Digi Power X Inc 20-F for FY2024
Digi Power X Inc. (DGXX)
About this 20-F
Digi Power X Inc filed this 20-F on March 31, 2025, covering the fiscal year ended December 31, 2024 (FY2024).
Headline figures
Fiscal year ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $37M
- up 41.7% from $26.11M a year earlier
- Net loss
- $6.8M
- compared with a net loss of $21.89M a year earlier
- Diluted EPS
- -$0.22
- compared with -$0.77 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
OR
For the fiscal year ended
OR
OR
Date of event requiring this shell company report
For the transition period from ___________________ to _________________________
Commission file number:
(Exact name of Registrant as specified in its charter)
Canada
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
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 | ||
(Nasdaq Capital Market) |
Securities registered or to be 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.
The number of subordinate voting shares outstanding
as of December 31, 2024 was
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes ☒
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☐ Yes ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.
☒
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).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | 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.
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.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
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corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S GAAP ☐ | by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No
DIGI POWER X INC.
FORM 20-F ANNUAL REPORT
TABLE OF CONTENTS
i
Introduction
As used in this Annual Report on Form 20-F for the fiscal year ended December 31, 2024 (this “Annual Report”), the terms the “Corporation,” “DGXX,” “we,” “our” and “us” refer to Digi Power X Inc. (formerly known as Digihost Technology Inc.) and its subsidiaries, unless otherwise indicated or the context otherwise requires. We refer you to the documents attached as exhibits hereto for more complete information than may be contained in this Annual Report. Our principal Canadian corporate offices are located at 110 Yonge Street, Suite 1601, Toronto, Ontario, Canada M5C 1T4. Our principal U.S. office is located at 218 NW 24th Street, 2nd Floor, Miami, Florida 33127.
We file reports and other information with the Securities and Exchange Commission (the “SEC”). You may obtain copies of our filings with the SEC by accessing their website located at www.sec.gov/EDGAR. We also file reports under Canadian regulatory requirements on the System for Electronic Document Analysis and Retrieval + (“SEDAR+”), which are accessible at www.sedarplus.ca.
About the Corporation
We are an innovative energy infrastructure company that develops data centers to drive the expansion of sustainable energy assets. We integrate power, digital infrastructure, and compute at scale to fuel next-generation, energy-intensive use cases, such as Bitcoin mining and high-performance computing (“HPC”). We regularly evaluate opportunities to leverage our power, digital infrastructure, and compute to maximize our risk-adjusted returns from Bitcoin mining and HPC, as well as other power-applications we pursue in the future.
Through our newly-formed subsidiary, US Data Centers, Inc. (“US Data Centers”), we are focused on creating a platform dedicated entirely to delivering artificial intelligence (“AI”) and HPC solutions, ensuring purpose-built infrastructure for the next generation of computing. As its first major AI/HPC-focused initiative, US Data Centers plans to lead the transformation of the Corporation’s existing site in Columbiana, Alabama into a state-of-the-art Tier 3 data center designed to support next-generation AI and HPC workloads. The project is planned to be executed in two phases, with a total aggregate planned capacity following the project of 55 megawatts (“MW”). The Corporation plans to finance the project primarily through debt by leveraging anticipated predictable future revenues anticipated from the completion of the proposed project. This strategic investment by the Corporation underscores our commitment to expanding our infrastructure to meet the growing demand for AI-driven computing power and cloud services.
Financial and Other Information
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in United States dollars (“US$,” “USD” or “$”).
ii
Cautionary Statements Regarding Forward-Looking Statements
This Annual Report and other publicly available documents, including the documents incorporated herein and therein by reference, contain or refer to forward-looking statements and forward-looking information within the meaning of U.S. and Canadian securities laws (“forward-looking statements”). Forward-looking statements can often be identified by forward-looking words, such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “may,” “potential” and “will,” or similar words suggesting future outcomes or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. All statements, other than statements of historical fact, that address activities, events or developments that the Corporation believes, expects or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements do not constitute historical fact but reflect management’s expectations and assumptions. Forward-looking statements in this Annual Report include, but are not limited to, statements with respect to:
| ● | The expectations concerning performance of the Corporation’s business and operations; |
| ● | The intention to grow the Corporation’s business and operations; |
| ● | Growth strategy and opportunities; and |
| ● | The treatment of the Corporation under government regulatory and taxation regimes. |
By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, including the following:
| ● |
The Corporation’s increasing focus on diversification into operating data centers may not prove to be successful;
| |
| ● |
The Corporation’s plan to develop a Tier 3 data center and other infrastructure projects involves significant risks, many of which are beyond the Corporation’s control;
| |
| ● |
The Corporation depends on significant customers for its data centers;
| |
| ● | The Bitcoin block reward halves approximately every four years, which reduces the number of Bitcoin the Corporation would receive from solving blocks; |
| ● | If the award of coins for solving blocks and transaction fees are not sufficiently high, miners (other than of the Corporation) may not have an adequate incentive to continue mining and may cease their mining operations, which could adversely impact the Corporation’s mining operations; |
| ● | The Corporation relies on a third-party mining pool operator; |
| ● | Insolvency, bankruptcy or cessation of operations of a mining pool operator can have a material adverse effect on the Corporation; |
| ● |
The Corporation may be unable to obtain additional financing on acceptable terms or at all;
| |
| ● | The Corporation may be required to sell its cryptocurrency portfolio to pay for expenses; |
| ● | The Corporation’s cryptocurrency inventory may be exposed to cybersecurity threats and hacks; |
| ● | The Corporation may face delays in remediating the material weaknesses identified in its internal control over financial reporting; |
| ● | Regulatory changes or actions may alter the nature of an investment in the Corporation or restrict the use of cryptocurrencies in a manner that adversely affects the Corporation’s operations; | |
| ● | Recent changes in U.S. political leadership and economic policies, as well as any future policy changes, may create uncertainty that materially affects the Corporation’s business and financial performance; |
| ● | The value of cryptocurrencies may be subject to momentum pricing risk; |
iii
| ● | 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; |
| ● | Banks may not provide banking services, or may cut off banking services, to businesses that provide cryptocurrency-related services or that accept cryptocurrencies as payment; |
| ● | The impact of geopolitical events on the supply and demand for cryptocurrencies is uncertain; |
| ● | 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; |
| ● | Acceptance and/or widespread use of cryptocurrency is uncertain; |
| ● | The Corporation is subject to risks associated with the Corporation’s need for significant electrical power. The Corporation’s data center and mining operations require electrical power to be available at commercially feasible rates. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations; |
| ● | The Corporation is exposed to hashrate and network difficulty, which could reduce the ability of the Corporation to remain competitive with its peers; |
| ● | The Corporation’s operations, investment strategies, and profitability may be adversely affected by competition from other methods of investing in cryptocurrencies; |
| ● | The Corporation’s coins may be subject to loss, theft or restriction on access; |
| ● | Incorrect or fraudulent coin transactions may be irreversible; |
| ● | The price of coins may be affected by the sale of coins by other vehicles investing in coins or tracking cryptocurrency markets; |
| ● | Technological obsolescence and difficulty obtaining hardware may adversely impact the Corporation’s operating results and financial condition; |
| ● | Delays in the development of existing and planned cryptocurrency mining facilities may result in different outcomes than those intended; |
| ● | Exposure to environmental liabilities and hazards may result in the imposition of fines, penalties and restrictions; |
| ● | The Corporation’s success is largely dependent on the performance of the Corporation’s management and executive officers; |
| ● | The Corporation may be unable to attract, develop and retain its key personal and establish adequate succession planning; |
| ● | The Corporation faces competition from other data center and cryptocurrency companies; |
| ● | Uninsured or uninsurable risks could result in significant financial liabilities; |
iv
| ● | The Corporation does not currently pay cash dividends, and, therefore, the Corporation’s shareholders will not be able to receive a return on their subordinate voting shares (“SV Shares”) unless they sell them; |
| ● | The SV Shares are subject to volatility risk and there is no guarantee that an active or liquid market will be sustained for the SV Shares; |
| ● | There are significant legal, accounting, and financial costs of being a publicly traded company which may reduce the resources available for the Corporation to deploy on its cryptocurrency mining operations; |
| ● | Certain directors and officers may have a conflict of interest between their duties owed to the Corporation and their interest in other personal or business ventures; |
| ● | The Corporation may be subject to litigation; |
| ● | The Corporation could lose its foreign private issuer status in the future, which could result in significant additional costs and expenses to the Corporation; |
| ● | The Corporation has a limited history of operations and is in the early stage of development; |
| ● | Ineffective management of growth could result in a failure to sustain the Corporation’s progress; |
| ● | The Corporation may be subject to tax consequences which could reduce the Corporation’s profitability; |
| ● | The Corporation may be exposed to risks from exchanging currencies, including currency exchange fees; and |
| ● | The other factors discussed under the heading “Risk Factors” in this Annual Report on Form 20-F. |
The Corporation expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.
v
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not required.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not required.
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not required.
C. Reasons for the Offer and Use of Proceeds
Not required.
D. Risk Factors
An investment in SV Shares should be considered highly speculative due to the nature of the Corporation’s business and its present stage of development. An investment in SV Shares should only be made by knowledgeable and sophisticated investors who are willing to risk and can afford the potential loss of their entire investment. Investors and potential investors should consult with their professional advisors to assess an investment in the Corporation. In evaluating the Corporation and its business, investors should carefully consider, in addition to other information contained in this Annual Report, the risk factors below. The following is a summary only of certain risk factors and is qualified in its entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this Annual Report. These risks and uncertainties are not the only ones the Corporation is facing. Additional risks and uncertainties not presently known to the Corporation, or that the Corporation currently deems immaterial, may also impair its operations. If any such risks actually occur, the Corporation’s business, financial condition, liquidity and results of operations could be materially adversely affected. See also “Cautionary Statement Regarding Forward-Looking Statements.”
Risks Related to the Corporation’s Business
We operate in a rapidly evolving industry and have an evolving business model and strategy, which includes our increasing focus on diversification into operating data centers to drive the expansion of sustainable energy assets, as well as maintaining our bitcoin mining and hosting activities.
To stay current within the digital assets industry that is rapidly evolving, we expect the services and products offered by industry participants, including ourselves, to evolve and, thus, that our business model may need to evolve.
From time to time, we have modified, and may again in the future modify, aspects of our business model or engage in various strategic initiatives, which may be complimentary to our bitcoin mining operations. Our growth strategy includes exploring the expansion and diversification of our revenue sources into new markets. For example, we are increasing our focus on diversification into operating data centers to drive the expansion of sustainable energy assets. We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to the business, damage our reputation and limit our growth. Such modifications may increase the complexity of our business and place significant strain on our management, personnel, operations, systems, technical performance, financial resources and internal financial control and reporting functions. Moreover, we may not be able to manage growth effectively, which could damage our reputation, limit our growth and adversely affect our operating results. We cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities within the digital assets industry, the data center market or other markets we seek to expand into, and we may lose out on such opportunities. Additionally, any such changes to our business model or strategy could cause us to become subject to additional regulatory scrutiny and a number of additional requirements, including licensing and permit requirements. Any of the foregoing could have a material adverse effect on our business, prospects, financial condition and operating results.
1
Our plan to diversify our business by utilizing power at our facilities to support HPC and other AI-driven processes may not be profitable and may not occur on our expected timeline.
We believe the potential for data center hosting complements our current business model with expected stable, long-term and high-margin revenue. We also believe that using our existing infrastructure for data center customers provides more consistent dollar-based revenue and substantially less risk than our traditional bitcoin mining operations. However, the success of our data center services may not develop as anticipated, and may be affected by factors such as the reliability and timing of power supply, supply chain disruption (including local labor availability), the implementation of new tariffs and more restrictive trade regulations and changes in in-house specialized expertise to manage the business. A failure to successfully implement our data center strategy may adversely affect our business, prospects or operations.
Our plan to develop a Tier 3 data center and other infrastructure projects could involve significant risks to our business.
The development of the Corporation’s facility in Columbiana, Alabama into a Tier 3 data center and any other development and growth projects that the Corporation may undertake in the future are and may continue to be subject to execution and capital cost risks, including, but not limited to, risks relating to regulatory approvals; financing and availability of financing; cost escalations; cash flow constraints; construction delays; increased prices for and delays in obtaining building supplies, raw materials, and data center equipment; power and grid supply constraints; supply chain constraints; skilled labor and capital constraints; mechanics and other liens; cost reduction plans and strategic reviews. The Tier 3 data center development remains in its preliminary planning stage, and it is not yet known what, if any, risks or obstacles may occur during the subsequent planning and construction stages. The occurrence of any of the foregoing risks may have a material adverse effect on the Corporation, its liquidity and financial condition, its ability to operate, its workforce and its cash flows.
Our new strategic focus on HPC support and other AI-driven processes may not be successful, and its success, if any, will be dependent on the continuing development and resource and computational requirements of data center service applications, such as cloud computing, machine learning and artificial intelligence and continuing need for the infrastructure and services we provide.
If target customer markets, which are new and still developing, do not grow or develop as expected or in a manner consistent with our anticipated business model, our business, financial condition and results of operation would be adversely affected. Further, increases in power costs could negatively impact our target customers’ demand for services, harm our growth prospects and could have a material adverse effect on our business, financial condition and results of operations. Our success will be dependent in large part on our ability to attract additional customers for our data center services in a profitable manner, which we may not be able to do if: there is a reduction in the demand for HPC and AI-driven applications; rapid innovation and technological disruption in cloud computing, machine learning and artificial intelligence decrease computational requirements and therefore lower demand for data center services; high energy costs, supply chain disruptions (including labor availability), government regulation, and compliance costs increase data center service costs, reduces potential demand for services and reduce revenue and profitability; we fail to provide competitive hosting terms or effectively market them to potential customers; we provide hosting services that are deemed by existing and potential customers or suppliers to be inferior to those of our competitors, or that fail to meet customers’ or suppliers’ ongoing and evolving program qualification standards, based on a range of factors, including available power, preferred design features, security considerations and connectivity; businesses decide to host internally as an alternative to the use of our services; we fail to successfully communicate the benefits of our services to potential customers; we are unable to strengthen awareness of our brand; or we are unable to provide services that our existing and potential customers desire.
2
If we do not accurately predict our facility requirements, it could have a material adverse effect on our business, financial condition, and results of operations.
The development and maintenance of our facilities to support HPC and AI-driven processes may require us to devote a significant portion of our available cash. In order to manage growth and ensure adequate capacity for our planned and existing operations while minimizing unnecessary excess capacity costs, we regularly evaluate our short- and long-term infrastructure requirements. We may not accurately predict our short- and long-term requirements, and existing or future market demand may not be sufficient to fully utilize our capacity. If we overestimate our capacity requirements or the demand for our offerings and therefore secure excess capacity, our operating margins could be materially reduced and we could experience operating losses. If we underestimate our facility requirements, we may not be able to service our and our customers’ expanding needs and may be required to limit our growth opportunities or new customer acquisition, which could have a material adverse effect on our business, financial condition, and results of operations.
We depend on significant customers for our data centers.
Many factors, including global economic conditions, may cause our data center customers to experience a downturn in their businesses or otherwise experience a lack of liquidity, which may weaken their financial condition and impact our estimates as to the probability of collectability of payments, and ultimately result in their failure to make timely rental and other payments or their default under their agreements with us. Further, the development of new technologies, the adoption of new industry standards or other factors could render our data center customers’ current products and services obsolete or unmarketable and contribute to a downturn in their businesses, thereby increasing the likelihood that they default under their leases, become insolvent or file for bankruptcy. If a customer defaults or fails to make timely rent or other payments, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment, which could adversely affect our financial condition and results of operations.
If a customer becomes a debtor in a case under the U.S. Bankruptcy Code, we cannot evict the customer solely because of the bankruptcy. In addition, the bankruptcy court might authorize the customer to reject and terminate its contracts with us. Our claim against the customer for unpaid, future rent and other payments would be subject to a statutory cap that might be substantially less than the remaining amounts actually owed under their agreements with us. In either case, our claim for unpaid rent and other amounts would likely not be paid in full. Our revenue could be materially adversely affected if a significant customer were to become bankrupt or insolvent, suffer a downturn in its businesses, fail to renew its contract or renew on terms less favorable to us than its current terms.
The Bitcoin block reward halves approximately every four years, which reduces the number of Bitcoin the Corporation would receive from solving blocks.
The difficulty of Bitcoin mining, or the amount of computational resources required for a set amount of reward for recording a new block, directly affects the Corporation’s results of operations. Bitcoin mining difficulty is a measure of how much computing power is required to record a new block, and it is affected by the total amount of computing power in the Bitcoin network. The Bitcoin algorithm is designed so that one block is generated, on average, every ten minutes, no matter how much computing power is in the network. Thus, as more computing power joins the Bitcoin network, and assuming the rate of block creation does not change (remaining at one block generated every ten minutes), the amount of computing power required to generate each block, and, hence, the mining difficulty, increases. In other words, based on the current design of the Bitcoin network, Bitcoin mining difficulty would increase together with the total computing power available in the Bitcoin network, which is in turn affected by the number of Bitcoin mining machines in operation.
In April 2024, the Bitcoin daily reward halved from 6.25 Bitcoin per block, or approximately 900 Bitcoin per day, to 3.125 Bitcoin per block, or approximately 450 Bitcoin per day. The Corporation continues to monitor the impact of the Bitcoin halving event on its operations and will continue to differentiate its revenue streams if necessary. Bitcoin halving events are expected to occur approximately every four years, and each halving event may have a potential deleterious impact on the Corporation’s profitability as the Corporation will be rewarded less Bitcoin for each new block it records. The next BTC halving is expected to occur in March 2028, at which time BTC block rewards will decrease from 3.125 BTC per block to 1.5625 BTC per block. While BTC prices have had a history of price fluctuations around BTC halving events, there is no guarantee that any price changes associated with a future halving event will be favorable or would compensate for the reduction in mining reward and the corresponding decrease in the compensation the Corporation receives from its mining operations.
3
Based on the fundamentals of Bitcoin mining and historical data on Bitcoin prices and the network difficulty rate after a halving event, it is unlikely that the network difficulty rate and price would remain at the current level when the Bitcoin rewards per block are halved, which could offset some of the impact of a halving event. Nevertheless, there is a risk that a future halving event may render the Corporation unprofitable and unable to continue as a going concern.
The Corporation’s profitability depends upon the hashrate of its miners and of the network as well as network difficulty, any adverse changes in which could reduce the ability of the Corporation to remain competitive.
The hashrate in cryptocurrency networks is expected to increase as a result of upgrades across the industry as Bitcoin and Ether miners use more efficient chips. As the hashrate increases, the mining difficulty will increase in response to the increase in computing power in the network. This may make it difficult for the Corporation to remain competitive as the Corporation may be required to deploy significant capital to acquire additional miners in order to increase their total mining power and offset the rise in hashrate. The effect of increased computing power in the network combined with fluctuations in the price of Bitcoin and Ether could have a material adverse effect on the Corporation’s results of operations and financial condition.
If the award of coins for solving blocks and transaction fees are not sufficiently high, miners (other than the Corporation) may not have an adequate incentive to continue mining and may cease their mining operations, which could adversely impact the Corporation’s 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 market price of the relevant cryptocurrency that could adversely impact the Corporation’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. It is possible this transition could be accomplished either by miners independently electing to record on the blocks 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 recording transactions in a certain blockchain become too high, the marketplace may be reluctant to use that blockchain to transact and existing users may be motivated to switch between blockchains, 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 or for an extended period of time if miners cease operations entirely. A reduction in the processing power expended by miners, including due to miners ceasing their operations, 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 Corporation’s mining activities. Any reduction in confidence in the confirmation process or processing power of the network may adversely impact the Corporation’s mining activities, inventory of coins, and future investment strategies.
4
The Corporation is reliant on a mining pool operator.
The Corporation participates in a single mining pool, being the Foundry Pool. Consequently, the Corporation’s operations are substantially reliant on the mining pool operator and the terms of services and other terms and conditions that govern its relationship with the mining pool. The mining pool operator has the right to unilaterally modify the service agreement between the mining pool and the Corporation at any time without notice, including the right to modify the payout methodology or mining pool fees. In the event that any such modifications are unattractive or unacceptable to the Corporation, it may: (i) join a different mining pool; or (ii) commence mining independently. In the event that the Corporation is unable to make such a switch of its operations in a timely manner and its mining operations experience significant down time, it may experience a material adverse change.
There is a possibility insolvency, bankruptcy or cessation of operations of the Corporation’s mining pool operator.
As of the date hereof, the Corporation participates in only one mining pool, being the Foundry Pool. In the event that the mining pool operator ceases making payments to the Corporation for whatever reason, including bankruptcy, insolvency or cessation of its operations, or for no reason, the Corporation would expect to immediately cease contributing its hash power to such mining pool and either: (i) join a different mining pool; or (ii) commence mining independently. The cost of switching, if such a switch is ever deemed necessary by the Corporation, is expected to be the lost revenues the Corporation would have earned had it been mining during the period in which it completes the switch. In the event that the Corporation is unable to make such a switch of its operations in a timely manner and its mining operations experience significant down time, it may experience a material adverse change.
If the Corporation ceases to participate in a mining pool and instead mines independently, it may be subject to certain additional risks and the impact of existing risks may be heightened.
In the event the Corporation ceases to participate in a mining pool and instead conducts mining operations independently, it may be exposed to certain risks, including that the Corporation could experience a protracted period of failing to solve any blocks, causing a disruption in its revenue stream. In addition, independent mining may heighten the impact of several of the other risks to the Corporation’s business, results of operations and financial condition, many of which are discussed in this “Risk Factors” section, including the effect of future halving events and the possible transition to proof of stake validation. In such a circumstance, the Corporation may need to borrow or raise additional capital to fund its operations. There can be no guarantee that the Corporation could obtain any such financing on commercially attractive terms or at all. See the risk factor below under the caption “The Corporation may be unable to obtain additional financing on acceptable terms or at all.”
There is a possibility of cryptocurrency mining algorithms transitioning to proof of stake validation and other mining related risks, which could make the Corporation less competitive and ultimately adversely affect the Corporation’s business and the value of its shares.
Proof of stake is an alternative method in validating cryptocurrency transactions that is less dependent on the consumption of electricity. Should the algorithm for validating Bitcoin transactions, or transactions involving any cryptocurrency the Corporation mines in the future, shift from the current proof of work validation method to a proof of stake method, mining would likely require less energy, which may render any company that maintains advantages in the current climate (for example, from lower priced electricity, processing, real estate, or hosting) less competitive. The Corporation, as a result of its efforts to optimize and improve the efficiency of its mining operations by seeking to acquire low cost, long-term electricity, may be exposed to the risk in the future of losing the relative competitive advantage it may have over some of its competitors as a result and may be negatively impacted if a switch to proof of stake validation were to occur. Such events could have a material adverse effect on our ability to continue as a going concern, which could have a material adverse effect on our business, prospects or results of operations, the value of Bitcoin and any other cryptocurrencies the Corporation mines in the future and your investment in the SV Shares.
The Corporation may be unable to obtain additional financing on acceptable terms or at all.
Further acquisitions of additional cryptocurrency mining rigs will require additional capital, and the Corporation will require funds to continue to operate as a public company. To the extent it becomes necessary to raise additional cash in the future, the Corporation may seek to raise it through the public or private sale of assets, debt or equity securities, the procurement of advances on contracts or licenses, funding from joint-venture or strategic partners, debt financing or short-term loans, or a combination of the foregoing. The Corporation may also seek to satisfy indebtedness without any cash outlay through the private issuance of debt or equity securities. We currently do not have any binding commitments for, or readily available sources of, additional financing; however, any future financing(s) may also be dilutive to the Corporation’s existing shareholders at that time.
5
There is no assurance that the Corporation will be successful in obtaining any required financing(s) or that such financing(s) will be available on terms acceptable to the Corporation. Failure to obtain such additional financing could cause the Corporation to reduce or terminate its operations. The failure to raise or procure such additional funds or the failure to achieve positive cash flow could result in the delay or indefinite postponement of the Corporation’s business objectives, including the acquisition of additional equipment, the expansion of the Corporation’s management team, the pursuit of strategic acquisitions and other aspects of the Corporation’s strategic plan. If the Corporation raises additional capital through the issuance of equity securities, the percentage ownership of the Corporation’s existing shareholders may be reduced, and such existing shareholders may experience additional dilution in net book value per share. Any such newly issued equity securities may also have rights, preferences or privileges senior to those of the holders of the Corporation’s SV Shares. If the Corporation raises additional capital through the incurrence of indebtedness, the Corporation may be required to secure the financing with part or all of the Corporation’s assets, which could be sold or retained by the creditor should there be a default in the Corporation’s payment obligations. As a condition to a debt financing, restrictive covenants may be imposed on the Corporation that could limit the ability of the Corporation to operate its business and pursue its corporate strategy and other aspects of its business plan, which could result in the failure to capitalize on otherwise available opportunities and could place the Corporation at a competitive disadvantage compared to its competitors that have less debt. Furthermore, if the Corporation raises capital through a convertible debt offering, any conversion of the debt into equity would be dilutive to the Corporation’s existing shareholders. In connection with any such future capital raising transaction, whether involving the issuance of equity securities or the incurrence of indebtedness, the Corporation may be required to accept terms that restrict its ability to raise additional capital for a period of time, which may limit or prevent the Corporation from raising capital at times when it would otherwise be opportunistic to do so.
The Corporation may be required to sell its cryptocurrency portfolio to pay for expenses.
The Corporation has in the past, and may in the future, sell part of its cryptocurrency portfolio to pay for expenses incurred, irrespective of the price at that point in time. Consequently, the Corporation’s cryptocurrencies may be sold at a time when the price is low, resulting in a negative effect on the Corporation’s profitability, particularly if there is a need to sell cryptocurrencies to fund the Corporation’s operating activities or expansion goals.
The Corporation faces competition from other cryptocurrency companies.
The Corporation competes, and, in the future, will compete, with other cryptocurrency and distributed ledger technology businesses, including other businesses focused on developing substantial cryptocurrency mining operations, 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, which, when combined with the effect of new industry entrants and cryptocurrency price volatility, may make certain cryptocurrencies relatively unprofitable to mine compared to others. If the Corporation does not increase its hashrate to maintain competitive as the computational complexity of mining algorithms increase, this Corporation may be unable to effectively compete, it may be unprofitable and ultimately unable to continue as a going concern.
Regulatory changes or actions may alter the nature of an investment in the Corporation or restrict the use of cryptocurrencies in a manner that adversely affects the Corporation’s operations.
As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies with certain governments deeming cryptocurrency mining illegal while others have allowed their use and trade. Ongoing and future regulatory actions may alter, perhaps to a materially adverse extent, the ability of the Corporation to continue to operate. The effect of any future regulatory change on the Corporation or any cryptocurrency that the Corporation may mine is impossible to predict, but any such change could be substantial and have a material adverse effect on the Corporation. Governments may in the future curtail or outlaw the acquisition, use or redemption of cryptocurrencies. Ownership of, holding or trading in cryptocurrencies may then be considered illegal and subject to sanction. Governments may also take regulatory action that may increase the cost of mining cryptocurrency and/or subject cryptocurrency mining companies to additional regulation. Governments may in the future take regulatory actions that prohibit or severely restrict the right to acquire, own, hold, sell, use or trade cryptocurrencies or to exchange cryptocurrencies for fiat currency.
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By extension, similar actions by other governments may result in the restriction of the acquisition, ownership, holding, selling, use or trading in the SV Shares. Such a restriction could result in the Corporation liquidating its cryptocurrency inventory at unfavorable prices and may otherwise adversely affect the Corporation’s shareholders.
The U.S. political and economic environment could materially impact our business operations and financial performance, and uncertainty surrounding the potential legal, regulatory and policy changes by the new U.S. presidential administration may directly affect us and the global economy.
The recent changes in U.S. political leadership and economic policies, as well as any future policy changes, may create uncertainty that materially affects our business and financial performance. Shifts in legal, regulatory and trade policies, particularly under the new presidential administration, could disrupt our operations and long-term strategy.
For example, the U.S. federal government has recently announced the establishment of a strategic bitcoin reserve, and any subsequent large-scale purchases could create price volatility or artificial price suppression, making our mining operations less profitable. Additionally, increased government influence over the Bitcoin network could affect mining difficulty, transaction processing and other technical aspects, further impacting our business.
We also face risks from trade policy changes, including tariffs and restrictions on imports of mining equipment. The current administration has imposed, and may continue to impose, tariffs on imports from key manufacturing regions, which may increase costs and disrupt supply chains.
The scope and timing of potential policy changes remain uncertain, making it difficult to plan for or mitigate these risks. Any such changes could materially and adversely affect our business, financial condition and results of operations.
The value of cryptocurrencies may be subject to momentum pricing.
Momentum pricing typically is 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 of the cryptocurrency the Corporation mines and holds and thereby negatively affect the Corporation’s shareholders.
The price of coins may be affected by the sale of coins by other vehicles investing in coins or tracking cryptocurrency markets.
To the extent that other vehicles investing in coins or tracking cryptocurrency markets form and come to represent a significant proportion of the demand for coins, large redemptions of the securities of those vehicles and the subsequent sale of coins by such vehicles could negatively affect cryptocurrency prices and, therefore, affect the value of the inventory held by the Corporation.
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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. For example, during the past three years, a number of Bitcoin exchanges have been closed due to fraud, business failure or security breaches. In many of these instances, the customers of the closed Bitcoin exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin exchanges. These risks also apply to other cryptocurrency exchanges, including exchanges on which Ether is traded. 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. The Corporation’s current strategy is to hold its mined cryptocurrencies; however, if the Corporation decides to sell its cryptocurrency in the future, it may rely on a cryptocurrency exchange to facilitate such a sale. Fraud or failure of cryptocurrency exchanges could decrease the number of platforms available to the Corporation to liquidate its holdings and could also decrease public confidence in trading on such exchanges, which may adversely affect the price of cryptocurrencies. Sustained lack of regulation and potential fraud or failure of cryptocurrency exchanges could have a material adverse effect of the Corporation’s business, financial condition, liquidity and results of operation.
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 the Corporation’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; |
| ● | 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 Bitcoins specifically and cryptocurrencies generally. |
Acceptance and/or widespread use of cryptocurrency is uncertain.
Currently, Bitcoins and/or other cryptocurrencies are not widely used in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect the Corporation’s operations, investment strategies, and profitability.
As relatively new products and technologies, Bitcoin and other cryptocurrencies have not been widely adopted as a means of payment for goods and services by major retail and commercial outlets. Conversely, a significant portion of cryptocurrency demand is generated by blockchain technology enthusiasts, price speculators and investors seeking to profit from the short-term or long-term holding of cryptocurrencies.
The relative lack of acceptance of cryptocurrencies in the retail and commercial marketplace limits the ability of end-users to use them to pay for goods and services. A lack of expansion by cryptocurrencies into retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction in their market prices, either of which could adversely impact the Corporation’s operations, investment strategies, and profitability.
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Delays in the development of existing and planned cryptocurrency mining facilities may result in different outcomes than those intended.
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 Corporation’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 labor, defects in design or construction, diversion of management resources, insufficient funding or other resource constraints. Actual costs for development may exceed the Corporation’s planned budget. Delays, cost overruns, changes in market circumstances and other factors may result in different outcomes than those intended.
The Corporation is subject to risks associated with the Corporation’s need for significant electrical power and for such electrical power to be available at commercially feasible rates. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations.
The Corporation’s data center and cryptocurrency mining operations require substantial amounts of electrical power, and the Corporation’s operations can only be successful if the Corporation can obtain electrical power on a reliable and cost-effective basis. Shortages of natural gas, infrastructural damage to power plants or power carriage infrastructure, increases in demand for power or any other factor that contributes to a rise in the price of electrical power may render the Corporation’s data center and mining operations unprofitable. Additionally, in times of electricity shortages, government regulators may restrict or prohibit the provision of electricity to data center and/or cryptocurrency mining operations.
At the same time, the consumption by energy-intensive businesses, including the Corporation, of significant amounts of electrical power may potentially have a deleterious effect on the environment, which may cause government regulators to restrict the ability of electricity suppliers to provide electricity to such companies in order to curtail their energy consumption.
The Corporation currently conducts its cryptocurrency mining in the states of New York and Alabama. As a result of maintaining operations in limited geographic locations, the Corporation’s current and future operations and anticipated growth, as well as the sustainability of electricity at economical prices for the purposes of cryptocurrency mining in the states of New York and Alabama poses certain risks. Any significant increase in the price the Corporation pays for the electrical power it consumes could adversely impact the Corporation’s operations and profitability.
The Corporation’s business may be adversely impacted by technological obsolescence and difficulty in obtaining hardware.
To remain competitive, the Corporation will continue to invest in hardware and equipment required for maintaining the Corporation’s mining activities. Should competitors introduce new services/software embodying new technologies, the Corporation’s hardware and equipment and its underlying technology may become obsolete and require substantial capital to replace such equipment.
The Corporation’s cryptocurrency inventory may be exposed to cybersecurity threats and hacks.
Malicious actors may seek to exploit vulnerabilities within cryptocurrency programming codes. Several errors and defects in programming codes 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 virtual Bitcoin assets have been relatively rare; however, attempts to discover flaws in or exploitations of the source code are not entirely uncommon. Hackers have been able to gain unauthorized access to digital wallets and cryptocurrency exchanges, thereby exposing the crypto-assets stored and traded on these platforms at risk.
If a malicious actor exposes a vulnerability on a platform or blockchain on which the Corporation stores, trades or mines cryptocurrency, as may be applicable, that could interfere with and introduce defects to the mining operation and could put the Corporation’s cryptocurrency holdings at risk of being hacked or stolen. Private keys which enable holders to transfer funds may also be lost or stolen, resulting in irreversible losses of cryptocurrencies. Hackers may discover novel tactics not currently contemplated herein which jeopardize the Corporation’s assets and operations. The actions of one or more malicious actors could have a material adverse effect on the Corporation’s business, financial condition, liquidity and results of operation.
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The Corporation’s coins may be subject to loss, theft or restriction on access.
There is a risk that some or all of the Corporation’s coins could be lost or stolen. Access to the Corporation’s coins could also be restricted by cybercrime (such as a denial-of-service attack) against a service at which the Corporation maintains a hosted online wallet. Any of these events may adversely affect the operations of the Corporation and, consequently, its investments and profitability.
The loss or destruction of a digital private key required to access the Corporation’s digital wallets may be irreversible. The Corporation’s loss of access to its private keys or its experience of a data loss relating to the Corporation’s digital wallets could adversely affect its investments.
Cryptocurrencies are controllable only by the possessor of both the unique public and private keys relating to the local or online digital wallet in which they are held, which wallet’s public key or address is reflected in the network’s public blockchain. The Corporation will publish the public key relating to digital wallets in use when it verifies the receipt of cryptocurrency transfers and disseminates such information into the network, but it will need to safeguard the private keys relating to such digital wallets. To the extent such private keys are lost, destroyed or otherwise compromised, the Corporation will be unable to access its coins, and such private keys will not be capable of being restored by network. Any loss of private keys relating to digital wallets used to store the Corporation’s cryptocurrency could adversely affect its investments and profitability.
Incorrect or fraudulent coin transactions may be irreversible.
Cryptocurrency transactions are irrevocable and stolen or incorrectly transferred coins may be irretrievable. As a result, any incorrectly executed or fraudulent coin transactions could adversely affect the Corporation’s investments.
Coin transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction. In theory, cryptocurrency transactions may be reversible with the control or consent of a majority of processing power on the network. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of a coin or a theft of coin generally will not be reversible and the Corporation may not be capable of seeking compensation for any such transfer or theft. Although the Corporation’s transfers of coins will regularly be made by experienced members of the management team, it is possible that, through computer or human error, or through theft or criminal action, the Corporation’s coins could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts.
The Corporation’s operations, investment strategies and profitability may be adversely affected by competition from other methods of investing in cryptocurrencies.
The Corporation competes with other users and/or companies that are mining cryptocurrencies and other potential financial vehicles, possibly including securities backed by or linked to cryptocurrencies through entities similar to the Corporation. Market and financial conditions, and other conditions beyond the Corporation’s control, may make it more attractive to invest in other financial vehicles, or to invest in cryptocurrencies directly which could limit the market for the Corporation’s shares and reduce their liquidity.
The increase in interest and demand for cryptocurrencies has led to a shortage of mining hardware as individuals purchase equipment for mining at home.
Equipment may require repair and replacement from time to time. Risks of shortages, including, but not limited to, shortages of graphics processing units, may lead to downtime as the Corporation searches for replacement equipment, which may decrease the cryptocurrency the Corporation is able to mine.
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Banks may not provide banking services, or may cut off banking services, to businesses that provide cryptocurrency-related services or that accept cryptocurrencies as payment.
A number of companies that mine cryptocurrency or are otherwise in cryptocurrency-related businesses have been unable to find banks that are willing to provide them with bank accounts and banking services. Similarly, a number of such companies have had their existing bank accounts closed by their banks. This happened to Corporation with Signature Bank in 2023 when it elected to stop servicing cryptocurrency-related businesses. Banks may refuse to provide bank accounts and other banking services to such companies or companies that accept cryptocurrencies as payment for their services or derive their value from cryptocurrencies for a number of reasons, such as perceived compliance risks or costs. The difficulty that many such businesses have and may continue to have in finding banks willing to provide them with bank accounts and other banking services may be currently decreasing the usefulness of cryptocurrencies as a payment system and harming public perception of cryptocurrencies or could decrease its usefulness and harm its public perception in the future. Similarly, the usefulness of cryptocurrencies as a payment system and the public perception of cryptocurrencies could be damaged if banks were to close the accounts of many or of a few key businesses providing Bitcoin and/or other cryptocurrency-related services. This could decrease the market prices of cryptocurrencies and adversely affect the value of the Corporation’s cryptocurrency inventory.
The impact of geopolitical events on the supply and demand for cryptocurrencies is uncertain.
Crises may motivate large-scale purchases of cryptocurrencies, which could increase the price of cryptocurrencies rapidly. This may increase the likelihood of a subsequent price decrease as crisis-driven purchasing behavior wanes, adversely affecting the value of the Corporation’s cryptocurrency inventory.
As an alternative to fiat currencies that are backed by central governments, cryptocurrencies, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of Bitcoin either globally or locally. Large-scale sales of cryptocurrencies would result in a reduction in their market prices and adversely affect the Corporation’s operations and profitability.
Increased scrutiny and changing expectations from stakeholders with respect to the Corporation’s ESG practices and the impacts of climate change may result in additional costs or risks.
Companies across many industries, including cryptocurrency mining, are facing increasing scrutiny related to their environmental, social, and governance (“ESG”) practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the non-financial impacts of their investments. Furthermore, increased public awareness and concern regarding environmental risks, including global climate change, may result in increased public scrutiny of the Corporation’s business and its industry, and the management team may divert significant time and energy away from the Corporation’s operations and towards responding to such scrutiny and enhancing the Corporation’s ESG practices.
In addition, the impacts of climate change may affect the availability and cost of materials and natural resources, sources and supply of energy, demand for Bitcoin and other cryptocurrencies, and could increase the Corporation’s insurance and other operating costs, including, potentially, to repair damage incurred as a result of extreme weather events or to renovate or retrofit facilities to better withstand extreme weather events. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements on the Corporation’s operations, or if its operations are disrupted due to physical impacts of climate change, the Corporation’s business, capital expenditures, results of operations, financial condition and competitive position could be negatively impacted.
The risks to the Corporation posed by global pandemics and any future infectious diseases cannot be predicted with certainty.
Pandemic risk is the risk of large-scale outbreaks of infectious diseases that can greatly increase morbidity and mortality over a wide geographic area and cause significant social and economic disruption. Pandemics, epidemics or outbreaks of an infectious disease in Canada or worldwide could have an adverse impact on the Corporation’s business, including changes to the way the Corporation and its counterparties operate, and on the Corporation’s financial results and condition. Any government-imposed restrictions in connection with future pandemics may restrict the number of employees permitted to work in the mining facilities or otherwise limit the Corporation’s operations in the wake of an infectious disease outbreak, the extent and duration of which are impossible to predict. As a result, it is not possible to reliably estimate the length or severity of any such developments or their impact on the financial results and condition of the Corporation and its operating subsidiaries in future periods.
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Exposure to environmental liabilities and hazards may result in the imposition of fines, penalties and restrictions on the Corporation.
The Corporation 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 Corporation directly or indirectly holds an interest that are unknown to the Corporation at present and have been caused by previous or existing owners or operators of the property, which hazards may result in environmental pollution. Any such occurrences that constitute a breach of environmental legislation, laws, rules or regulations may result in the imposition of fines and penalties.
To the extent the Corporation 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 Corporation. If the Corporation 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. Environmental hazards and other occurrences, including allegations of the same, involving or otherwise relating to the Corporation may have an undesirable reputational impact on the Corporation and may be an impetus for potential restrictions to be imposed on the Corporation by regulators. The Corporation’s potential exposure for any such occurrences may be significant and could have a material adverse effect on the Corporation.
General Business Risks Related to the Corporation
We have identified material weaknesses in our internal control over financial reporting relating to our improper reclassification of proceeds from the sales of digital assets as cash flows from operations rather than cash flows from investing activities and our failure to timely file our Annual Reports on Form 20-F for the years ended December 31, 2023 and 2022. If we are unable to remediate these material weaknesses in our internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
We have identified material weaknesses in our internal control over financial reporting relating to (a) the Corporation not having effective review and reconciliation procedures related to the period end balances in connection with the closing of financial statements for a particular period, and (b) the Corporation having insufficient procedures or processes to independently generate an expectation over the rewards that should be received from self-mining and colocation agreements based on the hashing power provided to the network, in order to assess the completeness and accuracy of rewards received from these revenue stream.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. To respond to the material weaknesses we identified, we plan to implement review and reconciliation procedures for period end balances related to the items where a deficiency was noted and to establish and maintain an equipment list that will allow the Corporation to verify the Bitcoin rewards we receive from mining pools and colocation agreements, as described in ITEM 15. “Controls and Procedures.” Even if we successfully implement our remediation plan, there is no assurance that this initiative will ultimately have its intended effect.
If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such a case, we may be unable to maintain compliance with applicable U.S. securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result.
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The Corporation’s success is largely dependent on the performance of the Corporation’s management and executive officers.
The success of the Corporation is dependent upon the ability, expertise, judgment, discretion, performance and good faith of a limited number of people constituting its senior management. While the Corporation has employment or consulting agreements with most of its senior management team, those agreements cannot ensure the Corporation of the continued services of such persons. Any loss of the services of one or more of such individuals could have a material adverse effect on the Corporation’s business, operating results or financial condition.
Certain members of the Corporation’s management team have experience in the cryptocurrency industry, while others have experience in areas including financial management, corporate finance and sales and marketing. The experience of these individuals is a factor that will contribute to the Corporation’s continued success and growth. The Corporation relies on the Corporation’s officers and members of the Corporation’s board of directors (the “Board”), as well as independent consultants, for certain aspects of the Corporation’s business. The amount of time and expertise expended on the Corporation’s affairs by each of the Corporation’s management team and the Corporation’s directors will vary according to the Corporation’s needs. The success of the Corporation may be affected by conflicts of interest the management team or directors may have or may develop in the future. Conflict of interest concerns are further addressed hereinbelow under the heading “Directors and officers may have a conflict of interest between their duties owed to the Corporation and their interest in other personal or business ventures.” The Corporation does not intend to acquire any key man insurance policies, and there is, therefore, a risk that the death or departure of any member of management, the Board or any key employee or consultant could have a material adverse effect on the Corporation’s future.
The Corporation may be unable to attract, develop and retain its key personnel and ensure adequate succession planning.
The Corporation’s operations and continued growth are dependent on its ability to attract, hire, retain and develop leaders and other key personnel. Any failure to effectively attract talented and experienced employees and other personnel or to engage in adequate succession planning and retention strategies could cause the Corporation to have insufficient industry or other relevant knowledge, skills and experience, which could erode the Corporation’s competitive position or result in increased costs, competition for employees or high turnover. Any of the foregoing could negatively affect the Corporation’s ability to operate its business, which, in turn, could adversely affect the Corporation’s reputation, operations or financial performance.
Uninsured or uninsurable risks could result in significant financial liabilities.
The Corporation intends to insure its operations in general accordance with technology industry practice. However, given the novelty of cryptocurrency mining and associated businesses, such insurance may not be available, uneconomical for the Corporation, or the nature or level may be insufficient to provide adequate insurance cover. The Corporation may become subject to liability for hazards against which the Corporation cannot insure or against which the Corporation may elect not to insure because of high premium costs or for other reasons. The payment of any such liabilities would reduce or eliminate the funds available for operations. Payments of liabilities for which the Corporation does not carry insurance may have a material adverse effect on the Corporation’s financial position.
The Corporation does not currently pay cash dividends and therefore the Corporation’s shareholders will not be able to receive a return on their SV Shares unless they sell them.
The Corporation does not anticipate paying dividends in the near future. The Corporation expects to retain earnings to finance further growth and, where appropriate, retire debt. Unless the Corporation pays dividends, the Corporation’s shareholders will not be able to receive a return on their shares unless they sell them. There is no assurance that shareholders will be able to sell SV Shares when desired.
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The market price for SV Shares may be volatile, and there is no guarantee that an active or liquid market will be sustained for the SV Shares.
The Corporation’s SV Shares are listed on the TSX Venture Exchange (the “TSXV”) and Nasdaq. External factors outside of the Corporation’s control, such as announcements of quarterly variations in operating results, revenues and costs, and sentiments toward stocks, may have a significant impact on the market price of the SV Shares. The market price for the SV Shares could be subject to extreme fluctuations. Factors such as government regulation, interest rates, share price movements of the Corporation’s peer companies and competitors, as well as overall market movements and the market price for the cryptocurrencies that the Corporation mines, may have a significant impact on the market price of the SV Shares. Global stock markets, including the TSXV and Nasdaq, have experienced extreme price and volume fluctuations from time to time. There can be no assurance that an active or liquid market will develop or be sustained for the SV Shares.
There are significant legal, accounting and financial costs of being a publicly traded company, which costs may reduce the resources available for the Corporation to deploy on its cryptocurrency mining operations.
For so long as the Corporation has publicly traded securities, it will continue to incur significant legal, accounting and filing fees. As a reporting issuer, the Corporation is subject to reporting requirements under applicable laws, rules and policies of the TSXV, Nasdaq and the Canadian and US securities regulatory authorities, including the SEC. Compliance with those requirements increases legal and financial compliance costs, makes some activities more difficult, time consuming or costly and increases demand on existing systems and resources. Among other things, the Corporation is required to file annual, quarterly and current reports with respect to its business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and, if required, improve disclosure controls and procedures and internal controls over financial reporting to meet applicable requirements, significant resources and management oversight may be required. Under the US Sarbanes-Oxley Act of 2002 (“SOX”), the Corporation is required to adhere to strict financial reporting requirements, and documentation proving compliance therewith must be regularly updated and maintained. The Corporation may be required to incur significant costs to satisfy internal and external reporting requirements under SOX and other applicable laws, rules and regulations. Securities legislation and the rules and policies of the TSXV and Nasdaq require publicly listed companies to, among other things, adopt corporate governance policies and related practices and to continuously prepare and disclose material information, all of which carry significant legal, financial and securities regulatory compliance costs.
As a result of the Corporation ensuring reporting requirements are met, management’s attention may be diverted from other business concerns, which could harm the Corporation’s business and result of operations. The Corporation may need to hire additional employees to comply with these requirements in the future, which would increase its costs and expenses. Continuing as a reporting issuer may make it more expensive to maintain director and officer liability insurance, which, in turn, could also make it more difficult for the Corporation to retain qualified directors and executive officers.
Directors and officers may have a conflict of interest between their duties owed to the Corporation and their interest in other personal or business ventures.
Certain of the Corporation’s directors and officers are, and may continue to be, involved in the cryptocurrency industry through their direct and indirect participation in corporations, partnerships or joint ventures that are potential competitors of the Corporation. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers may conflict with the Corporation’s interests. Directors and officers of the Corporation with conflicts of interest will be subject to and must follow the procedures set out in applicable corporate and securities legislation, regulations, rules and policies; however, there may be corporate opportunities that the Corporation is not able to pursue due to a conflict of interest of one or more of the Corporation’s directors or officers.
The Corporation may be subject to litigation arising out of its operations.
The Corporation may be subject to litigation from time to time arising from the ordinary course of its business or otherwise. Damages claimed in any such litigation against the Corporation may be material, and the outcome of such litigation may materially impact the Corporation’s operations and the value of the SV Shares. While the Corporation will assess the merits of any lawsuits and defend against such lawsuits accordingly, the Corporation may be required to incur significant expense and devote significant financial resources to such defenses. In addition, any adverse publicity surrounding such litigation and claims may have a material adverse effect on the Corporation’s reputation, which, in turn, may have a negative impact on the value of the SV Shares.
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The Corporation could lose its foreign private issuer status in the future, which could result in significant additional costs and expenses to the Corporation.
In order to maintain its current status as a foreign private issuer, either (a) 50% or more of the Corporation’s voting securities must be directly or indirectly owned of record by holders residing outside of the United States, or (b) all of the following must be true: (i) the majority of the Corporation’s executive officers and the majority of its directors must not be U.S. citizens or U.S. residents; (ii) 50% or more of the Corporation’s assets must be located outside of the United States and (iii) the Corporation’s business must principally be administered outside of the United States. The Corporation may in the future lose its foreign private issuer status if a majority of the Corporation’s voting securities are owned of record in the United States, as the Corporation does not meet the other qualifications due to a majority of the executive officers and a majority of the directors of the Corporation being in the U.S., along with a majority of the Corporation’s assets. The regulatory and compliance costs to the Corporation under U.S. federal securities laws and applicable Nasdaq corporate governance rules as a U.S. domestic issuer may be significantly more than the costs the Corporation incurs as a foreign private issuer. If the Corporation ceases to be a foreign private issuer, it would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC that require more detailed and extensive disclosure than the forms available to a foreign private issuer and would also be required to comply with Nasdaq corporate governance rules applicable to U.S. domestic issuers that may require the Corporation to alter its policies and/or the composition of its Board and committees thereof.
The Corporation has a limited history of operations and is in the early stage of development.
The limited operating history of the Corporation is subject to many risks common to such enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. The Corporation may not be successful in achieving a return on shareholders’ investment, and the likelihood of its success must be considered in light of the early stage of its operations. Although the Corporation has achieved profitable quarters in the past, to date, it has not maintained consistent profitability from period to period, and no assurances can be made that the Corporation will achieve consistent profitability in the near future, if ever. For the year ended December 31, 2024, the Corporation had a net loss from continuing operations of approximately $6.8 million, which net losses were generated as the Corporation executed its business plan]. There can be no assurance that the Corporation will be able to develop any of its projects profitably or that any of its activities will generate positive cash flow.
Ineffective management of growth could result in a failure to sustain the Corporation’s progress.
The Corporation has recently experienced, and may continue to experience, growth in the scope and nature of its operations pursuant to the acquisition of additional miners and the acquisition and development of new operational facilities, including its recent entry into the data center business. This growth has resulted in increased responsibilities for the Corporation’s existing personnel, and, in general, higher levels of operating expenses. In order to manage its current operations and any future growth effectively, the Corporation will need to continue to implement and improve its operational, internal controls, financial, and management information systems, as well as hire, manage and retain employees and maintain its corporate culture. There can be no assurance that the Corporation will be able to manage such growth effectively or that its management, personnel or systems will be adequate to support the Corporation’s operations.
The Corporation may be subject to tax liabilities and consequences that could reduce the Corporation’s profitability.
The Corporation is subject to various taxes including, but not limited to the following: Canadian income tax; goods and services tax; provincial sales tax; land transfer tax; and payroll tax. The Corporation’s tax filings will be subject to audit by various taxation authorities. Due to its relative novelty, the cryptocurrency industry in particular is subject to a rapidly evolving set of rules as governments begin to regulate this industry, including in the domain of taxation. While the Corporation intends to base its tax filings and compliance on the advice of its tax advisors, there can be no assurance that its tax filing positions will not be challenged by a relevant taxation authority, which may result in an increased tax liability for the Corporation.
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The Corporation may be characterized as a passive foreign investment company.
Generally, if for any taxable year 75% or more of the Corporation’s gross income is passive income, or at least 50% of the average quarterly value of the Corporation’s assets are held for the production of, or produce, passive income, the Corporation will be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. If the Corporation were to be characterized as a PFIC, a U.S. Holder (as defined in Paragraph E of Item 10 below under the heading “Certain Material U.S. Federal Income Tax Considerations”) of the SV Shares could suffer adverse U.S. federal income tax consequences, including the treatment of gain realized on the sale of the SV Shares as ordinary income rather than as capital gain, the loss of the preferential income tax rate applicable to dividends (if any) received on the SV Shares by a non-corporate U.S. Holder, and the addition of interest charges to the tax on such gains and certain distributions. The Corporation does not believe that it is currently classified as a PFIC. However, the Corporation’s status as a PFIC in any taxable year requires a factual determination that depends on, among other things, the composition of its income, assets and activities in each year, and can only be made annually after the close of each taxable year. Therefore, there can be no assurance that the Corporation was not or will not be classified as a PFIC for the taxable year ended December 31, 2024, the current taxable year or for any past or future taxable year, and the Corporation has not obtained any legal opinion with respect to its PFIC status for its past, current or future taxable years.
The Corporation may be exposed to risks from exchanging currencies, including currency exchange fees.
The Corporation may have financial risk exposure to varying degrees relating to the currency risk and volatility. The Corporation may raise funds and subsequently exchange such funds to another currency, which could result in costly currency exchange fees.
Currently, the Corporation does not engage in foreign currency hedging transactions to protect against fluctuations in future exchange rates, in particular, between the United States dollar and the Canadian dollar, and the Corporation may be more adversely affected by any such currency fluctuations than its competitors that engage in hedging transactions. If the Corporation engages in hedging transactions in the future, it may become exposed to risks associated with such transactions, which may not eliminate any adverse impact of future currency fluctuations on its business, financial condition, results of operations, cash flow and prospects.
ITEM 4. INFORMATION ON THE CORPORATION
A. History and Development of the Corporation
The legal and commercial name of the Corporation is Digi Power X Inc. The Corporation was originally incorporated in Canada under the Business Corporations Act (British Columbia) on February 18, 2017 under the name Chortle Capital Corp. and later changed its name to HashChain Technology Inc. (“HashChain”) on September 18, 2017. HashChain, a corporation incorporated pursuant to the laws of British Columbia on February 18, 2017, was subject to a reverse take-over whereby the business and assets of HashChain and Digihost International, Inc. (“Digi International”) were combined by way of a share exchange between HashChain and shareholders of Digi International, which closed on February 14, 2020 (the “RTO”). Prior to the closing date of the RTO, the Corporation passed a special resolution authorizing an unlimited number of proportionate voting shares (“PV Shares”) and an unlimited number of SV Shares without par value. Upon closing of the RTO, HashChain filed articles of amendment to rename itself to Digihost Technology Inc. In connection with the RTO, all the issued and outstanding 6,530,560 HashChain common shares were exchanged for 6,530,560 SV Shares, and all of Digi International’s common shares were exchanged for 33,412,490 SV Shares and 10,000 PV Shares of the Corporation.
In connection with and immediately prior to the closing of the RTO, Digi International entered into an agreement with Bit.Management, LLC, NYAM, LLC and BIT Mining International, LLC for the sale, transfer and assignment of a 100% right, title and interest in the leasehold improvements and equipment, the transfer of the lease of the Buffalo Mining Facility (as defined below) and transfer of a power contract for the supply of electricity at the facility. As consideration and immediately prior to the closing of the RTO, Digi International issued 104,000 Digi International common shares for an aggregate value of C$2,704,000. Digi International also entered into an agreement with BIT Mining International, LLC for the sale, transfer and assignment of a 100% right, title and interest in the leasehold improvements and equipment located at the Buffalo Mining Facility. As consideration and immediately prior to the closing of the RTO, Digi International issued 60,000 Digi International common shares for an aggregate value of C$1,560,000.
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The Corporation filed articles of amendment on March 4, 2025 changing its name from Digihost Technology Inc. to Digi Power X Inc.
The Corporation’s principal place of business is located at 218 NW 24th Street, 2nd Floor, Miami, Florida 33127 and its registered office is located at 595 Howe Street – 10th Floor, Vancouver, BC V6C 2T5. The Corporation’s phone number is (917) 242-6549. The Corporation serves as its agent for service of process in Canada at its registered office located at 595 Howe Street – 10th Floor, Vancouver, BC V6C 2T5.
The following is a summary of the general development of the Corporation’s business over the most recently completed financial year to date:
Fiscal 2024
On January 2, 2024, the Corporation announced that its Bitcoin mining hashrate reached 2 Exahash (“EH”), more than doubling production capacity over the previous 12 months. The Corporation also announced that it expected to commence development of the North Carolina site in the second quarter of 2024.
On February 9, 2024, the Corporation announced the grant of a total of 1,080,000 restricted share units of the Corporation (“RSUs”) to certain officers, directors, key consultants and employees of the Corporation. The RSUs will vest in three equal tranches, on February 9, 2025, 2026 and 2027.
On May 24, 2024, the Corporation received a notice letter (the “2023 20-F Notice”) from Nasdaq indicating that, as a result of not having timely filed its Annual Report on Form 20-F for the fiscal year ended December 31, 2023 (the “2023 Form 20-F”), the Corporation was not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires timely filing of all required periodic reports with the SEC. The Corporation did not expect that the 2023 20-F Notice would have any immediate impact on the listing of the Corporation’s securities, which continued to trade on Nasdaq, subject to the Corporation’s compliance with the other continued listing requirements of Nasdaq. The Corporation also announced that it expected to file the 2023 Form 20-F as promptly as practicable.
On July 11, 2024, the Corporation announced that it signed a profit-sharing agreement with a strategic partner. Under the executed agreement, the Corporation will integrate 11,000 state-of-the-art S21 miners (200/TH) into its facilities, translating to approximately 44 MW of hosting. This deal also includes a profit-sharing component, whereby the Corporation will receive 60% of the daily Bitcoin mining rewards earned from the S21 miners in exchange for providing the agreed upon capacity and electrical infrastructure support.
On August 5, 2024, the Corporation announced that it entered into subscription agreements with certain institutional investors for gross proceeds of up to US$4 million in a private placement of its equity securities (the “2024 Private Placement”), comprised of 3,636,363 units of the Corporation (“Units”) at a purchase price of US$1.10 per Unit, representing a premium of 9% to the most recent closing price of the Shares (as defined below) on Nasdaq. Each Unit is comprised of one SV Share of the Corporation (a “Share”) and one warrant (a “2024 Warrant”), with each 2024 Warrant entitling the holder to purchase one additional Share. The 2024 Warrants have a per Share exercise price of US$2.00 and an exercise period of three years from the issuance date. The 2024 Private Placement closed on August 15, 2024.
On September 16, 2024, the Corporation filed the 2023 Form 20-F.
On December 2, 2024, the Corporation announced the grant of a total of 2,444,000 RSUs to certain officers, directors, key consultants and employees of the Corporation. The RSUs will vest in three equal tranches, on December 1, 2025, 2026 and 2027.
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In December 2024, the Corporation formalized a strategic Memorandum of Understanding (“MOU”) with NANO Nuclear Energy to integrate advanced nuclear energy technologies at its 60 MW New York power facility. Furthermore, Digi International and NANO Nuclear jointly submitted a response to the New York State Energy Research and Development Authority’s (“NYSERDA”) Request for Information, underscoring their shared vision of promoting advanced, zero-emission energy solutions.
Subsequent to Fiscal 2024
On February 7, 2025, the Corporation closed a private placement for gross proceeds of $6,609,500 that consisted of the sale of 2,503,601 SV Shares and warrants exercisable for up to 1,251,805 SV Shares for a combined price of $2.64 per SV Share and associated half-warrant. Each warrant is exercisable at a per share price of $3.66 and expires three years from the issuance date.
The Corporation incorporated US Data Centers Inc. as a subsidiary on September 20, 2024. Subsequent to December 31, 2024, the Corporation dissolved this subsidiary and incorporated an entity of the same name. Funds of approximately $1,000,000 were distributed back to the original shareholders upon dissolution.
Subsequent to December 31, 2024, the Corporation issued 792,669 SV Shares to settle vested RSUs.
On February 11, 2025, Digi Power announced the formation of US Data Centers, a wholly-owned subsidiary of the Corporation that will be dedicated to the development of high-performance computing and artificial intelligence-focused data centers. The US Data Centers website can be found at www.usdatacenters.ai.
Capital Expenditures
For a description of our principal capital expenditures and divestitures for the three years ended December 31, 2024 and for those currently in progress, see ITEM 5. “Operating and Financial Review and Prospects.”
Where You Can Find Other Information
The Corporation’s website is www.digipowerx.com. The Corporation files reports and other information with the SEC pursuant to the SEC’s rules and regulations that apply to foreign private issuers. The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. As a foreign private issuer, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). For example, we are not required to prepare and issue quarterly reports and are exempt from Exchange Act rules regarding proxy statements and short-swing profits. The Corporation’s electronic filings are available for viewing on the SEC’s website at https://www.sec.gov. We also file reports under Canadian regulatory requirements on SEDAR+; you may access our reports filed on SEDAR+ by accessing www.sedarplus.ca. The information on or accessible through the websites referenced herein is not part of and is not incorporated by reference into this Annual Report, and the inclusion of website addresses in this Annual Report is only for reference.
B. Business Overview
Corporate Overview
The Corporation is an innovative energy infrastructure company that develops cutting-edge data centers to drive the expansion of sustainable energy assets. With multiple sites, including our state-of-the-art combined cycle and high-capacity substations, we tap into and enhance the energy grid, supporting both industrial clients and broader energy markets. Our mission is to create efficient, reliable and cost-effective energy solutions by maximizing the potential of our power facilities and building advanced infrastructure to meet the demands of high-performance computing, Bitcoin mining and other energy-intensive industries. We only mine Bitcoin and do not mine any other digital currency. We own a 60 MW gas fired power plant in North Tonawanda that currently operates as a peaker plant providing the grid with electrical power in times of peak demand. Our core focus is on growing mining operations by increasing hashrate, securing favorable energy contracts, and expanding joint ventures. As part of our long-term vision, the Corporation aims to transition to Tier 3 infrastructure, unlocking opportunities in HPC and AI-driven data centers. These initiatives align with our goal of becoming one of the fastest-growing cryptocurrency mining companies in North America while building sustainable infrastructure to support future technologies. As of the date of this Annual Report, the Corporation has 16 employees.
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The Corporation receives digital currencies from “mining.” “Mining” is a process whereby “miners,” which are specialized computers with high amounts of computational processing power, compete to solve “blocks,” which are digital files where digital currency transactions are recorded on the blockchain. A miner that verifies and solves a new block is awarded a newly generated quantity of coins, in an amount which is usually proportional to the miner’s contributed hashrate or work (plus a small transaction fee), as an incentive to invest their computer power, as mining is critical to the continuing functioning and security of the networks on which digital currencies operate.
A “mining pool” is a service operated by a mining pool operator that pools the resources of individual miners to share their processing power over a network. Mining pools emerged in response to the growing difficulty and network hashrate competing for Bitcoin rewards on the Bitcoin blockchain as a way of lowering costs and reducing the risk of an individual miner’s mining activities. The mining pool operator provides a service that coordinates the computing power of the independent mining enterprises participating in the mining pool. Mining pools are subject to various risks such as disruption and down time. In the event that a pool utilized by the Corporation experiences down time or is not yielding returns, results may be impacted.
The Corporation participates in a mining pool that pays Bitcoin rewards utilizing a “Full-Pay-Per-Share” payout of Bitcoin based on a contractual formula, which calculates payout primarily based on the hashrate provided by the Corporation to the mining pool as a percentage of total network hashrate of the mining pool, along with other inputs. The Corporation is entitled to consideration even if a block is not successfully placed by the mining pool operator. The Corporation transitioned its mining operations completely to mining pool participation in 2022, which it utilized throughout the years ended December 31, 2023 and 2024.
The Corporation has three mining facilities located in Buffalo, New York, North Tonawanda, New York and Columbiana, Alabama. The Corporation’s power plant is also located in North Tonawanda. The Corporation’s site in North Tonawanda is a 60 MW combined cycle plant with 1.2 EH of current operating hashrate. The Corporation’s site in Buffalo is an 18.7 MW utility powered site with an operating hashrate of 500 Petahash per second (“PH”). The Corporation’s site in Alabama is a 22 MW utility powered site with an operating hashrate of 500 PH.
Miners require significant amounts of electrical power, and these energy requirements represent the Corporation’s largest operating expense. The Corporation’s operating and maintenance expenses are therefore principally composed of electricity to power its computing equipment as well as cooling and lighting, etc. Other site expenses include leasing costs for the facilities, internet access, equipment maintenance and software optimization, and facility security, maintenance and management. Ultimately, the central production line of the Corporation is converting electrical power into digital currencies through ‘mining’. Natural gas represents the largest operating cost associated with the generation of electricity at the Corporation’s power plant.
The Corporation’s operation in the digital currency mining industry requires extensive knowledge of cryptocurrency mining, cryptocurrency economics and blockchain technology. Further, the Corporation’s focus on vertical integration with energy production and its focus on environmentally conscious development requires specialized knowledge of the energy procurement industry, with a particular focus on green energy. For the year ended December 31, 2024, the Corporation also recognized revenues through its colocation agreements and mining operations agreement, the latter of which expired at the end of the second quarter of 2024, with organizations in the digital currency space. The Corporation’s number of active miners per self-mining and colocation agreements for the year ended December 31, 2024 was approximately 13,000 and 9,100, respectively.
All key components of the Corporation’s facilities are monitored including the intake air temperature, hash board temperature, voltage, hashrate, air temperature, exhaust air temperature and humidity. All parameters are monitored and changed remotely, as required. Parallel monitoring is performed by local on-site staff who are responsible for implementing any necessary repairs to mining infrastructure. In the event that the Corporation’s remote monitoring or any parallel monitoring identifies any malfunction or technical issue, personnel are dispatched to physically inspect and, if necessary, repair defective components. The Corporation intends to maintain an inventory of all necessary components for repair, which are kept at the same facility as such operations.
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During April 2021, the Corporation was approved for an account with Gemini. Gemini is a digital currency exchange and custodian that allows customers to buy, sell and store digital assets. Gemini was the first crypto exchange and custodian in the world to complete a SOC 2 Type 1 and a SOC 2 Type 2 examination. While a SOC 2 Type 1 evaluates the design and implementation of system controls at a point in time, a SOC 2 Type 2 evaluates whether these system controls have been operating effectively over a period of time. A SOC 2 Type 2 examination is the highest level of security compliance an organization can demonstrate, and Gemini completes this examination on an annual basis. As of March 28, 2025, the Corporation had holdings of approximately 51 Bitcoins in its Gemini account. Digital currencies are measured at fair value using the quoted price on the Gemini exchange. Gemini serves as our principal market. The Corporation believes any price difference between the principal market and an aggregated price to be immaterial.
The Corporation performs credit due diligence in the normal course of business when beginning a relationship with counterparties, as well as during ongoing business activities. Gemini maintains insurance coverage for the cryptocurrency held on behalf of the Corporation in its online hot wallet. The Corporation has not been able to independently insure its mined digital currency. Given the novelty of digital currency mining and associated businesses, insurance of this nature is generally not available, or uneconomical for the Corporation to obtain which leads to the risk of inadequate insurance coverage.
On occasion, to mitigate third-party risk, the Corporation will hold a portion of its digital currencies in cold storage solutions that are not connected to the internet. The Corporation’s digital assets that are held in cold storage are stored in safety deposit boxes at a bank branch. The wallets in which the Corporation stores its cryptocurrency assets are not multi-signature wallets; however, the Corporation secures the 24-word seed phrase, which facilitates recovery of the wallets should the wallets become lost, stolen or damaged, by partitioning the seed phrase in multiple parts, and securing each part in a separate location. Each part of the seed phrase is stored in either a safe or safety deposit box. The Corporation replicates this security protocol by taking the same 24-word seed phrase, partitioning this into several parts and storing each part in a secure location in a separate safe or safety deposit box than was used for the first copy of the seed-phrase. This duplication ensures that the digital currencies held via cold storage solutions will be recoverable by the Corporation, should the Corporation’s cold wallets become lost, stolen or damaged. During the year-ended December 31, 2024, and as of the date of this Annual Report, all of the Corporation’s cryptocurrency assets are currently held in its Gemini wallets.
The vast majority of mining is now undertaken by mining pools, whereby miners organize themselves and pool their processing power over a network and mine transactions together. Rewards are then distributed proportionately to each miner based on the work/hashpower contributed. Mining pools became popular when mining difficulty and block time increased. While the rewards for successfully solving a block become considerably lower in the case of pooling, rewards are earned on a far more consistent basis, reducing the risk to miners with smaller computational power. As of the date of this Annual Report, the Corporation participates in one mining pool in order to smooth the receipt of rewards. Mining pools generally exist for each well-known cryptocurrency.
Miner Manufacturers and Suppliers
The Corporation currently relies upon a limited number of suppliers from which it purchases miners. The prices of mining machines are negotiated on an individual basis, although the price at which a manufacturer is willing to sell miners often fluctuates with the price of the cryptocurrency that is able to be mined by the miners and, as such, may be subject to meaningful changes in price during periods of pricing volatility for cryptocurrencies.
Sources of Energy
The Corporation’s operations use a blend of renewable energy, zero-carbon electricity, and non-renewable sources. Currently, 91% of the electricity consumed by the Corporation’s grid-based power across its two New York State sites is sourced from zero-carbon generation. Additionally, more than 50% of the total energy consumed at these sites is derived from renewable sources.
As the Corporation brings online its own natural gas-fired power generation facility, it will focus on sourcing renewable natural gas (“RNG”) for at least 50% of the natural gas consumed at its Alabama site. We believe that New York State’s growing RNG ecosystem—primarily supplied by anaerobic digesters on local dairy farms and by landfill gas recovery—positions the Corporation to support sustainable fuel sourcing.
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The Corporation’s current carbon-neutrality efforts and initiatives include:
| ● | 100% Carbon Neutral by 2026: The Corporation is committed to achieving 100% carbon neutrality across all operations with a net-zero carbon footprint by the end of 2026. While the original goal was 2025, the timeline has been adjusted to align with updated projections on New York State’s renewable energy deployment, which is slightly behind pace. The Corporation remains on track to meet its longer-term target of using 100% renewable energy by 2030. |
| ● | Community Solar Leadership: The Corporation is the anchor subscriber to a 5 MW community solar project located in Grand Island, NY, just 15 miles from its East Delavan facility. This project will generate enough clean electricity to power more than 2,500 homes annually. Our participation directly supports the development of new renewable assets, adds clean energy to the grid, and reduces our overall electricity costs. |
| ● | Digigreen Initiative: An internal program focused on implementing sustainable, environmentally responsible, and economically sound practices. This initiative helps position the Corporation as an industry leader in reducing and eliminating its carbon footprint without sacrificing profitability. |
| ● | Crypto Climate Accord: As a signatory to this private sector-led initiative, the Corporation is working collaboratively with other crypto stakeholders to rapidly decarbonize the cryptocurrency industry. |
| ● | Proof of Green: The Corporation is developing proprietary standards to measure and audit its carbon impact. These tools will enable regular environmental accountability reports and provide strategic guidance to directors and shareholders on carbon reduction opportunities across operations. |
Revenues
For a description of our revenues for the three years ended December 31, 2024, see “Mining Operations” under ITEM 5.A. “Operating Results.”
Seasonality
Mining machines are energy intensive and produce a high amount of heat. Typically, machines operate more efficiently in the colder seasons when operators do not need to utilize as many cooling methods. Additionally, dry seasons may lead to a shortage in power supply, and periods of high heat can result in energy grid stress, which can negatively impact the Corporation’s business operations if it experiences power supply interruption or reduces its energy consumption. The Corporation has previously, and may again in the future, voluntarily curtailed its energy consumption burden to assist the energy needs of the local communities in which it does business. Results of the Corporation’s business operations are largely influenced by the market value of Bitcoins, and Bitcoin volatility is tied to, among other things, its halving schedule and the other risks described in ITEM 3.D. “Risk Factors” above.
Competition
The digital currency mining industry is highly competitive. In addition, there exist many online companies that offer digital currency cloud mining services, as well as companies, individuals and groups that run their own mining farms. Miners can range from individual enthusiasts to professional mining operations with dedicated data centers, including those of the kind operated by the Corporation’s principal publicly listed competitors. There are several companies competing in the Corporation’s industry, including Riot Platforms, Inc. (NASDAQ: RIOT), MGT Capital Investments Inc. (OTCQB: MGTI), MARA Holdings, Inc. (NASDAQ: MARA), Bitfarms Ltd. (TSX / NASDAQ: BITF), Argo Blockchain Plc (LSE: ARB; NASDAQ: ARBK), Hut 8 Corp. (TSX / NASDAQ: HUT), CryptoStar Corp. (TSXV: CSTR; OTCQB: CSTXF), HIVE Digital Technologies Ltd. (TSXV / NASDAQ: HIVE; FSE: YO0), Skychain Technologies Inc. (NEX: SCT.H) and DMG Blockchain Solutions Inc. (TSXV: DMGI; OTCQB: DMGGF; FRA: 6AX).
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Regulation
The laws and regulations applicable to cryptocurrency are evolving and subject to interpretation and change. Governments around the world have reacted differently to cryptocurrencies; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the United States, cryptocurrencies are subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. As cryptocurrencies have grown in both popularity and market value, the U.S. Congress and a number of U.S. federal and state agencies and regulators have been examining the operations of cryptocurrency networks, cryptocurrency users and miners and cryptocurrency exchange markets, with a particular focus on the extent to which cryptocurrencies can be used to launder the proceeds of illegal activities or fund criminal or terrorist enterprises and the safety and soundness and consumer-protective safeguards of exchanges or other service providers that hold, transfer, trade or exchange digital assets for users. Many state and federal agencies have issued consumer advisories regarding the risks posed by cryptocurrencies to investors. In addition, federal and state agencies, and other countries, have issued rules or guidance about the treatment of cryptocurrency transactions or requirements for businesses engaged in activities related to cryptocurrencies. The cryptocurrency financial system, cryptocurrency miners and cryptocurrency transactions, exchanges and other related businesses are not currently subject to significant regulation, which primarily consists of environmental regulations promulgated by the U.S. Environmental Protection Agency (as well as the state equivalents thereof) and the local public utility regulators that are generally applicable to owners and occupants of real estate and the consumption of energy as well as certain regulations of specific relevance to participants in cryptocurrency mining industry or adjacent elements of the cryptocurrency financial system, including rules, regulations and related guidance adopted by the SEC, the Commodity Futures Trading Commission, Financial Industry Regulatory Authority, the Consumer Financial Protection Bureau, the U.S. Department of Justice, the Internal Revenue Service (the “IRS”) and state financial regulators. Depending on the regulatory characterization of the cryptocurrencies we mine (including whether such cryptocurrencies constitute securities and/or a commodity), the markets for those cryptocurrencies in general, and our activities in particular, may be subject to rules and regulations promulgated by one or more regulators in the United States and globally. Ongoing and future regulatory actions may alter, perhaps to a materially adverse extent, the nature of cryptocurrency markets and our cryptocurrency operations. Additionally, U.S. state and federal, and foreign regulators and legislatures have taken action against cryptocurrency businesses or enacted restrictive regimes in response to adverse publicity arising from hacks, consumer harm, or criminal activity stemming from cryptocurrency activity. There is also increasing attention being paid by U.S. federal and state energy regulatory authorities as the total load of cryptocurrency mining grows and potentially alters the supply and dispatch functionality of the wholesale grid and retail distribution systems. Many state legislative bodies are also actively reviewing the impact of cryptocurrency mining in their respective states.
Changes, if any, in mining or investment policies, or shifts in political attitude could adversely affect the Corporation’s operations or profitability. Operations have been and, in the future, may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on price controls, currency remittance, income taxes, consumption taxes, foreign investment, maintenance of claims, environmental matters, land use, electricity use and safety, as well as buying and selling cryptocurrency and other transactions involving cryptocurrency. For example, cryptocurrency mining involves considerable computing power, which is likely to increase. This computing power necessitates a high consumption of energy. Although a portion of the Corporation’s energy costs are determined and controlled by various regulators, there is no certainty that any relevant regulator will not raise energy tariffs, which may reduce the profitability of mining cryptographic currencies.
In the future, the United States (whether at the federal or state level) and any other jurisdiction where the Corporation then conducts its operations may also 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, future government actions may result in restrictions on the acquisition, ownership, holding, selling, use or trading in the Corporation’s SV Shares. Any such restriction could result in the Corporation liquidating its cryptocurrency inventory at unfavorable prices and may adversely affect the Corporation’s shareholders.
Ongoing and future regulatory changes or actions may alter the nature of an investment in the Corporation or restrict the use of cryptocurrencies in a manner that adversely affects the Corporation’s operations. The effect of any future regulatory change on the Corporation or any cryptocurrency that the Corporation may mine is impossible to predict, and any such change could be substantial and adverse to the Corporation.
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The Corporation believes the present attitude toward foreign investment and the cryptocurrency mining industry in each of the jurisdictions in which it operates is favorable, but conditions may change, including changes that are rapid and unexpected. The Corporation’s operations may be affected in varying degrees by government regulation with respect to restrictions on production, price controls, export and import controls, foreign exchange controls, income taxes, consumption taxes and environmental legislation, depending upon the nature of any such government regulation.
Various branches, departments and agencies of the federal government in the U.S. have solicited comments and initiated procedures to consider further regulating cryptocurrency and mining, including through proposed taxes on Mining operations and policy statements and guidance to companies in the cryptocurrency industry, as well as third parties that do business with those companies. In March 2023, the U.S. Treasury Department proposed a 30% excise tax on the cost of powering mining facilities that, if enacted, would be based on the costs of electricity used in mining and would be phased in over the next three years, increasing 10% each year. This proposal was eliminated during debt ceiling negotiations in 2023 but was later revived in President Biden’s fiscal year 2025 budget proposal. However, the budget of the United States Government for fiscal year 2025 has not yet been approved, as the government is currently operating under a continuing resolution, and this latest tax proposal has not yet been adopted. The proposal, if enacted, would also require miners, like the Corporation, to report how much electricity they use and what type of power was tapped.
Further, the global supply of miners is unpredictable and presently heavily dependent on manufacturers from Asia, which was severely affected by the COVID-19 pandemic and may in the future be impacted by global health pandemics and epidemics or other events outside of the Corporation’s control. The Corporation currently utilizes several types of miners as part of its mining operations, all of which are produced in Asia. Geopolitical matters, including, but not limited to, tariffs or the threat of tariffs and geopolitical conflict, may impact the Corporation’s ability to import miners in the future, and the Corporation may not be able to obtain adequate replacement parts for its existing miners or obtain additional miners from manufacturers in other jurisdictions on a timely basis.
Given the difficulty of predicting the outcomes of ongoing and future regulatory actions and legislative and geopolitical developments, it is possible that any legislative, regulatory or geopolitical change could have a material adverse effect on the Corporation’s business, prospects or operations, the magnitude and duration of which cannot be predicted.
Overall, presently, we do not believe any U.S. federal or state regulatory body has taken any action or position adverse to the production of Bitcoin or its sale or use as a medium of exchange. In March 2025, the SEC’s Division of Corporate Finance issued guidance indicating that certain proof-of-work mining activities do not constitute the sale or offering of securities under the federal securities laws; however, future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability.
C. Organizational Structure
The table below describes, as of March 31, 2025, the date and jurisdiction of formation and functions of the Corporation’s significant subsidiaries, all of which are wholly owned by the Corporation:
| Name | Date
of | Jurisdiction of Formation | Assets Held/Function | Function | ||||
| Digihost International, Inc. | October 9, 2018 | Delaware, U.S. | Computer and electrical equipment | U.S. based operational hub | ||||
| US Data Centers, Inc. | February 7, 2025 | Delaware, U.S. | None – in development | Intended to provide AI/HPC-related services | ||||
| World Generation X, LLC | June 1, 1989 | Delaware, U.S. | Power Plant and ancillary machinery needed for operation of plant | Requisite power used to support operations |
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Other than the entities listed in the table above, the Corporation does not have any significant subsidiaries.
D. Property, Plants and Equipment
Our principal executive office is located at 218 NW 24th Street, 2nd Floor, Miami, Florida, 33127.
The Corporation has three mining facilities located in Buffalo, NY; North Tonawanda, NY; and Columbiana, AL. The Corporation has one power plant located in North Tonawanda.
The “Buffalo Mining Facility” is located at 1001 East Delavan Ave., Buffalo, New York, with over 60,000 square feet under a 99-year lease. For additional information concerning the Buffalo Facility Lease, see ITEM 10.C. “Material Contracts” below.
The North Tonawanda facility is located at 1070 Erie Ave., North Tonawanda, New York and covers approximately 13.5 acres of property. The Corporation acquired the property on February 8, 2023. It is a 60 MW power plant in North Tonawanda, New York. This renewable energy project, located in National Grid territory, is being managed by Williamsville, NY based energy supplier, EnergyMark LLC (“EnergyMark”). The community solar project is 5 MW in size and will produce roughly 9,500,000 kWh’s of clean electricity annually—enough to power more than 1,000 homes. The Corporation’s Buffalo Mining Facility remains the anchor subscriber to the project.
The Columbiana facility is located at 130 Industrial Parkway, Columbiana, Alabama. The Corporation acquired the property on June 14, 2022. The site consists of approximately 160,000 square feet of office and industrial warehouse space with initial access to 28 MW of power with a total capacity of up to 55 MW.
The Corporation also acquired 25 acres of land in North Carolina to accommodate a 200 MW power infrastructure project to be developed on a joint venture basis. Phase 1 of this project is in development for 2025 and, following the completion of its development, is expected to provide the Corporation with further electrical power of approximately 75 MW.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not required.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with the audited consolidated financial statements of the Corporation and the related notes for the years ended December 31, 2024, 2023 and 2022 included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” on page iv of this Annual Report on Form 20-F. Actual results could differ materially from those anticipated by forward-looking information due to, among other things, the factors discussed under ITEM 3.D. “Risk Factors” and ITEM 4.B. “Business Overview.”
A. Operating Results
Mining Operations
In the past three years, we have mined cryptocurrency, primarily Bitcoin. During the fiscal years ended December 31, 2024, 2023 and 2022, the Corporation generated revenues from its cryptocurrency mining operations, all of which were conducted in the U.S., of $10,318,500, $18,128,241 and $24,190,060, respectively.
During the year ended December 31, 2024, the Corporation mined 188 Bitcoins at an average Bitcoin price of US$65,963 (from Gemini) compared to the year ended December 31, 2023, in which the Corporation mined 640 Bitcoins at an average price of Bitcoin of US$28,861 (from Gemini). With the average price of Bitcoin increasing by 129% on a year over year basis and Bitcoin network difficulty increasing due to the halving event, the most significant factor impacting the decrease in the Corporation’s mining revenue in 2024 versus the prior year was the continued diversification of Corporation’s revenue streams in 2024 by entering into the Colocation and Sale of Electricity agreements mentioned in this document. By entering into these contracts, the Corporation was able to utilize its existing infrastructure and power supply and receive consistent payment for consumption.. The Corporation’s had approximately 13,000 active miners for self-mining and 9,100 active miners for colocation agreements, respectively, as of the year ended December 31, 2024.
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For the years presented, the table below compares the cost to earn/mine cryptocurrency with the value of the cryptocurrency:
| Year ended | ||||||||||||
December 31, ($) | December 31, ($) | December 31, ($) | ||||||||||
| Cost of digital currency mining: | ||||||||||||
| Cost of revenue | 7,192,288 | 14,646,658 | 17,760,786 | |||||||||
| Miner lease and hosting agreement | - | 638,689 | 2,517,503 | |||||||||
| Total cost of digital currency mining | 7,192,288 | 15,285,347 | 20,278,289 | |||||||||
| Coins mined | 188 | 640 | 832 | |||||||||
| Remitted per agreements | - | (51 | ) | (380 | ) | |||||||
| Total coins mined | - | 589 | 452 | |||||||||
| Break-even | 38,257 | 25,951 | 44,863 | |||||||||
The Corporation recognized revenue from colocation service agreements of $15,790,179 for the year ended December 31, 2024 (2023: $1,675,269) and $6,283,028 from the sale of electricity (2023: $3,037,393). Since the costs incurred per colocation service agreement are passed through to our customers, a break-even calculation is not considered relevant for this vertical. The colocation service agreements were in place from April 2023, September 2023, March 2024, and July 2024 respectively, while the mining operations agreement was executed in February 2023 and expired at the end of the second quarter of 2024. The Corporation recognizes revenue from its colocation and sale of electricity agreements in the following manners:
Colocation services: The Corporation recognizes revenue from its colocation services in line with IFRS 15 guidance when it satisfies performance obligations by transferring the control of services, which include power provision and space rental, to customers. Revenue is recognized monthly in an amount that reflects actual power consumption, as per contractual terms, and any fixed maintenance fees are recognized over time as services are rendered to customers, aligning the recognition of revenue with the delivery of services. The transaction price for colocation services includes both fixed fees and variable considerations, which are incorporated only if a significant reversal in the future is deemed unlikely.
Under these agreements, the Corporation provides a portion of its power capacity available at its facilities to customers in exchange for the payment of the energy costs incurred by the running of the customers’ machines. Additionally, the Corporation is entitled to receive a percentage of the generated hashrate rewards from the running of customers’ machines at the Corporation’s locations. This information is attainable based on incurred power costs and rewards generated on the blockchain from machines being run and reviewed by both parties.
As it pertains to the Corporation’s colocation services agreements, each counterparty with which the Corporation has executed such an agreement is allowed the opportunity to select the mining pool(s) to which its miners’ computing power will be directed and from which the mining rewards will be received (e.g., Foundry pools). The Corporation is responsible for connecting the miners to the pool(s) and related monitoring. If the relevant counterparty wants to change or switch pools, they will have to request that of the Corporation, which is obligated to effectuate such change.
Sale of electricity: The Corporation recognizes revenue from the sale of electricity in line with IFRS 15 guidance when it has satisfied its performance obligation, which occurs as the electricity is provided to the customer. The Corporation supplies the requisite power and ancillary operational functions in order for the digital currency mining equipment on its property to run efficiently outside of its facilities. Revenue is recorded monthly based on the actual consumption of energy by the customer, at the price determined by the contract. This reflects the Corporation’s performance and the customer’s consumption benefits, with variable consideration being recognized in the period it is due. The transaction price for sale of electricity includes both fixed fees and variable considerations, which are incorporated only if a significant reversal in the future is deemed unlikely.
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The Corporation also recognized revenue from the sale of energy of $4,610,556 for the period, compared to $3,272,005 in 2023, as the
Corporation acquired a 60 MW power plant during Q1 2023. Revenue from this acquisition of a business is recognized each month through
the operations of the plant through its available capacity that can be sold, and actual generation of power sold.
Pertaining to the Corporation’s singular agreement that constitutes the Sale of electricity revenue line, pursuant to the underlying agreement, the operator agreed to accept a minimum of 22 MW of energy capacity on a 24/7 basis at the delivery point, unless the operator and the Corporation mutually agree in writing to a lesser minimum usage amount due to economic or other reasons. On this basis, the Corporation believes that the counterparty is not contractually permitted to unilaterally turn off the miners at its election and must instead reach an agreement with the Corporation before any such action may be taken. This agreement expired in Q2 2024.
Bitcoin
As of December 31, 2024, the Corporation held a total of approximately 48 Bitcoins with an inventory value of approximately $4.5 million based on the Bitcoin price as of that date per the Gemini exchange. For the 12-month period ended December 31, 2024, the Corporation self-mined approximately 188 Bitcoins compared to a total of approximately 640 Bitcoins for the 12-month period ended December 31, 2023, representing a decrease of 71%.
The number of Bitcoins mined decreased compared to 2023 due to the continued expansion of the Corporation’s hosting and colocation operations agreements that were entered into in order to diversify its operations.
Ethereum
As of December 31, 2024 and 2023, the Corporation held a total of nil ETH as inventory was converted to cash during Q1 2023.
As of December 31, 2022, the Corporation held a total of 801 ETH with a value of $958,480 based upon the ETH price on December 31, 2022.
Updates and Expansion
On February 7, 2023, the Corporation announced that it had completed the acquisition of a 60 MW power plant in North Tonawanda, NY. Further to the Corporation’s initial news release on March 24, 2021, the terms of the acquisition were amended to reflect an all-cash purchase price using internal funds. No shares of the Corporation were issued in connection with the acquisition.
The acquisition represents a significant milestone in the Corporation’s ongoing infrastructure expansion strategy. As a result of the acquisition, the Corporation’s consolidated operating capacity across its three sites represents approximately 90 MW of available power, representing approximately 2 EH/s of computing power. The generator capacity will continue flexible operation to ensure that 24/7 dispatchable supply is made available to area residents, businesses and industry to mitigate impacts of power interruptions in concert with directives of the New York Independent System Operator (NYISO).
A Mining Operations Agreement was entered into on February 16, 2023 by and between the Corporation and Northern Data NY, LLC. Under the terms of the agreement, Digi International agreed to provide the requisite power and ancillary operational functions in order for the digital currency mining equipment on its property to run efficiently outside of its facilities. The agreement was not renewed by the December 31, 2023 renewal date and expired in April 2024. Subsequently, the parties entered into a new agreement that expired on June 27, 2024. There are currently no plans for the parties to pursue an additional agreement.
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A Colocation Services Agreement was entered into on April 20, 2023 by and between the Corporation and Bit Digital USA, Inc. Under the terms of the agreement, Digi International provides hosting services in return for reimbursement of power consumption per the contractual terms.
A Colocation Services Agreement was entered into on September 21, 2023 by and between the Corporation and Corner Energy LTD. Under the terms of the agreement, Digi International provides hosting services in return for reimbursement of power consumption per the contractual terms.
On March 5, 2024, the Corporation announced that it signed a multi-year hosting agreement with one of the world’s leading manufacturers of digital currency mining servers. Under the agreement, Digi International received an upfront deposit along with 4,640 S19 XPs (21.5W/TH), which equates to approximately 14 MW of hosting. The deployment resulted in a hash rate increase of approximately 700 PH/s, bringing the Corporation’s total hash rate to 2.4 EH/s. The parties mutually agreed to terminate that agreement during the third quarter of 2024.
On July 11, 2024, the Corporation announced that it signed a profit-sharing agreement with a strategic partner. Under the executed agreement, the Corporation will integrate 11,000 state-of-the-art S21 miners (200/TH) into its facilities, translating to approximately 44 MW of hosting. This deal also includes a profit-sharing component, whereby the Corporation will receive 60% of the daily Bitcoin mining rewards earned from the S21 miners in exchange for providing the agreed upon capacity and electrical infrastructure support.
On December 13, 2024, the Corporation announced that it signed a MOU with NANO Nuclear Energy to integrate advanced nuclear energy technologies at its 60 MW New York power facility. On December 17, 2024, Digi International and NANO Nuclear jointly submitted a response to the NYSERDA’s Request for Information.
On February 11, 2025, the Corporation announced that it had launched a subsidiary, US Data Centers, dedicated to the development of HPC and AI-focused data centers. Through the subsidiary, the Corporation plans to complete the transformation of the Corporation’s facility in Columbiana, Alabama into a Tier 3 data center designed to support next-generation AI and HPC workloads. The project is planned to be executed in two phases, with a total aggregate planned capacity of 55 MW.
In connection with the Corporation’s renewed focus on the development of HPC and AI-focused data centers, on March 4, 2025 the Corporation announced a name change to Digi Power X Inc. The new name reflects the aspirations of the Corporation to be a leader in the development of sustainable energy infrastructure and the Corporation’s focus on a diversification of its offerings, with a switch to focusing on computing and data processing.
With the launch of US Data Centers, the Corporation is creating a dedicated platform focused entirely on delivering AI and HPC solutions, ensuring purpose-built infrastructure for the next generation of computing. As its first major initiative, US Data Centers plans to lead the transformation of the Corporation’s existing site in Columbiana, Alabama into a state-of-the-art Tier 3 data center designed to support next-generation AI and HPC workloads. The project is planned to be executed in two phases, with a total aggregate planned capacity of 55 MW. The Corporation plans to finance the project primarily through debt by leveraging anticipated predictable future revenues anticipated from the completion of the proposed project. This strategic investment underscores the Corporation’s commitment to expanding its infrastructure to meet the growing demand for AI-driven computing power and cloud services. US Data Centers was formed to transform the Alabama facility by integrating scalable computing power with energy-efficient solutions, ensuring performance, reliability, and sustainability for enterprises, research institutions, and AI-driven businesses.
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Regulatory Environment
The Corporation is subject to government regulation in each jurisdiction in which it operates, and various jurisdictions may from time to time adopt laws, regulations or directives that affect the Corporation’s business. The Corporation is subject to regulatory risks with regard to mining, holding, using or transferring cryptocurrencies, and the uncertainty of the regulatory environment and the Corporation’s ability to anticipate and respond to potential changes in government policies and regulations may have a significant impact on the Corporation’s business operations in countries the Corporation operates. Regulations have impacted or could impact the nature of and scope of offerings the Corporation is able to make available, the pricing of the Corporation’s offerings, the Corporation’s relationship with, and incentives, fees and commissions provided to or charged from, the Corporation’s business partners, and the Corporation’s ability to operate in certain segments of its business, among others. The Corporation expects that its ability to manage its relationships with regulators in each of its markets, as well as existing and evolving regulations, will continue to impact its results in the future. For additional information concerning the regulations to which the Corporation and its business are subject, as well as the risk factors attendant thereto, see the “Regulation” section under ITEM 4.B. “Business Overview” and ITEM 3.D. “Risk Factors.”
Custodial Services for Digital Currencies
The Corporation has a digital custody account with Gemini. Gemini is a digital currency exchange and custodian that allows customers to buy, sell and store customers’ digital assets. Gemini holds 100% of the Corporation’s cryptocurrency assets in hot storage. Gemini is not a related party of the Corporation. The Corporation is not aware of anything with regards to Gemini’s operations that would adversely affect the Corporation’s ability to obtain an unqualified audit opinion on its audited financial statements.
The Corporation has chosen to hold its full inventory of cryptocurrency assets with Gemini due to its track record in the industry. Gemini is a New York trust company regulated by the New York State Department of Financial Services and is the foreign equivalent of a Canadian financial institution (as that term is defined in National Instrument 45-106 – Prospectus Exemption). Gemini is a qualified custodian under New York Banking Law and is licensed by the State of New York to custody digital assets. Gemini has not appointed a sub-custodian to hold any of the Corporation’s cryptocurrencies. Gemini has US$100 million in insurance coverage split between US$25 million of commercial crime insurance for digital assets held in online hot wallets and US$75 million for offline, cold storage. Although the Corporation has historically utilized both cold and hot storage for its digital crypto assets with Gemini, the Corporation currently holds all its cryptocurrencies custodied with Gemini in hot storage.
The Corporation has conducted due diligence on Gemini and has not identified any material concerns. It routinely reviews and verifies its asset balances on public blockchain explorers. Management of the Corporation is not aware of any security breaches or other similar incidents involving Gemini that resulted in lost or stolen cryptocurrency assets. In the event of an insolvency or bankruptcy of Gemini, the Corporation would write off as losses any unrecoverable cryptocurrency assets.
In order to monitor Gemini, the Corporation relies on system and organization controls provided by a SOC 2 Type II report, which was undertaken by Deloitte & Touche LLP, an independent audit firm. A SOC 2 Type II certification and report are viewed as instrumental in providing verification to third parties that appropriate controls have been put in place to safeguard the Corporation’s cryptocurrency assets, specifically as it relates to having strict security and data protection processes and protocols.
In general, a SOC 2 Type II certification is issued by an outside auditor that evaluates the extent to which a vendor complies with five trust principles based on the systems and processes in place. These five principles include the following:
| ● | “Security,” which addresses the safeguarding of system resources and assets against unauthorized access; |
| ● | “Availability,” which addresses the accessibility of the system as stipulated by the applicable service agreement between vendor and customer; |
| ● | “Processing Integrity,” which addresses whether or not a system achieves its purpose; |
| ● | “Confidentiality,” which addresses whether access and disclosure of data is restricted to a specified set of persons or organizations; and |
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| ● | “Privacy,” which addresses the system’s collection, use, retention, disclosure and disposal of personal information in conformity with an organization’s privacy notice. |
The Corporation has elected to use Gemini as its sole custodian as Gemini compiles documented controls that can be provided to the Corporation, such as the SOC 2 Type II certification. The Corporation reviews the SOC 2 Type II report to ensure it maintains a secure technology infrastructure and the security systems designed to safeguard cryptocurrency assets are operating effectively. To date, the Corporation has not identified any material concerns based on its review of the SOC 2 Type II report.
Gemini maintains insurance coverage for the cryptocurrency held on behalf of the Corporation in its online hot wallet. The Corporation is in the process of looking to insure the remainder of its mined digital currency. Given the novelty of digital currency mining and associated businesses, insurance of this nature is generally not available, or is uneconomical for the Corporation to obtain, which leads to the risk of inadequate insurance cover.
On occasion, to mitigate third-party risk, the Corporation will hold a portion of its digital currencies in cold storage solutions that are not connected to the internet. The Corporation’s digital assets that are held in cold storage are stored in safety deposit boxes at a bank branch. The wallets in which the Corporation stores its cryptocurrency assets are not multi-signature wallets; however, the Corporation secures the 24-word seed phrase, which facilitates recovery of the wallets should the wallets become lost, stolen or damaged, by partitioning the seed phrase in multiple parts, and securing each part in a separate location. Each part of the seed phrase is stored in either a safe or safety deposit box. The Corporation replicates this security protocol by taking the same 24-word seed phrase, partitioning this into several parts and storing each part in a secure location in a separate safe or safety deposit box than was used for the first copy of the seed-phrase. This duplication ensures that the digital currencies held via cold storage solutions will be recoverable by the Corporation, should the Corporation’s cold-wallets become lost, stolen or damaged. During the year ended December 31, 2024 and as of the date of this Annual Report, all of the Corporation’s cryptocurrency assets were held in its Gemini wallets.
Selected Financial Information
| Year ended | ||||||||||||
| December 31, 2024 ($) | December 31, 2023 ($) | December 31, 2022 ($) | ||||||||||
| Revenue | 37,002,263 | 26,112,908 | 24,190,060 | |||||||||
| Net income (loss) | (6,797,718 | ) | (21,885,410 | ) | 4,329,342 | |||||||
| Net income (loss) per share – basic | (0.22 | ) | (0.77 | ) | 0.16 | |||||||
| Net income (loss) per share - diluted | (0.22 | ) | (0.77 | ) | 0.15 | * | ||||||
| * | During the external audit of the Corporation’s financial statements for the year ended December 31, 2023, the Corporation determined that it was required to make an immaterial error correction to distinguish diluted net income (loss) per share from basic net income (loss) per share. |
| Year ended | ||||||||||||
December 31, ($) | December 31, ($) | December 31, ($) | ||||||||||
| Total assets | 34,318,088 | 42,147,347 | 52,599,561 | |||||||||
| Total long-term liabilities | 2,279,211 | 2,179,757 | 2,169,276 | |||||||||
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Adjusted EBITDA – NON-GAAP MEASURE
“Adjusted EBITDA” is a metric used by management which is income (loss) from operations, as reported, before interest, tax, and adjusted for removing other non-cash items, including, depreciation, and further adjusted to remove acquisition-related costs, share based compensation costs and unusual expenses. Management believes “Adjusted EBITDA” is a useful financial metric to assess its operating performance on a cash basis before the impact of non-cash items and acquisition related activities.
| Year ended | ||||||||||||
| December 31, 2024 ($) | December 31, 2023 ($) | December 31, 2022 ($) | ||||||||||
| Income (loss) before other items | (6,797,718 | ) | (21,885,410 | ) | 4,329,342 | |||||||
| Taxes and Interest | (877 | ) | 42,134 | (1,299,263 | ) | |||||||
| Depreciation | 15,637,616 | 14,923,419 | 10,709,108 | |||||||||
| Revaluation of warrant liabilities | (4,071,434 | ) | 4,522,523 | (32,010,637 | ) | |||||||
| FV Changes | (4,433,432 | ) | (1,955,547 | ) | 11,115,067 | |||||||
| Impairment of goodwill and property, plant and equipment (“PPE”) | - | 1,363,941 | 2,816,783 | |||||||||
| Transaction costs | - | - | 695,170 | |||||||||
| Share based compensation | 1,748,506 | 1,620,777 | 3,296,238 | |||||||||
| Adjusted EBITDA | 2,082,661 | 2,542,931 | (348,192 | ) | ||||||||
For the year ended December 31, 2024, compared to the year ended December 31, 2023:
For the year ended December 31, 2024, the Corporation’s net loss was $6,797,718 compared to net loss of $21,885,410 for the year ended December 31, 2023. The year over year decrease in net loss is a result of the following:
Revenue
Revenue from Bitcoin mining was $10,318,500 for the year ending December 31, 2024, compared to $18,128,241 for the year ended December 31, 2023.
During the year ended December 31, 2024, the Corporation mined 188 Bitcoins at an average Bitcoin price of US$65,963 (from Gemini) compared to the year ended December 31, 2023, in which the Corporation mined 640 Bitcoins at an average price of Bitcoin of US$28,861 (from Gemini). With the average price of Bitcoin increasing by 129% on a year over year basis and Bitcoin network difficulty increasing due to the halving event, the most significant factor impacting the decrease in the Corporation’s mining revenue in 2024 versus the prior year was the continued diversification of Corporation’s revenue streams in 2024 by entering into the Colocation and Sale of Electricity agreements mentioned above in this this 20-F. By entering into these contracts, the Corporation was able to utilize its existing infrastructure and power supply and receive consistent payment for consumption. From these agreements, the Corporation recognized revenue from colocation service agreements of $15,790,179 for the year ended December 31, 2024 (2023: $1,675,269) and $6,283,028 from the sale of electricity (2023: $3,037,393).
See ITEM 5.A. “Mining Operations” for a description of the manner in which the Corporation recognizes revenue from such arrangements.
The Corporation also recognized revenue from the sale of energy of $4,610,556 for the period, compared to $3,272,005 in 2023, as the Corporation acquired a 60 MW power plant during Q1 2023. Revenue from this acquisition of a business is recognized each month through the operations of the plant through its available capacity that can be sold, and actual generation of power sold.
Cost of Sales
The Corporation’s cost of sales was $48,349,183 for the year ended December 31, 2024, compared to $35,780,032 for the year ended December 31, 2023.
Cost of revenue increased by $12,569,151 as compared to the prior year due primarily to the costs associated with the power plant of $14,513,076 (2023: $4,225,676) which included fuel, gas, carbon emission, contract labor, and general repair and maintenance costs.
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Depreciation and amortization expense increased by $714,197 year over year as the expense associated with the approximately $3.2 million of assets related to the Corporation’s infrastructure and mining equipment that were put into use during the first half of 2024 was mostly offset by the reduction of expense associated with fully depreciated assets.
Miner and lease hosting agreement expense decreased by $638,689 as the Corporation’s prior agreements expired during Q1 2023.
General, Administrative & Other Expenses
The Corporation’s general and administrative expenses were a positive $476,891 for the year ended December 31, 2024, compared to $7,653,629 for the year ended December 31, 2023.
The primary variances from the year ended December 31, 2023 were due to:
| ● | Increase in professional fees spend of $686,707 associated to expenses incurred related to external audit fees and legal fees associated with the Corporation’s private placements. |
| ● | Foreign exchange gain of $5,227,038 (2023: loss of $1,377,475) related to currency exchange fluctuations on the intercompany balances. |
| ● | Write-off of equipment in the prior year of $1,363,941 (2024: $nil). |
| ● | Gain on revaluation of digital currencies in the fiscal year ended December 31, 2024 of $898,691 (2023: $10,991). |
Other income/expense items of note in the fiscal year ended December 31, 2024 include the revaluation of the warrant liabilities which resulted in a gain of $4.07 million (2023: loss of $4.52 million).
For the year ended December 31, 2023, compared to the year ended December 31, 2022:
For the year ended December 31, 2023, the Corporation’s net loss was $21,885,410 compared to net income of $4,329,342 for the year ended December 31, 2022. The year over year increase in net loss and decrease in net income is a result of the following:
Revenue
Revenue from Bitcoin mining was $18,128,241 for the year ended December 31, 2023, compared to $24,190,060 for the year ended December 31, 2022.
During the year ended December 31, 2023, the Corporation mined 640 Bitcoins at an average Bitcoin price of US$28,861 (from Gemini) compared to the year ended December 31, 2022, in which the Corporation mined 832 Bitcoins at an average price of Bitcoin of US$28,198 (from CoinMarketCap). The Corporation began using Gemini as its principal market during the year ended December 31, 2023. The Corporation believes any price difference between the principal market and an aggregated price, such as CoinMarketCap, to be immaterial.
With the average price of Bitcoin remaining consistent on a year-over-year basis and Bitcoin network difficulty increasing during the covered periods, the most significant factor impacting the decrease in the Corporation’s mining revenue in 2023 versus the prior year was the diversification of Corporation’s revenue streams in 2023 by entering into colocation and sale of electricity agreements. By entering into these contracts, the Corporation was able to utilize its existing infrastructure and power supply and receive consistent payment for consumption.
From these agreements, the Corporation recognized revenue from colocation service agreements of $1,675,269 for the year ended December 31, 2023 (2022: $nil) and $3,037,393 from the sale of electricity (2022: $nil). The two colocation service agreements were in place from April 2023 and September 2023, respectively, while the mining operations agreement was executed in February 2023. See ITEM 5.A. “Mining Operations” for a description of the manner in which the Corporation recognizes revenue from such arrangements.
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The Corporation also recognized revenue from the sale of energy of $3,272,005 for the year ended December 31, 2023, compared to $nil in 2022, as the Corporation acquired a 60 MW power plant during Q1 2023. Revenue from this acquisition of a business is recognized each month through the operations of the plant through its available capacity that can be sold, and actual generation of power sold.
Cost of Sales
The Corporation’s cost of sales was $35,780,032 for the year ended December 31, 2023, compared to $30,987,397 for the year ended December 31, 2022.
Cost of revenue increased by $2,457,138 as compared to the prior year due primarily to the costs associated with the North Tonawanda power plant of $4,225,676 (2022: $nil), which included fuel, gas, carbon emission, contract labor, and general repair and maintenance costs.
Depreciation and amortization expense increased by $4,214,311 year over year as approximately $14.3 million of assets related to the Corporation’s acquisition of the North Tonawanda power plant were put into use during the first half of 2023. The Corporation also placed into service additional infrastructure buildout and mining equipment during the year.
Miner and lease hosting agreement expense decreased by $1,878,814 as the Corporation’s prior agreements expired during Q1 2023.
General, Administrative & Other Expenses
The Corporation’s general and administrative expenses were $7,653,629 for the year ended December 31, 2023, compared to $21,430,037 for the year ended December 31, 2022.
The primary variances from the year ended December 31, 2022 were due to:
| ● | Loss on sale of digital currencies in the prior year of $11,574,330, which was incurred when the Corporation sold digital currency to fund operations and repay the Corporation’s Bitcoin-backed loan (2023: gain of $945,536). |
| ● | Impairment losses recognized on goodwill of $1.26 million and on the Corporation’s data miners of $1.56 million in the prior year (2023: $1.36 million). |
| ● | Gain on sale of equipment in the prior year of $1,140,658 (2023: $nil). |
| ● | Loss on revaluation of digital currencies in the prior period of $3,256,530 (2023: gain of $10,992). |
Other income/expense items of note for the fiscal year ended December 31, 2023 include the revaluation of the warrant liabilities, which resulted in a loss of $4.52 million (2022: gain of $32.01 million).
B. Liquidity and Capital Resources
Liquidity and Financial Position
As of December 31, 2024, the Corporation had a negative working capital balance of $3,398,621, including digital currencies of $4,525,416. The Corporation commenced earning revenue from digital currency mining in mid-February 2020; however, it has limited operating history, and there can be no assurance that the Corporation’s historical performance will be indicative of its future performance.
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The Corporation’s ability to continue as a going concern is dependent on the Corporation’s ability to efficiently mine and liquidate digital currencies, manage operational expenses and raise additional funds through debt or equity financing.
Capital Resources
The Corporation’s capital management objective is to provide the financial resources that will enable it to maximize the return to its shareholders while also enhancing its cost of capital. In order to achieve this goal, the Corporation monitors its capital structure and adjusts as required in response to an ever-changing economic environment and the various risks to which the Corporation is exposed. The Corporation’s approach for attaining this objective is to preserve a flexible capital structure that optimizes the cost of capital at a satisfactory level of risk, to maintain its ability to meet financial obligations as they come due, and to ensure the Corporation has appropriate financial resources to fund its organic and acquisitive growth. The Corporation does not currently participate in hedging activities.
In order to achieve its future business objectives, Digi Power may need to liquidate or borrow against the Bitcoin that have been accumulated as of the date hereof as well as Bitcoin generated from ongoing operations, which may or may not be possible on commercially attractive terms or at all. The Corporation presently anticipates that additional financing may be required to fund its initiative of developing high-performance computing and artificial intelligence focused data centers
The Corporation also anticipates that additional financing could be required to purchase the next generation miners required to utilize its maximum capacity and is looking for attractive Joint Venture and Hosting Colocation deals in order to help expand its capital position.
Digi Power may manage its capital structure by issuing equity, seeking financing through loan products, adjusting capital spending, entering into beneficial hosting or colocation agreements, or disposing of assets.
Cash Flows
Operating Activities
Cash used by operating activities for the year ended December 31, 2024, was $17,532,344 as compared to cash used of $13,572,958 for the year ended December 31, 2023. The difference is primarily attributed to the increase in depreciation and amortization expense on a comparative basis ($15,585,651 versus $14,871,456), digital currency items (-$22,483,518 versus -$17,876,857), change in warrant liability (-$4,071,434 versus $4,522,523) and the write-off of PPE of $1,363,941 in 2023 ($nil in 2024).
Cash used by operating activities for the year ended December 31, 2023 was $13,572,958 as compared to cash used of $15,495,179 for the year ended December 31, 2022. The difference is primarily attributable to the increase in depreciation and amortization expense on a comparative basis ($14,923,419 in 2023 versus $10,657,144 in 2022), an increase in digital currency items ($-17,876,857 in 2023 versus $3,444,692 in 2022), a change in warrant liability (a $4,522,523 loss in 2023 versus a $32,010,637 gain in 2022) and a gain on sale of equipment of $1,140,658 in 2022 ($nil in 2023).
Investing Activities
Cash provided in investing activities for the year ended December 31, 2024, was $14,716,849 as compared to cash provided in investing activities of $12,007,498 for the year ended December 31, 2023. In the current year, cash of $3,790,777 was used for the purchase of equipment and digital currencies traded for cash of $18,507,626. In the prior year, cash of $4,749,666 was used for the purchase of the power plant, $3,007,766 was used for the purchase of equipment, digital currencies traded for cash of $19,264,980, with $499,950 was received from the sale of equipment.
Cash provided in investing activities for the year ended December 31, 2023 was $12,007,498 as compared to cash used in investing activities of $2,428,758 for the year ended December 31, 2022. In the current year, cash of $4,749,666 was used for the purchase of a power plant, $3,007,766 was used for the purchase of equipment, and digital currencies traded for cash was $19,264,980, with $499,950 received from the sale of equipment. In the prior year, digital currencies traded for cash was $16,016,280 and proceeds from the sale of old miners was $795,000, partially offset by the purchase of equipment for $14,685,038 and the acquisition of digital currencies of $4,555,000.
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Financing Activities
Cash provided by financing activities for the year ended December 31, 2024 was $4,178,118, as compared to $56,511 for the year ended December 31, 2023. The drivers of the balance in the current period were proceeds of shares issued for cash of $4,006,157 and proceeds from a non-controlling interest of $1,000,000, partly offset by repayment of loans of $718,059 and lease payments of $109,980. The drivers of the balance in the prior year were proceeds of a loan payable of $691,500 and proceeds of shares issued for cash of $1,073,244, partly offset by repayment of loans of $1,027,753 and lease payments of $146,880.
Cash provided by financing activities for the year ended December 31, 2023 was $56,111 as compared to $18,858,844 for the year ended December 31, 2022. The drivers of the balance in the current period were proceeds of a loan payable of $691,500 and proceeds of shares issued for cash of $1,073,244, partly offset by repayment of loans of $1,027,753 and lease payments of $146,880. In the prior year, the Corporation received proceeds from a private placement of $8,314,269, proceeds from a loan payable of $10,000,000 and proceeds from pre-funded warrants of $1,029,600, partly offset by the repurchase of shares of $255,525 and lease payments of $96,000.
Capital Expenditures
Our capital expenditures for the last three years, which principally consisted of mining assets, equipment and infrastructure needed to support the Corporation’s mining operations, were as follows:
Fiscal December 31, | Capital Expenditures and/or Divestitures | Purpose | |||||
| 2024 | $ | 3,790,777 | Mining infrastructure needed to support growth and addition of power plant support equipment. | ||||
| 2023 | $ | 8,181,566 | Mining infrastructure needed to support growth and consideration paid for completion of power plant purchase. | ||||
| 2022 | $ | 15,753,038 | Mining infrastructure needed to support growth. | ||||
Indebtedness
For a description of the Corporation’s loan agreement with Doge Capital LLC, see ITEM 7.B. “Related Party Transactions.” Other than the Loan Agreement, the Corporation is not a party or otherwise subject to any credit facilities or other borrowing arrangements.
C. Research and Development
None.
D. Trend Information
The profitability of the Corporation’s operations has been and will continue to be significantly affected by changes in the spot price of cryptocurrencies, specifically Bitcoin. Cryptocurrency prices (and Bitcoin prices in particular) are highly volatile, fluctuating due to numerous factors beyond the Corporation’s control, including speculation and incomplete information, rapidly changing investor sentiment, changes in technology, regulatory changes, fraudulent or malicious actors, coverage of cryptocurrency in the media, inflation, and political or economic events as well as market acceptance and demand for cryptocurrency. The market price of one Bitcoin on the Gemini exchange ranged from approximately $39,500 to $106,200 during the year ended December 31, 2024 and ranged from approximately $16,600 to $44,200 during the year ended December 31, 2023. Because the Corporation does not currently hedge its investment in Bitcoin, the Corporation is directly exposed to Bitcoin’s price volatility and surrounding risks.
Currently, the Corporation does not use a formula or specific methodology to determine whether or when it will sell Bitcoin that it holds, or the number of Bitcoin it will sell. Rather, decisions to hold or sell Bitcoins are currently determined by management by analyzing forecasts and monitoring the market in real time. Such decisions, however well-informed, may result in untimely sales and even losses, adversely affecting an investment in the Corporation. If cryptocurrency spot prices decline and remain at low market levels for a sustained period while network difficulty does not decrease proportionally, the Corporation’s results of operations and financial condition, as well as the trading price of the Corporation’s SV Shares, could be materially adversely affected.
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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 their market prices and making those market prices more volatile. As a result, cryptocurrency market prices may be more likely to fluctuate due to changing investor confidence in future appreciation (or depreciation) in their market prices, which could adversely affect the Corporation’s business, financial condition and results of operations as well as the market price for the SV Shares.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Specifically, the trading price of the Corporation’s SV Shares has already been correlated, and, in the future, is likely to continue to be highly correlated, to the trading prices of Bitcoin. The Corporation’s operating results and financial condition therefore have been and may continue to be adversely affected by declines in cryptocurrency market prices.
For a discussion of additional uncertainties, trends and other events that may have a material effect on the Corporation’s business, results of operations and financial condition, see ITEM 3.D. “Risk Factors” and ITEM 4.B. “Business Overview.”
E. Critical Accounting Estimates
Our financial statements are presented in IFRS as issued by the International Accounting Standards Board (the “IASB”). For summary information about critical judgments, assumptions and estimation uncertainties in applying accounting policies that have the most significant effect on the amounts recognized in our financial statements, see Note 2 to our consolidated financial statements included in ITEM 17. “Financial Statements” below.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets out, for each of the Corporation’s directors and executive officers, the person’s name, province and country of residence, positions with the Corporation and principal occupation within the last five years. Each director is expected to hold office until the next annual meeting of the Corporation unless his or her office is earlier vacated.
| Name and Municipality of Residence |
Age | Principal Occupations for Last Five Years | Position | Director/ Officer Since | ||||
| Michel Amar Los Angeles, California |
61 | CEO and Chairman, Digi Power X Inc. (2020 – present); President, NYAM LLC (2016 – present) | CEO, Chairman, Director and Promoter | February 14, 2020 | ||||
| Alec Amar Los Angeles, California |
29 |
President and Director, Digi Power X Inc. (2020 – present); President, Bit.Management, LLC (2018 – present) |
President and Director | February 14, 2020 | ||||
| Paul Ciullo Albany, New York |
44 |
CFO, Digi Power X Inc. (2021 – present; 2018 – 2020); Finance Manager, Conduent Inc. (2015 - 2018) |
CFO | April 29, 2021 | ||||
| Gerard Rotonda(1) New York, New York |
57 | Co-Founder and Partner, MMR Development (2018 – present) | Director | July 28, 2022 | ||||
| Adam Rossman(1) Los Angeles, California |
58 | Business and Real Estate Attorney | Director | February 14, 2020 | ||||
| Dennis Elsenbeck(1) Corfu, New York |
68 | Head of Energy and Sustainability, Phillips Lytle LLP (2017 – present); Sole Proprietor, ElsEnergy LLC (2020 – present); President and Chief Sustainability Officer, Viridi Parente (2020 – 2022) | Director | February 27, 2025 |
| (1) | Member of the Audit Committee. Gerard Rotonda is Chair of the Audit Committee. |
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Michel Amar
Mr. Amar is a French-American businessman and entrepreneur known for his success in innovative technology, such as blockchain and electronics, as well as developing branded fashion. With a Bachelor’s degree in accounting and business management, Mr. Amar has worked and consulted with some of the most famous international brands, playing a vital role in their profitability and continued relevance. In 2019, Mr. Amar partnered with Brookstone, a novelty retailer, in developing exclusive, technologically advanced products for their consumer electronics market.
Alec Amar
Mr. Amar is an entrepreneur who has achieved success in both product development and licensing, as well as blockchain solutions. After graduating from the University of Southern California with a degree in economics and digital entrepreneurship, Mr. Amar devised and headed a blockchain operation, building out highly efficient and productive mining facilities. In addition to blockchain success, Mr. Amar’s product licensing company, MAT, a versatile R&D incubator, has partnered with notable brands such as Brookstone, in developing innovative electronics. As one of the sole licensees of Brookstone, Mr. Amar is actively curating a collection of intelligent, proprietary consumer electronics.
Adam S. Rossman
Mr. Rossman is a business and real estate attorney. He is a member of the California Bar since 1995. Mr. Rossman has handled transactions throughout the United States relating to commercial real estate and trademark licensing. Mr. Rossman maintains offices in Beverly Hills, CA. Mr. Rossman received his JD from Loyola Law School, Los Angeles in 1994 and an MA in Rhetoric in 1990 and a BA in Rhetoric in 1988, both from the University of California at Berkeley.
Gerard Rotonda
Mr. Rotonda was the Chief Financial Officer and Executive Committee Member for Deutsche Bank Wealth, Management Americas from 2011 through 2018. Mr. Rotonda has over 30 years of experience in business development and financial analysis, most recently as Co-Founder and Partner at MMR Development, a real estate company which develops or repositions office, residential and hotel properties. Mr. Rotonda has also been Senior Business Leader and Director Strategy and Planning at MasterCard Incorporated, Director Strategic Planning at Credit Suisse Group, and Vice President Investment Finance and Structured Lending at Citigroup. Mr. Rotonda holds a BSBA in Accounting and MBA from Boston University.
Dennis Elsenbeck
Mr. Elsenbeck currently provides consulting services on a broad range of energy-related opportunities encompassing a forward view of supply, distribution and demand options as Head of Energy and Sustainability with Phillips Lytle LLP, as well as, the sole proprietor of his own firm, ElsEnergy LLC. In his leadership role with a major U.S. utility for nearly 30 years, as well as, recent roles as President and Chief Sustainability Officer with the battery storage start-up company, Viridi Parente, he brings insight, analytics and business perspectives on long-term policies and the economic landscape.
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He assists clients with due diligence and regulatory compliance on energy transactions, regulatory counseling involving Public Service Commission proceedings, energy procurement and utility negotiations involving government entities and municipalities, procurement consulting regarding the reduction of energy costs and review of economic incentives, market driven integrated resource planning and identifying commercial and technical issues associated with energy-related opportunities. Mr. Elsenbeck is a Member of the Development Group Aion 1901 LLC and HM 1901 LLC which seeks to bring economic activity and smart growth to communities considered rust belt and disadvantaged by addressing critical infrastructure issues, especially energy, and seeks to establish New York as a green energy ecosystem by building local supply chains. He works to develop the voice of the consumer in energy policy and bill impacts as sustainability becomes a focus of energy policy as a Member of New York’s Climate Action Council, which is developing the Scoping Document to implement NY’s Climate Leadership and Community Protection Act. Mr. Elsenbeck collaborates with diverse stakeholders in shaping the “utility of the future.” He is Board Chair for the Northland Workforce Training Center, Board Member for the Buffalo Urban Development Corporation and University at Buffalo School of Engineering Dean’s Council Member. He holds a Bachelor’s Degree in Industrial Engineering Technology, a Masters Degree in Business Administration and a Masters Degree in Engineering.
Mr. Elsenbeck is a well-recognized expert in the energy field and is a highly sought-after lecturer on a variety of topics across the U.S.
Paul Ciullo
Mr. Ciullo has a diverse professional background and specialized in financial reporting and project management during his 15 years spent working in senior corporate finance and accounting positions for various Fortune 500 companies. Mr. Ciullo is an entrepreneur who is a partner in an IT services organization. He has served as the Corporation’s Chief Financial Officer (“CFO”) for various publicly traded start-up companies, including a CSE listed brand licensing group. He also has experience in Blockchain technology and cryptocurrency accounting, having served as the Corporation’s CFO for two years. Mr. Ciullo has extensive capital markets experience, is accustomed to delivering results in highly demanding environments and has consistently been able to drive measurable improvements and operating efficiencies in the businesses that he has been involved in.
Based in New York, Mr. Ciullo is a CPA who obtained a Bachelor’s of Science in Accounting from the State University of New York at Geneseo and an MBA from Pennsylvania State University. Mr. Ciullo has over 20 years of experience in senior corporate finance and accounting positions for Fortune 500 companies, including General Electric (NYSE: GE) and Xerox (Nasdaq: XRX). Prior to joining the Corporation, Paul served as the Director of Finance for Conduent Legal and Compliance Services, specializing in financial reporting and project management.
Relationships Among Officers and Directors
Michel Amar, the Corporation’s Chief Executive Officer (“CEO”), Chairman and a director, is the father of Alec Amar, the Corporation’s President and member of the Board.
B. Compensation
Management and Directors
The total compensation paid during the financial year ended December 31, 2024 to the members of management of the Corporation (the “Executives”) and to directors of the Corporation is set out in the Summary Compensation Table below.
Oversight and Description of Director and Executive 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 options to purchase SV Shares (“Options”) and RSUs for SV Shares, which is a significant component of executive compensation. This approach is based on the assumption that the price of the Corporation’s SV Shares over the long term is an important indicator of long-term performance.
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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 – the compensation of Executives should be linked to the operating and market performance of the Corporation and fluctuate with such 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 caliber. |
The objectives of the compensation program in compensating all Executives are based on the above-mentioned compensation philosophy and are 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. |
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 Executives. The Corporation’s objective is to establish benchmarks and targets for its Executives that will enhance shareholder value if achieved.
The compensation committee of the Board (the “Compensation Committee”) assists the Board in its oversight of compensation. The Compensation Committee is comprised of Adam Rossman (Chair), Gerard Rotonda and Alec Amar. Messrs. Rossman and Rotonda are considered “independent” within the meaning of Canadian Securities Administrator’s National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”). The Compensation Committee ensures an objective process for determining compensation by providing that a majority of members of the Compensation Committee are considered independent within the meaning of NI 58-101.
The Compensation Committee is responsible for considering, establishing and reviewing executive compensation programs, including 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’s security trading policy restricts directors or Executives from purchasing financial instruments, including, for greater certainty, prepaid variable forward contracts, equity swaps, collars or units of TSXV funds that are designed to hedge or offset a decrease in market value of equity. To the knowledge of the Corporation, as of the date of hereof, no director or Executive of the Corporation has participated in the purchase of such financial instruments.
Base salaries, if any, are fixed in amount and do not encourage risk taking. The salaries of our CEO and President were paid in the Bitcoin equivalent during 2022, 2023 and 2024 and are subject to fair value fluctuations, which can cause reporting losses in the financial statements. The equivalent Bitcoins to be remitted to the CEO and President are based on their respective annual salaries divided by four, and are determined on the first day of the quarter (i.e., 1/1/XX for the quarter 1/1/XX through 3/31/XX) based on the price of Bitcoin that day. In the future, such salaries may be paid in cash, Bitcoin or a combination thereof. 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.
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Share-based 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 SV Shares, and since awards are expected to be staggered and may be subject to long-term vesting schedules, they will help ensure that directors and Executives have significant value tied to long-term stock price performance.
The Compensation Committee reviews each element of Executive compensation for market competitiveness, and although it may weigh a particular element more heavily based on the Executive’s role within the Corporation, it is primarily focused on remaining competitive in the market with respect to total compensation.
Aggregate compensation for each Executive is designed to be competitive. From time to time, on an ad hoc basis, the 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 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 Annual Report on Form 20-F under ITEM 6.C. “Board Practices.”
Compensation Governance
The 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 Executives. The Compensation Committee ensures that total compensation paid to all Executives is fair, reasonable and consistent with the Corporation’s compensation philosophy.
A combination of fixed and variable compensation is used to motivate Executives to achieve overall corporate goals. The three basic components of the Corporation’s executive officer compensation program are:
| ● | base salary; |
| ● | annual incentive (bonus) payments; and |
| ● | long-term incentive compensation (in the form of Options and/or RSUs). |
Base salaries, if any, are paid in cash or the Bitcoin equivalent (as described elsewhere in this Annual Report) and constitute the fixed portion of the total compensation paid to executive officers. Annual incentives and option-based compensation 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) the market performance of the SV 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 assign compensation based on this assessment.
Base Salary
The Compensation Committee approves the salary ranges for the Executives. The base salary review for each Executive is based on an 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.
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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 Executive at the beginning of each financial year. The Compensation Committee determines target amounts based on a number of factors, including comparable compensation of similar companies. Funding of annual incentive awards is capped at the Corporation level, and the distribution of funds to the executive officers is at the discretion of the Compensation Committee. Each Executive may receive partial or full payment of the target annual incentive amount set by the Compensation Committee at the beginning of each financial year, depending on the number of the predetermined targets met, and the assessment of such Executive’s overall performance by the Compensation Committee and the Board.
In order to develop a recommendation to the Board regarding annual incentive payments, the Compensation Committee assesses Executive performance subjectively, considering each Executive’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 Compensation Committee cannot unanimously agree on a recommendation in respect of an Executive’s annual incentive payment, the matter is referred to the full Board for decision.
The Board relies heavily on the recommendations of the Compensation Committee in granting annual incentives. However, the Board reserves ultimate discretion in determining whether each Executive has met his or her targets, and has the right make positive or negative adjustments to any annual incentive payment recommended by the Compensation Committee that it deems appropriate.
Long-Term Incentive Compensation
Options and RSUs 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 and RSUs are awarded to directors and employees, including Executives, at the Board’s discretion, on the recommendation of the Compensation Committee. Decisions with respect to Options and RSUs 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 Board and the Compensation Committee consider outstanding Options and RSUs granted under the Corporation’s share incentive plan (the “Stock Option Plan”) and restricted share unit incentive plan (the “RSU Plan”) and held by management in determining whether to make any new grants of Options and RSUs, and the quantum or terms of any Options or RSUs grant.
The objective of the RSU Plan is to further aid in retaining eligible employees while maintaining the alignment of compensation with the long-term performance of the Corporation’s SV Shares. RSUs aid in promoting greater share ownership by executives and employees at the Corporation and aligning the Corporation’s compensation practices with market practices. Furthermore, the RSU Plan diversifies the types of incentive-based compensation issuable under such plan, enabling the Board to better tailor such awards to the duties and responsibilities of the directors, employees and consultants (collectively referred to as “Service Providers” within the RSU Plan). While initially intended to only vest based on the continued service of Eligible Persons (as defined in the RSU Plan) with the Corporation, in the future, the RSU Plan will also provide the Board with the alternative of establishing specific performance-based goals in addition to service-based restrictions when determining the vesting of specific RSU grants. This will provide the opportunity to further strengthen the alignment of interests of eligible employees (namely Executives) with the achievement of the Corporation’s long-term strategic plan and the interests of Shareholders.
The objective of the Corporation’s Stock Option Plan is to further aid in retaining qualified talent while maintaining the alignment of compensation with the long-term share price performance of the Corporation’s SV Shares. Options are awarded to directors, consultants and employees, including Executives, at the Board’s discretion, on the recommendation of the 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 Compensation Committee considers outstanding Options granted under the Stock Option Plan held by management in determining whether to make any new grants of Options, and the quantum or terms of any Option grant.
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In order to arrive at a particular recommendation for performance-based compensation under the Stock Option Plan, the Compensation Committee will use objectively determinable performance targets, where possible, under one or more of the following business criteria, individually or in combination: (i) Technical Matters; (ii) Capital Markets; (iii) Corporate Development; (iv) Community Initiatives; (v) Operational Matters; and (vi) Board Liaison Matters.
Stock Option Plan
The Stock Option Plan was adopted by the Board on October 23, 2017 and must be re-approved by the shareholders on a yearly basis pursuant to the policies of the TSXV. The Stock Option Plan was last approved by shareholders at the last annual and special meeting of the Corporation held on November 7, 2024.
Pursuant to the adoption of Policy 4.4 - Security Based Compensation (the “New Policy”) by the TSXV, the Board amended the Stock Option Plan to bring the Stock Option Plan into compliance with the New Policy.
The purpose of the Stock Option Plan is to allow the Corporation to grant options to directors, officers, employees and consultants as additional compensation and as an opportunity to participate in the success of the Corporation. The granting of such options is intended to align the interests of such persons with that of the Corporation’s shareholders.
The following is a summary of the material terms of the Stock Option Plan and is qualified in its entirety by reference to the full text of the Stock Option Plan, which is filed as Exhibit 4.2 to this Annual Report. Any terms not defined herein have the meaning ascribed to such term in the Stock Option Plan):
| (a) | Persons who are Eligible Persons of the Corporation are eligible to receive grants of options under the Stock Option Plan. Eligible Persons include any director, officer, Employee, Management Company Employee or Consultant of the Corporation or any of its subsidiaries. |
| (b) | The aggregate maximum number of SV Shares available for issuance from treasury under the Stock Option Plan at any given time is 10% of the outstanding Shares as at the date of grant of an Option under the Stock Option Plan. |
| (c) | Unless otherwise permitted by any applicable stock exchange, no Options shall be granted to any optionee if such grant could result, at any time, in: |
| (i) | the issuance to any one Eligible Person, within a one-year period, together with SV Shares issuable to such Eligible Person under all other security-based compensation arrangements of the Corporation, of a number of SV Shares exceeding 5% of the issued and outstanding Shares; |
| (ii) | the issuance to any one Consultant, within any 12-month period, of a number of SV Shares exceeding 2% of the issued and outstanding Shares, together with SV Shares issuable to such Consultant under all other security-based compensation arrangements of the Corporation; and |
| (iii) | the issuance to employees conducting investor relations activities, within any 12-month period, of an aggregate number of SV Shares exceeding 2% of the issued and outstanding Shares. |
| (d) | Disinterested Shareholder Approval is required for the following: |
| (i) | any individual stock option grant that would result in the grant to Insiders (as a group), within a 12-month period, of an aggregate number of options exceeding 10% of the issued Shares, calculated on the date an option is granted to any Insider; and |
| (ii) | any individual stock option grant that would result in the number of SV Shares issued to any individual in any 12-month period under this Plan exceeding 5% of the issued Shares, less the aggregate number of shares reserved for issuance or issuable under any other Share Compensation Arrangement of the Corporation. |
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| (e) | The term of an Option shall not exceed 10 years from the date of grant of the Option and the Expiry Date for each Option shall be set by the Board at the time of issue of the Option. |
| (f) | All Options granted to Eligible Persons retained to perform Investor Relations Activities will vest and become exercisable in stages over a period of not less than twelve (12) months, with no more than one-quarter (1/4) of such Options vesting and becoming exercisable in any three (3) month period. |
| (g) | An Option shall vest and may be exercised in whole or in part at any time during the term of such Option after the date of the grant as determined by the Board, subject to extension where the expiry date falls within a Blackout Period. |
| (h) | Options may be granted by the Corporation and the exercise price of such Options shall be determined pursuant to the recommendations of the Board or a committee appointed to administer the Stock Option Plan from time to time, provided, and to the extent that, such decisions are approved by the Board. The exercise price of an Option shall not be less than the Market Value of the Shares as of the Grant Date, subject to any allowable discounts permitted by the TSXV. |
| (i) | The Stock Option Plan provides that, if a change of control (as defined in the Stock Option Plan) occurs, or if the Corporation is subject to a takeover bid, all Shares subject to options shall immediately become vested and may thereupon be exercised in whole or in part by the option holder. The Board may also accelerate the expiry date of outstanding options in connection with a takeover bid. |
| (j) | The Stock Option Plan contains adjustment provisions with respect to outstanding options in cases of share reorganizations, special distributions and other corporation reorganizations including an arrangement or other transaction under which the business or assets of the Corporation become, collectively, the business and assets of two or more companies with the same shareholder group upon the distribution to the shareholders of the Corporation, or the exchange with the shareholders of the Corporation, of securities of the Corporation or securities of another company. Any adjustment, other than in connection with a consolidation or stock split, to an Option granted or issued under the Stock Option Plan is subject to the prior acceptance of the TSXV, including adjustments related to an amalgamation, merger, arrangement, reorganization, spin-off, dividend or recapitalization. |
| (k) | The Stock Option Plan provides that on the death or disability of an option holder, all vested options will expire at the earlier of 365 days after the date of death or disability and the expiry date of such options. Where an optionee is terminated for cause, any outstanding options (whether vested or unvested) are cancelled as of the date of termination. If an optionee retires or voluntarily resigns or is otherwise terminated by the Corporation other than for cause, then all vested options held by such optionee will expire at the earlier of (i) the expiry date of such options and (ii) the date which is 90 days (30 days if the optionee was engaged in investor relations activities) after the optionee ceases its office, employment or engagement with the Corporation. |
| (l) | In lieu of the exercise price of each SV Share underlying an Option being paid in cash, the Option may be exercised, except Options granted to persons performing investor relations activities, at the discretion of the Option holder and only with the written permission of the Board and as permitted by the policies of the TSXV or other stock exchange on which the SV Shares are listed, by a net exercise whereby the Option holder will receive only the number of SV Shares underlying the Option that is the equal to the quotient obtained by dividing: (a) the product of the number of Options being exercised multiplied by the difference between the VWAP of the underlying SV Shares and the exercise price of the subject Options by (b) the VWAP of the underlying SV Shares. |
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For purposes of the above, “Insider” means a director or senior officer of the issuer; a director or senior officer of a company that is an Insider or subsidiary of the issuer; a Person that beneficially owns or controls, directly or indirectly, voting shares carrying more than 10% of the voting rights attached to all outstanding voting shares of the issuer; or, the issuer itself if it holds any of its own securities.
The Stock Option Plan contains a provision that, if pursuant to the operation of an adjustment provision of the Stock Option Plan, an optionee receives options (the “New Options”) to purchase securities of another company (the “New Company”) in respect of the optionee’s options under the Stock Option Plan (the “Subject Options”), the New Options shall expire on the earlier of: (i) the expiry date of the Subject Options; (ii) if the optionee does not become an eligible person in respect of the New Company, the date that the Subject Options expire pursuant to the applicable provisions of the Stock Option Plan relating to expiration of options in cases of death, disability or termination of employment discussed in the preceding paragraph above (the “Termination Provisions”); (iii) if the optionee becomes an eligible person in respect of the New Company, the date that the New Options expire pursuant to the terms of the New Company’s Stock Option Plan that correspond to the Termination Provisions; and (iv) the date that is one (1) year after the optionee ceases to be an eligible person in respect of the New Company or such shorter period as determined by the Board.
Restricted Share Unit Plan
The RSU Plan is available to directors, employees and consultants which are collectively referred to in the RSU Plan as Service Providers of the Corporation, as determined by the Board (the “Eligible Grantees”). As of the date of this Annual Report on Form 20-F, the Corporation has granted 2,074,167 RSUs to Eligible Grantees.
The RSU Plan is intended to complement the Stock Option Plan by allowing the Corporation to offer a broader range of incentives to diversify and customize the rewards available to Eligible Grantees in order to promote long-term retention and greater alignment with the competitive market. The following information is intended to be a brief description and summary of the material features of the RSU Plan and is qualified in its entirety by reference to the full text of the RSU Plan, which is filed as Exhibit 4.3 to this Annual Report. Any terms not defined herein have the meaning defined in the RSU Plan:
| (a) | The RSU Plan provides for a fixed maximum limit of 3,300,000 SV Shares available for issuance under the RSU Plan. The number of share issuable pursuant to the RSU Plan is in accordance with the policies of the TSXV. The number of SV Shares issued or to be issued under the RSU Plan and all other security-based compensation arrangements, at any time, shall not exceed 20% of the total number of the issued and outstanding Shares of the Corporation. |
| (b) | The total number of SV Shares issuable to insiders under the RSU Plan, at any time, together with any other security-based compensation arrangements of the Corporation, shall not exceed 10% of the issued and outstanding Shares of the Corporation. |
| (c) | Unless disinterested shareholder approval has been obtained, the total number of SV Shares issuable to insiders within any one-year period under the RSU Plan shall not exceed 10% of the issued and outstanding Shares of the Corporation. |
| (d) | Unless disinterested shareholder approval has been obtained, the total number of SV Shares issuable to any one Service Provider within any one-year period under the RSU Plan shall not exceed 1% of the issued and outstanding SV Shares of the Corporation. |
| (e) | Unless disinterested shareholder approval is obtained and except as otherwise may be permitted by the policies of the TSXV, the maximum aggregate number of SV Shares that are issuable pursuant to the Plan together with all security-based compensation arrangements granted or issued in any 12 month period to any one Grantee must not exceed 5% of the Shares, calculated as at the date of any Security Based Arrangement is granted or issued to the Grantee. |
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| (f) | The total number of SV Shares issuable to all Service Providers within any one-year period under the RSU Plan shall not exceed 2% of the issued and outstanding SV Shares of the Corporation. |
| (g) | Neither awards nor any rights under any such awards shall be assignable or transferable. If any SV Shares covered by an award are forfeited, or if an award terminates without delivery of any SV Shares subject thereto, then the number of SV Shares counted against the aggregate number of SV Shares available under the RSU Plan with respect to such award shall, to the extent of any such forfeiture or termination, again be available for making awards under the RSU Plan. The RSU Plan shall terminate automatically after ten years and may be terminated on any earlier date or extended by the Board. |
| (h) | In no case shall an RSU vest within one (1) year from the Grant Date. |
| (i) | If the Corporation completes a transaction constituting a Change of Control and within twelve (12) months following the Change of Control a Grantee who was also an officer or employee of, or Consultant to, the Corporation prior to the Change of Control has their position, employment or consulting agreement terminated, or the Participant is constructively dismissed, then all unvested Awards shall immediately vest and be settled. |
| (j) | Grantees of RSUs shall have no rights as holders of SV Shares (“Shareholders”). The Board may provide in an Award Agreement evidencing a grant of RSUs that the Grantee shall be entitled to receive, upon the Corporation’s payment of a cash dividend on its outstanding SV Shares, a cash payment for each RSU granted equal to the per-share dividend paid on the outstanding SV Shares. Such Award Agreement may also provide that such cash payment will be deemed reinvested in additional Restricted Share Units at a price per unit equal to the Fair Market Value of the SV Shares on the date that such dividend is paid. Any grant of additional RSUs pursuant to Section 8.4(a) of the RSU Plan must be included in the maximum number of Shares subject to the Plan pursuant to Section 4 of the RSU Plan. If there are not a sufficient number of Shares available under the RSU Plan to satisfy the grant of additional RSUs, notwithstanding any provision in the applicable Award Agreement, the Corporation shall satisfy the obligation by way of cash payment. |
| (k) | Unless the Board otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, subject to prior TSXV approval, upon the termination of a Grantee’s Service, any RSUs granted to a Grantee that have not vested and will not vest within 30 days from the date of termination, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon forfeiture of RSUs, the Grantee shall have no further rights with respect to such Award, including but not limited to any right to receive dividends with respect to the RSUs. |
The Board may at any time, in its sole discretion and without the approval of Shareholders, amend, suspend, terminate or discontinue the RSU Plan and may amend the terms and conditions of any awards thereunder, subject to (a) any required approval of any applicable regulatory authority or the TSXV, and (b) approval of Shareholders of the Corporation, provided that, unless required by the TSXV, Shareholder approval shall not be required for the following amendments and the Board may make changes which may include but are not limited to: (i) amendments of a “housekeeping nature”; (ii) changes to vesting provisions; or (iii) changes to the term of the RSU Plan or awards made under the RSU Plan, provided those changes do not extend the restriction period of any RSU beyond the original expiry date or restriction period. The Board may amend, modify or supplement the terms of any outstanding award.
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Restricted Share Units
The RSU Plan provides that the Board of the Corporation may, from time to time, in its sole discretion, grant awards of RSUs to Eligible Grantees. Each RSU shall represent one SV Share of the Corporation. The Board may, in its sole discretion, establish a period of time (a “Vesting period”) applicable to such RSUs. Each award of RSUs may be subject to a different Vesting period. The Board may, in its sole discretion, prescribe restrictions in addition to or other than the expiration of the Vesting period, including the satisfaction of corporate or individual performance objectives, which may be applicable to all or any portion of the RSUs. The performance criteria will be established by the Board in its sole discretion. The Board may, in its sole discretion, revise the performance criteria. Notwithstanding the foregoing, (i) RSUs that vest solely by the passage of time shall not vest in full in less than three (3) years from the grant date; (ii) RSUs for which vesting may be accelerated by achieving performance targets shall not vest in full in less than one (1) year from the grant date; and (iii) RSUs granted to outside directors vest, (a) at the election of an outside director at the time the award is granted, within a minimum of one (1) year to a maximum of three (3) years following the grant date, as such outside director may elect, and (b) if no election is made, upon the earlier of a Change of Control or his or her resignation from the Board (any terms not defined herein have the meaning ascribed to such term in the RSU Plan).
Upon the expiration or termination of the Vesting period and the satisfaction of any other restrictions prescribed by the Board, the RSUs shall vest and shall be settled in either cash or Shares, as the Committee may so determine, unless otherwise provided in the Award Agreement.
A cash payment shall be in the amount equal to the “Market Price” per share as defined in the policies of the applicable stock exchange as the trading day prior to the date of vesting, and certified funds shall be paid for the RSUs valued at the Market Price. A Share payment shall be for Shares issued by the Corporation from treasury and a share certificate for that number of Shares equal to the number of vested RSUs shall be free of all restrictions. The cash payment or Shares shall be delivered to the Grantee or the Grantee’s beneficiary or estate, as the case may be.
If a Grantee’s employment is terminated with cause, the Corporation may, within 30 days, annul an award if the grantee is an employee of the Corporation or an affiliate thereof. If a Grantee’s employment is terminated with or without cause, unless the Board otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, any RSUs that have not vested and will not vest within 30 days from the date of termination, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon the death of a Grantee, any RSUs granted to such Grantee which, prior to the Grantee’s death, have not vested, will immediately vest, subject to the pass of one (1) year from the Grant Date, and the Grantee’s estate shall be entitled to receive payment in accordance with the terms of the RSU Plan. The period in which the Grantee’s estate may make such a claim of entitlement must not exceed one (1) year from the date of the Grantee’s death.
Summary Compensation Table
The following table provides information for the fiscal year ended December 31, 2024 regarding compensation earned by the Executives:
| Non-equity incentive plan compensation ($) |
||||||||||||||||||||||||
| Name and principal position | Salary ($) |
Share-based awards ($)(4) |
Option-based awards ($) |
Annual incentive plans |
Long-term incentive plans |
Pension value ($) |
All other compensation ($) |
Total compensation ($) |
||||||||||||||||
| Michel Amar, Chief Executive Officer and Director(1)(5) |
479,467 | 470,000 | - | - | - | - | - | 949,467 | ||||||||||||||||
| Paul Ciullo, Chief Financial Officer(2) |
136,081 | 11,750 | - | - | - | - | - | 147,831 | ||||||||||||||||
| Alec Amar, President and Director(3)(6) |
379,012 | 470,000 | - | - | - | - | - | 849,012 | ||||||||||||||||
Notes:
| (1) | On February 14, 2020, Michel Amar was appointed Chief Executive Officer of the Corporation. |
| (2) | On April 29, 2021, Paul Ciullo became the Chief Financial Officer of the Corporation. |
| (3) | On February 14, 2020, Alec Amar was appointed President of the Corporation. |
| (4) | Amounts reflect the fair value of SV Shares issued and/or RSUs recognized in the applicable year. |
| (5) | No portion of Michel Amar’s compensation relates to his position as a director. |
| (6) | No portion of Alec Amar’s compensation relates to his position as a director. |
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Employment, Consulting and Management Agreements
Alec Amar
On January 21, 2022, the Corporation entered into an employment agreement with Alec Amar pursuant to which Mr. Amar provides services as President of the Corporation in consideration of an annual rate of US$375,000. Mr. Amar is eligible to receive an annual discretionary incentive payment upon achievement of certain Corporation and individual performance goals. The initial three-year term of the agreement expired on January 21, 2025 but was and will continue to be automatically extended on a yearly basis upon the expiration of the initial term or any additional terms, unless thirty days prior to the end of the initial term or any additional term, either party shall have given written notice to the other stating that the term of the agreement will not be extended.
Michel Amar
On January 21, 2022, the Corporation entered into an employment agreement with Michel Amar pursuant to which Mr. Amar provides services as CEO of the Corporation in consideration of an annual rate of US$475,000. Mr. Amar is eligible to receive an annual discretionary incentive payment upon achievement of certain Corporation and individual performance goals. The initial three-year term of the agreement expired on January 21, 2025 but was and will continue to be automatically extended on a yearly basis upon the expiration of the initial term or any additional terms, unless thirty days prior to the end of the initial term or any additional term, either party shall have given written notice to the other stating that the term of the agreement will not be extended.
Incentive Plan Awards
The following table provides information regarding the incentive plan awards for each Executive outstanding as of December 31, 2024:
| Option-based Awards | Share-based Awards | |||||||||||||||||||||
| Name | Number of SV Shares underlying unexercised options (#) |
Option exercise price (C$)(1) |
Option expiration date |
Value of unexercised in-the-money options (C$)(2) |
Number of shares or units of shares that have not vested (#) |
Market or that have (C$) |
||||||||||||||||
| Michel Amar | N/A | N/A | N/A | N/A | 1,175,000 | 1,233,750 | ||||||||||||||||
| Paul Ciullo | 27,999 | 7.08 | March 25, 2026 – June 22, 2026 |
- | 60,000 | 63,000 | ||||||||||||||||
| Alec Amar | N/A | N/A | N/A | N/A | 1,125,000 | 1,181,250 | ||||||||||||||||
Notes:
| (1) | The exercise price shown is the weighted average option exercise price. |
| (2) | Calculated based on the difference in value between the exercise price of the options and the closing price of the SV Shares on the TSXV on the last trading day in the fiscal year ended December 31, 2024 of C$2.14. |
During the year ended December 31, 2024, 471,409 RSUs under the Corporation’s incentive plans vested.
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 is an Executive 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 particular employment agreements and except as described below, the Corporation is not party to any compensation plan or arrangement with Executives or subject to a contractual obligation resulting from the resignation, retirement or the termination of employment of any Executive.
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Michel Amar and Alec Amar each have entered in an employment agreement with the Corporation. For the purposes of the succeeding paragraphs under this heading “Pension Plan Benefits, Termination and Change of Control Benefits,” each of Michel Amar and Alec Amar may be referred to as the Executive.
In the event that an Executive’s employment ends due to termination by: (a) the Corporation for Cause (as defined in the applicable employment agreement), (b) by the Executive without Good Reason (as defined in the applicable employment agreement), or (c) by non-renewal at the election of the Executive, such Executive’s employment agreement, if any, provides that such Executive will be entitled to the following: (i) any unpaid Base Salary (as defined in the applicable employment agreement) accrued through the termination date, (ii) a lump sum payment for any accrued but unused vacation pay, (iii) COBRA coverage (but no Corporation-paid premiums except as otherwise required by law), (iv) all other payments, benefits or fringe benefits to which the Executive is entitled under the terms of any applicable compensation arrangement or benefit, equity or fringe benefit plan or program or grant, and (v) a lump sum payment for any previously unreimbursed business expenses incurred by the Executive on behalf of the Corporation during the term of the Executive’s employment (collectively, the “Accrued Amounts”).
If the Executive’s employment by the Corporation is terminated by the Corporation without Cause (as defined in the applicable employment agreement), by the Executive with Good Reason (as defined in the applicable employment agreement), or due to non-extension at the election of the Corporation as provided for in the applicable employment agreement, then, in addition to the Accrued Amounts, each Executive’s employment agreement, if any, provides that such Executive shall be entitled to the following: (a) the Prior Year Bonus (as defined in the applicable employment agreement), (b) the Pro-Rata Bonus (as defined in the applicable employment agreement), (c) an amount equal to Executive’s monthly base salary rate (but not as an employee), which would continue to be paid monthly during the 24 months following termination of Executive’s employment (the “Severance Period”), and (d) continued participation in the Corporation’s group health plan which covers Executive (to the extent permitted under applicable law and the terms of such plan) during the Severance Period.
Upon a Change of Control (as defined below) occurring during the term of the applicable employment agreement, the agreement will automatically be extended to the later of the end of the term and two (2) years from the date upon which a Change of Control occurs. If a Change of Control shall have occurred, and following the Change of Control, the Executive’s employment agreement, if any, is terminated or the Executive is removed as a director of the Corporation or terminated as an officer of the Corporation (collectively referred to herein as “terminated”), other than for Cause (as defined in the applicable employment agreement), or if the Executive terminates its engagement for Good Reason (as defined in the applicable employment agreement), and such termination occurs within twelve (12) months after the date upon which a Change of Control occurs, the Executive’s employment agreement, if any, provides that the Executive will be entitled to be paid a single lump sum cash payment equating to a total of two (2) years of the Executive’s annual Base Salary (the “Severance Amount”) and additional options and or restricted share units may be granted to the Executive at the sole discretion of the Board, subject to the terms of the Stock Option Plan and the RSU Plan. All options and RSUs held by the Executive will vest immediately and will remain exercisable in accordance with the terms of such award agreement, subject to the provisions of the Stock Option Plan or RSU Plan, as applicable. Additionally, the Executive is entitled to any accrued and unpaid Prior Year Annual Bonus (as defined in the applicable employment agreement) and the Current Year Pro-Rata Annual Bonus (as defined in the applicable employment agreement).
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The Base Salary of Michel Amar and Alec Amar, respectively, is US$475,000 and US$375,000, and the Severance Amount is US$950,000 and US$750,000, respectively, for each of Michel Amar and Alec Amar, plus any accrued and unpaid Prior Year Annual Bonus and the Current Year Pro-Rata Annual Bonus. There have been no bonus payments under the current employment agreements to either of the Executives.
“Change of Control” as referenced in this section “Pension Plan Benefits, Termination and Change of Control Benefits” means at any time from the effective date of the applicable employment agreement:
| (i) | the transfer to or acquisition of at least twenty-five percent (25%) of the total issued and outstanding common voting securities of the Corporation from time to time, by one person or a group of persons acting in concert, either through one transaction or a series of transactions over time after the date hereof, and whether through the acquisition of previously issued voting securities, voting securities that have not been previously issued, or any combination thereof, or any transaction having a similar effect; |
| (ii) | twenty-five percent (25%) or more of the issued and outstanding voting securities of the Corporation become subject to a voting trust; |
| (iii) | a change of more than half of the directors of the Corporation unless approved by a majority of the Board; |
| (iv) | the Corporation, directly or indirectly, amalgamates, consolidates or otherwise merges with any other body corporate or bodies corporate, other than a wholly owned subsidiary; |
| (v) | the Corporation decides to sell, lease or otherwise dispose of all or substantially all of its assets and undertaking, whether in one or more transactions; or |
| (vi) | the Corporation enters into a transaction or arrangement which would have the same or similar effect as the transactions referred to in sub-paragraphs (iv) or (v) above. |
Exercise of Compensation Securities by Executives and Directors
There were no compensation securities exercised by Executives and directors during the fiscal year ended December 31, 2024.
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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, 2024:
| Plan Category | Number of (#) | Weighted ($) | Number of (#) | |||||||||
| Equity compensation plans approved by securityholders(1) | 827,959 | 3.12 | 2,473,201 | (1) | ||||||||
| Equity compensation plans not approved by securityholders | N/A | N/A | N/A | |||||||||
| Total | 827,959 | 3.12 | 2,473,201 | (1) | ||||||||
| (1) | As at December 31, 2024, the Corporation’s equity compensation plans were the Stock Option Plan, which is a 10% rolling stock option plan, and the RSU Plan. The number of SV Shares that may be reserved for issuance pursuant to the Stock Option Plan at any given time is 10% of the outstanding Shares (as defined in the Stock Option Plan) as at the date of grant of an Option under the Stock Option Plan. As at December 31, 2024, the total number of Options available for issuance under the Stock Option Plan was 3,301,160. A fixed maximum of 3,300,000 SV Shares are issuable under the RSU Plan. |
Director Compensation
The Board determines the level of compensation for directors based on recommendations from the Compensation Committee. The Compensation Committee and the Board regularly review the competitiveness of non-executive director compensation levels against the competitive marketplace, taking into account time commitment, risks and responsibilities to ensure that the amount of compensation adequately reflects the responsibilities and risks of being a director and makes adjustments as deemed necessary. The Corporation’s objective regarding director compensation is to follow best practices with respect to retainers, the format and weighting of the cash and incentive components of compensation, and the implementation of share ownership guidelines. The Corporation believes that these approaches have helped to attract, and will help to attract and retain, strong members for the Board who will be able to fulfil their fiduciary responsibilities without competing interests.
As at the date hereof, the Corporation does not pay its directors any fees or compensation for their service as directors, other than reimbursement of expenses incurred by them in such capacity. The Corporation has a small number of employees and relies extensively on the input and expertise of its non-employee directors. In its efforts to attract and retain experienced directors, the Corporation may choose to compensate directors partly with Options and/or RSUs, thereby conserving its cash resources and, equally importantly, aligning the directors’ incentives with the interests of the Shareholders by providing them with the opportunity to participate in the upside that results from their contributions. While other larger and/or established operating companies may place limits on non-executive director compensation to a maximum amount per director per year in order to satisfy external policies and proxy voting guidelines, the Corporation believes that some methodologies used to quantify the value of options at the time of the grant by such companies (using an option pricing model that values options based on a theoretical value at the time of grant) are not suited to calculating such a limit in the case of the Corporation. Because such methodologies typically incorporate stock volatility into the calculation of Option value, the volatility of the Corporation’s stock (compared with more established operating companies) can significantly inflate Option value. The result is that an Option grant in a given year could be valued well in excess of the proposed limits discussed above, even if the Option is out-of-the money on the date of grant. While the Corporation does not object to the principle of limiting non-employee director compensation, the Corporation believes that it is not currently at the right stage of its development to impose such limitations based on external, generalized criteria. Accordingly, the Corporation intends to continue to evaluate grants of Options and/or RSUs to non-employee directors on a case-by-case basis, making grants based on the contributions of such non-employee directors to the Corporation and having regard to the levels of compensation offered by companies in analogous stages of development.
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Director Compensation Table
The following table provides information regarding compensation paid to the Corporation’s directors, other than Michel Amar and Alec Amar, during the financial year ended December 31, 2024. Information regarding the compensation of Michel Amar and Alec Amar can be found in the table under the heading “Summary Compensation Table” hereinabove.
| Name | Fees earned (US$) | Share-based awards (US$) | Option-based awards (US$) | Non-equity incentive plan compensation (US$) | Pension value (US$) | All other compensation (US$) | Total (US$) | |||||||||||||||||||||
| Adam Rossman | 3,039 | (1) | 15,667 | - | - | - | - | 18,706 | ||||||||||||||||||||
| Gerard Rotonda | - | - | - | - | - | - | - | |||||||||||||||||||||
| Zhichao Li(2) | - | - | - | - | - | - | - | |||||||||||||||||||||
| (1) | Represents director fees paid to Mr. Rossman in respect of legal services he provided to the Corporation in his capacity as a director. |
| (2) | Ms. Li resigned from the Board of Directors on February 10, 2025. The Board of Directors appointed Mr. Elsenbeck as a director, effective February 27, 2025, to fill the vacancy left by Ms. Li’s resignation. |
Director Option-Based and Share-Based Awards
The following table provides information regarding the option-based and share-based awards for each director, other than Michel Amar and Alec Amar, outstanding as of December 31, 2024. Information regarding option-based and share-based awards for Michel Amar and Alec Amar can be found in the table under the heading “Incentive Plan Awards” hereinabove.
| Option-based Awards | Share-based Awards | ||||||||||||||||||||||
| Name | Number of SV Shares underlying unexercised options (#) |
Option exercise price (C$) |
Option expiration date |
Value of unexercised in-the- money options (C$)(1) |
Number of shares or units of shares that have not vested (#) |
Market or payout value of share awards that have not vested (C$)(2) |
|||||||||||||||||
| Adam Rossman | 50,000 | $ | 2.88 | February 14, 2025 | 9,000 | 31,666 | 96,897.96 | ||||||||||||||||
| 25,000 | $ | 3.75 | January 5, 2026 | Nil | |||||||||||||||||||
| 16,333 | $ | 7.47 | March 25, 2026 | Nil | |||||||||||||||||||
| 8,333 | $ | 7.47 | May 17, 2026 | Nil | |||||||||||||||||||
| 8,333 | $ | 4.20 | June 22, 2026 | Nil | |||||||||||||||||||
| Gerard Rotonda | 50,000 | $ | 2.88 | February 14, 2025 | 9,000 | 40,000 | 122,400.00 | ||||||||||||||||
| 25,000 | $ | 3.75 | January 5, 2026 | Nil | |||||||||||||||||||
| 8,333 | $ | 7.47 | March 25, 2026 | Nil | |||||||||||||||||||
| 8,333 | $ | 7.47 | May 17, 2026 | Nil | |||||||||||||||||||
| 8,333 | $ | 4.20 | June 22, 2026 | Nil | |||||||||||||||||||
| Zhichao Li(3) | Nil | N/A | N/A | N/A | 35,000 | 107,100.00 | |||||||||||||||||
| (1) | Calculated based on the difference in value between the exercise price of the options and the closing price of the SV Shares on the TSXV on December 29, 2023, the last business day of the fiscal year ended December 31, 2023, of C$3.06. On such date, 100,000 of the options reflected in the table above were in-the-money. |
| (2) | Calculated based on the closing price of the SV Shares on the TSXV on December 29, 2023, the last business day of the fiscal year ended December 31, 2023, of C$3.06. |
| (3) | Ms. Li resigned from the Board of Directors on February 10, 2025. The Board of Directors appointed Mr. Elsenbeck as a director, effective February 27, 2025, to fill the vacancy left by Ms. Li’s resignation. |
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The following table sets forth, for each of the directors other than Michel Amar and Alec Amar, the value of all incentive plan awards that vested during the year ended December 31, 2024:
| Name(1) | Option- based awards – Value vested during the year (US$) |
Share- based awards – Value vested (US$)(2) |
Non-equity incentive plan compensation – Value earned during the year (US$) |
|||||||
| Adam Rossman | $ | - | 15,667 | - | ||||||
| Gerard Rotonda | $ | - |
- | - | ||||||
| Zhichao Li(3) | $ | - | - | - | ||||||
| (1) | Information regarding the compensation of Michel Amar and Alec Amar, directors of the Corporation, is disclosed under the heading “Incentive Plan Awards” hereinabove. |
| (2) | Amounts reflect the fair value of SV Shares issued and/or RSUs recognized in the applicable year. |
| (3) | Ms. Li resigned from the Board of Directors on February 10, 2025. The Board of Directors appointed Mr. Elsenbeck as a director, effective February 27, 2025, to fill the vacancy left by Ms. Li’s resignation. |
Benefits Upon Termination and/or Change of Control
The Corporation is party to executive employment agreements with each of its President and CEO. See “Employment, Consulting and Management Agreements” above, which sets out the material terms of the contracts therewith, including benefits to such persons upon termination of their employment with the Corporation. Paul Ciullo does not have a written employment agreement with the Corporation providing benefits upon termination as an officer of the Corporation. Adam Rossman, Gerard Rotonda and Dennis Elsenbeck do not have employment agreements with the Corporation providing benefits upon termination as a director of the Corporation.
C. Board Practices
National Policy 58-201 – Corporate Governance Guidelines (“NP 58-201”) 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 believes that it functions independently of management and reviews its procedures on an ongoing basis to ensure that it is functioning independently of management. The Board meets without management present, as circumstances require. When conflicts arise, interested parties are precluded from voting on matters in which they may have an interest. In light of the suggestions contained in NP 58-201, the Board convenes meetings, as deemed necessary, of the independent directors, at which non-independent directors and members of management are not in attendance.
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The Board is currently comprised of five (5) members, two (2) of whom the Board has determined to be “independent directors” within the meaning of NI 58-101. Each of Adam Rossman and Gerard Rotonda is considered independent 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 material 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. Michel Amar and Alec Amar are not considered independent directors because they are officers of the Corporation, and Dennis Elsenbeck is not considered an independent director due to the compensation he has previously received from the Corporation for consulting services provided to the Corporation through his business, ElsEnergy LLC.
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.
Directorships
To the Corporation’s knowledge, none of the directors of the Corporation are also current directors of other reporting issuers (or equivalent) in a jurisdiction or a foreign jurisdiction.
Nomination of Directors
The Governance and Nominating Committee is responsible for, among other matters, identifying individuals to be nominated as members of the Board. The ultimate decision to appoint individuals to the Board remains with the Board. For further details on the nomination of directors, see “Corporate Governance – Board Committees – Governance and Nomination Committee.”
Compensation
The Compensation Committee is responsible for, among other matters, the establishment of compensation policies and security incentive plans, evaluating the performance and effectiveness of the Board, the performance evaluation of executives and deciding the compensation of executives and directors. For further details on the compensation practices of the Corporation, see “Governance and Nomination Committee” below.
Board Committees
The Board has four standing committees, being the Audit Committee, the Compensation Committee, the Governance and Nomination Committee and the Disclosure Committee.
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 Gerard Rotonda (Chair), Adam Rossman and Dennis Elsenbeck. Messrs. Rotonda and Rossman are each “independent” directors as defined in National Instrument 52-110 – Audit Committees (“NI 52-110”). Mr. Elsenbeck is not considered an independent director due to the compensation he has previously received from the Corporation for consulting services provided to the Corporation through his business, ElsEnergy LLC. However, pursuant to Nasdaq Listing Rule 5605(c)(2)(B), the Board has determined that Mr. Elsenbeck is able to exercise the impartial judgement necessary to fulfill his responsibilities as a member of the Audit Committee, and the appointment of Mr. Elsenbeck as a member of the Audit Committee is in the best interests of the Corporation and its shareholders, such that Mr. Elsenbeck may serve as a member of the Audit Committee until the earlier of the next annual shareholders’ meeting of the Corporation and August 27, 2025.
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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.
Compensation Committee
The Compensation Committee assists the Board in its oversight of compensation. The Compensation Committee is comprised of Adam Rossman (Chair), Gerard Rotonda and Alec Amar. Messrs. Rossman and Rotonda are considered “independent” within the meaning of NI 58-101. The Compensation Committee ensures an objective process for determining compensation by providing that a majority of members of the Compensation Committee are considered independent within the meaning of NI 58-101.
The Compensation Committee is responsible for considering, establishing and reviewing executive compensation programs and determining 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’s security trading policy restricts directors or Executives from purchasing financial instruments, including, for greater certainty, prepaid variable forward contracts, equity swaps, collars or units of TSXV funds that are designed to hedge or offset a decrease in market value of equity. To the knowledge of the Corporation, as of the date of hereof, no director or Executive of the Corporation has participated in the purchase of such financial instruments.
Governance and Nomination Committee
The Governance and Nomination Committee identifies individuals qualified to be nominated as members of the Board, develops corporate governance guidelines and principles for the Corporation and assists the Board with the structure and composition of Board committee. The Governance and Nomination Committee is comprised of Adam Rossman (Chair), Gerard Rotonda and Michel Amar. Messrs. Rossman and Rotonda are considered “independent” within the meaning of NI 58-101. The Governance and Nomination Committee ensures an objective process for determining nomination of directors by providing that a majority of members of the Governance and Nomination Committee are considered independent within the meaning of NI 58-101. The duties of the Governance and Nomination Committee include reviewing the Corporation’s policies, codes and mandates, reviewing the size, composition and candidates of board committees, recommending to the Board the necessary and desirable competencies and skills of directors and annually conduct, review and report to the Board the results of an assessment of the Board’s performance and effectiveness.
Disclosure Committee
The Disclosure Committee is to be comprised of the CEO, a director designated by the Corporation’s Chair of the Board and an independent director designated by the Corporation’s Chair of the Board. The current members of the Disclosure Committee are Michel Amar (Chair), Gerard Rotonda and Adam Rossman.
Assessments
The Board will consider the performance of the directors and committee performance from time to time, as required.
Director Term Limits and Other Mechanisms of Board Renewal
The Corporation has not adopted term limits for the directors on its Board. The Board may consider implementing term limits and other mechanisms of Board renewal if and when it determines it is necessary to amend the Corporation’s corporate governance practices. The business of the Corporation has evolved, and is likely to continue to evolve, as the industries in which the Corporation operates have evolved and may evolve in the future. Recognizing this, and to ensure optimal governance of the Corporation by the Board, director renewal and replacement is managed in a manner to ensure that the Board can function effectively while enabling new directors to gain a full understanding of the Corporation’s business.
It is intended that each of the directors will hold office until the next annual meeting of Shareholders of the Corporation or until his or her successor is elected or appointed, unless such office is earlier vacated in accordance with the provisions of the Corporation’s governing corporate statute.
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Policies Regarding the Representation and Consideration of Women on the Board and Executive Officer Positions
The Board has not adopted a written policy on diversity; however, it is committed to promoting diversity within the Corporation. The Governance and Nominating Committee considers all aspects of diversity, including gender, culture and ethnicity, age, sexual orientation, ability and disability, geographic background and other personal characteristics when assessing issues related to Board composition and renewal. The Board selects the best candidate based on qualifications and the overall mix of skills and attributes, with a commitment to diversity. Diversity, inclusive of gender, is a key factor in the Corporation’s corporate-wide talent management strategy, which seeks to identify, mentor and develop current executives and employees for more senior positions in the Corporation. The Board has not adopted a formal target regrading women on the Board and in executive officer positions.
Nasdaq Rules
Corporate Governance
Under Nasdaq rules, a foreign private issuer may follow its home country practice in lieu of certain of Nasdaq’s corporate governance rules. As permitted by Nasdaq rules, we currently follow corporate governance requirements under applicable rules and regulations in Canada, including those promulgated by the TSXV. For a description of the Corporation’s corporate governance practices and the ways in which they differ from Nasdaq rules applicable to U.S. domestic companies listed on Nasdaq, see ITEM 16.G. “Corporate Governance.”
| D. | Employees |
As of December 31, 2024, the Corporation had 16 full-time employees all of whom are located in the United States. None of the Corporation’s employees are covered by collective bargaining agreements.
| Function | Total | |||
| Management | 5 | |||
| General and administration | 11 | |||
| Total | 16 | |||
| E. | Share Ownership |
For information regarding the share ownership of the Corporation’s directors and officers, see ITEM 7.A. “Major Shareholders” below. For details regarding the Corporation’s equity incentive plans, see ITEM 6.B. “Long-Term Incentive Plan,” “Stock Option Plan” and “Restricted Share Unit Plan.”
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| F. | Disclosure of the Corporation’s Action to Recover Erroneously Awarded Compensation. |
The Corporation adopted a compensation recovery policy (the “Executive Compensation Clawback Policy”) as required by the Nasdaq listing rules and Rule 10D-1 of the Exchange Act. A copy of the Executive Compensation Clawback Policy is filed as Exhibit 97.1 hereto. In connection with the SEC’s review of the Corporation’s annual report on Form 20-F for the fiscal year ended December 31, 2023, the Corporation determined that it was required to prepare an accounting restatement of its consolidated financial statements as of and for the years ended December 31, 2023, 2022 and 2021, which has been reflected in the restated comparative periods presented in the consolidated financial statements for the year ended December 31, 2023 that are filed herewith. The Corporation concluded that it was not required under the Executive Compensation Clawback Policy to recover any previously awarded incentive-based compensation because the restatement did not impact related performance metrics used for executive officer compensation, and, therefore, no recovery of incentive-based compensation was required.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
| A. | Major Shareholders |
Holdings by Major Shareholders
The following table sets forth information regarding the beneficial ownership of the Corporation’s voting securities as of March 28, 2025 by (i) each individual who served as an executive officer and/or director during the fiscal year ended December 31, 2024, individually and as a group, and (ii) each person known by the Corporation to beneficially own more than 5% of the outstanding shares of the Corporation. Unless otherwise indicated, the Corporation believes that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act, except where otherwise noted below, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, a person is deemed to be a beneficial owner of a security if that person has sole or shared voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security, including shares that a person or entity has the right to acquire within 60 days of March 28, 2025, if any, in which case, such shares are considered to be outstanding and to be beneficially owned by the person with such right to acquire additional shares for the purposes of computing the percentage ownership of that person (including in the total when calculating the applicable beneficial owner’s percentage of ownership) but not for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the percentages presented in the table below are based on 36,307,870 SV Shares outstanding as of March 28, 2025.
Except as otherwise noted, the business address for each person listed in the table below is 218 NW 24th Street, 2nd Floor, Miami, FL 33127. A description of the differences between the SV Shares and the PV Shares is included in Exhibit 2(d) attached to this Annual Report. Except with respect to any PV Shares held or beneficially owned by any major shareholder, the Corporation’s major shareholders do not have any different or special voting rights.
| Name of Beneficial Owner | SV Shares | Percentage of Outstanding SV Shares | PV Shares | Percentage of Outstanding PV Shares | Percentage of Total Voting Power(1) | |||||||||||||||
| Directors and Executive Officers: | ||||||||||||||||||||
| Michel Amar | 5,798,814 | (2) | 15.97 | % | 3,333 | (3) | 100 | % | 17.49 | % | ||||||||||
| Alec Amar | 828,033 | (4) | 2.28 | % | - | - | 2.24 | % | ||||||||||||
| Paul Ciullo | 77,217 | (5) | * | - | - | * | ||||||||||||||
| Gerard Rotonda | 103,332 | (6) | * | - | - | * | ||||||||||||||
| Adam Rossman | 146,078 | (7) | * | - | - | * | ||||||||||||||
| Zhichao Li | - | - | - | - | - | |||||||||||||||
| Dennis Elsenbeck | - | - | - | - | - | |||||||||||||||
| All Directors and Executive Officers as a Group (6 persons) | 6,953,474 | 19.03 | % | 3,333 | 100 | % | 20.48 | % | ||||||||||||
| Five Percent Holders: | ||||||||||||||||||||
| Eleven Ventures LLC(8) | 6,430,245 | 16.28 | % | - | - | 16.01 | % | |||||||||||||
| * | Less than one percent (1%). |
| (1) | Percentage of total voting power represents voting power with respect to all SV Shares and PV Shares, voting as a single class. Each holder of PV Shares is entitled to 200 votes per PV Share, and each holder of SV Shares is entitled to one vote per share of SV Shares on all matters submitted to our stockholders for a vote. As of the date hereof, there were 3,333 PV Shares issued and outstanding. |
| (2) | Consists of (a) 1,513,219 SV Shares held by Michel Amar, (b) 626,544 SV Shares held by Bit Mining International LLC (“BMI”), (c) 2,165,889 SV Shares held by Bit.Management, LLC (“Bit.Management”) and (d) 1,493,162 SV Shares held by NYAM, LLC (“NYAM”). Does not include 666,600 SV Shares issuable upon the conversion of 3,333 PV Shares held by NYAM or restricted stock units held by Mr. Amar that are subject to vesting. BMI, Bit.Management and NYAM are each controlled by Mr. Amar, the CEO of the Corporation. Mr. Amar is also the CEO of Bit.Management, LLC, BIT Mining International, LLC and NYAM. |
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| (3) | Consists of 3,333 PV Shares held by NYAM. |
| (4) | Consists of (a) 783,033 SV Shares held by Alec Amar and (b) 45,000 SV Shares held by Matbrands LLC. Matbrands LLC is controlled by Mr. Amar, the President of the Corporation. |
| (5) | Consists of (a) 49,218 SV Shares held by Paul Ciullo and (b) 27,999 SV Shares underlying options that are currently exercisable or exercisable within 60 days of March 28, 2025. |
| (6) | Consists of (a) 3,333 SV Shares held by Gerard Rotonda and (b) 99,999 SV Shares underlying options that are currently exercisable or exercisable within 60 days of March 28, 2025. |
| (7) | Consists of (a) 38,079 SV Shares held by Adam Rossman and (b) 107,999 SV Shares underlying options that are currently exercisable or exercisable within 60 days of March 28, 2025. |
| (8) | Based solely upon information provided by Eleven Ventures LLC (“Eleven”), the Corporation has been informed by Eleven that this consists of 3,240,851 SV Shares held by Eleven and up to 3,189,394 SV Shares issuable upon exercise of warrants held by Eleven that are currently exercisable (the “Eleven Warrants”). Under the terms of the Eleven Warrants, the holder may not exercise the Eleven Warrants to the extent such exercise would cause the holder, together with its affiliates and any other persons acting as a group together with the holder and any of the holder’s affiliates, to beneficially own a number of SV Shares which would exceed 4.99% or 9.99% (based on the election of Eleven in connection with the issuance of such Eleven Warrants) of the Corporation’s then outstanding SV Shares following such exercise, excluding for purposes of such determination SV Shares issuable upon exercise of warrants which have not been exercised. The number of SV Shares reflected in the table above and this footnote does not reflect these limitations. Eleven is managed by Eleven Managers LLC, whose sole manager is Hartley Wasko. The address for Eleven Ventures LLC is 463 Adams Street, Denver, CO 80206. |
| * | Less than one percent (1%). |
U.S. Share Ownership
As of March 26, 2025, there were a total of 89 holders of record of our SV Shares and 1 holder of record of our PV Shares with addresses in the U.S. We believe that the number of U.S beneficial owners is substantially greater than the number of U.S record holders, because a large portion of our SV Shares are held in broker “street name.” As of March 26, 2025, U.S. holders of record held approximately 35.34% of our outstanding SV Shares and 100% of our outstanding PV Shares.
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Control of Corporation
The Corporation is a publicly traded British Columbia corporation, the shares of which are owned by Canadian residents, U.S. residents and other foreign residents. We are not aware of any arrangement whereby we are directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly, nor are we aware of any arrangement that may, at a subsequent date, result in a change of control of the Corporation.
| B. | Related Party Transactions |
On February 5, 2023, the Corporation entered into a loan agreement (the “Loan Agreement”) with Doge Capital LLC, a company owned and controlled by Michel Amar and Alec Amar (the “Lenders”). Pursuant to the Loan Agreement, the Lenders agreed to make available to the Corporation an amortizing loan in the amount of 30 Bitcoins (the “Loan”), and the Corporation agreed to repay the Lenders 36 Bitcoins as full repayment of the Loan. Pursuant to the terms of the Loan Agreement, the Corporation agreed to pay the Lenders 3 Bitcoins per month for 12 consecutive months, with the first payment being due on March 31, 2023. The remaining balance of the loan was paid off during Q1 2024.
Commencing in August 2022, Mr. Elsenbeck, through ElsEnergy LLC, a sole proprietorship, began to provide consulting services to the Corporation, including energy management and contract analysis, for which the Corporation pays $5,000 per month.
| C. | Interests of Experts and Counsel |
Not applicable.
ITEM 8. FINANCIAL INFORMATION
| A. | Consolidated Statements and Other Financial Information |
The Corporation’s financial statements are stated in United States dollars and are prepared in accordance with IFRS as issued by the IASB.
The financial statements as required under ITEM 17. “Financial Statements” are attached hereto and found immediately following the text of this Annual Report on Form 20-F. The audit reports of Davidson & Company LLP and Raymond Chabot Grant Thornton LLP, independent registered public accounting firms, are included herein immediately preceding the consolidated financial statements.
Legal Proceedings
The Corporation is not currently a party to any actual or pending legal proceedings or regulatory actions that would materially affect the Corporation nor is the Corporation currently contemplating any legal proceedings that are material to its business or of which any of its assets are likely to be subject. Furthermore, the Corporation is not aware of any such proceeding known to be contemplated or threatened which would materially affect the Corporation.
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Dividend Policy
It is not expected that the Corporation will declare any dividends for the foreseeable future. The Corporation has no restrictions on paying dividends, but, if the Corporation generates earnings in the foreseeable future, it is expected that they will be retained to finance growth, if any. The Board will determine if and when dividends should be declared and paid in the future based upon the Corporation’s financial position at the relevant time. Holders of SV Shares and PV Shares (on an as-converted basis) are entitled to an equal share in any dividends declared and paid on the SV Shares and PV Shares (on an as-converted basis).
| B. | Significant Changes |
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this Annual Report on Form 20-F.
ITEM 9. THE OFFER AND LISTING
| A. | Offer and Listing Details |
The Corporation’s SV Shares trade on the TSXV under the ticker symbol “DGX” and on Nasdaq under the ticker symbol “DGXX.”
| B. | Plan of Distribution |
Not required.
| C. | Markets |
Please refer to ITEM 9.A. “Offer and Listing Details” above.
| D. | Selling Shareholders |
Not required.
| E. | Dilution |
Not required.
| F. | Expenses of the Issue |
Not required.
ITEM 10. ADDITIONAL INFORMATION
| A. | Share Capital |
Not required.
| B. | Memorandum and Articles of Association |
A copy of our Articles of Incorporation, as amended from time to time (the “Articles”), is attached as Exhibit 1.1 to this Annual Report on Form 20-F. The information called for by this Item is set forth in Exhibit 2(d) to this Annual Report on Form 20-F and is incorporated herein by reference.
| C. | Material Contracts |
| 1. | On December 21, 2021, one of the Corporation’s subsidiaries entered into a lease agreement (the “Buffalo Facility Lease Agreement”) with East Delavan Property, LLC (“East Delavan”), pursuant to which the Corporation leases certain land and buildings located at the 1001 East Delavan facility in Buffalo, New York in order to conduct a portion of its mining operations. The Buffalo Facility Lease Agreement has a term of 99 years for a one-time, upfront rental payment of US$2,300,000. |
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| 2. | The energy contract dated February 6, 2018 between EnergyMark and Bit.Management, LLC (the “Energy Contract”) was assigned by Bit.Management, LLC to Digihost International (the “Buyer” under the Energy Contract, as the context requires) prior to completion of the RTO. EnergyMark is the provider of power under the contract. There is no cap to the amount of power that the Buyer can purchase under the contract. For all quantities of power used by the Buyer, the price that the Buyer shall pay EnergyMark per kWh shall be a price which is updated every hour, the “NYISO Zone-A Real-Time Price,” plus US$0.001/kWh. Pursuant to the terms of the Energy Contract, the Buyer has the option to request a “forward price” for all or any portion of the power that the Buyer will purchase under the contract for the upcoming month and for any subsequent months, and the Buyer’s request shall designate the fixed quantity of power that the Buyer shall purchase at a fixed price agreed to by the Buyer and EnergyMark. The Corporation has not requested a “forward price” at this time and the price paid is a variable rate based off the above noted “NYISO Zone-A Real-Time Price.” |
| 3. | On March 4, 2022, the Corporation entered into an offering agreement with H.C. Wainwright & Co., LLC (the “Agent”) as agent, pursuant to which the Corporation established an at-the-market equity program (the “ATM Program”), pursuant to which the Corporation was permitted to sell, from time to time, through the Agent, up to $250,000,000 of its SV Shares. A cash commission of 3.0% of the aggregate gross proceeds raised under the ATM Program was paid to the Agent in connection with its services in connection with the ATM Program. Under the ATM Program, the Corporation issued 562,654 SV Shares in exchange for gross proceeds of $1,096,297.71, at an average share price of $1.9484, and received net proceeds of $1,055,456.19 after paying commissions of $32,888.93 to the Agent and incurring $7,952.59 of other transaction fees. The ATM Program expired on March 23, 2024, before all remaining SV Shares could be sold. Proceeds from the ATM Program were used to fund general business operations and working capital requirements, including funding payments to the Corporation’s electric and utility providers, payroll expenses, and legal and professional fees. |
| 4. | For a description of the 2024 Private Placement and the Corporation’s related subscription agreements with the investors thereto, see the section entitled “Fiscal 2024” in ITEM 4 “Information on the Corporation.” |
| 5. | For a description of the 2025 Private Placement and the Corporation’s related subscription agreements with the investors thereto, see the section entitled “Subsequent to Fiscal 2024” in ITEM 4 “Information on the Corporation.” |
| 6. | For a description of the various compensatory arrangements between the Corporation and its executive officers and directors, see ITEM 6.B. “Compensation.” |
| D. | Exchange Controls |
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Corporation’s securities, except as discussed in ITEM 10.E. “Taxation” below.
| E. | Taxation |
The following summary discusses certain Canadian and U.S. federal income tax considerations related to the holding and disposition of SV Shares as of the date hereof but does not purport to be a comprehensive description of the tax considerations that may bear on a decision to invest in SV Shares.
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Certain Material Canadian Federal Income Tax Considerations
The following summary describes, as of the date hereof, the principal Canadian federal income tax considerations under the Income Tax Act (Canada) and the regulations thereunder (the “Tax Act”), generally applicable to a holder who acquires, as beneficial owner, SV Shares and who, for the purposes of the Tax Act and at all relevant times, (i) holds SV Shares as capital property and (ii) deals at arm’s length and is not affiliated with the Corporation and any subsequent purchaser of such securities. A holder who meets all of the foregoing requirements is referred to as a “Holder” herein, and this summary only addresses such Holders. Generally, SV Shares will be considered to be capital property to a Holder, provided the Holder does not hold SV Shares in the course of carrying on a business of trading or dealing in securities and has not acquired the SV Shares in one or more transactions considered to be an adventure or concern in the nature of trade.
This summary is not applicable to a holder (i) that is a “financial institution,” as defined in the Tax Act for the purposes of the mark-to-market rules in the Tax Act, (ii) that is a “specified financial institution,” as defined in the Tax Act, (iii) of an interest which is a “tax shelter investment” as defined in the Tax Act, (iv) that has elected to determine its Canadian tax results in a “functional currency” other than the Canadian dollar, (v) that has entered into or will enter into a “derivative forward agreement” or a “synthetic disposition arrangement” with respect to the SV Shares, or (vi) that receives dividends on SV Shares under or as part of a “dividend rental arrangement,” as defined in the Tax Act. Any such holder should consult its own tax advisor with respect to an investment in SV Shares.
Additional considerations, not discussed herein, may be applicable to a Holder that is a corporation resident in Canada and is (or does not deal at arm’s length with a corporation resident in Canada for purposes of the Tax Act that is), or becomes, controlled by a non-resident person or a group of non-resident persons (comprised of any combination of non-resident corporations, non-resident individuals or non-resident trusts) for purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Such Holders should consult their tax advisors with respect to the consequences of acquiring SV Shares.
This summary is based upon the provisions of the Tax Act and the regulations thereunder in force as of the date hereof, all specific proposals to amend the Tax Act and the regulations thereunder that have been publicly and officially announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”), published in writing by it prior to the date hereof. This summary assumes the Proposed Amendments will be enacted in the form proposed. However, no assurance can be given that the Proposed Amendments will be enacted in their current form, or at all.
This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for the Proposed Amendments, does not take into account or anticipate any changes in the law or any changes in the CRA’s administrative policies and assessing practices, whether by legislative, governmental or judicial action or decision, nor does it take into account or anticipate any other federal or any provincial, territorial or foreign tax considerations which may differ significantly from those discussed herein. This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder, and no representations with respect to the income tax consequences to any Holder are made. Consequently, Holders should consult their own tax advisors with respect to the tax consequences applicable to them, having regard to their own particular circumstances.
Currency Conversion
Generally, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the SV Shares must be converted into Canadian dollars. Amounts denominated in any other currency must be converted into Canadian dollars using the rate of exchange quoted by the Bank of Canada on the day the amount first arose, or such other rate of exchange as is acceptable to the CRA.
Taxation of Resident Holders
The following portion of this summary applies to Holders (as defined above) who, for the purposes of the Tax Act, are or are deemed to be resident in Canada at all relevant times (herein, “Resident Holders”) and this portion of the summary only addresses such Resident Holders. Certain Resident Holders who might not be considered to hold their SV Shares as capital property may, in certain circumstances, be entitled to make the irrevocable election permitted by subsection 39(4) of the Tax Act to have them and any other “Canadian security” (as defined in the Tax Act) be treated as capital property for the taxation year of the election and in all subsequent taxation years. Resident Holders contemplating such election should consult their own tax advisors for advice as to whether it is available and, if available, whether it is advisable in their particular circumstances.
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Taxation of Dividends
A Resident Holder will be required to include in computing income for a taxation year any dividends received, or deemed to be received, in the year by the Resident Holder on the SV Shares. In the case of a Resident Holder that is an individual (other than certain trusts), such dividends will be subject to the gross-up and dividend tax credit rules normally applicable under the Tax Act to taxable dividends received from taxable Canadian corporations, including the enhanced gross-up and dividend tax credit provisions where the Corporation designates the dividend as an “eligible dividend” in accordance with the provisions of the Tax Act. There may be restrictions on the ability of the Corporation to designate any particular dividend as an “eligible dividend.”
A dividend received or deemed to be received by a Resident Holder that is a corporation must be included in computing its income but will generally be deductible in computing the corporation’s taxable income for that taxation year, subject to all of the rules and restrictions under the Tax Act in that regard. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by a Resident Holder that is a corporation as proceeds of disposition or a capital gain. A corporation that is a “private corporation” or a “subject corporation” (each as defined in the Tax Act) generally will be liable to pay an additional tax (refundable under certain circumstances) under Part IV of the Tax Act on dividends received or deemed to be received on the SV Shares in a year to the extent such dividends are deductible in computing its taxable income for the year.
Disposition of SV Shares
A Resident Holder who disposes, or is deemed to dispose, of an SV Share generally will realize a capital gain (or capital loss) equal to the amount, if any, by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base to the Resident Holder of such SV Shares, as the case may be, immediately before the disposition or deemed disposition. The adjusted cost base to a Resident Holder of an SV Share will be determined by averaging the cost of that SV Share with the adjusted cost base (determined immediately before the acquisition of the SV Share) of all other SV Shares held as capital property at that time by the Resident Holder. The taxation of capital gains and losses is generally described below under the heading “Capital Gains and Capital Losses.”
Capital Gains and Capital Losses
Generally, a Resident Holder is required to include in computing income for a taxation year one-half of the amount of any capital gain (a “taxable capital gain”) realized by the Resident Holder in such taxation year. Subject to and in accordance with the rules contained in the Tax Act, a Resident Holder is required to deduct one-half of the amount of any capital loss (an “allowable capital loss”) realized in a particular taxation year against taxable capital gains realized by the Resident Holder in the year. Allowable capital losses in excess of taxable capital gains realized in a particular taxation year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and under the circumstances described in the Tax Act.
The amount of any capital loss realized by a Resident Holder that is a corporation on the disposition or deemed disposition of an SV Share may be reduced by the amount of any dividends received or deemed to have been received by such Resident Holder on such shares, to the extent and under the circumstances described in the Tax Act. Similar rules may apply where a Resident Holder that is a corporation is a member of a partnership or a beneficiary of a trust that owns SV Shares, directly or indirectly, through a partnership or trust. Resident Holders to whom these rules may be relevant should consult their own tax advisors.
A Resident Holder that is throughout the relevant taxation year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable to pay an additional tax (refundable in certain circumstances) on certain investment income, including amounts in respect of net taxable capital gains and dividends or deemed dividends that are not deductible in computing the Resident Holder’s taxable income. Such Resident Holders should consult their own tax advisors.
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Alternative Minimum Tax
Capital gains realized and dividends received or deemed to be received by a Resident Holder that is an individual or a trust, other than certain specified trusts, may give rise to alternative minimum tax under the Tax Act. Resident Holders should consult their own tax advisors in this regard.
Taxation of Non-Resident Holders
The following portion of this summary is generally applicable to Holders who, for the purposes of the Tax Act and at all relevant times: (i) are neither resident nor deemed to be resident in Canada, and (ii) do not use or hold SV Shares in the course of business carried on or deemed to be carried on in Canada. Holders who meet all of the foregoing requirements are referred to herein as “Non-Resident Holders,” and this portion of the summary only addresses such Non-Resident Holders. Special rules, which are not discussed in this summary, may apply to a Non-Resident Holder that is an insurer carrying on business in Canada and elsewhere. Such Non-Resident Holders should consult their own tax advisors.
Receipt of Dividends
Dividends paid or credited or deemed to be paid or credited to a Non-Resident Holder by the Corporation are subject to Canadian withholding tax at the rate of 25% of the gross amount of the dividend unless reduced by the terms of an applicable tax treaty or convention between Canada and the country in which the Non-Resident Holder is resident. For example, under the Canada-United States Tax Convention (1980), as amended (the “Treaty”), the rate of withholding tax on dividends paid or credited to a Non-Resident Holder who is resident in the U.S. for purposes of the Treaty and entitled to full benefits under the Treaty (a “U.S. Holder”) is generally reduced to 15% of the gross amount of the dividend (or 5% in the case of a U.S. Holder that is a company beneficially owning at least 10% of the Corporation’s voting shares). Non-Resident Holders should consult their own tax advisors in this regard.
Disposition of SV Shares
A Non-Resident Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of an SV Share unless such SV Share constitutes “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident Holder at the time of disposition and the gain is not exempt from tax pursuant to the terms of an applicable tax treaty or convention.
Provided the SV Shares are listed on a “designated stock exchange,” as defined in the Tax Act (which currently includes the TSXV and Nasdaq) at the time of disposition, the SV Shares will generally not constitute taxable Canadian property of a Non-Resident Holder at that time, unless at any time during the 60-month period immediately preceding the disposition the following two conditions are satisfied concurrently: (i) (a) the Non-Resident Holder; (b) persons with whom the Non-Resident Holder did not deal at arm’s length; (c) partnerships in which the Non-Resident Holder or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships; or (d) any combination of the persons and partnerships described in (a) through (c), owned 25% or more of the issued shares of any class or series of shares of the Corporation; and (ii) more than 50% of the fair market value of the SV Shares was derived directly or indirectly from one or any combination of: real or immovable property situated in Canada, “Canadian resource properties,” “timber resource properties” (each as defined in the Tax Act), and options in respect of, or interests in or for civil law rights in, such properties. Notwithstanding the foregoing, in certain circumstances set out in the Tax Act, the SV Shares may be deemed to be taxable Canadian property. Non-Resident Holders should consult their own tax advisors as to whether their SV Shares constitute the taxable Canadian property in their particular circumstances.
Even if the SV Shares are taxable Canadian property of a Non-Resident Holder, such Non-Resident Holder may be exempt from tax under the Tax Act on the disposition of such SV Shares by virtue of an applicable income tax treaty or convention. In cases where a Non-Resident Holder disposes, or is deemed to dispose, of a SV Share that is taxable Canadian property of that Non-Resident Holder, and the Non-Resident Holder is not entitled to an exemption from tax under the Tax Act or pursuant to the terms of an applicable income tax treaty or convention, the consequences under the heading “Certain Canadian Federal Income Tax Considerations - Taxation of Resident Holders – Capital Gains and Capital Losses” above will generally be applicable to such disposition. Non-Resident Holders who may hold SV Shares as taxable Canadian property should consult their own tax advisors.
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Certain Material U.S. Federal Income Tax Considerations
The following discussion describes certain material U.S. federal income tax consequences relating to the acquisition, ownership and disposition of SV Shares by U.S. Holders (as defined herein). This discussion applies to U.S. Holders that purchase SV Shares and hold such SV Shares as capital assets (generally, assets held for investment purposes). This discussion is based on the Internal Revenue of Code of 1986, as amended, U.S. Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as certain financial institutions, insurance companies, broker-dealers and traders in securities or other persons that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, persons who hold SV Shares as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or integrated investment, persons that have a “functional currency” other than the United States dollar, persons that own directly, indirectly or through attribution 10% or more of the voting power or value of our shares, corporations that accumulate earnings to avoid U.S. federal income tax, partnerships and other pass-through entities (or arrangements treated as a partnership for U.S. federal income tax purposes), and investors in such pass-through entities). This discussion does not address any U.S. estate or gift tax considerations, the alternative minimum tax, the net investment income tax or any state or local or non-U.S. tax consequences. The Corporation has not requested, and will not request, a ruling from the U.S. Internal Revenue Service (the “IRS”) or an opinion of legal counsel with respect to any of the U.S. federal income tax consequences described below, and as a result there can be no assurance that the IRS will not disagree with or challenge any of the conclusions described herein.
As used in this discussion, the term “we” refers to the Corporation, and the term “U.S. Holder” means a beneficial owner of SV Shares that is, (1) an individual who is a citizen or resident alien of the United States for U.S. federal income tax purposes, (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income tax regardless of its source or (4) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.
If a partnership or pass-through entity for U.S. federal income tax purposes is the beneficial owner of SV Shares, the U.S. federal income tax consequences relating to an investment in the SV Shares will depend in part upon the status and activities of such entity and the particular partner. A U.S. Holder that is a partner (or other owner) of a pass-through entity that acquires SV Shares is urged to consult its own tax advisors regarding the U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership and disposition of SV Shares.
U.S. Holders are urged to consult their own tax advisors as to the particular tax consequences applicable to them relating to the purchase, ownership and disposition of SV Shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
Passive Foreign Investment Company Consequences
Special, generally unfavorable, U.S. federal income tax rules may apply to U.S. Holders owning SV Shares if we are determined to be a PFIC. We will be treated as a PFIC, for any taxable year in which either (1) at least 75% of our gross income is “passive income,” or (2) on average at least 50% of our assets, determined on a quarterly basis, are assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents, and gains from the sale or exchange of property that gives rise to passive income. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or raised in a public offering, marketable securities, and other assets that may produce passive income. Generally, in determining whether we are a PFIC, a proportionate share of the income and assets of each corporation or partnership in which we own, directly or indirectly, at least a 25% interest (by value) is taken into account.
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We currently do not expect to be a PFIC for our current and future taxable years. However, because our PFIC status for any taxable year can be determined only after the end of the year and will depend on the composition of our income and assets and the value of our assets from time to time, there can be no assurance that we will not be a PFIC for any future taxable year. If we were a PFIC in any taxable year during which a U.S. Holder owns SV Shares, such U.S. Holder would be liable for additional taxes and interest charges under the “PFIC excess distribution regime” upon (1) a distribution paid during a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for the SV Shares, and (2) any gain recognized on a sale, exchange or other disposition, including a pledge, of the SV Shares, whether or not we continue to be a PFIC. Under the PFIC excess distribution regime, the tax on such distribution or gain would be determined by allocating the distribution or gain ratably over the U.S. Holder’s holding period for SV Shares. The amount allocated to the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC would be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years would be taxed at the highest marginal rates in effect for individuals or corporations, as applicable, to ordinary income for each such taxable year, and an interest charge, generally applicable to underpayments of tax, would be added to the tax. If we were a PFIC for any year during which a U.S. Holder holds SV Shares, we must generally continue to be treated as a PFIC by that holder for all succeeding years during which the U.S. Holder holds the SV Shares, unless we cease to meet the requirements for PFIC status and the U.S. Holder makes a “deemed sale” election with respect to the SV Shares.
If we were to be a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution rules if such U.S. Holder makes a valid “mark-to-market” election for the SV Shares for the first taxable year in which such U.S. Holder holds the SV Shares. A mark-to-market election is available to a U.S. Holder only for “marketable stock.” The SV Shares will be marketable stock if (as is currently the case) they are listed on Nasdaq and are regularly traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. If a mark-to-market election is in effect, a U.S. Holder generally would take into account as ordinary income each year, the excess of the fair market value of the SV Shares held at the end of such taxable year over the adjusted tax basis of the SV Shares. The U.S. Holder would also take into account as an ordinary loss each year, the excess of the adjusted tax basis of the SV Shares over their fair market value at the end of the taxable year, but only to the extent of the excess of amounts previously included in income over ordinary losses previously deducted as a result of the mark-to-market election. The U.S. Holder’s tax basis in the SV Shares would be adjusted to reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other disposition of the SV Shares would be treated as ordinary income and any loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included as ordinary income) and thereafter as capital loss.
A mark-to-market election would not apply to the SV Shares for any taxable year during which we are not a PFIC, but would remain in effect with respect to any subsequent taxable year in which we became a PFIC. Such election would not apply to any non-U.S. subsidiaries. We currently do not have any non-U.S. subsidiaries.
The tax consequences that would apply to the SV Shares if we were to be a PFIC would also be different from those described above if a U.S. Holder were able to make a valid qualified electing fund (“QEF”) election. At this time, we do not intend to provide U.S. Holders with the information necessary for a U.S. Holder to make a QEF election, and prospective investors should therefore assume that a QEF election will not be available if we were to be a PFIC.
As discussed below under “Certain Material U.S. Federal Income Tax Considerations – Distributions,” notwithstanding any election made with respect to the SV Shares, if we were to be a PFIC in either the taxable year of the distribution or the immediately preceding taxable year, dividends received by a U.S. Holder who is an individual would not qualify for reduced federal income tax rates.
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If we were to be a PFIC for any taxable year during which a U.S. Holder owned any SV Shares, the U.S. Holder would generally be required to file an IRS Form 8621 with its federal income tax returns. U.S. Holders should consult their tax advisers regarding the potential application of the PFIC rules to their ownership of the SV Shares and whether they should make the mark-to-market election described above with respect to their SV Shares.
Distributions
Subject to the discussion above under “Certain Material U.S. Federal Income Tax Considerations - Passive Foreign Investment Company Consequences,” a U.S. Holder that receives a distribution on the SV Shares generally will be required to include the gross U.S. dollar amount of such distribution (before reduction for any Canadian withholding taxes withheld therefrom) in gross income as a dividend when actually or constructively received by the U.S. Holder, to the extent paid out of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent that the distribution exceeds our current and accumulated earnings and profits as so determined, the distribution will be treated first as a tax-free return of capital and will reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s SV Shares, and then as capital gain recognized on a sale, exchange or other taxable disposition of the SV Shares (as discussed below). Because we may not account for our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions on the SV Shares to be reported to them as dividends. Distributions on SV Shares that are treated as dividends generally will constitute foreign source income from sources outside the United States for foreign tax credit purposes and generally will constitute passive category income. Such dividends will not be eligible for the “dividends received” deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.
Dividends paid by a “qualified foreign corporation” are eligible for taxation in the case of non-corporate U.S. Holders at a reduced federal income tax rate provided that certain requirements are met. Subject to the discussion above under “Certain U.S. Federal Income Tax Considerations - Passive Foreign Investment Company Consequences,” dividends paid on the SV Shares should be treated as “qualified dividend income” in the hands of non-corporate U.S. Holders, provided that such U.S. Holders satisfy certain conditions, including conditions relating to holding period and the absence of certain risk reduction transactions. Each non-corporate U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends paid on such U.S. Holder’s SV Shares.
Sale, Exchange or Other Disposition of SV Shares
Subject to the discussion above under “Certain Material U.S. Federal Income Tax Considerations - Passive Foreign Investment Company Consequences,” a U.S. Holder generally will recognize a capital gain or loss for U.S. federal income tax purposes on the sale, exchange or other disposition of the SV Shares in an amount equal to the difference, if any, between the U.S. Holder’s amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax basis in the SV Shares sold, exchanged or disposed. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders or a long-term capital loss if, on the date of sale, exchange or other disposition, the SV Shares were held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder on the sale or other disposition of the SV Shares will generally be treated as gain or loss from sources within the United States for U.S. foreign tax credit purposes.
Receipt of Foreign Currency
The gross amount of any payment in a currency other than United States dollars will be included in income by a U.S. Holder in a United States dollar amount calculated by reference to the exchange rate in effect on the day such U.S. Holder actually or constructively receives the payment in accordance with its regular method of accounting for U.S. federal income tax purposes, regardless of whether the payment is in fact converted into United States dollars at that time. If the foreign currency is converted into United States dollars on the date of the payment, the U.S. Holder should not be required to recognize any foreign currency gain or loss with respect to the receipt of foreign currency. If, instead, the foreign currency is converted into United States dollars at a later date, any currency gains or losses resulting from the conversion will be treated as ordinary income or loss, and such loss may not be deductible if the U.S. Holder is an individual (due to current law limitations on the deductibility of investment expenses). Such foreign currency gain or loss will be treated as U.S. source ordinary income or loss for U.S. foreign tax credit purposes. U.S. Holders are urged to consult their own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
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Additional Tax on Net Investment Income
U.S. Holders that are individuals, estates or trusts are generally required to pay an additional 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold. A U.S. Holder’s “net investment income” generally includes, among other things, dividends and net gains from disposition of property held for investment. Accordingly, dividends on and capital gain from the sale, exchange or other taxable disposition of the SV Shares, as well as any foreign currency gain, may be subject to this additional tax. U.S. Holders are urged to consult their own tax advisors regarding the additional tax on net investment income.
Backup Withholding and Information Reporting
Dividends paid to a U.S. Holder in respect of the SV Shares and the proceeds received by a U.S. Holder from the sale, exchange or other disposition of the SV Shares within the United States or through certain U.S.-related financial intermediaries may be subject to U.S. backup withholding unless a U.S. Holder is a corporation or other exempt recipient and provides a competed and executed IRS Form W-9.. Backup withholding may apply to such payments if a U.S. Holder does not establish an exemption from backup withholding, or fails to provide a correct taxpayer identification number or make any other required certifications. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against U.S. federal income tax liability when the U.S. Holder files a U.S. federal income tax return reporting the required information.
In addition, U.S. Holders should be aware of reporting requirements with respect to the holding of certain foreign financial assets, including stock of foreign issuers which is not held in an account maintained by certain financial institutions, if the aggregate value of all of such assets exceeds US$50,000. U.S. Holders must complete and attach an IRS Form 8938, Statement of Specified Foreign Financial Assets, with their return for each year in which they hold our SV Shares. U.S. Holders should also be aware that if we were to be a PFIC, they will generally be required to file IRS Form 8261 with their U.S. federal income tax returns. U.S. Holders are urged to consult their own tax advisors regarding the application of the information reporting rules to the SV Shares and their particular situations.
EACH INVESTOR OR POTENTIAL INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISORS ABOUT THE U.S. TAX CONSEQUENCES TO IT OF AN INVESTMENT IN SV SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
| F. | Dividends and Paying Agents |
Not required.
| G. | Statements by Experts |
Not required.
| H. | Documents on Display |
We file or furnish reports and other information with the SEC. You may obtain copies of our filings with the SEC by accessing the SEC’s website located at www.sec.gov. We also file reports under Canadian regulatory requirements on SEDAR+; you may access our reports filed on SEDAR+ by accessing the website www.sedarplus.ca.
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We also make our SEC filings available on our website, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website is www.digipowerx.com.
The information on or accessible through the websites referenced herein is not part of and is not incorporated by reference into this Annual Report, and the inclusion of website addresses in this Annual Report is only for reference.
| I. | Subsidiary information |
Not required.
| J. | Annual Report to Security Holders |
Not required.
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
Not required.
ITEM 12. Description of Securities Other than Equity Securities
| A. | Debt Securities |
Not required.
| B. | Warrants and Rights |
Not required.
| C. | Other Securities |
Not required.
| D. | American Depositary Shares |
Not required.
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PART II
ITEM 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
A. through D. Material Modifications to the Rights of Security Holders
There have been no material modifications to the rights of our security holders.
E. Use of Proceeds
Not applicable.
ITEM 15. Controls and Procedures
| (a) | Disclosure Controls and Procedures |
As of the end of the period covered by this Annual Report, the Corporation carried out an evaluation, under the supervision of the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, as of the end of the period covered by this Annual Report, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that, due to the material weaknesses in our internal control over financial reporting described below, the Corporation’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to the Corporation’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
| (b) | Management’s Annual Report on Internal Control over Financial Reporting |
Management of the Corporation, under the supervision of the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining an adequate system of “internal control over financial reporting” as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the International Accounting Standards Board. Management, including the Chief Executive Officer and the Chief Financial Officer, has assessed the effectiveness of the Corporation’s internal control over financial reporting in accordance with Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management, including the Chief Executive Officer and the Chief Financial Officer, has determined that the Corporation’s internal control over financial reporting was not effective as of December 31, 2024 due to material weaknesses in the Corporation’s internal control over financial reporting.
As defined in Regulation 12b-2 under the Exchange Act, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented, or detected on a timely basis. Specifically, in conjunction with the preparation of this Annual Report, management of the Corporation determined that (a) the Corporation does not have effective review and reconciliation procedures related to the period end balances in connection with the closing of financial statements for a particular period, and (b) the Corporation has insufficient procedures or processes to independently generate an expectation over the rewards which should be received from self-mining and colocation agreements based on the hashing power provided to the network, in order to assess the completeness and accuracy of rewards received from those revenue streams.
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Remediation of Material Weaknesses in Internal Control Over Financial Reporting
The Corporation plans to strengthen its internal control over financial reporting and is committed to ensuring that such controls are designed and operating effectively. The Corporation plans to implement a formal process to review and reconcile period end balances related to the items described above and properly reassess those items as required. The Corporation also plans to implement procedures to formally review the equipment listings for its miners used for self-mining and for co-location customers, and to generate an independent expectation of expected rewards based on hashing power provided to the network.
The material weaknesses in the Corporation’s internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Management’s efforts are ongoing, and the Corporation expects its remediation plan to be completed in the second quarter of 2025. If these remediation efforts do not prove effective and control deficiencies and material weaknesses persist or occur in the future, the accuracy and timing of the Corporation’s financial reporting may be materially and adversely affected, including as described in the “Risk Factors” section above.
Remediation of Prior Material Weakness in Internal Control Over Financial Reporting
As previously reported in the Corporation’s annual report on 20-F for the fiscal year ended December 31, 2023, management of the Corporation identified certain material weaknesses related to (a) the Corporation’s failure to timely communicate with and enable its independent registered public accounting firm to timely complete a PCAOB audit of the Corporation’s financial statements included in that annual report and (b) the Corporation improperly classifying proceeds from the sales of digital assets in its financial statements as cash flows from investing activities, rather than cash flows from operating activities. As noted above, a material weakness is not generally considered fully remediated until the enhanced controls related to that material weakness are fully implemented and operate for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively. Since identifying the material weaknesses, the Corporation’s management has implemented its plan to remediate these control deficiencies, including in order to timely file this Annual Report, which contains financial statements for the fiscal year ended December 31, 2024 that classify proceeds from the sales of digital assets as cash flows from investing activities. Management has completed its documentation, testing and evaluation of the updated internal controls and determined that, as of December 31, 2024, these controls have now operated for a sufficient period of time, and, through testing of the design and operating effectiveness of the controls, management has concluded that these controls are operating effectively. As such, management concluded that the previously identified material weaknesses have been remediated as of December 31, 2024.
| (c) | Attestation Report of the Registered Public Accounting Firm |
Under the Jumpstart Our Business Startups Act, “emerging growth companies” are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002, which generally requires that a public company’s registered public accounting firm provide an attestation report relating to management’s assessment of internal control over financial reporting. The Corporation qualifies as an “emerging growth company” and, therefore, has not included in, or incorporated by reference into, this Annual Report such an attestation report as of the end of the period covered by this Annual Report.
| (d) | Changes in Internal Control over Financial Reporting |
Management has not identified any change in the Corporation’s internal control over financial reporting that occurred during the fiscal year ending December 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
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ITEM 16. [RESERVED]
ITEM 16A. Audit Committee Financial Expert
The Board has determined that Gerard Rotonda qualifies as an “audit committee financial expert” (as such term is defined in Item 407(d)(5)(ii) of Regulation S-K under the Exchange Act and Rule 5605(c)(2)(A) of the Nasdaq Listing Rules). Mr. Rotonda is considered independent (as determined under Exchange Act Rule 10A-3 and Nasdaq Listing Rule 5605(a)(2) of the Nasdaq Stock Market Rules). Please refer to ITEM 6.A. “Directors, Senior Management and Employees” for further details regarding Mr. Rotonda’s relevant experience.
The SEC has indicated that the designation or identification of a person as an audit committee financial expert does not make such person an “expert” for any purpose, impose any duties, obligations or liability on such person that are greater than those imposed on members of the audit committee and the board of directors who do not carry this designation or identification, or affect the duties, obligations or liability of any other member of the audit committee or board of directors.
ITEM 16B. Code of Ethics
The Corporation has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of the Corporation’s directors, officers and employees as well as its consultants. The Code is available on the Corporation’s website, www.digipowerx.com, in the “Governance” section under the “Documents and Charters” tab. We will disclose on our website any amendment to, or waiver from, a provision of the Code that our applies to our employees, officers or directors as required by applicable securities rules and regulations. During the year ended December 31, 2024, the Corporation did not waive or implicitly waive any provision of the Code with respect to any of the Corporation’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
ITEM 16C. Principal Accountant Fees and Services
Raymond Chabot Grant Thornton LLP (“Raymond Chabot Grant Thornton”) served as our independent registered public accounting firm for the year ended December 31, 2023 and up to the date of its resignation, and Davidson & Company LLP (“Davidson”) was appointed as our independent registered public accounting firm, including to audit the consolidated financial statements for the year ended December 31, 2024 that appear in this Annual Report. See ITEM 16.F. “Change in Registrant’s Certifying Accountant” for further details regarding the change in our independent registered public accounting firm. Set forth below are the total fees billed (or expected to be billed) by Raymond Chabot Grant Thornton and Davidson, respectively, for providing certain professional services to the Corporation in each of the last two years:
| (in U.S. dollars) | Year Ended December 31, 2024 | Year Ended December 31, 2023 | ||||||
| Davidson & Company LLP | ||||||||
| Audit Fees | $ | 390,000 | $ | - | ||||
| Audit-Related Fees | $ | - | $ | - | ||||
| Tax Fees | $ | - | $ | - | ||||
| All Other Fees | $ | - | $ | - | ||||
| Total Fees Paid | $ | - | $ | - | ||||
| Raymond Chabot Grant Thornton LLP | ||||||||
| Audit Fees | $ | 1,004,089 | $ | 475,206 | ||||
| Audit-Related Fees | $ | 5,933 | $ | 147,265 | ||||
| Tax Fees | $ | 27,726 | $ | 18,391 | ||||
| All Other Fees | $ | - | $ | - | ||||
| Total Fees Paid | $ | 1,037,748 | $ | 640,862 | ||||
Audit Fees: Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements, quarterly review, and services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings.
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Audit-Related Fees: Audit-related services consist of fees billed by our independent registered public accounting firm for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attestation services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Tax Fees: Tax fees consist of fees billed by our independent registered public accounting firm for professional tax services. These services also include assistance regarding federal, state and local tax compliance.
All Other Fees: Other fees would include fees for products and services provided by our independent registered public accounting firm other than the services reported above.
Subject to the requirements of Canadian National Instrument 52-110, the engagement of an auditor to perform non-audit services is considered by the Board, and where applicable by the Audit Committee, on a case by case basis. The Board or, as applicable, the Audit Committee sets forth its pre-approval and/or confirmation of services authorized by thereby in the minutes of its meetings. All services provided to us by our independent registered public accounting firm in 2024 and 2023 were pre-approved by the Board or the Audit Committee
ITEM 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
ITEM 16F. Change in Registrant’s Certifying Accountant
As previously disclosed by the Corporation in Amendment No.1 to the Corporation’s Annual Report on Form 20-F for the fiscal year ended December 31, 2023, filed with the SEC on March 5, 2025 (as so amended, the “2023 Annual Report”), Raymond Chabot Grant Thornton resigned on November 27, 2024 at the Corporation’s request effective as of such date.
Following the foregoing, on November 27, 2024, the Corporation engaged Davidson as its independent registered public accounting firm to audit the Corporation’s consolidated financial statements for the fiscal year ended December 31, 2024. The appointment of Davidson was recommended to the Corporation’s Board by the Audit Committee of the Board and subsequently approved by the Board.
The audit reports of Raymond Chabot Grant Thornton on the Corporation’s consolidated financial statements for the fiscal years ended December 31, 2023 and 2022 did not contain an adverse opinion or disclaimer of opinion, or qualification or modification as to uncertainty, audit scope, or accounting principles, except to indicate that there was substantial doubt about the Corporation’s ability to continue as a going concern.
In connection with the audit of the Corporation’s financial statements for the fiscal years ended December 31, 2023 and 2022, and in the subsequent interim periods through November 27, 2024, there were (i) no disagreements within the meaning of Item 16F(a)(1)(iv) of Form 20-F between the Corporation and Raymond Chabot Grant Thornton on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if not resolved to the satisfaction of Raymond Chabot Grant Thornton, would have caused it to make reference to the subject matter thereof in connection with its reports for such years, and (ii) no “reportable events” within the meaning of Item 16F(a)(1)(v) of Form 20-F, except for the material weaknesses described in ITEM 15.b “Management’s Annual Report on Internal Control over Financial Reporting” above.
Prior to engaging Davidson as the Corporation’s independent auditor for the fiscal year ended December 31, 2024, the Corporation had not consulted Davidson regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Corporation’s financial statements or a reportable event, nor did the Corporation consult with Davidson regarding any matter that was either (i) the subject of any disagreements (as that term is described in Item 16F(a)(1)(iv) of Form 20-F and the related instructions) with its prior auditor or (ii) a reportable event (as that term is defined in Item 16F(a)(1)(v) of Form 20-F).
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The Corporation provided Raymond Chabot Grant Thornton with a copy of the disclosure above prior to its filing of the 2023 Annual Report and this Annual Report and requested that Raymond Chabot Grant Thornton furnish the Corporation with a letter addressed to the SEC stating whether it agrees with the above statements and, if it does not agree, the respects in which it does not agree. Their letter to the SEC dated March 5, 2025 is filed as Exhibit 16.1 to this Annual Report.
ITEM 16G. Corporate Governance
A Nasdaq-listed foreign private issuer that follows home country practices in lieu of certain provisions of the Nasdaq Stock Market Rules must disclose the ways in which its corporate governance practices differ from those followed by U.S. domestic companies whose securities are listed on Nasdaq. As required by Nasdaq Listing Rule 5615(a)(3), included below is a summary of each requirement of the Nasdaq Stock Market Rules that the Corporation does not follow and describes the home country practice it follows in lieu of such requirements.
Meeting of Board of Directors
Nasdaq Listing Rule 5605(b)(2) requires that “Independent Directors” (as defined by Nasdaq) must have regularly scheduled meetings at which only such “Independent Directors” are present. The Corporation does not have mandated meetings of its independent directors. However, its independent directors hold meetings without management present as deemed necessary from time to time. The Corporation’s Governance and Nomination Committee Charter and Compensation Committee Charter provide the Chair of each of the Governance and Nomination Committee and the Compensation Committee must be an independent director, and a majority of each of those committees’ members must be independent as well.
Content of Compensation Committee Charter
Nasdaq Listing Rule 5605(d)(1) requires that the formal written compensation committee charter of an issuer specify that the compensation committee may select, or receive advice from, a compensation consultant, legal counsel or other adviser to the compensation committee only after taking into consideration the specific factors enumerated in Nasdaq Listing Rule 5605(d)(3)(D). The Corporation’s Compensation Committee Charter provides the Compensation Committee the authority to retain, at the Corporation’s expense, independent legal, financial and other advisors, consultants and experts to assist the Compensation Committee in fulfilling its duties and responsibilities and does not require the Compensation Committee to first consider the factors enumerated in Nasdaq Listing Rule 5605(d)(3)(D).
Nomination Committee Composition
Under Nasdaq Listing Rule 5605(e), director nominees must either be selected, or recommended for a board of directors’ selection, either by: (i) Independent Directors constituting a majority of the board’s independent directors in a vote in which only Independent Directors participate; or (ii) a nominees committee comprised solely of Independent Directors. The Corporation’s Governance and Nomination Committee Charter provides that the Board will appoint at least three (3) directors to the Corporation’s Governance and Nomination Committee, a majority of which will meet the criteria for independence as established by applicable laws and the rules of stock exchanges upon which the Corporation’s securities are listed.
Proxy Solicitations
Under Nasdaq Listing Rule 5620(b), a listed company that is not a limited partnership must solicit proxies and provide proxy statements for all meetings of shareholders, and also provide copies of such proxy solicitation materials to Nasdaq. The Corporation solicits proxies in accordance with applicable rules and regulations in Canada. The Corporation is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Corporation are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act.
72
Shareholder Meeting Quorum Requirement
Nasdaq Listing Rule 5620(c) provides that the minimum quorum requirement for a meeting of shareholders is 33 1/3% of the outstanding common voting shares. The Corporation follows the requirements under applicable Canadian corporate law with respect to quorum requirements, which allow the Corporation to specify a quorum requirement in its by-laws. Pursuant to the Corporation’s by-laws, a quorum for any meeting of shareholders is two holders of shares entitled to vote at a meeting of shareholders, whether present in person or represented by proxy, who hold, in the aggregate, at least 5% of the issued shares entitled to be voted at the meeting.
Shareholder Approval Requirements
Nasdaq Listing Rule 5635 requires that shareholder approval be required for the Corporation to issue securities in connection with certain events, such as the acquisition of shares or assets of another company, a change in control of the company, the establishment of or amendments to equity-based compensation plans for employees, rights issues at or below market price, certain private placements, directed issues at or above market price and the issuance of convertible notes. Neither Canadian securities laws nor Canadian corporate law require shareholder approval for such transactions, except where such transactions constitute a “related party transaction” or “business combination” under Canadian securities laws or where such transactions are structured in a way that requires shareholder approval under the Canada Business Corporations Act, or where the TSXV requires the shareholder approval for the establishment of or amendments to equity-based compensation plans, in which case, the Corporation intends to follow its home country requirements.
ITEM 16H. Mine Safety Disclosure
Not applicable.
ITEM 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
ITEM 16J. Insider Trading Policies
The Corporation has
ITEM 16K. Cybersecurity
Risk Management and Strategy
We recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data.
Managing Material Risks and
We have begun to formulate and operationalize a cybersecurity incident leadership team (the “CSI management team”) as part of our broader risk management framework in order to promote a company-wide culture of cybersecurity risk management and encourage cybersecurity considerations to become an integral part of our decision-making processes at every level. Our CSI management team will work closely with our internal information security professional (the “IS Lead”) to continuously evaluate and address cybersecurity risks in alignment with our business objectives and operational needs.
73
Third-Party Service Providers and Risk
We utilize third-party service providers to assess
our software and hardware against cybersecurity threats and vulnerabilities. We conduct internal due diligence of all
Governance and Board Oversight
The Board recognizes the critical nature of managing risks associated with cybersecurity threats. It will continue to review our cybersecurity risk management processes and may implement further changes to those processes to establish robust oversight mechanisms and, ultimately, ensure effective governance in managing risks associated with cybersecurity threats.
The Board has delegated most of its oversight to the Audit Committee, which is composed of Board members with diverse expertise, including risk management, technology, and finance, that we believe equips them to oversee cybersecurity risks effectively.
Management’s Role Managing Risk
The CSI management team is expected play a pivotal role in informing the Audit Committee about cybersecurity risks. In consultation with our senior management, the CSI management team will determine whether notification to the Audit Committee of a cybersecurity threat is necessary or advisable. Upon determining that such notification should be given, the CSI management team is expected to provide prompt notification to the Audit Committee.
The Audit Committee actively participates in strategic decisions related to cybersecurity, including by offering guidance and providing approval for major cybersecurity-related initiatives. This involvement ensures that cybersecurity considerations are integrated into our broader strategic objectives. The Audit Committee plans to periodically discuss our cybersecurity posture and the effectiveness of its risk management strategies with our President and IS Lead (as defined below), as and when appropriate. We believe that this review will aid in identifying areas for improvement and ensure the alignment of cybersecurity efforts with our overall risk management framework.
Risk Management Personnel
The IS Lead has primary responsibility for assessing, monitoring, and managing our cybersecurity risks. Our current IS Lead, Alec Amar, also serves as our President. See ITEM 6.A. “Directors, and Senior Management” for discussion regarding our President and IS Lead’s background and experience that qualify him to serve as our IS Lead.
Monitor Cybersecurity Incidents
The
Reporting to the Board of Directors
The IS Lead informs the Chief Executive Officer and Chief Financial Officer of all aspects related to cybersecurity risks and incidents and is expected to continue to do so in the future in conjunction with the CSI management team. This process is designed to ensure that the highest levels of management are kept abreast of our cybersecurity posture and the potential risks we face at the applicable time or may face in the future. Furthermore, significant cybersecurity matters and strategic risk management decisions are escalated to the Audit Committee and the Board, as applicable, ensuring that they have comprehensive oversight and can provide guidance on critical cybersecurity issues.
Risks from Cybersecurity Threats
Cybersecurity risks and threats, including as
a result of any previous cybersecurity incidents, have
74
PART III
ITEM 17. Financial Statements
The Corporation’s consolidated financial statements are stated in United States dollars and are prepared in accordance with IFRS as issued by the International Accounting Standards Board.
The consolidated financial statements required under ITEM 17 are attached hereto and found immediately following the text of this Annual Report on Form 20-F and are incorporated by reference herein. The audit reports of Davidson & Company LLP, independent registered public accounting firm (Firm ID: 731), and Raymond Chabot Grant Thornton LLP, independent registered public accounting firm (Firm ID: 1232), are included herein immediately preceding the audited consolidated financial statements.
| a. | Audited Financial Statements — for the years ended December 31, 2024, 2023 and 2022 and as of December 31, 2024 and 2023 |
ITEM 18. Financial Statements
The Corporation has elected to provide financial statements pursuant to ITEM 17.
ITEM 19. Exhibits
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| (*) | In accordance with Rule 402 of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
76
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F on its behalf.
| DIGI POWER X INC. | |
| /s/ Michel Amar | |
| Michel Amar | |
| Chief Executive Officer |
Date: March 31, 2025
77
DIGI POWER X INC.
(formerly DIGIHOST TECHNOLOGY INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
INDEPENDENT AUDITOR’S REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Digi Power X Inc. (formerly Digihost Technology Inc)
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Digi Power X Inc. (formerly Digihost Technology Inc.) (the “Company”), as of December 31, 2024, and the related consolidated statement of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for the year ended December 31, 2024, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with IFRS Accounting Standards as issued by the International Accounting Standards Board.
The financial statements of the Company for the years ended December 31, 2023, and 2022, were audited by other auditors, whose report dated September 16, 2024, except for Note 2(w), as to which the date was March 5, 2025, expressed an unqualified opinion on those statements. We have also audited the adjustments to retrospectively apply the change in accounting policy described in Note 2(v) to the financial statements. In our opinion, the retrospective adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the December 31, 2023, and 2022 financial statements other than with respect to the adjustment above and, accordingly, we do not express an opinion on any other form of assurance on the December 31, 2023, and 2022 financial statements as a whole.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a working capital deficiency of $3,398,621, which is not sufficient to meet the Company's requirements and business growth initiatives. These events and conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
1200-609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Davidson-co.com
F-2
Our audit included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2024.
| /s/ | |
| Chartered Professional Accountants | |
| PCAOB ID: | |
| March 28, 2025 |
F-3
| Report of Independent Registered Public Accounting Firm |
Raymond Chabot
T 514-878-2691 |
To the Board of Directors and Shareholders of
Digi Power X Inc. (formerly known as Digihost Technology Inc.)
Opinion on the financial statements
We have audited the accompanying consolidated statements of financial position of Digi Power X Inc. (the “Company”) as of December 31, 2023, 2022 and 2021, the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
Restatement of previously issued financial statements
As discussed in Note 2(w) to the financial statements, the Company has restated its 2023 and 2022 financial statements to correct error.
Going concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company did not generate positive cashflows from its operations since its incorporation and the current working capital is not sufficient to meet the Company's requirements and business growth initiatives. These conditions, along with other matters as set forth in Note 1, indicate the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| Member of Grant Thornton International Ltd | rcgt.com |
F-4
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Raymond Chabot Grant Thornton LLP
We have served as the Company’s auditor from 2020 to 2024.
Montréal, Canada
September 16, 2024, except for Note 2(w), as to which the date is March 5, 2025.
F-5
Digi Power X Inc. (formerly “Digihost Technology Inc.”) Consolidated Statements of Financial Position (Expressed in United States Dollars) | ||||||||
| As at December 31, | 2024 | 2023 | ||||||
| ASSETS | ||||||||
| Current assets | ||||||||
Cash | $ | $ | ||||||
| Digital currencies (note 4) | ||||||||
| Amounts receivable and other assets (note 5) | ||||||||
| Income tax receivable | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment (note 6) | ||||||||
| Right-of-use assets (note 7) | ||||||||
| Intangible asset (note 8) | ||||||||
| Amounts receivable and other assets (note 5) | ||||||||
| Investment (note 10) | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Lease liabilities (note 11) | ||||||||
| Loans payable (note 12) | ||||||||
| Mortgage payable (note 13) | - | |||||||
| Warrant liabilities (note 14) | ||||||||
| Total current liabilities | ||||||||
| Deposits payable | ||||||||
| Lease liabilities (note 11) | ||||||||
| Loans payable (note 12) | - | |||||||
| Total liabilities | ||||||||
| Shareholders’ equity | ||||||||
| Share capital (note 15) | ||||||||
| Contributed surplus | ||||||||
| Cumulative translation adjustment | ( | ) | ( | ) | ||||
| Deficit | ( | ) | ( | ) | ||||
| Shareholders’ equity attributable to shareholders | ||||||||
| Non-controlling interest (note 26) | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
Nature of operations and going concern (note 1) | ||||||||
| Subsequent events (note 26) | ||||||||
| Approved on behalf of the Board: |
| “Michel Amar” , Director | “Adam Rossman” , Director |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Consolidated Statements of Comprehensive Loss
(Expressed in United States Dollars)
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Revenue | ||||||||||||
| Digital currency mining (note 4) | $ | $ | $ | |||||||||
| Colocation services (note 4(3)) | ||||||||||||
| Sale of electricity (note 4(3)) | ||||||||||||
| Sale of energy (note 3) | ||||||||||||
| Total revenue | ||||||||||||
| Cost of digital currency mining | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||
| Miner lease and hosting agreement (note 4(3)) | - | ( | ) | ( | ) | |||||||
| Gross loss | ( | ) | ( | ) | ( | ) | ||||||
| Expenses | ||||||||||||
| Office and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Professional fees | ( | ) | ( | ) | ( | ) | ||||||
| Regulatory fees | ( | ) | ( | ) | ( | ) | ||||||
| Gain on sale of property, plant and equipment | - | |||||||||||
| Loss on settlement of debt | - | ( | ) | |||||||||
| Foreign exchange gain (loss) | ( | ) | ||||||||||
| Gain (loss) on sale of digital currencies (note 4) | ( | ) | ||||||||||
| Loss on digital currency option calls | - | ( | ) | |||||||||
| Change in fair value of loan and salaries payable (notes 12 and 19) | ( | ) | ( | ) | ||||||||
| Change in fair value of investment (note 10) | ||||||||||||
| Other income (expense) | ( | ) | ||||||||||
| Change in fair value of amount owing for Miner Lease Agreement | - | ( | ) | |||||||||
| Share based compensation (note 17) | ( | ) | ( | ) | ( | ) | ||||||
| Gain (loss) on revaluation of digital currencies (note 4) | ( | ) | ||||||||||
| Impairment of goodwill (note 9) | - | ( | ) | |||||||||
| Impairment of data miners (note 6) | - | ( | ) | |||||||||
| Write-off of property, plant and equipment | - | ( | ) | |||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Revaluation of warrant liabilities (note 14) | ( | ) | ||||||||||
| Net financial expenses | ( | ) | ( | ) | ||||||||
| Private placements issuance costs | - | ( | ) | |||||||||
| Net income (loss) before income taxes | ( | ) | ( | ) | ||||||||
| Deferred tax recovery (note 25) | - | |||||||||||
| Net income (loss) for the year | ( | ) | ( | ) | ||||||||
| Other comprehensive income (loss) | ||||||||||||
| Items that will be reclassified to net income | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||
| Items that will not be reclassified to net income | ||||||||||||
| Revaluation of digital currencies, net of tax | - | ( | ) | |||||||||
| Total comprehensive loss for the year | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Comprehensive loss for the year attributable to: | ||||||||||||
| Shareholders of the Company | ( | ) | ( | ) | ( | ) | ||||||
| Non-controlling interest (note 26) | - | |||||||||||
| Comprehensive loss for the year | ( | ) | ( | ) | ( | ) | ||||||
| Basic income (loss) per share (note 18) | $ | ( | ) | $ | ( | ) | $ | |||||
| Diluted income (loss) per share (note 18) | $ | ( | ) | $ | ( | ) | $ | |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Consolidated Statements of Cash Flows
(Expressed in United States Dollars)
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Operating activities | ||||||||||||
| Net income (loss) for the year | $ | ( | ) | $ | ( | ) | $ | |||||
| Adjustments for: | ||||||||||||
| Digital currencies items (note 21) | ( | ) | ( | ) | ||||||||
| Interest income accrual | ( | ) | ||||||||||
| Gain on sale of property, plant and equipment | ( | ) | ||||||||||
| Depreciation of right-of-use assets | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Interest on lease liabilities | ||||||||||||
| Change in fair value of amount owing for Miner Lease Agreement | ( | ) | ||||||||||
| Share based compensation | ||||||||||||
| Change in warrant liability | ( | ) | ( | ) | ||||||||
| Share issuance cost | ||||||||||||
| Loss on settlement of debt | ||||||||||||
| Interest accrued on loan payable | ( | ) | ||||||||||
| Change in fair value of loan and salaries payable | ||||||||||||
| Change in fair value of investment | ( | ) | ( | ) | ||||||||
| Accretion on liability | ( | ) | ||||||||||
| Impairment of goodwill | ||||||||||||
| Write-off of property, plant and equipment | ||||||||||||
| Impairment of data miners | ||||||||||||
| Deferred tax recovery | ( | ) | ||||||||||
| Foreign exchange loss (gain) | ( | ) | ( | ) | ||||||||
| Working capital items (note 21) | ( | ) | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Investing activities | ||||||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from sale of property, plant and equipment | ||||||||||||
| Acquisition of digital currency option calls | ( | ) | ||||||||||
| Acquisition of digital currency option calls | ( | ) | ||||||||||
| Business combination (note 3) | ( | ) | ||||||||||
| Digital currencies traded for cash | ||||||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||||||
| Financing activities | ||||||||||||
| Proceeds from private placement, net of costs | ||||||||||||
| Proceeds from pre-funded warrants | ||||||||||||
| Proceeds from non-controlling interest | ||||||||||||
| Repurchase of shares | ( | ) | ||||||||||
| Repayment of mortgage | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds of shares issued for cash, net of issuance costs | ||||||||||||
| Proceeds from loans payable | ||||||||||||
| Repayment of loans payable | ( | ) | ( | ) | ||||||||
| Lease payments | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||||||
| Net change in cash | ( | ) | ||||||||||
| Cash, beginning of year | ||||||||||||
| Cash, end of year | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in United States Dollars)
| Number of shares (note 15) | Digital | |||||||||||||||||||||||||||||||||||
| Subordinate voting shares | Proportionate voting shares | Share capital | Contributed surplus | Cumulative Translation Adjustment | currency revaluation reserve | Non- Controlling Interest | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Private placements (note 15(b)(ii)) | ||||||||||||||||||||||||||||||||||||
| Cost of issue - cash (note 15(b)(ii)) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Cost of issue - broker warrants (note 15(b)(ii)) | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Warrant liabilities | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Shares cancelled (note 15(b)(i)) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of pre-funded warrants | ||||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Shares issued to settle payable (note 15(b)(vi)) | ||||||||||||||||||||||||||||||||||||
| Transaction with owners | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Revaluation of digital currencies, net of tax | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss for the year | - | - | ||||||||||||||||||||||||||||||||||
| Total comprehensive loss for the year | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||||||||||
| Restricted share units converted to common shares | ( | ) | ||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Transaction with owners | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total comprehensive loss for the year | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Shares issued for cash (note 15(b)(i)) | ||||||||||||||||||||||||||||||||||||
| Warrant liabilities | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Restricted share units converted to common shares | ( | ) | ||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Transaction with owners | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Non-controlling interest shareholders’ contribution | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total comprehensive loss for the year | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
F-9
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 1. | Nature of operations and going concern |
Digi Power X Inc. (formerly Digihost Technology Inc.) (the “Company” or “Digi Power”) and its subsidiaries, Digihost International, Inc., DGX Holding, LLC, World Generation X, LLC, and US Data Centers, Inc. (together the “Company”) is an innovative energy infrastructure Company that develops data centers to drive the expansion of sustainable energy assets. On March 6, 2025, the Company changed its name to Digi Power X Inc.
The Company is listed on the TSX Venture Exchange and the NASDAQ trading under the trading symbols DGX and DGXX, respectively. The head office of the Company is located at 218 NW 24TH Street, 2nd Floor, Miami, Florida 33127.
These consolidated financial statements of the Company were reviewed, approved and authorized for issue by the Board of Directors on March 28, 2025.
Going Concern
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume that the Company will continue in operation and will be able to realize its assets and discharge its liabilities in the normal course of operations. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to twelve months from the end of the reporting period. The use of these principles may not be appropriate.
As at December 31, 2024, the Company
has working capital deficiency of $
These events and conditions indicate that a material uncertainty exists that raises substantial doubt on the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments or disclosures that may be necessary should the Company not be able to continue as a going concern. If this were the case, these adjustments could be material.
| 2. | Material accounting policies |
| (a) | Statement of compliance |
The consolidated financial statements have been prepared in accordance with IFRS Accounting Standards issued effective for the Company’s reporting for the year ended December 31, 2024.
| (b) | Statement of presentation |
The Company’s consolidated financial statements have been prepared on an accrual basis, except for certain financial instruments and digital currencies that are measured at fair value. In addition, the consolidated financial statements are prepared on an accrual basis of accounting, except for cash flow information.
F-10
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (c) | Basis of consolidation |
These consolidated financial statements
include the accounts of Digi Power and its wholly owned subsidiaries: Digihost International, Inc., DGX Holdings, LLC, World Generation
X, and US Data Centers, Inc. in which it has a
| (d) | Functional and presentation currency |
These financial statements are presented in United States Dollars. The functional currency of Digi Power is the Canadian dollar and the functional currency of Digihost International, Inc., DGX Holding, LLC, World Generation X and US Data Centers, Inc. is the United States Dollars. All financial information is expressed in United States Dollars, unless otherwise stated.
| (e) | Foreign currency translation |
Monetary assets and liabilities denominated in foreign currencies are translated to the respective functional currency at exchange rates in effect at the reporting date. Non-monetary assets and liabilities are translated at historical exchange rates at the respective transaction dates. Revenue and expenses are translated at the rate of exchange at each transaction date. Gains or losses on translation are included in foreign exchange expense.
The results and financial position of an entity whose functional currency are translated into a different presentation currency are treated as follows:
| ● | assets and liabilities are translated at the closing rate at the reporting date; |
| ● | income and expenses for each income statement are translated at average exchange rates at the dates of the period; and |
| ● | all resulting exchange differences are recognized in other comprehensive income (loss) as cumulative translation adjustments. |
| (f) | Revenue recognition |
The Company recognizes revenue under IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”).
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange.
F-11
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (f) | Revenue recognition (continued) |
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets IFRS 15’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
| ● | Variable consideration |
| ● | Constraining estimates of variable consideration |
| ● | The existence of a significant financing component in the contract |
| ● | Non-cash consideration |
| ● | Consideration payable to a customer |
Variable consideration is included in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Digital currency mining: The Company’s revenue is derived from providing computing power (hashrate) to mining pools. The Company has entered into arrangements, as amended from time to time, with mining pool operators to provide computing power to the mining pools. The provision of computing power to mining pools is an output of the Company’s ordinary activities. The Company has the right to decide the point in time and duration for which it will provide computing power. As a result, the Company’s enforceable right to compensation only begins when, and continues as long as, the Company provides computing power to the mining pool. The contracts can be terminated at any time by either party without substantive compensation to the other party for such termination. Upon termination, the mining pool operator (i.e., the customer) is required to pay the Company any amount due related to previously satisfied performance obligations. Therefore, the Company has determined that the duration of the contract is less than 24 hours and that the contract continuously renews throughout the day. The Company has determined that this renewal right is not a material right as the terms, conditions, and compensation amounts are at then market rates. There is no significant financing component in these transactions.
In exchange for providing computing power, which represents the Company’s only performance obligation, the Company is entitled to non-cash consideration in the form of cryptocurrency, calculated under one of two payout methods, depending on the mining pool. The payout method used by the mining pool in which the Company participated is the Full Pay Per Share (“FPPS”). This payout method contains three components, (i) a fractional share of the fixed cryptocurrency award from the mining pool operator (referred to as a “block reward”), (ii) transaction fees generated from (paid by) blockchain users to execute transactions and distributed (paid out) to individual miners by the mining pool operator, and (iii) mining pool operating fees retained by the mining pool operator for operating the mining pool. The Company’s total compensation is the sum of the Company’s share of (a) block rewards and (b) transaction fees, less (c) mining pool operating fees.
F-12
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (f) | Revenue recognition (continued) |
| ○ | Block rewards are calculated as follows under the FPPS method. The block reward earned by the Company is calculated by the mining pool operator based on the proportion of hashrate the Company contributed to the mining pool to the total network hashrate used in solving the current algorithm. The Company is entitled to its relative share of consideration even if a block is not successfully added to the blockchain by the mining pool. |
| ○ | Transaction fees refer to the total fees paid by users of the network to execute transactions. Under FPPS, the Company is entitled to a pro-rata share of the total network transaction fees. The transaction fees paid out by the mining pool operator to the Company is based on the proportion of hashrate the Company contributed to the mining pool to the total network hashrate. The Company is entitled to its relative share of consideration even if a block is not successfully added to the blockchain by the mining pool. |
| ○ | Mining pool operating fees are charged by the mining pool operator for operating the mining pool as set forth in a rate schedule to the mining pool contract. The mining pool operating fees reduce the total amount of compensation the Company receives and are only incurred to the extent that the Company has generated mining revenue pursuant to the mining pool operators’ payout calculation. |
Because the consideration to which the Company expects to be entitled for providing computing power is entirely variable (block rewards, transaction fees and pool operating fees), as well as being non-cash consideration, the Company assesses the estimated amount of the variable non-cash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. For each contract under the FPPS payout method, the Company recognizes the non-cash consideration on the same day that control of the contracted service transfers to the mining pool operator, which is the same day as the contract inception. For the contract under both the FPPS payout method, the Company measures non-cash consideration at the cryptocurrency average price on the date of contract inception, as determined by the Company’s principal market, which is Gemini.
| ● | Colocation services: The Company recognizes revenue from its colocation services when it satisfies performance obligations by transferring the control of services, which include power provision and space rental, to customers. Revenue is recognized monthly in an amount that reflects actual power consumption, as per contractual terms, and any fixed maintenance fees are recognized over time as services are rendered to customers, aligning the recognition of revenue with the delivery of services. The transaction price for colocation services includes both fixed fees and variable considerations, which are incorporated only if a significant reversal in the future is deemed unlikely. |
| ● | Sale of electricity: The Company recognizes revenue from the sale of energy when it has satisfied its performance obligation, which occurs as the electricity is provided to the customer. The Company supplies the requisite power and ancillary operational functions in order for the digital currency mining equipment on its property to run efficiently outside of its facilities. Revenue is recorded monthly based on the actual consumption of energy by the customer, at the price determined by the contract. This reflects the Company’s performance and the customer’s consumption benefits, with variable consideration being recognized in the period it is due. The transaction price for sale of electricity includes both fixed fees and variable considerations, which are incorporated only if a significant reversal in the future is deemed unlikely. |
| ● | Sale of energy: The Company recognizes revenue from sale of energy is recorded upon the satisfaction of the performance obligation, specifically at the point when control of the energy is transferred to the end customer. This key moment reflects the Company’s fulfillment of its contractual duties. |
F-13
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (g) | Digital currencies |
Digital currencies consist of Bitcoin and Ethereum. Digital currencies meet the definition of intangible assets in IAS 38 Intangible Assets as they are identifiable non-monetary assets without physical substance. They are initially recorded at cost and the revaluation method is used to measure the digital currencies subsequently. Where digital currencies are recognized as revenue, the fair value of the Bitcoin received is considered to be the cost of the digital currencies. Under the revaluation method, increases in fair value are recorded in other comprehensive income (loss), while decreases are recorded in profit or loss. The Company revalues its digital currencies at the end of each quarter. There is no recycling of gains from other comprehensive income (loss) to profit or loss. However, to the extent that an increase in fair value reverses a previous decrease in fair value that has been recorded in profit or loss, that increase is recorded in profit or loss. Decreases in fair value that reverse gains previously recorded in other comprehensive income (loss) are recorded in other comprehensive income (loss). Gains and losses on digital currencies sold between revaluation dates are included in profit or loss, calculated using the weighted average method.
Digital currencies are measured at fair value using the quoted price on the Gemini Exchange. Gemini serves as the principal market. The Company believes any price difference amongst the principal market and an aggregated price to be immaterial. Management considers this fair value to be a Level 2 input under IFRS 13 Fair Value Measurement fair value hierarchy as the price on this source represents a quote of the currency on an active market.
| (h) | Property, plant and equipment |
Details as to the Company’s policies for property, plant and equipment are as follows:
| Asset | Amortization method | Amortization period | ||
| Data miners | ||||
| Equipment | ||||
| Leasehold improvement | ||||
| Powerplant in use |
Property, plant and equipment are recorded at cost less accumulated depreciation. Cost includes all expenditures incurred to bring assets to the location and condition necessary for them to be operated in the manner intended by management. Material residual value estimates and estimates of useful life are updated as required, but at least annually.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any replaced parts is derecognized. All other repairs and maintenance are charged to profit or loss during the fiscal year in which they are incurred.
Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognized in profit or loss.
F-14
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (i) | Intangible assets |
Intangible assets are accounted for using the cost model based off the fair value attributed to a right of use of an electric power facility which is depreciated over 13 years.
When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference between the proceeds and the carrying amount of the asset, and is recognized in profit or loss
Amortization of intangible assets has been included in depreciation and amortization in the consolidated statement of comprehensive loss.
| (j) | Impairment of non-financial assets |
The Company reviews the carrying amounts of its non-financial assets, including property, plant and equipment, right of use assets and intangible assets when events or changes in circumstances indicate the assets may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. Assets carried at fair value, such as digital currencies, are excluded from impairment analysis. Cash generating units to which goodwill has been allocated are tested for impairment annually.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows to be derived from continuing use of the asset or cash generating unit are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value less costs of disposal is the amount obtainable from the sale of an asset or cash generating unit in an arm’s length transaction between knowledgeable, willing parties, less the cost of disposal. When a binding sale agreement is not available, fair value less costs of disposal is estimated using a discounted cash flow approach with inputs and assumptions consistent with those of a market participant. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in net income. With the exception of goodwill, where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized.
| (k) | Leases and right-of-use assets |
All leases are accounted for by recognizing a right-of-use asset and a lease liability except for:
| ○ | Leases of low value assets; and |
| ○ | Leases with a duration of twelve months or less. |
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by the incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.
F-15
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (k) | Leases and right-of-use assets (continued) |
On initial recognition, the carrying value of the lease liability also includes:
| ○ | Amounts expected to be payable under any residual value guarantee; |
| ○ | The exercise price of any purchase option granted if it is reasonable certain to assess that option; and |
| ○ | Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised. |
Right-of-use assets are initially measured at cost, which includes the initial amount of the lease liability, reduced for any lease incentives received, and increased for:
| ○ | Lease payments made at or before commencement of the lease; |
| ○ | Initial direct costs incurred; and |
| ○ | The amount of any provision recognized where the Company is contractually required to dismantle, remove or restore the leased asset. |
Lease liabilities, on initial measurement, increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made.
Right-of-use assets are amortized on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if this is judged to be shorter than the lease term.
When the Company revises its estimate of the term of any lease, it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortized over the remaining (revised) lease term or recorded in profit or loss if the right-of-use asset is reduced to zero.
| (l) | Goodwill |
The Company measures goodwill as the fair value of the cost of the acquisition less the fair value of the identifiable net assets acquired, all measured as of the acquisition date. Goodwill is carried at cost less accumulated impairment losses.
| (m) | Segment reporting |
The reporting segments are identified on the basis of information that is reviewed by the chief executive officer to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Company has three reporting segments namely, cryptocurrency mining, sales of energy and colocation services.
| (n) | Provisions |
Provisions are recognized when the Company has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result, and that outflow can be reliably measured.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.
F-16
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (o) | Financial instruments |
Financial assets
Financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The primary measurement categories for financial assets are measured at amortized cost, fair value through other comprehensive income (loss) (“FVTOCI”) and fair value through profit and loss (“FVTPL”).
Financial assets are classified as either financial assets at FVTPL, amortized cost, or FVTOCI. The Company determines the classification of its financial assets at initial recognition. The Company does not have any financial assets categorized as FVTOCI.
| ● | Amortized cost |
Financial assets are classified as measured at amortized cost if both of the following criteria are met: 1) the object of the Company’s business model for these financial assets is to collect their contractual cash flows; and 2) the asset’s contractual cash flows represent “solely payments of principal and interest”. After initial recognition, these are measured at amortized cost using the effective interest rate method. Discounting is omitted where the effect of discounting is immaterial. The Company’s cash, amounts receivable and deposits are classified as financial assets and measured at amortized cost.
Revenues from these financial assets are recognized in financial revenues, if any.
| ● | FVTPL |
Financial assets carried at FVTPL are initially recorded at fair value and transactions costs expensed in the consolidated statements of net loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets held at FVTPL are recorded in the consolidated statements of comprehensive income (loss) in the period in which they arise. The Company’s investment is classified as a financial asset and measured at FVTPL.
Financial liabilities
Financial liabilities are subsequently measured at amortized cost using the effective interest rate method.
The Company’s accounts payable and accrued liabilities (excluding salaries payable), mortgage payable, loans payable and deposit payable are classified as measured at amortized cost.
The Company’s warrant liabilities are classified as measured at FVTPL with gains and losses recognized in profit and loss.
Derecognition
The Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled, or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred.
F-17
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (o) | Financial instruments (continued) |
Expected Credit Loss Impairment Model
The Company uses the single expected credit loss impairment model, which is based on changes in credit quality since initial application.
The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Company in full or when the financial asset is more than 90 days past due.
The carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.
Fair Value
Financial instruments recorded at fair value on the statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
| ● | Level 1 | – | quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| ● | Level 2 | – | inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices); and |
| ● | Level 3 | – | inputs for the assets or liability that are not based on observable market data (unobservable inputs). |
| (p) | Share capital and equity |
Share capital represents the amount received from the issuance of shares, net of issuance costs and any associated income tax benefits. When shares and warrants are issued as part of private placement units, the Company applies the relative value method to allocate the proceeds. Under this method, the fair value of the warrant liability is determined first using the Black-Scholes Option Pricing Model, with the remaining value allocated to the equity component.
Contributed surplus include the value of warrants classified as equity, stock options and restricted share units. When warrants stock options and restricted share units are exercised, the related compensation cost and value are transferred to share capital.
Deficit includes all current and prior year losses.
Assets and liabilities of the Company are translated to the presentation currency. The resulting translation adjustments are charged or credited to the cumulative translation reserve.
| (q) | Loss per share |
The Company presents basic and diluted loss per share data for its subordinate voting shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of subordinate voting shares and proportionate voting shares outstanding during the period. Diluted loss per share is determined by adjusting the weighted average number of subordinate voting shares and proportionate voting shares outstanding to assume conversion of all dilutive potential subordinate voting shares.
F-18
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (r) | Share-based compensation |
The granting of stock options and restricted share units (“RSUs”) to employees, officers, directors or consultants of the Company requires the recognition of share-based compensation expense with a corresponding increase in contributed surplus in shareholders’ equity. The fair value of stock options that vest immediately are recorded as share-based compensation expense at the date of the grant. The fair values of the RSUs are determined by the quoted market price of the Company’s common shares at date of grant. The expense for stock options and RSUs that vest over time is recorded over the vesting period using the graded method, which incorporates management’s estimate of the stock options that are not expected to vest. For stock options where vesting is subject to the completion of performance milestones, the estimate for completion of the milestone is reviewed at each reporting date for any change in the estimated vesting date, and to the extent there is a material change in the vesting date estimate, the amortization to be recognized is recalculated for the new timeline estimate and adjusted on a prospective basis in the current period. The effect of a change in the number of stock options expected to vest is a change in an estimate and the cumulative effect of the change is recognized in the period when the change occurs. On exercise of a stock option, the consideration received and the estimated fair value previously recorded in contributed surplus is recorded as an increase in share capital.
Stock options awarded to consultants are measured based on the fair value of the goods and services received unless that fair value cannot be estimated reliably. If the fair value of the goods and services cannot be reliably measured, then the fair value of the equity instruments granted is used to recognize the expense.
| (s) | Non-controlling interest |
Non-controlling interest represents the minority shareholders’ interest in the Company’s less than wholly-owned subsidiary. On initial recognition, non-controlling interest is measured at its proportionate share of the acquisition-date fair value of identifiable net assets of the related subsidiary acquired by the Company. Subsequent to the acquisition date, adjustments are made to the carrying amount of non-controlling interest for the minority shareholders’ share of changes to the subsidiary’s equity. Changes in the Company’s ownership interest that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non- controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received shall be recognized directly in equity and attributed to the owners of the parent.
| (t) | Business combinations |
The Company applies the acquisition method in accounting for business combinations. The consideration transferred by the Company to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Company, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are measured at their acquisition-date fair values.
F-19
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (u) | Income taxes |
Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date.
A deferred tax asset is recognized only to the extent that it is probable that the underlying tax loss or deductible temporary difference will be utilized against future taxable income. Deferred tax liabilities are always provided for in full.
Changes in deferred tax assets or deferred tax liabilities are recognized as revenues or expense in profit and loss, unless they relate to items that were recognized directly in equity, in which case the related deferred taxes are also recognized in equity.
| (v) | New accounting standards adopted and recently announced accounting pronouncements not yet adopted |
Accounting standards adopted during the year
In October 2022, the IASB issued
amendments to IAS 1, Presentation of Financial Statements – Classification of Liabilities as Current or Non-Current and Noncurrent
Liabilities with Covenants. These amendments increase the disclosure required to enable users of financial statements to understand
the risk that non-current liabilities with covenants could become repayable within 12 months. The amendments are effective January 1,
2024. Retrospective application is required on adoption. These amendments resulted in $
Accounting standards issued but not yet effective
In April 2024, the IASB issued IFRS 18, Presentation and Disclosure of Financial Statements (“IFRS 18”), which replaces IAS 1, Presentation of Financial Statements. IFRS 18 introduces a specified structure for the income statement by requiring income and expenses to be presented into the three defined categories of operating, investing and financing, and by specifying certain defined totals and subtotals. Where company-specific measures related to the income statement are provided, IFRS 18 requires companies to disclose explanations around these measures, which are referred to as management-defined performance measures. IFRS 18 also provides additional guidance on principles of aggregation and disaggregation which apply to the primary financial statements and the notes. IFRS 18 will not affect the recognition and measurement of items in the financial statements, nor will it affect which items are classified in other comprehensive income and how these items are classified. The standard is effective for reporting periods beginning on or after January 1, 2027, including for interim financial statements. Retrospective application is required, and early application is permitted. We are currently assessing the effect of this new standard on our financial statements.
As at December 31, 2024, there are no other IFRS or IFRIC interpretations with future effective dates that are expected to have a material impact on the Company.
F-20
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (w) | Critical accounting judgements, estimates and assumptions |
The preparation of these financial statements in conformity with IFRS Accounting Standards requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the year in which the estimate is revised and future years if the revision affects both current and future years. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Significant assumptions about the future that management has made that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:
Significant judgements
| (i) | Income from digital currency mining |
The Company recognizes income from digital currency mining from the provision of transaction verification services within digital currency networks, commonly termed “cryptocurrency mining”. As consideration for these services, the Company receives digital currency from each specific network in which it participates (“coins”). Income from digital currency mining is measured based on the fair value of the coins received. The fair value is determined using the average price of the coin on the date of contract inception. The coins are recorded on the statement of financial position, as digital currencies, at their fair value less costs to sell and re- measured at each reporting date. Revaluation gains or losses, as well as gains or losses on the sale of coins for traditional (fiat) currencies are included in profit or loss in accordance with the Company’s treatment of its digital currencies as a traded commodity.
There is currently no specific definitive guidance in IFRS or alternative accounting frameworks for the accounting for the mining and strategic selling of digital currencies and management has exercised significant judgement in determining appropriate accounting treatment for the recognition of income from digital currency mining for mining of digital currencies. Management has examined various factors surrounding the substance of the Company’s operations, including the stage of completion being the completion and addition of a block to a blockchain and the reliability of the measurement of the digital currency received.
| (ii) | Leases – incremental borrowing rate |
Judgment is applied when determining the incremental borrowing rate used to measure the lease liability of each lease contract, including an estimate of the asset-specific security impact. The incremental borrowing rate should reflect the interest rate the Company would pay to borrow at a similar term and with similar security.
| (iii) | Going concern |
The assessment of the Company’s ability to continue as a going concern involves judgment regarding future funding available for its operations and working capital requirements as discussed in Note 1.
F-21
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (iv) | Income, value added, withholding and other taxes |
The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company’s provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company’s income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Company’s interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the year in which such determination is made.
Significant estimates
| (i) | Determination of asset and liability fair values and allocation of purchase consideration |
Significant business combinations require judgements and estimates to be made at the date of acquisition in relation to determining the relative fair value of the allocation of the purchase consideration over the fair value of the assets. The information necessary to measure the fair values as at the acquisition date of assets acquired requires management to make certain judgements and estimates about future events, including but not limited to availability of hardware and expertise, future production opportunities, future digital currency prices and future operating costs.
| (ii) | Useful lives of property, plant and equipment |
Depreciation of data miners and equipment are an estimate of its expected life. In order to determine the useful life of computing equipment, assumptions are required about a range of computing industry market and economic factors, including required hashrates, technological changes, availability of hardware and other inputs, and production costs.
| (iii) | Impairment of goodwill |
Determining whether goodwill is impaired requires an estimation of the recoverable amount of the CGU. Such recoverable amount corresponds, for the purpose of impairment assessment, to the higher of the value in use or the fair value less costs of disposal of the CGU to which goodwill has been allocated. The value in use calculation requires management to estimate future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate present value. The key assumptions required for the value in use estimation are described in note 9.
For the value in use approach, the values assigned to key assumptions reflect past experience and external sources of information that are deemed accurate and reliable.
| (iv) | Data miners valuation |
Impairment of data miners was estimated based on the recoverable amount of mining equipment based on current market prices and hash rate power per miner type. The recoverable amount represents the higher value between an asset’s fair value less costs to sell and its value in use. Hash rate power refers to the computational power of the mining equipment, which directly affects the mining efficiency and potential revenue generation. As the market prices for mining equipment and hash rate power can vary significantly over time, these factors are considered in estimating the recoverable amount of the assets. The current market prices for mining equipment are obtained from various sources, including manufacturers, distributors, and marketplaces for used equipment. Management reviews and compares these prices regularly to ensure the accuracy and relevance of the data.
F-22
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 2. | Material accounting policies (continued) |
| (v) | Warrant liability |
The Company uses Black Scholes method to determine the fair value of the warrant liability. The Black Scholes method requires significant judgement in determining the fair value such as volatility and risk-free rate. A change in these inputs could lead to significant change in the fair value of the warrant liability.
| 3. | Business combination |
On February 7, 2023, the
Company completed the acquisition of a
At the date of acquisition, the Company determined the fair value of the net identified net assets as follows:
| Total final consideration paid in cash | $ | |||
| Identified fair value of net assets acquired: | ||||
| Prepaids and deposits | ||||
| Land | ||||
| Power plant infrastructure | ||||
| PPA capacity liability | ( | ) | ||
| Accounts payable | ( | ) | ||
| Loan payable | ( | ) | ||
| $ |
For the year ended December 31,
2023, the acquired power plant accounted for $
F-23
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 4. | Digital currencies |
The Company’s holdings of digital currencies consist of the following:
| As at | As at | |||||||
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Bitcoin | $ | $ | ||||||
The continuity of digital currencies was as follows:
| Number of Bitcoin | Amount | Number of Ethereum | Amount | Total Amount | ||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | |||||||||||||||||
| Bitcoin mined(2) | ||||||||||||||||||||
| Bitcoin remitted to Northern Data(2) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Received from sale of property and equipment | ||||||||||||||||||||
| Acquisition of digital currencies | ||||||||||||||||||||
| Digital currencies traded for cash | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Digital currencies paid for services | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Digital currencies for loan repayment | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Loss on sale of digital currencies | ( | ) | ( | ) | ||||||||||||||||
| Revaluation adjustment(1) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balance, December 31, 2022 | ||||||||||||||||||||
| Bitcoin mined(2) | ||||||||||||||||||||
| Bitcoin received from colocation services(3) | ||||||||||||||||||||
| Bitcoin received for electricity sales(3) | ||||||||||||||||||||
| Digital currencies traded for cash | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Digital currencies paid for services | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Digital currencies for loan repayment | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Bitcoin remitted to Northern Data(2) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Gain on sale of digital currencies | ||||||||||||||||||||
| Revaluation adjustment(1) | ||||||||||||||||||||
| Balance, December 31, 2023 | ||||||||||||||||||||
| Bitcoin mined for Digihost | ||||||||||||||||||||
| Bitcoin received from colocation services(3) | ||||||||||||||||||||
| Bitcoin received for electricity sales(3) | ||||||||||||||||||||
| Digital currencies paid for services | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Digital currencies traded for cash | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Digital currencies for loan repayment | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Gain on sale of digital currencies | ||||||||||||||||||||
| Revaluation adjustment(1) | ||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | |||||||||||||||||
| (1) |
F-24
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 4. | Digital currencies (continued) |
| (2) | |
| (3) |
| 5. |
| As at | As at | |||||||
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Utility deposits | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Accounts receivable | ||||||||
| Other receivable | ||||||||
| Interest receivable (note 10) | ||||||||
| Long-term deposits and prepaid expenses | ( | ) | ( | ) | ||||
| $ | $ | |||||||
F-25
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 6. | Property, plant and equipment |
| Land and buildings | Data miners | Equipment and other | Leasehold improvement | Equipment in construction | Power plant in use(1) | Total | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| Disposal | ( | ) | ( | ) | ||||||||||||||||||||||||
| Transfer asset in use | ( | ) | ||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| Disposal | ( | ) | ( | ) | ||||||||||||||||||||||||
| Write-off | ( | ) | ( | ) | ||||||||||||||||||||||||
| Transfer asset in use | ( | ) | ||||||||||||||||||||||||||
| Acquired in business combination (note 3) | ||||||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||||
| Impairment | ||||||||||||||||||||||||||||
| Disposal | ( | ) | ( | ) | ||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||||
| December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Net carrying value | ||||||||||||||||||||||||||||
| As at December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| As at December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| (1) |
| 7. | Right-of-use assets |
| As at | As at | |||||||
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Depreciation | ( | ) | ( | ) | ||||
| Modification of lease | ( | ) | ||||||
| Balance, end of period | $ | $ | ||||||
During the year ended December 31, 2022 the Company entered a lease for a warehouse facility. The lease was prepaid resulting in a right-of-use asset and no corresponding lease liability.
F-26
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 8. | Intangible asset |
Intangible asset relates to the
right-of-use of an electric power facility for a period of
| As at December 31, | As at December 31, | |||||||
| 2024 | 2023 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Amortization | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
| 9. | Goodwill |
For the realization of its annual impairment test for 2022, management determined the recoverable amount as the value in use. The significant assumptions used in determining value in use are:
| o | Monthly Bitcoin price average growth rate of |
| o | Difficulty monthly growth rate of |
| o | Terminal annual growth rate of |
| o | Discount rate |
An impairment of $
| 10. | Investment |
In December 2021, the Company
entered into an agreement for a Secured Convertible Promissory Note (“Note”) with principal of $
| As at December 31, | As at December 31, | |||||||
| 2024 | 2023 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Payments received | ( | ) | ||||||
| Fair value adjustment | ||||||||
| Balance, end of period | $ | $ | ||||||
F-27
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 11. | Lease liabilities |
The Company entered into
a lease agreement dated April 1, 2022, with TXMA International LLC, a company controlled by the chief executive officer. The present
value of the lease liability as at December 31, 2024 was $
| As at December 31, | As at December 31, | |||||||
| 2024 | 2023 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Interest | ||||||||
| Lease payments | ( | ) | ( | ) | ||||
| Modification of lease | ( | ) | ||||||
| Balance, end of period | $ | $ | ||||||
| Current portion | $ | $ | ||||||
| Non-current portion | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Maturity analysis - contractual undiscounted cash flows | ||||||||
| As at December 31, 2024 | ||||||||
| Less than one year | $ | |||||||
| One to five years | ||||||||
| Total undiscounted lease obligations | $ |
| 12. | Loans payable |
| As at December 31, | As at December 31, | |||||||
| 2024 | 2023 | |||||||
| Balance, beginning of the period | $ | $ | ||||||
| New loans(1) | ||||||||
| Loan assumed in business acquisition(2) | ||||||||
| Repayment of loans | ( | ) | ( | ) | ||||
| Interest | ||||||||
| Fair value adjustment | ||||||||
| Balance, end of the period | ||||||||
| Long-term loans payable | ( | ) | ||||||
| $ | $ | |||||||
| (1) |
| (2) |
F-28
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 13. | Mortgage payable |
In June 2022, the Company’s incremental
borrowing rate applied was estimated to be
| As at December 31, | As at December 31, | |||||||
| 2024 | 2023 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Interest | ||||||||
| Payments | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
| Current portion | $ | $ | ||||||
| Non-current portion | ||||||||
| Total mortgage payable | $ | $ | ||||||
| 14. | Warrant liabilities |
The Company has warrants classified as financial liabilities due to the presence of cashless exercise options under certain conditions, or in other cases due to a failure to meet the fixed for fixed criteria. Therefore the Company records these warrants as financial liabilities measured at fair value upon initial recognition. At each subsequent reporting date, the warrants are re-measured at fair value and the change in fair value is recognized through profit or loss. Upon warrant exercise, the fair value previously recognized in warrant liabilities is transferred from warrant liabilities to share capital.
The following table summarizes the changes in the warrant liabilities for the Company’s warrants for the years ending December 31, 2024 and December 31, 2023:
| Number of warrants | Amount | |||||||
| Balance, December 31, 2021 | $ | |||||||
| Warrants issued | ||||||||
| Warrants cancelled | ( | ) | ( | ) | ||||
| Pre-funded warrants issued | ||||||||
| Pre-funded warrants exercised | ( | ) | ( | ) | ||||
| Revaluation of warrant liabilities | ( | ) | ||||||
| Foreign currency translation | ( | ) | ||||||
| Balance, December 31, 2022 | ||||||||
| Revaluation of warrant liabilities | ||||||||
| Foreign currency translation | ||||||||
| Balance, December 31, 2023 | ||||||||
| Warrants expired | ( | ) | ||||||
| Warrants issued | ||||||||
| Revaluation of warrant liabilities | ( | ) | ||||||
| Foreign currency translation | ( | ) | ||||||
| Balance, December 31, 2024 | $ | |||||||
F-29
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 14. | Warrant liabilities (continued) |
The fair value of the Company’s warrants has been determined using the Black-Scholes pricing model and the following weighted average assumptions:
| As at December 31, | Issued | As at December 31, | Issued | As at December 31, | ||||||||||||||||
| 2024 | in 2024 | 2023 | in 2022 | 2022 | ||||||||||||||||
| Spot price (in CAD$) | $ | $ | $ | $ | $ | |||||||||||||||
| Risk-free interest rate | % | % | % | % | % | |||||||||||||||
| Expected annual volatility | % | % | % | % | % | |||||||||||||||
| Expected life (years) | ||||||||||||||||||||
| Dividend | ||||||||||||||||||||
The following table reflects the Company’s warrants outstanding and exercisable as at December 31, 2024.
| Expiry date | Warrants outstanding and exercisable | Exercise price | ||||||
| April 9, 2025 | CAD$ | |||||||
| September 9, 2025 | CAD$ | |||||||
| August 15, 2027 | US$ | |||||||
The following table reflects the Company’s warrants outstanding and exercisable as at December 31, 2023:
| Expiry date | Warrants outstanding and exercisable | Exercise price (CAD$) | ||||||
| March 16, 2024 | ||||||||
| June 18, 2024 | ||||||||
| April 9, 2025 | ||||||||
| September 9, 2025 | ||||||||
F-30
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 15. | Share capital |
| a) | Authorized share capital |
Unlimited subordinate voting shares without par value and conferring 1 vote per share.
Unlimited proportionate voting shares without par value, conferring 200 votes per share, convertible at the holder’s option into subordinate voting shares on a basis of 200 subordinate voting shares for 1 proportionate voting shares.
| b) | Subordinate voting shares and proportionate voting shares issued |
Year ended December 31, 2024
(i) On
August 15, 2024, the Company completed a private placement consisting of
(ii) During
the year ended December 31, 2024, the Company issued
Year ended December 31, 2023
(iii) During
the year ended September 30, 2023, the Company issued
Year ended December 31, 2022
(iv) On
March 9, 2022, the Company closed a private placement with a single institutional investor, for (a)
$
In connection with the private
placement, the investor has agreed to cancel existing warrants to purchase
H.C. Wainwright &
Co. acted as the exclusive placement agent and received cash commission and expenses totalling $
F-31
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 15. | Share capital (continued) |
Year ended December 31, 2022 (continued)
The grant date fair value of $
(v) During
May 2022, the Company received approval to undertake, at the Company’s discretion, a normal course issuer bid program to purchase
up to
(vi)
On November 1, 2022, the Company issued
| 16. | Warrants |
| Number of Warrants | Weighted Average Exercise Price (CAD$) | |||||||
| Balance, December 31, 2022 and December 31, 2023 | ||||||||
| Expired | ( | ) | ||||||
| Balance, December 31, 2024 | ||||||||
The following table reflects the warrants issued and outstanding as of December 31, 2024:
| Exercise | Weighted Average | |||||||||
| Number of Warrants Outstanding | Price (CAD$) | Contractual Life (years) | Expiry Date | |||||||
The following table reflects the warrants issued and outstanding as of December 31, 2023:
| Number of Warrants Outstanding | Exercise Price (CAD$) | Weighted Average Contractual Life (years) | Expiry Date | |||||||
| (1) |
F-32
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 17. | Stock options and restricted share units |
| (a) | Stock options |
The Company has a stock option
plan whereby the maximum number of shares subject to the plan, in the aggregate, shall not exceed
The following table reflects the continuity of stock options for the years presented below:
| Number of Stock Options | Weighted Average Exercise Price (CAD$) | |||||||
| Balance, December 31, 2021 | ||||||||
| Expired / cancelled | ( | ) | ||||||
| Balance, December 31, 2022 | ||||||||
| Expired / cancelled | ( | ) | ||||||
| Balance, December 31, 2023 | ||||||||
| Expired / cancelled | ( | ) | ||||||
| Balance, December 31, 2024 | ||||||||
The following table reflects the stock options issued and outstanding as of December 31, 2024:
| Expiry Date | Exercise Price (CAD$) | Weighted Average Remaining Contractual Life (years) | Number of Options Outstanding | Number of Options Vested (exercisable) | Number of Options Unvested | |||||||||||||||
| February 14, 2025 | ||||||||||||||||||||
| January 5, 2026 | ||||||||||||||||||||
| March 25, 2026 | ||||||||||||||||||||
| May 17, 2026 | ||||||||||||||||||||
| June 22, 2026 | ||||||||||||||||||||
The following table reflects the stock options issued and outstanding as of December 31, 2023:
| Expiry Date | Exercise Price (CAD$) | Weighted Average Remaining Contractual Life (years) | Number of Options Outstanding | Number of Options Vested (exercisable) | Number of Options Unvested | |||||||||||||||
| February 14, 2025 | ||||||||||||||||||||
| January 5, 2026 | ||||||||||||||||||||
| February 24, 2026 | ||||||||||||||||||||
| March 25, 2026 | ||||||||||||||||||||
| May 17, 2026 | ||||||||||||||||||||
| June 22, 2026 | ||||||||||||||||||||
F-33
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 17. | Stock options and restricted share units (continued) |
| (b) | Restricted share units |
The Company has an RSU plan whereby the there is a fixed cap of shares that can be granted under the plan. The exercise price shall be no less than the discount market price as determined in accordance with TSXV policies.
The following table reflects the continuity of RSUs for the years presented below:
| Number of RSUs | ||||
| Balance, December 31, 2021 | ||||
| Granted (i) | ||||
| Cancelled | ( | ) | ||
| Balance, December 31, 2022 | ||||
| Granted (ii) | ||||
| Converted | ( | ) | ||
| Balance, December 31, 2023 | ||||
| Granted (iii) | ||||
| Cancelled | ( | ) | ||
| Converted | ( | ) | ||
| Balance, December 31, 2024 | ||||
| (i) |
| (ii) |
| (iii) |
For the year ended December 31, 2024, the Company
recorded sharebased compensation for these RSU’s of $
| 18. | Loss per share |
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Net loss for the year | $ | ( | ) | $ | ( | ) | $ | |||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | |||||
| Weighted average number of shares outstanding - basic and diluted | ||||||||||||
| (i) | Diluted income per share does not include the effect of warrants and stock options as they are anti-dilutive. |
F-34
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 19. | Related party transactions |
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties include key management personnel and may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions are recorded at the exchange amount, being the amount agreed to between the related parties.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and members of the Board of Directors.
Remuneration of key management personnel of the Company was as follows:
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Professional fees (1) | $ | $ | $ | |||||||||
| Salaries (1) | ||||||||||||
| Share based compensation(2) | ||||||||||||
| $ | $ | $ | ||||||||||
| (1) |
| (2) |
| 20. | Additional information on the nature of comprehensive loss components |
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Expenses for employee benefits | ||||||||||||
| Operating and maintenance costs | $ | $ | $ | |||||||||
| Professional fees | ||||||||||||
| Salaries | ||||||||||||
| Share based compensation | ||||||||||||
| $ | $ | $ | ||||||||||
| Net financial expenses | ||||||||||||
| Interest on loans | $ | $ | $ | |||||||||
| Interest from promissory note receivable | ( | ) | ( | ) | ||||||||
| Interest on lease liabilities and mortgage payable | ||||||||||||
| Accretion on PPA liability | ( | ) | ||||||||||
| $ | $ | $ | ||||||||||
F-35
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 21. | Cash flow supplemental information |
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Digital currencies items | ||||||||||||
| Digital currencies mined | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Bitcoin received from colocation services | ( | ) | ( | ) | ||||||||
| Bitcoin received for electricity sales | ( | ) | ( | ) | ||||||||
| Miner lease and hosting | ||||||||||||
| Loss on digital currency option calls | ||||||||||||
| Services paid in digital currencies | ||||||||||||
| Gain on sale of digital currencies | ( | ) | ( | ) | ||||||||
| Interest paid in digital currencies | ||||||||||||
| Digital currencies for loan repayment | ||||||||||||
| Gain on revaluation of digital currencies | ( | ) | ( | ) | ||||||||
| $ | ( | ) | $ | ( | ) | $ | ||||||
| Working capital items | ||||||||||||
| Amounts receivable and prepaid expenses | $ | $ | ( | ) | $ | |||||||
| Accounts payable and accrued liabilities | ||||||||||||
| Income tax receivable | ( | ) | ||||||||||
| Deposit payable | ( | ) | ||||||||||
| $ | $ | $ | ( | ) | ||||||||
| Other supplemental information | ||||||||||||
| Interest paid | $ | $ | $ | |||||||||
| Taxes paid | $ | $ | $ | |||||||||
| 22. | Segmented reporting |
The Company has three operating segments being cryptocurrency mining, sales of energy and electricity and colocation services located in the United States.
| Year Ended December 31, 2024 | Cryptocurrency mining | Sales of energy and electricity | Colocation services | Total | ||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Net profit (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Year ended December 31, 2023 | Cryptocurrency mining | Sales of energy and electricity | Colocation services | Total | ||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Miner lease and hosting agreement | ( | ) | ( | ) | ||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||
F-36
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 22. | Segmented reporting (continued) |
| Year ended December 31, 2022 | Cryptocurrency mining | Sales of
energy and electricity | Colocation services | Total | ||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ||||||||||||
| Miner lease and hosting agreement | ( | ) | ( | ) | ||||||||||||
| Net income | ||||||||||||||||
| 23. | Capital management |
The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of equity comprised of issued share capital, reserves and loans payable. The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share issuances or by undertaking other activities as deemed appropriate under the specific circumstances. The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect to capital risk management remains unchanged from the year ended December 31, 2023.
| 24. | Financial instruments and risk management |
Fair value
The fair value of the Company’s financial instruments, including cash, amounts receivable and accounts payable and accrued liabilities approximates their carrying value due to their short-term nature. Mortgage payable and deposit payable are due to arm’s length third parties, the fair values of these payables are measured using relevant market input (Level 3). The fair values of mortgage payable and deposit payable was calculated using actualized cash flows using market rates in effect at the balance sheet date. Reasonable changes to key assumptions would not have a significant impact. Investment is measured using a market-based valuation approach, utilizing relevant Level 3 market inputs. Digital currencies and loan payable are measured at fair value using the quoted price on Gemini Exchange (Level 2). Warrant liabilities are measured at fair value using the Black-Scholes pricing model (Level 2) (see note 14).
Risks
Credit risk
Credit risk is the risk that one
party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s
primary exposure to credit risk is on its cash, amounts receivable and promissory note receivable. The cash held in an account which is
FDIC insured up to $
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk by maintaining cash balances to ensure that it is able to meet its short term and long-term obligations as and when they fall due. The Company manages cash projections and regularly updates projections for changes in business and fluctuations cause in digital currency prices and exchange rates.
F-37
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 24. | Financial instruments and risk management (continued) |
The following table summarizes the expected maturity of the Company’s significant financial liabilities and other liabilities based on the remaining period from the balance sheet date to the contractual maturity date:
| Payments by period | ||||||||||||||||||||||||
| As at December 31, 2024 | Less than 1 year | 1-3 years | 4-5 years | More than 5 years |
Total | Carrying Value | ||||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Deposit payable | ||||||||||||||||||||||||
| Lease liabilities | ||||||||||||||||||||||||
| Loan payable | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Payments by period | ||||||||||||||||||||||||
| As at December 31, 2023 | Less than 1 year |
1-3 years |
4-5 years | More than 5 years |
Total | Carrying Value | ||||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Deposit payable | ||||||||||||||||||||||||
| Lease liabilities | ||||||||||||||||||||||||
| Mortgage payable | ||||||||||||||||||||||||
| Loan payable | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Foreign currency risk
Currency risk relates to the risk that the fair values or future cash flows of the Company’s financial instruments will fluctuate because of changes in foreign exchange rates. Exchange rate fluctuations affect the costs that the Company incurs in its operations.
As the Company operates in an international environment, some of the Company’s financial instruments and transactions are denominated in currencies other than an entity’s functional currency. The fluctuation of the Canadian dollar in relation to the US dollar will consequently impact the profitability of the Company and may also affect the value of the Company’s assets and liabilities and the amount of shareholders’ equity. As at December 31, 2024 and December 31, 2023, the foreign currency risk was considered minimal.
Digital currency risk
Digital currency prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. The profitability of the Company is directly related to the current and future market price of digital currencies; in addition, the Company may not be able liquidate its holdings of digital currencies at its desired price if required. A decline in the market prices for digital currencies could negatively impact the Company’s future operations. The Company has not hedged the conversion of any of its sales of digital currencies.
Digital currencies have a limited history and the fair value historically has been very volatile. Historical performance of digital currencies is not indicative of their future price performance. The Company’s digital currencies currently consist of Bitcoin.
F-38
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 24. | Financial instruments and risk management (continued) |
At December 31, 2024, had the market price of
the Company’s holdings of Bitcoin increased or decreased by
| 25. | Income taxes |
| (a) |
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Income (loss) before income taxes | $ | ( | ) | $ | ( | ) | $ | |||||
| Combined statutory income tax rate | % | % | % | |||||||||
| Income tax benefit at the statutory tax rate | ( | ) | ( | ) | ||||||||
| Non-deductible expenses | ||||||||||||
| Revaluation of warrant liabilities | ( | ) | ( | ) | ||||||||
| Foreign exchange (gain) loss | ( | ) | ( | ) | ||||||||
| Share based compensation | ||||||||||||
| Impairment of goodwill | ||||||||||||
| Other | ||||||||||||
| Change in unrecognized deferred tax asset | ||||||||||||
| Deferred income tax (recovery) provision | $ | $ | $ | ( | ) | |||||||
| Current income taxes in the income statement | $ | $ | $ | |||||||||
| Composition of deferred income taxes in the income statement | ||||||||||||
| Inception and reversal of temporary differences | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Change in unrecognized deferred tax asset | ||||||||||||
| Deferred income tax (recovery) provision | $ | $ | $ | ( | ) | |||||||
| Total income tax expense (recovery) for the year | $ | $ | $ | ( | ) | |||||||
| (b) | Deferred income tax |
Movement of deferred income tax in 2024
| January 1, 2024 | Profit or loss | Other Comprehensive Income | Equity | December 31, 2024 | ||||||||||||||||
| Right of use assets | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||
| Non-capital losses | ( | ) | ||||||||||||||||||
| Non-capital losses - Canada | ||||||||||||||||||||
| Unrealized foreign exchange gain - Canada | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
F-39
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 25. | Income taxes (continued) |
Movement of deferred income tax in 2023
| Other | ||||||||||||||||||||
| January 1, | Profit | Comprehensive | December 31, | |||||||||||||||||
| 2023 | or loss | Income | Equity | 2023 | ||||||||||||||||
| Property, plant and equipment | $ | ( | ) | $ | $ | $ | $ | |||||||||||||
| Right of use assets | ( | ) | ( | ) | ||||||||||||||||
| Digital currencies | ( | ) | ||||||||||||||||||
| Lease liabilities | ( | ) | ||||||||||||||||||
| Non-capital losses | ( | ) | ||||||||||||||||||
| Non-capital losses - Canada | ( | ) | ||||||||||||||||||
| Unrealized foreign exchange gain - Canada | ( | ) | ( | ) | ||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Movement of deferred income tax in 2022
| Other | ||||||||||||||||||||
| January 1, | Profit | Comprehensive | December 31, | |||||||||||||||||
| 2022 | or loss | Income | Equity | 2022 | ||||||||||||||||
| Property, plant and equipment | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||
| Right of use assets | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Digital currencies | ( | ) | ||||||||||||||||||
| Lease liabilities | ||||||||||||||||||||
| Stock based compensation | ( | ) | ( | ) | ||||||||||||||||
| Non-capital losses | ||||||||||||||||||||
| Non-capital losses - Canada | ||||||||||||||||||||
| Unrealized foreign exchange gain - Canada | ( | ) | ( | ) | ||||||||||||||||
| Total | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||
As at December 31, 2024 and 2023, deductible timing differences available for which the Company has not recognized deferred tax asset are as follows:
| As at December 31, | As at December 31, | |||||||
| 2024 | 2023 | |||||||
| Property, plant and equipment | $ | $ | ||||||
| Property, plant and equipment | ||||||||
| Capital losses | ||||||||
| Digital currencies | ||||||||
| Share issue costs (Canada) | ||||||||
| Stock based compensation | ||||||||
| Lease liability | ||||||||
| Other | ||||||||
| Non-capital losses - USA | ||||||||
| Non-capital losses - Canada | ||||||||
| $ | $ | |||||||
F-40
Digi Power X Inc. (formerly “Digihost Technology Inc.”)
Notes to the 2024 Consolidated Financial Statements
(Expressed in United States Dollars)
| 25. | Income taxes (continued) |
The ability to realize the tax benefits is dependent upon a number of factors, including the future profitability of operations. Deferred tax assets are recognized only to the extent that it is probable that sufficient taxable profits will be available to allow the asset to be recovered.
The Canadian non-capital losses
for which no deferred tax asset was recognized expire in 2041 and 2044. The non- capital losses available in the United States have no
expiry date. The capital losses available in the United States have expiry date of
| 26. | Subsequent events |
(i) On February 7, 2025, the Company closed a private placement for gross proceeds of $
(ii) The
Company incorporated US Data Centers Inc., as a subsidiary on September 20, 2024. Subsequent to December 31, 2024, the Company dissolved
this subsidiary and incorporated an entity of the same name. Funds of approximately $
(iii) Subsequent to December 31, 2024, the Company issued
F-41
Exhibit 1.7
Exhibit 4.20
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “Agreement”) is dated as of January 30, 2025, between Digihost Technology Inc., a corporation incorporated under the British Columbia Business Corporations Act (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:
“Acquiring Person” shall have the meaning ascribed to such term in Section 4.5.
“Action” shall have the meaning ascribed to such term in Section 3.1(j).
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Applicable Accounting Standards” shall have the meaning ascribed to such term in Section 3.1(h).
“Board of Directors” means the board of directors of the Company, as constituted from time to time.
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York and the City of Toronto are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in the City of New York and the City of Toronto are generally are open for use by customers on such day.
“Canadian Securities Administrators” means, collectively, each of Canada’s provincial and territorial securities regulators.
“Canadian Securities Laws” means all securities, corporate and other laws, rules, regulations, notices and policies applicable in Canada.
“CDS” means CDS Clearing and Depository Services Inc.
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived.
“Commission” means the United States Securities and Exchange Commission.
“Company Counsel” means Peterson McVicar LLP with respect to Canadian matters and Katten Muchin Rosenman LLP with respect to U.S. matters.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.
“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(bb).
“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(p).
“Investor Certificate” shall have the meaning ascribed to such term in Section 2.2(b)(ii).
“Liens” means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
2
“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
“Material Permits” shall have the meaning ascribed to such term in Section 3.1(n).
“Per Share Purchase Price” equals US$2.64, subject to adjustment for reverse and forward share splits, share dividends, share combinations and other similar transactions of the Subordinate Voting Shares that occur after the date of this Agreement.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.
“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Rule 904” means Rule 904 of Regulation S promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Securities” means the Shares, the Warrants and the Warrant Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“SEDAR+” means the Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval +.
“SEDAR Reports” shall have the meaning ascribed to such term in Section 3.1(h).
3
“Share Capital Summary” means the summary of the Company’s share capital as presented in Schedule A attached hereto.
“Shares” means the Subordinate Voting Shares that are issued or issuable to each Purchaser pursuant to this Agreement.
“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing Subordinate Voting Shares).
“Subordinate Voting Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Subordinate Voting Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Subordinate Voting Shares.
“Subordinate Voting Shares” means the Subordinate Voting Shares of the Company and any other class of securities into which such securities may hereafter be reclassified or changed.
“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.
“Subsidiary” means any subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company formed between the date hereof and the Closing Date.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Subordinate Voting Shares are listed or quoted for trading on the date in question: the TSX Venture Exchange, the Toronto Stock Exchange, the Canadian Securities Exchange, the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB or the OTCQX (or any successors to any of the foregoing).
“Transaction Documents” means this Agreement, the Warrants, all exhibits and schedules thereto and hereto and any other documents, certificates or agreements executed in connection with the transactions contemplated hereunder.
4
“Transfer Agent” means Marrelli Trust Company Limited, the current transfer agent of the Company and any successor transfer agent of the Company.
“US$” means United States dollars.
“Warrant Shares” means the Subordinate Voting Shares that are issuable upon exercise of the Warrants.
“Warrants” means, collectively, the Subordinate Voting Share purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to three (3) years, in the form of Exhibit A attached hereto.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, Shares and Warrants exercisable in respect of 50% of the Shares for a combined Per Share Purchase Price of $2.64. Each Purchaser shall deliver to the Company, via wire transfer, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Shares and Warrants, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of the Company Counsel in the U.S. or such other location as the parties shall mutually agree.
2.2 Deliveries.
(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver, on an expedited basis, a certificate or DRS advice evidencing a number of Shares equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser;
(iii) Warrants registered in the name of such Purchaser to purchase up to a number of Subordinate Voting Shares equal to 50% of such Purchaser’s Shares, with an exercise price per share equal to US$3.66, subject to adjustment as provided therein; and
5
(iv) the Company shall have provided each Purchaser with the Company’s wire instructions, on Company letterhead and executed by the Chief Executive Officer or Chief Financial Officer.
(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, the following:
(i) this Agreement duly executed by such Purchaser;
(ii) a duly completed and executed copy of a U.S. Accredited Investor Confirmation Certificate (in the form attached hereto as Exhibit B (a “Investor Certificate”); and
(iii) such Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent any representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) on the Closing Date of the representations and warranties of the Purchasers contained herein and in the Investor Certificates, as applicable (unless any representations and warranties are made as of a specific date therein, in which case they shall be accurate in all material respects (or all respects, as applicable) as of such date);
(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed in all material respects;
(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement; and
(iv) the conditional approval of the listing of the Shares and the Warrant Shares on the Trading Market.
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(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent any representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless any representations and warranties are made as of a specific date therein, in which case they shall be accurate in all material respects (or all respects, as applicable) as of such date);
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed in all material respects;
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading in the Subordinate Voting Shares shall not have been suspended by the Commission, Canadian Securities Administrators or the Company’s principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to each Purchaser:
(a) Subsidiaries. The Company owns, directly or indirectly, all of the capital share or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of share capital of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
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(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in material violation nor default of any of the provisions of its respective certificate or articles of incorporation, by-laws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”), and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligations of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
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(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or, except as described in the Share Capital Summary, give to others any rights of termination, amendment, anti-dilution or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including applicable securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the notice and/or application(s) to, and/or approval of, each applicable Trading Market for the issuance and sale of the Securities and the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby and (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws and the Canadian Securities Laws (collectively, the “Required Approvals”).
(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized share capital the maximum number of Subordinate Voting Shares issuable pursuant to this Agreement and the Warrants.
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(g) Capitalization. The capitalization of the Company as of the date hereof is as set forth on the SEDAR Reports and the Share Capital Summary. Except as publicly disclosed in the SEDAR Reports and as disclosed on the Share Capital Summary, the Company has not issued any share capital since its most recently filed periodic report under the Canadian Securities Laws, other than pursuant to the exercise of employee share options under, and otherwise pursuant to, the Company’s equity incentive plans, the issuance of Subordinate Voting Shares to employees pursuant to the Company’s employee share purchase plans and pursuant to the conversion and/or exercise of Subordinate Voting Share Equivalents outstanding as of the date of the most recently filed periodic report under the Canadian Securities Laws. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth on the Share Capital Summary or as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any Subordinate Voting Shares or the share capital of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional Subordinate Voting Shares or Subordinate Voting Share Equivalents or share capital of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue Subordinate Voting Shares or other securities to any Person (other than the Purchasers). Except as set forth in the Share Capital Summary, there are no outstanding securities or instruments of the Company or any Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by the Company or any Subsidiary. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any share appreciation rights or “phantom share” plans or agreements or any similar plan or agreement. All of the outstanding shares of share capital of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all applicable securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any shareholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no shareholders agreements, voting agreements or other similar agreements with respect to the Company’s share capital to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s shareholders.
(h) SEDAR Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Canadian Securities Laws for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEDAR Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEDAR Reports prior to the expiration of any such extension. As of their respective dates, the SEDAR Reports complied in all material respects with the requirements of the Canadian Securities Laws, and none of the SEDAR Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as set forth on Schedule 3.1(h) attached hereto, the financial statements of the Company included in the SEDAR Reports and in the Company’s filings with the Commission comply in all material respects with applicable accounting requirements and the rules and regulations of the Canadian Securities Administrators and the Exchange Act, respectively, with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with International Financial Reporting Standards applied on a consistent basis during the periods involved (“Applicable Accounting Standards”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by Applicable Accounting Standards, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal year-end audit adjustments, in each case, except as disclosed on Schedule 3.1(h).
(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest financial statements included within the SEDAR Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to Applicable Accounting Standards or disclosed in filings made with the Canadian Securities Administrators, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its share capital and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company equity incentive plans.
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(j) Litigation. Except as disclosed on Schedule 3.1(j) attached hereto, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (collectively, an “Action”). Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under applicable securities laws or a claim of breach of fiduciary duty.
(k) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all applicable laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree, or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all applicable laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as would not have or reasonably be expected to result in a Material Adverse Effect.
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(m) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental Laws”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply would be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
(n) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEDAR Reports, except where the failure to possess such permits would not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
(o) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with Applicable Accounting Standards and the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance, except as would not reasonably be expected to have a Material Adverse Effect.
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(p) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses as described in the SEDAR Reports and which the failure to so have would reasonably be expected to have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEDAR Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as would not reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(q) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
(r) Transactions with Affiliates and Employees. Except as disclosed on Schedule 3.1(r), none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, shareholder, member or partner, in each case in excess of US$200,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including award agreements under any equity incentive plan of the Company.
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(s) Internal Accounting Controls. Except as disclosed in the SEDAR Reports, the Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with Applicable Accounting Standards and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(t) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
(u) Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act nor prospectus delivery under applicable Canadian Securities Laws is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, the issuance and sale of the Securities by the Company to the Purchasers is exempt from the prospectus requirements of Canadian Securities Laws and no prospectus or other document is required to be filed, under Canadian Securities Laws no proceeding is required to be taken and no approval, permit, consent or authorization of regulatory authorities is required to be obtained by the Company under Canadian Securities Laws to permit such issuance and sale.
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(v) Listing and Maintenance Requirements. The Subordinate Voting Shares are qualified for trading in Canada, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the qualification of the Subordinate Voting Shares under the Canadian Securities Laws nor has the Company received any notification that any Canadian Securities Administrator is contemplating terminating such qualification. The Company is a reporting issuer in British Columbia, Alberta and Ontario, is not in default in any material respect of any requirement under Canadian Securities Laws and is not on the list of defaulting issuers maintained by the Canadian Securities Administrators. Except as disclosed in Schedule 3.1(v), the Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Subordinate Voting Shares are or have been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Subordinate Voting Shares are currently eligible for electronic transfer through CDS, and the Company is current in payment of the fees to the CDS in connection with such electronic transfer.
(w) Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its province of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.
(x) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes material, non-public information in respect of the Company or its securities. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.
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(y) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
(z) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted, including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEDAR Reports set forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money in excess of US$150,000, (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of US$150,000 due under leases required to be capitalized in accordance with Applicable Accounting Standards. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
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(aa) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all applicable income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.
(bb) No General Solicitation or Directed Selling Efforts. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising or “directed selling efforts” (as defined in Rule 902(c) of Regulation S). The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.
(cc) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.
(dd) Accountants. The Company’s accounting firm is set forth in the SEDAR Reports. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Canadian Securities Laws and (ii) shall express its opinion with respect to the financial statements for the fiscal year ended December 31, 2024 to be filed on SEDAR.
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(ee) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
(ff) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(g) and 4.14 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Subordinate Voting Shares and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, and (z) such hedging activities (if any) could reduce the value of the existing shareholders’ equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.
(gg) Stock Option Plan. Each share option granted by the Company under the Company’s equity incentive plan was granted (i) in accordance with the terms of such plan and (ii) with an exercise price not less than the fair market value of the Subordinate Voting Shares on the date such share option would be considered granted under Applicable Accounting Standards and applicable law. No share option granted under the Company’s equity incentive plan has been backdated.
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(hh) Cybersecurity. (i)(x) There has been no security breach or other compromise of or relating to any of the Company’s or any Subsidiary’s information technology and computer systems, networks, hardware, software, data (including the data of its respective customers, employees, suppliers, vendors and any third party data maintained by or on behalf of it), equipment or technology (collectively, “IT Systems and Data”) and (y) the Company and the Subsidiaries have not been notified of, and has no knowledge of any event or condition that would reasonably be expected to result in, any security breach or other compromise to its IT Systems and Data; (ii) the Company and the Subsidiaries are presently in compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except as would not, individually or in the aggregate, have a Material Adverse Effect; (iii) the Company and the Subsidiaries have implemented and maintained commercially reasonable safeguards to maintain and protect its material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and Data; and (iv) the Company and the Subsidiaries have implemented backup and disaster recovery technology consistent with industry standards and practices.
(ii) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
(jj) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended (the “Code”), and the Company shall so certify upon Purchaser’s request.
(kk) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(ll) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
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(mm) No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.
(nn) Other Covered Persons. The Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Securities.
(oo) Notice of Disqualification Events. The Company will notify the Purchasers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.
(pp) Trading of Securities. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, the Securities shall be qualified for public trading in Canada and able to be traded freely by the Purchasers under the Canadian Securities Laws and the public and no prospectus or other document is required to be filed under the Canadian Securities Laws, no proceeding is required to be taken in connection therewith under the Canadian Securities Laws, and no approval, permit, consent or authorization of regulatory authorities is required to be obtained by the Purchasers or the Company under Canadian Securities Laws to permit such trades.
(qq) Foreign Private Issuer Status. The Company is a “foreign issuer” (as defined in Rule 902(e) of Regulation S).
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3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and have not been qualified for distribution by prospectus in Canada and is acquiring the Securities as principal for its own account with investment intent and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, as of the date hereof, it is, and, on each date on which it exercises any Warrants, it will be an “accredited investor” as defined in Rule 501(a). Such Purchaser has properly completed, executed and delivered to the Company an Investor Certificate (dated as of the date hereof) set forth in Exhibit B attached hereto, along with any applicable appendices to such Investor Certificate, and the information contained therein is true and correct and the representations, warranties and covenants contained in the applicable Investor Certificate will be true and correct (or complied with, as applicable) both as of the date of execution of this Agreement and as at the Closing Date.
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(d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not, to such Purchaser’s knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or on the Internet or broadcast over television or radio or presented at any seminar or meeting or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.
(f) Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEDAR Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.
(g) Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending upon the Company’s making of the public disclosure required by Section 4.4. Other than to other Persons party to this Agreement or to such Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).
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(h) Purchaser Ownership. Such Purchaser does not now, and, immediately following the consummation of the transactions contemplated by this Agreement and assuming the immediate exercise in full of such Purchaser’s Warrant, such Purchaser will not, own (beneficially or otherwise) ten percent (10%) or more of the issued and outstanding Subordinate Voting Shares.
(i) Residency. Such Purchaser is not, as of the date of this Agreement, and will not be, as of the Closing Date, a resident of any jurisdiction of Canada.
The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement, Rule 904 or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company and the Transfer Agent an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company and the Transfer Agent, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.
(b) Such Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES FOR WHICH THIS SECURITY IS [EXERCISABLE] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND UNDER ANY APPLICABLE U.S. STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT (A) TO DIGIHOST TECHNOLOGY INC. OR (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE][CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
[FOR WARRANTS ONLY: “THIS WARRANT MAY NOT BE EXERCISED UNLESS THE SHARES ISSUABLE UPON EXERCISE MAY BE ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LEGISLATION OR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT.”]
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provided, that, if the Securities are being sold in compliance with the requirements of Rule 904 of Regulation S and in compliance with applicable local laws and regulations, the legend may be removed by providing a customary declaration to the Company and to the Transfer Agent, in the form as reasonably required by the Company or the Transfer Agent; provided further, if any of the Securities are being sold pursuant to Rule 144 of the Securities Act, if available, the legend shall be removed by delivering to the Company and the Transfer Agent customary and reasonable representations as to the availability of Rule 144 (subject, as applicable, to Rule 144(i)). The Company shall promptly provide, at its expense, any such opinions to effect the foregoing, in form and substance reasonably satisfactory to the Transfer Agent, to the effect that the legend is no longer required under applicable requirements of the Securities Act. Each Purchaser understands and acknowledges that (i) if the Company is ever deemed to be, or to have been at any time previously, an issuer with no or nominal operations and no or nominal assets other than cash and cash equivalents, Rule 144 under the Securities Act may not be available for resales of the Securities, and (ii) the Company is not obligated to take, and has no present intention of taking, any action to make Rule 144 under the Securities Act (or any other exemption) available for resales of the Securities.
(c) Each Purchaser, severally and not jointly with each other Purchaser, agrees not to offer, or sell any of the Securities in the United States or to a U.S. Person (as defined in Rule 902 of Regulation S under the Securities Act), unless registered under the Securities Act or an exemption from registration under the Securities Act and applicable state securities laws is available, and such Purchaser acknowledges that the Securities may not be exchanged or exercised, in the United States or by, or for the account or benefit of, a U.S. Person or Person in the United States unless an exemption from registration under the Securities Act is available.
(d) Each Purchaser, severally and not jointly with each other Purchaser, acknowledges and agrees that the foregoing covenants along with the applicable schedule executed by such Purchaser are made by it with the intention that they may be relied upon by the Company in determining the Purchaser’s eligibility under applicable law to receive the Securities without a legend.
(e) Each Purchaser, severally and not jointly with each other Purchaser, acknowledges that the Company may be required to file with the Canadian Securities Administrators in Ontario a report regarding the trade. The Purchaser acknowledges that such report may require the Company to disclose the Purchaser’s full legal name, residential address, telephone number and email address and the number of Securities the Purchaser purchased, the purchase price for such Securities and specific details of the prospectus exemption relied upon under applicable securities laws to complete such purchase, including how the Purchaser qualifies for such exemption. Each Purchaser consents to the disclosure of such information and acknowledges that such information is made available to the public under securities legislation of Ontario. The Purchaser acknowledges that this information is collected indirectly by the applicable securities regulatory authority or regulator under the authority granted to it under, and for the purposes of the administration and enforcement of, the securities legislation and that the Purchaser may contact the applicable securities regulatory authority or regulator by way of the following information for more information regarding the indirect collection of such information: Ontario Securities Commission, 20 Queen Street West, 22nd Floor Toronto, Ontario M5H 3S8, Telephone: (416) 593- 8314, Toll free in Canada: 1-877-785-1555, Facsimile: (416) 593-8122, Email: exemptmarketfilings@osc.gov.on.ca, Public official contact regarding indirect collection of information: Inquiries Officer.
4.2 [RESERVED]
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4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities hereunder or that would be integrated with the offer or sale of the Securities hereunder for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval of the sale of the Securities hereunder.
4.4 Securities Laws Disclosure; Publicity. The Company shall (a) issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a material change report under the Canadian Securities Laws, including the Transaction Documents, with the Canadian Securities Administrators within the time required by the Canadian Securities Laws. From and after the issuance of such press release, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the issuance of such press release, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, entered into in connection herewith between the Company and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission, Canadian Securities Administrators or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by applicable federal securities laws or the Canadian Securities Laws in connection with the filing of final Transaction Documents on SEDAR+ and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall, to the extent reasonably practicable, provide the Purchasers with prior notice of such disclosure permitted under this clause (b).
4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.
4.6 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.4, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company, any of its Subsidiaries, or any of their respective officers, director, agents, employees or Affiliates delivers any material, non-public information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information; provided that the Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Canadian Securities Administrators. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
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4.7 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital and general corporate purposes, including, without limitation, infrastructure expansion, equipment purchases and repayment of debt, and shall not use such proceeds in violation of FCPA or OFAC regulations.
4.8 Reserved.
4.9 Available Subordinate Voting Shares. As of the date hereof, the Company has, and will keep, available at all times, free of preemptive rights, a sufficient number of Subordinate Voting Shares for the purpose of enabling the Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.10 Reserved.
4.11 Reserved.
4.12 Reserved.
4.13 Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
4.14 Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms of this transaction. Notwithstanding the foregoing and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4, (ii) no Purchaser shall be hereby restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.
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4.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser. The Company also agrees to make all required filings under Canadian Securities Laws in a timely manner.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, or by the Company, by written notice to the other parties, if the Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof; provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).
5.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers. For the avoidance of doubt, nothing contained herein shall obligate the Company to pay or reimburse for any taxes in respect of any capital gains or other income of any Purchaser.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by United States nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchasers which purchased at least 50.1% in interest of the Shares based on the initial Subscription Amounts hereunder (or, prior to the Closing, the Company and each Purchaser) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought; provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.
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5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Prior to the Closing, no Purchaser may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company (other than by merger). Any Purchaser may, after the Closing, assign any or all of its rights under this Agreement in respect of any Securities to any Person to whom such Purchaser assigns or transfers such Securities in compliance herewith, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”
5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8.
5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof to the extent the same would result in the application of the laws of another jurisdiction. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.8, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.
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5.10 Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.
5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that, in the case of a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any Subordinate Voting Shares subject to any such rescinded exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
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5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and the holder’s provision of a customary indemnity to the Company and the Transfer Agent. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.
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5.18 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid, notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.
5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.20 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and Subordinate Voting Shares in any Transaction Document shall be subject to adjustment for reverse and forward share splits, share dividends, share combinations and other similar transactions of the Subordinate Voting Shares that occur after the date of this Agreement. Unless otherwise indicated or the context otherwise requires, (a) all references to Sections, Schedules, Appendices or Exhibits are to Sections, Schedules, Appendices or Exhibits contained in or attached to this Agreement, (b) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, (c) the words “hereof,” “herein” and words of similar effect shall reference this Agreement in its entirety, and (d) the use of the word “including” in this Agreement or any other Transaction Document shall be by way of example rather than limitation.
5.21 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
5.22 Currency. All references to currency herein shall be deemed to refer to United States dollars.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| Digihost Technology Inc. | Address for Notice: | ||
| By: | /s/ Michel Amar | Email: michel@digihostblockchain.com | |
| Name: | Michel Amar | ||
| Title: | CEO | ||
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SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Eleven Ventures LLC
Signature of Authorized Signatory of Purchaser: /s/ Hart Wasko
Name of Authorized Signatory: Hart Wasko
Title of Authorized Signatory: Manager
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$400,000
Shares: 151,515
Warrant Shares: 75,758 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ***
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Zi Ventures, LLC
Signature of Authorized Signatory of Purchaser: /s/ Ido Zaken
Name of Authorized Signatory: Ido Zaken
Title of Authorized Signatory: CEO
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$1,350,000
Shares: 511,364
Warrant Shares: 255,682 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ***
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[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: AFT Investments LLC
Signature of Authorized Signatory of Purchaser: /s/ Jonathan R. Gilbert
Name of Authorized Signatory: Jonathan R. Gilbert
Title of Authorized Signatory: Manager of ABF Manager LLC, Its: Manager
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$350,000
Shares: 132,576
Warrant Shares: 66,288 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ***
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[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Blue Finn Group LLC
Signature of Authorized Signatory of Purchaser: /s/ Peter Benz
Name of Authorized Signatory: Peter Benz
Title of Authorized Signatory: Manager
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$2,000,000
Shares: 757,576
Warrant Shares: 378,788 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ***
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[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Las Olas Capital, LLC
Signature of Authorized Signatory of Purchaser: /s/ Jim McCabe
Name of Authorized Signatory: Jim McCabe
Title of Authorized Signatory: Manager
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$250,000
Shares: 94,697
Warrant Shares: 47,349 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ***
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[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Bakay Capital Fund, LP
Signature of Authorized Signatory of Purchaser: /s/ Berke Bakay
Name of Authorized Signatory: Berke Bakay
Title of Authorized Signatory: Founder, CEO
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$1,000,000
Shares: 378,788
Warrant Shares: 189,394 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ***
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[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Exuma Partners Fund I LLLP
Signature of Authorized Signatory of Purchaser: /s/ Anthony Perera
Name of Authorized Signatory: Anthony Perera
Title of Authorized Signatory: MGR
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$160,000
Shares: 60,606
Warrant Shares: 30,303 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Banded Iron, LP
Signature of Authorized Signatory of Purchaser: /s/ Mike Wolsky
Name of Authorized Signatory: Mike Wolsky
Title of Authorized Signatory: General Partner
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Bao Dang
Signature of Authorized Signatory of Purchaser: /s/ Bao Dang
Name of Authorized Signatory: ______________
Title of Authorized Signatory: ______________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$48,100
Shares: 18,220
Warrant Shares: 9,110 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Bradley J Erickson
Signature of Authorized Signatory of Purchaser: /s/ Bradley J Erickson
Name of Authorized Signatory: ______________
Title of Authorized Signatory: ______________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$50,000
Shares: 18,939
Warrant Shares: 9,470 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Bradley Layton
Signature of Authorized Signatory of Purchaser: /s/ Bradley Layton
Name of Authorized Signatory: ____________
Title of Authorized Signatory: ____________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Denis Thompson
Signature of Authorized Signatory of Purchaser: /s/ Denis Thompson
Name of Authorized Signatory: ______________
Title of Authorized Signatory: ______________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Eddie Casanave
Signature of Authorized Signatory of Purchaser: /s/ Eddie Casanave
Name of Authorized Signatory: _____________
Title of Authorized Signatory: _____________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Frank Curzio
Signature of Authorized Signatory of Purchaser: /s/ Frank Curzio
Name of Authorized Signatory: ___________
Title of Authorized Signatory: ___________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$50,000
Shares: 18,939
Warrant Shares: 9,470 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Ideal Garcia
Signature of Authorized Signatory of Purchaser: /s/ Ideal Garcia
Name of Authorized Signatory: ____________
Title of Authorized Signatory: ____________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Kim Boys
Signature of Authorized Signatory of Purchaser: /s/ Kim Boys
Name of Authorized Signatory: _______________
Title of Authorized Signatory: _______________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Kim Obermair
Signature of Authorized Signatory of Purchaser: /s/ Kim Obermair
Name of Authorized Signatory: ___________
Title of Authorized Signatory: ___________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$26,400
Shares: 10,000
Warrant Shares: 5,000 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Neal Baker
Signature of Authorized Signatory of Purchaser: /s/ Neal Baker
Name of Authorized Signatory: ___________
Title of Authorized Signatory: ___________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Robert Rudloff
Signature of Authorized Signatory of Purchaser: /s/ Robert Rudloff
Name of Authorized Signatory: ___________
Title of Authorized Signatory: ____________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Unicorn Capital Partners LLC
Signature of Authorized Signatory of Purchaser: /s/ Andrew W Haag
Name of Authorized Signatory: Andrew W Haag
Title of Authorized Signatory: Managing Member
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$50,000
Shares: 18,939
Warrant Shares: 9,470 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: The Lynch Foundation
Signature of Authorized Signatory of Purchaser: /s/ Peter S. Lynch
Name of Authorized Signatory: Peter S. Lynch
Title of Authorized Signatory: Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$50,000.00
Shares: 18,939
Warrant Shares: 9,470 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Peter & Carolyn Lynch CLUT Article Second Trust
Signature of Authorized Signatory of Purchaser: /s/ Katie M. Bullen
Name of Authorized Signatory: Katie M. Bullen
Title of Authorized Signatory: VP, Senior Trust Officer, Jordan Park Trust Company LLC, Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$100,000.00
Shares: 37,879
Warrant Shares: 18,940 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ***
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Peter & Carolyn Lynch CLAT Article III Trust FBO Elizabeth de Montrichard
Signature of Authorized Signatory of Purchaser: /s/ Katie M. Bullen
Name of Authorized Signatory: Katie M. Bullen
Title of Authorized Signatory: VP, Senior Trust Officer, Jordan Park Trust Company LLC, Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$43,333.33
Shares: 16,414
Warrant Shares: 8,207 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ***
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Peter & Carolyn Lynch CLAT Article III Trust FBO Anne Lukowski
Signature of Authorized Signatory of Purchaser: /s/ Katie M. Bullen
Name of Authorized Signatory: Katie M. Bullen
Title of Authorized Signatory: VP, Senior Trust Officer, Jordan Park Trust Company LLC, Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$43,333.33
Shares: 16,414
Warrant Shares: 8,207 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ***
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Peter & Carolyn Lynch CLAT Article III Trust FBO Mary Witkowski
Signature of Authorized Signatory of Purchaser: /s/ Katie M. Bullen
Name of Authorized Signatory: Katie M. Bullen
Title of Authorized Signatory: VP, Senior Trust Officer, Jordan Park Trust Company LLC, Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$43,333.33
Shares: 16,414
Warrant Shares: 8,207 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ***
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Peter S Lynch 2012 Family Trust FBO Elizabeth de Montrichard
Signature of Authorized Signatory of Purchaser: /s/ Ralph Sweetland
Name of Authorized Signatory: Ralph Sweetland
Title of Authorized Signatory: Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$15,000.00
Shares: 5,682
Warrant Shares: 2,841 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Peter S. Lynch 2012 Family Trust FBO Anne Lukowski
Signature of Authorized Signatory of Purchaser: /s/ Ralph Sweetland
Name of Authorized Signatory: Ralph Sweetland
Title of Authorized Signatory: Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$15,000.00
Shares: 5,682
Warrant Shares: 2,841 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Peter S. Lynch 2012 Family Trust FBO Mary Witkowski
Signature of Authorized Signatory of Purchaser: /s/ Ralph Sweetland
Name of Authorized Signatory: Ralph Sweetland
Title of Authorized Signatory: Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$15,000.00
Shares: 5,682
Warrant Shares: 2,841 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Carolyn A Lynch 2012 Irrevocable Trust
Signature of Authorized Signatory of Purchaser: /s/ Ralph Sweetland
Name of Authorized Signatory: Ralph Sweetland
Title of Authorized Signatory: Trustee
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000.00
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Norstar Capital LLC
Signature of Authorized Signatory of Purchaser: /s/ David E. Kusta Jr.
Name of Authorized Signatory: David E. Kusta Jr.
Title of Authorized Signatory: Chief Manager
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$25,000
Shares: 9,470
Warrant Shares: 4,735 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Birchtree Capital, LLC
Signature of Authorized Signatory of Purchaser: /s/ Daniel Brauser
Name of Authorized Signatory: Daniel Brauser
Title of Authorized Signatory: Manager
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$150,000.00
Shares: 56,818
Warrant Shares: 28,409 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ***
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Larry Gallus
Signature of Authorized Signatory of Purchaser: /s/ Larry Gallus
Name of Authorized Signatory: ____________
Title of Authorized Signatory: ____________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$100,000.00
Shares: 37,879
Warrant Shares: 18,940 Beneficial Ownership Blocker ☒ 4.99% or ☐ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO DGHI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Hans L Christensen
Signature of Authorized Signatory of Purchaser: /s/ Hans L Christensen
Name of Authorized Signatory: ___________
Title of Authorized Signatory: ___________
Email Address of Authorized Signatory: ***
Address for Notice to Purchaser: ***
Instructions for CDS Electronic Delivery of Shares: ***
Subscription Amount: US$50,000
Shares: 18,939
Warrant Shares: 9,470 Beneficial Ownership Blocker ☐ 4.99% or ☒ 9.99%
EIN Number: ________
[SIGNATURE PAGES CONTINUE]
Exhibit 4.21
EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND UNDER ANY APPLICABLE U.S. STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT (A) TO DIGIHOST TECHNOLOGY INC. OR (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
THIS WARRANT MAY NOT BE EXERCISED UNLESS THE SHARES ISSUABLE UPON EXERCISE MAY BE ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LEGISLATION OR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT.
SUBORDINATE VOTING SHARE PURCHASE WARRANT
Digihost Technology Inc.
| Warrant Shares: [_______] | Initial Exercise Date: February 7, 2025 |
THIS SUBORDINATE VOTING SHARE PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [_______] or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on February 7, 2028 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Digihost Technology Inc., a corporation incorporated under the British Columbia Business Corporations Act (the “Company”), up to [_______] Subordinate Voting Shares (as subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Subordinate Voting Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated January 30, 2025, among the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Subordinate Voting Shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise on the Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per Subordinate Voting Share under this Warrant shall be US$3.66, subject to adjustment hereunder (the “Exercise Price”).
c) Reserved
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d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by electronic book-entry, at the election of the Holder if any of the Unrestricted Conditions are satisfied, by crediting the account of the Holder’s or its designee’s balance account with CDS, registered in the Company’s share register in the name of the Holder (or its designee), for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) one (1) Trading Day after the delivery to the Company of the Notice of Exercise and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price is received within the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each US$1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Subordinate Voting Shares on the date of the applicable Notice of Exercise), US$5 per Trading Day (increasing to US$10 per Trading Day on the tenth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise; provided that such liquidated damages shall in no event exceed an aggregate of US$25 per US$1,000 of Warrant Shares; and provided that, the Holder shall have no right to any such liquidated damages hereunder to the extent the failure of the Company to deliver such Warrant Shares is caused by the Holder’s failure to provide complete information required to be provided by the Holder to the Company hereunder or the inaccuracy of any such information. Upon any exercise of this Warrant, the Warrant Shares thereupon issued shall bear the legend set forth in Section 4.1(b) of the Purchase Agreement, unless any of the Unrestricted Conditions is then satisfied in respect of such Warrant Shares. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Trading Market as in effect on the date of delivery of the Notice of Exercise, and “Unrestricted Conditions” means, in respect of any Warrant Shares, at the applicable time, (i) a registration statement covering the resale of such Warrant Shares is effective and available for the resale thereof under the Securities Act, (ii) such Warrant Shares have been or are being sold pursuant to Rule 144, provided that the Holder provides customary certifications to the Company and the Transfer Agent to such effect, (iii) the Company is a “foreign issuer” (as defined in Rule 902 of Regulation S under the Securities Act) at the time such Warrant Shares are issued and such Warrant Shares have been or are being sold pursuant to Rule 904, provided that the Holder provides a customary declaration to the Company and to the Transfer Agent, in the form as reasonably required by the Company or the Transfer Agent, or (iv) such Warrant Shares are eligible for sale under Rule 144(b) as set forth in customary non-affiliate certifications provided by the Holder to the Company and the Transfer Agent subject, as applicable, to Rule 144(i).
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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise by delivering a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Subordinate Voting Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Subordinate Voting Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Subordinate Voting Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder provided that the Holder shall have no right to any such amount hereunder to the extent the failure of the Company to deliver such Warrant Shares is caused by the Holder’s failure to provide complete information required to be provided by the Holder to the Company hereunder or the inaccuracy of any such information. For example, if the Holder purchases Subordinate Voting Shares having a total purchase price of US$11,000 to cover a Buy-In with respect to an attempted exercise of Subordinate Voting Shares with an aggregate sale price giving rise to such purchase obligation of US$10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder US$1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Subordinate Voting Shares upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to CDS (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
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vii. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Subordinate Voting Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Subordinate Voting Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Subordinate Voting Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Subordinate Voting Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act (as if applicable hereto) and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination and shall have no liability for exercises of the Warrant that are not in compliance with the Beneficial Ownership Limitation (other than to the extent that information on the number of outstanding Subordinated Voting Shares is provided by the Company and relied upon by the Holder). In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, and the Company shall have no obligation to verify or confirm the accuracy of such determination and shall have no liability for exercises of the Warrant that are not in compliance with the Beneficial Ownership Limitation (other than to the extent that information on the number of outstanding Subordinated Voting Shares is provided by the Company and relied upon by the Holder). For purposes of this Section 2(e), in determining the number of outstanding Subordinate Voting Shares, a Holder may rely on the number of outstanding Subordinate Voting Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Subordinate Voting Shares outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of Subordinate Voting Shares then outstanding. In any case, the number of outstanding Subordinate Voting Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Subordinate Voting Shares was reported. The “Beneficial Ownership Limitation” shall be [4.99/9.99]% of the number of Subordinate Voting Shares outstanding immediately after giving effect to the issuance of Subordinate Voting Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of Subordinate Voting Shares outstanding immediately after giving effect to the issuance of Subordinate Voting Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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f) Shareholders Approval Requirement. Unless shareholder approval has been received, the Holder shall be prohibited from exercising any portion of the Warrant or otherwise receive Subordinate Voting Shares hereunder to the extent that after giving effect to such exercise or receipt of Subordinate Voting Shares, the Holder, together with any person acting jointly or in concert with the Holder, including for greater certainty any of its affiliates, would beneficially own, or exercise control or direction over more than 19.99% of the Subordinate Voting Shares outstanding immediately after giving effect to such exercise or receipt of Subordinate Voting Shares (with such percentage beneficial ownership, control or direction being calculated in accordance with the applicable provisions of applicable securities legislation, including National Instrument 62-103 and National Instrument 62-104 of the Canadian Securities Administrators).
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on its Subordinate Voting Shares or any other equity or equity equivalent securities payable in Subordinate Voting Shares (which, for avoidance of doubt, shall not include any Subordinate Voting Shares issued by the Company upon exercise of this Warrant or any other Warrants), (ii) subdivides outstanding Subordinate Voting Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Subordinate Voting Shares into a smaller number of shares, or (iv) issues by reclassification of the outstanding Subordinate Voting Shares any capital shares of the Company, then, in each case, the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Subordinate Voting Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Subordinate Voting Shares outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution (provided, that such adjustment shall be reversed if such dividend or distribution is terminated prior to the making thereof) and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of more than 50% of the outstanding Subordinate Voting Shares sell, tender or exchange their shares for other securities, cash or property, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Subordinate Voting Shares or any compulsory share exchange pursuant to which the Subordinate Voting Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Subordinate Voting Shares (not including any Subordinate Voting Shares held by the other Person or other Persons making or party to, or associated or affiliated with, the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of Subordinate Voting Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and/or any additional or other consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of one outstanding Subordinate Voting Share. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Subordinate Voting Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Subordinate Voting Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. For purposes hereof, “Successor Entity” means the surviving entity in a Fundamental Transaction in which the Company is not the survivor.
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c) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Subordinate Voting Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Subordinate Voting Shares (excluding treasury shares, if any) issued and outstanding.
d) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Subordinate Voting Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Subordinate Voting Shares, (C) the Company shall authorize the granting to all holders of the Subordinate Voting Shares rights or warrants to subscribe for or purchase any capital shares of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Subordinate Voting Shares, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Subordinate Voting Shares are converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least five (5) Business Days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Subordinate Voting Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Subordinate Voting Shares of record shall be entitled to exchange their Subordinate Voting Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice on SEDAR and EDGAR, if applicable. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
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b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d) Transfer Restrictions. In connection with any proposed transfer of this Warrant, the Holder shall comply with the transfer restrictions set forth in Section 4.1 of the Purchase Agreement (and, as applicable, the Investor Certificate executed and delivered by such Holder).
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act, and further represents and warrants that it is, and upon any exercise of this Warrant will be, an Institutional Accredited Investor, as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any share certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it or to the Transfer Agent, as applicable (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or share certificate, if mutilated, the Company or the Transfer Agent, as the case may be, will make and deliver a new Warrant or share certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or share certificate.
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c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will have available from its authorized and unissued Subordinate Voting Shares a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be reasonably necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (ii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be reasonably necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
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f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by U.S. state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses, including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Subordinate Voting Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| DIGIHOST TECHNOLOGY INC. | |||
| By: | |||
| Name: | Michel Amar | ||
| Title: | Chief Executive Officer | ||
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NOTICE OF EXERCISE
To: Digihost Technology Inc.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of the lawful money of the United States (unless otherwise agreed to by the Company and the Holder).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following CDS Account Number:
_______________________________
_______________________________
_______________________________
(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | |
| (Please Print) | |
| Address: | |
| (Please Print) | |
| Phone Number: | |
| Email Address: |
Dated: _______________ __, ______
Holder’s Signature:_______________
Holder’s Address:________________
Exhibit 8.1
List of Subsidiaries of
DIGI POWER X INC.
Digihost International, Inc., a Delaware corporation
US Data Centers, Inc., a Delaware corporation
World Generation X, LLC, a Delaware limited liability company
Exhibit 11.1
DIGIHOST TECHNOLOGY INC.
Securities trading policy
| 1.0 | Introduction |
The Board of Directors of Digihost Technology Inc. (“Digihost”) has determined that Digihost should formalize its policy on securities trading by directors, senior executives and employees and other Insiders in accordance with securities laws and regulations. This policy does not negate or modify the responsibilities and obligations of Digihost or any individual pursuant to securities laws and all associated regulations. Unless otherwise stated, all defined terms used in this Policy have the meaning set out in Schedule “A”.
| 2.0 | Objective of the Policy |
Trading while in possession of material non-public information, and informing others of such material non-public information, is a violation of securities and criminal laws. The purpose of this Securities Trading Policy (the “Policy”) is to provide guidelines and restrictions applicable to: (i) trading in securities of Digihost (“Securities”); and (ii) communication of Material Non-Public Information (as defined in section 6.1 of this Policy).
The guidelines set out in this Policy supplement those set out in Digihost’s Corporate Disclosure Policy. This policy does not negate or modify the responsibilities and obligations of Digihost or any individual pursuant to securities laws and all associated regulations.
| 3.0 | Application of the Policy |
This Policy applies to all Insiders of Digihost, and any person who receives Material Non-Public Information from any such Insider in respect of trading in Securities of Digihost (including shares, convertible securities, options and other securities as defined in Schedule “A” to this Policy).
| 4.0 | Communication of the Policy |
Copies of this Policy are made available to directors, officers, employees and consultants, either directly or by posting of the Policy on Digihost’s website at www.digihost.ca. All directors, officers and employees will be informed whenever significant changes are made. New directors, officers, employees and consultants will be provided with a copy of this Policy.
| 5.0 | Administrative Responsibility |
| 5.1 | Compliance Officer |
The Chief Executive Officer will act as the compliance officer (the “Compliance Officer”) for this Policy and shall be responsible for its day to day administration, as well as monitoring and enforcing compliance with this Policy. The Compliance Officer may designate one or more individuals to assist in the administration of this Policy.
| 6.0 | Specific Policies |
| 6.1 | Material Non-Public Information |
Material Non-Public information of Digihost is Material Information (as defined in Schedule “B”), which has not been “Generally Disclosed.” In order to be “Generally Disclosed,” information must:
| (a) | consist of readily observable matter; |
| (b) | be disseminated to the public by way of a news release together with the passage of a reasonable amount of time for the public to analyze the information; and |
| (c) | have been made known in a manner that would, or would be reasonably likely to, bring it to the attention of persons who commonly invest in Securities of a kind whose price might be affected by the information and, since it was made known, a reasonable period for it to be disseminated among such persons has elapsed. |
Unless otherwise advised that the period is longer or shorter, for the purposes of paragraphs 6.1(b) and 6.1(c), a reasonable amount or reasonable period of time will have passed at the close of business on the second day on which the TSX or TSXV, as applicable, is open for trading (“Trading Day”), after the Material Non-Public Information has been Generally Disclosed.
Any person, who has knowledge of Material Non-Public Information with respect to Digihost, must treat such Material Information as confidential until the Material Information has been Generally Disclosed. Refer to Digihost’s “Corporate Disclosure Policy” for further information on the treatment of confidential information.
Material Non-Public Information shall not be disclosed to anyone except “in the necessary course of business” (as defined in section 6.3 of this Policy). If Material Non-Public Information has been lawfully disclosed in the necessary course of business, anyone so informed must clearly understand that it is to be kept confidential, and, in appropriate circumstances, execute a confidentiality agreement.
Material Non-Public Information shall not be disclosed to anyone in any circumstances, including in the necessary course of business, if the person considering making the disclosure knows, or ought reasonably to know, that the person to whom the Material Non-Public Information is being disclosed would or would be likely to:
| ● | apply for, acquire, or dispose of, Securities, or enter into an agreement to apply for, acquire, or dispose of, Securities; or |
| ● | procure another person to apply for, acquire, or dispose of, Securities, or enter into an agreement to apply for, acquire, or dispose of, Securities. |
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When in doubt, all persons to whom this Policy applies must consult with the Compliance Officer to determine:
| ● | whether disclosure in a particular circumstance is in the necessary course of business; and |
| ● | whether the person proposing to make the disclosure knows, or ought reasonably to know, that the person to whom the Material Non-Public Information is being disclosed would or would be likely to apply for, acquire, or dispose of, Securities, or enter into an agreement to apply for, acquire, or dispose of, Securities or procure another person to apply for, acquire, or dispose of, Securities, or enter into an agreement to apply for, acquire, or dispose of, Securities. |
For greater certainty, disclosure to analysts, institutional investors, other market professionals and members of the press and other media is a form of “Tipping” (as defined in section 6.3 of this Policy) and will not be considered to be in the necessary course of business.
| 6.2 | Trading of Digihost Securities |
Insider Trading, for the purpose of this policy, refers to the purchase or sale of Securities by a person with knowledge of Material Non-Public Information, whether or not they are in a “Special Relationship” with Digihost (“Relevant Insider”). Insider Trading is illegal and strictly prohibited by this Policy. For greater certainty, examples of prohibited transactions by such a person would include, but are not limited to the following:
| (a) | buying or selling Securities of Digihost; |
| (b) | buying or selling Securities whose price or value may reasonably be expected to be affected by changes in price of Securities of Digihost; |
| (c) | selling Securities acquired through the exercise of share options; and |
| (d) | buying or selling Securities of another company in which Digihost proposes to invest or where the individual, in the course of employment with Digihost, becomes aware of Material Non-Public Information concerning that other company. |
| 6.3 | Tipping |
Digihost, as a reporting issuer, and/or a person or a company who is a Relevant Insider may not inform, other than in the necessary course of business and then only in certain circumstances, another person or company of Material Non-Public Information. This activity, known as tipping (“Tipping”), is prohibited because it places Material Non-Public Information in the hands of a few persons and not in the hands of the broader investing public.
Subject to certain limitations discussed below, there is an exception to the prohibition on Tipping if selective disclosure is required in the necessary course of business.
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The question of whether a particular disclosure is being made “in the necessary course of business” is a mixed question of law and fact that must be determined on a case-by-case basis. However, the necessary course of business exception would generally cover communications with:
| a) | vendors, suppliers or strategic partners on issues such as research and development, sales and marketing and supply contracts; |
| b) | directors, officers and other employees; |
| c) | lenders, legal counsel, auditors, underwriters. |
| d) | financial and other professional advisors to the Company; |
| e) | parties to negotiations in respect of those matters under or affecting the negotiations, including matters in connection with effecting a take-over bid, business combination or acquisition; |
| f) | labour unions and industry associations; |
| g) | government agencies and non-governmental regulators; |
| h) | credit rating agencies (provided that the information is disclosed for the purpose of assisting the agency to formulate a credit rating and the agency’s ratings generally are or will be publicly available); |
| i) | investors in connection with a private placement; and |
| j) | controlling shareholders of the Company, in certain limited circumstances (together “Excepted Disclosure”). |
However, and as noted above, this exception to Tipping will not apply where the person proposing to make the disclosure knows, or ought to reasonably know, that the Excepted Disclosure to the relevant party would or would be likely to result in such party:
| ● | applying for, acquiring, or disposing of, Securities, or entering into an agreement to apply for, acquire, or dispose of, Securities; or |
| ● | procuring another person to apply for, acquire, or dispose of, Securities, or enter into an agreement to apply for, acquire, or dispose of, Securities, in breach of the relevant Insider Trading prohibitions. |
| 6.4 | Insider Trading Reports - Canadian Securities Laws Requirements |
Under Canadian securities legislation, subject to certain exceptions, Insiders that are deemed to be “Reporting Insiders” of Digihost are required to file an initial insider trading report within ten (10) days after becoming a Reporting Insider electronically through the System for Electronic Disclosure by Insiders (“SEDI”) at www.sedi.ca.
Reporting Insiders are further required, subject to certain exceptions, to file an insider trading report on SEDI within five (5) days of a change in: (i) the beneficial ownership of, control or direction over, whether direct or indirect, Securities of Digihost; or (ii) a change in an interest in, or right or obligation associated with, a Related Financial Instrument involving a Security of Digihost.
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Reporting Insiders must also file an insider trading report within five (5) days if the Reporting Insider enters into, materially amends, or terminates an agreement, arrangement or understanding that (i) has the effect of altering, directly or indirectly, the Reporting Insider’s economic exposure to Digihost; or (ii) involves, directly or indirectly, a Security of Digihost or a Related Financial Instrument involving a Security of Digihost.
It is the responsibility of each such person to set up and maintain their SEDI profile and to make the necessary filings. However, Digihost may assist Insiders in making such filings, provided such persons provide the necessary information to the Compliance Officer in a timely manner.
A person that is uncertain as to whether he or she is a Reporting Insider or whether he or she may be eligible to be exempted from these requirements should contact the Compliance Officer.
| 7.0 | Guidelines |
| 7.1 | No Trade and Blackout Periods for Officers, Directors and Employees |
The period beginning at the end of each quarter and ending two Trading Days (as defined in section 6.1 of this Policy) following the date of public disclosure of the financial results for that quarter (or fiscal year) (a “No Trade Period”) is particularly sensitive, as officers, directors and certain employees may often possess Material Non-Public Information about the expected financial results for the quarter and year end.
Accordingly, to ensure compliance with this Policy and applicable securities laws, all directors, officers and employees shall refrain from any trading activities involving Securities of Digihost during No Trade Periods.
From time to time, Digihost may also institute additional trading restricted periods for directors, officers, selected employees and consultants and others because of the existence of Material Non-Public Information (a “Blackout Period”). In the event a Blackout Period or No-Trade Period is initiated, the Compliance Officer shall disseminate a notice to suspend trading in Digihost’s Securities, in the form attached hereto as Schedule “C”, or other approval form, instructing those people not to engage in any trading of Digihost’s Securities until further notice, without disclosing the facts giving rise to or the imposition of such suspension of trading.
Even outside of Blackout Periods or No Trade Periods, any person possessing Material Non- Public Information on Digihost should not engage in any transactions related to Digihost’s Securities until two Trading Days after such information has been publicly disclosed. All directors, officers, employees and other persons are expected to use their judgment in interpreting this Policy, and to err on the side of caution at all times. If in doubt, such person is required to contact the Compliance Officer.
At specific times, Digihost’s Board of Directors may award long term compensation under Digihost’s Stock Option Plan, or by other means. Under no circumstances will long term compensation awards related to Digihost’s Securities be made while a Blackout Period or No Trade Period is in effect. In the event that options or other Security related long term compensation expire during a Blackout Period or No Trade Period, such expiry date will be extended as provided in the Incentive Stock Option Plan of Digihost, or such other plan governing securities compensation matters, as applicable.
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| 7.2 | Pre-Clearance of Trades |
Before initiating any trade in Digihost’s Securities, each person to whom this Policy applies must contact and get approval from the “Clearance Committee” which will be comprised of the Chairperson of the Board of Directors, the Chairperson of the Audit Committee and an independent director. The Clearance Committee shall refer each proposed transaction to external corporate counsel to determine if it raises insider trading concerns or other concerns under securities laws and regulations. Clearance of a transaction is valid only for a 48-hour period. If the transaction order is not placed within that 48-hour period, clearance of the proposed transaction must be re-requested. If clearance is denied, the fact of such denial must be kept confidential by the person requesting such clearance.
| 7.3 | Short-Swing Trades |
Digihost recommends that, other than in the course of exercising an option, Insiders do not buy and sell its Securities within the same six month period.
| 7.4 | Short Sales, Call and Put Options |
Insiders are not permitted to sell “short” or sell a “call option” on any of Digihost’s Securities or purchase a “put option” where they do not own the underlying Security or, in the case of a short sale, an option currently exercisable therefor.
| 7.5 | Buying Digihost’s Securities on Margin |
Insiders are not permitted to buy Digihost’s Securities on margin.
| 7.6 | Hedging |
Insiders who are directors and officers of Digihost are not permitted to enter into any transaction that has the effect of offsetting the economic value of any direct or indirect interest of such Insiders in Securities of Digihost. This includes the purchase of financial instruments such as prepaid variable forward contracts, equity swaps, collars or units of exchange funds that are designed to hedge or offset a decrease in the market value of equity Securities granted to such Insiders as compensation or otherwise held directly or indirectly by such Insiders.
| 8.0 | Potential Criminal and Civil Liability and/or Disciplinary Action |
| 8.1 | Liability for Insider Trading in Canada |
Under applicable Canadian securities laws, Insiders guilty of trading on Material Non-Public Information of Digihost may be subject to:
| (a) | penalties of up to the greater of $5 million and triple any profit earned or loss avoided; and |
| (b) | imprisonment. |
Additionally, such conduct may subject Digihost or other investors to civil liability.
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| 8.2 | Liability for Tipping in Canada |
Insiders may also be liable for improper transactions by any person commonly referred to as a tippee, to whom they have disclosed Material Non-Public Information about Digihost or to whom they have made recommendations or expressed opinions on the basis of such information. The various Canadian securities regulators have imposed large penalties even when the disclosing person did not profit from the trading.
| 8.3 | Possible Disciplinary Actions |
Employees, officers, directors, consultants and contractors who violate this Policy will also be subject to disciplinary action by Digihost, which may include restrictions on future participation in equity incentive plans or termination of employment.
| 6.0 | Applicability of Policy to Insider Information Regarding Other Companies |
This Policy and the guidelines described herein also apply to Material Non-Public Information relating to other companies, including joint venture partners, customers, vendors and suppliers of Digihost (the “Business Partners”), when that information is obtained in the course of employment with, or providing services on behalf of, Digihost. For the purposes of this Policy, information about Business Partners should be treated in the same way as information related directly to Digihost.
| 7.0 | Annual Certification |
All directors and officers of Digihost, together with any employees, consultants and contractors specified by the Board of Directors of Digihost, shall provide annual certification of compliance with this Policy in the form attached to Digihost’s Code of Business Conduct and Ethics.
| 8.0 | General |
The Board may, from time to time, permit departures from the terms of this Insider Trading Policy, either prospectively or retrospectively. The terms of this Securities Trading Policy are not intended in and of themselves to give rise to civil liability on the part of Digihost, its directors, officers or employees, to any third party, including to any shareholder, securityholder, customer, supplier, competitor, other employee or regulator, but shall give rise to liability to Digihost.
| Last reviewed on: | June 20, 2022 |
| Approved by: |
Audit Committee Board of Directors |
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SCHEDULE “A”
INDIVIDUALS AND ENTITIES TO WHOM THIS POLICY APPLIES
“Employee” means a full-time, part-time, contract or secondment employee of Digihost.
“Insider” means:
| (a) | all directors, Officers, employees, contractors and consultants of Digihost and its affiliates who receive or have access to Material Non-Public Information (as defined in section 6.1), including members of their immediate families, members of their households, as well as the partnerships, trusts, corporations, estates, RRSPs, and similar entities over which any of these individuals exercise control or direction; |
| (b) | a director or Officer of a person or company that is itself an insider or subsidiary of Digihost; |
| (c) | a person or company that has |
| (i) | beneficial ownership of, or control or direction over, directly or indirectly, Securities of Digihost carrying more than 10 per cent of the voting rights attached to all Digihost’s outstanding voting Securities, excluding, for the purpose of the calculation of the percentage held, any Securities held by the person or company as underwriter in the course of a distribution, or |
| (ii) | a combination of beneficial ownership of, and control or direction over, directly or indirectly, Securities of Digihost carrying more than 10 per cent of the voting rights attached to all Digihost’s outstanding voting Securities, excluding, for the purpose of the calculation of the percentage held, any Securities held by the person or company as underwriter in the course of a distribution; |
| (d) | Digihost itself, if it has purchased, redeemed or otherwise acquired a Security of its own issue, for so long as it continues to hold that Security; |
| (e) | a person or company designated as an insider in an order made under section 1(11) Securities Act (Ontario); and |
| (f) | a person or company that is in a class of persons or companies designated under subparagraph 40 v of subsection 143(1) of the Securities Act (Ontario). |
“Major Subsidiary” means a subsidiary of an issuer if the assets of the subsidiary, as included in the issuer’s most recent annual audited or interim balance sheet, or a statement of financial position, are 30 per cent or more of the consolidated assets of the issuer reported on that balance sheet or statement of financial position, as the case may be, or the revenue of the subsidiary, as included in the issuer’s most recent annual audited or interim income statement, or a statement of comprehensive income, is 30 per cent or more of the consolidated revenue of the issuer reported on that statement;
Schedule A-1
“Management Company” means a person or company established or contracted to provide significant management or administrative services to an issuer or a subsidiary of the issuer;
“Officer” means:
| (a) | a chair or vice-chair of the Board of Directors, a Chief Executive Officer, a Chief Operating Officer, a Chief Financial Officer, a President, a Vice-president, a Secretary, an Assistant Secretary, a Treasurer, an Assistant Treasurer and a General Manager; |
| (b) | every individual who is designated as an officer under a by-law or similar authority, and |
| (c) | every individual who performs functions similar to those normally performed by an individual referred to above. |
“Person or Company in a Special Relationship with a Reporting Issuer” means:
| (a) | a person or company that is an insider, affiliate or associate of, |
| (i) | Digihost, |
| (ii) | a person or company that is considering or evaluating whether to or is proposing to make a take-over bid, as defined in Part XX of the Securities Act (Ontario), for the Securities of Digihost, or |
| (iii) | a person or company that is considering or evaluating whether to or is proposing to become a party to a reorganization, amalgamation, merger or arrangement or similar business combination with Digihost or to acquire a substantial portion of its property, |
| (b) | a person or company that is engaging in, considering or evaluating whether to engage in or that proposes to engage in any business or professional activity with or on behalf of Digihost or with or on behalf of a person or company described in subclause (a) (ii) or (iii), |
| (c) | a person who is a director, Officer or employee of Digihost, a subsidiary of Digihost or a person or company that controls, directly or indirectly, Digihost, or of a person or company described in subclause (a) (ii) or (iii) or clause (b), |
| (d) | a person or company that learned of the material fact or material change with respect to Digihost while the person or company was a person or company described in clause (a), (b) or (c), |
| (e) | a person or company that learns of a material fact or material change with respect to Digihost from any other person or company described in this subsection, including a person or company described in this clause, and knows or ought reasonably to have known that the other person or company is a person or company in such a relationship. |
Schedule A-2
“Related Financial Instrument” means an agreement, arrangement or understanding to which an insider of Digihost is a party, the effect of which is to alter, directly or indirectly, the insider’s,
| (a) | economic interest in a Security of Digihost, or |
| (b) | economic exposure to Digihost |
“Reporting Insider” means an insider of Digihost if the insider is
| (a) | The CEO, CFO or COO of Digihost, of a significant shareholder of Digihost or of a Major Subsidiary of Digihost; |
| (b) | A director of Digihost, of a significant shareholder of Digihost or of a Major Subsidiary of Digihost; |
| (c) | A person or company responsible for a principal business unit, division or function of Digihost; |
| (d) | A significant shareholder of Digihost; |
| (e) | A significant shareholder based on post-conversion beneficial ownership of Digihost’s Securities and the CEO, CFO, COO and every director of the significant shareholder based on post-conversion beneficial ownership; |
| (f) | A management company that provides significant management or administrative services to Digihost or a Major Subsidiary of Digihost, every director of the management company, every CEO, CFO and COO of the management company, and every significant shareholder of the management company; |
| (g) | An individual performing functions similar to the functions performed by any of the insiders described in paragraphs (a) to (f); |
| (h) | Digihost itself, if it has purchased, redeemed or otherwise acquired a Security of its own issue, for so long as it continues to hold that Security; or |
| (i) | Any other insider that |
| (i) | in the ordinary course receives or has access to information as to material facts or material changes concerning Digihost before the material facts or material changes are generally disclosed; and |
| (ii) | directly or indirectly, exercises, or has the ability to exercise, significant power or influence over the business, operations, capital or development of Digihost |
A “Security” is defined in section 1(1) of the Securities Act (Ontario) and includes, among other things, all shares, convertible or exchangeable Securities such as warrants or convertible debentures, options, restricted share units as well as a put, call, option or other right or obligation to purchase or sell Securities of Digihost, or any Security, the market price of which varies materially with the market price of the Securities of Digihost.
Schedule A-3
“Significant Shareholder” means a person or company that has beneficial ownership of, or control or direction over, whether direct or indirect, or a combination of beneficial ownership of, and control or direction over, whether direct or indirect, Securities of an issuer carrying more than 10% of the voting rights attached to all the issuer’s outstanding voting securities, excluding, for the purpose of the calculation of the percentage held, any Securities held by the person or company as underwriter in the course of a distribution.
A company is considered to be a “Subsidiary” of another company if it is controlled by (1) that other, (2) that other and one or more companies, each of which is controlled by that other, or (3) two or more companies, each of which is controlled by that other; or it is a subsidiary of a company that is that other's subsidiary. In general, a company will control another company when the first company owns more than 50% of the outstanding voting Securities of that other company.
“Trading” in Securities refers to all investment activities over which a person covered by this Policy has control or direction, whether for their personal account or in a fiduciary capacity, as in the case of a partnership, trusteeship, or executorship. For the purposes of this Policy, trading includes any purchase or sale of a Security as well as the provision of investment advice.
Schedule A-4
SCHEDULE “B”
EXAMPLES OF INFORMATION THAT MAY BE MATERIAL
“Material information” consists of both “material facts” and “material changes”. For Canadian purposes, a “material fact” means a fact that would reasonably be expected to have a significant effect on the market price or value of the securities of Digihost. For Canadian purposes a “material change” means a change in the business, operations or capital of Digihost that would reasonably be expected to have a significant effect on the market price or value of any of the securities of Digihost and includes a decision to implement such a change if such a decision is made by the board of directors or by senior management of Digihost who believe that confirmation of the decision by the board of directors is probable.
It is not possible to define all categories of material information. However, information should be regarded as material if there is a reasonable likelihood that it would be considered important to an investor in making an investment decision regarding the purchase or sale of Digihost’s Securities.
Examples of such information may, depending on the circumstances, include:
| (a) | financial results; |
| (b) | projections of future earnings or losses; |
| (c) | development of new products and developments affecting Digihost’s resources, technology, products or market; |
| (d) | news of a material merger, joint venture or acquisition; |
| (e) | news of a disposal of significant assets or a subsidiary; |
| (f) | increases, decreases and reclassifications of mineral reserves or resources; |
| (g) | significant exploration results; |
| (h) | impending bankruptcy or financial liquidity problems; |
| (i) | significant work stoppages or other events affecting production; |
| (j) | significant pricing changes or agreements that may affect pricing; |
| (k) | major labour disputes or disputes with major contractors or suppliers; |
| (l) | proposed changes in capital structure including stock splits and stock dividends; |
| (m) | proposed or pending material financings; |
| (n) | material increases or decreases in the amount outstanding of Securities or indebtedness; |
Schedule B-1
| (o) | material changes in the business of Digihost; | |
| (p) | changes in Digihost’s auditors; | |
| (q) | defaults in material obligations; | |
| (r) | results of the submission of matters to vote of securityholders; | |
| (s) | material transactions with directors, officers or principal securityholders; | |
| (t) | significant litigation exposure due to actual or threatened litigation; | |
| (u) | a transaction for which the consideration payable or receivable is a significant proportion of the written down value of Digihost’s consolidated assets; | |
| (v) | a recommendation or declaration of a dividend by Digihost; | |
| (w) | a recommendation or decision that a dividend will not be declared by Digihost; | |
| (x) | a material change in accounting policy adopted by Digihost; and | |
| (y) | changes in senior management. |
Either positive or negative information may be material.
Schedule B-2
SCHEDULE “C”
PRIVATE AND CONFIDENTIAL
| TO: | DIRECTORS, OFFICERS AND EMPLOYEES OF DIGIHOST TECHNOLOGY INC. (THE “COMPANY”) AND ITS AFFILIATES |
| RE: | SUSPEND TRANSACTION NOTICE |
Further to our Securities Trading Policy, please suspend all further securities and related financial instrument transactions in respect of the Company until further notice.
Should you have any questions or concerns please contact Compliance Officer at info@digihostblockchain.com.
Sincerely,
DIGIHOST TECHNOLOGY INC.
Schedule C-1
Exhibit 12.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michel Amar, certify that:
| 1. | I have reviewed this Annual Report on Form 20-F of Digi Power X Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 31, 2025 | /s/ Michel Amar | |
| Name: | Michel Amar | |
| Title: | Chief Executive Officer | |
Exhibit 12.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul Ciullo, certify that:
| 1. | I have reviewed this Annual Report on Form 20-F of Digi Power X Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 31, 2025 | /s/ Paul Ciullo | |
| Name: | Paul Ciullo | |
| Title: | Chief Financial Officer | |
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Digi Power X Inc. (the “Company”) on Form 20-F for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michel Amar, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
March 31, 2025
| /s/ Michel Amar | ||
| Name: | Michel Amar | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
The foregoing certification has been furnished solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not intended to be used or relied upon for any other purpose.
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Digi Power X Inc. (the “Company”) on Form 20-F for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul Ciullo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
March 31, 2025
| /s/ Paul Ciullo | ||
| Name: | Paul Ciullo | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
The foregoing certification has been furnished solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not intended to be used or relied upon for any other purpose.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 No. 333-276647 of Digi Power X Inc. (the “Company”) of our report dated March 28, 2025, relating to the consolidated financial statements of the Company, for the year ended 2024 which appear in Form 20-F.
| /s/ DAVIDSON & COMPANY LLP | |
| Vancouver, Canada | Chartered Professional Accountants |
| March 28, 2025 |
1200-609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Davidson-co.com
Exhibit 23.2
| Consent of Independent Auditor |
Raymond Chabot
T 514-878-2691 |
Digi Power X Inc. (formerly known as Digihost Technology Inc.)
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-276647) of Digi Power X Inc. (the “Company”) of our report dated September 16, 2024, except for Note 2(w), as to which the date is March 5, 2025, with respect to the audited consolidated financial statements of the Company and its subsidiaries appearing in the Company’s Annual Report on Form 20-F for the year ended December 31, 2024.
/s/ Raymond Chabot Grant Thornton LLP
Montreal, Quebec, Canada
March 28, 2025
| Member of Grant Thornton International Ltd | rcgt.com |