Keel Infrastructure Corp 6-K, filed Aug 15, 2022
Keel Infrastructure Corp. (KEEL)
About this 6-K
Keel Infrastructure Corp filed this 6-K on August 15, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2022
Commission File Number: 333-258788
BITFARMS LTD.
(Exact Name of Registrant as Specified in Its Charter)
18 King Street East, Suite 902, Toronto, Ontario, Canada M5C 1C4
(Address of principal executive offices)
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 ¨ Form 40-F x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
INCORPORATION BY REFERENCE
This report on Form 6-K, including the interim condensed consolidated financial statements for the three and six months ended June 30, 2022 and management’s discussion and analysis for the three and six months ended June 30, 2022, shall be deemed to be incorporated by reference as exhibits to the Registration Statement of Bitfarms Ltd. on Form F-10 (File No. 333-258788) and to be a part thereof from the date on which this report was furnished, to the extent not superseded by documents or reports subsequently filed or furnished.
1
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BITFARMS LTD. | |||
| By: | /s/ L. Geoffrey Morphy | ||
| Name: | L. Geoffrey Morphy | ||
| Title: | President | ||
Date: August 15, 2022
2
Exhibit 99.1
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022 (UNAUDITED)
INDEX
- - - - - - - - - - - - - - - - - - - -
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
(In thousands of U.S. dollars)
| Note | June 30, 2022 | December 31, 2021 | ||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS: | ||||||||||
| Cash | $ | 45,982 | $ | 125,595 | ||||||
| Trade receivables | 644 | 1,038 | ||||||||
| Other assets | 4 | 5,007 | 6,427 | |||||||
| Taxes receivable | 9,757 | — | ||||||||
| Digital assets | 5 | 10,801 | 66,031 | |||||||
| Digital assets - pledged as collateral | 5, 10 | 51,403 | 86,825 | |||||||
| Assets held for sale | 6b | 1,081 | 1,211 | |||||||
| TOTAL CURRENT ASSETS | 124,675 | 287,127 | ||||||||
| NON-CURRENT ASSETS: | ||||||||||
| Property, plant and equipment | 6, 19b | 228,866 | 136,850 | |||||||
| Right-of-use assets | 12 | 14,928 | 9,397 | |||||||
| Long-term deposits, equipment prepayments and other | 8 | 103,868 | 86,681 | |||||||
| Intangible assets | 7 | 798 | 1,681 | |||||||
| Goodwill | 3 | — | 16,955 | |||||||
| Deferred tax asset | 13a | — | 3,896 | |||||||
| TOTAL NON-CURRENT ASSETS | 348,460 | 255,460 | ||||||||
| TOTAL ASSETS | $ | 473,135 | $ | 542,587 | ||||||
| LIABILITIES AND EQUITY | ||||||||||
| CURRENT LIABILITIES: | ||||||||||
| Trade payables and accrued liabilities | 9 | $ | 12,722 | $ | 14,480 | |||||
| Current portion of long-term debt | 11 | 41,126 | 10,257 | |||||||
| Current portion of lease liabilities | 12 | 3,790 | 4,346 | |||||||
| Credit facility | 10 | 38,780 | 60,002 | |||||||
| Taxes payable | — | 12,093 | ||||||||
| TOTAL CURRENT LIABILITIES | 96,418 | 101,178 | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||||
| Long-term debt | 11 | 26,108 | 910 | |||||||
| Lease liabilities | 12 | 13,831 | 9,227 | |||||||
| Asset retirement provision | 14 | 1,593 | 239 | |||||||
| Deferred tax liability | 13a | — | 8,451 | |||||||
| TOTAL NON-CURRENT LIABILITIES | 41,532 | 18,827 | ||||||||
| TOTAL LIABILITIES | 137,950 | 120,005 | ||||||||
| EQUITY: | ||||||||||
| Share capital | 414,853 | 378,893 | ||||||||
| Contributed surplus | 57,746 | 43,704 | ||||||||
| Accumulated deficit | (137,414 | ) | (15 | ) | ||||||
| TOTAL EQUITY | 335,185 | 422,582 | ||||||||
| TOTAL LIABILITIES & EQUITY | $ | 473,135 | $ | 542,587 | ||||||
The interim condensed consolidated financial statements should be read in conjunction with the accompanying notes.
 | 2 |
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND COMPREHENSIVE PROFIT OR LOSS |
(In thousands of U.S. dollars, except earnings per share data)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Revenues | 5, 19a | $ | 41,815 | $ | 36,687 | $ | 82,144 | $ | 65,119 | |||||||||
| Cost of sales | 18a | 32,311 | 13,332 | 55,603 | 22,452 | |||||||||||||
| Gross profit | 9,504 | 23,355 | 26,541 | 42,667 | ||||||||||||||
| General and administrative expenses | 18b | 15,392 | 10,607 | 29,235 | 13,426 | |||||||||||||
| Realized loss (gain) on disposition of digital assets | 5 | 77,880 | (47 | ) | 77,914 | (25 | ) | |||||||||||
| Unrealized loss on revaluation of digital assets | 5 | 70,475 | 14,885 | 66,773 | 14,885 | |||||||||||||
| Loss (gain) on disposition of property, plant and equipment | 948 | (146 | ) | 936 | (165 | ) | ||||||||||||
| Impairment on goodwill | 3 | 17,900 | — | 17,900 | — | |||||||||||||
| Operating income (loss) | (173,091 | ) | (1,944 | ) | (166,217 | ) | 14,546 | |||||||||||
| Net financial expenses (income) | 18c | (11,857 | ) | 1,127 | (15,940 | ) | 24,552 | |||||||||||
| Net loss before income taxes | (161,234 | ) | (3,071 | ) | (150,277 | ) | (10,006 | ) | ||||||||||
| Income tax expense (recovery) | 13b | (19,316 | ) | 604 | (12,878 | ) | 1,274 | |||||||||||
| Net loss | $ | (141,918 | ) | $ | (3,675 | ) | $ | (137,399 | ) | $ | (11,280 | ) | ||||||
| Other comprehensive loss | ||||||||||||||||||
| Items that may be reclassified to profit or loss: | ||||||||||||||||||
| Revaluation loss on digital assets, net of tax | — | (5,128 | ) | — | — | |||||||||||||
| Total comprehensive loss, net of tax | $ | (141,918 | ) | $ | (8,803 | ) | $ | (137,399 | ) | $ | (11,280 | ) | ||||||
| Net loss per share (in U.S. dollars) | 18d | |||||||||||||||||
| Basic and diluted net loss per share | $ | (0.70 | ) | $ | (0.02 | ) | $ | (0.69 | ) | $ | (0.08 | ) | ||||||
| Basic and diluted weighted average number of shares | 203,503,237 | 151,954,612 | 200,514,687 | 138,033,267 | ||||||||||||||
The interim condensed consolidated financial statements should be read in conjunction with the accompanying notes.
| 3 |
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
(In thousands of U.S. dollars, except for quantity of shares)
| Quantity of shares | Share capital | Contributed surplus | Accumulated deficit | Total equity | ||||||||||||||||
| Balance as of January 1, 2022 | 194,805,893 | $ | 378,893 | $ | 43,704 | $ | (15 | ) | $ | 422,582 | ||||||||||
| Net loss | — | — | — | (137,399 | ) | (137,399 | ) | |||||||||||||
| Share-based payment (Note 17) | — | — | 14,032 | — | 14,032 | |||||||||||||||
| Issuance of common shares and warrants (Note 15) | 11,478,427 | 35,925 | 22 | — | 35,947 | |||||||||||||||
| Exercise of stock options (Note 17) | 55,000 | 35 | (12 | ) | — | 23 | ||||||||||||||
| Balance as of June 30, 2022 | 206,339,320 | $ | 414,853 | $ | 57,746 | $ | (137,414 | ) | $ | 335,185 | ||||||||||
| Balance as of January 1, 2021 | 88,939,359 | $ | 32,004 | $ | 5,588 | $ | (22,145 | ) | $ | 15,447 | ||||||||||
| Net loss | — | — | — | (11,280 | ) | (11,280 | ) | |||||||||||||
| Share-based payment | — | — | 6,762 | — | 6,762 | |||||||||||||||
| Issuance of common shares and warrants | 40,188,892 | 84,898 | 26,781 | — | 111,679 | |||||||||||||||
| Conversion of long-term debt | 8,474,577 | 5,110 | (110 | ) | — | 5,000 | ||||||||||||||
| Exercise of warrants and stock options | 24,480,524 | 80,713 | (7,393 | ) | — | 73,320 | ||||||||||||||
| Balance as of June 30, 2021 | 162,083,352 | $ | 202,725 | $ | 31,628 | $ | (33,425 | ) | $ | 200,928 | ||||||||||
The interim condensed consolidated financial statements should be read in conjunction with the accompanying notes.
 | 4 |
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In thousands of U.S. dollars)
| Six months ended June 30, | ||||||||||
| Note | 2022 | 2021 | ||||||||
| Cash flows from (used in) operating activities: | ||||||||||
| Net loss | $ | (137,399 | ) | $ | (11,280 | ) | ||||
| Adjustments for: | ||||||||||
| Depreciation and amortization | 18a | 30,923 | 7,928 | |||||||
| Impairment on goodwill | 3 | 17,900 | — | |||||||
| Net financial expenses (income) | 18c | (15,940 | ) | 24,552 | ||||||
| Digital assets mined | 5 | (80,773 | ) | (62,542 | ) | |||||
| Proceeds from sale of digital assets mined | 5 | 58,459 | 2,353 | |||||||
| Realized loss (gain) on disposition of digital assets | 5 | 77,914 | (25 | ) | ||||||
| Unrealized loss on revaluation of digital assets | 5 | 66,773 | 14,885 | |||||||
| Share-based payment | 17 | 14,032 | 6,762 | |||||||
| Interest and financial expenses paid | (8,982 | ) | (1,547 | ) | ||||||
| Deferred taxes | 13b | (4,545 | ) | (514 | ) | |||||
| Gain on disposition of marketable securities | 18c | 30,642 | — | |||||||
| Loss (gain) on disposition of property, plant and equipment | 936 | (165 | ) | |||||||
| Current taxes | 13b | (8,333 | ) | 1,790 | ||||||
| Income taxes paid | (13,170 | ) | — | |||||||
| Changes in non-cash working capital components | 20 | (9,540 | ) | 507 | ||||||
| Net change in cash related to operating activities | 18,897 | (17,296 | ) | |||||||
| Cash flows used in investing activities: | ||||||||||
| Purchase of property, plant and equipment | (101,895 | ) | (28,806 | ) | ||||||
| Proceeds from sale of property, plant and equipment | 754 | 44 | ||||||||
| Purchase of marketable securities | 18c | (36,425 | ) | — | ||||||
| Proceeds from disposition of marketable securities | 18c | 67,067 | — | |||||||
| Purchase of digital assets | 5 | (43,237 | ) | — | ||||||
| Proceeds from sale of digital assets purchased | 5 | 11,516 | — | |||||||
| Equipment and construction prepayments and other | 8 | (64,172 | ) | (73,373 | ) | |||||
| Net change in cash related to investing activities | (166,392 | ) | (102,135 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Issuance of common shares and warrants | 15 | 35,912 | 114,488 | |||||||
| Exercise of warrants and stock options | 15, 17 | 23 | 43,545 | |||||||
| Repayment of credit facility | 10 | (61,846 | ) | — | ||||||
| Repayment of lease liabilities | 12 | (2,244 | ) | (2,427 | ) | |||||
| Repayment of long-term debt | (11,103 | ) | (15,191 | ) | ||||||
| Proceeds from long-term debt | 11 | 67,168 | 9,277 | |||||||
| Proceeds from credit facility | 10 | 40,000 | — | |||||||
| Net change in cash related to financing activities | 67,910 | 149,692 | ||||||||
| Exchange rate differences on currency translation | (28 | ) | 8 | |||||||
| Net change in cash | (79,613 | ) | 30,269 | |||||||
| Cash at the beginning of the period | 125,595 | 5,947 | ||||||||
| Cash at the end of the period | $ | 45,982 | $ | 36,216 | ||||||
The interim condensed consolidated financial statements should be read in conjunction with the accompanying notes.
| 5 |
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 1: REPORTING ENTITY AND LIQUIDITY
| a. | Bitfarms was incorporated under the Canada Business Corporation Act on October 11, 2018 and continued under the Ontario Corporations Business Act on August 27, 2021. The interim condensed consolidated financial statements of the corporation comprise the accounts of Bitfarms Ltd. and its wholly owned subsidiaries (together referred to as the “Company” or “Bitfarms”). The activities of the Company mainly consist of cryptocurrency mining and are divided into multiple jurisdictions described in Note 19 “Geographical Information”. The Company’s operations are predominantly in Canada and the United States, with new operations having commenced in Paraguay in 2022 and construction of a new facility having commenced in Argentina in 2021. 9159-9290 Quebec Inc. (“Volta”), a wholly owned subsidiary, assists the Company in building and maintaining its server farms and provides electrician services to both commercial and residential customers in Quebec. |
The common shares of the Company are listed under the trading symbol BITF on the Nasdaq and TSX exchanges.
| b. | Bitfarms is primarily engaged in the cryptocurrency mining industry, a highly volatile market with significant inherent risk. Further declines in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, delays in the delivery of mining equipment, changes in the regulatory environment and adverse changes in other inherent risks can significantly and negatively impact the Company’s operations and cash flows, and its ability to maintain sufficient liquidity to meet its commitments and minimum collateral requirements for its revolving credit facility, as described in Note 8 and Note 10, respectively. In addition, adverse changes to the factors mentioned above may impact the recoverability of the Company’s digital assets and property, plant and equipment, resulting in impairment charges being recorded. |
The Company’s current operating budget and future estimated cash flows for the twelve-month period, based on current BTC prices, indicate that it will generate positive cash flow from operations in excess of required interest and principal payments due on its long-term debt and credit facility. Subsequent to the end of the quarter, the Company negotiated postponement of delivery and payment, without penalty, of certain Blockchain Verification and Validation Equipment (“BVVE”) to 2023 so as to avoid under-deployment of miners and to better align the receipt of miners with the availability of completed infrastructure to utilize the miners.
At current Bitcoin (“BTC”) prices, the Company’s existing cash resources and the proceeds from any sale of its treasury and mined BTC will not be sufficient to fund its capital investments to support its growth objectives. The Company would be required to raise additional funds from external sources to meet these requirements if the BTC price does not increase. There is no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all.
If the Company raises additional funds by issuing securities, existing shareholders may be diluted. If the Company were unable to obtain such financing, or if funds from operations and proceeds from any sale of the Company’s BTC holdings continue to be negatively impacted by the BTC price, the Company will have difficulty meeting its payment obligations which could result in the loss of equipment prepayments and deposits paid by the Company under its purchase agreements and be subject to remedial legal measures taken against the Company. Such measures could include damages and forced continuance of the contractual arrangements. Under these circumstances, the Company’s growth plans and ongoing operations could be adversely impacted.
| 6 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 1: REPORTING ENTITY AND LIQUIDITY (Continued)
| c. | In March 2020, the World Health Organization declared COVID-19 a pandemic. The potential impacts that COVID-19 may have on the Company in the future include increases in cryptocurrency price volatility and delays in receiving future orders of mining hardware and construction materials required to achieve the Company’s growth objectives. The Company has been, and is expected to continue to be, operating throughout the pandemic. No significant impact of COVID-19 has been observed on the Company’s existing operations for the six months ended June 30, 2022. However, the Company has observed longer than usual lead times and greater price fluctuations than usual in procuring mining equipment and construction materials required for the Company’s growth objectives. It is not possible to reliably estimate the length and severity of these developments as well as their impact on the financial results and position of the Company and its operating subsidiaries in future periods. |
| d. | In these financial statements, the following terms shall have the following definitions: |
|
1 |
Backbone | Backbone Hosting Solutions Inc. |
| 2 | Volta | 9159-9290 Quebec Inc. |
| 3 | Backbone Argentina | Backbone Hosting Solutions SAU |
| 4 | Backbone Paraguay | Backbone Hosting Solutions Paraguay SA |
| 5 | Backbone Mining | Backbone Mining Solutions LLC |
| 6 | CAD | Canadian Dollars |
| 7 | ARS | Argentine Pesos |
| 7 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 2: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
| a. | These interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34, Interim Financial Reporting. |
These interim condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the audited annual consolidated financial statements of the Company and the notes thereto for the year ended December 31, 2021. These interim condensed consolidated financial statements were approved by the Board of Directors on August 12, 2022.
| b. | The interim condensed consolidated financial statements have been prepared following the same accounting policies used in the audited annual consolidated financial statements for the year ended December 31, 2021. |
The accounting policies have been applied consistently by the Company’s entities and to all periods presented in these interim condensed consolidated financial statements, unless otherwise indicated.
NOTE 3: BUSINESS COMBINATION
On November 9, 2021, the Company acquired a cryptocurrency mining facility in Washington state through its wholly owned subsidiary, Backbone Mining Solutions LLC, comprising land, buildings, 17 megawatts of electrical infrastructure, power purchase agreements totaling 12 megawatts and in process power purchase agreement applications totaling 12 megawatts with a local hydro-electric utility producer. The consideration transferred was $26,676, including $23,000 of cash consideration and 414,508 Common shares with a value of $3,676 on the closing date. The seller entered into a consulting agreement with the Company in the amount of $2,000 for services relating to the operation of the facility. The Company also entered into a one-year lease agreement with the seller for a 5 megawatt cryptocurrency mining facility with monthly payments of $110.
The primary reason for the acquisition was to expand the Company’s energy portfolio with existing infrastructure to accommodate the Company’s expected delivery schedule of mining equipment.
| 8 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 3: BUSINESS COMBINATION (Continued)
The following are the fair values of the identifiable assets of the date of the acquisition:
| November 9, | ||||
| 2021 | ||||
| Consideration transferred | ||||
| Cash paid at closing | $ | 23,000 | ||
| Value of 414,508 common shares transferred at closing | 3,676 | |||
| Fair value of total consideration transferred | $ | 26,676 | ||
| Recognized amounts of identifiable assets acquired | ||||
| Electrical components | $ | 5,954 | ||
| Buildings | 748 | |||
| Land | 74 | |||
| Intangible assets - favorable lease | 2,000 | |||
| Total identifiable assets acquired | $ | 8,776 | ||
| Goodwill | $ | 17,900 | ||
Goodwill consists mainly of the benefit the Company expects to receive from acquiring a turnkey facility with active power purchase agreements compared to the timeline and process the Company would undertake to procure new power purchase agreements, the materials and equipment required to build a facility and complete the construction process in order to increase the Company’s share of the BTC network hashrate. The entire amount of goodwill is expected to be deductible for tax purposes.
The total assets recognized in the consolidated financial statements for the year ended December 31, 2021 were based on a provisional assessment of their fair value while the Company completed their valuation with the assistance of independent valuators for the electrical components acquired. The valuation had not been finalized by the date at which the consolidated financial statements for the year ended December 31, 2021 were approved for issuance by the Board of Directors.
In May 2022, the valuation was finalized, resulting in measurement period adjustments. The acquisition date fair value of the electrical components was $5,954, a decrease of $1,127 compared to the provisional value. In addition, the fair value at the acquisition date of buildings decreased by $7, land decreased by $11 and intangible assets (favourable lease) increased by $200. The cumulative impact of these measurement period adjustments was recognized in the interim financial statement as at and for the three months ended March 31, 2022. The impact on the prior period was considered insignificant. As a result, there was a corresponding increase in goodwill of $945, resulting in $17,900 of total goodwill arising from the acquisition.
The Company generated $7,690 and $17,069 of revenues mainly from using the S19j pros installed at the Washington state facility, from November 9, 2021 to December 31, 2021. Prior to the acquisition, the Company incurred hosting fees of $3,907 during the year ended December 31, 2021.
| 9 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 3: BUSINESS COMBINATION (Continued)
Impairment of goodwill
As at June 30, 2022, as a result of the decline in the BTC price during the quarter, the Company performed an evaluation of the recoverable amount of the property, plant and equipment and intangible assets for the Washington state cryptocurrency mining facility. As these groups of assets do not generate cash inflows that are independent of each other, the recoverable amount was calculated for the cash-generating unit (“CGU”) comprised of the assets of BVVE and electrical equipment, long-term electricity deposits, land, building and favourable lease used in the cryptocurrency mining facility in Washington state.
Based on its calculation, the Company recorded an impairment loss on its Washington state cryptocurrency mining CGU resulting in an impairment charge to goodwill of $17,900. The impairment loss was recognized in profit or loss under Impairment on goodwill. The value in use of the CGU was determined based on the present value of the expected cash flows over a four-year period discounted at an annual pre-tax rate of 24.75% in varying scenarios.
The key assumptions used in the value in use calculation are as follows:
Revenues – Two optimistic and two pessimistic scenarios and one status quo scenario, each with estimated future BTC price and network difficulty, were used to project revenues and associated cash flows from cryptocurrency mining. Management assigned probabilities to each scenario to calculate weighted average expected outcomes. The weighted average daily revenue per Terahash used in the value in use calculation was $0.12/Terahash.
Discount rate – The discount rate reflects management’s assumptions regarding the unit’s specific risk. The pre-tax discount rate used was estimated at 24.75%, with some of the risk already being implicitly reflected through management’s allocation of probabilities to the various scenarios included in the revenue calculation.
Energy prices – Management estimates that energy prices for the duration of the forecasted years will be approximately $0.027 per kilowatt hour.
Terminal value – Management estimated the terminal value of the miners included in the CGU for the purposes of the impairment testing to be the daily revenue per Terahash in effect at the end of the value in use calculation multiplied by the ending hashrate for a period of approximately 6 months.
Changes in BTC price and BTC network difficulty that can lead to changes in expected revenues were considered in the various scenarios listed above. A decrease of 1% in revenues and an increase of one percentage point in the discount rate would result in impairment on the other assets of the CGU by $394 and $1,040, respectively. A sensitivity analysis was not performed for a change in energy prices as they are considered to be stable.
| 10 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 4: OTHER ASSETS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Electrical component inventory | $ | 607 | $ | 548 | ||||
| Sales taxes receivable | 1,153 | 1,980 | ||||||
| Prepaid expenses and other | 3,068 | 3,202 | ||||||
| Insurance refund and other receivables | 179 | 697 | ||||||
| $ | 5,007 | $ | 6,427 | |||||
NOTE 5: DIGITAL ASSETS
BTC transactions and the corresponding values for the three and six months ended June 30, 2022, and 2021 were as follows:
| Three months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Quantity | Value | Quantity | Value | |||||||||||||
| Balance of digital assets including digital assets pledged as collateral as of April 1, | 5,244 | $ | 238,792 | 548 | $ | 32,428 | ||||||||||
| BTC mined* | 1,257 | 41,048 | 759 | 35,352 | ||||||||||||
| BTC exchanged for cash and services | (3,357 | ) | (69,281 | ) | (14 | ) | (636 | ) | ||||||||
| Realized gain (loss) on disposition of digital assets | — | (77,880 | ) | — | 47 | |||||||||||
| Unrealized loss on revaluation of digital assets | — | (70,475 | ) | (21,862 | ) | |||||||||||
| Balance of digital assets as of June 30, | 3,144 | 62,204 | 1,293 | 45,329 | ||||||||||||
| Less digital assets pledged as collateral as of June 30,** | (2,598 | ) | (51,403 | ) | — | — | ||||||||||
| Balance of digital assets excluding digital assets pledged as collateral as of June 30, | 546 | $ | 10,801 | 1,293 | $ | 45,329 | ||||||||||
| 11 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 5: DIGITAL ASSETS (Continued)
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Quantity | Value | Quantity | Value | |||||||||||||
| Balance of digital assets including digital assets pledged as collateral as of January 1, | 3,301 | $ | 152,856 | — | $ | — | ||||||||||
| BTC mined* | 2,218 | 80,773 | 1,357 | 62,542 | ||||||||||||
| BTC purchased | 1,000 | 43,237 | — | — | ||||||||||||
| BTC exchanged for cash and services | (3,375 | ) | (69,975 | ) | (17 | ) | (807 | ) | ||||||||
| BTC exchanged for long-term debt repayment | — | — | (47 | ) | (1,546 | ) | ||||||||||
| Realized gain (loss) on disposition of digital assets | — | (77,914 | ) | — | 25 | |||||||||||
| Unrealized loss on revaluation of digital assets | — | (66,773 | ) | — | (14,885 | ) | ||||||||||
| Balance of digital assets as of June 30, | 3,144 | 62,204 | 1,293 | 45,329 | ||||||||||||
| Less digital assets pledged as collateral as of June 30,** | (2,598 | ) | (51,403 | ) | — | — | ||||||||||
| Balance of digital assets excluding digital assets pledged as collateral as of June 30, | 546 | $ | 10,801 | 1,293 | $ | 45,329 | ||||||||||
| * | Management estimates the fair value of BTC mined on a daily basis as the quantity of cryptocurrency received multiplied by the price quoted on www.coinmarketcap.com (“Coinmarketcap”) on the day it was received. Management considers the prices quoted on Coinmarketcap to be a level 2 input under IFRS 13 Fair Value Measurement. |
| ** | See Note 10 for details of the Company’s credit facility and BTC pledged as collateral. |
| 12 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
| a. | As at June 30, 2022, and December 31, 2021, property, plant and equipment consisted of the following: |
BVVE and electrical components | Mineral assets | Land and buildings | Leasehold improvements | Vehicles | Total | |||||||||||||||||||
| Cost: | ||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | 156,647 | $ | 9,000 | $ | 4,549 | $ | 5,783 | $ | 547 | $ | 176,526 | ||||||||||||
| Measurement period adjustment to business combination (Note 3) | (1,127 | ) | — | (18 | ) | — | — | (1,145 | ) | |||||||||||||||
| Additions during the period | 107,809 | — | 2,234 | 12,845 | 283 | 123,171 | ||||||||||||||||||
| Dispositions during the period | (1,707 | ) | — | — | — | — | (1,707 | ) | ||||||||||||||||
| Transfer to assets held for sale | (2,962 | ) | — | — | — | — | (2,962 | ) | ||||||||||||||||
| Balance as of June 30, 2022 | 258,660 | 9,000 | 6,765 | 18,628 | 830 | 293,883 | ||||||||||||||||||
| Balance as of January 1, 2021 | 52,676 | 9,000 | 3,263 | 2,707 | 448 | 68,094 | ||||||||||||||||||
| Additions through business combination (Note 3) | 7,081 | — | 840 | — | — | 7,921 | ||||||||||||||||||
| Additions during the period | 114,323 | — | 470 | 3,265 | 136 | 118,194 | ||||||||||||||||||
| Dispositions during the period | (6,146 | ) | — | (24 | ) | (189 | ) | (37 | ) | (6,396 | ) | |||||||||||||
| Transfer to assets held for sale | (11,287 | ) | — | — | — | — | (11,287 | ) | ||||||||||||||||
| Balance as of December 31, 2021 | 156,647 | 9,000 | 4,549 | 5,783 | 547 | 176,526 | ||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||
| Balance as of January 1, 2022 | 35,766 | 1,800 | 286 | 1,560 | 264 | 39,676 | ||||||||||||||||||
| Depreciation | 28,109 | — | 90 | 716 | 42 | 28,957 | ||||||||||||||||||
| Dispositions during the period | (1,285 | ) | — | — | — | — | (1,285 | ) | ||||||||||||||||
| Transfer to assets held for sale | (2,331 | ) | — | — | — | — | (2,331 | ) | ||||||||||||||||
| Balance as of June 30, 2022 | 60,259 | 1,800 | 376 | 2,276 | 306 | 65,017 | ||||||||||||||||||
| Balance as of January 1, 2021 | 30,042 | — | 185 | 1,861 | 213 | 32,301 | ||||||||||||||||||
| Depreciation | 22,233 | — | 104 | 396 | 79 | 22,812 | ||||||||||||||||||
| Dispositions during the period | (5,172 | ) | — | (3 | ) | (148 | ) | (28 | ) | (5,351 | ) | |||||||||||||
| Transfer to assets held for sale | (10,026 | ) | — | — | — | — | (10,026 | ) | ||||||||||||||||
| Impairment | — | 1,800 | — | — | — | 1,800 | ||||||||||||||||||
| Impairment reversal | (1,311 | ) | — | — | (549 | ) | — | (1,860 | ) | |||||||||||||||
| Balance as of December 31, 2021 | 35,766 | 1,800 | 286 | 1,560 | 264 | 39,676 | ||||||||||||||||||
| Net book value as of | ||||||||||||||||||||||||
| June 30, 2022 | $ | 198,401 | $ | 7,200 | $ | 6,389 | $ | 16,352 | $ | 524 | $ | 228,866 | ||||||||||||
| December 31, 2021 | $ | 120,881 | $ | 7,200 | $ | 4,263 | $ | 4,223 | $ | 283 | $ | 136,850 | ||||||||||||
| 13 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT (Continued)
| b. | Assets held for sale |
During the year ended December 31, 2021, the Company ceased using its Antminer S9 miners and has plans to dispose of them within the next 12 months. During the three and six months ended June 30, 2022, 3,982 Antimer S9 miners with a carrying amount of $779 were disposed for net proceeds of $101 resulting in a loss of $678. Management determined that the Antminer S9 miners continue to meet the criteria to be classified as held for sale as at June 30, 2022.
During the three and six months ended June 30, 2022, the Company ceased using Innosilicon T2T miners, Canaan Avalon A10 miners, Antminer T15 miners and Antminer S15 miners with plans to dispose of them within the next 12 months. Management has determined that these miners meet the criteria to be classified as held for sale and determined that the carrying amount was less than their estimated fair value less costs to sell.
In addition, the Company had an agreement to sell 600 Whatsminer M20s miners. As of June 30 2022, the Company received proceeds in advance for 492 of the 600 Whatsminer M20s miners. The proceeds received of $468 were recorded as deferred revenue included in trade payables and accrued liabilities as the miners were not shipped before June 30, 2022.
| c. | Impairment testing |
As at June 30, 2022, as a result of the decline in the BTC price during the quarter, the Company performed an evaluation of the recoverable amount of the property, plant and equipment for the cryptocurrency mining facilities in Quebec. As these groups of assets do not generate cash inflows that are independent of each other, the recoverable amount was calculated for the CGU comprised of the property, plant and equipment, right-of-use assets and long-term electricity deposits used in the cryptocurrency mining facilities in Quebec.
Based on its calculation, the Company determined that no impairment charge should be recorded on its Quebec cryptocurrency mining CGU. The value in use of the CGU was determined based on the present value of the expected cash flows over a five-year period discounted at an annual pre-tax rate of 23.75% in varying scenarios.
The key assumptions used in the value in use calculation are as follows:
Revenues – Two optimistic and two pessimistic scenarios and one status quo scenario, each with estimated future BTC price and network difficulty, were used to project revenues and associated cash flows from cryptocurrency mining. Management assigned probabilities to each scenario to calculate weighted average expected outcomes. The weighted average daily revenue per Terahash used in the value in use calculation was $0.12/Terahash.
Discount rate – The discount rate reflects management’s assumptions regarding the unit’s specific risk. The discount pre-tax rate used was estimated at 23.75%, with some of the risk already being implicitly reflected through management’s allocation of probabilities to the various scenarios included in the revenue calculation.
Energy prices – Management estimates that energy prices for the duration of the forecasted years will be approximately $0.048 per kilowatt hour.
| 14 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT (Continued)
Terminal value – Management estimated the terminal value of the miners included in the CGU for the purposes of the impairment testing to be the daily revenue per Terahash in effect at the end of the value in use calculation multiplied by the ending hashrate for a period of approximately 6 months.
Management conducted a sensitivity analysis and determined that a reasonable fluctuation in any of the key assumptions would not result in an impairment charge.
| d. | Further details of the quantity and models of BVVE held by the Company are as follows : |
MicroBT Whatsminer (BTC)* | Bitmain S19j Pro | Innosilicon T3 & T2T (BTC)** | Canaan Avalon A10 (BTC) | Other Bitmain Antminers (BTC)*** | Total | |||||||||||||||||||
| Quantity as of January 1, 2022 | 18,675 | 7,172 | 6,446 | 1,024 | 8,073 | 41,390 | ||||||||||||||||||
| Additions during the period | 20,225 | — | — | — | — | 20,225 | ||||||||||||||||||
| Dispositions during the period | — | — | — | (880 | ) | (5,376 | ) | (6,256 | ) | |||||||||||||||
| Quantity as of June 30, 2022 | 38,900 | 7,172 | 6,446 | 144 | 2,697 | 55,359 | ||||||||||||||||||
| * | Includes 4,311 M20S (of which 600 M20S were classified as assets held for sale as described in Note 6b), 21,936 M30S, 6,391 M31S and 6,262 M31S+ miners. |
| ** | Includes 5,082 T3 and 1,364 T2T miners that were classified as assets held for sale as described in Note 6b. |
| *** | Includes 442 Antminer T15 and 101 Antminer S15, and 2,154 Antminer S9 miners that were classified as assets held for sale as described in Note 6b. |
Included in the BVVE and electrical equipment listed above are right-of-use assets consisting of 3,000 Whatsminer M31S+ with a net book value of approximately $4,346 as described in Note 12.
| 15 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 7: INTANGIBLE ASSETS
| Systems software | Favourable lease | Total | ||||||||||
| Cost: | ||||||||||||
| Balance as of January 1, 2022 | $ | 5,150 | $ | 1,800 | $ | 6,950 | ||||||
| Measurement period adjustment to business combination (Note 3) | — | 200 | 200 | |||||||||
| Balance as of June 30, 2022 | 5,150 | 2,000 | 7,150 | |||||||||
| Balance as of January 1, 2021 | 5,150 | — | 5,150 | |||||||||
| Additions through business combination (Note 3) | — | 1,800 | 1,800 | |||||||||
| Balance as of December 31, 2021 | 5,150 | 1,800 | 6,950 | |||||||||
| Accumulated amortization and impairment : | ||||||||||||
| Balance as of January 1, 2022 | 5,008 | 261 | 5,269 | |||||||||
| Amortization | 67 | 1,016 | 1,083 | |||||||||
| Balance as of June 30, 2022 | 5,075 | 1,277 | 6,352 | |||||||||
| Balance as of January 1, 2021 | 4,773 | — | 4,773 | |||||||||
| Amortization | 235 | 261 | 496 | |||||||||
| Balance as of December 31, 2021 | 5,008 | 261 | 5,269 | |||||||||
| Net book value as of | ||||||||||||
| June 30, 2022 | $ | 75 | $ | 723 | $ | 798 | ||||||
| December 31, 2021 | $ | 142 | $ | 1,539 | $ | 1,681 | ||||||
NOTE 8: LONG-TERM DEPOSITS, EQUIPMENT PREPAYMENTS, OTHER AND COMMITMENTS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| VAT receivable* | $ | 2,705 | $ | 2,067 | ||||
| Security deposits for energy, insurance and rent | 3,165 | 1,555 | ||||||
| Equipment and construction prepayments** | 97,998 | 83,059 | ||||||
| $ | 103,868 | $ | 86,681 | |||||
| * | See Note 18c for more details about the provision applied to the Argentine value-added tax (VAT) receivable. |
| ** | The Company has deposits on BVVE and electrical components in the amount of $75,284, mainly for outstanding orders placed consisting of 48,000 Whatsminer miners with expected delivery in 2022 and the first nine months of 2023. In addition, the Company has deposits for construction work and materials in the amount of $22,714, mainly for the Argentina expansion. The Company is exposed to counterparty risk through the significant deposits it places with suppliers of mining hardware to secure orders and delivery dates as well as deposits it places with construction companies and suppliers of electrical components and construction materials. The risk of a supplier failing to meet its contractual obligations may result in late deliveries or long-term deposits and equipment and construction prepayments that are not realized. The Company attempts to mitigate this risk by procuring mining hardware from larger, more established suppliers and with whom the Company has existing relationships and knowledge of their reputation in the market as well as insuring deposits placed for construction work and materials. |
| 16 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 8: LONG-TERM DEPOSITS, EQUIPMENT PREPAYMENTS, OTHER AND COMMITMENTS (Continued)
The Company’s remaining payment obligations in connection with the 48,000 unit purchase agreement and an additional purchase agreement for 1,200 Antminer miners are outlined below:
| June 30, | ||||
| 2022 | ||||
| Three months ending September 30, 2022 | $ | 18,590 | ||
| Three months ending March 31, 2023 | 13,447 | |||
| Three months ending June 30, 2023 | 13,313 | |||
| Three months ending September 30, 2023 | 12,128 | |||
| $ | 57,478 | |||
The Company may require additional sources of financing to meet the payment obligations included in the table above, as described in Note 1.
NOTE 9: TRADE PAYABLES AND ACCRUED LIABILITIES
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Trade accounts payable and accrued liabilities | $ | 6,639 | $ | 9,873 | ||||
| Government remittances | 6,083 | 4,607 | ||||||
| $ | 12,722 | $ | 14,480 | |||||
| 17 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 10: CREDIT FACILITY
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Revolving credit facility | $ | 38,154 | $ | 60,000 | ||||
| Interest payable on revolving credit facility | 626 | 2 | ||||||
| $ | 38,780 | $ | 60,002 | |||||
On December 30, 2021, the Company entered into a secured revolving credit facility up to $100,000 (the “Credit Facility” or the “Facility”) for a term of 6 months with Galaxy Digital LLC (the “Facility Lender”). The Credit Facility bears interest at a rate of 10.75% per annum with a commitment fee of 0.75% per annum charged on the unused portion of the $100,000 Facility.
During the three months ended March 31, 2022, the Company drew an additional $40,000 on the Credit Facility, bringing the total amount drawn to $100,000 as of March 31, 2022. During the three months ended June 30, 2022, the Company repaid $61,846 of the Credit Facility, bringing the total amount drawn to $38,154 as of June 30, 2022.
On June 30, 2022, the Company amended its Credit Facility and extended its maturity date to October 1, 2022. Under the new terms, the maximum limit of the amended Facility is $40,000, bears interest at 11.25% per annum and has a commitment fee of 0.25% per annum charged on the unused portion of the Facility. The amended Facility also includes a provision which allows the Company to repay up to $15,000 of the Facility prior to July 30, 2022, without incurring any prepayment penalty.
The Facility is secured by BTC, with the minimum value of BTC pledged as collateral calculated as 143% of the amount borrowed. The Company is required to contribute additional collateral to the Facility Lender any time the value of the BTC pledged as collateral is below 133% of the amount borrowed. The Company also has the right to require the Facility Lender to return any BTC when the value of the BTC pledged as collateral exceeds 143% of the amount borrowed. A substantial decrease in BTC price may result in the Company being unable to meet the minimum BTC collateral requirements, which could result in the disposition of the Company’s BTC pledged as collateral by the Facility Lender, or repayment of the Facility in fiat currency on demand. The Company is exposed to counterparty risk as it is reliant on the Facility Lender to return the BTC collateral upon extinguishment of the Credit Facility. The Facility Lender cannot rehypothecate the BTC collateral except during an event of default.
The Credit Facility contains an affirmative covenant where the ending balance of the Company’s net asset value, defined as the total value of all assets minus any liabilities divided by the number of outstanding shares in any calendar month, cannot decline by:
| a. | 25% or more compared to the previous month; |
| b. | 50% or more compared to three months ago; or |
| c. | 50% or more compared to any calendar month in the immediately preceding calendar year. |
As of July 31, 2022, the most recently completed calendar month, the Company was in compliance with all of the covenants described above.
The Company pledged 2,598 BTC as collateral with a fair market value of $51,403 as of June 30, 2022. The pledged BTC is held in a segregated Coinbase Custody account owned by the Facility Lender.
| 18 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 11: LONG-TERM DEBT
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Equipment financing | 67,112 | 11,039 | ||||||
| Volta note payable | 122 | 128 | ||||||
| Total long-term debt | 67,234 | 11,167 | ||||||
| Less current portion of long-term debt | (41,126 | ) | (10,257 | ) | ||||
| Non-current portion of long-term debt | $ | 26,108 | $ | 910 | ||||
Equipment financing
In February 2022, the Company entered into an equipment financing agreement for gross proceeds of $32,000 collateralized by 6,100 Bitmain S19j Pro miners referred to as the “Blockfi Loan”. The net proceeds received by the Company were $30,994 after capitalizing origination, closing and other transaction fees of $1,006.
In June 2022, the Company entered into an equipment financing agreement for gross proceeds of $36,860 collateralized by 10,395 MicroBT Whatsminer M30S miners referred to as the “NYDIG Loan”. The net proceeds received by the Company were $36,123 net of origination and closing fees of $737. As part of the agreement, the Company must maintain in an identified wallet an approximate quantity of BTC whose value equates to one month of interest and principal payments on the outstanding loan.
Details of the equipment financing and the balance of the loans and the net book value (“NBV”) of their related collateral, as of June 30, 2022, are as follows:
| Maturity date | Stated rate | Effective rate* | Monthly repayment | Long-term debt balance | NBV of Collateral | Collateral** | ||||||||||||||||||||
| Blockfills loan #1 | August 2022 | 22.2 | % | 22.2 | % | $ | 92 | $ | 145 | $ | 788 | 1,000 | ||||||||||||||
| Blockfills loan #2 | September 2022 | 17.8 | % | 17.8 | % | 134 | 331 | 1,359 | 2,000 | |||||||||||||||||
| Blockfills loan #3 | October 2022 | 18.6 | % | 18.6 | % | 67 | 210 | 777 | 1,000 | |||||||||||||||||
| Foundry loan #1 | September 2022 | 16.5 | % | 18.6 | % | 530 | 1,547 | 6,345 | 1,465 | |||||||||||||||||
| Foundry loan #2 | March 2023 | 16.5 | % | 16.5 | % | 98 | 739 | 1,568 | 300 | |||||||||||||||||
| Foundry loan #3 | April 2023 | 16.5 | % | 16.5 | % | 92 | 772 | 1,307 | 300 | |||||||||||||||||
| Foundry loan #4 | May 2023 | 16.5 | % | 16.5 | % | 104 | 968 | 1,542 | 400 | |||||||||||||||||
| Blockfi Loan | February 2024 | 14.5 | % | 18.1 | % | 1,505 | 26,060 | 35,511 | 6,100 | |||||||||||||||||
| NYDIG Loan | February 2024 | 12.0 | % | 14.4 | % | 2,043 | 36,340 | 42,469 | 10,395 | |||||||||||||||||
| Total | $ | 4,665 | $ | 67,112 | $ | 91,666 | 22,960 | |||||||||||||||||||
| * | Represents the implied interest rate after capitalizing financing and origination fees. |
| ** | Represents the quantity of Whatsminers and Bitmain S19j Pros received in connection with the equipment financing and pledged as collateral for the related loan. |
| 19 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 12: LEASES
Set out below are the carrying amounts of the Company’s right-of-use assets and lease liabilities and their activity during the six months ended June 30, 2022:
| Leased premises | Vehicles | Other equipment | Total ROU assets | Lease liabilities | ||||||||||||||||
| As at January 1, 2022 | $ | 9,038 | $ | 283 | $ | 76 | $ | 9,397 | $ | 13,573 | ||||||||||
| Additions and extensions to ROU assets | 6,497 | 29 | — | 6,526 | 6,526 | |||||||||||||||
| Depreciation | (805 | ) | (61 | ) | (17 | ) | (883 | ) | — | |||||||||||
| Lease termination | (108 | ) | (4 | ) | — | (112 | ) | (109 | ) | |||||||||||
| Payments | — | — | — | — | (2,904 | ) | ||||||||||||||
| Interest | — | — | — | — | 660 | |||||||||||||||
| Foreign exchange | — | — | — | — | (125 | ) | ||||||||||||||
| As at June 30, 2022 | $ | 14,622 | $ | 247 | $ | 59 | $ | 14,928 | $ | 17,621 | ||||||||||
| Less current portion of lease liabilities | (3,790 | ) | ||||||||||||||||||
| Non-current portion of lease liabilities | $ | 13,831 | ||||||||||||||||||
The Company maintains one lease agreement for mining hardware, consisting of 3,000 Whatsminer M31S+, with a net book value of approximately $4,346, classified as property, plant and equipment under BVVE and electrical equipment as described in Note 6.
NOTE 13: INCOME TAXES
| a. | Deferred taxes |
Deferred taxes are computed at a tax rate of 26.5% based on tax rates expected to apply at the time of realization. Deferred taxes relate primarily to the timing differences on recognition of expenses relating to the depreciation of fixed assets, loss carryforwards and professional fees relating to the Company’s equity activity that are recorded as a reduction of equity.
As at June 30, 2022, the recoverability of the net deferred tax asset, due to the impact of the decrease in BTC prices as described in Note 1b, was uncertain and as a result, the net deferred tax asset of $20,580 was not recognized. The Company will evaluate the likelihood of recoverability at each balance sheet date, and will recognize net deferred tax asset when and if appropriate.
| 20 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 13: INCOME TAXES (Continued)
| b. | Taxes included in profit or loss: |
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Current tax (recovery) expense: | ||||||||
| Current year | $ | (8,401 | ) | $ | 1,788 | |||
| Prior year | 68 | — | ||||||
| Deferred tax (recovery) expense: | ||||||||
| Current year | (4,451 | ) | (514 | ) | ||||
| Prior year | (94 | ) | — | |||||
| $ | (12,878 | ) | $ | 1,274 | ||||
The 2022 current tax recovery represents the expected tax refund as a result of losses realized in the current period that will be carried back to offset prior period taxable income.
| c. | Effective tax rate for the six months ended June 30: |
| 2022 | ||||
| Income tax expense at statutory rate of 26.5% | $ | (39,823 | ) | |
| Increase in taxes resulting from: | ||||
| Foreign tax rate differential | 4,010 | |||
| Prior year | (27 | ) | ||
| Non-deductible expenses and other | 2,382 | |||
| Deferred tax asset not recognized | 20,580 | |||
| $ | (12,878 | ) | ||
NOTE 14: ASSET RETIREMENT PROVISION
As of June 30, 2022, the Company estimated the costs of restoring its leased premises to their original state at the end of their respective lease terms to be $3,233, discounted to present value of $1,593 using discount rates between 8% and 10% over the lease periods, which were estimated to range from five to seven years depending on the location.
| 21 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 15: SHARE CAPITAL
| Authorized | Issued and outstanding at | |||||||||
| June 30, 2022 | June 30, 2022 | December 31, 2021 | ||||||||
| Number of shares | ||||||||||
| Common shares of no par value | Unlimited | 206,339,320 | 194,805,893 | |||||||
Details of the outstanding warrants are as follows:
| 2022 | 2021 | |||||||||||||||
| Number of warrants | Weighted average exercise price (USD) | Number of warrants | Weighted average exercise price (USD) | |||||||||||||
| Outstanding, January 1, | 19,427,797 | $ | 4.16 | 6,052,918 | $ | 0.41 | ||||||||||
| Granted | 25,000 | 3.47 | 38,732,279 | 3.34 | ||||||||||||
| Exercised | — | — | (20,748,601 | ) | 1.95 | |||||||||||
| Outstanding, June 30, | 19,452,797 | $ | 4.16 | 24,036,596 | $ | 3.80 | ||||||||||
The weighted average contractual life of the warrants as at June 30, 2022 was 1.9 years (June 30, 2021: 2.9 years).
Garlock Acquisition
During the three months ended March 31, 2022, the Company acquired a building in Quebec referred to as “Garlock” in exchange for cash consideration of $1,783 and the issuance of 25,000 warrants granted with a strike price of USD$3.47 that have a contractual life of 2 years.
At-The-Market Equity Program
Bitfarms commenced an at-the-market equity program on August 16, 2021, pursuant to which the Company may, at its discretion and from time-to-time, sell common shares of the Company, resulting in the Company receiving aggregate proceeds of up to $500,000. During the year ended December 31, 2021, the Company issued 23,922,928 common shares in exchange for gross proceeds of $150,296 at an average share price of approximately USD$6.28. The Company received net proceeds of $145,601 after paying commissions of $4,509 to the Company’s agent, in addition to $186 of other transaction fees. During the six months ended June 30, 2022, the Company issued 11,478,427 common shares in exchange for gross proceeds of $37,165 at an average share price of approximately USD$3.24. The Company received net proceeds of $35,912 after paying commissions of $1,115 to the Company’s agent and $138 in other transaction costs.
| 22 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 16: TRANSACTIONS AND BALANCES WITH RELATED PARTIES
| a. | Balances with related parties: |
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Trade payables and accrued liabilities: | ||||||||
| Directors’ remuneration | $ | — | $ | 19 | ||||
| Director and senior management incentive plan | 169 | 1,465 | ||||||
| $ | 169 | $ | 1,484 | |||||
| Lease liabilities: | ||||||||
| Companies controlled by directors | $ | 1,088 | $ | 1,357 | ||||
Amounts due to related parties, other than lease liabilities, are unsecured, non-interest bearing and payable on demand.
| b. | Transactions with related parties during the three and six months ended June 30, 2022: |
| 1. | The Company made rent payments totaling approximately $57 and $178 for the three and six months ended June 30, 2022, respectively (for the three and six months ended June 30, 2021: $121 and $237, respectively) to companies controlled by certain directors. The rent payments were classified as interest included in financial expenses and principal repayment of lease liabilities. |
| 2. | The Company entered into consulting agreements with two directors. The consulting fees totaled approximately $226 and $426 for the three and six months ended June 30, 2022, respectively (for the three and six months ended June 30, 2021: $145 and $269, respectively). |
The transactions described above were incurred in the normal course of operations. These transactions are included in consolidated statements of profit or loss and comprehensive profit and loss as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| General and administrative expenses | $ | 226 | $ | 145 | $ | 426 | $ | 269 | ||||||||
| Net financial expenses | 17 | 33 | 44 | 66 | ||||||||||||
| $ | 243 | $ | 178 | $ | 470 | $ | 335 | |||||||||
| 23 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 17: SHARE-BASED PAYMENT
The share-based payment expense recognized in the financial statements for employee services received is as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Equity-settled share-based payment plans | $ | 7,927 | $ | 6,342 | $ | 14,032 | $ | 6,762 | ||||||||
The share-based payment transactions entered into between the Company and its directors, employees and service providers during the six months ended June 30, 2022 are described below. During the six months ended June 30, 2022, the Board of Directors approved stock option grants to purchase up to 5,522,500 common shares in accordance with the Long-Term Incentive Plan (the “LTIP Plan”) adopted on May 18, 2021. All options issued according to the LTIP Plan become exercisable when they vest and can be exercised for a maximum period of 5 years from the date of the grant. In addition, on May 19, 2022, the Board of Directors approved the grant of 200,000 Restricted Stock Units (“RSUs”) to certain members of senior management which vest ratably, on an annual basis, over a three-year period. The value of the RSUs on the grant date was $1.91 per unit.
The inputs used to value the option grants using the Black-Scholes model are as follows:
| Grant date | March 31, 2022 | May 19, 2022 | June 30, 2022 | |||||||||
| Dividend yield (%) | — | — | — | |||||||||
| Expected share price volatility (%) | 105 | % | 106 | % | 102 | % | ||||||
| Risk-free interest rate (%) | 2.49 | % | 2.78 | % | 2.99 | % | ||||||
| Expected life of stock options (years) | 3 | 3 | 3 | |||||||||
| Share price (CAD) | 4.71 | 2.45 | 1.50 | |||||||||
| Exercise price (CAD) | 4.71 | 2.45 | 1.50 | |||||||||
| Fair value of options (USD) | 2.40 | 1.21 | 0.72 | |||||||||
| Vesting period (years) | 1.5 | 1.5 | 1.5 | |||||||||
| Quantity of options granted | 120,000 | 5,382,500 | 20,000 | |||||||||
| 24 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 17: SHARE-BASED PAYMENT (Continued)
Details of the outstanding stock options are as follows:
| Six months ended June 30, 2022 | ||||||||
| Number of Options | Weighted Average Exercise Price ($CAD) | |||||||
| Outstanding, January 1, 2022 | 12,546,733 | 5.06 | ||||||
| Granted | 5,522,500 | 2.50 | ||||||
| Exercised | (55,000 | ) | 0.42 | |||||
| Forfeited | (170,000 | ) | 6.16 | |||||
| Outstanding, June 30, 2022 | 17,844,233 | 4.27 | ||||||
| Exercisable, June 30, 2022 | 10,237,361 | 4.40 | ||||||
The weighted average contractual life of the stock options as at June 30, 2022 was 4.3 years (June 30, 2021: 4.5 years).
NOTE 18: ADDITIONAL DETAILS TO THE STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE PROFIT OR LOSS
| a. | Additional details to the components of cost of sales are as follows: |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Energy and infrastructure | $ | 13,891 | $ | 7,400 | $ | 23,481 | $ | 12,869 | ||||||||
| Depreciation and amortization | 17,857 | 4,920 | 30,923 | 7,928 | ||||||||||||
| Purchases of electrical components | 257 | 557 | 564 | 813 | ||||||||||||
| Electrician salaries and payroll taxes | 306 | 455 | 635 | 842 | ||||||||||||
| $ | 32,311 | $ | 13,332 | $ | 55,603 | $ | 22,452 | |||||||||
| b. | Additional details to the components of general and administrative expenses are as follows: |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Salaries and share based payment | $ | 9,891 | $ | 7,496 | $ | 17,551 | $ | 8,795 | ||||||||
| Professional services | 2,501 | 2,028 | 4,624 | 3,013 | ||||||||||||
| Advertising and promotion | 69 | 78 | 119 | 80 | ||||||||||||
| Insurance, duties and other | 2,394 | 838 | 5,959 | 1,285 | ||||||||||||
| Travel, motor vehicle and meals | 346 | 81 | 661 | 108 | ||||||||||||
| Hosting and telecommunications | 191 | 86 | 321 | 145 | ||||||||||||
| $ | 15,392 | $ | 10,607 | $ | 29,235 | $ | 13,426 | |||||||||
| 25 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 18: ADDITIONAL DETAILS TO THE STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE PROFIT OR LOSS (Continued)
| c. | Additional details to the components of net financial expenses (income) are as follows: |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Loss on revaluation of warrants | $ | — | $ | — | $ | — | $ | 19,524 | ||||||||
| Loss on embedded derivative | — | — | — | 2,641 | ||||||||||||
| Gain on disposition of marketable securities* | (19,705 | ) | — | (30,642 | ) | — | ||||||||||
| Loss (gain) on currency exchange | 1,018 | 216 | 1,876 | (106 | ) | |||||||||||
| Interest on credit facility and long-term debt | 4,191 | 387 | 6,896 | 861 | ||||||||||||
| Interest on lease liabilities | 355 | 510 | 660 | 934 | ||||||||||||
| Warrant issuance costs | — | — | — | 668 | ||||||||||||
| Provision on VAT receivable** | 2,091 | — | 5,010 | — | ||||||||||||
| Other financial expenses | 193 | 14 | 260 | 30 | ||||||||||||
| $ | (11,857 | ) | $ | 1,127 | $ | (15,940 | ) | $ | 24,552 | |||||||
| * | During the three and six months ended June 30, 2022, the Company has continued to fund its expansion in Argentina through the acquisition of marketable securities and in-kind contribution of these securities to a subsidiary in Argentina that it controls. The subsequent disposition of these marketable securities in exchange for Argentine Pesos gave rise to a gain as the amount received in ARS exceeds the amount of ARS the Company would have received from a direct foreign currency exchange. |
| ** | The majority of Argentine VAT is not expected to be settled within the next 12 months and therefore, it has been classified as a long-term receivable in Note 8 with the short-term portion being included in sales tax receivable in note 4. The Company has recorded a provision on this VAT receivable, which is classified within net financial expenses (income) during the three and six months ended June 30, 2022. Historically, ARS has devalued significantly when compared to USD due to high levels of inflation in Argentina, which may result in the Company recording future foreign exchange losses on its Argentina VAT receivable. |
| d. | Earnings per share: |
For the three and six months ended June 30, 2022 and 2021, potentially dilutive securities have not been included in the calculation of diluted earnings (loss) per share because their effect is antidilutive. The additional potentially dilutive securities that would have been included in the calculation for diluted earnings per share had their effect not been anti-dilutive, for the three and six months ended June 30, 2022, would have been approximately 205,416,844 and 202,728,920, respectively (June 30, 2021: 17,677,251 and 21,347,997, respectively).
| 26 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 19: GEOGRAPHICAL INFORMATION
| a. | Revenues |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Canada | $ | 33,169 | $ | 34,430 | $ | 63,095 | $ | 62,562 | ||||||||
| USA | 7,264 | 2,257 | 17,069 | 2,557 | ||||||||||||
| Paraguay | 1,382 | — | 1,980 | — | ||||||||||||
| $ | 41,815 | $ | 36,687 | $ | 82,144 | $ | 65,119 | |||||||||
| b. | Property, Plant and Equipment |
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Canada | $ | 150,832 | $ | 83,402 | ||||
| USA | 44,780 | 51,672 | ||||||
| Argentina | 31,247 | 665 | ||||||
| Paraguay | 2,007 | 1,111 | ||||||
| $ | 228,866 | $ | 136,850 | |||||
NOTE 20: ADDITIONAL DETAILS TO THE STATEMENT OF CASH FLOWS
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Changes in working capital components: | ||||||||
| Decrease in trade receivables, net | $ | 394 | $ | 223 | ||||
| Decrease (increase) in other current assets | 6,350 | (2,682 | ) | |||||
| Increase in long-term deposits | (7,258 | ) | (145 | ) | ||||
| Increase (decrease) in trade payables and accrued liabilities | (8,375 | ) | 3,111 | |||||
| Decrease in taxes payable | (651 | ) | — | |||||
| $ | (9,540 | ) | $ | 507 | ||||
| Significant non-cash transactions: | ||||||||
| Addition of right-of-use assets, property, plant and equipment and related lease liabilities | $ | 6,526 | $ | 7,786 | ||||
| Purchase of property, plant and equipment financed by short-term credit | $ | 4,190 | $ | 1,201 | ||||
| Extinguishment of warrant liability and long-term debt through share issuance | $ | — | $ | 24,322 | ||||
| Equipment prepayments realized as additions to property, plant and equipment | $ | 49,234 | $ | — | ||||
| 27 |
BITFARMS LTD.
| NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(In thousands of U.S. dollars, except for data relating to quantity of PPE, shares, warrants and digital assets)
NOTE 21: SUBSEQUENT EVENTS
At-The-Market Equity Program
During the period from July 1, 2022, to August 12, 2022, the Company issued 2,903,096 common shares in exchange for gross proceeds of $4,247 at an average share price of approximately USD$1.46. The Company received net proceeds of $4,109 after paying commissions of $138 to the Company’s agent. See Note 15 for further details to the Company’s at-the-market equity program.
Credit Facility
During the period from July 1, 2022, to August 12, 2022, the Company repaid $15,017 of the Credit Facility, reducing the total amount drawn to $23,137, by liquidating 670 BTC. As a result of the repayment and increase in BTC price during the period, which allowed the Company to request the Facility Lender to return 511 BTC pledged as collateral, the Company’s collateral BTC decreased from 2,598 BTC to 1,417 BTC.
Disposition of Miners
During the period from July 1, 2022, to August 12, 2022, the Company received proceeds of $103 for the remaining 108 Whatsminer M20s miners held for sale and shipped all 600 miners described in note 6b, resulting in a gain on disposition of $230. The Company sold an additional 240 Whatsminer M20s miners for proceeds of $249 and 190 Bitmain S19 XP miners for proceeds of $1,202 resulting in a gain (loss) on disposition of $112 and $(969), respectively.
28
Exhibit 99.2
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Contents
| Introduction | 2 |
| Company Overview | 2 |
| Consolidated Results of Operations | 3 |
| Selected Quarterly Information | 8 |
| Reconciliation of Non-IFRS measures | 9 |
| Geographical Information | 10 |
| Revenues | 11 |
| Property, plant and equipment | 11 |
| Liquidity and Capital Resources | 11 |
| Cash Flows | 12 |
| Working Capital | 13 |
| Capital Resources | 13 |
| Off-Balance Sheet Arrangements | 17 |
| Share Capital | 17 |
| Financial Instruments & Risks | 18 |
| Risk Factors | 21 |
| Related Party Transactions | 21 |
| Recent and Subsequent Events | 22 |
| Caution Regarding Forward-Looking Statements | 23 |
| Caution Regarding Non-IFRS Financial Performance Measures | 24 |
| Internal Controls | 24 |
| Additional Information | 24 |
| Glossary of Terms | 25 |
1
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Introduction
The following Management’s Discussion and Analysis (the “MD&A”) for Bitfarms Ltd. (together with its subsidiaries, the “Company” or “Bitfarms”), dated August 15, 2022, should be read in conjunction with the Company’s second quarter 2022 unaudited interim period condensed consolidated financial statements and its accompanying notes, and the 2021 audited annual consolidated financial statements and its accompanying notes. In addition, the MD&A should be read in conjunction with the Company’s Annual Information Form dated March 28, 2022, which, along with the financial statements, is available on SEDAR at www.sedar.com.
The Company’s second quarter 2022 unaudited interim period condensed consolidated financial statements and the accompanying notes have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), including IAS 34. The Company’s second quarter 2022 unaudited interim period condensed consolidated financial statements and this MD&A are reported in thousands of US dollars and US dollars, respectively, except where otherwise noted.
The Company utilizes a number of non-IFRS measures in assessing operating performance. Non-IFRS financial performance measures exclude the impact of certain items and are used internally when analyzing operating performance. Please refer to the “Caution Regarding Non-IFRS Financial Performance Measures” section of this MD&A for more information. This MD&A contains various terms related to the Company’s business and industry which are defined in the Glossary of Terms section of this MD&A.
Company Overview
The Company’s operations are predominantly in Canada and the United States, with new operations having commenced in Paraguay in 2022 and construction of a new facility having commenced in Argentina in 2021. Bitfarms owns and operates server farms, comprised of computers (referred to as “Miners”) designed for the purpose of validating transactions on the Bitcoin Blockchain. The Miners operate 24 hours a day and revenue is earned from Block Rewards and transaction fees issued in the form of cryptocurrencies by the Bitcoin network. The Company contributes its Hashrate, which is used to validate transactions (referred to as “Mining”), to a Mining Pool in exchange for cryptocurrency tokens. Bitfarms accumulates its mined cryptocurrencies or exchanges them for U.S. dollars, as needed, through reputable and established cryptocurrency trading platforms. 9159-9290 Quebec Inc. (Volta), a wholly-owned subsidiary, assists Bitfarms in building and maintaining its server farms and provides electrician services to both commercial and residential customers in Quebec.
Bitfarms operates seven server farm facilities in Quebec, Canada, with electrical infrastructure capacity of 136 MW for Mining Bitcoin. The Company has contracts securing an aggregate of 160 MW of hydro-electric green energy in Quebec. On November 9, 2021, the Company acquired a Mining facility powered by hydro-electric green energy with a maximum capacity of up to 24 MW in Washington state as described in note 3 of the second quarter 2022 unaudited interim period condensed consolidated financial statements. The Company currently has operational 20 MW of electrical infrastructure and is in the process of upgrading the facility, as described in the Washington Expansion section of this MD&A. In January 2022, the Company began operating a server farm facility in Paraguay with electrical infrastructure of 10 MW powered by hydro-electric green energy. During 2021, the Company also secured 210 MW of natural gas-powered energy in Argentina and commenced the design, construction and procurement of infrastructure equipment for a mining facility at the energy source. In addition, Bitfarms owns proprietary software that is used to monitor, control, manage and secure its Mining operations. The software tracks individually the location and scans and reports the computing power and temperature of all Miners to allow the Company to monitor performance and ensure Miners are operating at maximum capacity and up-time.
2
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Consolidated Results of Operations
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 41,815 | 36,687 | 5,128 | 14 | % | 82,144 | 65,119 | 17,025 | 26 | % | ||||||||||||||||||||||
| Cost of sales | 32,311 | 13,332 | 18,979 | 142 | % | 55,603 | 22,452 | 33,151 | 148 | % | ||||||||||||||||||||||
| Gross profit | 9,504 | 23,355 | (13,851 | ) | (59 | )% | 26,541 | 42,667 | (16,126 | ) | (38 | )% | ||||||||||||||||||||
| Gross margin | 23 | % | 64 | % | — | — | 32 | % | 66 | % | — | — | ||||||||||||||||||||
| General and administrative expenses | 15,392 | 10,607 | 4,785 | 45 | % | 29,235 | 13,426 | 15,809 | 118 | % | ||||||||||||||||||||||
| Realized loss (gain) on disposition of digital assets | 77,880 | (47 | ) | 77,927 | nm | 77,914 | (25 | ) | 77,939 | nm | ||||||||||||||||||||||
| Unrealized loss on revaluation of digital assets | 70,475 | 14,885 | 55,590 | 373 | % | 66,773 | 14,885 | 51,888 | 349 | % | ||||||||||||||||||||||
| Loss (gain) on disposition of property, plant and equipment | 948 | (146 | ) | 1,094 | 749 | % | 936 | (165 | ) | 1,101 | 667 | % | ||||||||||||||||||||
| Impairment on goodwill | 17,900 | — | 17,900 | 100 | % | 17,900 | — | 17,900 | 100 | % | ||||||||||||||||||||||
| Operating income (loss) | (173,091 | ) | (1,944 | ) | (171,147 | ) | nm | (166,217 | ) | 14,546 | (180,763 | ) | nm | |||||||||||||||||||
| Operating margin | (414 | )% | (5 | )% | — | — | (202 | )% | 22 | % | — | — | ||||||||||||||||||||
| Net financial expenses (income) | (11,857 | ) | 1,127 | (12,984 | ) | nm | (15,940 | ) | 24,552 | (40,492 | ) | (165 | )% | |||||||||||||||||||
| Net loss before income taxes | (161,234 | ) | (3,071 | ) | (158,163 | ) | nm | (150,277 | ) | (10,006 | ) | (140,271 | ) | nm | ||||||||||||||||||
| Income tax expense (recovery) | (19,316 | ) | 604 | (19,920 | ) | nm | (12,878 | ) | 1,274 | (14,152 | ) | nm | ||||||||||||||||||||
| Net loss | (141,918 | ) | (3,675 | ) | (138,243 | ) | nm | (137,399 | ) | (11,280 | ) | (126,119 | ) | nm | ||||||||||||||||||
| Basic and diluted net loss per share (in U.S. dollars) | (0.70 | ) | (0.02 | ) | — | — | (0.69 | ) | (0.08 | ) | — | — | ||||||||||||||||||||
| Revaluation loss on digital assets, net of tax | — | (5,128 | ) | 5,128 | 100 | % | — | — | — | — | % | |||||||||||||||||||||
| Total comprehensive loss, net of tax | (141,918 | ) | (8,803 | ) | (133,115 | ) | nm | (137,399 | ) | (11,280 | ) | (126,119 | ) | nm | ||||||||||||||||||
| Gross mining profit (1) | 27,160 | 28,064 | (904 | ) | (3 | )% | 57,300 | 50,334 | 6,966 | 14 | % | |||||||||||||||||||||
| Gross mining margin (1) | 66 | % | 79 | % | — | — | 71 | % | 80 | % | — | — | ||||||||||||||||||||
| EBITDA (1) | (138,831 | ) | 2,746 | (141,577 | ) | nm | (111,798 | ) | (283 | ) | (111,515 | ) | nm | |||||||||||||||||||
| EBITDA margin (1) | (332 | )% | 7 | % | — | — | (136 | )% | — | % | — | — | ||||||||||||||||||||
| Adjusted EBITDA (1) | 18,685 | 23,780 | (5,095 | ) | (21 | )% | 40,125 | 43,503 | (3,378 | ) | (8 | )% | ||||||||||||||||||||
| Adjusted EBITDA margin (1) | 45 | % | 65 | % | — | — | 49 | % | 67 | % | — | — | ||||||||||||||||||||
nm: not meaningful
| 1 | Gross mining profit, Gross mining margin, EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin, are non-IFRS performance measures; refer to the Non-IFRS Financial Performance Measures section of this MD&A. |
3
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Second Quarter 2022 Financial Results and Operational Highlights:
| ● | Revenues of $41.8 million, gross profit of $9.5 million (23% gross margin), operating loss of $173.1 million (operating margin of negative 414%), and net loss of $141.9 million; |
| ● | Gross mining profit1 of $27.2 million (66% gross mining margin); |
| ● | Adjusted EBITDA1 of $18.7 million (45% Adjusted EBITDA margin); |
| ● | EBITDA1 of negative $138.8 million (EBITDA margin of negative 332%); |
| ● | Mined 1,257 Bitcoin with an average cost of $9,900 per Bitcoin2 and held 3,144 Bitcoin valued at approximately $62.2 million as of June 30, 2022; |
| ● | Increased Hashrate from 2.7 EH/s to 3.6 EH/s through the acquisition and installation of approximately 9,000 MicroBT Whatsminers. The Hashrate was further increased to 3.8 EH/s by the end of July 2022; |
| ● | Sold 3,357 Bitcoin at an average price of $20,638 per Bitcoin for total proceeds of $69.3 million, a portion of which was used to repay the credit facility by $61.8 million, bringing the total amount drawn on the facility to $38.2 million, with 2,598 of the Company’s 3,144 Bitcoin pledged as collateral as of June 30, 2022; |
| ● | Amended the credit facility that was to mature June 30, 2022, extending the maturity by three months for a maximum of $40.0 million, of which $38.2 million was outstanding at June 30, 2022, at an interest rate of 11.25%; |
| ● | Secured new equipment financing with NYDIG ABL LLC. (“NYDIG”), providing net proceeds of $36.1 million; |
| ● | Completed construction of the Leger facility and the first and second phases of the Bunker facility, bringing the total capacity to 30 MW and 36 MW, respectively; |
| ● | Uplisted to the Toronto Stock Exchange (“TSX”) from the TSX Venture Exchange on April 8, 2022; |
| ● | Subsequent to the end of the quarter, to better align the number of Miners on hand with the infrastructure capacity available to utilize the Miners, the Company entered into agreements with equipment vendors to postpone into 2023, without penalty, the remaining delivery of and payment for certain remaining equipment purchases; and |
| ● | Raised $9.6 million of net proceeds through the Company’s at-the-market equity program, used primarily for payment commitments on orders of 49,200 miners with expected deliveries throughout 2022 and the first nine months of 2023. |
| 1 | Gross mining profit, Gross mining margin, EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin, are non-IFRS performance measures; refer to the Non-IFRS Financial Performance Measures section of this MD&A. |
| 2 | Represents the direct cost of Bitcoin based on the total electricity costs and, where applicable, hosting costs related to the Mining of Bitcoin, excluding electricity consumed by hosting clients, divided by the total number of Bitcoin mined. |
4
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Revenues
Revenues were $41.8 million for the three months ended June 30, 2022 (“Q2 2022”) compared to $36.7 million for the three months ended June 30, 2021 (“Q2 2021”).
The most significant factors impacting the increase in Bitfarms’ revenues in Q2 2022, compared to Q2 2021, are presented in the table below. Revenues increased mostly due to the increase in Bitfarms’ Hashrate in excess of the increase in network difficulty, offset by the decrease in average Bitcoin price.
| (U.S. $ in thousands except where indicated) | Note | Bitcoin | (USD) | % Change | ||||||||||||
| Revenues, including Volta, during the three months ended June 30, 2021 | 759 | 36,687 | — | |||||||||||||
| Impact of increase in average Bitfarms’ Bitcoin Hashrate in excess of the increase in network difficulty during Q2 2022 as compared to Q2 2021 | 1 | 498 | 23,202 | 63 | % | |||||||||||
| Impact of difference in average Bitcoin price in Q2 2022 as compared to Q2 2021 | 2 | (17,502 | ) | (48 | )% | |||||||||||
| Other mining variance and change in Volta and hosting revenues | (572 | ) | (2 | )% | ||||||||||||
| Revenues for the three months ended June 30, 2022 | 1,257 | 41,815 | 13 | % | ||||||||||||
| Notes | |
| 1 | Calculated as the difference in Bitcoin mined in Q2 2022 compared to Q2 2021 multiplied by Q2 2021 average Bitcoin price |
| 2 | Calculated as the difference in average Bitcoin price in Q2 2022 compared to Q2 2021 multiplied by Bitcoin mined in Q2 2022 |
Revenues were $82.1 million for the six months ended June 30, 2022 (“YTD Q2 2022”) compared to $65.1 million for the six months ended June 30, 2021 (“YTD Q2 2021”).
The most significant factors impacting the increase in Bitfarms’ revenues in YTD Q2 2022, compared to YTD Q2 2021, are presented in the table below. Revenues increased mostly due to the increase in Bitfarms’ Hashrate in excess of the increase in network difficulty, offset by the decrease in average Bitcoin price.
| (U.S. $ in thousands except where indicated) | Note | Bitcoin | (USD) | % Change | ||||||||||
| Revenues, including Volta, during the six months ended June 30, 2021 | 1,357 | 65,119 | — | |||||||||||
| Impact of increase in average Bitfarms’ Bitcoin Hashrate in excess of the increase in network difficulty during YTD Q2 2022 as compared to YTD Q2 2021 | 1 | 861 | 39,679 | 61 | % | |||||||||
| Impact of difference in average Bitcoin price in YTD Q2 2022 as compared to YTD Q2 2021 | 2 | (21,423 | ) | (33 | )% | |||||||||
| Other mining variance and change in Volta and hosting revenues | (1,231 | ) | (2 | )% | ||||||||||
| Revenues for the six months ended June 30, 2022 | 2,218 | 82,144 | 26 | % | ||||||||||
| Notes | |
| 1 | Calculated as the difference in Bitcoin mined in YTD Q2 2022 compared to YTD Q2 2021 multiplied by YTD Q2 2021 average Bitcoin price |
| 2 | Calculated as the difference in average Bitcoin price in YTD Q2 2022 compared to YTD Q2 2021 multiplied by Bitcoins mined in YTD Q2 2022 |
5
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Cost of Sales
Bitfarms’ cost of sales for Q2 2022 was $32.3 million compared to $13.3 million for Q2 2021. Cost of sales includes energy and infrastructure expenses, depreciation and amortization, electrician salaries and payroll taxes and purchases of electrical components. The increase in cost of sales was mainly due to the increase in energy and infrastructure expenses and non-cash depreciation and amortization expense. Energy and infrastructure expenses increased by $6.5 million, or 89%, partially due to the Company adding new Miners, which increased electricity utilization to an average of 131 MW during the quarter, compared to 63 MW for the same period in 2021, resulting in an increase in electricity costs of $6.7 million. The Company also invested additional resources to repair existing Mining hardware and upgrade existing facilities, which added $0.5 million to energy and infrastructure expenses in Q2 2022 compared to the same quarter in the prior year. Depreciation and amortization expense increased by $13.0 million as the Company added new Miners and electrical infrastructure. The remaining difference is mainly due to the Company terminating its hosting agreements during 2021 under which a third party operated the Company’s equipment, resulting in $1.2 million lower energy and infrastructure costs in Q2 2022 compared to Q2 2021.
Bitfarms’ cost of sales for YTD Q2 2022 was $55.6 million compared to $22.5 million for YTD Q2 2021. The increase in cost of sales was mainly due to the increase in energy and infrastructure expenses and non-cash depreciation and amortization expense. Energy and infrastructure expenses increased by $10.6 million, or 82%, partially due to the Company adding new Miners, which increased electrical utilization to an average of 113 MW during the period, compared to 61 MW for the same period in 2021, resulting in an increase in electricity costs of $9.9 million. The Company also invested additional resources to repair existing Mining hardware and upgrade existing facilities, which added $1.1 million to energy and infrastructure expenses in YTD Q2 2022 compared to the same period in the prior year. Depreciation and amortization expense increased by $23.0 million as the Company added new Miners and electrical infrastructure. The remaining difference in YTD Q2 2022 compared to YTD Q2 2021 resulted from the Company terminating its hosting agreements during 2021 under which a third party operated the Company’s equipment, resulting in $1.4 million lower energy and infrastructure costs during YTD Q2 2022.
General & Administrative Expenses
Bitfarms’ general and administrative expenses were $15.4 million in Q2 2022 compared to $10.6 million for Q2 2021. The increase of $4.8 million, or 45%, in general and administrative expense was largely due to a $1.6 million increase in non-cash share-based payment expense in connection with the Company’s grant of 5,402,500 stock options and 200,000 restricted stock units in Q2 2022. Other factors contributing to the increase in general and administrative expenses in Q2 2022 compared to Q2 2021 were a $0.5 million increase in professional and other fees, mainly in connection with the consulting agreement with the previous owner of the Mining facility in Washington state, legal fees in connection with the Company’s ongoing compliance as a result of its Nasdaq listing, the Company’s TSX uplisting and at-the-market offering expenses and increased public and investor relations activities. The company also incurred a $0.8 million increase in salaries expense as a result of higher general wage and salary levels and hiring additional employees to support its international expansion. The Company’s insurance expense also increased by $1.4 million as a result of an appreciation in the insurable value of the Company’s assets and increased industry-specific insurance premiums, as well as an increase in insurance premiums associated with the Company’s Nasdaq listing.
6
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
For YTD Q2 2022, Bitfarms’ general and administrative and other expenses were $29.2 million, compared to $13.4 million for the same period in 2021. The increase of $15.8 million, or 118%, in general and administrative expenses was mainly due to a $7.2 million increase in non-cash share-based payment expense in connection with the Company’s grant of stock options to purchase 5,522,500 common shares and 200,000 restricted share units during 2022 and stock options granted subsequent to Q1 2021. Other factors contributing to the increase in general and administrative expenses in YTD Q2 2022 compared to YTD Q2 2021 were a $1.6 million increase in professional and other fees, mainly in connection with the consulting agreement with the previous owner of the Mining facility in Washington state, legal fees in connection with the Company’s ongoing compliance as a result of its Nasdaq listing, the Company’s TSX uplisting and at-the-market offering expenses and increased public and investor relations activities. The Company also incurred a $1.6 million increase in salaries expense as a result of implementing incentive plans and hiring additional employees to support the Company’s international expansion. The Company’s insurance expense also increased by $2.5 million as a result of an appreciation in the insurable value of the Company’s assets and increased industry-specific insurance premiums, as well as an increase in insurance premiums associated with the Company’s Nasdaq listing on June 21, 2021. In YTD Q2 2022, the Company incurred $1.9 million of shipping costs and duties when transferring its older generation miners from Canada to Paraguay included in general and administrative expenses that did not exist in YTD Q2 2021.
Net financial income and expenses
Bitfarms’ net financial income for Q2 2022 was $11.9 million compared to net financial expenses of $1.1 million for Q2 2021. The $13.0 million change was primarily related to a $19.7 million gain on disposition of marketable securities related to the funding of the Argentina Expansion, that did not exist in Q2 2021. The Company has funded its expansion in Argentina through the acquisition of marketable securities and in-kind contribution of these securities to a company in Argentina that it controls. The subsequent disposition of these marketable securities in exchange for Argentine Pesos gave rise to a gain as the amount received in Argentine Pesos exceeded the amount of Argentine Pesos the Company would have received from a direct foreign currency exchange. Offsetting the gain on disposition of marketable securities was the provision for the Argentina VAT receivable of $2.1 million in Q2 2022 which was not applicable in Q2 2021. The Company’s loss on currency exchange increased by $0.8 million mostly due to its operations in Argentina which did not exist in Q2 2021. The increase of $3.8 million in interest on credit facility and long-term debt in Q2 2022, compared to the same period last year, was mostly due to the Galaxy Digital credit facility which commenced on December 30, 2021 and the Blockfi equipment financing agreement which commenced on February 18, 2022.
Bitfarms’ net financial income for YTD Q2 2022 was $15.9 million compared to net finance expenses of $24.6 million for YTD Q2 2021. The $40.5 million change was mainly due to a $30.6 million gain on disposition of marketable securities related to the funding of the Argentina Expansion during YTD Q2 2022, which was partially offset by the provision on the Argentina VAT receivable of $5.0 million during the same period and by a $2.0 million increase in loss on currency exchange mostly due to Company’s operations in Argentina, which did not exist in YTD Q2 2021. The $40.5 million change was also due to a $19.5 million loss on the revaluation of warrants related to a private placement which closed on January 7, 2021 and a loan with Dominion Capital in Q1 2021 (the “Dominion Loan”), which were exercised in Q1 2021 and not applicable in YTD Q2 2022, in addition to a loss on embedded derivative of $2.6 million in Q1 2021 that no longer existed in YTD Q2 2022. The interest on credit facility and long-term debt increased by $6.0 million during YTD Q2 2022, compared to the same period in 2021, as a result of the Galaxy Digital credit facility that commenced on December 30, 2021 and the Blockfi loan that commenced on February 18, 2022.
Impairment on goodwill
As at June 30, 2022, as a result of the decline in the Bitcoin price during the quarter, the Company performed an evaluation of the recoverable amount of the property, plant and equipment and intangible assets for the Washington state cryptocurrency mining facility. As these groups of assets do not generate cash inflows that are independent of each other, the recoverable amount was calculated for the cash-generating unit (“CGU”) comprised of the assets of BVVE and electrical equipment, long-term electricity deposits, land, building and favourable lease used in the cryptocurrency mining facility in Washington state.
Based on its calculation, the Company recorded an impairment loss on its Washington state cryptocurrency mining CGU resulting in an impairment charge to goodwill of $17.9 million. The impairment loss was recognized in profit or loss under Impairment on goodwill. For more details of the key assumptions used in the calculation, refer to note 3 of the second quarter 2022 unaudited interim period condensed consolidated financial statements.
7
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Selected Quarterly Information
| (U.S. $ in thousands except earnings per share) | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | Q4 2020 | Q3 2020 | ||||||||||||||||||||||||
| Revenues | 41,815 | 40,329 | 59,598 | 44,774 | 36,687 | 28,432 | 11,324 | 6,795 | ||||||||||||||||||||||||
| Net income (loss) | (141,918 | ) | 4,519 | 9,677 | 23,733 | (3,675 | ) | (7,605 | ) | (5,374 | ) | (4,761 | ) | |||||||||||||||||||
| Basic net earnings (loss) per share | (0.70 | ) | 0.02 | 0.05 | 0.14 | (0.02 | ) | (0.06 | ) | (0.06 | ) | (0.06 | ) | |||||||||||||||||||
| (U.S. $ in thousands except where indicated) | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | Q4 2020 | Q3 2020 | ||||||||||||||||||||||||
| Net income (loss) before income taxes | (161,234 | ) | 10,957 | 17,937 | 34,706 | (3,071 | ) | (6,935 | ) | (5,090 | ) | (4,761 | ) | |||||||||||||||||||
| Interest expense | 4,546 | 3,010 | 837 | 788 | 897 | 898 | 1,756 | 1,563 | ||||||||||||||||||||||||
| Depreciation and amortization expense | 17,857 | 13,066 | 10,287 | 6,261 | 4,920 | 3,008 | 2,834 | 2,924 | ||||||||||||||||||||||||
| EBITDA | (138,831 | ) | 27,033 | 29,061 | 41,755 | 2,746 | (3,029 | ) | (500 | ) | (274 | ) | ||||||||||||||||||||
| Share-based payment | 7,927 | 6,105 | 10,036 | 5,787 | 6,342 | 420 | 403 | 534 | ||||||||||||||||||||||||
| Realized loss (gain) on disposition of digital assets | 77,880 | 34 | 137 | 177 | (47 | ) | 22 | (65 | ) | — | ||||||||||||||||||||||
| Unrealized loss (gain) on revaluation of digital assets | 70,475 | (3,702 | ) | 3,869 | (13,893 | ) | 14,885 | — | — | — | ||||||||||||||||||||||
| Impairment on property, plant and equipment | — | — | 1,800 | — | — | — | — | — | ||||||||||||||||||||||||
| Impairment reversal on property, plant and equipment | — | — | — | (1,860 | ) | — | — | — | — | |||||||||||||||||||||||
| Impairment on goodwill | 17,900 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Net financial expenses (income) and other | (16,666 | ) | (8,030 | ) | (4,628 | ) | (2,204 | ) | (146 | ) | 22,310 | 3,653 | 105 | |||||||||||||||||||
| Adjusted EBITDA | 18,685 | 21,440 | 40,275 | 29,762 | 23,780 | 19,723 | 3,491 | 365 | ||||||||||||||||||||||||
While the Bitcoin mining industry experiences volatility, it is typically not subject to seasonality. Seasonal fluctuations in electricity supply, however, may impact the Company’s operations. The majority of the Company’s operations during the above periods were in Quebec, where power was sourced directly from Hydro-Quebec, Hydro-Magog and Hydro-Sherbrooke. The Company also had operations in Washington state which were powered by the Grant County Power Utility District and had operations in Paraguay which were powered by Compañia de Luz y Fuerza S.A. Among other phenomenon, changing weather in Quebec, Washington state, Paraguay or other jurisdictions where the Company intends to operate may impact seasonal electricity needs, and periods of extreme cold or extreme hot weather may thus contribute to service interruptions in cryptocurrency mining operations. The Company’s geographical diversification reduces the risk and extent of extreme weather affecting the Company’s overall performance.
For Q2 2022 details, refer to the Revenues section, Cash Flows included in the Liquidity and Capital Resources section and Washington Expansion and Paraguay Expansion included in the Capital Resources section of the MD&A.
8
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Reconciliation of Non-IFRS measures
The Company utilizes a number of non-IFRS measures in assessing operating performance. Non-IFRS financial performance measures exclude the impact of certain items and are used internally when analyzing operating performance. Please refer to the “Caution Regarding Non-IFRS Financial Performance Measures” section of this MD&A for more information.
Reconciliation of Consolidated Net Income (loss) to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Net loss before income taxes | (161,234 | ) | (3,071 | ) | (158,163 | ) | nm | (150,277 | ) | (10,006 | ) | (140,271 | ) | nm | ||||||||||||||||||
| Interest expense | 4,546 | 897 | 3,649 | 407 | % | 7,556 | 1,795 | 5,761 | 321 | % | ||||||||||||||||||||||
| Depreciation and amortization expense | 17,857 | 4,920 | 12,937 | 263 | % | 30,923 | 7,928 | 22,995 | 290 | % | ||||||||||||||||||||||
| EBITDA | (138,831 | ) | 2,746 | (141,577 | ) | nm | (111,798 | ) | (283 | ) | (111,515 | ) | nm | |||||||||||||||||||
| Share-based payment | 7,927 | 6,342 | 1,585 | 25 | % | 14,032 | 6,762 | 7,270 | 108 | % | ||||||||||||||||||||||
| Realized loss (gain) on disposition of digital assets | 77,880 | (47 | ) | 77,927 | nm | 77,914 | (25 | ) | 77,939 | nm | ||||||||||||||||||||||
| Unrealized loss on revaluation of digital assets | 70,475 | 14,885 | 55,590 | 373 | % | 66,773 | 14,885 | 51,888 | 349 | % | ||||||||||||||||||||||
| Impairment on goodwill | 17,900 | — | 17,900 | 100 | % | 17,900 | — | 17,900 | 100 | % | ||||||||||||||||||||||
| Net financial expenses (income) and other | (16,666 | ) | (146 | ) | (16,520 | ) | nm | (24,696 | ) | 22,164 | (46,860 | ) | (211 | )% | ||||||||||||||||||
| Adjusted EBITDA | 18,685 | 23,780 | (5,095 | ) | (21 | )% | 40,125 | 43,503 | (3,378 | ) | (8 | )% | ||||||||||||||||||||
nm: not meaningful
9
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Calculation of Gross Mining Profit and Gross Mining Margin
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Gross profit | 9,504 | 23,355 | (13,851 | ) | (59 | )% | 26,541 | 42,667 | (16,126 | ) | (38 | )% | ||||||||||||||||||||
| Non-mining revenues (1) | (767 | ) | (1,208 | ) | 441 | (37 | )% | (1,371 | ) | (1,904 | ) | 533 | (28 | )% | ||||||||||||||||||
| Depreciation and amortization expense | 17,857 | 4,920 | 12,937 | 263 | % | 30,923 | 7,928 | 22,995 | 290 | % | ||||||||||||||||||||||
| Purchases of electrical components and other | 260 | 542 | (282 | ) | (52 | )% | 572 | 801 | (229 | ) | (29 | )% | ||||||||||||||||||||
| Electrician salaries and payroll taxes | 306 | 455 | (149 | ) | (33 | )% | 635 | 842 | (207 | ) | (25 | )% | ||||||||||||||||||||
| Gross mining profit (2) | 27,160 | 28,064 | (904 | ) | (3 | )% | 57,300 | 50,334 | 6,966 | 14 | % | |||||||||||||||||||||
| Gross mining margin | 66 | % | 79 | % | — | — | 71 | % | 80 | % | — | — | ||||||||||||||||||||
| (1) | Non-mining revenues reconciliation: |
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 41,815 | 36,687 | 5,128 | 14 | % | 82,144 | 65,119 | 17,025 | 26 | % | ||||||||||||||||||||||
| Less mining related revenues for the purpose of calculating gross mining margin: | ||||||||||||||||||||||||||||||||
| Mining revenues | (41,048 | ) | (35,352 | ) | (5,696 | ) | 16 | % | (80,773 | ) | (62,542 | ) | (18,231 | ) | 29 | % | ||||||||||||||||
| Hosting revenues | — | (127 | ) | 127 | 100 | % | — | (673 | ) | 673 | 100 | % | ||||||||||||||||||||
| Non-mining revenues | 767 | 1,208 | (441 | ) | (37 | )% | 1,371 | 1,904 | (533 | ) | (28 | )% | ||||||||||||||||||||
| (2) | “Gross mining profit” is defined as Gross profit excluding depreciation and amortization and other minor items included in cost of sales that do not directly relate to mining related activities. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenues from mining related activities. |
10
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Geographical Information
Revenues
Bitfarms’ revenues were $41.8 million in Q2 2022, compared to $36.7 million in Q2 2021. The increase of $5.1 million, or 14%, in revenues was mainly due to US-based revenues from the Company’s Washington operations of $7.3 million during Q2 2022 compared to $2.3 million in Q2 2021. Revenues in Canada decreased by $1.3 million during Q2 2022 when compared to the same period in the previous year. Contributing to the overall increase in revenues were the Paraguay revenues of $1.4 million in Q2 2022 compared to nil in Q2 2021. For further details of the global increase in revenues, see the revenue reconciliation performed in the Consolidated Results of Operations section above.
For YTD Q2 2022, Bitfarms’ revenues were $82.1 million, compared to $65.1 million for the same period in 2021. The increase of $17.0 million, or 26%, in revenues was mainly due to US-based revenues from the Company’s Washington operations of $17.1 million during YTD Q2 2022 compared to $2.6 million in YTD Q2 2021. Revenues in Canada increased by $0.5 million during YTD Q2 2022 when compared to the same period in the previous year. Further adding to the increase of revenues were the Paraguay revenues of $2.0 million in YTD Q2 2022 compared to nil in YTD Q2 2021. For further details of the global increase in revenues, see the revenue reconciliation performed in the Consolidated Results of Operations section above.
Property, plant and equipment
As at June 30, 2022, Bitfarms had property, plant and equipment (“PPE”) of $228.9 million compared to a $136.9 million as at December 31, 2021. The increase of $92.0 million, or 67%, was primarily due to a $67.5 million increase of PPE in Canada, mainly relating to the delivery of approximately 16,000 miners from the Company’s 48,000 unit order, and was offset by a $6.9 million decrease of PPE in the US mostly due to depreciation expense incurred. In Q1 2022, used miners from Canada were transferred to Paraguay comprising the majority of the PPE increase of $0.9 million in Paraguay. Bitfarms also added PPE of $30.5 million with the expansion in Argentina.
As at June 30, 2022, as a result of the decline in the Bitcoin price during the quarter, the Company performed an evaluation of the recoverable amount of the PPE for the cryptocurrency mining facilities in Quebec and Washington separately. As the group of assets used in Quebec and Washington state do not generate cash inflows that are independent of each other, the recoverable amount was calculated for the CGUs comprised of the PPE, right-of-use assets, long-term electricity deposits and favourable lease used in the cryptocurrency mining facilities in Quebec and Washington.
Based on its calculations, the Company determined that no impairment charge should be recorded on the PPE of its Quebec and Washington state cryptocurrency mining CGUs. For more details of the key assumptions used in the Quebec and Washington state calculation, refer to note 6c and note 3 of the second quarter 2022 unaudited interim period condensed consolidated financial statements, respectively.
Liquidity and Capital Resources
As discussed below, the Company’s financing strategy involves selling BTC mined and in treasury and utilizing short-term debt, long-term debt and equity instruments to fund its expansion activities and operating expenses. The Company anticipates requiring additional funds to complete its growth plans discussed in the Expansions section of this MD&A.
11
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Although the Company operates through subsidiaries, there are no material legal restrictions and generally no practical restrictions on the ability of the subsidiaries to transfer funds to the Company, except that the Company may be subject to practical limitations on transferring funds from its Argentinian subsidiary. Since the second half of 2019, the Argentine government has instituted certain foreign currency exchange controls which could restrict the access of foreign currency, including the US dollar, for making payments abroad or transferring funds to its parent without prior authorization from the Argentine Central Bank. These regulations have continued to evolve and may become more stringent depending on the Argentine government´s perception of availability of sufficient national foreign currency reserves. Currently, the Company sends funds periodically to Argentina to fund its expansion based on supplier invoices that are paid by the Argentinian subsidiary. The Argentinian subsidiary will provide mining services to its Canadian parent which owns and will record revenue from the BTC mined in Argentina and, accordingly, the Argentinian subsidiary is not structured or contemplated to generate substantial cash flows above its internal requirements.
Cash Flows
| (U.S. $ in thousands except where indicated) | Six months ended | |||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||
| Cash, beginning of the period | 125,595 | 5,947 | 119,648 | nm | ||||||||||||
| Cash flows from (used in): | ||||||||||||||||
| Operating activities | 18,897 | (17,296 | ) | 36,193 | 209 | % | ||||||||||
| Investing activities | (166,392 | ) | (102,135 | ) | (64,257 | ) | 63 | % | ||||||||
| Financing activities | 67,910 | 149,692 | (81,782 | ) | (55 | )% | ||||||||||
| Exchange rate differences on currency translation | (28 | ) | 8 | (36 | ) | (450 | )% | |||||||||
| Cash, end of the period | 45,982 | 36,216 | 9,766 | 27 | % | |||||||||||
Cash Flows from Operating Activities
Cash flows from operating activities increased by $36.2 million during the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase in net cash flows from operating activities was primarily driven by the liquidation of 3,375 Bitcoin for total proceeds of $58.5 million during the six months ended June 30, 2022, compared to 64 Bitcoin for total proceeds of $2.4 million for the same period in 2021. The increase is partially offset by higher energy and infrastructure costs, higher cash general & administrative expenses, taxes paid and additional long-term deposits placed on infrastructure and miners in connection with the Company’s expansions.
Cash Flows used in Investing Activities
Cash flows used in investing activities increased by $64.3 million during the six months ended June 30, 2022, compared to the six months ended June 30, 2021. This was primarily due to $101.1 million of net additions to PPE for Miners and infrastructure buildout during the six months ended June 30, 2022, compared to $28.8 million of net additions for the same period in 2021. This was offset by $30.6 million of net proceeds received from the purchase and disposition of marketable securities to fund the Argentina expansion activities as described in Net financial income and expenses. $43.2 million was used to purchase 1,000 Bitcoin, of which a portion was sold for proceeds of $11.5 million, as well as $64.2 million in advance payments made on new PPE, mostly related to securing the delivery of 48,000 MicroBT Miners and 1,200 Bitmain Miners for anticipated delivery throughout 2022 and the first nine months of 2023, as well as construction deposits relating to the Argentina expansion, compared to $73.4 million in advanced payments made on new PPE for the same period in 2021.
Cash Flows from Financing Activities
Cash flows from financing activities decreased by $81.8 million from $149.7 million for the six months ended June 30, 2021 to $67.9 million for the six months ended June 30, 2022. During the six months ended June 30, 2022, the Company raised $40.0 million of proceeds from the credit facility, $67.2 million of net proceeds from new long-term debt and $35.9 million of net proceeds from the Company’s at-the-market equity program. These proceeds were partially offset by payments relating to the credit facility, long-term debt and lease liabilities of approximately $61.8 million, $11.1 million and $2.2 million, respectively. During the six months ended June 30, 2021, $114.5 million was raised from the issuance of common shares and warrants, $43.5 million was raised from the exercise of warrants and stock options and $9.3 million was raised from long-term debt. These proceeds were partially offset by long-term debt and lease repayments of $15.2 million and $2.4 million, respectively, including the repayment of the Dominion Loan.
12
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Working Capital
As at June 30, 2022, Bitfarms had working capital of $28.3 million compared to $185.9 million as at December 31, 2021. The decrease in working capital is mostly due to the decrease by $90.7 million in total digital assets (including the digital assets pledged as collateral) following the disposal of 3,375 Bitcoin and the $66.8 million unrealized loss on revaluation of digital assets. The proceeds from the disposal of Bitcoin were used in part to pay down the credit facility for a net decrease of $21.2 million, which was offset by the net increase of the current portion of long-term debt by $30.9 million following the additional funds raised from the Blockfi and NYDIG loans. Other proceeds were used primarily to acquire PPE and make deposits to secure orders of Mining hardware and electrical distribution equipment which resulted in a decrease of cash of $79.6 million when comparing working capital as at June 30, 2022 to December 31, 2021.
Capital Resources
Bitfarms’ capital management objective is to provide the financial resources that will enable the Company to maximize the return to its shareholders while optimizing its cost of capital. In order to achieve this objective, the Company monitors its capital structure and makes adjustments as required in light of changes in economic conditions and the risks to which the Company is exposed. The Company’s strategy for achieving this objective is to maintain a flexible capital structure that optimizes the cost of capital at an acceptable level of risk, to preserve its ability to meet financial obligations as they come due, and to ensure the Company has sufficient financial resources to fund its organic and acquisitive growth.
Subsequent to the end of the quarter, to better align the number of Miners on hand with the infrastructure capacity available to utilize the Miners, the Company entered into agreements with equipment vendors to postpone into 2023, without penalty, the remaining delivery of and payment for certain remaining equipment purchases. Based on the current capital budget and BTC prices, the Company presently anticipates that additional financing will be required to complete the required remaining payments on its order of 48,000 Miners scheduled for delivery throughout 2022 and the first nine months of 2023 and to complete construction of two warehouses in Argentina and Sherbrooke expansions which are necessary for the Company to meet its target of generating 6.0 Exahash of computing power by the end of 2022. The Company also anticipates that additional financing will be required to purchase sufficient miners to utilize fully its maximum capacity in the first half of 2023. In order to achieve its business objectives, the Company can sell or borrow against the Bitcoin that have been accumulated as of the date hereof as well as Bitcoin generated from ongoing operations, which may or may not be possible on commercially attractive terms.
Bitfarms may manage its capital structure by reducing operating expenses and capital spending, disposing of inefficient or unproductive assets, obtaining short-term and long-term debt financing and issuing equity. Refer to the Commitments and Liquidity Risk section of this MD&A for more details.
Digital Asset Management Program
In early January 2021, the Company implemented a Bitcoin asset management program pursuant to which the Company added 3,301 Bitcoin to its balance sheet during the year ended December 31, 2021. In January 2022, the Board of Directors (the “BOD”) authorized management to purchase 1,000 Bitcoin. During the three months ended June 30, 2022, following the BOD approval, the Company sold 3,000 Bitcoin in collateral to repay part of the credit facility and 350 Bitcoin in treasury to manage liquidity levels. In July 2022, the Company sold 670 Bitcoin in collateral to repay part of the credit facility and 950 Bitcoin in treasury to manage liquidity levels. On August 1, 2022, management received approval from the BOD to sell the daily production, in addition to any sale of up to 1,000 Bitcoin from treasury should market conditions be justified in the discretion of management. The purchase and disposal of Bitcoin as described above while the Company continued to mine Bitcoin resulted in the net reduction from December 31, 2021 to June 30, 2022 of 157 Bitcoin for total holdings of 3,144 Bitcoin as at June 30, 2022, valued at approximately $62.2 million based on a Bitcoin price of approximately $19,800 as of June 30, 2022.
13
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Expansions
The Company has described its expansion plans below under the sections “Sherbrooke Expansion”, “Argentina Expansion”, “Paraguay Expansion” and “Washington Expansion”. The Company had set a revised corporate goal of reaching 6.0 EH/S by the end of 2022 based on the Company’s projected production capacity by year-end 2022 and reflecting adjustments to its Argentina construction plan and current expansion opportunities in Canada and Paraguay. The Company’s 2022 quarterly ending Hashrate targets based on current infrastructure construction and miner deliveries schedules are 4.2 EH/s as of September 30, 2022 and 6.0 EH/s as of December 31, 2022. As of July 31, 2022, the Company has achieved 3.8 EH/s.
The estimated costs and timelines to achieve these expansion plans may change based on, among other factors, the prevailing price of Bitcoin, network difficulty, supply of cryptocurrency mining equipment, supply of electrical and other supporting infrastructure equipment, construction materials, currency exchange rates, the impact of COVID-19 on the supply chains described above and the Company’s ability to fund its initiatives. The Company’s expansion plans are reliant on a consistent supply of electricity at cost-effective rates; see the Economic Dependence on Regulated Terms of Service and Electricity Rates Risks of the MD&A for the year ended December 31, 2021 dated March 28, 2022 for further details.
Sherbrooke Expansion
Bitfarms completed Phases 1 and 2 of the Sherbrooke Expansion at the de la Pointe property in 2019, representing 30 MW of electrical infrastructure. In response to complaints concerning noise at the de la Pointe property and indications from Sherbrooke municipal officials that they were reviewing applicable regulations, the Company met with community residents and city officials on several occasions during 2020 and 2021. In response to the residents’ concerns, the Company constructed a sound barrier wall at a cost of approximately $0.3 million in 2020 and invested $0.7 million to install quieter exhaust structures and fans as well as other sound mitigating measures, including real-time sound monitoring equipment and feedback channels for residents to communicate directly with the Company.
In September 2021, the Company reached an agreement with the City of Sherbrooke to gradually retire Phases 1 and 2 of the Sherbrooke Expansion. Under the agreement, the Company will reduce its consumption at the de la Pointe property to 18 MW at the earlier of the completion of 66 MW of new electrical infrastructure elsewhere in the City of Sherbrooke, or May 31, 2022. The Company will entirely relocate its operations from Phases 1 and 2 of the Sherbrooke Expansion at the earlier of the completion of 80 MW of new electrical infrastructure in the City of Sherbrooke and February 28, 2023. In addition, the Company has the option to sell the building currently housing Phases 1 and 2 of the Sherbrooke Expansion to the City of Sherbrooke for approximately $2.3 million ($3.0 million CAD). The agreement does not restrict the ability of the Company to sell the building to a third party other than the City of Sherbrooke.
The Company entered into lease agreements for two new facilities in Sherbrooke: “Leger” and “The Bunker”. These facilities will include, as necessary, similar sound mitigating mechanisms as were installed in the de la Pointe facility. Construction of Leger was completed in June 2022 with 30 MW of capacity available which currently accommodates approximately 7,500 new generation miners producing approximately 750 PH/s. The Bunker, representing 48 MW of capacity, is expected to be completed in three phases during 2022, and capable of accommodating 13,000 new generation miners producing approximately 1.3EH/s. Construction of the Bunker is expected to occur in three separate phases:
| ● | Phase one, representing 18 MW, was constructed in a pre-existing building. Internal infrastructure work began in Q4 2021 with the first 12 MW becoming operational in March 2022, and the remaining 6 MW was operating by June 2022. |
14
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
| ● | Phase two, representing 18 MW, is in a portion of the building that was originally under construction. Internal infrastructure work began in Q1 2022 and the 18 MW was completed in July 2022. |
| ● | Phase three, representing the remaining 12 MW, is in a portion of the building that is currently under construction and is expected to be completed during 2022. |
The expected capital cost for the construction of the infrastructure for Leger and The Bunker is approximately $17 million to $19 million. As of the date of this MD&A, the Company has completed the Leger facility and phases one and two of The Bunker facility. As of June 30, 2022, the Company acquired $16.0 million of PPE and placed $1.6 million of additional deposits for property plant and equipment for the construction of The Bunker. The Company expects to deploy a significant portion of its order of 48,000 MicroBT miners at these facilities with deliveries scheduled to arrive throughout 2022 and the first nine months of 2023. The Miners expected to be installed in Sherbrooke have an estimated cost of $80 to $90 million. As of June 30, 2022, the Company added approximately 16,000 miners with a cost of $64.3 million. The Company’s commitments in connection with its order of 48,000 MicroBT Miners are outlined in the Commitments and Liquidity Risk section of this MD&A. The Company anticipates that these costs will be shared between the Leger and The Bunker facilities.
In March 2022, the Company acquired an existing building in Sherbrooke (“Garlock”) at a cost of approximately $1.8 million in cash and the issuance of 25,000 common share purchase warrants to the seller featuring a two-year life and a strike price of $3.47. The Garlock property, which is expected to be completed in one phase and be operational by the fourth quarter of 2022, represents 18 MW of electrical infrastructure at an estimated cost of approximately $4.5 million, excluding the cost of the property. The Garlock property, combined with the Bunker and Leger properties, are intended to replace the de la Pointe property and fully utilize the Company’s power contracts totaling 96 MW in the municipality in accordance with the Company’s agreement with the City of Sherbrooke reached in September 2021.
Argentina Expansion
In April 2021, the Company entered into an eight-year power purchase agreement for up to 210 MW with a private Argentinian power producer. The agreement establishes that the power producer will supply the Company with power at a rate of $0.02 per kilowatt hour for the first four years, up to a maximum amount of 1,103,760 megawatt hours per year, and is subject to certain adjustments, variable pricing components and conditions. The pricing on the remaining four years of the eight year energy contract will be determined by a formula that is largely dependent on natural gas prices. The agreement also allows for the power producer to renegotiate the $0.02 per kilowatt hour rate if the ratio of the exchange rate under the blue-chip swap mechanism used in Argentina to the official exchange rate is less than 1.50. For further details on the Company’s power purchase agreement, refer to the Economic Dependence on Regulated Terms of Service and Electricity Rates Risks section of the MD&A for the year ended December 31, 2021 dated March 28, 2022. In July 2021, the Company entered into an eight-year lease agreement, comprising annual payments of approximately $0.1 million, with the power producer to lease land within the power producer’s property for the mining facility’s construction. In September 2021, the Company entered into a contract with Proyectos y Obras Americanas S.A. (“PROA”) to provide engineering, procurement, and construction services for the Argentina facility. PROA specializes in utility-grade electrical infrastructure and civil construction with relevant expertise in the design and construction of electrical interconnections, high voltage electrical lines, and transformers needed for operations of the size of the planned Argentina facility. The Company has also engaged Dreicon S.A. as an independent engineering firm to oversee construction, quality control and project milestones for the Company’s projected buildout schedule. As of June 30, 2022, the Company has placed deposits of $22.7 million and $14.1 million with suppliers for construction costs and for BVVE and electrical components, respectively. The Company has also acquired $19.7 million of PPE, incurred $0.3 million of expenditures relating to design and feasibility studies and recorded cumulative gains on disposition of marketable securities of $36.8 million associated with the conversion of funds into the Argentine Pesos for disbursements. The facility, if fully developed, is expected to comprise up to four separate warehouse-style buildings. The adverse impact of recent geopolitical events on natural gas prices is leading the Company to reassess the timing and scale of its build-out of this facility. The first warehouse, which is included in the capacity needed to reach the 6.0 EH/s figure, represents approximately 50 MW of incremental infrastructure capacity and is expected to be operational in October 2022. The second warehouse represents approximately 50 MW of infrastructure capacity is expected to be completed in Q1 2023. The cost of developing the first two warehouses is currently estimated to range from $55 million to $65 million, including the installation of high voltage lines and a substation, net of any expected gains on disposition of marketable securities in connection with the Company’s mechanism for funding the Argentina Expansion, as described above, and excluding importation costs. All four warehouses, if built, are expected to be able to accommodate over 55,000 new generation Miners, and be capable of producing approximately 5.5 EH/s. The Company plans to deploy a significant portion of its order of 48,000 MicroBT miners at this facility, with deliveries currently scheduled to arrive throughout 2022 and the first nine months of 2023. The Company’s commitments in connection with its order of 48,000 MicroBT Miners are outlined in the Commitments and Liquidity Risk section of this MD&A.
15
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Paraguay Expansion
During the year ended December 31, 2021, the Company entered into an annually renewable 10 MW power purchase agreement with Villarica’s electricity distribution company, Compañía Luz y Fuerza SA (“CLYFSA”), at a current effective electricity cost of $0.036 per kilowatt hour. The Company also entered into a five-year lease agreement with another counterparty, beginning August 1, 2021 with monthly payments of $20,000, to lease land at the existing facility. The construction of the facility cost $1.1 million, was completed in December 2021 and became operational in January 2022. Currently, the facility accommodates 2,900 of the Company’s older generation Miners and generates approximately 120 PH/s.
On July 18, 2022, the Paraguayan Congress approved a bill regulating the mining, trading, intermediation, exchange, transfer, custody and administration of crypto-assets and instruments that allow control of crypto-assets. The new legislation aims to create an attractive regulatory environment within the country through the establishment of a straightforward licensing regime that clearly establishes the requirements to operate crypto-assets activities in the Country. Approved by both chambers, the law has been submitted to the executive branch, where the President has the power to approve or veto it. Subject to receiving Presidential approval and becoming a law, and to the issuance of further regulations, the bill, as currently approved, includes, among other things:
| ● | Recognizing cryptocurrency mining as an innovative industrial activity. |
| ● | Creating a registry of operating miners. Miners will have to register to obtain a license for up to 5 years, which is renewable, and assigns to the country’s Ministry of Industry and Commerce the responsibility for administering the licensing regime. Crypto mining operations, exchanges, cryptocurrency projects, traders, and other businesses such as digital-asset custodial services will all be eligible to apply under the new licensing regime. |
| ● | Enabling crypto miners to utilize extra electricity produced in the country at a cost which cannot exceed 15% above the industrial rate. Furthermore, it determines how crypto miners should interact with local power suppliers, noting that prospective mining operations will be required to calculate and report their anticipated monthly energy consumption with the Administracion Nacional de Electricidad. |
| ● | Establishing VAT exemptions for transactions with crypto assets, although the reach of the term “transaction” should be analyzed in details to completely understand the exemption incorporated therein. |
Washington Expansion
On November 9, 2021, the Company completed the acquisition of a facility in Washington state consisting of 12 MW of hydro-electric power purchase agreements, an additional 12 MW of in-process applications for expanded power-purchase agreements, transformers with 17 MW of capacity, land, buildings, electrical distribution equipment and a below market lease for a 5 MW facility that expires on November 8, 2022. During the three months ended June 30, 2022, the Company added 3 MW of electrical infrastructure and is currently operating approximately 20 MW of electrical infrastructure with the majority of the Company’s Antminer S19j Pro Miners generating approximately 600 PH/s in this facility. The Company’s power supplier has provided a preliminary indication that the next 3 MW of in-process applications are estimated to be energized in Q3 2022 with the remaining 6 MW of in-process applications estimated to be energized in Q2 2024. The Company estimates incremental capital expenditures of $2.4 million in order to operationalize the next 3 MW. As at June 30, 2022, the Company had placed deposits for 3 MW of immersion cooling technology in the amount of $1.1 million. Upon closing of the transaction, the Company transferred approximately $23.0 million in cash and 414,508 Common shares with a value of $3.7 million on the closing date. The net identifiable assets acquired include electrical distribution equipment valued at $6.0 million, buildings valued at $0.7 million, land valued at $0.1 million and a favourable lease valued at $2.0 million. The acquisition resulted in the Company recording goodwill of $17.9 million which was determined as at June 30, 2022, to be fully impaired as a result of the decrease in the price of Bitcoin.
16
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Off-Balance Sheet Arrangements
As at August 15, 2022, 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 financial performance or financial condition of the Company including, without limitation, such considerations as liquidity and capital resources.
Share Capital
As of the date of this MD&A, the Company has 209,242,416 common shares outstanding, 10,454,786 vested and 7,389,447 unvested stock options, 19,452,797 warrants outstanding and 400,000 restricted stock units. There are no preferred shares outstanding.
At-The-Market Equity Program
Bitfarms commenced an at-the-market (ATM) equity program on August 16, 2021, by means of a prospectus supplement dated August 16, 2021, to the Company’s short form base shelf prospectus dated August 12, 2021, and U.S. registration statement on Form-F-10, which includes the base shelf prospectus. The Company may, at its discretion and from time-to-time, sell common shares of the Company as would result in the Company receiving aggregate proceeds of up to $500 million. During the year ended December 31, 2021, the Company issued 23,922,928 common shares in exchange for gross proceeds of $150.3 million at an average share price of approximately USD$6.28. The Company received net proceeds of $145.6 million after paying commissions of $4.5 million to the Company’s agent, in addition to $0.2 million of other transaction fees. During the three months ended June 30, 2022, the Company issued 4,657,718 common shares in exchange for gross proceeds of $10.0 million at an average share price of approximately USD$2.14. The Company received net proceeds of $9.6 million after paying commissions of $0.3 million to the Company’s agent, in addition to $0.1 million of other transaction fees.
During the six months ended June 30, 2022, the Company issued 11,478,427 common shares in exchange for gross proceeds of $37.2 million at an average share price of approximately USD$3.24. The Company received net proceeds of $35.9 million after paying commissions of $1.1 million to the Company’s agent, in addition to $0.1 million of other transaction fees. Since the ATM commenced, the Company has issued 35,401,355 common shares for net proceeds of $181.5 million as of June 30, 2022.
The Company has used and intends to continue to use the proceeds from the ATM equity program to prudently support the growth and development of the Company’s Mining operations, as described under the Expansions section of this MD&A, as well as for working capital and general corporate purposes. Described below are the actual uses of proceeds from the commencement of the ATM equity program through June 30, 2022:
| (U.S. $ in thousands except where indicated) | ||||
| Categories | Use of proceeds as of June 30, 2022 | |||
| MicroBT Miners | $ | 82,571 | ||
| Bitmain Miners | 24,057 | |||
| Washington Expansion | 25,885 | |||
| Sherbrooke Expansion | 17,612 | |||
| Argentina Expansion, net of gain on disposition of marketable securities | 27,701 | |||
| Cowansville Expansion | 573 | |||
| Paraguay Expansion | 3,114 | |||
| $ | 181,513 | |||
The Company intends to continue to explore expansion opportunities in new and existing facilities, subject to market conditions and the ability to continue to obtain suitable financing.
17
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Financial Instruments and Risks
The Company’s financial assets include cash, trade receivables, and other assets. The Company’s financial liabilities include trade payables and accrued liabilities, credit facility, and long-term debt.
The Company’s financial instruments expose it primarily to credit, counterparty, liquidity, foreign currency, concentration and custody of digital assets risks.
Credit Risk and Counter Party Risk
Credit risk and counter party risk is the risk of an unexpected loss if a third party fails to meet its contractual obligations, including cash and cash equivalents. There is a risk of suppliers of mining hardware failing to meet their contractual obligations which may result in late deliveries or significant long-term deposits and equipment prepayments that are not realized. The Company attempts to mitigate this risk by procuring mining hardware from larger more established suppliers with whom the Company has existing relationships and knowledge of their reputation in the market, as described in Note 8 of the second quarter 2022 unaudited interim period condensed consolidated financial statements. The Company also insures the majority of its construction deposits for the Argentina facility in order to mitigate the risk of supplier’s not meeting their contractual obligations. The risk regarding cash and cash equivalents is mitigated by holding the majority of the Company’s cash and cash equivalents through a Canadian chartered bank. The credit risk regarding trade receivables are derived mainly from sales to Volta’s third-party customers. The Company performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is based on management’s assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivable balances.
Commitments and Liquidity Risk
Liquidity risk is the risk that the Company will not be able to pay its financial obligations when they become due. The Company’s policy is to monitor its cash balances, Bitcoin holdings and planned cash flows generated from operations and financing activities to ensure, as far as possible, that it maintains sufficient liquidity to meet its projected financial obligations.
The Company has entered into agreements with Mining hardware manufacturers that require significant deposits in advance of receiving the revenue-generating equipment. The Company may manage its capital structure by issuing equity, obtaining loan financing, adjusting capital spending, or disposing of assets in order to maintain sufficient liquidity to meet its contractual obligations with Mining hardware manufacturers.
The Company has deposits on Mining hardware and electrical components in the amount of $75.3 million. These deposits are mainly for orders placed on 48,000 Whatsminer miners and 1,200 Antminers with expected delivery throughout 2022 and the first nine months of 2023. The table below outlines the Company’s remaining payment obligations in connection with the 48,000-unit and 1,200 Antminer purchase agreements described above, presented in thousands of U.S. dollars:
| June 30, | ||||
| 2022 | ||||
| Three months ending September 30, 2022 | $ | 18,590 | ||
| Three months ending March 31, 2023 | 13,447 | |||
| Three months ending June 30, 2023 | 13,313 | |||
| Three months ending September 30, 2023 | 12,128 | |||
| $ | 57,478 | |||
18
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
The Company may require additional sources of financing to meet the payment obligations included in the table above. If the Company were unable to obtain such financing, or if the Bitcoin price and network difficulty adversely impacted the Company’s liquidity, then the Company may have difficulty meeting its payment obligations. If the Company were unable to meet its payment obligations, there could result in the loss of equipment prepayments and deposits paid by the Company under the purchase agreements and remedial legal measures taken against the Company which may include damages and forced continuance of the contractual arrangement. Under these circumstances, the Company’s growth plans and ongoing operations could be adversely impacted.
The Company has observed high demand and supply constraints for Mining hardware in recent periods. In order to meet its growth objectives, the Company may enter into additional contracts for Mining hardware that may require significant additional deposits and fixed contractual payments. These contracts would be subject to risks that are similar to the Company’s existing contracts, mainly with respect to the Company’s liquidity and ability to meet its payment obligations as well as counterparty risks, including delays in delivery and deposits that may not be realized.
Lease liabilities include financial obligations with contractual maturities, inclusive of interest, presented in thousands of U.S. dollars as of June 30, 2022, as follows:
| June 30, | ||||
| 2022 | ||||
| 2022 | $ | 2,787 | ||
| 2023 | 2,904 | |||
| 2024 | 2,184 | |||
| 2025 | 2,062 | |||
| 2026 and thereafter | 9,660 | |||
| $ | 19,597 | |||
Long-term debt includes financial obligations with contractual maturities, inclusive of interest on long-term debt and the Company’s revolving credit facility, and assuming the credit facility is not rolled over at maturity (in contrast to current practice and management’s expectations), presented in thousands of U.S. dollars as of June 30, 2022, as follows:
| June 30, | ||||
| 2022 | ||||
| 2022 | $ | 64,867 | ||
| 2023 | 43,320 | |||
| 2024 | 6,802 | |||
| $ | 114,989 | |||
The Company’s credit facility, with an outstanding balance of $38.2 million as of June 30, 2022, is secured by Bitcoin, with the minimum value of Bitcoin pledged as collateral calculated as 143% of the amount borrowed. The Company is required to contribute additional collateral to the Lender any time the value of the Bitcoin pledged as collateral is below 133% of the amount borrowed. The Company also has the right to require the Lender to return Bitcoin when the value of the Bitcoin pledged as collateral exceeds 143% of the amount borrowed. A substantial decrease in Bitcoin price may result in the Company being unable to meet the minimum Bitcoin collateral requirements which could result in the disposition of the Company’s Bitcoin pledged as collateral by the Lender or repayment of the facility in fiat currency on demand.
19
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Foreign Currency Risk
The Company is exposed to fluctuations in currency exchange rates which could negatively affect its financial condition and results of operations. Exchange rate fluctuations may affect the costs that the Company incurs in its operations. Cryptocurrencies are generally sold in U.S. dollars and the Company’s costs with respect to its Canadian and Argentine operations are incurred principally in Canadian dollars and the Argentine Peso, respectively. The appreciation of non-U.S. dollar currencies against the U.S. dollar in the future could increase the cost of Mining and the Company’s expansion activities in U.S. dollar terms. In addition, the Company holds cash balances in U.S. dollars, Canadian dollars and Argentine Pesos, the values of which are impacted by fluctuations in currency exchange rates. In particular, the Company expects to hold cash and significant value-added taxes receivable in Argentine Pesos. Historically, the Argentina Peso has devalued significantly when compared to the U.S. dollar due to high levels of inflation in Argentina which may result in the Company incurring future foreign exchange losses on its Argentine Peso denominated balances. As described in the Argentina Expansion section of this MD&A, the power purchase agreements allow the power producer to renegotiate the $0.02 per kilowatt hour rate if the ratio of the exchange rate under the blue-chip swap mechanism used in Argentina to the official exchange rate is less than 1.50.
Concentration risk
Concentration risk arises as a result of the concentration of exposures within the same category, whether it is geographical location, product type, industry sector or counterparty type. The cryptocurrency mining industry is highly volatile with significant inherent risk. The Company also holds a significant portion of its working capital in Bitcoin and has a revolving credit facility collateralized by Bitcoin and subject to margin calls. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly negatively impact the Company’s operations and the carrying value of its assets. The Company does not currently hedge the conversion of cryptocurrencies to fiat currency.
Custody of digital assets
The Company’s Bitcoin is mined to multi-signature wallets that the Company controls. On a regular basis, the Company transfers Bitcoin from its multi-signature wallets to an external third-party custodian, Coinbase Custody, LLC (“Coinbase Custody”). Coinbase Custody is a US-based fiduciary and qualified custodian under New York Banking Law and is licensed by the State of New York to custody digital assets. Currently, Coinbase Custody provides only custodial services to the Company and does not use a sub-custodian. Coinbase Custody is not a related party to the Company. Coinbase Custody is a fiduciary of § 100 of the New York Banking Law and is licensed to custody its clients’ digital assets in trust on their behalf. Coinbase Custody is a qualified custodian for purposes of § 206 (4) -2(d)(6) of the Advisers Act.
In early January 2021, the Company implemented a Bitcoin asset management program with approval from the BOD to sell Bitcoin to manage liquidity levels as described in the Digital Asset Management Program section above, pursuant to which the Company has accumulated 2,002 Bitcoin, net of Bitcoin sales, valued at $48.1 million to its balance sheet as of August 12, 2022. As of the date of this MD&A, 99% of the Company’s Bitcoin are held in custody with Coinbase Custody or held as collateral within Coinbase Custody by NYDIG and Galaxy Digital LLC, the counterparties to the Company’s equipment financing and revolving credit facility, respectively.
20
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Coinbase Custody maintains an insurance policy of $320 million for its cold storage; however, the Company cannot ensure that the limits of this policy would be available to the Company or, if available, sufficient to make the Company whole for any Bitcoins that are lost or stolen. The Company is unaware of: (i) any security breaches involving Coinbase Custody which have resulted in the Company’s crypto assets being lost or stolen, and (ii) anything with regards to Coinbase Custody’s operations that would adversely affect the Company’s ability to obtain an unqualified audit opinion on its audited financial statements. The Company’s crypto assets held in custody with Coinbase may not be recoverable in the event of bankruptcy by Coinbase or its affiliates. In its quarterly filings published August 9, 2022, Coinbase disclosed that, in the event of a bankruptcy, custodially held crypto assets could be considered to be the property of the bankruptcy estate and that the crypto assets held in custody could be subject to bankruptcy proceedings with Coinbase Custody’s customers being treated as general unsecured creditors. Further, regardless of efforts made by the Company to securely store and safeguard assets, there can be no assurance that the Company’s cryptocurrency assets will not be defalcated through hacking or other forms of theft.
Risk Factors
The Company is subject to a number of risks and uncertainties and is affected by several factors which could have a material adverse effect on the Company’s business, financial condition, operating results, and/or future prospects. These risks should be considered when evaluating an investment in the Company and may, among other things, cause a decline in the price of the Corporation’s shares.
The risks and uncertainties which Management considers as the most material to the Corporation’s business are described in the section entitled Other Risks of the Company’s Management’s Discussion and Analysis for the year-ended December 31, 2021 dated March 28, 2022. Other than the disclosure above, these risks and uncertainties have not materially changed.
Related Party Transactions
During the three and six months ended June 30, 2022, the Company had the following transactions with related parties:
| 1. | Bitfarms made rent payments totaling approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2022, respectively (three and six months ended June 30, 2021: $0.1 million and $0.2 million, respectively), to companies controlled by certain directors. |
| 2. | Bitfarms entered into consulting agreements with two of the directors. The consulting fees charged by directors totaled approximately $0.2 million and $0.4 million for three and six months ended June 30, 2022, respectively (three and six months ended June 30, 2021: $0.1 million and $0.3 million, respectively). |
The transactions listed above were incurred in the normal course of operations.
21
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Recent and Subsequent Events
At-The-Market Equity Program
During the period from July 1, 2022, to August 15, 2022, the Company issued 2,903,096 common shares in exchange for gross proceeds of $4.2 million at an average share price of approximately USD$1.46. The Company received net proceeds of $4.1 million after paying commissions of $0.1 million to the Company’s agent.
Credit Facility
During the period from July 1, 2022, to August 12, 2022, the Company repaid $15.0 million of the Galaxy Digital credit facility, reducing the total amount drawn to $23.1 million, by liquidating 670 Bitcoin. As a result of the repayment and increase in Bitcoin price during the period, which allowed the Company to request the Facility Lender to return some of its Bitcoin pledged as collateral, the Company’s collateral Bitcoin decreased from 2,598 Bitcoin to 1,417 Bitcoin.
Disposition of Miners
During the period from July 1, 2022, to August 12, 2022, the Company received proceeds of $0.1 million for the remaining 108 Whatsminer M20s miners held for sale and shipped all 600 miners described in note 6b of the Company’s second quarter 2022 unaudited interim period condensed consolidated financial statements, resulting in a gain on disposition of $0.2 million. The Company sold an additional 240 Whatsminer M20s miners for proceeds of $0.2 million and 190 Bitmain S19 XP miners for proceeds of $1.2 million resulting in a gain (loss) on disposition of $0.1 million and $(1.0) million, respectively.
Significant Accounting Estimates
The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting,” as issued by the International Accounting Standards Board and are based on the same accounting policies as those used in the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2021.
Please refer to Note 2, Basis of presentation and significant accounting policies and Note 3, Significant accounting judgement and estimates, of the Company’s 2021 audited consolidated financial statements for more information about the significant accounting policies and the significant accounting judgments and estimates used to prepare the unaudited interim condensed consolidated financial statements, respectively.
22
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Caution Regarding Forward-Looking Statements
This MD&A contains forward-looking statements about the Company’s objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this MD&A include, but are not limited to, statements with respect to the Company’s anticipated future results, events and plans, strategic initiatives, future liquidity, and planned capital investments. Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may”, “maintain”, “achieve”, “grow”, “should” and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company’s current estimates, beliefs and assumptions, which are based on management’s perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company’s expectation of operating and financial performance is based on certain assumptions including assumptions about operational growth, anticipated cost savings, operating efficiencies, anticipated benefits from strategic initiatives, future liquidity, and planned capital investments. The Company’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements. Such risks and uncertainties include:
| ● | Bitcoin Halving event; |
| ● | COVID 19 pandemic; |
| ● | Counterparty risk; |
| ● | the availability of financing opportunities and risks associated with economic conditions, including Bitcoin price and Bitcoin network difficulty; |
| ● | the speculative and competitive nature of the technology sector; |
| ● | dependency in continued growth in blockchain and cryptocurrency usage; |
| ● | limited operating history and share price fluctuations; |
| ● | cybersecurity threats and hacking; |
| ● | controlling shareholder risk; |
| ● | risk related to technological obsolescence and difficulty in obtaining hardware; |
| ● | economic dependence on regulated terms of service and electricity rates; |
| ● | increases in commodity prices or reductions in the availability of such commodities could adversely impact our results of operations; |
| ● | permits and licenses; |
| ● | server failures; |
| ● | global financial conditions; |
| ● | tax consequences; |
| ● | environmental regulations and liability; |
| ● | erroneous transactions and human error; |
| ● | facility developments; |
| ● | non-availability of insurance; |
| ● | loss of key employees; |
| ● | lawsuits and other legal proceedings and challenges; |
23
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
| ● | conflict of interests with directors and management; |
| ● | political and regulatory risk; |
| ● | adoption of ESG practices and the impacts of climate change; |
| ● | third party supplier risks; and |
| ● | other factors beyond the Company’s control. |
The above is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. For a complete list of factors that could affect the Company, please refer to the risk factors contained in the section “Risk Factors” of the Annual Information Form of the Company dated March 28, 2022. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company’s expectations only as of the date of this MD&A. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Caution Regarding Non-IFRS Financial Performance Measures
This MD&A makes reference to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. The Company uses non-IFRS measures including “EBITDA,” “EBITDA margin,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Gross mining profit,” and “Gross mining margin” as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.
EBITDA and EBITDA margin are common measures used to assess profitability before the impact of different financing methods, income taxes, depreciation of capital assets and amortization of intangible assets. Adjusted EBITDA and Adjusted EBITDA margin are measures used to assess profitability before the impact of all of the items in calculating EBITDA in addition to certain other non-cash expenses. Gross mining profit and Gross mining margin are measures used to assess profitability after power costs in cryptocurrency production, the largest variable expense in Mining. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets.
“EBITDA” is defined as net income (loss) before: (i) interest expense; (ii) income tax expense; and (iii) depreciation and amortization. “EBITDA margin” is defined as the percentage obtained when dividing EBITDA by Revenues. “Adjusted EBITDA” is defined as EBITDA adjusted to exclude: (i) share-based compensation; (ii) non-cash finance expenses; (iii) asset impairment charges; (iv) realized and unrealized gains or losses on disposition and revaluation of digital assets and (v) other non-cash expenses. “Adjusted EBITDA margin” is defined as the percentage obtained when dividing Adjusted EBITDA by Revenues. “Gross mining profit” is defined as Gross Profit before: (i) non-mining revenues; (ii) depreciation and amortization; (iii) purchase of electrical components and other expenses; and (iv) electrician salaries and payroll taxes. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Mining related revenues.
These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. Reconciliations from IFRS measures to non-IFRS measures are included throughout this MD&A.
Internal Controls
Changes in internal control over financial reporting
There have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting during the quarter ended June 30, 2022.
Additional Information
Additional information and other publicly filed documents relating to the Company are available through the internet on SEDAR at www.sedar.com.
24
| Bitfarms Ltd. Management’s Discussion and Analysis For the three and six months ended June 30, 2022 | |
Glossary of Terms
ASIC: ASIC stands for Application Specific Integrated Circuit and refers primarily to specific computer devices designed to solve the SHA-256 algorithm, as well as other machines used in the Mining of Litecoin which use the Scrypt algorithm.
Bitcoin: Bitcoin is a decentralized digital currency that is not controlled by any centralized authority (e.g. a government, financial institution or regulatory organization) that can be sent from user to user on the Bitcoin network without the need for intermediaries to clear transactions. Transactions are verified through the process of Mining and recorded in a public ledger known as the Blockchain. Bitcoin is created when the Bitcoin network issues Block Rewards through the Mining process.
Block Reward: A Bitcoin block reward refers to the new bitcoin that are awarded by the Blockchain network to eligible cryptocurrency miners for each block they successfully mine. The current block reward is 6.25 Bitcoin per block.
Blockchain: A Blockchain is a cloud-based public ledger that exists on computers that participate on the network globally. The Blockchain grows as new sets of data, or ‘blocks’, are added to it through Mining. Each block contains a timestamp and a link to the previous block, such that the series of blocks form a continuous chain. Given that each block has a separate hash and each hash requires information from the previous block, altering information an established block would require recalculating all the hashes on the Blockchain which would require an enormous and impracticable amount of computing power. As a result, once a block is added to the Blockchain it is very difficult to edit and impossible to delete.
Exahash: One quintillion (1,000,000,000,000,000,000) hashes per second or one million Terahash
Hash: A hash is a function that converts or maps an input of letters and numbers into an encrypted output of a fixed length, which outputs are often referred to as hashes. A hash is created using an algorithm. The algorithm used in the validation of Bitcoin transactions is the SHA-256 algorithm.
Hashrate: Hashrate refers to the number of hash operations performed per second and is a measure of computing power in Mining cryptocurrency.
Megawatt: A megawatt is 1,000 kilowatts of electricity and, in the industry of cryptocurrency Mining, is typically a reference to the number of megawatts of electricity per hour that is available for use.
Miners: ASICs used by the Company to perform Mining.
Mining: Mining refers to the process of using specialized computer hardware, and in the case of the Company, ASICs, to perform mathematical calculations to confirm transactions and increase security for the Bitcoin Blockchain. As a reward for their services, Bitcoin Miners collect transaction fees for the transactions they confirm, along with newly created Bitcoin as Block Rewards.
Mining Pool: A Mining pool is a group of cryptocurrency miners who pool their computational resources, or Hashrate, in order to increase the probability of finding a block on the Bitcoin Blockchain. Mining pools administer regular payouts to mitigate the risk of Miners operating for a prolonged period of time without finding a block.
Network Difficulty: Network difficulty is a unitless measure of how difficult it is to find a hash below a given target. The Bitcoin network protocol automatically adjusts Network Difficulty by changing the target every 2,016 blocks hashed based on the time it took for the total computing power used in Bitcoin Mining to solve the previous 2,016 blocks such that the average time to solve each block is ten minutes.
Network Hashrate: Network Hashrate refers to the total global Hashrate (and related computing power) used in Mining for a given cryptocurrency.
Petahash: One quadrillion (1,000,000,000,000,000) hashes per second or one thousand Terahash
SHA-256: SHA stands for Secure Hash Algorithm. The SHA-256 algorithm was designed by the US National Security Agency and is the cryptographic hash function used within the Bitcoin network to validate transactions on the Bitcoin Blockchain
Terahash: One trillion (1,000,000,000,000) hashes per second.
25
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Emiliano Grodzki, Chief Executive Officer of Bitfarms Ltd., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Bitfarms Ltd. (the “issuer”) for the interim period ended June 30, 2022. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings: |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that: |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
| 5.2 | ICFR - material weakness relating to design: N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2022 and ended on June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: August 15, 2022
| (signed) “Emiliano Grodzki” | |
| Emiliano Grodzki | |
| Chief Executive Officer |
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Jeffrey Lucas, Chief Financial Officer of Bitfarms Ltd., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Bitfarms Ltd. (the “issuer”) for the interim period ended June 30, 2022. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings: |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that: |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
| 5.2 | ICFR - material weakness relating to design: N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2022 and ended on June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: August 15, 2022
| (signed) “Jeffrey Lucas” | |
| Jeffrey Lucas | |
| Chief Financial Officer |
Exhibit 99.5
Bitfarms Reports Second Quarter 2022 Results
- Generated positive cash flow from mining operations -
- Mined 1,257 BTC in Q2 2022 and 500 BTC in July 2022 -
- Increased capacity and production with new locations in Quebec -
- Continued build out in Argentina and on track to start production in Q4 2022 -
| This news release constitutes a “designated news release” for the purposes of the Company’s prospectus supplement dated August 16, 2021 to its short form base shelf prospectus dated August 12, 2021. |
Toronto, Ontario and Brossard, Québec (August 15, 2022) - Bitfarms Ltd. (NASDAQ: BITF // TSX: BITF), a global Bitcoin self-mining company, reported its financial results for the second quarter ended June 30, 2022. All financial references are in U.S. dollars. During second quarter 2022, Bitfarms mined 1,257 bitcoin (BTC).
“In second quarter 2022, we generated positive cash flow from our operations with Adjusted EBITDA of $19 million, even with the downturn in the BTC price. Entering the second half of 2022, we are focused on executing our growth and maximizing our profitability,” said Geoff Morphy, Bitfarms’ President and COO.
“Delivering strong operational growth, we increased our corporate hashrate by 33% from the beginning of the quarter and by 157% from a year ago to 3.6 exahash per second (EH/s) at June 30, 2022. Having brought online phase 2 of The Bunker buildout, we added further gains in our market share, which is now approaching 2% of the BTC network, a Bitfarms’ record.
“This has resulted in robust production of over 17 BTC/day at July 31, 2022. Productivity, as measured by BTC per average EH/s, reached 135 in July, among the best in the industry. For our existing production, we continue to benefit from low-cost hydropower, sophisticated proprietary mining management software, and in-house repair capabilities, which together maximize miner uptime. Overall, we are building on this strong foundation for long-term success and expanding our existing geographically diversified operations.
“By bringing online our first warehouse in Argentina and phase 3 of The Bunker buildout, we are targeting 4.2 EH/s and 6.0 EH/s by the end of third quarter and year-end 2022, respectively,” added Morphy.
Financial Results for the Quarter ended June 30, 2022
Financial results in the second quarter of 2022 were significantly impacted by the decline in the market price of BTC during the quarter.
For Q2 2022:
| ● | Total revenue increased to $42 million, up $5 million, or 14%, from Q2 2021 and up 4% from Q1 2022. | |
| ● | Gross mining profit* and gross mining margin* were $27 million and 66%, respectively, compared to $28 million and 79% in Q2 2021, respectively. | |
| ● | Operating loss was $173 million, including a $78 million realized loss on disposition of digital assets, a $70 million unrealized loss on revaluation of digital assets, and an $18 million impairment on goodwill, compared to an operating loss of $2 million in Q2 2021, which included an unrealized loss of $15 million on revaluation of digital assets. | |
| ● | Net loss was $142 million, or ($0.70) per basic and diluted share, compared to a net loss of $4 million and a comprehensive loss of $9 million, or $(0.02) per basic and diluted share, in Q2 2021. | |
| ● | Adjusted EBITDA* was $19 million, or 45% of revenue, compared to $24 million, or 65% of revenue, in Q2 2021 and $21 million, or 53% of revenue, in Q1 2022. | |
| ● | The Company mined 1,257 BTC at an average direct cost of production per BTC** of $9,900, compared to $9,000 in Q2 2021 and $8,700 in Q1 2022. |
Liquidity
“By deleveraging our balance sheet and increasing financial flexibility, we are better positioned to execute our growth initiatives to drive market share gains and increased production,” said Jeff Lucas, CFO of Bitfarms. “As careful stewards of capital, to better align with our capacity expansion, we amended our miner delivery schedule to match our deployment plan. Thus, we optimized resources, deferring $39 million in capex spending from the fourth quarter of 2022 into 2023.”
At June 30, 2022, the Company held $46 million in cash and 3,144 BTC valued at approximately $62 million based upon the June 30, 2022 BTC price of approximately $19,800.
During the second quarter of 2022, Bitfarms completed the following financing activities:
| ● | Sold 3,357 BTC for aggregate proceeds of $69 million. | |
| ● | Closed a $37 million new equipment financing agreement. | |
| ● | Paid down $62 million of the BTC-backed loan facility reducing it to $38 million, lowering interest expense by $7 million on an annualized basis and freeing up $27 million of BTC that was collateralizing the facility. | |
| ● | Amended the BTC-backed loan, reducing the maximum from $100 million to $40 million, while extending the maturity by three months to October 1, 2022. | |
| ● | Raised $9.6 million of net proceeds through the at-the-market equity program. |
Subsequent to quarter end, Bitfarms:
| ● | Adjusted the delivery and payment schedule, without penalty, of certain mining equipment until 2023 to better align their availability with scheduled infrastructure completion. | |
| ● | Paid down another $15 million of the BTC-backed loan facility, reducing the balance to $23 million as of July 31, 2022, and freeing up an additional $6 million of BTC. | |
| ● | Raised $4.1 million of net proceeds through the at-the-market equity program. |
Recent Operating Highlights
| ● | Received and installed over 10,300 miners in Q2 2022, adding more than 900 PH/s to Bitfarms’ online hashrate. | |
| ● | Surpassed 3.9 EH/s corporate hashrate in the beginning of August. | |
| ● | Exceeded 17 BTC/day in daily production at July 31, 2022. | |
| ● | Increased total electrical capacity by 29 MW to 166 MW subsequent to quarter-end, up 21% from June 30, 2022. |
| o | Phase 2 of The Bunker added 18 MW. | |
| o | Leger full production added 8 MW. | |
| o | Washington state new production contributed 3 MW. |
| ● | Continued construction on two 50 MW warehouses in Rio Cuarto, Argentina. The framing and exterior of the first building, the foundational supports for the transformers, and the high voltage electrical supply lines are nearing completion. | |
| ● | Finished demolition and reconstruction preparation at Garlock, the newest site in City of Sherbrooke, Québec. All equipment, including transformers and acoustic louvers, have been ordered. | |
| ● | Initiated production of 16 MW at Leger site in City of Sherbrooke, Québec during Q2 2022. Leger recently reached its full productive capacity of 30 MW. |
2
2022 Expansion Plan Update
Bitfarms’ infrastructure construction contracts are projected to provide
| ● | 4.2 EH/s as of September 30, 2022 and |
| ● | 6.0 EH/s as of December 31, 2022. |
The Company already has 1.2 EH/s of miners contracted for 2023 for its Argentinian warehouses.
Average Direct Cost of Production per BTC**
(rounded to nearest $100)
| Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | ||||
| $ 9,900 | $ 8,700 | $ 8,000 | $ 6,900 | $ 9,000 |
Bitfarms’ average direct cost of production** in Q2 2022 was $9,900, among the lowest reported in the industry, reflecting an increase in BTC network difficulty of 12% and an accrual for prospective Canadian tax legislation, which were partially offset by improvements in operating efficiency.
Conference Call
Management will host a conference call and live webcast with an accompanying presentation today, Monday, August 15, at 11 a.m. ET to review the financial results and quarterly activity. Following management’s formal remarks there will be a live question-and-answer session, which may include pre-submitted questions. Participants are asked to pre-register for the call through the following link:
Q2 2022 Conference Call
Please note that registered participants will receive their dial in number upon registration and will dial directly into the call without delay. Those without internet access or unable to pre-register may dial in by calling: 1-866-777-2509 (domestic), 1-412-317-5413 (international). All callers should dial in approximately 10 minutes prior to the scheduled start time and ask to be joined into the Bitfarms call.
The conference call will also be available
through a live webcast found here:
Live Webcast
A webcast replay of the call will be available approximately one hour after the end of the call and will be available for one year, at the above webcast link. A telephonic replay of the call will be available through August 22, 2022 and may be accessed by calling 1-877-344-7529 (domestic) or 1-412-317-0088 (international) or Canada (toll free) 855-669-9658 and using access code 1966568. A presentation of the Q2 2022 results will be accessible on Monday, August 22, 2022, under the “Investors” section of Bitfarms’ website.
| * | Gross mining profit, Gross mining margin, EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-IFRS financial measures and should be read in conjunction with, and should not be viewed as alternatives to or replacements of, measures of operating results and liquidity presented in accordance with IFRS and refer readers to reconciliations of Non-IFRS measures included in the Company’s MD&A. |
| ** | Represents the direct cost of Bitcoin based on the total electricity costs and hosting costs related to the mining of Bitcoin, excluding electricity consumed by hosting clients, divided by the total number of Bitcoin mined. |
3
About Bitfarms Ltd.
Founded in 2017, Bitfarms is a global Bitcoin self-mining company, running vertically integrated mining operations with onsite technical repair, proprietary data analytics and company-owned electrical engineering and installation services to deliver high operational performance and uptime.
Having demonstrated rapid growth and stellar operations, Bitfarms became the first Bitcoin mining company to complete its long form prospectus with the Ontario Securities Commission and started trading on the TSX-V in July 2019. On February 24, 2021, Bitfarms was honoured to be announced as a Rising Star by the TSX-V. On June 21, 2021, Bitfarms started trading on the Nasdaq Stock Market. On February 24, 2022, the Company was further honoured by the TSX-V as Venture 50 Winner, placing first in the Technology sector. On April 8, 2022, Bitfarms up-listed from the TSX-V to the TSX.
Operationally, Bitfarms has a diversified production platform with seven industrial scale facilities located in Québec, one in Washington state, and one in Paraguay. Each facility is over 99% powered with environmentally friendly hydro power and secured with long-term power contracts. Bitfarms is currently the only publicly traded pure-play mining company audited by a Big Four accounting firm.
To learn more about Bitfarms’ events, developments, and online communities:
Website: www.bitfarms.com
https://www.facebook.com/bitfarms/
https://twitter.com/Bitfarms_io
https://www.instagram.com/bitfarms/
https://www.linkedin.com/company/bitfarms/
Cautionary Statement
Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the Toronto Stock Exchange, Nasdaq, or any other securities exchange or regulatory authority accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This news release contains certain “forward-looking information” and “forward-looking statements” (collectively, “forward-looking information”) that are based on expectations, estimates and projections as at the date of this news release and are covered by safe harbors under Canadian and United States securities laws. The statements and information in this release under the heading “2022 Expansion Plan Update” and otherwise regarding expansion plans, including targets and goals for productive capacity and hashrates, and about other future plans and objectives of the Company are forward-looking information. Other forward-looking information includes, but is not limited to, information concerning: the intentions, plans and future actions of the Company, as well as Bitfarms’ ability to successfully mine digital currency, revenue increasing as currently anticipated, the ability to profitably liquidate current and future digital currency inventory, volatility of network difficulty and digital currency prices and the potential resulting significant negative impact on the Company’s operations, the construction and operation of expanded blockchain infrastructure as currently planned, and the regulatory environment for cryptocurrency in the applicable jurisdictions.
Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.
4
This forward-looking information is based on assumptions and estimates of management of the Company at the time they were made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, risks relating to: the global economic climate; dilution; the Company’s limited operating history; future capital needs and uncertainty of additional financing, including the Company’s ability to utilize the Company’s at-the-market offering (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; and volatile securities markets impacting security pricing unrelated to operating performance. In addition, particular factors that could impact future results of the business of Bitfarms include, but are not limited to: 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 hydroelectricity 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 Bitfarms from operating its business; historical prices of digital currencies and the ability to mine digital currencies that will be consistent with historical prices; an inability to predict and counteract the effects of COVID-19 on the business of the Company, including but not limited to the effects of COVID-19 on the price of digital currencies, capital market conditions, restriction on labour and international travel and supply chains; and, the adoption or expansion of any regulation or law that will prevent Bitfarms from operating its business, or make it more costly to do so. For further information concerning these and other risks and uncertainties, refer to the Company’s filings on www.SEDAR.com (which are also available on the website of the U.S. Securities and Exchange Commission at www.sec.gov), including the annual information form for the year-ended December 31, 2021, filed on March 28, 2022. The Company has also assumed that no significant events occur outside of Bitfarms’ normal course of business. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those expressed in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on any forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.
Contacts
Investor Relations:
LHA Investor Relations
David Barnard
+1 415-433-3777
Investors@bitfarms.com
Media:
Actual Agency
Matt Weaver
+1 339-234-3332
mediarelations@bitfarms.com
Ryan Affaires publiques
Valérie Pomerleau, Public Affairs and Communications
valerie@ryanap.com
5
Bitfarms Ltd. Consolidated Results of Operations
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 41,815 | 36,687 | 5,128 | 14 | % | 82,144 | 65,119 | 17,025 | 26 | % | ||||||||||||||||||||||
| Cost of sales | 32,311 | 13,332 | 18,979 | 142 | % | 55,603 | 22,452 | 33,151 | 148 | % | ||||||||||||||||||||||
| Gross profit | 9,504 | 23,355 | (13,851 | ) | (59 | )% | 26,541 | 42,667 | (16,126 | ) | (38 | )% | ||||||||||||||||||||
| Gross margin | 23 | % | 64 | % | — | — | 32 | % | 66 | % | — | — | ||||||||||||||||||||
| General and administrative expenses | 15,392 | 10,607 | 4,785 | 45 | % | 29,235 | 13,426 | 15,809 | 118 | % | ||||||||||||||||||||||
| Realized loss (gain) on disposition of digital assets | 77,880 | (47 | ) | 77,927 | nm | 77,914 | (25 | ) | 77,939 | nm | ||||||||||||||||||||||
| Unrealized loss on revaluation of digital assets | 70,475 | 14,885 | 55,590 | 373 | % | 66,773 | 14,885 | 51,888 | 349 | % | ||||||||||||||||||||||
| Loss (gain) on disposition of property, plant and equipment | 948 | (146 | ) | 1,094 | 749 | % | 936 | (165 | ) | 1,101 | 667 | % | ||||||||||||||||||||
| Impairment on goodwill | 17,900 | — | 17,900 | 100 | % | 17,900 | — | 17,900 | 100 | % | ||||||||||||||||||||||
| Operating income (loss) | (173,091 | ) | (1,944 | ) | (171,147 | ) | nm | (166,217 | ) | 14,546 | (180,763 | ) | nm | |||||||||||||||||||
| Operating margin | (414 | )% | (5 | )% | — | — | (202 | )% | 22 | % | — | — | ||||||||||||||||||||
| Net financial expenses (income) | (11,857 | ) | 1,127 | (12,984 | ) | nm | (15,940 | ) | 24,552 | (40,492 | ) | (165 | )% | |||||||||||||||||||
| Net loss before income taxes | (161,234 | ) | (3,071 | ) | (158,163 | ) | nm | (150,277 | ) | (10,006 | ) | (140,271 | ) | nm | ||||||||||||||||||
| Income tax expense (recovery) | (19,316 | ) | 604 | (19,920 | ) | nm | (12,878 | ) | 1,274 | (14,152 | ) | nm | ||||||||||||||||||||
| Net loss | (141,918 | ) | (3,675 | ) | (138,243 | ) | nm | (137,399 | ) | (11,280 | ) | (126,119 | ) | nm | ||||||||||||||||||
| Basic and diluted net loss per share (in U.S. dollars) | (0.70 | ) | (0.02 | ) | — | — | (0.69 | ) | (0.08 | ) | — | — | ||||||||||||||||||||
| Revaluation loss on digital assets, net of tax | — | (5,128 | ) | 5,128 | 100 | % | — | — | — | —% | ||||||||||||||||||||||
| Total comprehensive loss, net of tax | (141,918 | ) | (8,803 | ) | (133,115 | ) | nm | (137,399 | ) | (11,280 | ) | (126,119 | ) | nm | ||||||||||||||||||
| Gross mining profit (1) | 27,160 | 28,064 | (904 | ) | (3 | )% | 57,300 | 50,334 | 6,966 | 14 | % | |||||||||||||||||||||
| Gross mining margin (1) | 66 | % | 79 | % | — | — | 71 | % | 80 | % | — | — | ||||||||||||||||||||
| EBITDA (1) | (138,831 | ) | 2,746 | (141,577 | ) | nm | (111,798 | ) | (283 | ) | (111,515 | ) | nm | |||||||||||||||||||
| EBITDA margin (1) | (332 | )% | 7 | % | — | — | (136 | )% | — | % | — | — | ||||||||||||||||||||
| Adjusted EBITDA (1) | 18,685 | 23,780 | (5,095 | ) | (21 | )% | 40,125 | 43,503 | (3,378 | ) | (8 | )% | ||||||||||||||||||||
| Adjusted EBITDA margin (1) | 45 | % | 65 | % | — | — | 49 | % | 67 | % | — | — | ||||||||||||||||||||
nm: not meaningful
| (1) | Gross mining profit, Gross mining margin, EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin, are non-IFRS performance measures; refer to the Non-IFRS Financial Performance Measures section of this MD&A. |
6
Bitfarms Ltd. Reconciliation of Consolidated Net Income (loss) to EBITDA and Adjusted EBITDA
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Net loss before income taxes | (161,234 | ) | (3,071 | ) | (158,163 | ) | nm | (150,277 | ) | (10,006 | ) | (140,271 | ) | nm | ||||||||||||||||||
| Interest expense | 4,546 | 897 | 3,649 | 407 | % | 7,556 | 1,795 | 5,761 | 321 | % | ||||||||||||||||||||||
| Depreciation and amortization expense | 17,857 | 4,920 | 12,937 | 263 | % | 30,923 | 7,928 | 22,995 | 290 | % | ||||||||||||||||||||||
| EBITDA | (138,831 | ) | 2,746 | (141,577 | ) | nm | (111,798 | ) | (283 | ) | (111,515 | ) | nm | |||||||||||||||||||
| Share-based payment | 7,927 | 6,342 | 1,585 | 25 | % | 14,032 | 6,762 | 7,270 | 108 | % | ||||||||||||||||||||||
| Realized loss (gain) on disposition of digital assets | 77,880 | (47 | ) | 77,927 | nm | 77,914 | (25 | ) | 77,939 | nm | ||||||||||||||||||||||
| Unrealized loss on revaluation of digital assets | 70,475 | 14,885 | 55,590 | 373 | % | 66,773 | 14,885 | 51,888 | 349 | % | ||||||||||||||||||||||
| Impairment on goodwill | 17,900 | — | 17,900 | 100 | % | 17,900 | — | 17,900 | 100 | % | ||||||||||||||||||||||
| Net financial expenses (income) and other | (16,666 | ) | (146 | ) | (16,520 | ) | nm | (24,696 | ) | 22,164 | (46,860 | ) | (211 | )% | ||||||||||||||||||
| Adjusted EBITDA | 18,685 | 23,780 | (5,095 | ) | (21 | )% | 40,125 | 43,503 | (3,378 | ) | (8 | )% | ||||||||||||||||||||
nm: not meaningful
Bitfarms Ltd. Calculation of Gross Mining Profit and Gross Mining Margin
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Gross profit | 9,504 | 23,355 | (13,851 | ) | (59 | )% | 26,541 | 42,667 | (16,126 | ) | (38 | )% | ||||||||||||||||||||
| Non-mining revenues (1) | (767 | ) | (1,208 | ) | 441 | (37 | )% | (1,371 | ) | (1,904 | ) | 533 | (28 | )% | ||||||||||||||||||
| Depreciation and amortization expense | 17,857 | 4,920 | 12,937 | 263 | % | 30,923 | 7,928 | 22,995 | 290 | % | ||||||||||||||||||||||
| Purchases of electrical components and other | 260 | 542 | (282 | ) | (52 | )% | 572 | 801 | (229 | ) | (29 | )% | ||||||||||||||||||||
| Electrician salaries and payroll taxes | 306 | 455 | (149 | ) | (33 | )% | 635 | 842 | (207 | ) | (25 | )% | ||||||||||||||||||||
| Gross mining profit (2) | 27,160 | 28,064 | (904 | ) | (3 | )% | 57,300 | 50,334 | 6,966 | 14 | % | |||||||||||||||||||||
| Gross mining margin | 66 | % | 79 | % | — | — | 71 | % | 80 | % | — | — | ||||||||||||||||||||
| (1) | Non-mining revenues reconciliation: |
| (U.S.$ in thousands except where indicated) | Three months ended | Six months ended | ||||||||||||||||||||||||||||||
| For the periods ended as indicated | June 30, 2022 | June 30, 2021 | $ Change | % Change | June 30, 2022 | June 30, 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Revenues | 41,815 | 36,687 | 5,128 | 14 | % | 82,144 | 65,119 | 17,025 | 26 | % | ||||||||||||||||||||||
| Less mining related revenues for the purpose of calculating gross mining margin: | ||||||||||||||||||||||||||||||||
| Mining revenues | (41,048 | ) | (35,352 | ) | (5,696 | ) | 16 | % | (80,773 | ) | (62,542 | ) | (18,231 | ) | 29 | % | ||||||||||||||||
| Hosting revenues | — | (127 | ) | 127 | 100 | % | — | (673 | ) | 673 | 100 | % | ||||||||||||||||||||
| Non-mining revenues | 767 | 1,208 | (441 | ) | (37 | )% | 1,371 | 1,904 | (533 | ) | (28 | )% | ||||||||||||||||||||
| (2) | “Gross mining profit” is defined as Gross profit excluding depreciation and amortization and other minor items included in cost of sales that do not directly relate to mining related activities. “Gross mining margin” is defined as the percentage obtained when dividing Gross mining profit by Revenues from mining related activities. |
7