concept development for Smart Homes | |
| ● | Technical improvements to DLT (distributed ledger technology) for IoT devices | |
| ● | Integration of M2M (machine to machine) communication for efficient cryptocurrency mining |
As part of the Company’s support of ETS’ project, students involved with the collaboration will frequently visit our computing centres and meet with our team for technical support. Bitfarms will retain certain commercial intellectual property rights development through the project while ETS will retain the right to use intellectual property for academic purposes.
“We are grateful for Bitfarms’ continued commitment to ETS and the funding of blockchain research in Québec” said Professor Zhang.
Blockchain technologies have the potential to profoundly impact both the public and private sectors. Research will be instrumental in demonstrating the utility of blockchains in the IoT domain, as well as the feasibility of implementing a blockchain platform using the Company’s infrastructure. The Company supports the development of blockchain technologies in Québec and believes it will help to generate strong demand for a skilled workforce, including for the engineers trained during this collaboration.
“Bitfarms is invested in the research and development of blockchain innovations to improve the usability of blockchain systems for applications beyond cryptocurrency”, commented Wes Fulford, Chief Executive Officer. “This project demonstrates our support towards the growth of the high-tech industry, and our view that Québec, a growing technology hub, can play an important role in supporting digital innovation.”
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor inquiries, please contact:
Sonia Tercas
Director, Investor Relations
+1.647.348.9207
For media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
This news release may contain assumptions, estimates, and other forward-looking statements regarding future events. Such forward-looking statements involve inherent risks and uncertainties and are subject to factors, many of which are beyond the Company’s control that may cause actual results or performance to differ materially from those currently anticipated in such statements.
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Exhibit 99.7
NEWS RELEASE
Pierre-Luc Quimper Files Early Warning Report
February 28, 2020 – Pierre-Luc Quimper announces that he has filed an early warning report (the “Early Warning Report”) in accordance with National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, in connection with the purchase and sale of common shares (“Common Shares”) of Bitfarms Ltd. (the “Corporation”), as described below.
When the Corporation became a reporting issuer on June 13, 2019 (upon being issued a receipt for its final prospectus dated June 12, 2019), Mr. Quimper had control and direction (by way of Prosum Management Inc., a corporation of which he owns 100% of the outstanding securities) over 8,967,845 Common Shares, representing approximately 15.71% of the then-outstanding Common Shares.
Between June 12, 2019 and the time at which he seized to have control and direction over 10% of the of the outstanding Common Shares (which occurred on October 21, 2019), Mr. Quimper has sold an aggregate of 642,208 Common Shares and purchased an aggregate of 8,000 Common Shares (for a net decrease of 634,208 Common Shares), as set forth in the table below. As a result, Mr. Quimper holds fewer than 10% of the outstanding Common Shares.
| Date | Number of Common Shares Sold |
Number of Common Shares Purchased |
Market | Price per Common Share |
Total Consideration | |||||
| July 15, 2019 | 130,208 | - | Private sale | $0.0008 | $104.1664 | |||||
| July 15, 2019 | 100,000 | - | Private sale | $0.99 | $99,000 | |||||
| September 23, 2019 | 111,000 | - | TSX Venture Exchange (“TSXV”) |
$0.9372 | $104,029.20 | |||||
| September 24, 2019 | 20,000 | - | TSXV | $0.95 | $19,000 | |||||
| September 25, 2019 | 14,500 | - | TSXV | $0.8586 | $12,449.70 | |||||
| September 26, 2019 | 20,000 | - | TSXV | $0.8445 | $16,890 | |||||
| September 27, 2019 | 2,500 | - | TSXV | $0.79 | $1,975 | |||||
| September 27, 2019 | 2,500 | - | TSXV | $0.81 | $2,025 | |||||
| September 27, 2019 | 35,000 | - | TSXV | $0.86 | $30,100 | |||||
| September 27, 2019 | 10,000 | - | TSXV | $0.87 | $8,700 | |||||
| September 30, 2019 | 2,500 | - | TSXV | $0.77 | $1,925 | |||||
| September 30, 2019 | 2,500 | - | TSXV | $0.78 | $1,950 |
| Date | Number of Common Shares Sold |
Number of Common Shares Purchased |
Market | Price per Common Share |
Total Consideration | |||||
| September 30, 2019 | 5,000 | - | TSXV | $0.83 | $4,150 | |||||
| October 11, 2019 | 1,000 | - | TSXV | $0.55 | $550 | |||||
| October 11, 2019 | - | 5,000 | TSXV | $0.54 | $2,700 | |||||
| October 11, 2019 | 3,000 | - | TSXV | $0.56 | $1,680 | |||||
| October 11, 2019 | 3,500 | - | TSXV | $0.57 | $1,995 | |||||
| October 11, 2019 | 22,500 | - | TSXV | $0.58 | $13,050 | |||||
| October 11, 2019 | 44,500 | - | TSXV | $0.60 | $26,700 | |||||
| October 11, 2019 | 10,000 | - | TSXV | $0.61 | $6,100 | |||||
| October 11, 2019 | 3,500 | - | TSXV | $0.62 | $2,170 | |||||
| October 11, 2019 | 1,000 | - | TSXV | $0.625 | $625 | |||||
| October 11, 2019 | 2,000 | - | TSXV | $0.64 | $1,280 | |||||
| October 15, 2019 | - | 1,000 | TSXV | $0.53 | $530 | |||||
| October 15, 2019 | - | 1,000 | TSXV | $0.54 | $540 | |||||
| October 15, 2019 | 3,000 | - | TSXV | $0.54 | $1,620 | |||||
| October 15, 2019 | - | 1,000 | TSXV | $0.55 | $550 | |||||
| October 15, 2019 | 1,000 | - | TSXV | $0.56 | $560 | |||||
| October 15, 2019 | 1,000 | - | TSXV | $0.60 | $600 | |||||
| October 16, 2019 | 500 | - | TSXV | $0.51 | $255 | |||||
| October 16, 2019 | 14,500 | - | TSXV | $0.52 | $7,540 | |||||
| October 16, 2019 | 5,000 | - | TSXV | $0.53 | $2,650 | |||||
| October 17, 2019 | 4,000 | - | TSXV | $0.51 | $2,040 | |||||
| October 17, 2019 | 10,000 | - | TSXV | $0.52 | $5,200 | |||||
| October 17, 2019 | 10,000 | - | TSXV | $0.53 | $5,300 | |||||
| October 17, 2019 | 5,000 | - | TSXV | $0.54 | $2,700 | |||||
| October 17, 2019 | 5,000 | - | TSXV | $0.55 | $2,750 | |||||
| October 18, 2019 | 4,000 | - | TSXV | $0.51 | $2,040 | |||||
| October 18, 2019 | 24,000 | - | TSXV | $0.52 | $12,480 | |||||
| October 18, 2019 | 2,000 | - | TSXV | $0.53 | $1,060 | |||||
| October 21, 2019 | 6,500 | - | TSXV | $0.51 | $3,315 |
Mr. Quimper is party to an escrow agreement dated June 12, 2019 (the “Escrow Agreement”), under which his Common Shares are held in escrow by TSX Trust Company and will be released as per the following schedule:
| Date | Number of Common Shares to be Released | |
| July 16, 2020 | 896,784 | |
| January 16, 2021 | 896,784 | |
| July 16, 2021 | 1,345,177 | |
| January 16, 2022 | 1,345,177 | |
| July 16, 2022 | 3,587,139 |
The Escrow Agreement does not limit Mr. Quimper’s ability to exercise the voting rights attached to his Common Shares held in escrow.
A copy of the Escrow Agreement is available on SEDAR.
2
Mr. Quimper, whose address is 630 Sherbrooke Street West, Suite 301, Montreal, Quebec H3A 1E4, holds his securities of the Corporation for investment purposes. Depending upon the circumstances, Mr. Quimper may, from time to time, acquire additional securities of the Corporation or sell all or a portion of the securities of the Corporation previously acquired.
For further information or to obtain a copy of the Early Warning Report, please contact:
Ali Amadee, Partner
Dentons Canada LLP
1 Place Ville Marie, 39th Floor
Montreal, QC H3B 4M7
(514) 878-8876
3
Exhibit 99.8
Form 62-103F1
REQUIRED DISCLOSURE UNDER THE EARLY WARNING REQUIREMENTS
Item 1– Security and Reporting Issuer
| 1.1 | State the designation of securities to which this report relates and the name and address of the head office of the issuer of the securities. |
Common shares (“Common Shares”) of Bitfarms Ltd. (the “Issuer”), head office located at 1376 Bayview Avenue, Unit 1, Toronto, Ontario, M4G 3A1.
| 1.2 | State the name of the market in which the transaction or other occurrence that triggered the requirement to file this report took place. |
See item 2.2 below.
Item 2 – Identity of the Acquiror
| 2.1 | State the name and address of the acquiror. |
Pierre-Luc Quimper (the “Acquiror”)
630 Sherbrooke Street West, Suite 301
Montreal, Quebec H3A 1E4.
| 2.2 | State the date of the transaction or other occurrence that triggered the requirement to file this report and briefly describe the transaction or other occurrence. |
When the Issuer became a reporting issuer on June 13, 2019 (upon being issued a receipt for its final prospectus dated June 12, 2019), the Acquiror had control and direction (by way of Prosum Management Inc., a corporation of which he owns 100% of the outstanding securities) over 8,967,845 Common Shares, representing approximately 15.71% of the then-outstanding Common Shares.
Between June 12, 2019 and the time at which he seized to have control and direction over 10% of the of the outstanding Common Shares (which occurred on October 21, 2019), Mr. Quimper has sold an aggregate of 642,208 Common Shares and purchased an aggregate of 8,000 Common Shares (for a net decrease of 634,208 Common Shares), as set forth in the table below. As a result, Mr. Quimper holds fewer than 10% of the outstanding Common Shares.
| Date | Number of Common Shares Sold | Number of Common Shares Purchased |
Market | Price per Common Share | Total Consideration | |||||
| July 15, 2019 | 130,208 | - | Private sale | $0.0008 | $104.1664 | |||||
| July 15, 2019 | 100,000 | - | Private sale | $0.99 | $99,000 | |||||
| September 23, 2019 | 111,000 | - | TSX Venture Exchange (“TSXV”) |
$0.9372 | $104,029.20 | |||||
| September 24, 2019 | 20,000 | - | TSXV | $0.95 | $19,000 | |||||
| September 25, 2019 | 14,500 | - | TSXV | $0.8586 | $12,449.70 | |||||
| September 26, 2019 | 20,000 | - | TSXV | $0.8445 | $16,890 | |||||
| September 27, 2019 | 2,500 | - | TSXV | $0.79 | $1,975 | |||||
| September 27, 2019 | 2,500 | - | TSXV | $0.81 | $2,025 | |||||
| September 27, 2019 | 35,000 | - | TSXV | $0.86 | $30,100 | |||||
| September 27, 2019 | 10,000 | - | TSXV | $0.87 | $8,700 | |||||
| September 30, 2019 | 2,500 | - | TSXV | $0.77 | $1,925 | |||||
| September 30, 2019 | 2,500 | - | TSXV | $0.78 | $1,950 | |||||
| September 30, 2019 | 5,000 | - | TSXV | $0.83 | $4,150 | |||||
| October 11, 2019 | 1,000 | - | TSXV | $0.55 | $550 | |||||
| October 11, 2019 | - | 5,000 | TSXV | $0.54 | $2,700 | |||||
| October 11, 2019 | 3,000 | - | TSXV | $0.56 | $1,680 | |||||
| October 11, 2019 | 3,500 | - | TSXV | $0.57 | $1,995 | |||||
| October 11, 2019 | 22,500 | - | TSXV | $0.58 | $13,050 | |||||
| October 11, 2019 | 44,500 | - | TSXV | $0.60 | $26,700 | |||||
| October 11, 2019 | 10,000 | - | TSXV | $0.61 | $6,100 | |||||
| October 11, 2019 | 3,500 | - | TSXV | $0.62 | $2,170 | |||||
| October 11, 2019 | 1,000 | - | TSXV | $0.625 | $625 | |||||
| October 11, 2019 | 2,000 | - | TSXV | $0.64 | $1,280 | |||||
| October 15, 2019 | - | 1,000 | TSXV | $0.53 | $530 | |||||
| October 15, 2019 | - | 1,000 | TSXV | $0.54 | $540 | |||||
| October 15, 2019 | 3,000 | - | TSXV | $0.54 | $1,620 | |||||
| October 15, 2019 | - | 1,000 | TSXV | $0.55 | $550 | |||||
| October 15, 2019 | 1,000 | - | TSXV | $0.56 | $560 | |||||
| October 15, 2019 | 1,000 | - | TSXV | $0.60 | $600 | |||||
| October 16, 2019 | 500 | - | TSXV | $0.51 | $255 | |||||
| October 16, 2019 | 14,500 | - | TSXV | $0.52 | $7,540 | |||||
| October 16, 2019 | 5,000 | - | TSXV | $0.53 | $2,650 | |||||
| October 17, 2019 | 4,000 | - | TSXV | $0.51 | $2,040 | |||||
| October 17, 2019 | 10,000 | - | TSXV | $0.52 | $5,200 | |||||
| October 17, 2019 | 10,000 | - | TSXV | $0.53 | $5,300 | |||||
| October 17, 2019 | 5,000 | - | TSXV | $0.54 | $2,700 | |||||
| October 17, 2019 | 5,000 | - | TSXV | $0.55 | $2,750 | |||||
| October 18, 2019 | 4,000 | - | TSXV | $0.51 | $2,040 | |||||
| October 18, 2019 | 24,000 | - | TSXV | $0.52 | $12,480 | |||||
| October 18, 2019 | 2,000 | - | TSXV | $0.53 | $1,060 | |||||
| October 21, 2019 | 6,500 | - | TSXV | $0.51 | $3,315 |
2
| 2.3 | State the names of any joint actors. |
Not applicable.
Item 3– Interest in Securities of the Reporting Issuer
| 3.1 | State the designation and number or principal amount of securities acquired or disposed of that triggered the requirement to file the report and the change in the acquiror’s securityholding percentage in the class of securities. |
See item 2.2 above.
| 3.2 | State whether the acquiror acquired or disposed ownership of, or acquired or ceased to have control over, the securities that triggered the requirement to file the report. |
See item 2.2 above.
3
| 3.3 | If the transaction involved a securities lending arrangement, state that fact. |
Not applicable.
| 3.4 | State the designation and number or principal amount of securities and the acquiror’s securityholding percentage in the class of securities, immediately before and after the transaction or other occurrence that triggered the requirement to file this report. |
See item 2.2 above.
| 3.5 | State the designation and number or principal amount of securities and the acquiror’s securityholding percentage in the class of securities referred to in Item 3.4 over which (a) the acquiror, either alone or together with any joint actors, has ownership and control, (b) the acquiror, either alone or together with any joint actors, has ownership but control is held by persons or companies other than the acquiror or any joint actor, and (c) the acquiror, either alone or together with any joint actors, has exclusive or shared control but does not have ownership. |
See item 2.2 above.
| 3.6 | If the acquiror or any of its joint actors has an interest in, or right or obligation associated with, a related financial instrument involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the related financial instrument and its impact on the acquiror’s securityholdings. |
See item 2.2 above.
| 3.7 | If the acquiror or any of its joint actors is a party to a securities lending arrangement involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the arrangement including the duration of the arrangement, the number or principal amount of securities involved and any right to recall the securities or identical securities that have been transferred or lent under the arrangement. State if the securities lending arrangement is subject to the exception provided in section 5.7 of NI 62-104. |
Not applicable.
| 3.8 | If the acquiror or any of its joint actors is a party to an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the acquiror’s economic exposure to the security of the class of securities to which this report relates, describe the material terms of the agreement, arrangement or understanding. |
Not applicable.
4
Item 4– Consideration Paid
| 4.1 | State the value, in Canadian dollars, of any consideration paid or received per security and in total. |
See item 2.2 above.
| 4.2 | In the case of a transaction or other occurrence that did not take place on a stock exchange or other market that represents a published market for the securities, including an issuance from treasury, disclose the nature and value, in Canadian dollars, of the consideration paid or received by the acquiror. |
See item 2.2 above.
| 4.3 | If the securities were acquired or disposed of other than by purchase or sale, describe the method of acquisition or disposition. |
Not applicable.
Item 5 – Purpose of the Transaction
State the purpose or purposes of the acquiror and any joint actors for the acquisition or disposition of securities of the reporting issuer. Describe any plans or future intentions which the acquiror and any joint actors may have which relate to or would result in any of the following:
| (a) | the acquisition of additional securities of the reporting issuer, or the disposition of securities of the reporting issuer; |
| (b) | a corporate transaction, such as a merger, reorganization or liquidation, involving the reporting issuer or any of its subsidiaries; |
| (c) | a sale or transfer of a material amount of the assets of the reporting issuer or any of its subsidiaries; |
| (d) | a change in the board of directors or management of the reporting issuer, including any plans or intentions to change the number or term of directors or to fill any existing vacancy on the board; |
| (e) | a material change in the present capitalization or dividend policy of the reporting issuer; |
| (f) | a material change in the reporting issuer’s business or corporate structure; |
| (g) | a change in the reporting issuer’s charter, bylaws or similar instruments or another action which might impede the acquisition of control of the reporting issuer by any person or company; |
| (h) | a class of securities of the reporting issuer being delisted from, or ceasing to be authorized to be quoted on, a marketplace; |
| (i) | the issuer ceasing to be a reporting issuer in any jurisdiction of Canada; |
| (j) | a solicitation of proxies from securityholders; |
| (k) | an action similar to any of those enumerated above. |
5
The Acquiror holds his securities of the Issuer for investment purposes. Depending upon the circumstances, the Acquiror may, from time to time, acquire additional securities of the Issuer or sell all or a portion of the securities of the Issuer previously acquired.
Item 6 – Agreements, Arrangements, Commitments or Understandings With Respect to Securities of the Reporting Issuer
Describe the material terms of any agreements, arrangements, commitments or understandings between the acquiror and a joint actor and among those persons and any person with respect to securities of the class of securities to which this report relates, including but not limited to the transfer or the voting of any of the securities, finder’s fees, joint ventures, loan or option arrangements, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Include such information for any of the securities that are pledged or otherwise subject to a contingency, the occurrence of which would give another person voting power or investment power over such securities, except that disclosure of standard default and similar provisions contained in loan agreements need not be included.
The Acquiror is party to an escrow agreement dated June 12, 2019 (the “Escrow Agreement”), under which his Common Shares are held in escrow by TSX Trust Company and will be released as per the following schedule:
| Date | Number of Common Shares to be Released | |
| July 16, 2020 | 896,784 | |
| January 16, 2021 | 896,784 | |
| July 16, 2021 | 1,345,177 | |
| January 16, 2022 | 1,345,177 | |
| July 16, 2022 | 3,587,139 |
The Escrow Agreement does not limit the Acquiror’s ability to exercise the voting rights attached to his Common Shares held in escrow.
A copy of the Escrow Agreement is available on SEDAR.
Item 7 – Change in material fact
If applicable, describe any change in a material fact set out in a previous report filed by the acquiror under the early warning requirements or Part 4 in respect of the reporting issuer’s securities.
Not applicable.
Item 8 – Exemption
If the acquiror relies on an exemption from requirements in securities legislation applicable to formal bids for the transaction, state the exemption being relied on and describe the facts supporting that reliance.
Not applicable.
6
Certificate
I, as the Acquiror, certify, or I, as the agent filing the report on behalf of an Acquiror, certify to the best of my knowledge, information and belief, that the statements made in this report are true and complete in every respect.
Dated this 28th day of February, 2020
| (signed) “Pierre-Luc Quimper” | |
| PIERRE-LUC QUIMPER |
7
Exhibit 99.9
Bitfarms Announces Resignation of CEO and Issuance of Common Shares
Toronto, Ontario and Brossard, Québec (March 11, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) announced today that Wes Fulford has elected to resign as Chief Executive Officer and Director of Bitfarms and its subsidiaries in order to pursue another professional opportunity. Mr. Fulford will remain a consultant to the Company for a limited period in order to assist with transitional and other matters.
The Board of Directors plans to commence an executive search to identify a permanent successor. In the interim, Emiliano Grodzki, Chief Strategy Officer and Director, will act as interim CEO. As a founder of the Company with strong business experience, Emiliano will oversee the execution of the Company’s plans in the near-term.
“On behalf of the Board of Directors, I would like to thank Wes for his many contributions to Bitfarms over the past two years. Under Wes’ stewardship, Bitfarms has successfully positioned itself as a leader within the North American public markets. We wish him all the best in his future endeavours,” commented Nicolas Bonta, Chairman of the Board of Directors.
“It’s been an incredible experience working with the team at Bitfarms. We became the first cryptocurrency company to successfully clear a prospectus with the Ontario Securities Commission, a testament to our operational expertise, governance and transparency. In addition, Bitfarms was the only publicly traded blockchain infrastructure company to raise significant new capital last year, despite challenging market conditions. I look forward to participating in the growth of this business as a supportive shareholder,” added Wes Fulford.
In addition to customary arrangements, the Company has agreed, subject to receipt of regulatory approval, to issue 500,000 common shares to Mr. Fulford in consideration for past services rendered and to satisfy certain historical entitlements. These common shares have a deemed value of $0.54 per share.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor inquiries, please contact:
Sonia Tercas
Director, Investor Relations
+1.647.348.9207
For media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward- looking information. The forward-looking statements contained in this press release are made as of the date of this press release. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Exhibit 99.10
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
March 11, 2020
Item 3 News Release
The press release attached as Schedule “A” was released over Business Wire on March 11, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
Wes Fulford elected to resign as Chief Executive Officer and Director of Bitfarms and its subsidiaries in order to pursue another professional opportunity. Mr. Fulford will remain a consultant to the Company for a limited period in order to assist with transitional and other matters.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
Ryan Hornby
Executive Vice President & General Counsel Bitfarms Ltd.
(647) 348-9207
Item 9 Date of Report
March 21, 2020
Schedule “A”
Bitfarms Announces Resignation of CEO and Issuance of Common Shares
Toronto, Ontario and Brossard, Québec (March 11, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) announced today that Wes Fulford has elected to resign as Chief Executive Officer and Director of Bitfarms and its subsidiaries in order to pursue another professional opportunity. Mr. Fulford will remain a consultant to the Company for a limited period in order to assist with transitional and other matters.
The Board of Directors plans to commence an executive search to identify a permanent successor. In the interim, Emiliano Grodzki, Chief Strategy Officer and Director, will act as interim CEO. As a founder of the Company with strong business experience, Emiliano will oversee the execution of the Company’s plans in the near-term.
“On behalf of the Board of Directors, I would like to thank Wes for his many contributions to Bitfarms over the past two years. Under Wes’ stewardship, Bitfarms has successfully positioned itself as a leader within the North American public markets. We wish him all the best in his future endeavours,” commented Nicolas Bonta, Chairman of the Board of Directors.
“It’s been an incredible experience working with the team at Bitfarms. We became the first cryptocurrency company to successfully clear a prospectus with the Ontario Securities Commission, a testament to our operational expertise, governance and transparency. In addition, Bitfarms was the only publicly traded blockchain infrastructure company to raise significant new capital last year, despite challenging market conditions. I look forward to participating in the growth of this business as a supportive shareholder,” added Wes Fulford.
In addition to customary arrangements, the Company has agreed, subject to receipt of regulatory approval, to issue 500,000 common shares to Mr. Fulford in consideration for past services rendered and to satisfy certain historical entitlements. These common shares have a deemed value of $0.54 per share.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor inquiries, please contact:
Sonia Tercas
Director, Investor Relations
+1.647.348.9207
For media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward- looking information. The forward-looking statements contained in this press release are made as of the date of this press release. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Exhibit 99.11
Bitfarms Provides Update Regarding Impact of COVID-19 and Cost Efficiency Measures
TORONTO & BROSSARD, Québec--(BUSINESS WIRE)--April 6, 2020--Bitfarms Ltd. (“Bitfarms” or the “Company”) (TSXV:BITF) is a blockchain infrastructure company that operates one of the largest cryptocurrency mining operations in North America. Throughout the recent and ongoing economic and social turmoil related to the impact of the coronavirus (COVID-19) pandemic, Bitfarms has been able to optimize mining operations in real time to maintain maximum computer capacity. From the significant drop of Bitcoin price on March 12, 2020 until the price recovery at or above USD$6,000 on March 19, 2020, the Company maintained an average daily hashrate of approximately 630 petahash per second (PH). Since March 19, 2020, the Company has maintained an average daily hashrate of approximately 750 PH.
“Cryptocurrency mining is essential to the Bitcoin blockchain and given the self-incentivized model upon which Bitcoin mining works, we firmly believe that the combination of network difficulty and Bitcoin price will continue to adjust to ensure profitability for mining for the largest and most efficient miners. Our strategy has always been to be a leader amongst our peers in efficiency and we are pleased to see that, despite the challenges to traditional markets, our scale and quality of operations has allowed us to continue to generate positive cash flow in these difficult times,” said interim CEO and Chief Strategy Officer, Emiliano Grodzki.
In addition to temporary steps to reduce staffing in line with government guidance to help combat the spread of COVID-19, the Company has also implemented permanent measures to reduce overhead costs to ensure the Company continues to be well positioned to absorb short term economic changes and maintain long term viability.
“Once fully implemented over the next several weeks, we expect the cost saving measures to reduce our monthly general and administrative expenses by approximately 20 to 25%. We are also pleased to be benefitting recently from favourable US-CAD foreign exchange rates given the majority of our operating expenses are paid in Canadian dollars while revenue from Bitcoin is in US dollars. Seeking cost efficiencies is consistent with our business model and thesis that efficient miners like Bitfarms will be best positioned to be able to withstand short-term volatility in mining economics and remain profitable through the long-term, including potential challenges relating to the upcoming Bitcoin halving,” said John Rim, Chief Financial Officer.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about estimates, projections, future plans and objectives of the Company, including maintaining operational computing (hashrate) levels, reduction of operating expenses and continuing to realize benefits from exchange rates are forward-looking statements.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward- looking information. The forward-looking statements contained in this press release are made as of the date of this press release. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
2
Contacts
For investor inquiries, please contact:
Ryan Hornby
Executive Vice President and General Counsel
+1.647.619.7804
For media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
3
Exhibit 99.12
Bitfarms Announces the Appointment
of a New Director and Provides Notice
of Release of 2019 Annual Financial Statements
Toronto, Ontario and Brossard, Québec (April 17, 2020) – Bitfarms Ltd. (“Bitfarms” or the “Company”) is pleased to announce that effective as of April 16, 2020, Mr. Brian Howlett has been appointed as a director of Bitfarms, filling a vacancy on the Board of Directors.
Mr. Howlett is a graduate from Concordia University and is a Chartered Professional Accountant (“CPA, CMA”) with over thirty years of experience in senior financial and management roles. Mr. Howlett has served as senior officer and director of numerous public companies over his career. He currently serves as President and CEO of Canadian Orebodies Inc. and CR Capital Corp., and he is a director of Nighthawk Gold Corp. and Dundee Sustainable Technologies Inc.
Release of 2019 Financial Results
Bitfarms also announces it will release its annual 2019 results on Wednesday April 29, 2020 prior to market open.
The Company’s senior management will be hosting a webcast presentation at 10:00 AM EDT on April 29, 2020 to discuss Bitfarms financial and operating results. To view the webcast presentation, please register using the following link:
https://onlinexperiences.com/Launch/QReg/ShowUUID=5A867099-4608-42CB-A1F4-23B9E0732B36
The financial results and presentation will also be available on our website at www.bitfarms.com
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor inquiries, please contact:
Ryan Hornby
Executive Vice President and General Counsel
+1.647.619.7804
For media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
[email protected]
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about estimates, projections, future plans and objectives of the Company are forward-looking statements.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward- looking information. The forward-looking statements contained in this press release are made as of the date of this press release. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Exhibit 99.13
FORM 13-502F1
CLASS 1 AND CLASS 3B REPORTING ISSUERS – PARTICIPATION FEE
MANAGEMENT CERTIFICATION
I, John Rim , an officer of the reporting issuer noted below have examined this Form 13-502F1 (the Form) being submitted hereunder to the Ontario Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate.
| (s) | “John Rim” | Date: | April 29, 2020 | ||
| Name: John Rim | |||||
| Title: Chief Financial Officer | |||||
| Reporting Issuer Name: | Bitfarms Ltd. | |
| End date of previous financial year: | December 31, 2019 |
| Type of Reporting Issuer: | þ Class 1 reporting issuer | o Class 3B reporting issuer |
| Highest Trading Marketplace: | TSX Venture |
(refer to the definition of “highest trading marketplace” under OSC Rule 13-502 Fees)
Market value of listed or quoted equity securities:
(in Canadian Dollars - refer to section 7.1 of OSC Rule 13-502 Fees)
| Equity Symbol | BITF |
| 1st Specified Trading Period (dd/mm/yy) (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) |
16/07/19 to 30/09/19 | ||
|
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace |
$ 0.8700 | (i) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 83,620,630 | (ii) | |
| Market value of class or series | (i) x (ii) | $ 72,749,948.1000 | (A) |
| 2nd Specified Trading Period (dd/mm/yy) (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) |
01/10/19 to 31/12/19 | ||
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.5000 | (iii) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 83,620,630 | (iv) | |
| Market value of class or series | (iii) x (iv) | $ 42,062,490.0000 | (B) |
| 3rd Specified Trading Period (dd/mm/yy) (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) |
to | ||
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | (v) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | (vi) | ||
| Market value of class or series | (v) x (vi) | $ 0.0000 | (C) |
| 4th Specified Trading Period (dd/mm/yy) (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) |
to | ||
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | (vii) | ||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | (viii) | ||
| Market value of class or series | (vii) x (viii) | $ 0.0000 | (D) |
| 5th Specified Trading Period (dd/mm/yy) (if applicable - refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) |
to | ||
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | (ix) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | (x) | ||
| Market value of class or series | (ix) x (x) | $ 0.0000 | (E) |
| Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) | $ 57,406,219.0500 | (1) |
(Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary pursuant to paragraph 2.8(1)(c) of OSC Rule 13-502 Fees, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year)
| Fair value of outstanding debt securities: | |||
| (See paragraph 2.8(1)(b), and if applicable, paragraph 2.8(1)(c) of OSC Rule 13-502 Fees) | $ | (2) | |
| (Provide details of how value was determined) | |||
| Capitalization for the previous financial year | (1) + (2) | $ 57,406,219.0500 | |
| Participation Fee (For Class 1 reporting issuers, from Appendix A of OSC Rule 13-502 Fees, select the participation fee) |
$ 6,390.00 | ||
| (For Class 3B reporting issuers, from Appendix A.1 of OSC Rule 13-502 Fees, select the participation fee) | |||
| Late Fee, if applicable (As determined under section 2.7 of OSC Rule 13- 502 Fees) |
$ | ||
| Total Fee Payable (Participation Fee plus Late Fee) |
$ 6,390.00 |
Exhibit 99.14
AND ITS SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019
U.S. DOLLARS IN THOUSANDS
INDEX
| Page | |
| Independent Auditor’s Report – Annual Consolidated Financial Statements | 2-4 |
| Consolidated Statements of Financial Position | 5 |
| Consolidated Statements of Profit or Loss and Comprehensive Income or Loss | 6 |
| Consolidated Statements of Changes in Equity | 7 |
| Consolidated Statements of Cash Flows | 8-9 |
| Notes to Consolidated Financial Statements | 10- 53 |
- - - - - - - - - - - - - - - - - - -
1
|
Kost
Forer Gabbay & Kasierer
|
Tel: +972 -3-6232525 Fax: +972-3- 5622555 ey.com |
INDEPENDENT AUDITOR’S REPORT
To the shareholders of
Bitfarms Ltd.
Opinion
We have audited the consolidated financial statements of Bitfarms Ltd. and its subsidiaries (the Group), which comprise the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of profit or loss and comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter
Without qualifying our opinion, we draw attention to the matter discussed in Note 1b regarding the Group’s financial position as of December 31, 2019, the financing facility received in 2019, the Bitcoin halving expected in May 2020 and the management’s assessment of the Group’s ability to meet its obligations for at least one year from the date of the approval of the consolidated financial statements. The Group is primarily engaged in the cryptocurrency mining industry that is a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly negatively impact the Group’s operations. Due to the volatility of the prices of cryptocurrencies and the effects of possible changes in the other aforementioned factors, there can be no assurance that future mining operations will be profitable. Based on internally prepared forecasted cash flows that take into consideration what management of the Group considers reasonably possible scenarios, management believes the Group will be able to achieve positive cash flows from operations that will enable the Group to meet its obligations for at least one year from the date of approval of the consolidated financial statements.
2
Other information included in The Group’s 2019 Management’s Discussion and Analysis
Other information consists of the information included in the Management’s Discussion and Analysis, other than the financial statements and our auditor’s report thereon. Management is responsible for the other information. The other information comprises:
| ● | Management’s discussion and analysis |
| ● | The information, other than the (consolidated) financial statements and our auditor’s report thereon, in the Management’s discussion and analysis |
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained [Management’s Discussion & Analysis] prior to the date of this auditor’s report If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
| ● | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
3
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
| ● | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. |
| ● | Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
| ● | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The partner in charge of the audit resulting in this independent auditor’s report is Mr. Eli Barda.
| Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER |
| April 29, 2020 | A Member of Ernst & Young Global |
4
BITFARMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
| Note | December 31, 2019 | December 31, 2018 | ||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS: | ||||||||||||
| Cash and cash equivalents | 5 | $ | 2,159 | $ | 552 | |||||||
| Trade receivables, net | 6 | 1,108 | 912 | |||||||||
| Other assets | 7 | 1,398 | 429 | |||||||||
| Inventories | 8 | 135 | 124 | |||||||||
| Income taxes receivable | 16 | 1,743 | - | |||||||||
| 6,543 | 2,017 | |||||||||||
| Assets held for sale | 9 | 7 | 1,278 | |||||||||
| TOTAL CURRENT ASSETS | 6,550 | 3,295 | ||||||||||
| NON-CURRENT ASSETS: | ||||||||||||
| Property, plant and equipment, net | 10 | 37,774 | 20,862 | |||||||||
| Right-of-use assets | 15 | 6,233 | - | |||||||||
| Intangible assets, net | 11 | 675 | 1,013 | |||||||||
| Long-term deposits and advance payments on equipment | 12 | 1,148 | 1,063 | |||||||||
| Embedded derivative | 14 | 476 | - | |||||||||
| TOTAL NON-CURRENT ASSETS | 46,306 | 22,938 | ||||||||||
| TOTAL ASSETS | $ | 52,856 | $ | 26,233 | ||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| CURRENT LIABILITIES: | ||||||||||||
| Current maturities of long-term debt | 14 | $ | 874 | $ | 1,025 | |||||||
| Current maturities of lease liabilities | 15 | 746 | - | |||||||||
| Accounts payable and accrued liabilities | 13 | 2,389 | 2,820 | |||||||||
| Income taxes payable | 16 | - | 761 | |||||||||
| 4,009 | 4,606 | |||||||||||
| Liabilities held for sale | - | 50 | ||||||||||
| TOTAL CURRENT LIABILITIES | 4,009 | 4,656 | ||||||||||
| NON-CURRENT LIABILITIES: | ||||||||||||
| Long-term debt | 14 | 14,849 | 693 | |||||||||
| Lease liabilities | 15 | 5,717 | - | |||||||||
| Asset retirement provision | 17 | 193 | 232 | |||||||||
| TOTAL NON-CURRENT LIABILITIES | 20,759 | 925 | ||||||||||
| TOTAL LIABILITIES | 24,768 | 5,581 | ||||||||||
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: | ||||||||||||
| Share capital | 18 | 33,944 | 19,812 | |||||||||
| Obligation to issue shares | - | 4,386 | ||||||||||
| Accumulated deficit | (5,856 | ) | (8,755 | ) | ||||||||
| 28,088 | 15,443 | |||||||||||
| Non-controlling interest | - | 5,209 | ||||||||||
| TOTAL EQUITY | 28,088 | 20,652 | ||||||||||
| TOTAL LIABILITIES & EQUITY | $ | 52,856 | $ | 26,233 | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| April 29, 2020 | Nicolas Bonta | Emiliano Grodzi | John Rim | |||
| Date of approval of the financial statements |
Nicolas Bonta Chairman of the Board of Directors |
Emiliano Grodzki Interim Chief Executive Officer |
John Rim Chief Financial Officer |
 | 5 |
BITFARMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND COMPREHENSIVE INCOME (LOSS)
U.S. dollars in thousands (except earnings per share)
| Note | December 31, 2019 | December 31, 2018 | ||||||||||
| Revenues | 20a | $ | 32,421 | $ | 33,805 | |||||||
| Cost of revenues | 20b | 20,982 | 22,928 | |||||||||
| Gross profit | 11,439 | 10,877 | ||||||||||
| General and administrative expenses | 20c | 10,294 | 8,815 | |||||||||
| Listing cost of reverse acquisition | - | 1,000 | ||||||||||
| Impairment of property, plant and equipment | 9 | 56 | 19,060 | |||||||||
| 10,350 | 28,875 | |||||||||||
| Operating income (loss) | 1,089 | (17,998 | ) | |||||||||
| Financial income | 20d | 2,252 | - | |||||||||
| Financial expenses | 20e | (3,825 | ) | (179 | ) | |||||||
| Loss before taxes on income | (484 | ) | (18,177 | ) | ||||||||
| Taxes on income (tax benefit) | 16 | (2,591 | ) | 59 | ||||||||
| Net income (loss) and total comprehensive income (loss) | $ | 2,107 | $ | (18,236 | ) | |||||||
| Attributable to: | ||||||||||||
| Equity holders of the Company | $ | 2,899 | $ | (9,363 | ) | |||||||
| Non-controlling interest | (792 | ) | (8,873 | ) | ||||||||
| Net earnings per share attributable to equity holders of the Company (in U.S. dollars): | $ | 2,107 | $ | (18,236 | ) | |||||||
| Basic and diluted earnings (loss) per share | 24 | $ | 0.04 | $ | (0.16 | ) | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| | 6 |
BITFARMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands
| Equity attributable to equity holders of the Company | ||||||||||||||||||||||||
| Share capital | Obligation to issue shares | Retained earnings (accumulated deficit) | Total | Non- controlling interest | Total equity | |||||||||||||||||||
| Balance as of January 1, 2019 | $ | 19,812 | $ | 4,386 | $ | (8,755 | ) | $ | 15,443 | $ | 5,209 | $ | 20,652 | |||||||||||
| Net income (loss) and total comprehensive income (loss) | - | - | 2,899 | 2,899 | (792 | ) | 2,107 | |||||||||||||||||
| Share-based payment | 2,712 | - | - | 2,712 | - | 2,712 | ||||||||||||||||||
| Share-based payment in legal subsidiary | - | - | - | - | 161 | 161 | ||||||||||||||||||
| Exchange of share-based payment from legal subsidiary to the Company | 907 | - | - | 907 | (907 | ) | - | |||||||||||||||||
| Exchange of exchangeable shares issued in the reverse acquisition | 4,386 | (4,386 | ) | - | - | - | - | |||||||||||||||||
| Reclassification of warrant liability to equity | 3,160 | - | - | 3,160 | - | 3,160 | ||||||||||||||||||
| Deferred tax liability related to warrant issuance | (837 | ) | - | - | (837 | ) | - | (837 | ) | |||||||||||||||
| Exercise of warrants | 100 | - | - | 100 | - | 100 | ||||||||||||||||||
| Forgiveness of loan from company controlled by shareholders | 33 | - | - | 33 | - | 33 | ||||||||||||||||||
| Acquisition of NCI by issuance of shares | 3,671 | - | - | 3,671 | (3,671 | ) | - | |||||||||||||||||
| Balance as of December 31, 2019 | $ | 33,944 | $ | - | $ | (5,856 | ) | $ | 28,088 | $ | - | $ | 28,088 | |||||||||||
| Balance as of January 1, 2018 | $ | 22,999 | $ | - | $ | 4,905 | $ | 27,904 | $ | - | $ | 27,904 | ||||||||||||
| Net loss and total comprehensive loss | - | - | (9,363 | ) | (9,363 | ) | (8,873 | ) | (18,236 | ) | ||||||||||||||
| Issuance of share capital and exchangeable shares on the reverse | 5,852 | 4,386 | - | 10,238 | - | 10,238 | ||||||||||||||||||
| Equity attributable to non-controlling interest on the reverse acquisition date | (9,039 | ) | - | (4,297 | ) | (13,336 | ) | 13,336 | - | |||||||||||||||
| Share-based payment in legal subsidiary | - | - | - | - | 746 | 746 | ||||||||||||||||||
| Balance as of December 31, 2018 | $ | 19,812 | $ | 4,386 | $ | (8,755 | ) | $ | 15,443 | $ | 5,209 | $ | 20,652 | |||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| | 7 |
BITFARMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| Cash flows from operating activities: | December 31, 2019 | December 31, 2018 | ||||||
| Net income (loss) | $ | 2,107 | $ | (18,236 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 6,843 | 12,548 | ||||||
| Impairment loss on property, plant and equipment | 56 | 19,060 | ||||||
| Financial expenses | 3,825 | 49 | ||||||
| Deferred taxes, net | (837 | ) | (702 | ) | ||||
| Listing costs of reverse acquisition | - | 1,000 | ||||||
| Share-based payment | 2,873 | 746 | ||||||
| Financial income | (2,252 | ) | 9 | |||||
| Interest and financial expenses paid | (3,114 | ) | (49 | ) | ||||
| Income taxes paid | (768 | ) | (527 | ) | ||||
| Provision for asset retirement and loss on disposition of property, plant and equipment | 313 | 25 | ||||||
| 6,939 | 32,159 | |||||||
| Changes in non-cash working capital components (A) | (3,026 | ) | (162 | ) | ||||
| Net cash provided by operating activities | 6,020 | 13,761 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment and intangible assets | (23,651 | ) | (22,392 | ) | ||||
| Proceeds from sale of property, plant and equipment | 1,414 | 145 | ||||||
| Advance payments for equipment | (127 | ) | (399 | ) | ||||
| Acquisition of a subsidiary (B) | - | 387 | ||||||
| Reverse acquisition transaction (C) | - | 182 | ||||||
| Net cash used in investing activities | (22,364 | ) | (22,077 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Issuance of ordinary shares in 2017 | - | 2,942 | ||||||
| Issuance of warrants | 4,936 | - | ||||||
| Exercise of warrants | 100 | - | ||||||
| Proceeds from long-term debt, net | 14,664 | 1,886 | ||||||
| Repayment of lease liabilities | (664 | ) | - | |||||
| Repayment of long-term debt | (1,062 | ) | (496 | ) | ||||
| Net cash provided by financing activities | 17,974 | 4,332 | ||||||
| Exchange rate differences on currency translation | (23 | ) | 18 | |||||
| Increase (decrease) in cash and cash equivalents | 1,607 | (3,966 | ) | |||||
| Cash and cash equivalents at beginning of year | 552 | 4,518 | ||||||
| Cash and cash equivalents at end of year | $ | 2,159 | $ | 552 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| | 8 |
BITFARMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| December 31, 2019 | December 31, 2018 | |||||||||
| (A) | Changes in working capital components: | |||||||||
| Increase in trade receivables, net | $ | (2 | ) | $ | (338 | ) | ||||
| Decrease (increase) in other current assets | (1,068 | ) | 490 | |||||||
| Decrease (increase) in inventories | (5 | ) | 407 | |||||||
| Increase in long-term deposits | (142 | ) | (664 | ) | ||||||
| Decrease in accounts payable and accrued liabilities | (16 | ) | (107 | ) | ||||||
| Increase in income taxes receivable | (1,743 | ) | - | |||||||
| Increase (decrease) in liabilities held for sale | (50 | ) | 50 | |||||||
| $ | (3,026 | ) | $ | (162 | ) | |||||
| (B) | Acquisition of a subsidiary consolidated for the first time: | |||||||||
| Trade receivables | $ | - | $ | (971 | ) | |||||
| Inventories and other receivables | - | (120 | ) | |||||||
| Property, plant and equipment | - | (163 | ) | |||||||
| Intangible assets – customer lists | - | (50 | ) | |||||||
| Trade payables | - | 1,135 | ||||||||
| Deferred revenues | - | 27 | ||||||||
| Income taxes payable | - | 9 | ||||||||
| Deferred taxes | - | 10 | ||||||||
| Long-term debt | - | 111 | ||||||||
| Elimination of company payable to subsidiary upon itsacquisition | - | 399 | ||||||||
| $ | - | $ | 387 | |||||||
| (C) | Reverse acquisition transaction: | |||||||||
| Trade receivables | $ | - | $ | (311 | ) | |||||
| Property, plant and equipment | - | (9,000 | ) | |||||||
| Listing cost of reverse acquisition | - | (1,000 | ) | |||||||
| Trade payables | - | 255 | ||||||||
| Issuance of Ordinary shares | - | 5,852 | ||||||||
| Obligation to issue shares | - | 4,386 | ||||||||
| $ | - | $ | 182 | |||||||
| (D) | Significant non-cash transactions: | |||||||||
| Forgiveness of loan from company controlled by shareholders | $ | 33 | $ | - | ||||||
| Addition of right-of-use assets and related lease liabilities | $ | 2,292 | $ | - | ||||||
| Purchase of property, plant and equipment financed by short-term credit | $ | 447 | $ | 1,007 | ||||||
| Acquisition of non-controlling interest by issuance of shares | $ | 24,938 | $ | - | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| | 9 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 1: GENERAL
| a. | The Company was incorporated under the Canada Business Corporations Act on October 11, 2018 and has its registered and head office located at 1376 Bayview Avenue, Suite 1, Toronto, ON M4G 3A1. On June 12, 2019 the Company and Bitfarms Ltd. (Israel) completed a reorganization under which all of the outstanding shares of Bitfarms Ltd. (Israel) were exchanged for newly issued common shares of the Company on a 1:1 basis. On the same date, all outstanding exchangeable shares of Backbone Hosting Solutions Inc. were exchanged on a 1:1 basis for newly issued common shares in the Company (both of the preceding will be referred to as the “Arrangement”). Prior to completion of the Arrangement Bitfarms Ltd. (Israel) delisted from the Tel Aviv Stock Exchange. On July 16, 2019 the Company began trading on the TSX Venture Exchange (“TSXV”). On August 15, 2019 the Company completed the acquisition of all remaining issued and outstanding shares of Backbone (non-controlling interest) that were not included in the Arrangement through a 1:1 share exchange – see Note 18. |
| b. | For the year ended December 31, 2019, the Company had a pretax loss of $484. As of December 31, 2019, the Company had positive working capital of $2,541 and an accumulated deficit of $5,856. In March 2019, the Company entered into a secured debt financing facility for $20,000, described in Note 14. The financing enabled the Company to make investments in mining infrastructure and equipment that the Company’s management believes will allow the Company to continue growing its cryptocurrency operations. |
The Group is primarily engaged in the cryptocurrency mining industry, which is a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly negatively impact the Group’s operations. Due to the volatility of the prices of cryptocurrencies and the effects of possible changes in the other aforementioned factors, there can be no assurance that future mining operations will be profitable.
The Bitcoin protocol has rewarded miners with 12.5 Bitcoin per block mined since July 2016. Approximately every four years, the block reward is reduced by 50%, referred to as a “halving”. In May 2020, the third bitcoin halving is expected to occur, reducing the block reward from 12.5 to 6.25 bitcoin rewarded per block mined; directly impacting the profitability of miners. In recent years, when mining profitability has dropped abruptly due to price volatility, the network difficulty had adjusted to allow lower cost miners to remain profitable. Furthermore, the halving reduces the new supply of Bitcoin entering the marketplace, which has resulted in Bitcoin price increases after previous halvings. The Company believes that the expected network difficulty and price adjustments, as well as the higher efficiency miners acquired with the proceeds from the Dominion Capital Loan described in Note 14, will allow the Company to continue operating at a scale that is profitable.
Based on internally prepared forecasted cash flows that take into consideration what management of the Group considers reasonably possible scenarios, management believes that the Group will continue to be able to achieve positive cash flows from operations that will enable the Group to meet its obligations for at least one year from the date of approval of the consolidated financial statements.
| | 10 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 1: GENERAL (Cont.)
| c. | Definitions: |
In these financial statements, the following terms shall have the following definitions:
| 1. | Bitfarms Ltd. | - | Bitfarms Ltd. or the Company |
| 2. | Backbone Hosting Solutions Inc. | - | Backbone |
| 3. | 9159-9290 Quebec Inc. | - | Volta |
| 4. | Bitfarms Ltd. (Israel) | - | Bitfarms Ltd. pre-Arrangement |
| 5. | The Company and its subsidiaries | - | The Group |
| 6. | Bitcoin | - | BTC |
| 7. | Bitcoin Cash | - | BCH |
| 8. | Litecoin | - | LTC |
| 9. | Ethereum | - | ETH |
| 10. | Blockchain Verification and Validation Equipment | - | BVVE |
| 11. | Graphic Processing Unit | - | GPU |
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated.
| a. | Basis of presentation of the financial statements: |
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements have been prepared on a cost basis, except for derivative financial instruments and assets or liabilities held for sale that have been measured at fair value. The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand, except where otherwise indicated.
The Company has elected to present the profit or loss items using the function of expense method.
| | 11 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| b. | The operating cycle: |
The Group’s activities have one operating cycle, which is one year. Accordingly, the assets and liabilities directly attributable to this activity are classified in the statement of financial position as current assets and liabilities based on the Group’s operating cycle. The operating cycle of Backbone is to mine cryptocurrency and then convert to fiat currency after mining using institutional exchanges.
| c. | Consolidated financial statements: |
These financial statements consolidate the Company’s subsidiaries from the date of acquisition until the date that control is lost. The subsidiaries are controlled by the Company, where control is achieved when the company is exposed to or has the right to variable returns from its involvement with the investee and has the current ability to direct the activities of the investee that significantly affect the investee’s returns.
The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all companies in the Group. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements.
Non-controlling interests in subsidiaries represent the equity of the subsidiaries that cannot be attributed, directly or indirectly, to the parent company. The non-controlling interests are presented separately in the Company’s equity. Profit or loss and any component of other comprehensive income are allocated to the Company and to non-controlling interests. Losses are attributed to non-controlling interests even if the balance of non-controlling interests in the consolidated statement of financial position is negative.
| d. | Business combinations: |
Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value at the date of acquisition, plus non-controlling interests in the acquiree. In each business combination the Company determines whether to measure the non-controlling interest in the acquiree at the fair value at the date of acquisition, or at their proportionate share of the fair value of the net identifiable assets of the acquiree. Transaction costs related to the acquisition are expensed as incurred in the statement of profit or loss.
| | 12 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| e. | Functional currency, presentation currency and transactions in foreign currency: |
| 1. | Functional currency and presentation currency: |
The financial statements are presented in U.S. Dollars, which is the Company’s functional currency. The functional currency is the currency that best reflects the economic environment in which the Company operates and conducts its transactions.
The Company determines the functional currency of each company in the Group. Assets and liabilities of subsidiaries constituting foreign operations, including fair value adjustments upon acquisition, are translated using the exchange rate in effect at each reporting date. Revenues and expenses are translated using the average exchange rates in effect for all periods presented. The resulting translation differences are included in other comprehensive income. The loss on foreign currency translation of Volta was immaterial for the years ended December 31, 2019 and December 31, 2018.
| 2. | Transactions, assets and liabilities in foreign currency: |
Transactions in foreign currency are initially recorded at the exchange rate in effect on the transaction date. Monetary assets and liabilities in foreign currency are subsequently translated into the functional currency at the exchange rate in effect at each reporting date. Exchange rate differences, other than those capitalized to qualifying assets or carried to equity in hedging transactions, are included in profit or loss. Non-monetary assets and liabilities in foreign currency stated at cost are translated at the exchange rate in effect at the transaction date. Non-monetary assets and liabilities in foreign currency carried at fair value are translated at the exchange rate at the date on which the fair value was determined.
| f. | Cash equivalents: |
Cash and cash equivalents are highly liquid investments, including short-term bank deposits which are not restricted by liens, whose original term to maturity is up to three months from the investment date. Bank deposits whose original terms to maturity are greater than three months are included in cash and cash equivalents if they can be withdrawn immediately without penalty.
| g. | Inventories: |
The Company receives cryptocurrency in exchange for blockchain validation and verification services. The cryptocurrency is accounted for as inventory until it is sold in exchange for fiat currency. Inventories of cryptocurrency are measured at the lower of cost to produce and net realizable value. The cost of inventory comprises the costs incurred with respect to the validation and verification of blockchain transactions, consisting mainly of electricity and depreciation. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs necessary to make the sale.
| | 13 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| h. | Revenue recognition: |
Revenue from contracts with customers is recognized when control over the goods or services is transferred to the customer. The transaction price is the amount of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third parties (such as taxes). The following are the specific revenue recognition criteria which must be met before revenue is recognized:
| 1. | Revenues from cryptocurrency mining: |
The Group, through Backbone, operates server farms supporting the verification and validation of blockchain transactions. The Company receives cryptocurrency in exchange for these services, the cost of which is recorded as inventories. Revenue is recognized when the cryptocurrency is converted into fiat currency or when the cryptocurrency is transferred to another party in settlement of a debt to this party.
| 2. | Revenues from electrical services: |
The Group, through Volta, sells electrical components and provides electrician installation for those components, as well as repair and maintenance services.
Revenues from providing services are recognized according to the stage of completion of the transaction as at the balance sheet date. The stage of completion is estimated based on the costs incurred for the transaction compared to the estimated cost of completion for the project. According to this method, revenues are recognized in the reporting period in which the services are provided. In the event that the outcome of the contract cannot be measured reliably, the revenues are recognized to the extent of the recoverable expenses incurred.
Any amounts received in advance for future services to be provided are recorded as deferred revenues (contract liability) and recognized as revenue in profit or loss when the services are rendered.
| i. | Taxes on income: |
The income tax expense for the year comprises current and deferred taxes. These taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income or loss or directly in shareholders’ equity.
| 1. | Current taxes: |
The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with tax liabilities in respect of previous years.
| | 14 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| 2. | Deferred taxes: |
Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized, or the liability is settled, based on tax laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Deductible carryforward losses and temporary differences for which deferred tax assets had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized to the extent that their utilization is probable.
Taxes that would apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as long as the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution of dividends does not involve an additional tax liability or since it is the Company’s policy not to initiate distribution of dividends from a subsidiary that would trigger an additional tax liability.
| j. | Leases: |
As described in Note 2w regarding the initial adoption of IFRS 16, “Leases” (“the Standard”), The Group adopted IFRS 16 effective January 1, 2019. The accounting policy for leases applied until December 31, 2018 is as follows:
The criteria for classifying a lease as a finance or operating lease depend on the substance the agreements and are made at the inception of the lease in accordance with the following principles as prescribed in IAS 17:
The Group as lessee:
| 1. | Finance leases: |
When substantially all risks and rewards associated with ownership of the leased asset are transferred the lease is classified as a finance lease. The leased asset is measured at inception of the lease at the lower of the fair value of the leased asset or the present value of the minimum lease payments.
The leased asset is depreciated over the lesser of its useful life or the lease term.
| | 15 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| 2. | Operating leases: |
When all of the risks and rewards associated with ownership of the leased asset are not transferred, the lease is classified as an operating lease. Lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term.
The accounting policy for leases applied commencing January 1, 2019, is as follows:
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Group as a lessee:
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
| 1. | Right-of-use assets: |
The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:
| Farming facilities | 4-10 years |
| Vehicles and other | 3-5 years |
If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in section (n) Impairment of non-financial assets.
| | 16 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| 2. | Lease liabilities: |
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in- substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
| 3. | Short-term leases and leases of low-value assets: |
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low- value assets are recognized as expense on a straight-line basis over the lease term.
| k. | Non-current assets held for sale: |
Non-currents assets or a disposal group are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the assets must be available for immediate sale in their present condition, the Company must be committed to sell, there must be a program to locate a buyer and it is highly probable that a sale will be completed within one year from the date of classification. From the date of such initial classification, these assets are no longer depreciated and are presented separately as current assets at the lower of their carrying amount and fair value less costs to sell. Other comprehensive income (loss) in respect to a non-current asset or a group of non-current assets that is classified as held for sale is presented separately in equity.
| | 17 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
When an entity no longer plans to sell an asset in a sale transaction, it ceases the classification of the asset as held for sale and measures it at the lower of its carrying amount had it not been classified as held for sale or the recoverable amount of the asset on the date of the decision not to sell the asset.
| l. | Property, plant and equipment: |
Property, plant and equipment are carried at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any related investment grants and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are used in connection with plant and equipment. The cost of an item of property, plant and equipment comprises the initial estimate of the costs of dismantling and removing the item and restoring the site on which the item is located.
Property, plant and equipment are depreciated as follows:
| Blockchain validation and verification equipment (“BVVE”) | - | Sum of years, declining over 5 years |
| Mineral assets * | - | Units of production method |
| Electrical equipment | - | Sum of years, declining over 5 years |
| Leasehold improvements | - | See below |
| Buildings | - | Declining balance, 4% |
| Vehicles | - | Declining balance, 30% |
* Since the acquisition of mineral assets in 2018, there has been no production.
Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term (including the extension option held by the Group and intended to be exercised) and the expected life of the improvement.
The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.
The sum of years depreciation method is calculated as follows:
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||||
| Rate | 5/15 | 4/15 | 3/15 | 2/15 | 1/15 | |||||
| Percentage | 33.33% | 26.67% | 20% | 13.33% | 6.67% |
| m. | Intangible assets: |
Intangible assets acquired separately are initially measured at cost plus direct acquisition costs. Intangible assets acquired in business combinations are measured at their fair value as at the acquisition date.
| | 18 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Intangible assets with a finite useful life are amortized over their useful lives using the sum of years method and are reviewed for impairment whenever there is an indication that the asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year end. Intangible assets consist of acquired software used in the Company’s blockchain validation and verification operations and customer lists acquired in a business combination and are amortized using the sum of years method.
Software:
The Group’s assets include computer systems, comprised of hardware and software. Certain hardware come pre-installed with firmware. Without this firmware, the hardware could not function and therefore both the hardware and firmware are classified within property plant and equipment. In contrast, stand-alone software that adds functionality to the hardware is classified as an intangible asset
The sum of years depreciation method for computer software is calculated as follows:
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||||
| Rate | 5/15 | 4/15 | 3/15 | 2/15 | 1/15 | |||||
| Percentage | 33.33% | 26.67% | 20% | 13.33% | 6.67% |
The sum of years depreciation method for customer lists is calculated as follows:
| Year 1 | Year 2 | Year 3 | ||||
| Rate | 3/6 | 2/6 | 1/6 | |||
| Percentage | 50% | 33.33% | 16.67% |
| n. | Impairment of non-financial assets: |
The Company evaluates the need to record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss.
An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.
| | 19 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| o. | Financial instruments: |
| 1. | Financial assets: |
Initial recognition and measurement:
Financial assets are initially measured at fair value plus transaction costs that can be directly attributed to the acquisition of the financial asset, except in the case of a financial asset measured at fair value through profit or loss in respect of which transaction costs are charged to profit or loss.
Subsequent measurement:
Financial assets at amortized cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired. The Group’s financial assets at amortized cost includes trade receivables and certain items included in other assets. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit or loss.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. This category includes the embedded derivative arising from the repayment terms of the Dominion loan described in Note 14. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.
Impairment:
The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
| | 20 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| 2. | Financial liabilities: |
Initial recognition and measurement:
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include accounts payable and accrued liabilities and long-term debt.
Subsequent measurement:
Financial liabilities are either measured at fair value through profit or loss or at amortized cost. Financial liabilities at fair value through profit or loss included a warrant liability, prior to the amendment of the warrant terms as described in Note 14. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as financial expenses in the statement of profit or loss. This category generally applies to interest-bearing loans and borrowings. For more information, refer to Note 14.
| 3. | Derecognition of financial assets: |
Financial assets are derecognized when the contractual rights to receive the cash flows from the financial asset expire, or when the Company transfers the contractual rights to receive the cash flows from the financial asset or assumes an obligation to pay the cash flows received in full to a third party without significant delay.
| 4. | Derecognition of financial liabilities: |
Financial liabilities are derecognized when and only when they are extinguished - that is, when the obligation defined in the contract is fulfilled, cancelled or expires. A financial liability is fulfilled when the debtor repays the liability by paying cash, other financial assets, goods or services, or is otherwise legally released from the liability.
| p. | Fair value measurement: |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on the assumption that the transaction will take place in the asset’s or the liability’s principal market, or in the absence of a principal market, in the most advantageous market. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
| | 21 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Fair value measurement of non-financial assets takes into account the ability of a market participant to derive economic benefits from the asset through its best use, or by selling it to another market participant capable of using the asset to its best use.
Assets and liabilities measured at fair value, or whose fair value is disclosed are classified into categories within the fair value hierarchy, based on the lowest level input that is significant to the overall fair value measurement:
| Level 1 | - | Unadjusted quoted prices in an active market of identical assets and liabilities |
| Level 2 | - | Non-quoted prices included in Level 1 that are either directly or indirectly observable |
| Level 3 | - | Data that is not based on observable market information, such as valuation techniques without the use of observable market data |
| q. | Provisions: |
Under IAS 37, provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligations and the amounts can be reliably estimated. When the Group expects that part or all of the expense will be refunded to the Company, such as an insurance claim, the refund will be recognized as a separate asset only on the date when there is certainty of receiving the asset. The expense will be recognized in the statement of profit or loss net of the expected refund.
Asset retirement provisions:
These provisions relate to Backbone’s legal obligation, in relation to its leased properties, to restore the properties to their original condition at the end of the lease period. The provisions are calculated at the present value of the expected costs to settle the obligations using estimated future cash flows discounted at a rate that reflects the risks specific to the obligations. Changes in the estimated future costs, or in the discount rate applied, are recorded as an adjustment of the cost of the related asset.
Lawsuits:
A provision for legal claims against the Group is recorded when the Group has a present legal or constructive obligation as a result of past events, that is more likely than not to be settled with an outflow of economic resources that can be measured reliably.
| | 22 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| r. | Share-based transactions: |
Certain employees of the Company are entitled to benefits by way of share-based payment settled with equity instruments.
Transactions settled with equity instruments:
The cost of employee services paid in equity instruments is measured at the fair value of the equity instruments as at the grant date. The fair value is determined using a generally accepted option pricing model. Equity settled transactions with other services providers is measured at the fair value of the goods or services received in return for the equity instruments. The cost of equity-settled transactions is recognized in profit or loss together with a corresponding increase in equity during the period which the performance and/or service conditions are to be satisfied ending on the date on which the relevant employees become entitled to the award (“the vesting period”). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and management’s best estimate of the number of equity instruments that will ultimately vest.
Expenses related to grants that do not vest are not recognized, except for grants whose vesting is contingent on market conditions that are treated as vested regardless of these conditions, assuming all other vesting conditions (service and/or performance) were met.
When the Company modifies the terms of equity-settled transactions, an additional expense is recognized, calculated as the increase in the fair value of the compensation granted in excess of the original expense, on the date of the modification. Cancellation of equity settlement that has not vested is treated as if it had vested on the date of cancellation, with the unrecognized expense recognized immediately. However, if the cancellation is subsequently replaced by a new agreement and is designated as an alternative settlement, then it is treated as a modification of the original agreement as described above.
| s. | Earnings per share: |
Earnings per share is calculated by dividing the net income attributable to the Company’s shareholders by the actual number of common shares outstanding during the period. Potential common shares are included in the calculation of diluted earnings per share if their effect dilutes earnings per share from continuing operations. Potential common shares that were converted during the period are included in diluted earnings per share only up to the conversion date, and from that date are included in basic earnings per share. The Company’s share in the earnings of investees is calculated according to its share in the earnings per share of those investees multiplied by the number of shares held by the Company.
| | 23 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| t. | Share capital: |
Share capital represents the amount received on the issuance of shares, less issuance costs net of any underlying income tax benefit from these issuance costs.
| u. | Employee benefits: |
The cost of short-term employee benefits (those payable within 12 months after the service is rendered, such as: paid vacation leave, maternity and paternal leave, sick leave, bonuses, and group insurance benefits) is recognized in the period in which the services are rendered.
| v. | Issue of a unit of securities: |
The issue of a unit of securities involves the allocation of the proceeds received before issue expenses to the securities issued in the unit based on the following order: financial derivatives and other financial instruments measured at fair value in each period. Then fair value is determined for financial liabilities that are measured at amortized cost. The proceeds allocated to equity instruments are determined to be the residual amount. Issue costs are allocated to each component pro rata to the amounts determined for each component in the unit.
| w. | Adoption of new accounting standards: |
IFRS 16, “Leases”
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.
The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of January 1, 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’). The effect of adoption IFRS 16 as of January 1, 2019 is as follows:
| | 24 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| Assets | ||||
| Right-of-use assets | $ | 5,303 | * | |
| Liabilities | ||||
| Current maturities of lease liabilities | 621 | |||
| Non-current maturities of lease liabilities | 4,498 | |||
| Total liabilities | $ | 5,119 | ||
| * | Includes $184 previously presented in long-term deposits and advance payments on equipment prior to the adoption of IFRS 16 on January 1, 2020. |
Nature of the effect of adoption of IFRS 16:
The Group has lease contracts for various farming facilities, vehicles and other equipment. Before the adoption of IFRS 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Group; otherwise it was classified as an operating lease. Finance leases were capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between interest (recognized as finance costs) and reduction of the lease liability. In an operating lease, the leased property was not capitalized and the lease payments were recognized as rent expense in profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognized under other assets and accounts payable and accrued liabilities, respectively.
Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which has been applied by the Group. The Group also applied the available practical expedients wherein it:
| - | Used a single discount rate to a portfolio of leases with reasonably similar characteristics |
| - | Relied on its assessment of whether leases are onerous immediately before the date of initial application |
| - | Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application |
| - | Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application |
| - | Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease |
| | 25 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The lease liabilities as of January 1, 2019 can be reconciled to the operating lease commitments as of December 31, 2018 as follows:
| Farming facilities operating lease commitments as of December 31, 2018 | $ | 3,737 | ||
| Less: | ||||
| Commitments relating to short-term leases | (37 | ) | ||
| Adjusted farming facilities operating lease commitments as of December 31, 2018 | 3,700 | |||
| Add: | ||||
| Payments in optional extension periods not recognized as of December 31, 2018 | 3,033 | |||
| Adjusted farming facilities operating lease commitments and optional extension | 6,733 | |||
| periods not recognized as of December 31, 2018 Discount rate for portfolio of leases | 8% | |||
| Lease liabilities as of January 1, 2019 | 5,017 | |||
| Vehicle operating lease commitments as of December 31, 2018 | 105 | |||
| Discount rate for portfolio of leases | 3.49% | |||
| Discounted operating lease commitments at January 1, 2019 | 102 | |||
| Lease liabilities as of January 1, 2019 | 102 | |||
| Total lease liabilities as of January 1, 2019 | $ | 5,119 |
IFRIC 23, “Uncertainty over Income Tax Treatments”:
In June 2017, the IASB issued IFRIC 23, “Uncertainty over Income Tax Treatments” (“the Interpretation”). The Interpretation clarifies the accounting for recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12, “Income Taxes”, in situations of uncertainty involving income taxes.
The Interpretation provides guidance on considering whether some tax treatments should be considered collectively, examination by the tax authorities, measurement of the effects of uncertainty involving income taxes on the financial statements and accounting for changes in facts and circumstances in respect of the uncertainty. The Interpretation has been initially applied in these financial statements. The initial adoption of the Interpretation did not have a material effect on the consolidated financial statements.
| | 26 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 3: SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES
The preparation of the consolidated financial statements requires management to undertake several judgments, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. These estimates and judgments are based on management’s best knowledge of the events or circumstances and actions the Company may take in the future. The actual results may differ from these assumptions and estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to assumptions and estimates are recognized in the period in which the assumption or estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Information about the significant judgments, estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses are discussed below.
| a. | Judgements |
Revenue recognition:
There is currently no specific definitive guidance in IFRS or alternative accounting frameworks for accounting for the revenue recognition from cryptocurrency mining. Management has determined that accounting for cryptocurrency mining should be analogized to the accounting for the mining of mineral interests. The basis for this comparison is that Backbone invests in mining equipment, in the form of computer hardware, to attempt to solve an algorithm in exchange for a reward. The process is similar in nature to investing in traditional mining exploration in order to extract minerals from a mine. The Company believes that the award of cryptocurrency is not a trigger to recognize revenues as there is no specific individual counterparty to the blockchain protocol that awards the revenues. Accordingly, cryptocurrencies mined are accounted for as inventory under IAS 2 until the cryptocurrency is sold and exchanged for a fiat currency, at which time it is recorded as revenues. In order to allow users to better understand the performance of the Company, management has disclosed the quantity and fair market value of coins mined during the period and on-hand at year-end - see Note 20 and Note 8, respectively. Management has exercised significant judgement in determining the appropriate accounting treatment. In the event authoritative guidance is issued by the IASB, the Company may be required to change its accounting policies, which could have a material effect on the Company’s financial statements.
| | 27 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 3: SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (Cont.)
Significant judgement in determining the lease term of contracts with renewal options:
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its leases to lease the assets for additional terms of three to ten years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy). The Group included the renewal period as part of the lease term for leases of most farming facilities due to the significance of these assets to its operations. The Group has not included renewal periods for farming facilities beginning after 2029.
| b. | Estimates and assumptions |
Property, plant and equipment and intangible assets:
Estimates of useful lives, residual values and methods of depreciation are reviewed annually. Any changes, based on additional available information, are accounted for prospectively as a change in accounting estimate.
Impairment of property, plant and equipment and intangibles:
The Company evaluates the need to record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The Company reviews the need for recording impairment of mineral assets, as detailed in Note 10c, for which purpose it engaged an independent external appraiser to assist in determining the value of the assets. The fair value was determined through use of the market approach, which includes analyzing similar and comparable mineral properties and making adjustments for differences between those properties, and the subject, among certain identifiable parameters
Long-term debt:
The Company entered into a secured debt financing facility with Dominion Capital LLC consisting of four equal loan tranches. Upon the drawdown of each loan tranche, management exercised significant judgement in determining the effective interest rates and the fair market value of the warrants issued in connection with each tranche. Management also exercised significant judgement in determining the fair market value of the embedded derivative. The key assumptions and methodologies used by management are described in Note 14.
| | 28 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 4: OPERATING SEGMENTS
| a. | General: |
The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Group is organized into operating segments based on the products and services of its business units and has operating segments as follows:
| Backbone | - | Backbone operates server farms that support the validation and verification of transactions on the blockchain, earning cryptocurrencies for providing these services. |
| Volta | - | Volta provides electrician services to both commercial and residential customers in Quebec. |
The segment results reported to the CODM include items that are allocated directly to the segments and items that can be allocated on a reasonable basis. Items that were not allocated, mainly corporate expenses related to Bitfarms Ltd. (Israel) and financial expenses are managed on a group basis.
| b. | Reporting on operating segments: |
| Year ended December 31, 2019 | ||||||||||||||||
| Backbone | Volta | Adjustments | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| External customers | $ | 29,347 | $ | 3,074 | $ | - | $ | 32,421 | ||||||||
| Inter segment revenues | - | 3,165 | (3,165 | ) | - | |||||||||||
| Total revenues | 29,347 | 6,239 | (3,165 | ) | 32,421 | |||||||||||
| Cost of revenues | 18,479 | 5,327 | (2,824 | ) | 20,982 | |||||||||||
| Gross profit | 10,868 | 912 | (341 | ) | 11,439 | |||||||||||
| General and administrative expenses | 9,416 | 644 | - | 10,060 | ||||||||||||
| Impairment on property, plant and equipment | 56 | - | - | 56 | ||||||||||||
| Segment profit | $ | 1,396 | $ | 268 | $ | (341 | ) | $ | 1,323 | |||||||
| Unallocated corporate expenses | 234 | |||||||||||||||
| Financial expenses, net | 1,573 | |||||||||||||||
| Loss before taxes on income | $ | (484 | ) | |||||||||||||
| | 29 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 4: OPERATING SEGMENTS (Cont.)
| Year ended December 31, 2018 | ||||||||||||||||
| Backbone | Volta | Adjustments | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| External customers | $ | 31,641 | $ | 2,164 | $ | - | $ | 33,805 | ||||||||
| Inter segment revenues | - | 4,920 | (4,920 | ) | - | |||||||||||
| Total revenues | 31,641 | 7,084 | (4,920 | ) | 33,805 | |||||||||||
| Cost of revenues | 21,349 | 6,193 | (4,614 | ) | 22,928 | |||||||||||
| Gross profit | 10,292 | 891 | (306 | ) | 10,877 | |||||||||||
| General and administrative expenses | 7,510 | 616 | - | 8,126 | ||||||||||||
| Impairment on property, plant and equipment and intangible assets | 19,254 | - | (194 | ) | 19,060 | |||||||||||
| Segment profit (loss) | $ | (16,472 | ) | $ | 275 | $ | (112 | ) | $ | (16,309 | ) | |||||
| Unallocated corporate expenses | 1,689 | |||||||||||||||
| Financial expenses, net | 179 | |||||||||||||||
| Loss before taxes on income | $ | (18,177 | ) | |||||||||||||
NOTE 5: CASH AND CASH EQUIVALENTS
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash for immediate withdrawal - in USD | $ | 1,131 | $ | 95 | ||||
| Cash for immediate withdrawal - in CAD | 1,018 | 451 | ||||||
| Cash for immediate withdrawal - in NIS | 10 | 6 | ||||||
| $ | 2,159 | $ | 552 | |||||
NOTE 6: TRADE RECEIVABLES
A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). As of December 31, 2019, most trade receivables are derived from the sale of electrical components and services to external customers by the Group’s wholly owned subsidiary, Volta Électrique. Trade receivables are non-interest bearing and are generally on terms of 30 to 90 days.
| a. | Movement in allowance for doubtful accounts: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Balance as of January 1 | $ | - | $ | - | ||||
| Provision for the year | 76 | 19 | ||||||
| Derecognition of bad debts | (36 | ) | (19 | ) | ||||
| Balance as of December 31 | $ | 40 | $ | - | ||||
| | 30 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 6: TRADE RECEIVABLES (Cont.)
| b. | Following is information about the credit risk exposure of the Company’s trade receivables as of December 31, 2019 |
| Trade receivables aging | ||||||||||||||||||||
| Not Past due | 30 – 60 days | 61 – 90 days | >91 days | Total | ||||||||||||||||
| Gross carrying amount | $ | 418 | $ | 241 | $ | 99 | $ | 390 | $ | 1,148 | ||||||||||
| Allowance for doubtful accounts | $ | - | $ | - | $ | - | $ | 40 | $ | 40 | ||||||||||
As of December 31, 2019, trade receivables includes $18 (December 31, 2018 - $nil) receivable from a former director of the Company and companies controlled by directors of the Company.
NOTE 7: OTHER ASSETS
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Sales taxes receivable | $ | 398 | $ | 345 | ||||
| Prepaid expenses | 558 | 84 | ||||||
| Electricity credit receivable | 442 | - | ||||||
| $ | 1,398 | $ | 429 | |||||
NOTE 8: INVENTORIES
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Electrical components | $ | 135 | $ | 85 | ||||
| Cryptocurrency inventory | - | 39 | ||||||
| $ | 135 | $ | 124 | |||||
Details of the Company’s cryptocurrency inventory, consisting only of Bitcoin is as follows:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Quantity | - | 11 | ||||||
| Cost | $ | - | $ | 39 | ||||
| Fair Value * | $ | - | $ | 39 | ||||
* The Company based the fair value of the cryptocurrency inventory on the prices quoted on www.coinmarketcap.com, calculated by taking the weighted average prices, based on volume, reported in each cryptocurrency market as at December 31, 2018. The fair value measurement is categorized as level 1 in the fair value hierarchy. The Company did not hold any cryptocurrency inventory as of December 31, 2019
| | 31 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 9: ASSETS HELD FOR SALE
On May 24, 2019, the Company’s management decided to sell 2,500 Antminer L3+ and committed to carry out a plan for the sale of the equipment. As at December 31, 2019, the Company had located a purchaser and received non-refundable deposits totaling approximately $332, and has made the mining hardware available to the purchaser. The purchaser has not collected the mining hardware, which is no longer in use by the Company. As a result, the Company has recorded an impairment of $56 on the assets because they do not present economic benefits through use or sale. The Company has deferred recognizing a gain on the disposition of the assets, as it is not reasonably certain that the transaction will be completed. The proceeds received from the purchaser have been accounted for as a liability included in accounts payable. Included in assets held for sale are $7 of mining hardware sold, for which ownership had not yet transferred as of December 31, 2019. A loss of $9 was recorded on disposal of the assets to reduce their carrying amount to approximate the estimated selling price. Assets held for sale as at December 31, 2019, excluding the Antminer L3+, and 2018, were sold in January 2020 and February 2019, respectively, for approximately their carrying amount.
NOTE 10: PROPERTY, PLANT AND EQUIPMENT
| a. | As of December 31, 2019, and 2018, property, plant and equipment consisted of: |
| BVVE and electrical components | Mineral assets | Land and buildings | Leasehold improvements | Vehicles | Total | |||||||||||||||||||
| Cost: | ||||||||||||||||||||||||
| Balance as of January 1, 2019 | $ | 35,439 | $ | 9,000 | $ | 2,033 | $ | 2,140 | $ | 333 | $ | 48,945 | ||||||||||||
| Additions during the period | 21,967 | - | 688 | 275 | 73 | 23,003 | ||||||||||||||||||
| Dispositions during the period | (3,193 | ) | - | - | - | (25 | ) | (3,218 | ) | |||||||||||||||
| Transfer to assets held for sale | (86 | ) | - | - | - | - | (86 | ) | ||||||||||||||||
| Balance as of December 31, 2019 | 54,127 | 9,000 | 2,721 | 2,415 | 381 | 68,644 | ||||||||||||||||||
| Balance as of January 1, 2018 | 21,758 | - | - | 412 | - | 22,170 | ||||||||||||||||||
| Acquisition through reverse acquisition and business combination | 18 | 9,000 | - | 15 | 130 | 9,163 | ||||||||||||||||||
| Additions during the period | 13,837 | - | 3,865 | 1,713 | 208 | 19,623 | ||||||||||||||||||
| Dispositions during the period | (174 | ) | - | - | - | (5 | ) | (179 | ) | |||||||||||||||
| Transfer to assets held for sale | - | - | (1,832 | ) | - | - | (1,832 | ) | ||||||||||||||||
| Balance as of December 31, 2018 | 35,439 | 9,000 | 2,033 | 2,140 | 333 | 48,945 | ||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||
| Balance as of January 1, 2019 | 26,424 | - | 38 | 1,530 | 91 | 28,083 | ||||||||||||||||||
| Depreciation | 5,318 | - | 63 | 111 | 71 | 5,563 | ||||||||||||||||||
| Dispositions during the period | (2,753 | ) | - | - | - | (10 | ) | (2,763 | ) | |||||||||||||||
| Transfer to assets held for sale | (13 | ) | - | - | - | - | (13 | ) | ||||||||||||||||
| Balance as of December 31, 2019 | 28,976 | - | 101 | 1,641 | 152 | 30,870 | ||||||||||||||||||
| Balance as of January 1, 2018 | 807 | - | - | 22 | - | 829 | ||||||||||||||||||
| Depreciation | 10,348 | - | 81 | 362 | 93 | 10,884 | ||||||||||||||||||
| Dispositions during the period | (39 | ) | - | - | - | (2 | ) | (41 | ) | |||||||||||||||
| Impairment losses | 15,308 | - | 511 | 1,146 | - | 16,965 | ||||||||||||||||||
| Transfer to assets held for sale | - | - | (554 | ) | - | - | (554 | ) | ||||||||||||||||
| Balance as of December 31, 2018 | 26,424 | - | 38 | 1,530 | 91 | 28,083 | ||||||||||||||||||
| Net book value as of | ||||||||||||||||||||||||
| December 31, 2019 | $ | 25,151 | $ | 9,000 | $ | 2,620 | $ | 774 | $ | 229 | $ | 37,774 | ||||||||||||
| December 31, 2018 | $ | 9,015 | $ | 9,000 | $ | 1,995 | $ | 610 | $ | 242 | $ | 20,862 | ||||||||||||
| | 32 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 10: PROPERTY, PLANT AND EQUIPMENT (Cont.)
| b. | Further details of the quantity of BVVE held by the Company are as follows: |
| Bitmain Antminer S9 (BTC/BCH) | Bitmain New Gen Antminers (BTC/BCH) ** | Bitmain Antminer L3+ (LTC) | Innosilicon T3 & T2T (BTC/BCH) *** | GPU (ETH) | Canaan Avalon A10 (BTC/BCH) | Whatsminer M20S (BTC/BCH) | ||||||||||||||||||||||
| Balance as of January 1, 2019* | 16,688 | - | 500 | - | 2,226 | - | - | |||||||||||||||||||||
| Additions during the period | - | 2,071 | 2,400 | 6,543 | - | 2,490 | 2,470 | |||||||||||||||||||||
| Dispositions during the period | (1,529 | ) | - | (2,500 | ) | - | (2,226 | ) | - | - | ||||||||||||||||||
| Balance as of December 31, 2019 | 15,159 | 2,071 | 400 | 6,543 | - | 2,490 | 2,470 | |||||||||||||||||||||
| Balance as of January 1, 2018* | 10,597 | - | 500 | - | 2,823 | - | - | |||||||||||||||||||||
| Additions during the period | 6,091 | - | - | - | - | - | - | |||||||||||||||||||||
| Dispositions during the period | - | - | - | - | (597 | ) | - | - | ||||||||||||||||||||
| Balance as of December 31, 2018 | 16,688 | - | 500 | - | 2,226 | - | - | |||||||||||||||||||||
| * | Excludes Antminer S7 and Antminer D3 whose carrying value was written off in 2018. All Antminer S7 and Antminer D3 were not operational due to reduced profitability resulting from changes in economic conditions rendering their use unfavorable. | |
| ** | Includes 1,554 Antminer T15, 116 Antminer S17, 399 Antminer S15, and 2 Antminer S11. | |
| *** | Includes 5,095 T3 and 1,448 T2T. |
During the year ended December 31, 2019 the Group disposed of all Ethereum mining hardware, consisting of 2,361 GPU’S with a net book value of $178 for proceeds of $135 and impaired 2,500 Antminer L3+ mining hardware with a net book value of $56 for an impairment loss of $56. The group also consolidated the hashboards of 1,429 Antminer S9’s which would not have been profitable to repair. The consolidation process of the Antminer S9’s consisted of combining parts from machines that were not fully operational, in order to create fully functional machines, 1,429 machines were discarded as a result of this process.
In addition to the equipment details listed above, Backbone entered into profit sharing agreements with two parties to host 1,165 Antminer S9’s. The profit-sharing agreements are structured such that Backbone does not share the profits with the other parties unless minimum profitability thresholds are met. Once the profitability threshold is met, the other parties are entitled to 39% of the revenues and Backbone must pay all related electricity costs. The contracts can be terminated by either party at any time. For the year ended December 31, 2019, Backbone mined a total of approximately 165 Bitcoin (December 31, 2018 – 63) using the hosted Antminer S9’s. As at December 31, 2019 accounts payable and accrued liabilities included $14 (December 31, 2018 – $nil) payable to the two parties, as the profitability threshold was met during the year.
| | 33 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 10: PROPERTY, PLANT AND EQUIPMENT (Cont.)
| c. | Mineral assets: |
In connection with the reverse acquisition of Bitfarms Ltd (Israel), the Company engaged an independent appraiser to determine the fair value as at the acquisition date, April 12, 2018 of Suni, an iron ore mine held by the acquiree. According to the findings of a resource valuation prepared for Suni in 2011 (by JORC Code, The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves) with estimated dilution of 20%, the deposit consists of about 280.2 million tons at about 28% of Fe of which about 95.1 million tons at about 28.5% in the indicated category and about 185.1 million tons at about 27.8% in the inferred category. The appraiser’s valuation report was based on the comparison method and the analysis of similar assets. Following certain adjustments resulting from changes in the price of iron ore, among other variables, Suni’s value at April 12, 2018 was estimated at $9,000. The independent appraiser was engaged also to determine Suni’s fair value as at December 31, 2019 and 2018. Using the same valuation techniques, the appraiser determined that the value of Suni was not below $9,000 and that there was no impairment to Suni’s value. The fair value measurement is categorized as level 2 in the fair value hierarchy. The Company also holds interests in three additional mineral properties, Hidden Lake gold mine, Victorine Gold mine and Pembroke silver mine. It is management’s view that these three mines are unlikely to be of significant value and as a result they were not reflected in the purchase price allocation of the reverse acquisition. The abovementioned mineral assets, including Suni, were inactive during the reporting periods and as of the date of approval of the consolidated financial statements.
NOTE 11: INTANGIBLE ASSETS
| Systems software | Customer lists | Total | ||||||||||
| Cost: | ||||||||||||
| Balance as of January 1, 2019 | $ | 5,000 | $ | 50 | $ | 5,050 | ||||||
| Additions | 88 | - | 88 | |||||||||
| Balance as of December 31, 2019 | 5,088 | 50 | 5,138 | |||||||||
| Balance as of January 1, 2018 | 5,000 | - | 5,000 | |||||||||
| Additions through business combination | - | 50 | 50 | |||||||||
| Balance as of December 31, 2018 | 5,000 | 50 | 5,050 | |||||||||
| Accumlated amortization and impairment : | ||||||||||||
| Balance as of January 1, 2019 | 4,012 | 25 | 4,037 | |||||||||
| Amortization | 410 | 16 | 426 | |||||||||
| Balance as of December 31, 2019 | 4,422 | 41 | 4,463 | |||||||||
| Balance as of January 1, 2018 | 278 | - | 278 | |||||||||
| Amortization | 1,639 | 25 | 1,664 | |||||||||
| Impairment loss | 2,095 | - | 2,095 | |||||||||
| Balance as of December 31, 2018 | 4,012 | 25 | 4,037 | |||||||||
| Net book value as of | ||||||||||||
| December 31, 2019 | $ | 666 | $ | 9 | $ | 675 | ||||||
| December 31, 2018 | $ | 988 | $ | 25 | $ | 1,013 | ||||||
| | 34 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 12: LONG-TERM DEPOSITS AND ADVANCE PAYMENTS ON EQUIPMENT
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Security deposits for rent, energy and insurance | $ | 1,021 | $ | 644 | ||||
| Advance payments on equipment | 127 | 399 | ||||||
| Prepaid transaction fees related to financing facility | - | 20 | ||||||
| $ | 1,148 | $ | 1,063 | |||||
NOTE 13: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Trade accounts payable and accrued liabilities | $ | 2,272 | $ | 2,622 | ||||
| Government remittances | 102 | 125 | ||||||
| Trade payable to companies controlled by directors | 15 | 73 | ||||||
| $ | 2,389 | $ | 2,820 | |||||
NOTE 14: LONG-TERM DEBT
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Dominion Capital loan | $ | 15,084 | $ | - | ||||
| Backbone vendor financing | 394 | 1,438 | ||||||
| Volta notes payable | 122 | 125 | ||||||
| Volta vendor financing | 123 | 155 | ||||||
| Total long-term debt | 15,723 | 1,718 | ||||||
| Less current maturities of long-term debt | (874 | ) | (1,025 | ) | ||||
| Non-current maturities of long-term debt | $ | 14,849 | $ | 693 | ||||
| a. | Dominion Capital loan |
On March 15, 2019, the Group entered into a secured debt financing facility for up to $20,000 with Dominion Capital LLC (the Lender). The debt facility is structured into four separate loan tranches of $5,000 per tranche. Each loan tranche bears interest at 10% per annum and the term of each loan tranche is 24 months with a balloon payment for any remaining outstanding balance at the end of the term. A monthly payment equivalent to 10% of the value of cryptocurrencies mined by Backbone during the month is required in repayment of the total loan tranches drawn. The monthly payments shall be applied to interest and the balance to principal, and in the event that the amount of the cryptocurrency mined is less than the amount of interest owing, such additional amounts shall be remitted such that the interest is payable in full on a current basis.
| | 35 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 14: LONG-TERM DEBT (Cont.)
The loan contains a “make-whole” clause which stipulates that the 10% interest rate is calculated on the initial principal balance of the loan tranche and does not decrease as the principal balance is repaid. The 10% interest rate is calculated over the 24-month term of each loan tranche regardless of whether the loan tranche is repaid prior to its maturity. Any unpaid interest at the earlier of the loan tranche’s early repayment, or the loan tranche’s 24-month maturity, is included in the balloon payment.
The loan tranches are fully secured by the assets of the Group on a first-priority basis. Pursuant to the terms with the Lender, the Company is required to comply with certain covenants as long as any amount is outstanding. The significant covenants are to maintain a bank balance of $1,000 at all times. However, Dominion Capital reached an agreement with the Company in order to postpone this loan covenant until December 31, 2019. The Company must also respect restrictions on issuing additional debt or selling property, plant and equipment without re-investing the proceeds into new purchases of property, plant and equipment. As of December 31, 2019, the Company is in compliance with all loan covenants.
The Company drew down all four $5,000 loan tranches in March, April, June and August 2019. As of December 31, 2019, the carrying amount, less capitalized transaction fees and plus accrued interest, was $15,084.
In addition, Bitfarms Ltd. issued 1,666,667 Lender warrants, which vested upon issuance, to acquire 1,666,667 shares of Bitfarms Ltd. for each loan tranche drawn with an exercise price of $0.40 USD per share and an expiration date of five years. As a result, an aggregate of 6,666,668 Lender warrants to acquire 6,666,668 shares have been issued, of which 250,000 were exercised as of December 31, 2019. An additional 500,000 warrants were exercised subsequent to December 31, 2019 as described in Note 26.
The loan features result in a loan liability measured at amortized cost, a warrant liability component measured at fair value through profit or loss, which was subsequently modified as described below under Warrant issuance, and an embedded derivative measured at fair value through profit or loss.
Loan liability
The loan liability is initially measured as the residual amount of the proceeds received, net of transaction costs and the fair value of the warrant issuance. The loan is then measured at amortized cost using the effective interest method. Management used significant judgement and estimates when determining the effective interest rate. Payment amounts are determined as 10% of the cryptocurrency mined by Backbone. In order to calculate the effective interest rate, management had to estimate Backbone’s future cryptocurrency mining revenues in order to estimate the timing and amount of future loan repayments. The effective interest rate was determined to be 26.93%, 30.16%, 37.10 % and 38.02% for the first, second, third and fourth tranches, respectively. The carrying amount of the loan liability approximates its fair value. Included in financial expenses for the year ended December 31, 2019 is $2,817 (December 31, 2018 - $nil) of interest expense related to the loan.
| | 36 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 14: LONG-TERM DEBT (Cont.)
Key assumptions
Key assumptions used in recording the above loan features as of December 31, 2019, are described below. These assumptions are subject to change based on future developments and such changes could have a material effect on the embedded derivative.
Revenues - Two optimistic, two pessimistic and one status quo scenario were used in estimating future bitcoin price and network difficulty, which are key factors in predicting revenues from cryptocurrency mining. Management assigned probabilities to each scenario, which were used to calculate weighted average expected outcomes. The weighted average bitcoin price and network difficulty used in the projections upon the inception of Tranches #1 and #2 were $5.4 and 5.36X10^12, respectively. The weighted average bitcoin price and network difficulty used in the projections upon the inception of Tranche #3 were $10.2 and 7.82X10^12, respectively. The weighted average bitcoin price and network difficulty used in the projections upon the inception of Tranche #4 were $13.9 and 1.33X10^13, respectively.
Internal hashrate - Management was required to predict the growth of the Company’s internal hashrate, one of the main revenue drivers in combination with bitcoin price and network difficulty, to predict revenues. Accordingly, management was required to make assumptions regarding the timing of all four loan tranche drawdowns as well as the pricing and availability of cryptocurrency mining hardware.
Transaction fees
Backbone incurred transaction fees of $626 in order to secure the $20,000 debt financing facility. The transaction fees were allocated on a pro rata basis between loan tranche drawdowns and warrant issuances. The allocation resulted in transaction fees of $150 being allocated to the warrant issuances, which were expensed as incurred. The remaining transaction fees of $476 were allocated to the four loan tranches, which were deducted from the carrying amount of the loan and will be amortized over the term of the loan agreement.
Warrant issuance
In March, April, June and August 2019 Bitfarms Ltd. drew down all four loan tranches, requiring the issuance of 1,666,667 warrants per loan tranche to the Lender to purchase 1,666,667 shares of Bitfarms Ltd. at an exercise price of $0.40 USD per share, for a total of 6,666,668 warrants.
The following table lists the inputs to the Black Scholes model used for the fair value measurement for the above issuance of warrants at their initial issuance dates, as well as at the remeasurement date as described below. The fair value measurement of the warrants is based upon level 2 inputs:
| | 37 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 14: LONG-TERM DEBT (Cont.)
| Tranche 1 | Tranche 2 | Tranche 3 | Tranche 4 | September 27,
2019 | ||||||||||||||||
| Dividend yield (%) | - | - | - | - | - | |||||||||||||||
| Expected share price volatility (%) | 110 | % | 114 | % | 114 | % | 115 | % | 114 | % | ||||||||||
| Risk-free interest rate (%) | 2.40 | % | 2.40 | % | 1.80 | % | 1.60 | % | 1.57 | % | ||||||||||
| Expected life of warrants (years) | 5 | 5 | 5 | 5 | 4.47-4.87 | |||||||||||||||
| Share price (U.S. Dollar) | 0.62 | 0.73 | 0.83 | * | 1.06 | 0.57 | ||||||||||||||
| Warrant value (U.S. Dollar) | 0.57 | 0.68 | 0.77 | 0.94 | 0.47 | |||||||||||||||
| Quantity of warrants | 1,666,667 | 1,666,667 | 1,666,667 | 1,666,667 | 6,666,668 | |||||||||||||||
| Total value | $ | 946 | $ | 1,137 | $ | 1,283 | $ | 1,570 | $ | 3,160 | ||||||||||
* As of the drawdown date of tranche #3 as well as at June 30, 2019 the Company was not publicly traded. As a result, a linear regression model was used to estimate the share price as of the valuation dates. The linear regression model used a weighted average of the last five days of trading on the Tel Aviv Stock Exchange as well as the five days of trading on the TSXV ending August 2, 2019.
Based on the above inputs, the fair value of the warrants issued in connection with the four tranche drawdowns, were determined to be $0.57 USD, $0.68 USD, $0.77 USD and $0.94 USD per warrant, for a total of $946, $1,137, $1,283 and $1,570, respectively for a total of $4,936, upon their respective issuance dates.
Upon inception of the loan, the warrants contained an anti-dilutive feature that could have resulted in a reduction in the exercise price in the event that the Company were to issue shares at a price lower than the exercise price. As a result of this feature, the warrants would not necessarily have resulted in a fixed number of shares being issued for a fixed price. The possibility of variation in the settlement price resulted in the warrants being classified as a liability that was measured at fair value through profit or loss. On September 27, 2019, the Company received all necessary approvals in order to remove the anti-dilutive feature, resulting in the reclassification of the warrants to equity at their fair market value as remeasured on the reclassification date, based on the above inputs. In exchange for removal of the anti-dilutive feature, the Company agreed not to issue common shares below the exercise price of $0.40 USD during the term of the loan with the Lender. The remeasurement resulted in a gain of $1,776 for the year ended December 31, 2019 (December 31, 2018 - $nil), included in financial income.
Embedded derivative
The value of the “make-whole” clause described above will vary based on management’s projections of the timing of the loan repayment, which are based on Backbone’s cryptocurrency mining revenues. This interest feature has been accounted for as an embedded derivative that is measured at fair value through profit or loss. Since this is a non-option derivative, the fair value upon initial recognition of the loan liability is nil.
| | 38 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 14: LONG-TERM DEBT (Cont.)
As of December 31, 2019, management revised its projections of the timing of the loan repayment and discounted future payments to their present value using the effective interest rates determined upon inception of each loan tranche. The weighted average bitcoin price and network difficulty used in the projections in order to determine the fair value of the embedded derivative were $10.6 and 1.24X10^13, respectively. The fair value measurement is based upon level 3 inputs, as a result management has performed a sensitivity analysis using varying discount rates:
| Scenario 1 | Scenario 2 | Scenario 3 | ||||||||||
| Discount rate | 30.05 | % | 33.05 | % | 36.05 | % | ||||||
| Total value - asset (liability) | $ | (174 | ) | $ | 483 | $ | 1,103 | |||||
As of December 31, 2019, management recognized an embedded derivative asset with a fair value of $476 (December 31, 2018 - $nil) resulting in an unrealized gain of $476 included in financial income (December 31, 2018 - $nil) for the year ended December 31, 2019.
| b. | Backbone vendor financing |
Backbone signed an agreement to purchase BVVE in the amount of $2,000, with an outstanding balance of $394 as of December 31, 2019 (December 31, 2018 - $1,438). According to the agreement, the abovementioned amount will be repaid in 20 equal monthly instalments commencing on June 15, 2018. A discount rate of 8% was used to calculate the present value of the installments and record the BVVE in the amount of $1,826 upon acquisition.
| c. | Volta vehicle leases |
Volta signed several agreements to purchase vehicles, with an outstanding balance of $122 (CAD $159,000) as of December 31, 2019 (December 31, 2018 - $125). Eleven notes payable, bearing interest between 3.49% and 8.2% repayable in monthly instalments totaling $5.1 (CAD $6,700) principal and interest, maturing between January 2020 and October 2025, secured by vehicles having a net carrying value of $156.
| d. | Volta vendor financing |
Volta received long-term vendor financing with an outstanding balance of $123 (CAD $160,000) as of December 31, 2019 (December 31, 2018 - $155), bearing interest at 5%, payable by monthly instalments of $4 (CAD $5,198) principal and interest, maturing September 2022.
| | 39 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 15: LEASES
Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the period:
| Farming facilities | Vehicles | Other equipment | Total ROU assets | Lease liabilities | ||||||||||||||||
| As of January 1, 2019 * | $ | 5,201 | $ | 102 | $ | - | $ | 5,303 | $ | 5,119 | ||||||||||
| Additions and extensions ** | 2,108 | 129 | 60 | 2,297 | 2,292 | |||||||||||||||
| Lease terminations | (489 | ) | (24 | ) | - | (513 | ) | (551 | ) | |||||||||||
| Depreciation | (786 | ) | (50 | ) | (8 | ) | (854 | ) | - | |||||||||||
| Payments | - | - | - | - | (1,045 | ) | ||||||||||||||
| Interest | - | - | - | - | 381 | |||||||||||||||
| FX loss on lease liabilities | - | - | - | - | 267 | |||||||||||||||
| As of December 31, 2019 | $ | 6,034 | $ | 157 | $ | 52 | $ | 6,233 | $ | 6,463 | ||||||||||
* Includes $184 previously presented in long-term deposits and advance payments on equipment prior to the adoption of IFRS 16 on January 1, 2020.
** The addition and lease termination included in farming facilities represents the termination of the lease agreement with a company controlled by certain directors, and the signing of a new agreement with an arm’s length party. The key terms of the lease agreement feature a ten-year initial lease term with two five-year renewal options. Monthly rent approximates $17 ($22,000 CAD) with an annual increase based on the Consumer Price Index (CPI) per Statistics Canada on December 31. The future potential payments not included in the initial recognition of the lease include the two five-year renewal terms, with payments totaling approximately $2,000 ($2,640,000 CAD) exclusive of annual increases based on the CPI.
The Group recognized rent expense from short-term leases of $62 for the year ended December 31, 2019.
NOTE 16: INCOME TAXES
| a. | Deferred taxes: |
Deferred taxes are computed at a tax rate of 26.6% (2018 - 26.7%), 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, the Dominion Capital Loan described in Note 14 as well as the deferred gain on assets held for sale described in Note 9. Backbone currently has federal and provincial loss carryforwards of $8,700 and $13,400, respectively which can be carried forward for a period of 20 years, expiring in 2039. Management has concluded that the loss carryforwards do not meet the relevant recognition criteria under IFRS, and as a result did not realize a deferred tax asset.
| | 40 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 16: INCOME TAXES (Cont.)
| b. | Taxes on income included in profit or loss: |
| Year ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Current tax expense (benefit) | ||||||||
| Current year | $ | (1,768 | ) | $ | 27 | |||
| Prior year | (9 | ) | 734 | |||||
| Deferred tax expense (benefit) | ||||||||
| Current year | (837 | ) | - | |||||
| Prior year | 23 | (702 | ) | |||||
| $ | (2,591 | ) | $ | 59 | ||||
In addition to the taxes on income included in profit or loss, $837 of deferred tax was charged directly to equity as it related to a temporary difference arising on items charged to equity.
| c. | Effective tax rate: |
Tax on the Group’s loss before income taxes differs from the theoretical amount that would arise using the statutory tax rate applicable to earnings as follows:
| Year ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Income tax expense at statutory rate of 26.6% (2018-26.7%) | $ | (129 | ) | $ | (4,853 | ) | ||
| Increase (decrease) in taxes resulting from: | ||||||||
| Foreign rate differential | 9 | 25 | ||||||
| Prior year | (32 | ) | - | |||||
| Non-deductible expenses | 636 | 178 | ||||||
| Losses and other temporary differences for which deferred tax assets not recognized | - | 4,245 | ||||||
| Recognition of tax benefit due to loss carryback | (2,779 | ) | - | |||||
| Foreign exchange on non-monetary assets | (296 | ) | 464 | |||||
| $ | (2,591 | ) | $ | 59 | ||||
| | 41 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 17: ASSET RETIREMENT PROVISION
As of December 31, 2018, the Group estimated the costs of restoring its leased premises to their original state at the end of their respective lease terms to be $311, discounted to present value of $232 using a discount rate of 8% over the lease periods, which were estimated to range from two to five years depending on the location. Management has revised its estimate of the lease terms to be from two to ten years. The reason for the change in estimate was primarily based on securing the $20,000 financing facility described in Note 14, as well as the local energy tribunal’s decision to reject a proposed increase in electricity prices on cryptocurrency miners. These two factors have resulted in management’s estimate that certain leases containing asset retirement provisions will be renewed, thus delaying the cash outlay required to restore the properties. The change in estimate resulted in a reduction of the asset retirement provision of $51.
NOTE 18: SHARE CAPITAL
| Authorized | Issued and outstanding at December 31, | |||||||||
| 2019 | 2018 | |||||||||
| Number of shares | ||||||||||
| Common shares of no par value | Unlimited | 83,620,630 | 39,739,785 | |||||||
On June 12, 2019 Bitfarms Ltd. (Israel) completed the Arrangement, which resulted in 39,739,785 Bitfarms Israel shares being exchanged on a 1:1 basis for 39,739,785 newly issued shares in the Company. The transaction has been accounted for as a reverse acquisition that does not constitute a business combination. For accounting purposes, the legal subsidiary, Bitfarms Ltd. (Israel), has been treated as the acquirer of the Company. Accordingly, these consolidated financial statements reflect a continuation of the financial position, operating results and cash flows of the Company’s legal subsidiary, Bitfarms Ltd. Israel. On the same date, 17,335,090 Backbone exchangeable shares were exchanged for shares in the Company on a one to one basis.
On August 15, 2019 the Company completed the acquisition of all remaining issued and outstanding shares of Backbone that were not included in the Arrangement (non-controlling interest) through a 1:1 share exchange in which 26,295,655 Backbone shares were exchanged for 26,295,655 newly issued shares in the Company. The fair value of the Company’s shares issued in the exchange in the amount of $24,938 was credited to share capital. The excess of the fair value of the issued shares over the carrying amount of the non-controlling interest at the date of the exchange in the amount of $21,267 was recorded as a reduction of share capital.
The Company was incorporated on October 11, 2018 for the purposes of obtaining a listing on the TSXV and engaging in the share exchange described above. The Company remained inactive from inception until the share exchange and had assets of $100 CAD and shareholders’ equity of $100 CAD, with 100 issued and outstanding shares.
On November 22, 2019 Dominion Capital exercised 250,000 warrants to acquire 250,000 Common shares resulting in proceeds of $100 being paid to the Company. See Note 14a for details of the warrants issued in 2019.
| | 42 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 19: FINANCIAL INSTRUMENTS
| a. | Financial assets at amortized cost: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Trade receivables, net | 1,108 | 912 | ||||||
| $ | 1,108 | $ | 912 | |||||
| b. | Financial assets at fair value through profit or loss: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Embedded derivative | 476 | - | ||||||
| $ | 476 | $ | - | |||||
Note 14 a. includes a discussion of significant assumptions used in calculating the fair value of the embedded derivative.
| c. | Financial liabilities: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Financial liabilities at amortized cost | ||||||||
| Accounts payable and accrued liabilities | $ | 2,389 | $ | 2,820 | ||||
| Long-term debt | 15,723 | 1,718 | ||||||
| Lease liabilities | 6,463 | - | ||||||
| $ | 24,575 | $ | 4,538 | |||||
The carrying amounts of trade receivables, accounts payable and accrued liabilities and long-term debt presented in the tables above, are a reasonable approximation of their fair value.
| d. | Risk management policy: |
The Company is exposed to foreign currency risk, credit risk and liquidity risk. The Company’s senior management monitors these risks.
| | 43 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 19: FINANCIAL INSTRUMENTS (Cont.)
| e. | Foreign currency risk: |
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Group’s functional currency is the US Dollar as all of its revenues, most of its capital expenditures and most of its financing are transacted in US dollars.
The Group is exposed to variability in the Canadian dollar to US dollar exchange rate when paying operating expenses incurred and payable in Canadian dollars. The Group funds foreign currency transactions by buying the foreign currency at the spot rate when required.
A 5% increase or decrease in the USD/CAD exchange rates may have an impact of an increase or decrease of $181 on net income or equity at December 31, 2019 (December 31, 2018 - $116). Amounts denominated in Canadian dollars included in the consolidated statements of financial position, presented in U.S. dollars in thousands, are as follows:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash and cash equivalents | $ | 1,018 | $ | 451 | ||||
| Other receivables | 1,182 | 345 | ||||||
| Trade receivables, net | 1,091 | 890 | ||||||
| Income taxes receivable | 1,743 | - | ||||||
| Accounts payable and accrued liabilities | (1,743 | ) | (2,731 | ) | ||||
| Income taxes payable | (7 | ) | (765 | ) | ||||
| Long-term debt | (245 | ) | (279 | ) | ||||
| Lease liabilities | (6,463 | ) | - | |||||
| Asset retirement provision | (193 | ) | (232 | ) | ||||
| $ | (3,617 | ) | $ | (2,321 | ) | |||
| f. | Credit risk: |
Credit risk is the risk of an unexpected loss if a third party fails to meet its contractual obligations, including cash and cash equivalents. The risk regarding cash and cash equivalents is mitigated by holding the cash and cash equivalents through a Canadian chartered bank. The credit risk regarding trade receivables are derived mainly from sales to Volta’s third-party customers. The Company performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. The allowance for doubtful accounts is based on management’s assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivable balances.
| | 44 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 19: FINANCIAL INSTRUMENTS (Cont.)
| g. | Liquidity risk: |
Liquidity risk is a risk that the Group will not be able to pay its financial obligations when they are due. The Group’s policy is to monitor its cash balances and planned cash flows generated from operations to ensure, as far as possible, that it maintains sufficient liquidity in order to pay its projected financial liabilities. The contractual maturities of trade and other payables are less than three months. Long-term debt includes financial obligations with contractual maturities as follows, inclusive of interest as of December 31, 2019:
| December 31, | ||||
| 2019 | ||||
| 2020 | $ | 4,002 | ||
| 2021 | 17,918 | |||
| 2022 and thereafter | 93 | |||
| $ | 22,013 | |||
Lease liabilities includes financial obligations with contractual maturities as follows, inclusive of interest, as of December 31, 2019:
| December 31, | ||||
| 2019 | ||||
| 2020 | $ | 1,197 | ||
| 2021 | 1,170 | |||
| 2022 | 1,050 | |||
| 2023 | 893 | |||
| 2024 and thereafter | 3,846 | |||
| $ | 8,156 | |||
Movement in long-term debt for the years ending December 31, 2019 and 2018 is as follows:
| Year ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Balance as at January 1 | 1,718 | - | ||||||
| Long-term debt acquired through business combination | - | 111 | ||||||
| Accounts payable converted to long-term vendor financing | - | 217 | ||||||
| Issuance of long-term debt | 14,664 | 1,886 | ||||||
| Payments | (3,546 | ) | (559 | ) | ||||
| Interest on long-term debt | 2,887 | 63 | ||||||
| $ | 15,723 | $ | 1,718 | |||||
| | 45 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 20: ADDITIONAL DETAILS IN REGARD TO THE STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
| a. | Revenues: |
Details of the cryptocurrency mined by the Bitfarms operating segment and their related fair values at the time of mining are as follows:
| Year ended December 31, 2019 | ||||||||||||||||||||||||
| Bitcoin | Bitcoin Cash | Dash | Lite Coin | Ethereum | Total $ | |||||||||||||||||||
| Quantity | 3,865 | - | - | 7,561 | - | - | ||||||||||||||||||
| Fair value * | 28,733 | - | - | 653 | - | 29,386 | ||||||||||||||||||
| Year ended December 31, 2018 | ||||||||||||||||||||||||
| Bitcoin | Bitcoin Cash | Dash | Lite Coin | Ethereum | Total $ | |||||||||||||||||||
| Quantity | 3,252 | 2,577 | 611 | 6,234 | 964 | - | ||||||||||||||||||
| Fair value * | 25,747 | 4,178 | 153 | 734 | 536 | 31,348 | ||||||||||||||||||
The above figures differ from those included in Revenues as the Company’s revenue recognition policy is to recognize revenues upon conversion of cryptocurrencies to fiat currency or when the cryptocurrency is transferred to another party in settlement of a debt to this party.
| * | The Company based the fair value of the cryptocurrency mined at the time of mining on the prices quoted on www.coinmarketcap.com, which calculates the price by taking the weighted average prices, based on volume, reported in each cryptocurrency market. The fair value measurement is categorized as level 1 in the fair value hierarchy. |
| b. | Cost of Revenues: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Energy and infrastructure | $ | 11,666 | $ | 8,487 | ||||
| Depreciation and amortization | 6,843 | 12,548 | ||||||
| Purchases of electrical components | 1,260 | 708 | ||||||
| Electrician salaries and payroll taxes | 1,174 | 793 | ||||||
| Net change in inventory | 39 | 392 | ||||||
| $ | 20,982 | $ | 22,928 | |||||
| | 46 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 20: ADDITIONAL DETAILS IN REGARD TO THE STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME (Cont.)
| c. | General and administrative expenses: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Salaries and payroll taxes | $ | 6,002 | $ | 3,899 | ||||
| Professional services | 2,374 | 3,039 | ||||||
| Advertising and promotion | 110 | 272 | ||||||
| Insurance and other | 1,167 | 644 | ||||||
| Travel, motor vehicle and meals | 350 | 621 | ||||||
| Hosting and telecommunications | 291 | 340 | ||||||
| $ | 10,294 | $ | 8,815 | |||||
| d. | Financial income: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Gain on revaluation of warrants | $ | 1,776 | $ | - | ||||
| Gain on embedded derivative | 476 | - | ||||||
| $ | 2,252 | $ | - | |||||
| e. | Financial expenses: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Interest on long-term debt | $ | 2,887 | $ | 63 | ||||
| Interest on lease liabilities | 381 | - | ||||||
| Loss (gain) on currency exchange | 200 | (25 | ) | |||||
| Warrant issuance costs | 150 | - | ||||||
| Other financial expenses | 207 | 141 | ||||||
| $ | 3,825 | $ | 179 | |||||
| | 47 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 21: TRANSACTIONS AND BALANCES WITH RELATED PARTIES
| a. | Balances with related parties: |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Accounts receivable: | ||||||||
| Companies controlled by directors | $ | 18 | $ | - | ||||
| Accounts payable: | ||||||||
| Directors’ remuneration (included in accrued liabilities) | $ | - | $ | 26 | ||||
| Companies controlled by certain directors and consulting fees | 15 | 73 | ||||||
| $ | 15 | $ | 99 | |||||
| Lease liabilities: | ||||||||
| Companies controlled by directors | $ | 2,000 | $ | - | ||||
Amounts due to related parties, are unsecured, non-interest bearing and payable on demand.
| b. | Transactions with related parties: |
During the year ended December 31, 2019:
1. One of the companies in the Group was charged approximately $152 for the year ended December 31, 2019 (year ended December 31, 2018 - $235) for telecommunication expenses by a company in which a director has significant influence.
In addition, one of the companies in the Group made rent payments totaling approximately $528 for the year ended December 31, 2019 (year ended December 31, 2018- $597) to companies controlled by certain directors. For the year ended December 31, 2019 the rent payments were classified as interest included in financial expenses and principal repayment of lease liabilities. For the year ended December 31, 2018 rent payments were included in cost of revenues.
2. One of the companies in the Group entered into consulting agreements with two of the directors. The consulting fees charged by directors totaled approximately $400 for the year ended December 31, 2019 (year ended December 31, 2018 - $448).
3. One of the companies in the group sold 627 Bitcoin for the year ended December 31, 2019 (year ended December 31, 2018 – 3,346 Bitcoin and 1,790 Bitcoin Cash) to a company of which, at the time of such sales, had a director who was also a shareholder of Bitfarms Ltd. (Israel) for $2,283 (year ended December 31, 2018 - $28,323). The Bitcoin sold includes the conversion of other cryptocurrencies to bitcoin using arm’s length exchanges. The company of which one of the Bitfarms shareholders is a director ceased operating in the cryptocurrency industry as of March 11, 2019, and since that date Bitfarms has not transacted with this company.
| | 48 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 21: TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)
4. A former director of the group was rendered electrician services in the amount of $12 for the year ended December 31, 2019 (year ended December 31, 2018 - $nil).
5. As described in Note 18, on June 12, 2019, two Bitfarms founding shareholders exchanged 17,335,090 exchangeable shares of Backbone into 17,335,090 common shares of the Company.
The transactions described in 1-4 above were incurred in the normal course of operations. These transactions were included in consolidated statements of profit or loss and comprehensive income as follows:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenues | $ | 2,283 | $ | 28,323 | ||||
| Cost of revenues | (442 | ) | (597 | ) | ||||
| General and administrative expenses | (588 | ) | (715 | ) | ||||
| Financial expenses | (184 | ) | - | |||||
| c. | Compensation of key management and directors: |
Key management includes the Group’s President, Chief Executive Officer, Chief Financial Officer, Chief Strategy Officer, Executive Vice President, Vice President of Operations and Vice President of Infrastructure. The remuneration paid to directors and members of key management personnel are as follows:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Short-term benefits | $ | 791 | $ | 753 | ||||
| Share based payments | 2,873 | 746 | ||||||
| $ | 3,664 | $ | 1,499 | |||||
NOTE 22: CAPITAL MANAGEMENT POLICIES AND PROCEDURES
The Group’s capital management objectives are to ensure its ability to maximize the return of its shareholders. The Group’s definition of capital includes all components of equity. Capital for the reporting period is summarized in Note 18 and in the consolidated statement of changes in equity. In order to meet its objectives, the Group monitors its capital structure and makes adjustments as required in light of changes in economic conditions and the risk characteristics of the underlying assets. These objectives will be achieved by maintaining a strong capital base so as to maintain investor confidence to sustain future development of the business, maintain a flexible capital structure that optimizes the cost of capital at acceptable risk and preserves the ability to meet financial obligations and ensuring sufficient liquidity to pursue organic growth. In order to maintain or adjust the capital structure, the Group may issue new common shares or funded debt. As at December 31, 2019, the Group requires consent from Dominion Capital in order to issue common shares at a price lower than $0.40 USD.
| | 49 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 23: INVESTMENTS IN INVESTEES
In 2011, the Bitfarms Ltd. (Israel) established AU Acquisition VI, LLC (“AU”) which is incorporated in the State of Nevada, USA and is wholly owned and controlled by the Company. AU is registered as the legal owner of the mineral assets, Hidden Lake and Victorine. Also, in 2011, Bitfarms established Pembroke & Timberland, LLC (“Pembroke”) in the State of Maine, USA which is also wholly owned and controlled by Bitfarms. Pembroke is registered as the legal owner of the Pembroke mineral asset as described in Note 10c.
| Company name | Security type | No. of shares | Main place of business | Securities | Equity | Voting | ||||||||||||||
| AU | Ordinary shares | 100 | USA | 100% | 100% | 100% | ||||||||||||||
| Pembroke | Ordinary shares | 100 | USA | 100% | 100% | 100% | ||||||||||||||
| Volta | Ordinary shares | 7,503 | CDA | 100% | 100% | 100% | ||||||||||||||
| Backbone | Ordinary shares | 83,624,980 | CDA | 100% | 100% | 100% | ||||||||||||||
Excluding the mineral assets with a carrying amount of $9,000, substantially all of the other assets, liabilities, revenues, expenses and cash flows in the consolidated financial statements are those of Backbone and of Volta.
NOTE 24: NET EARNINGS (LOSS) PER SHARE
Details of the number of shares and income (loss) used in the computation of net earnings (loss) per share:
| Year ended December 31, | ||||||||||||||||
| 2019 | 2018 | |||||||||||||||
| Weighted average shares outstanding | Net income attributable to the shareholders of the Company | Weighted average shares outstanding | Net loss attributable to the shareholders of the Company | |||||||||||||
| Number of shares (in thousands) | Number of shares (in thousands) | |||||||||||||||
| Total shares for the calculation of basic net earnings (loss) per share | 67,044 | - | 39,581 | - | ||||||||||||
| Total exchangeable shares | - | - | 17,335 | - | ||||||||||||
| Total shares for the calculation of basic net earnings (loss) per share | 67,044 | - | 56,916 | - | ||||||||||||
| The effect of dilutive potential common shares | 4,014 | - | - | - | ||||||||||||
| Total shares for the purpose of calculating diluted earnings (loss) per share | 71,058 | - | - | - | ||||||||||||
| Net income (loss) for the calculation of basic and diluted earnings (loss) per share | - | $ | 2,899 | 56,916 | $ | (9,363 | ) | |||||||||
| | 50 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 24: NET EARNINGS (LOSS) PER SHARE (Cont.)
For 2019, vested options whose exercise price exceeded the average share price during the period were not included in the calculation of diluted earnings per share (see note 25). For 2018, potentially dilutive securities (options and warrants – see Note 25) have not been included in the calculation of diluted earnings (loss) per share because their effect is antidilutive.
| Year ended December 31 | ||||||||
| 2019 | 2018 | |||||||
| Basic and diluted earnings (loss) per share | 0.04 | (0.16 | ) | |||||
NOTE 25: SHARE BASED PAYMENT
The expense recognized in the financial statements for employee services received is as follows:
| December
31, 2019 |
December 31, 2018 | |||||||
| Equity-settled share-based payment plans | 2,873 | 746 | ||||||
| Total expense arising from share-based payment transactions | 2,873 | 746 | ||||||
The share-based payment transactions entered into between the Group and its employees during year ended December 31, 2019 are described below. On June 20, 2019, the Board of Directors approved a stock option plan which includes a maximum of 11,414,975 options to purchase 11,414,975 shares in the Company, exercisable within 5 years of the grant date. The plan that was approved June 20, 2019 included the grant of 7,555,000 options to purchase 7,555,000 shares which can be separated into three separate tranches. Two additional grants for a total of 810,000 options were approved during the twelve months ended December 31, 2019. All options become exercisable when they vest and can be exercised for a period of 5 years from the date of the grants.
| June 20, 2019 | Other | |||||||||||||||
| Grant date | ||||||||||||||||
| Dividend yield (%) | - | - | - | - | ||||||||||||
| Expected share price volatility (%) | 95 | % | 95 | % | 95 | % | 95 | % | ||||||||
| Risk-free interest rate (%) | 1.76 | % | 1.76 | % | 1.76 | % | 1.76 | % | ||||||||
| Expected life of stock options (years) | 3 | 3 | 3 | 3 | ||||||||||||
| Share price (U.S. Dollar) * | 0.83 | 0.83 | 0.96 | 0.48 | ||||||||||||
| Exercise price (Canadian Dollar) | 0.99 | 1.19 | 1.5 | 0.99 | ||||||||||||
| Fair value of options (USD) | 0.52 | 0.48 | 0.56 | 0.33 | ||||||||||||
| Vesting period (years) | 2 | 1 | 1.75 | 2 | ||||||||||||
| Quantity of options granted * | 4,805,000 | 1,623,679 | 1,126,321 | 810,000 | ||||||||||||
* Of the tranche of 4,805,000 options granted June 20, 2019 2,601,667 vested up front with the remainder vesting over two years.
| | 51 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 25: SHARE BASED PAYMENT (Cont.)
Details of the outstanding stock options as of December 31, 2019 and 2018 are as follows:
| 2019 | 2018 | |||||||||||||||
| Number of Options | Weighted Average Exercise Price ($CAD) | Number of Options | Weighted Average Exercise Price ($CAD) | |||||||||||||
| Outstanding, January 1 | 500,000 | 0.87 | - | - | ||||||||||||
| Granted | 8,365,000 | 1.06 | 500,000 | 0.87 | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forefeited | (520,000 | ) | 0.99 | - | - | |||||||||||
| Outstanding, December 31 | 8,345,000 | 1.06 | 500,000 | 0.87 | ||||||||||||
| Exercisable, December 31 | 4,220,583 | 0.99 | 166,666 | 0.87 | ||||||||||||
The weighted average contractual life of the stock options in 2019 was 4.5 years (2018 – 9.25 years).
The plan also approved the modification of the 500,000 options to purchase 500,000 shares in Backbone and 100,000 restricted shares in Backbone previously granted to the CEO and CFO, respectively. The modification resulted in the options and shares previously granted to the CEO and CFO by Backbone to be replaced with the option to purchase 500,000 shares in Bitfarms and 100,000 restricted shares, respectively, in Bitfarms. The strike price of the options remains unmodified, and both the shares and options that were modified were deemed to be 67% vested as at the modification date and 33% over the next twelve months, effective June 20, 2019. As of December 31, 2018, 166,666 stock options and 24,999 restricted shares had vested with a fair market value of $1.74 USD and $1.6 USD determined at their grant dates, respectively. As a result of the replacement of stock compensation in Backbone with stock compensation in the Company, the amounts originally recorded in non- controlling interest were transferred to shareholder’s equity.
NOTE 26: SUBSEQUENT EVENTS
COVID-19:
In March 2020, the World Health Organization declared COVID-19 a pandemic. The global response to the pandemic is constantly evolving, including various measures implemented at the global, national, provincial and local levels. The major impacts that COVID-19 is expected to have on the Backbone operating segment include potential increases in cryptocurrency price volatility, difficulty obtaining new financing due to global economic slowdown, and delays in receiving future orders of mining hardware and parts sourced from overseas. While the Backbone operating segment is expected to continue operating throughout the pandemic, government-imposed restrictions encouraging social distancing may impact the number of employees permitted to work in the mining facilities. A reduction in workforce in the mining facilities may reduce the Company’s ability to maximize operational efficiency. Volta’s services are considered to be essential by government authorities and are expected to continue throughout the pandemic. The impacts of COVID-19 on the Volta operating segment are expected to reduce revenues from the sale of electrician services and parts, as well as result in longer collection periods for outstanding trade receivables, and potential increases in bad debts resulting from the economic impact of COVID-19 on existing customers.
| | 52 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 26: SUBSEQUENT EVENTS (Cont.)
Warrant exercise:
On both January 13, 2020 and February 12, 2020 Dominion Capital exercised a combined total of 500,000 warrants to acquire 500,000 common shares resulting in proceeds of $200 being paid to the Company.
Resignation of Chief Executive Officer and Director:
On March 11, 2020 Wes Fulford elected to resign as Chief Executive Officer and Director of Bitfarms and its subsidiaries. The Company issued 500,000 Common shares in consideration for past services. On the same day Emiliano Grodzki was appointed as interim Chief Executive Officer of Bitfarms. On April 16, 2020 Brian Howlett was appointed a director of Bitfarms.
Authorization of class A preferred shares:
On February 4, 2020, shareholders approved an amendment to the articles of incorporation of the Company to authorize the issuance of class A preferred shares.
| |
53 |
Exhibit 99.15
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Contents
| Introduction | 2 |
| Company Overview | 2 |
| Selected Annual Information | 8 |
| Reconciliation of Net Income to EBITDA and Adjusted EBITDA | 9 |
| Calculation of Gross Mining Profit & Gross Mining Margin | 9 |
| Reportable Operating Segments | 10 |
| Backbone | 10 |
| Volta | 11 |
| Selected Quarterly Information | 11 |
| Liquidity and Capital Resources | 12 |
| Cash Flows | 12 |
| Working Capital | 13 |
| Components of Total Debt | 13 |
| Capital Resources | 14 |
| Off-Balance Sheet Arrangements | 16 |
| Share Capital | 16 |
| Financial Instruments & Risks | 16 |
| Other Risks | 19 |
| Related Party Transactions | 34 |
| Recent and Subsequent Events | 35 |
| Accounting Standards | 36 |
| Adoption of New Accounting Standards | 36 |
| Caution Regarding Forward-Looking Statements | 40 |
| Caution Regarding Non-IFRS Financial Performance Measures | 41 |
| Management’s Report on Internal Control Over Financial Reporting | 42 |
| Glossary of Terms | 42 |
| Bitfarms Ltd. 2019 MD&A | 1 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
The following Management’s Discussion and Analysis (“MD&A”) for Bitfarms Ltd. (together with its subsidiaries, the “Company” or “Bitfarms”) should be read in conjunction with the Company’s audited annual consolidated financial statements and the accompanying notes for the year ended December 31, 2019. In addition, the following MD&A should be read in conjunction with the Company’s “Caution Regarding Forward-Looking Statements” beginning on page 40 of this MD&A.
The Company’s audited annual consolidated financial statements and the accompanying notes for the year ended December 31, 2019 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company’s audited annual consolidated financial statements and the accompanying notes for the year ended December 31, 2019 include the accounts of the Company and other entities that the Company controls and are reported in US dollars, except where otherwise noted.
Under IFRS, certain expenses and income must be recognized that are not necessarily reflective of the Company’s underlying operating performance. Non-IFRS financial performance measures exclude the impact of certain items and are used internally when analyzing operating performance. Please refer to the “Caution Regarding Non-IFRS Financial Performance Measures” section of this MD&A on page 41 for more information. This MD&A contains various terms related to the Company’s business and industry. Please refer to the Glossary of Terms on page 42 of this MD&A.
The Company operates through two operating corporate subsidiaries and reportable operating segments: Backbone Hosting Solutions Inc. (“Backbone”) and 9159-9290 Quebec Inc. (operating as Volta Electrique, “Volta”). Backbone owns and operates server farms, comprised of computers (referred to as a “Miners”) designed for the purpose of validating transactions, primarily on the Bitcoin Blockchain. The Miners operate 24 hours a day and revenues are earned from Block Rewards and transaction fees issued in the form of cryptocurrencies by the Bitcoin network that the Company receives in return for validating transactions (referred to as “Mining”). Backbone regularly exchanges cryptocurrencies mined into U.S. dollars through reputable and established cryptocurrency trading platforms.
As of the date of this MD&A, Bitfarms currently operates five server farm facilities in Québec, Canada, which use approximately 53 MW to produce approximately 780 Petahash per second (PH/s) of hashrate for Mining Bitcoin. The Company has contracts securing an aggregate of 160 MW of hydro-electric green energy in Quebec. In addition, Bitfarms owns proprietary software that is used to control, manage, report and secure mining operations. The software scans and reports the location, computing power and temperature of all Miners at regular intervals to allow the Company to monitor performance and ensure Miners are operating at maximum capacity and up-time. Volta provides electrician services to both commercial and residential customers in Quebec, while assisting Bitfarms in building and maintaining its server farms.
| Bitfarms Ltd. 2019 MD&A | 2 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Full Year 2019 Highlights:
| (U.S.$ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||
| For the periods ended as indicated | Dec.
31 2019 |
Dec.
31 2018 |
$ Change |
% Change | Dec.
31 2019 |
Dec.
31 2018 |
$ Change |
% Change |
| Revenues | 10,536 | 4,654 | 5,882 | 126% | 32,421 | 33,805 | (1,384) | (4%) |
| Cost of Sales | 7,702 | 6,872 | 830 | 12% | 20,982 | 22,928 | (1,946) | (8%) |
| Gross profit | 2,834 | (2,218) | 5,052 | (228%) | 11,439 | 10,877 | 562 | 5% |
| Gross margin | 27% | (48%) | - | - | 35% | 32% | - | - |
| G&A and other expenses | 2,712 | 1,712 | 1,000 | 58% | 10,294 | 9,815 | 479 | 5% |
| Impairment of PP&E and Intangibles | - | 19,060 | (19,060) | (100%) | 56 | 19,060 | (19,004) | (100%) |
| Operating income (loss) | 122 | (22,990) | 23,112 | (101%) | 1,089 | (17,998) | 19,087 | (106%) |
| Operating margin | 1% | (494%) | - | - | 3% | (53%) | - | - |
| Financial income | 55 | - | 55 | 100% | 2,252 | - | 2,252 | 100% |
| Interest expense (income) | 1,122 | (58) | 1,180 | (2,034%) | 3,268 | 63 | 3,205 | 5,087% |
| Other financial expenses (income) | 504 | 63 | 441 | 700% | 557 | 116 | 441 | 380% |
| Total Financial expenses | 1,626 | 5 | 1,621 | 32,420% | 3,825 | 179 | 3,646 | 2,037% |
| Pre-tax loss | (1,449) | (22,995) | 21,546 | (94%) | (484) | (18,177) | 17,693 | (97%) |
| Income tax expense (recovery) | (2,574) | (1,732) | (842) | 49% | (2,591) | 59 | (2,650) | (4,492%) |
| Net income (loss) | 1,125 | (21,263) | 22,388 | (105%) | 2,107 | (18,236) | 20,343 | (112%) |
| Net income (loss) per share - basic | 0.02 | (0.02) | 0.04 | (200%) | 0.04 | (0.16) | 0.20 | (127%) |
| Gross mining profit (1) | 5,488 | 1,676 | 3,812 | 227% | 17,681 | 23,154 | (5,473) | (24%) |
| Gross mining margin (1) | 56% | 45% | - | - | 60% | 73% | - | - |
| EBITDA (1) | 2,299 | (19,839) | 22,138 | (112%) | 9,627 | (5,566) | 15,193 | (273%) |
| EBITDA margin (1) | 22% | (426%) | - | - | 30% | (16%) | - | - |
| Adjusted EBITDA (1) | 2,986 | (603) | 3,589 | (595%) | 10,617 | 15,265 | (4,648) | (30%) |
| Adjusted EBITDA margin (1) | 28% | (13%) | - | - | 33% | 45% | - | - |
| ● | Consolidated revenue of $32.4 million; gross profit of $11.4 million (35% gross profit margin), operating income of $1.1 million (3% operating margin), and net income of $2.1 million; |
| ● | Mining operations segment gross mining profit1 of $17.7 million (60% gross mining margin); |
| ● | $9.6 million EBITDA (30% EBITDA margin) and $10.6 million Adj. EBITDA (33% Adj. EBITDA margin); |
| ● | Mined 3,865 Bitcoin and 7,5612 Litecoin with a 2019 average break-even3 Bitcoin price of $2,996 and average break-even Litecoin price of$49; |
| ● | Completed and deployed $20.0 million debt financing to increase infrastructure capacity from 34 MW to 64 MW (88% increase) and hashrate capacity to 780 PH (~270% increase) by the end of 2019; |
| ● | Concurrently completed de-listing from Tel Aviv Stock Exchange and listing process for the TSXV, being the first crypto company to receive approval from the OSC through a full prospectus filing; and |
| · | Completed reorganization to result in Bitfarms Ltd. owning 100% of Backbone Hosting Solutions Inc., the Company’s main operating entity. |
1 EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures.
2The company mined Litecoin at varying levels from January 2019 to August 2019.
3 Represents the break-even cost of Bitcoin and Litecoin based on variable cost of electricity and is calculated by taking the total electricity costs related to the Mining of each of Bitcoin and Litecoin divided by the total number of Bitcoin and Litecoin mined, respectively, in the relevant period.
| Bitfarms Ltd. 2019 MD&A | 3 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Revenue
Q4 2019 Compared to Q4 2018
Revenue was $10.5 million for the three month period ended December 31, 2019 (“Q4 2019”) compared to $4.7 million for the comparable three month period in 2018 (“Q4 2018”). Revenue for Q4 2019 increased $5.9 million or 126% compared to the revenue in Q4 2018.
| (U.S. $ in thousands except where indicated) | Note | Bitcoin | (USD) | % Change |
| Revenue based on actual coins sold during the three-month period ended December 31, 2018 and Volta external revenue | 794 | 4,654 | - | |
| Impact of increase in average Bitfarms’ Bitcoin hashrate in excess of average network difficulty during Q4 2019 compared to Q4 2018 | 1 | 636 | 3,307 | 71% |
| Impact of increase in Q4 2019 average Bitcoin sale price compared to Q4 2018 average Bitcoin sale price | 2 | 3,271 | 70% | |
| Impact of Q3 2018 Altcoin inventory plus additional Altcoins mined in Q4 2018 exchanged into Bitcoin in Q4 2018 | 3 | (28) | (184) | (4%) |
| Difference in Bitcoin inventory at end of 2019 compared to end of 2018 | 4 | 11 | 87 | 2% |
| Q3 2018 BTC Inventory sold in Q4 2018 | 5 | (158) | (822) | (18%) |
| Volta decrease in external revenues and other mining variances | (36) | 223 | 5% | |
| Revenue for three months ended December 31, 2019 | 1,219 | 10,536 | 126% |
Notes
| 1 | Calculated as the difference in Bitcoin mined in Q4 2019 compared to Q4 2018 (i.e. 1,219 - 583) multiplied by Q4 2018 average Bitcoin price (i.e. $5,200) |
| 2 | Calculated as the difference in average realized Bitcoin price in Q4 2019 compared to Q4 2018 (i.e. $7,883 - $5,200) multiplied by the Bitcoin sold in Q4 2019 (i.e. 1,219) |
| 3 | Calculated as the total Bitcoin Cash, Dash, Ethereum, and Litecoin (each an “Altcoin” and collectively “Altcoins”) exchanged into Bitcoin and sold in Q4 2018 multiplied by the Q4 2018 average realized Bitcoin price (i.e. $5,200) |
| 4 | Calculated as the difference in Bitcoin inventory as at Q4 2018 compared to Q4 2019 (i.e. 11 - 0) multiplied by the average realized Bitcoin price in Q4 2019 (i.e. $7,883) |
| 5 | Calculated as the ending inventory on September 30, 2018 multiplied by the average realized Bitcoin price in Q4 2018 (i.e. $5,200) |
The most significant factors influencing the net increase to Bitfarms’ revenue in Q4 2019 compared to Q4 2018 are presented in the table above. Revenue increased $3.3 million or 71% due to increased Bitcoin mined resulting from higher average Bitfarms hashrate in excess of average network difficulty and $3.3 million or 70% due to a higher average realized Bitcoin sale price of $7,883 compared to $5,200 in Q4 2019 versus Q4 2018.
The preceding factors leading to the comparative increase to Bitfarms’ net revenue in Q4 2019 compared to Q4 2018 were offset by a decrease of $0.8 million or 18% due to Bitcoin sold in Q4 2018 that was in inventory at the end of Q3 2018 in addition to a decrease of $0.2 million or 4% related to Altcoins mined and sold in Q4 2018.
| Bitfarms Ltd. 2019 MD&A | 4 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Year Ended 2019 Compared to Year Ended 2018
Bitfarms’ total revenue for 2019 was $32.4 million compared to $33.8 million for 2018. Revenue in 2019 decreased $1.4 million or 4% compared to the revenue in 2018. The factors which had the greatest impact on the decrease in revenue in 2019 compared to 2018 are provided in the following table:
| (U.S. $ in thousands except where indicated) | Note | Bitcoin | (USD) | % Change |
| Revenue based on actual coins sold during the twelve-month period ended December 31, 2018 and Volta external revenue | 3,966 | 33,805 | - | |
| Impact of increase in average Bitfarms’ Bitcoin hashrate average in excess of increase in network difficulty during 2019 compared to 2018 | 1 | 613 | 4,845 | 14% |
| Impact of difference in average Bitcoin sale price in 2019 compared to 2018 | 2 | (1,907) | (6%) | |
| Impact of Altcoins mined, converted to Bitcoin and sold in 2018 less ending Altcoin inventory versus Altcoins sold in 2019 | 3 | (649) | (4,857) | (14%) |
| Difference in Bitcoin inventory at year-end in 2019 compared to 2018 | 4 | 11 | 82 | 0% |
| BTC received for sales of miners during 2019 | (16) | (171) | (1%) | |
| Other mining variances | (49) | (277) | (1%) | |
| Increase in Volta third party revenue in 2019 compared to 2018 | 901 | 3% | ||
| Revenue for twelve months ended December 31, 2019 | 3,876 | 32,421 | (5%) |
Notes
| 1 | Calculated as the difference in Bitcoin mined in 2019 compared to 2018 (i.e. 3,865 - 3,252) multiplied by 2018 average Bitcoin price (i.e. $7,904) |
| 2 | Calculated as the difference in average realized Bitcoin price in 2019 compared to 2018 (i.e. $7,412 - $7,904) multiplied by Bitcoin sold in 2019 (i.e. 3,876) |
| 3 | Calculated as the total Bitcoin Cash, Dash, Ether, and Litecoin (each an “Altcoin” and collectively “Altcoins”) exchanged into Bitcoin and sold in 2018 multiplied by the 2018 average realized Bitcoin price (i.e. $7,904) |
| 4 | Calculated as the difference in Bitcoin inventory as at 2018 compared to 2019 (i.e. 11 - 0) multiplied by the average realized Bitcoin price for 2019 (i.e. $7,412) |
The most significant factors influencing the net decrease to Bitfarms’ revenue in 2019 compared to 2018 presented in the table above are the decrease of $1.9 million or 6% resulting from the lower average realized sale price per Bitcoin of $7,412 in 2019 compared to $7,904 in 2018 and the decrease of $4.9 million or 14% resulting from the decrease in mining and sale of Altcoins in 2019 compared to 2018. These decreases were substantially offset by an increase of $4.8 million or 14% due to increased Bitcoin mined resulting from higher average Bitfarms hashrate in excess of average network difficulty in 2019 compared to 2018. The Company recognizes revenue when the Bitcoin are sold and it is the practice of the Company to sell its cryptocurrencies for fiat (i.e. U.S. dollar), within one to four days after the cryptocurrencies are mined. The Company sells its cryptocurrency through cryptocurrency trading platforms operated by Tagomi Holdings, Inc. and Gemini Trust Company, LLC, two licensed digital asset exchanges regulated by the New York State Department of Financial Services and operated out of New York, New York, USA. In certain specific and limited cases, Bitfarms does not convert Bitcoin directly into fiat and uses Bitcoin to directly pay for payment obligations, including the Dominion loan described below.
| Bitfarms Ltd. 2019 MD&A | 5 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Bitfarms’ cryptocurrencies mined in 2019 compared to 2018 are summarized in the table below:
| Three months ended | Twelve months ended | |||||
| For the periods ended as indicated | Dec.
31 2019 |
Dec.
31 2018 |
% Change | Dec.
31 2019 |
Dec.
31 2018 |
% Change |
| Bitcoin | 1,219 | 583 | 109% | 3,865 | 3,252 | 19% |
| Bitcoin Cash | - | 263 | 0% | - | 2,577 | (100%) |
| Litecoin | - | 1,553 | (100%) | 7,561 | 6,234 | 21% |
| Dash | - | 95 | (100%) | - | 611 | (100%) |
| Ethereum | - | 167 | (100%) | - | 964 | (100%) |
Cost of Sales
Q4 2019 Compared to Q4 2018
Bitfarms’ cost of sales for Q4 2019 was $7.7 million compared to $6.9 million in Q4 2018. Costs of sales include energy and infrastructure expenses, depreciation and amortization, electrician salaries, and, purchases and net change in inventory which are summarized in the table below:
| (U.S. $ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||
For the periods ended as indicated |
Dec. 31 2019 |
Dec. 31 2018 |
$ Change | % Change |
Dec. 31 2019 |
Dec. 31 2018 |
$ Change | % Change |
| Energy and infrastructure | 4,229 | 2,076 | 2,153 | 104% | 11,666 | 8,487 | 3,179 | 37% |
| Depreciation and amortization | 2,626 | 3,214 | (588) | (18%) | 6,843 | 12,548 | (5,705) | (45%) |
| Electrician salaries | 335 | 466 | (131) | (28%) | 1,174 | 793 | 381 | 48% |
| Purchases and net change in inventory | 512 | 1,116 | (604) | (54%) | 1,299 | 1,100 | 199 | 18% |
| Cost of sales | 7,702 | 6,872 | 830 | 12% | 20,982 | 22,928 | (1,946) | (8%) |
Energy and infrastructure expenses increased by $2.2 million or 104% in Q4 2019 compared to Q4 2018, primarily due to an increase in electricity expense, which was approximately $2.4 million higher in Q4 2019 compared to Q4 2018 as the Company added new Miners which increased electrical consumption from 22 MW at the end of Q4 2018 to 53 MW at the end of Q4 2019. This increase was primarily offset by a decrease in facility rent expense in Q4 2019 of approximately $0.2 million compared to Q4 2018 due to the adoption of the new accounting standard IFRS 16. Rent expenses have been reclassified as depreciation and interest expense due to the adoption of IFRS 16 by the Company in 2019.
Depreciation and amortization expense decreased by $0.6 million or 18% in Q4 2019 compared to Q4 2018 primarily resulting from a decrease of $1.7 million in connection with the impairment loss of $18.5 million on property, plant and equipment and intangible assets recorded by the Company in Q4 2018, offset by depreciation expense recorded on newly acquired property, plant and equipment. The decrease in depreciation and amortization expense was further offset by an increase in depreciation expense of
$0.2 million in Q4 2019 compared to Q4 2018 resulting from the adoption of IFRS 16 by the Company in January 2019 as the Company depreciates right of use assets over the term of the relevant leases.
Finally, purchases and net change in inventory decreased by $0.6 million or 54% in Q4 2019 compared to Q4 2018. This was primarily due to the fact that the Company sold Bitcoin inventory that it held as at Q3 2018 in Q4 2018. In 2019, there was no Bitcoin inventory at the end of Q3 that was sold in Q4.
Year Ended 2019 Compared to Year Ended 2018
Bitfarms’ cost of sales for 2019 was $11.7 million compared to $8.5 million in 2018. Energy and infrastructure expenses increased by $3.2 million or 37% in 2019 compared to 2018, primarily due to an increase in electricity expense, which was approximately $3.8 million higher in 2019 compared to 2018 as the Company added new Miners which had the effect of increasing electrical consumption from 22 MW at the end of 2018 to 53 MW by the end of 2019. The increase in energy and infrastructure cost in 2019 compared to 2018 was primarily offset by a decrease in facility rent expense in 2019 of approximately $0.8 million compared to 2018 due to the adoption of the new accounting standard IFRS 16. Rent expenses have been reclassified as depreciation and interest expense due to the adoption of IFRS 16 by the Company in 2019.
| Bitfarms Ltd. 2019 MD&A | 6 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Depreciation and amortization expense decreased by $5.7 million or 45% in 2019 compared to 2018, with a decrease of $7.3 million resulting from the impairment loss of $18.5 million on property, plant and equipment and intangible assets recorded by the Company in 2019. The decrease in depreciation and amortization expense was partially offset by an increase in depreciation on newly acquired property, plant and equipment and an increase in depreciation expense of $854,000 in 2019 compared to 2018, resulting from the adoption of IFRS 16 by the Company in January 2019 as the Company amortizes right of use assets over the term of the relevant leases.
Gross Profit
Q4 2019 Compared to Q4 2018
Bitfarms’ gross profit for Q4 2019 was $2.8 million compared to a gross loss of $2.2 million for Q4 2018. The gross profit margin increased from a loss of 48% to profit of 27% in Q4 2019 compared to Q4 2018 primarily due to the increase in Bitcoin mined and average realized Bitcoin sale price, as described in detail in the analysis of revenue above as well as the decrease in depreciation and amortization expense.
Year Ended 2019 Compared to Year Ended 2018
Bitfarms’ gross profit for 2019 was $11.4 million compared to $10.9 million for 2018. The gross profit margin increased from 32% to 35% in 2019 compared to 2018 primarily due to the sustained revenue as described in detail in the analysis of revenue combined with the decrease in overall cost of sales that was primarily due to lower depreciation and amortization as described above.
General & Administrative & Other Expenses Q4 2019 Compared to Q4 2018
Bitfarms’ general and administrative and other expenses increased $1.0 million or 58% in Q4 2019
compared to Q4 2018. The main reasons for the increase were higher non- cash expenses of approximately $0.3 million in Q4 2019 compared to Q4 2018 related to employee stock options approved and granted in 2019 that did not exist in Q4 2018. In addition, there was a reversal of approximately $0.4 million of accrued bonus expense in Q4 2018, compared to $nil in Q4 2019 and a loss on disposal of $0.3 million in Q4 2019 related to 1,429 Antminer S9 ASICs that were no longer operational.
Year Ended 2019 Compared to Year Ended 2018
Bitfarms’ general and administrative expenses increased $0.5 million or 5% in 2019 compared to 2018. The main reasons for the increase was that there were higher non-cash expenses of approximately $2.1 million in 2019 compared to 2018 related to employee stock options approved and granted in 2019 that did not exist in 2018. This increase was offset by a decrease of $1.0 million in 2019 compared to 2018 related to non-cash listing fees incurred in 2018 as the Company listed on the Tel Aviv Stock Exchange, as well as a net decrease of a total of $0.6 million for professional fees and other general and administrative expenses, relating primarily to professional fees incurred in connection with the reverse acquisition of Bitfarms Ltd. (Israel) in 2018 and the preparation of the Company’s preliminary prospectus filed in 2018.
| Bitfarms Ltd. 2019 MD&A | 7 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Financial Income and Expenses
Q4 2019 Compared to Q4 2018
Bitfarms’ financial income for Q4 2019 was $0.05 million compared to financial income of $nil in Q4 2018 resulting from the revaluation of the embedded derivative creating a non-cash gain in connection with the Dominion Capital loan described below. Financial expenses for Q4 2019 was $1.6 million compared to $4,000 in Q4 2018. The increase is primarily related to interest expense of $1.2 million incurred on the Dominion Capital loan, as described under Financial Instruments and Risks, which did not exist in Q4 2018, as well as $0.1 million of interest expense related to lease liabilities resulting from the adoption of IFRS 16. Financial income and expenses are comprised of interest on the Dominion Capital loan, warrant issuance costs, gain on embedded derivative and revaluation of the warrants, interest payments in respect of vendor financing, classification of a portion of rent as interest expense on the lease liabilities on adoption of IFRS 16, unrealized foreign exchange losses on monetary items in Canadian dollars to the functional currency in US dollars, and interest on Volta’s long-term debt repayments and bank charges.
Year Ended 2019 Compared to Year Ended 2018
Bitfarms’ financial income for 2019 was $2.3 million compared to financial income of $4,000 in 2018 resulting from the revaluation of the embedded derivative and the warrant liability creating a non-cash gain in connection with the Dominion Capital loan described below. Financial expenses for 2019 was $3.8 million compared to $0.2 million in 2018. The increase is primarily related to interest expense of $2.8 million incurred on the Dominion Capital loan, as described under Financial Instruments and Risks, which did not exist in 2018, as well as $0.4 million of interest expense related to the adoption of IFRS 16 and warrant issuance costs of $0.2 million in 2019 not incurred in 2018.
(U.S.$ in thousands except where indicated)
| For the years ended December 31, | 2019 (52 weeks) | 2018 (52 weeks) | 2017 (8 weeks) | |||||||||
| Revenues | 32,421 | 33,805 | 8,663 | |||||||||
| Operating income (loss) | 1,089 | (17,998 | ) | 6,892 | ||||||||
| Net earnings attributable to: | ||||||||||||
| Shareholders | 2,899 | (9,363 | ) | 4,905 | ||||||||
| Non-controlling interest | (792 | ) | (8,873 | ) | - | |||||||
| Basic and diluted earnings (loss) per share | 0.04 | (0.16 | ) | 0.08 | ||||||||
| Total current assets | 6,550 | 3,295 | 8,485 | |||||||||
| Total non-current assets | 46,306 | 22,938 | 26,063 | |||||||||
| Total assets | 52,856 | 26,233 | 34,548 | |||||||||
| Total current liabilities | 4,009 | 4,656 | 5,735 | |||||||||
| Long-term debt | 14,849 | 693 | - | |||||||||
| Lease liabilities | 5,717 | - | - | |||||||||
| Other non-current liabilities | 193 | 232 | 909 | |||||||||
| Total non-current liabilities | 20,759 | 925 | 909 | |||||||||
| Total liabilities | 24,768 | 5,581 | 6,644 | |||||||||
| Total equity | 28,088 | 20,652 | 27,904 | |||||||||
There have not been any distributions or cash dividends declared per share on any class of shares in any of the three years disclosed in the table above.
| Bitfarms Ltd. 2019 MD&A | 8 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | ||||||||||||||||||||||||
| Net income (loss) | 1,125 | (21,262 | ) | 22,387 | (105 | %) | 2,107 | (18,236 | ) | 20,343 | (112 | %) | ||||||||||||||||||||
| Interest expense | 1,122 | (58 | ) | 1,180 | (2,034 | %) | 3,268 | 63 | 3,205 | 5,087 | % | |||||||||||||||||||||
| Income tax expense (recovery) | (2,574 | ) | (1,732 | ) | (842 | ) | 49 | % | (2,591 | ) | 59 | (2,650 | ) | (4,492 | %) | |||||||||||||||||
| Depreciation/amortization | 2,626 | 3,214 | (588 | ) | (18 | %) | 6,843 | 12,548 | (5,705 | ) | (45 | %) | ||||||||||||||||||||
| EBITDA | 2,299 | (19,838 | ) | 22,137 | (112 | %) | 9,627 | (5,566 | ) | 15,193 | (273 | %) | ||||||||||||||||||||
| Stock compensation expense | 430 | 165 | 265 | 161 | % | 2,873 | 746 | 2,127 | 285 | % | ||||||||||||||||||||||
| Financial income | (55 | ) | - | (55 | ) | - | (2,252 | ) | - | (2,252 | ) | - | ||||||||||||||||||||
| Listing cost | - | - | - | - | - | 1,000 | (1,000 | ) | (100 | %) | ||||||||||||||||||||||
| Impairment | - | 19,060 | (19,060 | ) | (100 | %) | 56 | 19,060 | (19,004 | ) | (100 | %) | ||||||||||||||||||||
| Other non-cash expenses | 312 | 11 | 301 | 2,736 | % | 313 | 25 | 288 | 1,152 | % | ||||||||||||||||||||||
| Adjusted EBITDA | 2,986 | (602 | ) | 3,588 | (596 | %) | 10,617 | 15,265 | (4,648 | ) | (30 | %) | ||||||||||||||||||||
Q4 2019 Compared to Q4 2018
Bitfarms’ net income for Q4 2019 was $1.1 million compared to a net loss of $21.3 million for Q4 2018. EBITDA and Adjusted EBITDA for Q4 2019 were $2.3 million and $3.0 million compared to an EBITDA and Adjusted EBITDA loss of $19.9 million and $0.6 million, respectively, in Q4 2018. In Q4 2019 the Company recorded an income tax recovery as a result of carrying back 2019 tax losses against taxable income originating in 2018 and 2017. In Q4 2018 the income tax recovery represented the reversal of income tax provisions taken in previous quarters to reflect the actual annual tax expense incurred by the Company.
Year Ended 2019 Compared to Year Ended 2018
Bitfarms’ net income for 2019 was $2.1 million compared to a net loss of $18.2 million for 2018. Bitfarms’ income tax recovery for 2019 was $2.6 million compared to income tax expense of $0.1 million in 2018. The income tax recovery results from a net loss for tax purposes in 2019 that will be carried back to recover income taxes paid in past years. The taxable loss for 2019 is primarily due to accelerated capital cost allowance available for income tax purposes. EBITDA and Adjusted EBITDA for 2019 were $9,627,000 and
$10.6 million compared to an EBITDA loss of $5.6 million and Adjusted EBITDA of $15.3 million, respectively, in 2018. EBITDA and Adjusted EBITDA are non-IFRS financial performance measures; please refer to the section “Caution Regarding Non-IFRS Financial Performance Measures” on page 41 regarding the use of non-IFRS Measures.
Calculation of Gross Mining Profit & Gross Mining Margin
| (U.S. $ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 9,717 | 3,752 | 5,965 | 159 | % | 29,347 | 31,641 | (2,294 | ) | (7 | %) | |||||||||||||||||||||
| Energy and infrastructure expenses | 4,229 | 2,076 | 2,153 | 104 | % | 11,666 | 8,487 | 3,179 | 37 | % | ||||||||||||||||||||||
| Gross mining profit | 5,488 | 1,676 | 3,812 | 227 | % | 17,681 | 23,154 | (5,473 | ) | (24 | %) | |||||||||||||||||||||
| Gross mining margin | 56 | % | 45 | % | - | - | 60 | % | 73 | % | - | - | ||||||||||||||||||||
| Bitfarms Ltd. 2019 MD&A | 9 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
“Gross mining profit” is defined as Revenue minus energy and infrastructure expenses for the Backbone segment of the Company. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining margin by Revenue for the Backbone segment of the Company.
| (U.S. $ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | Dec. 31 2019 | Dec. 31 2018 | Change | Change | ||||||||||||||||||||||||
| Revenue | 9,717 | 3,752 | 5,965 | 159 | % | 29,347 | 31,641 | (2,294 | ) | (7 | %) | |||||||||||||||||||||
| Cost of Sales | 6,879 | 6,202 | - | - | 18,479 | 21,349 | - | - | ||||||||||||||||||||||||
| Gross profit | 2,838 | (2,450 | ) | 5,288 | (216 | %) | 10,868 | 10,292 | 576 | 6 | % | |||||||||||||||||||||
| Gross margin | 29 | % | (65 | %) | - | - | 37 | % | 33 | % | - | - | ||||||||||||||||||||
| G&A and other expenses | 2,556 | 1,339 | 1,217 | 91 | % | 9,416 | 7,510 | 1,906 | 25 | % | ||||||||||||||||||||||
| Impairment of PP&E and Intangibles | - | 19,060 | (19,060 | ) | (100 | %) | 56 | 19,060 | (19,004 | ) | (100 | %) | ||||||||||||||||||||
| Operating income (loss) | 282 | (22,849 | ) | 23,131 | (101 | %) | 1,396 | (16,278 | ) | 17,674 | (109 | %) | ||||||||||||||||||||
| Operating margin | 3 | % | (609 | %) | - | - | 5 | % | (51 | %) | - | - | ||||||||||||||||||||
| Financial income | 55 | - | 55 | - | 2,252 | - | 2,252 | - | ||||||||||||||||||||||||
| Interest expense | 1,115 | 63 | 1,052 | 1,670 | % | 3,234 | 167 | 3,067 | 1,837 | % | ||||||||||||||||||||||
| Other financial expenses (income) | 531 | (34 | ) | 565 | (1,662 | %) | 584 | (14 | ) | 598 | (4,271 | %) | ||||||||||||||||||||
| Net loss before tax | (1,309 | ) | (22,878 | ) | 21,569 | (94 | %) | (170 | ) | (16,431 | ) | 16,261 | (99 | %) | ||||||||||||||||||
| EBITDA (1) | 2,404 | (19,607 | ) | 22,011 | (112 | %) | 9,816 | (3,740 | ) | 13,556 | (362 | %) | ||||||||||||||||||||
| EBITDA margin (1) | 25 | % | (523 | %) | - | - | 33 | % | (12 | %) | - | - | ||||||||||||||||||||
| Adjusted EBITDA (1) | 3,091 | (371 | ) | 3,462 | (933 | %) | 10,806 | 17,091 | (6,285 | ) | (37 | %) | ||||||||||||||||||||
| Adjusted EBITDA margin (1) | 32 | % | (10 | %) | - | - | 37 | % | 54 | % | - | - | ||||||||||||||||||||
| Reconciliation of Non-IFRS Performance Measures | ||||||||||||||||||||||||||||||||
| Net loss before tax | (1,309 | ) | (22,878 | ) | 21,569 | (94 | %) | (170 | ) | (16,431 | ) | 16,261 | (99 | %) | ||||||||||||||||||
| Interest expense | 1,115 | 63 | 1,052 | 1670 | % | 3,234 | 167 | 3,067 | 1837 | % | ||||||||||||||||||||||
| Depreciation expense | 2,598 | 3,208 | (610 | ) | (19 | %) | 6,752 | 12,524 | - | - | ||||||||||||||||||||||
| EBITDA (1) | 2,404 | (19,607 | ) | 22,011 | (112 | %) | 9,816 | (3,740 | ) | 13,556 | (362 | %) | ||||||||||||||||||||
| Stock compensation expense | 430 | 165 | 265 | 161 | % | 2,873 | 746 | 2,127 | 285 | % | ||||||||||||||||||||||
| Financial income | (55 | ) | - | (55 | ) | - | (2,252 | ) | - | (2,252 | ) | - | ||||||||||||||||||||
| Impairment | - | 19,060 | (19,060 | ) | (100 | %) | 56 | 19,060 | (19,004 | ) | (100 | %) | ||||||||||||||||||||
| Other non-cash expenses | 312 | 11 | 301 | 2736 | % | 313 | 25 | 288 | 1152 | % | ||||||||||||||||||||||
| Adjusted EBITDA (1) | 3,091 | (371 | ) | 3,462 | (933 | %) | 10,806 | 16,091 | (5,285 | ) | (33 | %) | ||||||||||||||||||||
Notes
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, and Adjusted EBITDA margin are non-IFRS performance measures; please refer to the heading “Caution Regarding Non-IFRS Financial Performance Measures” at the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures. |
| Bitfarms Ltd. 2019 MD&A | 10 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
| (U.S. $ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Dec. 31 2019 | Dec. 31 2018 | $ Change |
% Change | Dec. 31 2019 | Dec. 31 2018 | $ Change |
% Change | ||||||||||||||||||||||||
| Revenue | 818 | 902 | (84 | ) | (9 | %) | 3,074 | 2,164 | 910 | 42 | % | |||||||||||||||||||||
| Cost of Sales | 823 | 700 | 123 | 18 | % | 2,503 | 1,579 | 924 | 59 | % | ||||||||||||||||||||||
| Gross profit (loss) | (5 | ) | 202 | (207 | ) | (102 | %) | 571 | 585 | (14 | ) | (2 | %) | |||||||||||||||||||
| Gross margin | (1 | %) | 22 | % | - | - | 19 | % | 27 | % | - | - | ||||||||||||||||||||
| G&A and other expenses | 175 | 154 | 21 | 14 | % | 644 | 616 | 28 | 5 | % | ||||||||||||||||||||||
| Operating income (loss) | (180 | ) | 48 | (228 | ) | (475 | %) | (73 | ) | (31 | ) | (42 | ) | 135 | % | |||||||||||||||||
| Operating margin | (22 | %) | 5 | % | - | - | (2 | %) | (1 | %) | - | - | ||||||||||||||||||||
| Interest expense | 7 | 4 | 3 | 75 | % | 34 | 14 | 20 | 143 | % | ||||||||||||||||||||||
| Other finance expenses | (27 | ) | 11 | (38 | ) | (345 | %) | (27 | ) | 29 | (56 | ) | (193 | %) | ||||||||||||||||||
| Net income (loss) before tax | (160 | ) | 33 | (193 | ) | (585 | %) | (80 | ) | (74 | ) | (6 | ) | 8 | % | |||||||||||||||||
| EBITDA (1) | (125 | ) | 43 | (168 | ) | (391 | %) | 45 | (36 | ) | 81 | (225 | %) | |||||||||||||||||||
| EBITDA margin (1) | (15 | %) | 5 | % | - | - | 1 | % | (2 | %) | - | - | ||||||||||||||||||||
| Adjusted EBITDA (1) | (125 | ) | 43 | (168 | ) | (391 | %) | 45 | (36 | ) | 81 | (225 | %) | |||||||||||||||||||
| Adjusted EBITDA margin (1) | (15 | %) | 5 | % | - | - | 1 | % | (2 | %) | - | - | ||||||||||||||||||||
| Reconciliation of Non-IFRS Performance Measures | ||||||||||||||||||||||||||||||||
| Net loss before tax | (160 | ) | 33 | (193 | ) | (585 | %) | (80 | ) | (74 | ) | (6 | ) | 8 | % | |||||||||||||||||
| Interest expense | 7 | 4 | 3 | 75 | % | 34 | 14 | 20 | 143 | % | ||||||||||||||||||||||
| Depreciation expense | 28 | 6 | 22 | 367 | % | 91 | 24 | 67 | 279 | % | ||||||||||||||||||||||
| EBITDA (1) | (125 | ) | 43 | (168 | ) | (391 | %) | 45 | (36 | ) | 81 | (225 | %) | |||||||||||||||||||
| Adjusted EBITDA (1) | (125 | ) | 43 | (168 | ) | (391 | %) | 45 | (36 | ) | 81 | (225 | %) | |||||||||||||||||||
Notes
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, and Adjusted EBITDA margin are non-IFRS performance measures; please refer to the heading “Caution Regarding Non-IFRS Financial Performance Measures” at the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures. |
Selected Quarterly Information
| (U.S. $ in thousands except where indicated) | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | ||||||||||||||||||||||||
| Revenue | 10,536 | 9,739 | 8,517 | 3,629 | 4,669 | 6,866 | 6,592 | 15,678 | ||||||||||||||||||||||||
| Net income (loss) | 1,125 | 4,309 | (1,320 | ) | (2,007 | ) | (21,263 | ) | (1,711 | ) | (1,337 | ) | 6,075 | |||||||||||||||||||
| Basic income (loss) per Share | 0.02 | 0.06 | (0.01 | ) | (0.02 | ) | (0.23 | ) | (0.02 | ) | (0.02 | ) | 0.12 | |||||||||||||||||||
The Company’s industry does not have any seasonality. Factors that may impact revenue and profitability quarter over quarter include cryptocurrency pricing, network difficulty and the Company’s hashrate.
| Bitfarms Ltd. 2019 MD&A | 11 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Liquidity and Capital Resources
| (U.S. $ in thousands except where indicated) | Twelve months ended | |||||||||||||||
For the periods ended as indicated | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | ||||||||||||
| Cash & cash equivalents, beginning of the period | 552 | 4,518 | (3,966 | ) | (88 | %) | ||||||||||
| Cash flows from (used in): | ||||||||||||||||
| Operating activities | 6,020 | 13,761 | (7,741 | ) | (56 | %) | ||||||||||
| Investing activities | (22,364 | ) | (22,077 | ) | (287 | ) | 1 | % | ||||||||
| Financing activities | 17,974 | 4,332 | 13,642 | 315 | % | |||||||||||
| Exchange rate differences on currency translation | (23 | ) | 18 | (41 | ) | (228 | %) | |||||||||
| Cash & cash equivalents, end of the period | 2,159 | 552 | 1,607 | 291 | % | |||||||||||
Cash Flows from Operating Activities
The cash flow from operating activities decreased $7.7 million or 56% in 2019 compared to 2018 primarily due to lower gross mining profit4 in 2019 that resulted from lower realized Bitcoin prices and higher difficulty in 2019 compared to 2018.
Cash Flows used in Investing Activities
The Company had a similar level of cash flows used in investing activities for each of the twelve months ended 2019 and 2018. During the twelve months ended 2018, the Company made significant investment in the purchase of ASICs, the development of the St. Hyacinthe and Magog facilities, as well as the acquisition of the Sherbrooke land and building. The cost of ASICs were significantly higher in 2018 due to limited supply. During the twelve months ended 2019, the Company invested in ASICs, electrical components, and Sherbrooke infrastructure build-out.
Cash Flows from Financing Activities
Cash flows from financing activities increased $13.6 million, or 315% in 2019 compared to 2018. This was primarily due to the Company drawing down on all four $5.0 million loan tranches on the $20.0 million debt facility from DC BFL SPV, LLC (“Dominion Capital”) in 2019, which was allocated $14.6 million to long- term debt and $4.9 million to the issuance of warrants, net of transaction fees. This was offset by the repayment of lease liabilities under IFRS 16 of $0.7 million and the repayment of long-term debt of $1.1 million. During the twelve months ended December 31, 2018 the Company received proceeds of $2.9 million from the sale and issuance of common shares, held in trust in Q4 2017. In addition, it obtained vendor financing for the acquisition of Miners of approximately $1.8 million. This was partially offset by the repayment of long-term debt of $0.5 million during the twelve months ended December 31, 2018.
4 Gross mining profit is a non-IFRS performance measures; please refer to the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures.
| Bitfarms Ltd. 2019 MD&A | 12 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
As at December 31, 2019, Bitfarms had a positive working capital balance of $2.5 million compared to a working capital deficit of $1.4 million on December 31, 2018. As at December 31, 2019, Bitfarms had cash and cash equivalents of $2.2 million compared to $0.6 million as at December 31, 2018. Cash and cash equivalents are mainly U.S. and Canadian dollar deposits at regulated financial institutions. In addition, Bitfarms did not hold cryptocurrency inventory as at December 31, 2019 compared to $39,000 as at December 31, 2018.
The Company expects that cash and cash equivalents and future operating cash flows will enable it to fund its working capital requirements and financial obligations, over the next twelve months.
Since inception, the Company has primarily financed its growth through retained earnings, vendor financing, and, since March 2019, a long-term debt facility. The current portion of long-term debt of Bitfarms was $0.9 million as of December 31, 2019 compared to $1.0 million on December 31, 2018. The current maturities of long-term debt may fluctuate due to the variable repayment terms of the loan with Dominion Capital (see below). Bitfarms’ long-term debt consists of the following:
| (a) | Bitfarms purchased Miners in the amount of $2.0 million and obtained non-interest bearing vendor financing to pay for the purchase in twenty monthly instalments commencing on June 15, 2018. The financing was recorded at a present value of $1.8 million. The outstanding balance of this loan owing was $0.4 million as at December 31, 2019; |
| (b) | Volta signed several agreements to purchase vehicles with an outstanding balance of $0.1 million as at December 31, 2019. Eleven notes payable, bearing interest between 3.49% and 8.2% repayable in monthly instalments totaling $5,100 principal and interest, maturing between January 2020 and October 2025, secured by vehicles having a net carrying value of $0.2 million; |
| (c) | Volta received long-term vendor financing with an outstanding balance of $0.1 million bearing interest at 5.00% payable by monthly instalments of $4,000 principal and interest maturing at September 2022; and |
| (d) | On March 14, 2019, Bitfarms entered into a secured debt financing facility for up to $20.0 million with Dominion Capital. The debt facility is structured into four separate loan tranches of $5.0 million each bearing interest at 10% per annum on the full principal balance of each loan tranche regardless of principal repayments made during the term of each loan tranche. The term of each loan tranche is 24 months with a balloon payment for any remaining outstanding balance at the end the term. A monthly payment equivalent to 10% of the value of cryptocurrencies mined by Bitfarms during the month is required in repayment of the total loan tranches drawn. This amount shall first be applied to accrued interest and the balance to principal. In the event that the amount of interest owing is greater than the amount of cryptocurrency mined, an additional amount shall be remitted such that the interest is paid in full. The debt facility is fully secured by the assets of Bitfarms on a first priority basis. |
| Bitfarms Ltd. 2019 MD&A | 13 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
| (e) | In addition to interest, the Company has issued 1,666,667 warrants to Dominion Capital for each loan tranche drawn for a total of 6,666,668 warrants exercisable into common shares of Bitfarms at an exercise price of $0.40 per share. The details of each loan tranche are as follows: |
| Loan | Drawdown Amount | Drawdown Date | Loan Term | Loan Due Date | Warrants Issued | Warrant Expiry Date | ||||||||||
| Tranche #1 | $ | 5,000,000 | March 15, 2019 | 24 months | March 15, 2021 | 1,666,667 | March 15, 2024 | |||||||||
| Tranche #2 | $ | 5,000,000 | April 17, 2019 | 24 months | April 17, 2021 | 1,666,667 | April 17, 2024 | |||||||||
| Tranche #3 | $ | 5,000,000 | June 21, 2019 | 24 months | June 21, 2021 | 1,666,667 | June 21, 2024 | |||||||||
| Tranche #4 | $ | 5,000,000 | August 9, 2019 | 24 months | August 9, 2021 | 1,666,667 | July 2, 2024 | |||||||||
| $ | 20,000,000 | 6,666,668 | ||||||||||||||
As of the date of this MD&A, proceeds from the loan tranches have been used tocomplete the buildout of infrastructure for the first and second phases (“Phase 1” and “Phase 2”) of the Company’s new Sherbrooke facility andmake purchases of new Miners for the Sherbrooke facility and for the other existing facilities.
Additional information regarding Phase 1 and Phase 2 are provided below under the heading “Sherbrooke Expansion.
Bitfarms’ capital management objective is to ensure its ability to maximize the return to its shareholders. In order to achieve this objective, the Company monitors its capital structure and makes adjustments as required in light of changes in economic conditions and the risks to which the Company is exposed. The Company’s strategy for achieving this objective is maintaining a strong capital base so as to maintain investor confidence to sustain future development of the business, maintain a flexible capital structure that optimizes the cost of capital at acceptable risk and preserves the ability to meet financial obligations, and ensuring sufficient liquidity to pursue organic growth.
Bitfarms may manage its capital structure by issuing equity, obtaining loan financing, adjusting capital spending, or disposing of assets. The Company is not subject to any externally imposed capital requirements, with the exception of the Company’s agreement not to issue common shares below $0.40 USD during the term of the loan with Dominion Capital.
| Bitfarms Ltd. 2019 MD&A | 14 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Sherbrooke Expansion
In 2018, Bitfarms entered into a 98.0 MW power contract in the municipality of Sherbrooke, Québec to be deployed at new server farm facilities in Sherbrooke (herein referred to as, the “Sherbrooke Expansion”). The construction of the Sherbrooke Expansion is anticipated to be completed in six Phases based on megawatt capacity: Phase 1 – 12MW; Phase 2 – 18 megawatts; Phase 3 – 12 MW; Phase 4 - 18 megawatts; Phase 5 – 19 megawatts; and, Phase 6 – 19 megawatts. As at the date of this MD&A, the following steps have been taken by Bitfarms with respect to the Sherbrooke Expansion:
| ● | Two industrial real estate properties in the municipality of Sherbrooke were acquired for a total purchase price of approximately CAD$4.8 million with a total aggregate area of approximately 114,000 sq. These properties consisted of a 78,000 sq. foot facility (the “Sherwood Property”), and a 36,000 sq. foot facility (the “Leger Property”). On February 11, 2019, the Leger Property was sold for CAD$1.8 million and as part of the agreement reached with the buyer, a real estate developer, the buyer agreed to construct a purpose-built addition to the building for crypto-mining that would be leased to Bitfarms and allow it to realize net savings in its overall future buildout costs for the Sherbrooke Expansion while also providing immediate working capital from the proceeds of the building sale; |
| ● | A total of 30 megawatts of electrical distribution infrastructure for Phase 1 and Phase 2 of the Sherbrooke Expansion have been installed at the Sherwood Property and are operational; |
| ● | Electricity supply agreements have been entered into with Hydro-Sherbrooke. Hydro-Sherbrooke is a regional public utility company that distributes electric power. It is the second largest distributer of energy in the province of Québec next only to Hydro-Québec. Hydro-Sherbrooke operates nine hydroelectric power generation stations; and |
| ● | For Phase 1 and Phase 2 of the Sherbrooke Expansion, 10,050 new generation miners were acquired and installed at the Sherwood Property for $14.9 million (a small portion of the Miners have been reallocated to the Magog facility). |
As of the date of this MD&A, the Company has successfully completed Phases 1&2 and is in the process of optimizing the Miners to reach full capacity. To complete each remaining phase of the Sherbrooke Expansion, Bitfarms will need to incur infrastructure buildout costs including exhaust structure, mining structure and building modifications, as well as sourcing of mining hardware and electrical components.
The capital cost for the construction of the remaining Phases 3 through 6 is currently estimated to range between $45.0 million to $55.0 million, inclusive of Miner purchases based on recent hardware pricing. These costs will be divided between both properties, with the majority being allocated to the Leger Property.
The ability to undertake the construction of Phases 3 through 6 of the Sherbrooke Expansion depends, among other things, on the Company’s ability to raise the required financing. As a result, there is no definitive or planned timetable for Phases 3 through 6 of the Sherbrooke Expansion. The Company intends to finance the remainder of the construction of Phases 3 through 6 of the Sherbrooke Expansion by raising additional debt or equity capital or a combination of these means, as well as through the cash flow generated from its operations. There can be no assurance that the remaining Sherbrooke Expansion will be fully funded and undertaken at this time on any particular schedule or at all.
| Bitfarms Ltd. 2019 MD&A | 15 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
In response to both a complaint concerning noise at the Sherwood Property and indications from officials at the municipality of Sherbrooke that they were reviewing applicable regulations, the Company has met with community residents and city officials on several occasions. While the Company believes it is compliant with all applicable regulations, the Company plans to implement further sound mitigating measures.
Off-Balance Sheet Arrangements
There are currently no off-balance sheet arrangements which could have an effect on current or future results or operations, or the financial condition of Bitfarms.
On February 4, 2020, shareholders approved an amendment to the articles of incorporation of the Company to authorize the issuance of class A preferred shares. As of the date of this MD&A, the Company has 84,620,630 common shares, 3,898,916 vested employee stock options, 3,586,082 unvested employee stock options, and 5,916,668 warrants to Dominion Capital issued and outstanding, as well as 300,000 other warrants. As of the date of this MD&A there were no preferred shares outstanding.
It is anticipated that in the normal course of operations, Bitfarms will be exposed to exchange risk, foreign currency risk and credit risk.
Dominion Capital loan
As of December 31, 2019, the Dominion Capital loan consisted of four $5.0 million tranches that were drawn down from the financing facility, which included a total of four available $5.0 million loan tranches (please refer to the Components of Total Debt section above). The features of the loan, which include the issuance of 1,666,667 warrants per tranche with an exercise price of $0.40, as well as a make-whole interest clause resulted in a financial liability accounted for at amortized cost, warrant liabilities previously recorded at fair value through profit or loss which were reclassified to equity during the period, and an embedded derivative recorded at fair value through profit or loss. The purpose of the loan is to provide the Company with additional funds to achieve its growth objectives, notably, the buildout of the first two phases of the Sherbrooke Expansion.
Financial instrument at amortized cost
Management used significant judgement and estimates when determining the effective interest rate of the financial liability accounted for at amortized cost. Payment amounts are determined as 10% of the cryptocurrency mined by Bitfarms. In order to calculate the effective interest rate, management had to estimate Bitfarms’ future cryptocurrency mining revenues in order to estimate the timing and amount of future loan repayments. The effective interest rate was determined to be 26.93%, 30.16% , 37.10% and 38.02% for the first, second and third and fourth tranches, respectively. Management had to make key assumptions in estimating the revenues, including Bitcoin price, Network Difficulty and the Company’s internal hashrate. The weighted average Bitcoin price and Network Difficulty used in the projections upon the inception of Tranches #1 and #2 were $5,400 and 5.36X10^12, respectively. The weighted average Bitcoin price and Network Difficulty used in the projections upon the inception of Tranche #3 and Tranche #4 were $10,200 and 7.82X10^12, and $13,900 and 1.32X10^13, respectively. The component of the financial instrument carried at amortized cost resulted in interest expense of $1.2 million and $2.8 million included in financial expenses for the three and twelve month periods ended December 31, 2019
| Bitfarms Ltd. 2019 MD&A | 16 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Warrants
Upon inception of the Dominion Capital loan, the warrants contained an anti-dilutive feature that would have resulted in a reduction in the exercise price in the event that Bitfarms Ltd. were to issue shares at a price lower than the exercise price. As a result of this feature, the warrants would not necessarily have resulted in a fixed number of shares being issued for a fixed price. The possibility of variation in the settlement price resulted in the warrants being classified as a liability that is measured at fair value through profit or loss. On September 27, 2019 the Company received all necessary approvals in order to remove the anti-dilutive feature, resulting in the reclassification and remeasurement of the warrants at their fair market value on the reclassification date, based on the inputs below. In exchange for removal of the anti-dilutive feature, the Company agreed not to issue common shares below the exercise price of $0.40 USD during the term of the loan with the lender. The remeasurement resulted in gains of $nil and $1,776,000 for the three and twelve months ended December 31, 2019, included in financial expenses.
| Tranche 1 | Tranche 2 | Tranche 3 | Tranche 4 | September 27, 2019 | ||||||||||
| Dividend yield (%) | - | - | - | - | - | |||||||||
| Expected volatility of the share price (%) | 110% | 114% | 114% | 115% | 114% | |||||||||
| Risk-free interest rate (%) | 2.4% | 2.4% | 1.8% | 1.6% | 1.57% | |||||||||
Expected life of warrants (years) |
5 |
5 |
5 |
5 |
4.47-4.87 | |||||||||
| Share price (U.S. Dollar) | 0.62 | 0.73 | 0.83 * | 1.06 | 0.57 | |||||||||
| Warrant value (U.S. Dollar) | 0.57 | 0.68 | 0.77 | 0.94 | 0.47 | |||||||||
| Quantity of warrants | 1,666,667 | 1,666,667 | 1,666,667 | 1,666,667 | 6,666,668 | |||||||||
| Total value | $ | 946,000 | $ | 1,137,000 | $ | 1,283,000 | $ | 1,570,000 | $ | 3,160,000 | ||||
* As of the drawdown date of Tranche 3 as well as at June 30, 2019 the Company was not publicly traded. As a result, a linear regression model was used to estimate the share price as of the valuation dates. The linear regression model used a weighted average of the last five days of trading on the Tel Aviv Stock Exchange as well as the five days of trading on the TSXV ending August 2, 2019.
Embedded derivative
The value of the “make-whole” clause described above will vary based on management’s projections of the timing of the loan repayment, which are based on Bitfarms’ cryptocurrency mining revenues. This interest feature has been accounted for as an embedded derivative that is measured at fair value through profit or loss. Since this is a non-option derivative, the fair value upon initial recognition of the loan liability is nil. As of December 31, 2019, management revised its projections of the timing of the loan repayment and discounted future payments to their present value using the effective interest rates determined upon inception of each loan tranche. As of December 31, 2019, management recognized an embedded derivative asset with a value of $0.5 million resulting in a gain of $0.5 million in financial income. Any change in management’s assumptions of Bitcoin price, Bitcoin Network Difficulty and the Company’s internal hashrate may have a material impact on profit of loss upon remeasurement in subsequent periods.
| Bitfarms Ltd. 2019 MD&A | 17 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Credit risk
Credit risk is the risk of an unexpected loss if a third party fails to meet its contractual obligations, including cash and cash equivalents, accounts receivable and long-term deposits. The risk regarding cash and cash equivalents is mitigated by holding the cash and cash equivalents through Canadian chartered banks. The credit risk regarding trade receivables are derived mainly from sales to Volta’s third-party customers. The Company performs ongoing credit evaluations of its customers. The Company places deposits with suppliers of cryptocurrency mining hardware in the normal course of operations in order to secure orders and delivery dates. The Company deals with major suppliers of cryptocurrency equipment and routinely maintains strong relationships with suppliers and evaluates the mining hardware market. Other long-term deposits include deposits with local government run energy producers. The Company is also exposed to credit risk through conversion of cryptocurrency to fiat currency through the use of cryptocurrency exchanges. The Company maintains relationships with multiple exchanges and mitigates credit risk by routinely converting cryptocurrency to fiat currency to limit exposure. Furthermore, the Company performs periodic evaluations of cryptocurrency exchanges.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to pay its financial obligations when they are due. The Company’s policy is to monitor its cash balances and planned cash flows generated from operations to ensure, as far as possible, that it maintains sufficient liquidity in order to pay its projected financial liabilities. The contractual maturities of trade and other payables are less than three months. Long-term debt includes financial obligations with contractual maturities, including principal and interest, as follows:
| 2020 | $ | 4,002,000 | ||
| 2021 | $ | 17,918,000 | ||
| 2022 and thereafter: | $ | 93,000 | ||
| Total | $ | 22,013,000 |
Lease liabilities includes financial obligations with contractual maturities as follows, inclusive of interest, as of December 31, 2019:
| 2020 | $ | 1,197,000 | ||
| 2021 | $ | 1,170,000 | ||
| 2022 | $ | 1,050,000 | ||
| 2023 | $ | 893,000 | ||
| 2024 and thereafter: | $ | 3,846,000 | ||
| Total | $ | 8,156,000 |
| Bitfarms Ltd. 2019 MD&A | 18 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
|
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s functional currency is the US Dollar as all its revenue, excluding Volta, and most of its capital expenditures are transacted in US dollars. The Company is exposed to variability in the Canadian dollar to US dollar exchange rate when paying operating expenses incurred and payable in Canadian dollars. The Company funds foreign currency transactions by buying the foreign currency at the spot rate when required. Management does not currently hedge its foreign currency risk.
Concentration Risk
Concentration risk arises as a result of the concentration of exposures within the same category, whether it is geographical location, product type, industry sector or counterparty type. The Company is primarily engaged in the cryptocurrency mining industry that is a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly negatively impact the Company’s operations. The Company does not currently hedge the conversion of cryptocurrencies to fiat currency.
Custody of Crypto Asset Risk
Cryptocurrencies are controllable by the possessors of the unique public key and private key relating to the digital wallet used to store the cryptocurrencies. If keys are lost, stolen or destroyed this could result in a loss for the Company. In order to mitigate the risk of loss of cryptocurrencies the Company sells cryptocurrency routinely and uses multi-signature digital wallets to store cryptocurrency until its eventual sale. The digital wallets used for Bitcoin and Litecoin require 2 out of 3, and 2 out of 5 individuals, respectively, in order to approve a spending transaction. Each of the users has a separate password that is not known by the other users. The transactions can only be initiated from the physical computer where the multi-signature wallet is installed for each user. In order to install the multi-signature wallet on a computer, twelve “seed” words that are distinct to each user are required, which are physically stored offline in confidential locations offsite.
Security breaches and hacking have been prevalent in cryptocurrency exchanges. The Company mitigates this risk by performing ongoing evaluations of exchanges, and routinely converting cryptocurrencies to fiat currency so that no material amount of crypto assets is held at any given time.
The following discussion summarizes the principal risk factors that apply to the Company’s business and that may have a material adverse effect on the Company’s business and financial condition and results of operations, or the trading price of the Company’s shares. Due to the nature of the Company’s business, the legal and economic climate in which it operates and its present stage of development and proposed operations, the Company is subject to significant risks.. In evaluating the Company and its business, investors should carefully consider, in addition to other information contained in this MD&A, the risk factors below. These risk factors are not a definitive list of all risk factors associated with an investment in the Company or in connection with its operations. Additional risk and uncertainties not presently known to the Company, or that are. currently deemed immaterial, may also impair operations. If any such risks actually occur, the business, financial condition, liquidity and results of operations could be materially adversely affected.
| Bitfarms Ltd. 2019 MD&A | 19 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Bitcoin Halving Event Risk
The current Block Reward is 12.5 Bitcoins per block. Based on an average block time of 10 minutes per block, the current Block Reward would result in approximately 1,800 Bitcoin being issued per day (i.e. 12.5 Bitcoin * 6 blocks per hour * 24 hours per day). In May 2020, the Bitcoin Block Reward is scheduled to decrease to 6.25 Bitcoins per block (the “Bitcoin Halving”), and consequently the number of Bitcoin issued per day would be reduced to approximately 900 per day.
The Bitcoin Halving may have a potential impact on the Company’s profitability. Given that profitability is required for self-acting agents to perform Mining to continue to support the validation of transactions, the expected impact of the Bitcoin Halving is that market variables of Bitcoin price and Difficulty will adjust over time to ensure that the profitability of Mining remains profitable. The period of market normalization after the Bitcoin Halving to incentivizing profitability levels is unknown. As a result, if Bitcoin price and Difficulty do not adjust over time to pre-Bitcoin Halving profitability levels or the period of market normalization after the Bitcoin Halving to pre-Bitcoin Halving profitability levels is too long, there is a risk that the Bitcoin Halving will render the Company unprofitable for a sustained time period such that it could be unable to continue as a going concern.
COVID-19 Pandemic Risk
In March 2020, the World Health Organization declared COVID-19 a pandemic. The global response to the pandemic is constantly evolving, including various measures implemented at the global, national, provincial and local levels. The major impacts that COVID-19 is expected to have on the Backbone operating segment include potential increases in cryptocurrency price volatility, difficulty obtaining new financing due to global economic slowdown, and delays in receiving future orders of mining hardware and parts sourced from overseas. While the Backbone operating segment is expected to continue operating throughout the pandemic, government-imposed restrictions encouraging social distancing is expected to impact the number of employees permitted to work in the mining facilities. A reduction in workforce in the mining facilities may reduce the Company’s ability to maximize operational efficiency. Volta’s services are considered to be essential by government authorities and are expected to continue throughout the pandemic. The impacts of COVID-19 on the Volta operating segment are expected to reduce revenues from the sale of electrician services and parts, as well as result in longer collection periods for outstanding trade receivables, and potential increases in bad debts resulting from the economic impact of COVID-19 on existing customers.
Debt Service
The Company’s ability to make scheduled payments on, or refinance its debt obligations, depends on its financial condition and operating performance, which are subject to a number of factors beyond its control. The Company may be unable to maintain a level of cash flows from operating activities sufficient to permit it to repay the principal and interest on its indebtedness. In addition, a monthly payment equivalent to 10% of the value of cryptocurrencies mined by Backbone during the month is required in repayment of the Dominon Loan. This amount shall be applied to interest and the balance to principal and, in the event that the amount of the cryptocurrency mined is less that than the amount of interest owing, such additional amount shall be remitted such that the interest is payable in full. Accordingly, the actual monthly payments owing pursuant to the Dominion Loan are variable. In periods of higher cryptocurrency prices, the Loan payments could exceed budgeted amounts resulting in an impairment of working capital.
| Bitfarms Ltd. 2019 MD&A | 20 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, it could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, reduce its growth plans, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company may not be able to obtain such alternative measures on commercially reasonable terms, or at all and, even if successful, those alternative actions may not allow it to meet its scheduled debt service obligations. The Company’s credit agreements restrict its ability to dispose of assets and use the proceeds from those dispositions and may also restrict its ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. The Company may not be able to consummate any such dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. The Company’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its indebtedness on commercially reasonable terms or at all, would materially and adversely affect its business, results of operations and financial condition. Failure to meet its debt obligations could result in default under its lending agreements. In the event of such default, the holders of such indebtedness could elect to declare all of the funds borrowed thereunder to be immediately due and payable, together with accrued and unpaid interest, and the Company could, among other remedies that may be available, be forced into bankruptcy, insolvency or liquidation. If the Company’s operating performance declines, it may need to seek waivers from the holders of such indebtedness to avoid being in default under the instruments governing such indebtedness. If the Company breaches its covenants under its indebtedness, it may not be able to obtain a waiver from the holders of such indebtedness on terms acceptable to the Company, or at all. If this occurs, the Company would be in default under such indebtedness, and the holders of such indebtedness could exercise their rights as described above, and the Company could, among other remedies that may be available, be forced into bankruptcy, insolvency or liquidation. A default under the agreements governing certain of our existing or future indebtedness and the remedies sought by the holders of such indebtedness could make the Company unable to pay principal or interest on the debt.
Future Capital Needs, Uncertainty of Additional Financing and Dilution
The ability of the Company to secure any required financing to sustain operations and expansion plans will depend on part upon prevailing capital market conditions and business success. There can be no assurance that the Company will be successful in its efforts to secure any additional financing or additional financing on terms satisfactory to management.
The Company currently anticipates that the internally generated funds will be sufficient for working capital requirements. However, the Company will need to raise additional funds in order to support more rapid expansion, develop new or enhanced services and products, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. The Company may be required to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to the Company, or at all. Even if such funding is available, the Company cannot predict the size of future issues of common shares or securities convertible into common shares or the effect, if any, that future issues and sales of the common shares will have on the price of the shares.
| Bitfarms Ltd. 2019 MD&A | 21 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Furthermore, any additional equity financing may be dilutive to shareholders and debt financing, if available, may involve restrictive covenants. If additional funds are raised through the issuance of equity securities, the percentage ownership of the shareholders of the Company will be reduced, shareholders may experience additional dilution in net book value per share, or such equity securities may have rights, preferences or privileges senior to those of the holders of the common shares. If adequate funds are not available on acceptable terms the Company may be unable to develop or enhance its business, take advantage of future opportunity or respond to competitive pressures, any of which could have a material adverse effect on the Company’s business, financial condition and operating results.
Debt Covenants
The agreements governing the Company’s credit facilities contain restrictive covenants that may limit its discretion with respect to certain business matters. These covenants may place significant restrictions on, among other things, the Company’s ability to create liens or other encumbrances, to pay distributions or make certain other payments, investments, loans and guarantees, and to sell or otherwise dispose of assets. In addition, the agreements governing the Company’s credit facilities may contain financial covenants that require it to meet certain financial ratios and financial condition tests. If the Company fails to maintain the requisite financial ratios under the agreement governing its credit facilities, it will be unable to draw any amounts under the credit facility until such default is waived or cured as required. In addition, such a failure could constitute an event of default under the Company’s lending agreements entitling the lenders to accelerate the outstanding indebtedness thereunder unless such event of default is cured as required by the agreement. The Company’s ability to comply with these covenants in future periods will depend on its ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond its control. The restrictions in the agreements governing the Company’s credit facilities may prevent the Company from taking actions that it believes would be in the best interest of its business and may make it difficult for it to execute its business strategy successfully or effectively operate in comparison to companies that are not similarly restricted. The Company may also incur future debt obligations that might subject it to additional restrictive covenants that could affect its financial and operational flexibility. The Company’s ability to comply with the covenants and restrictions contained in the Loan Agreement may be affected by economic, financial and industry conditions beyond its control. The breach of any of these covenants or restrictions could result in a default under the agreements that would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest, or cause cross-defaults under the Company’s other debts. If the Company is unable to repay its secured debt, the Lenders could proceed against the collateral securing the Loans. This could have serious consequences to the Company’s financial condition and results of operations and could cause it to become bankrupt or insolvent.
| Bitfarms Ltd. 2019 MD&A | 22 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Limited Operating History
The Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. In particular, the Company has a limited history with its mining operations and remains in the early stage of development. The Company is subject to many risks common to venture enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial and other resources and the lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders’ investment or meeting other metrics of success.
The Company is dependent on retained earnings for substantially all of its working capital needs, and there is no assurance that additional funding will be available to it for further development and growth. There can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable.
The Company incurs substantial expenses in the establishment and operation of its business. A significant portion of the Company’s financial resources have been and will continue to be, directed to the development of its business and related activities. The success of the Company will ultimately depend on its ability to generate cash from its business. There is no assurance that the required funds will be available for future expansion of the Company’s business. If the Company does not have access to the required funds to continue the operation and development of its business and operational activities, and to the extent that it does not generate cash flow and income, the Company’s long-term viability may be materially and adversely affected.
Share Price Fluctuations
In recent years, the securities markets have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly those considered development stage companies (such as the Company), have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that continued fluctuations in price will not occur.
Management of Growth
The Company has recently experienced, and may continue to experience, rapid growth in the scope of its operations. This growth has resulted in increased responsibilities for the Company’s existing personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage its current operations and any future growth effectively, the Company will need to continue to implement and improve its operational, financial and management information systems, as well as hire, manage and retain its employees and maintain its corporate culture including technical and customer service standards. There can be no assurance that the Company will be able to manage such growth effectively or that its management, personnel or systems will be adequate to support the Company’s operations.
Cybersecurity Threats and Hacking
Malicious actors may seek to exploit vulnerabilities within cryptocurrency programming codes. Several errors and defects have been found and corrected, including those that disabled some functionality for users and exposed users’ information. Discovery of flaws in or exploitations of the source code that allow malicious actors to take or create money occur somewhat regularly. For example, hackers have been able to gain unauthorized access to digital wallets and cryptocurrency exchanges.
| Bitfarms Ltd. 2019 MD&A | 23 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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The computer network operated by the Company may further be vulnerable to intrusions by hackers who could interfere with and introduce defects to the mining operation. Private keys which enable holders to transfer funds may also lost or stolen, resulting in irreversible losses of cryptocurrencies.
Possibility of Less Frequent or Cessation of Monetization of Cryptocurrencies
A decision by the Company to cease monetization of cryptocurrencies or to monetize cryptocurrencies less frequently can increase the risk of cryptocurrencies held decreasing in value and the risk of loss or theft of cryptocurrencies. This in turn, may increase the level of audit risk for the Company’s auditors in the area of auditing the existence and ownership rights of crypto-asset holdings. If the Company’s auditors deem the audit risk too high, there is risk that the current auditors would withdraw from the audit which, in turn, would increase the risk of the Company’s ability to comply with the requirement for reporting annual audited financial statements as part of its ongoing continuous disclosure requirements as a publicly listed company.
Limited History of De-Centralized Financial System
Compared with traditional and existing centralized financial systems, the cryptocurrency financial system is relatively new and has only limited history. Online cryptocurrency exchanges and trades therein operate with comparatively little regulation and are particularly liable to platform failures and fraudulent activities, which may have an effect on underlying prices of cryptocurrencies. In fact, many of the largest online cryptocurrency exchanges have been compromised by hackers.
Traditional banks and banking services may limit or refuse the provision of banking services to businesses that supply cryptographic or cryptocurrencies as payment, and may refuse to accept money derived from cryptocurrency-related businesses. This may make management of bank accounts held by companies operating in the field difficult.
Controlling Shareholder Risk
Certain officers and directors of the Company beneficially own 31,511,481 of the issued and outstanding common shares representing approximately 37.2% of the issued and outstanding common shares. By virtue of their status as the principal shareholders of the Company, and by being directors and officers of the Company, they have the power to exercise significant influence over all matters requiring shareholder approval, including the election of directors, amendments to the Company’s articles and by-laws, mergers, business combinations and the sale of substantially all of the Company’s assets. As a result, the Company could be prevented from entering into transactions that could be beneficial to the Company or its other shareholders. Also, third parties could be discouraged from making a take-over bid. As well, sales by the significant shareholders of a substantial number of could cause the market price of such shares to decline.
| Bitfarms Ltd. 2019 MD&A | 24 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Risk Related to Technological Obsolescence and Difficulty in Obtaining Hardware
To remain competitive, the Company will continue to monitor the state of the technology available and invest in hardware and equipment required for maintaining its operations. The Company’s hardware and software may become obsolete and require substantial capital to replace. There can be no assurance that mining hardware will be readily available when the need is identified. Moreover, there can be no assurance that new and unforeseeable technology, either hardware-based or software-based, will not disrupt the existing cryptocurrency industry. For example, the arrival of quantum computers, which are capable of solving certain types of mathematical problems fundamental to cryptocurrency more quickly and efficiently than traditional computers may have a significant effect on the cryptocurrency industry.
Valuation and Price Volatility of Cryptocurrencies
The profitability of the Company’s operations will be significantly affected by changes in prices of cryptocurrencies. Cryptocurrency prices are highly volatile, can fluctuate substantially and are affected by numerous factors beyond the Company’s control, including hacking, demand, inflation and expectations with respect to the rate of inflation, global or regional political or economic events. If cryptocurrency prices should decline and remain at low market levels for a sustained period while network difficulty does not decrease proportionally, the Company could determine that it is not economically feasible to continue activities.
Cryptocurrencies may be subject to momentum pricing, which is typically associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for anticipated future appreciation in value. Cryptocurrency market prices are determined primarily using data from various exchanges, over-the-counter markets, and derivative platforms. Momentum pricing may have resulted, and may continue to result, in speculation regarding future appreciation in the value of cryptocurrencies, inflating and making their market prices more volatile. As a result, they may be more likely to fluctuate in value due to changing investor confidence in future appreciation (or depreciation) in their market prices, which could adversely affect the value proposition of the Company.
Volatility may have an impact on the value of the Company’s inventory of currencies. The Company will act to reduce this risk by combining routine sales of cryptographic currencies for U.S. dollars, Canadian dollars, and/or other investment assets, and a number of cryptocurrencies that will ensure coverage of current operating expenses (Opex) and capital expenditures (Capex) in order to hedge the risk of volatility with regard to the Company’s expenses.
Cryptocurrency Network Difficulty and Impact of Increased Global Computing Power
Network difficulty is a measure of how difficult it is to solve the cryptographic hash that is required to validate a block of transactions and earn a cryptocurrency reward from Mining. If the network difficulty increased at a significantly higher rate than the Company’s hashrate and the price of cryptocurrency did not increase at the same rate as network difficulty, then the profitability of the Company’s operations would be significantly affected. There can be no assurance that cryptocurrency prices will increase in proportion to the rate of increase of network difficulty as network difficulty is subject to volatility in growth.
| Bitfarms Ltd. 2019 MD&A | 25 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Economic Dependence on Regulated Terms of Service and Electricity Rates Risks
The Company’s operations are dependent on its ability to maintain reliable and economical sources of power to run its cryptocurrency mining assets. The Company conducts Mining in the Province of Québec. As a result of operations in a single jurisdiction, the Company’s current and future operations, anticipated growth, and sustainability of hydroelectricity at economical prices for the purposes of cryptocurrency mining in the Province of Québec poses certain risks. These risks as well as the supply of electrical power, electricity rates, terms of service and regulatory regime in the Province of Québec are summarized as follows:
| (a) | Currently Backbone sources its energy from Hydro-Québec, Hydro-Sherbrooke and Hydro-Magog. The Province of Québec mandates electrical service providers to supply their customers under an obligation to serve power delivery regime; consequently, the Company believes these power suppliers are reliable. Any suspension of power or failure of electrical networks, however, could result in a material adverse effect on the Company. |
| (b) | The price of electricity supplied directly by Hydro-Québec is set by a provincial administrative tribunal, the Régie. Hydro-Québec supplies power to certain of the Company’s facilities, and to the Municipal Electrical Networks for the Magog and Sherbrooke server farms, under an obligation to serve power delivery regime. The rates imposed on Hydro-Québec by the Régie are subject to change. There are no long-term arrangements. Although power is supplied by the Municipal Networks to the Company under the long-term power contracts, the rates in those contracts are adjusted in response to tariff changes imposed by the Régie. Accordingly, there is no assurance that future electricity rates will remain stable or economical. In particular, on June 14, 2018, Hydro-Québec requested the Régie to set rates and service conditions specifically for enterprises involved in cryptocurrency mining as a result of increased electricity demand from cryptocurrency miners. The Régie has undertaken regulatory proceedings to establish a framework for the provision of electricity for cryptocurrency mining in Québec in three Phases: |
| Phase 1: | On July 13, 2018, the Régie provisionally ordered that a new tariff be established for cryptocurrency miners and on July 19, 2018, the Régie approved a provisional tariff of CAD$0.15/kWh on cryptocurrency mining facilities built after that date (“Phase 1”). Under Phase 1, the new tariff cannot be applied to any cryptocurrency contracts entered into prior to June 7, 2018 or facilities constructed prior to July 19, 2018. Therefore, Phase 1 is not expected to have an impact on Backbone’s pre-existing operations and secures existing rates until the completion of Phase 3. |
| Bitfarms Ltd. 2019 MD&A | 26 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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| Phase 2: | On April 29, 2019, the Régie rendered its decision on the second phase (“Phase 2”) of the request filed by Hydro-Québec. The Régie decided to create a new class of energy consumers called Electricity consumer class for cryptographic use applied to blockchain. It decided to allocate to this new class an aggregate supply of 300 megawatts of electricity, with the requirement to curtail electricity use during peak hours at Hydro-Québec’s request (up to a maximum of 300 hours a year). Cryptocurrency mining projects were required to submit tenders to consume electricity from the 300 megawatts block based exclusively on economic development and environmental criteria. The call for tenders process ended on October 31, 2019. According to Hydro-Quebec, only 60 MW were allocated to cryptographic clients. In its decision, the Régie rejected Hydro-Québec’s proposal to launch a tariff auction as part of the call for tenders and determined that the applicable tariff of the energy component, in ¢/kWh, will correspond to the M or LG tariff in force, as the case may be. In order for the Company to be able to procure electricity for future Quebec expansion projects (excluding those currently planned by the Company such as the Additional Server Farms), it would have been required to participate to the call for tenders process. However, the Régie’s decision also means that all the Company’s pre-existing operations will remain subject to the M or LG tariff in force, as the case may be, and they are exempt from the tender process as well as the provisional tariff of CAD$0.15/kWh which had been requested by Hydro-Québec. The provisional tariff applies to energy consumption not authorized under cryptocurrency contracts, to those cryptocurrency contracts entered into after June 7, 2018 and to any substitution of use or any increase of capacity for crypto miners not already under authorized cryptocurrency contracts. Following a successful administrative review process of the decision of the Régie initiated by the Company, the potential requirement to curtail electricity use (of up to 95%) during peak hours at Hydro-Québec’s request (up to a maximum of 300 hours a year) does not apply to our pre-existing operations supplied directly by Hydro-Québec. This issue will be addressed by the Régie in Phase 3. | |
| Phase 3: | On February 28, 2020, the Régie rendered a procedural decision on the various subjects that will be addressed in Phase 3 of the Régie’s deliberations. Those subjects are the following: |
| ● | Results of the call for tenders process that ended on October 31, 2019; |
| ● | Additional evidence from Hydro-Quebec on the necessity to have specific conditions of service for cryptographic clients considering the current state of market; |
| ● | Conditions of service for pre-existing operations, including the requirement to curtail electricity use (of up to 95%) during peak hours at Hydro-Québec’s request; |
| ● | List of exclusions from the new class of energy consumers |
| Bitfarms Ltd. 2019 MD&A | 27 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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In addition to the abovementioned subjects, Phase 3 will also cover the following issues related to the operations on the Municipal Network:
| ● | Inclusion of the Municipal Networks clients to the new class of energy consumers; |
| ● | Allocation to Municipal Networks clients of an aggregate supply of megawatts of electricity for cryptographic use applied to blockchain; and |
| · | Tariffs and Conditions that should be applied to Municipal Networks clients using the electricity for cryptographic use applied to blockchain. |
| (c) | Electricity supplied by Hydro-Québec and the Municipal Electrical Networks may be set at Preferential Rates in an effort to encourage investment and development in particular regions. Hydro-Québec and Municipal Electrical Networks may offer a discretionary Preferential Rate to certain customers, such rate being lower than the rate set by the Régie, notwithstanding that the Hydro-Québec and the Municipal Electric Networks may suffer a financial loss on the supply of electricity to those customers. If a Preferential Rate is changed or no longer available to the Company, then operations and profitability may experience a material adverse effect. In addition, although power is supplied by the Municipal Networks to the Company under the long-term power contracts, the rates in those contracts are adjusted in response to tariff changes imposed by the Régie. |
Future Profits/Losses and Production Revenues/Expenses
Further development and acquisitions of server farms and the ongoing operation of the existing Mining farms will require additional capital and monthly expenses. The Company’s operating expenses and capital expenditures may increase in subsequent years as needed consultants, personnel and equipment associated with the maintenance of the Mining farms and any other Mining farms the Company may acquire are added. There is no assurance that the Company will be successful in obtaining the required financing for these or other purposes, including for general working capital.
Cryptocurrency exchanges and other trading venues are relatively new and, in most cases, largely unregulated and may therefore be more exposed to fraud and failure. To the extent that cryptocurrency exchanges or other trading venues are involved in fraud or experience security failures or other operational issues, this could result in a reduction in cryptocurrency prices.
Cryptocurrency market prices depend, directly or indirectly, on the prices set on exchanges and other trading venues, which are new and, in most cases, largely unregulated as compared to established, regulated exchanges for securities, derivatives and other currencies. In the past four years, a number of cryptocurrency exchanges have been closed due to fraud, business failure or security breaches. In many of these instances, the customers of the closed exchanges were not compensated or made whole for the partial or complete losses of their account balances in such exchanges. While smaller exchanges are less likely to have the infrastructure and capitalization that provide larger exchanges with additional stability, larger exchanges may be more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access to private computer systems) and may be more likely to be targets of regulatory enforcement action.
| Bitfarms Ltd. 2019 MD&A | 28 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Political and Regulatory Risk
The Company’s primary properties are located in Québec and are be subject to changes in political conditions and regulations within the Province and in Canada. Changes, if any, in Mining or investment policies or shifts in political attitude could adversely affect the Company’s operations or profitability. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on price controls, currency remittance, sales and income taxes, foreign investment, maintenance of claims, environmental legislation, land use, electricity use and safety. For example, cryptocurrency mining involves considerable computing power, which is likely to increase. This computing power necessitates a high consumption of energy. Although the energy costs used by the Company are determined and controlled by a regulator, there is no certainty that this factor will not raise energy tariffs, which may reduce the profitability of mining cryptographic currencies.
On-going and future regulatory changes or actions may alter the nature of an investment in the Company or restrict the use of cryptocurrencies in a manner that adversely affects the Company’s operations. The effect of any future regulatory change on the Company or any cryptocurrency that the Company may mine is impossible to predict, but such change could be substantial and adverse to the Company. Canada may in the future curtail or outlaw, the acquisition, use or redemption of cryptocurrencies.
Governments may also take regulatory action that may increase the cost and/or subject cryptocurrency companies to additional regulation or prohibit or severely restrict the right to acquire, own, hold, sell, use or trade cryptocurrencies or to exchange cryptocurrencies for fiat currency. By extension, similar actions by other governments, may result in the restriction of the acquisition, ownership, holding, selling, use or trading in the Company’s common shares. Such a restriction could result in the Company liquidating its cryptocurrency inventory at unfavorable prices and may adversely affect the Company’s shareholders.
The Company’s material property is located in the province of Québec and as such are subject to the jurisdiction of the laws of Québec and Canada. The Company believes the present attitude to foreign investment and to the mining industry is favourable, but conditions may change. Operations may be affected in varying degrees by government regulation with respect to restrictions on production, price controls, export controls, foreign exchange controls, income taxes, and environmental legislation.
Permits and Licences
The operations of the Company may require licences and permits from various governmental authorities. There can be no assurance that the Company will be able to obtain all necessary licences and permits that may be required.
| Bitfarms Ltd. 2019 MD&A | 29 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Server Failures
There is a risk of serious malfunctions in servers or central processing units and/or their collapse. The Company works to reduce this risk by employing a team of experts with many years of experience in building and managing data centers. The Company also employs a “hardware” team, which focuses, among other things, on chip repair and daily evaluation of the technical condition of the server farm that the Company operates. The Company owns software (developed by its management) that enables, among other things, control, management and reporting of malfunctions in real time, which enables ongoing control over the operation of the equipment, including its cooling. While malfunctions in central servers, or central processing units can only occur on a specific server farm or part of it or for short periods of time, such server crashes or failures may cause significant economic damage to the Company.
Global Financial Conditions
Global financial conditions over the last few years have been characterized by volatility and the bankruptcy of several financial institutions or the rescue thereof by governmental authorities. These factors may affect the ability of the Company to obtain equity or debt financing in the future on terms favourable to it. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. If such levels of volatility and market turmoil continue, the operations of the Company may suffer adverse impact and the price of the Common Shares may be adversely affected.
Tax Consequences
The transactions described herein may have tax consequences in Canada or another jurisdiction, depending on each particular existing or prospective shareholder’s specific circumstances. Such tax consequences are not described herein, and this MD&A is not intended to be, nor should it be construed to be, legal or tax advice to any particular shareholder. Existing and prospective shareholders should consult their own tax advisors with respect to any such tax considerations.
Environmental Regulations
All of the Company’s operations may be subject to environmental regulations, which can make operations expensive or prohibitive. The continued evolvement of environmental regulations may lead to the imposition of stricter standards, more diligent enforcement, and heavier fines and penalties for non- compliance. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations or cause delays in the development of mining projects.
Environmental Liability
The Company may be subject to potential risks and liabilities associated with pollution of the environment through its use of electricity to Mine cryptocurrencies. In addition, environmental hazards may exist on a property in which the Company directly or indirectly holds an interest which are unknown to the Company at present which have been caused by previous or existing owners or operators of the property which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties.
| Bitfarms Ltd. 2019 MD&A | 30 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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To the extent the Company is subject to environmental liabilities, the payment of such liabilities or the costs that it may incur to remedy environmental pollution would reduce funds otherwise available to it and could have a material adverse effect on the Company. If the Company is unable to fully remedy an environmental problem, it might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. The potential exposure may be significant and could have a material adverse effect on the Company.
The current or future operations of the Company, including development activities and Mining on its properties, may require permits from various federal, provincial or territorial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, exports, taxes, labour standards, occupational health, and other matters. There can be no assurance, however, that all permits which the Company may require for its operations will be obtained on reasonable terms, on a timely basis, or at all or that such laws and regulations would not have an adverse effect on any mining project which the Company might undertake. The Company intends to fully comply with all environmental regulations in every country in which it is active.
Erroneous Transactions and Human Error
Cryptocurrency transactions are irreversible. Improper or compromised transfers will generally be irreversible and irrevocable. Such errors may be the result of computer or human error despite internal controls the Company has adopted to mitigate this risk. To the extent that the Company is unable to seek a corrective transaction with the third party or is incapable of identifying the third party that has received the Company’s cryptocurrencies through error or theft, the Company will be unable to revert or otherwise recover incorrectly transferred cryptocurrencies. The Company will also be unable to convert or recover cryptocurrencies transferred to uncontrolled accounts.
The further development and acceptance of the cryptographic and algorithmic protocols governing the issuance of and transactions in cryptocurrencies is subject to a variety of factors that are difficult to evaluate.
The use of cryptocurrencies to, among other things, buy and sell goods and services and complete other transactions, is part of a new and rapidly evolving industry that employs digital assets based upon a computer-generated mathematical and/or cryptographic protocol. The growth of this industry in general, and the use of cryptocurrencies in particular, is subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may adversely affect Bitfarms Ltd.’s operations. The factors affecting the further development of the industry, include, but are not limited to:
| ● | Continued worldwide growth in the adoption and use of cryptocurrencies; |
| ● | Governmental and quasi-governmental regulation of cryptocurrencies and their use, or restrictions on or regulation of access to and operation of the network or similar cryptocurrency systems; |
| Bitfarms Ltd. 2019 MD&A | 31 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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| ● | Changes in consumer demographics and public tastes and preferences; |
| ● | The maintenance and development of the open-source software protocol of the network; |
| ● | The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; |
| ● | General economic conditions and the regulatory environment relating to digital assets; and |
| ● | Negative consumer sentiment and perception of Bitcoin specifically and cryptocurrencies generally. |
Facility Developments
The continued development of existing and planned facilities is subject to various factors, and may be delayed or adversely affected by such factors beyond the Company’s control, including delays in the delivery or installation of equipment by suppliers, difficulties in integrating new equipment into existing infrastructure, shortages in materials or labour, defects in design or construction, diversion of management resources, insufficient funding, or other resource constraints. Actual costs for development may exceed the Company’s planned budget. Delays, cost overruns, changes in market circumstances and other factors may result in different outcomes than those intended.
Risks of Non-Availability of Insurance
Where considered practical to do so, the Company will maintain insurance against risks in the operation of its business and in amounts that it believes to be reasonable. Such insurance, however, will contain exclusions and limitations on coverage. There can be no assurance that such insurance will continue to be available, will be available at economically acceptable premiums or will be adequate to cover any resulting liability. The novelty of the industry may impair the ability of the Company to acquire adequate insurance coverage for risks associated with its operations. The occurrence of an event that is not covered, in full or in part, by insurance may cause substantial economic damage to the Company. In some cases, such as with respect to environmental risks, coverage is not available or considered too expensive relative to the perceived risk.
Competition
The Company’s business is intensely competitive, and the Company will compete with other mining companies, many of which have greater resources and experience. A fundamental property of mining associated with many cryptocurrencies is that the computational complexity of the mining algorithm increases over time. This factor along with new industry entrants and price volatility may make certain cryptocurrencies relatively unprofitable to mine compared to others.
Regulation of cryptocurrency outside of Canada has led some mining companies to consider Canada as a jurisdiction in which to operate. This may increase competition to the Company; however, the Company believes that only a few competitors exist that can compete with the speed and cost effectiveness of its current operations and buildout capabilities. Nevertheless, the Company’s assumptions with respect to its competitors could be inaccurate and the Company may face unexpected competition in the form of a new entrant in the marketplace. Such competition could erode the Company’s expected market share and could adversely impact the Company’s profitability. Increased competition could result in increased network computing resources and consequently increased hash difficulty.
| Bitfarms Ltd. 2019 MD&A | 32 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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If the award of coins for solving Blocks and transaction fees are not sufficiently high, miners may not have an adequate incentive to continue Mining and may cease their Mining operations. As the number of coins awarded for solving a block in the blockchain decreases, the incentive for miners to continue to contribute processing power to the network may transition from a set reward to transaction fees. Either the requirement from miners of higher transaction fees in exchange for recording transactions in the blockchain, or a software upgrade that automatically charges fees for all transactions, may decrease demand for the relevant coins and prevent the expansion of the network to retail merchants and commercial businesses, resulting in a reduction in the price of the relevant cryptocurrency that could adversely impact the Company’s cryptocurrency inventory and investments.
In order to incentivize miners to continue to contribute processing power to the network, the network may either formally or informally transition from a set reward to transaction fees earned upon solving for a block. This transition could be accomplished either by miners independently electing to record on the blockchains they solve only those transactions that include payment of a transaction fee or by the network adopting software upgrades that require the payment of a minimum transaction fee for all transactions. If transaction fees paid for the recording of transactions in the blockchain become too high, the marketplace may be reluctant to accept the network as a means of payment and existing users may be motivated to switch between cryptocurrencies or back to fiat currency. Decreased use and demand for coins may adversely affect their value and result in a reduction in the market price of coins.
If the award of coins for solving blocks and transaction fees for recording transactions are not sufficiently high to incentivize miners, miners may cease expending processing power to solve Blocks and confirmations of transactions on the blockchain could be slowed temporarily. A reduction in the processing power expended by miners could increase the likelihood of a malicious actor or botnet obtaining control in excess of 50 percent of the processing power active on the blockchain, potentially permitting such actor or botnet to manipulate the blockchain in a manner that adversely affects the Company’s mining activities.
If the award of coins for solving Blocks and transaction fees are not sufficiently high, miners may not have an adequate incentive to continue Mining and may cease their Mining operations. Miners ceasing operations would reduce collective processing power, which would adversely affect the confirmation process for transactions (i.e., decreasing the speed at which blocks are added to the blockchain until the next scheduled adjustment in difficulty for blockchain solutions) and make the network more vulnerable to a malicious actor or botnet obtaining control in excess of 50 percent of the processing power. Any reduction in confidence in the confirmation process or processing power of the network may adversely impact the Company’s Mining activities, inventory of coins, and future investment strategies.
| Bitfarms Ltd. 2019 MD&A | 33 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Loss of Key Employees
The Company will depend on a number of key employees, the loss of any one of whom could have an adverse effect on the Company. The Company will not have and is not expected to purchase key person insurance on such individuals, which insurance would provide the Company with insurance proceeds in the event of their death. Without key person insurance, the Company may not have the financial resources to develop or maintain its business until it replaces the individual. The development of the business of the Company will be dependent on its ability to attract and retain highly qualified management and mining personnel. The Company will face competition for personnel from other employers. If the Company is unable to attract or retain qualified personnel as required, it may not be able to adequately manage and implement its business plan.
Acceptance and/or widespread use of cryptocurrency is uncertain
Currently, cryptocurrencies are used relatively rarely in the retail and commercial marketplaces in comparison to purchases of overall cryptocurrencies worldwide. Cryptocurrency payment methods have not been widely adopted as a means of a payment for goods and services by major retail and commercial outlets. A significant portion of cryptocurrency demand may be attributable to speculation.
The failure of retail and commercial marketplaces to adopt cryptocurrency payment methods may result in increased volatility and/or a reduction in market prices, either of which may adversely impact the Company’s operations and profitability.
During the three and twelve month periods ended December 31, 2019, the Company had the following transactions with related parties:
| 1. | Bitfarms was charged approximately $33,000 and $152,000 for the three and twelve month periods ended December 31, 2019 (three and twelve month periods ended December 31, 2018 - $52,000 and $235,000) for telecommunication expenses by a company in which a former director and significant shareholder, Pierre-Luc Quimper (who resigned as of October 3, 2019), has significant influence. |
In addition, Bitfarms made rent payments totaling approximately $81,000 and $528,000 for the three and twelve month periods ended December 31, 2019 (three and twelve month periods ended December 31, 2018 - $151,000 and $597,000) to companies controlled by a director and officer, Emiliano Grodzki and Mathieu Vachon and a former director, Pierre-Luc Quimper. For the three and twelve month periods ended December 31, 2019 the rent payments were classified as interest included in financial expenses and principal repayment of lease liabilitiesf. For the three and twelve month periods ended December 31, 2018 rent payments were included in cost of sales. As of August 2019 the Cowansville building was sold to an arms length party and a new lease agreement was signed. The sale of the Cowansnville building will result in a reduction in monthly rent paid to related parties in the amount of $14,400.
| Bitfarms Ltd. 2019 MD&A | 34 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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| 2. | Bitfarms entered into consulting agreements with two of the directors, Nicolas Bonta and Emiliano Grodzki. The consulting fees charged by directors totaled approximately $100,000 and $400,000 for the three and twelve month periods ended December 31, 2019 ($101,000 and $448,000 for the three and twelve month periods ended December 31, 2018). |
| 3. | Bitfarms sold 627 Bitcoin for the twelve month periods ended December 31, 2019 (589 Bitcoin and 3,346 Bitcoin for the three and twelve months ended December 31, 2018) to a company of which, at the time of such sales, had a director, Roy Sebag, who was also a shareholder of Bitfarms Ltd. (Israel) for $2,283,000 ($3,424,000 and $28,323,000 for the three and twelve month periods ended December 31, 2018). The company which Bitfarms sold Bitcoin to ceased operating in the cryptocurrency industry as of March 11, 2019, and since that date Bitfarms has not transacted with this company. |
| 4. | Volta rendered electricial services to a former director, Pierre-Luc Quimper in the amount of $0 and $12,000 for the three and twelve month periods ended December 31, 2019, respectively (year ended December 31, 2018 - $nil) |
| 5. | On June 12, 2019, Mathieu Vachon and Pierre-Luc Quimper, two of Bitfarms founding shareholders exchanged 17,335,090 exchangeable shares of Backbone into 17,335,090 common shares of the Company. |
Transactions 1. through 4. listed above were incurred in the normal course of operations.
Change of Directors and Officers
On March 11, 2020 Wes Fulford elected to resign as Chief Executive Officer and Director of Bitfarms and its subsidiaries. The Company issued 500,000 Common shares in consideration for past services. On the same day Emiliano Grodzki was appointed as interim Chief Executive Officer of Bitfarms. On April 16, 2020 Brian Howlett was appointed a director of Bitfarms.
Warrant Exercise
On both January 13, 2020 and February 12, 2020 Dominion Capital exercised a combined total of 500,000 warrants to acquire 500,000 common shares resulting in proceeds of $0.2 million being paid to the Company.
| Bitfarms Ltd. 2019 MD&A | 35 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Adoption of New Accounting Standards
IFRS 16 Leases:
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.
The Company adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of January 1, 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. The Company elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (’short- term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’). The effect of adoption IFRS 16 as of January 1, 2019 is as follows:
| Assets | ||||
| Right-of-use assets * | $ | 5,303,000 | ||
| Liabilities | ||||
| Short-term | 621,000 | |||
| Long-term | 4,498,000 | |||
| Total liabilities | $ | 5,119,000 | ||
| * | Includes $184 previously presented in long-term deposits and advance payments on equipment prior to the adoption of IFRS 16 on January 1, 2020. |
| 1. | Nature of the effect of adoption of IFRS 16: |
The Company has lease contracts for various farming facilities, vehicles and other equipment. Before the adoption of IFRS 16, the Company classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all the risks and rewards incidental to ownership of the leased asset to the Company; otherwise it was classified as an operating lease. Finance leases were capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between interest (recognized as finance costs) and reduction of the lease liability. In an operating lease, the leased property was not capitalized, and the lease payments were recognized as rent expense in profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognized under other assets and accounts payable, respectively.
| Bitfarms Ltd. 2019 MD&A | 36 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Upon adoption of IFRS 16, the Company applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which has been applied by the Company. As all of the Company’s leases were previously classified as operating leases, the Company recognized right-of-use assets and lease liabilities for these leases, except for short-term leases and leases of low-value assets. The right-of-use assets were recognized based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognized. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The Company also applied the available practical expedients wherein it:
| ● | Used a single discount rate to a portfolio of leases with reasonably similar characteristics | |
| ● | Relied on its assessment of whether leases are onerous immediately before the date of initial application | |
| ● | Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application | |
| ● | Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application | |
| ● | Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease |
The lease liabilities as of January 1, 2019 can be reconciled to the operating lease commitments as of December 31, 2018 as follows:
| Farming facilities operating lease commitments as of December 31, 2018 | $ | 3,737,000 | ||
| Less: | ||||
| Commitments relating to short-term leases | (37,000 | ) | ||
| Adjusted farming facilities operating lease commitments as of December 31, 2018 | 3,700,000 | |||
| Add: | ||||
| Payments in optional extension periods not recognized as of December 31, 2018 | 3,033,000 | |||
| Adjusted farming facilities operating lease commitments and optional extension periods not recognized as of December 31, 2018 | 6,733,000 | |||
| Discount rate for portfolio of leases | 8% | |||
| Lease liabilities as of January 1, 2019 | 5,017,000 | |||
| Vehicle operating lease commitments as of December 31, 2018 | 105,000 | |||
| Discount rate for portfolio of leases | 3.49% | |||
| Discounted operating lease commitments at January 1, 2019 | 102,000 | |||
| Lease liabilities as of January 1, 2019 | 102,000 | |||
| Total lease liabilities as of January 1, 2019 | $ | 5,119,000 |
| Bitfarms Ltd. 2019 MD&A | 37 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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| 2. | Summary of new accounting policies: |
Set out below are the new accounting policies of the Company upon adoption of IFRS 16, which have been applied from the date of initial application:
Right-of-use assets
The Company recognizes right-of-use assets as of January 1, 2019, at an amount equal to the lease liability, adjusted for previously recognized prepaid or accrued lease payments. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. In calculating the present value of lease payments, the Company used a single incremental borrowing rate as of January 1, 2019, to a portfolio of leases with reasonably similar characteristics. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured using a revised discount rate, with a corresponding adjustment to the related right-of-use asset, if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e. below $5,000). Lease payments for short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
Significant judgement in determining the lease term of contracts with renewal options
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Company has the option, under some of its leases to lease the assets for additional terms of three to ten years. The Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
| Bitfarms Ltd. 2019 MD&A | 38 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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The Company included the renewal period as part of the lease term for leases of plant and machinery due to the significance of these assets to its operations. These leases have a short non-cancellable period (i.e., three to ten years) and there will be a significant negative effect on production if a replacement is not readily available. The renewal options for leases of motor vehicles were not included as part of the lease term because the Company has a policy of leasing motor vehicles for not more than five years and, hence, not exercising any renewal options.
| 3. | Amounts recognized in the statement of financial position and profit or loss: |
Set out below, are the carrying amounts of the Company’s right-of-use assets and lease liabilities and the movements during the period:
| Farming facilities | Vehicles | Other equipment | Total ROU assets | Lease liabilities | ||||||||||||
| As of January 1, 2019 | $ | 5,201,000 | $ | 102,000 | $ | - | $ | 5,303,000 | $ | 5,119,000 | ||||||
| Additions | 2,108,000 | 129,000 | 60,000 | 2,297,000 | 2,292,000 | |||||||||||
| Lease terminations | (489,000 | ) | (24,000 | ) | - | (513,000 | ) | (551,000 | ) | |||||||
| Depreciation | (786,000 | ) | (50,000 | ) | (8,000 | ) | (854,000 | ) | - | |||||||
| Payments | - | - | - | - | (1,045,000 | ) | ||||||||||
| Interest | - | - | - | - | 381,000 | |||||||||||
| Foreign exchange loss on lease liabilities | - | - | - | - | 267,000 | |||||||||||
| As of December 31, 2019 | $ | 6,034,000 | $ | 157,000 | $ | 52,000 | $ | 6,233,000 | $ | 6,463,0000 | ||||||
The addition and lease termination included in farming facilities represents the termination of the lease agreement with a company controlled by certain directors, and the signing of a new agreement with an arm’s length party. The key terms of the lease agreement feature a ten-year initial lease term with two five-year renewal options. Monthly rent approximates $17,000 ($22,000 CAD) with an annual increase based on the Consumer Price Index (CPI) per Statistics Canada on December 31. The future potential payments not included in the initial recognition of the lease include the two five-year renewal terms, with payments totaling approximately $2.0 million ($2.6 million CAD) exclusive of annual increases based on the CPI.
The Company recognized rent expense from short-term leases of $62,000 for the year ended December 31, 2019.
| Bitfarms Ltd. 2019 MD&A | 39 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Caution Regarding Forward-Looking Statements
This MD&A contains forward-looking statements about the Company’s objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this MD&A include, but are not limited to, statements with respect to the Company’s anticipated future results, events and plans, strategic initiatives, future liquidity, and planned capital investments. Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may”, “maintain”, “achieve”, “grow”, “should” and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company’s current estimates, beliefs and assumptions, which are based on management’s perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company’s expectation of operating and financial performance in 2020 is based on certain assumptions including assumptions about operational growth, anticipated cost savings, operating efficiencies, anticipated benefits from strategic initiatives, future liquidity, and planned capital investments. The Company’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements. Such risks and uncertainties include:
| ● | Bitcoin halving event; |
| ● | COVID 19 pandemic; |
| ● | the availability of financing opportunities and risks associated with economic conditions, including Bitcoin price and Bitcoin network difficulty; |
| ● | the ability to service debt obligations and maintain flexibility in respect of debt covenants; |
| ● | the speculative and competitive nature of the technology sector; |
| ● | dependency in continued growth in blockchain and cryptocurrency usage; |
| ● | limited operating history and share price fluctuations; |
| ● | cybersecurity threats and hacking; |
| ● | controlling shareholder risk; |
| ● | risk related to technological obsolescence and difficulty in obtaining hardware; |
| ● | economic dependence on regulated terms of service and electricity rates; |
| ● | permits and licenses; |
| ● | server failures; |
| ● | global financial conditions; |
| ● | tax consequences; |
| ● | environmental regulations and liability; |
| ● | erroneous transactions and human error; |
| ● | facility developments; |
| ● | non-availability of insurance; |
| ● | loss of key employees; |
| Bitfarms Ltd. 2019 MD&A | 40 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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| ● | lawsuits and other legal proceedings and challenges; |
| ● | conflict of interests with directors and management; |
| ● | political and regulatory risk; and |
| ● | other factors beyond the Company’s control. |
The above is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statementsReaders are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company’s expectations only as of the date of this MD&A. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Caution Regarding Non-IFRS Financial Performance Measures
This MD&A makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including “EBITDA,” “EBITDA margin,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Gross mining profit,” and “Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenue. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; and (iv) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenue. “Gross mining profit” is defined as Revenue minus energy and infrastructure expenses for the Backbone segment of the Company. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenue for the Backbone segment of the Company.
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. Reconciliations from IFRS measures to non-IFRS measures are included in pages 9, 10 and 11.
| Bitfarms Ltd. 2019 MD&A | 41 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company and its subsidiaries is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. In designing such controls, it should be recognized that due to inherent limitations, any control, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect misstatements. Additionally, management is required to use judgment in evaluating controls and procedures.
ASIC: ASIC stands for Application Specific Integrated Circuit and refers primarily to specific computer devices designed to solve the SHA-256 algorithm, as well as other machines used in the mining of Litecoin which use the Scrypt algorithm.
Bitcoin: Bitcoin is a decentralized digital currency that is not controlled by any centralized authority (e.g. a government, financial institution or regulatory organization) that can be sent from user to user on the Bitcoin network without the need for intermediaries to clear transactions. Transactions are verified through the process of Mining and recorded in a public ledger known as the Blockchain. Bitcoin is created when the Bitcoin network issues Block Rewards through the Mining process.
Block Reward: A Bitcoin block reward refers to the new bitcoins that are awarded by the Blockchain network to eligible cryptocurrency miners for each block they successfully mine. The current block reward is 12.5 Bitcoin per block.
Blockchain: A Blockchain is a cloud-based public ledger that exists on computers that participate on the network globally. The Blockchain grows as new sets of data, or ‘blocks’, are added to it through Mining. Each block contains a timestamp and a link to the previous block, such that the series of blocks form a continuous chain. Given that each block has a separate hash and each hash requires information from the previous block, altering information an established block would require recalculating all the hashes on the Blockchain which would require an enormous and impracticable amount of computing power. As a result, once a block is added to the Blockchain it is very difficult to edit and impossible to delete.
Hash: A hash is a function that converts or maps an input of letters and numbers into an encrypted output of a fixed length, which outputs are often referred to as hashes. A hash is created using an algorithm. The algorithm used in the validation of Bitcoin transactions is the SHA-256 algorithm.
Hashrate: Hashrate refers to the number of hash operations performed per second and is a measure of computing power in Mining cryptocurrency.
| Bitfarms Ltd. 2019 MD&A | 42 |
| Bitfarms Ltd. Management’s Discussion and Analysis For the year ended December 31, 2019 Report Date: April 29, 2020 |
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Megawatt: A megawatt is 1,000 kilowatts of electricity and, in the industry of cryptocurrency mining, is typically a reference to the number of megawatts of electricity per hour that is available for use.
Miners: ASICs used by the Company to perform Mining.
Mining: Mining refers to the process of using specialized computer hardware, and in the case of the Company, ASICs, to perform mathematical calculations to confirm transactions and increase security for the Bitcoin Blockchain. As a reward for their services, Bitcoin Miners collect transaction fees for the transactions they confirm, along with newly created Bitcoins as Block Rewards.
Network Difficulty: Network difficulty is a unitless measure of how difficult it is to find a hash below a given target. The Bitcoin network protocol automatically adjusts Network Difficulty by changing the target every 2,016 blocks hashed based on the time it took for the total computing power used in Bitcoin mining to solve the previous 2,016 blocks such that the average time to solve each block is ten minutes.
Network Hashrate: Network Hashrate refers to the total global Hashrate (and related computing power) used in Mining for a given cryptocurrency.
Petahash: One quadrillion (1,000,000,000,000,000) hashes per second or one thousand Terahash.
SHA-256: SHA stands for Secure Hash Algorithm. The SHA-256 algorithm was designed by the US National Security Agency and is the cryptographic hash function used within the Bitcoin network to validate transactions on the Bitcoin Blockchain.
Terahash: One trillion (1,000,000,000,000) hashes per second.
| Bitfarms Ltd. 2019 MD&A | 43 |
Exhibit 99.16
Form 52-109FV1
Certification of Annual Filings
Venture Issuer Basic Certificate
I, EMILIANO GRODZKI, Interim Chief Executive Officer of Bitfarms Ltd., certify the following:
| 1. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference into the AIF (together, the “annual filings”) of Bitfarms Ltd. (the “issuer”) for the financial year ended December 31, 2019. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the annual filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings. |
Date: April 29, 2020
| “Emiliano Grodzki” | |
|
Emiliano Grodzki Interim Chief Executive Officer |
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of:
| (i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Exhibit 99.17
Form 52-109V1
Certification of Annual Filings
Venture Issuer Basic Certificate
I, JOHN RIM, Chief Financial Officer of Bitfarms Ltd., certify the following:
| 1. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference into the AIF (together, the “annual filings”) of Bitfarms Ltd. (the “issuer”) for the financial year ended December 31, 2019. | |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the annualfilings. | |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings. |
Date: April 29, 2020
| “John Rim” | |
| John Rim Chief Financial Officer |
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of:
| (i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Exhibit 99.18
Bitfarms Reports Financial Results for
the Year Ended
December 31, 2019
Toronto, Ontario and Brossard, Québec (April 29, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) today announced its consolidated results for the year ended December 31, 2019.
2019 Financial Summary and Corporate Highlights
| ● | Consolidated revenue of US$32.4 million, gross profit of US$11.4 million (35% gross profit margin) and net income of US$2.1 million in 2019 compared to US$33.8 million, US$10.9M (32% gross profit margin), and a net loss of US$18.2 million, respectively, in 2018; |
| ● | Mining operations segment gross mining profit1 of US$17.7 million (60% gross mining margin) in 2019 compared to $23.2M (73% gross mining margin) in 2018; |
| ● | US$9.6 million EBITDA1 (30% EBITDA margin) and US$10.6 million Adjusted EBITDA1 (33% Adjusted EBITDA margin) in 2019 compared to an EBITDA loss of US$5.6M (-16% EBITDA margin) and Adjusted EBITDA of US$15.3 million (45% Adjusted EBITDA margin) in 2018; |
| ● | Mined 3,865 Bitcoin and 7,561 Litecoin2 with a 2019 average break-even3 Bitcoin price of US$2,996 and average break-even Litecoin Price of US$49; and |
| ● | Completed US$20.0 million debt financing and fully deployed funds to increase infrastructure capacity from 34 MW to 64 MW (88% increase) and increase hashrate to approximately 780 PH (~270% increase) by the end of 2019. |
“Despite a challenging start to the year as a result of lower Bitcoin prices, the Company successfully raised US$20 million of financing in Q1 2019. The capital raised was quickly deployed to increase our datacentre infrastructure capacity from 34 MW to 64 MW and invest in mining equipment at competitive market prices to grow our computing power to over 780 PH by the end of the year. The increased scale of operations and the addition of new, more efficient mining equipment allowed the Company to achieve a healthy overall gross mining margin of 60%, earn US$10.6 million of Adjusted EBITDA, and end the year profitably with net income of US$2.1M” commented John Rim, Chief Financial Officer.
Emiliano Grodzki, Chief Executive Officer of Bitfarms added, “2019 was a transformative year for Bitfarms with many significant milestones. In addition to the significant operational growth achieved in 2019, we successfully completed our listing on the TSXV through a full prospectus process and the Company is now already positioned as one of the largest and most efficient public crypto mining operations in the world. We are very pleased to have had a profitable year with basic and fully diluted earnings per share of $0.04. Finally, we look forward to continuing to execute our growth strategy by building and operationalizing our remaining pipeline of available power in Quebec in the near to medium term.”
| 1 | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to the end of this press release regarding the use of Non-IFRS Performance Measures. |
| 2 | The company mined Litecoin at varying levels from January 2019 to August 2019. |
| 3 | Represents the break-even cost of Bitcoin and Litecoin based on variable cost of electricity and is calculated by taking the total electricity costs related to the Mining of each of Bitcoin and Litecoin divided by the total number of Bitcoin and Litecoin mined, respectively, in the relevant period. |
Financial Review
Consolidated Company Results (000’s)
| (U.S.$ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 10,536 | 4,654 | 5,882 | 126 | % | 32,421 | 33,805 | (1,384 | ) | (4 | %) | |||||||||||||||||||||
| Cost of Sales | 7,702 | 6,872 | 830 | 12 | % | 20,982 | 22,928 | (1,946 | ) | (8 | %) | |||||||||||||||||||||
| Gross profit | 2,834 | (2,218 | ) | 5,052 | (228 | %) | 11,439 | 10,877 | 562 | 5 | % | |||||||||||||||||||||
| Gross margin | 27 | % | (48 | %) | - | - | 35 | % | 32 | % | - | - | ||||||||||||||||||||
| G&A and other expenses | 2,712 | 1,712 | 1,000 | 58 | % | 10,294 | 9,815 | 479 | 5 | % | ||||||||||||||||||||||
| Impairment of PP&E and Intangibles | - | 19,060 | (19,060 | ) | (100 | %) | 56 | 19,060 | (19,004 | ) | (100 | %) | ||||||||||||||||||||
| Operating income (loss) | 122 | (22,990 | ) | 23,112 | (101 | %) | 1,089 | (17,998 | ) | 19,087 | (106 | %) | ||||||||||||||||||||
| Operating margin | 1 | % | (494 | %) | - | - | 3 | % | (53 | %) | - | - | ||||||||||||||||||||
| Financial income | 55 | - | 55 | 100 | % | 2,252 | - | 2,252 | 100 | % | ||||||||||||||||||||||
| Interest expense (income) | 1,122 | (58 | ) | 1,180 | (2,034 | %) | 3,268 | 63 | 3,205 | 5,087 | % | |||||||||||||||||||||
| Other financial expenses (income) | 504 | 63 | 441 | 700 | % | 557 | 116 | 441 | 380 | % | ||||||||||||||||||||||
| Total Financial expenses | 1,626 | 5 | 1,621 | 32,420 | % | 3,825 | 179 | 3,646 | 2,037 | % | ||||||||||||||||||||||
| Pre-tax loss | (1,449 | ) | (22,995 | ) | 21,546 | (94 | %) | (484 | ) | (18,177 | ) | 17,693 | (97 | %) | ||||||||||||||||||
| Income tax expense (recovery) | (2,574 | ) | (1,732 | ) | (842 | ) | 49 | % | (2,591 | ) | 59 | (2,650 | ) | (4,492 | %) | |||||||||||||||||
| Net income (loss) | 1,125 | (21,263 | ) | 22,388 | (105 | %) | 2,107 | (18,236 | ) | 20,343 | (112 | %) | ||||||||||||||||||||
| Net income (loss) per share - basic | 0.02 | (0.02 | ) | 0.04 | (200 | %) | 0.04 | (0.16 | ) | 0.20 | (127 | %) | ||||||||||||||||||||
| Gross mining profit (1) | 5,488 | 1,676 | 3,812 | 227 | % | 17,681 | 23,154 | (5,473 | ) | (24 | %) | |||||||||||||||||||||
| Gross mining margin (1) | 56 | % | 45 | % | - | - | 60 | % | 73 | % | - | - | ||||||||||||||||||||
| EBITDA (1) | 2,299 | (19,839 | ) | 22,138 | (112 | %) | 9,627 | (5,566 | ) | 15,193 | (273 | %) | ||||||||||||||||||||
| EBITDA margin (1) | 22 | % | (426 | %) | - | - | 30 | % | (16 | %) | - | - | ||||||||||||||||||||
| Adjusted EBITDA (1) | 2,986 | (603 | ) | 3,589 | (595 | %) | 10,617 | 15,265 | (4,648 | ) | (30 | %) | ||||||||||||||||||||
| Adjusted EBITDA margin (1) | 28 | % | (13 | %) | - | - | 33 | % | 45 | % | - | - | ||||||||||||||||||||
Notes
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to Non-IFRS Performance Measures. |
Revenue
Bitfarms’ total revenue for 2019 was US$32.4 million compared to US$33.8 million in 2018. Revenue in 2019 decreased US$1.4 million or 4% in 2019 compared to 2018 due to a decrease of altcoins sold (i.e. Bitcoin Cash, Ether, and Litecoin) as well as a decrease in the average selling price of Bitcoin in 2019 compared to 2018 ($7,412 in 2019 compared to $7,904 in 2018) offset by an increase in Bitcoin mined, resulting from higher Bitfarms’ average increased hashrate in excess of the average Network Difficulty, and an increase in Volta third party revenue in 2019 compared to 2018.
Cost of Sales
Bitfarms’ cost of sales for 2019 was US$21.0 million compared to US$22.9 million in 2018. Costs of sales include energy and infrastructure expenses, rental expense, depreciation and amortization, electrician salaries, and purchases and net change in inventory.
2
Energy and infrastructure expenses increased by US$3.2 million or 37% in 2019 compared to 2018 as the Company added new mining equipment that increased electrical consumption from 22 MW at the end of 2018 to approximately 53 MW by the end of 2019. Depreciation and amortization expense decreased by US$5.7 million or 45% in 2019 compared to 2018 mainly due to the impairment of US$18.5 million on property, plant and equipment and intangible assets recorded by the Company in 2018. The decrease was partially offset by an increase in depreciation and amortization expense of US$854,000 in 2019 compared to 2018 resulting from the adoption of IFRS 16 by the Company in January 2019 as the Company amortizes right of use assets over the term of the relevant leases.
Gross Profit
In 2019, the Company had consolidated gross profit of US$11.4 million (35% gross margin) on consolidated revenue of US$32.4 million, compared to gross profit of US$10.9 million (32% gross margin) on consolidated revenue of US$33.8 million in 2018.
General & Administrative and Other Expenses
Bitfarms’ general and administrative and other expenses increased US$0.5 million or 5% in 2019 compared to 2018. The increase was mainly due to higher non-cash salary expenses related to share-based compensation (US$2.9 million in 2019 versus US$0.8 million in 2018) as new employee stock options were approved and granted in 2019. The increase was primarily offset by a decrease of US$1.6 million in other general and administrative expenses including listing fees, professional fees, and advertising and promotion in 2019 compared to 2018.
Financial Income and Expenses
Bitfarms’ financial income for 2019 was US$2.3 million compared to financial income of US$0 in 2018 resulting primarily from the revaluation of warrants and embedded derivative creating non-cash gains of US$1.8 million and US$0.5 million, respectively, in connection with the Dominion Capital loan.
Financial expenses for 2019 were US$3.8 million compared to US$0.2 million in 2018. The increase is primarily related to costs associated with the Dominion Capital loan that did not exist in 2018. These expenses include interest on the Dominion Capital loan of US$2.8 million and warrant issuance costs of US$0.2 million. Financial expenses in 2019 also include interest expense on lease liabilities recorded on adoption of IFRS 16 in the amount of US$0.4 million, and US$0.2 million of unrealized foreign exchange losses.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | ||||||||||||||||||||||||
| Net income (loss) | 1,125 | (21,263 | ) | 22,388 | (105 | %) | 2,107 | (18,236 | ) | 20,343 | (112 | %) | ||||||||||||||||||||
| Interest expense | 1,122 | (58 | ) | 1,180 | (2,034 | %) | 3,268 | 63 | 3,205 | 5,087 | % | |||||||||||||||||||||
| Income tax expense (recovery) | (2,574 | ) | (1,732 | ) | (842 | ) | 49 | % | (2,591 | ) | 59 | (2,650 | ) | (4,492 | %) | |||||||||||||||||
| Depreciation/amortization | 2,626 | 3,214 | (588 | ) | (18 | %) | 6,843 | 12,548 | (5,705 | ) | (45 | %) | ||||||||||||||||||||
| EBITDA | 2,299 | (19,839 | ) | 22,138 | (112 | %) | 9,627 | (5,566 | ) | 15,193 | (273 | %) | ||||||||||||||||||||
| Stock compensation expense | 430 | 165 | 265 | 161 | % | 2,873 | 746 | 2,127 | 285 | % | ||||||||||||||||||||||
| Financial income | (55 | ) | - | (55 | ) | - | (2,252 | ) | - | (2,252 | ) | - | ||||||||||||||||||||
| Listing cost | - | - | - | - | - | 1,000 | (1,000 | ) | (100 | %) | ||||||||||||||||||||||
| Impairment | - | 19,060 | (19,060 | ) | (100 | %) | 56 | 19,060 | (19,004 | ) | (100 | %) | ||||||||||||||||||||
| Other non-cash expenses | 312 | 11 | 301 | 2,736 | % | 313 | 25 | 288 | 1,152 | % | ||||||||||||||||||||||
| Adjusted EBITDA | 2,986 | (603 | ) | 3,589 | (595 | %) | 10,617 | 15,265 | (4,648 | ) | (30 | %) | ||||||||||||||||||||
3
Bitfarms’ net income for 2019 was US$2.1 million compared to a net loss of US$18.2 million for 2018. Bitfarms’ income tax recovery for 2019 was US$2.6 million compared to an income tax expense of US$59,000 for 2018. EBITDA and Adjusted EBITDA for 2019 were US$9.6 million and US$10.6 million , respectively, compared to an EBITDA loss of US$5.6 million and Adjusted EBITDA of US$15.3 million in 2018. EBITDA and Adjusted EBITDA are non-IFRS performance measures; please refer to the heading “Non-IFRS Performance Measures” at the end of this press release.
Calculation of Gross Mining Profit & Gross Mining Margin
| (U.S. $ in thousands except where indicated) | Three months ended | Twelve months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | Dec. 31 2019 | Dec. 31 2018 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 9,717 | 3,752 | 5,965 | 159 | % | 29,347 | 31,641 | (2,294 | ) | (7 | %) | |||||||||||||||||||||
| Energy and infrastructure expenses | 4,229 | 2,076 | 2,153 | 104 | % | 11,666 | 8,487 | 3,179 | 37 | % | ||||||||||||||||||||||
| Gross mining profit | 5,488 | 1,676 | 3,812 | 227 | % | 17,681 | 23,154 | (5,473 | ) | (24 | %) | |||||||||||||||||||||
| Gross mining margin | 56 | % | 45 | % | - | - | 60 | % | 73 | % | - | - | ||||||||||||||||||||
Webcast
The Company will be hosting a webcast presentation at 10:00 AM EDT on Wednesday April 29, 2020. To view the webcast presentation, please register at:
https://onlinexperiences.com/Launch/QReg/ShowUUID=5A867099-4608-42CB-A1F4-23B9E0732B36
The financial results and presentation will also be available on our website at www.bitfarms.com
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor inquiries, please contact:
Ryan Hornby
Executive Vice President & General Counsel
+1.647.619.7804
For media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.io
4
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
5
Non-IFRS Performance Measures
This press release makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including "EBITDA," “EBITDA margin,” "Adjusted EBITDA," “Adjusted EBITDA margin,” “Gross mining profit,” and "Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenue. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; and (iv) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenue. “Gross mining profit” is defined as Revenue minus energy expenses for the Bitfarms segment of the Company. "Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenue for the Bitfarms segment of the Company.
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. See “Reconciliation of Net Income to EBITDA and Adjusted EBITDA” for reconciliation of EBITDA and Adjusted EBITDA to net income.
6
Exhibit 99.19
TSX TRUST COMPANY
VIA ELECTRONIC TRANSMISSION
April 29, 2020
TO ALL APPLICABLE EXCHANGES AND COMMISSIONS:
| RE: | BITFARMS LTD. Confirmation of Notice of Record and Meeting Dates |
We are pleased to confirm that Notice of Record and Meeting Dates was sent to The Canadian Depository for Securities.
We advise the following with respect to the upcoming Annual General Meeting of Security Holders for the subject issuer:
| 1 | ISIN: | CA09173B1076 | |||
| CUSIP: | 09173B107 | ||||
| 2 | Date Fixed for the Meeting: | June 29, 2020 | |||
| 3 | Record Date for Notice: | May 20, 2020 | |||
| 4 | Record Date for Voting: | May 20, 2020 | |||
| 5 | Beneficial Ownership Determination Date: | May 20, 2020 | |||
| 6 | Classes or Series of Securities that entitle the holder to receive Notice of the Meeting: | COMMON | |||
| 7 | Classes or Series of Securities that entitle the holder to vote at the meeting: | COMMON | |||
| 8 | Business to be conducted at the meeting: | Annual General | |||
| 9 | Notice-and-Access: | ||||
| Registered Shareholders: | NO | ||||
| Beneficial Holders: | NO | ||||
| Stratification Level: | Not Applicable | ||||
| 10 | Reporting issuer is sending proxy-related materials directly to Non-Objecting Beneficial Owners: | YES | |||
| 11 | Issuer paying for delivery to Objecting Beneficial Owners: | YES |
Yours truly,
TSX Trust Company
| “ Kieran Webb ” Relationship Manager [email protected] | ||||||
VANCOUVER 650 West Georgia Street, Suite 2700 Vancouver, BC V6B 4N9 |
CALGARY 300-5th Avenue SW, 10th floor Calgary, AB T2P 3C4 |
TORONTO 301 - 100 Adelaide Street West Toronto ON M5H 4H1 |
MONTRÉAL 1800 - 1190, avenue des | |||
| Toll Free 1-866-600-5869 | ||||||
| T 604 689-3334 | T 403 218-2800
|
T 416 361-0930 | T 514 395-5964 |
Exhibit 99.20
CERTIFICATE
Pursuant to subsection 2.20(c) of National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”), and in connection with an annual meeting of shareholders of Bitfarms Ltd. (the “Bitfarms”) to be held on June 29, 2020 (the “Meeting”), the undersigned, in his capacity as Chief Financial Officer of the Company, and not in his personal capacity, hereby certifies that the Company:
| (a) | has arranged to have proxy-related materials for the Meeting sent in compliance with sections 2.9 and 2.12 of NI 54-101; |
| (b) | has arranged to have carried out all of the requirements of NI 54-101 in addition to those described in paragraph (a) above; and |
| (c) | is relying upon section 2.20 of NI 54-101 to abridge the time period prescribed in section 2.2(1) of NI 54-101. |
Dated as of this 29th day of April 2020.
| “John Rim” | |
| Name: John Rim | |
| Title: Chief Financial Officer |
Exhibit 99.21
Bitfarms Announces Hydro Quebec Has Reconfirmed
Power Supply of
52 MWs for a Total Portfolio of 160 Megawatts
TORONTO & BROSSARD, Québec--(BUSINESS WIRE)--May 15, 2020--Bitfarms Ltd. (“Bitfarms” or the “Company”) (TSXV:BITF) is a blockchain infrastructure company that operates one of the largest cryptocurrency mining operations in North America and is pleased to announce that Hydro-Quebec has reconfirmed the Company’s access to its distribution network of clean and reliable hydroelectricity. Specifically, the Hydro-Quebec acknowledges existing arrangements with respect to Bitfarms’ portfolio of 52 megawatts (MWs) of electricity with Hydro Quebec, of which 28 MWs is currently unused and remains available to Bitfarms for future development. In addition to Hydro-Quebec, Bitfarms has agreements with municipal electricity distributors in Quebec for a total power portfolio of 160 MW, 53MW of which is currently used to power the Company’s approximately 29,000 ASIC computers generating approximately 780 petahash daily, on average, of computer power on the Bitcoin network.
“We are extremely pleased with our relationship with Hydro-Quebec and this confirmation provides clarity and certainty to our future access to power in Quebec to continue our ongoing growth” said interim CEO and Chief Strategy Officer, Emiliano Grodzki.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website:
www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about estimates, projections, future plans and objectives of the Company, including ability to access electricity in the future or to fund or grow the Company’s operations are forward-looking statements.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. The forward-looking statements contained in this press release are made as of the date of this press release. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Contacts
For investor inquiries, please contact:
Ryan Hornby
Executive Vice President and General Counsel
+1.647.619.7804
For media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
Exhibit 99.22
Bitfarms Announces Changes to Board of Directors and Audit Committee
TORONTO & BROSSARD, Québec--(BUSINESS WIRE)--May 19, 2020--Bitfarms Ltd. (“Bitfarms” or the “Company”) is pleased to announce that effective today, Mr. L. Geoffrey Morphy has been appointed as a director of Bitfarms, filling a vacancy on the Board of Directors.
Until recently, Mr. Morphy was Vice-President, Corporate Development of a TSX listed company. In this capacity, he was part of its senior management team and was responsible for strategy, new investments and active portfolio management. He serves or has served on the board of several private and publicly traded companies located in Canada, the United States, and Europe. Mr. Morphy has more than 30 years in cross-border and international commercial and corporate structuring and finance experience. He has held senior positions of banks and corporate advisory firms, such as the Farber Financial Group, ABN Amro Bank N.V. and its subsidiary LaSalle Bank, as well as Comerica Bank. Mr. Morphy holds a B.Comm from the Dalhousie University and earned the ICD.D designation in 2019.
Effective May 15, 2020, Wendi Locke and Sophie Galper-Komet have resigned as directors of Bitfarms. Ms. Locke served as a board member since June 13, 2019 and Ms. Galper-Komet served as a board member since February 1, 2019.
“We thank Ms. Locke and Ms. Galper-Komet for their contributions and wish them the best in their future endeavours. We would like to welcome Geoff Morphy to our Board. We are excited with the breadth and depth of commercial business experience that he brings and we look forward to working together as a member of our Board going forward” commented Nicolas Bonta, Chairman of the Board of Directors.
Audit Committee Appointments
Mr. Morphy and Mr. Brian Howlett have been appointed as members of the Audit Committee to fill the vacancies resulting from the resignations of Ms. Locke and Ms. Galper-Komet as directors. Effective May 19, 2020, Bitfarms’ Audit Committee consists of Mr. Pierre Seccareccia (Chair), Mr. Morphy and Mr. Howlett.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about estimates, projections, future plans and objectives of the Company are forward-looking statements.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. The forward-looking statements contained in this press release are made as of the date of this press release. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Contacts
For investor inquiries, please contact:
Ryan Hornby
Executive Vice President and General Counsel
+1.647.619.7804
For media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
Exhibit 99.23
BITFARMS LTD.
1376 Bayview Ave, Unit 1
Toronto, Ontario
M4G 3A1
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the annual general meeting (the “Meeting”) of the holders (the “Shareholders”) of common shares (“Common Shares”) of Bitfarms Ltd. (the “Corporation”) will be held at the offices of Peterson McVicar LLP located at Suite 902, 18 King Street West Toronto, ON M5C 1C4 on June 29, 2020, at 9:00 a.m. (Toronto time) for the following purposes, all as more particularly described in the enclosed management information circular (the “Circular”):
| (a) | to receive the Corporation’s financial statements for the year ended December 31, 2019 and the report of the auditors thereon; |
| (b) | to elect the directors of the Corporation for the ensuing year; |
| (c) | to appoint the auditors and to authorize the directors to fix their remuneration; and |
| (d) | to transact such further and other business as may be properly brought before the Meeting or any adjournment or postponement thereof. |
The board of directors (the “Board”) has fixed May 20, 2020 as the record date (the “Record Date”) for determining the Shareholders who are entitled to receive notice of and vote at the Meeting. Only Shareholders whose names have been entered in the registers of the Corporation as at the close of business on the Record Date will be entitled to receive notice of and vote at the Meeting.
In an effort to mitigate the risks associated with COVID-19, and to preserve the health and safety of our communities, shareholders, employees and other stakeholders, we are inviting Shareholders to participate in the Meeting by dialling in to our conference line at: (+1) (800) 747-5150 (Toronto) or (+1) (800) 747-5150 (North America – Toll Free), followed by the Conference ID 3840022. Participants should dial in at least ten (10) minutes prior to the scheduled start time and ask to join the call. Shareholders will have an equal opportunity to participate at the Meeting through this method regardless of their geographic location. We encourage Shareholders to not attend the meeting in person due to risks related to COVID-19. We will also take additional precautionary measures in relation to the physical Meeting, limiting access to essential personnel, registered Shareholders and proxy holders entitled to attend and vote at the Meeting. We highly recommend Shareholders vote their Common Shares prior to the meeting.
Voting
All Shareholders may attend the Meeting in or person or be represented by proxy. Shareholders who do not plan on attending the Meeting in person are requested to complete, date and sign the enclosed form of proxy and return it in the envelope provided. To be effective, the enclosed form of proxy or voting instruction form must be deposited with TSX Trust Company by mail delivery at 301 – 100 Adelaide Street West, Toronto, Ontario M5H 1S3, or by facsimile at (416) 595-9593. In order to be valid and acted upon at the Meeting, the duly-completed form of proxy must be received prior to 9:00 a.m. (Toronto time) on June 25, 2020 (the “Proxy Deadline”), or be deposited with the Secretary of the Corporation before the commencement of the Meeting or of any adjournment thereof. Notwithstanding the foregoing, the Chair of the Meeting has the discretion to accept proxies received after such deadline.
A “beneficial” or “non-registered” Shareholder will not be recognized directly at the Meeting for the purposes of voting Common Shares registered in the name of his/her/its broker; however, a beneficial Shareholder may attend the Meeting as proxyholder for the registered Shareholder and vote the Common Shares in that capacity. Only Shareholders as of the Record Date are entitled to receive notice of and vote at the Meeting.
If you are a non-registered holder of Common Shares and have received these materials through your broker, custodian, nominee or other intermediary, please complete and return the form of proxy or voting instruction form provided to you by your broker, custodian, nominee or other intermediary in accordance with the instructions provided therein.
Shareholders are reminded to review the Circular before voting.
DATED this 20th day of May, 2020.
| BY ORDER OF THE BOARD OF DIRECTORS | |
| (Signed) “Nicolas Bonta” | |
| Nicolas Bonta | |
| Chairman of the Board of Directors |
Exhibit 99.24
BITFARMS LTD.
NOTICE OF ANNUAL GENERAL MEETING OF
SHAREHOLDERS
& MANAGEMENT INFORMATION CIRCULAR
June 29, 2020 at 9:00 a.m. (Toronto time)
Offices of Peterson McVicar LLP Suite 902,
18 King Street West
Toronto, ON M5C 1C4
BITFARMS LTD.
1376 Bayview Ave, Unit 1
Toronto, Ontario
M4G 3A1
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the annual general meeting (the “Meeting”) of the holders (the “Shareholders”) of common shares (“Common Shares”) of Bitfarms Ltd. (the “Corporation”) will be held at the offices of Peterson McVicar LLP located at Suite 902, 18 King Street West Toronto, ON M5C 1C4 on June 29, 2020, at 9:00 a.m. (Toronto time) for the following purposes, all as more particularly described in the enclosed management information circular (the “Circular”):
| (a) | to receive the Corporation’s financial statements for the year ended December 31, 2019 and the report of the auditors thereon; | |
| (b) | to elect the directors of the Corporation for the ensuing year; | |
| (c) | to appoint the auditors and to authorize the directors to fix their remuneration; and | |
| (d) | to transact such further and other business as may be properly brought before the Meeting or any adjournment or postponement thereof. |
The board of directors (the “Board”) has fixed May 20, 2020 as the record date (the “Record Date”) for determining the Shareholders who are entitled to receive notice of and vote at the Meeting. Only Shareholders whose names have been entered in the registers of the Corporation as at the close of business on the Record Date will be entitled to receive notice of and vote at the Meeting.
In an effort to mitigate the risks associated with COVID-19, and to preserve the health and safety of our communities, shareholders, employees and other stakeholders, we are inviting Shareholders to participate in the Meeting by dialling in to our conference line at: (+1) (800) 747-5150 (Toronto) or (+1) (800) 747-5150 (North America – Toll Free), followed by the Conference ID 3840022. Participants should dial in at least ten (10) minutes prior to the scheduled start time and ask to join the call. Shareholders will have an equal opportunity to participate at the Meeting through this method regardless of their geographic location. We encourage Shareholders to not attend the meeting in person due to risks related to COVID-19. We will also take additional precautionary measures in relation to the physical Meeting, limiting access to essential personnel, registered Shareholders and proxy holders entitled to attend and vote at the Meeting. We highly recommend Shareholders vote their Common Shares prior to the meeting.
Voting
All Shareholders may attend the Meeting in or person or be represented by proxy. Shareholders who do not plan on attending the Meeting in person are requested to complete, date and sign the enclosed form of proxy and return it in the envelope provided. To be effective, the enclosed form of proxy or voting instruction form must be deposited with TSX Trust Company by mail delivery at 301 – 100 Adelaide Street West, Toronto, Ontario M5H 1S3, or by facsimile at (416) 595-9593. In order to be valid and acted upon at the Meeting, the duly-completed form of proxy must be received prior to 9:00 a.m. (Toronto time) on June 25, 2020 (the “Proxy Deadline”), or be deposited with the Secretary of the Corporation before the commencement of the Meeting or of any adjournment thereof. Notwithstanding the foregoing, the Chair of the Meeting has the discretion to accept proxies received after such deadline.
A “beneficial” or “non-registered” Shareholder will not be recognized directly at the Meeting for the purposes of voting Common Shares registered in the name of his/her/its broker; however, a beneficial Shareholder may attend the Meeting as proxyholder for the registered Shareholder and vote the Common Shares in that capacity. Only Shareholders as of the Record Date are entitled to receive notice of and vote at the Meeting.
| - 2 - |
If you are a non-registered holder of Common Shares and have received these materials through your broker, custodian, nominee or other intermediary, please complete and return the form of proxy or voting instruction form provided to you by your broker, custodian, nominee or other intermediary in accordance with the instructions provided therein.
Shareholders are reminded to review the Circular before voting.
DATED this 20th day of May, 2020.
| BY ORDER OF THE BOARD OF DIRECTORS | |
| (Signed) “Nicolas Bonta” | |
| Nicolas Bonta | |
| Chairman of the Board of Directors |
| - 1 - |
BITFARMS LTD.
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES BY MANAGEMENT
This management information circular (this “Circular”) is furnished in connection with the solicitation by the management of Bitfarms Ltd. (the “Corporation”) of proxies to be used at the annual general meeting (the “Meeting”) of the holders (the “Shareholders”) of common shares of the Corporation (“Common Shares”) to be held at the time and place and for the purposes set out in the Notice of Meeting. It is expected that the solicitation will be made primarily by mail. However, officers and employees of the Corporation may also solicit proxies by telephone, e-mail or in person. These persons will receive no compensation for such solicitation, other than their ordinary salaries or fees. The total cost of solicitation of proxies will be borne by the Corporation. Pursuant to National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”), arrangements have been made with clearing agencies, brokerage houses and other financial intermediaries to forward proxy-related materials to the beneficial owners of the Common Shares. See “Appointment and Revocation of Proxies – Notice to Beneficial Holders of Shares” below. The Corporation will provide, without cost to such person, upon request to the Secretary of the Corporation, additional copies of the foregoing documents for this purpose.
GENERAL INFORMATION RESPECTING THE MEETING
No person has been authorized to give any information or make any representations in connection with the matters being considered herein other than those contained in this Circular and, if given or made, any such information or representations should be considered not to have been authorized by the Corporation. This Circular does not constitute the solicitation of a proxy by any person in any jurisdiction in which such solicitation is not authorized or in which the person making such solicitation is not qualified to do so or to any person to whom it is unlawful to make such solicitation.
In light of the global pandemic caused by COVID-19, the Corporation is inviting Shareholders to participate in the Meeting by dialling in to our conference line at: (+1) (800) 747-5150 (Toronto) or (+1) (800) 747-5150 (North America – Toll Free), followed by the Conference ID 3840022. Participants should dial in at least 10 minutes prior to the scheduled start time and ask to join the call. Shareholders will have an equal opportunity to participate at the Meeting through this method regardless of their geographic location; however, Shareholders who do not complete and delivery a form of proxy or voting instruction form, as applicable, will be unable to vote over the conference line. We encourage Shareholders to not attend the meeting in person due to risks related to COVID-19. We highly recommend Shareholders vote their Common Shares prior to the meeting in accordance with the instructions set out in this Circular.
References in this Circular to the Meeting include any adjournment(s) or postponement(s) thereof.
The Corporation’s financial statements are reported in United States dollars, the functional currency. In this Circular, unless otherwise indicated, all dollar amounts (“$” or “C$”) are expressed in Canadian dollars and references to “US$” or “US” are to United States dollars.
Except where otherwise indicated, the information contained herein is stated as of May 20th, 2020.
Electronic copies of this Circular, financial statements of the Corporation for the year ended December 31, 2019 (the “Financial Statements”) and management discussion and analysis for 2019 (the “MD&A”) may be found on the Corporation’s SEDAR profile at www.sedar.com.
Shareholders are reminded to review this Circular before voting.
Shareholders may also obtain paper copies of the Financial Statements and the MD&A free of charge by contacting TSX Trust Company at the same toll-free number or upon request to the Secretary of the Corporation.
| - 2 - |
APPOINTMENT AND REVOCATION OF PROXIES
Appointment of Proxy
A Shareholder who does not plan on attending the Meeting in person is requested to complete and sign the enclosed form of proxy and to deliver it to TSX Trust Company: (i) by mail delivery to 301 – 100 Adelaide Street West, Toronto, Ontario M5H 1S3; or (ii) by facsimile at (416) 595-9593. In order to be valid and acted upon at the Meeting, the form of proxy must be received no later than 9:00 a.m. (Toronto time) on June 25, 2020 or be deposited with the Secretary of the Corporation before the commencement of the Meeting or any adjournment thereof. The deadline for the deposit of proxies may be waived or extended by the Chair of the Meeting at his discretion, without notice.
If you are a non-registered holder of Common Shares and have received these materials through your broker, custodian, nominee or other intermediary, please complete and return the form of proxy or voting instruction form provided to you by your broker, custodian, nominee or other intermediary in accordance with the instructions provided therein.
The document appointing a proxy must be in writing and executed by the Shareholder or his attorney authorized in writing or, if the Shareholder is a corporation, under its corporate seal or by an officer or attorney thereof duly authorized.
A Shareholder submitting a form of proxy has the right to appoint a person (who need not be a Shareholder) to represent him or her at the Meeting other than the persons designated in the form of proxy furnished by the Corporation. To exercise that right, the name of the Shareholder’s appointee should be legibly printed in the blank space provided. In addition, the Shareholder should notify the appointee of the appointment, obtain his or her consent to act as appointee and instruct the appointee on how the Shareholder’s Common Shares are to be voted.
Shareholders who are not registered shareholders of the Corporation should refer to “Notice to Beneficial Holders of Common Shares” below.
Revocation of Proxy
A Shareholder who has submitted a form of proxy as directed hereunder may revoke it at any time prior to the exercise thereof. If a person who has given a proxy personally attends the Meeting at which that proxy is to be voted, that person may revoke the proxy and vote in person. In addition to the revocation in any other manner permitted by law, a proxy may be revoked by instrument in writing executed by the Shareholder or his attorney or authorized agent and deposited with TSX Trust Company at any time up to 5:00 p.m. (Toronto time) on June 25, 2020: (i) by mail delivery to Suite 301 – 100 Adelaide Street West, Toronto, Ontario M5H 1S3; or, (ii) by facsimile to (416) 595-9593, or deposited with the Secretary of the Corporation before the commencement of the Meeting, or any adjournment thereof, and upon either of those deposits, the proxy will be revoked.
Notice to Beneficial Holders of Common Shares
The information set out in this section is of importance to many Shareholders, as a substantial number of Shareholders do not hold Common Shares in their own name. Shareholders who do not hold their Common Shares in their own name (referred to herein as “Beneficial Shareholders”) should note that only proxies deposited by Shareholders whose names appear on the records of the Corporation as the registered holders of shares can be recognized and acted upon at the Meeting or any adjournment(s) thereof. If Common Shares are listed in an account statement provided to a Shareholder by a broker, then in almost all cases those Common Shares will not be registered in the Shareholder’s name in the records of the Corporation. Those Common Shares will most likely be registered under the name of the Shareholder’s broker or an agent of that broker. In Canada, the vast majority of such shares are registered under the name of CDS & Co. (the registration name for CDS Clearing and Depository Services Inc., which acts as nominee for many Canadian brokerage firms). Common Shares held by brokers or their nominees can be voted (for or against resolutions or withheld from voting) only upon the instructions of the Beneficial Shareholder. Without specific instructions, the broker/nominees are prohibited from voting shares for their clients. Subject to the following discussion in relation to NOBOs (as defined herein), the Corporation does not know for whose benefit the Common Shares registered in the name of CDS & Co., a broker or another nominee, are held.
| - 3 - |
There are two categories of Beneficial Shareholders under applicable securities regulations for purposes of dissemination to Beneficial Shareholders of proxy-related materials and other security holder materials and requests for voting instructions from such Beneficial Shareholders. Non-objecting beneficial owners (“NOBOs”) are Beneficial Shareholders who have advised their intermediary (such as brokers or other nominees) that they do not object to their intermediary disclosing ownership information to the Corporation, consisting of their name, address, e-mail address, securities holdings and preferred language of communication. Canadian securities laws restrict the use of that information to matters strictly relating to the affairs of the Corporation. Objecting beneficial owners (“OBOs”) are Beneficial Shareholders who have advised their intermediary that they object to their intermediary disclosing such ownership information to the Corporation.
In accordance with the requirements of NI 54-101, the Corporation is sending the proxy-related materials for use in connection with the Meeting (the “Meeting Materials”) directly to NOBOs and indirectly to OBOs. NI 54-101 allows the Corporation, in its discretion, to obtain a list of its NOBOs from intermediaries and to use such NOBO list for the purpose of distributing the proxy materials directly to, and seek voting instructions directly from, such NOBOs. As a result, the Corporation is entitled to deliver Meeting Materials to Beneficial Shareholders in two manners: (a) directly to NOBOs and indirectly through intermediaries to OBOs; or (b) indirectly to all Beneficial Shareholders through intermediaries. The Corporation intends to pay for intermediaries to deliver the Meeting Materials to the OBOs.
Applicable securities regulations require intermediaries, on receipt of Meeting Materials that seek voting instructions from Beneficial Shareholders indirectly, to seek voting instructions from Beneficial Shareholders in advance of Shareholder meetings on Form 54-101F7. Every intermediary/broker has its own mailing procedures and provides its own return instructions, which should be carefully followed by Beneficial Shareholders in order to ensure that their Common Shares are voted at the Meeting or any adjournment(s) thereof. Often, the form of proxy supplied to a Beneficial Shareholder by its broker is identical to the form of proxy provided to registered shareholders; however, its purpose is limited to instructing the registered shareholder how to vote on behalf of the Beneficial Shareholder. Beneficial Shareholders who wish to appear in person and vote at the Meeting should be appointed as their own representatives at the Meeting in accordance with the directions of their intermediaries and Form 54-101F7. Beneficial Shareholders can also write the name of someone else whom they wish to appoint to attend the Meeting and vote on their behalf. Unless prohibited by law, the person whose name is written in the space provided in Form 54-101F7 will have full authority to present matters to the Meeting and vote on all matters that are presented at the Meeting, even if those matters are not set out in Form 54-101F7 or this Circular. The majority of brokers now delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions, Inc. (“Broadridge”) in Canada. Broadridge typically mails a voting instruction form in lieu of a form of proxy. Beneficial Shareholders are requested to complete and return the voting instruction form to Broadridge by mail or facsimile. Alternatively, Beneficial Shareholders can call a toll-free telephone number to vote the shares held by them or access Broadridge’s dedicated voting website to deliver their voting instructions. Broadridge will then provide aggregate voting instructions to the Corporation’s transfer agent and registrar, which will tabulate the results and provide appropriate instructions respecting the voting of Common Shares to be represented at the Meeting or any adjournment thereof.
All references to Shareholders in this Circular, instrument of proxy and Notice of Meeting are to registered shareholders of the Corporation unless specifically stated otherwise.
Voting
Common Shares represented by any properly executed proxy in the accompanying form will be voted for or against, or withheld from voting, as the case may be, on any ballot that may be called for in accordance with the instructions given by the Shareholder. In the absence of such direction, such Common Shares will be voted in favour of the matters set out herein.
The accompanying form of proxy confers discretionary authority on the persons named in it with respect to amendments or variations to matters identified in the Notice of Meeting or other matters that may properly come before the Meeting. As of the date hereof, management of the Corporation is not aware of any such amendments, variations or other matters which may come before the Meeting. In the event that other matters come before the Meeting, then the management designees intend to vote in accordance with the judgment of management of the Corporation.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No person who has been a director or an executive officer of the Corporation at any time since the beginning of its last completed financial year, no proposed nominee for election as a director of the Corporation nor any associate of any such director, director nominee or officer has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting, except as disclosed in this Circular.
| - 4 - |
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
The authorized share capital of the Corporation consists of an unlimited number of Common Shares without par value and an unlimited number of Class A Preferred Shares without par value. As at the date hereof, there are 84,624,980 Common Shares issued and outstanding and nil Class A Preferred Shares outstanding. Each Common Share entitles the holder thereof to one vote on all matters to be acted upon at the Meeting.
The Corporation has fixed the close of business on May 20, 2020 (the “Record Date”) as the record date. Shareholders whose names have been entered in the register of Shareholders at the close of business on the Record Date will be entitled to receive notice of, and to vote, at the Meeting or any adjournments or postponements thereof. Persons registered on the books of the Corporation at the close of business on the Record Date and persons who are transferees of any Common Shares acquired after such Record Date and who have produced properly endorsed certificates evidencing such Common Shares or who otherwise establish ownership thereof and demand, not later than ten (10) days before the Meeting, that their names be included in the list of Shareholders, are entitled to vote at the Meeting.
To the knowledge of the directors and officers of the Corporation, as at the date of this Circular, no person or corporation beneficially owns, directly or indirectly, or exercises control or direction over, 10% or more of the Common Shares, other than as set out below:
| Name of Shareholder | Number of Common Shares(2)(3) | Percentage of Common Shares(2)(3) | ||
| Emiliano Joel Grodzki | 11,820,772 | 13.97% | ||
| Nicolas Bonta | 11,210,706 | 13.25% | ||
| Mathieu Vachon | 8,484,403(1) | 10.03% |
Notes:
| (1) | The Common Shares of Matthieu Vachon are partially held by 9264-2644 Québec Inc. of which Mathieu Vachon is the sole beneficial shareholder; 4,450 Common Shares are held by Mathieu Vachon directly. |
| (2) | On a non-diluted basis. |
| (3) | The information as to Common Shares beneficially owned, controlled, or directed, not being within the knowledge of the Corporation, has been obtained by the Corporation from publicly disclosed information and/or furnished by the Shareholder listed above. |
PARTICULARS OF MATTERS TO BE ACTED UPON
To the knowledge of the board of directors of the Corporation (the “Board”), the only matters to be brought before the Meeting are those matters set forth in the accompanying Notice of Meeting.
1. Receipt of Financial Statements
The financial statements of the Corporation for the fiscal year ended December 31, 2019 and the report of the auditors thereon, will be submitted to the Meeting. Receipt at the Meeting of the auditor’s report and the Corporation’s audited financial statements for the fiscal year ended December 31, 2019 will not constitute approval or disapproval of any matters referred to therein.
2. Election of Directors
The Corporation’s articles provide that the Board will consist of a minimum of one (1) and a maximum of ten (10) directors. The Board currently consists of five (5) directors. At the Meeting, Shareholders will be asked to consider, and, if thought fit, approve with or without variation a resolution electing the six (6) persons named below. Emiliano Grodzki, Nicolas Bonta, Pierre Seccareccia, Brian Howlett, and Geoffrey Morphy are incumbent directors and will be proposed for re- election as directors of the Corporation. Mathieu Vachon is not an incumbent director and will be proposed for election as a director for the first time.
It is intended that each of the directors will hold office until the next annual meeting of Shareholders or until his or her successor is elected or appointed, unless such office is earlier vacated in accordance with the provisions of the Canada Business Corporations Act (the “CBCA”). In order to be effective, this resolution requires the approval of not less than 50% of the votes cast by Shareholders represented at the Meeting in person or by proxy.
| - 5 - |
Shareholders have the option to (i) vote for all of the directors of the Corporation listed in the table below; (ii) vote for some of the directors and withhold for others; or (iii) withhold for all of the directors. Unless otherwise instructed, proxies and voting instructions given pursuant to this solicitation by the management of the Corporation will be voted FOR the election of each of the proposed nominees set forth in the table below.
Management has no reason to believe that any of the nominees will be unable to serve as a director. However, if any proposed nominee is unable to serve as a director, the individuals named in the enclosed form of proxy will be voted in favour of the remaining nominees, and may be voted in favour of a substitute nominee unless the Shareholder has specified in the proxy that the Common Shares represented thereby are to be withheld from voting in respect of the election of directors.
The following table states the name of each person nominated by management for election as directors, such person’s principal occupation or employment, period of service as a director of the Corporation, and the approximate number of voting securities of the Corporation that such person beneficially owns, or over which such person exercises direction or control:
| Name, and Province and Country of Residence |
Principal Occupation During the Last Five Years(1) | Director Since |
Common Shares Owned or Controlled(1) | |||
|
Emiliano Joel Grodzki(3) Buenos Aires, Argentina |
Interim Chief Executive Officer, Chief Strategy Office, Founder and Director of the Corporation; Consultant in the cryptocurrency sector; Founder and Director of cripto247 (2018 – Present); Founder and Commercial Director of My Urban Foods (Aug 2012 – Aug 2015). | October 11, 2018 | 11,820,772 | |||
|
Nicolas Bonta Buenos Aires, Argentina |
Chairman of the Board and Founder of the Corporation; Founder and Chief Executive Officer of Own Hotels (2006 – Present). | October 11, 2018 | 11,210,706 | |||
|
Brian Howlett(2) Ontario, Canada |
President and Chief Executive Officer of Hemlo Explorers Inc., Copper Reef Mining Corp, and CR Capital Corp. Director of Nighthawk Gold Corp. and Dundee Sustainable Technologies Inc. | April 17, 2020 | nil | |||
|
Pierre Seccareccia(2),(3) Québec, Canada |
Full-time independent director for several public companies. Director of Groupe Ivanhoé Cambridge Inc., a real estate subsidiary of la Caisse de dépôt et placement du Québec. | June 12, 2019 | nil | |||
|
L. Geoffrey Morphy(1),(2),(3) Ontario, Canada |
Independent consultant and director. Co-CEO of Dundee Sarea Fund (2018 – Present). Vice-President Corporate Development of Dundee Corporation (April 2016 – October 2019); Managing Director, Corporate Financing, Transactions & Valuations and Vice-President of Farber Financial Group (2008 – 2016). | May 19, 2020 | nil | |||
|
Mathieu Vachon Québec, Canada |
Executive Vice President Technology & Operations of the Corporation (November 2017 – Present); Chief Technology Officer (January 2015 – October 2017). | N/A | 8,484,403 |
Notes:
| (1) | Information about principal occupation, business or employment, not being within the knowledge of the Corporation, has been furnished by respective persons set forth above. The information with respect to the Common Shares beneficially owned, controlled or directed is not within the direct knowledge of the Corporation and has been obtained from SEDI or furnished by the respective individuals. This table does not include Common Shares underlying unexercised stock options and warrants. Mr. Seccareccia hold 75,000 options to purchase Common Shares. |
| (2) | Member of the Audit Committee. |
| (3) | Member of the Governance, Nomination and Compensation Committee. |
Emiliano Joel Grodzki
Emiliano Joel Grodzki serves as the interim Chief Executive Officer, Chief Strategy Officer and is a Director of the Corporation. Mr. Grodzki is an Argentinian entrepreneur, businessman and a founder of the Corporation. He has been a business builder and innovator since his early teens, founding, incubating, and exiting interdisciplinary ventures in the design, food, and construction industries. In 2016, he discovered the world of cryptocurrencies and began to invest in and mine cryptocurrencies from Argentina. Mr. Grodzki has a construction degree from ORT in Buenos Aires.
| - 6 - |
Nicolas Bonta
Nicolas Bonta serves as the Chairman of the Board. Mr. Bonta is an Argentinian hotelier, real estate investor and a founder of the Corporation. In 1998, he founded one of the first boutique hotel companies in Argentina named “Own Hotels” which has grown to six locations in the cities of Buenos Aires and Montevideo, Uruguay. Mr. Bonta has a bachelor’s degree in hospitality from Glion Institute of Higher Education in Switzerland.
Brian Howlett
Brian Howlett serves as a Director of the Corporation. Mr. Howlett is a seasoned professional with over thirty years of senior management experience. Mr. Howlett is currently the President, Chief Executive Officer and Director of Hemlo Explorers Inc., Copper Reef Mining Corporation, and CR Capital Corp. Mr. Howlett also serves on the Board for several junior mining companies. Mr. Howlett recently served as the President, Chief Executive Officer and a Director of Dundee Sustainable Technologies Inc. He also formerly served as the President and Chief Financial Officer of Superior Copper Corporation. Prior to that, Mr. Howlett spent twelve years with ELI Eco Logic Inc., including six years as Chief Financial Officer. Mr. Howlett graduated in 1982 with a B. Comm. in finance from Concordia University and received his CMA designation in 1989.
Pierre Seccareccia
Pierre Seccareccia serves as a Director of the Corporation. He has extensive experience in financial consulting and management. A Partner of the Coopers & Lybrand accounting firm from 1976 to 1998, he acted as Managing Partner for its Montreal south shore office from 1987 to 1989, for its Montreal central office from 1992 to 1996, and for its offices in the Province of Quebec from 1996 to 1998. Following the merger in 1998 of Coopers & Lybrand with Price Waterhouse, he acted as the Managing Partner for the Montreal office of PricewaterhouseCoopers LLP from 1998 to 2001. Since 2003, Mr. Seccareccia has acted as a full-time independent corporate director for various public and private entities. He is a Fellow CPA, CPA, and a lifetime member of th Ordre des comptables professionnels agréés du Québec. He is also a member of the Institute of Corporate Directors (Canada). He graduated from the École des hautes études commerciales de Montréal with a degree in Accounting.
L. Geoffrey Morphy
L. Geoffrey Morphy is Co-CEO of Dundee Sarea Fund, a Canadian-based turn-around fund with an investment in Italy. He was Vice-President, Corporate Development of Dundee Corporation (TSE: DC.A) from April 2016 to October 2019. In that capacity, he was part of the senior management team responsible for strategy, new investments and portfolio management. Since August 2016, Mr. Morphy has been a director of Android Industries, L.L.C, a Michigan-based Tier One auto parts manufacturing company with global operations. Mr. Morphy is a past director of Parq-Vancouver, Blue Goose Capital Corporation, and was previously Chairman of Montreal based Dundee Sustainable Technologies Inc. (CSE: DST) and Dundee Sarea Fund. Mr. Morphy has more than thirty years in cross-border and international commercial and corporate structuring and finance experience. He has occupied positions as Managing Director and Vice-President of a financial advisory firm and banks, such as the Farber Financial Group between 2008 and 2016, ABN Amro Bank N.V. and LaSalle Bank between 2005 and 2008, as well as Comerica Bank, between 2000 and 2005. Mr. Morphy holds a Bachelor of Commerce from Dalhousie University and in 2012 earned the designation of Certified Exit Planning Adviser from Chicago-based Exit Planning Institute and in 2019 was granted the designation of ICD.D from the Institute of Canadian Directors.
Mathieu Vachon
Mathieu Vachon serves as the Executive Vice President, Technology & Operations of the Corporation. Mr. Vachon has been employed as the Director of Software Engineering of Bitfarms Canada since 2017 at an annual salary of $170,000 and is one of the founders of Backbone, along with Messrs. Bonta and Grodzki. Mr. Vachon has over twenty years of experience in software technology. Prior to founding Backbone, Mr. Vachon was the Chief Technology Officer of Hashrate Bizcorp Inc. a software and cloud technology company.
| - 7 - |
Corporate Cease Trade Orders, Bankruptcies, Penalties or Sanctions
To the knowledge of the Corporation, no proposed director of the Corporation is, as at the date of this Circular, or within the ten (10) years prior to the date of this Circular has been, a director, chief executive officer or chief financial officer, of any company (including the Corporation) that:
| (a) | while that person was acting in that capacity was subject to: | |||
| (i) | a cease trade order (including any management cease trade order which applied to directors or executive officers of a company, whether or not the person is named in the order), or | |||
| (ii) | an order similar to a cease trade order, or | |||
| (iii) | an order that denied the relevant company access to any exemption under securities legislation, | |||
| that was in effect for a period of more than thirty (30) consecutive days (an “Order”); or | ||||
| (b) | was subject to an Order that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer. | |||
To the knowledge of the Corporation, no proposed director of the Corporation (or any personal holding company of any such individual) is, or within the ten (10) years prior to the date of this Circular has:
| (a) | been a director or executive officer of any corporation that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver manager or trustee appointed to hold its assets; or | |
| (b) | become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets such individual. |
To the knowledge of the Corporation, no proposed director of the Corporation (or any personal holding company of any such individual) has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
3. Appointment of Auditors
Kost, Forer, Gabbay & Kasierer, a Member of Ernst & Young Global (“E&Y”) are the independent registered certified auditors of the Corporation. E&Y was first appointed as auditor of the Corporation on April 12, 2018. Management of the Corporation intends to nominate E&Y for re-appointment as auditors of the Corporation.
At the Meeting, Shareholders will be asked to consider and, if thought advisable, to pass an ordinary resolution to re- appoint E&Y to serve as auditors of the Corporation until the next annual meeting of Shareholders and to authorize the directors of the Corporation to fix their remuneration as such. To be adopted, this resolution is required to be passed by the affirmative vote of a majority of the votes cast at the Meeting.
Unless the Shareholder has specifically instructed that his or her Common Shares are to be withheld from voting in connection with the appointment of E&Y, the persons named in the accompanying proxy intend to vote FOR the re-appointment of E&Y as the auditors of the Corporation to hold office until the next annual meeting of Shareholders or until a successor is appointed, and to authorize the Board to fix their remuneration.
| - 8 - |
4. Other Matters
Management of the Corporation knows of no amendment, variation or other matter to come before the Meeting other than the matters referred to in the notice of meeting accompanying this Circular. However, if any other matter properly comes before the Meeting, valid forms of proxy will be voted on such matter in accordance with the best judgment of the persons voting the proxy.
STATEMENT OF EXECUTIVE COMPENSATION
Named Executive Officers
For the purposes of this Circular, a Named Executive Officer (“NEO”) of the Corporation means each of the following individuals:
| (a) | a chief executive officer (“CEO”) of the Corporation; | |
| (b) | a chief financial officer (“CFO”) of the Corporation; | |
| (c) | in respect of the Corporation and its subsidiaries, the most highly compensated executive officer other than the individuals identified in paragraphs (a) and (b) at the end of the most recently completed financial year whose total compensation was more than $150,000; and | |
| (d) | each individual who would be an NEO under paragraph (c) above but for the fact that the individual was neither an executive officer of the Corporation, nor acting in a similar capacity, at the end of that financial year. |
Oversight and description of Director and NEO Compensation
Compensation plays an important role in achieving short and long-term business objectives that ultimately drive business success. The Corporation’s compensation philosophy is to foster entrepreneurship at all levels of the organization through, among other things, the granting of stock options, which will be a significant component of executive compensation. This approach is based on the assumption that the performance of the Common Share price over the long term is an important indicator of long-term performance.
The Corporation’s compensation philosophy is based on the following fundamental principles:
| ● | Compensation programs align with Shareholder interests – the Corporation aligns the goals of executives with maximizing long-term Shareholder value; | |
| ● | Performance sensitive – compensation for executive officers should be linked to operating and market performance of the Corporation and fluctuate with the performance; and | |
| ● | Offer market competitive compensation to attract and retain talent – the compensation program should provide market competitive pay in terms of value and structure in order to retain existing employees who are performing according to their objectives and to attract new individuals of the highest calibre. |
The objectives of the compensation program in compensating all NEOs will be developed based on the above-mentioned compensation philosophy and will be as follows:
| ● | to attract and retain highly qualified executive officers; | |
| ● | to align the interests of executive officers with Shareholders’ interests and with the execution of the Corporation’s business strategy; | |
| ● | to evaluate executive performance on the basis of key measurements that correlate to long-term Shareholder value; and | |
| ● | to tie compensation directly to those measurements and reward based on achieving and exceeding predetermined objectives. |
| - 9 - |
The Corporation believes that transparent, objective and easily verified corporate goals, combined with individual performance goals, play an important role in creating and maintaining an effective compensation strategy for the NEOs. The Corporation’s objective is to establish benchmarks and targets for its NEOs that will enhance Shareholder value if achieved.
Aggregate compensation for each NEO is designed to be competitive. The governance, nomination and compensation committee of the Board (the “Governance, Nomination and Compensation Committee”) will review from time to time the compensation practices of similarly situated companies when considering the Corporation’s executive compensation practices. The Governance, Nomination and Compensation Committee reviews each element of compensation for market competitiveness, and although it may weigh a particular element more heavily based on the NEO’s role within the Corporation, it is primarily focused on remaining competitive in the market with respect to total compensation.
From time to time, on an ad hoc basis, the Governance, Nomination and Compensation Committee will review data related to compensation levels and programs of various companies that are similar in size to the Corporation and operate within technology industries or other emerging sectors. The Governance, Nomination and Compensation Committee also relies on the experience of its members as officers and/or directors at other companies in similar lines of business as the Corporation in assessing compensation levels. These other companies are identified in this Circular under the heading “Corporate Governance – Directorships”.
Compensation Governance
The Governance, Nomination and Compensation Committee is responsible for ensuring that the Corporation has in place an appropriate plan for executive compensation and for making recommendations to the Board with respect to the compensation of the Corporation’s executive officers. The Governance, Nomination and Compensation Committee will ensure that total compensation paid to all NEOs is fair, reasonable, and consistent with the Corporation’s compensation philosophy.
From time to time the Governance, Nomination and Compensation Committee will make, and the Board reviews and may approve, recommendations regarding compensation to executive officers and directors. A combination of fixed and variable compensation is used to motivate executive officers to achieve overall corporate goals. The two basic components of the Corporation’s executive officer compensation program are:
| ● | base salary; | |
| ● | annual incentive (bonus) payments; and | |
| ● | option-based compensation. |
Base salaries are paid in cash, and constitute the fixed portion of the total compensation paid to executive officers. Annual incentives comprise the remainder, and represent compensation that is “at risk” and thus may or may not be paid to the respective executive officer depending on: (i) whether the executive officer is able to meet or exceed his or her applicable performance targets; and, (ii) market performance of the Common Shares. To date, no specific formula has been developed to assign a specific weighting to each of these components. Instead, the Board will consider each performance target and the Corporation’s performance and assigns compensation based on this assessment and the recommendations of the Governance, Nomination and Compensation Committee.
Base Salary
The Governance, Nomination and Compensation Committee and the Board will approve the salary ranges for the NEOs. The base salary review for each NEO is based on assessment of factors such as current competitive market conditions, compensation levels and practices of similarly situated companies and particular skills, such as leadership ability and management effectiveness, experience, responsibility and proven or expected performance of the particular individual. The Corporation may consider comparative data for the Corporation’s peer group, which are accumulated from a number of external sources including independent consultants. The Corporation’s policy for determining salary for executive officers will be consistent with the administration of salaries for all other employees.
| - 10 - |
Annual Incentive (Cash Bonus) Payments
Cash annual incentive awards are based on various personal and company-wide achievements. Performance goals for annual incentive payments are subjective and include achieving individual and corporate targets and objectives, as well as general performance in day-to-day corporate activities.
The Board approves target annual incentive amounts for each NEO at the beginning of each financial year. The Governance, Nomination and Compensation Committee determines target amounts based on a number of factors, including comparable compensation of similar companies. Funding of the annual incentive awards is capped at the Corporation level and the distribution of funds to the executive officers will be at the discretion of the Governance, Nomination and Compensation Committee. Each NEO may receive partial or full payment of the target annual incentive amount set by the Governance, Nomination and Compensation Committee at the beginning of each financial year, depending on the number of the predetermined targets met, and the assessment of such NEO’s overall performance by the Governance, Nomination and Compensation Committee and the Board.
In order to develop a recommendation to the Board regarding annual incentive payments, the Governance, Nomination and Compensation Committee assesses NEO performance subjectively, considering each NEO’s respective success in achieving his or her individual objectives, contributions to the achievement of the Corporation’s goals, and contributions to meeting the needs of the Corporation that arise on a day-to-day basis. If the Governance, Nomination and Compensation Committee cannot unanimously agree on a recommendation in respect of an NEO’s annual incentive payment, the matter is referred to the full Board for decision.
The Board relies heavily on the recommendations of the Governance, Nomination and Compensation Committee in granting annual incentives. However, the Board reserves ultimate discretion in determining whether each NEO has met his or her targets, and has the right make positive or negative adjustments to any annual incentive payment recommended by the Governance, Nomination and Compensation Committee that it deems appropriate.
Option-Based Compensation
Options may be granted to directors, management, employees and certain service providers as long-term incentives to align the individual’s interests with those of the Corporation. Options are awarded to directors and employees, including NEOs, at the Board’s discretion, on the recommendation of the Governance, Nomination and Compensation Committee. Decisions with respect to options granted are based upon the individual’s level of responsibility and their contribution towards the Corporation’s goals and objectives, and additionally may be awarded in recognition of the achievement of a particular goal or extraordinary service. The Governance, Nomination and Compensation Committee considers outstanding options granted under the incentive stock option plan and held by management in determining whether to make any new grants of options, and the quantum or terms of any options grant.
Stock Option Plan
The Corporation currently maintains an incentive stock option plan (the “SOP”) to grant options (“Options”) to purchase Common Shares of the Corporation. The SOP was last approved by Shareholders on September 16, 2019. The SOP provides that the Board may from time to time, in its discretion, grant to directors, officers, employees and consultants of the Corporation, or any subsidiary of the Corporation, the option to purchase Common Shares. The SOP provides for a fixed limit of 20% of the outstanding Common Shares as at June 20, 2019, being 11,414,975 Common Shares available for issuance under the SOP.
The purpose of the SOP is also to advance the interests of the Corporation through the motivation, attraction and retention of senior executives, directors, employees (including prospective employees) and consultants of the Corporation and to secure for the Corporation and the shareholders of the Corporation the benefits inherent in ownership of common shares by senior executives’ directors, employees and consultants of the Corporation. The Board believes that share based awards provide an effective tool for the Corporation to enable it to attract and retain key personnel in the face of competition from larger companies.
The Board may determine and impose terms upon which each stock option shall become vested in respect of Common Shares issuable pursuant to the stock options. Options granted to any one person may not exceed 5% of the Common Shares outstanding. Options granted to all technical consultants may not exceed 2% of the Corporation’s issued and outstanding Common Shares.
| - 11 - |
The other material terms of the SOP are as follows:
| ● | The exercise price of any Option shall not be less than the market value of the Common Shares as of the date of the grant, less the allowable discount by the TSX Venture Exchange. | |
| ● | The expiry date of any Option shall be the date so fixed by the Board on the date of the grant, provided such expiry date shall be no later than the fifth anniversary of the date of the grant. | |
| ● | Options expire no more than one year after the date the optionee ceases to be an employee, director or officer of the Corporation. Options may be exercised by the optionee’s legal representative during said year. | |
| ● | The SOP provides that the Board has the discretion to deem that an option be exercisable immediately, in full, notwithstanding that it has vesting provisions, upon the occurrence of certain events, such as a friendly or hostile takeover bid for the Corporation. | |
| ● | Options may not be assigned or transferred. |
Outstanding Options to purchase a total of 8,345,000 Common Shares have been issued to directors, officers, employees and consultants of the Corporation and remain outstanding. As at the date hereof, the number of Common Shares remaining available for issuance under the SOP is 3,069,975. The full text of the SOP is attached hereto as Appendix “A”.
EXECUTIVE COMPENSATION
Director and NEO Compensation, Excluding Compensation Securities
The following table provides a summary of the compensation earned by the NEOs and directors for services rendered in all capacities during the fiscal year ended December 31, 2019. Some of such directors and officers received compensation from Backbone Hosting Solutions Inc. (“Backbone”) and Bitfarms Ltd., a company incorporated under the laws of the State of Israel (“Bitfarms Israel”), subsidiaries of the Corporation, for acting in such capacities for the financial years ended December 31, 2019, 2018 and 2017.
| Table of compensation excluding compensation securities | ||||||||||||||
| Name and Principal Position |
Fiscal period |
Salary, consulting fee, retainer or commission ($)(6) |
Bonus ($) |
Committee or meeting fees ($)(5) |
Value of perquisites ($) |
All other compensation ($) |
Total compensation ($) | |||||||
|
Wes Fulford(1),(14) Former CEO |
2019 | US$220,000 | nil | nil | US$9,000 | nil | US$229,000 | |||||||
| 2018 | US$180,219 | nil | nil | US$7,355 | nil | US$187,574 | ||||||||
| 2017 | nil | nil | nil | nil | nil | nil | ||||||||
|
John Rim(2) CFO |
2019 | US$175,000 | nil | nil | nil | nil | US$175,000 | |||||||
| 2018 | US$97,329 | nil | nil | nil | nil | US$97,329 | ||||||||
| 2017 | nil | nil | nil | nil | nil | nil | ||||||||
|
Emiliano Joel Grodzki(3) Interim CEO, Director and Chief Strategy Officer |
2019 | US$170,000 | nil | nil | US$4,800 | nil | US$174,800 | |||||||
| 2018 | US$200,000 | nil | nil | US$4,800 | nil | US$204,800 | ||||||||
| 2017 | US$30,137(4) | nil | nil | US$733(5) | nil | US$30,870 | ||||||||
Nicolas Bonta(7) Chairman and Consultant |
2019 | US$170,000 | nil | nil | US$4,800 | nil | US$174,800 | |||||||
| 2018 | US$200,000 | nil | nil | US$4,800 | nil | US$204,800 | ||||||||
| 2017 | US$30,137(4) | nil | nil | US$733(5) | nil | US$30,870 | ||||||||
| - 12 - |
| Table of compensation excluding compensation securities | ||||||||||||||
| Name and Principal Position |
Fiscal period |
Salary, consulting fee, retainer or commission ($)(6) |
Bonus ($) |
Committee or meeting fees ($)(5) |
Value of perquisites ($) |
All other compensation ($) |
Total compensation ($) | |||||||
|
Pierre-Luc Quimper(8) Former Director and President |
2019 | US$128,548 | nil | nil | US$4,800 | nil | US$133,348 | |||||||
| 2018 | US$200,000 | nil | nil | US$4,800 | nil | US$204,800 | ||||||||
| 2017 | US$30,137(4) | nil | nil | US$733(5) | nil | US$30,870 | ||||||||
|
Sophie Galper- Komet(9),(12) Independent Director |
2019 | 22,500 | nil | nil | nil | nil | 22,500 | |||||||
| 2018 | nil | nil | nil | nil | nil | nil | ||||||||
| 2017 | nil | nil | nil | nil | nil | nil | ||||||||
|
Pierre Seccareccia(10) Independent Director |
2019 | 20,000 | nil | nil | nil | nil | 20,000 | |||||||
| 2018 | nil | nil | nil | nil | nil | nil | ||||||||
| 2017 | nil | nil | nil | nil | nil | nil | ||||||||
|
Wendi Locke(11),(12) Independent Director |
2019 | 20,000 | nil | nil | nil | nil | 20,000 | |||||||
| 2018 | nil | nil | nil | nil | nil | nil | ||||||||
| 2017 | nil | nil | nil | nil | nil | nil | ||||||||
Notes:
| (1) | Wes Fulford became CEO of the Corporation on October 11, 2018. Pursuant to his employment agreement, Mr. Fulford earned an annual base salary of US$220,000 and was entitled to a monthly car allowance of US$750. On March 11, 2020, Wes Fulford resigned as CEO and as a Director of the Corporation, Backbone and Bitfarms Israel. In connection with his resignation, the Corporation agreed to issue to Mr. Fulford 500,000 Common Shares in consideration for past services. |
| (2) | John Rim became CFO of Backbone on May 22, 2018, CFO of Bitfarms Israel on August 1, 2018 and CFO of the Corporation on October 11, 2018. Pursuant to his employment agreement, Mr. Rim earns an annual base salary of US$175,000. Mr. Rim is not a party to an employment or consulting agreement with Bitfarms Israel. On August 28, 2019, Mr. Rim resigned as the secretary of the Corporation. |
| (3) | Emiliano Joel Grodzki became a Director of Backbone on June 13, 2017 and on April 12, 2018 became a Director of Bitfarms Israel and Chief Strategy Officer of Backbone. On October 11, 2018, he became a Director and Chief Strategy Officer of the Corporation. On March 13, 2020, Mr. Grodzki was appointed as the interim CEO of the Corporation. |
| (4) | Amount earned between November 6, 2017 and December 31, 2017, the equivalent annualized salary of which is US$200,000. |
| (5) | Monthly car allowance of US$400. |
| (6) | Independent directors received an annual cash stipend of $30,000, with an additional $10,000 for serving as a chair of a board committee and an extra $5,000 for serving as a non-chair member of a board committee during 2019. |
| (7) | Nicolas Bonta became Chairman of the Corporation on October 11, 2018. |
| (8) | Pierre-Luc Quimper became a Director of Bitfarms Israel on April 12, 2018, President and a Director of Backbone on June 13, 2018 and President and Director of the Corporation on October 11, 2018. On October 3, 2019, Mr. Quimper resigned as a Director and Officer of the Corporation. |
| (9) | Sophia Galper-Komet became a Director of Director of the Corporation on February 1, 2019 and resigned on May 15, 2020. |
| (10) | Pierre Seccareccia became a Director of the Corporation on June 12, 2019. |
| (11) | Wendi Locke became a Director of the Corporation on June 13, 2018 and resigned on May 15, 2020. |
| (12) | Not standing for re-election to the board of Directors. |
| - 13 - |
Compensation Securities Table
The following table discloses the particulars of the option-based awards outstanding to NEOs and directors of the Corporation as at the date of this Circular, including awards granted before the most recently completed financial year.
| Name and Position | Number
of securities underlying unexercised options and percentage of class(1) | Date of issue or
grant | Option
Exercise Price ($) | Closing price of underlying security on date of grant ($) | Closing
price of underlying security at year end ($) | Option Expiration Date |
|||||||||||||||
| Wes Fulford Former CEO | 500,000 (6.1 | %)(1) | June 20, 2019 | (1) | US$ | 0.69 | $ | 0.99 | $ | 0.50 | June 9, 2020 | ||||||||||
| 1,500,000 (18.2 | %) | June 20, 2019 | $ | 0.99 | $ | 0.99 | $ | 0.50 | July 31, 2022 | (2) | |||||||||||
| 1,353,744 (16.4 | %) | June 20, 2019 | $ | 1.19 | $ | 0.99 | $ | 0.50 | July 31, 2022 | (2) | |||||||||||
| 146,256 (1.8 | %) | August 12, 2019 | $ | 1.25 | $ | 0.99 | $ | 0.50 | July 31, 2022 | (2) | |||||||||||
| John Rim CFO | 1,250,000 (15.2 | %) | June 20, 2019 | $ | 0.99 | $ | 0.99 | $ | 0.50 | June 20, 2024 | |||||||||||
| 1,128,120 (13.7 | %) | June 20, 2019 | $ | 1.19 | $ | 0.99 | $ | 0.50 | June 20, 2024 | ||||||||||||
| 121,880 (1.5 | %) | August 12, 2019 | $ | 1.25 | $ | 0.99 | $ | 0.50 | August 12, 2024 | ||||||||||||
| 100,000 (100 | %)(2) | June 20, 2019 | (3) | N/A | $ | 0.99 | $ | 0.50 | N/A | ||||||||||||
| Sophie Galper-Komet Independent Director | 18,750 (0.2 | %) | June 20, 2019 | $ | 0.99 | $ | 0.99 | $ | 0.50 | August 15, 2020 | |||||||||||
| Pierre Seccareccia Independent Director | 75,000 (0.9 | %) | June 20, 2019 | $ | 0.99 | $ | 0.99 | $ | 0.50 | June 20, 2024 | |||||||||||
| Wendi Locke Independent Director | 18,750 (0.2 | %) | June 20, 2019 | $ | 0.99 | $ | 0.99 | $ | 0.50 | August 15, 2020 | |||||||||||
Notes:
| (1) | Issued to Mr. Fulford on March 7, 2018 in accordance with the terms of his original employment agreement with Backbone, the terms of which were amended on June 20, 2019. |
| (2) | On March 11, 2020, Wes Fulford resigned as CEO and as a Director of the Corporation, Backbone and Bitfarms Israel. In connection with his resignation, the Corporation agreed to maintain Mr. Fulford as a consultant until July 31, 2021. All vested Options expire 1 year after the termination of the consulting agreement. |
| (3) | 100,000 stock rights were issued to Mr. Rim on May 22, 2018 in accordance with the terms of his original employment agreement with Backbone, the terms of which were amended on June 20, 2019. |
| (4) | Directors resigned May 15, 2020. All unvested Options were forfeited and vested Options expire 3 months from the resignation date. |
| - 14 - |
Exercise of Stock Options by NEOs and Directors
The following table sets forth information concerning the exercise of options by NEOs and directors during the fiscal year ended December 31, 2019.
| Name and Position | Number of underlying securities exercised (#) |
Exercise Price per security ($) |
Date of exercise |
Closing price per security on date of exercise ($) |
Difference between exercise price and closing price on date of exercise ($) |
Total value on exercise date ($) | ||||||
|
Wes Fulford Former CEO |
nil | N/A | N/A | N/A | N/A | N/A | ||||||
|
John Rim CFO |
nil | N/A | N/A | N/A | N/A | N/A | ||||||
|
Sophie Galper-Komet(1) Former Independent Director |
nil | N/A | N/A | N/A | N/A | N/A | ||||||
|
Pierre Seccareccia Independent Director |
nil | N/A | N/A | N/A | N/A | N/A | ||||||
|
Wendi Locke(1) Former Independent Director |
nil | N/A | N/A | N/A | N/A | N/A |
Note:
| (1) | Resigned from the Board effective May 15, 2020. |
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information in respect of the Corporation’s equity compensation plans under which equity securities of the Corporation are authorized for issuance, aggregated in accordance with all equity plans previously approved by the Shareholders and all equity plans not approved by Shareholders as at December 31, 2019:
| Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (#) |
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights ($) |
Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (#) | |||
| Equity compensation plans approved by securityholders(1) | 8,345,000 | $1.04(2) | 3,069,975 | |||
| Equity compensation plans not approved by securityholders | Nil | N/A | Nil | |||
| Total | 8,345,000 | $1.04(2) | 3,069,975 |
Notes:
| (1) | The Corporation’s SOP is a fixed stock option plan, last approved by the Shareholders at a meeting on September 16, 2019, pursuant to which a fixed maximum of 11,414,975 Common Shares may be reserved for issuance. |
| (2) | 500,000 Options held by Mr. Fulford have an exercise price of approximately US$0.6868; as reported in the audited financial statement of the Corporation for the year ended December 31, 2019, this is equivalent to approximately $0.87 in Canadian dollars. |
Employment, Consulting, and Management Agreements
Wes Fulford
On March 11, 2020, in connection with the resignation of Mr. Fulford, the Corporation entered into a consulting agreement with Wes Fulford, pursuant to which Mr. Fulford is retained as a consultant, The Corporation shall pay to Mr. Fulford a monthly consulting fee and Mr. Fulford shall retain his granted and vested Options.
John Rim
On May 22, 2018 and as amended on February 19, 2020, March 15, 2019 and June 10, 2019, Backbone entered into an employment agreement with John Rim, pursuant to which Mr. Rim is employed as CFO of Backbone and the Corporation, in consideration of an annual base salary of US$175,000 on a full-time basis. Backbone may terminate the employment without cause upon three months’ notice for each partial year or completed year of employment, or pay in lieu of such notice up to a maximum notice period of twenty-four months. This same amount will be payable upon the termination of the employment agreement within twelve months of a Change of Control. Mr. Rim has entered into a non-competition and non-disclosure agreement with Backbone.
| - 15 - |
Emiliano Joel Grodzki
On April 12, 2018 and as amended on March 15, 2019, May 24, 2018 and June 10, 2019, Backbone entered into a consulting services agreement with Emiliano Grodzki, pursuant to which Mr. Grodzki is retained as Chief Strategy Officer of Backbone and of the Corporation, in consideration of annual consulting fee of US$170,000. Mr. Grodzki’s duties and responsibilities include the overall vision and mission of Backbone and participation as a member of the executive management team. He will focus on effective growth, oversee implementation of the strategic plan in close coordination with Backbone’s board of directors, build new partnerships to grow and sustain the organization and, manage special pilot projects. Mr. Grodzki shall devote 75% of his time to this position. Backbone may terminate Mr. Grodzki’s consulting services agreement without cause, in which case Mr. Grodzki will be owed an amount equivalent to 12-months of consulting fees following his termination. This same amount will be payable upon the termination of the consulting services agreement within twelve months of a Change of Control. Mr. Grodzki has entered into a non-competition and non-disclosure agreement with Backbone.
Nicolas Bonta
On April 12, 2018 and as amended on May 24, 2018 and June 10, 2019, Backbone entered into a consulting services agreement with Nicolas Bonta, pursuant to which Mr. Bonta is retained as a consultant, in consideration of annual consulting fee of US$170,000. Mr. Bonta’s duties and responsibilities include: acting as Chairman of the Board of Backbone and of the Corporation, undertaking investor relations initiatives and programs to broaden investor awareness and, developing recommendations to refine Backbone’s corporate development strategy. It is expected that Mr. Bonta shall devote 75% of his time to this position. Backbone may terminate Mr. Bonta’s consulting services agreement without cause, in which case Mr. Bonta will be owed an amount equivalent to 12-months of consulting fees following his termination. This same amount will be payable upon the termination of the consulting services agreement within twelve months of a Change of Control. Mr. Bonta has entered into a non-competition and non-disclosure agreement with Backbone.
Ryan Hornby
On April 15, 2019 and as amended on June 10, 2019, Backbone entered into an employment agreement with Ryan Hornby, pursuant to which Mr. Hornby is employed as General Counsel and Executive Vice President of Backbone and the Corporation, in consideration of an annual base salary of $200,000 on a full-time basis. Backbone may terminate the employment without cause upon two months’ notice for each partial year or completed year of employment, or pay in lieu of such notice up to a maximum notice period of twenty-four months. In the event of the termination of Mr. Hornby’s employment by him within twelve months of a Change of Control, he shall be entitled two months’ notice for each partial year or completed year of employment, or pay in lieu of such notice up to a maximum notice period of twenty-four months, subject to a minimum notice period of twelve month. Mr. Hornby has entered into a non-competition and non-disclosure agreement with Backbone.
Mathieu Vachon
On April 12, 2018 and as amended on May 24, 2018, March 15, 2019 and on June 10, 2019, Backbone entered into an employment agreement with Mathieu Vachon, pursuant to which Mr. Vachon was employed as Director of Software Engineering of Backbone, in consideration of an annual base salary of US$170,000 on a full-time basis. On October 18, 2019, Mr. Vachon became Executive Vice President, Technology and Operations of Backbone and the Corporation, and his relationship with Backbone continues to be governed by the employment agreement. Backbone may terminate the employment without cause at any time, provided that Backbone pay any amount of base salary which is payable for the remainder of the agreement plus an additional amount, if any, for minimum notice of termination or pay in lieu of such notice and severance, as required under Canadian employment standard laws. This same amount will be payable upon the termination of the employment agreement within twelve months of a Change of Control. Mr. Vachon has entered into a non-competition and non-disclosure agreement with Backbone.
Pension Plan Benefits, Termination and Change of Control Benefits
The Corporation has no pension or retirement plan. The Corporation has not provided compensation, monetary or otherwise to any person who now acts as a NEO of the Corporation, in connection with or related to the retirement, termination or resignation of such person and the Corporation has provided no compensation to such persons as a result of a change of control of the Corporation, its subsidiaries or affiliates. Other than as may be provided pursuant to the employment or consulting agreements with Mr. Rim, Grodzki, Mr. Bonta, Mr. Hornby and Mr. Vachon, each as described herein, the Corporation is not party to any compensation plan or arrangement with NEOs resulting from the resignation, retirement or the termination of employment of any person.
| - 16 - |
Compensation Risk Considerations
The Governance, Nomination and Compensation Committee is responsible for considering, establishing and reviewing executive compensation programs, and whether the programs encourage unnecessary or excessive risk taking. The Corporation anticipates the programs will be balanced and will not motivate unnecessary or excessive risk taking. The Corporation does not currently have a policy that restricts directors or NEOs from purchasing financial instruments, including, for greater certainty, prepaid variable forward contracts, equity swaps, collars, or units of exchange funds that are designed to hedge or offset a decrease in market value of equity. However, to the knowledge of the Corporation, as of the date of hereof, no director or NEO of the Corporation has participated in the purchase of such financial instruments.
Base salaries are fixed in amount and do not encourage risk taking. While annual incentive awards will focus on the achievement of short-term or annual goals and short-term goals may encourage the taking of short-term risks at the expense of long-term results, the Corporation’s annual incentive award program will represent a small percentage of employees’ compensation opportunities.
Stock option awards are important to further align employees’ interests with those of the Shareholders. The ultimate value of the awards is tied to the price of the Common Shares and since awards are expected to be staggered and subject to long- term vesting schedules, they will help ensure that NEOs have significant value tied in long-term stock price performance.
Compensation of Directors
Pursuant to its Articles, the Corporation may have a minimum of one (1) and a maximum of ten (10) directors. At the date of the Circular, the Corporation has six directors.
The Corporation regularly reviews the competitiveness of non-employee director compensation levels against the competitive marketplace. While the results of that review have generally demonstrated that non-employee director compensation levels at the Corporation were competitive with the market, adjustments to annual fees have been made throughout the Corporation’s growth cycle in recent years to further strengthen the Corporation’s competitiveness while also reflecting the greater time and commitment required of the roles. In particular, an adjustment was made effective January 1, 2019 to the annual fees for non-employee directors. A summary of the changes in compensation provided to the Corporation’s non-employee directors is as follows:
| Item | Effective January 1, 2019 | |
| Non-Employee Director Annual Cash Stipend | $30,000 | |
| Board Committee Chair Fee | $10,000 | |
| Board Committee Non-Chair Fee | $5,000 |
INDEBTEDNESS OF DIRECTORS AND OFFICERS
None of the current or proposed directors or officers of the Corporation, nor any affiliate or associate of the current or proposed directors or officers of the Corporation, is or was indebted to the Corporation (or to another entity which is the subject of a guarantee support agreement, letter of credit, or other similar arrangement or undertaking provided by the Corporation) entered into in connection with a purchase of securities or otherwise per item 10.1 of National Instrument 51-102F5 – Information Circular, at any time since its incorporation.
AUDIT COMMITTEE
The Audit Committee is responsible for monitoring the Corporation’s accounting and financial reporting practices and procedures, the adequacy of internal accounting controls and procedures, the quality and integrity of financial statements and for directing the auditors’ examination of specific areas.
The current members of the Audit Committee are Pierre Seccareccia, Brian Howlett, and Geoffrey Morphy. No member of the Audit Committee is an executive officer, employee, or control person of the Corporation or any of its affiliates and all are considered “independent” directors as defined in National Instrument 52-110 – Audit Committees (“NI 52-110”). Each member of the Audit Committee is considered to be “financially literate” within the meaning of NI 52-110, which includes the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the Corporation’s financial statements. The full text of the charter of the Audit Committee (the “Audit Committee Charter”) is attached as Appendix “B”. A copy of the Audit Committee Charter is also available on the Corporation’s website at www.bitfarms.com and under the Corporation’s SEDAR profile at www.sedar.com.
| - 17 - |
Relevant Education and Experience
The relevant education and experience of each of the members of the Audit Committee is as follows:
| Name of Member | Education | Experience | ||
| Pierre Seccareccia | Accounting degree from École des hautes études commerciales de Montréal (1969). Fellow of the Ordre des comptables professionnels agréés du Québec (1970). | Mr. Seccareccia has extensive experience in financial consulting and management. A Partner of the Coopers & Lybrand accounting firm from 1976 to 1998, he acted as Managing Partner for its Montreal south shore office from 1987 to 1989, for its Montreal central office from 1992 to 1996, and for its offices in the Province of Quebec from 1996 to 1998. Following the merger in 1998 of Coopers & Lybrand with Price Waterhouse, he acted as Managing Partner for the Montreal office of PricewaterhouseCoopers LLP from 1998 to 2001. Since 2003, Mr. Seccareccia has acted as a full-time independent corporate director for various public and private entities. | ||
| Brian Howlett(1) | Bachelor of Commerce from Concordia University (1982). CMA designation (1989). | Mr. Howlett is currently the President, Chief Executive Officer and Director of Hemlo Explorers Inc., Copper Reef Mining Corporation, and CR Capital Corp. Mr. Howlett also serves on the Board for several junior mining companies. Mr. Howlett recently served as the President, Chief Executive Officer and a Director of Dundee Sustainable Technologies Inc. He also formerly served as the President and Chief Financial Officer of Superior Copper Corporation. Prior to that, Mr. Howlett spent twelve years with ELI Eco Logic Inc., including six years as Chief Financial Officer. | ||
| Geoffrey Morphy | B.Comm from the Dalhousie University (1984). Certified Exit Planning Adviser. ICD.D from the Institute of Canadian Directors (2019). | L. Geoffrey Morphy is Co-CEO of Dundee Sarea Fund, a Canadian-based turn- around fund with an investment in Italy. He was Vice-President, Corporate Development of Dundee Corporation (TSE: DC.A) from April 2016 to October 2019. In that capacity, he was part of the senior management team responsible for strategy, new investments and portfolio management. Since August 2016, Mr. Morphy has been a director of Android Industries, L.L.C, a Michigan-based Tier One auto parts manufacturing company with global operations. Mr. Morphy is a past director of Parq-Vancouver, Blue Goose Capital Corporation, and was previously Chairman of Montreal based Dundee Sustainable Technologies Inc. (CSE: DST) and Dundee Sarea Fund. Mr. Morphy has more than thirty years in cross-border and international commercial and corporate structuring and finance experience. He has occupied positions as Managing Director and Vice-President of a financial advisory firm and banks, such as the Farber Financial Group between 2008 and 2016, ABN Amro Bank N.V. and LaSalle Bank between 2005 and 2008, as well as Comerica Bank, between 2000 and 2005. Mr. Morphy holds a Bachelor of Commerce from Dalhousie University and in 2012 earned the designation of Certified Exit Planning Adviser from Chicago-based Exit Planning Institute and in 2019 was granted the designation of ICD.D from the Institute of Canadian Directors. |
Notes:
| (1) | Chair of the Audit Committee. |
Audit Committee Oversight
Since the commencement of the Corporation’s most recently completed financial year, there has not been a recommendation of the Audit Committee to nominate or compensate an external auditor which was not adopted by the Board.
| - 18 - |
Pre-Approval Policies and Procedures
The Audit Committee is required to pre-approve all audit and non-audit services not prohibited by law to be provided by the independent auditors of the Corporation.
External Auditor Service Fees
The following table provides details in respect of audit, audit related, tax and other fees billed by the Corporation’s external auditor during the fiscal years ended December 31, 2019 and December 31, 2018.
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||
| Audit Fees(1) | $240,000 | $472,000 | ||
| Audit Related Fees(2) | $250,000 | $16,000 | ||
| Tax Fees(3) | $15,000 | $39,000 | ||
| All Other Fees(4) | $80,000 | nil | ||
| Total | $585,000 | $527,000 |
Notes:
| (1) | Aggregate fees billed for professional services rendered by the auditor for the audit of the Corporation’s annual financial statements. |
| (2) |
Aggregate fees billed for professional services rendered by the auditor and consisted primarily of file quality review fees and fees for the review of quarterly financial statements and related documents. |
| (3) |
Aggregate fees billed for tax compliance, tax advice and tax planning professional services. These services included reviewing tax returns and assisting in responses to government tax authorities. |
| (4) |
Aggregate fees billed for services other than those mentioned above consist primarily of services related to the Corporation’s filing of its final prospectus dated June 12, 2019. |
Exemption
Since the Corporation is a “venture issuer” pursuant to NI 52-110 (its securities are not listed or quoted on any of the Toronto Stock Exchange, a market in the U.S., or a market outside of Canada and the U.S.), it is relying on the exemption in section 6.1 of NI 52-110, exempting the Corporation from the requirements of Part 3 (Composition of the Audit Committee) and Part 5 (Reporting Obligations) of NI 52-110.
CORPORATE GOVERNANCE
National Policy 58-201 – Corporate Governance Guidelines of the Canadian Securities Administrators sets out a series of guidelines for effective corporate governance (the “Guidelines”). The Guidelines address matters such as the constitution and independence of corporate boards, the functions to be performed by boards and their committees and the effectiveness and education of board members. National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58- 101”) requires the disclosure by each listed corporation of its approach to corporate governance with reference to the Guidelines as it is recognized that the unique characteristics of individual corporations will result in varying degrees of compliance.
Set out below is a description of the Corporation’s approach to corporate governance in relation to the Guidelines.
Board of Directors
NI 58-101 defines an “independent director” as a director who has no direct or indirect material relationship with the Corporation. A “material relationship” is in turn defined as a relationship which could, in the view of the Board, be reasonably expected to interfere with such member’s independent judgment.
The Board is currently comprised of five (5) members, three (3) of whom the Board has determined to be “independent directors” within the meaning of NI 58-101. Pierre Seccareccia, Brian Howlett, and Geoffrey Morphy are considered independent directors within the meaning of NI 58-101 since they are each independent of management and free from any material relationship with the Corporation. The basis for this determination is that, since the date of incorporation of the Corporation, none of the independent directors have worked for the Corporation, received remuneration from the Corporation or had material contracts with or material interests in the Corporation which could interfere with their ability to act with a view to the best interests of the Corporation. Emiliano Joel Grodzki is not considered an independent director because he is also an officer of the Corporation. Nicolas Bonta is not considered an independent director because of his relationship as a consultant to the Corporation who receives a salary in excess of $150,000. If elected, Mathieu Vachon will not be considered independent because he is an officer of the Corporation.
| - 19 - |
The Board functions independently of management. To enhance its ability to act independent of management, the Board may in the future meet in the absence of members of management or may excuse such persons from all or a portion of any meeting where an actual or potential conflict of interest arises or where the Board otherwise determines is appropriate.
A copy of the mandate of the Board is available on the Corporation’s website at www.bitfarms.com and under the Corporation’s SEDAR profile at www.sedar.com.
Directorships
Certain of the directors and proposed directors of the Corporation are also current directors of other reporting issuers (or equivalent) in a jurisdiction or a foreign jurisdiction as follows:
| Name of Director | Other reporting issuer (or equivalent in a foreign jurisdiction) |
Trading Market | ||
| Emiliano Joel Grodzki | N/A | N/A | ||
| Nicolas Bonta | N/A | N/A | ||
| Brian Howlett | Hemlo Explorers Inc. | TSXV: HMLO | ||
| Dundee Sustainable Technologies Inc. | CSE: DST | |||
| Nighthawk Gold Corp | TSX: NHK | |||
| Copper Reef Mining Corp. | CSE: CZC | |||
| CR Capital Corp. | TSXV: CIT | |||
| Pierre Seccareccia | N/A | N/A | ||
| L. Geoffrey Morphy | N/A | N/A |
Orientation and Continuing Education
While the Corporation currently has no formal orientation and education program for new Board members, it is expected that sufficient information (such as recent financial statements, technical reports and various other operating, property and budget reports) will be provided to all new Board members to ensure that new directors are familiarized with the Corporation’s business and the procedures of the Board. In addition, new directors will be encouraged to visit and meet with management on a regular basis. The Corporation will also encourage continuing education of its directors and officers where appropriate in order to ensure that they have the necessary skills and knowledge to meet their respective obligations to the Corporation. The Board’s continuing education will also consist of correspondence with the Corporation’s legal counsel to remain up to date with developments in relevant corporate and securities law matters.
Ethical Business Conduct
The fiduciary duties placed on individual directors by the Corporation’s governing corporate legislation and the common law and the restrictions placed by applicable corporate legislation on an individual director’s participation in decisions of the Board in which the director has an interest will ensure that the Board operates independently of management and in the best interests of the Corporation.
Under corporate legislation, a director is required to act honestly and in good faith with a view to the best interests of the Corporation and to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. In addition, as some of the directors and proposed directors of the Corporation also serve as directors and officers of other companies engaged in similar business activities, directors must comply with the conflict of interest provisions of the CBCA, as well as the relevant securities regulatory instruments, in order to ensure that directors exercise independent judgment in considering transactions and agreements in respect of which a director or officer has a material interest.
Any interested director will be required to declare the nature and extent of his or her interest and will not be entitled to vote at meetings of directors at which matters that give rise to such a conflict of interest are considered.
| - 20 - |
A copy of the Corporation’s code of business conduct and ethics is available on the Corporation’s website at www.bitfarms.com and under the Corporation’s SEDAR profile at www.sedar.com.
Board Committees
The Board has two standing committees: the Audit Committee and the Governance, Nomination and Compensation Committee. The members of these committees are in this Circular under the heading “Audit Committee” above, and under the heading “Governance, Nomination and Compensation Committee” below. The Board has adopted the Audit Committee Charter, which is attached as Appendix “B” to this Circular. A copy of the charter for the Governance, Nomination and Compensation Committee is available on the Corporation’s website at www.bitfarms.com and under the Corporation’s SEDAR profile at www.sedar.com.
Governance, Nomination and Compensation Committee
Responsibility for identifying new candidates to join the Board belongs to the Board as a whole. The Board encourages all directors to participate in the process of identifying and recruiting new candidates. The Governance, Nomination and Compensation Committee has the responsibility of making recommendations to the Board with respect to the new nominees and for assessing directors on an on-going basis. While there are no specific criteria for Board membership, the Corporation will seek to attract and retain directors with business knowledge and a particular expertise in cryptocurrencies and technology or other areas of specialized knowledge (such as finance) which will assist in guiding the officers of the Corporation. The members of the Governance, Nomination and Compensation Committee are currently L. Geoffrey Morphy (Chair), Emiliano Grodzki and Pierre Seccareccia. L. Geoffrey Morphy and Pierre Seccareccia are independent directors within the meaning of NI 58-101.
The Governance, Nomination and Compensation Committee is responsible for assisting the Corporation in determining compensation of senior management of the Corporation as well as reviewing the adequacy and form of the directors’ compensation. The Compensation Committee is expected to annually review the goals and objectives of the Corporation’s CEO for the upcoming year and to perform an appraisal of the Corporation’s CFO’s performance for the past year. The Governance, Nomination and Compensation Committee will also administer and make recommendations regarding the operation of the Corporation’s incentive plans.
The Governance, Nomination and Compensation Committee reviews, on an annual basis, the adequacy and form of compensation of directors and officers and will ensure that the levels of compensation of the Board reflect the responsibilities, time commitment and risks involved in being an effective director.
Audit Committee
The Corporation has established an Audit Committee comprised of directors who are not executive officers, employees, or control persons of the Corporation or any of its affiliates, and who are considered to be financially literate in accordance with applicable securities laws. The Audit Committee Charter is attached as Appendix “B” to this Circular. See “Audit Committee”. A copy of the Audit Committee Charter is also available on the Corporation’s website at www.bitfarms.com and under the Corporation’s SEDAR profile at www.sedar.com.
Other Board Committees
The Board has no committees other than the Audit Committee and the Governance, Nomination and Compensation Committee. The Board may establish additional committees depending on the needs of the Corporation.
Assessments
The Board will consider the Board and committee performance from time to time, as required.
Diversity
The Corporation has neither adopted term limits for the directors on its Board nor adopted any particular mechanisms of board renewal due to the fact that the Corporation is in its early developmental and growth stage. Consequently, the Corporation views the imposition of term limits or other board renewal mechanisms as disruptive to the development and success of the Corporation.
| - 21 - |
To date, the Corporation has not adopted a formal written diversity policy and has not established targets with respect to the appointment of individuals to the Board or senior management who are women, Indigenous peoples (First Nations, Inuit and Metis), persons with disabilities, members of visible minorities or otherwise self-represent as being within designated groups (as that term is defined in the Employment Equity Act (Canada) (collectively, “Designated Groups”). The Corporation and its Governance, Nomination and Compensation Committee recognize the benefits of diversity within its Board, at the executive level, and at all levels of the organization, but does not believe that a formal policy would enhance the representation of Designated Groups on the board beyond the recruitment and selection process at its present stage in its business cycle. Diversity is one of several factors that the Corporation and its Governance, Nomination and Compensation Committee consider during the recruitment and selection process.
As of the date of this Circular, the Corporation has a total of five (5) directors and four (4) members of senior management. No directors are members of a Designated Group (0%) and no members of senior management are a member of a Designated Group (0%).
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
To the knowledge of the Corporation, since the Corporation’s incorporation, no director, executive officer, or Shareholder who beneficially owns, or controls or directs, directly or indirectly, more than 10% of the outstanding Common Shares, or any known associates or affiliates or such persons, has or has had any material interest, direct or indirect, in any transaction or in any proposed transaction that has materially affected or is reasonably expected to materially affect the Corporation.
MANAGEMENT CONTRACTS
There are no management functions of the Corporation which are to any substantial degree performed by a person or a company other than the directors or executive officers of the Corporation.
ADDITIONAL INFORMATION
The Corporation will provide to any shareholder, upon written request to the Chief Financial Officer of the Corporation at 1376 Bayview Ave, Unit 1, Toronto, Ontario M4G 3A1, telephone: (416) 804-8535, facsimile: (647) 259-1785, a copy of:
| (a) | the audited financial statements of the Corporation for its most recently completed financial period, together with the management’s discussion and analysis of such financial results and the auditor’s report thereon, and one copy of any interim financial statements subsequent to the financial statements of the Corporation that have been filed for any period after the end of its most recently completed financial period; and | |
| (b) | this Circular. |
Additional information relating to the Corporation is available on SEDAR at www.sedar.com. Financial information about the Corporation may be found in the Corporation’s consolidated financial statements and management’s discussion and analysis for its most recently completed financial period.
APPROVAL
The contents of this Circular and the sending thereof to the Shareholders have been approved by the Board.
DATED this 20th day of May, 2020.
| BY ORDER OF THE BOARD OF DIRECTORS | |
| (Signed) “Nicolas Bonta” | |
| Nicolas Bonta | |
| Chairman of the Board of Directors |
| - 22 - |
APPENDIX “A”
AUDIT COMMITTEE CHARTER
BITFARMS LTD.
AUDIT COMMITTEE CHARTER
This charter (the “Charter”) sets forth the purpose, composition, responsibilities and authority of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Bitfarms Ltd. (“Bitfarms Canada” or the “Company”).
| 1.0 | Mandate |
| The Committee shall: | ||
| (a) | assist the Board in its oversight role with respect to the quality and integrity of the financial information; | |
| (b) | assess the effectiveness of the Company’s risk management and compliance practices; | |
| (c) | assess the independent auditor’s performance, qualifications and independence; | |
| (d) | assess the performance of the Company’s internal audit function; | |
| (e) | ensure the Company’s compliance with legal and regulatory requirements; and | |
| (f) | prepare such reports of the Committee required to be included in any Management Information Circular in accordance with applicable laws or the rules of applicable securities regulatory authorities. | |
| 2.0 | Composition and Membership |
The committee shall be composed of not less than three members, each of whom shall be a director of the Company. A majority of the members of the Committee shall not be an officer or employee of the Company. All members shall satisfy the applicable independence and experience requirements of the laws governing the Company, the applicable stock exchanges on which the Company’s securities are listed and applicable securities regulatory authorities.
Each member of the Committee shall be financially literate as such qualification is interpreted by the Board of Directors in its business judgment.
Members of the Committee shall be appointed or reappointed at the annual meeting of the Company and in the normal course of business will serve a minimum of three years. Each member shall continue to be a member of the Committee until a successor is appointed, unless the member resigns, is removed or ceases to be a Director. The Board of Directors may fill a vacancy that occurs in the Committee at any time.
The Board of Directors or, in the event of its failure to do so, the members of the Committee, shall appoint or reappoint, at the annual meeting of the Company a Chair among their number. The Chair shall not be a former Officer of the Company. Such Chair shall serve as a liaison between members and senior management.
The time and place of meetings of the Committee and the procedure at such meetings shall be determined from time to time by the members therefore provided that:
| (a) | a quorum for meetings shall be at least three members; | |
| (b) | the Committee shall meet at least quarterly; | |
| (c) | notice of the time and place of every meeting shall be given in writing or by telephone, facsimile, email or other electronic communication to each member of the Committee at least 24 hours in advance of such meeting; | |
| (d) | a resolution in writing signed by all directors entitled to vote on that resolution at a meeting of the Committee is as valid as if it had been passed at a meeting of the Committee. |
The Committee shall report to the Board of Directors on its activities after each of its meetings. The Committee shall review and assess the adequacy of this Charter annually and, where necessary, will recommend changes to the Board of Directors for its approval. The Committee shall undertake and review with the Board of Directors an annual performance evaluation of the Committee, which shall compare the performance of the Committee with the requirements of this Charter and set forth the goals and objectives of the Committee for the upcoming year. The performance evaluation by the Committee shall be conducted in such manner as the Committee deems appropriate. The report to the Board of Directors may take the form of an oral report by the chairperson of the Committee or any other designated member of the Committee.
| 4.0 | Duties and Responsibilities |
| 4.1 | Oversight of the Independent Auditor |
| (a) | Sole authority to appoint or replace the independent auditor (subject to shareholder ratification) and responsibility for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between Management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the Committee. | |
| (b) | Sole authority to pre-approve all audit services as well as non-audit services (including the fees, terms and conditions for the performance of such services) to be performed by the independent auditor. | |
| (c) | Evaluate the qualifications, performance and independence of the independent auditor, including (i) reviewing and evaluating the lead partner on the independent auditor’s engagement with the Company, and (ii) considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence. | |
| (d) | Obtain and review a report from the independent auditor at least annually regarding: the independent auditor’s internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm; any steps taken to deal with any such issues; and all relationships between the independent auditor and the Company. |
| (e) | Review and discuss with Management and the independent auditor prior to the annual audit the scope, planning and staffing of the annual audit. | |
| (f) | Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law. | |
| (g) | Review as necessary policies for the Company’s hiring of partners, employees or former partners and employees of the independent auditor. |
| 4.2 | Financial Reporting |
| (a) | Review and discuss with Management and the independent auditor the annual audited financial statements prior to the publication of earnings. | |
| (b) | Review and discuss with Management the Company’s annual and quarterly disclosures made in Management’s Discussion and Analysis. The Committee shall approve any reports for inclusion in the Company’s Annual Report, as required by applicable legislation. | |
| (c) | Review and discuss with Management and the independent auditor management’s report on its assessment of internal controls over financial reporting and the independent auditor’s attestation report on management’s assessment. | |
| (d) | Review and discuss with Management the Company’s quarterly financial statements prior to the publication of earnings. | |
| (e) | Review and discuss with Management and the independent auditor at least annually significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls and any special steps adopted in light of material control deficiencies. | |
| (f) | Review and discuss with Management and the independent auditor at least annually reports from the independent auditors on: critical accounting policies and practices to be used; significant financial reporting issues, estimates and judgments made in connection with the preparation of the financial statements; alternative treatments of financial information within generally accepted accounting principles that have been discussed with Management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and other material written communications between the independent auditor and Management, such as any management letter or schedule of unadjusted differences. | |
| (g) | Discuss with the independent auditor at least annually any “Management” or “internal control” letters issued or proposed to be issued by the independent auditor to the Company. |
| (h) | Review and discuss with Management and the independent auditor at least annually any significant changes to the Company’s accounting principles and practices suggested by the independent auditor, internal audit personnel or Management. | |
| (i) | Discuss with Management the Company’s earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance (if any) provided to analysts and rating agencies. | |
| (j) | Review and discuss with Management and the independent auditor at least annually the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements. | |
| (k) | Review and discuss with the Chief Executive Officer and the Chief Financial Officer the procedures undertaken in connection with the Chief Executive Officer and Chief Financial Officer certifications for the annual filings with applicable securities regulatory authorities. | |
| (l) | Review disclosures made by the Company’s Chief Executive Officer and Chief Financial Officer during their certification process for the annual filing with applicable securities regulatory authorities about any significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data or any material weaknesses in the internal controls, and any fraud involving Management or other employees who have a significant role in the Company’s internal controls. | |
| (m) | Discuss with the Company’s General Counsel at least annually any legal matters that may have a material impact on the financial statements, operations, assets or compliance policies and any material reports or inquiries received by the Company or any of its subsidiaries from regulators or governmental agencies. |
| 4.3 | Oversight of Risk Management |
| (a) | Review and approve periodically Management’s risk philosophy and risk management policies. | |
| (b) | Review with Management at least annually reports demonstrating compliance with risk management policies. | |
| (c) | Review with Management the quality and competence of Management appointed to administer risk management policies. | |
| (d) | Review reports from the independent auditor at least annually relating to the adequacy of the Company’s risk management practices together with Management’s responses. | |
| (e) | Discuss with Management at least annually the Company’s major financial risk exposures and the steps Management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. |
| 4.4 | Oversight of Regulatory Compliance |
| (a) | Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. | |
| (b) | Discuss with Management and the independent auditor at least annually any correspondence with regulators or governmental agencies and any published reports which raise material issues regarding the Company’s financial statements or accounting. | |
| (c) | Meet with the Company’s regulators, according to applicable law. | |
| (d) | Exercise such other powers and perform such other duties and responsibilities as are incidental to the purposes, duties and responsibilities specified herein and as may from time to time be delegated to the Committee by the Board of Directors. |
| 5.0 | Funding for the Independent Auditor and Retention of Other Independent Advisors |
The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditor for the purpose of issuing an audit report and to any advisors retained by the Committee. The Committee shall also have the authority to retain and, at Bitfarms Canada’s expense, to set and pay the compensation for such other independent counsel and other advisors as it may from time to time deem necessary or advisable for its purposes. The Committee also has the authority to communicate directly with internal and external auditors.
| 6.0 | Procedures for Receipt of Complaints and Submissions Relating to Accounting Matters |
| 1. | The Company shall inform employees on the Company’s intranet, if there is one, or via a newsletter or e-mail that is disseminated to all employees at least annually, of the officer (the “Complaints Officer”) designated from time to time by the Committee to whom complaints and submissions can be made regarding accounting, internal accounting controls or auditing matters or issues of concern regarding questionable accounting or auditing matters. |
| 2. | The Complaints Officer shall be informed that any complaints or submissions so received must be kept confidential and that the identity of employees making complaints or submissions shall be kept confidential and shall only be communicated to the Committee or the Chair of the Committee. |
| 3. | The Complaints Officer shall be informed that he or she must report to the Committee as frequently as such Complaints Officer deems appropriate, but in any event no less frequently than on a quarterly basis prior to the quarterly meeting of the Committee called to approve interim and annual financial statements of the Company. |
| 4. | Upon receipt of a report from the Complaints Officer, the Committee shall discuss the report and take such steps as the Committee may deem appropriate. |
| 5. | The Complaints Officer shall retain a record of a complaint or submission received for a period of six years following resolution of the complaint or submission. |
| 7.0 | Procedures for Approval of Non-Audit Services |
| 1. | The Company’s external auditors shall be prohibited from performing for the Company the following categories of non-audit services: |
| (a) | bookkeeping or other services related to the Company’s accounting records or financial statements; | |
| (b) | financial information systems design and implementation; | |
| (c) | appraisal or valuation services, fairness opinion or contributions-in-kind reports; | |
| (d) | actuarial services; | |
| (e) | internal audit outsourcing services; | |
| (f) | management functions; | |
| (g) | human resources; | |
| (h) | broker or dealer, investment adviser or investment banking services; | |
| (i) | legal services; | |
| (j) | expert services unrelated to the audit; and | |
| (k) | any other service that the Canadian Public Accountability Board determines is impermissible. |
| 2. | In the event that the Company wishes to retain the services of the Company’s external auditors for tax compliance, tax advice or tax planning, the Chief Financial Officer of the Company shall consult with the Chair of the Committee, who shall have the authority to approve or disapprove on behalf of the Committee, such non-audit services. All other non-audit services shall be approved or disapproved by the Committee as a whole. |
| 3. | The Chief Financial Officer of the Company shall maintain a record of non-audit services approved by the Chair of the Committee or the Committee for each fiscal year and provide a report to the Committee no less frequently than on a quarterly basis. |
| 8.0 | Reporting |
The Chair will report to the Board at each Board meeting on the Committee’s activities since the last Board meeting. The Committee will annually review and approve the Committee’s report for inclusion in the Annual Information Form. The secretary will circulate the minutes of each meeting of the Committee to the members of the Board.
| 9.0 | Access to Information and Authority |
The Committee will be granted unrestricted access to all information regarding Bitfarms Canada that is necessary or desirable to fulfill its duties and all directors, officers and employees will be directed to cooperate as requested by Members.
| 10.0 | Review of Charter |
The Committee will annually review and assess the adequacy of this Charter and recommend any proposed changes to the Board for consideration.
| Dated: | February 11, 2020 |
| Approved by: | Board of Directors |
Exhibit 99.25
Bitfarms Announces
Request for Extension to File First Quarter
Interim Financial Statements and Management’s Discussion and Analysis
TORONTO & BROSSARD, Québec--(BUSINESS WIRE)--May 22, 2020--Bitfarms Ltd. (“Bitfarms” or the “Company”) (TSXV:BITF), a blockchain infrastructure company that operates one of the largest cryptocurrency mining operations in North America, wishes to provide an update on the status of filing its interim consolidated financial statements, accompanying management's discussion and analysis, and related CEO and CFO certifications for the first quarter ended March 31, 2020.
The Ontario Securities Commission ("OSC") has acknowledged that the COVID-19 pandemic may present challenges for market participants in the meeting of certain obligations under Ontario securities law. On March 23, 2020, the OSC enacted Ontario Instrument 51-502 Temporary Exemption from Certain Corporate Finance Requirements providing a 45-day extension for certain periodic filings required to be made on or prior to June 1, 2020 as a result of COVID-19. Bitfarms will be relying on this extension period due to delays experienced as result of COVID-19.
Bitfarms will be relying on the OSC Temporary Exemption in respect of the following provisions:
| · | the requirement to file interim consolidated financial statements for the three months ended March 31, 2020 within 60 days of Bitfarms’ financial quarter end as required by section 4.4 of National Instrument 51-102; | |
| · | the requirement to file management's discussion and analysis for the period covered by the interim consolidated financial statements within 60 days of Bitfarms’ financial quarter end as required by section 5.1(2) of National Instrument 51-102; and | |
| · | the requirement to file certifications of the interim financial statements pursuant to section 5.1 of National Instrument 52-109. |
The Company is working expeditiously and expects to file its first quarter financial statements and accompanying management’s discussion and analysis by June 25, 2020. In the interim, management and other insiders of Bitfarms are subject to a trading black-out policy as described, in principle, in section 9 of National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions.
As required by the OSC Temporary Exemption, the Company announces that since the filing of its annual consolidated financial statements for the year ended December 31, 2019, on April 29, 2020, the only material business development has been the Bitcoin Halving which occurred on May 11, 2020. As described in the notes to the Company’s annual consolidated financial statements for the year ended December 31, 2019, and the accompanying management’s discussion and analysis, the Bitcoin Halving reduced the block reward of Bitcoin blocks from 12.5 Bitcoin to 6.25 Bitcoin. The Bitcoin Halving takes place every 210,000 blocks have been mined (i.e. approximately every four years based on a 10 minute average block time). This event was well known in advance and fully expected.
Based on the initial readjustment of network Difficulty immediately after the Halving, Management is confident that the Company is well positioned to adapt to market changes brought about by the Halving and wishes to note that the OSC Temporary Exemption is not related to circumstances related to the Halving.
Given that profitability is required for self-acting agents to perform Mining to continue to support the validation of transactions, Management expects that the impact of the Bitcoin Halving is that market variables of Bitcoin price and Difficulty will adjust over time to ensure that Mining remains profitable. However, the period of market normalization after the Bitcoin Halving to incentivizing profitability levels is unknown. As a result, if Bitcoin price and Difficulty do not adjust over time to pre-Bitcoin Halving profitability levels or the period of market normalization after the Bitcoin Halving to pre-Bitcoin Halving profitability levels is prolonged, there is a risk that the Bitcoin Halving may render the Company unprofitable for a sustained time period such that it could be unable to continue as a going concern.
As required by the OSC Temporary Exemption, the Company will issue further press releases at 30 day intervals providing updates on material business developments, if any, including updates on the interim consolidated financial statements and accompanying management’s discussion and analysis for the quarter ended March 31, 2020.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
2
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Contacts
For investor and media inquiries:
Marc Duchesne
+1.514.277.3508
3
Exhibit 99.26
Bitfarms
Announces Acquisition of New Mining Equipment and Management
Appointments and Changes
Toronto, Ontario and Brossard, Québec (June 1, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) announces that it has purchased 1,847 WhatsMiner M20S miners from internally developed cash flow from operations. The new equipment is scheduled to be delivered within 4 to 5 weeks. Once fully operational, the mining hardware is expected to add approximately 133 petahash per second (“PH/s”) to the Company’s installed computing power and improve computing efficiency to over 15 PH per megawatt (“MW”). In addition, the Company announces the appointment of John Rim as Chief Operating Officer and Nicolas Bonta as Chief Development Officer as well as the resignation of Ryan Hornby as Executive Vice President and General Counsel of the Company effective June 1, 2020.
New Mining Equipment Purchase:
Each WhatsMiner M20S miner produces an average of 72 terahash per second of computing capacity while consuming approximately 3.46 kWh of energy, or 48 joules per terahash. The M20S miners will utilize, in aggregate, approximately 6.2 megawatts (“MW”) of electricity. Bitfarms expects to have the new M20S hardware installed and operational by the beginning of July.
“We are pleased that the Company has been able to utilize its working capital to capitalize on historically low equipment pricing for the acquisition of the latest batch of mining equipment. This equipment will further extend the Company’s position as the most efficient publicly traded cryptocurrency miner in Canada in terms of computing power relative to electricity consumption,” commented John Rim, COO & CFO.
Management Appointments and Changes:
John Rim has served as Chief Financial Officer of the Company since May 22, 2018. Mr. Rim will assume the responsibilities of Chief Operating Officer in addition to maintaining his role as Chief Financial Officer of the Company.
Nicolas Bonta has served as the Chairman of the Board of Directors of Backbone since April 12, 2018. Mr. Bonta is also a founder of Backbone and a successful entrepreneur with over 20 years of commercial business experience. Mr. Bonta will assume the role of Chief Development Officer of the Company and will be responsible for strategic corporate and business development.
The Company thanks Mr. Hornby for his contribution to the Company and wishes him well in his future endeavours. The Company will continue to be supported by its external law firms, and has no plans to hire a replacement at this time.
“We are very pleased to add Nico as our Chief Development Officer and for John to take on the additional role of Chief Operating Officer. We have a strong, commercially experienced, and cohesive management team with proven track records and we remain committed to growing our Company” commented Emi Grodzki, Interim CEO.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
2
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.27
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
June 1, 2020
Item 3 News Release
The press release attached as Schedule “A” was released over GlobeNewswire on June 1, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
John Rim
Chief Financial Officer & Chief Operating Officer
Bitfarms Ltd.
416-804-8535
Item 9 Date of Report
June 1, 2020
Schedule “A”
Bitfarms
Announces Acquisition of New Mining Equipment and Management
Appointments and Changes
Toronto, Ontario and Brossard, Québec (June 1, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) announces that it has purchased 1,847 WhatsMiner M20S miners from internally developed cash flow from operations. The new equipment is scheduled to be delivered within 4 to 5 weeks. Once fully operational, the mining hardware is expected to add approximately 133 petahash per second (“PH/s”) to the Company’s installed computing power and improve computing efficiency to over 15 PH per megawatt (“MW”). In addition, the Company announces the appointment of John Rim as Chief Operating Officer and Nicolas Bonta as Chief Development Officer as well as the resignation of Ryan Hornby as Executive Vice President and General Counsel of the Company effective June 1, 2020.
New Mining Equipment Purchase:
Each WhatsMiner M20S miner produces an average of 72 terahash per second of computing capacity while consuming approximately 3.46 kWh of energy, or 48 joules per terahash. The M20S miners will utilize, in aggregate, approximately 6.2 megawatts (“MW”) of electricity. Bitfarms expects to have the new M20S hardware installed and operational by the beginning of July.
“We are pleased that the Company has been able to utilize its working capital to capitalize on historically low equipment pricing for the acquisition of the latest batch of mining equipment. This equipment will further extend the Company’s position as the most efficient publicly traded cryptocurrency miner in Canada in terms of computing power relative to electricity consumption,” commented John Rim, COO & CFO.
Management Appointments and Changes:
John Rim has served as Chief Financial Officer of the Company since May 22, 2018. Mr. Rim will assume the responsibilities of Chief Operating Officer in addition to maintaining his role as Chief Financial Officer of the Company.
Nicolas Bonta has served as the Chairman of the Board of Directors of Backbone since April 12, 2018. Mr. Bonta is also a founder of Backbone and a successful entrepreneur with over 20 years of commercial business experience. Mr. Bonta will assume the role of Chief Development Officer of the Company and will be responsible for strategic corporate and business development.
The Company thanks Mr. Hornby for his contribution to the Company and wishes him well in his future endeavours. The Company will continue to be supported by its external law firms, and has no plans to hire a replacement at this time.
“We are very pleased to add Nico as our Chief Development Officer and for John to take on the additional role of Chief Operating Officer. We have a strong, commercially experienced, and cohesive management team with proven track records and we remain committed to growing our Company” commented Emi Grodzki, Interim CEO.
2
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
3
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
4
Exhibit 99.28
|
Bitfarms Ltd. (the “Corporation”) |
FORM OF PROXY (“PROXY”)
Annual
General Meeting
June 29, 2020 at 9:00 a.m. (Toronto time)
Offices of Peterson McVicar LLP at Suite 902, 18 King Street West
Toronto, ON M5C 1C4
(the “Meeting”)
| RECORD DATE: | May 20, 2020 |
| CONTROL NUMBER: | |
| SEQUENCE #: | |
| FILING DEADLINE FOR PROXY: | June 25, 2020 at 9:00 a.m. (Toronto time) |
| VOTING METHOD | |
| INTERNET |
Go to www.voteproxyonline.com and enter the 12 digit control number above |
| FACSIMILE | 416-595-9593 |
|
TSX Trust Company 301 - 100 Adelaide Street West | |
The undersigned hereby appoints John Rim, whom failing Nicolas Bonta (the “Management Nominees”), or instead of any of them, the following Appointee
| Please print appointee name |
as proxyholder on behalf of the undersigned with the power of substitution to attend, act and vote for and on behalf of the undersigned in respect of all matters that may properly come before the Meeting and at any adjournment(s) or postponement(s) thereof, to the same extent and with the same power as if the undersigned were personally present at the said Meeting or such adjournment(s) or postponement(s) thereof in accordance with voting instructions, if any, provided below.
| - SEE VOTING GUIDELINES ON REVERSE - | |||||||||
| RESOLUTIONS - MANAGEMENT VOTING RECOMMENDATIONS ARE INDICATED BY HIGHLIGHTED TEXT ABOVE THE BOXES | |||||||||
| 1. Election of Directors | FOR | WITHHOLD | |||||||
| a) | Emiliano Joel Grodzki | ||||||||
| b) | Nicolas Bonta | ||||||||
| c) | Brian Howlett | ||||||||
| d) | Pierre Seccareccia | ||||||||
| e) | L. Geoffrey Morphy | ||||||||
| f) | Mathieu Vachon | ||||||||
| 2. Appointment of Auditor | FOR | WITHHOLD | |||||||
| Appointment of Kost, Forer, Gabbay & Kasierer, a Member of Ernst & Young Global as Auditor of the Corporation for the ensuing year and authorizing the Directors to fix their remuneration. | o |
o | |||||||
This proxy revokes and supersedes all earlier dated proxies and MUST BE SIGNED
| PLEASE PRINT NAME | Signature of registered owner(s) | Date (MM/DD/YYYY) |
Proxy Voting – Guidelines and Conditions
| 1. | THIS PROXY IS SOLICITED BY MANAGEMENT OF THE CORPORATION. |
| 2. | THIS PROXY SHOULD BE READ IN CONJUNCTION WITH THE MEETING MATERIALS PRIOR TO VOTING. |
| 3. | If you appoint the Management Nominees to vote your securities, they will vote in accordance with your instructions or, if no instructions are given, in accordance with the Management Voting Recommendations highlighted for each Resolution on the reverse. If you appoint someone else to vote your securities, they will also vote in accordance with your instructions or, if no instructions are given, as they in their discretion choose. |
| 4. | This proxy confers discretionary authority on the person named to vote in his or her discretion with respect to amendments or variations to the matters identified in the Notice of the Meeting accompanying the proxy or such other matters which may properly come before the Meeting or any adjournment or postponement thereof. |
| 5. | Each security holder has the right to appoint a person other than the Management Nominees specified herein to represent them at the Meeting or any adjournment or postponement thereof. Such right may be exercised by inserting in the space labeled “Please print appointee name”, the name of the person to be appointed, who need not be a security holder of the Corporation. |
| 6. | To be valid, this proxy must be signed. Please date the proxy. If the proxy is not dated, it is deemed to bear the date of its mailing to the security holders of the Corporation. |
| 7. | To be valid, this proxy must be filed using one of the Voting Methods and must be received by TSX Trust Company before the Filing Deadline for Proxies, noted on the reverse or in the case of any adjournment or postponement of the Meeting not less than 48 hours (Saturdays, Sundays and holidays excepted) before the time of the adjourned or postponed meeting. Late proxies may be accepted or rejected by the Chairman of the Meeting in his discretion, and the Chairman is under no obligation to accept or reject any particular late proxy. |
| 8. | If the security holder is a corporation, the proxy must be executed by an officer or attorney thereof duly authorized, and the security holder may be required to provide documentation evidencing the signatory’s power to sign the proxy. |
| 9. | Guidelines for proper execution of the proxy are available at www.stac.ca. Please refer to the Proxy Protocol. |
Investor inSite
TSX Trust Company offers at no cost to security holders, the convenience of secure 24-hour access to all data relating to their account including summary of holdings, transaction history, and links to valuable security holder forms and Frequently Asked Questions.
To register, please visit www.tsxtrust.com/investorinsite
Click on, “Register” and complete the registration form. Call us toll free at 1-866-600-5869 with any questions.
www.tsxtrust.com
VANCOUVER CALGARY TORONTO MONTRÉAL
052720_v1
Exhibit 99.29
TSX TRUST COMPANY
| VIA ELECTRONIC TRANSMISSION | |
| June 9, 2020 | |
| TO ALL APPLICABLE EXCHANGES AND COMMISSIONS: | |
| RE: | BITFARMS LTD. |
| We are pleased to confirm that copies of the following proxy-related materials were mailed on June 8, 2020 to the Registered Securityholders and the Non-Objecting Beneficial Owners (“NOBO”): | |
| 1 | Proxy - Registered Securityholders |
| 2 | Voting Instruction Form - NOBOs |
| 3 | Notice of Meeting Combined with Information Circular |
| 4 | Financial Statements and Management’s Discussion and Analysis |
| 5 | Proxy Return Envelope |
| Yours truly, | |
| TSX Trust Company | |
| “Kieran Webb” | |
| Relationship Manager | |
| [email protected] | |
| VANCOUVER 650 West Georgia Street, Suite 2700 Vancouver, BC V6B 4N9 T 604 689-3334 |
CALGARY 300-5th Avenue SW, 10th floor Calgary, AB T2P 3C4 T 403 218-2800 |
TORONTO 301 - 100 Adelaide Street West Toronto ON M5H 4H1 Toll Free 1-866-600-5869 T 416 361-0930 |
MONTRÉAL 1800 - 1190, avenue des Canadiens-de-Montréal, C. P. 37 Montréal (Québec) H3B 0G7 T 514 395-5964 |
Exhibit 99.30
 Building a better working world |
Kost
Forer Gabbay & Kasierer 144 Menachern Begin Road. Building A Tel-Aviv 6492102, Israel |
Tel:
+972-3-6232525 Fax: +972-3-5622555 ey.com |
June 17, 2020
| TO: | Ontario Securities Commission |
| RE: | Bitfarms Ltd. (the “Company”) |
| National Instrument 51-102 - Continuous Disclosure Obligations (“NI 51-102”) | |
| Change of Auditor of a Reporting Issuer |
Dear Sirs/Mesdames:
As required by NI 51-102 and in connection with us resigning as auditors of the Company, we have reviewed the information contained in the Company’s Notice of Change of Auditor, dated June 10th, 2020. and agree with the information contained in paragraphs 1-4 therein. We have no basis to agree or disagree with other statements ofthe registrant contain therein.
Yours truly,
Kost, Farer, Gabbay & Ka!f erer,
A Member of Ernst & Young Global
Exhibit 99.31
June 17, 2020
To the Chairman of Audit Committee
Enclosed is our response to the change of auditor notice dated June 10, 2020 in accordance with National Instrument 51-102. We understand that this letter will be reviewed and approved by the Audit Committee and Board of Directors, filed with Ontario Securities Commission prior to date within 14 days after our appointment, and included in the information circular accompanying the notice of any meeting of shareholders at which action is to be taken concerning a change in auditor.
Yours very truly,
Chartered Professional Accountants, Licensed Public Accountants
| PricewaterhouseCoopers LLP | |
| PwC Centre, 354 Davis Road, Suite 600, Oakville, Ontario,
Canada L6J 0C5 T: +1 905 815 6300, F: +1 905 815 6499, www.pwc.com/ca |
|
| “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. |
June 17, 2020
To: Ontario Securities Commission
We have read the statements made by Bitfarms Ltd. in the attached copy of change of auditor notice dated June 10, 2020, which we understand will be filed pursuant to Section 4.11 of National Instrument 51-102.
We agree with the statements concerning PricewaterhouseCoopers LLP in the change of auditor notice dated June 10, 2020.
Yours very truly,
Chartered Professional Accountants, Licensed Public Accountants
| PricewaterhouseCoopers LLP | |
| PwC Centre, 354 Davis Road,
Suite 600, Oakville, Ontario, Canada L6J 0C5 T: +1 905 815 6300, F: +1 905 815 6499, www.pwc.com/ca |
|
| “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. |
Exhibit 99.32
Bitfarms Ltd.
Change of Auditor Notice
Pursuant to National Instrument 51-102, Section 4.11
| I. | Former auditor |
| a. | On June 10, 2020, |
| i. | Kost Forer Gabbay & Kasierer resigned as the auditor of Bitfarms Ltd. at the reporting issuer’s request. | |
| ii. | The Audit Committee participated in and approved the decision to change the auditor. | |
| iii. | The auditor’s reports of Kost Forer Gabbay & Kasierer on the financial statements of Bitfarms Ltd. for the two years ended December 31, 2019 did not contain any modifications as to departures from generally accepted accounting principles or limitation in the scope of the audit. | |
| iv. | In connection with the audits for the two years ended December 31, 2019 and through to June 10, 2020 there have been no reportable events, as defined in the National Instrument. |
| II. | Successor auditor |
The reporting issuer appointed PricewaterhouseCoopers LLP as its new auditor as of June 18, 2020. The Audit Committee and Board of Directors considered and approved the appointment.
Dated at Toronto, Ontario, this 18th day of June 2020.
Bitfarms Ltd.
per: John Rim, CFO
Exhibit 99.33
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
June 18, 2020.
Item 3 News Release
The press release attached as Schedule “A” was released on June 19, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
John Rim
Chief
Financial Officer & Chief Operating Officer
Bitfarms Ltd.
416-804-8535
Item 9 Date of Report
June 19, 2020.
Schedule “A”
Bitfarms Announces Change of Auditor and Provides Notice of Release of First Quarter 2020 Financial Results
Toronto, Ontario and Brossard, Québec (June 19, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) announces that, at the request of the Company, Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global (“EY”) has resigned as the Company’s auditor and PricewaterhouseCoopers LLP (“PwC”) has been appointed as the successor auditor effective June 18, 2020. In accordance with National Instrument 51-102 – Continuous Disclosure Obligations (“NI-51-102”), the Company has filed a Change of Auditor Notice (the “Notice”) on SEDAR together with letters from both EY and PwC, with each letter confirming agreement with the statements contained in the Notice, as applicable. There were no reportable events as defined in NI-51-102 between EY and the Company.
Release of First Quarter 2020 Financial Results
Bitfarms also announces it will release its first quarter 2020 results on Wednesday June 24, 2020 prior to market open. The Company’s senior management will be hosting a webcast presentation at 10:00 AM Eastern Time on June 24, 2020 to discuss Bitfarms’ financial and operating results. To view the webcast presentation, please register using the following link:
https://onlinexperiences.com/Launch/QReg/ShowUUID=12748A45-4F77-49B5-8DBB-793D04E62501
The financial results and presentation will also be available on the Company’s website at www.bitfarms.com
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward- looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Exhibit 99.34
Bitfarms Announces Change of Auditor and Provides Notice of Release of First Quarter 2020 Financial Results
TORONTO & BROSSARD, Québec—(BUSINESS WIRE)--June 19, 2020—Bitfarms Ltd.
(“Bitfarms”, or the “Company”) (TSXV:BITF) announces that, at the request of the Company, Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global (“EY”) has resigned as the Company’s auditor and PricewaterhouseCoopers LLP (“PwC”) has been appointed as the successor auditor effective June 18, 2020. In accordance with National Instrument 51-102 – Continuous Disclosure Obligations (“NI-51-102”), the Company has filed a Change of Auditor Notice (the “Notice”) on SEDAR together with letters from both EY and PwC, with each letter confirming agreement with the statements contained in the Notice, as applicable. There were no reportable events as defined in NI-51-102 between EY and the Company.
Release of First Quarter 2020 Financial Results
Bitfarms also announces it will release its first quarter 2020 results on Wednesday June 24, 2020 prior to market open. The Company’s senior management will be hosting a webcast presentation at 10:00 AM Eastern Time on June 24, 2020 to discuss Bitfarms’ financial and operating results. To view the webcast presentation, please register using the following link:
https://onlinexperiences.com/Launch/QReg/ShowUUID=12748A45-4F77-49B5-8DBB- 793D04E62501
The financial results and presentation will also be available on the Company’s website at www.bitfarms.com
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Contacts
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
Exhibit 99.35
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
June 24, 2020
Item 3 News Release
The press release attached as Schedule “A” was released on June 24, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
John Rim
Chief Financial Officer & Chief Operating Officer
Bitfarms Ltd.
[email protected]
416-804-8535
Item 9 Date of Report
June 24, 2020
Schedule “A”
[See attached.]
Bitfarms Reports Financial Results for
the Three Months Ended
March 31, 2020
Toronto, Ontario and Brossard, Québec (June 24, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) today announced its consolidated results for the quarter ended March 31, 2020.
Q1 2020 Financial Summary and Corporate Highlights
| ● | Consolidated revenue of US$9.2 million, gross profit of US$1.3 million (14% gross profit margin) and net loss of US$2.4 million in Q1 2020 compared to US$3.6 million, US$0.2 million (6% gross profit margin), and a net loss of US$2 million, respectively, in Q1 2019; |
| ● | Mining operations segment gross mining profit1 of US$4.1 million (47% gross mining margin) in Q1 2020 compared to $1.1 million (36% gross mining margin) in Q1 2019; |
| ● | US$1.8 million EBITDA1 (20% EBITDA margin) and US$2.8 million Adjusted EBITDA1 (30% Adjusted EBITDA margin) in Q1 2020 compared to an EBITDA loss of US$0.5 million (-14% EBITDA margin) and Adjusted EBITDA loss of US$0.4 million (-12% Adjusted EBITDA margin) in Q1 2019; and |
| ● | Mined 1,087 Bitcoin with a Q1 2020 average break-even2 Bitcoin price of US$3,988. |
“We are pleased that, despite the difficulties in general market conditions presented by the COVID-19 pandemic in Q1 2020 for most companies, Bitfarms’ operations were able to continue in normal course and yielded positive EBITDA and Adjusted EBITDA. We are pleased that the Company was able to achieve a 47% gross mining margin in the first quarter amidst challenging and uncertain market conditions.
We believe our financial performance relative to our competition reflects the difference in the strength of Bitfarms’ operational efficiency in Bitcoin mining versus our public peers. The cost efficiency of the Company’s operations is further reflected in the break-even cost of production of each Bitcoin of $3,988, which compared very favorably to publicly disclosed financial information of other miners. The break-even cost of production of each Bitcoin achieved of $3,988 achieved by the Company also compared very well to the average Bitcoin market price of approximately $8,261 during the first quarter” commented John Rim, Chief Operating Officer and Chief Financial Officer.
Emiliano Grodzki, Interim Chief Executive Officer of Bitfarms added, “Bitfarms continues to solidify its position as the industry leader in terms of operational efficiency and financial performance. We will continue to carry out our strategy of disciplined, timely and cost efficient growth to achieve greater scale and further our leadership in this burgeoning industry.”
| 1 | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to the end of this press release regarding the use of Non-IFRS Performance Measures. |
| 2 | Represents the break-even cost of Bitcoin based on variable cost of electricity and is calculated by taking the total electricity costs related to the Mining of each Bitcoin divided by the total number of Bitcoin mined, in the relevant period. |
Financial Review
Consolidated Company Results (000’s)
| (U.S.$ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 |
Mar. 31 2019 |
$ Change | % Change | ||||||||||||
| Revenues | 9,212 | 3,629 | 5,583 | 154 | % | |||||||||||
| Cost of sales | 7,917 | 3,417 | 4,500 | 132 | % | |||||||||||
| Gross profit | 1,295 | 212 | 1,083 | 511 | % | |||||||||||
| Gross margin | 14 | % | 6 | % | - | - | ||||||||||
| G&A and other expenses | 2,805 | 1,923 | 882 | 46 | % | |||||||||||
| Operating loss | (1,510 | ) | (1,711 | ) | 201 | 12 | % | |||||||||
| Operating margin | (16 | )% | (47 | )% | - | - | ||||||||||
| Financial income | 363 | 25 | 338 | 1352 | % | |||||||||||
| Interest expense | 1,385 | 132 | 1,253 | 949 | % | |||||||||||
| Other financial expenses | - | 188 | (188 | ) | (100 | )% | ||||||||||
| Total financial expenses | 1,385 | 320 | 1,065 | 333 | % | |||||||||||
| Pre-tax loss | (2,532 | ) | (2,006 | ) | (526 | ) | (26 | )% | ||||||||
| Income tax recovery | (108 | ) | - | (108 | ) | 100 | % | |||||||||
| Net loss | (2,424 | ) | (2,006 | ) | (418 | ) | (21 | )% | ||||||||
| Net loss per share - basic | (0.03 | ) | (0.02 | ) | (0.01 | ) | (44 | )% | ||||||||
| Gross mining profit (1) | 4,139 | 1,087 | 3,052 | 281 | % | |||||||||||
| Gross mining margin (1) | 47 | % | 36 | % | - | - | ||||||||||
| EBITDA (1) | 1,833 | (526 | ) | 2,359 | 448 | % | ||||||||||
| EBITDA margin (1) | 20 | % | (14 | )% | - | - | ||||||||||
| Adjusted EBITDA (1) | 2,780 | (420 | ) | 3,200 | 762 | % | ||||||||||
| Adjusted EBITDA margin (1) | 30 | % | (12 | )% | - | - | ||||||||||
Notes
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to Non-IFRS Performance Measures. |
Revenue
Bitfarms’ total revenue for Q1 2020 was US$9.2 million compared to US$3.6 million in Q1 2019. Revenue in Q1 2020 increased US$5.6 million or 154% in Q1 2020 compared to Q1 2019 due to an increase in the average selling price of Bitcoin (i.e. $8,138 in Q1 2020 compared to $3,802 in Q1 2019) in addition to an increase in Bitcoin mined in Q1 2020 compared to Q1 2019 that resulted from the increase in Bitfarms’ average hashrate in excess of the increase Network Difficulty.
Cost of Sales
Bitfarms’ cost of sales for Q1 2020 was US$7.9 million compared to US$3.4 million in Q1 2019. Costs of sales include energy and infrastructure expenses, rental expense, depreciation and amortization, electrician salaries, and purchases and net change in inventory.
Energy and infrastructure expenses increased by US$2.7 million or 140% in Q1 2020 compared to Q1 2019 as the Company added new mining equipment that increased electrical consumption from 22 MW in Q1 2019 to approximately 53 MW by the end of Q1 2020. Depreciation and amortization expense increased by US$1.6 million or 121% in Q1 2020 compared to Q1 2019 due to the increase of property, plant and equipment added by the Company in throughout 2019.
Gross Profit
In Q1 2020, the Company had consolidated gross profit of US$1.3 million (14% gross margin) on consolidated revenue of US$9.2 million, compared to gross profit of US$0.2 million (6% gross margin) on consolidated revenue of US$3.6 million in Q1 2019.
General & Administrative and Other Expenses
Bitfarms’ general and administrative and other expenses increased US$0.9 million or 46% in Q1 2020 compared to Q1 2019. The increase was mainly due to higher non-cash salary expenses related to share-based compensation (US$0.6 million) issued to employees as well as the former CEO of the Company upon his resignation on March 13, 2020.
Financial Income and Expenses
Bitfarms’ financial income for Q1 2020 was US$0.4 million compared to financial income of US$25,000 in Q1 2019 resulting primarily from net unrealized foreign exchange gains on the revaluation into US dollars for reporting purposes of assets and liabilities denominated in Canadian dollars. Interest expense for Q1 2020 was US$1.4 million compared to US$0.3 million in Q1 2019. The increase is due to interest on the Dominion Capital loan since only $5 million of the $20 million loan was initially drawn starting March 2019.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 |
Mar. 31 2019 |
$ Change | % Change | ||||||||||||
| Net loss before tax | (2,532 | ) | (2,006 | ) | (526 | ) | (26 | )% | ||||||||
| Interest expense | 1,385 | 132 | 1,253 | 949 | % | |||||||||||
| Depreciation expense | 2,980 | 1,348 | 1,632 | 121 | % | |||||||||||
| EBITDA (1) | 1,833 | (526 | ) | 2,359 | 448 | % | ||||||||||
| Stock compensation expense | 1,010 | 111 | 899 | 810 | % | |||||||||||
| Financial income and other | (63 | ) | (5 | ) | (58 | ) | (1160 | )% | ||||||||
| Adjusted EBITDA (1) | 2,780 | (420 | ) | 3,200 | 762 | % | ||||||||||
Bitfarms’ net loss for Q1 2020 was US$2.4 million compared to a net loss of US$2.0 million for Q1 2019. EBITDA and Adjusted EBITDA for Q1 2020 were US$1.8 million and US$2.8 million, respectively, compared to an EBITDA loss of US$0.5 million and Adjusted EBITDA loss of US$0.4 million in Q1 2019. EBITDA and Adjusted EBITDA are non-IFRS performance measures; please refer to the heading “Non-IFRS Performance Measures” at the end of this press release.
Calculation of Gross Mining Profit & Gross Mining Margin
| (U.S. $ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Revenues | 8,724 | 3,000 | 5,724 | 191 | % | |||||||||||
| Energy and infrastructure expenses | 4,585 | 1,913 | 2,672 | 140 | % | |||||||||||
| Gross mining profit | 4,139 | 1,087 | 3,052 | 281 | % | |||||||||||
| Gross mining margin | 47 | % | 36 | % | - | - | ||||||||||
Webcast
The Company will be hosting a webcast presentation at 10:00 AM ET on June 24 2020. To view the webcast presentation, please register at:
https://onlinexperiences.com/Launch/QReg/ShowUUID=12748A45-4F77-49B5-8DBB-793D04E62501
The financial results and presentation will also be available on our website at www.bitfarms.com.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.io
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Non-IFRS Performance Measures
This press release makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including "EBITDA," “EBITDA margin,” "Adjusted EBITDA," “Adjusted EBITDA margin,” “Gross mining profit,” and "Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenue. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; and (iv) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenue. “Gross mining profit” is defined as Revenue minus energy expenses for the Bitfarms segment of the Company. "Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenue for the Bitfarms segment of the Company.
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. See “Reconciliation of Net Income to EBITDA and Adjusted EBITDA” for reconciliation of EBITDA and Adjusted EBITDA to net income.
Exhibit 99.36
Bitfarms Reports Financial Results for the Three Months Ended March 31, 2020
Toronto, Ontario and Brossard, Québec (June 24, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) today announced its consolidated results for the quarter ended March 31, 2020.
Q1 2020 Financial Summary and Corporate Highlights
| ● | Consolidated revenue of US$9.2 million, gross profit of US$1.3 million (14% gross profit margin) and net loss of US$2.4 million in Q1 2020 compared to US$3.6 million, US$0.2 million (6% gross profit margin), and a net loss of US$2 million, respectively, in Q1 2019; |
| ● | Mining operations segment gross mining profit1 of US$4.1 million (47% gross mining margin) in Q1 2020 compared to $1.1 million (36% gross mining margin) in Q1 2019; |
| ● | US$1.8 million EBITDA1 (20% EBITDA margin) and US$2.8 million Adjusted EBITDA1 (30% Adjusted EBITDA margin) in Q1 2020 compared to an EBITDA loss of US$0.5 million (-14% EBITDA margin) and Adjusted EBITDA loss of US$0.4 million (-12% Adjusted EBITDA margin) in Q1 2019; and |
| ● | Mined 1,087 Bitcoin with a Q1 2020 average break-even2 Bitcoin price of US$3,988. |
“We are pleased that, despite the difficulties in general market conditions presented by the COVID-19 pandemic in Q1 2020 for most companies, Bitfarms’ operations were able to continue in normal course and yielded positive EBITDA and Adjusted EBITDA. We are pleased that the Company was able to achieve a 47% gross mining margin in the first quarter amidst challenging and uncertain market conditions.
We believe our financial performance relative to our competition reflects the difference in the strength of Bitfarms’ operational efficiency in Bitcoin mining versus our public peers. The cost efficiency of the Company’s operations is further reflected in the break-even cost of production of each Bitcoin of $3,988, which compared very favorably to publicly disclosed financial information of other miners. The break-even cost of production of each Bitcoin achieved of $3,988 achieved by the Company also compared very well to the average Bitcoin market price of approximately $8,261 during the first quarter” commented John Rim, Chief Operating Officer and Chief Financial Officer.
Emiliano Grodzki, Interim Chief Executive Officer of Bitfarms added, “Bitfarms continues to solidify its position as the industry leader in terms of operational efficiency and financial performance. We will continue to carry out our strategy of disciplined, timely and cost efficient growth to achieve greater scale and further our leadership in this burgeoning industry.”
| 1 | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to the end of this press release regarding the use of Non-IFRS Performance Measures. |
| 2 | Represents the break-even cost of Bitcoin based on variable cost of electricity and is calculated by taking the total electricity costs related to the Mining of each Bitcoin divided by the total number of Bitcoin mined, in the relevant period. |
Financial Review
Consolidated Company Results (000’s)
| (U.S.$ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Revenues | 9,212 | 3,629 | 5,583 | 154 | % | |||||||||||
| Cost of sales | 7,917 | 3,417 | 4,500 | 132 | % | |||||||||||
| Gross profit | 1,295 | 212 | 1,083 | 511 | % | |||||||||||
| Gross margin | 14 | % | 6 | % | - | - | ||||||||||
| G&A and other expenses | 2,805 | 1,923 | 882 | 46 | % | |||||||||||
| Operating loss | (1,510 | ) | (1,711 | ) | 201 | 12 | % | |||||||||
| Operating margin | (16 | )% | (47 | )% | - | - | ||||||||||
| Financial income | 363 | 25 | 338 | 1352 | % | |||||||||||
| Interest expense | 1,385 | 132 | 1,253 | 949 | % | |||||||||||
| Other financial expenses | - | 188 | (188 | ) | (100 | )% | ||||||||||
| Total financial expenses | 1,385 | 320 | 1,065 | 333 | % | |||||||||||
| Pre-tax loss | (2,532 | ) | (2,006 | ) | (526 | ) | (26 | )% | ||||||||
| Income tax recovery | (108 | ) | - | (108 | ) | 100 | % | |||||||||
| Net loss | (2,424 | ) | (2,006 | ) | (418 | ) | (21 | )% | ||||||||
| Net loss per share - basic | (0.03 | ) | (0.02 | ) | (0.01 | ) | (44 | )% | ||||||||
| Gross mining profit (1) | 4,139 | 1,087 | 3,052 | 281 | % | |||||||||||
| Gross mining margin (1) | 47 | % | 36 | % | - | - | ||||||||||
| EBITDA (1) | 1,833 | (526 | ) | 2,359 | 448 | % | ||||||||||
| EBITDA margin (1) | 20 | % | (14 | )% | - | - | ||||||||||
| Adjusted EBITDA (1) | 2,780 | (420 | ) | 3,200 | 762 | % | ||||||||||
| Adjusted EBITDA margin (1) | 30 | % | (12 | )% | - | - | ||||||||||
Notes
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to Non-IFRS Performance Measures. |
Revenue
Bitfarms’ total revenue for Q1 2020 was US$9.2 million compared to US$3.6 million in Q1 2019. Revenue in Q1 2020 increased US$5.6 million or 154% in Q1 2020 compared to Q1 2019 due to an increase in the average selling price of Bitcoin (i.e. $8,138 in Q1 2020 compared to $3,802 in Q1 2019) in addition to an increase in Bitcoin mined in Q1 2020 compared to Q1 2019 that resulted from the increase in Bitfarms’ average hashrate in excess of the increase Network Difficulty.
Cost of Sales
Bitfarms’ cost of sales for Q1 2020 was US$7.9 million compared to US$3.4 million in Q1 2019. Costs of sales include energy and infrastructure expenses, rental expense, depreciation and amortization, electrician salaries, and purchases and net change in inventory.
Energy and infrastructure expenses increased by US$2.7 million or 140% in Q1 2020 compared to Q1 2019 as the Company added new mining equipment that increased electrical consumption from 22 MW in Q1 2019 to approximately 53 MW by the end of Q1 2020. Depreciation and amortization expense increased by US$1.6 million or 121% in Q1 2020 compared to Q1 2019 due to the increase of property, plant and equipment added by the Company in throughout 2019.
Gross Profit
In Q1 2020, the Company had consolidated gross profit of US$1.3 million (14% gross margin) on consolidated revenue of US$9.2 million, compared to gross profit of US$0.2 million (6% gross margin) on consolidated revenue of US$3.6 million in Q1 2019.
General & Administrative and Other Expenses
Bitfarms’ general and administrative and other expenses increased US$0.9 million or 46% in Q1 2020 compared to Q1 2019. The increase was mainly due to higher non-cash salary expenses related to share-based compensation (US$0.6 million) issued to employees as well as the former CEO of the Company upon his resignation on March 13, 2020.
Financial Income and Expenses
Bitfarms’ financial income for Q1 2020 was US$0.4 million compared to financial income of US$25,000 in Q1 2019 resulting primarily from net unrealized foreign exchange gains on the revaluation into US dollars for reporting purposes of assets and liabilities denominated in Canadian dollars. Interest expense for Q1 2020 was US$1.4 million compared to US$0.3 million in Q1 2019. The increase is due to interest on the Dominion Capital loan since only $5 million of the $20 million loan was initially drawn starting March 2019.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Net loss before tax | (2,532 | ) | (2,006 | ) | (526 | ) | (26 | )% | ||||||||
| Interest expense | 1,385 | 132 | 1,253 | 949 | % | |||||||||||
| Depreciation expense | 2,980 | 1,348 | 1,632 | 121 | % | |||||||||||
| EBITDA (1) | 1,833 | (526 | ) | 2,359 | 448 | % | ||||||||||
| Stock compensation expense | 1,010 | 111 | 899 | 810 | % | |||||||||||
| Financial income and other | (63 | ) | (5 | ) | (58 | ) | (1160 | )% | ||||||||
| Adjusted EBITDA (1) | 2,780 | (420 | ) | 3,200 | 762 | % | ||||||||||
Bitfarms’ net loss for Q1 2020 was US$2.4 million compared to a net loss of US$2.0 million for Q1 2019. EBITDA and Adjusted EBITDA for Q1 2020 were US$1.8 million and US$2.8 million, respectively, compared to an EBITDA loss of US$0.5 million and Adjusted EBITDA loss of US$0.4 million in Q1 2019. EBITDA and Adjusted EBITDA are non-IFRS performance measures; please refer to the heading “Non-IFRS Performance Measures” at the end of this press release.
Calculation of Gross Mining Profit & Gross Mining Margin
| (U.S. $ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Revenues | 8,724 | 3,000 | 5,724 | 191 | % | |||||||||||
| Energy and infrastructure expenses | 4,585 | 1,913 | 2,672 | 140 | % | |||||||||||
| Gross mining profit | 4,139 | 1,087 | 3,052 | 281 | % | |||||||||||
| Gross mining margin | 47 | % | 36 | % | - | - | ||||||||||
Webcast
The Company will be hosting a webcast presentation at 10:00 AM ET on June 24 2020. To view the webcast presentation, please register at:
https://onlinexperiences.com/Launch/QReg/ShowUUID=12748A45-4F77-49B5-8DBB-793D04E62501
The financial results and presentation will also be available on our website at www.bitfarms.com.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
[email protected]
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.io
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Non-IFRS Performance Measures
This press release makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including “EBITDA,” “EBITDA margin,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Gross mining profit,” and “Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenue. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; and (iv) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenue. “Gross mining profit” is defined as Revenue minus energy expenses for the Bitfarms segment of the Company. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenue for the Bitfarms segment of the Company.
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. See “Reconciliation of Net Income to EBITDA and Adjusted EBITDA” for reconciliation of EBITDA and Adjusted EBITDA to net income.
Exhibit 99.37
AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2020
U.S. DOLLARS IN THOUSANDS
UNAUDITED
INDEX
| Page | |
| Interim Condensed Consolidated Statements of Financial Position | 2 |
| Interim Condensed Consolidated Statements of Loss and Comprehensive Loss | 3 |
| Interim Condensed Consolidated Statements of Changes in Equity | 4 |
| Interim Condensed Consolidated Statements of Cash Flows | 5-6 |
| Notes to Interim Condensed Consolidated Financial Statements | 7-20 |
- - - - - - - - - - - - - - - - - - -
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
| March 31, 2020 | December 31, 2019 | |||||||||||
| Note | Unaudited | |||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS: | ||||||||||||
| Cash and cash equivalents | $ | 2,332 | $ | 2,159 | ||||||||
| Trade receivables, net | 738 | 1,108 | ||||||||||
| Other assets | 4 | 1,137 | 1,398 | |||||||||
| Inventories | 5 | 264 | 135 | |||||||||
| Income taxes receivable | 1,595 | 1,743 | ||||||||||
| 6,066 | 6,543 | |||||||||||
| Assets held for sale | 6 | - | 7 | |||||||||
| TOTAL CURRENT ASSETS | 6,066 | 6,550 | ||||||||||
| NON-CURRENT ASSETS: | ||||||||||||
| Property, plant and equipment, net | 7 | 36,032 | 37,774 | |||||||||
| Right-of-use assets | 10 | 5,981 | 6,233 | |||||||||
| Intangible assets, net | 643 | 675 | ||||||||||
| Long-term deposits and advance payments on equipment | 8 | 1,387 | 1,148 | |||||||||
| Embedded derivative | 9 | 538 | 476 | |||||||||
| TOTAL NON-CURRENT ASSETS | 44,581 | 46,306 | ||||||||||
| TOTAL ASSETS | $ | 50,647 | $ | 52,856 | ||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| CURRENT LIABILITIES: | ||||||||||||
| Current maturities of long-term debt | 9 | $ | 4,275 | $ | 874 | |||||||
| Current maturities of lease liabilities | 10 | 699 | 746 | |||||||||
| Accounts payable and accrued liabilities | 2,211 | 2,389 | ||||||||||
| TOTAL CURRENT LIABILITIES | 7,185 | 4,009 | ||||||||||
| NON-CURRENT LIABILITIES: | ||||||||||||
| Long-term debt | 9 | 11,357 | 14,849 | |||||||||
| Lease liabilities | 10 | 5,053 | 5,717 | |||||||||
| Asset retirement provision | 11 | 178 | 193 | |||||||||
| TOTAL NON-CURRENT LIABILITIES | 16,588 | 20,759 | ||||||||||
| TOTAL LIABILITIES | 23,773 | 24,768 | ||||||||||
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: | ||||||||||||
| Share capital | 12 | 35,154 | 33,944 | |||||||||
| Accumulated deficit | (8,280 | ) | (5,856 | ) | ||||||||
| TOTAL EQUITY | 26,874 | 28,088 | ||||||||||
| TOTAL LIABILITIES & EQUITY | $ | 50,647 | $ | 52,856 | ||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
|
2 |
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
U.S. dollars in thousands (except earnings per share)
| Three months ended March 31, | ||||||||||||
| Note | 2020 | 2019 | ||||||||||
| Unaudited | ||||||||||||
| Revenues | 13 | $ | 9,212 | $ | 3,629 | |||||||
| Cost of revenues | 7,917 | 3,417 | ||||||||||
| Gross profit | 1,295 | 212 | ||||||||||
| General and administrative expenses | 2,805 | 1,923 | ||||||||||
| Operating loss | (1,510 | ) | (1,711 | ) | ||||||||
| Financial income | 363 | 25 | ||||||||||
| Financial expenses | (1,385 | ) | (320 | ) | ||||||||
| Loss before taxes on income | (2,532 | ) | (2,006 | ) | ||||||||
| Income tax benefit | (108 | ) | - | |||||||||
| Net loss and total comprehensive loss | $ | (2,424 | ) | $ | (2,006 | ) | ||||||
| Attributable to: | ||||||||||||
| Equity holders of the Company | $ | (2,424 | ) | $ | (1,290 | ) | ||||||
| Non-controlling interest | - | (716 | ) | |||||||||
| $ | (2,424 | ) | $ | (2,006 | ) | |||||||
| Net loss per share attributable to equity holders of the Company (in U.S. dollars): | ||||||||||||
| Basic and diluted loss per share | 15 | $ | (0.03 | ) | $ | (0.02 | ) | |||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
|
3 |
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands
| Equity attributable to equity holders of the Company | ||||||||||||||||||||||||
| Share capital | Obligation to issue shares | Accumulated deficit | Total | Non- controlling interest | Total equity | |||||||||||||||||||
| Balance as of January 1, 2020 | $ | 33,944 | $ | - | $ | (5,856 | ) | $ | 28,088 | $ | - | $ | 28,088 | |||||||||||
| Net loss and total comprehensive loss | - | - | (2,424 | ) | (2,424 | ) | - | (2,424 | ) | |||||||||||||||
| Share-based payment | 1,010 | - | - | 1,010 | - | 1,010 | ||||||||||||||||||
| Exercise of warrants | 200 | - | - | 200 | - | 200 | ||||||||||||||||||
| Balance as of March 31, 2020 (unaudited) | $ | 35,154 | $ | - | $ | (8,280) | $ | 26,874 | $ | - | $ | 26,874 | ||||||||||||
| Balance as of January 1, 2019 | $ | 19,812 | $ | 4,386 | $ | (8,755 | ) | $ | 15,443 | $ | 5,209 | $ | 20,652 | |||||||||||
| Net loss and total comprehensive loss | - | - | (1,290 | ) | (1,290 | ) | (716 | ) | (2,006 | ) | ||||||||||||||
| Share-based payment in legal subsidiary | - | - | - | - | 111 | 111 | ||||||||||||||||||
| Balance as of March 31, 2019 (unaudited) | $ | 19,812 | $ | 4,386 | $ | (10,045 | ) | $ | 14,153 | $ | 4,604 | $ | 18,757 | |||||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
|
4 |
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| Three months ended March 31, |
||||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,424 | ) | $ | (2,006 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 2,980 | 1,348 | ||||||
| Financial expenses | 1,385 | 254 | ||||||
| Share-based payment | 1,010 | 111 | ||||||
| Financial income | (588 | ) | - | |||||
| Interest and financial expenses paid | (1,057 | ) | (151 | ) | ||||
| Provision for asset retirement and loss on disposition of property, plant and equipment | (10 | ) | (9 | ) | ||||
| 3,720 | 1,553 | |||||||
| Changes in non-cash working capital components (A) | 143 | 263 | ||||||
| Net cash provided by (used in) operating activities | 1,439 | (190 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment and intangible | (761 | ) | (1,688 | ) | ||||
| Proceeds from sale of property, plant and equipment | 7 | 1,293 | ||||||
| Advance payments for equipment | (107 | ) | (1,227 | ) | ||||
| Net cash used in investing activities | (861 | ) | (1,622 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Issuance of warrants | - | 946 | ||||||
| Exercise of warrants | 200 | - | ||||||
| Proceeds from long-term debt, net | - | 3,550 | ||||||
| Repayment of lease liabilities | (181 | ) | (180 | ) | ||||
| Repayment of long-term debt | (419 | ) | (96 | ) | ||||
| Net cash provided by (used in) financing activities | (400 | ) | 4,220 | |||||
| Exchange rate differences on currency translation | (5 | ) | 3 | |||||
| Increase in cash and cash equivalents | 173 | 2,411 | ||||||
| Cash and cash equivalents at beginning of period | 2,159 | 552 | ||||||
| Cash and cash equivalents at end of period | $ | 2,332 | $ | 2,963 | ||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
|
5 |
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| Three months ended March 31, | ||||||||||
| 2020 | 2019 | |||||||||
| Unaudited | ||||||||||
| (A) | Changes in working capital components: | |||||||||
| Decrease in trade receivables, net | $ | 327 | $ | 398 | ||||||
| Decrease (increase) in other current assets | 242 | (17 | ) | |||||||
| Increase in inventories | (143 | ) | (233 | ) | ||||||
| Decrease (increase) in long-term deposits | (132 | ) | 363 | |||||||
| Decrease in accounts payable and accrued liabilities | (302 | ) | (213 | ) | ||||||
| Decrease in income taxes receivable | 151 | 15 | ||||||||
| Decrease in liabilities held for sale | - | (50 | ) | |||||||
| $ | 143 | $ | 263 | |||||||
| (B) | Significant non-cash transactions: | |||||||||
| Purchase of property, plant and equipment financed by short-term credit | $ | 650 | $ | 822 | ||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
|
6 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 1: GENERAL
| a. | The Company was incorporated under the Canada Business Corporations Act on October 11, 2018 and has its registered and head office located at 1376 Bayview Avenue, Suite 1, Toronto, ON M4G 3A1. |
| b. | These interim financial statements have been prepared in a condensed format as of March 31, 2020 and for three months then ended (“interim consolidated financial statements”). The interim condensed consolidated financial statements should be read in conjunction with the Company’s annual financial statements as of December 31, 2019, and for the year then ended and accompanying notes (“annual consolidated financial statements”). |
| c. | For the three months ended March 31, 2020, the Company had a net loss of $2,424. As of March 31, 2020, the Company had negative working capital of $1,119 and an accumulated deficit of $8,280. Based on internally prepared forecasted cash flows that take into consideration what management of the Group considers reasonably possible scenarios, management believes that the Group will continue to be able to achieve positive cash flows from operations that will enable the Group to meet its obligations for at least one year from the date of the interim consolidated financial statements. |
The Group is primarily engaged in the cryptocurrency mining industry, that is a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly negatively impact the Group’s operations. Due to the volatility of the prices of cryptocurrencies and the effects of possible changes in the other aforementioned factors, there can be no assurance that future mining operations will be profitable.
In March 2020, the World Health Organization declared COVID-19 a pandemic. The global response to the pandemic is constantly evolving, including various measures implemented at the global, national, provincial and local levels. The major impacts that COVID-19 is expected to have on the Backbone operating segment include potential increases in cryptocurrency price volatility, difficulty obtaining new financing due to global economic slowdown, and delays in receiving future orders of mining hardware and parts sourced from overseas. While the Backbone operating segment is expected to continue operating throughout the pandemic, government-imposed restrictions encouraging social distancing may impact the number of employees permitted to work in the mining facilities. A reduction in workforce in the mining facilities may reduce the Company’s ability to maximize operational efficiency. Volta’s services are considered to be essential by government authorities and are expected to continue throughout the pandemic. The impacts of COVID-19 on the Volta operating segment are expected to reduce revenues from the sale of electrician services and parts, as well as result in longer collection periods for outstanding trade receivables, and potential increases in bad debts resulting from the economic impact of COVID-19 on existing customers. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods
|
7 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 1: GENERAL (Cont.)
| d. | In these financial statements, the following terms shall have the following definitions: |
| 1. | Bitfarms Ltd. or the Company | Bitfarms Ltd. | |
| 2. | Backbone | Backbone Hosting Solutions Inc. | |
| 3. | Volta | 9159-9290 Quebec Inc. | |
| 4. | Bitfarms Ltd. pre-Arrangement | Bitfarms Ltd. (Israel) | |
| 5. | The Group | The Company and its subsidiaries | |
| 6. | BTC | Bitcoin | |
| 7. | LTC | Litecoin | |
| 8. | BVVE | Blockchain Verification and Validation Equipment | |
| e. | These unaudited condensed interim consolidated financial statements were approved and authorized for issuance by the Board of Directors on June 24, 2020. |
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the annual consolidated financial statements, unless otherwise stated.
| a. | Basis of presentation of the financial statements: |
The interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34, “Interim Financial Reporting”.
NOTE 3: OPERATING SEGMENTS
| a. | General: |
The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Group is organized into operating segments based on the products and services of its business units and has operating segments as follows:
| Backbone | Backbone operates server farms that support the validation and verification of transactions on the blockchain, earning cryptocurrency for providing these services. | |
| Volta | Volta provides electrician services to both commercial and residential customers in Quebec. |
|
8 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 3: OPERATING SEGMENTS (Cont.)
The segment results reported to the CODM include items that are allocated directly to the segments and items that can be allocated on a reasonable basis. Items that were not allocated, mainly corporate expenses related to Bitfarms Ltd. (Israel) and financial expenses are managed on a group basis.
| Three months ended March 31, 2020 (Unaudited) | ||||||||||||||||
| Backbone | Volta | Adjustments | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| External customers | $ | 8,724 | $ | 488 | $ | - | $ | 9,212 | ||||||||
| Inter segment revenues | - | 701 | (701 | ) | - | |||||||||||
| Total revenues | 8,724 | 1,189 | (701 | ) | 9,212 | |||||||||||
| Cost of revenues | 7,485 | 1,072 | (640 | ) | 7,917 | |||||||||||
| Gross profit | 1,239 | 117 | (61 | ) | 1,295 | |||||||||||
| General and administrative expenses | 2,582 | 140 | - | 2,722 | ||||||||||||
| Segment loss | $ | (1,343 | ) | $ | (23 | ) | $ | (61 | ) | $ | (1,427 | ) | ||||
| Unallocated corporate expenses | 83 | |||||||||||||||
| Financial expenses, net | 1,022 | |||||||||||||||
| Loss before taxes on income | $ | (2,532 | ) | |||||||||||||
| b. | Reporting on operating segments: |
| Three months ended March 31, 2019 (Unaudited) | ||||||||||||||||
| Backbone | Volta | Adjustments | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| External customers | $ | 3,000 | $ | 629 | $ | - | $ | 3,629 | ||||||||
| Inter segment revenues | - | 529 | (529 | ) | - | |||||||||||
| Total revenues | 3,000 | 1,158 | (529 | ) | 3,629 | |||||||||||
| Cost of revenues | 3,034 | 1,013 | (630 | ) | 3,417 | |||||||||||
| Gross profit (loss) | (34 | ) | 145 | 101 | 212 | |||||||||||
| General and administrative expenses | 1,598 | 140 | - | 1,738 | ||||||||||||
| Segment profit (loss) | $ | (1,632 | ) | $ | 5 | $ | 101 | $ | (1,526 | ) | ||||||
| Unallocated corporate expenses | 185 | |||||||||||||||
| Financial expenses, net | 295 | |||||||||||||||
| Loss before taxes on income | $ | (2,006 | ) | |||||||||||||
|
9 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 4: OTHER ASSETS
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Sales taxes receivable | $ | 810 | $ | 398 | ||||
| Prepaid expenses | 327 | 558 | ||||||
| Electricity credit receivable | - | 442 | ||||||
| $ | 1,137 | $ | 1,398 | |||||
NOTE 5: INVENTORIES
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Electrical components | $ | 168 | $ | 135 | ||||
| Cryptocurrency inventory | 96 | - | ||||||
| $ | 264 | $ | 135 | |||||
Details of the Company’s cryptocurrency inventory are as follows:
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Quantity of Bitcoin | 15 | - | ||||||
| Cost | $ | 96 | $ | - | ||||
| Fair Value * | $ | 96 | $ | - | ||||
| * | The Company based the fair value of the inventory on the prices quoted on www.coinmarketcap.com which calculates the price by taking the weighted average prices, based on volume, reported in each cryptocurrency market as at March 31, 2020. The fair value measurement is categorized as level 1 in the fair value hierarchy. |
NOTE 6: ASSETS HELD FOR SALE
On May 24, 2019, the Company’s management decided to sell 2,500 Antminer L3+ and committed to carry out a plan for the sale of the equipment. As at March 31, 2020, the Company had located a purchaser and received non-refundable deposits totaling approximately $332 and has made the mining hardware available to the purchaser. The purchaser has not collected the mining hardware, which is no longer in use by the Company. The Company has deferred recognizing a gain on the disposition of the assets, as it is not reasonably certain that the transaction will be completed. The proceeds received from the purchaser have been accounted for as a liability included in accounts payable. Assets held for sale as at December 31, 2019, excluding the Antminer L3+, were sold in January 2020, for approximately their carrying amount.
|
10 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
| a. | As of March 31, 2020 and December 31, 2019, property, plant and equipment consisted of: |
| BVVE and electrical components | Mineral assets | Land and buildings | Leasehold improvements | Vehicles | Total | |||||||||||||||||||
| Cost: | ||||||||||||||||||||||||
| Balance as of January 1, 2020 | $ | 54,127 | $ | 9,000 | $ | 2,721 | $ | 2,415 | $ | 381 | $ | 68,644 | ||||||||||||
| Additions during the period | 666 | - | 50 | 188 | - | 904 | ||||||||||||||||||
| Balance as of March 31, 2020 (Unaudited) | 54,793 | 9,000 | 2,771 | 2,603 | 381 | 69,548 | ||||||||||||||||||
| Balance as of January 1, 2019 | 35,439 | 9,000 | 2,033 | 2,140 | 333 | 48,945 | ||||||||||||||||||
| Additions during the period | 21,967 | - | 688 | 275 | 73 | 23,003 | ||||||||||||||||||
| Dispositions during the period | (3,193 | ) | - | - | - | (25 | ) | (3,218 | ) | |||||||||||||||
| Transfer to assets held for sale | (86 | ) | - | - | - | - | (86 | ) | ||||||||||||||||
| Balance as of December 31, 2019 | 54,127 | 9,000 | 2,721 | 2,415 | 381 | 68,644 | ||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||
| Balance as of January 1, 2020 | 28,976 | - | 101 | 1,641 | 152 | 30,870 | ||||||||||||||||||
| Depreciation | 2,558 | - | 19 | 50 | 19 | 2,646 | ||||||||||||||||||
| Balance as of March 31, 2020 (Unaudited) | 31,534 | - | 120 | 1,691 | 171 | 33,516 | ||||||||||||||||||
| Balance as of January 1, 2019 | 26,424 | - | 38 | 1,530 | 91 | 28,083 | ||||||||||||||||||
| Depreciation | 5,318 | - | 63 | 111 | 71 | 5,563 | ||||||||||||||||||
| Dispositions during the period | (2,753 | ) | - | - | - | (10 | ) | (2,763 | ) | |||||||||||||||
| Transfer to assets held for sale | (13 | ) | - | - | - | - | (13 | ) | ||||||||||||||||
| Balance as of December 31, 2019 | 28,976 | - | 101 | 1,641 | 152 | 30,870 | ||||||||||||||||||
| Net book value as of | ||||||||||||||||||||||||
| March 31, 2020 (Unaudited) | $ | 23,259 | $ | 9,000 | $ | 2,651 | $ | 912 | $ | 210 | $ | 36,032 | ||||||||||||
| December 31, 2019 | $ | 25,151 | $ | 9,000 | $ | 2,620 | $ | 774 | $ | 229 | $ | 37,774 | ||||||||||||
| b. | Further details of the quantity and models of BVVE held by the Company are as follows: |
| Bitmain Antminer S9 (BTC/BCH) | Bitmain New Gen Antminers (BTC/BCH) * | Bitmain Antminer L3+ (LTC) | Innosilicon T3 & T2T (BTC/BCH)** | Canaan Avalon A10 (BTC/BCH) | Whatsminer M20S (BTC/BCH) | |||||||||||||||||||
| Balance as of January 1, 2020 | 15,159 | 2,071 | 400 | 6,543 | 2,490 | 2,470 | ||||||||||||||||||
| Additions during the period | - | 3 | - | - | - | - | ||||||||||||||||||
| Dispositions during the period | ||||||||||||||||||||||||
| Balance as of March 31, 2020 (Unaudited) | 15,159 | 2,074 | 400 | 6,543 | 2,490 | 2,470 | ||||||||||||||||||
| * | Includes 1,554 Antminer T15, 119 Antminer S17, 399 Antminer S15 and 2 Antminer S11 |
| ** | Includes 5,095 T3 and 1,448 T2T. |
|
11 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 7: PROPERTY, PLANT AND EQUIPMENT (Cont.)
In addition to the equipment details listed above, Backbone entered into profit sharing agreements with two parties to host 1,165 Antminer S9’s. The profit-sharing agreements are structured such that Backbone does not share the profits with the other parties unless minimum profitability thresholds are met. Once the profitability threshold is met, the other parties are entitled to 39% of the revenues and Backbone must pay all related electricity costs. The contracts can be terminated by either party at any time. For the three month period ended March 31, 2020, Backbone mined a total of approximately 18 Bitcoin (three month period ended March 31, 2019, 56 bitcoin) using the hosted Antminer S9’s. As at March 31, 2020, accounts payable and accrued liabilities included $13 payable to the two parties.
NOTE 8: LONG-TERM DEPOSITS AND ADVANCE PAYMENTS ON EQUIPMENT
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Security deposits for rent, energy and insurance | $ | 1,280 | $ | 1,021 | ||||
| Advance payments on equipment | 107 | 127 | ||||||
| $ | 1,387 | $ | 1,148 | |||||
NOTE 9: LONG-TERM DEBT
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Dominion Capital loan | $ | 15,325 | $ | 15,084 | ||||
| Backbone vendor financing | 100 | 394 | ||||||
| Volta notes payable | 104 | 122 | ||||||
| Volta vendor financing | 103 | 123 | ||||||
| Total long-term debt | 15,632 | 15,723 | ||||||
| Less current maturities of long-term debt | (4,275 | ) | (874 | ) | ||||
| Non-current maturities of long-term debt | $ | 11,357 | $ | 14,849 | ||||
|
12 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 9: LONG-TERM DEBT
| a. | On March 15, 2019, the Group entered into a secured debt financing facility for up to $20,000 with Dominion Capital LLC (the Lender). The debt facility is structured into four separate loan tranches of $5,000 per tranche. Each loan tranche was drawn down in 2019 and bears interest at 10% per annum. The term of each loan tranche is 24 months with a balloon payment for any remaining outstanding balance at the end of the term of the loan tranche. The loan tranches expire in March, April, June and August of 2021. |
A monthly payment equivalent to 10% of the value of cryptocurrencies mined by Backbone during the month is required in repayment of the total loan tranches drawn. The monthly payments shall be applied to interest and the balance to principal, and in the event that the amount of the cryptocurrency mined is less than the amount of interest owing, such additional amounts shall be remitted such that the interest is payable in full on a current basis. The loan contains a “make-whole” clause which stipulates that the 10% interest rate is calculated on the initial principal balance of the loan tranche and does not decrease as the principal balance is repaid. The 10% interest rate is calculated over the 24-month term of each loan tranche regardless of whether the loan tranche is repaid prior to its maturity. Any unpaid interest at the earlier of the loan tranche’s early repayment, or the loan tranche’s 24-month maturity is included in the balloon payment. The loan tranches are fully secured by the assets of the Group on a first-priority basis.
Pursuant to the terms with the Lender, the Company is required to comply with certain covenants as long as any amount is outstanding. The significant covenants are to maintain a bank balance of $1,000 at all times, as well as restrictions on issuing additional debt or selling property, plant and equipment without re-investing the proceeds into new purchases of property, plant and equipment
The loan features result in a loan liability measured at amortized cost, warrants that are accounted for as an equity component and an embedded derivative measured at fair value through profit or loss.
Loan liability
The loan is measured at amortized cost using the effective interest method. Management used significant judgement and estimates when determining the effective interest rate. Payment amounts are determined as 10% of the cryptocurrency mined by Backbone. In order to calculate the effective interest rate, management had to estimate Backbone’s future cryptocurrency mining revenues in order to estimate the timing and amount of future loan repayments. The effective interest rate was determined to be 26.93%, 30.16%, 37.10 % and 38.02% for the first, second, third and fourth tranches, respectively. The carrying amount of the loan liability approximates its fair value. Included in financial expenses for the three months ended March 31, 2020 and 2019 are $1,229 and $44 of interest expense related to the loan.
Embedded derivative
The value of the “make-whole” clause described above will vary based on management’s projections of the timing of the loan repayment, which are based on Backbone’s cryptocurrency mining revenues. This interest feature has been accounted for as an embedded derivative that is measured at fair value through profit or loss.
|
13 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 9: LONG-TERM DEBT (Cont.)
Key assumptions
Key assumptions used in recording the embedded derivative as of March 31, 2020, are described below. These assumptions are subject to change based on future developments and such changes could have a material effect on embedded derivative.
Revenues - Two optimistic, two pessimistic and one status quo scenario were used in estimating future bitcoin price and network difficulty, which are key factors in predicting revenues from cryptocurrency mining. Management assigned probabilities to each scenario, which were used to calculate weighted average expected outcomes. The weighted average bitcoin price and network difficulty used in the projections in order to determine the fair value of the embedded derivative were $10.9 and 1.2x10^13, respectively.
Internal hashrate - Management was required to predict the growth of the Company’s internal hashrate, one of the main revenue drivers in combination with bitcoin price and network difficulty, to predict revenues. Accordingly, management was required to make assumptions regarding the timing of all four loan tranche drawdowns as well as the pricing and availability of cryptocurrency mining hardware.
The fair value measurement is based upon level 3 inputs, as a result management has performed a sensitivity analysis using varying discount rates:
| Scenario 1 | Scenario 2 | Scenario 3 | |||||||||||
| Discount rate | 30.05 | % | 33.05 | % | 36.05 | % | |||||||
| Total value - asset (liability) | $ | (118 | ) | $ | 538 | $ | 1,161 | ||||||
As of March 31, 2020, management recognized an embedded derivative asset with a fair value of $538 (March 31, 2019 – $nil) resulting in an unrealized gain of $62 for the three months ended March 31, 2020 included in financial income (three months ended March 31, 2019 - $nil).
| b. | Backbone signed an agreement to purchase BVVE in the amount of $2,000, with an outstanding balance of $100 at March 31, 2020 (December 31, 2019 - $394). According to the agreement, the aforementioned amount will be repaid in 20 equal monthly instalments commencing on June 15, 2018. A discount rate of 8% was used to calculate the present value of the installments and record the BVVE in the amount of $1,826 upon acquisition. |
| c. | Volta signed several agreements to purchase vehicles, with an outstanding balance of $104 (CAD $148,000) as of March 31, 2020 (December 31, 2019 - $122). Ten notes payable, bearing interest between 3.99% and 8.2% repayable in monthly instalments totaling $3(CAD $3,900) principal and interest, maturing between May 2020 and October 2025, secured by vehicles having a net carrying value of $132 |
|
14 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 9: LONG-TERM DEBT (Cont.)
| d. | Volta received long-term vendor financing with an outstanding balance of $103 (CAD $146,000) as of March 31, 2020, bearing interest at 5%, payable by monthly instalments of $4 (CAD $5,198) principal and interest, maturing September 2022. |
NOTE 10: LEASES
Set out below are the carrying amounts of the Group’s right-of-use assets and lease liabilities and their movements during the three month period ended March 31, 2020:
| Leased premises | Vehicles | Other equipment | Total ROU assets | Lease liabilities | ||||||||||||||||
| As of January 1, 2020 | $ | 6,024 | $ | 157 | $ | 52 | $ | 6,233 | $ | 6,463 | ||||||||||
| Additions and extensions | (10 | ) | - | - | (10 | ) | (6 | ) | ||||||||||||
| Depreciation | (217 | ) | (22 | ) | (3 | ) | (242 | ) | - | |||||||||||
| Payments | - | - | - | - | (303 | ) | ||||||||||||||
| Interest | - | - | - | - | 122 | |||||||||||||||
| FX gain on lease liabilities | - | - | - | - | (525 | ) | ||||||||||||||
| As of March 31, 2020 | $ | 5,797 | $ | 135 | $ | 49 | $ | 5,981 | $ | 5,752 | ||||||||||
Leased premises include farming facilities as well as office locations.
NOTE 11: ASSET RETIREMENT OBLIGATION
As of March 31, 2020, the Group estimated the costs of restoring its leased premises to their original state at the end of their respective lease terms, ranging from 3 to 10 years, to be $294, discounted to present value of $178
NOTE 12: EQUITY
Composition:
| Authorized | Issued and outstanding at | |||||||||||
| March 31, 2020 | March 31, 2020 | December 31, 2019 | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Number of shares | ||||||||||||
| Common shares of no par value | Unlimited | 84,620,630 | 83,620,630 | |||||||||
On both January 13, 2020 and February 12, 2020 Dominion Capital exercised a combined total of 500,000 warrants to acquire 500,000 common shares resulting in proceeds of $200 being paid to the Company.
On March 11, 2020 the Company issued 500,000 common shares to the former CEO upon his resignation, see Note 16 for details.
|
15 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data
relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 13: ADDITIONAL DETAILS TO THE STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
Revenues:
Details of the cryptocurrency mined by the Backbone operating segment and their related fair values at the time of mining are as follows:
| Three months ended March 31, 2020 (Unaudited) | ||||||||||||
| Bitcoin | Litecoin | Total $ | ||||||||||
| Quantity | 1,087 | 41 | - | |||||||||
| Fair value * | 8,977 | 3 | 8,980 | |||||||||
| Three months ended March 31, 2019 (Unaudited) | ||||||||||||
| Bitcoin | Litecoin | Total $ | ||||||||||
| Quantity | 837 | 1,495 | - | |||||||||
| Fair value * | 3,180 | 72 | 3,252 | |||||||||
The above figures differ from those included in Revenues as the Company’s revenue recognition policy is to recognize revenues upon conversion of cryptocurrencies to fiat currency.
| * | The Company based the fair value of the cryptocurrency mined at the time of mining on the prices quoted on www.coinmarketcap.com, which calculates the price by taking the weighted average prices, based on volume, reported in each cryptocurrency market. The fair value measurement is categorized as level 1 in the fair value hierarchy. |
NOTE 14: TRANSACTIONS AND BALANCES WITH RELATED PARTIES
| a. | Balances with related parties: |
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Accounts receivable: | ||||||||
| Companies controlled by directors | $ | - | $ | 18 | ||||
| Accounts payable: | ||||||||
| Directors’ remuneration (included in accrued liabilities) | $ | 31 | $ | - | ||||
| Companies controlled by certain directors and consulting fees | 60 | 15 | ||||||
| $ | 91 | $ | 15 | |||||
| Lease liabilities: | ||||||||
| Companies controlled by directors | $ | 1,734 | $ | 2,000 | ||||
|
16 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 14: TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)
Amounts due to related parties, are unsecured, non-interest bearing and payable on demand.
| b. | Transactions with related parties during the three month period ended March 31, 2020: |
| 1. | One of the companies in the Group made rent payments totaling approximately $108 for the three month period ended March 31, 2020 (three month period ended March 31, 2019 - $150) to companies controlled by directors. The rent payments were classified as interest included in financial expenses and principal repayment of lease liabilities. |
| 2. | One of the companies in the Group entered into consulting agreements with two of the directors. The consulting fees charged by directors totaled approximately $60 for the three month period ended March 31, 2020 ($100 for the three month period ended March 31, 2019). |
The transactions described above were incurred in the normal course of operations. These transactions were included in consolidated statements of profit or loss and comprehensive income as follows:
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Cost of revenues | $ | - | $ | 191 | ||||
| General and administrative expenses | 60 | 100 | ||||||
| Financial expenses | 38 | 38 | ||||||
| c. | Compensation of key management and directors: |
Key management for the three months ended March 31, 2020 includes the Chief Executive Officer, Chief Financial Officer, Chief Strategy Officer and Executive Vice President. Key management for the three months ended March 31, 2019 includes the Group’s President, Chief Executive Officer, Chief Financial Officer, Chief Strategy Officer, Executive Vice President, Vice President of Operations and Vice President of Infrastructure. The remuneration paid to directors and members of key management personnel are as follows: Group’s President, Vice President of Operations and Vice President of Infrastructure
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Short-term benefits | $ | 475 | $ | 231 | ||||
| Share based payments | 948 | 111 | ||||||
| $ | 1,423 | $ | 342 | |||||
|
17 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 15: NET LOSS PER SHARE
Details of the number of shares and loss used in the computation of net loss per share:
| Three months ended March 31, (Unaudited) | ||||||||||||||||
| 2020 | 2019 | |||||||||||||||
| Weighted average shares outstanding | Net loss attributable to the shareholders of the Company | Weighted average shares outstanding | Net loss attributable to the shareholders of the Company | |||||||||||||
| Number of shares (in thousands) | Number of shares (in thousands) | |||||||||||||||
| Total shares for the calculation of basic net loss per share | 84,048 | - | 39,740 | - | ||||||||||||
| Total exchangeable shares | - | - | 17,335 | - | ||||||||||||
| Total shares for the calculation of basic net loss per share | 84,048 | - | 57,075 | - | ||||||||||||
| The effect of dilutive potential common shares | 6,067 | - | - | - | ||||||||||||
| Total shares for the purpose of calculating diluted loss per share | 90,115 | - | - | - | ||||||||||||
| Net loss for the calculation of basic and diluted loss per share | - | $ | (2,424 | ) | 57,075 | $ | (1,290 | ) | ||||||||
Earnings per share for the three months ended March 31, 2020 and 2019 are as follows:
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Basic and diluted loss per share | (0.03 | ) | (0.02 | ) | ||||
|
18 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 16: SHARE BASED PAYMENT
The expense recognized in the financial statements for employee services received is shown in the following table:
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Equity-settled share-based payment plans | 1,010 | 111 | ||||||
| Total expense arising from share-based payment transactions | 1,010 | 111 | ||||||
The share-based payment transactions entered into between the Group and its employees during the three month period ended March 31, 2020 are described below.
Details of the outstanding stock options as of March 31, 2020 are as follows:
| March 31, 2020 (Unaudited) | ||||||||
| Number of Options | Weighted Average Exercise Price ($CAD) | |||||||
| Outstanding, January 1 | 8,345,000 | 0.99 | ||||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Forefeited | (147,500 | ) | 0.99 | |||||
| Expired | (280,000 | ) | 0.99 | |||||
| Outstanding, March 31, 2020 | 7,917,500 | 1.07 | ||||||
| Exercisable, March 31, 2020 | 5,423,916 | 1.06 | ||||||
The weighted average contractual life of the stock options as of March 31, 2020 was 3.5 years.
On March 11, 2020, Wes Fulford resigned as Chief Executive Officer (CEO) and Director of Bitfarms and its subsidiaries. In consideration for past services rendered, the former CEO’s stock compensation agreement was modified to immediately vest all unvested stock options, extend the expiration date of 3,000,000 options from 90 days subsequent to his resignation to July 31, 2022. Furthermore, the Company granted the former CEO 500,000 common shares and modified 500,000 options to expire as of June 2020. The stock option modifications and grant of 500,000 common shares resulted in the Company recording stock compensation expense of $624.
|
19 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 17: SUBSEQUENT EVENTS
Bitcoin halving event
In May 2020, the Bitcoin block reward decreased from 12.5 to 6.25 Bitcoins per block (the “Bitcoin Halving”), and consequently the number of new Bitcoin issued to miners would be reduced to approximately 900 per day.
As of the date of approval of these interim condensed consolidated financial statements the Company’s management has not observed market normalization to pre-halving profitability levels, and the future financial impact cannot yet be estimated.
Purchase of mining hardware
In May 2020, the Company purchased and paid for mining hardware with a cost of $1,900 with expected delivery in late June 2020.
|
20 |
Exhibit 99.38
Management’s Discussion & Analysis
For the three months ended March 31, 2020
Q1
2020
|
Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
|
Contents
| Introduction | 2 |
| Company Overview | 2 |
| Consolidated Results of Operations | 3 |
| Reconciliation of Non-IFRS measures | 6 |
| Reportable Operating Segments | 7 |
| Backbone | 7 |
| Volta | 8 |
| Selected Quarterly Information | 8 |
| Liquidity and Capital Resources | 9 |
| Cash Flows | 9 |
| Working Capital | 10 |
| Components of Total Debt | 10 |
| Capital Resources | 11 |
| Off-Balance Sheet Arrangements | 12 |
| Share Capital | 12 |
| Financial Instruments & Risks | 12 |
| Other Risks | 15 |
| Related Party Transactions | 16 |
| Recent and Subsequent Events | 16 |
| Caution Regarding Forward-Looking Statements | 17 |
| Caution Regarding Non-IFRS Financial Performance Measures | 18 |
| Management’s Report on Internal Control Over Financial Reporting | 19 |
| Glossary of Terms. | 19 |
Bitfarms Ltd. Q1 2020 MD&A 1
|
Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
|
The following Management’s Discussion and Analysis (“MD&A”) for Bitfarms Ltd. (together with its subsidiaries, the “Company” or “Bitfarms”) should be read in conjunction with the Company’s first quarter 2020 unaudited interim period condensed consolidated financial statements and the accompanying notes for the three months ended March 31, 2020 and the audited annual consolidated financial statements and the accompanying notes for the year ended December 31, 2019. In addition, the following MD&A should be read in conjunction with the Company’s “Caution Regarding Forward-Looking Statements” beginning on page 17 of this MD&A.
The Company’s first quarter 2020 unaudited interim period condensed consolidated financial statements and the accompanying notes have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company’s first quarter 2020 unaudited interim period condensed consolidated financial statements include the accounts of the Company and other entities that the Company controls and are reported in US dollars, except where otherwise noted.
Under IFRS, certain expenses and income must be recognized that are not necessarily reflective of the Company’s underlying operating performance. Non-IFRS financial performance measures exclude the impact of certain items and are used internally when analyzing operating performance. Please refer to the “Caution Regarding Non-IFRS Financial Performance Measures” section of this MD&A on page 18 for more information. This MD&A contains various terms related to the Company’s business and industry. Please refer to the Glossary of Terms on page 19 of this MD&A.
The Company operates through two operating corporate subsidiaries and reportable operating segments: Backbone Hosting Solutions Inc. (“Backbone”) and 9159-9290 Quebec Inc. (operating as Volta Electrique, “Volta”). Backbone owns and operates server farms, comprised of computers (referred to as a “Miners”) designed for the purpose of validating transactions, primarily on the Bitcoin Blockchain. The Miners operate 24 hours a day and revenues are earned from Block Rewards and transaction fees issued in the form of cryptocurrencies by the Bitcoin network that the Company receives in return for validating transactions (referred to as “Mining”). Backbone regularly exchanges cryptocurrencies mined into U.S. dollars through reputable and established cryptocurrency trading platforms.
As of the date of this MD&A, Bitfarms currently operates five server farm facilities in Québec, Canada, with electrical infrastructure capacity of 64 MW for Mining Bitcoin. The Company has contracts securing an aggregate of 160 MW of hydro-electric green energy in Quebec. In addition, Bitfarms owns proprietary software that is used to control, manage, report and secure mining operations. The software scans and reports the location, computing power and temperature of all Miners at regular intervals to allow the Company to monitor performance and ensure Miners are operating at maximum capacity and up-time. Volta provides electrician services to both commercial and residential customers in Quebec, while assisting Bitfarms in building and maintaining its server farms.
Bitfarms Ltd. Q1 2020 MD&A 2
|
Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
|
Consolidated Results of Operations
| (U.S.$ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Revenues | 9,212 | 3,629 | 5,583 | 154 | % | |||||||||||
| Cost of sales | 7,917 | 3,417 | 4,500 | 132 | % | |||||||||||
| Gross profit | 1,295 | 212 | 1,083 | 511 | % | |||||||||||
| Gross margin | 14 | % | 6 | % | - | - | ||||||||||
| G&A and other expenses | 2,805 | 1,923 | 882 | 46 | % | |||||||||||
| Operating loss | (1,510 | ) | (1,711 | ) | 201 | 12 | % | |||||||||
| Operating margin | (16 | )% | (47 | )% | - | - | ||||||||||
| Financial income | 363 | 25 | 338 | 1352 | % | |||||||||||
| Interest expense | 1,385 | 132 | 1,253 | 949 | % | |||||||||||
| Other financial expenses | - | 188 | (188 | ) | (100 | )% | ||||||||||
| Total financial expenses | 1,385 | 320 | 1,065 | 333 | % | |||||||||||
| Pre-tax loss | (2,532 | ) | (2,006 | ) | (526 | ) | (26 | )% | ||||||||
| Income tax recovery | (108 | ) | - | (108 | ) | 100 | % | |||||||||
| Net loss | (2,424 | ) | (2,006 | ) | (418 | ) | (21 | )% | ||||||||
| Net loss per share - basic | (0.03 | ) | (0.02 | ) | (0.01 | ) | (44 | )% | ||||||||
| Gross mining profit (1) | 4,139 | 1,087 | 3,052 | 281 | % | |||||||||||
| Gross mining margin (1) | 47 | % | 36 | % | - | - | ||||||||||
| EBITDA (1) | 1,833 | (526 | ) | 2,359 | 448 | % | ||||||||||
| EBITDA margin (1) | 20 | % | (14 | )% | - | - | ||||||||||
| Adjusted EBITDA (1) | 2,780 | (420 | ) | 3,200 | 762 | % | ||||||||||
| Adjusted EBITDA margin (1) | 30 | % | (12 | )% | - | - | ||||||||||
First Quarter 2020 Highlights:
| ● | Consolidated revenue of $9.2 million; gross profit of $1.3 million (14% gross profit margin), operating loss of $1.5 million (16% operating loss margin), and net loss of $2.4 million; |
| ● | Mining operations segment gross mining profit1 of $4.1 million (47% gross mining margin); |
| ● | $1.8 million EBITDA (20% EBITDA margin) and $2.8 million Adj. EBITDA (30% Adj. EBITDA margin); |
| ● | Mined 1,087 Bitcoin with an average break-even2 Bitcoin price of $3,988 |
| 1 | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures. |
| 2 | Represents the break-even cost of Bitcoin based on variable cost of electricity and is calculated by taking the total electricity costs related to the Mining of each of Bitcoin divided by the total number of Bitcoin mined, respectively, in the relevant period. |
Bitfarms Ltd. Q1 2020 MD&A 3
|
Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
|
Revenue
Revenue was $9.2 million for the three month period ended March 31, 2020 (“Q1 2020”) compared to $3.6 million for the comparable three month period in 2019 (“Q1 2019”).
| (U.S. $ in thousands except where indicated) | Note | Bitcoin | (USD) | % Change | ||||||||||
| Consolidated revenue based on coins sold during Q1 2019 | 789 | 3,629 | ||||||||||||
| Impact of increase in average Bitfarms’ hashrate average in excess of increase in network difficulty during Q1 2020 compared to Q1 2019 | 1 | 250 | 951 | 26 | % | |||||||||
| Impact of increase in Q1 2020 average Bitcoin sale price compared to Q1 2019 average Bitcoin sale price | 2 | 4,648 | 128 | % | ||||||||||
| Difference in Bitcoin inventory as at Q1 2020 compared to Q1 2019 | 3 | 44 | 167 | 5 | % | |||||||||
| Q4 2018 Inventory sold in Q1 2019 | 4 | (11 | ) | (42 | ) | (1 | )% | |||||||
| Decrease in Volta third party revenue and other mining variances | (141 | ) | (4 | )% | ||||||||||
| Revenue for the three months ended March 31, 2020 | 1,072 | 9,212 | 154 | % | ||||||||||
| Notes | ||
| 1 | Calculated as the difference in Bitcoin mined in Q1 2020 compared to Q1 2019 (i .e. 1,087 - 837) multiplied by Q1 2019 a ve rage Bitcoin price (i .e. $3,802) | |
| 2 | Calculated as the difference in average realized Bitcoin pri ce in Q1 2020 compa red to Q1 2019 (i .e. $8,138 - $3,802) multiplied by Bitcoin sold in Q1 2020 (i .e. 1,072) | |
| 3 | Calculated as the difference in Bitcoin inventory as at March 31, 2019 compared to March 31, 2020 (i .e. 59 - 15) multiplied by the a verage realized Bitcoin price for Q1 2019 (i .e. $3,802) | |
| 4 | Calculated as the Bitcoin inventory as at December 31, 2018 compa red to March 31, 2019 (i .e. 0 - 11) multiplied by the a verage realized Bitcoin price for Q1 2019 (i .e. $3,802) |
The most significant factors influencing the net increase to Bitfarms’ revenue in Q1 2020 compared to Q1 2019 are presented in the table above. Revenue increased $1 million or 26% due to increased Bitcoin mined resulting from higher average Bitfarms hashrate in excess of average network difficulty and $4.6 million or 128% due to a higher average realized Bitcoin sale price of $8,138 compared to $3,802 in Q1 2020 versus Q1 2019.
The Company recognizes revenue when the Bitcoin are sold and it is the practice of the Company to sell its cryptocurrencies for fiat (i.e. U.S. dollar), within one to four days after the cryptocurrencies are mined. The Company sells its cryptocurrency through cryptocurrency trading platforms operated by Tagomi Holdings, Inc. and Gemini Trust Company, LLC, two licensed digital asset exchanges regulated by the New York State Department of Financial Services and operated out of New York, New York, USA. In certain specific and limited cases, Bitfarms does not convert Bitcoin directly into fiat and uses Bitcoin to directly settle payment obligations, including the loan from DC BFL SPV, LLC (“Dominion Capital”) described below.
Bitfarms’ cryptocurrencies mined in Q1 2020 compared to Q1 2019 are summarized in the table below:
| Three months ended | ||||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | Change | % Change | ||||||||||||
| Bitcoin | 1,087 | 837 | 250 | 30 | % | |||||||||||
| Litecoin | 41 | 1,495 | (1,454 | ) | (97 | )% | ||||||||||
Bitfarms Ltd. Q1 2020 MD&A 4
|
Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
|
Cost of Sales
Bitfarms’ cost of sales for Q1 2020 was $7.9 million compared to $3.4 million in Q1 2019. Costs of sales include energy and infrastructure expenses, depreciation and amortization, electrician salaries, and, purchases and net change in inventory which are summarized in the table below:
| (U.S. $ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Energy and infrastructure | 4,585 | 1,913 | 2,672 | 140 | % | |||||||||||
| Depreciation and amortization | 2,980 | 1,348 | 1,632 | 121 | % | |||||||||||
| Electrician salaries | 277 | 161 | 116 | 72 | % | |||||||||||
| Purchases and net change in inventory | 75 | (5 | ) | 80 | 1600 | % | ||||||||||
| Cost of sales | 7,917 | 3,417 | 4,500 | 132 | % | |||||||||||
Energy and infrastructure expenses increased by $2.7 million or 140% in Q1 2020 compared to Q1 2019, primarily due to an increase in electricity expense, which was approximately $2.4 million higher in Q1 2020 compared to Q1 2019 as the Company added new Miners which increased electrical consumption from 22 MW at the end of Q1 2019 to 53 MW at the end of Q1 2020.
Depreciation and amortization expense increased by $1.6 million or 121% in Q1 2020 compared to Q1 2019 primarily resulting from depreciation expense recorded on net additions to property, plant and equipment of approximately $18.2 million from Q2 2019 through Q4 2019.
Gross Profit
Bitfarms’ gross profit for Q1 2020 was $1.3 million compared to $0.2 million for Q1 2019. The gross profit margin increased from 6% to 14% in Q1 2020 compared to Q1 2019 primarily due to the increase in Bitcoin mined and average realized Bitcoin sale price, as described in detail in the analysis of revenue above. The 154% increase in revenues were offset by an increase of 132% in cost of sales, primarily driven by increases in energy and infrastructure and depreciation and amortization expenses as described above.
General & Administrative & Other Expenses
Bitfarms’ general and administrative and other expenses increased by $0.9 million or 46% in Q1 2020 compared to Q1 2019. The main reason for the increase was higher non-cash expenses of approximately $0.9 million in Q1 2020 compared to Q1 2019 related to employee stock options approved and granted in 2019 that did not exist in Q1 2019. Furthermore, $0.6 million of the $0.9 million increase in non-cash stock compensation expense was related to stock compensation modifications in connection with the resignation of the former CEO in March 2020.
Bitfarms Ltd. Q1 2020 MD&A 5
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Financial Income and Expenses
Bitfarms’ financial income for Q1 2020 was $0.4 million compared to financial income of $25,000 in Q1 2019. The $0.3 million increase in financial income was mainly related to $0.3 million of net unrealized foreign exchange gains recorded on revaluation of assets and liabilities denominated in Canadian dollars to US dollars, the Company’s functional currency. Financial expense for Q1 2020 was $1.4 million compared to $0.3 million in Q1 2019. The increase is primarily related to interest expense of $1.2 million incurred on the Dominion Capital loan in Q1 2020 compared to $44,000 in Q1 2019, as described under Financial Instruments and Risks. Financial income and expenses are comprised of interest on the Dominion Capital loan, gain on embedded derivative and classification of a portion of rent as interest expense on lease liabilities, and unrealized foreign exchange gains and losses on monetary items denominated in Canadian dollars to the functional currency in US dollars, and interest on Volta’s long-term debt repayments and bank charges.
Reconciliation of Non-IFRS measures
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Net loss before tax | (2,532 | ) | (2,006 | ) | (526 | ) | (26 | )% | ||||||||
| Interest expense | 1,385 | 132 | 1,253 | 949 | % | |||||||||||
| Depreciation expense | 2,980 | 1,348 | 1,632 | 121 | % | |||||||||||
| EBITDA (1) | 1,833 | (526 | ) | 2,359 | 448 | % | ||||||||||
| Stock compensation expense | 1,010 | 111 | 899 | 810 | % | |||||||||||
| Financial income and other | (63 | ) | (5 | ) | (58 | ) | (1160 | )% | ||||||||
| Adjusted EBITDA (1) | 2,780 | (420 | ) | 3,200 | 762 | % | ||||||||||
Bitfarms’ net loss for Q1 2020 was $2.4 million compared to a net loss of $2.0 million for Q1 2019. Bitfarms’ income tax expense for the Q1 2020 was a recovery of $108 compared to $nil for Q1 2019.
Calculation of Gross Mining Profit & Gross Mining Margin
| (U.S. $ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Revenues | 8,724 | 3,000 | 5,724 | 191 | % | |||||||||||
| Energy and infrastructure expenses | 4,585 | 1,913 | 2,672 | 140 | % | |||||||||||
| Gross mining profit | 4,139 | 1,087 | 3,052 | 281 | % | |||||||||||
| Gross mining margin | 47 | % | 36 | % | - | - | ||||||||||
“Gross mining profit” is defined as Revenue minus energy and infrastructure expenses for the Backbone segment of the Company. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining margin by Revenue for the Backbone segment of the Company.
Bitfarms Ltd. Q1 2020 MD&A 6
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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| (U.S. $ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Revenue | 8,724 | 3,000 | 5,724 | 191 | % | |||||||||||
| Cost of sales | 7,485 | 3,034 | 4,451 | 147 | % | |||||||||||
| Gross profit (loss) | 1,239 | (34 | ) | 1,273 | 3744 | % | ||||||||||
| Gross margin | 14 | % | (1 | )% | - | - | ||||||||||
| G&A and other expenses | 2,582 | 1,598 | 984 | 62 | % | |||||||||||
| Operating loss | (1,343 | ) | (1,632 | ) | 289 | 18 | % | |||||||||
| Operating margin | (15 | )% | (54 | )% | - | - | ||||||||||
| Financial income | 363 | 25 | 338 | 1352 | % | |||||||||||
| Interest expense | 1,372 | 129 | 1,243 | 964 | % | |||||||||||
| Other finance expenses | - | 183 | (183 | ) | (100 | )% | ||||||||||
| Net loss before tax | (2,352 | ) | (1,919 | ) | (433 | ) | (23 | )% | ||||||||
| EBITDA (1) | 1,973 | (467 | ) | 2,440 | 522 | % | ||||||||||
| EBITDA margin (1) | 23 | % | (16 | )% | - | - | ||||||||||
| Adjusted EBITDA (1) | 2,920 | (362 | ) | 3,282 | 907 | % | ||||||||||
| Adjusted EBITDA margin (1) | 33 | % | (12 | )% | - | - | ||||||||||
| Reconciliation of Non-IFRS Performance Measures | ||||||||||||||||
| Net loss before tax | (2,352 | ) | (1,919 | ) | (433 | ) | (23 | )% | ||||||||
| Interest expense | 1,372 | 129 | 1,243 | 964 | % | |||||||||||
| Depreciation expense | 2,953 | 1,323 | 1,630 | 123 | % | |||||||||||
| EBITDA (1) | 1,973 | (467 | ) | 2,440 | 522 | % | ||||||||||
| Stock compensation expense | 1,010 | 110 | 900 | 818 | % | |||||||||||
| Financial income and other | (63 | ) | (5 | ) | (58 | ) | (1160 | )% | ||||||||
| Adjusted EBITDA (1) | 2,920 | (362 | ) | 3,282 | 907 | % | ||||||||||
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, and Adjusted EBITDA margin are non-IFRS performance measures; please refer to the heading “Caution Regarding Non-IFRS Financial Performance Measures” at the end of this MD&A regarding the use of non-IFRS Measures. |
Bitfarms Ltd. Q1 2020 MD&A 7
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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| (U.S. $ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Revenue | 488 | 629 | (141 | ) | (22 | )% | ||||||||||
| Cost of sales | 432 | 383 | 49 | 13 | % | |||||||||||
| Gross profit | 56 | 246 | (190 | ) | (77 | )% | ||||||||||
| Gross margin | 11 | % | 39 | % | - | - | ||||||||||
| G&A and other expenses | 140 | 140 | - | - | ||||||||||||
| Operating income (loss) | (84 | ) | 106 | (190 | ) | (179 | )% | |||||||||
| Operating margin | (17 | )% | 17 | % | - | - | ||||||||||
| Interest expense | 13 | 3 | 10 | 333 | % | |||||||||||
| Other finance expenses | - | 5 | (5 | ) | 0 | % | ||||||||||
| Net income (loss) before tax | (97 | ) | 98 | (195 | ) | (199 | )% | |||||||||
| EBITDA (1) | (57 | ) | 126 | (183 | ) | (145 | )% | |||||||||
| EBITDA margin (1) | (12 | )% | 20 | % | - | - | ||||||||||
| Adjusted EBITDA (1) | (57 | ) | 126 | (183 | ) | (145 | )% | |||||||||
| Adjusted EBITDA margin (1) | (12 | )% | 20 | % | - | - | ||||||||||
| Reconciliation of Non-IFRS Performance Measures | ||||||||||||||||
| Net income (loss) before tax | (97 | ) | 98 | (195 | ) | (199 | )% | |||||||||
| Interest expense | 13 | 3 | 10 | 333 | % | |||||||||||
| Depreciation expense | 27 | 25 | 2 | 8 | % | |||||||||||
| EBITDA (1) | (57 | ) | 126 | (183 | ) | (145 | )% | |||||||||
| Adjusted EBITDA (1) | (57 | ) | 126 | (183 | ) | (145 | )% | |||||||||
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, and Adjusted EBITDA margin are non-IFRS performance measures; please refer to the heading “Caution Regarding Non-IFRS Financial Performance Measures” at the end of this MD&A regarding the use of non-IFRS Measures. |
Selected Quarterly Information
| (U.S. $ in thousands except where indicated) | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | ||||||||||||||||||||||||
| Revenue | 9,212 | 10,536 | 9,739 | 8,517 | 3,629 | 5,292 | 6,243 | 6,592 | ||||||||||||||||||||||||
| Net income (loss) | (2,424 | ) | 1,125 | 4,605 | (1,320 | ) | (2,006 | ) | (21,313 | ) | (1,661 | ) | (1,337 | ) | ||||||||||||||||||
| Basic and diluted income (loss) per share | (0.03 | ) | 0.02 | 0.06 | (0.01 | ) | (0.02 | ) | (0.23 | ) | (0.02 | ) | (0.02 | ) | ||||||||||||||||||
The Company’s industry does not have any seasonality. Factors that may impact revenue and profitability quarter over quarter include cryptocurrency pricing, network difficulty and the Company’s hashrate.
Bitfarms Ltd. Q1 2020 MD&A 8
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Liquidity and Capital Resources
| (U.S. $ in thousands except where indicated) | Three months ended | |||||||||||||||
| For the periods ended as indicated | Mar. 31 2020 | Mar. 31 2019 | $ Change | % Change | ||||||||||||
| Cash & cash equivalents, beginning of the period | 2,159 | 552 | 1,607 | 291 | % | |||||||||||
| Cash flows from (used in): | ||||||||||||||||
| Operating activities | 1,439 | (190 | ) | 1,629 | 857 | % | ||||||||||
| Investing activities | (861 | ) | (1,622 | ) | 761 | 47 | % | |||||||||
| Financing activities | (400 | ) | 4,220 | (4,620 | ) | (109 | )% | |||||||||
| Exchange rate differences on currency translation | (5 | ) | 3 | (8 | ) | (267 | )% | |||||||||
| Cash & cash equivalents, end of the period | 2,332 | 2,963 | (631 | ) | (21 | )% | ||||||||||
Cash Flows from Operating Activities
Cash flows from operating activities increased by $1.6 million or 857% during the three months ended March 31, 2020 compared to three months ended March 31, 2019. This was primarily due to an increase in gross mining profit4 of $3 million in Q1 2020 compared to Q1 2019, resulting from higher realized Bitcoin prices and increase of Bitfarms’ hashrate relative to the network hashrate in excess of the increase of cost of sales. The increase in gross mining margin was primarily offset by an increase in financial expenses of
$1.1 million in Q1 2020 compared to Q1 2019 mainly related to interest on the Dominion Capital loan.
Cash Flows used in Investing Activities
Cash flows used in investing activities decreased by $0.8 million or 47% during the three months ended March 31, 2020 compared to the three months ended March 31, 2019. This was primarily due to the draw down and initial deployment of the Dominion Capital loan in March 2019 into new ASICs, electrical components and Sherbrooke infrastructure buildout.
Cash Flows from Financing Activities
Cash flows from financing activities decreased $4.6 million or 109% during the three months ended March 31, 2020 compared to the three months ended March 31, 2019. This was primarily due to the Company drawing down on the first $5.0 million loan tranches on the $20.0 million debt facility from Dominion Capital in March 2019. During the three months ended March 31, 2020 the Company made repayments of long-term debt in the amount of $0.4 million, repayments of lease liabilities in the amount of $0.2 million which were offset by the proceeds from the exercise of warrants in the amount of $0.2 million.
| 4 | Gross mining profit is a non-IFRS performance measures; please refer to the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures. |
Bitfarms Ltd. Q1 2020 MD&A 9
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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As at March 31, 2020, Bitfarms had a working capital deficit of $1.1 million compared to positive working capital of $2.5 million on December 31, 2019, primarily due to the first $5.0 million loan tranche, with an outstanding balance of $3.9 million, being classified as current. As at March 31, 2020, Bitfarms had cash and cash equivalents of $2.3 million compared to $2.2 million as at December 31, 2019. Cash and cash equivalents are mainly U.S. and Canadian dollar deposits at regulated financial institutions. In addition, Bitfarms held cryptocurrency with a fair market value of $96 as at March 31, 2020 compared to nil as at December 31, 2019.
The Company expects that cash and cash equivalents and future operating cash flows will enable it to fund its working capital requirements and financial obligations, over the next twelve months.
Since inception, the Company has primarily financed its growth through retained earnings, vendor financing, and, since March 2019, a long-term debt facility. The current portion of long-term debt of Bitfarms was $4.3 million as of March 31, 2020 compared to $0.9 million on December 31, 2019, primarily resulting from classification of the outstanding balance of the first loan tranche, drawn down in March 2019, being classified as current. The current maturities of long-term debt may fluctuate due to the variable repayment terms of the loan with Dominion Capital (see below). Bitfarms’ long-term debt consists of the following:
| (a) | Bitfarms purchased Miners in the amount of $2.0 million and obtained non-interest bearing vendor financing to pay for the purchase in twenty monthly instalments commencing on June 15, 2018. The financing was recorded at a present value of $1.8 million. The outstanding balance of this loan owing was $0.1 million as at March 31, 2020; |
| (b) | Volta signed several agreements to purchase vehicles with an outstanding balance of $0.1 million as at March 31, 2020. Ten notes payable, bearing interest between 3.99% and 8.2% repayable in monthly instalments totaling approximately $3,000 principal and interest, maturing between May 2020 and October 2025, secured by vehicles having a net carrying value of $0.1 million; |
| (c) | Volta received long-term vendor financing with an outstanding balance of $0.1 million bearing interest at 5.00% payable by monthly instalments of $4,000 principal and interest maturing at September 2022; and |
| (d) | Bitfarms entered into a secured debt financing facility for up to $20.0 million with Dominion Capital. The debt facility is structured into four separate loan tranches of $5.0 million each bearing interest at 10% per annum on the full principal balance of each loan tranche regardless of principal repayments made during the term of each loan tranche. The term of each loan tranche is 24 months with a balloon payment for any remaining outstanding balance at the end the term. A monthly payment equivalent to 10% of the value of cryptocurrencies mined by Bitfarms during the month is required in repayment of the total loan tranches drawn. This amount shall first be applied to accrued interest and the balance to principal. In the event that the amount of interest owing is greater than the amount of cryptocurrency mined, an additional amount shall be remitted such that the interest is paid in full. The debt facility is fully secured by the assets of Bitfarms on a first priority basis. |
Bitfarms Ltd. Q1 2020 MD&A 10
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Bitfarms’ capital management objective is to ensure its ability to maximize the return to its shareholders. In order to achieve this objective, the Company monitors its capital structure and makes adjustments as required in light of changes in economic conditions and the risks to which the Company is exposed. The Company’s strategy for achieving this objective is maintaining a strong capital base so as to maintain investor confidence to sustain future development of the business, maintain a flexible capital structure that optimizes the cost of capital at acceptable risk and preserves the ability to meet financial obligations, and ensuring sufficient liquidity to pursue organic growth.
Bitfarms may manage its capital structure by issuing equity, obtaining loan financing, adjusting capital spending, or disposing of assets. The Company is not subject to any externally imposed capital requirements, with the exception of the Company’s agreement not to issue common shares below $0.40 USD during the term of the loan with Dominion Capital.
Purchase Commitments
In May 2020, the Company entered into an agreement to purchase mining hardware for $1.9 million and paid in full amount in advance, with delivery expected to occur in June 2020.
Sherbrooke Expansion
To complete each remaining phase of the Sherbrooke Expansion, Bitfarms will need to incur infrastructure buildout costs including exhaust structure, mining structure and building modifications, as well as sourcing of mining hardware and electrical components.
The capital cost for the construction of the remaining Phases 3 through 6 is currently estimated to range between $35.0 million to $40.0 million, inclusive of Miner purchases based on recent hardware pricing. These costs will be divided between both properties, with the majority being allocated to the Leger Property.
The ability to undertake the construction of Phases 3 through 6 of the Sherbrooke Expansion depends, among other things, on the Company’s ability to raise the required financing. As a result, there is no definitive or planned timetable for Phases 3 through 6 of the Sherbrooke Expansion. The Company intends to finance the remainder of the construction of Phases 3 through 6 of the Sherbrooke Expansion by raising additional debt or equity capital or a combination of these means, as well as through the cash flow generated from its operations. There can be no assurance that the remaining Sherbrooke Expansion will be fully funded and undertaken at this time on any particular schedule or at all.
In response to both a complaint concerning noise at the Sherwood Property and indications from officials at the municipality of Sherbrooke that they were reviewing applicable regulations, the Company has met with community residents and city officials on several occasions. While the Company believes it is compliant with all applicable regulations, the Company has implemented further sound mitigating measures, including the construction of a sound barrier wall at a cost of approximately $0.2 million.
Bitfarms Ltd. Q1 2020 MD&A 11
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Off-Balance Sheet Arrangements
There are currently no off-balance sheet arrangements which could have an effect on current or future results or operations, or the financial condition of Bitfarms.
On February 4, 2020, shareholders approved an amendment to the articles of incorporation of the Company to authorize the issuance of class A preferred shares. As of the date of this MD&A, the Company has 84,620,630 common shares, 5,058,916 vested employee stock options, 1,673,582 unvested employee stock options, and 5,916,668 warrants to Dominion Capital issued and outstanding, as well as 300,000 other warrants. As of the date of this MD&A there were no preferred shares outstanding.
It is anticipated that in the normal course of operations, Bitfarms will be exposed to exchange risk, foreign currency risk and credit risk.
Dominion Capital Loan
As of March 31, 2020, the Dominion Capital loan consisted of four $5.0 million tranches that were drawn down from the financing facility, which included a total of four available $5.0 million loan tranches (please refer to the Components of Total Debt section above). The features of the loan, which include the issuance of 1,666,667 warrants per tranche with an exercise price of $0.40, as well as a make-whole interest clause resulted in a financial liability accounted for at amortized cost, warrant liabilities previously recorded at fair value through profit or loss which were reclassified to equity during the period, and an embedded derivative recorded at fair value through profit or loss. The purpose of the loan was to provide the Company with additional funds to achieve its growth objectives, notably, the buildout of the first two phases of the Sherbrooke Expansion.
Financial Instrument at Amortized Cost
Management used significant judgement and estimates when determining the effective interest rate of the financial liability accounted for at amortized cost. Payment amounts are determined as 10% of the cryptocurrency mined by Bitfarms. In order to calculate the effective interest rate, management had to estimate Bitfarms’ future cryptocurrency mining revenues in order to estimate the timing and amount of future loan repayments. The effective interest rate was determined to be 26.93%, 30.16%, 37.10% and 38.02% for the first, second and third and fourth tranches, respectively. The component of the financial instrument carried at amortized cost resulted in interest expense of $1.2 million included in financial expenses for the three month periods ended March 31, 2020.
Warrants
Upon inception of the Dominion Capital loan, the warrants contained an anti-dilutive feature that would have resulted in a reduction in the exercise price in the event that Bitfarms Ltd. were to issue shares at a price lower than the exercise price. On September 27, 2019, the Company received all necessary approvals in order to remove the anti-dilutive feature. In exchange for removal of the anti-dilutive feature, the Company agreed not to issue common shares below the exercise price of $0.40 USD during the term of the loan with the lender.
Bitfarms Ltd. Q1 2020 MD&A 12
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Embedded Derivative
The value of the “make-whole” clause described above will vary based on management’s projections of the timing of the loan repayment, which are based on Bitfarms’ cryptocurrency mining revenues. This interest feature has been accounted for as an embedded derivative that is measured at fair value through profit or loss. Since this is a non-option derivative, the fair value upon initial recognition of the loan liability is nil. As of March 31, 2020, management revised its projections of the timing of the loan repayment and discounted future payments to their present value using the effective interest rates determined upon inception of each loan tranche. As of March 31, 2020, management recognized an embedded derivative asset with a value of $0.5 million resulting in a gain of $63,000 in financial income. Any change in management’s assumptions of Bitcoin price, Bitcoin Network Difficulty and the Company’s internal hashrate may have a material impact on profit of loss upon remeasurement in subsequent periods.
Credit Risk
Credit risk is the risk of an unexpected loss if a third party fails to meet its contractual obligations, including cash and cash equivalents, accounts receivable and long-term deposits. The risk regarding cash and cash equivalents is mitigated by holding the cash and cash equivalents through Canadian chartered banks. The credit risk regarding trade receivables are derived mainly from sales to Volta’s third-party customers. The Company performs ongoing credit evaluations of its customers. The Company places deposits with suppliers of cryptocurrency mining hardware in the normal course of operations in order to secure orders and delivery dates. The Company deals with major suppliers of cryptocurrency equipment and routinely maintains strong relationships with suppliers and evaluates the mining hardware market. Other long-term deposits include deposits with local government run energy producers. The Company is also exposed to credit risk through conversion of cryptocurrency to fiat currency through the use of cryptocurrency exchanges. The Company maintains relationships with multiple exchanges and mitigates credit risk by routinely converting cryptocurrency to fiat currency to limit exposure. Furthermore, the Company performs periodic evaluations of cryptocurrency exchanges.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to pay its financial obligations when they are due. The Company’s policy is to monitor its cash balances and planned cash flows generated from operations to ensure, as far as possible, that it maintains sufficient liquidity in order to pay its projected financial liabilities. The contractual maturities of trade and other payables are less than three months. Long-term debt, as of March 31, 2020, includes financial obligations with contractual maturities, including principal and interest, as follows:
| 2020 | $ | 2,720,000 | ||
| 2021 | $ | 17,918,000 | ||
| 2022 and thereafter: | $ | 93,000 | ||
| Total | $ | 20,731,000 |
Bitfarms Ltd. Q1 2020 MD&A 13
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Lease liabilities includes financial obligations with contractual maturities as follows, inclusive of interest, as of March 31, 2020:
| 2020 | $ | 822,000 | ||
| 2021 | $ | 1,072,000 | ||
| 2022 | $ | 961,000 | ||
| 2023 | $ | 818,000 | ||
| 2024 and thereafter: | $ | 3,521,000 | ||
| Total | $ | 7,194,000 |
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s functional currency is the US Dollar as all its revenue, excluding Volta, and most of its capital expenditures and financing are transacted in US dollars. The Company is exposed to variability in the Canadian dollar to US dollar exchange rate when paying operating expenses incurred and payable in Canadian dollars. The Company funds foreign currency transactions by buying the foreign currency at the spot rate when required. Management does not currently hedge its foreign currency risk.
Concentration Risk
Concentration risk arises as a result of the concentration of exposures within the same category, whether it is geographical location, product type, industry sector or counterparty type. The Company is primarily engaged in the cryptocurrency mining industry that is a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly negatively impact the Company’s operations. The Company does not currently hedge the conversion of cryptocurrencies to fiat currency.
Custody of Crypto Asset Risk
Cryptocurrencies are controllable by the possessors of the unique public key and private key relating to the digital wallet used to store the cryptocurrencies. If keys are lost, stolen or destroyed this could result in a loss for the Company. In order to mitigate the risk of loss of cryptocurrencies the Company sells cryptocurrency routinely and uses multi-signature digital wallets to store cryptocurrency until its eventual sale. The digital wallets used for Bitcoin and Litecoin require 2 out of 3, and 2 out of 5 individuals, respectively, in order to approve a spending transaction. Each of the users has a separate password that is not known by the other users. The transactions can only be initiated from the physical computer where the multi-signature wallet is installed for each user. In order to install the multi-signature wallet on a computer, twelve “seed” words that are distinct to each user are required, which are physically stored offline in confidential locations offsite.
Security breaches and hacking have been prevalent in cryptocurrency exchanges. The Company mitigates this risk by performing ongoing evaluations of exchanges, and routinely converting cryptocurrencies to fiat currency so that no material amount of crypto assets is held at any given time.
Bitfarms Ltd. Q1 2020 MD&A 14
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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The following discussion summarizes the principal risk factors that apply to the Company’s business and that may have a material adverse effect on the Company’s business and financial condition and results of operations, or the trading price of the Company’s shares. Due to the nature of the Company’s business, the legal and economic climate in which it operates and its present stage of development and proposed operations, the Company is subject to significant risks. In evaluating the Company and its business, investors should carefully consider, in addition to other information contained in this MD&A, the risk factors below as well as those included in the Company’s 2019 Annual MD&A dated April 29, 2020. These risk factors are not a definitive list of all risk factors associated with an investment in the Company or in connection with its operations. Additional risk and uncertainties not presently known to the Company, or that are. currently deemed immaterial, may also impair operations. If any such risks actually occur, the business, financial condition, liquidity and results of operations could be materially adversely affected.
Bitcoin Halving Event Risk
In May 2020, the Bitcoin Block Reward decreased from 12.5 to 6.25 Bitcoins per block (the “Bitcoin Halving”), and consequently the number of new Bitcoin issued to miners would be reduced to approximately 900 per day.
The Bitcoin Halving may have a material impact on the Company’s profitability. Given that profitability is required for self-acting agents to perform Mining to continue to support the validation of transactions, the expected impact of the Bitcoin Halving is that market variables of Bitcoin price and Difficulty will adjust over time to ensure that the profitability of Mining remains profitable. The period of market normalization after the Bitcoin Halving to incentivizing profitability levels is unknown. As a result, if Bitcoin price and Difficulty do not adjust over time to pre-Bitcoin Halving profitability levels or the period of market normalization after the Bitcoin Halving to pre-Bitcoin Halving profitability levels is too long, there is a risk that the Bitcoin Halving will render the Company unprofitable for a sustained time period such that it could be unable to continue as a going concern.
COVID-19 Pandemic Risk
In March 2020, the World Health Organization declared COVID-19 a pandemic. The global response to the pandemic is constantly evolving, including various measures implemented at the global, national, provincial and local levels. The major impacts that COVID-19 is expected to have on the Backbone operating segment include potential increases in cryptocurrency price volatility, difficulty obtaining new financing due to global economic slowdown, and delays in receiving future orders of mining hardware and parts sourced from overseas. While the Backbone operating segment is expected to continue operating throughout the pandemic, government-imposed restrictions encouraging social distancing is expected to impact the number of employees permitted to work in the mining facilities. A reduction in workforce in the mining facilities may reduce the Company’s ability to maximize operational efficiency. Volta’s services are considered to be essential by government authorities and are expected to continue throughout the pandemic. The impacts of COVID-19 on the Volta operating segment are expected to reduce revenues from the sale of electrician services and parts, as well as result in longer collection periods for outstanding trade receivables, and potential increases in bad debts resulting from the economic impact of COVID-19 on existing customers.
Bitfarms Ltd. Q1 2020 MD&A 15
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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During the three months ended March 31, 2020, the Company had the following transactions with related parties:
| 1. | Bitfarms made rent payments totaling approximately $108,000 for the three months ended March 31, 2020 (three months ended March 31, 2019 - $151,000) to companies controlled by a director and officer, Emiliano Grodzki and Mathieu Vachon and a former director, Pierre-Luc Quimper. |
| 2. | Bitfarms entered into consulting agreements with two of the directors, Nicolas Bonta and Emiliano Grodzki. The consulting fees charged by directors totaled approximately $60,000 for the three months ended March 31, 2020 (three months ended March 31, 2019 - $100,000). |
The transactions listed above were incurred in the normal course of operations.
Bitcoin Halving Event
As described in the section titled “Other Risks on page 15 of this MD&A the Bitcoin Block Reward decreased from 12.5 to 6.25 Bitcoin per Block.
As of the date of this MD&A the Company’s management has not observed market normalization to pre- halving profitability levels and the future financial impact cannot be estimated.
Purchase of Mining Hardware
In May 2020, the Company entered into an agreement to purchase mining hardware for $1,900 and paid in full amount in advance.
Changes to Board of Directors
On April 16, 2020 Brian Howlett was appointed as a director of the Company. On May 15, 2020 Wendi Locke and Sophie Galper-Komet resigned as directors of Bitfarms. On May 19, 2020 L. Geoffrey Morphy was appointed as a director of the Company.
Bitfarms Ltd. Q1 2020 MD&A 16
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Caution Regarding Forward-Looking Statements
This MD&A contains forward-looking statements about the Company’s objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this MD&A include, but are not limited to, statements with respect to the Company’s anticipated future results, events and plans, strategic initiatives, future liquidity, and planned capital investments. Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may”, “maintain”, “achieve”, “grow”, “should” and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company’s current estimates, beliefs and assumptions, which are based on management’s perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company’s expectation of operating and financial performance in 2020 is based on certain assumptions including assumptions about operational growth, anticipated cost savings, operating efficiencies, anticipated benefits from strategic initiatives, future liquidity, and planned capital investments. The Company’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements. Such risks and uncertainties include:
| ● | Bitcoin halving event; | |
| ● | COVID 19 pandemic; | |
| ● | the availability of financing opportunities and risks associated with economic conditions, including Bitcoin price and Bitcoin network difficulty; | |
| ● | the ability to service debt obligations and maintain flexibility in respect of debt covenants; | |
| ● | the speculative and competitive nature of the technology sector; | |
| ● | dependency in continued growth in blockchain and cryptocurrency usage; | |
| ● | limited operating history and share price fluctuations; | |
| ● | cybersecurity threats and hacking; | |
| ● | controlling shareholder risk; | |
| ● | risk related to technological obsolescence and difficulty in obtaining hardware; | |
| ● | economic dependence on regulated terms of service and electricity rates; | |
| ● | permits and licenses; | |
| ● | server failures; | |
| ● | global financial conditions; | |
| ● | tax consequences; | |
| ● | environmental regulations and liability; | |
| ● | erroneous transactions and human error; | |
| ● | facility developments; | |
| ● | non-availability of insurance; | |
| ● | loss of key employees; | |
| ● | lawsuits and other legal proceedings and challenges; |
Bitfarms Ltd. Q1 2020 MD&A 17
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
|
| ● | conflict of interests with directors and management; | |
| ● | political and regulatory risk; and | |
| ● | other factors beyond the Company’s control. |
The above is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company’s materials filed with the Canadian Securities Authorities, including the Company’s annual MD&A dated April 29, 2020. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company’s expectations only as of the date of this MD&A. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Caution Regarding Non-IFRS Financial Performance Measures
This MD&A makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including “EBITDA,” “EBITDA margin,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Gross mining profit,” and “Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenue. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; and (iv) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenue. “Gross mining profit” is defined as Revenue minus energy and infrastructure expenses for the Backbone segment of the Company. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenue for the Backbone segment of the Company.
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. Reconciliations from IFRS measures to non-IFRS measures are included in pages 6, 7 and 8.
Bitfarms Ltd. Q1 2020 MD&A 18
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company and its subsidiaries is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. In designing such controls, it should be recognized that due to inherent limitations, any control, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect misstatements. Additionally, management is required to use judgment in evaluating controls and procedures.
ASIC: ASIC stands for Application Specific Integrated Circuit and refers primarily to specific computer devices designed to solve the SHA-256 algorithm, as well as other machines used in the mining of Litecoin which use the Scrypt algorithm.
Bitcoin: Bitcoin is a decentralized digital currency that is not controlled by any centralized authority (e.g. a government, financial institution or regulatory organization) that can be sent from user to user on the Bitcoin network without the need for intermediaries to clear transactions. Transactions are verified through the process of Mining and recorded in a public ledger known as the Blockchain. Bitcoin is created when the Bitcoin network issues Block Rewards through the Mining process.
Block Reward: A Bitcoin block reward refers to the new bitcoins that are awarded by the Blockchain network to eligible cryptocurrency miners for each block they successfully mine. The current block reward is 6.25 Bitcoin per block.
Blockchain: A Blockchain is a cloud-based public ledger that exists on computers that participate on the network globally. The Blockchain grows as new sets of data, or ‘blocks’, are added to it through Mining. Each block contains a timestamp and a link to the previous block, such that the series of blocks form a continuous chain. Given that each block has a separate hash and each hash requires information from the previous block, altering information an established block would require recalculating all the hashes on the Blockchain which would require an enormous and impracticable amount of computing power. As a result, once a block is added to the Blockchain it is very difficult to edit and impossible to delete.
Hash: A hash is a function that converts or maps an input of letters and numbers into an encrypted output of a fixed length, which outputs are often referred to as hashes. A hash is created using an algorithm. The algorithm used in the validation of Bitcoin transactions is the SHA-256 algorithm.
Hashrate: Hashrate refers to the number of hash operations performed per second and is a measure of computing power in Mining cryptocurrency.
Bitfarms Ltd. Q1 2020 MD&A 19
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Bitfarms Ltd. Management’s Discussion and Analysis For the three months ended March 31, 2020 Report Date: June 24, 2020 |
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Megawatt: A megawatt is 1,000 kilowatts of electricity and, in the industry of cryptocurrency mining, is typically a reference to the number of megawatts of electricity per hour that is available for use.
Miners: ASICs used by the Company to perform Mining.
Mining: Mining refers to the process of using specialized computer hardware, and in the case of the Company, ASICs, to perform mathematical calculations to confirm transactions and increase security for the Bitcoin Blockchain. As a reward for their services, Bitcoin Miners collect transaction fees for the transactions they confirm, along with newly created Bitcoins as Block Rewards.
Network Difficulty: Network difficulty is a unitless measure of how difficult it is to find a hash below a given target. The Bitcoin network protocol automatically adjusts Network Difficulty by changing the target every 2,016 blocks hashed based on the time it took for the total computing power used in Bitcoin mining to solve the previous 2,016 blocks such that the average time to solve each block is ten minutes.
Network Hashrate: Network Hashrate refers to the total global Hashrate (and related computing power) used in Mining for a given cryptocurrency.
Petahash: One quadrillion (1,000,000,000,000,000) hashes per second or one thousand Terahash.
SHA-256: SHA stands for Secure Hash Algorithm. The SHA-256 algorithm was designed by the US National Security Agency and is the cryptographic hash function used within the Bitcoin network to validate transactions on the Bitcoin Blockchain.
Terahash: One trillion (1,000,000,000,000) hashes per second.
Bitfarms Ltd. Q1 2020 MD&A 20
Exhibit 99.39
FORM
52-109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Emiliano Grodzki, Chief Executive Officer of Bitfarms Ltd., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Bitfarms Ltd. (the “issuer”) for the interim period ended March 31, 2020. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: June 24, 2020
| “Emiliano Grodzki” |
Emiliano Grodzki
Chief Executive Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
| I. | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| II. | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Exhibit 99.40
FORM
52-109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, John Rim, Chief Financial Officer of Bitfarms Ltd., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Bitfarms Ltd. (the “issuer”) for the interim period ended March 31, 2020. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: June 24, 2020
| “John Rim” |
John
Rim
Chief Financial Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
| I. | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| II. | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Exhibit 99.41
FORM 51-102F3
MATERIAL CHANGE REPORT
| Item 1 | Name and Address of Company |
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
| Item 2 | Date of Material Change |
June 29, 2020.
| Item 3 | News Release |
The press release attached as Schedule “A” was released over Business Wire on June 29, 2020.
| Item 4 | Summary of Material Change |
The material change is described in the press release attached as Schedule “A”.
| Item 5 | Full Description of Material Change |
The material change is described in the press release attached as Schedule “A”.
| Item 6 | Reliance of subsection 7.1(2) of National Instrument 51-102 |
Not applicable.
| Item 7 | Omitted Information |
Not applicable.
| Item 8 | Executive Officer |
John Rim
Chief Financial Officer & Chief Operating Officer
Bitfarms Ltd.
416-804-8535
| Item 9 | Date of Report |
June 29, 2020.
Schedule “A”
Bitfarms Announces Corporate Update and Stock Option Grant
Toronto, Ontario and Brossard, Québec (June 29, 2020) - Bitfarms Ltd. (“Bitfarms”) (TSXV: BITF) today announces that delivery has been made of 1,847 WhatsMiner M20S and installation will be completed within the next 2 to 3 days. As announced on June 1, 2020, the new equipment was funded from internally generated cash flow. Once fully operational, the mining hardware is expected to add approximately 133 petahash per second ("PH/s") to the Company's installed computing power and improve computing efficiency to over 15 PH per megawatt ("MW"). Each WhatsMiner M20S miner produces an average of 72 terahash per second of computing capacity while consuming approximately 3.46 kWh of energy, or 48 joules per terahash. The M20S miners will utilize, in aggregate, approximately 6.4 megawatts ("MW") of electricity. This equipment will further extend the Company's position as the most efficient publicly traded cryptocurrency miner in Canada in terms of computing power relative to electricity consumption.
In addition, pursuant to the Company’s shareholder approved Stock Option Plan, stock options have been granted to certain officers, directors and employees of the Company to purchase 2,600,000 Common shares of the Company at an exercise price of $0.36 per share for a term of five years with service based vesting provisions to support retention. Following the grant of stock options, the Company has a total of 9,552,500 options outstanding representing approximately 11.3% of the outstanding common shares of the Company.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
2
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward- looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Contacts
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
3
Exhibit 99.42
Bitfarms Announces Change of Auditor and Provides Notice of Release of First Quarter 2020 Financial Results
TORONTO & BROSSARD, Québec--(BUSINESS WIRE)--June 19, 2020--Bitfarms Ltd.
(“Bitfarms”, or the “Company”) (TSXV:BITF) announces that, at the request of the Company, Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global (“EY”) has resigned as the Company’s auditor and PricewaterhouseCoopers LLP (“PwC”) has been appointed as the successor auditor effective June 18, 2020. In accordance with National Instrument 51-102 – Continuous Disclosure Obligations (“NI-51-102”), the Company has filed a Change of Auditor Notice (the “Notice”) on SEDAR together with letters from both EY and PwC, with each letter confirming agreement with the statements contained in the Notice, as applicable. There were no reportable events as defined in NI-51-102 between EY and the Company.
Release of First Quarter 2020 Financial Results
Bitfarms also announces it will release its first quarter 2020 results on Wednesday June 24, 2020 prior to market open. The Company’s senior management will be hosting a webcast presentation at 10:00 AM Eastern Time on June 24, 2020 to discuss Bitfarms’ financial and operating results. To view the webcast presentation, please register using the following link:
https://onlinexperiences.com/Launch/QReg/ShowUUID=12748A45-4F77-49B5-8DBB- 793D04E62501
The financial results and presentation will also be available on the Company’s website at www.bitfarms.com
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Contacts
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
Exhibit 99.43
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
August 20, 2020.
Item 3 News Release
The press release attached as Schedule “A” was released over Business Wire on August 20, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
John Rim
Chief Financial Officer & Chief Operating Officer
Bitfarms Ltd.
416-804-8535
Item 9 Date of Report
August 20, 2020.
Schedule “A”
Bitfarms Announces Lease Financing for 1,000 New Generation Miners Adding 82 Petahash of Computing Power, Agreement to Amend Existing Loans and Provides Notice of Release of Second Quarter 2020 Financial Results
Toronto, Ontario and Brossard, Québec (August 20, 2020) - Bitfarms Ltd. (“Bitfarms” or the “Company”) (TSXV: BITF) is pleased to announce that it has entered into an equipment lease with BlockFills for 1,000 WhatsMiner M31S+ miners to be delivered and installed in approximately two weeks. BlockFills is the first electronic, off exchange, digital liquidity provider, operating an electronic communication network model. Bitfarms is also pleased to announce that is has reached an agreement, in principal, with Dominion Capital LLC (“Dominion”) to amend certain terms and conditions of two of its US$5,000,000 loan tranches. The maturity date of the Company’s US$5,000,000 loan tranche originally due April 17, 2021 will be extended to November 1, 2021. In addition, the Company’s loan tranche due June 20, 2021 will add a conversion feature that will allow Dominion to convert debt to equity at a rate of US$0.59 per common share, a premium of approximately 70% to the current market price of the Company’s shares. The aforementioned amendments are subject to TSXV approval and finalization of legal documentation.
Lease of 1,000 New Generation Miners
The Company has entered into an equipment lease with BlockFills for 1,000 WhatsMiner M31S+ miners for a term of 24 months and carries an implicit annual interest rate of 12%. The lease also includes a bargain purchase option which when exercised will transfer ownership of the equipment to Bitfarms at end of the lease term for a nominal amount. Bitfarms will make weekly lease payments that will fully retire the capitalized cost of the miners over the term of the lease.
Each WhatsMiner M31S+ miner produces an average of 82 terahash per second of computing power while consuming approximately 3.44 kWh of energy, or 42 joules per terahash. The mining hardware is expected to be fully operational within two weeks and will add approximately 82 petahash per second to the Company's installed computing power as well as consuming approximately 3.4 megawatts ("MW") of electricity. The new equipment will improve the Company’s computing efficiency to approximately 17 PH per MW further extending Bitfarms’ position as the most efficient publicly traded cryptocurrency miner in Canada in terms of computing power relative to electricity consumption.
Restructuring of Existing Notes
The Company has reached an agreement with Dominion to amend the second loan tranche of US$5,000,000 to extend the maturity date from the original due date of April 17, 2021 to November 1, 2021. The interest rate for the period from April 17 to November 1, 2021 will remain unchanged at 10% per annum. As consideration, Bitfarms will issue 1 million restricted shares to Dominion.
2
The Company has also reached agreement with Dominion to amend its third loan tranche of US$5,000,000 due June 20, 2021 to make it convertible, at the option of Dominion, into common shares of Bitfarms at a fixed conversion of US$0.59 per share, a premium of approximately 70% to the current market price of the Company’s shares.
“The restructuring of our second and third loan tranches with Dominion will provide valuable flexibility and additional time to build cash from operations to improve Bitfarms’ ability to meet its future commitments and obligations as it continues to grow and scale its business. Dominion have been great partners and supporters of Bitfarms as we continue to grow” commented John Rim, COO and CFO of Bitfarms.
“We are also pleased to partner with BlockFills to lease 1,000 new generation miners, especially during this period when available mining equipment inventory is low. Bitfarms is working with BlockFills to enter into further lease financing over the next few weeks that will allow the Company to add even more operational capacity. Given the recent rise in Bitcoin prices, Bitfarms is well-positioned as mining economics continue to improve after the Bitcoin Halving this past May and we are excited to be able to continue with the execution of our growth strategy” said Emi Grodzki, Interim CEO of Bitfarms.
Release of Second Quarter 2020 Financial Results
Bitfarms also announces it will release its second quarter 2020 results on Friday, August 28, 2020 prior to market open. The Company’s senior management will be hosting a webcast presentation at 10:00 AM Eastern Time on August 28, 2020 to discuss Bitfarms’ financial and operating results. The webcast presentation and registration link will be available on the Company’s website at www.bitfarms.com.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
3
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward- looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
4
Exhibit 99.44
Bitfarms Announces Lease Financing for 1,000 New Generation Miners Adding 82 Petahash of Computing Power, Agreement to Amend Existing Loans and Provides Notice of Release of Second Quarter 2020 Financial Results
TORONTO & BROSSARD, Québec--(BUSINESS WIRE)--August 20, 2020--Bitfarms Ltd. (“Bitfarms” or the “Company”) (TSXV: BITF) is pleased to announce that it has entered into an equipment lease with BlockFills for 1,000 WhatsMiner M31S+ miners to be delivered and installed in approximately two weeks. BlockFills is the first electronic, off exchange, digital liquidity provider, operating an electronic communication network model. Bitfarms is also pleased to announce that is has reached an agreement, in principal, with Dominion Capital LLC (“Dominion”) to amend certain terms and conditions of two of its US$5,000,000 loan tranches. The maturity date of the Company’s US$5,000,000 loan tranche originally due April 17, 2021 will be extended to November 1, 2021. In addition, the Company’s loan tranche due June 20, 2021 will add a conversion feature that will allow Dominion to convert debt to equity at a rate of US$0.59 per common share, a premium of approximately 70% to the current market price of the Company’s shares. The aforementioned amendments are subject to TSXV approval and finalization of legal documentation.
Lease of 1,000 New Generation Miners
The Company has entered into an equipment lease with BlockFills for 1,000 WhatsMiner M31S+ miners for a term of 24 months and carries an implicit annual interest rate of 12%. The lease also includes a bargain purchase option which when exercised will transfer ownership of the equipment to Bitfarms at end of the lease term for a nominal amount. Bitfarms will make weekly lease payments that will fully retire the capitalized cost of the miners over the term of the lease.
Each WhatsMiner M31S+ miner produces an average of 82 terahash per second of computing power while consuming approximately 3.44 kWh of energy, or 42 joules per terahash. The mining hardware is expected to be fully operational within two weeks and will add approximately 82 petahash per second to the Company's installed computing power as well as consuming approximately 3.4 megawatts ("MW") of electricity. The new equipment will improve the Company’s computing efficiency to approximately 17 PH per MW further extending Bitfarms’ position as the most efficient publicly traded cryptocurrency miner in Canada in terms of computing power relative to electricity consumption.
Restructuring of Existing Notes
The Company has reached an agreement with Dominion to amend the second loan tranche of US$5,000,000 to extend the maturity date from the original due date of April 17, 2021 to November 1, 2021. The interest rate for the period from April 17 to November 1, 2021 will remain unchanged at 10% per annum. As consideration, Bitfarms will issue 1 million restricted shares to Dominion.
The Company has also reached agreement with Dominion to amend its third loan tranche of US$5,000,000 due June 20, 2021 to make it convertible, at the option of Dominion, into common shares of Bitfarms at a fixed conversion of US$0.59 per share, a premium of approximately 70% to the current market price of the Company’s shares.
“The restructuring of our second and third loan tranches with Dominion will provide valuable flexibility and additional time to build cash from operations to improve Bitfarms’ ability to meet its future commitments and obligations as it continues to grow and scale its business. Dominion have been great partners and supporters of Bitfarms as we continue to grow,” commented John Rim, COO and CFO of Bitfarms.
“We are also pleased to partner with BlockFills to lease 1,000 new generation miners, especially during this period when available mining equipment inventory is low. Bitfarms is working with BlockFills to enter into further lease financing over the next few weeks that will allow the Company to add even more operational capacity. Given the recent rise in Bitcoin prices, Bitfarms is well-positioned as mining economics continue to improve after the Bitcoin Halving this past May and we are excited to be able to continue with the execution of our growth strategy,” said Emi Grodzki, Interim CEO of Bitfarms.
Release of Second Quarter 2020 Financial Results
Bitfarms also announces it will release its second quarter 2020 results on Friday, August 28, 2020 prior to market open. The Company’s senior management will be hosting a webcast presentation at 10:00 AM Eastern Time on August 28, 2020 to discuss Bitfarms’ financial and operating results. The webcast presentation and registration link will be available on the Company’s website at www.bitfarms.com.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
2
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Contacts
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
3
Exhibit 99.45
FORM
51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
August 28, 2020.
Item 3 News Release
The press release attached as Schedule “A” was disseminated on August 28, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
John Rim
Chief Financial Officer & Chief Operating Officer
Bitfarms Ltd.
416-804-8535
Item 9 Date of Report
August 28, 2020.
Schedule "A"
Bitfarms Reports Financial Results for the Three and Six Months Ended June 30, 2020
Toronto, Ontario and Brossard, Québec (August 28, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) today announced its consolidated results for the three and six months ended June 30, 2020.
Q2 2020 Financial Summary and Corporate Highlights
| ● | Consolidated revenue of US$7.4 million; gross loss of US$0.1 million (-2% gross loss margin), operating loss of US$1.5 million (20% operating loss margin), and net loss of US$3.7 million; |
| ● | Mining operations segment gross mining profit1 of US$2.5 million (36% gross mining margin); |
| ● | US$0.4 million EBITDA (6% EBITDA margin) and US$1.4 million Adj. EBITDA (19% Adj. EBITDA margin); |
| ● | Mined 815 Bitcoins with an average break-even2 Bitcoin price of $5,075; |
| ● | Completed 5MW expansion of the Company’s St-Hyacinthe facility to increase the maximum capacity at St. Hyacinthe from 10 megawatts (“MW”) to 15 MW; |
| ● | Acquired 1,865 WhatsMiner M20S producing approximately 135 PH/s and consuming approximately 6.4 MW which were installed and operational by the beginning of July 2020; and |
| ● | Appointed PricewaterhouseCoopers LLP as the Company’s auditor. |
“Despite the ongoing market turbulence caused by the COVID-19 pandemic and the challenge presented by the Bitcoin Halving that occurred in May, we are pleased that Bitfarms’ operations yielded positive EBITDA and Adjusted EBITDA in the second quarter. The Company’s 36% gross mining margin and break-even cost per Bitcoin of $5,075 on the production of 815 Bitcoin achieved in the second quarter significantly outpaced our Canadian competition.
With the 1,000 new mining rigs expected to be delivered and installed within the few days, the Company will have added 217 PH or over 25% growth so far in 2020 despite challenging market conditions. Finally, the recently announced refinancing will provide the time and flexibility that the Company needs to continue to execute on its growth plans” commented John Rim, Chief Operating Officer and Chief Financial Officer.
Emiliano Grodzki, Interim Chief Executive Officer of Bitfarms added, “Bitfarms continues to demonstrate its resiliency and strength of operations despite challenging market conditions. Based on publicly disclosed financial information, we believe that the 815 Bitcoin mined by Bitfarms in the second quarter was the most amongst all publicly traded Bitcoin mining companies. We’re pleased with the strength of our business model and we are well positioned to continue to carry out our strategy of disciplined, timely and cost-efficient growth.”
| 1 | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures. |
| 2 | Represents the break-even cost of Bitcoin based on variable cost of electricity and is calculated by taking the total electricity costs related to the Mining of Bitcoin divided by the total number of Bitcoin mined, respectively, in the relevant period. |
2
Financial Review
Consolidated Company Results (000’s)
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun.
30 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 7,372 | 8,517 | (1,145 | ) | (13 | %) | 16,584 | 12,146 | 4,438 | 37 | % | |||||||||||||||||||||
| Cost of sales | 7,506 | 4,586 | 2,920 | 64 | % | 15,423 | 8,003 | 7,420 | 93 | % | ||||||||||||||||||||||
| Gross profit (loss) | (134 | ) | 3,930 | (4,064 | ) | (103 | %) | 1,161 | 4,143 | (2,982 | ) | (72 | %) | |||||||||||||||||||
| Gross margin (loss) | (2 | %) | 46 | % | — | — | 7 | % | 34 | % | — | — | ||||||||||||||||||||
| Gain on disposition of cryptocurrencies | 23 | — | 23 | 100 | % | 23 | — | 23 | 100 | % | ||||||||||||||||||||||
| Loss on disposition of assets | (707 | ) | (4 | ) | (703 | ) | (17575 | %) | (707 | ) | (7 | ) | (700 | ) | (10000 | %) | ||||||||||||||||
| Operating income (loss) | (1,482 | ) | 575 | (2,057 | ) | (358 | %) | (2,992 | ) | (1,132 | ) | (1,860 | ) | (164 | %) | |||||||||||||||||
| Operating margin (loss) | (20 | %) | 7 | % | — | — | (18 | %) | (9 | %) | — | — | ||||||||||||||||||||
| G&A and other expenses | 1,371 | 3,355 | (1,984 | ) | (59 | %) | 4,176 | 5,275 | (1,099 | ) | (21 | %) | ||||||||||||||||||||
| Financial income | 57 | — | 57 | 100 | % | 265 | — | 265 | 100 | % | ||||||||||||||||||||||
| Interest expense | 1,400 | 689 | 711 | 103 | % | 2,785 | 821 | 1,964 | 239 | % | ||||||||||||||||||||||
| Other financial expenses | 202 | 1,202 | (1,000 | ) | (83 | %) | 47 | 1,366 | (1,319 | ) | (97 | %) | ||||||||||||||||||||
| Total financial expenses | 1,602 | 1,891 | (289 | ) | (15 | %) | 2,832 | 2,187 | 645 | 29 | % | |||||||||||||||||||||
| Pre-tax loss | (3,734 | ) | (1,320 | ) | (2,414 | ) | (183 | %) | (6,266 | ) | (3,326 | ) | (2,940 | ) | (88 | %) | ||||||||||||||||
| Income tax recovery | (4 | ) | — | (4 | ) | 100 | % | (112 | ) | — | (112 | ) | 100 | % | ||||||||||||||||||
| Net loss | (3,730 | ) | (1,320 | ) | (2,410 | ) | (183 | %) | (6,154 | ) | (3,326 | ) | (2,828 | ) | (85 | %) | ||||||||||||||||
| Net loss per share - basic | (0.04 | ) | (0.01 | ) | — | — | (0.07 | ) | (0.04 | ) | — | — | ||||||||||||||||||||
| Gross mining profit (1) | 2,506 | 5,122 | (2,616 | ) | (51 | %) | 6,602 | 6,205 | 397 | 6 | % | |||||||||||||||||||||
| Gross mining margin (1) | 36 | % | 67 | % | — | — | 42 | % | 58 | % | — | — | ||||||||||||||||||||
| EBITDA (1) | 416 | 668 | (252 | ) | (38 | %) | 2,249 | 142 | 2,107 | 1484 | % | |||||||||||||||||||||
| EBITDA margin (1) | 6 | % | 8 | % | — | — | 14 | % | 1 | % | — | — | ||||||||||||||||||||
| Adjusted EBITDA (1) | 1,435 | 3,329 | (1,894 | ) | (57 | %) | 4,340 | 2,908 | 1,432 | 49 | % | |||||||||||||||||||||
| Adjusted EBITDA margin (1) | 19 | % | 39 | % | — | — | 26 | % | 24 | % | — | — | ||||||||||||||||||||
Notes
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to Non-IFRS Performance Measures. |
Revenue
Bitfarms’ total revenue for Q2 2020 was US$7.4 million compared to US$8.5 million in Q2 2019. Revenue in Q2 2020 decreased US$1.1 million or 13% compared to Q2 2019 due to a reduced quantity of Bitcoin mined resulting from the Bitcoin Halving Event in May, offset by an increase in the average selling price of Bitcoin (i.e. $8,429 in Q2 2020 compared to $7,679 in Q2 2019) in addition to an increase in Bitfarms’ average hashrate in excess of the increase in Network Difficulty.
Cost of Sales
Bitfarms’ cost of sales for Q2 2020 was US$7.5 million compared to US$4.6 million in Q2 2019. Costs of sales include energy and infrastructure expenses, rental expense, depreciation and amortization, electrician salaries, and purchases and net change in inventory.
Energy and infrastructure expenses increased by US$1.8 million or 68% in Q2 2020 compared to Q2 2019 as the Company added new mining equipment that increased electrical consumption from an average of 28 MW during Q2 2019 to approximately 48 MW during Q2 2020. Depreciation and amortization expense increased by US$1.5 million or 112% in Q2 2020 compared to Q2 2019 due to the net additions to property, plant and equipment of approximately US$20.3M from Q2 2019 throughout Q2 2020.
3
Gross Profit
In Q2 2020, the Company had consolidated gross loss of US$0.1 million (-2% gross margin) on consolidated revenue of US$7.4 million, compared to gross profit of US$3.9 million (46% gross margin) on consolidated revenue of US$8.5 million in Q2 2019.
General & Administrative and Other Expenses
Bitfarms’ general and administrative and other expenses decreased US$ 2.0 million or 59% in Q2 2020 compared to Q2 2019. The primary reason for the decrease was lower non-cash expenses related to share-based compensation issued to employees of approximately US$1.2 million as well as US$0.5 million lower salaries and wages expenses resulting from fewer executive level employees and government wage subsidies received in connection with COVID-19 in Q2 2020 compared to Q2 2019. There was an additional decrease of US$0.3 million in Q2 2020 resulting from reduced professional fees in connection with the Company’s TSX-V listing process in Q2 2019.
Financial Income and Expenses
Bitfarms’ financial income for Q2 2020 was US$0.1 million compared to US$nil for Q2 2019. The increase in financial income was related to a US$0.1 million gain recorded on the embedded derivative. Financial expense for Q2 2020 was US$1.5 million compared to US$1.9 million in Q2 2019. The US$0.4 million decrease is primarily related to a US$0.8 million loss on warrant revaluation as well as a US$0.4 million loss on embedded derivative in Q2 2019 that did not occur in Q2 2020, offset by interest expense of US$1.3 million incurred on the Dominion Capital loan in Q2 2020 compared to US$0.5 million in Q2 2019.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Net loss before tax | (3,734 | ) | (1,320 | ) | (2,414 | ) | (183 | %) | (6,266 | ) | (3,326 | ) | (2,940 | ) | (88 | %) | ||||||||||||||||
| Interest expense | 1,400 | 689 | 711 | 103 | % | 2,785 | 821 | 1,964 | 239 | % | ||||||||||||||||||||||
| Depreciation expense | 2,750 | 1,299 | 1,451 | 112 | % | 5,730 | 2,647 | 3,083 | 116 | % | ||||||||||||||||||||||
| EBITDA (1) | 416 | 668 | (252 | ) | (38 | %) | 2,249 | 142 | 2,107 | 1484 | % | |||||||||||||||||||||
| Stock compensation expense | 254 | 1,462 | (1,208 | ) | (83 | %) | 1,264 | 1,572 | (308 | ) | (20 | %) | ||||||||||||||||||||
| Financial income and other | 765 | 1,199 | (434 | ) | (36 | %) | 827 | 1,194 | (367 | ) | (31 | %) | ||||||||||||||||||||
| Adjusted EBITDA (1) | 1,435 | 3,329 | (1,894 | ) | (57 | %) | 4,340 | 2,908 | 1,432 | 49 | % | |||||||||||||||||||||
Bitfarms’ net loss for Q2 2020 was US$3.7 million compared to a net loss of US$1.3 million for Q2 2019. EBITDA and Adjusted EBITDA for Q2 2020 were US$0.4 million and US$1.4 million, respectively, compared to an EBITDA and Adjusted EBITDA of US$0.7 million and US$3.3 million in Q2 2019. EBITDA and Adjusted EBITDA are non- IFRS performance measures; please refer to the heading “Non-IFRS Performance Measures” at the end of this press release.
4
Calculation of Gross Mining Profit & Gross Mining Margin
Gross mining margin (Backbone segment)
| (U.S. $ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Revenue | 6,870 | 7,687 | (817 | ) | (11 | %) | 15,594 | 10,687 | 4,907 | 46 | % | |||||||||||||||||||||
| Cost of sales | 7,189 | 3,926 | 3,263 | 83 | % | 14,674 | 6,959 | 7,715 | 111 | % | ||||||||||||||||||||||
| Gross profit (loss) | (319 | ) | 3,761 | (4,080 | ) | (108 | %) | 920 | 3,728 | (2,808 | ) | (75 | %) | |||||||||||||||||||
| Depreciation and amortization | 2,729 | 1,280 | 1,449 | 113 | % | 5,682 | 2,603 | 3,079 | 118 | % | ||||||||||||||||||||||
| Net change in inventory and other | 96 | 81 | 15.00 | — | — | (126 | ) | 126 | 100 | % | ||||||||||||||||||||||
| Gross mining profit | 2,506 | 5,122 | (2,616 | ) | (51 | %) | 6,602 | 6,205 | 397 | 6 | % | |||||||||||||||||||||
| Gross mining margin | 36 | % | 67 | % | — | — | 42 | % | 58 | % | — | — | ||||||||||||||||||||
Webcast
The Company will be hosting a webcast presentation at 10:00 AM ET on August 28 2020. To view the webcast presentation, please register at:
https://onlinexperiences.com/Launch/QReg/ShowUUID=C70B5887-6D74-423A-8BD6-A6207A4064C0
The financial results and presentation will also be available on our website at www.bitfarms.com.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities: Website: www.bitfarms.com
https://www.facebook.com/bitfarms/ https://twitter.com/Bitfarms_io https://www.instagram.com/bitfarms/ https://www.linkedin.com/company/bitfarms/
5
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
6
Non-IFRS Performance Measures
This press release makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including "EBITDA," “EBITDA margin,” "Adjusted EBITDA," “Adjusted EBITDA margin,” “Gross mining profit,” and "Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenue. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; and (iv) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenue. “Gross mining profit” is defined as Revenue minus energy expenses for the Bitfarms segment of the Company. "Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenue for the Bitfarms segment of the Company.
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. See “Reconciliation of Net Income to EBITDA and Adjusted EBITDA” for reconciliation of EBITDA and Adjusted EBITDA to net income.
7
Exhibit 99.46
Bitfarms
Reports Financial Results for the Three and Six Months Ended
June 30, 2020
Toronto, Ontario and Brossard, Québec (August 28, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) today announced its consolidated results for the three and six months ended June 30, 2020.
Q2 2020 Financial Summary and Corporate Highlights
| ● | Consolidated revenue of US$7.4 million; gross loss of US$0.1 million (-2% gross loss margin), operating loss of US$1.5 million (20% operating loss margin), and net loss of US$3.7 million; |
| ● | Mining operations segment gross mining profit1 of US$2.5 million (36% gross mining margin); |
| ● | US$0.4 million EBITDA (6% EBITDA margin) and US$1.4 million Adj. EBITDA (19% Adj. EBITDA margin); |
| ● | Mined 815 Bitcoins with an average break-even2 Bitcoin price of $5,075; |
| ● | Completed 5MW expansion of the Company’s St-Hyacinthe facility to increase the maximum capacity at St. Hyacinthe from 10 megawatts (“MW”) to 15 MW; |
| ● | Acquired 1,865 WhatsMiner M20S producing approximately 135 PH/s and consuming approximately 6.4 MW which were installed and operational by the beginning of July 2020; and |
| ● | Appointed PricewaterhouseCoopers LLP as the Company’s auditor. |
“Despite the ongoing market turbulence caused by the COVID-19 pandemic and the challenge presented by the Bitcoin Halving that occurred in May, we are pleased that Bitfarms’ operations yielded positive EBITDA and Adjusted EBITDA in the second quarter. The Company’s 36% gross mining margin and break-even cost per Bitcoin of $5,075 on the production of 815 Bitcoin achieved in the second quarter significantly outpaced our Canadian competition.
With the 1,000 new mining rigs expected to be delivered and installed within the few days, the Company will have added 217 PH or over 25% growth so far in 2020 despite challenging market conditions. Finally, the recently announced refinancing will provide the time and flexibility that the Company needs to continue to execute on its growth plans” commented John Rim, Chief Operating Officer and Chief Financial Officer.
Emiliano Grodzki, Interim Chief Executive Officer of Bitfarms added, “Bitfarms continues to demonstrate its resiliency and strength of operations despite challenging market conditions. Based on publicly disclosed financial information, we believe that the 815 Bitcoin mined by Bitfarms in the second quarter was the most amongst all publicly traded Bitcoin mining companies. We’re pleased with the strength of our business model and we are well positioned to continue to carry out our strategy of disciplined, timely and cost-efficient growth.”
| 1 | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures. |
| 2 | Represents the break-even cost of Bitcoin based on variable cost of electricity and is calculated by taking the total electricity costs related to the Mining of Bitcoin divided by the total number of Bitcoin mined, respectively, in the relevant period. |
Financial Review
Consolidated Company Results (000’s)
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 7,372 | 8,517 | (1,145 | ) | (13 | %) | 16,584 | 12,146 | 4,438 | 37 | % | |||||||||||||||||||||
| Cost of sales | 7,506 | 4,586 | 2,920 | 64 | % | 15,423 | 8,003 | 7,420 | 93 | % | ||||||||||||||||||||||
| Gross profit (loss) | (134 | ) | 3,930 | (4,064 | ) | (103 | %) | 1,161 | 4,143 | (2,982 | ) | (72 | %) | |||||||||||||||||||
| Gross margin (loss) | (2 | %) | 46 | % | - | - | 7 | % | 34 | % | - | - | ||||||||||||||||||||
| Gain on disposition of cryptocurrencies | 23 | - | 23 | 100 | % | 23 | - | 23 | 100 | % | ||||||||||||||||||||||
| Loss on disposition of assets | (707 | ) | (4 | ) | (703 | ) | (17575 | %) | (707 | ) | (7 | ) | (700 | ) | (10000 | %) | ||||||||||||||||
| Operating income (loss) | (1,482 | ) | 575 | (2,057 | ) | (358 | %) | (2,992 | ) | (1,132 | ) | (1,860 | ) | (164 | %) | |||||||||||||||||
| Operating margin (loss) | (20 | %) | 7 | % | - | - | (18 | %) | (9 | %) | - | - | ||||||||||||||||||||
| G&A and other expenses | 1,371 | 3,355 | (1,984 | ) | (59 | %) | 4,176 | 5,275 | (1,099 | ) | (21 | %) | ||||||||||||||||||||
| Financial income | 57 | - | 57 | 100 | % | 265 | - | 265 | 100 | % | ||||||||||||||||||||||
| Interest expense | 1,400 | 689 | 711 | 103 | % | 2,785 | 821 | 1,964 | 239 | % | ||||||||||||||||||||||
| Other financial expenses | 202 | 1,202 | (1,000 | ) | (83 | %) | 47 | 1,366 | (1,319 | ) | (97 | %) | ||||||||||||||||||||
| Total financial expenses | 1,602 | 1,891 | (289 | ) | (15 | %) | 2,832 | 2,187 | 645 | 29 | % | |||||||||||||||||||||
| Pre-tax loss | (3,734 | ) | (1,320 | ) | (2,414 | ) | (183 | %) | (6,266 | ) | (3,326 | ) | (2,940 | ) | (88 | %) | ||||||||||||||||
| Income tax recovery | (4 | ) | - | (4 | ) | 100 | % | (112 | ) | - | (112 | ) | 100 | % | ||||||||||||||||||
| Net loss | (3,730 | ) | (1,320 | ) | (2,410 | ) | (183 | %) | (6,154 | ) | (3,326 | ) | (2,828 | ) | (85 | %) | ||||||||||||||||
| Net loss per share - basic | (0.04 | ) | (0.01 | ) | - | - | (0.07 | ) | (0.04 | ) | - | - | ||||||||||||||||||||
| Gross mining profit (1) | 2,506 | 5,122 | (2,616 | ) | (51 | %) | 6,602 | 6,205 | 397 | 6 | % | |||||||||||||||||||||
| Gross mining margin (1) | 36 | % | 67 | % | - | - | 42 | % | 58 | % | - | - | ||||||||||||||||||||
| EBITDA (1) | 416 | 668 | (252 | ) | (38 | %) | 2,249 | 142 | 2,107 | 1484 | % | |||||||||||||||||||||
| EBITDA margin (1) | 6 | % | 8 | % | - | - | 14 | % | 1 | % | - | - | ||||||||||||||||||||
| Adjusted EBITDA (1) | 1,435 | 3,329 | (1,894 | ) | (57 | %) | 4,340 | 2,908 | 1,432 | 49 | % | |||||||||||||||||||||
| Adjusted EBITDA margin (1) | 19 | % | 39 | % | - | - | 26 | % | 24 | % | - | - | ||||||||||||||||||||
Notes
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to Non-IFRS Performance Measures. |
Revenue
Bitfarms’ total revenue for Q2 2020 was US$7.4 million compared to US$8.5 million in Q2 2019. Revenue in Q2 2020 decreased US$1.1 million or 13% compared to Q2 2019 due to a reduced quantity of Bitcoin mined resulting from the Bitcoin Halving Event in May, offset by an increase in the average selling price of Bitcoin (i.e. $8,429 in Q2 2020 compared to $7,679 in Q2 2019) in addition to an increase in Bitfarms’ average hashrate in excess of the increase in Network Difficulty.
Cost of Sales
Bitfarms’ cost of sales for Q2 2020 was US$7.5 million compared to US$4.6 million in Q2 2019. Costs of sales include energy and infrastructure expenses, rental expense, depreciation and amortization, electrician salaries, and purchases and net change in inventory.
2
Energy and infrastructure expenses increased by US$1.8 million or 68% in Q2 2020 compared to Q2 2019 as the Company added new mining equipment that increased electrical consumption from an average of 28 MW during Q2 2019 to approximately 48 MW during Q2 2020. Depreciation and amortization expense increased by US$1.5 million or 112% in Q2 2020 compared to Q2 2019 due to the net additions to property, plant and equipment of approximately US$20.3M from Q2 2019 throughout Q2 2020.
Gross Profit
In Q2 2020, the Company had consolidated gross loss of US$0.1 million (-2% gross margin) on consolidated revenue of US$7.4 million, compared to gross profit of US$3.9 million (46% gross margin) on consolidated revenue of US$8.5 million in Q2 2019.
General & Administrative and Other Expenses
Bitfarms’ general and administrative and other expenses decreased US$ 2.0 million or 59% in Q2 2020 compared to Q2 2019. The primary reason for the decrease was lower non-cash expenses related to share-based compensation issued to employees of approximately US$1.2 million as well as US$0.5 million lower salaries and wages expenses resulting from fewer executive level employees and government wage subsidies received in connection with COVID-19 in Q2 2020 compared to Q2 2019. There was an additional decrease of US$0.3 million in Q2 2020 resulting from reduced professional fees in connection with the Company’s TSX-V listing process in Q2 2019.
Financial Income and Expenses
Bitfarms’ financial income for Q2 2020 was US$0.1 million compared to US$nil for Q2 2019. The increase in financial income was related to a US$0.1 million gain recorded on the embedded derivative. Financial expense for Q2 2020 was US$1.5 million compared to US$1.9 million in Q2 2019. The US$0.4 million decrease is primarily related to a US$0.8 million loss on warrant revaluation as well as a US$0.4 million loss on embedded derivative in Q2 2019 that did not occur in Q2 2020, offset by interest expense of US$1.3 million incurred on the Dominion Capital loan in Q2 2020 compared to US$0.5 million in Q2 2019.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Net loss before tax | (3,734 | ) | (1,320 | ) | (2,414 | ) | (183 | %) | (6,266 | ) | (3,326 | ) | (2,940 | ) | (88 | %) | ||||||||||||||||
| Interest expense | 1,400 | 689 | 711 | 103 | % | 2,785 | 821 | 1,964 | 239 | % | ||||||||||||||||||||||
| Depreciation expense | 2,750 | 1,299 | 1,451 | 112 | % | 5,730 | 2,647 | 3,083 | 116 | % | ||||||||||||||||||||||
| EBITDA (1) | 416 | 668 | (252 | ) | (38 | %) | 2,249 | 142 | 2,107 | 1484 | % | |||||||||||||||||||||
| Stock compensation expense | 254 | 1,462 | (1,208 | ) | (83 | %) | 1,264 | 1,572 | (308 | ) | (20 | %) | ||||||||||||||||||||
| Financial income and other | 765 | 1,199 | (434 | ) | (36 | %) | 827 | 1,194 | (367 | ) | (31 | %) | ||||||||||||||||||||
| Adjusted EBITDA (1) | 1,435 | 3,329 | (1,894 | ) | (57 | %) | 4,340 | 2,908 | 1,432 | 49 | % | |||||||||||||||||||||
Bitfarms’ net loss for Q2 2020 was US$3.7 million compared to a net loss of US$1.3 million for Q2 2019. EBITDA and Adjusted EBITDA for Q2 2020 were US$0.4 million and US$1.4 million, respectively, compared to an EBITDA and Adjusted EBITDA of US$0.7 million and US$3.3 million in Q2 2019. EBITDA and Adjusted EBITDA are non- IFRS performance measures; please refer to the heading “Non-IFRS Performance Measures” at the end of this press release.
3
Calculation of Gross Mining Profit & Gross Mining Margin
Gross mining margin (Backbone segment)
| (U.S. $ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Revenue | 6,870 | 7,687 | (817 | ) | (11 | %) | 15,594 | 10,687 | 4,907 | 46 | % | |||||||||||||||||||||
| Cost of sales | 7,189 | 3,926 | 3,263 | 83 | % | 14,674 | 6,959 | 7,715 | 111 | % | ||||||||||||||||||||||
| Gross profit (loss) | (319 | ) | 3,761 | (4,080 | ) | (108 | %) | 920 | 3,728 | (2,808 | ) | (75 | %) | |||||||||||||||||||
| Depreciation and amortization | 2,729 | 1,280 | 1,449 | 113 | % | 5,682 | 2,603 | 3,079 | 118 | % | ||||||||||||||||||||||
| Net change in inventory and other | 96 | 81 | 15.00 | - | - | (126 | ) | 126 | 100 | % | ||||||||||||||||||||||
| Gross mining profit | 2,506 | 5,122 | (2,616 | ) | (51 | %) | 6,602 | 6,205 | 397 | 6 | % | |||||||||||||||||||||
| Gross mining margin | 36 | % | 67 | % | - | - | 42 | % | 58 | % | - | - | ||||||||||||||||||||
Webcast
The Company will be hosting a webcast presentation at 10:00 AM ET on August 28 2020. To view the webcast presentation, please register at:
https://onlinexperiences.com/Launch/QReg/ShowUUID=C70B5887-6D74-423A-8BD6-A6207A4064C0
The financial results and presentation will also be available on our website at www.bitfarms.com.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
4
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward- looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
5
Non-IFRS Performance Measures
This press release makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including “EBITDA,” “EBITDA margin,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Gross mining profit,” and “Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenue. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; and (iv) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenue. “Gross mining profit” is defined as Revenue minus energy expenses for the Bitfarms segment of the Company. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenue for the Bitfarms segment of the Company.
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. See “Reconciliation of Net Income to EBITDA and Adjusted EBITDA” for reconciliation of EBITDA and Adjusted EBITDA to net income.
6
Exhibit 99.47
AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2020
U.S. DOLLARS IN THOUSANDS
UNAUDITED
INDEX
- - - - - - - - - - - -- - - - - - - - - -
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
| June
30, 2020 | December
31, 2019 | ||||||||||
| Note | Unaudited | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 1,361 | $ | 2,159 | |||||||
| Trade receivables, net | 838 | 1,108 | |||||||||
| Other assets | 5 | 855 | 1,398 | ||||||||
| Inventories | 6 | 143 | 135 | ||||||||
| Income taxes receivable | 1,567 | 1,743 | |||||||||
| 4,764 | 6,543 | ||||||||||
| Assets held for sale | 7 | - | 7 | ||||||||
| TOTAL CURRENT ASSETS | 4,764 | 6,550 | |||||||||
| NON-CURRENT ASSETS: | |||||||||||
| Property, plant and equipment, net | 8 | 34,935 | 37,774 | ||||||||
| Right-of-use assets | 11 | 5,782 | 6,233 | ||||||||
| Intangible assets, net | 550 | 675 | |||||||||
| Long-term deposits and equipment prepayments | 9 | 1,027 | 1,148 | ||||||||
| Embedded derivative | 10 | 596 | 476 | ||||||||
| TOTAL NON-CURRENT ASSETS | 42,890 | 46,306 | |||||||||
| TOTAL ASSETS | $ | 47,654 | $ | 52,856 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Current maturities of long-term debt | 10 | $ | 12,309 | $ | 874 | ||||||
| Current maturities of lease liabilities | 11 | 741 | 746 | ||||||||
| Accounts payable and accrued liabilities | 2,140 | 2,389 | |||||||||
| TOTAL CURRENT LIABILITIES | 15,190 | 4,009 | |||||||||
| NON-CURRENT LIABILITIES: | |||||||||||
| Long-term debt | 10 | 3,778 | 14,849 | ||||||||
| Lease liabilities | 11 | 5,101 | 5,717 | ||||||||
| Asset retirement provision | 12 | 187 | 193 | ||||||||
| TOTAL NON-CURRENT LIABILITIES | 9,066 | 20,759 | |||||||||
| TOTAL LIABILITIES | 24,256 | 24,768 | |||||||||
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: | |||||||||||
| Share capital | 13 | 30,867 | 30,475 | ||||||||
| Contributed surplus | 4,541 | 3,469 | |||||||||
| Accumulated deficit | (12,010 | ) | (5,856 | ) | |||||||
| TOTAL EQUITY | 23,398 | 28,088 | |||||||||
| TOTAL LIABILITIES & EQUITY | $ | 47,654 | $ | 52,856 | |||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 2 |
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
U.S. dollars in thousands (except earnings per share)
| Three
months ended June 30, | Six
months ended June 30, | ||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| Note | Unaudited | ||||||||||||||||||
Revenues | 13 | $ | 7,372 | $ | 8,517 | $ | 16,584 | $ | 12,146 | ||||||||||
| Cost of revenues | 7,506 | 4,587 | 15,423 | 8,003 | |||||||||||||||
| Gross profit (loss) | (134 | ) | 3,930 | 1,161 | 4,143 | ||||||||||||||
| Gain on disposition of cryptocurrencies | 23 | - | 23 | - | |||||||||||||||
| General and administrative expenses | 1,371 | 3,355 | 4,176 | 5,275 | |||||||||||||||
| Operating income (loss) | (1,482 | ) | 575 | (2,992 | ) | (1,132 | ) | ||||||||||||
| Loss on disposition of property, plant and equipment | (707 | ) | (4 | ) | (707 | ) | (7 | ) | |||||||||||
| Financial income | 57 | - | 265 | - | |||||||||||||||
| Financial expenses | (1,602 | ) | (1,891 | ) | (2,832 | ) | (2,187 | ) | |||||||||||
| Loss before taxes on income | (3,734 | ) | (1,320 | ) | (6,266 | ) | (3,326 | ) | |||||||||||
| Income tax benefit | (4 | ) | - | (112 | ) | - | |||||||||||||
| Net loss and total comprehensive loss | $ | (3,730 | ) | $ | (1,320 | ) | $ | (6,154 | ) | $ | (3,326 | ) | |||||||
| Attributable to: | |||||||||||||||||||
| Equity holders of the Company | $ | (3,730 | ) | $ | (834 | ) | $ | (6,154 | ) | $ | (2,124 | ) | |||||||
| Non-controlling interest | - | (486 | ) | - | (1,202 | ) | |||||||||||||
| $ | (3,730 | ) | $ | (1,320 | ) | $ | (6,154 | ) | $ | (3,326 | ) | ||||||||
| Net loss per share attributable to equity | |||||||||||||||||||
| holders of the Company (in U.S. dollars): | |||||||||||||||||||
| Basic and diluted loss per share | 15 | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.04 | ) | ||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 3 |
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands
| Equity attributable to equity holders of the Company | ||||||||||||||||||||||||||||
| Share | Contributed | Obligation to issue | Accumulated | Non- controlling | Total | |||||||||||||||||||||||
| capital | surplus | shares | deficit | Total | interest | equity | ||||||||||||||||||||||
| Balance as of January 1, 2020 | $ | 30,475 | $ | 3,469 | $ | - | $ | (5,856 | ) | $ | 28,088 | $ | - | $ | 28,088 | |||||||||||||
| Net loss and total comprehensive loss | - | - | - | (6,154 | ) | (6,154 | ) | - | (6,154 | ) | ||||||||||||||||||
| Share-based payment | 192 | 1,072 | - | - | 1,264 | - | 1,264 | |||||||||||||||||||||
| Exercise of warrants | 200 | - | - | - | 200 | - | 200 | |||||||||||||||||||||
Balance as of June 30, 2020 (unaudited) | $ | 30,867 | $ | 4,541 | $ | - | $ | (12,010 | ) | $ | 23,398 | $ | - | $ | 23,398 | |||||||||||||
| Balance as of January 1, 2019 | $ | 19,812 | - | $ | 4,386 | $ | (8,755 | ) | $ | 15,443 | $ | 5,209 | $ | 20,652 | ||||||||||||||
| Net loss and total comprehensive loss | - | - | - | (2,124 | ) | (2,124 | ) | (1,202 | ) | (3,326 | ) | |||||||||||||||||
| Share-based payment in legal subsidiary | - | 1,410 | - | - | 1,410 | 161 | 1,571 | |||||||||||||||||||||
| Exchange of share based payment from legal subsidiary to the Company | 141 | 766 | - | - | 907 | (907 | ) | - | ||||||||||||||||||||
| Exchange of exchangeable shares issued in the reverse acquisition | 4,386 | - | (4,386 | ) | - | - | - | - | ||||||||||||||||||||
Balance as of June 30, 2019 (unaudited) | $ | 24,339 | $ | 2,176 | $ | - | $ | (10,879 | ) | $ | 15,636 | $ | 3,261 | $ | 18,897 | |||||||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 4 |
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Six
months ended | ||||||||
| 2020 | 2019 | |||||||
Unaudited | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (6,154 | ) | $ | (3,326 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 5,730 | 2,647 | ||||||
| Financial expenses | 2,832 | 2,203 | ||||||
| Share-based payment | 1,264 | 1,571 | ||||||
| Financial income | (426 | ) | - | |||||
| Interest and financial expenses paid | (1,935 | ) | (821 | ) | ||||
| Loss on disposal of property, plant and equipment and provision for asset retirement | 708 | 16 | ||||||
| 8,173 | 5,616 | |||||||
| Changes in non-cash working capital components (A) | 429 | (801 | ) | |||||
| Net cash provided by operating activities | 2,448 | 1,489 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment and intangible assets | (3,216 | ) | (5,870 | ) | ||||
| Proceeds from sale of property, plant and equipment | 602 | 1,405 | ||||||
| Advance payments for equipment | - | (6,120 | ) | |||||
| Net cash used in investing activities | (2,614 | ) | (10,585 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Issuance of warrants | - | 3,368 | ||||||
| Exercise of warrants | 200 | - | ||||||
| Proceeds from long-term debt, net | - | 11,201 | ||||||
| Repayment of lease liabilities | (351 | ) | (331 | ) | ||||
| Repayment of long-term debt | (453 | ) | (340 | ) | ||||
| Net cash provided by (used in) financing activities | (604 | ) | 13,898 | |||||
| ` | ||||||||
| Exchange rate differences on currency translation | (28 | ) | - | |||||
| Increase (decrease) in cash and cash equivalents | (798 | ) | 4,802 | |||||
| Cash and cash equivalents at beginning of period | 2,159 | 552 | ||||||
| Cash and cash equivalents at end of period | $ | 1,361 | $ | 5,354 | ||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 5 |
BITFARMS LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| Six months ended June 30, | ||||||||||
| 2020 | 2019 | |||||||||
| Unaudited | ||||||||||
| (A) | Changes in working capital components: | |||||||||
| Decrease (increase) in trade receivables, net | $ | 193 | $ | (15 | ) | |||||
| Decrease (increase) in other current assets | 550 | (372 | ) | |||||||
| Increase in inventories | (15 | ) | (161 | ) | ||||||
| Decrease (increase) in long-term deposits | 121 | (294 | ) | |||||||
| Increase (decrease) in accounts payable and accrued liabilities | (487 | ) | 98 | |||||||
| Decrease (increase) in income taxes receivable Decrease in liabilities held for sale | 67 | (7 | ) | |||||||
| - | (50 | ) | ||||||||
| $ | 429 | $ | (801 | ) | ||||||
| (B) | Significant non-cash transactions: | |||||||||
| Addition of right-of-use assets and related lease liabilities | $ | 36 | $ | 175 | ||||||
| Purchase of property, plant and equipment financed by short-term credit | $ | 819 | $ | 708 | ||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 6 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 1: GENERAL AND LIQUIDITY
| a. | The Company was incorporated under the Canada Business Corporations Act on October 11, 2018 and has its registered and head office located at 1376 Bayview Avenue, Suite 1, Toronto, ON M4G 3A1. |
| b. | These interim financial statements have been prepared in a condensed format as of June 30, 2020 and for the three and six months then ended ("interim consolidated financial statements"). The interim condensed consolidated financial statements should be read in conjunction with the Company's annual financial statements as of December 31, 2019, and for the year then ended and accompanying notes ("annual consolidated financial statements"). |
| c. | For the six months ended June 30, 2020, the Company had a net loss of $6,154. As of June 30, 2020, the Company had negative working capital of $10,426 and an accumulated deficit of $12,010. Based on internally prepared forecasted cash flows that take into consideration what management of the Group considers reasonably possible scenarios, as well as the refinancing of long-term debt and equipment lease described in Note 18, management believes that the Group will continue to be able to achieve positive cash flows from operations that will enable the Group to meet its obligations for at least one year from the date of the interim consolidated financial statements. |
The Group is primarily engaged in the cryptocurrency mining industry, that is a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly and negatively impact the Group's operations. Due to the volatility of cryptocurrency prices and the effects of possible changes in the other aforementioned factors, there can be no assurance that future mining operations will be profitable and generate sufficient cash flows to repay the financing facility with Dominion Capital, maturing in 2021, as described in Note 10. In addition, adverse changes to the factors mentioned above may impact the carrying value of the Company’s property, plant and equipment resulting in impairment charges being recorded.
In March 2020, the World Health Organization declared COVID-19 a pandemic. The global response to the pandemic is constantly evolving, including various measures implemented at the global, national, provincial and local levels. The major impacts that COVID-19 are expected to have on the Backbone operating segment include potential increases in cryptocurrency price volatility, difficulty obtaining new financing due to a global economic slowdown, and delays in receiving future orders of mining hardware and parts sourced from overseas. The Backbone operating segment has been, and is expected to, continue operating throughout the pandemic.
| 7 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 1: GENERAL AND LIQUIDITY (Cont.)
Volta’s services are considered to be essential by government authorities and have been, and are expected to continue, operating throughout the pandemic. The impacts of COVID-19 on the Volta operating segment have reduced revenues by $469 or 32% from the sale of electrician services and parts for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, as well as having resulted in longer collection periods for outstanding trade receivables. There is a potential for increased bad debts resulting from the economic impact of COVID-19 on existing customers. The Group has benefited from the Canada Emergency Wage Subsidy (“CEWS”) in the amount of approximately $280 and will continue to monitor its eligibility to claim the CEWS. There can be no assurance that the Group will continue to be eligible for the CEWS as future changes to revenues as well as modification to the eligibility criteria may render the Group ineligible.
The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government interventions. It is not possible to reliably estimate the length and severity of these developments as well as the impact on the financial results and condition of the Company and its operating subsidiaries in future periods.
| d. | In these financial statements, the following terms shall have the following definitions: |
| 1. | Bitfarms Ltd. or the Company | Bitfarms Ltd. | |
| 2. | Backbone | Backbone Hosting Solutions Inc. | |
| 3. | Volta | 9159-9290 Quebec Inc. | |
| 4. | The Group | The Company and its subsidiaries | |
| 5. | BTC | Bitcoin | |
| 6. | LTC | Litecoin | |
| 7. | BVVE | Blockchain Verification and Validation Equipment |
| e. | These unaudited condensed interim consolidated financial statements were approved and authorized for issuance by the Board of Directors on August 27, 2020. |
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the annual consolidated financial statements, unless otherwise stated.
| a. | Basis of presentation of the financial statements: |
The interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34, "Interim Financial Reporting".
| 8 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 3: CHANGES IN ACCOUNTING POLICIES
The Group, through Backbone, operates server farms supporting the verification and validation of blockchain transactions in exchange for cryptocurrency, referred to as “cryptocurrency mining”. During the period, the Group changed its accounting policy with respect to revenue recognition from cryptocurrency mining and subsequent measurement of cryptocurrency on hand. Prior to this change, the Group accounted for cryptocurrency as inventory until it was sold in exchange for fiat currency. Inventories of cryptocurrency were measured at the lower of cost to produce and net realizable value. The cost of cryptocurrency inventory was comprised of the costs incurred with respect to the validation and verification of blockchain transactions, consisting mainly of electricity and depreciation. Net realizable value was measured as the estimated selling price in the ordinary course of business less estimated costs necessary to make the sale. Revenue was recognized when the cryptocurrency was converted into fiat currency or when the cryptocurrency was transferred to another party in settlement of a debt to this party. The Group now recognizes revenue upon receipt of cryptocurrency in exchange for its mining activities at the fair market value of the cryptocurrency received, as described below.
IFRS 15 provides a five step model for identifying revenue from contracts with customers, as follows:
| 1. | Identify the contract with the customer | |
| 2. | Identify the performance obligations in the contract | |
| 3. | Determine the transaction price | |
| 4. | Allocate the transaction price to the performance obligations in the contract | |
| 5. | Recognize revenue when the Company satisfies a performance obligation |
The Group has entered into contracts with mining pools and has undertaken the performance obligation of providing computing power to the mining pool in exchange for non-cash consideration in the form cryptocurrency. The Group measures the non-cash consideration received at the fair market value of the cryptocurrency received. Management estimates fair value 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 previously considered Coinmarketcap to be a Level 1 input under IFRS 13 Fair Value Measurement. However, management has revised this opinion and now considers Coinmarketcap to be a level 2 input as the price represents an average of quoted prices on various markets and not necessarily the Group’s principal market. Any difference between the fair value of cryptocurrency recorded upon receipt from mining activities and the actual realized price upon disposal are recorded as a gain or loss on disposition of cryptocurrency.
Cryptocurrency on hand at the end of a reporting period is accounted for under IAS 38 Intangible Assets, as an intangible asset with an indefinite useful life initially measured at cost, deemed to be the fair value upon receipt as described above, and subsequently measured under the revaluation model. Under the revaluation model, increases in the cryptocurrency’s carrying amount is recognized in other comprehensive income and accumulated in equity under revaluation surplus. However, increases are recognized in profit or loss to the extent that it reverses a revaluation decrease of cryptocurrency previously recognized in profit or loss. The fair value of cryptocurrency on hand at the end of the reporting period is calculated as the quantity of cryptocurrency on hand multiplied by price quoted on Coinmarketcap as of the reporting date.
| 9 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 3: CHANGES IN ACCOUNTING POLICIES (Cont.)
The Company has continued to classify cryptocurrency on hand at the end of a period as a current asset as management has determined that cryptocurrency markets have sufficient liquidity to allow conversion within the Company’s normal operating cycle.
The Group believes that the revised policy and presentation provide more relevant financial information to the users of the financial statements. The accounting policy change has been applied retrospectively, but the Group’s management has determined that the impact of the accounting policy change in previous periods is not material. The cumulative effect of retrospective application of the accounting policy change on retained earnings as of January 1, 2020 was nil as the Company did not have any cryptocurrency on hand as of December 31, 2019. Furthermore, the Group’s management believes that the disclosures made in previous periods relating to the quantity and fair value of cryptocurrencies mined during the periods, the cost and fair market value of cryptocurrencies on hand at the end of the periods and the proceeds received from disposal of cryptocurrencies during the periods is sufficient to allow users of the financial statements to understand the Company’s financial results. The accounting standards in the cryptocurrency mining industry are still evolving and the Group’s management believes that this accounting policy change is better aligned with current industry practices. Additionally, the Group may be required to re-evaluate their accounting policy with respect to revenue recognition and subsequent remeasurement of cryptocurrency on hand in the event of the issuance of new accounting guidance or a change in the Group’s business practice of regularly disposing of cryptocurrencies.
The Company did not have any cryptocurrency on hand as of June 30, 2020 or December 31, 2019.
NOTE 4: OPERATING SEGMENTS
| a. | General: |
The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Group is organized into operating segments based on the products and services of its business units and has operating segments as follows:
| Backbone | Backbone operates server farms that support the validation and verification of transactions on the blockchain, earning cryptocurrency for providing these services. |
| Volta | Volta provides electrician services to both commercial and residential customers in Quebec. |
| 10 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 4: OPERATING SEGMENTS (Cont.)
The segment results reported to the CODM include items that are allocated directly to the segments and items that can be allocated on a reasonable basis. Items that were not allocated, mainly corporate expenses related to Bitfarms Ltd. (Israel) and financial expenses are managed on a group basis.
| b. | Reporting on operating segments: |
| Three months ended June 30, 2020 (Unaudited) | ||||||||||||||||
| Backbone | Volta | Adjustments | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| External customers | $ | 6,870 | $ | 502 | $ | - | $ | 7,372 | ||||||||
| Inter segment revenues | - | 295 | (295 | ) | - | |||||||||||
| Total revenues | 6,870 | 797 | (295 | ) | 7,372 | |||||||||||
| Cost of revenues | 7,189 | 617 | (300 | ) | 7,506 | |||||||||||
| Gross profit (loss) | (319 | ) | 180 | 5 | (134 | ) | ||||||||||
| Gain on disposition of cryptocurrencies | 23 | - | - | 23 | ||||||||||||
| General and administrative expenses | 1,283 | 88 | - | 1,371 | ||||||||||||
| Loss on disposal of property, plant and equipment | (707 | ) | - | - | (707 | ) | ||||||||||
| Segment profit (loss) | $ | (2,286 | ) | $ | 92 | $ | 5 | $ | (2,189 | ) | ||||||
| Unallocated corporate expenses | - | |||||||||||||||
| Financial expenses, net | 1,545 | |||||||||||||||
| Loss before taxes on income | $ | (3,734 | ) | |||||||||||||
| Three months ended June 30, 2019 (Unaudited) | ||||||||||||||||
| Backbone | Volta | Adiustments | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| External customers | $ | 7,687 | $ | 830 | $ | - | $ | 8,517 | ||||||||
| Inter segment revenues | - | 910 | (910 | ) | - | |||||||||||
| Total revenues | 7,687 | 1,740 | (910 | ) | 8,517 | |||||||||||
| Cost of revenues | 3,926 | 1,416 | (755 | ) | 4,587 | |||||||||||
| Gross profit | 3,761 | 324 | (155 | ) | 3,930 | |||||||||||
| General and administrative expenses | 3,114 | 157 | 3,271 | |||||||||||||
| Loss on disposal of property, plant and equipment | (3 | ) | - | (3 | ) | |||||||||||
| Segment loss | $ | 644 | $ | 167 | $ | (155 | ) | $ | 656 | |||||||
| Unallocated corporate expenses | 85 | |||||||||||||||
| Financial expenses, net | 1,891 | |||||||||||||||
| Loss before taxes on income | $ | (1,320) | ||||||||||||||
| 11 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 4: OPERATING SEGMENTS (Cont.)
| Six months ended June 30, 2020 (Unaudited) | ||||||||||||||||
| Backbone | Volta | Adjustments | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| External customers | $ | 15,594 | $ | 990 | $ | - | $ | 16,584 | ||||||||
| Inter segment revenues | - | 996 | (996 | ) | ||||||||||||
| Total revenues | 15,594 | 1,986 | (996 | ) | 16,584 | |||||||||||
| Cost of revenues | 14,674 | 1,689 | (940 | ) | 15,423 | |||||||||||
| Gross profit | 920 | 297 | (56 | ) | 1,161 | |||||||||||
| Gain on disposition of cryptocurrencies | 23 | - | - | 23 | ||||||||||||
| General and administrative expenses | 3,865 | 228 | - | 4,093 | ||||||||||||
| Loss on disposal of property, plant and equipment | (707 | ) | - | - | (707 | ) | ||||||||||
| Segment profit (loss) | S (3.629) | $ | 69 | $ | (56 | ) | $ | (3,616 | ) | |||||||
| Unallocated corporate expenses | 83 | |||||||||||||||
| Financial expenses, net | 2,567 | |||||||||||||||
| Loss before taxes on income | $ | (6,266 | ) | |||||||||||||
| Six months ended June 30, 2019 (Unaudited) | ||||||||||||||||
| Backbone | Volta | Adjustments | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| External customers | $ | 10,687 | $ | 1,459 | $ | - | $ | 12,146 | ||||||||
| Inter segment revenues | - | 1,439 | (1,439 | ) | - | |||||||||||
| Total revenues | 10,687 | 2,898 | (1,439 | ) | 12,146 | |||||||||||
| Cost of revenues | 6,959 | 2,429 | (1,385 | ) | 8,003 | |||||||||||
| Gross profit | 3,728 | 469 | (54 | ) | 4,143 | |||||||||||
| General and administrative expenses | 4,708 | 297 | - | 5,005 | ||||||||||||
| Loss on disposal of property, plant and equipment | (7 | ) | - | - | (7 | ) | ||||||||||
| Segment profit (loss) | $ | (987 | ) | $ | 172 | $ | (54 | ) | $ | (869 | ) | |||||
| Unallocated corporate expenses | 270 | |||||||||||||||
| Financial expenses, net | 2,187 | |||||||||||||||
| Loss before taxes on income | $ | (3,326 | ) | |||||||||||||
| 12 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 5: OTHER ASSETS
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Sales taxes receivable | $ | 542 | $ | 398 | ||||
| Prepaid expenses | 200 | 558 | ||||||
| Electricity credit and government grants receivable | 113 | 442 | ||||||
| $ | 855 | $ | 1,398 | |||||
NOTE 6: INVENTORIES
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Electrical components | $ | 143 | $ | 135 | ||||
NOTE 7: ASSETS HELD FOR SALE
On May 24, 2019, the Company’s management decided to sell 2,500 Antminer L3+ and committed to carry out a plan for the sale of the equipment. In 2019, the Company had located a purchaser and received non-refundable deposits totaling approximately $332 and made the mining hardware available to the purchaser. The purchaser has not collected the mining hardware, which is no longer in use by the Company. The Company had deferred recognizing a gain on the disposition of the assets, as it was not reasonably certain that the transaction would be completed. The proceeds received from the purchaser were accounted for as a liability included in accounts payable. As of June 30, 2020, the Company’s management has determined that the Company has completed the performance obligations necessary in order to recognize the gain on the sale. An amount of $332 has been recorded as a gain on disposal of property, plant and equipment. Assets held for sale as at December 31, 2019, excluding the Antminer L3+ described above, were sold in January 2020, for approximately their carrying amount.
| 13 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 8: PROPERTY, PLANT AND EQUIPMENT
| a. | As of June 30, 2020, and December 31, 2019, property, plant and equipment consisted of: |
| BVVE and electrical components | Mineral assets | Land and buildings | Leasehold improvements | Vehicles | Total | |||||||||||||||||||
| Cost: | ||||||||||||||||||||||||
| Balance as of January 1, 2020 | $ | 54,127 | $ | 9,000 | $ | 2,721 | $ | 2,415 | $ | 381 | $ | 68,644 | ||||||||||||
| Additions during the period | 3,076 | - | 182 | 268 | - | 3,526 | ||||||||||||||||||
| Dispositions during the period | (2,891 | ) | - | - | (14 | ) | - | (2,905 | ) | |||||||||||||||
| Balance as of June 30, 2020 (Unaudited) | 54,312 | 9,000 | 2,903 | 2,669 | 381 | 69,265 | ||||||||||||||||||
| Balance as of January 1, 2019 | 35,439 | 9,000 | 2,033 | 2,140 | 333 | 48,945 | ||||||||||||||||||
| Additions during the period | 21,967 | - | 688 | 275 | 73 | 23,003 | ||||||||||||||||||
| Dispositions during the period | (3,193 | ) | - | - | - | (25 | ) | (3,218 | ) | |||||||||||||||
| Transfer to assets held for sale | (86 | ) | - | - | - | - | (86 | ) | ||||||||||||||||
| Balance as of December 31, 2019 | 54,127 | 9,000 | 2,721 | 2,415 | 381 | 68,644 | ||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||
| Balance as of January 1, 2020 | 28,976 | - | 101 | 1,641 | 152 | 30,870 | ||||||||||||||||||
| Depreciation | 4,879 | - | 39 | 108 | 30 | 5,056 | ||||||||||||||||||
| Dispositions during the period | (1,582 | ) | - | - | (14 | ) | - | (1,596 | ) | |||||||||||||||
| Balance as of June 30, 2020 (Unaudited) | 32,273 | - | 140 | 1,735 | 182 | 34,330 | ||||||||||||||||||
| Balance as of January 1, 2019 | 26,424 | - | 38 | 1,530 | 91 | 28,083 | ||||||||||||||||||
| Depreciation | 5,318 | - | 63 | 111 | 71 | 5,563 | ||||||||||||||||||
| Dispositions during the period | (2,753 | ) | - | - | - | (10 | ) | (2,763 | ) | |||||||||||||||
| Transfer to assets held for sale | (13 | ) | - | - | - | - | (13 | ) | ||||||||||||||||
| Balance as of December 31, 2019 | 28,976 | - | 101 | 1,641 | 152 | 30,870 | ||||||||||||||||||
| Net book value as of | ||||||||||||||||||||||||
June 30, 2020 (Unaudited) | $ | 22,039 | $ | 9,000 | $ | 2,763 | $ | 934 | $ | 199 | $ | 34,935 | ||||||||||||
| December 31, 2019 | $ | 25,151 | $ | 9,000 | $ | 2,620 | $ | 774 | $ | 229 | $ | 37,774 | ||||||||||||
| b. | Further details of the quantity and models of BVVE held by the Company are as follows: |
| Bitmain Antminer S9 (BTC/BCH) | Other Bitmain Antminers (BTC/BCH) * | Bitmain Antminer L3+ (LTC) | Innosilicon T3 & T2T (BTC/BCH) ** | Canaan Avalon A10 (BTC/BCH) | Whatsminer M20S (BTC/BCH) | |||||||||||||||||||
| Balance as of January 1, 2020 | 15,159 | 2,071 | 400 | 6,543 | 2,490 | 2,470 | ||||||||||||||||||
| Additions during the period | 2,000 | 3 | - | - | - | 1,865 | ||||||||||||||||||
| Dispositions during the period | (821 | ) | - | - | - | (1,323 | ) | - | ||||||||||||||||
| Balance as of June 30, 2020 (Unaudited) | 16,338 | 2,074 | 400 | 6,543 | 1,167 | 4,335 | ||||||||||||||||||
| * | Includes 1,554 Antminer T15, 119 Antminer S17, 399 Antminer S15 and 2 Antminer S11 |
| ** | Includes 5,095 T3 and 1,448 T2T. |
| 14 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 8: PROPERTY, PLANT AND EQUIPMENT (Cont.)
The Group combined the hashboards of Antminer S9s which would not have been profitable to repair. The combination process of the Antminer S9 hashboards consisted of combining parts from machines that were not fully operational, in order to create fully functional machines, 821 machines were discarded as a result of this process.
In addition to the equipment details listed above, Backbone entered into profit sharing agreements with two parties to host 1,165 Antminer S9s. The profit-sharing agreements are structured such that Backbone does not share the profits with the other parties unless minimum profitability thresholds are met. Once the profitability threshold is met, the other parties are entitled to 39% of the revenues and Backbone must pay all related electricity costs. The contracts can be terminated by either party at any time. For the three and six month periods ended June 30, 2020, Backbone mined a total of approximately 12 and 30 Bitcoin (three and six month periods ended June 30, 2019, 62 and 118 bitcoin) using the hosted Antminer S9s. As at June 30, 2020, accounts payable and accrued liabilities included $13 payable to the two parties.
NOTE 9: LONG-TERM DEPOSITS AND ADVANCE PAYMENTS ON EQUIPMENT
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Security deposits for rent, energy and insurance | $ | 1,027 | $ | 1,021 | ||||
| Advance payments on equipment | - | 127 | ||||||
| $ | 1,027 | $ | 1,148 | |||||
NOTE 10: LONG-TERM DEBT
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Dominion Capital loan | $ | 15,889 | $ | 15,084 | ||||
| Backbone vendor financing | - | 394 | ||||||
| Volta notes payable | 100 | 122 | ||||||
| Volta vendor financing | 98 | 123 | ||||||
| Total long-term debt | 16,087 | 15,723 | ||||||
| Less current maturities of long-term debt | (12,309 | ) | (874 | ) | ||||
| Non-current maturities of long-term debt | $ | 3,778 | $ | 14,849 | ||||
| a. | On March 15, 2019, the Group entered into a secured debt financing facility for up to $20,000 with Dominion Capital LLC (the “Lender”). The debt facility is structured into four separate loan tranches of $5,000 per tranche. Each loan tranche was drawn down in 2019 and bears interest at 10% per annum. The term of each loan tranche is 24 months with a balloon payment for any remaining outstanding balance at the end of the term of the loan tranche. |
| 15 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 10: LONG-TERM DEBT (Cont.)
As of June 30, 2020, the loan tranches expired in March, April, June and August of 2021, however, subsequent to June 30, 2020, the expiry date of Tranche #2 was modified from April 2021 to November 2021, and a conversion feature was added to Tranche #3, expiring June 2021, as described in Note 18.
A monthly payment equivalent to 10% of the value of cryptocurrencies mined by Backbone during the month is required in repayment of the total loan tranches drawn. The monthly payments shall be applied to interest and the balance to principal, and in the event that the amount of the cryptocurrency mined is less than the amount of interest owing, such additional amounts shall be remitted such that the interest is payable in full on a current basis. The loan contains a "make-whole" clause which stipulates that the 10% interest rate is calculated on the initial principal balance of the loan tranche and does not decrease as the principal balance is repaid. The 10% interest rate is calculated over the 24-month term of each loan tranche regardless of whether the loan tranche is repaid prior to its maturity. Any unpaid interest at the earlier of the loan tranche's early repayment, or the loan tranche's 24-month maturity is included in the balloon payment. The loan tranches are fully secured by the assets of the Group on a first-priority basis.
Pursuant to the terms with the Lender, the Company is required to comply with certain covenants as long as any amount is outstanding. The significant covenants are to maintain a bank balance of $1,000 at all times, as well as restrictions on issuing additional debt or selling property, plant and equipment without re-investing the proceeds into new purchases of property, plant and equipment
The loan features result in a loan liability measured at amortized cost, warrants that are accounted for as an equity component and an embedded derivative measured at fair value through profit or loss.
Loan liability
The loan is measured at amortized cost using the effective interest method. Management used significant judgement and estimates when determining the effective interest rate. Payment amounts are determined as 10% of the cryptocurrency mined by Backbone. In order to calculate the effective interest rate, management had to estimate Backbone's future cryptocurrency mining revenues in order to estimate the timing and amount of future loan repayments. The effective interest rate was determined to be 26.93%, 30.16%, 37.10 % and 38.02% for the first, second, third and fourth tranches, respectively. The carrying amount of the loan liability, in conjunction with the embedded derivative described below, approximates its fair value. Included in financial expenses for the three and six month periods ended June 30, 2020 are
$1,258 and $2,487 of interest expense related to the loan ($23 and $596 of interest expense for the three and six month periods ended June 30, 2019).
Embedded derivative
The value of the "make-whole" clause described above will vary based on management's projections of the timing of the loan repayment, which are based on Backbone's cryptocurrency mining revenues. This interest feature has been accounted for as an embedded derivative that is measured at fair value through profit or loss.
| 16 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 10: LONG-TERM DEBT (Cont.)
Key assumptions
Key assumptions used in recording the embedded derivative as of June 30, 2020, are described below. These assumptions are subject to change based on future developments and such changes could have a material effect on embedded derivative.
Revenues - Two optimistic, two pessimistic and one status quo scenario were used in estimating future bitcoin price and network difficulty, which are key factors in predicting revenues from cryptocurrency mining. Management assigned probabilities to each scenario, which were used to calculate weighted average expected outcomes. The weighted average bitcoin price and network difficulty used in the projections in order to determine the fair value of the embedded derivative were $10.9 and 1.2x10^13, respectively.
Internal hashrate - Management was required to predict the growth of the Company's internal hashrate, one of the main revenue drivers in combination with bitcoin price and network difficulty, to predict revenues. Accordingly, management was required to make assumptions regarding the timing of all four loan tranche drawdowns as well as the pricing and availability of cryptocurrency mining hardware.
The fair value measurement is based upon level 3 inputs, as a result management has performed a sensitivity analysis using varying discount rates:
| Scenario 1 | Scenario 2 | Scenario 3 | ||||||||||
| Discount rate | 30.05 | % | 33.05 | % | 36.05 | % | ||||||
| Total value - asset (liability) | $ | (43 | ) | $ | 596 | $ | 1,250 | |||||
As of June 30, 2020, management recognized an embedded derivative asset with a fair value of $596 (June 30, 2019 – liability of $409) resulting in an unrealized gain of $57 and $120 for the three and six months ended June 30, 2020 included in financial income (three and six month periods ended June 30, 2019 - $nil and financial expense of $409).
| b. | Volta signed several agreements to purchase vehicles, with an outstanding balance of $100 (CAD $136,000) as of June 30, 2020 (December 31, 2019 - $122). Ten notes payable, bearing interest between 3.99% and 8.2% repayable in monthly instalments totaling $3 (CAD $3,700) principal and interest, maturing between October 2020 and October 2025, secured by vehicles having a net carrying value of $132. |
| c. | Volta received long-term vendor financing with an outstanding balance of $98 (CAD $133,000) as of June 30, 2020 (December 31, 2019 - $123), bearing interest at 5%, payable by monthly instalments of $4 (CAD $5,198) principal and interest, maturing September 2022. |
| 17 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 11: LEASES
Set out below are the carrying amounts of the Group’s right-of-use assets and lease liabilities and their movements during the six month period ended June 30, 2020:
| Leased | Other | Total | Lease | |||||||||||||||||
| premises | Vehicles | equipment | ROU | liabilities | ||||||||||||||||
| As of January 1, 2020 | $ | 6,024 | $ | 157 | $ | 52 | $ | 6,233 | $ | 6,463 | ||||||||||
| Additions and extensions | - | 36 | - | 36 | 36 | |||||||||||||||
| Depreciation | (449 | ) | (32 | ) | (6 | ) | (487 | ) | - | |||||||||||
| Payments | - | - | - | - | (578 | ) | ||||||||||||||
| Interest | - | - | - | - | 227 | |||||||||||||||
| FX gain on lease liabilities | - | - | - | - | (306 | ) | ||||||||||||||
| As of June 30, 2020 | $ | 5,575 | $ | 161 | $ | 46 | $ | 5,782 | $ | 5,842 | ||||||||||
| Less current maturities of lease liabilities | (741 | ) | ||||||||||||||||||
| Non-current maturities of lease liabilities | $ | 5,101 | ||||||||||||||||||
Leased premises include farming facilities as well as office locations.
NOTE 12: ASSET RETIREMENT PROVISION
As of June 30, 2020, the Group estimated the costs of restoring its leased premises to their original state at the end of their respective lease terms, ranging from 3 to 10 years, to be $275, discounted to present value of $187
NOTE 13: EQUITY
| Authorized | Issued and outstanding at | |||||||||
| June 30, 2020 (Unaudited) | June 30, 2020 (Unaudited) | December 31, 2019 | ||||||||
| Number of shares | ||||||||||
| Common shares of no par value | Unlimited | 84,720,630 | 83,620,630 | |||||||
On both January 13, 2020 and February 12, 2020 Dominion Capital exercised a combined total of 500,000 warrants to acquire 500,000 common shares resulting in proceeds of $200 being paid to the Company.
On March 11, 2020 the Company issued 500,000 common shares to the former CEO upon his resignation, see Note 17 for details.
On May 29, 2020, 100,000 common shares were issued to the COO/ CFO upon completion of the two year vesting period of 100,000 restricted stock units.
| 18 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 14: ADDITIONAL DETAILS TO THE STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
Revenues:
Details of the cryptocurrency mined by the Backbone operating segment and their related fair values at the time of mining are as follows:
| Three months ended June 30, 2020 (Unaudited) | ||||||||||||
| ISItcoln | Litecoin | Total $ | ||||||||||
| Quantity | 815 | - | - | |||||||||
| Fair value * | 6,7 | E3 | - | 6.763 | ||||||||
| Three months ended June 30, 2019 (Unaudited) | ||||||||||||
| Litecoin | Total $ | Bitcoin | ||||||||||
| Quantity | 974 | 4,857 | - | |||||||||
| Fair value * | 7,218 | 458 | 7,676 | |||||||||
| Six months ended June 30, 2020 (Unaudited) | ||||||||||||
| Bitcoin | Litecoin | Total $ | ||||||||||
| Quantity | 1,902 | 41 | - | |||||||||
| Fair value * | 15,740 | 3 | 15,743 | |||||||||
| Six months ended June 30, 2019 (Unaudited) | ||||||||||||
| Bitcoin | Litecoin | Total $ | ||||||||||
| Quantity | 1,811 | 6,352 | - | |||||||||
| Fair value * | 10,398 | 530 | 10,928 | |||||||||
* The Company based the fair value of the cryptocurrency mined at the time of mining on the prices quoted on www.coinmarketcap.com, which calculates the price by taking the weighted average prices, based on volume, reported in each cryptocurrency market. The fair value measurement is categorized as level 2 in the fair value hierarchy.
| 19 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 15: TRANSACTIONS AND BALANCES WITH RELATED PARTIES
| a. | Balances with related parties: |
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Accounts receivable: | ||||||||
| Companies controlled by directors | $ | 15 | $ | 18 | ||||
| Accounts payable: | ||||||||
| Directors’ remuneration (included in accrued liabilities) | $ | 31 | $ | - | ||||
| Companies controlled by certain directors and consulting fees | 115 | 15 | ||||||
| $ | 146 | $ | 15 | |||||
| Lease liabilities: | ||||||||
| Companies controlled by directors | $ | 1,734 | $ | 2,000 | ||||
Amounts due to related parties, are unsecured, non-interest bearing and payable on demand.
| b. | Transactions with related parties during the three and six month periods ended June 30, 2020: |
| 1. | One of the companies in the Group made rent payments totaling approximately $109 and $217 for the three and six month periods ended June 30, 2020 (three and six month periods ended June 30, 2019 - $144 and $294) to companies controlled by directors. The rent payments were classified as interest included in financial expenses and principal repayment of lease liabilities. |
| 2. | One of the companies in the Group entered into consulting agreements with two of the directors. The consulting fees charged by directors totaled approximately $103 and $200 for the three and six month periods ended June 30, 2020 ($100 and $200 for the three and six month periods ended June 30, 2019). |
The transactions described above were incurred in the normal course of operations. These transactions were included in consolidated statements of loss and comprehensive loss as follows:
| Three months ended June 30, Six months ended June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Unaudited | Unaudited | |||||||||||||||
| General and administrative expenses | 103 | 100 | 200 | 200 | ||||||||||||
| Financial expenses | 39 | 53 | 73 | 89 | ||||||||||||
| $ | 142 | $ | 324 | $ | 273 | $ | 289 | |||||||||
| 20 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 15: TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)
| c. | Compensation of key management and directors: |
Key management for the three and six months ended June 30, 2020 includes the Chief Executive Officer, Chief Operating Officer/Chief Financial Officer, and Executive Vice President. Key management for the three and six months ended June 30, 2019 includes the Group’s President, Chief Executive Officer, Chief Financial Officer, Executive Vice President, Vice President of Operations and Vice President of Infrastructure. The remuneration paid to directors and members of key management personnel are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Unaudited | Unaudited | |||||||||||||||
| Short-term benefits | $ | 181 | $ | 271 | $ | 577 | $ | 502 | ||||||||
| Share based payments | 154 | 1,439 | 1,102 | 1,549 | ||||||||||||
| $ | 335 | $ | 1,710 | $ | 1,679 | $ | 2,051 | |||||||||
Details of the number of shares and loss used in the computation of net loss per share:
| Three months ended June 30 (Unaudited) | ||||||||||||||||
| 2020 | 2019 | |||||||||||||||
| Weighted average share outstanding | Net loss attributable to the shareholders of the Company | Weighted average shares outstanding | Net loss attributable to the shareholders of the Company | |||||||||||||
| Number of shares (in thousands) | Number of shares (in thousands) | |||||||||||||||
| Total shares for the calculation of basic net loss per share | 84,656 | - | 43,207 | - | ||||||||||||
| Total exchangeable shares | - | - | 13,868 | - | ||||||||||||
| Total shares for the calculation of basic net loss per share | 84,656 | - | 57,075 | - | ||||||||||||
| Net loss for the calculation of basic and diluted loss per share | - | $ | (3,730 | ) | - | $ | (834 | ) | ||||||||
| 21 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 16: NET LOSS PER SHARE (Cont.)
| Six months ended June 30, (Unaudited) | ||||||||||||||||
| 2020 | 2019 | |||||||||||||||
| Weighted average share outstanding | Net loss attributable to the shareholders of the Company | Weighted average shares outstanding | Net loss attributable to the shareholders of the Company | |||||||||||||
| Number of shares (in thousands) | Number of shares (in thousands) | |||||||||||||||
| Total shares for the calculation of basic net loss per share | 84,354 | - | 41,473 | - | ||||||||||||
| Total exchangeable shares | - | - | 15,602 | - | ||||||||||||
| Total shares for the calculation of basic net loss per share | 84,354 | - | 57,075 | - | ||||||||||||
| Net loss for the calculation of basic and diluted loss per share | - | $ | (6,154 | ) | - | $ | (2,124 | ) | ||||||||
Loss per share for the three and six month periods ended June 30, 2020 and 2019 are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Unaudited | ||||||||||||||||
| Basic and diluted loss per share | (0.04 | ) | (0.01 | ) | (0.07 | ) | (0.04 | ) | ||||||||
NOTE 17: SHARE BASED PAYMENT
The expense recognized in the financial statements for employee services received is shown in the following table:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Unaudited | ||||||||||||||||
| Equity-settled share-based payment plans | 254 | 1,460 | 1,264 | 1,571 | ||||||||||||
| Total expense arising from share-based | ||||||||||||||||
| payment transactions | 254 | 1,460 | 1,264 | 1,571 | ||||||||||||
| 22 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 17: SHARE BASED PAYMENT (Cont.)
The share-based payment transactions entered into between the Group and its employees during the six month period ended June 30, 2020 are described below.
On June 28, 2020 the Board of Directors approved a stock option grant of 2,600,000 options to purchase 2,600,000 common shares in accordance with the stock option plan adopted on June 20, 2019. All options become exercisable when they vest and can be exercised for a period of 5 years from the date of the grant.
The inputs used to value the grant using the Black-Scholes model are as follows:
| Grant date | June
28, 2019 | |||
| Dividend yield (%) | - | |||
| Expected share price volatility (%) | 125 | % | ||
| Risk-free interest rate (%) | 0.95 | % | ||
| Expected life of stock options (years) | 3 | |||
| Share price (Canadian Dollar) * | 0.36 | |||
| Exercise price (Canadian Dollar) | 0.36 | |||
| Fair value of options (USD) | 0.19 | |||
| Vesting period (years) | 2 | |||
| Quantity of options granted * | 2,600,000 | |||
Details of the outstanding stock options as of June 30, 2020 are as follows:
| June
30, 2020 (Unaudited) | ||||||||
| Number of Options | Weighted Average Exercise Price ($CAD) | |||||||
| Outstanding, January 1 | 8,345,000 | 1.06 | ||||||
| Granted | 2,600,000 | 0.36 | ||||||
| Exercised | - | - | ||||||
| Forefeited | (860,000 | ) | 0.99 | |||||
| Expired | (802,500 | ) | 0.99 | |||||
| Outstanding, June 30, 2020 | 9,282,500 | 0.81 | ||||||
| Exercisable, June 30, 2020 | 6,133,435 | 1.00 | ||||||
The weighted average contractual life of the stock options as of June 30, 2020 was 3.25 years.
On March 11, 2020, Wes Fulford resigned as Chief Executive Officer (CEO) and Director of Bitfarms and its subsidiaries. In consideration for past services rendered, the former CEO’s stock compensation agreement was modified to immediately vest all unvested stock options, extend the expiration date of 3,000,000 options from 90 days subsequent to his resignation to July 31, 2022. Furthermore, the company granted the former CEO 500,000 common shares and modified 500,000 options to expire as of June 2020. The stock option modifications and grant of 500,000 common shares resulted in the Company recording stock compensation expense of $624.
| 23 |
BITFARMS LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except for data relating to quantity of PPE, shares, warrants and cryptocurrency
NOTE 18: SUBSEQUENT EVENTS
Dominion Loan extension and modification
In August 2020, the Company entered into a letter agreement with Dominion Capital where the Company will issue 1,000,000 shares to Dominion Capital in exchange for amending the maturity date of Tranche #2 from April 2021 to November 2021. The 10% make-whole clause described in Note 10 will remain in effect for the 6 month extension of the loan. In addition, a conversion feature was added to Tranche #3, maturing in June 2021, providing Dominion Capital with the option to convert all or a portion of the loan tranche into shares at a price of $0.59 USD per share. The conversion feature may be exercised by Dominion Capital at any time until the loan matures in June 2021. The letter agreement entered into by the Company and Dominion Capital is contingent upon regulatory approval as well as the completion of final loan documents.
Mining hardware lease agreement
In August 2020, the Company entered into a two year lease agreement for approximately $1,769 of mining hardware with expected delivery in late August 2020. The lease contains a bargain purchase option where the Company may purchase the leased equipment for $1.00 USD upon expiration of the lease agreement. Payments are approximately $21 per week for 104 weeks.
| | 24 |
Exhibit 99.48
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
| Contents | |
| Introduction | 1 |
| Company Overview | 1 |
| Consolidated Results of Operations | 2 |
| Reconciliation of Non-IFRS measures | 7 |
| Reportable Operating Segments | 9 |
| Backbone | 9 |
| Volta | 10 |
| Selected Quarterly Information | 10 |
| Liquidity and Capital Resources | 11 |
| Cash Flows | 11 |
| Working Capital | 12 |
| Components of Total Debt | 12 |
| Capital Resources | 13 |
| Off-Balance Sheet Arrangements | 13 |
| Share Capital | 14 |
| Financial Instruments & Risks | 14 |
| Other Risks | 17 |
| Related Party Transactions | 18 |
| Accounting Policy Change | 19 |
| Recent and Subsequent Events | 20 |
| Caution Regarding Forward-Looking Statements | 21 |
| Caution Regarding Non-IFRS Financial Performance Measures | 22 |
| Management’s Report on Internal Control Over Financial Reporting | 23 |
| Glossary of Terms | 24 |
Bitfarms Ltd. Q2 2020 MD&A i
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Introduction
The following Management’s Discussion and Analysis (“MD&A”) for Bitfarms Ltd. (together with its subsidiaries, the “Company” or “Bitfarms”) should be read in conjunction with the Company’s second quarter 2020 unaudited interim period condensed consolidated financial statements and the accompanying notes for the three and six months ended June 30, 2020 and the audited annual consolidated financial statements and the accompanying notes for the year ended December 31, 2019. In addition, the following MD&A should be read in conjunction with the Company’s “Caution Regarding Forward-Looking Statements” beginning on page 22 of this MD&A.
The Company’s second quarter 2020 unaudited interim period condensed consolidated financial statements and the accompanying notes have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company’s second quarter 2020 unaudited interim period condensed consolidated financial statements include the accounts of the Company and other entities that the Company controls and are reported in US dollars, except where otherwise noted.
Under IFRS, certain expenses and income must be recognized that management believes are not necessarily reflective of the Company’s underlying operating performance. Non-IFRS financial performance measures exclude the impact of certain items and are used internally when analyzing operating performance. Please refer to the “Caution Regarding Non-IFRS Financial Performance Measures” section on page 23 of this MD&A for more information. This MD&A contains various terms related to the Company’s business and industry. Please refer to the Glossary of Terms on page 25 of this MD&A.
Company Overview
The Company operates through two operating corporate subsidiaries and reportable operating segments: Backbone Hosting Solutions Inc. (“Backbone”) and 9159-9290 Quebec Inc. (operating as Volta Electrique, “Volta”). Backbone owns and operates server farms, comprised of computers (referred to as a “Miners”) designed for the purpose of validating transactions, primarily on the Bitcoin Blockchain. The Miners operate 24 hours a day and revenues are earned from Block Rewards and transaction fees issued in the form of cryptocurrencies by the Bitcoin network to a Mining Pool from which the Company receives cryptocurrencies in return for contributing its hashrate which the Mining Pool uses to validate transactions (referred to as “Mining”). Backbone regularly exchanges cryptocurrencies mined into U.S. dollars through reputable and established cryptocurrency trading platforms.
As of the date of this MD&A, Bitfarms currently operates five server farm facilities in Québec, Canada, with electrical infrastructure capacity of 69 MW for Mining Bitcoin. The Company has contracts securing an aggregate of 160 MW of hydro-electric green energy in Quebec. In addition, Bitfarms owns proprietary software that is used to control, manage, report and secure mining operations. The software scans and reports the location, computing power and temperature of all Miners at regular intervals to allow the Company to monitor performance and ensure Miners are operating at maximum capacity and up-time. Volta provides electrician services to both commercial and residential customers in Quebec, while assisting Bitfarms in building and maintaining its server farms.
Bitfarms Ltd. Q2 2020 MD&A 1
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Consolidated Results of Operations
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 7,372 | 8,517 | (1,145 | ) | (13 | )% | 16,584 | 12,146 | 4,438 | 37 | % | |||||||||||||||||||||
| Cost of sales | 7,506 | 4,586 | 2,920 | 64 | % | 15,423 | 8,003 | 7,420 | 93 | % | ||||||||||||||||||||||
| Gross profit (loss) | (134 | ) | 3,930 | (4,064 | ) | (103 | )% | 1,161 | 4,143 | (2,982 | ) | (72 | )% | |||||||||||||||||||
| Gross margin (loss) | (2 | )% | 46 | % | - | - | 7 | % | 34 | % | - | - | ||||||||||||||||||||
| Gain on disposition of cryptocurrencies | 23 | - | 23 | 100 | % | 23 | - | 23 | 100 | % | ||||||||||||||||||||||
| Loss on disposition of assets | (707 | ) | (4 | ) | (703 | ) | (17575 | )% | (707 | ) | (7 | ) | (700 | ) | (10000 | )% | ||||||||||||||||
| Operating income (loss) | (1,482 | ) | 575 | (2,057 | ) | (358 | )% | (2,992 | ) | (1,132 | ) | (1,860 | ) | (164 | )% | |||||||||||||||||
| Operating margin (loss) | (20 | )% | 7 | % | - | - | (18 | )% | (9 | )% | - | - | ||||||||||||||||||||
| G&A and other expenses | 1,371 | 3,355 | (1,984 | ) | (59 | )% | 4,176 | 5,275 | (1,099 | ) | (21 | )% | ||||||||||||||||||||
| Financial income | 57 | - | 57 | 100 | % | 265 | - | 265 | 100 | % | ||||||||||||||||||||||
| Interest expense | 1,400 | 689 | 711 | 103 | % | 2,785 | 821 | 1,964 | 239 | % | ||||||||||||||||||||||
| Other financial expenses | 202 | 1,202 | (1,000 | ) | (83 | )% | 47 | 1,366 | (1,319 | ) | (97 | )% | ||||||||||||||||||||
| Total financial expenses | 1,602 | 1,891 | (289 | ) | (15 | )% | 2,832 | 2,187 | 645 | 29 | % | |||||||||||||||||||||
| Pre-tax loss | (3,734 | ) | (1,320 | ) | (2,414 | ) | (183 | )% | (6,266 | ) | (3,326 | ) | (2,940 | ) | (88 | )% | ||||||||||||||||
| Income tax recovery | (4 | ) | - | (4 | ) | 100 | % | (112 | ) | - | (112 | ) | 100 | % | ||||||||||||||||||
| Net loss | (3,730 | ) | (1,320 | ) | (2,410 | ) | (183 | )% | (6,154 | ) | (3,326 | ) | (2,828 | ) | (85 | )% | ||||||||||||||||
| Net loss per share - basic | (0.04 | ) | (0.01 | ) | - | - | (0.07 | ) | (0.04 | ) | - | - | ||||||||||||||||||||
| Gross mining profit (1) | 2,506 | 5,122 | (2,616 | ) | (51 | )% | 6,602 | 6,205 | 397 | 6 | % | |||||||||||||||||||||
| Gross mining margin (1) | 36 | % | 67 | % | - | - | 42 | % | 58 | % | - | - | ||||||||||||||||||||
| EBITDA (1) | 416 | 668 | (252 | ) | (38 | )% | 2,249 | 142 | 2,107 | 1484 | % | |||||||||||||||||||||
| EBITDA margin (1) | 6 | % | 8 | % | - | - | 14 | % | 1 | % | - | - | ||||||||||||||||||||
| Adjusted EBITDA (1) | 1,435 | 3,329 | (1,894 | ) | (57 | )% | 4,340 | 2,908 | 1,432 | 49 | % | |||||||||||||||||||||
| Adjusted EBITDA margin (1) | 19 | % | 39 | % | - | - | 26 | % | 24 | % | - | - | ||||||||||||||||||||
Second Quarter 2020 Highlights:
| ● | Consolidated revenue of $7.4 million; gross loss of $0.1 million (-2% gross loss margin), operating loss of $1.5 million (20% operating loss margin), and net loss of $3.7 million; |
| ● | Mining operations segment gross mining profit1 of $2.5 million (36% gross mining margin); |
| ● | $0.4 million EBITDA (6% EBITDA margin) and $1.4 million Adj. EBITDA (19% Adj. EBITDA margin); |
| ● | Mined 815 Bitcoins with an average break-even2 Bitcoin price of $5,075; |
| ● | Completed the 5MW expansion of the Company’s St-Hyacinthe facility to increase maximum capacity to 15 MW; |
| ● | Acquired 1,865 WhatsMiner M20S producing approximately 135 PH/s and consuming approximately 6.4 MW; and |
| ● | Appointed PricewaterhouseCoopers LLP as the Company’s auditor. |
| 1 | EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Gross mining profit and Gross mining margin are non-IFRS performance measures; please refer to the end of this MD&A regarding the use of Non-IFRS Financial Performance Measures. |
| 2 | Represents the break-even cost of Bitcoin based on variable cost of electricity and is calculated by taking the total electricity costs related to the Mining of Bitcoin divided by the total number of Bitcoin mined, respectively, in the relevant period. |
Bitfarms Ltd. Q2 2020 MD&A 2
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Revenue
Q2 2020 compared to Q2 2019
Revenue was $7.4 million for the three month period ended June 30, 2020 (“Q2 2020”) compared to $8.5 million for the comparable three month period in 2019 (“Q2 2019”).
| (U.S. $ in thousands except where indicated) | Note | Bitcoin | (USD) | % Change | ||||||||||
| Revenue based on actual coins sold during the three-month period ended June 30, | 1,001 | 8,517 | - | |||||||||||
| 2019 and Volta external revenue | ||||||||||||||
| Impact of increase in average Bitfarms' Bitcoin hashrate in excess of increase in | ||||||||||||||
| network difficulty during Q2 2020 compared to Q2 2019, adjusted for Bitcoin | 1 | 109 | 835 | 10 | % | |||||||||
| Halving Event | ||||||||||||||
| Impact of Bitcoin Halving Event on May 11, 2020 on Bitfarms' quantity of coins mined during Q2 2020 | 2 | (267 | ) | (2,250 | ) | (26 | )% | |||||||
| Impact of difference in average Bitcoin price in Q2 2020 compared to Q2 2019 | 3 | 823 | 10 | % | ||||||||||
| Impact of Litecoins mined and sold in Q2 2019 | 4 | (458 | ) | (5 | )% | |||||||||
| Difference in Bitcoin inventory as at June 30, 2020 compared to June 30, 2019 | 5 | 31 | 238 | 3 | % | |||||||||
| Difference in Bitcoin inventory as at April 1, 2020 compared to April 1, 2019 | 6 | (44 | ) | (338 | ) | (4 | )% | |||||||
| Increase in Volta third party revenue and other mining variances | 6 | 0 | % | |||||||||||
| Revenue for the three months ended June 30, 2020 | 830 | 7,372 | (13 | )% | ||||||||||
Notes
| 1 | Calculated as the difference in Bitcoin mined in Q2 2020 compared to Q2 2019 assuming the Bitcoin Halving Event did not occur (i .e. 1083 - 974) multiplied by Q2 2019 average Bitcoin realized price (i ..e. $7,679) |
| 2 | Calculated as the theoretical Bitcoin mined based on Bitfarms' actual hashrate from May 11, 2020 to June 30, 2020 assuming the Bitcoin Halving Event did not occur (i .e. 1,048), compared to actual coins mined during the same period (i .e. 781) multiplied by average Bitcoin price during Q2 2020 (i .e. $8,429) |
| 3 | Calculated as the difference in average Bitcoin price in Q2 2020 compared to the average realized Bitcoin price Q2 2019 (i .e. $8,429 - $7,679) multiplied by Bitcoins mined and sold in Q2 2020 plus the reduction in Bitcoin mined as a result of the Bitcoin Halving event (i .e. 830 + 267) |
| 4 | Calculated as the difference in Li tecoin sold during Q2 2020 compared to Q2 2019 multiplied by the average Li tecoin price for Q2 2019. (i .e. 0 - $458) |
| 5 | Calculated as the difference in Bitcoin inventory as at June 30, 2020 compared to June 30, 2019 (i .e. 31 - 0) multiplied by the average realized Bitcoin price in Q2 2019 (i .e. $7,679) |
| 6 | Calculated as the difference in Bitcoin inventory as at April 1, 2020 compared to April 1, 2019 (i .e. 15 - 59) multiplied by the average realized Bitcoin price in Q2 2019 (i .e. $7,679) |
The most significant factors influencing the $1.1 million net decrease to Bitfarms’ revenue in Q2 2020 compared to Q2 2019 are presented in the table above. Revenue decreased by $2.3 million or 26% as a result of the Bitcoin Halving Event and decreased by an additional $0.5 million or 5% resulting from the difference in Litecoin mined by the Company in Q2 2020 versus Q2 2019. These decreases were primarily offset by a $0.8 million or 10% increase in revenue resulting from higher average Bitfarms hashrate in excess of average network difficulty, adjusted for the Bitcoin Halving Event, as well as a $0.8 million or 10% increase in revenue due to a higher average Bitcoin price of $8,429 versus $7,679 in Q2 2020 compared to Q2 2019.
Bitfarms Ltd. Q2 2020 MD&A 3
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Six months ended June 30, 2020 compared to six months ended June 30, 2019
Revenue was $16.6 million for the six month period ended June 30, 2020 compared to $12.1 million for the comparable six month period in 2019.
| (U.S. $ in thousands except where indicated) | Note | Bitcoin | (USD) | % Change | ||||||||||||
| Revenue based on actual coins sold during the six-month period ended June 30, 2019 and Volta external revenue | 1,791 | 12,146 | - | |||||||||||||
| Impact of increase in average Bitfarms' Bitcoin hashrate in excess of increase in network difficulty during YTD Q2 2020 compared to YTD Q2 2019, adjusted for | 1 | 358 | 2,134 | 18 | % | |||||||||||
| Bitcoin Halving Event | ||||||||||||||||
| Impact of Bitcoin Halving Event on May 11, 2020 on Bitfarms' quantity of coins mined during Q2 2020 | 2 | (267 | ) | (2,250 | ) | (19 | )% | |||||||||
| Impact of difference in average Bitcoin price in YTD Q2 2020 compared to YTD Q2 2019 | 3 | 5,130 | 42 | % | ||||||||||||
| Impact of Litecoins mined and sold in YTD Q2 2019 | 4 | (530 | ) | (4 | )% | |||||||||||
| Difference in Bitcoin inventory as at June 30, 2020 compared to June 30, 2019 | 5 | 31 | 238 | 2 | % | |||||||||||
| Difference in opening Bitcoin inventory as at Jan. 1, 2020 compared to Jan. 1, 2019 | 6 | (11 | ) | (66 | ) | (1 | )% | |||||||||
| Decrease in Volta third party revenue and other mining variance | (218 | ) | (2 | )% | ||||||||||||
| Revenue for the six months ended June 30, 2020 | 1,902 | 16,584 | 37 | % | ||||||||||||
Notes
| 1 | Calculated as the difference in theoretical Bitcoin mined in YTD Q2 2020 assuming the Bitcoin Halving Event did not occur, compared to YTD Q2 2019 (i .e. 2,168 - 1,811) multiplied by YTD Q2 2019 average Bitcoin price (i .e. $5,967) |
| 2 | Calculated as the theoretical Bitcoin mined based on Bitfarms' actual hashrate from May 11, 2020 to June 30, 2020 assuming the Bitcoin Halving Event did not occur (i .e. 2,120), compared to actual coins mined during the same period (i .e. 1,853) multiplied by average Q2 2020 Bitcoin price (8,429) |
| 3 | Calculated as the difference in average Bitcoin price in YTD Q2 2020 compared to the average realized Bitcoin price Q2 2019 (i .e. $8,332 - $5,967) multiplied by Bitcoins mined and sold in Q2 2020 plus the reduction in Bitcoin mined as a result of the Bitcoin Halving event (i .e. 830 + 267) |
| 4 | Calculated as the difference in Litecoin sold as at YTD Q2 2020 compared to YTD Q2 2019 multiplied by the average Li tecoin price for Q2 2019 (i ..e. 0 - 530) |
| 5 | Calculated as the di fference in Bitcoin inventory as at June 30, 2020 compared to June 30, 2019 (i .e. 31 - 0) multiplied by the average realized Bitcoin price in Q2 2019 (i .e. $7,679) |
| 6 | Calculated as the difference in Bitcoin inventory as at January 1, 2020 compared to January 1 2019 (i .e. 0 - 11) multiplied by the average realized Bitcoin price for YTD Q2 2019 (i .e. $5,967) |
The most significant factors influencing the $4.4 million net increase to Bitfarms’ revenue for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 are presented in the table above. Revenue increased by $5.1 million or 42% as a result of a higher average Bitcoin price of $8,332 compared to $5,967 as well as a $2.1 million or 18% increase due to higher average Bitfarms hashrate in excess of average network difficulty, adjusted for the Bitcoin Halving Event for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. These increases were primarily offset by a $2.3 million or 19% decrease in the quantity of Bitcoin mined as a result of the Bitcoin Halving Event, as well as a $0.5 million or 4% decrease resulting from the difference in Litecoin mined by the Company.
Bitfarms Ltd. Q2 2020 MD&A 4
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
The Company recognizes revenue when the Bitcoin are mined, as described in the Accounting Policy Change on page 20, and it is the practice of the Company to sell its cryptocurrencies for fiat (i.e. U.S. dollar), within one to four days after the cryptocurrencies are mined. The Company sells its cryptocurrency through cryptocurrency trading platforms operated by Tagomi Holdings, Inc. and Gemini Trust Company, LLC, two licensed digital asset exchanges regulated by the New York State Department of Financial Services and operated out of New York, New York, USA. In certain specific and limited cases, Bitfarms does not convert Bitcoin directly into fiat and uses Bitcoin to directly settle payment obligations, including the loan from DC BFL SPV, LLC (“Dominion Capital”) described below.
Cost of Sales
Q2 2020 compared to Q2 2019
Bitfarms’ cost of sales for Q2 2020 was $7.5 million compared to $4.6 million in Q2 2019. Costs of sales include energy and infrastructure expenses, depreciation and amortization, electrician salaries, and purchases and net change in inventory which are summarized in the table below:
| (U.S. $ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Energy and infrastructure | 4,316 | 2,565 | 1,751 | 68 | % | 8,901 | 4,482 | 4,419 | 99 | % | ||||||||||||||||||||||
| Depreciation and amortization | 2,750 | 1,299 | 1,451 | 112 | % | 5,730 | 2,647 | 3,083 | 116 | % | ||||||||||||||||||||||
| Electrician salaries | 164 | 270 | (106 | ) | (39 | )% | 441 | 430 | 11 | 3 | % | |||||||||||||||||||||
| Purchases and net change in inventory | 276 | 453 | (177 | ) | (39 | )% | 351 | 444 | (93 | ) | (21 | )% | ||||||||||||||||||||
| Cost of sales | 7,506 | 4,587 | 2,919 | 64 | % | 15,423 | 8,003 | 7,420 | 93 | % | ||||||||||||||||||||||
Energy and infrastructure expenses increased by $1.8 million or 68% in Q2 2020 compared to Q2 2019, primarily due to an increase in electricity expense, which was approximately $1.7 million higher in Q2 2020 compared to Q2 2019, as the Company added new Miners and continued construction in its Magog and Sherbrooke facilities, which increased electrical consumption from an average of 28 MW during Q2 2019 compared to 48 MW during Q2 2020.
Depreciation and amortization expense increased by $1.5 million or 112% in Q2 2020 compared to Q2 2019 primarily resulting from depreciation expense recorded on net additions to property, plant and equipment of approximately $20.3 million from Q2 2019 through Q2 2020.
Six months ended June 30, 2020 compared to six months ended June 30, 2019
Bitfarms’ cost of sales for the six months ended June 30, 2020 was $15.4 million compared to $8.0 million for the six months ended June 30, 2019.
Energy and infrastructure expenses increased by $4.4 million or 99% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to an increase in electricity expense of $4.2 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 as the Company increased its average electricity consumption from 25 MW to 49 MW.
Depreciation and amortization expense increased by $3.1 million or 116% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily resulting from depreciation expense recorded on net additions to property, plant and equipment of approximately $20.3 million.
Bitfarms Ltd. Q2 2020 MD&A 5
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Gross Profit/Loss
Q2 2020 compared to Q2 2019
Bitfarms’ gross loss for Q2 2020 was $0.1 million compared to gross profit of $3.9 million for Q2 2019. The gross profit margin decreased from 46% to a gross loss margin of 2% in Q2 2020 compared to Q2 2019 primarily due to the decrease in Bitcoin mined in connection with the Bitcoin Halving Event, partially offset by the increase in Bitcoin price and Bitfarms’ internal hashrate in excess of the increase in network difficulty, as described in detail in the analysis of revenue above. The 13% decrease in revenues as well as the 64% increase in cost of sales, primarily driven by increases in energy and infrastructure and depreciation and amortization expenses as described above, were the primary factors influencing the decrease in gross profit.
Six months ended June 30, 2020 compared to six months ended June 30, 2019
Bitfarms’ gross profit for the six months ended June 30, 2020 was $1.2 million compared to $4.1 million for the six months ended June 30, 2019. The gross profit margin decreased from 34% to 7% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the 93% increase in cost of sales, primarily driven by increases in energy and infrastructure and depreciation and amortization expenses as described above. The increased cost of sales was partially offset by a 37% increase in revenues, primarily driven from an increase in bitcoin price as well as an increase in Bitfarms’ hashrate in excess of network difficulty, offset primarily by the Bitcoin Halving Event, resulting in the decrease in gross profit.
General & Administrative & Other Expenses Q2 2020 compared to Q2 2019
Bitfarms’ general and administrative and other expenses decreased by $2.0 million or 59% in Q2 2020 compared to Q2 2019. The primary reason for the decrease was lower non-cash expenses of approximately $1.2 million related to employee stock options as well as $0.5 million of lower salaries and wages expense resulting from fewer executive level employees and government wage subsidies received in connection with COVID-19 in Q2 2020 compared to Q2 2019. There was an additional decrease in general and administrative expenses of $0.3 million in Q2 2020 compared to Q2 2019 resulting from reduced professional fees in connection with the Company’s TSX-V listing process in Q2 2019.
Six months ended June 30, 2020 compared to six months ended June 30, 2019
Bitfarms’ general and administrative and other expenses decreased by $1.1 million or 21% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The primary reason for the decrease was lower professional fees in the amount of $0.6 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 in connection with the Company’s TSX-V listing process. In addition, non-cash expenses of approximately $0.3 million related to employee stock options as well as $0.2 million of lower salaries and wages expense resulting from wage subsidies received in connection with COVID-19 during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.
Bitfarms Ltd. Q2 2020 MD&A 6
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Financial Income and Expenses Q2 2020 Compared to Q2 2019
Bitfarms’ financial income for Q2 2020 was $0.1 million compared to $nil for Q2 2019. The increase in financial income was related to a $0.1 million gain recorded on the embedded derivative. Financial expense for Q2 2020 was $1.5 million compared to $1.9 million in Q2 2019. The $0.4 million decrease is primarily related to a $0.8 million loss on warrant revaluation as well as a $0.4 million loss on embedded derivative in Q2 2019 that did not occur in Q2 2020, offset by interest expense of $1.3 million incurred on the Dominion Capital loan in Q2 2020 compared to $0.5 million in Q2 2019. The financial income and expenses related to the Dominion Capital loan are described under Financial Instruments and Risks. Financial income and expenses are comprised of interest on the Dominion Capital loan, gain on embedded derivative and classification of a portion of rent as interest expense on lease liabilities, and unrealized foreign exchange gains and losses on monetary items denominated in Canadian dollars to the functional currency in US dollars, and interest on Volta’s long-term debt repayments and bank charges.
Six months ended June 30, 2020 compared to six months ended June 30, 2019
Bitfarms’ financial income for the six months ended June 30, 2020 was $0.3 million compared to $nil for the six months ended June 30, 2019. The $0.3 million increase in financial income was mainly related to $0.2 million of net unrealized foreign exchange gains recorded on revaluation of assets and liabilities denominated in Canadian dollars to US dollars, the Company’s functional currency as well as $0.1 million of gain on embedded derivative. Financial expense for the six months ended June 30, 2020 was $2.8 million compared to $2.2 million for the six months ended June 30, 2019. The increase is primarily related to interest expense of $2.5 million incurred on the Dominion Capital loan for the six months ended June 30, 2020 compared to $0.6 million for the six months ended June 30, 2019, as described under Financial Instruments and Risks. The $1.9 million of increased interest on the Dominion Capital loan was primarily offset by a $0.8 million loss on warrant revaluation as well as a $0.4 million loss on embedded derivative during the six months ended June 30, 2019 that did not occur during the six months ended June 30, 2020.
Reconciliation of Non-IFRS measures
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 |
$ Change | % Change | Jun. 30 2020 | Jun. 30 2019 |
$ Change | % Change | ||||||||||||||||||||||||
| Net loss before tax | (3,734 | ) | (1,320 | ) | (2,414 | ) | (183 | )% | (6,266 | ) | (3,326 | ) | (2,940 | ) | (88 | )% | ||||||||||||||||
| Interest expense | 1,400 | 689 | 711 | 103 | % | 2,785 | 821 | 1,964 | 239 | % | ||||||||||||||||||||||
| Depreciation expense | 2,750 | 1,299 | 1,451 | 112 | % | 5,730 | 2,647 | 3,083 | 116 | % | ||||||||||||||||||||||
| EBITDA (1) | 416 | 668 | (252 | ) | (38 | )% | 2,249 | 142 | 2,107 | 1484 | % | |||||||||||||||||||||
| Stock compensation expense | 254 | 1,462 | (1,208 | ) | (83 | )% | 1,264 | 1,572 | (308 | ) | (20 | )% | ||||||||||||||||||||
| Financial income and other | 765 | 1,199 | (434 | ) | (36 | )% | 827 | 1,194 | (367 | ) | (31 | )% | ||||||||||||||||||||
| Adjusted EBITDA (1) | 1,435 | 3,329 | (1,894 | ) | (57 | )% | 4,340 | 2,908 | 1,432 | 49 | % | |||||||||||||||||||||
Bitfarms Ltd. Q2 2020 MD&A 7
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Q2 2020 compared to Q2 2019
Bitfarms’ net loss before tax for Q2 2020 was $3.7 million compared to $1.3 million for Q2 2019. EBITDA and Adjusted EBITDA for Q2 2020 were $0.4 million and $1.4 million compared to $0.7 million and $3.3 million, respectively, in Q2 2019.
Six months ended June 30, 2020 compared to six months ended June 30, 2019
Bitfarms’ net loss before tax for the six months ended June 30, 2020 was $6.3 million compared to $3.3 million for the six months ended June 30, 2019. Bitfarms’ income tax expense for the six months ended June 30, 2020 was a recovery of $0.1 million compared to $nil for the six months ended June 30, 2019. EBITDA and Adjusted EBITDA for the six months ended June 30, 2020 were $2.2 million and $4.3 million compared to $0.1 million and $2.9 million, respectively, for the six months ended June 30, 2019.
Calculation of Gross Mining Profit & Gross Mining Margin
Gross mining margin (Backbone segment)
| (U.S. $ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Revenue | 6,870 | 7,687 | (817 | ) | (11 | )% | 15,594 | 10,687 | 4,907 | 46 | % | |||||||||||||||||||||
| Cost of sales | 7,189 | 3,926 | 3,263 | 83 | % | 14,674 | 6,959 | 7,715 | 111 | % | ||||||||||||||||||||||
| Gross profit (loss) | (319 | ) | 3,761 | (4,080 | ) | (108 | )% | 920 | 3,728 | (2,808 | ) | (75 | )% | |||||||||||||||||||
| Depreciation and amortization | 2,729 | 1,280 | 1,449 | 113 | % | 5,682 | 2,603 | 3,079 | 118 | % | ||||||||||||||||||||||
| Net change in inventory and other | 96 | 81 | 15 | 19 | % | - | (126 | ) | 126 | 100 | % | |||||||||||||||||||||
| Gross mining profit | 2,506 | 5,122 | (2,616 | ) | (51 | )% | 6,602 | 6,205 | 397 | 6 | % | |||||||||||||||||||||
| Gross mining margin | 36 | % | 67 | % | - | - | 42 | % | 58 | % | - | - | ||||||||||||||||||||
“Gross mining profit” is defined as Revenue minus energy and infrastructure expenses for the Backbone segment of the Company, which can be reconciled by adding non-energy and infrastructure items included in cost of sales to gross profit. "Gross mining margin” is defined as the percentage obtained when dividing Gross mining margin by Revenue for the Backbone segment of the Company.
Bitfarms Ltd. Q2 2020 MD&A 8
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Reportable Operating Segments
Backbone
| (U.S. $ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Revenue | 6,870 | 7,687 | (817 | ) | (11 | )% | 15,594 | 10,687 | 4,907 | 46 | % | |||||||||||||||||||||
| Cost of sales | 7,189 | 3,926 | 3,263 | 83 | % | 14,674 | 6,959 | 7,715 | 111 | % | ||||||||||||||||||||||
| Gross profit (loss) | (319 | ) | 3,761 | (4,080 | ) | (108 | )% | 920 | 3,728 | (2,808 | ) | (75 | )% | |||||||||||||||||||
| Gross margin | (5 | )% | 49 | % | - | - | 6 | % | 35 | % | - | - | ||||||||||||||||||||
Gain on disposition of cryptocurrencies | 23 | - | 23 | 100 | % | 23 | - | 23 | 100 | % | ||||||||||||||||||||||
| G&A and other expenses | 1,283 | 3,110 | (1,827 | ) | (59 | )% | 3,865 | 4,708 | (843 | ) | (18 | )% | ||||||||||||||||||||
| Operating income (loss) | (1,579 | ) | 651 | (2,230 | ) | (343 | )% | (2,922 | ) | (980 | ) | (1,942 | ) | (198 | )% | |||||||||||||||||
| Operating margin (loss) | (23 | )% | 8 | % | - | - | (19 | )% | (9 | )% | - | - | ||||||||||||||||||||
| Loss on disposition of assets | (707 | ) | (4 | ) | (703 | ) | (17575 | )% | (707 | ) | (7 | ) | (700 | ) | (10000 | )% | ||||||||||||||||
| Financial income | 57 | - | 57 | 100 | % | 265 | - | 265 | 100 | % | ||||||||||||||||||||||
| Interest expense | 1,406 | 685 | 721 | 105 | % | 2,778 | 814 | 1,964 | 241 | % | ||||||||||||||||||||||
| Other finance expenses | 202 | 1,202 | (1,000 | ) | (83 | )% | 47 | 1,360 | (1,313 | ) | (97 | )% | ||||||||||||||||||||
| Net loss before tax | (3,837 | ) | (1,240 | ) | (2,597 | ) | (209 | )% | (6,189 | ) | (3,161 | ) | (3,028 | ) | (96 | )% | ||||||||||||||||
| EBITDA (1) | 298 | 725 | (427 | ) | (59 | )% | 2,271 | 256 | 2,015 | 787 | % | |||||||||||||||||||||
| EBITDA margin (1) | 4 | % | 9 | % | - | - | 15 | % | 2 | % | - | - | ||||||||||||||||||||
| Adjusted EBITDA (1) | 1,317 | 3,298 | (1,981 | ) | (60 | )% | 4,362 | 3,022 | 1,340 | 44 | % | |||||||||||||||||||||
| Adjusted EBITDA margin (1) | 19 | % | 43 | % | - | - | 28 | % | 28 | % | - | - | ||||||||||||||||||||
Reconciliation of Non-IFRS Performance Measures
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Net loss before tax | (3,837 | ) | (1,328 | ) | (2,509 | ) | (189 | )% | (6,189 | ) | (3,161 | ) | (3,028 | ) | (96 | )% | ||||||||||||||||
| Interest expense | 1,406 | 685 | 721 | 105 | % | 2,778 | 814 | 1,964 | 241 | % | ||||||||||||||||||||||
| Depreciation expense | 2,729 | 1,280 | 1,449 | 113 | % | 5,682 | 2,603 | 3,079 | 118 | % | ||||||||||||||||||||||
| EBITDA (1) | 298 | 637 | (339 | ) | (53 | )% | 2,271 | 256 | 2,015 | 787 | % | |||||||||||||||||||||
| Stock compensation expense | 254 | 1,462 | (1,208 | ) | (83 | )% | 1,264 | 1,572 | (308 | ) | (20 | )% | ||||||||||||||||||||
| Financial income and other | 765 | 1,199 | (434 | ) | (36 | )% | 827 | 1,194 | (367 | ) | (31 | )% | ||||||||||||||||||||
| Adjusted EBITDA (1) | 1,317 | 3,298 | (1,981 | ) | (60 | )% | 4,362 | 3,022 | 1,340 | 44 | % | |||||||||||||||||||||
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, and Adjusted EBITDA margin are non-IFRS performance measures; please refer to the heading “Caution Regarding Non-IFRS Financial Performance Measures” at the end of this MD&A regarding the use of non-IFRS Measures. |
Bitfarms Ltd. Q2 2020 MD&A 9
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Volta
| (U.S. $ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Revenue | 502 | 830 | (328 | ) | (40 | )% | 990 | 1,459 | (469 | ) | (32 | )% | ||||||||||||||||||||
| Cost of sales | 317 | 661 | (344 | ) | (52 | )% | 749 | 1,044 | (295 | ) | (28 | )% | ||||||||||||||||||||
| Gross profit | 185 | 169 | 16 | 9 | % | 241 | 415 | (174 | ) | (42 | )% | |||||||||||||||||||||
| Gross margin | 37 | % | 20 | % | - | - | 24 | % | 28 | % | - | - | ||||||||||||||||||||
| G&A and other expenses | 88 | 157 | (69 | ) | (44 | )% | 228 | 297 | (69 | ) | (23 | )% | ||||||||||||||||||||
| Operating income (loss) | 97 | 12 | 85 | 708 | % | 13 | 118 | (105 | ) | (89 | )% | |||||||||||||||||||||
| Operating margin | 19 | % | 1 | % | - | - | 1 | % | 8 | % | - | - | ||||||||||||||||||||
| Interest expense | (6 | ) | 4 | (10 | ) | (250 | )% | 7 | 7 | - | - | |||||||||||||||||||||
| Other finance expenses | - | - | - | - | - | 6 | (6 | ) | (100 | )% | ||||||||||||||||||||||
| Net income (loss) before tax | 103 | 8 | 95 | 1188 | % | 6 | 105 | (99 | ) | (94 | )% | |||||||||||||||||||||
| EBITDA (1) | 118 | 31 | 87 | 281 | % | 61 | 156 | (95 | ) | (61 | )% | |||||||||||||||||||||
| EBITDA margin (1) | 24 | % | 4 | % | - | - | 6 | % | 11 | % | - | - | ||||||||||||||||||||
| Adjusted EBITDA (1) | 118 | 31 | 87 | 281 | % | 61 | 156 | (95 | ) | (61 | )% | |||||||||||||||||||||
| Adjusted EBITDA margin (1) | 24 | % | 4 | % | - | - | 6 | % | 11 | % | - | - | ||||||||||||||||||||
Reconciliation of Non-IFRS Performance Measures
(U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||||||||||||||
| Net income (loss) before tax | 103 | 8 | 95 | 1188 | % | 6 | 105 | (99 | ) | (94 | )% | |||||||||||||||||||||
| Interest expense | (6 | ) | 4 | (10 | ) | (250 | )% | 7 | 7 | - | - | |||||||||||||||||||||
| Depreciation expense | 21 | 19 | 2 | 11 | % | 48 | 44 | 4 | 9 | % | ||||||||||||||||||||||
| EBITDA (1) | 118 | 31 | 87 | 281 | % | 61 | 156 | (95 | ) | (61 | )% | |||||||||||||||||||||
| Adjusted EBITDA (1) | 118 | 31 | 87 | 281 | % | 61 | 156 | (95 | ) | (61 | )% | |||||||||||||||||||||
| (1) | EBITDA, EBITDA margin, Adjusted EBITDA, and Adjusted EBITDA margin are non-IFRS performance measures; please refer to the heading “Caution Regarding Non-IFRS Financial Performance Measures” at the end of this MD&A regarding the use of non-IFRS Measures. |
Selected Quarterly Information
| (U.S. $ in thousands except where indicated) | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | ||||||||||||||||||||||||
| Revenue | 7,372 | 9,212 | 10,536 | 9,739 | 8,517 | 3,629 | 5,292 | 6,243 | ||||||||||||||||||||||||
| Net income (loss) | (3,730 | ) | (2,424 | ) | 1,125 | 4,605 | (1,320 | ) | (2,006 | ) | (21,313 | ) | (1,661 | ) | ||||||||||||||||||
| Basic and diluted income (loss) per share | (0.04 | ) | (0.03 | ) | 0.02 | 0.06 | (0.01 | ) | (0.02 | ) | (0.23 | ) | (0.02 | ) | ||||||||||||||||||
The Company’s industry does not have any seasonality. Factors that may impact revenue and profitability quarter over quarter include cryptocurrency pricing, network difficulty and the Company’s hashrate.
Bitfarms Ltd. Q2 2020 MD&A 10
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Liquidity and Capital Resources
Cash Flows
| (U.S. $ in thousands except where indicated) | Six months ended | |||||||||||||||
For the periods ended as indicated | Jun. 30 2020 | Jun. 30 2019 | $ Change | % Change | ||||||||||||
| Cash & cash equivalents, beginning of the period | 2,159 | 552 | 1,607 | 291 | % | |||||||||||
| Cash flows from (used in): | ||||||||||||||||
| Operating activities | 2,448 | 1,489 | 959 | 64 | % | |||||||||||
| Investing activities | (2,614 | ) | (10,585 | ) | 7,971 | 75 | % | |||||||||
| Financing activities | (604 | ) | 13,898 | (14,502 | ) | (104 | )% | |||||||||
| Exchange rate differences on currency translation | (28 | ) | - | (28 | ) | (100 | )% | |||||||||
| Cash & cash equivalents, end of the period | 1,361 | 5,354 | (3,993 | ) | (75 | )% | ||||||||||
Cash Flows from Operating Activities
Cash flows from operating activities increased by $1.0 million or 64% during the six months ended June 30, 2020 compared to six months ended June 30, 2019. This was primarily due to an increase in adjusted EBITDA of $1.4 million and increase in cash from changes in working capital of $1.2 million, primarily offset by a $1.2 million increase in financial expenses paid and $0.3 million fair market value of Bitcoin mined, but not recognized as revenue increase on June 30, 2019.
Cash Flows used in Investing Activities
Cash flows used in investing activities decreased by $8.0 million or 75% during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This was primarily due to the draw down and deployment of the first three $5.0 million tranches of the Dominion Capital loan during the six months ended June 30, 2019 into new ASICs, electrical components and Sherbrooke infrastructure buildout.
Cash Flows from Financing Activities
Cash flows from financing activities decreased $14.5 million or 104% during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This was primarily due to the Company drawing down on the three of the four $5.0 million loan tranches on the $20.0 million debt facility from Dominion Capital from March to June 2019. During the six months ended June 30, 2020 the Company made repayments of long-term debt and lease liabilities in the amounts of approximately $0.5 million and $0.4 million, respectively, which were offset by the proceeds from the exercise of warrants in the amount of $0.2 million.
Bitfarms Ltd. Q2 2020 MD&A 11
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Working Capital
As at June 30, 2020, Bitfarms had a working capital deficit of $10.4 million compared to positive working capital of $2.5 million on December 31, 2019, primarily due to the first three $5.0 million loan tranches, with an outstanding balance of $12.2 million, being reclassified from long-term to current. The Company’s strategy to remedy the working capital deficit and ensure sufficient liquidity to repay the Dominion Capital loan maturing in 2021, include amendments to the second and third loan tranches of the Dominion Capital loan as well as growing operations through available equipment leasing to increase cash flows from operations. As described in the Subsequent Events section of this MD&A, in August 2020, the Company reached an agreement with Dominion Capital to amend the maturity date of Tranche #2 from April 2021 to November 2021 in exchange for the issuance of 1,000,000 restricted shares to Dominion Capital. In addition, a conversion feature was added to Tranche #3, maturing in June 2021, providing Dominion Capital with the option to convert the loan into shares at a price of $0.59 USD per share. The conversion feature may be exercised by Dominion Capital, in whole or in part, at any time until the loan matures in June 2021. The Company also entered into a two year lease agreement for approximately $1.8 million of mining hardware with expected delivery in late August 2020. Management believes the extension of Tranche #2’s maturity date, combined with the conversion feature and the new lease agreement will allow the Company to meet its obligations in 2021. The Company plans to continue to grow operational capacity by securing additional leased Mining equipment in order to further increase cash flows from operations, however there is no assurance that the Company will be successful in its efforts. As at June 30, 2020, Bitfarms had cash and cash equivalents of $1.4 million compared to $2.2 million as at December 31, 2019. Cash and cash equivalents are mainly U.S. and Canadian dollar deposits at regulated financial institutions.
Components of Total Debt
The Company expects that cash and cash equivalents and future operating cash flows will enable it to fund its working capital requirements and financial obligations, over the next twelve months.
Since inception, the Company has primarily financed its growth through retained earnings, vendor financing, and, since March 2019, a long-term debt facility. The current portion of long-term debt of Bitfarms was $12.3 million as of June 30, 2020 compared to $0.9 million on December 31, 2019, primarily resulting from classification of the outstanding balance of the first three $5.0 million loan tranches, drawn down in March, April and June 2019, being classified as current. The current maturities of long-term debt may fluctuate due to the variable repayment terms of the loan with Dominion Capital (see below). Bitfarms’ long-term debt consists of the following:
| (a) | Volta signed several agreements to purchase vehicles with an outstanding balance of $0.1 million as at June 30, 2020. Ten notes payable, bearing interest between 3.99% and 8.2% repayable in monthly instalments totaling approximately $3,000 principal and interest, maturing between October 2020 and October 2025, secured by vehicles having a net carrying value of $0.1 million; |
| (b) | Volta received long-term vendor financing with an outstanding balance of $0.1 million bearing interest at 5.00% payable by monthly instalments of $4,000 principal and interest maturing in June 2022; and |
| (c) | Bitfarms entered into a secured debt financing facility for up to $20.0 million with Dominion Capital. The debt facility is structured into four separate loan tranches of $5.0 million each bearing interest at 10% per annum on the full principal balance of each loan tranche regardless of principal repayments made during the term of each loan tranche. The term of each loan tranche is 24 months with a balloon payment for any remaining outstanding balance at the end the term. As described in the Working Capital section above, the Company reached an agreement to extend the maturity date of Tranche #2 from April 2021 to November 2021. A monthly payment equivalent to 10% of the value of cryptocurrencies mined by Bitfarms during the month is required in repayment of the total loan tranches drawn. This amount shall first be applied to accrued interest and the balance to principal. In the event that the amount of interest owing is greater than the amount of cryptocurrency mined, an additional amount shall be remitted such that the interest is paid in full. The debt facility is fully secured by the assets of Bitfarms on a first priority basis. |
Bitfarms Ltd. Q2 2020 MD&A 12
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Capital Resources
Bitfarms' capital management objective is to ensure its ability to maximize the return to its shareholders. In order to achieve this objective, the Company monitors its capital structure and makes adjustments as required in light of changes in economic conditions and the risks to which the Company is exposed. The Company’s strategy for achieving this objective is maintaining a strong capital base so as to maintain investor confidence to sustain future development of the business, maintain a flexible capital structure that optimizes the cost of capital at acceptable risk and preserves the ability to meet financial obligations, and ensuring sufficient liquidity to pursue organic growth.
Bitfarms may manage its capital structure by issuing equity, obtaining loan financing, adjusting capital spending, or disposing of assets. The Company is not subject to any externally imposed capital requirements, with the exception of the Company’s agreement not to issue common shares below $0.40 USD during the term of the loan with Dominion Capital.
Sherbrooke Expansion
To complete each remaining phase of the Sherbrooke Expansion, Bitfarms will need to incur infrastructure buildout costs including exhaust structure, mining structure and building modifications, as well as sourcing of mining hardware and electrical components.
The capital cost for the construction of the remaining Phases 3 through 6 is currently estimated to range between $20.0 million to $25.0 million, inclusive of Miner purchases based on recent hardware pricing. These costs will be divided between both properties, with the majority being allocated to the Leger Property.
The ability to undertake the construction of Phases 3 through 6 of the Sherbrooke Expansion depends, among other things, on the Company’s ability to raise the required financing. As a result, there is no definitive or planned timetable for Phases 3 through 6 of the Sherbrooke Expansion. The Company intends to finance the remainder of the construction of Phases 3 through 6 of the Sherbrooke Expansion by raising additional debt or equity capital or a combination of these means, as well as through the cash flow generated from its operations. There can be no assurance that the remaining Sherbrooke Expansion will be fully funded and undertaken at this time on any particular schedule or at all.
In response to both a complaint concerning noise at the Sherwood Property and indications from officials at the municipality of Sherbrooke that they were reviewing applicable regulations, the Company has met with community residents and city officials on several occasions. While the Company believes it is compliant with all applicable regulations, the Company has implemented further sound mitigating measures, including the construction of a sound barrier wall at a cost of approximately $0.2 million.
Off-Balance Sheet Arrangements
There are currently no off-balance sheet arrangements which could have an effect on current or future results or operations, or the financial condition of Bitfarms.
Bitfarms Ltd. Q2 2020 MD&A 13
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Share Capital
On February 4, 2020, shareholders approved an amendment to the articles of incorporation of the Company to authorize the issuance of class A preferred shares. As of the date of this MD&A, the Company has 84,720,630 common shares, 6,133,435 vested employee stock options, 3,149,065 unvested employee stock options, and 5,916,668 warrants to Dominion Capital issued and outstanding, as well as 300,000 other warrants. As of the date of this MD&A there were no preferred shares outstanding.
Financial Instruments & Risks
It is anticipated that in the normal course of operations, Bitfarms will be exposed to exchange risk, foreign currency risk and credit risk.
Dominion Capital Loan
As of June 30, 2020, the Dominion Capital loan consisted of four $5.0 million tranches that were drawn down from the financing facility, which included a total of four available $5.0 million loan tranches (please refer to the Components of Total Debt section above). The features of the loan, which include the issuance of 1,666,667 warrants per tranche with an exercise price of $0.40, as well as a make-whole interest clause resulted in a financial liability accounted for at amortized cost, warrant liabilities previously recorded at fair value through profit or loss which were reclassified to equity during the period, and an embedded derivative recorded at fair value through profit or loss. The purpose of the loan was to provide the Company with additional funds to achieve its growth objectives, notably, the buildout of the first two phases of the Sherbrooke Expansion.
Financial Instrument at Amortized Cost
Management used significant judgement and estimates when determining the effective interest rate of the financial liability accounted for at amortized cost. Payment amounts are determined as 10% of the cryptocurrency mined by Bitfarms. In order to calculate the effective interest rate, management had to estimate Bitfarms' future cryptocurrency mining revenues in order to estimate the timing and amount of future loan repayments. The effective interest rate was determined to be 26.93%, 30.16%, 37.10% and 38.02% for the first, second and third and fourth tranches, respectively. The component of the financial instrument carried at amortized cost resulted in interest expense of $1.3 million and $2.5 million included in financial expenses for the three and six month periods ended June 30, 2020.
Warrants
Upon inception of the Dominion Capital loan, the warrants contained an anti-dilutive feature that would have resulted in a reduction in the exercise price in the event that Bitfarms Ltd. were to issue shares at a price lower than the exercise price. On September 27, 2019, the Company received all necessary approvals in order to remove the anti-dilutive feature. In exchange for removal of the anti-dilutive feature, the Company agreed not to issue common shares below the exercise price of $0.40 USD during the term of the loan with the lender.
Bitfarms Ltd. Q2 2020 MD&A 14
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Embedded Derivative
The value of the "make-whole" clause described above will vary based on management's projections of the timing of the loan repayment, which are based on Bitfarms' cryptocurrency mining revenues. This interest feature has been accounted for as an embedded derivative that is measured at fair value through profit or loss. Since this is a non-option derivative, the fair value upon initial recognition of the loan liability is nil. As of June 30, 2020, management revised its projections of the timing of the loan repayment and discounted future payments to their present value using the effective interest rates determined upon inception of each loan tranche. As of June 30, 2020, management recognized an embedded derivative asset with a value of $0.6 million resulting in a gain of $0.1 million in financial income for the six month ended June 30, 2020. Any change in management’s assumptions of Bitcoin price, Bitcoin Network Difficulty and the Company’s internal hashrate may have a material impact on profit of loss upon remeasurement in subsequent periods.
Credit Risk
Credit risk is the risk of an unexpected loss if a third party fails to meet its contractual obligations, including cash and cash equivalents, accounts receivable and long-term deposits. The risk regarding cash and cash equivalents is mitigated by holding the cash and cash equivalents through Canadian chartered banks. The credit risk regarding trade receivables are derived mainly from sales to Volta’s third-party customers. The Company performs ongoing credit evaluations of its customers. The Company places deposits with suppliers of cryptocurrency mining hardware in the normal course of operations in order to secure orders and delivery dates. The Company deals with major suppliers of cryptocurrency equipment and routinely maintains strong relationships with suppliers and evaluates the mining hardware market. Other long-term deposits include deposits with local government run energy producers. The Company is also exposed to credit risk through conversion of cryptocurrency to fiat currency through the use of cryptocurrency exchanges. The Company maintains relationships with multiple exchanges and mitigates credit risk by routinely converting cryptocurrency to fiat currency to limit exposure. Furthermore, the Company performs periodic evaluations of cryptocurrency exchanges.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to pay its financial obligations when they are due. The Company's policy is to monitor its cash balances and planned cash flows generated from operations to ensure, as far as possible, that it maintains sufficient liquidity in order to pay its projected financial liabilities. The contractual maturities of trade and other payables are less than six months. Long- term debt, as of June 30, 2020, adjusted for the loan amendments as described in the Working Capital section, includes financial obligations with contractual maturities, including principal and interest, as follows:
| Q3 2020 | $ | 650,000 | ||
| Q4 2020 | $ | 825,000 | ||
| Q1 2021 | $ | 3,320,000 | ||
| Q2 2021 | $ | 5,400,000 | ||
| Q3 2021 | $ | 5,800,000 | ||
| Q4 2021 | $ | 4,345,000 | ||
| 2022 and thereafter: | $ | 93,000 | ||
| Total | $ | 20,433,000 |
Bitfarms Ltd. Q2 2020 MD&A 15
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Lease liabilities includes financial obligations with contractual maturities as follows, inclusive of interest, as of the June 30, 2020 and adjusted for the new equipment lease agreement described in the Subsequent Events section, are as follows:
| 2020 | $ | 1,065,000 | ||
| 2021 | $ | 2,165,000 | ||
| 2022 | $ | 1,540,000 | ||
| 2023 | $ | 820,000 | ||
| 2024 and thereafter: | $ | 3,520,000 | ||
| Total | $ | 9,110,000 |
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company's functional currency is the US Dollar as all its revenue, excluding Volta, and most of its capital expenditures and financing are transacted in US dollars. The Company is exposed to variability in the Canadian dollar to US dollar exchange rate when paying operating expenses incurred and payable in Canadian dollars. The Company funds foreign currency transactions by buying the foreign currency at the spot rate when required. Management does not currently hedge its foreign currency risk.
Concentration Risk
Concentration risk arises as a result of the concentration of exposures within the same category, whether it is geographical location, product type, industry sector or counterparty type. The Company is primarily engaged in the cryptocurrency mining industry that is a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly negatively impact the Company’s operations. The Company does not currently hedge the conversion of cryptocurrencies to fiat currency.
Custody of Crypto Asset Risk
Cryptocurrencies are controllable by the possessors of the unique public key and private key relating to the digital wallet used to store the cryptocurrencies. If keys are lost, stolen or destroyed this could result in a loss for the Company. In order to mitigate the risk of loss of cryptocurrencies the Company sells cryptocurrency routinely and uses multi-signature digital wallets to store cryptocurrency until its eventual sale. The digital wallets used for Bitcoin require 2 out of 3 individuals to approve a spending transaction. Each of the users has a separate password that is not known by the other users. The transactions can only be initiated from the physical computer where the multi-signature wallet is installed for each user. In order to install the multi-signature wallet on a computer, twelve “seed” words that are distinct to each user are required, which are physically stored offline in confidential locations offsite.
Security breaches and hacking have been prevalent in cryptocurrency exchanges. The Company mitigates this risk by performing ongoing evaluations of exchanges, and routinely converting cryptocurrencies to fiat currency so that no material amount of crypto assets is held at any given time.
Bitfarms Ltd. Q2 2020 MD&A 16
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Other Risks
The following discussion summarizes the principal risk factors that apply to the Company’s business and that may have a material adverse effect on the Company’s business and financial condition and results of operations, or the trading price of the Company’s shares. Due to the nature of the Company’s business, the legal and economic climate in which it operates and its present stage of development and proposed operations, the Company is subject to significant risks. In evaluating the Company and its business, investors should carefully consider, in addition to other information contained in this MD&A, the risk factors below as well as those included in the Company’s 2019 Annual MD&A dated April 29, 2020. These risk factors are not a definitive list of all risk factors associated with an investment in the Company or in connection with its operations. Additional risk and uncertainties not presently known to the Company, or that are. currently deemed immaterial, may also impair operations. If any such risks actually occur, the business, financial condition, liquidity and results of operations could be materially adversely affected.
Bitcoin Halving Event
In May 2020, the Bitcoin Block Reward decreased from 12.5 to 6.25 Bitcoins per block (the “Bitcoin Halving”), and consequently the number of new Bitcoin issued to miners has been reduced to approximately 900 per day, excluding transaction fees.
The Bitcoin Halving had a significant impact on the Company’s profitability. Given that profitability is required for self-acting agents to perform Mining to continue to support the validation of transactions, the expected impact of the Bitcoin Halving is that market variables of Bitcoin price and Difficulty will adjust over time to ensure that Mining remains profitable. The period of market normalization after the Bitcoin Halving to incentivizing profitability levels is unknown. In the 30 days prior to the Bitcoin Halving Event the average daily revenue per Terahash of computing power was approximately $0.13. Immediately after the Bitcoin Halving, daily revenue per Terahash was $0.07. In the 30 days subsequent to the Bitcoin Halving, average daily revenue per Terahash was $0.09, an increase of $0.02 or approximately 29% compared to the daily revenue per Terahash immediately after the Bitcoin Halving, demonstrating the normalization of daily revenue per Terahash expected for viable long-term Mining profitability. In the 20 days leading up to the date of this MD&A, average daily revenue per Terahash was $0.10. Management has observed a recovery of $0.03 daily revenue per Terahash, a recovery of 43% when compared to immediately after the Bitcoin Halving, which represents a further normalization of daily revenue per Terahash to pre-Bitcoin Halving levels. As of the date of this MD&A daily revenue per Terahash is still $0.03 or 23% lower than the average daily revenue per Terahash in the 30 days prior to the halving.
Management believes that revenue per Terahash will continue to normalize to levels that would allow Miners with competitive electricity pricing, sufficient scale of efficient Mining operations, recent generation Mining hardware and access to capital to remain profitable. Management has actively responded by reaching an agreement with Dominion Capital to amend loan terms to provide additional time to generate incremental cash flow from operations and provide the opportunity to convert from debt to equity. In addition, Management has secured lease financing of new, more efficient mining hardware to grow operations and is continuing to seek further financing to fill available capacity . If Bitcoin price and Difficulty do not maintain or continue their trend of adjusting to pre-Bitcoin Halving profitability levels over time, or the period of market normalization after the Bitcoin Halving to pre-Bitcoin Halving profitability levels is too long, there is a risk that the Bitcoin Halving will render the Company unprofitable for a sustained time period such that it could be unable to continue as a going concern.
Bitfarms Ltd. Q2 2020 MD&A 17
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
COVID-19 Pandemic Risk
In March 2020, the World Health Organization declared COVID-19 a pandemic. The global response to the pandemic is constantly evolving, including various measures implemented at the global, national, provincial and local levels. The major impacts that COVID-19 are expected to have on the Backbone operating segment include potential increases in cryptocurrency price volatility, difficulty obtaining new financing due to a global economic slowdown, and delays in receiving future orders of mining hardware and parts sourced from overseas. The Backbone operating segment has been, and is expected to, continue operating throughout the pandemic.
Volta’s services are considered to be essential by government authorities and have been, and are expected to continue, operating throughout the pandemic. The impacts of COVID-19 on the Volta operating segment have reduced revenues by $0.5 million or 32% from the sale of electrician services and parts for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, as well as having resulted in longer collection periods for outstanding trade receivables. There is a potential for increased bad debts resulting from the economic impact of COVID-19 on existing customers. The Group has benefited from the Canada Emergency Wage Subsidy (“CEWS”) in the amount of approximately $280 and will continue to monitor its eligibility to claim the CEWS. There can be no assurance that the Group will continue to be eligible for the CEWS as future changes to revenues as well as modification to the eligibility criteria may render the Group ineligible.
The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government interventions. It is not possible to reliably estimate the length and severity of these developments as well as the impact on the financial results and condition of the Company and its operating subsidiaries in future periods.
Related Party Transactions
During the three and six month periods ended June 30, 2020, the Company had the following transactions with related parties:
| 1. | Bitfarms made rent payments totaling approximately $109,000 and $217,000 for the three and six month periods ended June 30, 2020 (three and six months ended June 30, 2019 - $144,000 and $294,000 ) to companies controlled by a director and officer, Emiliano Grodzki and Mathieu Vachon and a former director, Pierre-Luc Quimper. |
| 2. | Bitfarms entered into consulting agreements with two of the directors, Nicolas Bonta and Emiliano Grodzki. The consulting fees charged by directors totaled approximately $103,000 and $203,000 for the three and six month periods ended June 30, 2020 (three and six month periods ended June 30, 2019 - $100,000 and $200,000). |
The transactions listed above were incurred in the normal course of operations.
Bitfarms Ltd. Q2 2020 MD&A 18
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Accounting Policy Change
Revenue recognition
The Group, through Backbone, operates server farms supporting the verification and validation of blockchain transactions in exchange for cryptocurrency, referred to as “cryptocurrency mining”. During the period, the Group changed its accounting policy with respect to revenue recognition from cryptocurrency mining and subsequent measurement of cryptocurrency on hand. Prior to this change, the Group accounted for cryptocurrency as inventory until it was sold in exchange for fiat currency. Inventories of cryptocurrency were measured at the lower of cost to produce and net realizable value. The cost of cryptocurrency inventory was comprised of the costs incurred with respect to the validation and verification of blockchain transactions, consisting mainly of electricity and depreciation. Net realizable value was measured as the estimated selling price in the ordinary course of business less estimated costs necessary to make the sale. Revenue was recognized when the cryptocurrency was converted into fiat currency or when the cryptocurrency was transferred to another party in settlement of a debt to this party. The Group now recognizes revenue upon receipt of cryptocurrency in exchange for its mining activities at the fair market value of the cryptocurrency received, as described below.
IFRS 15 provides a five step model for identifying revenue from contracts with customers, as follows:
| 1. | Identify the contract with the customer |
| 2. | Identify the performance obligations in the contract |
| 3. | Determine the transaction price |
| 4. | Allocate the transaction price to the performance obligations in the contract |
| 5. | Recognize revenue when the Company satisfies a performance obligation |
The Group has entered into contracts with Mining Pools and has undertaken the performance obligation of providing computing power to the Mining Pool in exchange for non-cash consideration in the form cryptocurrency. The Group measures the non-cash consideration received at the fair market value of the cryptocurrency received. Management estimates fair value 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 previously considered Coinmarketcap to be a Level 1 input under IFRS 13 Fair Value Measurement. However, management has revised this opinion and now considers Coinmarketcap to be a level 2 input as the price represents an average of quoted prices on various markets and not necessarily the Group’s principal market. Any difference between the fair value of cryptocurrency recorded upon receipt from mining activities and the actual realized price upon disposal are recorded as a gain or loss on disposition of cryptocurrency.
Cryptocurrency on hand at the end of a reporting period is accounted for under IAS 38 Intangible Assets, as an intangible asset with an indefinite useful life initially measured at cost, deemed to be the fair value upon receipt as described above, and subsequently measured under the revaluation model. Under the revaluation model, increases in the cryptocurrency’s carrying amount is recognized in other comprehensive income and accumulated in equity under revaluation surplus. However, increases are recognized in profit or loss to the extent that it reverses a revaluation decrease of cryptocurrency previously recognized in profit or loss. The fair value of cryptocurrency on hand at the end of the reporting period is calculated as the quantity of cryptocurrency on hand multiplied by price quoted on Coinmarketcap as of the reporting date.
Bitfarms Ltd. Q2 2020 MD&A 19
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
The Company has continued to classify cryptocurrency on hand at the end of a period as a current asset as management has determined that cryptocurrency markets have sufficient liquidity to allow conversion within the Company’s normal operating cycle.
The Group believes that the revised policy and presentation provide more relevant financial information to the users of the financial statements. The accounting policy change has been applied retrospectively, but the Group’s management has determined that the impact of the accounting policy change in previous periods is not material. The cumulative effect of retrospective application of the accounting policy change on retained earnings as of January 1, 2020 was nil as the Company did not have any cryptocurrency on hand as of December 31, 2019. Furthermore, the Group’s management believes that the disclosures made in previous periods relating to the quantity and fair value of cryptocurrencies mined during the periods, the cost and fair market value of cryptocurrencies on hand at the end of the periods and the proceeds received from disposal of cryptocurrencies during the periods is sufficient to allow users of the financial statements to understand the Company’s financial results. The accounting standards in the cryptocurrency mining industry are still evolving and the Group’s management believes that this accounting policy change is better aligned with current industry practices. Additionally, the Group may be required to re-evaluate their accounting policy with respect to revenue recognition and subsequent remeasurement of cryptocurrency on hand in the event of the issuance of new accounting guidance or a change in the Group’s business practice of regularly disposing of cryptocurrencies.
Recent and Subsequent Events
Bitcoin Halving Event
As described in the section titled Other Risks on page 18 of this MD&A the Bitcoin Block Reward decreased from 12.5 to 6.25 Bitcoin per Block. As of the date of this MD&A the Company’s management has observed some market normalization, however the normalization has not yet reached pre-halving profitability levels and the future financial impact cannot be estimated.
Dominion Loan Extension and Modification
In August 2020, the Company entered into a letter agreement with Dominion Capital where the Company will issue 1,000,000 shares to Dominion Capital in exchange for amending the maturity date of Tranche #2 from April 2021 to November 2021. The 10% make-whole clause described in Note 10 will remain in effect for the 6 month extension of the loan. In addition, a conversion feature was added to Tranche #3, maturing in June 2021, providing Dominion Capital with the option to convert all or a portion of the loan tranche into shares at a price of $0.59 USD per share. The conversion feature may be exercised by Dominion Capital at any time until the loan matures in June 2021. The letter agreement entered into by the Company and Dominion Capital is contingent upon regulatory approval as well as the completion of final loan documents.
Bitfarms Ltd. Q2 2020 MD&A 20
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Mining Hardware Lease Agreement
In August 2020, the Company entered into a two year lease agreement for approximately $1.8 of mining hardware with expected delivery in late August 2020. The lease contains a bargain purchase option where the Company may purchase the leased equipment for $1.00 USD upon expiration of the lease agreement. Payments are approximately $21,000/week for 104 weeks.
Caution Regarding Forward-Looking Statements
This MD&A contains forward-looking statements about the Company’s objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this MD&A include, but are not limited to, statements with respect to the Company’s anticipated future results, events and plans, strategic initiatives, future liquidity, and planned capital investments. Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may”, “maintain”, “achieve”, “grow”, “should” and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company’s current estimates, beliefs and assumptions, which are based on management’s perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company’s expectation of operating and financial performance in 2020 is based on certain assumptions including assumptions about operational growth, anticipated cost savings, operating efficiencies, anticipated benefits from strategic initiatives, future liquidity, and planned capital investments. The Company’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements. Such risks and uncertainties include:
| ● | Bitcoin halving event; |
| ● | COVID 19 pandemic; |
| ● | the availability of financing opportunities and risks associated with economic conditions, including Bitcoin price and Bitcoin network difficulty; |
| ● | the ability to service debt obligations and maintain flexibility in respect of debt covenants; |
| ● | the speculative and competitive nature of the technology sector; |
| ● | dependency in continued growth in blockchain and cryptocurrency usage; |
| ● | limited operating history and share price fluctuations; |
| ● | cybersecurity threats and hacking; |
| ● | controlling shareholder risk; |
| ● | risk related to technological obsolescence and difficulty in obtaining hardware; |
| ● | economic dependence on regulated terms of service and electricity rates; |
| ● | permits and licenses; |
| ● | server failures; |
| ● | global financial conditions; |
| ● | tax consequences; |
| ● | environmental regulations and liability; |
Bitfarms Ltd. Q2 2020 MD&A 21
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
| ● | erroneous transactions and human error; |
| ● | facility developments; |
| ● | non-availability of insurance; |
| ● | loss of key employees; |
| ● | lawsuits and other legal proceedings and challenges; |
| ● | conflict of interests with directors and management; |
| ● | political and regulatory risk; and |
| ● | other factors beyond the Company’s control. |
The above is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company’s materials filed with the Canadian Securities Authorities, including the Company’s annual MD&A dated April 29, 2020. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company’s expectations only as of the date of this MD&A. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Caution Regarding Non-IFRS Financial Performance Measures
This MD&A makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including "EBITDA," “EBITDA margin,” "Adjusted EBITDA," “Adjusted EBITDA margin,” “Gross mining profit,” and "Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenue. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; and (iv) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenue. “Gross mining profit” is defined as Revenue minus energy and infrastructure expenses for the Backbone segment of the Company. "Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenue for the Backbone segment of the Company.
Bitfarms Ltd. Q2 2020 MD&A 22
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. Reconciliations from IFRS measures to non-IFRS measures are included in pages 8, 9, 10 and 11.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company and its subsidiaries is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. In designing such controls, it should be recognized that due to inherent limitations, any control, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect misstatements. Additionally, management is required to use judgment in evaluating controls and procedures.
Bitfarms Ltd. Q2 2020 MD&A 23
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Glossary of Terms
ASIC: ASIC stands for Application Specific Integrated Circuit and refers primarily to specific computer devices designed to solve the SHA-256 algorithm, as well as other machines used in the mining of Litecoin which use the Scrypt algorithm.
Bitcoin: Bitcoin is a decentralized digital currency that is not controlled by any centralized authority (e.g. a government, financial institution or regulatory organization) that can be sent from user to user on the Bitcoin network without the need for intermediaries to clear transactions. Transactions are verified through the process of Mining and recorded in a public ledger known as the Blockchain. Bitcoin is created when the Bitcoin network issues Block Rewards through the Mining process.
Block Reward: A Bitcoin block reward refers to the new bitcoins that are awarded by the Blockchain network to eligible cryptocurrency miners for each block they successfully mine. The current block reward is 6.25 Bitcoin per block.
Blockchain: A Blockchain is a cloud-based public ledger that exists on computers that participate on the network globally. The Blockchain grows as new sets of data, or 'blocks', are added to it through Mining. Each block contains a timestamp and a link to the previous block, such that the series of blocks form a continuous chain. Given that each block has a separate hash and each hash requires information from the previous block, altering information an established block would require recalculating all the hashes on the Blockchain which would require an enormous and impracticable amount of computing power. As a result, once a block is added to the Blockchain it is very difficult to edit and impossible to delete.
Hash: A hash is a function that converts or maps an input of letters and numbers into an encrypted output of a fixed length, which outputs are often referred to as hashes. A hash is created using an algorithm. The algorithm used in the validation of Bitcoin transactions is the SHA-256 algorithm.
Hashrate: Hashrate refers to the number of hash operations performed per second and is a measure of computing power in Mining cryptocurrency.
Megawatt: A megawatt is 1,000 kilowatts of electricity and, in the industry of cryptocurrency mining, is typically a reference to the number of megawatts of electricity per hour that is available for use.
Miners: ASICs used by the Company to perform Mining.
Mining: Mining refers to the process of using specialized computer hardware, and in the case of the Company, ASICs, to perform mathematical calculations to confirm transactions and increase security for the Bitcoin Blockchain. As a reward for their services, Bitcoin Miners collect transaction fees for the transactions they confirm, along with newly created Bitcoins as Block Rewards.
Mining Pool: A mining pool is a group of cryptocurrency miners who pool their computational resources, or Hashrate, in order to increase the probability of finding a block on the Bitcoin Blockchain. Mining pools administer regular payouts to mitigate the risk of Miners operating for a prolonged period of time without finding a block.
Bitfarms Ltd. Q2 2020 MD&A 24
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2020 Report Date: August 28, 2020 | |
Network Difficulty: Network difficulty is a unitless measure of how difficult it is to find a hash below a given target. The Bitcoin network protocol automatically adjusts Network Difficulty by changing the target every 2,016 blocks hashed based on the time it took for the total computing power used in Bitcoin mining to solve the previous 2,016 blocks such that the average time to solve each block is ten minutes.
Network Hashrate: Network Hashrate refers to the total global Hashrate (and related computing power) used in Mining for a given cryptocurrency.
Petahash: One quadrillion (1,000,000,000,000,000) hashes per second or one thousand Terahash.
SHA-256: SHA stands for Secure Hash Algorithm. The SHA-256 algorithm was designed by the US National Security Agency and is the cryptographic hash function used within the Bitcoin network to validate transactions on the Bitcoin Blockchain.
Terahash: One trillion (1,000,000,000,000) hashes per second.
Bitfarms Ltd. Q2 2020 MD&A 25
Exhibit 99.49
FORM 52-109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Emiliano Grodzki, Chief Executive Officer of Bitfarms Ltd., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Bitfarms Ltd. (the “issuer”) for the interim period ended June 30, 2020. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| Date: August 28, 2020 | |
| “Emiliano Grodzki” | |
| Emiliano Grodzki | |
| Chief Executive Officer |
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
| I. | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| II. | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Exhibit 99.50
FORM 52-109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, John Rim, Chief Financial Officer of Bitfarms Ltd., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Bitfarms Ltd. (the “issuer”) for the interim period ended June 30, 2020. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: August 28, 2020
| “John Rim” | |
| John Rim | |
| Chief Financial Officer |
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
| I. | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| II. | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Exhibit 99.51
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
August 31, 2020.
Item 3 News Release
The press release attached as Schedule “A” was disseminated on August 31, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
Nicolas Bonta
Chairman & Director
Bitfarms Ltd.
Item 9 Date of Report
August 31, 2020.
Schedule “A”
Bitfarms Announces Changes in Management and Board of Directors
Toronto, Ontario and Brossard, Québec (August 31, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is pleased to announce changes in strategic leadership and Board members intended to further enhance the implementation of the Company’s strategies for growth and the resignation of John Rim, COO & CFO.
Mr. Geoffrey Morphy has been appointed Executive Vice-President – Finance, Administration & Corporate Development, effective immediately. Geoffrey joined the board of Bitfarms on May 19, 2020 and has quickly established himself as a trusted advisor. As his contributions became apparent, an executive leadership role for Geoffrey was determined to be most beneficial to the Company. In his role, Geoffrey will lead corporate development strategy, internal budgeting and capital allocation analysis, and oversee corporate and investor relations initiatives.
Mr. Nicolas Bonta, Chairman of Bitfarms, commented, “Geoffrey has established himself as a true partner in our business. He has shared many insights and has immersed himself in our ongoing work. His experience and network will provide strategic support and enhance the value of the Company. We look forward to his contributions as a full-time executive in a senior leadership role”.
Mr. Morphy has more than 30 years in cross-border and international commercial and corporate structuring and finance experience. He has held senior positions of banks and corporate advisory firms, such as the Farber Financial Group, ABN Amro Bank N.V. and its subsidiary LaSalle Bank, as well as Comerica Bank. During the past three years Mr. Morphy was the Co-CEO of a Toronto/Montreal based turn-around fund and, until recently, was the Vice-President, Corporate Development of a TSX listed company. In this capacity, he was part of its senior management team and was responsible for strategy, new investments and active portfolio management. He serves or has served on the boards of several private and publicly traded companies located in Canada, the United States, and Europe. Mr. Morphy holds a B.Comm. from Dalhousie University and earned the ICD.D designation in 2019.
Mr. Morphy has resigned his position as Director of the Company to facilitate his role as a senior officer.
With great respect and appreciation, Bitfarms announces the resignation of John Rim as Chief Operating Officer and Chief Financial Officer of the Company, to pursue another position in an unrelated industry. Mr. Rim will continue in his role until September 30, 2020, to ensure an orderly transition.
The Company thanks Mr. Rim for his invaluable service and wishes him well in his future endeavors. John has been instrumental in the establishment of the business of Bitfarms and the listing and successful completion of financings and other corporate initiatives. Mr. Nicolas Bonta, Chairman of Bitfarms, commented, “For the last two years John has worked very hard and assisted the founders of Bitfarms to establish the Company and complete milestones. In addition to his professional skill, we want to highlight his collegial nature and sincerely wish him the greatest of success in his new position. John Rim will always be part of the history of Bitfarms”.
Mr. Rim commented: “It is with a heavy heart that I leave the amazing team at Bitfarms to pursue another opportunity. I have thoroughly enjoyed working with the current team to build a culture of teamwork, performance and success. I believe the Company is in great hands and it is well positioned financially and operationally at an extremely exciting time in its development. I am very confident that Bitfarms will continue to deliver value for shareholders”.
A search is actively underway for a full-time Chief Financial Officer. Further announcements will be made.
The Company is also pleased to announce the appointment of Andres Finkielsztain as a Director of the Company, effective immediately. Mr. Nicolas Bonta, Chairman of Bitfarms, commented, “We are very excited to expand our board with Mr. Finkielsztain. The stewardship of our business will be enhanced and our ability to make the necessary decisions to implement our strategies will have additional experience and resources”.
Mr. Finkielsztain is the Founding Managing Partner of FinkWald LLC, a private investment office specializing in private equity, real estate, media, and technology. He is also the co-head of the Special Situations division at Banco Industrial in Argentina, where he analyzes and provides financing solutions to Argentinean-based companies and institutions. Mr. Finkielsztain previously served as a financial advisor for Soros Brothers Investments (SBI), a private investment office founded in 2011 by Alexander and Gregory Soros, and as an analyst for Emerging Markets at Soros Fund Management LLC. Mr. Finkielsztain also worked at J.P. Morgan for over 10 years in various capacities within Asset Management, including the role of Global Investment Opportunity and Emerging Markets Specialist. Mr. Finkielsztain graduated with a BA in Economics from Bard College where he served as the President of a Latin American organization.
In addition, pursuant to the Company’s shareholder approved Stock Option Plan, stock options have been granted to certain officers and directors of the Company to purchase 1,200,000 Common shares of the Company at an exercise price of $0.43 per share for a term of five years with service based vesting provisions to support retention. Following the grant of stock options, the Company has a total of 10,752,500 options outstanding representing approximately 12.7% of the outstanding common shares of the Company.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
2
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; , an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.52
Bitfarms Announces Changes in Management and Board of Directors
Toronto, Ontario and Brossard, Québec (August 31, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is pleased to announce changes in strategic leadership and Board members intended to further enhance the implementation of the Company’s strategies for growth and the resignation of John Rim, COO & CFO.
Mr. Geoffrey Morphy has been appointed Executive Vice-President – Finance, Administration & Corporate Development, effective immediately. Geoffrey joined the board of Bitfarms on May 19, 2020 and has quickly established himself as a trusted advisor. As his contributions became apparent, an executive leadership role for Geoffrey was determined to be most beneficial to the Company. In his role, Geoffrey will lead corporate development strategy, internal budgeting and capital allocation analysis, and oversee corporate and investor relations initiatives.
Mr. Nicolas Bonta, Chairman of Bitfarms, commented, “Geoffrey has established himself as a true partner in our business. He has shared many insights and has immersed himself in our ongoing work. His experience and network will provide strategic support and enhance the value of the Company. We look forward to his contributions as a full-time executive in a senior leadership role”.
Mr. Morphy has more than 30 years in cross-border and international commercial and corporate structuring and finance experience. He has held senior positions of banks and corporate advisory firms, such as the Farber Financial Group, ABN Amro Bank N.V. and its subsidiary LaSalle Bank, as well as Comerica Bank. During the past three years Mr. Morphy was the Co-CEO of a Toronto/Montreal based turn-around fund and, until recently, was the Vice-President, Corporate Development of a TSX listed company. In this capacity, he was part of its senior management team and was responsible for strategy, new investments and active portfolio management. He serves or has served on the boards of several private and publicly traded companies located in Canada, the United States, and Europe. Mr. Morphy holds a B.Comm. from Dalhousie University and earned the ICD.D designation in 2019.
Mr. Morphy has resigned his position as Director of the Company to facilitate his role as a senior officer.
With great respect and appreciation, Bitfarms announces the resignation of John Rim as Chief Operating Officer and Chief Financial Officer of the Company, to pursue another position in an unrelated industry. Mr. Rim will continue in his role until September 30, 2020, to ensure an orderly transition.
The Company thanks Mr. Rim for his invaluable service and wishes him well in his future endeavors. John has been instrumental in the establishment of the business of Bitfarms and the listing and successful completion of financings and other corporate initiatives. Mr. Nicolas Bonta, Chairman of Bitfarms, commented, “For the last two years John has worked very hard and assisted the founders of Bitfarms to establish the Company and complete milestones. In addition to his professional skill, we want to highlight his collegial nature and sincerely wish him the greatest of success in his new position. John Rim will always be part of the history of Bitfarms”.
Mr. Rim commented: “It is with a heavy heart that I leave the amazing team at Bitfarms to pursue another opportunity. I have thoroughly enjoyed working with the current team to build a culture of teamwork, performance and success. I believe the Company is in great hands and it is well positioned financially and operationally at an extremely exciting time in its development. I am very confident that Bitfarms will continue to deliver value for shareholders”.
A search is actively underway for a full-time Chief Financial Officer. Further announcements will be made.
The Company is also pleased to announce the appointment of Andres Finkielsztain as a Director of the Company, effective immediately. Mr. Nicolas Bonta, Chairman of Bitfarms, commented, “We are very excited to expand our board with Mr. Finkielsztain. The stewardship of our business will be enhanced and our ability to make the necessary decisions to implement our strategies will have additional experience and resources”.
Mr. Finkielsztain is the Founding Managing Partner of FinkWald LLC, a private investment office specializing in private equity, real estate, media, and technology. He is also the co-head of the Special Situations division at Banco Industrial in Argentina, where he analyzes and provides financing solutions to Argentinean-based companies and institutions. Mr. Finkielsztain previously served as a financial advisor for Soros Brothers Investments (SBI), a private investment office founded in 2011 by Alexander and Gregory Soros, and as an analyst for Emerging Markets at Soros Fund Management LLC. Mr. Finkielsztain also worked at J.P. Morgan for over 10 years in various capacities within Asset Management, including the role of Global Investment Opportunity and Emerging Markets Specialist. Mr. Finkielsztain graduated with a BA in Economics from Bard College where he served as the President of a Latin American organization.
In addition, pursuant to the Company’s shareholder approved Stock Option Plan, stock options have been granted to certain officers and directors of the Company to purchase 1,200,000 Common shares of the Company at an exercise price of $0.43 per share for a term of five years with service based vesting provisions to support retention. Following the grant of stock options, the Company has a total of 10,752,500 options outstanding representing approximately 12.7% of the outstanding common shares of the Company.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
2
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; , an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.53
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
September 14, 2020.
Item 3 News Release
The press release attached as Schedule “A” was disseminated on September 14, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
Nicolas Bonta
Chairman & Director Bitfarms Ltd.
Item 9 Date of Report
September 14, 2020.
Schedule "A"
Bitfarms Announces Amendment to Notes Restructuring and Provides Operational Update
Toronto, Ontario and Brossard, Québec (September 14, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is providing an update with respect to its previously issued press release dated August 20, 2020, in which it disclosed that it had reached an agreement with Dominion Capital LLC (“Dominion”) to amend certain terms and conditions of two of its US$5,000,000 loan tranches. Further, Bitfarms announces that the additional leased 1,000 new generation miners disclosed in the press release dated August 20, 2020 have been installed and are now fully operational.
Restructuring of Existing Notes
The Company has entered into an agreement with Dominion to amend its second loan tranche of US$5,000,000, to extend the maturity date from the original due date of April 17, 2021 to November 1, 2021 (the “Tranche #2 Restructuring”). As consideration for the Tranche #2 Restructuring, the Company will issue 1 million shares to Dominion which shares are subject to the statutory resale restrictions including the Canadian hold period of four months and one day, and reduce the term of the 1,666,667 warrants, exercisable at USD$0.40 from the original expiry date of April 16, 2024 to November 1, 2021.
The Company has also entered into agreement with Dominion to restructure its third loan tranche of US$5,000,000 due June 20, 2021 (the “Tranche #3 Restructuring”). Pursuant to the Tranche #3 Restructuring, the third loan tranche of US$5,000,000 will be made convertible, at the option of Dominion, into common shares of Bitfarms at a fixed conversion of US$0.59 per share, a premium of approximately 100% to the current market price of the Company’s shares. Further pursuant to the Tranche #3 Restructuring, the previously issued 1,666,667 warrants exercisable at USD$0.40 per share, expiring on June 20, 2024 will be cancelled. The Company will issue to Dominion 1,666,667 warrants at an exercise price of USD$0.304 (CAD$0.40) per share, expiring on June 20, 2021.
The remainder of the transactional details remain unchanged. All amendments including the Tranche #2 Restructuring and the Tranche #3 Restructuring remain subject to TSXV approval and closing.
Operational Update
Further to the Company’s announcement made on August 20th, the Company reports that it has installed all 1,000 of its leased WhatsMiner 31S mining rigs which are generating approximately 82 petahash per second of computing power.
The installation of the 1,000 newly leased WhatsMiner M31S miners follows the Company’s overall retooling strategy planned for 2020 to optimize its existing mining infrastructure by upgrading older generation miners to new generation miners. With the latest batch of new miners installed, the Company’s overall mining efficiency is now approximately 17.7 petahash per MW. The Company plans to continue to upgrade as it secures additional equipment lease financing and will provide further operational updates as they occur.
2
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
3
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; , an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
4
Exhibit 99.54
Bitfarms Announces Amendment to Notes Restructuring and Provides Operational Update
Toronto, Ontario and Brossard, Québec (September 14, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is providing an update with respect to its previously issued press release dated August 20, 2020, in which it disclosed that it had reached an agreement with Dominion Capital LLC (“Dominion”) to amend certain terms and conditions of two of its US$5,000,000 loan tranches. Further, Bitfarms announces that the additional leased 1,000 new generation miners disclosed in the press release dated August 20, 2020 have been installed and are now fully operational.
Restructuring of Existing Notes
The Company has entered into an agreement with Dominion to amend its second loan tranche of US$5,000,000, to extend the maturity date from the original due date of April 17, 2021 to November 1, 2021 (the “Tranche #2 Restructuring”). As consideration for the Tranche #2 Restructuring, the Company will issue 1 million shares to Dominion which shares are subject to the statutory resale restrictions including the Canadian hold period of four months and one day, and reduce the term of the 1,666,667 warrants, exercisable at USD$0.40 from the original expiry date of April 16, 2024 to November 1, 2021.
The Company has also entered into agreement with Dominion to restructure its third loan tranche of US$5,000,000 due June 20, 2021 (the “Tranche #3 Restructuring”). Pursuant to the Tranche #3 Restructuring, the third loan tranche of US$5,000,000 will be made convertible, at the option of Dominion, into common shares of Bitfarms at a fixed conversion of US$0.59 per share, a premium of approximately 100% to the current market price of the Company’s shares. Further pursuant to the Tranche #3 Restructuring, the previously issued 1,666,667 warrants exercisable at USD$0.40 per share, expiring on June 20, 2024 will be cancelled. The Company will issue to Dominion 1,666,667 warrants at an exercise price of USD$0.304 (CAD$0.40) per share, expiring on June 20, 2021.
The remainder of the transactional details remain unchanged. All amendments including the Tranche #2 Restructuring and the Tranche #3 Restructuring remain subject to TSXV approval and closing.
Operational Update
Further to the Company’s announcement made on August 20th, the Company reports that it has installed all 1,000 of its leased WhatsMiner 31S mining rigs which are generating approximately 82 petahash per second of computing power.
The installation of the 1,000 newly leased WhatsMiner M31S miners follows the Company’s overall retooling strategy planned for 2020 to optimize its existing mining infrastructure by upgrading older generation miners to new generation miners. With the latest batch of new miners installed, the Company’s overall mining efficiency is now approximately 17.7 petahash per MW. The Company plans to continue to upgrade as it secures additional equipment lease financing and will provide further operational updates as they occur.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
2
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; , an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.55
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
September 21, 2020.
Item 3 News Release
The press release attached as Schedule “A” was disseminated on September 21, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
Nicolas Bonta
Chairman & Director Bitfarms Ltd.
Item 9 Date of Report
September 21, 2020.
Schedule "A"
Bitfarms Announces - Lease Financing for 2,000 WhatsMiner M31S Miners Adding 144 Petahash of Computing Power - Letter of Intent with BlockFills for Lease Financing of 7,000 Additional New Generation Miners – Completion of Note Restructuring
Toronto, Ontario and Brossard, Québec (September 21, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is pleased to announce that it has entered into an equipment lease with BlockFills for 2,000 WhatsMiner M31S miners to be delivered and installed by the end of October 2020. The Company is also pleased to announce that is has signed a non-binding Letter of Intent (“LOI”) with BlockFills, the first electronic, off exchange, digital liquidity provider, to provide additional lease financing for approximately 7,000 more new generation miners by the end of 2020.
New Equipment Lease
The Company has entered into an equipment lease with BlockFills for 2,000 WhatsMiner M31S miners for a term of 24 months that carries an implicit annual interest rate of 9.5%. The lease also includes a bargain purchase option which, when exercised, will transfer ownership of the equipment to Bitfarms at end of the lease term for a nominal amount. Bitfarms will make weekly lease payments that will fully retire the capitalized cost of the miners over the term of the lease. The new mining hardware is expected to be fully operational by the end of October and will add approximately 144 petahash per second to the Company's installed computing power as well as consuming approximately 6.6 megawatts ("MW") of electricity.
Lease Financing Partnership with BlockFills
The Company has signed a non-binding LOI with BlockFills to secure additional future lease financing that, with the previously announced leases for 3,000 miners, would total in the range of USD$12 to $15 million and add approximately 800 to 840 PH to the Company’s operations by the end of 2020, subject to mining equipment inventory availability. All future leasing would be for 24 month terms at a 9.5% annual interest rate. In addition, subject to regulatory approval, BlockFills would be provided with up to 1,000,000 warrants (the “Warrants”) in Bitfarms Ltd. at a strike price of USD$0.40 per warrant for at term of two years. Each Warrant would provide the right to acquire one common share of the Company. The number of Warrants will be issued on a pro-rata basis based on a minimum USD$12,000,000 purchase price of equipment leased to Bitfarms. For example, if only $9,000,000 in lease financing is provided, BlockFills would receive 75% of total Warrants, or 750,000 Warrants.
“With the 1,850 miners purchased in June, the 1,000 miners leased in August and the latest lease of 2,000 miners, Bitfarms will have added approximately 360 PH by the end of October and we expect more capacity to be added before the end of 2020. We are thrilled to have partnered with BlockFills to seek further leased equipment in the coming months. With our existing competitively priced electricity infrastructure, we believe we are at a competitive advantage to operations that rely on hosting, and given this strategic partnership with BlockFills, we are firmly positioned to be one of the leading public crypto mining operations in North America, both in terms of computing power and profitability” said Emi Grodzki, Interim CEO of Bitfarms.
Neil van Huis, Director of Sales and OTC Trading at BlockFills added: “BlockFills is pleased to partner with Bitfarms as it continues to execute its growth plans. We were impressed with the quality of operations and the professionalism of their team and we look forward to growing our partnership with the Bitfarms team in the future”.
1
Completion of Note Restructuring
The restructuring agreement with Dominion Capital LLC (“Dominion”) to amend certain terms and conditions of two of the Company’s USD$5,000,000 loan tranches has been completed as announced on August 20, 2020 and September 14, 2020.
The Company and Dominion agreed to amend the second loan tranche of USD$5,000,000, to extend the maturity date from the original due date of April 17, 2021 to November 1, 2021 (the “Tranche #2 Restructuring”). As consideration for the Tranche #2 Restructuring, the Company issued 1 million shares to Dominion, and reduced the term of the 1,666,667 warrants, exercisable at USD$0.40 from the original expiry date of April 16, 2024 to November 1, 2021.
The Company and Dominion also agreed to restructure the third loan tranche of USD$5,000,000 due June 20, 2021 (the “Tranche #3 Restructuring”). Pursuant to the Tranche #3 Restructuring, the third loan tranche of USD$5,000,000 was made convertible, at the option of Dominion, into common shares of Bitfarms at a fixed conversion of USD$USD$0.59 per share, a premium of approximately 100% to the current market price of the Company’s shares. Further pursuant to the Tranche #3 Restructuring, the previously issued 1,666,667 warrants exercisable at USD$0.40 per share, expiring on June 20, 2024 were cancelled. The Company issued to Dominion 1,666,667 warrants at an exercise price of USD$0.304 (CAD$0.40) per share, expiring on June 20, 2021.
The securities issued pursuant to the restructurings are subject to the statutory resale restrictions including the Canadian hold period of four months and one day expiring on January 18, 2021.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
2
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: there is no assurance that the non- binding LOI with BlockFills will close on the terms as announced or at all, or that any such terms will be economic or of benefit to the Company; the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.56
Bitfarms Announces - Lease Financing for 2,000 WhatsMiner M31S Miners Adding 144 Petahash of Computing Power - Letter of Intent with BlockFills for Lease Financing of 7,000 Additional New Generation Miners – Completion of Note Restructuring
Toronto, Ontario and Brossard, Québec (September 21, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is pleased to announce that it has entered into an equipment lease with BlockFills for 2,000 WhatsMiner M31S miners to be delivered and installed by the end of October 2020. The Company is also pleased to announce that is has signed a non-binding Letter of Intent (“LOI”) with BlockFills, the first electronic, off exchange, digital liquidity provider, to provide additional lease financing for approximately 7,000 more new generation miners by the end of 2020.
New Equipment Lease
The Company has entered into an equipment lease with BlockFills for 2,000 WhatsMiner M31S miners for a term of 24 months that carries an implicit annual interest rate of 9.5%. The lease also includes a bargain purchase option which, when exercised, will transfer ownership of the equipment to Bitfarms at end of the lease term for a nominal amount. Bitfarms will make weekly lease payments that will fully retire the capitalized cost of the miners over the term of the lease. The new mining hardware is expected to be fully operational by the end of October and will add approximately 144 petahash per second to the Company’s installed computing power as well as consuming approximately 6.6 megawatts (“MW”) of electricity.
Lease Financing Partnership with BlockFills
The Company has signed a non-binding LOI with BlockFills to secure additional future lease financing that, with the previously announced leases for 3,000 miners, would total in the range of USD$12 to $15 million and add approximately 800 to 840 PH to the Company’s operations by the end of 2020, subject to mining equipment inventory availability. All future leasing would be for 24 month terms at a 9.5% annual interest rate. In addition, subject to regulatory approval, BlockFills would be provided with up to 1,000,000 warrants (the “Warrants”) in Bitfarms Ltd. at a strike price of USD$0.40 per warrant for at term of two years. Each Warrant would provide the right to acquire one common share of the Company. The number of Warrants will be issued on a pro-rata basis based on a minimum USD$12,000,000 purchase price of equipment leased to Bitfarms. For example, if only $9,000,000 in lease financing is provided, BlockFills would receive 75% of total Warrants, or 750,000 Warrants.
“With the 1,850 miners purchased in June, the 1,000 miners leased in August and the latest lease of 2,000 miners, Bitfarms will have added approximately 360 PH by the end of October and we expect more capacity to be added before the end of 2020. We are thrilled to have partnered with BlockFills to seek further leased equipment in the coming months. With our existing competitively priced electricity infrastructure, we believe we are at a competitive advantage to operations that rely on hosting, and given this strategic partnership with BlockFills, we are firmly positioned to be one of the leading public crypto mining operations in North America, both in terms of computing power and profitability” said Emi Grodzki, Interim CEO of Bitfarms.
Neil van Huis, Director of Sales and OTC Trading at BlockFills added: “BlockFills is pleased to partner with Bitfarms as it continues to execute its growth plans. We were impressed with the quality of operations and the professionalism of their team and we look forward to growing our partnership with the Bitfarms team in the future”.
Completion of Note Restructuring
The restructuring agreement with Dominion Capital LLC (“Dominion”) to amend certain terms and conditions of two of the Company’s USD$5,000,000 loan tranches has been completed as announced on August 20, 2020 and September 14, 2020.
The Company and Dominion agreed to amend the second loan tranche of USD$5,000,000, to extend the maturity date from the original due date of April 17, 2021 to November 1, 2021 (the “Tranche #2 Restructuring”). As consideration for the Tranche #2 Restructuring, the Company issued 1 million shares to Dominion, and reduced the term of the 1,666,667 warrants, exercisable at USD$0.40 from the original expiry date of April 16, 2024 to November 1, 2021.
The Company and Dominion also agreed to restructure the third loan tranche of USD$5,000,000 due June 20, 2021 (the “Tranche #3 Restructuring”). Pursuant to the Tranche #3 Restructuring, the third loan tranche of USD$5,000,000 was made convertible, at the option of Dominion, into common shares of Bitfarms at a fixed conversion of USD$USD$0.59 per share, a premium of approximately 100% to the current market price of the Company’s shares. Further pursuant to the Tranche #3 Restructuring, the previously issued 1,666,667 warrants exercisable at USD$0.40 per share, expiring on June 20, 2024 were cancelled. The Company issued to Dominion 1,666,667 warrants at an exercise price of USD$0.304 (CAD$0.40) per share, expiring on June 20, 2021.
The securities issued pursuant to the restructurings are subject to the statutory resale restrictions including the Canadian hold period of four months and one day expiring on January 18, 2021.
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Marc Duchesne
+1.514.277.3508
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
2
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: there is no assurance that the non-binding LOI with BlockFills will close on the terms as announced or at all, or that any such terms will be economic or of benefit to the Company; the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.57
FORM 51-102F3
MATERIAL
CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
October 13, 2020.
Item 3 News Release
The press release attached as Schedule “A” was disseminated on October 13, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
Nicolas Bonta
Chairman & Director Bitfarms Ltd.
Item 9 Date of Report
October 13, 2020.
Schedule “A”
Bitfarms Announces New Lease Financing and setting a Corporate Goal to Exceed 3.0 Exahash by the end of 2021
Bitfarms Announces New Lease Financing for an Additional 1,000 New Generation Miners Adding 72 Petahash of Computing Power by the End of November and setting a Corporate Goal to Exceed 3.0 Exahash by the end of 2021
Toronto, Ontario and Brossard, Québec (October 13, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is pleased to announce that it has entered into an equipment lease with BlockFills for 1,000 WhatsMiner M31S miners to be delivered and installed by the end of November 2020. The 1,000 new Miners are in addition to the non-binding Letter of Intent (“LOI”) with Blockfills, announced on September 21, 2020, to lease approximately 7,000 new generation miners with a cost of US$12 to $15 million. As previously reported, the equipment covered by the LOI represents approximately 800 to 840 petahash per second (“PH”) of new computing capacity to be added to the Company’s operations by the end of 2020.
New Equipment Lease
On October 8, 2020, the Company entered an equipment lease with BlockFills, for an additional 1,000 WhatsMiner M31S miners for a term of 24 months carrying an implicit annual interest rate of 9.5%. The lease also includes a bargain purchase option which, when exercised, will transfer ownership of the equipment to Bitfarms at end of the lease term for a nominal amount. Bitfarms will make weekly lease payments that will fully retire the capitalized cost of the miners over the term of the lease. The new mining hardware is expected to be fully operational by the end of November and will add approximately 72 PH to the Company’s installed computing power as well as consuming approximately 3.5 megawatts (“MW”) of electricity.
Summary of Aggregate Computing Power Expansion in 2020
Announced:
| ● | June 2020: | Purchased 1,847 WhatsMiner M20S adding 133 PH of computing power | ||
| ● | August 2020: | Leased 1,000 WhatsMiner M31S+ adding 82 PH of computing power | ||
| ● | October 2020: | Leased 2,000 WhatsMiner M31S adding 144 PH of computing power | ||
| ● | November 2020: | Leased 1,000 WhatsMiner M31S adding 72 PH of computing power |
This represents 431 PH of total growth on a year-to-date basis which represents a 55% increase over the Company’s starting capacity of 780 PH as of January 1, 2020. The new miners improve Bitfarms’ computing power-to-electricity efficiency ratio from 14.4 PH/MW to 18.5 PH/MW and bring our average cost per Bitcoin to approximately US$7,200 (based on market conditions on the 12th of October 2020 with a Bitcoin price of US$11,400).
2
Additional Computing Power Expansion Expected in 2020 per LOI with BlockFills
| ● | November 2020: | Lease of 4,000 WhatsMiner M31S+ adding 328 PH of computing power | ||
| ● | December 2020: | Lease of approx. 2,000 WhatsMiner M30S adding 176 PH of computing power |
After completion of all leases with BlockFills as per the terms of the LOI, Bitfarms’ estimated expansion in 2020 will total 935 PH. After retirement and sale of previous generation mining equipment, Bitfarms’ entire mining equipment fleet will consist of over 17,000 new generation miners representing 1.31 EH of computational power and an overall efficiency of 21.86 PH/MW, placing it amongst the top of all publicly traded mining operations.
With the successful installation of this new computational capacity, Bitfarms expects that it will bring its average cost per Bitcoin down to approximately US$6,000 by the end of the year (based on market conditions on the 12th of October 2020 with a Bitcoin price of US$11,400).
Emiliano Grodzki, Interim Chief Executive Officer of Bitfarms added, “Bitfarms continues to solidify its position as the industry leader in terms of operational hash rate, efficiency, and financial performance. The new equipment will fully utilize the installed infrastructure at our five high-powered data centers and will immediately be accretive to our financial performance. Unlike many of our competitors, Bitfarms operates all its computing power through its own facilities with wholesale energy prices avoiding costly hosting arrangements that may be terminated by the host with short customary notice periods. This positions Bitfarms uniquely as a sustainable and long-term mining operation.”
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Geoff Morphy
+1.647.500.7440
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
3
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
4
Exhibit 99.58
Bitfarms Announces New Lease Financing and setting a Corporate Goal to Exceed 3.0 Exahash by the end of 2021
Bitfarms Announces New Lease Financing for an Additional 1,000 New Generation Miners Adding 72 Petahash of Computing Power by the End of November and setting a Corporate Goal to Exceed 3.0 Exahash by the end of 2021
Toronto, Ontario and Brossard, Québec (October 13, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) is pleased to announce that it has entered into an equipment lease with BlockFills for 1,000 WhatsMiner M31S miners to be delivered and installed by the end of November 2020. The 1,000 new Miners are in addition to the non-binding Letter of Intent (“LOI”) with Blockfills, announced on September 21, 2020, to lease approximately 7,000 new generation miners with a cost of US$12 to $15 million. As previously reported, the equipment covered by the LOI represents approximately 800 to 840 petahash per second (“PH”) of new computing capacity to be added to the Company’s operations by the end of 2020.
New Equipment Lease
On October 8, 2020, the Company entered an equipment lease with BlockFills, for an additional 1,000 WhatsMiner M31S miners for a term of 24 months carrying an implicit annual interest rate of 9.5%. The lease also includes a bargain purchase option which, when exercised, will transfer ownership of the equipment to Bitfarms at end of the lease term for a nominal amount. Bitfarms will make weekly lease payments that will fully retire the capitalized cost of the miners over the term of the lease. The new mining hardware is expected to be fully operational by the end of November and will add approximately 72 PH to the Company’s installed computing power as well as consuming approximately 3.5 megawatts (“MW”) of electricity.
Summary of Aggregate Computing Power Expansion in 2020
Announced:
| ● | June 2020: | Purchased 1,847 WhatsMiner M20S adding 133 PH of computing power |
| ● | August 2020: | Leased 1,000 WhatsMiner M31S+ adding 82 PH of computing power |
| ● | October 2020: | Leased 2,000 WhatsMiner M31S adding 144 PH of computing power |
| ● | November 2020: | Leased 1,000 WhatsMiner M31S adding 72 PH of computing power |
This represents 431 PH of total growth on a year-to-date basis which represents a 55% increase over the Company’s starting capacity of 780 PH as of January 1, 2020. The new miners improve Bitfarms’ computing power-to-electricity efficiency ratio from 14.4 PH/MW to 18.5 PH/MW and bring our average cost per Bitcoin to approximately US$7,200 (based on market conditions on the 12th of October 2020 with a Bitcoin price of US$11,400).
Additional Computing Power Expansion Expected in 2020 per LOI with BlockFills
| ● | November 2020: | Lease of 4,000 WhatsMiner M31S+ adding 328 PH of computing power |
| ● | December 2020: | Lease of approx. 2,000 WhatsMiner M30S adding 176 PH of computing power |
After completion of all leases with BlockFills as per the terms of the LOI, Bitfarms’ estimated expansion in 2020 will total 935 PH. After retirement and sale of previous generation mining equipment, Bitfarms’ entire mining equipment fleet will consist of over 17,000 new generation miners representing 1.31 EH of computational power and an overall efficiency of 21.86 PH/MW, placing it amongst the top of all publicly traded mining operations.
With the successful installation of this new computational capacity, Bitfarms expects that it will bring its average cost per Bitcoin down to approximately US$6,000 by the end of the year (based on market conditions on the 12th of October 2020 with a Bitcoin price of US$11,400).
Emiliano Grodzki, Interim Chief Executive Officer of Bitfarms added, “Bitfarms continues to solidify its position as the industry leader in terms of operational hash rate, efficiency, and financial performance. The new equipment will fully utilize the installed infrastructure at our five high-powered data centers and will immediately be accretive to our financial performance. Unlike many of our competitors, Bitfarms operates all its computing power through its own facilities with wholesale energy prices avoiding costly hosting arrangements that may be terminated by the host with short customary notice periods. This positions Bitfarms uniquely as a sustainable and long-term mining operation.”
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Geoff Morphy
+1.647.500.7440
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
2
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.59
FORM 51-102F3
MATERIAL CHANGE
REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
October 26, 2020.
Item 3 News Release
The press release attached as Schedule “A” was disseminated on October 26, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
Nicolas Bonta
Chairman & Director Bitfarms Ltd.
Item 9 Date of Report
October 26, 2020.
Schedule "A"
Bitfarms Announces Memorandum of Understanding for 200 Megawatts (“MW”) of Electricity in South America at Average Price of US$0.02 per kWh
Toronto, Ontario and Brossard, Québec (October 26, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV: BITF) is pleased to announce that it has signed a non-binding memorandum of understanding (“MOU”) with a private energy producer to secure exclusive use of up to 200 MW of electricity in South America at an average price of US 2 cents per kilowatt hour (“kWh”).
200 MW of Low-Cost Electricity in South America
Under the terms of the non-binding MOU, Bitfarms will be provided with up to 200 MW of electricity capacity with no deposits nor any purchase commitments. The direct price of the electricity will average US 2 cents per kWh. The first 60 MW of power is to be provided from an existing power plant which allows for a low incremental cost of electrical infrastructure required to be made by the Company. Bitfarms is in discussions with local engineering and project management firms to develop initial capital investment cost estimates to operationalize the first 60 MW of mining infrastructure.
Emiliano Grodzki, Interim CEO of Bitfarms, commented, “At 2 cents per kWh, even the previous generation Bitmain S9 mining rig produces approximately the same gross mining margin before amortization costs as the newer Bitmain S17+ at 4 cents per kWh under current Bitcoin mining market conditions. This simple comparison demonstrates the significant competitive advantage that results from having access to a large amount of low-cost power.”
“As previously announced, during the second fiscal quarter of 2020, Bitfarm’s average cost of electricity to mine a Bitcoin (in USD) was US$5,075”, noted Mr. Grodzki. “Under the terms of the MOU and under the same prevailing conditions, our cost would have been about half which would be about US$2,538 per Bitcoin before amortization of infrastructure costs. This simple example demonstrates the significant competitive advantage that results from having access to a large amount of low-cost power. At this level, this would make Bitfarms one of the most low- cost Bitcoin miners in the world.”
Mr. Grodzki added, “Securing the lowest electricity cost possible, without the need for capital intensive deposits and long-term purchase commitments, in a jurisdiction without heavy tariffs on mining equipment, is vital to Bitfarms’ strategic goals of long-term sustainability and global market leadership. We are extremely pleased to have taken this important step to potentially secure 200 MW of electricity at globally competitive rates and look forward to operationalizing it in the near to medium term.”
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
2
For investor and media inquiries, please contact:
L. Geoffrey Morphy
+1.647.500.7440
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
3
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others; the ability to enter into a binding agreement in respect of the MOU on the terms as announced or at all, and to implement the capital infrastructure on terms which are economic and successfully operate the computing centre in a foreign jurisdiction; risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
4
Exhibit 99.60
Bitfarms Announces Memorandum of Understanding for 200 Megawatts (“MW”) of Electricity in South America at Average Price of US$0.02 per kWh
Toronto, Ontario and Brossard, Québec (October 26, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV: BITF) is pleased to announce that it has signed a non-binding memorandum of understanding (“MOU”) with a private energy producer to secure exclusive use of up to 200 MW of electricity in South America at an average price of US 2 cents per kilowatt hour (“kWh”).
200 MW of Low-Cost Electricity in South America
Under the terms of the non-binding MOU, Bitfarms will be provided with up to 200 MW of electricity capacity with no deposits nor any purchase commitments. The direct price of the electricity will average US 2 cents per kWh. The first 60 MW of power is to be provided from an existing power plant which allows for a low incremental cost of electrical infrastructure required to be made by the Company. Bitfarms is in discussions with local engineering and project management firms to develop initial capital investment cost estimates to operationalize the first 60 MW of mining infrastructure.
Emiliano Grodzki, Interim CEO of Bitfarms, commented, “At 2 cents per kWh, even the previous generation Bitmain S9 mining rig produces approximately the same gross mining margin before amortization costs as the newer Bitmain S17+ at 4 cents per kWh under current Bitcoin mining market conditions. This simple comparison demonstrates the significant competitive advantage that results from having access to a large amount of low-cost power.”
“As previously announced, during the second fiscal quarter of 2020, Bitfarm’s average cost of electricity to mine a Bitcoin (in USD) was US$5,075”, noted Mr. Grodzki. “Under the terms of the MOU and under the same prevailing conditions, our cost would have been about half which would be about US$2,538 per Bitcoin before amortization of infrastructure costs. This simple example demonstrates the significant competitive advantage that results from having access to a large amount of low-cost power. At this level, this would make Bitfarms one of the most low-cost Bitcoin miners in the world.”
Mr. Grodzki added, “Securing the lowest electricity cost possible, without the need for capital intensive deposits and long-term purchase commitments, in a jurisdiction without heavy tariffs on mining equipment, is vital to Bitfarms’ strategic goals of long-term sustainability and global market leadership. We are extremely pleased to have taken this important step to potentially secure 200 MW of electricity at globally competitive rates and look forward to operationalizing it in the near to medium term.”
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
L. Geoffrey Morphy
+1.647.500.7440
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
2
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others; the ability to enter into a binding agreement in respect of the MOU on the terms as announced or at all, and to implement the capital infrastructure on terms which are economic and successfully operate the computing centre in a foreign jurisdiction; risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.61
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
October 28, 2020.
Item 3 News Release
The press release attached as Schedule “A” was disseminated on October 28, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
Nicolas Bonta
Chairman & Director
Bitfarms Ltd.
Item 9 Date of Report
October 28, 2020.
Schedule “A”
Bitfarms Announces Appointment of Mauro Ferrara as Interim Chief Financial Officer and Corporate Secretary
Toronto, Ontario and Brossard, Québec (October 28, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) the largest publicly traded Bitcoin mining company in North America in the second quarter of 2020 in terms of operational petahash, is pleased to announce that it has appointed Mauro Ferrara as its Interim Chief Financial Officer and Corporate Secretary. With broad experience in corporate and operational finance, Mr. Ferrara brings more than twenty-five years of public and private sector experience including start-ups, manufacturing, and global multi-billion-dollar services organizations. Mauro will oversee financial reporting, acquisitions, tax, accounting, and corporate secretary responsibilities. Mauro Ferrara succeeds John Rim, Bitfarms former CFO & COO who left the Company on September 30, 2020.
Prior to joining Bitfarms, Mr. Ferrara served as the Chief Financial Officer of Savaria Inc. (TSX:SIS), a company traded on the TSX serving the accessibility industry. In this position, he was responsible for management accounting, financial budgeting, and preparation and presentation of all consolidated external public company financial disclosure documents to the Corporation’s Audit Committee and Board of Directors.
Prior to his responsibilities at Savaria, Mr. Ferrara served for six-years as the Senior Director, Financial Reporting at WSP Global Inc. (TSX:WSP). In this role, he focused on external financial reporting and cost management to improve EBITDA. Headquartered in Montreal, WSP is a Canadian multi-billion-dollar global engineering services company with over 50,000 employees. Mr. Ferrara is a CPA-CA and McGill University alumni.
“Bitfarms is in the midst of a major expansion and upgrading program. With five high-power data-centres operating in Quebec and the recently announced signing of a MOU in South America, the Company is well positioned to continue its ascension as a major cryptocurrency mining player”, said Mauro Ferrara. “It is an exciting time to be joining the Company. I look forward to working closely with management and team members on the myriad of corporate initiatives and new miner arrivals planned for the remainder of 2020 and into 2021.”
Nicolas Bonta, Chairman and Chief Development Officer of Bitfarms, commented, “we are very excited to have Mauro join the Bitfarms team. He has a profound understanding of global productions structures with a focus on optimizing cost structures and building quality organizations. With deep functional expertise and technical knowledge in financial planning and accounting, I believe Mauro has the required leadership abilities to manage our debt and lease facilities, improve our cost structure, mentor our accounting team and work closely with senior management as we continue to strategically expand the size the Company.”
2
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
L. Geoffrey Morphy
+1.647.500.7440
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
3
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others; the ability to enter into a binding agreement in respect of the MOU on the terms as announced or at all, and to implement the capital infrastructure on terms which are economic and successfully operate the computing centre in a foreign jurisdiction; risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
4
Exhibit 99.62
Bitfarms Announces Appointment of Mauro Ferrara as Interim Chief Financial Officer and Corporate Secretary
Toronto, Ontario and Brossard, Québec (October 28, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) the largest publicly traded Bitcoin mining company in North America in the second quarter of 2020 in terms of operational petahash, is pleased to announce that it has appointed Mauro Ferrara as its Interim Chief Financial Officer and Corporate Secretary. With broad experience in corporate and operational finance, Mr. Ferrara brings more than twenty-five years of public and private sector experience including start-ups, manufacturing, and global multi-billion-dollar services organizations. Mauro will oversee financial reporting, acquisitions, tax, accounting, and corporate secretary responsibilities. Mauro Ferrara succeeds John Rim, Bitfarms former CFO & COO who left the Company on September 30, 2020.
Prior to joining Bitfarms, Mr. Ferrara served as the Chief Financial Officer of Savaria Inc. (TSX:SIS), a company traded on the TSX serving the accessibility industry. In this position, he was responsible for management accounting, financial budgeting, and preparation and presentation of all consolidated external public company financial disclosure documents to the Corporation’s Audit Committee and Board of Directors.
Prior to his responsibilities at Savaria, Mr. Ferrara served for six-years as the Senior Director, Financial Reporting at WSP Global Inc. (TSX:WSP). In this role, he focused on external financial reporting and cost management to improve EBITDA. Headquartered in Montreal, WSP is a Canadian multi-billion-dollar global engineering services company with over 50,000 employees. Mr. Ferrara is a CPA-CA and McGill University alumni.
“Bitfarms is in the midst of a major expansion and upgrading program. With five high-power data-centres operating in Quebec and the recently announced signing of a MOU in South America, the Company is well positioned to continue its ascension as a major cryptocurrency mining player”, said Mauro Ferrara. “It is an exciting time to be joining the Company. I look forward to working closely with management and team members on the myriad of corporate initiatives and new miner arrivals planned for the remainder of 2020 and into 2021.”
Nicolas Bonta, Chairman and Chief Development Officer of Bitfarms, commented, “we are very excited to have Mauro join the Bitfarms team. He has a profound understanding of global productions structures with a focus on optimizing cost structures and building quality organizations. With deep functional expertise and technical knowledge in financial planning and accounting, I believe Mauro has the required leadership abilities to manage our debt and lease facilities, improve our cost structure, mentor our accounting team and work closely with senior management as we continue to strategically expand the size the Company.”
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
L. Geoffrey Morphy
+1.647.500.7440
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
2
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others; the ability to enter into a binding agreement in respect of the MOU on the terms as announced or at all, and to implement the capital infrastructure on terms which are economic and successfully operate the computing centre in a foreign jurisdiction; risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.63
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
Bitfarms Ltd. (“Bitfarms” or the “Company”)
1376 Bayview Ave, Unit 1
Toronto, Ontario M4G 3A1
Item 2 Date of Material Change
November 9, 2020.
Item 3 News Release
The press release attached as Schedule “A” was disseminated on November 9, 2020.
Item 4 Summary of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 5 Full Description of Material Change
The material change is described in the press release attached as Schedule “A”.
Item 6 Reliance of subsection 7.1(2) of National Instrument 51-102
Not applicable.
Item 7 Omitted Information
Not applicable.
Item 8 Executive Officer
Nicolas Bonta
Chairman & Director Bitfarms Ltd.
Item 9 Date of Report
November 9, 2020.
Schedule "A"
Bitfarms Announces Installation of 2,000 New Generation Miners Adding 144 Petahash of Computing Power
Toronto, Ontario and Brossard, Québec (November 9, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV: BITF) is pleased to announce the arrival and installation 2,000 new generation miners over the weekend. The new miners were installed at Bitfarms’ renovated and upgraded datacentre located in Farnham, Quebec. The order and lease financing announcement regarding the WhatsMiner M31S mining rigs was previously announced on September 21, 2020. The newly installed miners have added approximately 144 petahash per second (“PH”) to the Company’s operations.
Summary of Computing Power Expansion Plan in 2020
| Announced: | Installed: | Equipment: | ||
| June, 2020 | June 2020 | Purchased: 1,847 MicroBT’s WhatsMiner M20S adding 133 PH of computing power | ||
| August, 2020 | September 2020 |
Leased: 1,000 MicroBT’s WhatsMiner M31S+ adding 82 PH of computing power | ||
| October, 2020 | November 2020 | Leased: 2,000 MicroBT’s WhatsMiner M31S adding 144 PH of computing power | ||
| September, 2020 |
Estimated for late November |
To be Leased: 4,000 MicroBT’s WhatsMiner M31S+ adding 328 PH of computing power | ||
| September and October, 2020 | Estimated for December 2020 | To be Leased: 1,000 – 3,500 MicroBT’s WhatsMiner units. |
As first communicated in the Press Release dated September 21, 2020, Bitfarms is well on its way to exceeding 759 PH of new capacity during 2020. The 2,000 new miners installed this past weekend improve Bitfarms’ computing power-to-electricity efficiency ratio from 16.7 PH/MW to 17.8 PH/MW and bring our average cost per Bitcoin to approximately US$6,400 based on market conditions on the 8th of November 2020 with a Bitcoin price of approximately US$15,500.
Emiliano Grodzki, Interim Chief Executive Officer of Bitfarms added, “November has been an amazing month for Bitfarms. Bitcoin prices have been increasing quickly, the difficulty factor recently decreased, and the Company is busy installing thousands of new miners. Bitfarms is proud to be a fundamental contributor to the global Bitcoin infrastructure and to be part of the ongoing paradigm shift. We are very excited about the future.”
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks for Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial- scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Geoff Morphy
+1.647.500.7440
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
2
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.64
Bitfarms Announces Installation of 2,000 New Generation Miners Adding 144 Petahash of Computing Power
Toronto, Ontario and Brossard, Québec (November 9, 2020) - Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV: BITF) is pleased to announce the arrival and installation 2,000 new generation miners over the weekend. The new miners were installed at Bitfarms’ renovated and upgraded datacentre located in Farnham, Quebec. The order and lease financing announcement regarding the WhatsMiner M31S mining rigs was previously announced on September 21, 2020. The newly installed miners have added approximately 144 petahash per second (“PH”) to the Company’s operations.
Summary of Computing Power Expansion Plan in 2020
| Announced: | Installed: | Equipment: | ||
| June, 2020 | June 2020 | Purchased: 1,847 MicroBT’s WhatsMiner M20S adding 133 PH of computing power | ||
| August, 2020 | September 2020 | Leased: 1,000 MicroBT’s WhatsMiner M31S+ adding 82 PH of computing power | ||
| October, 2020 | November 2020 | Leased: 2,000 MicroBT’s WhatsMiner M31S adding 144 PH of computing power | ||
| September, 2020 | Estimated for late November | To be Leased: 4,000 MicroBT’s WhatsMiner M31S+ adding 328 PH of computing power | ||
| September and October, 2020 | Estimated for December 2020 | To be Leased: 1,000 – 3,500 MicroBT’s WhatsMiner units. |
As first communicated in the Press Release dated September 21, 2020, Bitfarms is well on its way to exceeding 759 PH of new capacity during 2020. The 2,000 new miners installed this past weekend improve Bitfarms’ computing power-to-electricity efficiency ratio from 16.7 PH/MW to 17.8 PH/MW and bring our average cost per Bitcoin to approximately US$6,400 based on market conditions on the 8th of November 2020 with a Bitcoin price of approximately US$15,500.
Emiliano Grodzki, Interim Chief Executive Officer of Bitfarms added, “November has been an amazing month for Bitfarms. Bitcoin prices have been increasing quickly, the difficulty factor recently decreased, and the Company is busy installing thousands of new miners. Bitfarms is proud to be a fundamental contributor to the global Bitcoin infrastructure and to be part of the ongoing paradigm shift. We are very excited about the future.”
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks for Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates five computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data centre operators and capital markets professionals, focused on building infrastructure by developing and hosting one of the industry’s most efficient ecosystem growing around blockchain-based technologies.
For investor and media inquiries, please contact:
Geoff Morphy
+1.647.500.7440
To learn more about Bitfarms’ events, developments and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company, are forward-looking information. Other forward-looking information includes but is not limited to information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment of cryptocurrency in the Provinces of Canada.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
2
This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors which could impact future results of the business of Bitfarms include but are not limited to: the construction and operation of blockchain infrastructure may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of hydroelectricity for the purposes of cryptocurrency mining in the Province of Québec, the ability to complete current and future financings, any regulations or laws that will prevent Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and there will be no regulation or law that will prevent Bitfarms from operating its business. The Company has also assumed that no significant events occur outside of the Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
3
Exhibit 99.65
Bitfarms Announces 2020 Third Quarter Results Release Date
TORONTO & BROSSARD, Québec--(BUSINESS WIRE)--November 13, 2020--Bitfarms Ltd. (“Bitfarms”, or the “Company”) (TSXV:BITF) will release its 2020 third quarter results on Thursday November 26, 2020 prior to market open. The Company’s senior management will be hosting a webcast presentation at 10:00 AM Eastern Time on November 26, 2020 to discuss Bitfarms’ financial and operating results. To view the webcast presentation, please register using the following link:
https://onlinexperiences.com/Launch/QReg/ShowUUID=24FF76E5-C7B6-45CC-B66D- D650BAAE8D3E
The financial results and presentation will also be available on the Company’s website at www.bitfarms.com
About Bitfarms Ltd.
The Company owns and operates computing centres that power the global decentralized financial economy. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions. Powered by clean and competitively priced hydroelectricity, Bitfarms operates 5 computing centres in Québec, Canada. Bitfarms’ experienced management team includes industrial-scale data center operators and capital markets professionals, focused on building infrastructure for the future by developing and hosting the ecosystem growing around blockchain-based technologies.
To learn more about Bitfarms’ events, developments and online communities:
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Website: www.bitfarms.com
Contacts
Mauro Ferrara
Interim Chief Financial Officer and Corporate Secretary Bitfarms Ltd.
+1.514.691-6228
Exhibit 99.66
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2020 (UNAUDITED)
INDEX
- - - - - - - - - - - - - - - - - - -
BITFARMS LTD.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. dollars)
| September
30, 2020 | December 31, 2019 | |||||||||||
| Note | Unaudited | |||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS: | ||||||||||||
| Cash and cash equivalents | $ | 1,324 | $ | 2,159 | ||||||||
| Trade receivables | 899 | 1,108 | ||||||||||
| Other assets | 892 | 1,398 | ||||||||||
| Inventories | 210 | 135 | ||||||||||
| Income taxes receivable | 534 | 1,743 | ||||||||||
| Current portion of embedded derivative | 6 | 608 | - | |||||||||
| 4,467 | 6,543 | |||||||||||
| Assets held for sale | 4 | - | 7 | |||||||||
| TOTAL CURRENT ASSETS | 4,467 | 6,550 | ||||||||||
| NON-CURRENT ASSETS: | ||||||||||||
| Property, plant and equipment | 5 | 33,910 | 37,774 | |||||||||
| Right-of-use assets | 7 | 5,535 | 6,233 | |||||||||
| Long-term deposits and equipment prepayments | 1,063 | 1,148 | ||||||||||
| Intangible assets | 457 | 675 | ||||||||||
| Embedded derivative | 6 | 494 | 476 | |||||||||
| TOTAL NON-CURRENT ASSETS | 41,459 | 46,306 | ||||||||||
| TOTAL ASSETS | $ | 45,926 | $ | 52,856 | ||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| CURRENT LIABILITIES: | ||||||||||||
| Trade payables and accrued liabilities | 9 | $ | 2,004 | $ | 2,389 | |||||||
| Current portion of long-term debt | 6 | 11,814 | 874 | |||||||||
| Current portion of lease liabilities | 7, 9 | 1,580 | 746 | |||||||||
| TOTAL CURRENT LIABILITIES | 15,398 | 4,009 | ||||||||||
| NON-CURRENT LIABILITIES: | ||||||||||||
| Long-term debt | 6 | 5,100 | 14,849 | |||||||||
| Lease liabilities | 7, 9 | 5,891 | 5,717 | |||||||||
| Asset retirement provision | 202 | 193 | ||||||||||
| TOTAL NON-CURRENT LIABILITIES | 11,193 | 20,759 | ||||||||||
| TOTAL LIABILITIES | 26,591 | 24,768 | ||||||||||
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: | ||||||||||||
| Share capital | 30,921 | 30,475 | ||||||||||
| Contributed surplus | 5,185 | 3,469 | ||||||||||
| Accumulated deficit | (16,771 | ) | (5,856 | ) | ||||||||
| TOTAL EQUITY | 19,335 | 28,088 | ||||||||||
| TOTAL LIABILITIES & EQUITY | $ | 45,926 | $ | 52,856 | ||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 2 |
BITFARMS LTD.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT (LOSS) AND COMPREHENSIVE PROFIT (LOSS)
(In thousands of U.S. dollars, except earnings per share)
| Three months ended | Nine months ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||
| Note | Unaudited | |||||||||||||||||||
Revenues | 11, 12 | $ | 6,795 | $ | 9,739 | $ | 23,379 | $ | 21,886 | |||||||||||
| Cost of sales | 7,827 | 5,276 | 23,250 | 13,280 | ||||||||||||||||
| Gross profit (loss) | (1,032 | ) | 4,463 | 129 | 8,606 | |||||||||||||||
| General and administrative expenses | 1,809 | 2,296 | 5,985 | 7,575 | ||||||||||||||||
| Impairment of property, plant and equipment | - | 56 | - | 56 | ||||||||||||||||
| Operating income (loss) | (2,841 | ) | 2,111 | (5,856 | ) | 975 | ||||||||||||||
| (Gain) on disposition of cryptocurrencies | - | - | (23 | ) | - | |||||||||||||||
| Loss on disposition of property,plant and equipment | 557 | 4 | 1,264 | 7 | ||||||||||||||||
| Net financial expenses (income) | 1,363 | (2,185 | ) | 3,930 | 2 | |||||||||||||||
| Net income (loss) before income taxes | ||||||||||||||||||||
| (4,761 | ) | 4,292 | (11,027 | ) | 966 | |||||||||||||||
| Income tax expense (recovery) | - | (17 | ) | (112 | ) | (17 | ) | |||||||||||||
| Net income(loss) and total comprehensive income (loss) | $ | (4,761 | ) | $ | 4,309 | $ | (10,915 | ) | $ | 983 | ||||||||||
| Attributable to: | ||||||||||||||||||||
| Equity holders of the Company | $ | (4,761 | ) | $ | 3,900 | $ | (10,915 | ) | $ | 1,775 | ||||||||||
| Non-controlling interests | - | 409 | - | (792 | ) | |||||||||||||||
| $ | (4,761 | ) | $ | 4,309 | $ | (10,915 | ) | $ | 983 | |||||||||||
| Net earnings (loss) per share (in U.S. dollars): | ||||||||||||||||||||
| Basic net earnings (loss) per share | $ | (0.06 | ) | $ | 0.06 | $ | (0.13 | ) | $ | 0.03 | ||||||||||
| Diluted net earnings (loss) per share | $ | (0.06 | ) | $ | 0.05 | $ | (0.13 | ) | $ | 0.03 | ||||||||||
| Basic weighted average number of shares | 11 | 84,521 | 70,367 | 84,851 | 61,522 | |||||||||||||||
| Diluted weighted average number of shares | 11 | 84,521 | 79,623 | 84,851 | 66,367 | |||||||||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 3 |
BITFARMS LTD.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of U.S. dollars)
| Equity attributable to equity holders of the Company | ||||||||||||||||||||||||||||
| Share | Contributed | Obligation to issue | Accumulated | Non- controlling | Total | |||||||||||||||||||||||
| capital | surplus | shares | deficit | Total | interest | equity | ||||||||||||||||||||||
| Balance as of January 1, 2020 | $ | 30,475 | $ | 3,469 | $ | - | $ | (5,856 | ) | $ | 28,088 | $ | - | $ | 28,088 | |||||||||||||
| Net loss and total comprehensive loss | - | - | - | (10,915 | ) | (10,915 | ) | - | (10,915 | ) | ||||||||||||||||||
| Share-based payment (Notes 8, 10) | 192 | 1,606 | - | - | 1,798 | - | 1,798 | |||||||||||||||||||||
| Issuance of common shares and modification of warrants (Notes 6, 8) | 54 | - | - | - | 54 | - | 54 | |||||||||||||||||||||
| Long-term debt conversion feature (Note 6) | - | 110 | - | - | 110 | - | 110 | |||||||||||||||||||||
| Exercise of warrants (Note 8) | 200 | - | - | - | 200 | - | 200 | |||||||||||||||||||||
| Balance as of September 30, 2020 (unaudited) | $ | 30,921 | $ | 5,185 | $ | - | $ | (16,771 | ) | $ | 19,335 | $ | - | $ | 19,335 | |||||||||||||
| Balance as of January 1, 2019 | $ | 19,812 | - | $ | 4,386 | $ | (8,755 | ) | $ | 15,443 | $ | 5,209 | $ | 20,652 | ||||||||||||||
| Net loss and total comprehensive loss | - | - | - | 1,775 | 1,775 | (792 | ) | 983 | ||||||||||||||||||||
| Share-based payment | - | 2,282 | - | - | 2,282 | 161 | 2,443 | |||||||||||||||||||||
| Exchange of share based payment from legal subsidiary to the Company | 141 | 766 | - | - | 907 | (907 | ) | - | ||||||||||||||||||||
| Exchange of exchangeable shares issued in the reverse acquisition | 4,386 | - | (4,386 | ) | - | - | - | - | ||||||||||||||||||||
| Reclassification of warrant liability to equity | 3,160 | - | - | - | 3,160 | - | 3,160 | |||||||||||||||||||||
| Acquisition of NCI by issuance of shares | 3,671 | - | - | - | 3,671 | (3,671 | ) | - | ||||||||||||||||||||
| Balance as of September 30, 2019 (unaudited) | $ | 31,170 | $ | 3,048 | $ | - | $ | (6,980 | ) | $ | 27,238 | $ | - | $ | 27,238 | |||||||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 4 |
BITFARMS LTD.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
| Nine months ended September 30, | ||||||||||||
| 2020 | 2019 | |||||||||||
| Note | Unaudited | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | (10,915 | ) | $ | 983 | |||||||
| Adjustments for: | ||||||||||||
| Depreciation and amortization | 8,652 | 4,217 | ||||||||||
| Net financial expenses (income) | 3,930 | 2 | ||||||||||
| Share-based payment | 10 | 1,798 | 2,443 | |||||||||
| Interest and financial expenses paid | (3,004 | ) | (1,948 | ) | ||||||||
| Impairment loss on property and plant and equipment | - | 56 | ||||||||||
| Loss on disposal of property, plant and equipment | 1,264 | 7 | ||||||||||
| Provision for asset retirement and other | 12 | (32 | ) | |||||||||
| 12,652 | 4,745 | |||||||||||
| Changes in non-cash working capital components | 13 | 2,402 | (2,399 | ) | ||||||||
| Net cash related to operating activities | 4,139 | 3,329 | ||||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property, plant and equipment and intangible assets | (4,902 | ) | (18,262 | ) | ||||||||
| Proceeds from sale of property, plant and equipment | 718 | 1,429 | ||||||||||
| Advance payments for equipment | - | (2,864 | ) | |||||||||
| Net cash related to investing activities | (4,184 | ) | (19,697 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Issuance of warrants | - | 4,936 | ||||||||||
| Exercise of warrants | 200 | - | ||||||||||
| Proceeds from long-term debt, net | 80 | 14,664 | ||||||||||
| Repayment of lease liabilities | (621 | ) | (484 | ) | ||||||||
| Repayment of long-term debt | (469 | ) | (837 | ) | ||||||||
| Net cash related to financing activities | (810 | ) | 18,279 | |||||||||
| Exchange rate differences on currency translation | 20 | - | ||||||||||
| Net change in cash and cash equivalents | (835 | ) | 1,911 | |||||||||
| Cash and cash equivalents at beginning of period | 2,159 | 552 | ||||||||||
| Cash and cash equivalents at end of period | $ | 1,324 | $ | 2,463 | ||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
| 5 |
BITFARMS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and cryptocurrency)
NOTE 1: REPORTING ENTITY, BASIS OF PRESENTATION AND LIQUIDITY
| a. | Bitfarms was incorporated under the Canada Business Corporation Act on October 11, 2018. The interim condensed financial statements of the corporation as at and for the periods ended September 30, 2020 and 2019 comprise the accounts of Bitfarms Ltd. and its wholly owned subsidiaries (together referred to as the “Company” or “Bitfarms”). The activities of the Company are divided into two reportable segments: the cryptocurrency mining segment (referred to as “Backbone”) and the electrical services segment (referred to as “Volta”), as described in Note 12 “Reportable segments”. |
The common shares of the Company are listed under the trading symbol BITF.V of the TSX Venture Exchange.
| b. | 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 IAS 34. |
These interim condensed consolidated financial statements do not include all of 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 on December 31, 2019. These interim condensed consolidated financial statements were approved by the Board of Directors on November 25, 2020.
| c. | For the nine months ended September 30, 2020, the Company had a net loss of $10,915. As at September 30, 2020, the Company had negative working capital of $10,931 and an accumulated deficit of $16,771 Based on internally prepared forecasted cash flows, taking into consideration current cryptocurrency mining economics, as well as the refinancing of long-term debt and equipment lease described in Notes 6 and 7, management believes that the Company will be able to achieve positive cash flows from operations that will enable it to meet its obligations for at least one year from the date of the interim condensed consolidated financial statements. |
Bitfarms is primarily engaged in the cryptocurrency mining industry; a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly and negatively impact the Company’s operations. Due to the volatility of cryptocurrency prices and the effects of possible changes in the other aforementioned factors, there can be no assurance that future mining operations will be profitable and generate sufficient cash flows to repay the financing facility with Dominion Capital, maturing in 2021, as described in Note 6. In addition, adverse changes to the factors mentioned above may impact the carrying value of the Company’s property, plant and equipment resulting in impairment charges being recorded.
| 6 |
BITFARMS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and cryptocurrency)
NOTE 1: REPORTING ENTITY, BASIS OF PRESENTATION AND LIQUIDITY (Cont.)
In March 2020, the World Health Organization declared COVID-19 a pandemic. The global response to the pandemic is constantly evolving, including various measures implemented at the global, national, provincial and local levels. The major impacts that COVID-19 are expected to have on the Backbone operating segment include potential increases in cryptocurrency price volatility, difficulty obtaining new financing due to a global economic slowdown, and delays in receiving future orders of mining hardware and parts sourced from overseas. The Backbone operating segment has been, and is expected to, continue operating throughout the pandemic.
Volta’s services are considered to be essential by government authorities and have been, and are expected to continue, operating throughout the pandemic. There is a potential for increased bad debts resulting from the economic impact of COVID-19 on existing customers.
The Company has benefited from the Canada Emergency Wage Subsidy (“CEWS”) in the amount of approximately $625 and will continue to monitor its eligibility to claim the CEWS. There can be no assurance that the Company will continue to be eligible for the CEWS as future changes to revenues as well as modification to the eligibility criteria may render the Company ineligible.
The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government interventions. It is not possible to reliably estimate the length and severity of these developments as well as the impact on the financial results and condition 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. | BTC | Bitcoin | |
| 4. | BCH | Bitcoin Cash | |
| 5. | LTC | Litecoin | |
| 6. | BVVE | Blockchain Verification and Validation Equipment |
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
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, 2019, except for the adoption of and change in accounting policies described in Note 3.
The accounting policies have been applied consistently by the Corporation's entities and to all periods presented in these interim condensed consolidated financial statements, unless otherwise indicated.
| 7 |
BITFARMS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and cryptocurrency)
NOTE 3: ADOPTION OF AND CHANGE IN ACCOUNTING POLICIES
Government assistance
Government assistance is recognized where there is reasonable assurance that the assistance will be received, and all attached conditions will be complied with. Government assistance is intended to compensate an expense item which is recognized in net income (loss) on a systematic basis over the periods that the related costs are expensed. During the quarter and nine-month period ended September 30, 2020, the Company recorded $345 and $625 of government subsidies (CEWS), recognized in cost of sales and general and administrative expenses (nil during the comparable periods in 2019). There are no unfulfilled conditions or contingencies attached this assistance. The Company adopted this accounting policy during the year.
Revenue recognition
The Company, through Backbone, operates server farms supporting the verification and validation of blockchain transactions in exchange for cryptocurrency, referred to as “cryptocurrency mining”. The Company changed its accounting policy with respect to revenue recognition from cryptocurrency mining and subsequent measurement of cryptocurrency on hand. Prior to this change, the Company accounted for cryptocurrency as inventory until it was sold in exchange for fiat currency. Inventories of cryptocurrency were measured at the lower of cost to produce and net realizable value. The cost of cryptocurrency inventory was comprised of the costs incurred with respect to the validation and verification of blockchain transactions, consisting mainly of electricity and depreciation. Net realizable value was measured as the estimated selling price in the ordinary course of business less estimated selling costs. Revenue was recognized when the cryptocurrency was converted into fiat currency or when the cryptocurrency was transferred to another party in settlement of a debt to this party. The Company now recognizes revenue upon receipt of cryptocurrency in exchange for its mining activities at the fair market value of the cryptocurrency received, as described below.
IFRS 15 provides a five step model for identifying revenue from contracts with customers, as follows:
| 1. | Identify the contract with the customer |
| 2. | Identify the performance obligations in the contract |
| 3. | Determine the transaction price |
| 4. | Allocate the transaction price to the performance obligations in the contract |
| 5. | Recognize revenue when the Company satisfies a performance obligation |
The Company has entered into contracts with mining pools and has undertaken the performance obligation of providing computing power to the mining pool in exchange for non-cash consideration in the form cryptocurrency. The Company measures the non-cash consideration received at the fair market value of the cryptocurrency received. Management estimates fair value 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 previously considered Coinmarketcap to be a Level 1 input under IFRS 13 Fair Value Measurement. However, management has revised this opinion and now considers Coinmarketcap to be a level 2 input as the price represents an average of quoted prices on various markets and not necessarily the principal
| 8 |
BITFARMS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and cryptocurrency)
NOTE 3: ADOPTION OF AND CHANGE IN ACCOUNTING POLICIES (Cont.)
market. Any difference between the fair value of cryptocurrency recorded upon receipt from mining activities and the actual realized price upon disposal are recorded as a gain or loss on disposition of cryptocurrency. The Company has also entered into hosting contracts where it operates mining equipment on behalf of third parties within its facilities. Revenue from hosting contracts is measured as the Company meets its obligation of operating the hosted equipment over time.
Cryptocurrency on hand at the end of a reporting period is accounted for under IAS 38 Intangible Assets, as an intangible asset with an indefinite useful life initially measured at cost, deemed to be the fair value upon receipt as described above, and subsequently measured under the revaluation model. Under the revaluation model, increases in the cryptocurrency’s carrying amount is recognized in other comprehensive income and accumulated in equity under revaluation surplus. However, increases are recognized in profit or loss to the extent that it reverses a revaluation decrease of cryptocurrency previously recognized in profit or loss. The fair value of cryptocurrency on hand at the end of the reporting period is calculated as the quantity of cryptocurrency on hand multiplied by price quoted on Coinmarketcap as at the reporting date.
The Company has continued to classify cryptocurrency on hand at the end of a period as a current asset as management has determined that cryptocurrency markets have sufficient liquidity to allow conversion within the Company’s normal operating cycle.
The Company believes that the revised policy and presentation provide more relevant financial information to the users of the financial statements. The accounting policy change has been applied retrospectively, but the Company’s management has determined that the impact of the accounting policy change in previous periods is not material. The cumulative effect of retrospective application of the accounting policy change on retained earnings as at January 1, 2020 was nil as the Company did not have any cryptocurrency on hand as at December 31, 2019. Furthermore, the Company’s management believes that the disclosures made in previous periods relating to the quantity and fair value of cryptocurrencies mined during the periods, the cost and fair market value of cryptocurrencies on hand at the end of the periods and the proceeds received from disposal of cryptocurrencies during the periods is sufficient to allow users of the financial statements to understand the Company’s financial results. The accounting standards in the cryptocurrency mining industry are still evolving and the Company’s management believes that this accounting policy change is better aligned with current industry practices. Additionally, the Company may be required to re-evaluate their accounting policy with respect to revenue recognition and subsequent remeasurement of cryptocurrency on hand in the event of the issuance of new accounting guidance or a change in the Company’s business practice of regularly disposing of cryptocurrencies.
The Company did not have any cryptocurrency on hand as at September 30, 2020 or December 31, 2019.
| 9 |
BITFARMS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and cryptocurrency)
NOTE 4: ASSETS HELD FOR SALE
On May 24, 2019, the Company’s management decided to sell 2,500 Antminer L3+ and committed to carry out a plan for the sale of the equipment. In 2019, the Company had located a purchaser and received non-refundable deposits totaling approximately $332 and made the mining hardware available to the purchaser. The purchaser has not collected the mining hardware, which is no longer in use by the Company. The Company had deferred recognizing a gain on the disposition of the assets, as it was not reasonably certain that the transaction would be completed. The proceeds received from the purchaser were accounted for as a liability included in accounts payable. During the previous quarter, the three months ended June 30, 2020, the Company’s management determined that the Company has completed the performance obligations necessary in order to recognize the gain on the sale. Accordingly, an amount of $332 was recorded as a gain on disposal of property, plant and equipment during that period. Assets held for sale of $7 as at December 31, 2019, excluding the Antminer L3+ described above, were sold in January 2020, for approximately their carrying amount.
| 10 |
BITFARMS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and cryptocurrency)
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
| a. | As at September 30, 2020, and December 31, 2019, property, plant and equipment consisted of: |
BVVE
and components |
Mineral assets | Land
and buildings | Leasehold improvements |
Vehicles |
Total | |||||||||||||||||||
| Cost: | ||||||||||||||||||||||||
| Balance as of January 1, 2020 | $ | 54,127 | $ | 9,000 | $ | 2,721 | $ | 2,415 | $ | 381 | $ | 68,644 | ||||||||||||
| Additions during the period | 5,105 | - | 314 | 270 | 68 | 5,757 | ||||||||||||||||||
| Dispositions during the period | (7,374 | ) | - | - | (14 | ) | (12 | ) | (7,400 | ) | ||||||||||||||
| Balance as of September 30, 2020 (Unaudited) | 51,858 | 9,000 | 3,035 | 2,671 | 437 | 67,001 | ||||||||||||||||||
| Balance as of January 1, 2019 | 35,439 | 9,000 | 2,033 | 2,140 | 333 | 48,945 | ||||||||||||||||||
| Additions during the period | 21,967 | - | 688 | 275 | 73 | 23,003 | ||||||||||||||||||
| Dispositions during the period | (3,193 | ) | - | - | - | (25 | ) | (3,218 | ) | |||||||||||||||
| Transfer to assets held for sale | (86 | ) | - | - | - | - | (86 | ) | ||||||||||||||||
| Balance as of December 31, 2019 | 54,127 | 9,000 | 2,721 | 2,415 | 381 | 68,644 | ||||||||||||||||||
| Accumulated Depreciation: Balance as of January 1, 2020 | 28,976 | - | 101 | 1,641 | 152 | 30,870 | ||||||||||||||||||
| Depreciation | 7,368 | - | 61 | 171 | 47 | 7,647 | ||||||||||||||||||
| Dispositions during the period | (5,404 | ) | - | - | (15 | ) | (7 | ) | (5,426 | ) | ||||||||||||||
| Balance as of September 30, 2020 (Unaudited) | 30,940 | - | 162 | 1,797 | 192 | 33,091 | ||||||||||||||||||
| Balance as of January 1, 2019 | 26,424 | - | 38 | 1,530 | 91 | 28,083 | ||||||||||||||||||
| Depreciation | 5,318 | - | 63 | 111 | 71 | 5,563 | ||||||||||||||||||
| Dispositions during the period | (2,753 | ) | - | - | - | (10 | ) | (2,763 | ) | |||||||||||||||
| Transfer to assets held for sale | (13 | ) | - | - | - | - | (13 | ) | ||||||||||||||||
| Balance as of December 31, 2019 | 28,976 | - | 101 | 1,641 | 152 | 30,870 | ||||||||||||||||||
| Net book value as of September 30, 2020 | $ | 20,918 | $ | 9,000 | $ | 2,873 | $ | 874 | $ | 245 | $ | 33,910 | ||||||||||||
| December 31, 2019 | $ | 25,151 | $ | 9,000 | $ | 2,620 | $ | 774 | $ | 229 | $ | 37,774 | ||||||||||||
| b. | Further details of the quantity and models of BVVE held by the Company are as follows: |
| Bitmain | Other Bitmain | Bitmain | Innosilicon T3 & T2T | Canaan | MicroBT Whatsminer | |||||||||||||||||||
| Antminer S9 | Antminers | Antminer | (BTC/BCH) | Avalon A10 | (BTC) | |||||||||||||||||||
| (BTC) | (BTC) * | L3+ (LTC) | ** | (BTC) | *** | |||||||||||||||||||
| Quantity as of January 1, 2020 | 15,159 | 2,071 | 400 | 6,543 | 2,490 | 2,470 | ||||||||||||||||||
| Additions during the period | 2,000 | 3 | - | - | - | 2,875 | ||||||||||||||||||
| Dispositions during the period | (5,329 | ) | (253 | ) | (400 | ) | (77 | ) | (1,375 | ) | - | |||||||||||||
| Quantity as of September 30, 2020 (Unaudited) | 11,830 | 1,821 | - | |||||||||||||||||||||