HIVE Digital Technologies Ltd 6-K, filed Nov 15, 2022
HIVE Digital Technologies Ltd. (HIVE)
About this 6-K
HIVE Digital Technologies Ltd filed this 6-K on November 15, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 2022
Commission File Number: 001-40398
HIVE Blockchain Technologies Ltd.
(Translation of registrant's name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 855 -789 West Pender Street
Vancouver, BC
V6C 1H2
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
[ ] Form 20-F [X] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
INCORPORATION BY REFERENCE
This report on Form 6-K, including the interim condensed consolidated financial statements for the three and six months ended September 30, 2022 and management's discussion and analysis for the three and six months ended September 30, 2022, shall be deemed to be incorporated by reference as exhibits to the Registration Statement of HIVE Blockchain Technologies Ltd. on Form F-10 (File No. 333-267277) and to be a part thereof from the date on which this report was furnished, to the extent not superseded by documents or reports subsequently filed or furnished.
EXHIBIT INDEX
| SIGNATURES | ||
| HIVE BLOCKCHAIN TECHNOLOGIES LTD. | ||
| By: | /s/Darcy Daubaras | |
| Name: Darcy Daubaras | ||
| Title: Chief Financial Officer | ||
Date: November 14, 2022
HIVE Blockchain Technologies Ltd.
Condensed Interim Consolidated Financial Statements
For the three and six months ended September 30, 2022 and 2021
(Expressed in US dollars)
(Unaudited)
|
HIVE Blockchain Technologies Ltd. |
 |
| September 30, | March 31, | |||||
| 2022 | 2022 | |||||
| Assets | ||||||
| Current assets | ||||||
| Cash | $ | 8,142,444 | $ | 5,318,922 | ||
| Amounts receivable and prepaids (Note 7) | 9,157,766 | 7,978,327 | ||||
| Investments (Note 6) | 6,483,383 | 17,000,742 | ||||
| Digital currencies (Note 8) | 64,930,488 | 170,000,412 | ||||
| 88,714,081 | 200,298,403 | |||||
| Plant and equipment (Note 9) | 132,013,242 | 177,542,744 | ||||
| Long term receivable (Note 7) | 1,815,964 | 1,815,964 | ||||
| Deposits (Note 10) | 45,759,781 | 59,693,744 | ||||
| Right of use asset (Note 14) | 9,865,708 | 12,587,882 | ||||
| Goodwill and intangible asset | 201,357 | 335,594 | ||||
| Total assets | $ | 278,370,133 | $ | 452,274,331 | ||
| Liabilities and equity | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | $ | 10,359,730 | $ | 12,376,825 | ||
| Current portion of lease liability (Note 14) | 1,908,745 | 2,164,658 | ||||
| Term loan (Note 13) | 7,886,568 | 9,375,244 | ||||
| Loans payable (Notes 4, 12) | 1,224,102 | 1,224,102 | ||||
| Current income tax liability | 2,285,000 | 1,013,803 | ||||
| 23,664,145 | 26,154,632 | |||||
| Convertible loan - liability component (Note 11) | 5,191,364 | 5,599,007 | ||||
| Convertible loan - derivative component (Note 11) | 807,310 | 4,986,354 | ||||
| Loans payable (Notes 4, 12) | 12,034,125 | 14,468,237 | ||||
| Lease liability (Note 14) | 8,180,897 | 10,484,536 | ||||
| Deferred tax liability | - | 1,529,000 | ||||
| Total liabilities | 49,877,841 | 63,221,766 | ||||
| Equity | ||||||
| Share capital (Note 17) | 414,548,236 | 413,660,484 | ||||
| Equity reserve | 15,014,447 | 12,236,169 | ||||
| Accumulated other comprehensive income | 10,156,928 | 23,399,468 | ||||
| Accumulated deficit | (211,227,319 | ) | (60,243,556 | ) | ||
| Total equity | 228,492,292 | 389,052,565 | ||||
| Total liabilities and equity | $ | 278,370,133 | $ | 452,274,331 |
Nature of operations (Note 1)
Commitments and contingencies (Note 15)
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HIVE Blockchain Technologies Ltd. |
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| Three months ended September 30, | Six months ended September 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Restated (Note 25) | ||||||||||||
| Revenue from digital currency mining (Note 8) | $ | 29,596,579 | $ | 52,619,094 | $ | 73,775,105 | $ | 89,858,861 | ||||
| Hosting revenue | - | 953,958 | - | 2,696,864 | ||||||||
| 29,596,579 | 53,573,052 | 73,775,105 | 92,555,725 | |||||||||
| Cost of sales | ||||||||||||
| Operating and maintenance costs | (13,656,022 | ) | (7,593,349 | ) | (30,817,773 | ) | (13,814,033 | ) | ||||
| Depreciation (Notes 9, 14) | (24,322,657 | ) | (9,626,529 | ) | (50,074,838 | ) | (16,525,711 | ) | ||||
| (8,382,100 | ) | 36,353,174 | (7,117,506 | ) | 62,215,981 | |||||||
| Revaluation of digital currencies (Note 8) | (2,355,177 | ) | 1,702,190 | (74,509,585 | ) | 26,237 | ||||||
| Gain (loss) on sale of digital currencies (Note 8) | 13,780 | 7,782 | (69,805 | ) | 89,251 | |||||||
| Expenses | ||||||||||||
| General and administrative (Note 20) | (3,235,958 | ) | (2,050,097 | ) | (6,601,274 | ) | (3,777,563 | ) | ||||
| Foreign exchange gain (loss) | 7,091,390 | (1,888,166 | ) | 3,434,880 | (1,359,298 | ) | ||||||
| Share-based compensation (Note 17) | (1,947,912 | ) | (1,478,637 | ) | (2,901,274 | ) | (3,801,063 | ) | ||||
| 1,907,520 | (5,416,900 | ) | (6,067,668 | ) | (8,937,924 | ) | ||||||
| Unrealized gain (loss) on investments (Note 6) | (1,000,600 | ) | 6,168,239 | (9,683,681 | ) | 359,716 | ||||||
| Change in fair value of derivative liability (Note 11) | (192,150 | ) | 914,392 | 4,179,045 | 6,348,027 | |||||||
| Change in fair value of escrow share liability (Note 5) | - | 86,764 | - | 923,790 | ||||||||
| Impairment of miner equipment (Note 9) | (26,236,544 | ) | - | (32,573,102 | ) | - | ||||||
| Impairment of equipment deposits (Note 10) | - | - | (4,678,000 | ) | - | |||||||
| Gain on sale of subsidiary | - | - | - | 3,171,275 | ||||||||
| Gain on sale of mining assets | 15,401 | - | 15,401 | - | ||||||||
| Finance expense (Note 19) | (938,697 | ) | (888,075 | ) | (1,928,211 | ) | (1,795,126 | ) | ||||
| Net (loss) income before tax for the period | (37,168,567 | ) | 38,927,566 | (132,433,112 | ) | 62,401,227 | ||||||
| Tax recovery | 131,000 | - | 131,000 | - | ||||||||
| Net (loss) income for the period | $ | (37,037,567 | ) | $ | 38,927,566 | $ | (132,302,112 | ) | $ | 62,401,227 | ||
| Other comprehensive income | ||||||||||||
| Other comprehensive income to be reclassified to | ||||||||||||
| profit or loss in subsequent periods: | ||||||||||||
| Revaluation loss on digital currencies (Note 8) | $ | (154,721 | ) | $ | 16,315,447 | $ | (13,811,094 | ) | $ | 9,498,673 | ||
| Translation adjustment | (531,930 | ) | (901,474 | ) | 568,554 | (577,899 | ) | |||||
| Net (loss) income and comprehensive (loss) income for the period | $ | (37,724,218 | ) | $ | 54,341,539 | $ | (145,544,652 | ) | $ | 71,322,001 | ||
| Basic (loss) income per share | $ | (0.45 | ) | $ | 0.51 | $ | (1.61 | ) | $ | 0.82 | ||
| Diluted (loss) income per share | $ | (0.45 | ) | $ | 0.49 | $ | (1.61 | ) | $ | 0.78 | ||
| Weighted average number of common shares outstanding | ||||||||||||
| Basic (Note 18) | 82,253,061 | 76,396,406 | 82,247,555 | 75,862,137 | ||||||||
| Diluted (Note 18) | 82,253,061 | 80,144,032 | 82,247,555 | 79,609,763 | ||||||||
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HIVE Blockchain Technologies Ltd. |
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| Share capital | Accumulated other | |||||||||||||||||
| Equity | comprehensive | Accumulated | Total | |||||||||||||||
| Shares issued | Amount | reserve | income | deficit | equity | |||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||
| At March 31, 2021 (restated - Note 25) | 73,542,407 | 259,905,407 | 5,095,314 | 10,057,592 | (146,904,547 | ) | 128,153,766 | |||||||||||
| Share-based compensation | - | - | 3,801,063 | - | - | 3,801,063 | ||||||||||||
| Shares offering | 1,471,800 | 22,788,531 | - | - | - | 22,788,531 | ||||||||||||
| Issuance costs | - | (771,548 | ) | - | - | - | (771,548 | ) | ||||||||||
| Atlantic acquisition | 1,000,000 | 15,692,043 | - | - | - | 15,692,043 | ||||||||||||
| Shares and warrants issued for investment | 800,000 | 12,726,694 | 2,030,045 | - | - | 14,756,739 | ||||||||||||
| Exercise of options | 43,115 | 374,185 | (131,456 | ) | - | - | 242,729 | |||||||||||
| Vesting of restricted stock units | 103,500 | 259,618 | (259,618 | ) | - | - | - | |||||||||||
| Income for the period | - | - | - | - | 62,401,227 | 62,401,227 | ||||||||||||
| Translation adjustment | - | - | - | (577,899 | ) | - | (577,899 | ) | ||||||||||
| Revaluation gain on digital currencies | - | - | - | 18,194,891 | - | 18,194,891 | ||||||||||||
| Realized gain on digital currencies | - | - | - | (8,696,218 | ) | 8,696,218 | - | |||||||||||
| At September 30, 2021 (restated - Note 25) | 76,960,822 | 310,974,930 | 10,535,348 | 18,978,366 | (75,807,102 | ) | 264,681,542 | |||||||||||
| At March 31, 2022 | 82,241,988 | 413,660,484 | 12,236,169 | 23,399,468 | (60,243,556 | ) | 389,052,565 | |||||||||||
| Share-based compensation | - | - | 1,768,680 | - | - | 1,768,680 | ||||||||||||
| Shares offering | 108,779 | 422,424 | - | - | - | 422,424 | ||||||||||||
| Share subscription receivable | 89,279 | 342,333 | - | - | - | 342,333 | ||||||||||||
| Vesting of restricted stock units | 7,000 | 122,995 | 1,009,598 | - | - | 1,132,593 | ||||||||||||
| Loss for the period | - | - | - | - | (132,302,112 | ) | (132,302,112 | ) | ||||||||||
| Translation adjustment | - | - | - | 568,554 | - | 568,554 | ||||||||||||
| Revaluation loss on digital currencies | - | - | - | (32,492,745 | ) | - | (32,492,745 | ) | ||||||||||
| Realized loss on digital currencies | - | - | - | 18,681,651 | (18,681,651 | ) | - | |||||||||||
| At September 30, 2022 | 82,447,046 | 414,548,236 | 15,014,447 | 10,156,928 | (211,227,319 | ) | 228,492,292 | |||||||||||
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HIVE Blockchain Technologies Ltd. |
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| For the six months ended September 30, | ||||||
| 2022 | 2021 | |||||
| Restated - Note 25 | ||||||
| Operating activities | ||||||
| Net (loss) income for the period: | $ | (132,302,112 | ) | $ | 62,401,227 | |
| Adjusted for: | ||||||
| Depreciation and amortization | 50,074,839 | 16,525,711 | ||||
| Gain on sale of subsidiary | - | (3,171,275 | ) | |||
| Unrealized loss (gain) on investments | 9,683,681 | (359,716 | ) | |||
| Change in fair value of derivative liability | (4,179,044 | ) | (6,348,027 | ) | ||
| Impairment of miner equipment | 32,573,102 | - | ||||
| Impairment of equipment deposits | 4,678,000 | - | ||||
| Change in fair value of escrow share liability | - | (923,790 | ) | |||
| Accretion and interest on convertible debt | 1,536,296 | 420,335 | ||||
| Tax recovery | (131,000 | ) | - | |||
| Share-based compensation | 2,901,273 | 3,801,063 | ||||
| Interest expense | 419,921 | 89,026 | ||||
| Foreign exchange gain | (1,479,872 | ) | - | |||
| Changes in non-cash working capital items: | ||||||
| Amounts receivable and prepaids | (837,106 | ) | (195,022 | ) | ||
| Digital currencies | 72,577,179 | (47,441,681 | ) | |||
| Accounts payable and accrued liabilities | (2,143,898 | ) | (1,444,027 | ) | ||
| Cash provided by operating activities | 33,371,259 | 23,353,824 | ||||
| Investing activities | ||||||
| Deposits on equipment | (1,772,845 | ) | (22,063,107 | ) | ||
| Investments | - | (499,980 | ) | |||
| Purchase of mining equipment | (24,784,966 | ) | (55,209,142 | ) | ||
| Cash divested from sale of subsidiary | - | (237,254 | ) | |||
| Cash used in investing activities | (26,557,811 | ) | (78,009,483 | ) | ||
| Financing activities | ||||||
| Exercise of options | - | (16,889 | ) | |||
| Shares offering | 422,424 | 22,016,983 | ||||
| Repayment of loan | (880,338 | ) | (568,299 | ) | ||
| Repayment of debenture | (1,943,939 | ) | (750,000 | ) | ||
| Lease payments made, net of lease payments received | (1,325,517 | ) | (1,226,327 | ) | ||
| Cash (used in) provided by financing activities | (3,727,370 | ) | 19,455,468 | |||
| Effect of exchange rate changes on cash | (262,556 | ) | (323,184 | ) | ||
| Net change in cash during the period | 2,823,522 | (35,523,375 | ) | |||
| Cash, beginning of period | 5,318,922 | 40,290,513 | ||||
| Cash, end of period | $ | 8,142,444 | $ | 4,767,138 | ||
| Supplemental cash flow information | ||||||
| Share consideration issued for Atlantic acquisition | $ | - | $ | 18,559,804 | ||
| Share consideration issued for investments | $ | - | $ | 12,963,804 | ||
| Supplemental disclosures: | ||||||
| Interest paid | $ | 1,928,504 | $ | 286,047 | ||
| Income taxes paid | $ | - | $ | - | ||
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HIVE Blockchain Technologies Ltd. |
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1. Nature of Operations
HIVE Blockchain Technologies Ltd. (the "Company") was incorporated in the province of British Columbia on June 24, 1987. The Company is a reporting issuer in each of the Provinces and Territories of Canada and is listed for trading on the TSXV, under the symbol "HIVE.V", as well on the Nasdaq's Capital Markets Exchange under "HIVE", and on the Open Market of the Frankfurt Stock Exchange under "HBFA". The Company's head office is located at Suite 855, 789 Pender Street, Vancouver, BC, V6C 1H2, and the Company's registered office is located at Suite 2500, 700 West Georgia Street, Vancouver, BC, V7Y 1B3.
In connection with the Company's change of business filed in September 2017 ("Change of Business"), the Company acquired digital currency mining data centre equipment in Iceland. Following the initial acquisition, the Company acquired additional data centre equipment in Iceland and Sweden throughout fiscal 2018. Phases one and two of Sweden commenced operations on January 15, 2018, and March 31, 2018, respectively, while phase three commenced operations on April 30, 2018. On April 9, 2020, the Company acquired a data centre in Quebec, Canada, and on April 15, 2021 the Company acquired a data centre in New Brunswick, Canada. The Company is in the business of providing infrastructure solutions, including the provision of computational capacity to distributed networks, in the blockchain industry. The Company's operations are focused on the mining and sale of digital currencies to upgrade, expand and scale up its mining operations. Digital currencies are subject to risks unique to the asset class and different from traditional assets. Additionally, the Company may at times hold assets by third party custodians or exchanges that are limited in oversight by regulatory authorities.
The Company affected the consolidation of its common shares (Note 17) based on one post-consolidation common share for each five pre-consolidated common shares. All common shares and per share amounts have been retroactively restated to reflect the consolidation.
The negative impact on the global supply chain related to the COVID-19 pandemic has presented challenges to the Company including increased shipping costs and delaying obtaining equipment from China on a timely basis. Additionally, the Company continues to face uncertainty in the availability of equipment from suppliers as it relates to the Company's ASIC equipment.
2. Basis of Presentation
(a) Statement of Compliance
These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting of the International Financial Reporting Standards" ("IFRS") as issued by the International Accounting Standards Board ("IASB") and follow the same accounting policies and methods of application as the Company's March 31, 2022 annual audited financial statements, unless otherwise noted (Note 9). These condensed interim consolidated financial statements do not include all the information required for full annual financial statements and accordingly, they should be read in conjunction with the Company's most recent annual statements.
The condensed interim consolidated financial statements have been prepared on a historical cost basis except for certain assets and liabilities that have been measured at fair value.
The Company is in the business of the mining and sale of digital currencies for its own use, many aspects of which are not specifically addressed by current IFRS guidance. The Company is required to make judgements as to the application of IFRS and the selection of accounting policies. The Company has disclosed its presentation, recognition and derecognition, and measurement of digital currencies, and the recognition of revenue as well as significant assumptions and judgements; however, if specific guidance is enacted by the IASB in the future, the impact may result in changes to the Company's earnings and financial position as presented.
These unaudited condensed interim consolidated financial statements were approved and authorized for issuance by the Board of Directors on November 14, 2022.
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HIVE Blockchain Technologies Ltd. |
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3. Significant Estimates and Judgements
(a) Digital currencies - accounting
There is currently no specific definitive guidance in IFRS or alternative accounting frameworks for accounting for the revenue recognition from digital currency mining as well as subsequent measurement of digital currencies held. Management has determined that revenues should be recognized as the fair value of digital currencies received in exchange for mining services on the date that digital currencies are received and subsequently measured as an intangible asset. Management has exercised significant judgement in determining the appropriate accounting treatment. In the event authoritative guidance is issued by the IASB, the Company may be required to change its accounting policies, which could have a material effect on the Company's financial statements.
(b) Useful economic life
Depreciation of data centre equipment is 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 hash rates, technological changes, availability of hardware and other inputs. In the current period management revised the estimates of its expected life of certain computing equipment reducing the useful from 4 years to 2 years (Note 9).
4. Norway Acquisition
In May 2018, the Company completed the acquisition of two entities in Norway (the "Norway Acquisition"), Liv Eiendom AS ("Liv Eiendom") and Kolos Norway AS ("Kolos").
As consideration for the acquisition, the Company made cash payments of 55,576,560 Norwegian Kroner ("NOK") (US$6,902,498) to the former shareholders of Kolos, issued 950,000 common shares, issued 250,000 warrants exercisable at C$6.20 for a period of five years and incurred cash transaction costs of $428,127 related to the acquisition.
On May 10, 2021, the Company completed the sale of the net assets of Kolos Norway AS:
| Net liability disposed of | $ | 3,371,275 | |
| Less: Payment to acquirer | (200,000 | ) | |
| Gain on disposal | $ | 3,171,275 |
The following are balance sheet items that were derecognized in the sale of the subsidiary:
| May 10, 2021 | |||
| Assets | |||
| Current assets | |||
| Cash and equivalents | $ | 37,254 | |
| Amounts receivable and prepaids | 878 | ||
| Total assets | $ | 38,132 | |
| Liabilities and equity | |||
| Current liabilities | |||
| Accounts payable and accrued liabilities | $ | 82,540 | |
| Loans payable | 3,326,867 | ||
| Total liabilities | 3,409,407 | ||
| Net Assets | $ | (3,371,275 | ) |
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HIVE Blockchain Technologies Ltd. |
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5. Atlantic Acquisition
On April 15, 2021, the Company completed the acquisition of 100% of the common shares of GPU Atlantic Inc. ("GPU Atlantic"), in consideration for 100% of GPU Atlantic, the Company paid total consideration of 1,000,000 common shares on closing valued at a total of $18.6 million (C$23.3 million). 200,000 of the common shares were allocated to a holdback and to GPU One earn-out upon delivery of certain earn-out conditions. All 200,000 common shares allocated to the holdback were issued as of March 31, 2022.
GPU Atlantic has a 50-megawatt data centre campus located in New Brunswick, Canada.
| Current assets | $ | 671,709 | |
| Plant and equipment | 12,898,994 | ||
| Land | 662,910 | ||
| Building | 4,576,290 | ||
| Sales taxes refunds | 75,780 | ||
| Intangible assets* | 696,192 | ||
| Goodwill** | 13,154,585 | ||
| Accounts payable | (3,198,591 | ) | |
| Long-term debt | (10,978,065 | ) | |
| Net assets acquired | $ | 18,559,804 |
| Consideration paid | Contingent to April 15, 2021 |
Closing to March 31, 2022 |
||||
| Closing common shares - 800,000 | 15,174,278 | 15,174,278 | ||||
| Milestone common shares - 200,000 | 3,385,526 | 2,017,054 | ||||
| Total consideration | $ | 18,559,804 | $ | 17,191,332 |
As part of the transaction, the Company also acquired a $10,978,065 (C$13,639,249) term loan (Note 13) included in the long-term debt acquired. As part of the transaction, the Company incurred $83,197 of transaction costs which is included in general and administrative expenses.
* Intangible assets include an internally generated mining monitoring, tracking and generating software.
** Goodwill represents expected synergies, future income growth potential, and other intangibles that do not qualify for separate recognition. None of the goodwill arising on the acquisition is expected to be deductible for tax purposes. At the year ended March 31, 2022, the goodwill was fully impaired.
The purchase price allocation for acquisitions reflects fair value estimates which were finalized during the quarter ended June 30, 2022 with no adjustments to the amounts previously reported.
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HIVE Blockchain Technologies Ltd. |
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6. Investments
The Company's investment holdings that are not traded in active markets by the Company are considered investments. Investments are accounted for as financial assets which are initially recognized at fair value and subsequently measured through fair value through profit or loss.
On April 21, 2021, the Company completed a share swap transaction with Valour Inc. (formerly DeFi Technologies Inc.) pursuant to which HIVE received 10,000,000 common shares of Valour Inc., in exchange for 800,000 common shares of the Company, valued at C$16.0 million.
As at September 30, 2022, in addition to the investment of Valour Inc., the Company holds a number of non-material investments in both private and public companies.
The continuity of investments was as follows:
| Investments | |||
| Balance, March 31, 2021 | $ | 981,736 | |
| Additions | 16,856,828 | ||
| Unrealized loss on investments | (837,822 | ) | |
| Balance, March 31, 2022 | $ | 17,000,742 | |
| Unrealized loss on investments | (9,683,681 | ) | |
| Foreign exchange | (833,678 | ) | |
| Balance, September 30, 2022 | $ | 6,483,383 |
7. Amounts Receivable and Prepaids
| September 30, 2022 | March 31, 2022 | |||||
| Sales tax receivable | $ | 4,947,394 | $ | 4,516,993 | ||
| Prepaid expenses and other receivables | 3,691,887 | 3,021,408 | ||||
| Receivable on sale of subsidiary* | 1,815,964 | 1,815,964 | ||||
| Subscription receivable | 342,333 | - | ||||
| Energy tax receivable | 176,152 | 439,926 | ||||
| Total | $ | 10,973,730 | $ | 9,794,291 | ||
| Less: current portion | (9,157,766 | ) | (7,978,327 | ) | ||
| Long term portion | $ | 1,815,964 | $ | 1,815,964 |
* Receivable is conditional upon ruling by the by the Swedish Tax Authority related to an ongoing value added tax process. If the ruling is favourable then the amounts will be received; otherwise the amounts will not be collectible. Management has assessed the collectability using a probability model under a range of scenarios and this receivable reflects the results of that process.
** Subsequent to period ended September 30, 2022, the Company received the $342,333 of subscription receivable.
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HIVE Blockchain Technologies Ltd. |
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8. Digital Currencies
Digital currencies are recorded at their fair value on the date they are received as income from digital currency mining and are revalued to their current market value less costs to sell at each reporting date.
The Company's holdings of digital currencies at their fair value consist of the following:
| September 30, 2022 | March 31, 2022 | |||||
| Bitcoin | $ | 64,305,707 | $ | 117,669,390 | ||
| Ethereum | 468,257 | 52,301,707 | ||||
| Ethereum Classic | 156,524 | 29,315 | ||||
| Total | $ | 64,930,488 | $ | 170,000,412 |
The continuity of digital currencies was as follows:
| Bitcoin | Amount | Number of coins | ||||
| Digital assets, March 31, 2021 | $ | 18,858,987 | 322 | |||
| Digital currency mined | 109,289,154 | 2,368 | ||||
| Digital currency sold | (3,134,857 | ) | (94 | ) | ||
| Revaluation adjustment | (7,343,894 | ) | - | |||
| Digital currencies, March 31, 2022 | 117,669,390 | 2,596 | ||||
| Digital currency mined | 45,021,120 | 1,679 | ||||
| Digital currency sold | (22,690,265 | ) | (933 | ) | ||
| Revaluation adjustment | (75,694,538 | ) | - | |||
| Digital currencies, September 30, 2022 | $ | 64,305,707 | 3,342 | |||
| Ethereum | Amount | Number of coins | ||||
| Digital assets, March 31, 2021 | $ | 38,640,733 | 20,041 | |||
| Digital currency mined | 97,854,252 | 31,840 | ||||
| Digital currency sold | (103,791,716 | ) | (35,716 | ) | ||
| Revaluation adjustment | 19,598,438 | - | ||||
| Digital currencies, March 31, 2022 | 52,301,707 | 16,165 | ||||
| Digital currency mined | 28,582,477 | 14,984 | ||||
| Digital currency sold | (67,788,768 | ) | (30,793 | ) | ||
| Revaluation adjustment | (12,627,159 | ) | - | |||
| Digital currencies, September 30, 2022 | $ | 468,257 | 356 | |||
| Ethereum Classic | Amount | Number of coins | ||||
| Digital assets, March 31, 2021 | $ | - | - | |||
| Digital currency mined | 2,465,241 | 50,853 | ||||
| Digital assets received | 751 | - | ||||
| Digital currency sold | (2,461,250 | ) | (50,228 | ) | ||
| Revaluation adjustment | 24,573 | - | ||||
| Digital currencies, March 31, 2022 | 29,315 | 625 | ||||
| Digital currency mined | 171,508 | 6,164 | ||||
| Digital currency sold | (45,317 | ) | (1,087 | ) | ||
| Revaluation adjustment | 1,018 | - | ||||
| Digital currencies, September 30, 2022 | $ | 156,524 | 5,702 |
During the six-month period ended September 30, 2022, the Company sold digital currencies for proceeds totalling $71,772,894 (2021 - $43,079,778) with a cost of $90,524,350 (2021- $34,294,310), and recorded a loss on sale of $18,751,456 (2021- gain of $8,785,469).
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HIVE Blockchain Technologies Ltd. |
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9. Plant and Equipment
| Cost | Equipment | Land | Building and Leaseholds |
Total | ||||||||
| Balance, March 31, 2021 | $ | 105,530,948 | $ | - | $ | - | $ | 105,530,948 | ||||
| Atlantic acquisition (Note 5) | 11,872,578 | 662,910 | 5,602,706 | 18,138,194 | ||||||||
| Disposals | (1,244,804 | ) | - | - | (1,244,804 | ) | ||||||
| Additions | 190,643,420 | - | 11,935,014 | 202,578,434 | ||||||||
| Balance, March 31, 2022 | $ | 306,802,142 | $ | 662,910 | $ | 17,537,720 | $ | 325,002,772 | ||||
| Additions | 29,119,103 | - | 6,694,670 | 35,813,773 | ||||||||
| Impairment | (52,690,318 | ) | - | - | (52,690,318 | ) | ||||||
| Balance, September 30, 2022 | $ | 283,230,927 | $ | 662,910 | $ | 24,232,390 | $ | 308,126,227 | ||||
| Accumulated depreciation and impairment | Equipment | Land | Building and Leaseholds |
Total | ||||||||
| Balance, March 31, 2021 | $ | 83,932,145 | $ | - | $ | - | $ | 83,932,145 | ||||
| Disposals | (295,994 | ) | - | - | (295,994 | ) | ||||||
| Depreciation | 63,033,428 | - | 790,449 | 63,823,877 | ||||||||
| Balance, March 31, 2022 | $ | 146,669,579 | $ | - | $ | 790,449 | $ | 147,460,028 | ||||
| Depreciation | 48,436,094 | - | 334,079 | 48,770,173 | ||||||||
| Impairment | (20,117,216 | ) | - | - | (20,117,216 | ) | ||||||
| Balance, September 30, 2022 | $ | 174,988,457 | $ | - | $ | 1,124,528 | $ | 176,112,985 | ||||
| Carrying amount | ||||||||||||
| Balance, March 31, 2022 | $ | 160,132,563 | $ | 662,910 | $ | 16,747,271 | $ | 177,542,744 | ||||
| Balance, September 30, 2022 | $ | 108,242,470 | $ | 662,910 | $ | 23,107,860 | $ | 132,013,242 |
During the six-month period ended September 30, 2022, the Company recorded an impairment on its mining equipment of $32,573,102. The impairment was based on an assessment of the performance of the equipment in relation to prevailing replacement costs and the downturn of the prices of the Company's digital currencies. During the current three-month period the Company recorded $26,236,544 and $6,336,558 at June 30, 2022.
The Company tested its long-lived assets for impairment at September 30, 2022. The recoverable amount of its mining assets was determined based on its value in use which was higher than the fair value less costs to dispose calculations and require the use of assumptions. The calculations used cash flow projections based on financial forecasts approved by management covering a two-year period using the estimated assumptions described below:
• Bitcoin (BTC) prices were forecasted over the forecast period. If BTC prices growth were adjusted down by 1% the impairment charge will change by $6.5 million.
• The discount rate was calculated based on market participant factors. Changes in the discount rate by +/- 2% would result in an immaterial change in the impairment charge.
The Company recorded an impairment to its plant and equipment based on a pre tax discount rate of 12.74% and BTC annual price growth of 2.01%.
In addition, the Company continues to depreciate its plant and equipment over its estimated useful economic life. The Company revised the useful economic life of certain GPU machines because of the merger of the Ethereum blockchain (ETH merge) from proof of work to proof of stake which occurred on September 15, 2022. As a result, the Company changed the useful economic life of these assets from 4 years to 2 years. The Company recorded accelerated depreciation of these assets of $13,502,000 in the current period, these assets are expected to be fully depreciated by the end of fiscal 2024.
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HIVE Blockchain Technologies Ltd. |
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10. Deposits
The deposits relate to required amounts on account with electricity providers in Sweden and deposit for equipment purchases, consisting of:
| Description | September 30, 2022 | March 31, 2022 | ||||
| Bodens Energi | $ | 202,336 | $ | 241,291 | ||
| Equipment Deposits | 44,415,817 | 57,567,943 | ||||
| Skellefteå Kraft | - | 523,088 | ||||
| Vattenfall AB | 1,141,628 | 1,361,422 | ||||
| Total | $ | 45,759,781 | $ | 59,693,744 |
The Company is exposed to counterparty risk through the significant deposits for the prepaid digital currency mining equipment it places with suppliers of mining hardware to secure orders and delivery dates. The risk of a supplier failing to meet its contractual obligations may result in late deliveries or long-term deposits and equipment prepayments that are not realized. The Company attempts to mitigate this risk by procuring mining hardware from the larger more established suppliers and with whom the company has existing relationships and knowledge of their reputation in the market.
During the period ended September 30, 2022, the Company recorded an impairment on equipment deposits of $4,678,000. The impairment was based on an assessment of deposits made on equipment purchase orders and the expected delivery of the equipment.
11. Convertible Loan
On January 12, 2021, the Company closed its non-brokered private placement of unsecured debentures (the "Debentures"), for aggregate gross proceeds of $15,000,000 with U.S. Global Investors, Inc. ("U.S. Global"). The Executive Chairman of the Company is a director, officer and controlling shareholder of U.S. Global.
The Debentures mature on the date that is 60 months from the date of issuance, bearing interest at a rate of 8% per annum. The Debentures will be issued at par, with each Debenture being redeemable by the Company at any time, and convertible at the option of the holder into common shares (each, a "Share") in the capital of the Company at a conversion price of CAD$15.00 per Share. Interest will be payable monthly and principal will be payable quarterly. In addition, U.S. Global was issued 5.0 million common share purchase warrants (the "Warrants"). Each five whole Warrant entitles U.S. Global to acquire one common at an exercise price of CAD$15.00 per Share for a period of three years from closing.
The Company determined that the Convertible Loan contained an embedded derivative and that the conversion feature does not qualify as equity as it does not satisfy the "fixed for fixed" requirement as the number of potential common shares to be issued is contingent on a variable carrying amount for the financial liability. The financial liability is variable because the functional currency of Hive Blockchain Technologies Ltd. is Canadian dollars and the Convertible Loan is denominated in US dollars, therefore the amount of common shares to be issued depends on the foreign exchange rate at the date of settlement. Consequently, the conversion feature is classified as a derivative liability.
The Company allocated the proceeds of $15,000,000 first to the derivative component for $8,560,630, with the residual value to the liability component for $6,439,370. The derivative component was valued on initial recognition using the Black-Scholes option pricing model with the following assumptions: a risk-free interest rate of 0.69%; an expected volatility of 105%; an expected weighted average life of 2.71 years; a forfeiture rate of zero; and an expected dividend of zero.
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HIVE Blockchain Technologies Ltd. |
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11. Convertible Loan (continued…)
Liability Component
| Balance, March 31, 2021 | 6,290,741 | ||
| Principal payment | (3,000,000 | ) | |
| Interest payment | (1,057,336 | ) | |
| Accretion and interest | 3,365,601 | ||
| Balance, March 31, 2022 | 5,599,006 | ||
| Principal payment | (1,504,110 | ) | |
| Interest payment | (439,828 | ) | |
| Accretion and interest | 1,536,296 | ||
| Balance, September 30, 2022 | $ | 5,191,364 |
Derivative Component
| Balance, March 31, 2021 (Restated - Note 25) | 15,737,578 | ||
| Change in fair value of liability | (10,751,224 | ) | |
| Balance, March 31, 2022 | 4,986,354 | ||
| Change in fair value of liability | (4,179,044 | ) | |
| Balance, September 30, 2022 | $ | 807,310 |
The derivative component is re-valued each reporting period. As at September 30, 2022, the derivative component was revalued at $807,310 (March 31, 2022 - $4,986,354) using the Black-Scholes option pricing model with the following assumptions: share price of C$5.21 (March 31, 2022 - C$13.30) a risk-free interest rate of 1.75% (March 31, 2022 - 1.75%); an expected volatility of 100% (March 31, 2022 - 105%); and an expected weighted average life of 1.86 years (March 31, 2022 - 2.11 years). Accordingly, the Company recorded a change in the fair value of the derivative liability of $4,179,044.
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HIVE Blockchain Technologies Ltd. |
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12. Loans Payable
As part of the Norway Acquisition (Note 4) the Company assumed loans with a principal balance of $2,559,599 (NOK 20,915,000). The loans from the Norway Acquisition were in default as at March 31, 2021. On May 10, 2021, the Company sold the Norway subsidiary which included the loans (Note 4). On March 31, 2021, as part of the sale of the net assets in Boden Technologies AB, the Company incurred a loan payable.
A continuity of the loan balances are as follows:
| Norway | Boden | Total | |||||||
| (Note 4) | |||||||||
| Balance - March 31, 2021 | $ | 3,172,089 | $ | 18,361,495 | $ | 21,533,584 | |||
| Interest | 25,133 | 172,804 | 197,937 | ||||||
| Repayment | - | (1,259,778 | ) | (1,259,778 | ) | ||||
| Foreign exchange movement | 129,645 | (1,582,182 | ) | (1,452,537 | ) | ||||
| Sale of Norway subsidiary (Note 4) | (3,326,867 | ) | - | (3,326,867 | ) | ||||
| Balance - March 31, 2022 | - | 15,692,339 | 15,692,339 | ||||||
| Interest | - | 91,594 | 91,594 | ||||||
| Foreign exchange movement | - | (2,525,706 | ) | (2,525,706 | ) | ||||
| Balance - September 30, 2022 | - | 13,258,227 | 13,258,227 | ||||||
| Less: Current portion | - | (1,224,102 | ) | (1,224,102 | ) | ||||
| Non-current portion | $ | - | $ | 12,034,125 | $ | 12,034,125 |
13. Term Loan
As part of the Atlantic acquisition (Note 5), the Company acquired a $10,978,065 (C$13,639,249) term loan. The facility bears interest at 3.33% per annum and a maturity date of June 30, 2024. Principal payment of C$189,434 plus interest is payable monthly. During the period ended September 30, 2022, the term loan was renewed for another 12-month term.
| Balance - March 31, 2021 | $ | - | |
| Atlantic acquisition (Note 5) | 10,978,065 | ||
| Interest | 254,802 | ||
| Repayment | (1,715,575 | ) | |
| Foreign exchange movement | (142,048 | ) | |
| Balance - March 31, 2022 | 9,375,244 | ||
| Interest | 147,265 | ||
| Repayment | (1,027,603 | ) | |
| Foreign exchange movement | (608,338 | ) | |
| Balance - September 30, 2022 | $ | 7,886,568 |
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HIVE Blockchain Technologies Ltd. |
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14. Right of Use Asset and Lease Liability
During the period ended September 30, 2022, the Company recognized interest expense on the lease liability of $328,327 (September 30, 2021 - $72,067) which was recorded within finance expense.
| Cost | Right of Use Assets | ||
| Balance, March 31, 2021 | $ | 5,753,128 | |
| Additions | 12,458,260 | ||
| Foreign exchange | (452,937 | ) | |
| Balance, March 31, 2022 | $ | 17,758,451 | |
| Additions | |||
| Foreign exchange | (2,368,189 | ) | |
| Balance, September 30, 2022 | $ | 15,390,262 | |
| Accumulated Depreciation | |||
| Balance, March 31, 2021 | $ | (2,774,844 | ) |
| Depreciation | (2,408,622 | ) | |
| Foreign exchange | 12,897 | ||
| Balance, March 31, 2022 | $ | (5,170,569 | ) |
| Depreciation | (1,170,428 | ) | |
| Foreign exchange | 816,443 | ||
| Balance, September 30, 2022 | $ | (5,524,554 | ) |
| Carrying Amount | |||
| Balance, March 31, 2022 | $ | 12,587,882 | |
| Balance, September 30, 2022 | $ | 9,865,708 |
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HIVE Blockchain Technologies Ltd. |
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14. Right of Use Asset and Lease Liability (continued…)
| Lease Liability | |||
| Balance, March 31, 2021 | $ | 3,063,839 | |
| Lease payments made | (2,807,457 | ) | |
| Additions | 12,458,260 | ||
| Interest expense on lease liabilities | 407,349 | ||
| Foreign exchange | (472,797 | ) | |
| Balance, March 31, 2022 | $ | 12,649,194 | |
| Lease payments made | (1,325,517 | ) | |
| Interest expense on lease liabilities | 328,327 | ||
| Foreign exchange | (1,562,362 | ) | |
| 10,089,642 | |||
| Less: current portion | (1,908,745 | ) | |
| Balance, September 30, 2022 | $ | 8,180,897 | |
| Lease Disclosures | |||
| Interest expense on lease liabilities | $ | 328,327 | |
| Total cash outflow for leases | $ | 1,325,517 | |
| Maturity Analysis - Undiscounted Contractual Payments | |||
| Less than 1 year | $ | 2,431,829 | |
| 1 to 2 years | 2,455,623 | ||
| 2 to 3 years | 2,442,402 | ||
| 3 to 4 years | 2,401,902 | ||
| 4 to 5 years | 1,082,556 | ||
| 5 to 6 years | 730,512 | ||
| $ | 11,544,824 |
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HIVE Blockchain Technologies Ltd. |
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15. Commitments and Contingencies
(a) Service agreements
The Company has a service agreement to operate and maintain their data centre computing equipment for the purpose of mining crypto currency on the cloud. As part of the arrangement, proprietary software is installed on the Company's computing equipment to assist in optimizing the use of the equipment.
(b) Power purchase agreement
The Company has entered into a number of supplemental power pricing arrangements that provide a fixed price of electricity consumption each month at the Company's Bikupa Datacenter AB location in Sweden. These fixed price agreements are being accounted for as executory contracts; electricity costs are expensed as incurred.
(c) Capital and other commitments:
There were no capital or other commitments at the current or prior year end in addition to the commitments disclosed above.
(d) Obligations on mining equipment
The Company had purchase commitments of $13,098,797 as at September 30, 2022.
(e) Litigation
From time to time, the Company is involved in routine litigation incidental to the Company's business. Management believes that adequate provisions have been made where required and the ultimate resolution with respect to any claim will not have a material adverse effect on the financial position or results of the operations of the Company.
16. Related Party Transactions
The Company had the following related party transactions not otherwise disclosed in these consolidated financial statements:
a) As at September 30, 2022, the Company had $nil (March 31, 2022 - $22,275) due to directors for the reimbursement of expenses included in accounts payable and accrued liabilities.
b) As at September 30, 2022, the Company had $47,145 (March 31, 2022 - $nil) due to a company controlled by a director of the Company included in accounts payable and accrued liabilities. For the period ended September 30, 2022, the Company paid $177,968 (2021 - $60,000) to this company for marketing services.
Key Management Compensation
Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of members of the Company's Board of Directors and corporate officers.
For the period ended September 30, 2022, key management compensation includes salaries and wages paid to key management personnel and directors of $457,852 (2021 - $271,786) and share-based payments of $1,232,980 (2021 - $2,282,642).
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HIVE Blockchain Technologies Ltd. |
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17. Equity
(a) Authorized
Unlimited common shares without par value
Unlimited preferred shares without par value
(b) Issued and fully paid common shares
On May 24, 2022, the Company proceeded with the consolidation of its common shares on the basis of five (5) pre-Consolidation Common Shares for one (1) post-Consolidation Common Shares. The common shares, options, warrants and RSU's have been retroactively adjusted for impact of the share consolidation by the Company.
During the period ended September 30, 2022, the Company:
- Issued 7,000 common shares pursuant to the vesting of 7,000 restricted share-units. An amount of $122,995 was reallocated from reserves to share capital in connection with the vesting of these restricted share-units.
- Issued 198,058 common shares (the "ATM Shares") pursuant to the ATM Equity Program for gross proceeds of $788,977 (CAD $1,073,333) of which $342,333 are subscription receivables. The ATM Shares were sold at prevailing market prices, for an average price per ATM Share of C$5.42. Pursuant to the Equity Distribution Agreement, a cash commission of $24,202 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the Equity Distribution Agreement.
- Subsequent to the period ended September 30, 2022, the Company issued 483,375 common shares (the "ATM Shares") pursuant to the ATM Equity Program for gross proceeds of $1,667,058 (CAD $2,176,493). The ATM Shares were sold at prevailing market prices, for an average price per ATM Share of C$3.45. Pursuant to the Equity Distribution Agreement, a cash commission of $50,050 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the Equity Distribution Agreement.
- Subsequent to the period ended September 30, 2022 the Company issued 96,334 common shares upon exercise of restricted share units (Note 17e).
(c) Stock options
The Company has established a rolling Stock Option Plan (the "Plan"). Under the Plan, the number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding shares and, to any one optionee, may not exceed 5% of the issued shares on a yearly basis. The maximum term of each option shall not be greater than 10 years. The exercise price of each option shall not be less than the market price of the Company's shares at the date of grant. Options granted to consultants performing investor relations activities shall vest over a minimum of 12 months with no more than 1/4 of such options vesting in any 3-month period. All other options vest at the discretion of the Board of Directors.
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HIVE Blockchain Technologies Ltd. |
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17. Equity (continued…)
Following is a summary of changes in stock options outstanding for the period ended September 30, 2022:
| Weighted average | ||||||
| Outstanding | exercise price | |||||
| Balance, March 31, 2021 | 2,830,839 | 4.33 | ||||
| Granted | 415,000 | 20.05 | ||||
| Cancelled | (12,500 | ) | 1.45 | |||
| Exercised | (386,823 | ) | 6.74 | |||
| Balance, March 31, 2022 | 2,846,516 | C$ | 6.31 | |||
| Granted | 415,200 | 5.66 | ||||
| Expired | (133,301 | ) | 1.50 | |||
| Cancelled | (35,000 | ) | 19.32 | |||
| Balance, September 30, 2022 | 3,093,415 | C$ | 6.28 |
The stock options outstanding and exercisable as at September 30, 2022, are as follows:
| Outstanding | Exercisable | Exercise price | Expiry date | |||||||
| 2,000 | 2,000 | C$ | 15.70 | February 11, 2026 | ||||||
| 10,000 | 10,000 | 14.95 | June 4, 2026 | |||||||
| 415,200 | 17,300 | 5.66 | August 26, 2027 | |||||||
| 1,000,000 | 1,000,000 | 1.50 | September 14, 2027 | |||||||
| 24,615 | 24,615 | 10.00 | October 11, 2027 | |||||||
| 50,000 | 50,000 | 10.00 | March 26, 2028 | |||||||
| 400,000 | 400,000 | 3.10 | September 18, 2028 | |||||||
| 100,000 | 100,000 | 1.35 | December 21, 2028 | |||||||
| 500,000 | 500,000 | 1.45 | February 10, 2030 | |||||||
| 20,000 | 20,000 | 1.90 | May 29, 2030 | |||||||
| 1,600 | 1,600 | 10.80 | December 24, 2030 | |||||||
| 200,000 | 150,000 | 25.00 | February 23, 2031 | |||||||
| 30,000 | 30,000 | 25.15 | April 6, 2031 | |||||||
| 80,000 | 50,000 | 18.35 | April 29, 2031 | |||||||
| 180,000 | 36,000 | 18.50 | October 7, 2031 | |||||||
| 60,000 | 15,000 | 25.35 | November 10, 2031 | |||||||
| 20,000 | 7,500 | 21.00 | December 9, 2031 | |||||||
| 3,093,415 | 2,414,015 |
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HIVE Blockchain Technologies Ltd. |
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17. Equity (continued…)
(d) Warrants
Following is a summary of changes in warrants outstanding for the period ended September 30, 2022:
| Warrants | Weighted average | |||||
| outstanding | exercise price | |||||
| Balance, March 31, 2021 | 1,250,000 | C$ | 13.25 | |||
| Issued** | 2,323,727 | 28.13 | ||||
| Balance, March 31, 2022 and September 30, 2022 | 3,573,727 | C$ | 22.92 |
The warrants outstanding and exercisable as at September 30, 2022, are as follows:
| Outstanding | Exercisable | Exercise price | Expiry date | |||||||
| 250,000 | * | 80,000 | C$ | 6.20 | May 22, 2023 | |||||
| 1,000,000 | 1,000,000 | C$ | 15.00 | January 12, 2024 | ||||||
| 300,000 | ** | 300,000 | C$ | 15.55 | July 12, 2023 | |||||
| 1,917,050 | 1,917,050 | C$ | 30.00 | May 30, 2024 | ||||||
| 106,677 | *** | 106,677 | C$ | 30.00 | September 15, 2024 | |||||
| 3,573,727 | 3,403,727 |
* Of the 250,000 warrants granted as part of the Norway Acquisition (Note 4), 80,000 vest upon the receipt of all regulatory permits required to commence construction of a digital currency mining data centre in Ballangen, Norway. A further 90,000 warrants vest upon the commencement of the mining of digital currency or other revenue generating activity on the property.
** For the year ended March 31, 2022, the Company issued 300,000 warrants as consideration for mining equipment. Each full warrant entitles the holder to acquire one common share for C$15.55 for a period of 2 years. The warrants were valued at $2,030,045 using the Black-Scholes option pricing model with the following assumptions: a risk-free interest rate of 0.46%; an expected volatility of 105%; an expected life of 2.00 years; a forfeiture rate of zero; and an expected dividend of zero.
*** On December 1, 2021, the Company issued 106,677 warrants as consideration for an investment in Titan.io. Each Warrant is exercisable for one share on or before September 15, 2024, at an exercise price of C$30.00 per Share.
On November 30, 2021, the Company completed an agreement with Stifel GMP as lead underwriter and sole book runner to include a syndicate of underwriters (the "Underwriters"), whereby the Underwriters will purchase, on a bought-deal basis, 3,834,100 special warrants of the Company (the "Special Warrants") at a price of C$30.00 per Special Warrant for aggregate gross proceeds to the Company of C$115,023,000 (the "Offering").
On January 12, 2022, each Special Warrant was deemed to be exercised into one Unit comprised of one common share of the Company and one-half of one common share purchase warrant (each whole common share purchase warrant being a "Warrant"). Each Warrant is exercisable for one share on or before May 30, 2024, at an exercise price of C$30.00 per Share.
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HIVE Blockchain Technologies Ltd. |
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17. Equity (continued…)
(e) Restricted share-units
The Company has established a Restricted Share Unit Plan (the "RSU Plan"). Under the RSU Plan, together with any other share compensation arrangement, the number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding shares and, to any one optionee, may not exceed 5% of the issued shares on a yearly basis. Currently, the RSU Plan has a limit of 10 million shares, which is not rolling. The Board may in its own discretion, at any time, and from time to time, grant RSUs to any employee, director or consultant of the Company or its subsidiaries (collectively, "Eligible Persons"), other than persons conducting investor relations activities, from time to time by the Board, subject to the limitations set forth in the RSU Plan. The Board may designate one or more performance periods under the RSU Plan. In respect of each designated performance period and subject to the terms of the RSU Plan, the Board may from time to time establish the grant date and grant to any Eligible Person one or more RSUs as the Board deems appropriate.
Following is a summary of changes in restricted share units outstanding for the period ended September 30, 2022:
| Outstanding | |||
| Balance, March 31, 2021 | 356,800 | ||
| Granted | 8,000 | ||
| Cancelled | (12,500 | ) | |
| Exercised | (290,800 | ) | |
| Balance, March 31, 2022 | 61,500 | ||
| Granted | 1,425,280 | ||
| Exercised | (7,000 | ) | |
| Balance, September 30, 2022 | 1,479,780 |
Subsequent to September 30, 2022, the Company issued 96,334 common shares under the RSU plan upon exercise of restricted share units.
(f) Share-based compensation
During the period ended September 30, 2022, $1,768,681 (2021 - $3,128,726) of share-based compensation expense was recognized in relation to the vesting of options, and $1,009,598 (September 30, 2021 - $672,337) of share-based compensation expense was recognized in relation to the vesting of RSUs.
During the period ended September 30, 2022, the Company:
- On August 26, 2022 granted 415,200 stock options to employees and officers with an exercise price of C$5.66 per share and an expiry date of August 26, 2027, which vest quarterly over a 24 month period.
- On August 26, 2022 granted 1,425,280 restricted share units to employees and officers with a fair value of C$5.66 per share, of which 43,200 RSUs vest quarterly over a 24 month period and the rest vest equally over a 24 month period.
The following weighted average assumptions were used for the valuation of the stock options:
| Fiscal Years | ||
| 2023 | 2022 | |
| Risk-free interest rate | 3.05% | 1.10% |
| Expected life (years) | 5.00 | 9.88 |
| Annualized volatility | 105% | 105% |
| Dividend rate | 0.00% | 0.00% |
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HIVE Blockchain Technologies Ltd. |
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18. Income per Share
Income per common share represents net income for the year divided by the weighted average number of common shares outstanding during the period.
Diluted income per share is calculated by dividing the applicable net income by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the period.
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||
| Basic weighted average number of common shares outstanding | 82,253,061 | 76,396,406 | ||||
| Effect of dilutive stock options and warrants | - | 2,650,399 | ||||
| Effect of convertible loan | - | 1,097,227 | ||||
| Diluted weighted average common shares outstanding | 82,253,061 | 80,144,032 |
| Six months ended September 30, 2022 |
Six months ended September 30, 2021 |
|||||
| Basic weighted average number of common shares outstanding | 82,247,555 | 75,862,137 | ||||
| Effect of dilutive stock options and warrants | - | 2,650,399 | ||||
| Effect of convertible loan | - | 1,097,227 | ||||
| Diluted weighted average common shares outstanding | 82,247,555 | 79,609,763 |
19. Finance Expense
Finance expenses were comprised of the following for the periods ending:
| September 30, 2022 | September 30, 2021 | |||||
| Interest and accretion on convertible loan | $ | 1,535,746 | $ | 1,642,885 | ||
| Interest on lease liabilities | 328,327 | 86,760 | ||||
| Interest on loans payable | 64,138 | 65,481 | ||||
| Total | $ | 1,928,211 | $ | 1,795,126 |
20. General and Administrative Expenses
General and administrative expenses were comprised of the following for the periods ending:
| September 30, 2022 | September 30, 2021 | |||||
| Management fees, salaries and wages | $ | 712,443 | $ | 549,368 | ||
| Marketing | 409,446 | 298,179 | ||||
| Office, administration, and regulatory | 2,918,917 | 1,587,559 | ||||
| Professional fees, advisory, and consulting | 2,560,468 | 1,342,457 | ||||
| Total | $ | 6,601,274 | $ | 3,777,563 |
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HIVE Blockchain Technologies Ltd. |
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21. Financial Instruments and Risk Management
The fair values of investments were measured using the cost, market or income approaches. The investments measured at fair value are classified into one of the three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values, with the designation based upon the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy are:
Level 1 Inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 Inputs: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3 Inputs: Unobservable inputs for the asset or liability (Unobservable inputs reflect management's assumptions on how market participants would price the asset or liability based on the information available).
Valuation of Assets that use Level 2 Inputs ("Level 2 Assets"). The fair value of Level 2 Assets would use the quoted price from the exchanges which the Company most frequently uses, with no adjustment.
The Company is exposed, in varying degrees, to a variety of financial related risks. The fair value of the Company's financial instruments, including cash, amounts receivable, investments, and accounts payable and accrued liabilities approximates their carrying value due to their short-term nature. The type of risk exposure and the way in which such exposure is managed is provided as follows:
At the period end the Company classified its financial assets into the following levels:
| As at September 30, 2022 | As at March 31, 2022 | |||||||||||||||||
| Assets | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Cash | $ | - | $ | 8,142,444 | $ | - | $ | - | $ | 5,318,922 | $ | - | ||||||
| Digital currencies | - | 64,930,488 | - | - | 170,000,412 | - | ||||||||||||
| Investments | 2,281,467 | - | 4,201,916 | 12,524,161 | - | 4,476,251 | ||||||||||||
| $ | 2,281,467 | $ | 73,072,932 | $ | 4,201,916 | $ | 12,524,161 | $ | 175,319,334 | $ | 4,476,251 | |||||||
| Liabilities | ||||||||||||||||||
| Convertible loan -derivative component (restated) | $ | - | $ | - | $ | 807,310 | $ | - | $ | - | $ | 4,986,354 | ||||||
| $ | - | $ | - | $ | 807,310 | $ | - | $ | - | $ | 4,986,354 | |||||||
Valuation of Assets / Liabilities that use Level 1 Inputs ("Level 1 Assets / Liabilities"). Consists of the Company's investments in common stock, where quoted prices in active markets are available.
Valuation of Assets / Liabilities that use Level 2 Inputs ("Level 2 Assets / Liabilities"). Consists of the Company's digital currencies, where quoted prices in active markets are available. The fair value is determined by the volume-weighted average of prices across principal exchanges as of 12:00 AM UTC, per coinmarketcap.com*.
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HIVE Blockchain Technologies Ltd. |
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21. Financial Instruments and Risk Management (continued…)
* Coinmarketcap.com is a pricing aggregator, as the principal market or most advantageous market is not always known. The Company believes any price difference amongst the principal market and an aggregated price to be immaterial.
Valuation of Assets / Liabilities that use Level 3 Inputs ("Level 3 Assets / Liabilities"). Consists of the Company's investments in preferred stock, convertible notes and common stock. For the Company's common stock investments:
- Various Black Scholes models were utilized; and
- A prior transaction approach was used for others; some adjusted.
A verified prior transaction is initially given 100% weighting in a fair value conclusion (if completed at arm's length), but subsequently such weighting is adjusted based on the merits of newly observed data. As a result, in the absence of disconfirming data, an unadjusted prior transaction price may not be considered "stale" for months or, in some cases, years.
Level 3 Continuity
The following is a reconciliation of Level 3 assets and liabilities for the period ended September 30, 2022:
| Fair value at | Change | Fair Value at, | |||||||||||||
| Level 3 Continuity | March 31, 2022 | Additions | Disposals | in fair value | September 30, 2022 | ||||||||||
| Assets | |||||||||||||||
| Investments | $ | 4,476,251 | $ | - | $ | - | $ | (117,053 | ) | $ | 4,201,916 | ||||
| $ | 4,476,251 | $ | - | $ | - | $ | (117,053 | ) | $ | 4,201,916 | |||||
| Liabilities | |||||||||||||||
| Convertible loan -derivative component | $ | 4,986,354 | $ | - | $ | - | $ | (4,179,044 | ) | $ | 807,310 | ||||
| $ | 4,986,354 | $ | - | $ | - | $ | (4,179,044 | ) | $ | 807,310 |
The carrying values of the Company's cash, amounts receivable, accounts payable and accrued liabilities, term loan and loans payable approximate fair value due to their short maturities. The carrying value of the Company's lease liability is measured as the present value of the discounted future cash flows.
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 held in bank accounts as at September 30, 2022. The majority of cash is deposited in bank accounts held primarily with one major bank in Canada so there is a concentration of credit risk. This risk is managed by using a major bank that is a high credit quality financial institution as determined by rating agencies.
For the custody of its digital currencies, the Company uses the services of two institutions through custodial agreements, one located in Liechtenstein and another in the United States.
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 company-wide cash projections centrally and regularly updates projections for changes in business and fluctuations caused by digital currency prices and exchange rates.
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HIVE Blockchain Technologies Ltd. |
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21. Financial Instruments and Risk Management (continued…)
As at September 30, 2022, the contractual maturities of financial and other liabilities, including estimated interest payments, are as follows:
| Contractual cash flows |
within 1 year | 1 to 3 years | 3 to 5 years | 5+ years | |||||||||||
| Accounts payable and accrued liabilities | $ | 9,172,442 | $ | 9,172,442 | $ | - | $ | - | $ | - | |||||
| Term loan | 7,886,568 | 7,886,568 | - | - | - | ||||||||||
| Convertible loan | 11,225,823 | 3,697,007 | 6,682,579 | 846,237 | - | ||||||||||
| Lease commitments | 11,544,824 | 2,431,829 | 4,898,025 | 3,484,458 | 730,512 | ||||||||||
| Loans payable and interest | 14,378,355 | 1,104,996 | 2,174,006 | 2,126,025 | 8,973,328 | ||||||||||
| Total | $ | 54,208,012 | $ | 24,292,842 | $ | 13,754,610 | $ | 6,456,720 | $ | 9,703,840 |
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 well as the currency in which the Company has historically raised capital.
The Company's presentation currency is the US dollar, major purchases are transacted in US dollars, while financing to date has been completed in Canadian and US dollars. 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. A portion of the Company's general and administrative costs are incurred mainly in currencies separate from each entity's functional currency, such as Swiss Francs, the Euro, the Swedish Krona, and Icelandic Krona. The fluctuation of these currencies 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.
The Company's net monetary position in the significant foreign currencies as of September 30, 2022 is summarized below with the effect on earnings before tax of a 10% fluctuation of each currency relative to the functional currency of the entity holding it to the US dollar:
| Net Monetary Position September 30, 2022 (USD$ equivalent) |
Impact of 10% variance in foreign exchange rate (in foreign currency) |
|
| US Dollars | 3,863,449 | 351,223 |
| Canadian Dollars | 406,167 | 28,623 |
| Euros | 10,140 | 942 |
| Swiss Francs | (364,327) | 33,851 |
| Swedish Krona | 621,714 | 5,085 |
| Icelandic Krona | 1,022,213 | 643 |
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to interest rate risk is limited and only relates to its ability to earn interest income on cash balances at variable rates. Changes in short term interest rates will not have a significant effect on the fair value of the Company's cash account. The interest rate on the Company's loans are fixed for one year form the date of issuance resulting in limited exposure to changes in interest rates in the short term.
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HIVE Blockchain Technologies Ltd. |
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21. Financial Instruments and Risk Management (continued…)
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is not exposed to any significant price risks with respect to its financial instruments.
Loss of access risk
The loss of access to the private keys associated with the Company's digital currency holdings may be irreversible and could adversely affect an investment. Digital currencies are controllable only by an individual that possesses both the unique public key and private key or keys relating to the "digital wallet" in which the digital currency is held. To the extent a private key is lost, destroyed or otherwise compromised and no backup is accessible the Company may be unable to access the digital currencies.
Irrevocability of transactions
Digital currency transactions are irrevocable and stolen or incorrectly transferred digital currencies may be irretrievable. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer or theft generally will not be reversible, and the Company may not be capable of seeking compensation.
Regulatory oversight risk
Regulatory changes or actions may restrict the use of digital currencies or the operation of digital currency networks or exchanges in a manner that adversely affects investments held by the Company.
Digital asset risk
Digital currencies are measured at fair value less cost to sell. Digital currency prices are affected by various forces including global supply and demand, interest rates, exchanges rates, inflation or deflation and the political and economic conditions. Further, digital currencies have no underlying backing or contracts to enforce recovery of invested amounts. The profitability of the Company is related to the current and future market price of digital currencies; in addition, the Company may not be able to liquidate its holdings of digital currencies at its desired price if necessary. Investing in digital currencies is speculative, prices are volatile and market movements are difficult to predict. Supply and demand for such currencies change rapidly and are affected by a variety of factors, including regulation and general economic trends. Digital currencies have a limited history, their fair values have historically been volatile, and the value of digital currencies held by the Company could decline rapidly. A decline in the market prices of digital currencies could negatively impact the Company's future operations. Historical performance of digital currencies is not indicative of their future performance.
Many digital currency networks are online end-user-to-end-user networks that host a public transaction ledger (blockchain) and the source code that comprises the basis for the cryptographic and algorithmic protocols governing such networks. In many digital currency transactions, the recipient or the buyer must provide its public key, which serves as an address for a digital wallet, to the seller. In the data packets distributed from digital currency software programs to confirm transaction activity, each party to the transaction user must sign transactions with a data code derived from entering the private key into a hashing algorithm, which signature serves as validation that the transaction has been authorized by the owner of the digital currency. This process is vulnerable to hacking and malware and could lead to theft of the Company's digital wallets and the loss of the Company's digital currency.
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HIVE Blockchain Technologies Ltd. |
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21. Financial Instruments and Risk Management (continued…)
Digital currencies are loosely regulated and there is no central marketplace for exchange. Supply is determined by a computer code, not a central bank. Additionally, exchanges may suffer from operational issues, such as delayed execution, that could have an adverse effect on the Company.
Additionally, to the extent that the digital asset exchanges representing a substantial portion of the volume in digital asset trading are involved in fraud or experience security failures or other operational issues, such digital asset exchanges' failures may result in loss or less favorable prices of digital currencies, or may adversely affect the Company, its operations, and its investments.
Safeguarding of digital assets
The Company utilizes the Fireblocks platform to maintain custody, transfer, and secure a material portion of its digital currencies associated with its operations. Fireblocks, with locations in New York and Tel Aviv, utilizes a secure hot vault and secure transfer environment to help establish connections between the Company's wallets and exchanges. Fireblocks utilizes multi-party computation ("MPC") protection layers to distribute private key secrets across multiple locations to ensure there is no single point of failure associated with the private keys. The use of MPC ensures private key shards are never concentrated to a single device at any point in time. The Company utilizes the Fireblocks Policy Engine to designate transaction approval policies for digital assets held within the Fireblocks portal. As such, administrators configure automated rules to ensure all transactions are disbursed based on the asset sent, total value of the transaction, source and destination of funds and signor requirements. All transactions initiated from Fireblocks that fail to meet the Company's predefined criteria per the engine policy are automatically rejected. All internal wallets owned by the Company and external wallets for addresses of the Company's counterparties require multiple approvals in accordance with our whitelisting policy. As such, the Company settles with counterparties or entities without the risk of losing funds due to deposit address attacks or errors. Fireblocks is SOC 2 Type II certified for the defined period and undergoes a SOC 2 review on an annual basis. The Company reviews the Fireblocks SOC 2 report to ensure they maintain a secure technology infrastructure and that their systems are designed and operating effectively. Additionally, the Company reviews its own complementary user entity controls in conjunction with the Fireblocks controls to ensure that applicable trust services criteria can be met. Fireblocks maintains an insurance policy which has coverage for technology, cyber, and professional liability and is rated "A" by A.M. Best based on the strength of the policy and has had no known security breaches or incidents reported to date.
Digital asset mining risk
The digital asset mining industry has seen rapid growth and innovation. In this environment of rapid change, there is no assurance that the Company will be unable to compete effectively. The Company's expenses may be greater than we anticipate, and our investments to make the Company more efficient or to gain digital asset mining market share may not outpace our competitors. Moreover, the cost of gaining efficiency and maintaining or enhancing profit margins may be more than the Company can support given its overall strategy of holding Bitcoin, the currency in which our operating profits are generated. Among the factors that affect our position are the following.
ASIC and GPU miners and other necessary hardware for mining are subject to malfunction, technological obsolescence, shortages in the global supply chain and difficulty and cost in obtaining new hardware. In this context, we note that much has been said in the media about the widespread availability of GPU based mining machines as former Ethereum miners shut down their operations. The machines that HIVE requires are ASIC mining machines that are designed and built for Bitcoin mining, which is now our focus. As a result, any major malfunction out of the typical range of downtime for normal maintenance and repair of our Bitcoin mining systems could cause a significant disruption in our ability to continue mining, which could result in lower yields and harm our digital asset mining market share. New ASIC miners can be costly and may be in short supply.
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HIVE Blockchain Technologies Ltd. |
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21. Financial Instruments and Risk Management (continued…)
There can be no assurances that the most efficient ASIC mining hardware will be readily available when we identify the need for it. We face competition in acquiring mining machines from major manufacturers and, at a given time, mining machines may only be available for pre-order months in advance. As a result of competition for the latest generation ASIC mining machines, or if we unexpectedly need to replace our mining machines due to a faulty shipment or other failure, we may not be able to secure replacement machines at reasonable costs on a timely basis.
Proof of work mining operations (such as the mining operations required to mine Bitcoin) consume significant amounts of electricity, and recently, there has been increased focus on, and public debate surrounding, the negative environmental, social and governance considerations associated with such operations. Regulatory changes or actions in foreign jurisdictions may affect the Company's business or restrict the use of one or more digital assets, mining activity or the operation of their networks or the digital asset exchange market in a manner that adversely affects the Company's business. If regulators or public utilities take actions that restrict or otherwise impact mining activities, there may be a significant decline in such activities, which could adversely affect digital asset networks, the Company's business and the market price of the Company's common shares. Because Bitcoin is a leading crypto currency, all of the foregoing risk factors may apply especially to Bitcoin, which is central to our business.
The Company's business strategy currently focuses on mining Bitcoin and, prior to the Merge Ethereum, and our hardware is limited to mining using current "proof-of-work" protocols. There could be developments in proof of work protocols, or other competing validation methods or processes that render such business strategy obsolete or out of favor generally. Proof-of-stake is an alternative method of validating digital asset transactions. Proof-of-stake methodology does not rely on resource intensive calculations to validate transactions and create new blocks in a blockchain. Instead, the validator of the next block on a blockchain is determined, sometimes randomly, based on a methodology in the blockchain software. Rewards, and sometimes penalties, are issued based on the amount of digital assets a user has "staked" in order to become a validator. As a result of the Merge, on September 15, 2022, Ethereum shifted to a proof-of-stake validation method, and the Company stopped mining Ethereum. Should Bitcoin also shift from a proof-of-work validation method to a proof-of-stake or other method, the transaction verification process (i.e., "mining" or "validating") may render our mining business less competitive or less profitable. While we are not aware of how the Bitcoin blockchain could be so fundamentally modified, we have seen applications that offer sidechain alternatives to mining Bitcoin directly on the Bitcoin blockchain but that are integrated with the Bitcoin blockchain. To date, such efforts that we are aware of have been directed at increasing the volume and speed of Bitcoin transaction processing.
The aggregate computing power of the global Bitcoin and Ethereum networks has generally grown over time and we expect it to continue to grow in the future. The barriers to entry for new Bitcoin miners are relatively low, which can give rise to additional capacity from competing miners. As the hash rate in the Bitcoin network increases, the amount of Bitcoin earned per unit of hash rate decreases. The Bitcoin protocol responds to increasing total hash rate by increasing the "difficulty" of Bitcoin mining. If this "difficulty" increases at a significantly higher rate, we would need to increase our hash rate at the same rate in order to maintain market share and generate equivalent block rewards. Therefore, in order to maintain or increase our market share, we may be required to make significant capital expenditures.
Any decrease in the Company's effective market share would result in a reduction in our share of block rewards and transaction fees, which could adversely affect our financial performance and financial position.
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HIVE Blockchain Technologies Ltd. |
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21. Financial Instruments and Risk Management (continued…)
Uncertain tax position
Various foreign jurisdictions have, and may continue to adopt laws, regulations or directives that affect a digital asset network, the digital asset markets, and their users, particularly digital asset exchanges and service providers that fall within such jurisdictions' regulatory scope. For example, if China or other foreign jurisdictions were to ban or continue to otherwise restrict mining activity, including by regulating or limiting manufacturers' ability to produce or sell semiconductors or hard drives in connection with mining, it would have a material adverse effect on digital asset networks, the digital asset market, and as a result, impact our business.
A number of foreign jurisdictions have recently taken regulatory action aimed at digital asset activities. China has made transacting in digital currencies illegal for Chinese citizens in mainland China, and additional restrictions may follow. As recently as September 2021, China's central bank has further restricted digital asset-related activities, stating that activity by overseas digital asset exchanges, and services offering trading, order matching, and token issuance and derivatives, constitute illegal activity. Both China and South Korea have banned initial coin offerings entirely and regulators in other jurisdictions, including Canada, Singapore, and Hong Kong, have opined that initial coin offerings may constitute securities offerings subject to local securities regulations. In May 2021, the Chinese government announced renewed efforts to restrict digital currencies trading and mining activities, citing concerns about high energy consumption and its desire to promote financial stability. Regulators in the Inner Mongolia and other regions of China have proposed regulations that would create penalties for companies engaged in digital currency mining activities and introduce heightened energy saving requirements on industrial parks, data centers and power plants providing electricity to digital currency miners. The United Kingdom's Financial Conduct Authority published final rules in October 2020 banning the sale of derivatives and exchange traded notes that reference certain types of digital currencies, contending that they are "ill-suited" to retail investors citing extreme volatility, valuation challenges and association with financial crime.
Foreign laws, regulations or directives may conflict with those of the jurisdiction we operate in and may negatively impact the acceptance of one or more digital assets by users, merchants and service providers and may therefore impede the growth or sustainability of the digital asset economy in the European Union, China, Japan, Russia and the United States and globally, or otherwise negatively affect the value of digital assets that we invest in. The effect of any future regulatory change on our business or the digital assets that we invest in is impossible to predict, but such change could be substantial and adverse to our investment and trading strategies, the value of our assets and our investment value.
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HIVE Blockchain Technologies Ltd. |
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22. Digital Currency and Risk Management
Digital currencies are measured using Level 2 inputs (Note 21).
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 coins; in addition, the Company may not be able liquidate its inventory of digital currency at its desired price if required. A decline in the market prices for coins could negatively impact the Company's future operations. The Company has not hedged the conversion of any of its coin sales or future mining of digital currencies.
Digital currencies have a limited history and the fair value historically has been very volatile. Historical performance of digital currencies are not indicative of their future price performance. The Company's digital currencies currently consist of Bitcoin, Ethereum, and Ethereum Classic. The table below shows the impact for every 5% variance in the price of each of these digital currencies on the Company's earnings before tax, based on their closing prices at September 30, 2022.
| Impact of 5% variance in price | |||
| Bitcoin | $ | 3,215,285 | |
| Ethereum | 23,413 | ||
| Ethereum Classic | 7,826 |
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 and reserves.
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 issues or by undertaking other activities as deemed appropriate under the specific circumstances.
The Company is subject to externally imposed capital requirements due to its term loan (Note 13). The Company's overall strategy with respect to capital risk management remains unchanged from the year ended March 31, 2022.
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HIVE Blockchain Technologies Ltd. |
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24. Segmented Information
The Company operates in one segment, the mining and sale of digital currencies. External revenues are attributed by geographical location, based on the country from which services are provided.
| September 30, 2022 | Canada | Sweden | Iceland | Switzerland | Bermuda | Total | ||||||||||||
| Revenue from digital currency mining | $ | - | $ | - | $ | - | $ | - | $ | 73,775,105 | $ | 73,775,105 |
| September 30, 2021 | Canada | Sweden | Iceland | Switzerland | Bermuda | Total | ||||||||||||
| Revenue from digital currency mining | $ | - | $ | - | $ | - | $ | - | $ | 89,858,861 | $ | 89,858,861 |
The Company's plant and equipment are located in the following jurisdictions:
| September 30, 2022 | Canada | Sweden | Iceland | Switzerland | Bermuda | Total | ||||||||||||
| Plant and equipment | $ | 59,867,356 | $ | 69,513,970 | $ | 2,631,916 | $ | - | $ | - | $ | 132,013,242 | ||||||
| ROU asset | 4,500,400 | 5,208,370 | - | - | 156,938 | 9,865,708 | ||||||||||||
| $ | 64,367,756 | $ | 74,722,340 | $ | 2,631,916 | $ | - | $ | 156,938 | $ | 141,878,950 |
| March 31, 2022 | Canada | Sweden | Iceland | Switzerland | Bermuda | Total | ||||||||||||
| Plant and equipment | $ | 89,480,975 | $ | 84,501,305 | $ | 3,560,464 | $ | - | $ | - | $ | 177,542,744 | ||||||
| ROU asset | 5,370,052 | 7,036,748 | - | - | 181,082 | 12,587,882 | ||||||||||||
| $ | 94,851,027 | $ | 91,538,053 | $ | 3,560,464 | $ | - | $ | 181,082 | $ | 190,130,626 |
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HIVE Blockchain Technologies Ltd. |
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25. Restatement
Error in the valuation of convertible debentures
During the preparation of the 2022 year-end consolidated financial statements the Company identified an error in the calculation of the fair value and therefore the allocation of value of convertible debentures issued in the fiscal 2021 period. The Company identified that the incorrect share price was used in valuation of the derivative liability. The error impacted the consolidated statement of financial position as at period ended September 30, 2021, and the consolidated statement of income and comprehensive income with a decrease in fair value of the derivative liability by $6,319,247 and corresponding charge to the consolidated statement of income and comprehensive income.
Change in accounting policy
During the year ended March 31, 2022, the Company changed the accounting over its digital currencies from a broker - dealer model under IAS 2, Inventories to IAS 38, Intangible Assets. The Company believes that the change in recording its digital currencies will provide shareholders with a better reflection of the Company's business activities and enhance the comparability of the Company's financial information to its industry peers.
The change in the accounting for digital currencies represents a voluntary change in accounting policy, which is accounted for retrospectively. In order to satisfy the requirements of IAS 38 Intangible Assets, with respect to the change, the interim consolidated financial statements for the six month period ended September 30, 2021, have been restated from using the procedures outlined below:
- To the extent there was an increase in value as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of accumulated other comprehensive income (loss). However, the increase is recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.
- If the digital currencies carrying amount is decreased as a result of a revaluation, the decrease is recognized in profit or loss. However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance in the accumulated other comprehensive income in respect of that asset. The decrease recognized in other comprehensive income reduces the amount accumulated in equity.
- The cumulative other comprehensive income included in equity may be transferred directly to retained earnings when the surplus is realised. The transfer from accumulated other comprehensive income to retained earnings is not made through profit or loss.
Error in the classification of holdback share consideration for the Atlantic Acquisition
During the preparation of the 2022 year-end consolidated financial statements the Company identified an error in the calculation and presentation of the 200,000 holdback common shares issued for the acquisition of Hive Atlantic (Note 5) for the period ended September 30, 2021. The Company identified that the holdback shares should have been treated as a liability at the prior period but were presented within share equity. The error impacted the consolidated statement of financial position as at September 30, 2021, and the consolidated statement of income and comprehensive income with a recognition of a liability of $1,940,725, net of 20,000 holdback shares being released by period ended September 30, 2021 and recognition of a gain on change in fair value of the holdback shares of $923,790 to the consolidated statement of income and comprehensive income.
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HIVE Blockchain Technologies Ltd. |
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25. Restatement (continued…)
The table below summarizes the restated interim consolidated financial statements for September 30, 2021:
| As previously reported |
Adjustments | As Restated | |||||||
| Consolidated Statements of Financial Position | |||||||||
| Intangible asset | $ | 14,821,519 | $ | (318,142 | ) | $ | 14,503,377 | ||
| Escrow share liability | - | 1,940,725 | 1,940,725 | ||||||
| Share capital | 314,157,589 | (3,182,658 | ) | 310,974,931 | |||||
| Equity reserve | 10,057,459 | 477,889 | 10,535,348 | ||||||
| Accumulated other comprehensive income | - | 18,978,366 | 18,978,366 | ||||||
| Accumulated deficit | (57,274,637 | ) | (18,532,465 | ) | (75,807,102 | ) | |||
| Consolidated Statements of income and Comprehensive income | |||||||||
| Other Items | |||||||||
| Change in fair value of derivative liability | $ | 28,780 | $ | 6,319,247 | $ | 6,348,027 | |||
| Revaluation of digital currencies | 9,524,910 | (9,498,673 | ) | 26,237 | |||||
| Gain on sale of digital currencies | 8,785,469 | (8,696,218 | ) | 89,251 | |||||
| Change in fair value of escrow share liability | - | 923,790 | 923,790 | ||||||
| Net income for the period | $ | 73,353,081 | $ | (10,951,854 | ) | $ | 62,401,227 | ||
| Other comprehensive income | |||||||||
| Revaluation gain on digital currencies | $ | - | $ | 9,498,673 | $ | 9,498,673 | |||
| Net income and comprehensive income for the period | $ | 72,775,182 | $ | (1,453,181 | ) | $ | 71,322,001 | ||
| Basic income per share | $ | 0.97 | $ | (0.14 | ) | $ | 0.82 | ||
| Diluted income per share | $ | 0.92 | $ | (0.14 | ) | $ | 0.78 | ||
| Consolidated Statements of Changes in Equity | |||||||||
| Net income for the period | $ | 73,353,081 | $ | (10,951,854 | ) | $ | 62,401,227 | ||
| Atlantic acquisition | $ | 18,874,701 | $ | (3,182,658 | ) | $ | 15,692,043 | ||
| Revaluation of digital currencies | $ | - | $ | 18,194,891 | $ | 18,194,891 | |||
| Total equity | $ | 266,940,411 | $ | (2,258,867 | ) | $ | 264,681,544 | ||
| Consolidated Statements of Cashflows | |||||||||
| Operating activities | |||||||||
| Net income for the period | $ | 73,353,081 | $ | (10,951,854 | ) | $ | 62,401,227 | ||
| Change in fair value of derivative liability | (28,780 | ) | (6,319,247 | ) | (6,348,027 | ) | |||
| Change in fair value of escrow share liability | - | (923,790 | ) | (923,790 | ) | ||||
| Digital currencies | (65,636,572 | ) | 18,194,891 | (47,441,681 | ) |
26. Comparative Figures
Certain figures in the comparative period consolidated statements of financial position, consolidated statements of income and comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows have been reclassified to meet the current presentation. In the current year reclassified Hosting revenue to conform to the nature of the amount and the operations of the Company.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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The following discussion is management's assessment and analysis of the results of operations, cash flows and financial condition of HIVE Blockchain Technologies Ltd. ("HIVE" or the "Company") on a consolidated basis for the three and six months ended September 30, 2022, and should be read in conjunction with the accompanying unaudited condensed interim consolidated financial statements and related notes for the three and six months ended September 30, 2022. These documents and additional information regarding the business of the Company are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com, the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system maintained by the Securities and Exchange Commission (the "SEC") at www.sec.gov/EDGAR and the Company's website at www.hiveblockchain.com. The preparation of financial data is in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and all figures are reported in United States dollars unless otherwise indicated.
This Management's Discussion & Analysis contains information up to and including November 14, 2022.
BUSINESS OVERVIEW
HIVE Blockchain Technologies Ltd. is a growth-oriented company listed on the TSX Venture Exchange ("TSXV") and the NASDAQ Capital Markets Exchange ("NASDAQ"). Because the Company substantially holds the Bitcoin and monitizes Ethereum that it derives from its mining operations, we view the Company as a bridge from the blockchain sector to traditional capital markets. HIVE operates state-of-the-art green energy-powered data centre facilities in Canada, Sweden, and Iceland. These facilities mainly produce newly minted Bitcoin and Ethereum continuously in the cloud. Our cryptocurrency assets provide shareholders with exposure to the operating margins of digital currency mining as well as a portfolio of crypto coins. HIVE's cryptocurrency mining operations are powered by green energy, sourced primarily from renewable hydroelectric or geothermal energy.
Our major data centres are: 1) A Bitcoin mining operation at a facility in New Brunswick, Canada that we own, currently equipped with approximately 17,300 new generation ASIC mining rigs with an aggregate operating hash rate of approximately 1,480 PH/s, utilizing approximately 60MW of power capacity; 2) A Bitcoin mining operation at a leased facility in Quebec, Canada, currently equipped with approximately 7,100 new generation ASIC mining rigs with an aggregate operating hash rate of approximately 530 Peta hashes per second (PH/s), utilizing approximately 27 megawatts (MW) power but with available power capacity of 30MW; 3) In Sweden, a leased facility equipped with power capacity of 32MW, of which 25MW are GPUs which produce approximately 350 PH/s of Bitcoin mining capacity, 5.5MW are ASICs which produce 130 PH/s of Bitcoin mining capacity and the remainder is cooling and operations. In north Sweden there is an additional 4MW data center HIVE operates which produces approximately 60 PH/s. In Iceland HIVE has a 5MW hosted data center which produces 110 PH/s and another 5MW hosted facility which produce 101 PH/s. All the mining power is being utilized by HIVE to generate mining rewards that are paid in Bitcoin and Ethereum and that we generally retain in secure storage. We have not pledged or staked our BTC or ETH as collateral against debt or other obligations of any kind, although we may consider a limited debt financing in the future if terms are favourable.
The Company recognizes revenue from the provision of transaction verification services, known as 'cryptocurrency mining', for which the Company receives digital currencies and records them at their fair value on the date received.
Q2 Quarterly Summary - September 30, 2022
- Generated revenue of $29.6 million, with a gross mining margin1 of $15.9 million
- Mined 858 Bitcoin and 7,309 Ethereum during the three-month period ended September 30, 2022
- Net loss before tax of $37.2 million for the three-month period
- Increased working capital by $3.3 million during the three-month period ended September 30, 2022
- Digital currency assets of $64.9 million, as at September 30, 2022
- Impairment on miner equipment of $26.2 million during the three-month period ended September 30, 2022
____________________________________
1 Non-IFRS measure. A reconciliation to its nearest IFRS measures is provided under "Reconciliations of Non-IFRS Financial Performance Measures" below.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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The Company is a reporting issuer in each of the Provinces and Territories of Canada and is a reporting issuer under the Securities Exchange Act of 1934 in the United States. The Company's shares are listed for trading on the TSXV, under the symbol "HIVE.V", as well as on the NASDAQ Capital Market under "HIVE" and on the Open Market of the Frankfurt Stock Exchange under the symbol "HBFA.F". The Company's head office is located at Suite 855, 789 West Pender Street, Vancouver, BC, V6C 1H2, and the Company's registered office is located at Suite 2500, 700 West Georgia Street, Vancouver, BC, V7Y 1B3.
DEFINED TERMS
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ASIC: |
An ASIC (application-specific integrated circuit) is a microchip designed for a special application, such as a particular kind of transmission protocol or a hand-held computer. In the context of digital currency mining ASICs have been designed to solve specific hashing algorithms efficiently, including for Bitcoin mining. |
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Bitcoin or BTC: |
Bitcoin refers to the native token of the Bitcoin network which utilizes the SHA-256 algorithm. Bitcoin is a peer-to-peer payment system and the digital currency of the same name which uses open source cryptography to control the creation and transfer of such digital currency. |
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Bitcoin Network: |
The network of computers running the software protocol underlying Bitcoin and which network maintains the database of Bitcoin ownership and facilitates the transfer of Bitcoin among parties. |
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Blockchain: |
A Blockchain is an immutable, decentralized public transaction ledger which records transactions, such as financial transactions in cryptocurrency, in chronological order. Bitcoin and Ethereum are the largest examples of a public blockchain. |
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Ether or ETH or Ethereum: |
Ether, ETH or Ethereum refers to the native token of the Ethereum Network which utilizes the ethash algorithm. Ethereum is a global, open-source platform for decentralized applications. Ethereum, ETH and Ether are used interchangeably to refer to the cryptocurrency. |
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Ethereum Classic: |
Ethereum Classic refers to the native token of the Ethereum Classic Network. |
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GPU: |
A GPU or Graphics Processing Unit, is a programmable logic chip (processor) specialized for display functions. GPUs have proven to be efficient at solving digital currency hashing algorithms. |
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Hashrate: |
Hashrate is a measure of mining power whereby the expected revenue from mining is directly proportional to a miner's hashrate normalized by the total hashrate of the network. |
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Mining: |
Mining refers to the provision of computing capacity (or hashing power) to secure a distributed network by creating, verifying, publishing and propagating blocks in the blockchain in exchange for rewards and fees denominated in the native token of that network (i.e. Bitcoin or Ethereum, as applicable) for each block generated. |
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Network Difficulty: |
Network difficulty is a measure of how difficult it is to find a hash below a given target. |
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Proof of Work: |
Under proof of work consensus, miners performing computational work on the network update the ledger; miners are incentivized to protect the network and put forth valid transactions because they must invest in hardware and electricity for the opportunity to mine coins on the network. The success of a miner's business relies on the value of the currency remaining above the cost to create a coin. |
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Proof of Stake: |
Under proof of stake consensus stakers who have sufficiently large coin balances 'staked' on the network update the ledger; stakers are incentivized to protect the network and put forth valid transactions because they are heavily invested in the network's currency. |
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Revaluation of Digital Currencies: |
Refers to the recognition of fair value adjustments to digital currency holdings based on available market prices at a point in time. |
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SHA-256: |
SHA-256 is a cryptographic Hash Algorithm. A cryptographic hash is a kind of 'signature' for a text or a data file. SHA-256 generates an almost-unique 256-bit (32-byte) signature for a text. The most well-known cryptocurrencies that utilize the SHA-256 algorithm are Bitcoin and Bitcoin Cash. |
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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OUTLOOK
Operations
In addition to our crypto-currency mining operations, the Company has continued its efforts to upgrade and expand its facilities to enable HIVE to offer High Performance Computing to companies in the gaming, artificial intelligence and graphics rendering industries.
COVID-19 and Upgrade Program
As it relates to the continuing impact from the COVID-19 virus, HIVE has enacted various measures to protect its employees and partners and prevent disruption to operations because of COVID-19, in alignment with local governments as well as national and international agency recommendations. These include ceasing non-essential travel and having employees work remotely. The Company has reduced staff on site at its locations through aggressive work at home policies; however, the Company has been able to maintain normal uptime of its cryptocurrency mining operations and its data centres and its supply chain continues to operate with only minimal disruption. The Company operates with a lean administrative structure and has few employees, as cryptocurrency mining is not a human capital-intensive industry. The Company's data centres are located in sparsely populated areas near the Arctic Circle in Europe, in rural Quebec and in New Brunswick near the border of Maine. Most management operations can be accomplished remotely, and any necessary equipment maintenance can be achieved by minimal staff utilizing personal protective equipment and maintaining physical distancing. Despite the preventative measures undertaken, the Company continues to be at risk of operational inefficiencies directly related to COVID-19 because of difficulties in the mobility of the Company's technical employees within Europe. These mobility issues have alleviated somewhat over the past 6 months but continue to be present. The Company continues to caution that current global uncertainty with respect to the spread of the COVID-19 virus and emerging variants and its effect on the broader global economy may have a significant negative effect on the Company. While the precise impact of the COVID-19 virus on the Company remains unknown, the rapid spread of the COVID-19 virus and its variants may have a material adverse effect on global economic activity and can result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Company.
The negative impact on the global supply chain related to the COVID-19 pandemic has continued to present challenges including increased shipping costs and obtaining equipment from China on a timely basis. The Company faces uncertainty in the availability of equipment from suppliers as it relates to the Company's ASIC equipment. These continuing challenges are not just impacting our operations but are impacting all industries. In addition, the cost of air and sea freight have surged over 100%. The chip shortage, high shipping costs, and challenging logistical processes are global issues associated with the COVID-19 pandemic.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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Ethereum Mining Industry Revenues of U.S. dollars per Day for each 1 Megahash per second of computing power;
August 1, 2021 - September 15, 2022
Source: bitinfocharts.com
- Ethereum mining with proof of work consensus ceased as of September 15th 2022 , when the "Merge" took place and Ethereum shifted to proof of stake consensus, thereby no further revenues from Ethereum mining would be available. Leading up to this date, Ethereum mining economics were consistent between the $0.02 per Megahash per day to $0.03 cents per Megahash per day range. Since then our GPU's have been repurposed to use a unique algorithm to optimize profitability in mining altcoins, however getting paid out in Bitcoin . Since the Ethereum merge, the Company's GPU fleet has been producing an equivalent of 350 PH/s to 400 PH/s Bitcoin mining capacity. This is in addition to the Bitcoin mining capacity from HIVE's ASIC fleet. Therefore approximately 25 megawatts of HIVE's operating capacity of GPU mining has been receiving payout in Bitcoin.
- Ethereum mining economics have rebounded in August, outperforming Bitcoin. The Company notes the Ethereum mining floor was 1.5 cents per MH/s per day in late June 2022 and have since rebounded to almost 3 cents per MH/s per day, approximately a 90% recovery in Ethereum hashrate economics. This was driven by a substantial difficulty drop of approximately 10% at the end of June 2022, and more recently in late July and August, a rally in Ethereum price in the $1,500 to $1,900 range. The Company's Ethereum mining operations realized greater profitability as a result, until September 15, 2022 when Ethereum mining ceased.
- Using the optimization algorithm, HIVE is able to more profitably mined with its GPU fleet, than if it was only mining a single coin for example Ethereum Classic. The assortment of coins which HIVE mines using its GPU fleet varies with time and it's done on the basis profit optimization, and thus as a result of the Company's technical advancements provides HIVE a competitive edge in generating revenue from GPU operations.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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Bitcoin Mining Industry Revenues of U.S. dollars per Day for each 1 Terahash per second of computing power:
August 1, 2021 - November 7, 2022
Source: bitinfocharts.com
- After June 2022, we have seen Bitcoin price fall into the $20,000 range, fluctuating between $18,000 to $24,000 throughout July and August 2022. Difficulty has adjusted accordingly, as the reduction in Bitcoin price meant the mining margins for some miners became unprofitable, and accordingly they would have shut down their operations, thus lowering the network hashrate, thus lowering the network difficulty. As such, this has had a stabilizing effect on the Bitcoin hashprice, as we have seen a floor around 7-8 cents per TH/s per day. This reflects the fundamental hashrate economy, whereby, through variance in either Bitcoin price or Difficulty, we see that the hashprice never goes below 7 cents per TH/s per day, and in fact even if we go back 3 years, and study the crypto bear markets, most notably during 2020 where the market crash from COVID and also the post-halving bear market (where block rewards were halved but Bitcoin price had not rallied yet), we still saw the 7 cent per TH/s per day floor. Currently hashrate economics have recovered to above the 10 cent per TH/s per day levels. As evidenced by HIVE's gross mining margins, the Company is still able to mine profitably during these periods.
- However in September 2022 we saw hash price reduced to approximately $0.08 for terahash per day, and since then in October this was approximately $0.07 per terahash per day. This is a result of Bitcoin price staying under the $20,000 range, while the difficulty has increased 20% since early September, and has maintained these levels despite Bitcoin price seeing the $17,000 range.
- As the date of writing, with volatility of Bitcoin price, as low as $16,500 USD we are currently seeing Bitcoin mining hash price as low as $0.05 per terahash per day. With newer generation machines operating with greater efficiency, the break even operating cost for miners depends on electricity price as well as machine efficiency. For example an ASIC miner that has an efficiency of 30 Joules per Terahash, at current difficulty and a Bitcoin price of $16,500 USD , would generate mining revenues of $0.08 per kWh approximately. Therefore as long as the operating costs of a miner are below $0.08 per kWh they can continue to mine . If a miner has an ASIC with an efficiency of 40 joules per terahash, current difficulty and a Bitcoin price of $16,500, this would generate revenues of $0.06 per kWh approximately . Therefore as long as the operating costs of a miner in this example are below $0.06 per kWh they can continue to mine . When there is enough downward pressure on profitability, miners with higher electricity or operating costs and/or miners operating machines with lower efficiency with a higher breakeven price, will be not be able to operate profitably, and these miners pause their operations, then the network hash rate will decrease and the difficulty will decrease. This will in turn improve Bitcoin mining economics however until that downward pressure is realized Bitcoin mining difficulty will remain at these levels, and gross mining margins will be smaller across the industry with Bitcoin at current prices.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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Industry subject to evolving regulatory and tax landscape
Both the regulatory and tax landscape for digital companies is evolving. The changing regulatory landscape applies to sectors that are based on blockchain, distributed ledger, technology and the mining, the use, sale and holding of tokens, or digital currencies, and the blockchain technology networks that support them.
Operating in an emerging industry, the Company must adapt to significant changes in regulatory, tax and industry rules and guidelines and obtain regulatory and tax advice from external global experts. In addition, regulations and the rules, rates, interpretations, and practices related to taxes, including consumption taxes such as value added taxes (VAT), are constantly changing.
The Company's headquarters are in Vancouver, British Columbia, Canada and as such the Company is subject to the jurisdiction of the laws of the Province of British Columbia and the federal laws of Canada. The Company intends to manage its data centres and trading operations from Bermuda in order to simplify tax expectations and extend its eligible trading window for its cryptocurrencies, as Bermuda is under the Atlantic Standard Time zone.
However, the Company also has assets in a variety of other countries and is subject to changes in political conditions and regulations within these markets. Changes, if any, in policies or shifts in political attitude could adversely affect the Company's operations or profitability.
Operations may be affected in varying degrees by government regulations and decisions with respect to, but not limited to, restrictions on price controls, currency remittance, income and consumption taxes, foreign investment, maintenance of claims, environmental legislation, land use, electricity use and safety. Additionally, cryptocurrency prices are highly volatile, can fluctuate substantially and are affected by numerous factors beyond the Company's control, including hacking, demand, inflation, and expectations with respect to the rate of inflation, global or regional political or economic events.
On-going and future regulatory or tax changes, actions or decisions may alter the nature of an investment in the Company or restrict the use of cryptocurrencies in a manner that adversely affects the Company's operations. The effect of any future regulatory change on the Company or any cryptocurrency that the Company may mine is impossible to predict, but such change could be substantial and adverse to the Company.
For example, governments may in the future curtail or outlaw the acquisition, use or redemption of cryptocurrencies. Governments may also take regulatory action that may increase the cost and/or subject cryptocurrency companies to additional regulation or prohibit or severely restrict the right to acquire, own, hold, sell, use or trade cryptocurrencies or to exchange cryptocurrencies for fiat currency. By extension, similar actions by other governments, may result in the restriction of the acquisition, ownership, holding, selling, use or trading in the Company's common shares. Such a restriction could result in the Company liquidating its cryptocurrency inventory at unfavorable prices and may adversely affect the Company's shareholders.
The Company believes the present attitude to blockchain technology, and the digital currency mining industry is increasingly favourable in many countries, but conditions may change. Operations may be affected in varying degrees by government regulation with respect to restrictions on production, price controls, export controls, foreign exchange controls, income and other taxes, and environmental legislation.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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INTEL SUPPLY AGREEMENT
On March 7, 2022, the Company entered into a Supply Agreement with Intel Corporation for the purchase of its new generation of application specific integrated circuits ("ASICs") designed specifically for processing SHA-256 cryptographic hash functions and associated software, known as Intel's "Blockscale".
The Company has also entered into a manufacturing agreement with an ODM (original design manufacturer) that has expertise in electronics manufacturing and experience manufacturing integrated systems for Intel. The ODM will integrate Intel's Blockscale ASICs into an air-cooled Bitcoin mining system. The Company's engineering team will draw on its expertise in hardware and software implementation and will work closely with Intel and the ODM partner on the systems integration. These miners are expected to be delivered over a period of one year starting in the second half of calendar year 2022, the effect of which, when installed, would be an expected increase of over 1 Exahash per second of Bitcoin mining hashrate. This target reflects a revised hashrate from previous estimates, as the Company has adjusted capital allocation targets for the interim period, focusing on near term growth.
GPU ATLANTIC ACQUISITION
On April 15, 2021, the Company completed the acquisition of 100% of the common shares of GPU Atlantic. In consideration for 100% of GPU Atlantic, the Company paid total consideration of 1,000,000 common shares on closing valued at a total of $18.6 million (C$23.7 million). 200,000 of the common shares were allocated to a holdback subject to an earn-out payable upon meeting certain earn-out conditions. All 200,000 common shares allocated to the holdback were issued as March 31, 2022.
As part of the acquisition agreement, the Company agreed to spend C$6,000,000 on construction and development at the data centre campus owned by GPU Atlantic. The Company has fulfilled this spend commitment.
GPU Atlantic has a 50-megawatt data centre campus located in New Brunswick, Canada.
| Current assets | $ | 671,709 | |
| Plant and equipment | 12,898,994 | ||
| Land | 662,910 | ||
| Building | 4,576,290 | ||
| Sales taxes refunds | 75,780 | ||
| Intangible assets* | 696,192 | ||
| Goodwill** | 13,154,585 | ||
| Accounts payable | (3,198,591 | ) | |
| Long-term debt | (10,978,065 | ) | |
| Net Assets Acquired | $ | 18,559,804 |
| Consideration paid | Contingent to April 15, 2021 |
Closing to March 31, 2022 |
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| Closing common shares - 800,000 | 15,174,278 | 15,174,278 | ||||
| Milestone common shares - 200,000 | 3,385,526 | 2,017,054 | ||||
| Total consideration | $ | 18,559,804 | $ | 17,191,332 |
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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As part of the transaction, the Company also acquired a $10,978,065 (C$13,639,249) term loan included in the long-term debt acquired.
* Intangible asset represent an internally generated mining monitoring, tracking and generating software.
** Goodwill represents expected synergies, future income growth potential, and other intangibles that do not qualify for separate recognition. None of the goodwill arising on the acquisition is expected to be deductible for tax purposes. At the year ended March 31, 2022, the goodwill was fully impaired.
The purchase price allocation for acquisitions reflects various fair value estimates which are subject to change within the measurement period. The primary areas of purchase price allocation that are subject to change relate to the fair values of certain tangible assets, the valuation of identifiable intangible assets acquired, and residual goodwill. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company's consolidated financial statements and, depending on the nature of the adjustments, other periods after the period of acquisition could also be affected.
INVESTMENT IN VALOR
On April 21, 2021, the Company completed a share swap transaction with Valor Inc. ("Valor") (formerly DeFi Technologies Inc.), pursuant to which HIVE received 10,000,000 common shares of Valor, in exchange for 800,000 common shares of the Company, valued at C$16.0 million.
CONVERTIBLE DEBENTURE
On January 12, 2021, the Company closed its non-brokered private placement of unsecured debentures (the "Debentures"), for aggregate gross proceeds of $15,000,000 with U.S. Global Investors, Inc. ("U.S. Global"). The Executive Chairman of the Company is a director, officer and controlling shareholder of U.S. Global.
The Debentures will mature on the date that is 60 months from the date of issuance, bearing interest at a rate of 8% per annum. The Debentures will be issued at par, with each Debenture being redeemable by HIVE at any time, and convertible at the option of the holder into common shares (each, a "Share") in the capital of the Company at a conversion price of C$15.00 per Share. Interest will be payable monthly, and principal will be payable quarterly. In addition, U.S. Global will be issued 5 million common share purchase warrants (the "January 2021 Warrants"). Each five whole January 2021 Warrants will entitle U.S. Global to acquire one common at an exercise price of C$15.00 per Share for a period of three years from closing. The Company has been paying down this debt on a quarterly basis and the total debt as of period end is $9.8 million.
AT-THE-MARKET EQUITY PROGRAM
On February 2, 2021, the Company entered into an equity distribution agreement ("Equity Distribution Agreement") with Canaccord Genuity Corp. Under the Equity Distribution Agreement, the Company was provided the option to sell up to US$100 million of common shares in the capital of the Company at their discretion (the "ATM Equity Program"). The termination of the ATM Equity Program was effective as of March 8, 2022.
For the year ended March 31, 2022, the Company issued 2,174,500 common shares (the "ATM Shares") pursuant to the ATM Equity Program for proceeds of C$43,588,175 ($34,956,134). The ATM Shares were sold at prevailing market prices, for an average price per ATM Share of C$19.44. Pursuant to the Equity Distribution Agreement associated with the Equity Distribution Agreement, a cash commission of $1,048,683 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the Equity Distribution Agreement.
The Company used the net proceeds from the Equity Distribution Agreement for the purchase of data centre equipment, strategic investments especially in building our BTC assets on our balance sheet and ended the year ended March 31, 2022 with 2,596 BTC, and general working capital.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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On September 2, 2022, the Company entered into an equity distribution agreement ("2022 Equity Distribution Agreement") with H.C. Wainwright & Co., LLC. Under the 2022 Equity Distribution Agreement, the Company was provided the option to sell up to US$100 million of common shares in the capital of the Company at their discretion (the "2022 ATM Equity Program").
For the period ended September 30, 2022, the Company issued 198,058 common shares (the "2022 ATM Shares") pursuant to the 2022 ATM Equity Program for gross proceeds of $788,977 of which $342,333 are subscription receivables. The 2022 ATM Shares were sold at prevailing market prices, for an average price per ATM Share of C$3.95. Pursuant to the 2022 Equity Distribution Agreement, a cash commission of $24,220 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the 2022 Equity Distribution Agreement.
The Company is using the net proceeds from the 2022 Equity Distribution Agreement for the purchase of data centre equipment, strategic investments especially in building our BTC assets on our balance sheet and ended the period ended September 30, 2022 with 3,342 BTC, and general working capital.
BOUGHT-DEAL PRIVATE PLACEMENT
On November 30, 2021, the Company completed an agreement with Stifel GMP as lead underwriter and sole bookrunner to include a syndicate of underwriters (the "Underwriters"), whereby the Underwriters agreed to purchase, on a bought-deal basis, 3,834,100 special warrants of the Company (the "Special Warrants") at a price of C$30.00 per Special Warrant for aggregate gross proceeds to the Company of C$115,023,000 (the "Offering").
On January 11, 2022, each Special Warrant was deemed to be converted into one Unit comprised of one common share of the Company and one-half of one common share purchase warrant (each whole common share purchase warrant being a "January 2022 Warrant"). Each January 2022 Warrant is exercisable for one share on or before May 30, 2024, at an exercise price of C$30.00 per Share. The funds were used to expand our BTC production and data center build out.
BOREALIS HOSTING AGREEMENT
On November 25th, 2021, HIVE Blockchain Iceland ehf entered into a service agreement with Borealis Data Park ehf, for the hosting of equipment in Iceland. The agreement enables the hosting of approximately 1,200 new generation Bitcoin miners, or 4.5 MW of capacity, over a period of 36 months, using green energy. The completion of the Borealis facility, and subsequent installation of HIVE ASIC miners, resulted in the hashrate coming online in March 2022.
SHARE CONSOLIDATION
On May 24, 2022, the Company underwent a consolidation of the Common Shares (the "Consolidation") on the basis of five pre-consolidation Common Shares for one post-consolidation Common Share. Unless otherwise stated, all references to Common Shares in this MD&A are to post-Consolidation Common Shares
CONSOLIDATED RESULTS OF OPERATIONS
Below is an analysis of the Company's revenue and gross mining margin:
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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| Q2 2023 | Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | |||||||||||
| Restated | Restated | ||||||||||||||
| Revenue | $ | 29,596,579 | $ | 44,178,526 | $ | 49,783,515 | $ | 68,844,789 | $ | 53,573,052 | |||||
| Operating and maintenance | (13,656,022 | ) | (17,161,751 | ) | (26,910,860 | ) | (6,526,317 | ) | (7,593,349 | ) | |||||
| Depreciation | (24,322,657 | ) | (25,752,181 | ) | (35,503,723 | ) | (14,992,288 | ) | (9,626,529 | ) | |||||
| (8,382,100 | ) | 1,264,594 | (12,631,068 | ) | 47,326,184 | 36,353,174 | |||||||||
| Gross mining margin | 15,940,557 | 27,016,775 | 22,872,655 | 62,318,472 | 45,979,703 | ||||||||||
| Gross mining margin % (1) | 54% | 61% | 46% | 91% | 86% | ||||||||||
| Gross margin % | (28%) | 3% | (25%) | 69% | 68% | ||||||||||
| Revaluation of digital currencies (2) | (2,355,177 | ) | (72,154,408 | ) | 1,082,011 | (1,083,669 | ) | 1,702,190 | |||||||
| Gain (loss) on sale of digital currencies | 13,780 | (83,585 | ) | (30,908 | ) | (7,061 | ) | 7,782 | |||||||
| Share based compensation | (1,947,912 | ) | (953,362 | ) | (1,279,573 | ) | (1,672,614 | ) | (1,478,637 | ) | |||||
| General expenses | (3,235,958 | ) | (3,365,316 | ) | (4,313,365 | ) | (2,862,011 | ) | (2,050,097 | ) | |||||
| Foreign exchange gain (loss) | 7,091,390 | (3,656,510 | ) | 6,333,881 | (1,676,763 | ) | (1,888,166 | ) | |||||||
| Impairment of goodwill and intangibles | - | - | (13,330,029 | ) | - | - | |||||||||
| Impairment of miner equipment | (26,236,544 | ) | (6,336,558 | ) | - | - | - | ||||||||
| Impairment of equipment deposits | - | (4,678,000 | ) | - | - | - | |||||||||
| Gain on sale of mining assets | 15,401 | - | 2,206,531 | - | - | ||||||||||
| Unrealized (loss) gain on investments | (1,000,600 | ) | (8,683,081 | ) | (13,073,179 | ) | 11,875,641 | 6,168,239 | |||||||
| Change in fair value of derivative liability | (192,150 | ) | 4,371,195 | 3,812,361 | 590,837 | 914,392 | |||||||||
| Change in fair value of escrow share liability | - | - | 404,489 | 40,193 | 86,764 | ||||||||||
| Gain on sale of subsidiary | - | - | - | - | - | ||||||||||
| Finance expense | (938,697 | ) | (989,514 | ) | (736,835 | ) | (1,338,151 | ) | (888,075 | ) | |||||
| Tax recovery (expense) | 131,000 | - | (2,416,000 | ) | - | - | |||||||||
| Net (loss) income from continuing operations | $ | (37,037,567 | ) | $ | (95,264,545 | ) | $ | (33,971,684 | ) | $ | 51,192,586 | $ | 38,927,566 | ||
| EBITDA (1) | $ | (11,907,213 | ) | $ | (68,522,850 | ) | $ | 4,684,874 | $ | 67,523,025 | $ | 49,442,170 | |||
| Adjusted EBITDA (1) | $ | 18,809,169 | $ | 11,228,283 | $ | 11,789,084 | $ | 69,648,278 | $ | 48,217,461 |
(1) Non-IFRS measure. A reconciliation to its nearest IFRS measures is provided under "Reconciliations of Non-IFRS Financial Performance Measures" below.
(2) Revaluation is calculated as the change in value (gain or loss) on the coin inventory. When coins are sold, the net difference between the proceeds and the carrying value of the digital currency (including the revaluation), is recorded as a gain (loss) on the sale of digital currencies
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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Revenue
For the six-month period ended September 30, 2022, revenue was $73.8 million, a decrease of approximately 18% from the prior period. The decrease was primarily due to a decrease in cryptocurrency prices during the current period compared to the prior period.
Gross Mining Margin and Gross Mining Margin %
For the six-month period ended September 30, 2022, HIVE's gross mining margin percentage was 58% compared to 85% for the prior year.
The Company's gross mining margin from digital currency mining is partially dependent on various external network factors including mining difficulty, the amount of digital currency rewards and fees it receives for mining, and the market price of the digital currencies at the time of mining. The highest gross margins were in mining ETH.
The average monthly Ethereum market data from April 2022 to September 2022 was as follows:
| April | May | June | July | August | September | Average | |||||||||||||||
| Ethereum | 2022 | 2022 | 2022 | 2022 | 2022 | 2022 | YTD F2023 | ||||||||||||||
| Average price | $ | 3,097 | $ | 2,188 | $ | 1,383 | $ | 1,359 | $ | 1,699 | $ | 1,484 | $ | 1,869 | |||||||
| Average daily total miner revenue in ETH, i.e. fees plus newly minted coins | 18,876 | 20,566 | 16,764 | 16,172 | 15,007 | 6,947 | 15,722 | ||||||||||||||
| Average daily hashrate | 1,039,778 | 1,085,566 | 998,432 | 922,489 | 928,256 | 437,672 | 902,032 |
Sources: Coinmarketcap.com, Glassnode.com, Etherscan.io
The average monthly Ethereum market data from April 2021 to March 2022 was as follows:
| April | May | June | July | August | September | ||||||||||||||||
| Ethereum | 2021 | 2021 | 2021 | 2021 | 2021 | 2021 | |||||||||||||||
| Average price | $ | 2,298 | $ | 3,141 | $ | 2,336 | $ | 2,131 | $ | 3,098 | $ | 3,337 | |||||||||
| Average daily total miner revenue in ETH, i.e. fees plus newly minted coins | 24,047 | 23,012 | 15,813 | 16,334 | 20,527 | 24,039 | |||||||||||||||
| Average daily hashrate | 529,139 | 604,692 | 559,149 | 521,910 | 615,597 | 699,841 | |||||||||||||||
| October | November | December | January | February | March | Average | |||||||||||||||
| Ethereum | 2021 | 2021 | 2021 | 2022 | 2022 | 2022 | F2022 | ||||||||||||||
| Average price | $ | 3,819 | $ | 4,434 | $ | 4,045 | $ | 3,055 | $ | 2,868 | $ | 2,863 | $ | 3,119 | |||||||
| Average daily total miner revenue in ETH, i.e. fees plus newly minted coins | 24,286 | 26,985 | 22,575 | 27,798 | 22,344 | 18,226 | 22,166 | ||||||||||||||
| Average daily hashrate | 755,796 | 841,066 | 914,570 | 971,448 | 1,007,127 | 1,008,990 | 752,444 |
Sources: Coinmarketcap.com, Glassnode.com, Etherscan.io
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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For reference, the following chart shows Ethereum price vs Ethereum miners' revenues in Ether block rewards and transaction fees vs network hash rate* for the 24-month period from October 2020 to September 2022:
Source: Glassnode.com
* Network Hash rate - The historical measure of the processing power of the Ethereum network.
The average monthly Bitcoin market data from April 2022 to September 2022 was as follows:
| April | May | June | July | August | September | Average | |||||||||||||||
| Bitcoin | 2022 | 2022 | 2022 | 2022 | 2022 | 2022 | YTD F2023 | ||||||||||||||
| Average price | $ | 41,435 | $ | 31,713 | $ | 24,384 | $ | 21,539 | $ | 22,366 | $ | 19,805 | $ | 26,874 | |||||||
| Average daily total miner revenue in BTC, i.e. fees plus newly minted coins | 931 | 919 | 911 | 893 | 950 | 926 | 922 | ||||||||||||||
| Average daily difficulty (in millions) | 28,561,641 | 30,502,528 | 29,992,443 | 28,752,118 | 28,365,699 | 31,533,645 | 29,618,013 |
Sources: Coinmarketcap.com, Glassnode.com, Blockchain.com
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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The average monthly Bitcoin market data from April 2021 to March 2022 was as follows:
| April | May | June | July | August | September | ||||||||||||||||
| Bitcoin | 2021 | 2021 | 2021 | 2021 | 2021 | 2021 | |||||||||||||||
| Average price | $ | 57,207 | $ | 46,443 | $ | 35,845 | $ | 34,445 | $ | 45,709 | $ | 45,940 | |||||||||
| Average daily total miner revenue in BTC, i.e. fees plus newly minted coins | 994 | 978 | 776 | 907 | 990 | 947 | |||||||||||||||
| Average daily difficulty (in millions) | 23,317,563 | 23,162,908 | 20,408,893 | 14,471,974 | 15,565,176 | 18,410,092 | |||||||||||||||
| October | November | December | January | February | March | Average | |||||||||||||||
| Bitcoin | 2021 | 2021 | 2021 | 2022 | 2022 | 2022 | F2022 | ||||||||||||||
| Average price | $ | 57,912 | $ | 60,621 | $ | 49,263 | $ | 41,114 | $ | 40,763 | $ | 41,966 | $ | 46,436 | |||||||
| Average daily total miner revenue in BTC, i.e. fees plus newly minted coins | 959 | 925 | 938 | 950 | 926 | 927 | 935 | ||||||||||||||
| Average daily difficulty (in millions) | 19,864,683 | 22,196,881 | 23,588,402 | 25,144,523 | 27,209,429 | 27,569,750 | 21,742,523 |
Sources: Coinmarketcap.com, Glassnode.com, Blockchain.com
For reference, the following chart shows Bitcoin price vs Bitcoin miners' revenues (in Bitcoin block rewards and transaction fees) vs block difficulty* for the 24-month period from October 2020 to September 2022:
Source: Glassnode.com
* Block Difficulty - A relative measure of how difficult it is to find a new block. The difficulty is adjusted periodically as a function of how much hashing power has been deployed by the network of miners.
The block reward is how new bitcoin is "minted" or brought into the economy. These rewards, which started at 50 Bitcoin at inception of the network in 2009, halve every 210,000 blocks, with the halving that occurred on May 11, 2020, resulting in a reward of 6.25 Bitcoin per block vs 12.5 immediately prior to the halving. The next halving which will reduce the reward to 3.125 Bitcoin per block is currently projected to happen in April or May 2024.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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Total Assets
Total assets decreased to $278.4 million as at September 30, 2022 from $452.3 million at March 31, 2022, primarily due to the decrease in digital currencies by $105 million, decrease in investments by $10.5 million, decrease in long-term deposits by $13.9 million, a decrease in a right of use assets by $2.7 million, and a decrease of $45.5 million in plant property and equipment, offset by an increase in cash by $2.8 million, and an increase in amounts receivable and prepaids by $1.2 million.
The significant assets consisted of cash of $8.1 million, amounts receivable and prepaids of $9.2 million, investments of $6.5 million, digital currencies of $64.9 million, data centre equipment of $132.0 million, long-term receivable of $1.8 million, long term deposits of $45.8 million, and right of use assets of $9.9 million.
Total Liabilities
Total liabilities decreased to $49.9 million as at September 30, 2022 from $63.2 million as of March 31, 2022, primarily due to the decrease in accounts payable and accrued liabilities by $2 million, decrease in convertible loans by $4.6 million, decrease in term loan payable by $1.5 million, decrease in loans payable by $2.4 million, decrease in lease liability by $2.6 million, decrease in deferred tax liability of $1.5 million offset by the increase in income tax liability by $1.3 million.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022
During the three-month period ended September 30, 2022, the Company recorded net loss before tax of $37.2 million (Q2 F2021 - net income of $38.9 million).
Revenue:
- Revenue of $29.6 million, including the mining of 7,309 Ethereum and 858 Bitcoin.
Operating expenses:
- Operating and maintenance costs were $13.7 million consisting of fees paid to suppliers including local electricity providers, as well as service provider Blockbase Consulting GmbH ("Blockbase"), and includes electricity, daily monitoring and maintenance and all other costs directly related to the maintenance and operation of the data centre equipment; and
- Depreciation for the quarter of $24.3 million related to the Company's data centre equipment and right of use assets.
Gain on sale of digital currencies:
- The Company sold digital currencies and received proceeds of $37.3 million during the three-month period ended September 30, 2022; the Company recognized a gain on sale of $3.5 million in relation to the sale of digital currencies with a cost base of $33.8 million.
Revaluation of digital currencies:
- The Company recorded a loss of $2.4 million related to the quarterly revaluation of its portfolio of digital currencies.
Other items:
- Share based compensation expense of $1.9 million in relation to the options and restricted share units vested in the period;
- Foreign exchange gain of $7.1 million;
- General and administrative expense of $3.2 million;
- Unrealized loss on investments of $1.0 million;
- Change in fair value of derivative liability of $0.2 million;
- Impairment of mining equipment of $26.2 million; and
- Finance expense of $0.9 million.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2022
During the six-month period ended September 30, 2022, the Company recorded net loss before tax of $132.4 million (F2021 -$62.4 million).
Revenue:
- Revenue of $73.8 million, including the mining of 14,984 Ethereum and 1,679 Bitcoin.
Operating expenses:
- Operating and maintenance costs were $30.8 million consisting of fees paid to suppliers including local electricity providers, as well as service provider Blockbase Consulting GmbH ("Blockbase"), and includes electricity, daily monitoring and maintenance and all other costs directly related to the maintenance and operation of the data centre equipment; and
- Depreciation for the quarter of $50.1 million related to the Company's data centre equipment and right of use assets.
Gain on sale of digital currencies:
- The Company sold digital currencies and received proceeds of $71.8 million during the six-month period ended September 30, 2022; the Company recognized a loss on sale of $18.8 million in relation to the sale of digital currencies with a cost base of $90.6 million.
Revaluation of digital currencies:
- The Company recorded a loss of $74.5 million related to the quarterly revaluation of its portfolio of digital currencies.
Other items:
- Share based compensation expense of $2.9 million in relation to the options and restricted share units vested in the period;
- Foreign exchange gain of $3.4 million;
- General and administrative expense of $6.6 million;
- Unrealized loss on investments of $9.7 million;
- Change in fair value of derivative liability of $4.2 million;
- Impairment of miner equipment of $32.6 million;
- Impairment of equipment deposits of $4.7 million; and
- Finance expense of $1.9 million.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021
During the three-month period ended September 30, 2021, the Company recorded net income before tax of $38.9 million (Q2 F2021 - $9.2 million).
Revenue:
- Revenue of $52.6 million from the mining of digital currencies, including 8,688 Ethereum and 656 Bitcoin; and
- Hosting revenue of $1.0 million earned from the hosting of ASIC miners for clients.
Operating expenses:
- Operating and maintenance costs were $7.6 million consisting of fees paid to suppliers including local electricity providers, as well as service provider Blockbase, and includes electricity, daily monitoring and maintenance and all other costs directly related to the maintenance and operation of the data centre equipment; and
- Depreciation for the quarter of $9.6 million related to the Company's data centre equipment and right of use assets.
Revaluation of digital currencies:
- The Company recorded a gain of $1.7 million related to the quarterly revaluation of its portfolio of digital currencies.
Other items:
- Share based compensation expense of $1.5 million in relation to the options and restricted share units vested in the period;
- General and administrative expense of $2.1 million;
- Foreign exchange loss of $1.9 million;
- Unrealized gain on investments of $6.2 million;
- Change in fair value of derivative liability of $0.9 million;
- Change in fair value of escrow share liability of $0.1 million; and
- Finance expense of $0.9 million.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2021
During the six-month period ended September 30, 2021, the Company recorded net income before tax of $62.4 million (F2021 - $11.0 million).
Revenue:
- Revenue of $89.9 million from the mining of digital currencies, including 18,390 Ethereum and 882 Bitcoin; and
- Hosting revenue of $2.7 million earned from the hosting of ASIC miners for clients.
Operating expenses:
- Operating and maintenance costs were $13.8 million consisting of fees paid to suppliers including local electricity providers, as well as service provider Blockbase, and includes electricity, daily monitoring and maintenance and all other costs directly related to the maintenance and operation of the data centre equipment; and
- Depreciation for the quarter of $16.5 million related to the Company's data centre equipment and right of use assets.
Other items:
- Share based compensation expense of $3.8 million in relation to the options and restricted share units vested in the period;
- General and administrative expense of $3.8 million;
- Foreign exchange loss of $1.4 million;
- Unrealized gain on investments of $0.4 million;
- Change in fair value of derivative liability of $6.3 million;
- Change in fair value of escrow share liability of $0.9 million;
- Gain on sale of subsidiary of $3.2 million; and
- Finance expense of $1.8 million.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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SUMMARY OF QUARTERLY RESULTS
The following tables summarize the Company's financial information for the last eight quarters in accordance with IFRS:
| Restated | ||||||||||||
| Q2 2023 | Q1 2023 | Q4 2022 | Q3 2022 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenue | 29,596,579 | 44,178,526 | 49,783,515 | 68,844,789 | ||||||||
| Net income (loss) | (37,037,567 | ) | (95,264,545 | ) | (33,971,684 | ) | 51,192,586 | |||||
| Basic income (loss) per share | (0.45 | ) | (1.16 | ) | (0.44 | ) | 0.66 | |||||
| Diluted income (loss) per share | (0.45 | ) | (1.16 | ) | (0.44 | ) | 0.62 |
| Restated | Restated | Restated | ||||||||||
| Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenue | 53,573,052 | 38,982,673 | 33,420,171 | 13,707,879 | ||||||||
| Net income (loss) | 38,927,566 | 23,473,661 | (1,823,163 | ) | 14,957,738 | |||||||
| Basic income (loss) per share | 0.51 | 0.31 | (0.03 | ) | 0.22 | |||||||
| Diluted income (loss) per share | 0.49 | 0.30 | (0.03 | ) | 0.21 |
LIQUIDITY AND CAPITAL RESOURCES
The Company commenced earning revenue from digital currency mining in mid-September 2017. The Company is reliant on external financing to take advantage of growth opportunities while preserving its crypto currency assets. The Company's ability to continue as a going concern is dependent on the Company's ability to efficiently mine and liquidate digital currencies.
As at September 30, 2022, the Company had a working capital balance of $65.0 million (March 31, 2022 - $174.1 million) and currently has sufficient cash to fund its current operating and administrative costs.
The net change in the Company's cash position as at September 30, 2022 as compared to March 31, 2022 was an increase of $2.8 million as a result of the following cash flows:
- Cash provided by operating activities of $33.4 million;
- Cash used in investing activities of $26.6 million related to the purchase of mining equipment, and deposits on mining equipment; and
- Cash used in financing activities of $3.7 million for lease and debt payments.
OUTSTANDING SHARE DATA
At September 30, 2022 and at the date of this report, the following securities were outstanding:
| Total Outstanding as of: | September 30, 2022 |
Date of this report: |
Exercise price range: |
| Shares outstanding | 82,447,046 | 83,026,754 | |
| Restricted Share Units | 1,479,780 | 1,383,446 | |
| Stock options | 3,093,415 | 3,093,415 | C$1.35 - C$25.35 |
| Warrants | 3,573,727 | 3,573,727 | C$6.20 - C$30.00 |
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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RECONCILIATIONS OF NON-IFRS FINANCIAL PERFORMANCE MEASURES
The Company has presented certain non-IFRS measures in this document. The Company believes that these measures, while not a substitute for measures of performance prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. These measures do not have any standardized meaning prescribed under IFRS, and therefore may not be comparable to other issuers.
Gross Mining Margin
The Company believes that, in addition to conventional measures prepared in accordance with IFRS, it is helpful to investors to use the gross mining margin to evaluate the Company's performance and ability to generate cash flows and service debt. The Gross mining margin is defined as revenue less direct cash costs, being operating and maintenance costs. Accordingly, this measure does not have a standard meaning and is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
The following table provides illustration of the calculation of the gross mining margin for the last five quarters:
| Calculation of Gross Mining Margin: | Q2 2023 | Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | ||||||||||
| Revenue (1) | $ | 29,596,579 | $ | 44,178,526 | $ | 49,783,515 | $ | 68,844,789 | $ | 53,573,052 | |||||
| Less: | |||||||||||||||
| Operating and maintenance costs: | (13,656,022 | ) | (17,161,751 | ) | (26,910,860 | ) | (6,526,317 | ) | (7,593,349 | ) | |||||
| Gross Mining Margin | $ | 15,940,557 | $ | 27,016,775 | $ | 22,872,655 | $ | 62,318,472 | $ | 45,979,703 | |||||
| Gross Mining Margin % | 54% | 61% | 46% | 91% | 86% |
(1) As presented on the statements of income (loss) and comprehensive income (loss).
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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EBITDA & Adjusted EBITDA
The Company uses EBITDA and Adjusted EBITDA as a metric that is useful for assessing its operating performance on a cash basis before the impact of non-cash items and acquisition related activities.
EBITDA is net income or loss from operations, as reported in profit and loss, before finance income and expense, tax and depreciation and amortization.
Adjusted EBITDA is EBITDA adjusted for removing other non-cash items, including share-based compensation, non-cash effect of the revaluation of digital currencies and one-time transactions.
The following table provides illustration of the calculation of EBITDA and Adjusted EBITDA for the last five quarters:
| Calculation of EBITDA & Adjusted EBITDA: | Q2 F2023 |
Q1 F2023 |
Q4 F2022 |
Restated Q3 F2022 |
Restated Q2 F2022 |
||||||||||
| Net (loss) income | (37,037,567 | ) | (95,264,545 | ) | (33,971,684 | ) | 51,192,586 | 38,927,566 | |||||||
| Add the impact of the following: | |||||||||||||||
| Finance expense | 938,697 | 989,514 | 736,835 | 1,338,151 | 888,075 | ||||||||||
| Tax expense (recovery) | - | - | - | - | - | ||||||||||
| Depreciation | 24,322,657 | 25,752,181 | 35,503,723 | 14,992,288 | 9,626,529 | ||||||||||
| Unrealized gain (loss) on investments | - | - | - | - | - | ||||||||||
| Tax expense (recovery) | (131,000 | ) | - | 2,416,000 | - | - | |||||||||
| EBITDA | (11,907,213 | ) | (68,522,850 | ) | 4,684,874 | 67,523,025 | 49,442,170 | ||||||||
| Revaluation of digital currencies | 2,355,177 | 72,154,408 | (1,082,011 | ) | 1,083,669 | (1,702,190 | ) | ||||||||
| Revaluation of derivative liability | 192,150 | (4,371,195 | ) | (3,812,361 | ) | (590,837 | ) | (914,392 | ) | ||||||
| Change in fair value of escrow share liability | - | - | (404,489 | ) | (40,193 | ) | (86,764 | ) | |||||||
| Loss (gain) on sale of subsidiary | - | - | - | - | - | ||||||||||
| Impairment of goodwill and intangibles | - | - | 13,330,029 | - | - | ||||||||||
| Impairment of miner equipment | 26,236,544 | 6,336,558 | - | - | - | ||||||||||
| Impairment of equipment deposits | - | 4,678,000 | - | - | - | ||||||||||
| Gain on sale of mining assets | (15,401 | ) | - | (2,206,531 | ) | - | - | ||||||||
| Share-based compensation | 1,947,912 | 953,362 | 1,279,573 | 1,672,614 | 1,478,637 | ||||||||||
| Adjusted EBITDA | 18,809,169 | 11,228,283 | 11,789,084 | 69,648,278 | 48,217,461 |
(1) As presented on the statements of income (loss) and comprehensive income (loss).
RELATED PARTY TRANSACTIONS
The Company had the following related party transactions not otherwise disclosed in these consolidated financial statements:
(a) As at September 30, 2022, the Company had $nil (March 31, 2022 - $22,275) due to directors for the reimbursement of expenses included in accounts payable and accrued liabilities.
(b) As at September 30, 2022, the Company had $47,145 (March 31, 2022 - $nil) due to a company controlled by a director of the Company included in accounts payable and accrued liabilities. For the period ended September 30, 2022, the Company paid $177,968 (September 30, 2021 - $60,000) to this company for marketing services.
Key Management Compensation
Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of members of the Company's Board of Directors and corporate officers.
For the period ended September 30, 2022, key management compensation includes salaries and wages paid to key management personnel and directors of $457,852 (September 30, 2021 - $271,786) and share-based payments of $1,232,980 (September 30, 2021 - $2,282,642).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company has prepared the consolidated financial statements in accordance with IFRS. Significant accounting policies are described in Note 2 of the Company's financial statements as at and for the year ended March 31, 2022.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates.
The Company's significant judgements are detailed in Note 3 to the condensed interim consolidated financial statements for the period ended September 30, 2022, and include: functional currency, classification of digital currencies as current assets, asset acquisitions, and revenue from digital currency mining.
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Company is exposed, in varying degrees, to a variety of financial related risks. 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. The type of risk exposure and the way in which such exposure is managed is provided in Note 21 to the condensed interim consolidated financial statements for the period ended September 30, 2022.
DIGITAL CURRENCY AND RISK MANAGEMENT
Digital currencies are measured using level two fair values, determined by taking the rate from quoted price from the exchanges which the Company most frequently uses, with no adjustment.
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 coins; in addition, the Company may not be able liquidate its inventory of digital currency at its desired price if required. A decline in the market prices for coins could negatively impact the Company's future operations. The Company has not hedged the conversion of any of its coin sales or future mining of digital currencies.
Digital currencies have a limited history and their 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, Ethereum, and Ethereum Classic. The table below shows the impact for every 5% variance in the price of each of these digital currencies on the Company's earnings before tax, based on their closing prices at September 30, 2022.
| Impact of 5% variance in price | |||
| Bitcoin | $ | 3,215,285 | |
| Ethereum | 23,413 | ||
| Ethereum Classic | 7,826 |
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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RISKS AND UNCERTAINTIES
The Company faces several risks that are related to both the general cryptocurrency business as well as the Company's business model. The risk factors described below summarize and supplement the risk factors contained in the Company's continuous disclosure filings including its annual information form for the year ended March 31, 2022, and this MD&A, all of which are available on SEDAR at www.sedar.com and on the SEC's EDGAR system at www.SEC.gov/EDGAR, and should be read in conjunction with the more detailed risk factors outlined therein.
The Company is exposed to risk related to the volatility/momentum pricing of any underlying digital currency mined by the Company and held in inventory. Wide fluctuations in price, speculation, negative media coverage (highlighting for example, regulatory actions and lawsuits against industry participants) and downward pricing may adversely affect investor confidence, and ultimately, the value of the Company's digital currency inventory which may have a material adverse affect on the Company, including an adverse effect on the Company's profitability from current operations. The Company currently holds Bitcoin. Other coins that we mine using our GPU-based systems yield mining rewards in those crypto currencies, however, those coins are regularly exchanged for Bitcoin. As a result, the Company is more exposed to volatility in the Bitcoin market as well as the market of other smaller Proof-of-Work mineable digital assets.
The Company may also be exposed to volatility in the cryptocurrency industry generally, including in sectors of the crypto industry that do not directly apply to the Company's mining business but that are integral to the cryptocurrency industry as a whole. Negative developments in any aspect of the crypto industry, including trading platforms, individual coins and exposure of scams, appear to affect the market perception of the industry as a whole. As a result, the value of our stock and our Bitcoin assets may be subject to greater volatility stemming from industry developments not directly related to our mining business.
The Company is also at risk due to the volatility of network hashrates (and lag between network hashrate and underlying cryptocurrency pricing), which may have an adverse effect on the Company's costs of mining.
The Company is also at risk due to volatility in energy (electricity) pricing, a key factor in the Company's profitability of its mining operations, which is subject to, among other things, government regulation and natural occurrences (including weather) which affect pricing. The availability and pricing of energy may be negatively affected by governmental or regulatory changes in energy policies in the countries and Provinces where we operate. In addition, the Company is exposed to being negatively impacted by changes in tax policy, such as, but not limited to, being precluded from claiming back input taxes or other specific taxes imposed on cryptocurrency mining, as well as risks of losing any existing energy rebates or tax rebates across all jurisdictions.
As a measure of security against hackers, the Company holds it digital currencies in cold storage solutions not connected to the internet. The Company may not be able to access or liquidate its digital currency inventory at economic values, or, if one or more such storage solutions failed or was compromised, at all. In addition, due to the newness of the cryptocurrency industry and the regulatory environment in which conventional financial service providers operate, the Company may have restricted access to services available to more mainstream businesses (for example, banking services). The general acceptance and use of digital currencies may never gain widespread or significant acceptance in the broader financial services industry, which may materially adversely affect the value of the Company's digital currency inventory and long-term prospects.
The Company was negatively impacted by the shift in the Ethereum blockchain on September 15, 2022 (commonly referred to as the "Merge") from a "proof-of-work" mining protocol to a "proof-of-stake" blockchain. Since that date, the Company has ceased mining Ethereum and has liquidated its Ethereum holdings. While it appears unlikely that the Bitcoin blockchain, which is central to our business, could be modified in a fashion similar to the Merge, there is no assurance that subsequent technology or innovations will not negatively affect the Bitcoin blockchain or the profitability of mining Bitcoin.
The Company also faces risk relating to the impact of the timing and exchange rate fluctuations resulting from the remittance and receipt back of value added taxes where applicable, as well as risks related to the imposition and quantum of value added taxes in jurisdictions where the Company operates. Due to the newness of the industry, there exists the possibility that the tax treatment of digital currencies becomes less favourable, which could have a material adverse effect on the Company.
The Company may be required to sell its digital currency inventory (principally Bitcoin) in order to pay for its ongoing expenses. In particular, such expenses could include contractual obligations for equipment purchases and the cost of maintaining the Company's facilities. Such sales of our crypto currency assets may not be available at economic values. The sale of our digital currency assets to pay expenses may reduce the attractiveness of the Company as an investment, which would negatively impact our share price.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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Given the novelty of digital currency mining and associated businesses, insurance covering crypto assets is generally not available, or uneconomical for the Company to obtain. As a result, we may have inadequate insurance coverage. While the Company takes measures to mitigate against losses of physical equipment, facility damage and mined digital currency held in inventory, our insurance may be inadequate to cover such losses, especially the loss of digital currency. In particular, we may be unduly exposed to loss as a result of cybercrime (hacking).
In terms of regulatory risks, governments may take action in the future that prohibit or restrict the right to acquire, own, hold, sell, use, mine or trade digital currencies or exchange digital currencies for fiat currency. Such restrictions, while impossible to predict, could result in the Company liquidating its digital currencies inventory at unfavorable prices or constricting its mining operations or even relocating its operations to friendlier jurisdictions which may entail additional security risks. . The Company may liquidate a portion of its digital currency inventory, partially, to mitigate the aforementioned risk.
The Company also has risks associated with the continually evolving tax and regulatory environments in the countries where we operate, as described more fully under the heading "Industry subject to evolving regulatory and tax landscape" in the Outlook section above. Any final decisions by tax or regulatory agencies with jurisdiction over the Company may have a material adverse impact on the Company's financial position and operations.
Some jurisdictions have taken steps to limit or disallow entirely the use of fossil fuels to generate energy for crypto currency mining. Some jurisdictions have indicated that in the event their electrical grids are over-taxed by demand for electricity, allocation of power to crypto currency mining would be one of the first allocations to be curtailed or eliminated during periods of high demand. While the Company's facilities are located in jurisdictions that have historically been friendly to crypto mining, there is no assurance that such policies will continue and the Company notes an increased perception of anti-crypto and anti-crypto mining sentiment across all jurisdictions. In particular, the political environment may be subject to change as aging electrical grids are called upon to carry more electricity to meet seasonal demands and evolving demands related to the growth in electric vehicles, among other factors.
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, several cryptocurrency exchanges have been closed due to fraud, business failure or security breaches. For instance, in early 2019, the QuadrigaCX trading platform ("Quadriga") ceased operations, which the Ontario Securities Commission attributed largely to fraudulent activity of its co-founder and CEO, Gerald Cotton. Quadriga subsequently filed for creditor protection. Clients of Quadriga were owed approximately an aggregate of $215 million and only approximately $46 million was recovered to pay such clients. In November 2022, it was reported that the FTX Group cryptocurrency exchange, one of the largest cryptocurrency exchanges in the world, filed for voluntary Chapter 11 bankruptcy proceedings in the United States, following reports published just days earlier that FTX was facing liquidity challenges. In many of these instances, the customers of the closed exchanges are not compensated or made whole for the partial or complete losses of their account balances. 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 Company cautions that current global uncertainty with respect to the spread of the COVID-19 virus and its effect on the broader global economy may have a significant negative effect on the Company. In particular, as a result of the uncertainty surrounding the impact of COVID-19 on global supply chains, including increased shipping costs and delays in obtaining equipment from China, the Company faces risks that the Company's program to update and expand the Company's ASIC equipment will not be completed and delivered as currently anticipated, which may cause material adverse effects on the Company's operations and results. Further, while the precise impact of the COVID-19 virus on the Company remains unknown, rapid spread of the COVID-19 virus may have a material adverse effect on global economic activity and could result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Company.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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CAUTION REGARDING FORWARD LOOKING INFORMATION
This Management Discussion and Analysis contains certain "forward-looking information" within the meaning of Canadian and United States securities legislation. Forward-looking information is based on the beliefs, estimates and opinions of the Company's management on the date the statements are made, and they involve a number of risks and uncertainties. Consequently, there can be no assurances that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Forward-looking information in this Management Discussion and Analysis includes information about the Company's use and profitability of the Company's computing power; plans for growth and scaling up strategies; the Company's strategic partnerships expected enhancements in the efficiency of the Company's ASIC mining operations; the Company's strategy to acquire, develop and operate data centres and potential growth of the Company's computing capacity; including timing thereof; expected electrical and mining capacity; the Company's plans to manage its data centres and trading operations from Bermuda; the value of the Company's digital currency inventory; the business goals and objectives of the Company, and other forward-looking information including but not limited to information concerning the intentions, plans and future actions of the Company.
The forward-looking information in this Management Discussion and Analysis reflects the current expectations, assumptions and/or beliefs of the Company based on information currently available to the Company. In connection with the forward-looking information contained in this Management Discussion and Analysis, the Company has made assumptions about the expected delivery time for ASIC equipment; historical prices of digital currencies and the ability of the Company to mine digital currencies in an environment consistent with historical prices; and that there will be no regulation or law that will prevent the Company from operating its business as it currently is operated. The Company has also assumed that no significant events occur outside of the Company's normal course of business. Although the Company believes that the assumptions inherent in the forward-looking information are reasonable, forward-looking information is not a guarantee of future performance and accordingly undue reliance should not be put on such information due to the inherent uncertainty therein.
This Management Discussion and Analysis also contains a "financial outlook" in the form of gross mining margins, which are intended to provide additional information only and may not be an appropriate or accurate predictions of future performance and should not be used as such. The gross mining margins disclosed in this Management Discussion and Analysis are based upon management's best estimates but are inherently speculative and there is no guarantee that such assumptions and estimates will prove to be correct.
Risk factors that could cause future results to differ materially from those anticipated in these forward-looking statements and financial outlook are described in the Risk Factors contained in this Management Discussion and Analysis, and the Risk Factors contained the Company's various filings on SEDAR (www.sedar.com) and EDGAR (www.sec.gov/EDGAR). Readers are cautioned not to place undue reliance on forward-looking information or financial outlook, which speak only as of the date hereof or thereof. We undertake no obligation to publicly release the results of any revisions to forward-looking information or financial outlook that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events except as required by law.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
In connection with National Instrument ("NI") 52-109 (Certification of Disclosure in Issuer's Annual and Interim Filings) adopted in December 2008 by each of the securities commissions across Canada, the Chief Executive Officer and Chief Financial Officer of the Company will file a Full Certificate in accordance with Form 52-109F1 with respect to the financial information contained in the unaudited condensed interim financial statements and the audited annual financial statements and respective accompanying Management's Discussion and Analysis.
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HIVE Blockchain Technologies Ltd. September 30, 2022 Expressed in US Dollars unless otherwise indicated |
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Evaluation of Disclosure Controls and Procedures
No changes were made in the Company' design of internal controls over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting except as follows. The Company has hired an additional member to its internal accounting department during this quarter, making two new members hired in the last 8 months.
Inherent Limitations of the Effectiveness of Internal Control
Due to inherent limitations in all controls systems, a control system can provide only reasonable, not absolute, assurance that the objective of the control system is met and may not prevent or detect misstatements or instances of fraud. Management's estimates may be incorrect, or assumptions about future events may be incorrect, resulting in varying results. Additionally, controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people or by Management override.
Additional information relating to the Company is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/EDGAR.
FURTHER INFORMATION
Additional information relating to the Company, including filings that the Company has made and may make in the future with applicable securities authorities, may be found on or through SEDAR at www.sedar.com, EDGAR at www.sec.gov/EDGAR or the Company's website at www.hiveblockchain.com. Additional information, including directors' and officers' remuneration and indebtedness, principal holders of Company's securities and securities authorized for issuance under equity compensation plans, is also contained in the Company's most recent management information circular for the most recent annual meeting of Shareholders of the Company. In addition to press releases, securities filings and public conference calls and webcasts, the Company intends to use its investor relations page on its website as a means of disclosing material information to its investors and others and for complying with its disclosure obligations under applicable securities laws. Accordingly, investors and others should monitor the website in addition to following the Company's press releases, securities filings, and public conference calls and webcasts. This list may be updated from time to time.
SUBSEQUENT EVENTS
Subsequent to the period ended September 30, 2022, the Company issued 483,375 common shares (the " ATM Shares") pursuant to the 2022 ATM Equity Program for gross proceeds of $1,667,058 (CAD $2,176,493). The ATM Shares were sold at prevailing market prices, for an average price per ATM Share of C$3.45. Pursuant to the 2022 Equity Distribution Agreement, a cash commission of $50,050 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the 2022 Equity Distribution Agreement.
Subsequent to the period ended September 30, 2022 the Company issued 96,334 common shares upon exercise of restricted share units.
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
INTERIM CERTIFICATE
I, Frank Holmes, Interim Chief Executive Officer of HIVE Blockchain Technologies Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of HIVE Blockchain Technologies Ltd. (the "issuer") for the interim period ended September 30, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings:
a. designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:
i. material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
ii. ii. information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and b. designed ICFR, or caused it 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 the issuer's GAAP.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on July 1, 2022 and ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
DATED the 14th day of November, 2022.
/s/ Frank Holmes
Frank Holmes
Interim Chief Executive Officer
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
INTERIM CERTIFICATE
I, Darcy Daubaras, Chief Financial Officer of HIVE Blockchain Technologies Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of HIVE Blockchain Technologies Ltd. (the "issuer") for the interim period ended September 30, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings:
a. designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:
i. material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
ii. information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
b. designed ICFR, or caused it 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 the issuer's GAAP.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on July 1, 2022 and ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
DATED the 14th day of November, 2022.
/s/ Darcy Daubaras
Darcy Daubaras
Chief Financial Officer