HIVE Digital Technologies Ltd 6-K, filed Nov 13, 2023
HIVE Digital Technologies Ltd. (HIVE)
About this 6-K
HIVE Digital Technologies Ltd filed this 6-K on November 13, 2023.
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, 2023
Commission File Number: 001-40398
HIVE Digital 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): [ ]
Exhibits 99.1, 99.2 and 99.5 to this Report on Form 6-K are incorporated by reference into the Registration Statement on Form F-10 of the Registrant, which was originally filed with the Securities and Exchange Commission on August 17, 2023 (File No. 333- 274054).
EXHIBIT INDEX
SIGNATURES
| HIVE DIGITAL TECHNOLOGIES LTD. | ||
| By: | /s/ Darcy Daubaras | |
| Name: | Darcy Daubaras | |
| Title: | Chief Financial Officer | |
Date: November 13, 2023
HIVE Digital Technologies Ltd.
(formerly, HIVE Blockchain Technologies Ltd.)
Condensed Interim Consolidated Financial Statements
For the three and six months ended September 30, 2023 and 2022
(In thousands of U.S. dollars)
(Unaudited)
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Condensed Interim Consolidated Statements of Financial Position (In thousands of US dollars) (Unaudited) |
 |
| September 30, | March 31, | ||||||
| Notes | 2023 | 2023 | |||||
| Assets | |||||||
| Current assets | |||||||
| Cash | $ | 4,544 | $ | 4,373 | |||
| Amounts receivable and prepaids | 5 | 10,028 | 9,354 | ||||
| Investments | 4 | 2,492 | 2,866 | ||||
| Digital currencies | 6 | 46,890 | 65,899 | ||||
| 63,954 | 82,492 | ||||||
| Plant and equipment | 7 | 86,728 | 87,228 | ||||
| Long term receivable | 5 | 5,660 | 5,815 | ||||
| Deposits, net of provision | 8 | 4,010 | 9,542 | ||||
| Right of use asset | 13 | 9,605 | 10,973 | ||||
| Intangible assets | - | 67 | |||||
| Total assets | $ | 169,957 | $ | 196,117 | |||
| Liabilities and equity | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued liabilities | 10 | $ | 9,235 | $ | 9,354 | ||
| Current portion of convertible loan - liability component | 9 | 1,396 | 1,175 | ||||
| Current portion of lease liability | 13 | 2,347 | 2,330 | ||||
| Term loan | 12 | 6,445 | 7,139 | ||||
| Current portion of loans payable | 11 | 1,335 | 1,224 | ||||
| Current income tax liability | 4,647 | 1,846 | |||||
| 25,405 | 23,068 | ||||||
| Convertible loan - liability component | 9 | 2,793 | 3,554 | ||||
| Convertible loan - derivative component | 9 | 208 | 482 | ||||
| Loans payable | 11 | 11,333 | 11,854 | ||||
| Lease liability | 13 | 6,737 | 8,138 | ||||
| Deferred tax liability | 578 | 206 | |||||
| Total liabilities | 47,054 | 47,302 | |||||
| Equity | |||||||
| Share capital | 16 | 427,912 | 419,213 | ||||
| Equity reserve | 24,597 | 18,864 | |||||
| Accumulated other comprehensive income | 7,860 | 7,404 | |||||
| Accumulated deficit | (337,466 | ) | (296,666 | ) | |||
| Total equity | 122,903 | 148,815 | |||||
| Total liabilities and equity | $ | 169,957 | $ | 196,117 |
Nature of operations (Note 1)
Commitments and contingencies (Note 14)
Subsequent events (Note 26)
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Condensed Interim Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income (In thousands of US dollars, except share and per share data)(Unaudited) |
|
| Three months ended Sept 30, | Six months ended Sept 30, | ||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||
| Notes | Revised - Note 24 | ||||||||||||
| Revenue from digital currency mining | 6 | $ | 22,514 | $ | 29,597 | $ | 45,858 | $ | 73,776 | ||||
| Other revenue | 253 | - | 474 | - | |||||||||
| 22,767 | 29,597 | 46,332 | 73,776 | ||||||||||
| Cost of sales | |||||||||||||
| Operating and maintenance costs | (18,134 | ) | (13,656 | ) | (33,719 | ) | (30,818 | ) | |||||
| Depreciation | 7,13 | (16,567 | ) | (24,323 | ) | (33,050 | ) | (50,075 | ) | ||||
| (11,934 | ) | (8,382 | ) | (20,437 | ) | (7,117 | ) | ||||||
| Revaluation of digital currencies | 6 | (422 | ) | (2,510 | ) | (422 | ) | (73,210 | ) | ||||
| (Loss) gain on sale of digital currencies | 6 | (2,254 | ) | 3,549 | (2,829 | ) | (18,751 | ) | |||||
| Expenses | |||||||||||||
| General and administrative | 19 | (3,563 | ) | (3,236 | ) | (6,330 | ) | (6,601 | ) | ||||
| Foreign exchange (loss) gain | (354 | ) | 7,091 | 1,091 | 3,434 | ||||||||
| Share-based compensation | 16 | (4,044 | ) | (1,948 | ) | (6,017 | ) | (2,901 | ) | ||||
| (7,961 | ) | 1,907 | (11,256 | ) | (6,068 | ) | |||||||
| Unrealized gain (loss) on investments | 4 | 34 | (1,001 | ) | (631 | ) | (9,684 | ) | |||||
| Change in fair value of derivative liability | 9 | 417 | (192 | ) | 274 | 4,179 | |||||||
| Impairment of equipment | 7 | - | (26,236 | ) | - | (32,573 | ) | ||||||
| Impairment of deposits | 8 | - | - | - | (4,678 | ) | |||||||
| Gain (loss) on sale of equipment | 26 | 15 | (241 | ) | 15 | ||||||||
| Other expenses | (11 | ) | - | (122 | ) | - | |||||||
| Finance expense | 18 | (838 | ) | (938 | ) | (1,717 | ) | (1,928 | ) | ||||
| Net loss before tax for the period | (22,943 | ) | (33,788 | ) | (37,381 | ) | (149,815 | ) | |||||
| Tax (expense) recovery | (1,605 | ) | 131 | (3,419 | ) | 131 | |||||||
| Net loss for the period | $ | (24,548 | ) | $ | (33,657 | ) | $ | (40,800 | ) | $ | (149,684 | ) | |
| Other comprehensive (loss) income | |||||||||||||
| Other comprehensive (loss) income to be reclassified to profit or loss in subsequent periods: | |||||||||||||
| Revaluation of digital currencies | 6 | $ | (4,310 | ) | $ | - | $ | 58 | $ | - | |||
| Translation adjustment | (437 | ) | (531 | ) | 398 | 569 | |||||||
| Net loss and comprehensive loss for the period | $ | (29,295 | ) | $ | (34,188 | ) | $ | (40,344 | ) | $ | (149,115 | ) | |
| Basic loss per share | $ | (0.29 | ) | $ | (0.41 | ) | $ | (0.48 | ) | $ | (1.82 | ) | |
| Diluted loss per share | $ | (0.29 | ) | $ | (0.41 | ) | $ | (0.48 | ) | $ | (1.82 | ) | |
| Weighted average number of common shares outstanding | |||||||||||||
| Basic | 17 | 85,052,418 | 82,253,061 | 84,614,638 | 82,247,555 | ||||||||
| Diluted | 17 | 85,052,418 | 82,253,061 | 84,614,638 | 82,247,555 | ||||||||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Condensed Interim Consolidated Statements of Changes in Equity (In thousands of US dollars, except shares issued) (Unaudited) |
|
| Share capital | Accumulated other | |||||||||||||||||
| Equity | comprehensive | Accumulated | Total | |||||||||||||||
| Shares issued | Amount | reserve | income | deficit | equity | |||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||
| At March 31, 2022 | 82,241,988 | 413,660 | 12,236 | 23,399 | (60,244 | ) | 389,053 | |||||||||||
| Share-based compensation | - | - | 1,769 | - | - | 1,769 | ||||||||||||
| Vesting of restricted stock units | 7,000 | 123 | 1,010 | - | - | 1,133 | ||||||||||||
| Shares offering | 108,779 | 422 | - | - | - | 422 | ||||||||||||
| Subscription receivable | 89,279 | 342 | - | - | - | 342 | ||||||||||||
| Loss for the period | - | - | - | - | (149,684 | ) | (149,684 | ) | ||||||||||
| Translation adjustment | - | - | - | 569 | - | 569 | ||||||||||||
| Realized loss on digital currencies | - | - | - | (15,111 | ) | - | (15,111 | ) | ||||||||||
| At September 30, 2022 (revised - Note 24) | 82,447,046 | 414,547 | 15,015 | 8,857 | (209,928 | ) | 228,493 | |||||||||||
| At March 31, 2023 | 84,172,711 | 419,213 | 18,864 | 7,404 | (296,666 | ) | 148,815 | |||||||||||
| Share-based compensation | - | - | 6,017 | - | - | 6,017 | ||||||||||||
| Shares offering | 1,987,237 | 8,734 | - | - | - | 8,734 | ||||||||||||
| Vesting of restricted stock units | 52,400 | 239 | (239 | ) | - | - | - | |||||||||||
| Issuance costs | - | (372 | ) | - | - | - | (372 | ) | ||||||||||
| Exercise of options | 12,500 | 98 | (45 | ) | - | - | 53 | |||||||||||
| Loss for the period | - | - | - | - | (40,800 | ) | (40,800 | ) | ||||||||||
| Translation adjustment | - | - | - | 398 | - | 398 | ||||||||||||
| Revaluation gain on digital currencies | - | - | - | 58 | - | 58 | ||||||||||||
| At September 30, 2023 | 86,224,848 | 427,912 | 24,597 | 7,860 | (337,466 | ) | 122,903 | |||||||||||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Condensed Interim Consolidated Statements of Cash Flows (In thousands of US dollars)(Unaudited) |
|
| For the six months ended September 30, | ||||||
| 2023 | 2022 | |||||
| Revised - Note 24 | ||||||
| Operating activities | ||||||
| Net loss for the period: | $ | (40,800 | ) | $ | (149,684 | ) |
| Adjusted for: | ||||||
| Revenue recognized from digital currency mined | (45,858 | ) | (73,776 | ) | ||
| Depreciation and amortization | 33,050 | 50,075 | ||||
| Unrealized loss on investments | 631 | 9,684 | ||||
| Change in fair value of derivative liability | (274 | ) | (4,179 | ) | ||
| Impairment of equipment | - | 32,573 | ||||
| Impairment of deposits | - | 4,678 | ||||
| Loss on sale of equipment | 241 | - | ||||
| Accretion on convertible debt | 964 | 777 | ||||
| Tax expense (recovery) | 3,419 | (131 | ) | |||
| Share-based compensation | 6,017 | 2,901 | ||||
| Interest expense | 466 | 219 | ||||
| Foreign exchange | (449 | ) | 324 | |||
| Changes in non-cash working capital items: | ||||||
| Amounts receivable and prepaids | (519 | ) | 278 | |||
| Taxes payable | - | (127 | ) | |||
| Digital currencies | 64,925 | 157,311 | ||||
| Accounts payable and accrued liabilities | (365 | ) | 3,929 | |||
| Cash provided by operating activities | 21,448 | 34,852 | ||||
| Investing activities | ||||||
| Deposits on equipment | (3,834 | ) | (2,711 | ) | ||
| Investments | (250 | ) | - | |||
| Proceeds on disposal of equipment | 320 | - | ||||
| Purchase of equipment | (22,303 | ) | (11,058 | ) | ||
| Cash used in investing activities | (26,067 | ) | (13,769 | ) | ||
| Financing activities | ||||||
| Exercise of options | 53 | - | ||||
| Shares offering, net of issuance costs | 8,362 | - | ||||
| Repayment of loan | (706 | ) | (583 | ) | ||
| Repayment of debenture | (1,504 | ) | (974 | ) | ||
| Lease payments made | (1,397 | ) | (680 | ) | ||
| Cash provided by (used in) financing activities | 4,808 | (2,237 | ) | |||
| Effect of exchange rate changes on cash | (18 | ) | (233 | ) | ||
| Net change in cash during the period | 171 | 18,613 | ||||
| Cash, beginning of period | 4,373 | 5,319 | ||||
| Cash, end of period | $ | 4,544 | $ | 23,932 | ||
| Supplemental disclosures: | $ | |||||
| Interest paid | $ | 920 | 810 | |||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
1. Nature of Operations
HIVE Digital 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 "YO0.F". On July 12, 2023 the Company completed a name change from HIVE Blockchain Technologies Ltd. to HIVE Digital Technologies Ltd. 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 center equipment in Iceland. Following the initial acquisition, the Company acquired additional data center 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 center in Quebec, Canada, and on April 15, 2021 the Company acquired a data center 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 with third party custodians or exchanges that are limited in oversight by regulatory authorities.
On May 24, 2022, the Company affected the consolidation of its common shares (Note 16) based on one post-consolidation common share for each five pre-consolidated common shares. The impact was reflected and adjusted such that 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 and Material Accounting Policies
(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, 2023, annual audited financial statements, unless otherwise noted. 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 cost basis except for the convertible loan - derivative component and digital assets that have been measured at fair value. In addition, these condensed interim consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information. The condensed interim consolidated financial statements are presented in United States dollars ("US dollars" or "$"), except where otherwise indicated.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
2. Basis of Presentation and Material Accounting Policies (continued…)
(a) Statement of Compliance (continued...)
The Company is in the business of the mining and sale of digital currencies to upgrade, expand, and scale up its mining operations, 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 de-recognition, 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 10, 2023.
(b) New Accounting Standards Adopted by the Company
Amendment to IAS 12 - deferred tax related to assets and liabilities arising from a single transaction
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). The amendments narrowed the scope of the initial recognition exemption to exclude transactions that give rise to equal and offsetting temporary differences. The amendments are effective for annual periods beginning on or after January 1, 2023, with early adoption permitted.
Amendments to IAS 1, Practice statement 2 and IAS 8
Presentation of Financial Statements was amended to clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period and specifies that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability. The amendments are effective January 1, 2023 with early application permitted. The amendments are required to be adopted retrospectively.
Amendments to IAS 1, Presentation of financial statements', on classification of liabilities
In February 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8). The amendments introduced a definition of accounting estimates and included other amendments to help entities distinguish changes in accounting estimates from changes in accounting policies. The amendments are effective for annual periods beginning on or after January 1, 2023, with early adoption permitted.
Amendments to IAS 1 Amendments to IAS 1 clarify how to classify debt and other liabilities as current or non-current.
The amendments help to determine whether, in the condensed interim consolidated financial statements, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments also include clarifying the classification requirements for debt an entity might settle by converting it into equity. Amendments to IAS 1 specify that covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Instead, the amendments require to disclose information about these covenants in the notes to the financial statements.
The adoption of the amendments listed above did not have a significant impact on the Company's condensed interim consolidated financial statements.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
2. Basis of Presentation and Material Accounting Policies (continued…)
(c) Future Accounting Standards
Amendments to IAS 21 - Lack of Exchangeability
An entity is impacted by the amendments when it has a transaction or an operation in a foreign currency that is not exchangeable into another currency at a measurement date for a specified purpose. A currency is exchangeable when there is an ability to obtain the other currency (with a normal administrative delay), and the transaction would take place through a market or exchange mechanism that creates enforceable rights and obligations. These amendments are effective for annual periods beginning on or after 1 January 2025 (early adoption is available).
Amendment to IAS 1 - Non-current liabilities with covenants
These amendments clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. The amendments also aim to improve information an entity provides related to liabilities subject to these conditions. These amendments are effective for annual periods beginning on or after 1 January 2024.
Amendment to IFRS 16 - Leases on sale and leaseback
These amendments include requirements for sale and leaseback transactions in IFRS 16 to explain how an entity accounts for a sale and leaseback after the date of the transaction. Sale and leaseback transactions where some or all the lease payments are variable lease payments that do not depend on an index or rate are most likely to be impacted, These amendments are effective for annual periods beginning on or after 1 January 2024.
The Company continues to review changes to IFRS standards. There are no other pending IFRSs or IFRIC interpretations that are expected to be relevant to the Company's condensed interim consolidated financial statements.
3. Significant Estimates and Judgements
The preparation of the unaudited condensed interim consolidated financial statements necessitates management to make various judgments, estimates, and assumptions regarding the recognition and measurement of assets, liabilities, income, and expenses. These judgments and estimates are based on management's best understanding of future events, circumstances, and potential actions taken by the Company. It should be noted that the actual results may deviate from these assumptions and estimates.
The assessments and underlying assumptions are regularly reviewed. If any revisions are made to the assumptions or estimates and they only affect the current period, they are recognized in that particular period. However, if the revisions impact both the current and future periods, they are recognized in the period of the revision and in subsequent periods.
The significant judgments made by management while applying the Company's accounting policies and the primary sources of estimation uncertainty remain consistent with those outlined in the audited annual consolidated financial statements for the year ended March 31, 2023.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
4. Investments
As at September 30, 2023 the Company holds a number of non-material investments in both private and public companies. 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.
The continuity of investments was as follows:
| Investments | |||
| Balance, March 31, 2022 | $ | 17,001 | |
| Unrealized loss on investments | (13,432 | ) | |
| Foreign exchange | (703 | ) | |
| Balance, March 31, 2023 | $ | 2,866 | |
| Additions | 250 | ||
| Unrealized loss on investments | (631 | ) | |
| Foreign exchange | 7 | ||
| Balance, September 30, 2023 | $ | 2,492 |
5. Amounts Receivable and Prepaids
|
September 30, 2023 |
March 31, 2023 | ||||||
| Sales tax receivable ** | $ |
8,767 |
$ |
8,694 |
|||
| Prepaid expenses and other receivables |
5,105 |
4,659 |
|||||
| Receivable on sale of subsidiary* |
1,816 |
1,816 |
|||||
| Total | $ |
15,688 |
$ |
15,169 |
|||
| Less: current portion |
(10,028 |
) |
(9,354 |
) | |||
| Long term portion | $ |
5,660 |
$ |
5,815 |
|||
* 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; 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.
** Includes VAT receivable of $3.8 million (March 31, 2023 - $4.0 million) which is conditional upon ruling by the Swedish Tax Authority related to an ongoing value added tax process. If the ruling is favourable; amounts will be received; otherwise, the amounts will not be collectible. If the ruling of the Swedish Tax Authority goes against the Company, then the full amount may be payable including other items such as interest and penalties. See Note 14.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
6. 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 consist of the following:
| September 30, 2023 | March 31, 2023 | |||||
| Bitcoin | $ | 46,707 | $ | 65,772 | ||
| Ethereum Classic | 94 | 117 | ||||
| Other coins | 89 | 10 | ||||
| Total | $ | 46,890 | $ | 65,899 | ||
The continuity of digital currencies was as follows:
| Bitcoin | Amount | Number of coins | ||||
| Digital currencies, March 31, 2022 | $ | 117,669 | 2,596 | |||
| Digital currency mined | 77,482 | 3,258 | ||||
| Digital currency sold | (70,997 | ) | (3,522 | ) | ||
| Revaluation adjustment | (58,382 | ) | - | |||
| Digital currencies, March 31, 2023 | 65,772 | 2,332 | ||||
| Digital currency mined | 45,837 | 1,635 | ||||
| Digital currency sold | (64,504 | ) | (2,229 | ) | ||
| Revaluation adjustment | (398 | ) | - | |||
| Digital currencies, September 30, 2023 | $ | 46,707 | 1,738 | |||
| Ethereum | Amount | Number of coins | ||||
| Digital currencies, March 31, 2022 | $ | 52,302 | 16,165 | |||
| Digital currency mined | 28,424 | 14,984 | ||||
| Digital currency sold | (68,257 | ) | (31,149 | ) | ||
| Revaluation adjustment | (12,469 | ) | - | |||
| Digital currencies, March 31, 2023 and September 30, 2023 | $ | - | - | |||
| Ethereum Classic | Amount | Number of coins | ||||
| Digital currencies, March 31, 2022 | $ | 29 | 625 | |||
| Digital currency mined | 172 | 6,180 | ||||
| Digital currency sold | (45 | ) | (1,087 | ) | ||
| Revaluation adjustment | (39 | ) | - | |||
| Digital currencies, March 31, 2023 | 117 | 5,718 | ||||
| Digital currency mined | 1 | 25 | ||||
| Revaluation adjustment | (24 | ) | - | |||
| Digital currencies, September 30, 2023 | $ | 94 | 5,743 |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
6. Digital Currencies (continued…)
During the three and six months ended September 30, 2023, the Company sold digital currencies for proceeds totalling $28.2 million and $61.7 million, respectively (September 30, 2022 - $37.3 million and $71.8 million, respectively) and recorded a loss on sale of $2.3 million and $2.8 million, respectively (September 30, 2022 - gain on sale of $3.5 million and loss on sale of $18.8 million, respectively).
The Company reclassified a surplus of $nil from accumulated other comprehensive income (September 30, 2022 - $15.1 million) in connection to the revaluation gain on its digital currencies.
7. Plant and Equipment
| Building and | ||||||||||||
| Cost | Equipment | Land | Leaseholds | Total | ||||||||
| Balance, March 31, 2022 | $ | 306,802 | $ | 663 | $ | 17,538 | $ | 325,003 | ||||
| Disposals | (9,587 | ) | - | - | (9,587 | ) | ||||||
| Additions | 55,353 | - | 10,296 | 65,649 | ||||||||
| Impairment | (119,033 | ) | - | - | (119,033 | ) | ||||||
| Foreign exchange on translation | (4,348 | ) | - | (1,307 | ) | (5,655 | ) | |||||
| Balance, March 31, 2023 | $ | 229,187 | $ | 663 | $ | 26,527 | $ | 256,377 | ||||
| Disposals | (3,497 | ) | - | - | (3,497 | ) | ||||||
| Additions | 31,070 | - | 238 | 31,308 | ||||||||
| Foreign exchange on translation | (123 | ) | - | 11 | (112 | ) | ||||||
| Balance, September 30, 2023 | $ | 256,637 | $ | 663 | $ | 26,776 | $ | 284,076 | ||||
| Building and | ||||||||||||
| Accumulated depreciation | Equipment | Land | Leaseholds | Total | ||||||||
| Balance, March 31, 2022 | $ | 146,670 | $ | - | $ | 790 | $ | 147,460 | ||||
| Disposals | (6,250 | ) | - | - | (6,250 | ) | ||||||
| Depreciation | 76,739 | - | 2,213 | 78,952 | ||||||||
| Impairment | (48,623 | ) | - | - | (48,623 | ) | ||||||
| Foreign exchange on translation | (2,300 | ) | - | (89 | ) | (2,389 | ) | |||||
| Balance, March 31, 2023 | $ | 166,236 | $ | - | $ | 2,914 | $ | 169,150 | ||||
| Disposals | (2,936 | ) | - | - | (2,936 | ) | ||||||
| Depreciation | 30,474 | - | 1,134 | 31,608 | ||||||||
| Foreign exchange on translation | (432 | ) | - | (42 | ) | (474 | ) | |||||
| Balance, September 30, 2023 | $ | 193,342 | $ | - | $ | 4,006 | $ | 197,348 | ||||
| Carrying amount | ||||||||||||
| Balance, March 31, 2023 | $ | 62,951 | $ | 663 | $ | 23,613 | $ | 87,227 | ||||
| Balance, September 30, 2023 | $ | 63,295 | $ | 663 | $ | 22,770 | $ | 86,728 |
During the three and six month period ended September 30, 2022, the Company recorded an impairment on miner equipment of $26.2 million and $32.6 million, respectively. The impairment was based on an assessment of the performance of the equipment in relation to prevailing replacement costs. There were no indicators of impairment for the three and six month period ended September 30, 2023.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
8. Deposits
The deposits relate to required amounts on account with electricity providers in Sweden and for equipment purchases, consisting of:
| Description | September 30, 2023 | March 31, 2023 | ||||
| Bodens Energi | $ | 209 | $ | 217 | ||
| Equipment Deposits | 14,755 | 35,431 | ||||
| Vattenfall AB | 1,177 | 1,225 | ||||
| 16,141 | 36,873 | |||||
| Equipment deposit provision | (12,131 | ) | (27,331 | ) | ||
| Total | $ | 4,010 | $ | 9,542 |
The Company is exposed to counterparty risk through the advances made for certain mining equipment ("Deposits") it places with its suppliers in order to secure orders over a set delivery schedule. The risk of a supplier failing to meet its contractual obligations may result in late deliveries and/or the value of the deposits is not realised as a result of non delivery of equipment or delivery of equipment with reduced quality. The Company attempts to mitigate this risk by procuring mining hardware from the established suppliers and with whom the Company has existing relationships and knowledge of their reputation in the market.
During the three and six month period ended September 30, 2023, the Company recorded impairment on the equipment deposits of $nil (September 30, 2022 - $nil and $4.7 million, respectively). The impairment is based on the counterparty risk of delivery, efficiency of machines expected use of the machines and the expected quantity and quality of the equipment to be received.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
9. 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 million 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 C$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 C$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 Digital Technologies Ltd. is Canadian dollars and the Convertible Loan is denominated in US dollars, therefore the number 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 million first to the derivative component for $8.6 million, with the residual value to the liability component for $6.4 million. 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 life of 2.71 years; a forfeiture rate of zero; and an expected dividend of zero.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
9. Convertible Loan (continued…)
Liability Component
| Balance, March 31, 2022 | $ | 5,599 | |
| Principal payment | (3,000 | ) | |
| Interest payment | (817 | ) | |
| Accretion and interest | 2,947 | ||
| Balance, March 31, 2023 | 4,729 | ||
| Principal payment | (1,504 | ) | |
| Interest payment | (321 | ) | |
| Accretion and interest | 1,285 | ||
| Balance, September 30, 2023 | 4,189 | ||
| Less: Current portion | (1,396 | ) | |
| Non-current portion | $ | 2,793 |
Derivative Component
| Balance, March 31, 2022 | $ | 4,986 | ||
| Change in fair value of liability | (4,504 | ) | ||
| Balance, March 31, 2023 | 482 | |||
| Change in fair value of liability | (274 | ) | ||
| Balance, September 30, 2023 | $ | 208 | ||
The derivative component is remeasured each reporting period. As at September 30, 2023, the derivative component was revalued at $0.2 million (March 31, 2023 - $0.5 million) using the Black-Scholes option pricing model with the following assumptions: share price of C$4.19 (March 31, 2023 - C$4.46) an expected weighted average risk-free interest rate of 4.88% (March 31, 2023 - 3.71%); an expected weighted average volatility of 82% (March 31, 2023 - 97%); and an expected weighted average life of 1.36 years (March 31, 2023 - 1.61 years). For the three and six months period ended September 30, 2023, the Company recorded a gain in the change in the fair value of the derivative liability of $0.4 million and $0.3 million, respectively (September 30, 2022 - loss of $0.2 million and gain of $4.2 million).
10. Accounts Payable and Accrued Liabilities
The components of accounts payable and accrued liabilities are as follows:
| September 30, 2023 | March 31, 2023 | |||||
| Accounts payable | $ | 6,844 | $ | 6,859 | ||
| Accrued liabilities | 1,799 | 2,362 | ||||
| Other payable | 592 | 133 | ||||
| Total | $ | 9,235 | $ | 9,354 | ||
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
11. Loans Payable
On March 31, 2021, as part of the sale of the net assets in Boden Technologies AB, the Company incurred a loan payable. The facility bears interest at the Swedish government borrowing rate plus 1% per annum and has a maturity date of December 31, 2035. Principal payment plus interest is payable annually. The loan payable is contingently forgiven based on a favourable ruling from the Swedish Tax Authority on the ongoing value tax assessment.
A continuity of the loan balances are as follows:
| Boden | |||
| Balance, March 31, 2022 | $ | 15,692 | |
| Interest | 223 | ||
| Repayment | (1,272 | ) | |
| Foreign exchange movement | (1,566 | ) | |
| Balance, March 31, 2023 | 13,077 | ||
| Interest | 186 | ||
| Foreign exchange movement | (595 | ) | |
| Balance, September 30, 2023 | 12,668 | ||
| Less: Current portion | (1,335 | ) | |
| Non-current portion | $ | 11,333 |
12. Term Loan
As part of the Atlantic acquisition, the Company acquired a $11.0 million (C$13.6 million) term loan. The facility bears interest at 3.33% per annum and a maturity date of June 30, 2024. Principal payments of C$0.2 million plus interest is payable monthly.
The term loan has financial ratios and minimum tangible asset covenants that must be maintained by Hive Atlantic Datacentres Ltd. As at September 30, 2023, the covenant to maintain a ratio of total debt to tangible net worth equal to or less than 2:1 was not met. The outstanding balance is presented as a currently liability as at September 30, 2023. The lender has not requested early repayment of the loan as of the date when these financial statements were approved by the Board of Directors. The term loan includes an unlimited guarantee from the Company.
| Balance, March 31, 2022 | $ | 9,375 | |
| Interest | 273 | ||
| Repayment | (1,991 | ) | |
| Foreign exchange movement | (518 | ) | |
| Balance, March 31, 2023 | $ | 7,139 | |
| Interest | 96 | ||
| Repayment | (802 | ) | |
| Foreign exchange movement | 12 | ||
| Balance, September 30, 2023 | $ | 6,445 |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
13. Right of Use Asset and Lease Liability
The Company has lease agreements for its offices, and buildings for its data-centers in Sweden and Quebec, Canada, in addition to electrical equipment in Sweden.
During the three and six months period ended September 30, 2023, the Company recognized interest expense on the lease liability of $135 and $280 (September 30, 2022 - $157 and $328, respectively) which was recorded within finance expense.
| Cost | Right of Use Assets | ||
| Balance, March 31, 2022 | $ | 17,758 | |
| Additions | 250 | ||
| Lease extension | 174 | ||
| Adjustment for change in variable payments based on rate or index | 474 | ||
| Foreign exchange | (1,354 | ) | |
| Balance, March 31, 2023 | $ | 17,302 | |
| Foreign exchange | 6 | ||
| Balance, September 30, 2023 | $ | 17,308 | |
| Accumulated Depreciation | |||
| Balance, March 31, 2022 | $ | (5,171 | ) |
| Depreciation | (2,510 | ) | |
| Foreign exchange | 1,351 | ||
| Balance, March 31, 2023 | $ | (6,330 | ) |
| Depreciation | (1,375 | ) | |
| Foreign exchange | 2 | ||
| Balance, September 30, 2023 | $ | (7,703 | ) |
| Carrying Amount | |||
| Balance, March 31, 2023 | $ | 10,972 | |
| Balance, September 30, 2023 | $ | 9,605 |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
13. Right of Use Asset and Lease Liability (continued…)
| Lease Liability | |||
| Balance, March 31, 2022 | $ | 12,649 | |
| Lease payments made | (2,674 | ) | |
| Additions | 250 | ||
| Lease extension | 174 | ||
| Adjustment for change in variable payments based on rate or index | 474 | ||
| Interest expense on lease liabilities | 664 | ||
| Foreign exchange | (1,069 | ) | |
| Balance, March 31, 2023 | $ | 10,468 | |
| Lease payments made | (1,397 | ) | |
| Interest expense on lease liabilities | 280 | ||
| Foreign exchange | (267 | ) | |
| 9,084 | |||
| Less: current portion | (2,347 | ) | |
| Balance, September 30, 2023 | $ | 6,737 | |
| Lease Disclosures | |||
| Interest expense on lease liabilities | $ | 280 | |
| Total cash outflow for leases | $ | 1,397 | |
| Maturity Analysis - Undiscounted Contractual Payments | |||
| Less than 1 year | $ | 2,799 | |
| 1 to 2 years | 2,748 | ||
| 2 to 3 years | 2,656 | ||
| 3 to 4 years | 1,153 | ||
| 4 to 5 years | 741 | ||
| $ | 10,097 |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
14. Commitments and Contingencies
(a) Service agreements
The Company has a service agreement with an unrelated third party to operate and maintain their data center computing equipment for the purpose of mining crypto currency in Canada, Sweden and Iceland. 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 entered into a supplemental power pricing arrangement that provides a fixed price of electricity consumption each month at the Company's Bikupa Datacenter AB and Bikupa Datacenter 2 AB location in Sweden. The fixed price agreement was assessed and is being accounted for as an executory contract; electricity costs are expensed as incurred.
(c) Obligations on Mining equipment
The Company had purchase commitments of $1.7 million at the period ended September 30, 2023 (March 31, 2023 - $8.9 million).
Contingencies
(a) Contingent VAT Liability to the Swedish Tax Authority ("STA")
The Company's wholly owned subsidiaries located in Sweden (Bikupa Datacenter AB ("Bikupa") and Bikupa Datacenter 2 AB ("Bikupa 2") received decision notice of assessments ("the decision(s)"), on December 28, 2022 and February 14, 2023 for Bikupa and Bikupa 2 respectively, from the Swedish Tax Authority in connection with the application of VAT and its ability to recover input VAT against certain equipment and other charges in a total amount of SEK 337.9 million or approximately $32.4 million. The assessments covered the period December 2020 to June 2022 for Bikupa, and the period April 2021 to June 2022 for Bikupa 2, expressing the intent to reject the recovery of all the VAT for the periods under assessment and repayment of amounts previously received plus applicable interest.
The Company filed a formal appeal in connection with the Bikupa decision on February 9, 2023; however, there can be no guarantee that the Company will achieve a favourable outcome in its appeal. A formal appeal for Bikupa 2 in relation to the February 14, 2023 decision was filed on March 10, 2023 by the Company. The Company engaged an independent legal firm in Sweden with expertise in these matters to assist in the appeal process. The Company does not believe that the decision has merit because in management's opinion and those of the Company's independent advisors, the decision is not compatible with the current applicable law and therefore the amount claimed to be owed by the Company is not probable. According to general principles regarding the placement of the burden of proof, it is up to the Swedish Tax Agency to provide sufficient evidence in support of its decision. It is the Company's opinion, the Swedish Tax Agency has not substantiated their claim. We are not aware of any precedent cases, authoritative literature, or other statement that supports the STA's position. The formal appeals are still pending review by the STA.
It is not yet known when this dispute will be resolved; the due process following appeals and the court ruling could extend beyond a year. Furthermore, given that the industry is rapidly developing, there can be no guarantee that changes to the laws or policies of Sweden will not have a negative impact on the Company's tax position with respect to the eligibility of the claimed VAT. (Note 20 Uncertain Tax Positions).
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
14. Commitments and Contingencies (continued…)
(a) Contingent VAT Liability to the Swedish Tax Authority ("STA") (continued…)
If the Company is unsuccessful in its appeal, the full amount could be payable including other items such as penalties and interest that may accrue to the Company. The Company will continue to assess these matters. At the period end the Company has not recorded any amounts payable to the STA in connection with the decisions. The Company continues to monitor the activities of the claim with the STA. As at September 30, 2023, the Company has not received any further communication from the STA since filing the appeals as mentioned above.
(b) 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.
15. Related Party Transactions
The Company entered into the following related party transactions not otherwise disclosed in these condensed interim consolidated financial statements:
a) As at September 30, 2023, the Company had $24 (March 31, 2023 - $12) due to officers for the reimbursement of expenses included in accounts payable and accrued liabilities.
b) As at September 30, 2023, the Company had $nil (March 31, 2023 - $nil) due to a company controlled by a director of the Company included in accounts payable and accrued liabilities. For the three and six months period ended September 30, 2023, the Company paid $48 and $128, respectively (September 30, 2022 - $81 and $178, respectively) 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 three and six months period ended September 30, 2023, key management compensation includes salaries and wages paid to key management personnel and directors of $348 and $609, respectively (September 30, 2022 - $232 and $458, respectively) and share-based payments of $2.4 million and $3.9 million, respectively (September 30, 2022 - $0.9 million and $1.2 million, respectively).
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
16. 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, 2023, the Company:
- Issued 1,987,237 common shares (the "2023 ATM Shares") pursuant to the 2023 ATM Equity Program for gross proceeds of C$11.97 million ($9.01 million). The 2023 ATM shares were sold at prevailing market prices, for an average price per 2023 ATM Share of C$6.02. Pursuant to the 2023 Equity Distribution Agreement, a cash commission of $270 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the 2023 Equity Distribution Agreement. In addition, the Company incurred $372 in fees related to its 2023 ATM Equity Program.
- Issued 52,400 common shares upon the exercise of restricted share units (Note 16(e)).
- Issued 12,500 common shares for proceeds of C$71 ($53) pursuant to the exercise of 12,500 options at a price of C$5.66 per option.
(c) Stock options
The Company has established a rolling Stock Option Plan (the "Plan"). Under the Plan, the number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding shares and, to any one optionee, may not exceed 5% of the issued shares on a yearly basis. The maximum term of each option shall not be greater than 10 years. The exercise price of each option shall not be less than the market price of the Company's shares at the date of grant. Options granted to consultants performing investor relations activities shall vest over a minimum of 12 months with no more than a quarter of such options vesting in any 3-month period. All other options vest at the discretion of the Board of Directors.
Following is a summary of changes in stock options outstanding for the period ended September 30, 2023:
| Weighted average | ||||||
| Outstanding | exercise price | |||||
| Balance, March 31, 2022 | 2,846,515 | C$ | 6.31 | |||
| Granted | 415,200 | 5.66 | ||||
| Expired | (133,300 | ) | 1.50 | |||
| Forfeited | (55,000 | ) | 18.97 | |||
| Balance, March 31, 2023 | 3,073,415 | C$ | 6.20 | |||
| Granted | 620,000 | 6.86 | ||||
| Forfeited | (202,600 | ) | 24.75 | |||
| Exercised | (12,500 | ) | 5.66 | |||
| Balance, September 30, 2023 | 3,478,315 | C$ | 5.24 | |||
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
16. Equity (continued…)
(c) Stock options (continued...)
The stock options outstanding and exercisable as at September 30, 2023, 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 | ||||
| 400,100 | 212,916 | 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 | ||||
| 620,000 | 620,000 | 6.86 | July 6, 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 | ||||
| 30,000 | 30,000 | 25.15 | April 6, 2031 | ||||
| 60,000 | 60,000 | 18.35 | April 29, 2031 | ||||
| 180,000 | 72,000 | 18.50 | October 7, 2031 | ||||
| 60,000 | 35,000 | 25.35 | November 10, 2031 | ||||
| 20,000 | 17,500 | 21.00 | December 9, 2031 | ||||
| 3,478,315 | 3,155,631 |
(d) Warrants
Following is a summary of changes in warrants outstanding for the period ended September 30, 2023:
| Warrants | Weighted average | ||||||
| outstanding | exercise price | ||||||
| Balance, March 31, 2022 and 2023 | 3,573,727 | C$ | 22.92 | ||||
| Expired | (550,000 | ) | 11.30 | ||||
| Balance, September 30, 2023 | 3,023,727 | C$ | 25.04 | ||||
The warrants outstanding and exercisable as at September 30, 2023, are as follows:
|
Outstanding |
|
Exercisable |
Exercise price |
Expiry date |
|
|
1,000,000 |
|
1,000,000 |
C$ |
15.00 |
January 12, 2024 |
|
1,917,050 |
|
1,917,050 |
C$ |
30.00 |
May 30, 2024 |
|
106,677 |
** |
106,677 |
C$ |
30.00 |
September 15, 2024 |
|
3,023,727 |
|
3,023,727 |
|
|
|
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
16. Equity (continued…)
(d) Warrants (continued...)
** 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 million (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.
(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 2 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 Person"), 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
16. Equity (continued…)
(e) Restricted share-units (continued...)
The fair value of restricted shares units (RSUs) is generally measured as the grant date price of the Company's share.
Following is a summary of changes in restricted share units outstanding for the period ended September 30, 2023:
| Outstanding | |||
| Balance, March 31, 2022 | 61,500 | ||
| Granted | 2,641,280 | ||
| Cancelled | (150,000 | ) | |
| Exercised | (624,250 | ) | |
| Balance, March 31, 2023 | 1,928,530 | ||
| Cancelled | (3,000 | ) | |
| Exercised | (52,400 | ) | |
| Balance, September 30, 2023 | 1,873,130 |
(f) Share-based compensation
During the three and six months period ended September 30, 2023, $3.1 million and $3.4 million, respectively (September 30, 2022 - $0.9 million and $1.8 million, respectively) of share-based compensation expense was recognized in relation to the vesting of options, and $1.0 million and $2.6 million (September 30, 2022 - $0.9 million and $1.0 million, respectively) of share-based compensation expense was recognized in relation to the vesting of RSUs.
During the period ended September 30, 2023, the Company:
- On July 6, 2023 granted 620,000 stock options to employees and officers with an exercise price of C$6.86 per share and an expiry date of July 6, 2028, which fully vested on July 24, 2023.
During the period ended September 30, 2023, the Company did not grant any RSUs.
17. Loss 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
17. Loss per Share (continued…)
| Three months ended | Three months ended | |||||
| September 30, 2023 | September 30, 2022 | |||||
| Basic weighted average number of common shares outstanding | 85,052,418 | 82,253,061 | ||||
| Effect of dilutive stock options and warrants | - | - | ||||
| Effect of convertible loan | - | - | ||||
| Diluted weighted average common shares outstanding | 85,052,418 | 82,253,061 | ||||
| Six months ended | Six months ended | |||||
| September 30, 2023 | September 30, 2022 | |||||
| Basic weighted average number of common shares outstanding | 84,614,638 | 82,247,555 | ||||
| Effect of dilutive stock options and warrants | - | - | ||||
| Effect of convertible loan | - | - | ||||
| Diluted weighted average common shares outstanding | 84,614,638 | 82,247,555 |
18. Finance Expense
Finance expenses were comprised of the following for the period ended:
| September 30, 2023 | September 30, 2022 | |||||
| Interest and accretion on convertible loan | $ | 1,285 | $ | 1,536 | ||
| Interest on lease liabilities | 280 | 328 | ||||
| Interest on loans payable | 152 | 64 | ||||
| Total | $ | 1,717 | $ | 1,928 |
19. General and Administrative Expenses
General and administrative expenses were comprised of the following for the period ended:
| September 30, | September 30, | |||||
| 2023 | 2022 | |||||
| Management fees, salaries and wages | $ | 1,408 | $ | 1,442 | ||
| Marketing | 638 | 409 | ||||
| Office, administration, and regulatory | 2,237 | 2,493 | ||||
| Professional fees, advisory, and consulting | 2,047 | 2,257 | ||||
| Total | $ | 6,330 | $ | 6,601 |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. 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, and accounts payable 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:
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. Financial Instruments and Risk Management (continued…)
At the period end the Company classified its financial assets into the following levels:
| As at September 30, 2023 | As at March 31, 2023 | ||||||||||||||||||
| Assets | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Cash | $ | - | $ | 4,544 | $ | - | $ | - | $ | 4,373 | $ | - | |||||||
| Digital currencies | - | 46,890 | - | - | 65,899 | - | |||||||||||||
| Investments | 919 | - | 1,573 | 1,307 | - | 1,559 | |||||||||||||
| $ | 919 | $ | 51,434 | $ | 1,573 | $ | 1,307 | $ | 70,272 | $ | 1,559 | ||||||||
| Liabilities | |||||||||||||||||||
| Convertible loan -derivative | |||||||||||||||||||
| component | $ | - | $ | - | $ | 208 | $ | - | $ | - | $ | 482 | |||||||
| $ | - | $ | - | $ | 208 | $ | - | $ | - | $ | 482 | ||||||||
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 coinbase.com.
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:
| Fair value at | Change | Fair Value at, | |||||||||||||
| Level 3 Continuity | March 31, 2023 | Additions | Disposals | in fair value | September 30, 2023 | ||||||||||
| Assets | |||||||||||||||
| Investments | $ | 1,559 | $ | 252 | $ | - | $ | (238 | ) | $ | 1,573 | ||||
| $ | 1,559 | $ | 252 | $ | - | $ | (238 | ) | $ | 1,573 | |||||
| Liabilities | |||||||||||||||
| Convertible loan - | |||||||||||||||
| derivative component | $ | 482 | $ | - | $ | - | $ | (274 | ) | $ | 208 | ||||
| $ | 482 | $ | - | $ | - | $ | (274 | ) | $ | 208 |
The carrying values of the Company's cash, amounts receivable, accounts payable, 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. Financial Instruments and Risk Management (continued…)
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, 2023. 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 security 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.
The Company is exposed to credit risk related to amounts receivable from the Swedish government related to VAT filings. These receivables are currently being withheld by the STA as a result of the decision notice of assessments received for both Bikupa and Bikupa 2 (Note 14). The uncertainty surrounding the resolution of the dispute gives rise to potential credit risk, as there is the possibility that the Company may not be able to fully collect the outstanding amounts from the Swedish government. Refer to Note 5 for the at risk balances.
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.
HIVE is primarily engaged in the cryptocurrency mining industry, a highly volatile market with significant inherent risk. Declines in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, delays in the delivery of mining equipment, changes in the regulatory environment and other adverse changes in the industry can significantly and negatively impact the Company's operations and cash flows and its ability to maintain sufficient liquidity to meet its financial obligations. Adverse changes to the factors mentioned above have impacted the recoverability of the Company's digital assets and property, and equipment, resulting in impairment losses being recorded.
The Company currently settles its financial obligations out of cash and digital assets. The Company has a planning and budgeting process to help determine the funds required to support the Company's normal spending requirements on an ongoing basis and its expansionary plans. At current BTC prices, the Company's existing cash resources and the proceeds from any sale of its treasury and mined BTC will be sufficient to fund its capital investments and support its growth objectives. If the BTC price declines significantly, the Company would be required to raise additional funds from external sources to meet these requirements. Refer to details in Note 16 for the Company's ATM Equity Program.
As at September 30, 2023, 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 | $ | 7,436 | $ | 7,436 | $ | - | $ | - | $ | - | |||||
| Term loan | 6,445 | 6,445 | - | - | - | ||||||||||
| Convertible loan | 7,529 | 3,466 | 4,063 | - | - | ||||||||||
| Lease commitments | 10,097 | 2,799 | 5,404 | 1,894 | - | ||||||||||
| Loans payable and interest | 14,944 | 1,318 | 3,786 | 2,384 | 7,456 | ||||||||||
| Total | $ | 46,451 | $ | 21,464 | $ | 13,253 | $ | 4,278 | $ | 7,456 |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. Financial Instruments and Risk Management (continued…)
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, 2023 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 | Impact of 10% variance | |||||
| September 30, 2023 | in foreign exchange rat | |||||
| (USD$ equivalent) | (in foreign currency) | |||||
| US Dollars | 569 | 52 | ||||
| Canadian Dollars | 14 | 1 | ||||
| Euros | (62,544 | ) | 6,074 | |||
| Euro Dollars | (63 | ) | 6 | |||
| Swedish Krona | 1,344 | 11 | ||||
| Icelandic Krona | 449 | - |
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 is fixed in nature and have limited exposure to changes in interest rates.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. 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 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. Financial Instruments and Risk Management (continued…)
While the Company does not store cryptocurrency on an exchange, the public failure of cryptocurrency exchanges appears to affect the value of cryptocurrencies and the cryptocurrency and crypto mining industries as a whole. As noted above, digital currency transactions are irrevocable. There are no governmental bodies that backstop the security of cryptocurrencies against theft or loss. A general loss of confidence in the technology that underlies the cryptocurrency industry, or a loss of confidence in the industry, itself, could substantially devalue our Bitcoin holdings and threaten the viability of our cryptocurrency mining business.
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 which provides the Company a secure medium to access its digital wallets and transact with reputable, exchanges on sales of its digital assets. At the period end the Company utilised the Fireblocks platform for 98% 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. Financial Instruments and Risk Management (continued…)
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 able 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 our main 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.
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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. Financial Instruments and Risk Management (continued…)
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.
There is also a risk that the Company could be negative affected by a Bitcoin halving event. Halving is a process designed to control the overall supply and reduce the risk of inflation in Bitcoin. At a predetermined block, the mining reward is cut in half. The next Bitcoin halving is expected to occur in April 2024. While Bitcoin prices have had a history of price fluctuations around Bitcoin halvings, there is no guarantee that the price change will be favorable or would compensate for the reduction in mining reward. If Bitcoin price and difficulty do not maintain or continue their trend of adjusting to pre-Bitcoin halving profitability levels over time, or the period of market normalization after the Bitcoin halving to pre-Bitcoin halving profitability levels is too long, there is a risk that the Bitcoin halving will render the Company unprofitable for a sustained time period such that it could be unable to continue as a going concern.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
20. Financial Instruments and Risk Management (continued…)
Uncertain tax positions
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 September 2021, the Chinese government announced issued a complete ban that restricts 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 effect of the China ban was a movement of those miners and their hashrates out of China and into other countries. 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
21. Digital Currency and Risk Management
Digital currencies are measured using Level 2 inputs (Note 20).
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 is not indicative of their future price performance. The Company's digital currencies currently mainly consist of Bitcoin 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, 2023.
| Impact of 5% variance in price | |||
| Bitcoin | $ | 2,335 | |
| Ethereum Classic | 5 |
22. 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 adjusts 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, commencement of ATM Equity Programs, the sale of digital currencies 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 12). The Company's overall strategy with respect to capital risk management remains unchanged from the prior year.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
23. 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, 2023 | Canada | Sweden | Iceland | Switzerland | Bermuda | Total | ||||||||||||
| Revenue from digital currency mining | $ | - | $ | - | $ | - | $ | - | $ | 45,858 | $ | 45,858 | ||||||
| Other revenue | - | - | - | - | 474 | 474 | ||||||||||||
| $ | - | $ | - | $ | - | $ | - | $ | 46,332 | $ | 46,332 | |||||||
| September 30, 2022 | Canada | Sweden | Iceland | Switzerland | Bermuda | Total | ||||||||||||
| Revenue from digital currency mining | $ | - | $ | - | $ | - | $ | - | $ | 73,776 | $ | 73,776 | ||||||
| Other revenue | - | - | - | - | - | - | ||||||||||||
| $ | - | $ | - | $ | - | $ | - | $ | 73,776 | $ | 73,776 | |||||||
The Company's plant and equipment are located in the following jurisdictions:
|
September 30, 2023 |
|
Canada |
|
Sweden |
|
Iceland |
Switzerland |
|
Bermuda |
|
Total |
|
|
Plant and equipment |
$ |
63,254 |
$ |
20,476 |
$ |
2,540 |
$ |
- |
$ |
458 |
$ |
86,728 |
|
ROU asset |
|
3,761 |
|
5,735 |
|
- |
|
- |
|
109 |
|
9,605 |
|
|
$ |
67,015 |
$ |
26,211 |
$ |
2,540 |
$ |
- |
$ |
567 |
$ |
96,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
Canada |
|
Sweden |
|
Iceland |
|
Switzerland |
|
Bermuda |
|
Total |
|
Plant and equipment |
$ |
50,386 |
$ |
31,544 |
$ |
4,357 |
$ |
- |
$ |
941 |
$ |
87,228 |
|
ROU asset |
|
4,157 |
|
6,683 |
|
- |
|
- |
|
133 |
|
10,973 |
|
|
$ |
54,543 |
$ |
38,227 |
$ |
4,357 |
$ |
- |
$ |
1,074 |
$ |
98,201 |
24. Revision
Reclassification from accumulated other comprehensive income for digital currency sales
During the preparation of the March 31, 2023 year end consolidated financial statements, the Company identified a revision to the amounts to be reclassified from accumulated other comprehensive income for digital currency sales and revaluation of the digital currencies. The Company identified that due to the decrease in digital currencies during the period ended September 30, 2022, the surplus in accumulated other comprehensive income should have been reclassified to reflect the realisation of amounts from disposal. The revision impacted the condensed interim consolidated statement of loss and comprehensive loss with a decrease in the revaluation loss on digital currencies and increase in the recognized loss on sale of digital currencies as indicated below.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
|
24. Revision (continued…)
The table below summarizes the revised condensed interim consolidated financial statements for September 30, 2022:
| As previously | Adjustments | As revised | |||||||
| reported | |||||||||
| Consolidated Statements of Financial Position | |||||||||
| Accumulated other comprehensive income | $ | 10,157 | $ | (1,300 | ) | $ | 8,857 | ||
| Accumulated deficit | $ | (211,227 | ) | $ | 1,300 | $ | (209,927 | ) | |
| Consolidated Statements of income and Comprehensive income | |||||||||
| Revaluation of digital currencies | $ | (74,510 | ) | $ | 1,300 | $ | (73,210 | ) | |
| Loss on sale of digital currencies | $ | (70 | ) | $ | (18,681 | ) | $ | (18,751 | ) |
| Net income for the period | $ | (132,303 | ) | $ | (17,381 | ) | $ | (149,684 | ) |
| Other comprehensive income | |||||||||
| Revaluation gain on digital currencies | $ | (13,811 | ) | $ | 13,811 | $ | - | ||
| Net income and comprehensive income for the period | $ | (145,545 | ) | $ | (3,570 | ) | $ | (149,115 | ) |
| Basic income per share | $ | (1.61 | ) | $ | (0.21 | ) | $ | (1.82 | ) |
| Diluted income per share | $ | (1.61 | ) | $ | (0.21 | ) | $ | (1.82 | ) |
| Consolidated Statements of Changes in Equity | |||||||||
| Net income for the period | $ | (132,303 | ) | $ | (17,381 | ) | $ | (149,684 | ) |
| Revaluation of digital currencies | $ | (34,493 | ) | $ | 34,493 | $ | - | ||
| Realized loss on digital currencies | $ | 18,682 | $ | (33,793 | ) | $ | (15,111 | ) | |
| Total equity | $ | 228,492 | $ | - | $ | 228,492 | |||
| Consolidated Statements of Cashflows | |||||||||
| Operating activities | |||||||||
| Net income for the period | $ | (132,303 | ) | $ | (17,381 | ) | $ | (149,684 | ) |
| Digital currencies | $ | 72,577 | 17,381 | 89,958 |
25. Comparative Figures
Certain figures in the comparative period condensed interim consolidated statements of financial position, condensed interim consolidated statements of (loss) income and comprehensive (loss) income, condensed interim consolidated statements of changes in equity and condensed interim consolidated statements of cash flows have been reclassified to meet the current presentation.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended September 30, 2023, and 2022 (In thousands of US dollars unless otherwise indicated) (Unaudited) |
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26. Subsequent Events
Subsequent to September 30, 2023, the Company issued 1,376,369 common shares (the "2023 ATM Shares") pursuant to the 2023 ATM Equity Program for gross proceeds of C$6.1 million ($4.43 million). The 2023 ATM shares were sold at prevailing market prices, for an average price per 2023 ATM Share of C$4.43. Pursuant to the 2023 Equity Distribution Agreement, a cash commission of $133 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the 2023 Equity Distribution Agreement.
Subsequent to September 30, 2023, the Company issued 29,400 common shares under the RSU plan upon the exercise of restricted share units.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
 |
The following discussion is management's assessment and analysis of the results of operations, cash flows and financial condition of HIVE Digital Technologies Ltd. ("HIVE" or the "Company") on a consolidated basis for the three and six months ended September 30, 2023, 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, 2023.
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.sedarplus.ca, 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.hivedigitaltechnologies.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 10, 2023.
BUSINESS OVERVIEW
HIVE Digital Technologies Ltd. is a growth-oriented company listed on the TSX Venture Exchange ("TSXV"), the NASDAQ Capital Markets Exchange ("NASDAQ") and on the Open Market of the Frankfurt Stock Exchange under the symbol "YO0.F". Our primary business is operating data centers, the computing power of which is used for high performance computing ("HPC") and the mining of cryptocurrencies. Because the Company substantially holds Bitcoin and monetizes (or converts into Bitcoin) other cryptocurrencies that it derives from its mining operations, we view the Company as a bridge between the Bitcoin blockchain sector and traditional capital markets. Our cryptocurrency assets provide shareholders with exposure to the operating margins of digital currency mining as well as a portfolio of Bitcoin.
HIVE operates state-of-the-art "green" energy-powered data center facilities in Canada, Sweden, and Iceland. Our references to "green" energy are to our energy agreements with producers of hydroelectric power in Sweden and Canada, and hosting agreements with suppliers in Iceland where the hosting facilities are powered by hydroelectric or geothermal power. One of our key objectives in locating our facilities where they are is to avoid using energy derived from fossil fuels. Our facilities are connected to local power grids that are controlled by local authorities. As a result, we do not control the sourcing of our power, which may include energy from any source on the grid. However, the close proximity of our facilities to hydroelectric and geothermal based power generating plants, makes it highly probable that most or all of the energy we use for our data centers is coming from those hydroelectric and geothermal plants, which is the basis for our saying that our operations are "green."
The Company's major data centers along with hashrate, operational and secured power as of October 31, 2023 is summarized as follows:
| Sites | Approx. Hashrate | Approx. MW Utilized |
MW Capacity Available |
| New Brunswick, Canada owned facility | 1,900 PH/s | 65.0 MW | 70.0 MW |
| Quebec, Canada leased facility | 1,050 PH/s | 34.5 MW | 30.0 MW |
| Boden, Sweden leased facility | 680 PH/s* | 25.5 MW* | 32.0 MW |
| Robertsfors, Sweden leased facility | 85 PH/s | 4.0 MW | 4.0 MW |
| Notviken, Sweden leased facility | 35 PH/s | 1.5 MW | 1.5 MW |
| Keflavik, Iceland hosted facility | 250 PH/s | 8.0 MW | 8.0 MW |
| Blönduós, Iceland hosted facility | 100 PH/s | 5.0 MW | 5.0 MW |
| Montreal, Canada hosted facility ** | N/A | 0.2 MW | 1.0 MW |
| Stockholm, Sweden hosted facility ** | N/A | 0.2 MW | 0.4 MW |
* 6.0 MW are GPUs which produce approximately 130 PH/s of Bitcoin mining capacity, 19.5 MW are ASICs which produce 550 PH/s of Bitcoin mining.
** Datacenter used for HPC / AI compute only.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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Currently, the majority of our data center power is being utilized by HIVE to generate mining rewards that are paid in Bitcoin and occasionally other cryptocurrencies that we convert into Bitcoin. We retain our Bitcoin in segregated, secure storage wallets with Fireblocks Inc. ("Fireblocks"), a third-party provider that specializes in secure crypto storage. See "DIGITAL CURRENCY AND RISK MANAGEMENT" below. We have not pledged or staked our Bitcoin assets as collateral against debt or other obligations of any kind. Our Bitcoin is not stored on any exchange. Our Bitcoin is never "staked" for mining purposes (see definition of "Proof-of-Stake" below) or loaned to any third party.
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. This revenue is starting to be diversified through our expansion into HPC and AI based operations.
Change of Name
As of July 12, 2023, the Company changed its name from HIVE Blockchain Technologies Ltd. to HIVE Digital Technologies Ltd. The change represents HIVE's evolving focus on revenue opportunities made possible by HIVE's large inventory of Nvidia Graphics Processing Unit ("GPU") cards in combination with emerging technologies, including artificial intelligence ("AI"), machine learning, advanced data analysis and high-performance computing.
HIVE expects to maintain a strong presence in Bitcoin mining, however going forward HIVE will diversify its business by utilizing its approximately 38,000 GPU-based cards to build systems that can provide computational power on a massive scale. In addition, the Company will branch out into the rental of GPU server clusters via marketplaces and is exploring the development of a new service to be known as HIVE Cloud. This cloud service will offer to users a selection of options to access computing resources ranging from a virtual instance of a single GPU to a bare-metal server equipped with up to 10 GPUs to clusters of multiple servers. Pricing is based upon the level of computing power accessed. Marketing for the HIVE Cloud is expected to be directed at small and medium-sized businesses as an efficient and cost-effective alternative, offering potentially substantial savings in comparison to other major cloud service providers.
FINANCIAL SUMMARY
| Three months ended September 30, | Six months ended September 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Total revenue | $ | 22,767 | $ | 29,597 | $ | 46,332 | $ | 73,776 | ||||
| Net loss | (24,548 | ) | (33,657 | ) | (40,800 | ) | (149,684 | ) | ||||
| Gross operating margin (1) | 4,633 | 15,941 | 12,613 | 42,958 | ||||||||
| Basic loss per share | $ | (0.29 | ) | $ | (0.41 | ) | $ | (0.48 | ) | $ | (1.82 | ) |
| Digital assets mined - BTC | 801 | 858 | 1,635 | 1,679 | ||||||||
1 Non-IFRS measure. A reconciliation to its nearest IFRS measures is provided under "Reconciliations of Non-IFRS Financial Performance Measures" below.
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 Markets Exchange under "HIVE" and on the Open Market of the Frankfurt Stock Exchange under the symbol "YO0.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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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DEFINED TERMS
| 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. |
| 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. |
| 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. |
| 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. |
| BuzzMiner: | A Bitcoin mining system developed by HIVE, using the Intel BlockScale ASIC, manufactured by an ODM which HIVE engaged, using aspects of the Intel Reference Design, with various improvements and optimizations and features implemented by HIVE (and unique to HIVE's BuzzMiner) including custom API calls, a software layer, operating modes at different ASIC frequencies, allowing HIVE to mine from 110 TH/s to 130 TH/s at different efficiencies, along with demand response functionality. |
| 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. |
| Ethereum Classic: | Ethereum Classic refers to the native token of the Ethereum Classic Network. |
| 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. |
| 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. |
| 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. |
| Merge or Ethereum Merge: | The Merge refers to the shift in the Ethereum Blockchain from proof-of-work consensus to proof-of-stake consensus as of September 15, 2022. |
| Network Difficulty or Difficulty: |
Network difficulty is a measure of how difficult it is to find a hash below a given target. |
| 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. |
| 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. |
| 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. |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
|
| 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. |
OUTLOOK
Operations
The Bitcoin protocol is such that every 210,000 blocks the rewards are cut in half. As the halving approaches, which is currently expected in April 2024, the Company will continue to make opportunistic investments to upgrade its ASICs and infrastructure, to improve our fleet efficiency and to maximise hashrate. In addition to our cryptocurrency mining operations, the Company has continued its efforts to expand its facilities to offer HPC services companies in the gaming, artificial intelligence and graphics rendering industries.
COVID-19 and Upgrade Program
As the urgency of the impact of the COVID-19 virus has diminished, HIVE nonetheless maintains preparedness. At any time, HIVE can implement various measures to protect its employees and partners and prevent disruption to operations, in each case in alignment with local governments as well as national and international agency recommendations. These measures may include ceasing non-essential travel and having employees work remotely where possible. During the COVID pandemic, the Company was able to maintain normal uptime of its cryptocurrency mining operations and its data centers, as well as its supply chain, 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 centers 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. 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 future impact of the COVID-19 virus on the Company remains unknown, another rapid spread of the COVID-19 virus and its variants could 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..
The Russian Invasion of Ukraine
On February 24, 2022, Russia invaded Ukraine. While it is impossible to predict what affect the conflict in Ukraine could have on the Company's operations in Sweden, our energy pricing is currently buffered partially by HIVE having forward energy agreements for the purchase of electricity. These energy hedging contracts allow HIVE to purchase a fixed quantity of power ("MW"), for a fixed period of time (number of months). As a result, if the index spot price increases, HIVE can rely on a previously agreed upon fixed energy price to continue operations. Furthermore, HIVE monitors the hashrate economics of its operations to determine our earnings from digital asset mining in dollars per megawatt-hour ("MWHR"). Under certain circumstances, it may be more profitable for HIVE to sell back to the grid its energy rights (since HIVE receives the proceeds of energy sold at index spot pricing, with the cost being the fixed price from the energy hedged contract). Under such circumstances, HIVE may elect to sell its energy rights in favour of mining digital assets. Our Swedish data centers utilizes approximately 37.5 MW of renewable hydroelectric energy, which represents approximately 25% of our global overall utilization of hydroelectric and geothermal energy.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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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
- HIVE's crypto mining fleet consists of GPU based machines (formerly used to mine Ethereum) and ASIC based machines that are used to mine Bitcoin. HIVE's Ethereum mining using proof-of-work consensus ceased as of September 15, 2022, when the "Merge" took place and Ethereum shifted to proof-of-stake consensus. Consequently, revenues from Ethereum mining ceased as of that date. Leading up to that date, Ethereum mining economics were consistent between the $0.02 per Megahash per day to $0.03 per Megahash per day range. Since then a portion of our GPU based machines were repurposed to use a unique algorithm to optimize profitability in mining altcoins, the profits from which are paid out in Bitcoin. As a result, after the Ethereum Merge, the Company's fleet of GPU based machines were producing an equivalent of 350 PH/s to 400 PH/s of Bitcoin mining capacity. This is in addition to the Bitcoin mining capacity from HIVE's ASIC fleet. Therefore, at the time, approximately 25 MW of HIVE's GPU based operating capacity was receiving payout in Bitcoin. Currently, HIVE is operating approximately 6.0 MW of Nvidia GPUs to mine with approximately 130.0 PH/s of Bitcoin mining capacity. As our high performance computing business grows, we will allocate more of our GPU based machines to serving that aspect of our business.
- Using an optimization algorithm, HIVE is able to more profitably mine an assortment of coins with its GPU fleet than if it was only mining a single coin (such as Ethereum Classic). The assortment of coins which HIVE mines using its GPU fleet varies over time and is chosen on the basis of profit optimization. As a consequence of the Company's technical advancements, we believe HIVE has a competitive edge in generating revenue from GPU machine based operations. As of November 2023, HIVE's fleet of Nvidia GPU are generating approximately $50-60/MWHR using a profit-switching algorithm, mining the most profitable alt-coins, from which HIVE is then paid in Bitcoin.
- HIVE is transitioning its GPU based fleet to cloud and high performance computing.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
|
Bitcoin Mining Industry Revenues of U.S. dollars per Day for each 1 Terahash per second of computing power:
November 1, 2022 - October 25, 2023
Source: bitinfocharts.com
- Bitcoin mining economics remained steady within a bearish range of approximately $0.065 to $0.085 per Terahash per second ("TH/s") per day during most of the quarter (July to September 2023), however after Bitcoin fell to the $26,000 range in mid-August, this resulted in hash price trending to a bearish floor range of $0.055 to $0.07 per TH/s per day until the quarter end. Recently as of late October, and leading into November 2023, Bitcoin has rallied above $30,000, and has maintained above the $34,000 range. As a result, there is has been a reprieve for hash price, returning to the $0.065 to $0.085 per TH/s per day range.
- We note, the breakeven operating cost for miners depends on the electricity price as well as machine efficiencies, which have seen improvements with newer generation mining machines. For example, with Bitcoin mining economics having Difficulty at 62.5 trillion seen in November 2023 and a Bitcoin price of $34,000 (which would correlate to a hash price of $0.068 per TH/s per day or $68 per PH/s per day), an ASIC miner that has an efficiency of 30 Joules per Terahash ("J/TH") can be expected to generate mining revenues of approximately $0.095 per kWh approximately, establishing the breakeven operating cost. Under the same Difficulty and Bitcoin price, a miner that contains an ASIC with an efficiency of 40 J/TH can be expected to generate revenues of approximately $0.07 per kWh. Therefore, if the operating costs of a miner (in this example) are below $0.07 per kWh, the miner is profitable. When there is enough downward pressure on profitability, it is generally the case that 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 may pause their operations, causing the network hashrate and the difficulty to decrease.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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The average monthly Bitcoin market data from April 2023 to September 2023 was as follows:
| April | May | June | July | August | September | Average | |||||||||||||||
| Bitcoin | 2023 | 2023 | 2023 | 2023 | 2023 | 2023 | YTD F2024 | ||||||||||||||
| Average price | $ | 28,854 | $ | 27,458 | $ | 27,889 | $ | 30,028 | $ | 27,728 | $ | 26,379 | $ | 28,056 | |||||||
| Average daily difficulty (in millions) | 48,016,072 | 48,875,463 | 51,696,373 | 52,551,598 | 53,416,976 | 55,583,251 | 51,689,955 |
Sources: Coinmarketcap.com, Glassnode.com, Blockchain.com
The average monthly Bitcoin market data from April 2022 to March 2023 was as follows:
| April | May | June | July | August | September | ||||||||||||||||
| Bitcoin | 2022 | 2022 | 2022 | 2022 | 2022 | 2022 | |||||||||||||||
| Average price | $ | 41,435 | $ | 31,713 | $ | 24,384 | $ | 21,539 | $ | 22,366 | $ | 19,805 | |||||||||
| Average daily difficulty (in millions) | 28,561,641 | 30,502,528 | 29,992,443 | 28,752,118 | 28,365,699 | 31,533,645 | |||||||||||||||
| October | November | December | January | February | March | Average | |||||||||||||||
| Bitcoin | 2022 | 2022 | 2022 | 2023 | 2023 | 2023 | F2023 | ||||||||||||||
| Average price | $ | 19,651 | $ | 17,601 | $ | 16,950 | $ | 20,251 | $ | 23,299 | $ | 25,055 | $ | 23,671 | |||||||
| Average daily difficulty (in millions) | 34,809,688 | 36,843,488 | 35,063,080 | 36,279,360 | 39,902,165 | 44,321,920 | 33,743,981 |
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 2021 to September 2023:
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 2024.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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After the April 2024 halving event, the total number of Bitcoins available to miners per day will fall from 900 to 450 per day. HIVE is preparing for this by upgrading and expanding our fleet of miners.
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 ledgers, technology and the mining, 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 manages its data centers and trading operations from Bermuda in order to simplify tax expectations.
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. See "The Russian Invasion of Ukraine" above.
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, expectations with respect to the rate of inflation, and 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.
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 needing to liquidate its cryptocurrency inventory at unfavorable prices and may adversely affect the Company's shareholders.
The Company believes the present attitude towards blockchain technology, and the digital currency mining industry is increasingly unfavourable 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.
The Company's wholly owned subsidiaries located in Sweden (Bikupa Datacenter AB ("Bikupa") and Bikupa Datacenter 2 AB ("Bikupa 2")) received decision notice of assessments ("the decision(s)"), on December 28, 2022 and February 14, 2023 for Bikupa and Bikupa 2 respectively, from the Swedish Tax Authority in connection with the application of VAT and its ability to recover input VAT against certain equipment and other charges in a total amount of SEK 337.9 million or approximately $32.4 million. The assessments covered the period December 2020 to June 2022 for Bikupa, and the period April 2021 to June 2022 for Bikupa 2, expressing the intent to reject the recovery of all the VAT for the periods under assessment.
The Company filed a formal appeal in connection with the Bikupa decision on February 9, 2023; however, there can be no guarantee that the Company will achieve a favourable outcome in its appeal. A formal appeal for Bikupa 2 in relation to the February 14, 2023 decision was filed on March 10, 2023 by the Company. The Company has engaged an independent legal firm in Sweden that has expertise in these matters to assist in the appeal process. The Company does not believe that the decisions have merit because in our opinion and those of our independent advisors, the decisions are not compatible with the current applicable law and therefore the amount claimed to be owed by the Company is not probable. According to general principles regarding the placement of the burden of proof, it is up to the Swedish Tax Agency to provide sufficient evidence in support of its decisions. In our opinion, the Swedish Tax Agency has not substantiated their claim. We are not aware of any precedent cases, authoritative literature, or other statement that support the Swedish Tax Agency's position.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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It is not yet known when these disputes will be resolved; the due process following appeals and the court ruling could extend well beyond a year. Furthermore, given that the industry is rapidly developing, there can be no guarantee that changes to the laws or policies of Sweden will not have a negative impact on the Company's tax position with respect to the eligibility of the claimed VAT.
If the Company is unsuccessful in its appeals, the full amount could be payable including other items such as penalties and interest that may continue to accrue. The Company will continue to assess these matters.
In the spring budget of 2023, the Swedish Parliament abolished the reduced energy tax for data centers, effective as of July 1, 2023. As a result of this decision, the Company's cost of energy at its HIVE Sweden Facility has increased by 0.29 Swedish Krona ("SEK") per kWh. Prior to the effective date of the abolishment of the energy tax reduction, HIVE's cost of energy at the HIVE Sweden Facility was approximately 0.30 to 0.50 SEK per kWh. Revenues from HIVE's operations at these facilities typically ranges from 0.80 to 1.00 SEK per kWh. The HIVE Sweden Facility currently represents approximately 24% of the Company's global production of Bitcoin per day. Even with this change, we feel that the HIVE Sweden Facility has undertaken positive actions to reduce the negative impact through the supplemental power pricing arrangement that was entered into in order to fix 18 MW of electricity consumption for the months of January through March 2023 at a set price, as well as 25 MW for the period of April through June 2023, 24 MW for the period July through September 2023, and 25 MW for the period of October through December 2023, at set prices. These set prices allow the facility to operate profitably in today's market economics, at times when other facilities who buy all their energy at spot prices may otherwise be unprofitable. Furthermore, the HIVE Sweden Facility has secured 25 MW of power at an average price of about 0.34 SEK per KWh for the calendar year 2024. The Company has been exploring and will continue to explore strategies for minimizing the impact.
On February 4, 2022, the Canadian Department of Finance released for public comment a set of draft legislative proposals to implement certain tax measures. These tax measures include restricting the ability of cryptocurrency mining companies to claim back the consumption taxes they incur on purchases of goods and services made in Canada and imports into Canada. The Company expects that the restriction on the Company's ability to claim back its consumption taxes, namely the Goods and Services Tax and Harmonized Sales Tax, which apply at combined rates from 5% to 15.0% on the cost of goods and services, could significantly add to the Company's ongoing operating costs and the costs of its capital expenditures and imports into Canada. The measures obtained royal assent on June 22, 2023, and at this time, the Company is still assessing how such proposals, once effective (as presented or as may be amended) may impact the Company's operations.
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 original design manufacturer ("ODM") that has expertise in electronics manufacturing and experience manufacturing integrated systems for Intel. The ODM integrated Intel's Blockscale ASICs into an air-cooled Bitcoin mining system. The Company's engineering team drew on its expertise in hardware and software implementation and worked closely with Intel and the ODM partner on the systems integration. The majority of these miners have been delivered and the remaining units are expected to be delivered in the coming quarter. 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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Intel has since discontinued the Blockscale chip program.
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, but the transaction was exempt from the formal valuation and minority approval requirements in Multilateral Instrument 61-10 Protection of Minority Holders in Special Transactions, because the fair market value of the transaction did not exceed 25% of the Company's market capitalization.
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 were 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 is payable monthly, and principal is payable quarterly. In addition, U.S. Global was issued 5 million common share purchase warrants (the "January 2021 Warrants"). Each five whole January 2021 Warrants entitles U.S. Global to acquire one common Share 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 outstanding amount as of period ended September 30, 2023 is $7.5 million.
AT-THE-MARKET EQUITY PROGRAM
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 $100 million of common shares in the capital of the Company at their discretion (the "2022 ATM Equity Program"). The 2022 Equity Distribution Agreement was terminated as of February 6, 2023.
For the year ended March 31, 2023, the Company issued 1,306,476 common shares (the "2022 ATM Shares") pursuant to the 2022 ATM Equity Program for gross proceeds of $3.9 million. The 2022 ATM Shares were sold at prevailing market prices, for an average price per ATM Share of C$4.01. Pursuant to the 2022 Equity Distribution Agreement, a cash commission of $0.12 million 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 center equipment and strategic investments especially in building BTC assets on our balance sheet and ended the March 31, 2023, period with 2,332 BTC, and general working capital.
On May 10, 2023, the Company entered into an equity distribution agreement ("2023 Equity Distribution Agreement") with Stifel GMP and Canaccord Genuity Corp. Under the 2023 Equity Distribution Agreement, the Company may, from time to time, sell up to $100 million of common shares in the capital of the Company (the "2023 ATM Equity Program").
For the period ended September 30, 2023, the Company issued 1,987,237 common shares (the "2023 ATM Shares") pursuant to the 2023 ATM Equity Program for gross proceeds of C$11.97 million ($9.01 million). The 2023 ATM shares were sold at prevailing market prices, for an average price per 2023 ATM Share of C$6.02. Pursuant to the 2023 Equity Distribution Agreement, a cash commission of $270 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the 2023 Equity Distribution Agreement. In addition, the Company incurred $372 in fees related to its 2023 ATM Equity Program.
The Company is using the net proceeds from the 2023 Equity Distribution Agreement for the purchase of data center equipment, and strategic investments especially in building BTC assets on our balance sheet. HIVE ended the September 30, 2023, period with 1,738 BTC, and general working capital.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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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 ON A QUARTERLY BASIS
| Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | |||||||||||
| Revised | Revised | Revised | |||||||||||||
| Revenue from digital currency mining | $ | 22,514 | $ | 23,344 | $ | 17,995 | $ | 14,318 | $ | 29,597 | |||||
| Other revenue | 253 | 221 | 229 | - | - | ||||||||||
| 22,767 | 23,565 | 18,224 | 14,318 | 29,597 | |||||||||||
| Operating and maintenance | (18,134 | ) | (15,585 | ) | (14,198 | ) | (10,703 | ) | (13,656 | ) | |||||
| Depreciation | (16,567 | ) | (16,483 | ) | (11,315 | ) | (20,340 | ) | (24,323 | ) | |||||
| (11,934 | ) | (8,503 | ) | (7,289 | ) | (16,725 | ) | (8,382 | ) | ||||||
| Gross operating margin | 4,633 | 7,980 | 4,026 | 3,615 | 15,941 | ||||||||||
| Gross operating margin % (1) | 20% | 34% | 22% | 25% | 54% | ||||||||||
| Gross margin % | (52%) | (36%) | (40%) | (117%) | (28%) | ||||||||||
| Revaluation of digital currencies (2) | (422 | ) | - | 23,427 | (5,997 | ) | (2,510 | ) | |||||||
| (Loss) gain on sale of digital currencies | (2,254 | ) | (575 | ) | 5,263 | (3,448 | ) | 3,549 | |||||||
| General and administrative | (3,563 | ) | (2,767 | ) | (3,392 | ) | (3,250 | ) | (3,236 | ) | |||||
| Foreign exchange (loss) gain | (354 | ) | 1,445 | (4,205 | ) | 2,017 | 7,091 | ||||||||
| Share based compensation | (4,044 | ) | (1,973 | ) | (2,921 | ) | (2,556 | ) | (1,948 | ) | |||||
| Unrealized gain (loss) on investments | 34 | (665 | ) | (2,675 | ) | (1,073 | ) | (1,001 | ) | ||||||
| Change in fair value of derivative liability | 417 | (143 | ) | (390 | ) | 715 | (192 | ) | |||||||
| Impairment of equipment | - | - | 1,007 | (38,844 | ) | (26,236 | ) | ||||||||
| Impairment of deposits | - | - | - | (22,653 | ) | - | |||||||||
| Gain (loss) on sale of mining assets | 26 | (267 | ) | (118 | ) | (1,292 | ) | 15 | |||||||
| Other (expenses) income | (11 | ) | (111 | ) | (381 | ) | 240 | - | |||||||
| Finance expense | (838 | ) | (879 | ) | (774 | ) | (1,004 | ) | (938 | ) | |||||
| Tax (expense) recovery | (1,605 | ) | (1,814 | ) | (831 | ) | 411 | 131 | |||||||
| Net (loss) income from continuing operations | $ | (24,548 | ) | $ | (16,252 | ) | $ | 6,721 | $ | (93,459 | ) | $ | (33,657 | ) | |
| EBITDA (1) | $ | (5,538 | ) | $ | 2,924 | $ | 19,641 | $ | (72,526 | ) | $ | (8,527 | ) | ||
| Adjusted EBITDA (1) | $ | (1,515 | ) | $ | 5,307 | $ | (1,364 | ) | $ | (1,899 | ) | $ | 22,344 |
(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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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RESULTS FOR THREE MONTHS ENDED SEPTEMBER 30, 2023 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2022
Revenue:
- Revenue from digital currency mining and other revenue was $22.8 million for the current period compared to $29.6 million in the prior period. The decrease was primarily driven by the Company's digital asset mining revenue, where the Company mined 801 BTC and nil ETH and generated $22.5 million compared to 858 BTC and 7,309 ETH in the comparative prior period and generated $29.6 million. The main reasons for the decrease were our cessation of Ether mining following the Merge on September 15, 2022, and increased Bitcoin network difficulty as compared with the prior period.
- The Company's new HPC business contributed $0.25 million for the current period compared to $nil in the prior period.
Cost of sales:
-
Operating and maintenance costs were $18.1 million for the current period compared to $13.7 million in the prior period. These costs consisted of fees paid to suppliers (including local electricity providers), as well as service providers to operate our data centers. These costs include daily monitoring and maintenance and all other costs directly related to the maintenance and operation of the data center equipment. The main reason for the increase was an increase in the Company's global hashrate resulting in an increase in electricity costs during the period. Also contributing to the cost was the abolishment of the energy tax reduction in Sweden for data centers which occurred July 1, 2023.
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Depreciation was $16.6 million for the current period compared to $24.3 million in the prior period. Depreciation is mainly related to the Company's data center equipment and right of use assets. The decrease was mainly attributable to the impairment taken on plant and equipment during the interim periods in the previous fiscal year of $70.4 million resulting in a lower fixed asset base in the current period to depreciate, net of additions in the current period. The impairment was taken to reflect a decline in market value of certain computing assets due to the rapid evolution of this technology.
Gross operating margin and gross margin:
-
The gross operating margin was $4.6 million in the current period compared to $15.9 million in the prior period. Gross operating margin is directly impacted by digital currency prices and the network difficulty level as this impacts revenue from mining operations. The decrease is mainly attributed to the increase in the Bitcoin network difficulty versus the prior year, combined with the Company not mining Ether since the merge on September 15, 2022.
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The gross margin was a loss of $11.9 million in the current period compared to a loss of $8.4 million in the comparative prior period. The decrease in the gross margin is mainly due to lower revenue from mining operations combined with an increase in operating and maintenance expenses, net of the decrease in depreciation expenses as discussed above.
Revaluation of digital currencies:
- The Company recorded a non-cash loss of $0.4 million in the current period compared to a non-cash loss of $2.5 million in the comparative period. The loss is related to the quarterly revaluation of the Company's portfolio of digital currencies in the consolidated statements of profit or loss. The revaluation incorporated a decrease in the price of Bitcoin relative to the comparative periods.
Loss on sale of digital currencies:
- The Company sold digital currencies and received proceeds of $28.2 million during the current period which resulted in the recording of a loss on such sale of $2.3 million. In the prior comparative period the Company recorded proceeds of $37.3 million and recognized a gain on such sale of $3.5 million.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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Other items:
-
General and administrative expenses were $3.6 million in the current period compared to $3.2 million in the prior period. Office and administrative expenses increased by $0.3 million, management fees, salaries and wages increased by $0.1 million, marketing expenses increased by $0.1 million, which was offset by a decrease in professional, advisory and consulting expenses by $0.1 million.
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Foreign exchange loss was $0.4 million in the current period compared to a gain of $7.1 million in the prior period due to the movement in exchange rates. The Company operates in multiple jurisdictions and is exposed to foreign currency fluctuations.
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Share based compensation expense was $4.0 million in relation to the options and restricted share units vested in the period compared to $1.9 million in the prior comparative period mainly because of a stock option grant made in the current period.
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Unrealized gain on investments was $34 compared to an unrealized loss of $1.0 million in the prior period. The Company holds a number of non-material investments some of which are traded in the active markets which fluctuate from time to time in value. The Company purchased an investment of $0.25 million in the current period and did not sell any investment holdings in the current period.
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Change in fair value of derivative liability was a gain of $0.4 million compared to loss of $0.2 million in the prior period. The derivative component is re-valued each reporting period using the Black-Scholes option pricing model. The main reason for the change is due to the decrease in the Company's stock price at the prior comparative period end compared to the current period.
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Impairment of equipment was $nil in the current period compared $26.2 million in the prior period. During the prior fiscal year, as digital currency prices declined and the ETH merger occurred, the Company determined that these factors were indicators of impairment. The Company performed impairment assessments during the prior fiscal year using both the value in use and fair value less costs to dispose models to determine the recoverable value and as a result recorded impairment on its equipment.
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Finance expense was $0.8 million in the current period compared to $0.9 million in the prior period. This includes interest and accretion on the convertible debt, interest on lease liabilities and loans payable.
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Tax expense was $1.6 million in the current period compared to a recovery of $131 in the prior period. The main reason for the increase is due to the limited tax losses available in some entities as they have been utilized in prior periods.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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CONSOLIDATED RESULTS OF OPERATIONS ON A PERIOD END BASIS
| Six months ended Sept 30, | ||||||
| 2023 | 2022 Revised |
|||||
| Revenue from digital currency mining | $ | 45,858 | $ | 73,776 | ||
| Other revenue | 474 | - | ||||
| 46,332 | 73,776 | |||||
| Operating and maintenance | (33,719 | ) | (30,818 | ) | ||
| Depreciation | (33,050 | ) | (50,075 | ) | ||
| (20,437 | ) | (7,117 | ) | |||
| Gross operating margin | 12,613 | 42,958 | ||||
| Gross operating margin % (1) | 27% | 58% | ||||
| Gross margin % | (44%) | (10%) | ||||
| Revaluation of digital currencies (2) | (422 | ) | (73,210 | ) | ||
| Loss on sale of digital currencies | (2,829 | ) | (18,751 | ) | ||
| General and administrative | (6,330 | ) | (6,601 | ) | ||
| Foreign exchange gain | 1,091 | 3,434 | ||||
| Share based compensation | (6,017 | ) | (2,901 | ) | ||
| Unrealized loss on investments | (631 | ) | (9,684 | ) | ||
| Change in fair value of derivative liability | 274 | 4,179 | ||||
| Impairment of equipment | - | (32,573 | ) | |||
| Impairment of deposits | - | (4,678 | ) | |||
| (Loss) gain on sale of mining assets | (241 | ) | 15 | |||
| Other expenses | (122 | ) | - | |||
| Finance expense | (1,717 | ) | (1,928 | ) | ||
| Tax (expense) recovery | (3,419 | ) | 131 | |||
| Net loss from continuing operations | $ | (40,800 | ) | $ | (149,684 | ) |
(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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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RESULTS FOR SIX MONTHS ENDED SEPTEMBER 30, 2023 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 2022
Revenue:
-
Revenue from digital currency mining and other revenue was $46.3 million for the current period compared to $73.8 million in the prior period. The decrease was primarily driven by the Company's digital asset mining revenue, where the Company mined 1,635 BTC and nil ETH and generated $45.9 million compared to 1,679 BTC and 14,984 ETH in the comparative prior period and generated $73.8 million. The main reasons for the decrease were our cessation of Ether mining following the Merge on September 15, 2022, and increased network difficulty as compared with the prior period.
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The Company's new HPC business contributed $0.5 million compared to $nil in the prior period.
Cost of sales:
-
Operating and maintenance costs were $33.7 million for the current period compared to $30.8 million in the prior period. These costs consist of fees paid to suppliers including local electricity providers, as well as service providers to operate our data centers which includes daily monitoring and maintenance and all other costs directly related to the maintenance and operation of the data center equipment. The main reason for the increase is due to the increase in the Company's global hashrate resulting in a correlated increase in electricity costs during the period and the abolishment of the energy tax reduction in Sweden for data centers as of July 2023.
-
Depreciation was $33.1 million for the current period compared to $50.1 million in the prior period. Depreciation is mainly related to the Company's data center equipment and right of use assets. The decrease is mainly attributed to the impairment taken on plant and equipment during the interim periods in the previous fiscal year of $70.4 million resulting in a lower fixed asset base in the current period to depreciate, net of additions and disposals in the current period. The impairment was taken to reflect a decline in market value of certain computing assets due to the rapid evolution of this technology.
Gross operating margin and gross margin:
-
The gross operating margin was $12.6 million in the current period compared to $43.0 million in the prior period. Gross operating margin is directly impacted by digital currency prices and network difficulties as this impacts revenue from mining operations. The decrease is mainly attributed to the increase in the Bitcoin network difficulty versus the prior year, combined with the Company not mining Ether since the merge on September 15, 2022.
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The gross margin was a loss of $20.4 million in the current period compared to a loss of $7.1 million in the comparative prior period. The decrease is mainly due to lower revenue from mining operations net of the decrease in depreciation expense as discussed above.
Revaluation of digital currencies:
- The Company recorded a non-cash loss of $0.4 million in the current period compared to a non-cash loss of $73.2 million related to the quarterly revaluation of its portfolio of digital currencies in the consolidated statements of profit or loss because of a decrease in the price of Bitcoin.
Loss on sale of digital currencies:
- The Company sold digital currencies and received proceeds of $61.7 million during the current period and the Company recorded a loss on sale of $2.8 million in relation to the sale of digital currencies compared to proceeds of $71.8 million and recognizing loss on sale of $18.8 million in the prior period.
Other items:
- General and administrative expenses were $6.3 million in the current period compared to $6.6 million in the prior period. Office and administrative expenses decreased by $0.3 million, Professional fees, advisory and consulting expenses decreased by $0.2 million, offset by increases in marketing expenses by $0.2 million.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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Foreign exchange gain was $1.1 million in the current period compared to a gain of $3.4 million in the prior period due to the movement in exchange rates. The Company operates in multiple jurisdictions and is exposed to foreign currency fluctuations.
-
Share based compensation expense was $6.0 million in relation to the stock options and restricted share units granted or vested in the period as compared to $2.9 million in the prior comparative period mainly as a result of stock option grants made in the current period.
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Unrealized loss on investments was $0.6 million compared to an unrealized loss of $9.7 million in the prior period. The Company holds a number of non-material investments some of which are traded in the active markets which fluctuate from time to time in value. The Company purchased an investment of $0.25 million in the current period and did not sell any investment holdings in the current period.
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Change in fair value of derivative liability was a gain of $0.27 million compared to gain of $4.2 million in the prior period. The derivative component is re-valued each reporting period using the Black-Scholes option pricing model. The main reason for the change is due to the decrease in the Company's stock price at the prior comparative period end compared to the current period.
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Impairment of equipment was $nil in the current period compared $32.6 million in the prior period. During the prior fiscal year, as digital currency prices declined and the ETH merger occurred, the Company determined that these factors were indicators of impairment. The Company performed impairment assessments during the prior fiscal year using both the "value in use" and "fair value less costs to dispose" models to determine the recoverable value and as a result recorded impairment on its equipment.
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Impairment of deposits was $nil in the current period compared $4.7 million in the prior period. The impairment on deposits are based on the counterparty risk of delivery, efficiency of machines, expected use of the machines and the expected quantity and quality of the equipment to be received.
-
Other expenses was $0.1 million compared to $nil in the comparative period.
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Finance expense was $1.7 million in the current period compared to $1.9 million in the prior period. This amount includes interest and accretion on the convertible debt, interest on lease liabilities and loans payable.
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Tax expense was $3.4 million in the current period compared to a recovery of $0.13 million in the prior period. The main reason for the increase is due to the limited tax attributes available as they have been utilized in prior periods.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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CONSOLIDATED BALANCE SHEET
The following is a summary of key balance sheet items:
| September 30, | March 31, | |||||
| 2023 | 2023 | |||||
| Cash | $ | 4,544 | $ | 4,373 | ||
| Amounts receivable and prepaids | 10,028 | 9,354 | ||||
| Investments | 2,492 | 2,866 | ||||
| Digital currencies | 46,890 | 65,899 | ||||
| Plant and equipment | 86,728 | 87,228 | ||||
| Long term receivable | 5,660 | 5,815 | ||||
| Deposits, net of provision | 4,010 | 9,542 | ||||
| Right of use asset | 9,605 | 10,973 | ||||
| Intangible assets | - | 67 | ||||
| TOTAL ASSETS | $ | 169,957 | $ | 196,117 | ||
| Accounts payable and accrued liabilities | $ | 9,235 | $ | 9,354 | ||
| Current portion of convertible loan - liability component | 1,396 | 1,175 | ||||
| Current portion of lease liability | 2,347 | 2,330 | ||||
| Term loan | 6,445 | 7,139 | ||||
| Current portion of loans payable | 1,335 | 1,224 | ||||
| Current income tax liability | 4,647 | 1,846 | ||||
| Convertible loan - liability component | 2,793 | 3,554 | ||||
| Convertible loan - derivative component | 208 | 482 | ||||
| Loans payable | 11,333 | 11,854 | ||||
| Lease liability | 6,737 | 8,138 | ||||
| Deferred tax liability | 578 | 206 | ||||
| TOTAL LIABILITIES | $ | 47,054 | $ | 47,302 |
Cash
- Cash as at September 30, 2023, was $4.5 million, an increase of $0.17 million from the prior year. Refer to the Liquidity and Capital Resources section below for details on changes in cash.
Amounts receivable and prepaids
- Amounts receivable and prepaids increased by $0.67 million from the prior year mainly due to increase in sales tax receivables as part of normal course of operations and receivable for sale of equipment.
Investments
- The Company holds a number of non-material investments some of which are traded in active markets. As a result, these non-material investments fluctuate in value from time to time. Investments decreased by $0.4 million from the prior year mainly due to a mark to market on these investments, net of additions. The Company purchased an investment of $0.25 million and did not sell any investment holdings in the current period.
Digital currencies
- Digital currencies at September 30, 2023 mainly consisted of 1,738 Bitcoin (March 31, 2023 - 2,332). The decrease in digital currencies was mainly due to a lower BTC HODL position at period end.
Plant and equipment
- Plant and equipment decreased by $0.5 million mainly due to depreciation of $31.6 million offset by the additions and disposals during the period.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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Long term receivable
- Long term receivable consists of value added tax receivables and a receivable on the sale of a subsidiary. These value added tax receivables are related to an ongoing value added review process and increased as a result of regular filings done with the tax authorities.
Deposits
- Deposits mainly consist of equipment deposits and decreased by $5.5 million due to equipment received during the period net of additional deposit amounts paid during the period.
Right of use assets
- Right of use assets decreased by $1.4 million mainly due to depreciation expense.
Intangible assets
- The Company's intangible assets is $nil at period end. The decrease is due to depreciation expense of $0.07 million.
Accounts payable and accrued liabilities
- Accounts payable and accrued liabilities decreased by $0.1 million mainly due to the timing of payments to vendors.
Term loan
-
As part of the Atlantic acquisition the Company acquired a term loan. The facility bears interest at 3.33% per annum and has a maturity date of June 30, 2024. The term loan decreased by $0.7 million as a result of the repayment of principal amounts during the period.
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The term loan has financial ratios and minimum tangible asset covenants that must be maintained by HIVE Atlantic Datacentres Ltd. As at September 30, 2023 the covenant to maintain a ratio of total debt to tangible net worth equal to or less than 2:1 was not met. The outstanding balance is presented as a currently liability as at September 30, 2023. The lender has not declared a default or requested early repayment of the loan as of the date when these financial statements were approved by the Board of Directors. The term loan includes an unlimited guarantee from the Company.
Current income tax liability
- The Company's current income tax liability increased by $2.8 million as a result of taxable income in its operations in Sweden, Iceland and Canada after the use of its tax attributes within those jurisdictions.
Convertible loan
-
The convertible loan liability component decreased by $0.5 million as a result of repayments toward the principal portion of the loan during the period.
-
The convertible loan derivative component is re-valued each reporting period using the Black-Scholes option pricing model. The main reason for the decrease of $0.3 million has been due to the change in the Company's stock price at period end compared to the prior year. The Company has been repaying the principal portion of the convertible loan amount quarterly.
Loans payable
- The Company incurred a loan as part of the sale of the net assets of Boden Technologies AB. The loan facility bears interest at the Swedish government borrowing rate plus 1% per annum and has a maturity date of December 31, 2035. The decrease of $0.4 million is due to a foreign exchange gain on the loan amount as result of a fluctuation of currencies, net of interest accrual for the period.
Lease liability
- The lease liabilities decreased by $1.4 million mainly as result of lease payments made during the period.
Deferred tax liability
- The Company's deferred tax liability at September 30, 2023 increased by $0.37 million as a result of the changes in the tax attributes and balances within the jurisdictions for the operational subsidiaries in which they operate.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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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:
| Revised | Revised | |||||||||||
| Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenue | 22,767 | 23,565 | 18,224 | 14,318 | ||||||||
| Net (loss) income | (24,548 | ) | (16,252 | ) | 6,721 | (93,459 | ) | |||||
| Basic (loss) income per share | (0.29 | ) | (0.19 | ) | 0.08 | (1.14 | ) | |||||
| Diluted (loss) income per share | (0.29 | ) | (0.19 | ) | 0.08 | (1.14 | ) | |||||
| Revised | Revised | Revised | ||||||||||
| Q2 2023 | Q1 2023 | Q4 2022 | Q3 2022 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenue | 29,597 | 44,179 | 49,784 | 68,845 | ||||||||
| Net (loss) income | (33,657 | ) | (116,027 | ) | (33,972 | ) | 51,193 | |||||
| Basic (loss) income per share | (0.41 | ) | (1.41 | ) | (0.43 | ) | 0.66 | |||||
| Diluted (loss) income per share | (0.41 | ) | (1.41 | ) | (0.43 | ) | 0.62 |
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 cryptocurrency 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, 2023, the Company had a working capital balance of $38.5 million (March 31, 2023 - $59.4 million) and has sufficient cash to fund its current operating and administrative costs.
The net change in the Company's cash position as at September 30, 2023 as compared to March 31, 2023 was a increase of $0.2 million as a result of the following cash flows:
- Cash provided by operating activities of $21.5 million;
- Cash used in investing activities of $26.1 million related to the purchase of equipment, and deposits on equipment; and
- Cash provided by financing activities of $4.8 million from share issuances, net of cash used for lease and debt payment.
As at September 30, 2023, 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 | $ | 7,436 | $ | 7,436 | $ | - | $ | - | $ | - | |||||
| Term loan | 6,445 | 6,445 | - | - | - | ||||||||||
| Convertible loan | 7,529 | 3,466 | 4,063 | - | - | ||||||||||
| Lease commitments | 10,097 | 2,799 | 5,404 | 1,894 | - | ||||||||||
| Loans payable and interest | 14,944 | 1,318 | 3,786 | 2,384 | 7,456 | ||||||||||
| Total | $ | 46,451 | $ | 21,464 | $ | 13,253 | $ | 4,278 | $ | 7,456 |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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DIVIDENDS
The Company has never paid dividends. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account many factors, including operating results, financial condition, and current and anticipated cash needs. All of the common shares in the capital of Company would be entitled to an equal share in any dividends declared and paid on a per share basis.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this report, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company.
OUTSTANDING SHARE DATA
At September 30, 2023 and at the date of this report, the following securities were outstanding:
| September 30, | Exercise price | ||||||||
| Total Outstanding as of: | 2023 | Date of this report: | range: | ||||||
| Shares outstanding | 86,224,848 | 87,630,617 | |||||||
| Restricted Share Units | 1,873,130 | 1,843,730 | |||||||
| Stock options | 3,478,315 | 3,478,315 | C$1.35 - C$25.35 | ||||||
| Warrants | 3,023,727 | 3,023,727 | C$15.00 - C$30.00 |
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 Operating Margin
The Company believes that, in addition to conventional measures prepared in accordance with IFRS, it is helpful to investors to use the gross operating margin to evaluate the Company's performance and its ability to generate cash flows and service debt. The gross operating margin is defined as total 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.
Gross mining margin is directly impacted by Bitcoin price and Bitcoin network Difficulty (which are both publicly available statistics). The Difficulty is an integer value that is proportional to the number of hashes required to solve a block. Revenue is directly proportional to Bitcoin price, and inversely proportional to Difficulty.
The following table provides illustration of the calculation of the gross operating margin for the last five quarters:
| Calculation of Gross Operating Margin: | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | ||||||||||
| Revenue (1) | $ | 22,767 | $ | 23,565 | $ | 18,224 | $ | 14,318 | $ | 29,597 | |||||
| Less: | |||||||||||||||
| Operating and maintenance costs: | (18,134 | ) | (15,585 | ) | (14,198 | ) | (10,703 | ) | (13,656 | ) | |||||
| Gross Operating Margin | $ | 4,633 | $ | 7,980 | $ | 4,026 | $ | 3,615 | $ | 15,941 | |||||
| Gross Operating Margin % | 20% | 34% | 22% | 25% | 54% |
(1) As presented on the statements of income (loss) and comprehensive income (loss).
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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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 by 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:
| Revised | Revised | Revised | |||||||||||||
| Calculation of EBITDA & Adjusted EBITDA: | Q2 F2024 | Q1 F2024 | Q4 F2023 | Q3 F2023 | Q2 F2023 | ||||||||||
| Net (loss) income (1) | (24,548 | ) | (16,252 | ) | 6,721 | (93,459 | ) | (33,657 | ) | ||||||
| Add the impact of the following: | |||||||||||||||
| Finance expense | 838 | 879 | 774 | 1,004 | 938 | ||||||||||
| Depreciation | 16,567 | 16,483 | 11,315 | 20,340 | 24,323 | ||||||||||
| Tax expense (recovery) | 1,605 | 1,814 | 831 | (411 | ) | (131 | ) | ||||||||
| EBITDA | (5,538 | ) | 2,924 | 19,641 | (72,526 | ) | (8,527 | ) | |||||||
| Revaluation of digital currencies | 422 | - | (23,427 | ) | 5,997 | 2,510 | |||||||||
| Revaluation of derivative liability | (417 | ) | 143 | 390 | (715 | ) | 192 | ||||||||
| Impairment of equipment | - | - | (1,007 | ) | 38,844 | 26,236 | |||||||||
| Impairment of deposits | - | - | - | 22,653 | - | ||||||||||
| (Gain) loss on sale of mining assets | (26 | ) | 267 | 118 | 1,292 | (15 | ) | ||||||||
| Share-based compensation | 4,044 | 1,973 | 2,921 | 2,556 | 1,948 | ||||||||||
| Adjusted EBITDA | (1,515 | ) | 5,307 | (1,364 | ) | (1,899 | ) | 22,344 |
(1) As presented on the statements of income (loss) and comprehensive income (loss).
RELATED PARTY TRANSACTIONS
The Company entered into the following related party transactions not otherwise disclosed in these consolidated financial statements:
a) As at September 30, 2023, the Company had $24 (March 31, 2023 - $12) due to officers for the reimbursement of expenses included in accounts payable and accrued liabilities.
b) As at September 30, 2023, the Company had $nil (March 31, 2023 - $nil) due to a company controlled by a director of the Company included in accounts payable and accrued liabilities. For the three and six months period ended September 30, 2023, the Company paid $48 and $128, respectively (September 30, 2022 - $81 and $178, respectively) 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 three and six months period ended September 30, 2023, key management compensation includes salaries and wages paid to key management personnel and directors of $348 and $609, respectively (September 30, 2022 - $232 and $458, respectively) and share-based payments of $2.4 million and $3.9 million, respectively (September 30, 2022 - $0.9 million and $1.2 million, respectively).
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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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, 2023.
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 consolidated financial statements for the year ended March 31, 2023, and include: functional currency, digital currencies accounting, and assessment of transactions as an asset acquisition or business combination.
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 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 24 to the consolidated financial statements for the year ended March 31, 2023.
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, 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 as at September 30, 2023.
| Impact of 5% variance in price | |||
| Bitcoin | $ | 2,335 | |
| Ethereum Classic | 5 |
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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RISKS AND UNCERTAINTIES
The Company faces multiple 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, 2023, and this MD&A, all of which are available on SEDAR+ at www.sedarplus.ca 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. These risk factors are not a definitive list of all risk factors associated with an investment in the Company or in connection with its operations. Additional risks and uncertainties not presently known to the Company, or that are currently deemed immaterial, may also impair operations. If any such risks occur, the financial condition, liquidity and results of operations of the Company could be materially adversely affected.
The Company is exposed to risk related to the volatility/momentum pricing of any digital currency mined by the Company and held in inventory. Wide fluctuations in price, speculation, negative media coverage (highlighting for example, financial scandals related to crypto exchanges, 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 primarily. Other coins that we mine using our GPU-based systems yield mining rewards in those cryptocurrencies, however, those coins are regularly exchanged for Bitcoin. As a result, the Company is more exposed to volatility in the Bitcoin market.
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.
Regulatory action, particularly in the United States, may negatively affect the value of Bitcoin, which is the focus of our mining operations. Enforcement actions by the SEC or other regulators against trading platforms and exchanges may indirectly negatively affect the Company if these actions have the effect of limiting access to Bitcoin.
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.
A key factor in the Company's profitability of its mining operations is the cost of electricity in the regions where the Company has mining operations. Energy costs generally are subject to government regulation, natural occurrences (including weather) and local supply and demand for energy. 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 negative impacts of changes in tax policy, such as, but not limited to, being precluded from claiming deductions for 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.
In particular, the Russian invasion Ukraine which began on February 24, 2022, is affecting the supply of oil and natural gas in Europe. While it is impossible to predict what affect the war in Ukraine could have on the Company's operations in Sweden, our energy pricing is currently buffered partially by our ability to enter into forward energy agreements for the purchase of electricity. Our Swedish operation utilizes approximately 37.5 MW of renewable hydroelectric energy, which represents approximately 25% of our global overall utilization of hydroelectric and geothermal energy.
As a measure of security against hackers, the Company holds its Bitcoin in segregated, secure storage wallets, maintained by Fireblocks, a leading provider of crypto asset secure storage and management, which specializes in securely storing cryptocurrencies. HIVE has not pledged or staked our Bitcoin assets as collateral against debt or other obligations of any kind. HIVE's Bitcoin is not stored on any exchange. HIVE's Bitcoin is never "staked" for mining purposes (See our definition of "Proof-of-Stake") or loaned to any third party.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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Notwithstanding our proactive arrangements to protect our Bitcoin from hackers, there is no guarantee that our security measures, or the security measures of Fireblocks, will be effective. 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 relative 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 the Company's long-term prospects.
From time to time, we liquidate BTC in order to generate cash for working capital. For brief periods, our Bitcoin must be transferred to an exchange in order to facilitate the sale. During such times when our BTC, or the cash proceeds of our BTC, is held by an exchange, there is risk related to the exchange, itself. A financial failure by the exchange could result in our losing some or all of the BTC and/or cash that is held by the exchange at the time of the failure. The Company makes best efforts to transact using exchanges that are most reliable and financially secure, however, there remains a risk of an exchange failure at a time when the Company's assets are in the exchange's custody.
The Company was negatively impacted by the Ethereum Merge on September 15, 2022 (the "Merge"), when Ethereum shifted 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.
There is also a risk that the Company could be negative affected by a Bitcoin halving event. Halving is a process designed to control the overall supply and reduce the risk of inflation in Bitcoin. At a predetermined block, the mining reward is cut in half. The Bitcoin blockchain has undergone three halvings since its inception. Most recently, in May 2020, the Bitcoin Block Reward decreased from 12.5 to 6.25 BTC per block and, consequently, the number of new Bitcoin issued to miners as a subsidy decreased to 900 per day, excluding transaction fees. While halvings may thus have a significant negative short- to medium-term impact on miners such as the Company, it is expected that market variables of Bitcoin price will adjust over time to ensure that mining remains profitable. The period of market normalization after the next BTC Halving to incentivizing profitability levels is unknown. A Bitcoin halving is scheduled to occur once every 210,000 blocks, or roughly every four years, until the total amount of Bitcoin rewards issued reaches 21 million, which is expected to occur around 2140. The next Bitcoin halving is expected to occur in April 2024. While Bitcoin prices have had a history of price fluctuations around Bitcoin halvings, there is no guarantee that the price change will be favorable or would compensate for the reduction in mining reward. If Bitcoin price and difficulty do not maintain or continue their trend of adjusting to pre-Bitcoin halving profitability levels over time, or the period of market normalization after the Bitcoin halving to pre-Bitcoin halving profitability levels is too long, there is a risk that the Bitcoin halving will render the Company unprofitable for a sustained time period such that it could be unable to continue as a going concern.
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 cryptocurrency 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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In recent years, the securities markets have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly those in cryptocurrency-focused businesses and those considered development stage companies (such as the Company), have experienced wide fluctuations in price. The market price of the Company's common shares ranged from C$1.36 to C$7.53 on the TSXV from May 24, 2022 (the date of the Company's 1:5 share consolidation) to March 31, 2023. The market price of the Company's common shares fluctuates significantly in response to a number of factors, most of which the Company cannot control and many of which have not necessarily been related to the operating performance, underlying asset values or prospects of the Company.
Given the relative novelty of digital currency mining and associated businesses as compared with traditional industry sectors, historical data required by insurance carriers and designers of insurance products is insufficient. As a result, insurance covering crypto assets is generally not available, or uneconomical for the Company to obtain. Consequently, we may have inadequate insurance coverage as compared to companies in traditional long-standing industries. 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 in this report. 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 cryptocurrency mining. Some jurisdictions have indicated that in the event their electrical grids are over-taxed by demand for electricity, allocation of power to cryptocurrency mining would be one of the first allocations to be curtailed or eliminated during such periods of high demand. While the Company's facilities are located in jurisdictions that have historically been friendly to crypto mining and have adequately robust electrical grids, there is no assurance that such policies will continue. We note an increased preponderance of anti-crypto and anti-crypto-mining sentiment in many jurisdictions. In particular, the political environment in some jurisdictions 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 increase in significance.
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 November of 2022, FTX Trading Ltd. ("FTX"), one of the largest crypto exchanges in the operation at the time, abruptly ceased operations following a report by CoinDesk highlighting potential leverage and solvency concerns involving FTX-affiliated trading firm Alameda Research. FTX's collapse shook the volatile crypto market, which lost billions in value at the time, falling below a $1 trillion valuation. By November 11, 2022, FTX's CEO stepped down and the company filed for bankruptcy. The entire collapse, in which FTX went from having a value estimated at $32 billion to bankruptcy, took place over only a ten-day period. The collapse of FTX has had a wide impact on cryptocurrency markets, with comparisons made to the Enron Corporation scandal and Madoff investment scandal. The FTX collapse has been described by United States prosecutors as "one of the biggest financial frauds in American history". More recently, the SEC has sued Coinbase alleging that Coinbase is operating an unregistered securities exchange; the outcome of this lawsuit is pending and its impact on the cryptocurrency industry is not yet known.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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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 global uncertainty with respect to the COVID-19 virus and its effect on the broader global economy continues to be a concern. Future 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.
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; development of a new high performance computing business, the Company's strategic partnerships; the cost of energy in each of the jurisdictions where we conduct mining operations; potential and existing regulation of the availability of electricity; potential regulatory developments, the Company's strategy to acquire, develop and operate data centers and potential alternative computing services; expected mining capacity; the Company's plans to manage its data centers 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, historical prices of digital currencies; electricity pricing; 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 operating 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 operating 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" section contained in this Management Discussion and Analysis, and the Risk Factors contained the Company's various filings on SEDAR+ (www.sedarplus.ca) 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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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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 audited annual financial statements and respective accompanying Management's Discussion and Analysis.
Evaluation of Disclosure Controls and Procedures
Positive changes were made in the Company's design of internal controls over financial reporting during the year ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. As a result of the Company hiring an additional member to its internal accounting department during this past quarter, making two new members hired in the last year, the Company has been able to perform regular reconciliations and review of complex accounting and financial reporting issues.
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.sedarplus.ca 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.sedarplus.ca, EDGAR at www.sec.gov/EDGAR or the Company's website at www.hivedigitaltechnologies.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.
| HIVE Digital Technologies Ltd. (formerly, HIVE Blockchain Technologies Ltd.) Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 30, 2023 (In thousands of US Dollars, except share amounts) |
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SUBSEQUENT EVENTS
Subsequent to September 30, 2023, the Company issued 1,376,369 common shares (the "2023 ATM Shares") pursuant to the 2023 ATM Equity Program for gross proceeds of C$6.1 million ($4.43 million). The 2023 ATM shares were sold at prevailing market prices, for an average price per 2023 ATM Share of C$4.43. Pursuant to the 2023 Equity Distribution Agreement, a cash commission of $133 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the 2023 Equity Distribution Agreement.
Subsequent to September 30, 2023, the Company issued 29,400 common shares under the RSU plan upon the exercise of restricted share units.
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
INTERIM CERTIFICATE
I, Aydin Kilic, Chief Executive Officer of HIVE Digital Technologies Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of HIVE Digital Technologies Ltd. (the "issuer") for the interim period ended September 30, 2023.
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 April 1, 2023 and ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
DATED the 10th day of November, 2023.
| /s/ Aydin Kilic | |
| Aydin Kilic Chief Executive Officer |
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
INTERIM CERTIFICATE
I, Darcy Daubaras, Chief Financial Officer of HIVE Digital Technologies Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of HIVE Digital Technologies Ltd. (the "issuer") for the interim period ended September 30, 2023.
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 April 1, 2023 and ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
DATED the 10th day of November, 2023.
| /s/ Darcy Daubaras | |
| Darcy Daubaras Chief Financial Officer |
HIVE Digital Announces Quarterly Revenue of $22.8 Million with a Gross Operating Margin of $4.6 Million and Production of 801 Bitcoin
This news release constitutes a "designated news release" for the purposes of the Company's
prospectus supplement dated May 10, 2023 to its short form base shelf prospectus dated May 1, 2023.
Vancouver, British Columbia--(Newsfile Corp. - November 13, 2023) - HIVE Digital Technologies Ltd. (TSXV: HIVE) (NASDAQ: HIVE) (FSE: YO0) (the "Company" or "HIVE"), a leading digital asset miner and "green" focused data center builder and operator, announced today its earnings report for the second quarter ended September 30, 2023 (all amounts in US dollars, unless otherwise indicated).
HIVE achieved revenue of $22.8 million this quarter by mining 801 Bitcoin with a 20% Gross Operating Margin representing $4.6 million of income from operations. This quarter was a challenging quarter with Bitcoin prices remaining weak on a quarter over quarter basis, while difficulty increases were experienced. Looking at Bitcoin prices post this quarter end, we may have seen a bottom in prices with some upward movement taking place.
The Company notes that HIVE's production of 801 Bitcoin this quarter represents a decrease of 6.6% year-over-year, having mined 858 Bitcoin last year. This is in large part due to the increase in Bitcoin mining network Difficulty of approximately 82%, which suggests more miners are competing and with more efficient equipment for the same daily opportunity of 900 coins. Even though HIVE increased its average quarterly Bitcoin mining ASIC hashrate from 2.1 EH/s to 3.5 EH/s in this same period, for an increase of Bitcoin mining hashrate of approximately 66%.
"Management has been cautious by not borrowing from predator lenders or creating massive dilution like many other miners as we strive to upgrade our suite of ASIC chips and run the business by selling our bitcoin production and 200 of our HODL position. Further we have been spending capital to build out our HPC strategy for the boom in AI. This revenue stream by repurposing our suite of Nvida chips for AI is gathering momentum. This business channel has much higher margins than mining Bitcoin," says Frank Holmes, HIVE's Executive Chairman.
Further, "We wish to again thank our loyal shareholders for believing in our vision. Our HPC strategy is now growing rapidly on a month-over-month basis. While we booked approximately $250,000 of revenue for the 3-month Q2 2024 period from HPC beta site operations, as of today I am pleased to announce our beta tests are generating approximately $250,000 of revenue per month. We are happy to report that our beta test growth appears to be scalable. Demand for our high-quality chips has risen due to the huge global demand for AI projects like ChatGPT, medical research, machine learning and rendering. HIVE was the first data center to use its software to help balance the electrical grid and resell back energy whenever there is a spike in demand. This strategy has been good for HIVE, but more importantly for the communities in which we operate. HIVE is well positioned despite challenging fundamentals such as rising mining network difficulty. Strategically, we have not borrowed expensive debt against our mining equipment or pledged our Bitcoins for costly loans, thus our balance sheet remains healthy to weather the upcoming Halving. Also HIVE uses an accelerated depreciation of ASIC equipment over 2 years, which is highly conservative considering that the useful life of this equipment is usually more than 4 years. What this means is, every time we make a purchase of ASICs machines, there is a straight depreciation over 2 years to $0, so every quarter for 8 quarters in a row, 12.5% of the value of each ASIC equipment purchase is booked as depreciation on our income statement. Notably, we are pleased that our various batches of Bitmain S19j Pro purchases from December 2022 totalling 3,570 units have already earned an ROI of approximately 80% to 105% as of period end September 30, 2023, after accounting for operating costs. Therefore, it is worth noting that our aggressive depreciation schedule of 2 years implies a non-cash charge on our income statement, even if on a cash flow basis our machines pay themselves off in this period."
Aydin Kilic, President & CEO of HIVE, added, "HIVE's executive management team has skillfully navigated the recent bear market and are proud of achieving a gross operating margin of $4.6 million this quarter. We produced 801 Bitcoin this quarter, in a period where Bitcoin mining Difficulty increased 9% quarter over quarter, reaching a then all-time high of 57T. HIVE produced 834 Bitcoin in the previous quarter, thus our quarter over quarter Bitcoin production represents only a 4% decrease, despite a 9% increase in Difficulty. The reason being that HIVE's operating hashrate increased substantially quarter over quarter."
Mr. Kilic continued, "As of June 30, 2023, HIVE's operating hashrate was 3.5 EH/s, which increased to 4.0 EH/s as of September 30, 2023, representing a 14% increase in period end hashrate, quarter over quarter. On an average operating basis, HIVE's average hashrate during the 3-month period ended September 30, 2023, was 3.66 EH/s, compared to an average operating hashrate of 3.35 EH/s for the 3-month period ended June 30, 2023, which represents a 9% increase in average operating hashrate quarter over quarter. These figures are total Bitcoin equivalent hashrate, which includes ASICs and GPUs. Relative to our peers in the industry, HIVE management believes we have operated with healthy profit margins during periods of market volatility thanks to its global presence in Sweden, Iceland, and Canada and their attractive sources of hydro and geothermal electricity with competitive pricing."
HIVE's average cost of production per Bitcoin was $22,639 (including cost of goods sold, not including SG&A) for the quarter ending September 30, 2023, a 21.15% increase in cost from the previous quarter ending June 30, 2023. The company notes that with Bitcoin mining hashrates and Difficulty at all-time highs, it is expected that the cost of production for Bitcoin will increase for the industry at large, as less Bitcoin per Terahash is being rewarded at these difficulty levels. We remain focused on acquiring new ASIC machines in an opportunistic way from cash flow and managing our balance sheet. We are busy preparing for the Halving as we did in 2020.
Notably, the average hashprice for the Bitcoin mining network (a measure of the USD daily revenue earned per operating Petahash of Bitcoin hashrate online) was $68/PH per day for the period end September 30, 2023. The average hashprice for the Bitcoin mining network for the previous quarter period end June 30, 2023, was $77/PH per day. Therefore, the average Bitcoin mining network hashprice was 12% lower on a quarter over quarter basis. What this means, is for all Bitcoin miners, they would earn on average 12% less revenue for the same quantity of hashrate online for the period end September 30, 2023, compared on a quarter over quarter basis to the period end June 30, 2023.
Q2 Quarterly Summary- September 30, 2023
- Generated revenue of $22.8 million, with a gross operating margin1 of $4.6 million
- Mined 801 Bitcoin during the three-month period ended September 30, 2023
- Adjusted EBITDA1 loss of $1.5 million for the three-month period
- Working capital decreased by $12.6 million during the three-month period ended September 30, 2023 for investing in data center equipment and ASIC equipment
- Digital currency assets of $46.9 million, as at September 30, 2023
- Average cost of production per Bitcoin was $22,639, where the average Bitcoin price was $28,045, during the three-month period ended September 30, 2023. This also represents a 21.2% increase in production costs of Bitcoin from the previous quarter of $18,687 for the three months ended June 30, 2023 (average price of Bitcoin was $28,067 during this period)
- Net loss from continuing operations of $24.5 million for the three-month period, due greatly to the accelerated depreciation of ASIC equipment, and share based compensation.
Q2 F2024 Financial Review
For the three months ended September 30, 2023, revenue was $22.8 million, a decrease of approximately 23.1% from the prior comparative period primarily due to the Ethereum Merge and significant mining difficulty growth.
Gross operating margin1 during the three-month period was $4.6 million, or 20% of revenue, compared to $15.9 million, or 54% of revenue, in the same period in the prior year. The Company's gross operating margin1 is partially dependent on external network factors including mining difficulty, the amount of digital currency rewards and fees it receives for mining, as well as the market price of digital currencies.
The Company notes that, while adjusted EBITDA1 this quarter was a loss of $1.5 million, because of higher operating costs and realized loss on sale of digital currencies, net loss from continuing operations during the quarter ended September 30, 2023, was $24.5 million, or a loss of $0.29 per share, compared to a net loss of $33.7 million, or $0.41 per share, in the same period last year. The improvement from the prior comparative period was driven primarily by lower non-cash charges such as depreciation, unrealized valuation losses on digital currencies and investments, and impairment charges on equipment. Adjusted EBITDA is a non-IFRS financial measurement and should be read in conjunction with and should not be viewed as an alternative to or replacement of measures of operating results and liquidity presented in accordance with IFRS.
Mr. Holmes noted, "At HIVE we strive to maintain a high-performance culture, which means that we always adapt to unexpected headwinds, and maintain operational excellence in the process."
| (in USD millions) | Q2 2024 | Q1 2024 | ||||
| Revenue | $ | 22.8 | $ | 23.6 | ||
| Gross operating margin | $ | 4.6 | $ | 8.0 | ||
| Gross operating margin % | 20% | 34% | ||||
| Adjusted EBITDA | $ | (1.5 | ) | $ | 5.3 | |
| Depreciation | $ | 16.6 | $ | 16.5 | ||
| Net loss from continuing operations | $ | (24.5 | ) | $ | (16.3 | ) |
EBITDA and 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.
| Calculation of EBITDA & Adjusted EBITDA: | Q2 2024 | Q1 2024 | ||||
| (USD millions) | ||||||
| Net loss | $ | (24.5 | ) | $ | (16.3 | ) |
| Add the impact of the following: | ||||||
| Finance expense | 0.8 | 0.9 | ||||
| Depreciation | 16.6 | 16.5 | ||||
| Tax expense | 1.6 | 1.8 | ||||
| EBITDA | (5.5 | ) | 2.9 | |||
| Revaluation of digital currencies | 0.4 | - | ||||
| Revaluation of derivative liability | (0.4 | ) | 0.1 | |||
| Loss on sale of mining assets | - | 0.3 | ||||
| Share-based compensation | 4.0 | 2.0 | ||||
| Adjusted EBITDA | $ | (1.5 | ) | $ | 5.3 |
The Company emphasizes that "Adjusted EBITDA" is not a GAAP or IFRS measurement and is included only for comparative purposes.
Non-Cash Charges
A non-cash charge is a write-down or accounting expense that does not involve a cash payment. Depreciation, amortization, depletion, stock-based compensation, and asset impairments are common non-cash charges that reduce earnings but not cash flows.
Financial Statements and MD&A
The Company's Consolidated Financial Statements and Management's Discussion and Analysis (MD&A) thereon for the three and six months ended September 30, 2023 will be accessible on SEDAR+ at www.sedarplus.ca under HIVE's profile and on the Company's website at www.HIVEdigitaltechnologies.com.
At-the-Market Offering
Pursuant to the at-the-market equity program established by the Company's prospectus supplement dated May 10, 2023 (the "ATM Equity Program"), as required pursuant to National Instrument 44-102 - Shelf Distributions and the policies of the TSX Venture Exchange ("TSXV"), the Company announces that, during its three month quarter ended September 30, 2023, it has issued an aggregate of 1,452,837 common shares (the "ATM Shares") over the TSX-V, for aggregate gross proceeds to the Company of C$9,282,909. The ATM Shares were sold at prevailing market prices, for an average price per ATM Share of C$6.39. Pursuant to the equity distribution agreement associated with the ATM Equity Program (the "EDA"), a cash commission of $209,345 on the aggregate gross proceeds raised was paid to the agent in connection with its services under the EDA during the second quarter ended September 30, 2023.
Pursuant to the EDA, the Company may, from time to time, sell up to USD$100 million of common shares in the capital of the Company. The Company intends to use the net proceeds of the ATM Equity Program, if any, primarily to support the growth and development of the Company's existing mining operations as well as for working capital and general corporate purposes. Additionally, the Company wishes to be in a position to capitalize on opportunities which may exist or may be brought to its attention relating to distressed asset sales of mining equipment throughout the mining ecosystem.
About HIVE Digital Technologies Ltd.
HIVE Digital Technologies Ltd. went public in 2017 as the first cryptocurrency mining company listed for trading on the TSX Venture Exchange with a sustainable green energy focus.
HIVE is a growth-oriented technology stock in the emergent blockchain and high-performance computing industry. As a company whose shares trade on major stock exchanges, we are building a bridge between the digital currency and blockchain sectors and traditional capital markets. HIVE owns state-of-the-art, green energy-powered data center facilities in Canada, Sweden, and Iceland, where we endeavour to source green energy to mine digital assets such as Bitcoin on the cloud. Since the beginning of 2021, HIVE has held in secure storage the majority of its treasury of BTC derived from mining rewards. Our shares provide investors with exposure to the operating margins of digital currency mining, as well as a portfolio of Bitcoin. Because HIVE also owns hard assets such as data centers and advanced multi-use servers, we believe our shares offer investors an attractive way to gain exposure to the cryptocurrency and high-performance computing space.
We encourage you to visit HIVE's YouTube channel here to learn more about HIVE.
For more information and to register to HIVE's mailing list, please visit https://hivedigitaltechnologies.com/. Follow @HIVEDigitalTech on X and subscribe to HIVE's YouTube channel.
On Behalf of HIVE Digital Technologies Ltd.
"Frank Holmes"
Executive Chairman
For further information please contact:
Frank Holmes
info@hivedigitaltech.com
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.
Forward-Looking Information
Except for the statements of historical fact, this news release contains "forward-looking information" within the meaning of the applicable Canadian securities legislation that is based on expectations, estimates and projections as at the date of this news release. "Forward-looking information" in this news release includes information about: business goals and objectives of the Company; the results of operations for the three months ended September 30, 2023; the HODL strategy adopted by the Company; the acquisition, deployment and optimization of the mining fleet and equipment; the continued viability of its existing Bitcoin mining operations; the Company's program to build a high-performance computing business offering cloud computing services; the Company's operations and sustainable future profitability; potential further improvements to the profitability and efficiency across mining operations by optimizing cryptocurrency mining output, continuing to lower direct mining operations cost structure, and maximizing existing electrical and infrastructure capacity including with newmining equipment in existing facilities; continued adoption of Bitcoin globally; the potential for the Company's long term growth; the business goals and objectives of the Company, and other forward-looking information includes but is not limited to information concerning the intentions, plans and future actions of the parties to the transactions described herein and the terms thereon.
Factors that could cause actual results to differ materially from those described in such forward-looking information include, but are not limited to, the volatility of the digital currency market; the Company's ability to successfully mine digital currency; the Company may not be able to profitably liquidate its current digital currency inventory as required, or at all; a material decline in digital currency prices may have a significant negative impact on the Company's operations; the Company's ability to compete successfully with other cloud computing service providers; the regulatory environment for cryptocurrency in Canada, the United States and the countries where our mining facilities are located; economic dependence on regulated terms of service and electricity rates; the speculative and competitive nature of the technology sector; dependency on continued growth in blockchain and cryptocurrency usage; lawsuits and other legal proceedings and challenges; government regulations; the global economic climate; dilution; future capital needs and uncertainty of additional financing, including the Company's ability to utilize the Company's at-the-market equity offering program (the "ATM Program") and the prices at which the Company may sell Common Shares in the ATM Program, as well as capital market conditions in general; risks relating to the strategy of maintaining and increasing Bitcoin holdings and the impact of depreciating Bitcoin prices on working capital; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; the ability to maintain reliable and economical sources of power to run its cryptocurrency mining assets; the impact of energy curtailment or regulatory changes in the energy regimes in the jurisdictions in which the Company operates; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; share dilution resulting from the ATM Program and from other equity issuances; the construction and operation of facilities may not occur as currently planned, or at all; expansion may not materialize as currently anticipated, or at all; the digital currency market; the ability to successfully mine digital currency; revenue may not increase as currently anticipated, or at all; it may not be possible to profitably liquidate the current digital currency inventory, or at all; a decline in digital currency prices may have a significant negative impact on operations; an increase in network difficulty may have a significant negative impact on operations; the volatility of digital currency prices; the anticipated growth and sustainability of electricity for the purposes of cryptocurrency mining in the applicable jurisdictions; the inability to maintain reliable and economical sources of power for the Company to operate cryptocurrency mining assets; the risks of an increase in the Company's electricity costs, cost of natural gas, changes in currency exchange rates, energy curtailment or regulatory changes in the energy regimes in the jurisdictions in which the Company operates and the adverse impact on the Company's profitability; the ability to complete current and future financings, any regulations or laws that will prevent the Company from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and, the adoption or expansion of any regulation or lawthat will prevent the Company from operating its business, or make it more costly to do so; and other related risks as more fully set out in the Company's disclosure documents under the Company's filings at www.sec.gov/EDGAR and www.sedarplus.ca.
This news release also contains "financial outlook" in the form of gross operating margins, which is intended to provide additional information only and may not be an appropriate or accurate prediction of future performance and should not be used as such. The gross operating margins disclosed in this news release are based on the assumptions disclosed in this news release and the Company's Management Discussion and Analysis for the fiscal year ended March 31, 2023, which assumptions 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.
The forward-looking information in this news release 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 news release, the Company has made assumptions about the Company's ability to realize operational efficiencies going forward into profitability; profitable use of the Company's assets going forward; the Company's ability to profitably liquidate its digital currency inventory as required; historical prices of digital currencies and the ability of the Company to mine digital currencies will be consistent with historical prices; and there will be no regulation or lawthat will prevent the Company from operating its business. 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. The Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of newinformation, future events or otherwise, other than as required by law.
_____________________________________
1Non-IFRS measure. A reconciliation to its nearest IFRS measures is provided under "Reconciliations of Non-IFRS Financial Performance Measures"
below.
To view the source version of this press release, please visit
https://www.newsfilecorp.com/release/187146