EX-99.149 14 ea149386ex99-149_digihost.htm INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED)

Exhibit 99.149

 

 

DIGIHOST TECHNOLOGY INC.

 

CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

 

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2021 AND 2020

 

(EXPRESSED IN UNITED STATES DOLLARS)

(UNAUDITED) 

 

 

Notice to Reader

 

The accompanying unaudited condensed interim consolidated financial statements of Digihost Technology Inc. (the “Company”) have been prepared by and are the responsibility of management. The unaudited condensed interim consolidated financial statements have not been reviewed by the Company’s auditors.

 

 

 

 

 

Digihost Technology Inc.

Condensed Interim Consolidated Statements of Financial Position

(Expressed in United States Dollars) (Unaudited)

 

 

  

As at
June 30,
2021

  

As at
December 31,
2020

 
ASSETS        
         
Current assets        

Cash

  $20,346,743   $31,250 
Digital currencies (note 5)   13,734,589    4,508,042 
Amounts receivable and prepaid expenses (note 4)   233,726    12,622 
Loan receivable (notes 6 and 16)   141,552    141,552 
           
Total current assets   34,456,610    4,693,466 
           
Property, plant and equipment (note 7)   28,729,154    6,497,634 
Right of use assets (note 10)   2,314,574    2,413,720 
Intangible asset (note 9)   1,507,879    1,572,500 
Goodwill (notes 3 and 8)   1,377,767    1,342,281 
Total assets  $68,385,984   $16,519,601 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities          

Accounts payable and accrued liabilities

  $1,663,544   $920,914 
Lease liabilities (note 11)   118,862    111,672 
Loans payable (note 12)   41,495    2,010,172 
Deposit payable   511,000    - 
Total current liabilities   2,334,901    3,042,758 
Lease liabilities (note 11)   2,371,959    2,434,488 
Loans payable (note 12)   -    532,911 
Deferred tax liability   65,638    65,638 
Total liabilities   4,772,498    6,075,795 
           
Shareholders’ equity          

Share capital (note 13)

   54,960,043    12,541,038 
Contributed surplus   13,119,025    1,267,551 
Cumulative translation adjustment   926,110    118,162 
Digital currency revaluation reserve   342,234    1,982,501 
Deficit   (5,733,926)   (5,465,446)
Total shareholders’ equity   63,613,486    10,443,806 
Total liabilities and shareholders’ equity  $68,385,984   $16,519,601 

 

Nature of operations (note 1)

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

- 1 -

 

 

 

Digihost Technology Inc.

Condensed Interim Consolidated Statements of Comprehensive Loss

(Expressed in United States Dollars) (Unaudited) 

 

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2020   2021   2020 
                 
Revenue from digital currency mining (note 5)  $5,112,553   $1,089,877   $9,879,628   $1,928,187 
Cost of digital currency mining                    
Operating and maintenance costs   (1,803,223)   (1,023,457)   (3,352,367)   (1,609,793)
Depreciation and amortization   (361,628)   (1,089,870)   (1,471,424)   (1,453,160)
Gross profit (loss)   2,947,702    (1,023,450)   5,055,837    (1,134,766)
                     
Expenses                    
Office and administrative expenses   (919,716)   23,010    (997,560)   (116)
Professional fees   (539,899)   (36,583)   (821,493)   (238,542)
Regulatory fees   (37,326)   (2,732)   (117,330)   (51,771)
Gain on sale of property, plant and equipment   939,516    -    939,516    - 
Loss on settlement of debt   (4,188)   -    (279,070)   - 
Gain on sale of digital currency (note 5)   -    (13,432)   -    15,158 
Other income   -    44,068    -    44,068 
Insurance proceeds   -    109,900    -    109,900 
Share based compensation (note 15)   (2,605,764)   (603,261)   (3,771,306)   (908,206)
Operating (loss) income   (219,675)   (1,502,480)   8,594    (2,164,275)
Net financial expenses (note 17)   (59,174)   (21,280)   (214,486)   (28,731)
Net loss for the period   (278,849)   (1,523,760)   (205,892)   (2,193,006)
                     

Other comprehensive income (loss)

                    
Items that will be reclassified to net income Foreign currency translation adjustment   806,492    -    807,948    - 
Items that will not be reclassified to net income
Revaluation of digital currency		   (7,476,828)   228,894    (1,640,267)   91,880 
Total comprehensive loss for the period  $(6,949,185)  $(1,294,866)  $(1,038,211)  $(2,101,126)
Basic and diluted loss per share  $(0.00)  $(0.04)  $(0.00)  $(0.07)

Weighted average number of subordinate voting shares outstanding - basic and diluted

   66,484,618    40,073,661    55,460,431    30,165,338 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

- 2 -

 

 

 

Digihost Technology Inc.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in United States Dollars) (Unaudited) 

 

 

   Six Months Ended
June 30,		 
   2021   2020 
Operating activities    
Net loss for the period  $(205,892)  $(2,193,006)
Adjustments for:          
Digital currency sold   -    705,166 
Gain on sale of digital currency   -    (15,158)
Digital currency mined   (9,879,628)   (1,928,187)
Digital currency received   (47,670)   - 
Gain on sale of property, plant and equipment   (939,516)   - 
Depreciation of right-of-use assets   99,146    - 
Depreciation and amortization   1,372,278    1,453,160 
Interest on lease liabilities   118,352    28,731 
Share based compensation   3,771,306    908,206 
Loss on settlement of debt   279,070    - 
Foreign exchange loss   798,446    - 
Non-cash working capital items:          
Prepaid expenses   (221,104)   (848,251)
Amounts receivable   -    (161,899)
Accounts payable and accrued liabilities   742,630    (5,252)
Deposit payable   511,000    - 
Net cash used in operating activities   (3,601,582)   (2,056,490)
           
Investing activities          
Purchase of property, plant and equipment   (23,539,177)   - 
Net funds for loan receivable   -    1,002,506 
Net cash (used in) provided by investing activities   (23,539,177)   1,002,506 
           
Financing activities          
Proceeds from private placement, net of costs   50,265,763    (39,355)
Repurchase of shares   (134,233)   - 
Loans payable   1,473,495    - 
Repayment of loan payable   (3,975,083)   - 
Lease payments   (173,690)   (115,416)
Net cash provided by (used in) financing activities   47,456,252    (154,771)
Net change in cash   20,315,493    (1,208,755)
Cash, beginning of period   31,250    1,303,937 
Cash, end of period  $20,346,743   $95,182 
           
Supplemental information          
Interest paid  $117,697   $- 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

- 3 -

 

 

 

Digihost Technology Inc.

Condensed Interim Consolidated Statement of Changes in Shareholders’ Equity

(Expressed in United States Dollars) (Unaudited)

 

 

   Number of shares           Cumulative Digital
currency		         
   Subordinate   Proportionate   Share   Contributed   Translation   revaluation         
   voting shares   voting shares   Capital   Surplus   Adjustment   Reserve   Deficit   Total 
Balance, December 31, 2019   6,530,560    -   $20   $-   $-   $-   $(274,733)  $(274,713)
Issuance of Old Digihost shares for transfer of lease and property and equipment and intangibles (notes 7, 9, 10 and 11)   -    -    4,264,000    -    -    -    -    4,264,000 
Cancellation of founder shares (note 13(b)(ii))   -    -    (20)   -    -    -    -    (20)
Shares issued pursuant to reverse takeover transaction (note 3)   29,820,000    -    5,914,916    -    -    -    -    5,914,916 
Private placement (note 13(b)(i))   5,592,487    -    4,021,033    -    -    -    -    4,021,033 
Share exchange for proportionate
voting shares (note 13(b)(i))		   (1,999,997)   10,000    -    -    -    -    -    - 
Shares issued as payment for accounts payable (note 13(b)(iii))   130,611    -    94,639    -    -    -    -    94,639 
Share based compensation   -    -    -    908,206    -    -    -    908,206 
Transaction with owners   40,073,661    10,000    14,294,588    908,206    -    -    (274,733)   14,928,061 
Revaluation of digital currency   -    -    -    -    -    91,880    -    91,880 
Net loss for the period   -    -    -    -    -    -    (2,193,006)   (2,193,006)
Total comprehensive loss for the period   -    -    -    -    -    91,880    (2,193,006)   (2,101,126)
Balance, June 30, 2020   40,073,661    10,000   $14,294,588   $908,206   $-   $91,880   $(2,467,739)  $12,826,935 
                                         
Balance, December 31, 2020   40,073,661    10,000   $12,541,038   $1,267,551   $118,162   $1,982,501   $(5,465,446)  $10,443,806 
Private placements (note 13(b)(vi)(vii)(viii)(ix)(x))   34,667,022    -    50,059,301    5,044,691    -    -    -    55,103,992 
Cost of issue - cash (note 13(b)(viii)(ix)(x))   -    -    (4,838,229)   -    -    -    -    (4,838,229)
Cost of issue - broker warrants (note 13(b)(viii)(ix)(x))   -    -    (3,035,477)   3,035,477    -    -    -    - 
Shares issued as payment for accounts payable (note 13(b)(v))   200,000    -    305,055    -    -    -    -    305,055 
Share cancelled (note 13(b)(iv))   (154,500)   -    (71,645)   -    -    -    (62,588)   (134,233)
Units issued as commission (note 13(b)(vii))   148,148    -    -    -    -    -    -    - 
Share based compensation   -    -    -    3,771,306    -    -    -    3,771,306 
Transaction with owners   74,934,331    10,000    54,960,043    13,119,025    118,162    1,982,501    (5,528,034)   64,651,697 
Revaluation of digital currency   -    -    -    -    -    (1,640,267)   -    (1,640,267)
Net loss for the period   -    -    -    -    807,948    -    (205,892)   602,056 
Total comprehensive loss for the period   -    -    -    -    807,948    (1,640,267)   (205,892)   (1,038,211)
Balance, June 30, 2021   74,934,331    10,000   $54,960,043   $13,119,025   $926,110   $342,234   $(5,733,926)  $63,613,486 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

- 4 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

1. Nature of operations

 

Digihost Technology Inc. (the “Digihost”) was incorporated in British Columbia, Canada, on February 18, 2017 as Chortle Capital Corp and subsequently changed its name to HashChain Technology Inc. on September 18, 2017, and again to Digihost Technology Inc. on February 14, 2020. Digihost and its subsidiary, Digihost International, Inc., (together the “Company”) is a blockchain technology company with operations in cryptocurrency mining. The head office of the Company is located at 1001 East Delavan Avenue, Buffalo, New York, 14215.

 

On February 14, 2020, a reverse takeover transaction (the “RTO Transaction”) between Digihost International, Inc. (“Old Digihost”) and HashChain Technology Inc. (“HashChain”) was completed (note 3). On completion of the RTO Transaction, Old Digihost was determined to be the accounting acquirer and accordingly, the financial statements are a continuation of the Old Digihost. In connection with completion of the RTO Transaction, HashChain has changed its name to “Digihost Technology Inc.”. The Company carried on the business of HashChain as a Tier 2 technology issuer under the symbol “DGHI”. Digihost subordinate voting shares were listed for trading on the TSX Venture Exchange (“TSXV”) February 20, 2020.

 

These unaudited condensed interim consolidated financial statements of the Company were reviewed, approved and authorized for issue by the Board of Directors on August 4, 2021.

 

2. Significant accounting policies

 

(a) Statement of compliance

 

The Company applies IFRS as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the IFRS Interpretations Committee. These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements.

 

The policies applied in these unaudited condensed interim consolidated financial statements are based on IFRS issued and outstanding as of August 4, 2021, the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these unaudited condensed interim consolidated financial statements as compared with the most recent annual financial statements as at and for the year ended December 31, 2020. Any subsequent changes to IFRS that are given effect in the Company’s annual financial statements for the year ending December 31, 2021 could result in restatement of these unaudited condensed interim consolidated financial statements.

 

(b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Company.

 

At the date of authorization of these unaudited condensed interim consolidated financial statements, several new, but not yet effective, standards and amendments to existing standards, and interpretations have been published by the IASB. None of these standards or amendments to existing standards have been adopted early by the Company. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New standards, amendments and interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Company’s unaudited condensed interim consolidated financial statements.

 

- 5 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

2. Significant accounting policies (continued)

 

(c) Critical accounting judgements, estimates and assumption

 

The preparation of these financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the year in which the estimate is revised and future years if the revision affects both current and future years. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

Significant assumptions about the future that management has made that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

 

Significant judgements

 

(i) Income from digital currency mining

 

The Company recognizes income from digital currency mining from the provision of transaction verification services within digital currency networks, commonly termed “cryptocurrency mining”. As consideration for these services, the Company receives digital currency from each specific network in which it participates (“coins”). Income from digital currency mining is measured based on the fair value of the coins received. The fair value is determined using the spot price of the coin on the date of receipt. The coins are recorded on the statement of financial position, as digital currencies, at their fair value less costs to sell and re- measured at each reporting date. Revaluation gains or losses, as well as gains or losses on the sale of coins for traditional (fiat) currencies are included in profit or loss in accordance with the Company’s treatment of its digital currencies as a traded commodity.

 

There is currently no specific definitive guidance in IFRS or alternative accounting frameworks for the accounting for the mining and strategic selling of digital currencies and management has exercised significant judgement in determining appropriate accounting treatment for the recognition of income from digital currency mining for mining of digital currencies. Management has examined various factors surrounding the substance of the Company’s operations, including the stage of completion being the completion and addition of a block to a blockchain and the reliability of the measurement of the digital currency received.

 

(ii) Business combination

 

Management uses judgement to determines whether assets acquired and liabilities assumed constitute a business. A business consists of inputs and processes applied to those inputs that have the ability to create outputs.

 

The Company completed the RTO Transaction in February 2020 (note 3) and concluded that the entity acquired did qualify as a business combination under IFRS 3, “Business Combinations”, as significant processes were acquired. Accordingly, the RTO Transaction has been accounted for as a business combination.

 

(iii) Leases – incremental borrowing rate

 

Judgment is applied when determining the incremental borrowing rate used to measure the lease liability of each lease contract, including an estimate of the asset-specific security impact. The incremental borrowing rate should reflect the interest rate the Company would pay to borrow at a similar term and with similar security.

 

- 6 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

2. Significant accounting policies (continued)

 

(c) Critical accounting judgements, estimates and assumption (continued)

 

Significant judgements (continued)

 

(iv) Income, value added, withholding and other taxes

 

The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company’s provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company’s income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Company’s interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the year in which such determination is made.

 

Significant estimates

 

(i) Determination of asset and liability fair values and allocation of purchase consideration

 

Significant business combinations require judgements and estimates to be made at the date of acquisition in relation to determining the relative fair value of the allocation of the purchase consideration over the fair value of the assets. The information necessary to measure the fair values as at the acquisition date of assets acquired requires management to make certain judgements and estimates about future events, including but not limited to availability of hardware and expertise, future production opportunities, future digital currency prices and future operating costs.

 

(ii) Useful lives of property, plant and equipment

 

Depreciation of data miners and equipment are an estimate of its expected life. In order to determine the useful life of computing equipment, assumptions are required about a range of computing industry market and economic factors, including required hashrates, technological changes, availability of hardware and other inputs, and production costs.

 

(iii) Digital currency valuation

 

Digital currencies consist of cryptocurrency denominated assets (note 5) and are included in current assets. Digital currencies are carried at their fair value determined by the spot rate less costs to sell. The digital currency market is still a new market and is highly volatile; historical prices are not necessarily indicative of future value; a significant change in the market prices for digital currencies would have a significant impact on the Company’s earnings and financial position.

 

(iv) Impairment of goodwill

 

Goodwill is tested for impairment if there is an indicator of impairment and annually for all CGUs with goodwill. The Company considers both external and internal sources of information for indications that goodwill is impaired. External sources of information we consider include changes in the market and economic and legal environment in which the CGU operates that are not within its control and affect the recoverable amount of goodwill. Internal sources of information considered include the strategic plans for the Company including estimates of revenue and other indications of economic performance of the assets.

 

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Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

3. Reverse takeover

 

On February 14, 2020, there was a RTO Transaction between Old Digihost and HashChain. In connection with completion of the RTO Transaction, HashChain acquired all the issued and outstanding shares of Old Digihost in exchange for 29,820,000 subordinate voting shares of the Company. In substance, the transaction involves Old Digihost shareholders obtaining control of the Company; accordingly, the transaction is considered to be a reverse acquisition transaction under which Old Digihost is identified as the accounting acquirer.

 

At the time of the transaction, HashChain had operations in cryptocurrency mining and met the definition of a business, and the transaction was accordingly considered a business combination. The purpose of the RTO Transaction was to acquire the operations of HashChain and to obtain listing on a public exchange. The transaction costs associated with this RTO Transaction was $59,149.

 

As Old Digihost was deemed to be the acquirer for accounting purposes, these consolidated financial statements present the historical financial information to the date of the Transaction are those of Old Digihost presented as a continuation of Old Digihost.

 

Pursuant to the business combination transaction, the net assets acquired from the acquisition are to be recorded at their estimated fair values in accordance with IFRS 3. The allocation of the purchase consideration is as follows:

 

Consideration    
Fair value of 6,530,560 subordinate voting shares of HashChain (1)  $2,957,458 
      
Net assets acquired     
Property, plant and equipment  $2,244,509 
Accounts payable and other payables   (576,957)
    1,667,552 
Goodwill acquired (2)   1,289,906 
   $2,957,458 

 

(1)The common shares issued were valued based on the HashChain closing price of CAD$0.60 on the TSXV on February 14, 2020.

 

(2)The goodwill acquired from the RTO Transaction is primarily attributable to the synergies expected to arise from vertical integration of the cryptocurrency mining operations which is the only segment of the Company.

 

4. Prepaid expenses

 

   As at
June 30,		   As at
December 31,		 
   2021   2020 
Prepaid insurance  $233,726   $12,622 

 

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Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

5. Digital currencies

 

The Company’s holdings of digital currencies consist of the following:

 

   As at
June 30,		   As at
December 31,		 
   2021   2020 
Bitcoin  $12,451,995   $4,508,042 
Ethereum   1,282,594    - 
           
   $13,734,589   $4,508,042 

 

The continuity of digital currency was as follows:

 

   Number of Bitcoin   Amount   Number of Ethereum   Amount 
Balance, December 31, 2020   154   $4,508,042    -   $- 
Bitcoin mined   215    9,879,628    -    - 
Received from sale of property, plant and equipment   13    735,197    63    204,318 
Received from private placement   1    47,671    -    - 
Exchange of digital currencies
   (31)   (1,793,619)   501    1,793,619 
Revaluation adjustment(1)   -    (924,924)   -    (715,343)
Balance, June 30, 2021   352   $12,451,995    564   $1,282,594 
Bitcoin - current(2)   352   $12,451,995    564   $1,282,594 

 

(1)Digital assets held are revalued each reporting period based on the fair market value of the price of Bitcoin and Ethereum on the reporting date. As at June 30, 2021, the prices of Bitcoin and Ethereum were $35,375 and $2,274, respectively resulting in revaluation losses of $924,924 and $715,343, respectively and recorded to other comprehensive income.

 

(2)Digital currencies that are held by the Company and available for use as at June 30, 2021.

 

6. Loan receivable

 

As at June 30, 2021, Nyam, LLC, a company controlled by the Chief Executive Officer (“CEO”) was owed $141,552 (December 31, 2020 - $141,552). These amounts are non-interest bearing, unsecured and due on demand.

 

- 9 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

7. Property, plant and equipment

 

    Data           Leasehold     Powerplant        
    miners     Equipment     improvement     in progress     Total  
Cost                              
Balance - December 31, 2019   $ -     $ -     $ -     $ -     $ -  
Additions     3,558,280 (1)     2,760,000 (2)     1,040,000 (2)     -       7,358,280  
Acquired from RTO Transaction     2,244,509       -       -       -       2,244,509  
                                         
Balance - December 31, 2020   $ 5,802,789     $ 2,760,000     $ 1,040,000     $ -     $ 9,602,789  
Additions     21,928,123 (3)     -       -       1,611,055       23,539,178  
Disposal     (487,939 )     -       -       -       (487,939 )
Balance - June 30, 2021   $ 27,242,973     $ 2,760,000     $ 1,040,000     $ 1,611,055     $ 32,654,028  
                                         
Accumulated depreciation                                        
Balance - December 31, 2019   $ -     $ -     $ -     $ -     $ -  
Depreciation     2,538,211       479,888       87,056       -       3,105,155  
                                         
Balance - December 31, 2020   $ 2,538,211     $ 479,888     $ 87,056     $ -     $ 3,105,155  
Depreciation     967,138       288,500       52,000       -       1,307,638  
Disposal     (487,939 )     -       -       -       (487,939 )
Balance - June 30, 2021   $ 3,017,410     $ 768,388     $ 139,056     $ -     $ 3,924,854  
                                         
Net carrying value                                        
As at December 31, 2020   $ 3,264,578     $ 2,280,112     $ 952,944     $ -     $ 6,497,634  
As at June 30, 2021   $ 24,225,563     $ 1,991,612     $ 900,944     $ 1,611,055     $ 28,729,174  

 

(1)Mining assets of $2,404,020 purchased by the Company in February 2020 from Nyam, LLC.

 

(2)Assets acquired as part of facility lease assignment prior of the closing of the RTO Transaction (see note 11).

 

(3)On May 12, 2021, the Company signed a definitive purchase agreement to acquire approximately 10,000 high- performance Bitcoin miners. The miners were sourced from Northern Data AG for approximately CAD$54,000,000.

 

Pursuant to the terms of the purchase agreement, the Company has concurrently entered into a hosting agreement with Northern Data in connection with the miners, whereby Northern Data will provide services to the Company including the installation and hosting of the miners in proprietary pre-manufactured performance optimized mobile data centres to be located at Digihost’s company-owned facility.

 

As at June 30, 2021, the Company has acquired approximately $17,903,000 of miners.

 

- 10 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

8. Goodwill

 

   As at
June 30,
2021		   As at
December 31,
2020		 
Balance, beginning of period  $1,342,281   $- 
RTO transaction   -    1,289,906 
Foreign currency translation   35,486    52,375 
Balance, end of period  $1,377,767   $1,342,281 

 

For the realization of its impairment test, management has used the approach of fair value less costs to sell. The fair value is derived from the market capitalization of the Company as June 30, 2021 and management determined that the fair value less cost of sales, was higher than the carrying value of the CGU. Following this analysis, management has determined that no impairment was necessary. For these tests, the Company allocates all of its goodwill to a single CGU, the Company as a whole, since this is the lowest level at which goodwill is monitored for internal purposes.

 

9. Intangible asset

 

Intangible asset relates to the right of use of an electric power facility.

 

   As at
June 30,		   As at
December 31,		 
   2021   2020 
Balance, beginning of period  $1,572,500   $- 
Addition at cost   -    1,680,000 
Amortization   (64,621)   (107,500)
Balance, end of period  $1,507,879   $1,572,500 

 

10. Right-of-use assets

 

   As at
June 30,		   As at
December 31,		 
   2021   2020 
         
Balance, beginning of period  $2,413,720   $- 
Additions   -    2,588,107 
Depreciation   (99,146)   (174,387)
Balance, end of period  $2,314,574   $2,413,720 

 

Rights-of-use assets are depreciated over a 13 year term. Refer to note 11 for further details.

 

11. Lease liabilities

 

On February 14, 2020, prior to the closing of the RTO Transaction, BIT Management, LLC, Nyam, LLC and BIT Mining International, LLC (collectively the “Sellers”, all companies controlled by the CEO of Digihost) sold to the Company leasehold improvements and equipment and transferred and assigned the lease of the 1001 East Delavan facility. As consideration, Digihost issued 164,000 common shares. These transactions resulted in increases in equipment of $2,760,000, leasehold improvements of $1,040,000, intangible assets of $1,680,000 and right of use assets and lease liabilities of $2,588,107 for a total of $5,480,000 recorded in share capital.

 

- 11 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

11. Lease liabilities (continued)

 

The leases have an initial term ending in March 2023 and have renewal options. The Company intends to renew the leases for an additional 10 years. When measuring lease liability, the Company’s incremental borrowing rate applied was estimated to be 10% per annum.

 

Nyam, LLC made security deposits of $37,917 on the lease. The lease is also guaranteed personally by the CEO.

 

The continuity of the lease liabilities are presented in the table below:

 

   As at
June 30,		   As at
December 31,		 
   2021   2020 
Balance, beginning of period  $2,546,160   $- 
Additions   -    2,588,107 
Interest   118,352    216,434 
Lease payments   (173,691)   (258,381)
Balance, end of period  $2,490,821   $2,546,160 
           
Current portion  $118,862   $111,672 
Non-current portion   2,371,959    2,434,488 
Total lease liabilities  $2,490,821   $2,546,160 

 

Maturity analysis - contractual undiscounted cash flows

 

As at June 30, 2021     
Less than one year  $173,977 
One to five years   1,405,446 
More than five years   2,547,896 
Total undiscounted lease obligations  $4,127,319 

 

- 12 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

12. Loans payable

 

The Company procured loans as follows:

 

   As at
June 30,		   As at
December 31,		 
   2021   2020 

Loans at interest rate of 8%, payable on demand. Secured by Bitcoin equivalent to 120% of the value of the loan. When the market value of the collateral drops to less than 110% or exceeds 120% of the loan, Bitcoin must be transferred to or from the lender to maintain the collateral amount.

  $-   $1,182,333 
           
Loans at interest rate of 6.5% and 9.5%, maturing in January 2021. Secured by Bitcoin equivalent to 80% of the value of the loan. When the market value of the collateral drops to less than 80% or exceeds 120% of the loan, Bitcoin must be transferred to or from the lender to maintain the collateral amount.   -    385,750 
           
Loan at interest rate of 17.5%, maturing on April 1, 2022. The loan is to be repaid in 24 monthly payment of $19,873, capital and interest. The loan is secured by Bitcoin equivalent to 120% of the value of the loan.   -    400,000 
           
Loan at interest rate of 17.5%, maturing on April 1, 2022. The loan is to be repaid in 24 monthly payment of $28,568, capital and interest. The loan is secured by Bitcoin equivalent to 120% of the value of the loan.   -    575,000 
           
Loan under Paycheck Protection Program(1)   41,495    - 
           
Total loans  $41,495   $2,543,083 
           
Current  $41,495   $2,010,172 
Non-current  $-   $532,911 

 

(1)On February 18, 2021, the Company received loan proceeds in the amount of approximately $41,495 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, provides loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The Company utilized the funds received as intended and will be applying for loan forgiveness during the second quarter of 2021.

 

   As at
June 30,		   As at
December 31,		 
   2021   2020 
Balance, beginning of the period  $2,543,083   $- 
New loans   1,473,495    2,543,083 
Repayment of loans   (3,975,083)   - 
Balance, end of the period  $41,495   $2,543,083 

 

- 13 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

13. Share capital

 

a) Authorized share capital

 

Unlimited subordinate voting shares without par value and conferring 1 vote per share.

 

Unlimited proportionate voting shares without par value, conferring 200 votes per share, convertible at the holder’s option into subordinate voting shares on a basis of 200 subordinate voting shares for 1 proportionate voting shares.

 

b) Subordinate voting shares and proportionate voting shares issued

 

(i) In 2019, the Company closed a non-brokered private placement, for aggregate gross proceeds of $4,064,431 (CAD$5,395,338) from the sale of 5,481,912 common share subscription receipts at a price of CAD$0.96, with each common share subscription receipt exchangeable for one common share of Digihost, and 110,575 unit subscription receipts at a price of CAD$1.20 per unit subscription receipt, with each unit subscription receipt exchangeable for one unit. Each unit consisted of one subordinate voting share and one subordinate voting share purchase warrant of Digihost. Each warrant entitles the holder thereof to acquire one subordinate voting share at a price of CAD$1.75 with expiry date August 14, 2021. The proceeds were received prior to December 31, 2020 and were recorded as subscription liability. In February 2020, prior to the closing of the RTO transaction, the subscription receipts were exchanged for 5,592,487 common shares of Digihost and then exchanged for 5,592,487 subordinate voting shares of the Company.

 

The grant date fair value of the 110,575 warrants was estimated as $20,000.

 

In addition, immediately prior to completion of the RTO Transaction, the Company exchanged 1,999,997 subordinate voting shares of Digihost owned by the CEO and director of Digihost for 10,000 proportionate voting shares.

 

(ii) On February 14, 2020, the Company cancelled the 2 founder shares of Old Digihost.

 

(iii) On February 14, 2020, the Company issued 130,911 subordinate voting shares as settlement of payables of $59,149.

 

(iv) On December 7, 2020, the Company announced that it has received approval to undertake, at the Company’s discretion, a normal course issuer bid program to purchase up to 2,003,683 of its subordinate voting shares for cancellation (the “Bid”). The Company received acceptance from the TSXV to commence the Bid on December 10, 2020. The Bid will terminate on December 10, 2021, or on an earlier date in the event that the maximum number of subordinate voting shares sought in the Bid has been repurchased. The Company reserves the right to terminate the Bid at any time. As at June 30, 2021, the Company repurchased and cancelled 154,500 subordinate voting shares.

 

(v) On February 9, 2021, the Company issued 200,000 subordinate voting shares (valued at $305,055) to settle a debt of $40,000 with two third-party creditors.

 

(vi) On January 8, 2021, the Company closed a non-brokered private placement for 349,876 subordinate voting shares for CAD$0.81 for gross proceeds of $220,551.

 

(vii) On February 18, 2021, the Company closed a non-brokered private placement financing for 4,938,271 subordinate voting shares for CAD$0.81 for gross proceeds of $3,124,018 (CAD$4,000,000). In connection with the private placement, the Company will pay a commission of 148,148 Shares to third party advisors.

 

- 14 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

13. Share capital (continued)

 

(viii) On March 16, 2021, the Company closed a non-brokered private placement financing for 9,363,296 units for CAD$2.67 per unit for gross proceeds of $19,985,611 (CAD$25 million). Each unit consists of 9,363,296 subordinate voting shares of the Company and warrants to purchase 9,363,296 subordinate voting shares. The warrants have an exercise price of CAD$3.14 per Share and exercise period of three years from the issuance date.

 

H.C. Wainwright & Co. acted as the exclusive placement agent and received cash commission and expenses totalling $1,978,303 and 749,064 non-transferable broker warrants. Each broker warrant entitles the holder to purchase one subordinate voting share at an exercise price of CAD$3.3375 at any time for a period of three years from the issuance date. The warrants and broker warrants were assigned an aggregate value of $1,976,106 using the residual method.

 

(ix) On April 9, 2021, the Company closed a non-brokered private placement financing for 11,682,243 units for CAD$2.14 per unit for gross proceeds of $19,748,795 (CAD$25 million). Each unit consists of 11,682,243 subordinate voting shares of the Company and warrants to purchase 11,682,243 subordinate voting shares. The warrants have an exercise price of CAD$2.37 per Share and exercise period of four years from the issuance date.

 

H.C. Wainwright & Co. acted as the exclusive placement agent and received cash commission and expenses totalling $1,695,460 and 934,579 non-transferable broker warrants. Each broker warrant entitles the holder to purchase one subordinate voting share at an exercise price of CAD$2.675 at any time for a period of four years from the issuance date. The warrants and broker warrants were assigned an aggregate value of $4,054,513 using the residual method.

 

(x) On June 18, 2021, the Company closed a non-brokered private placement financing for 8,333,336 units for CAD$1.80 per unit for gross proceeds of $12,025,016 (CAD$15 million). Each unit consists of 8,333,336 subordinate voting shares of the Company and warrants to purchase 6,250,002 subordinate voting shares. The warrants have an exercise price of CAD$1.99 per subordinate voting share and exercise period of three years from the issuance date.

 

H.C. Wainwright & Co. acted as the exclusive placement agent and received cash commission and expenses totalling $1,164,466 and 666,667 non-transferable broker warrants. Each broker warrant entitles the holder to purchase one subordinate voting share at an exercise price of CAD$2.25 at any time for a period of three years from the issuance date. The warrants and broker warrants were assigned an aggregate value of $2,049,549 using the residual method.

 

14. Warrants

 

       Weighted
Average		 
    Number of
Warrants		    

Exercise Price

(CAD$)

 
Balance, December 31, 2019   -    - 

Issued (note 13(b)(i))

   110,575    1.75 
Balance, June 30, 2020   110,575    1.75 
           
Balance, December 31, 2020   110,575    1.75 
Issued (note 13(b)(viii)(ix)(x))   29,645,851    2.56 
Balance, June 30, 2021   29,756,426    2.56 

 

- 15 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

14. Warrants (continued)

 

The following table reflects the warrants issued and outstanding as of June 30, 2021:

 

Number of
Warrants
Outstanding		  Exercise
Price (CAD$)		  Weighted
Average
Contractual
Life (years)		  Expiry Date
 110,575   1.75   0.12  August 14, 2021
 9,363,296   3.14   2.71  March 16, 2024
 749,064   3.3375   2.71  March 16, 2024
 6,250,002   1.99   2.97  June 18, 2024
 666,667   2.25   2.97  June 18, 2024
 11,682,243   2.37   3.78  April 9, 2025
 934,579   2.675   3.78  April 9, 2025
 29,756,426   2.56   3.21   

 

15. Stock options

 

The Company has a stock option plan whereby the maximum number of shares subject to the plan, in the aggregate, shall not exceed 10% of the Company’s issued and outstanding shares. The exercise price shall be no less than the discount market price as determined in accordance with TSXV policies.

 

The following table reflects the continuity of stock options for the periods presented below:

 
   Number of Stock
Options		   Weighted Average Exercise Price (CAD$) 
Balance, December 31, 2019   -    - 
Granted (i)   1,875,000    0.96 
Balance, June 30, 2020   1,875,000    0.96 
Balance, December 31, 2020   1,875,000    0.96 
Granted (ii)(iii)(iv)(v)(vi)   5,470,491    2.01 
Balance, June 30, 2021   7,345,491    1.74 

 

(i) On February 14, 2020, the Company granted stock options to directors, officers and consultants of the Company to acquire an aggregate of 1,875,000 subordinate voting shares. The stock options may be exercised at a price of CAD$0.96 per share and expire on February 14, 2025. The stock options vest six months after grant date.

 

A value of CAD$0.88 per option was estimated for the 1,875,000 stock options on the date of grant with the following assumptions and inputs: share price of CAD$0.96; exercise price of CAD$0.96; expected dividend yield of 0%; expected volatility of 154% which is based on comparable companies; risk-free interest rate of 1.37%; and an expected average life of five years. An expense of $1,247,551 was recorded during the year ended December 31, 2020.

 

- 16 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited)

 

 

15. Stock options (continued)

 

(ii) On January 5, 2021, the Company granted stock options to directors, officers, employees and consultants of the Company to acquire an aggregate of 1,650,491 subordinate voting shares. Each stock option is exercisable into a subordinate voting share at a price of CAD$1.25 and expire on January 5, 2026. The stock options vest fully on the six- month anniversary of the date of grant.

 

A value of CAD$0.92 per option was estimated for the 1,650,491 stock options on the date of grant with the following assumptions and inputs: share price of CAD$1.01; exercise price of CAD$1.25; expected dividend yield of 0%; expected volatility of 155% which is based on comparable companies; risk-free interest rate of 0.39%; and an expected average life of five years. For the six months ended June 30, 2021, an expense of $1,181,970 was recorded.

 

(iii) On February 24, 2021, the Company granted stock options to consultants of the Company to acquire an aggregate of 150,000 subordinate voting shares. Each stock option is exercisable into a subordinate voting share at a price of CAD$4.64 and expire on February 24, 2026. The stock options vested immediately.

 

A value of CAD$4.26 per option was estimated for the 150,000 stock options on the date of grant with the following assumptions and inputs: share price of CAD$4.64; exercise price of CAD$4.64; expected dividend yield of 0%; expected volatility of 155% which is based on comparable companies; risk-free interest rate of 0.73%; and an expected average life of five years. For the six months ended June 30, 2021, an expense of $512,670 was recorded.

 

(iv) On March 26, 2021, the Company granted stock options to directors, officers, employees and consultants of the Company to acquire an aggregate of 1,600,000 subordinate voting shares. Each stock option is exercisable into a subordinate voting share at a price of CAD$2.49 and expire on March 25, 2026. The stock options vest fully on the six- month anniversary of the date of grant.

 

A value of CAD$2.29 per option was estimated for the 1,600,000 stock options on the date of grant with the following assumptions and inputs: share price of CAD$2.49; exercise price of CAD$2.49; expected dividend yield of 0%; expected volatility of 155% which is based on comparable companies; risk-free interest rate of 0.90%; and an expected average life of five years. For the six months ended June 30, 2021, an expense of $1,547,617 was recorded.

 

(v) On May 17, 2021, the Company granted stock options to directors, officers, employees and consultants of the Company to acquire an aggregate of 1,290,000 subordinate voting shares. Each stock option is exercisable into a subordinate voting share at a price of CAD$2.45 and expire on May 17, 2026. The stock options vest fully on the six- month anniversary of the date of grant.

 

A value of CAD$2.03 per option was estimated for the 1,290,000 stock options on the date of grant with the following assumptions and inputs: share price of CAD$2.62; exercise price of CAD$2.45; expected dividend yield of 0%; expected volatility of 105% which is based on comparable companies; risk-free interest rate of 0.95%; and an expected average life of five years. For the six months ended June 30, 2021, an expense of $501,184 was recorded.

 

(vi) On June 22, 2021, the Company granted stock options to directors, officers, employees and consultants of the Company to acquire an aggregate of 780,000 subordinate voting shares. Each stock option is exercisable into a subordinate voting share at a price of CAD$1.40 and expire on June 22, 2026. The stock options vest fully on the six- month anniversary of the date of grant.

 

A value of CAD$1.02 per option was estimated for the 780,000 stock options on the date of grant with the following assumptions and inputs: share price of CAD$1.34; exercise price of CAD$1.40; expected dividend yield of 0%; expected volatility of 105% which is based on comparable companies; risk-free interest rate of 0.95%; and an expected average life of five years. For the six months ended June 30, 2021, an expense of $27,864 was recorded.

 

- 17 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited) 

 

 

15. Stock options (continued)

 

The following table reflects the stock options issued and outstanding as of June 30, 2021:

 

       Weighted
Average		       Number of     
Expiry Date 

Exercise
Price (CAD$)

   Remaining
Contractual
Life (years)		   Number of
Options
Outstanding		   Options
Vested
(exercisable)		   Number of
Options
Unvested		 
February 14, 2025   0.96    3.63    1,875,000    1,875,000    - 
January 5, 2026   1.25    4.52    1,650,491    24,491    1,626,000 
February 24, 2026   4.64    4.66    150,000    150,000    - 
March 25, 2026   2.49    4.74    1,600,000    -    1,600,000 
May 17, 2026   2.45    4.88    1,290,000    -    1,290,000 
June 22, 2026   1.40    4.98    780,000    -    780,000 
    1.74    4.46    7,345,491    2,049,491    5,296,000 

 

16. Related party transactions

 

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties include key management personnel and may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions are recorded at the exchange amount, being the amount agreed to between the related parties.

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and members of the Board of Directors.

 

Remuneration of key management personnel of the Company was as follows:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2020   2021   2020 
Professional fees(1)  $43,142   $11,258   $53,390   $20,861 
Share based compensation(2)   2,216,020    506,740    2,748,248    762,894 
   $2,259,162   $517,998   $2,801,638   $783,755 

 

(1)In September 2019, Ms. Cindy Davis was appointed Chief Financial Officer of the Company. Ms. Davis is also a senior employee of Marrelli Support Services Inc. (“Marrelli Support”). Marrelli Support also provides accounting services to the Company. On April 29, 2021, Mr. Paul Ciullo was appointed as the Chief Financial Officer replacing Ms. Davis.

 

(2)Represents the share based compensation for officer and directors.

 

A Surety Bond of $341,000 issued to a supplier is guaranteed by Nyam, LLC, a company controlled by the CEO.

 

See notes 6, 7, 11 and 12 for additional related party transactions.

 

- 18 -

 

 

 

Digihost Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars) (Unaudited) 

 

 

17. Additional information on the nature of comprehensive loss components

 

   Six Months Ended
June 30,		 
   2021   2020 
Expenses for employee benefits        

Operating and maintenance costs

  $189,438   $54,838 

Professional fees

   53,390    20,861 
Share based compensation   3,771,306    908,206 
   $4,014,134   $983,905 
Net financial expenses          

Interest in loans

  $96,134   $- 
Interest on lease liabilities   118,352    28,731 
   $214,486   $28,731 

 

18. Segmented reporting

 

The Company has one operating segment being cryptocurrency mining located in the United States. The operations of the Company are located in two geographic locations, Canada and the United States. Geographic segmentation is as follows:

 

As at June 30, 2021  Canada   United States  

Total 

 
Current assets  $193,367   $34,263,244   $34,456,611 
Non-current assets   1,377,767    32,551,606    33,929,373 
Total assets  $1,571,134   $66,814,850   $68,385,984 
                
As at December 31, 2020     Canada       United States       Total  
Current assets  $-   $4,693,466   $4,693,466 
Non-current assets   1,342,281    10,483,854    11,826,135 
Total assets  $1,342,281   $15,177,320   $16,519,601 

 

 

- 19 -