EX-99.1 2 ea160107ex99-1_digihost.htm CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2022

Exhibit 99.1

 

 

 

 

DIGIHOST TECHNOLOGY INC.

 

CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED

MARCH 31, 2022 AND 2021

 

(EXPRESSED IN UNITED STATES DOLLARS)

(UNAUDITED)

 

 

 

Notice to Reader

 

The unaudited condensed interim consolidated financial statements for the comparative period ended March 31, 2021 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

March 31,

2022

  

As at

December 31,

2021

 
ASSETS        
         
Current assets        
Cash  $8,180,252   $915,715 
Digital currencies (note 3)   39,536,888    33,491,986 
Amounts receivable and prepaid expenses (note 4)   2,559,089    1,808,304 
           
Total current assets   50,276,229    36,216,005 
Property, plant and equipment (note 5)   41,470,038    38,142,107 
Right of use assets    2,065,608    2,078,599 
Promissory note receivable   806,667    800,000 
Intangible asset (note 7)   1,410,952    1,443,260 
Goodwill (note 6)   1,366,521    1,346,904 
Total assets  $97,396,015   $80,026,875 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities          
Accounts payable and accrued liabilities  $2,076,260   $2,272,850 
Pre-funded warrants liability (note 9)   1,056,314    - 
Amount owing to Northern Data, NY LLC (note 3 and 5)   1,370,674    2,940,412 
Income tax payable   305,601    305,601 
Loans payable (note 8)   10,000,000    - 
Total current liabilities   14,808,849    5,518,863 
Deposits payable   139,041    1,788,500 
Deferred tax liability   2,805,475    2,514,743 
Total liabilities   17,753,365    9,822,106 
           
Shareholders’ equity          
Share capital (note 9)   61,151,235    54,863,819 
Contributed surplus   20,123,511    17,358,982 
Cumulative translation adjustment   680,469    (266,730)
Digital currency revaluation reserve   3,085,863    3,706,624 
Deficit   (5,398,428)   (5,457,926)
Total shareholders’ equity   79,642,650    70,204,769 
Total liabilities and shareholders’ equity  $97,396,015   $80,026,875 

 

Nature of operations (note 1)

 

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

 

- 1 -

 

 

Digihost Technology Inc.
Condensed Interim Consolidated Statements of Comprehensive Income
(Expressed in United States Dollars) (Unaudited)

 

   Three Months Ended
March 31,		 
   2022   2021 
         
Revenue from digital currency mining (note 3)  $7,312,342   $4,767,075 
Cost of digital currency mining          

Cost of power

   (1,626,316)   (1,549,144)
Other production costs   (517,011)   - 
Depreciation and amortization   (1,531,598)   (1,109,796)
Miner lease agreement (note 3)   (3,056,125)   - 
Gross profit   581,292    2,108,135 
           
Expenses          
Office and administrative expenses   (605,062)   (77,844)
Professional fees   (588,549)   (281,594)
Regulatory fees   (144,381)   (80,004)
Gain on sale of property, plant and equipment   2,340,658    - 
Loss on settlement of debt   -    (274,882)
Foreign exchange loss   (770,196)   - 
Gain on sale of digital currencies (note 3)   -    - 
Other income   84,207    - 
Change in fair value of amount owing for Miner Lease Agreement   379,065    - 
Share based compensation (note 11)   (764,390)   (1,165,542)
Operating income   512,644    228,269 
Net financial expenses (note 14)   (84,375)   (155,312)
Net income before income taxes   428,269    72,957 
Deferred tax expense   (368,771)   - 
Net income for the period   59,498    72,957 
           
Other comprehensive income          
Items that will be reclassified to net income Foreign currency translation adjustment   947,199    1,456 
Items that will not be reclassified to net income Revaluation of digital currencies, net of tax   (620,761)   5,836,561 
Total comprehensive income for the period  $385,936   $5,910,974 
           
Basic income per share (note 12)  $0.00   $0.00 
Diluted income per share (note 12)  $0.00   $0.00 

 

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

 

- 2 -

 

 

Digihost Technology Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Expressed in United States Dollars) (Unaudited)

 

   Three Months Ended
March 31,		 
   2022   2021 
Operating activities        
Net income for the period  $59,498   $72,957 
Adjustments for:          
Digital currency mined   (7,312,342)   (4,767,075)
Acquisition of digital currencies   (3,932,000)   - 
Rent charge back for Miner Lease Agreement   3,056,125    - 
Digital currency received   -    (47,670)
Digital currencies paid for services   196,298    - 
Digital currencies traded for cash   403,200    - 
Gain on sale of property, plant and equipment   (2,340,658)   - 
Depreciation of right-of-use assets   12,991    49,573 
Depreciation and amortization   1,518,607    1,060,223 
Interest on lease liabilities   -    59,178 
Change in fair value of amount owing for Miner Lease Agreement   (379,065)   - 
Share based compensation   764,390    1,165,542 
Loss on settlement of debt   -    274,882 
Interest accrual   (6,667)   - 
Deferred tax expense   368,771    - 
Foreign exchange (gain) loss   927,584    (15,622)
Working capital items:          
Amounts receivable and prepaid expenses   (750,785)   (279,783)
Accounts payable and accrued liabilities   (196,590)   887,234 
Deposit payable   (1,649,459)   - 
Net cash used in operating activities   (9,260,102)   (1,540,561)
           
Investing activities          
Purchase of property, plant and equipment   (4,814,230)   (4,025,000)
Proceeds from sale of property, plant and equipment   1,995,000    - 
Net cash used in investing activities   (2,819,230)   (4,025,000)
           
Financing activities          
Proceeds from private placement, net of costs   8,287,555    21,351,878 
Proceeds from Pre-funded warrants   1,056,314    - 
Repurchase of shares   -    (38,831)
Loans payable   10,000,000    1,473,495 
Repayment of loans payable   -    (3,975,083)
Lease payments   -    (86,702)
Net cash provided by financing activities   19,343,869    18,724,757 
Net change in cash   7,264,537    13,159,196 
Cash, beginning of period   915,715    31,250 
Cash, end of period  $8,180,252   $13,190,446 
           
Supplemental information          
Interest paid  $84,375   $117,697 

 

The accompanying notes are an integral part of these 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 (note 9)           Cumulative Digital currency         
  

Subordinate

voting shares

  

Proportionate

voting shares

  

Share

capital

  

Contributed

surplus

   Translation
Adjustment		  

revaluation

reserve

   Deficit   Total 
Balance, December 31, 2020   13,357,838    3,333   $12,541,038   $1,267,551   $118,162   $1,982,501   $(5,465,446)  $10,443,806 
Private placements (note 9(b)(iii)(iv)(v))   4,883,814    -    22,581,656    748,525    -    -    -    23,330,181 
Cost of issue - cash (note 9(b)(v))    -    -    (1,978,303)   -    -    -    -    (1,978,303)
Cost of issue - broker warrants (note 9(b)(iv)(v))   -    -    (1,227,581)   1,227,581    -    -    -    - 
Shares issued as payment for accounts payable (note 9(b)(ii))   66,667    -    305,055    -    -    -    -    305,055 
Shares cancelled (note 9(b)(ii))   (23,167)   -    (21,750)   -    -    -    (17,081)   (38,831)
Share based compensation   -    -    -    1,165,542    -    -    -    1,165,542 
Transaction with owners   18,285,152    3,333    32,200,115    4,409,199    118,162    1,982,501    (5,482,527)   33,227,450 
Foreign currency translation adjustment   -    -    -    -    1,456    -    -    1,456 
Revaluation of digital currencies, net of tax   -    -    -    -    -    5,836,561    -    5,836,561 
Net loss for the period   -    -    -    -    -    -    72,957    72,957 
Total comprehensive loss for the period   -    -    -    -    1,456    5,836,561    72,957    5,910,974 
Balance, March 31, 2021   18,285,152    3,333   $32,200,115   $4,409,199   $119,618   $7,819,062   $(5,409,570)  $39,138,424 
                                         
Balance, December 31, 2021   24,956,165    3,333   $54,863,819   $17,358,982   $(266,730)  $3,706,624   $(5,457,926)  $70,204,769 
Private placements (note 9(b)(vi))   2,729,748    -    7,903,009    1,465,130    -    -    -    9,368,139 
Cost of issue - cash (note 9(b)(vi))   -    -    (1,080,584)   -    -    -    -    (1,080,584)
Cost of issue - broker warrants (note 9(b)(vi))   -    -    (535,009)   535,009    -    -    -    - 
Share based compensation   -    -    -    764,390    -    -    -    764,390 
Transaction with owners   27,685,913    3,333    61,151,235    20,123,511    (266,730)   3,706,624    (5,457,926)   79,256,714 
Foreign currency translation adjustment   -    -    -    -    947,199    -    -    947,199 
Revaluation of digital currencies, net of tax   -    -    -    -    -    (620,761)   -    (620,761)
Net income for the period   -    -    -    -    -    -    59,498    59,498 
Total comprehensive income for the period   -    -    -    -    947,199    (620,761)   59,498    385,936 
Balance, March 31, 2022   27,685,913    3,333   $61,151,235   $20,123,511   $680,469   $3,085,863   $(5,398,428)  $79,642,650 

 

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

- 4 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

1. Nature of operations

 

Digihost Technology Inc. (the “Company” or “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 subsidiaries, Digihost International, Inc., and DGX Holding, LLC (together the “Company”) is a blockchain technology company with operations in cryptocurrency mining. The head office of the Company is located at 2830 Produce Row, Houston, TX, 77023.

 

These unaudited condensed interim consolidated financial statements of the Company were reviewed, approved and authorized for issue by the Board of Directors on May 16, 2022.

 

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 May 16, 2022, 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, 2021. Any subsequent changes to IFRS that are given effect in the Company’s annual financial statements for the year ending December 31, 2022 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.

 

(c) Critical accounting judgements, estimates and assumptions

 

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 are the same as the most recent annual financial statements as at and for the year ended December 31,2021.

 

- 5 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

3. Digital currencies

 

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

 

  

As at
March 31,

2022

  

As at
December 31,

2021

 
Bitcoin  $36,252,328   $29,770,994 
Ethereum   3,284,560    3,720,992 
   $39,536,888   $33,491,986 

 

The continuity of digital currencies was as follows:

 

   Number of       Number of       Total 
   Bitcoin   Amount   Ethereum   Amount   Amount 
Balance, December 31, 2020   154   $4,508,042    -   $-   $4,508,042 
Bitcoin mined(2)   519    24,952,344    -    -    24,952,344 
Received from sale of property, plant and equipment   24    1,347,977    63    204,318    1,552,295 
Received from private placement   1    47,671    -    -    47,671 
Acquisition (disposal) of digital currencies   (66)   (3,347,790)   974    3,347,034    (756)
Acquisition of property,plant and equipment   -    -    (36)   (163,942)   (163,942)
Gain on sale of digital currencies   -    235,067    -    55,881    290,948 
Revaluation adjustment(1)   -    2,027,683    -    277,701    2,305,384 
Balance, December 31, 2021   632    29,770,994    1,001    3,720,992    33,491,986 
Bitcoin mined for Digihost(2)   178    7,312,342    -    -    7,312,342 
Bitcoin mined for Northern Data(3)   5    248,172    -    -    248,172 
Bitcoin remitted per Miner Lease Agreement(2)   (113)   (4,494,972)   -    -    (4,494,972)
Received from sale of property, plant and equipment   9    345,658    -    -    345,658 
Acquisition of digital currencies   100    3,932,000    -    -    3,932,000 
Digital currencies paid for services   (5)   (196,298)   -    -    (196,298)
Digital currencies traded for cash   (10)   (403,200)   -    -    (403,200)
Revaluation adjustment(1)   -    (262,368)   -    (436,432)   (698,800)
Balance, March 31, 2022   796   $36,252,328    1,001   $3,284,560   $39,536,888 
Digital assets - current   396   $18,040,146    1,001   $3,284,560   $21,324,706 
Digital assets - collateral for loan (note8)   400   $18,212,182    -   $-   $18,212,182 

 

(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 March 31, 2022, the prices of Bitcoin and Ethereum were $45,539 (December 31, 2021 - $47,117) and $3,282 (December 31, 2021 - $3,718), respectively resulting in total revaluation loss of $698,800, net of taxes of $78,039 recorded to other comprehensive income.
(2)During the year ended December 31, 2021, the Company entered into a Miner Lease Agreement with Northern Data, NY LLC, pursuant to which the parties have agreed to split a portion of the mining rewards received and energy costs incurred for the miners put in service pursuant to that lease agreement. In connection with this agreement, as at March 31, 2022, the Company must remit 30 Bitcoin with a value of $1,370,674 which is presented in the current liabilities.
(3)During the quarter ended March 31, 2022, the Company entered into a BTC rewards share arrangement with Northern Data, NY LLC, pursuant to which the parties have agreed to split a portion of the mining rewards received for the miners put in service pursuant to the arrangement. In connection with this agreement, as at March 31, 2022, the Company must remit 5.5 Bitcoin with a value of $248,173 which is presented in the current liabilities.

 

- 6 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

4. Amounts receivable and prepaid expenses

 

  

As at
March 31,

2022

  

As at
December 31,

2021

 
Prepaid insurance and deposits  $808,072   $709,575 
Receivable from Miner Lease Agreement   1,751,017    911,200 
Other receivable   -    187,529 
   $2,559,089   $1,808,304 

 

5. Property, plant and equipment

 

   Data   Equipment   Leasehold   Powerplant   Powerplant     
   miners   and other   improvement   in progress   in use   Total 
Cost                        
Balance - December 31, 2020  $5,802,789   $2,760,000   $1,040,000   $-   $-   $9,602,789 
Additions    26,845,831(1)   603,324    -    7,148,920    -    34,598,075 
Disposal    (990,517)   -    -    -    -    (990,517)
                               
Balance - December 31, 2021    31,658,103    3,363,324    1,040,000    7,148,920    -    43,210,347 
Additions    -    1,993,619    39,542    2,781,069    -    4,814,230 
Disposal    (1,253,992)   -    -    -    -    (1,253,992)
Transfer asset in use    -    -    -    (3,658,066)   3,658,066    - 
                               
Balance - March 31, 2022  $30,404,111   $5,356,943   $1,079,542   $6,271,923   $3,658,066   $46,770,585 
                               
Accumulated depreciation                              
Balance - December 31, 2020  $2,538,211   $479,888   $87,056   $-   $-   $3,105,155 
Depreciation   2,272,602    577,000    104,000    -    -    2,953,602 
Disposal   (990,517)   -    -    -    -    (990,517)
                               
Balance - December 31, 2021   3,820,296    1,056,888    191,056    -    -    5,068,240 
Depreciation   1,214,216    144,250    26,220    -    101,613    1,486,299 
Disposal   (1,253,992)   -    -    -    -    (1,253,992)
                               
Balance - March 31, 2022  $3,780,520   $1,201,138   $217,276   $-   $101,613   $5,300,547 
                               
Net carrying value                              
As at December 31, 2021  $27,837,807   $2,306,436   $848,944   $7,148,920   $-   $38,142,107 
                               
As at March 31, 2022  $ 26,623,591   $ 4,155,805   $862,266   $6,271,923   $3,556,453   $ 41,470,038 

 

(1)Included in this total are 10,000 high performance Bitcoin miners sourced from Northern Data AG per a definitive purchase agreement entered into on May 12, 2021.

 

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.

- 7 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

6. Goodwill

 

  

As at
March 31,

2022

  

As at
December 31,

2021

 
Balance, beginning of period  $1,346,904   $1,342,281 
RTO transaction   -    - 
Foreign currency translation   19,617    4,623 
Balance, end of period  $1,366,521   $1,346,904 

 

7. Intangible asset

 

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

 

   As at   As at 
   March 31,   December 31, 
   2022   2021 
Balance, beginning of period  $1,443,260   $1,572,500 
Amortization   (32,308)   (129,240)
Balance, end of period  $1,410,952   $1,443,260 

 

8. Loans payable

 

   As at   As at 
   March 31,   December 31, 
   2022   2021 
Balance, beginning of the period  $-   $2,543,083 
New loans(1)   10,000,000    1,432,000 
 Repayment of loans   -    (3,975,083)
Balance, end of the period  $10,000,000   $- 

 

(1)On March 2, 2022, the Company announced the closing of a $10,000,000 committed, collateralized revolving credit facility with Securitize, Inc. (the “Loan Facility”). The Loan Facility has a one-year committed term and an interest rate of 7.5% per annum and has been fully drawn by the Company. As at March 31, 2022, Securitize, Inc.held 400 Bitcoin valued at $18,212,182 as security against this loan.

 

- 8 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

9. 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

 

Period ended March 31, 2021

 

(i) 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 667,894 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 was terminated on December 10, 2021. As at March 31, 2022, the Company repurchased and cancelled 164,533 subordinate voting shares for a total repurchase price of $600,865.

 

(ii) On February 9, 2021, the Company issued 66,667 subordinate voting shares to settle a debt of $40,000 with two third-party creditors.

 

(iii) On January 8, 2021, the Company closed a non-brokered private placement for 116,625 subordinate voting shares for CAD$2.43 for gross proceeds of $220,551 (CAD$283,400).

 

(iv) On February 18, 2021, the Company closed a non-brokered private placement financing for 1,646,090 subordinate voting shares for CAD$2.43 for gross proceeds of $3,124,018 (CAD$4,000,000). In connection with the private placement, the Company will pay a commission of 49,383 shares to third party advisors.

 

(v) On March 16, 2021, the Company closed a non-brokered private placement financing for 3,121,099 units for CAD$8.01 per unit for gross proceeds of $19,985,611 (CAD$25 million). 3,121,099 subordinate voting shares of the Company and warrants to purchase 3,121,099 subordinate voting shares were issued. The warrants have an exercise price of CAD$9.42 per 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 $1,978,303 and 249,688 non-transferable broker warrants. Each broker warrant entitles the holder to purchase one subordinate voting share at an exercise price of CAD$10.01 at any time for a period of three years from the issuance date. The 3,121,099 warrants and 249,688 broker warrants were assigned fair values of $748,525 and $1,124,704, respectively. The grant date fair value of $748,525 for the 3,121,099 warrants was determined using the residual method.

 

The grant date fair value of $1,124,704 for the 249,688 broker warrants was determined using the Black-Scholes pricing model and the following assumptions and inputs: share price of CAD$7.71; exercise price of CAD$10.01; expected dividend yield of 0%; expected volatility of 235% which is based on comparable companies; risk-free interest rate of 0.53%; and an expected average life of three years.

 

- 9 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

9. Share capital (continued)

 

Period ended March 31, 2022

 

(vi) On March 9, 2022, the Company closed a private placement with a single institutional investor, for (a) 2,729,748 subordinate voting shares at a purchase price of CAD$4.40 per subordinate voting share and associated warrant, (b) 300,000 pre-funded warrants (Pre-funded Warrants) at an exercise price of $0.0001 per subordinate voting shares, at an offering price of CAD$4.3999 per Pre-Funded Warrant and associated warrant and (iii) 3,029,748 common share purchase warrants (the “Warrants”) for aggregate gross proceeds of $10,424,453 (CAD$13,330,861). The Warrants have an exercise price of CAD$6.25 per share and exercise period of three and one-half years from the issuance date. The Pre-Funded Warrants were assigned a fair value of $1,056,314 based on the cash received and are accounted for as financial liabilities at amortized cost.

 

In connection with the private placement, the investor has agreed to cancel existing warrants to purchase 1,248,440 common subordinate voting shares of the Company at an exercise price of CAD$9.42 per share issued in March 16, 2021 expiring on March 16, 2024 and the existing warrants to purchase 1,781,308 common subordinate voting shares of the Company at an exercise price of CAD$7.11 issued in April 9, 2021 expiring on April 9, 2025.

 

H.C. Wainwright & Co. acted as the exclusive placement agent and received cash commission and expenses totalling $1,080,584 and 242,380 non-transferable broker warrants. Each broker warrant entitles the holder to purchase one subordinate voting share at an exercise price of CAD$6.25 at any time for a period of three and one-half years from the issuance date. The 3,029,748 warrants and 242,380 broker warrants were assigned fair values of $1,465,130 and $535,009, respectively. The grant date fair value of $1,465,130 for the 3,029,748 warrants was determined using the residual method.

 

The grant date fair value of $535,009 for the 242,380 broker warrants was determined using the Black-Scholes pricing model and the following assumptions and inputs: share price of CAD$3.78; exercise price of CAD$6.25; expected dividend yield of 0%; expected volatility of 136% which is based on comparable companies; risk-free interest rate of 1.62%; and an expected average life of three and one-half years.

 

10. Warrants

 

   Number of
Warrants		   Weighted
Average
Exercise
Price
(CAD$)		 
Balance, December 31, 2020   36,858    5.25 
Issued (note 9(b)(v))   3,370,787    9.45 
Balance, March 31, 2021   3,407,645    5.25 
Balance, December 31, 2021   9,881,950    7.69 
Issued (note 9(b)(vi))   3,272,128    6.25 
Cancelled   (3,029,748)   8.06 
Balance, March 31, 2022   10,124,330    7.12 

 

- 10 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

10. Warrants (continued)

 

The following table reflects the warrants issued and outstanding as of March 31, 2022:

 

Number of
Warrants
Outstanding		   Exercise
Price (CAD$)		  

Weighted
Average
Contractual
Life (years)

   Expiry Date
 1,872,659    9.42    1.96   March 16, 2024
 249,688    10.01    1.96   March 16, 2024(1)
 2,083,334    5.97    2.22   June 18, 2024
 222,222    6.75    2.22   June 18, 2024(1)
 2,112,773    7.11    3.03   April 9, 2025
 311,526    8.025    3.03   April 9, 2025(1)
 3,029,748    6.25    3.45   September 9, 2025
 242,380    6.25    3.45   September 9, 2025(1)
 10,124,330    7.12    2.76    

 

(1)Broker warrants.

 

11. Stock options and restricted share units

 

(a) Stock options

 

The Company has a stock option plan whereby the maximum number of shares subject to the plan, in the aggregate, shall not exceed 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, 2020   625,000    2.88 
Granted (i)(ii)(iii)   1,133,497    5.94 
Balance, March 31, 2021   1,758,497    2.88 
Balance, December 31, 2021 and March 31, 2022   2,345,165    5.28 

 

(i) On January 5, 2021, the Company granted stock options to directors, officers, employees and consultants of the Company to acquire an aggregate of 550,164 subordinate voting shares. Each stock option is exercisable into a subordinate voting share at a price of CAD$3.75 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$2.76 per option was estimated for the 550,164 stock options on the date of grant with the following assumptions and inputs: share price of CAD$3.03; exercise price of CAD$3.75; 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.

 

- 11 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

11. Stock options and restricted share units (continued)

 

(ii) On February 24, 2021, the Company granted stock options to consultants of the Company to acquire an aggregate of 50,000 subordinate voting shares. Each stock option is exercisable into a subordinate voting share at a price of CAD$13.92 and expire on February 24, 2026. The stock options vested immediately.

 

A value of CAD$12.78 per option was estimated for the 50,000 stock options on the date of grant with the following assumptions and inputs: share price of CAD$13.92; exercise price of CAD$13.92; 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.

 

(iii) On March 26, 2021, the Company granted stock options to directors, officers, employees and consultants of the Company to acquire an aggregate of 533,333 subordinate voting shares. Each stock option is exercisable into a subordinate voting share at a price of CAD$7.47 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$6.87 per option was estimated for the 533,333 stock options on the date of grant with the following assumptions and inputs: share price of CAD$7.47; exercise price of CAD$7.47; 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.

 

The underlying expected volatility of all option grants was determined by reference to historical data of comparable companies share price over the expected stock option life.

 

The following table reflects the stock options issued and outstanding as of March 31, 2022:

 

Expiry Date  Exercise
Price (CAD$)		  

Weighted Average
Remaining
Contractual
Life (years)

  

Number of
Options
Outstanding

  

Number of
Options
Vested
(exercisable)

  

Number of
Options
Unvested

 
February 14, 2025   2.88    2.88    575,000    575,000           - 
January 5, 2026   3.75    3.77    525,164    525,164    - 
February 24, 2026   13.92    3.91    50,000    50,000    - 
March 25, 2026   7.47    3.99    525,000    525,000    - 
May 17, 2026   7.35    4.13    421,667    421,667    - 
June 22, 2026   4.20    4.23    248,334    248,334    - 
    5.28    3.72    2,345,165    2,345,165    - 

 

- 12 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

11. Stock options and restricted share units (continued)

 

The Company has an RSU plan whereby the there is a fixed cap of shares that can be granted under the plan. The exercise price shall be no less than the discount market price as determined in accordance with TSXV policies.

 

(b) Restricted share units

 

The following table reflects the continuity of RSUs for the periods ended March 31, 2022 and 2021:

 

   Number of RSUs 
     
Balance, December 31, 2020 and March 31, 2021   - 
      
Balance, December 31, 2021   - 
Granted   1,449,250 
      
Balance, March 31, 2022   1,449,250 

 

During the three months ended March 31, 2022, the Company granted 1,449,250 RSUs to officers, directors, employees and advisors. These RSUs vest third on each of the first, second and third anniversaries of the date of grant. The grant date fair value of the RSUs was $5,725,262.

 

For the three months ended March 31, 2022, the Company recorded share based compensation expense for these RSU's of $764,390, (three months ended March 31, 2021 - $nil).

 

12. Income per share

 

   Three Months Ended
March 31,		 
   2022   2021 
Net income for the period  $59,498   $72,957 
Net income per share - basic  $0.00   $0.00 
Net income per share - diluted  $0.00   $0.00 
Weighted average number of shares outstanding - basic   25,623,437    14,771,251 
Dilutive effect of stock options and warrants   294,963    584,382 
Weighted average number of shares outstanding - diluted   25,918,400    15,355,633 

 

- 13 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

13. 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
March 31,		 
   2022   2021 
Professional fees (1)  $72,917   $10,248 
Salaries (1)   219,375    - 
Share based compensation(2)   717,316    532,228 
   $1,009,608   $542,476 

 

(1)Represents the professional fees and salaries paid to officers and directors.

 

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

 

14. Additional information on the nature of comprehensive loss components

 

   Three Months Ended
March 31,		 
   2022   2021 
Expenses for employee benefits        
Operating and maintenance costs  $119,259   $86,778 
Professional fees   72,917    10,248 
Share based compensation   764,390    1,165,542 
   $956,566   $1,262,568 
Net financial expenses          
Interest on loans  $84,375   $96,134 
Interest on lease liabilities   -    59,178 
   $84,375   $155,312 

 

- 14 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

15. 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 March 31, 2022  Canada   United
States		   Total 
Current assets  $-   $50,276,229   $50,276,229 
Non-current assets   1,366,521    45,753,265    47,119,786 
Total assets  $1,366,521   $96,029,494   $97,396,015 

 

As at December 31, 2021  Canada   United
States		   Total 
Current assets  $179,396   $36,036,609   $36,216,005 
Non-current assets   1,346,904    42,463,966    43,810,870 
Total assets  $1,526,300   $78,500,575   $80,026,875 

 

16. Financial instruments and risk management

 

Fair value

 

The fair value of the Company’s financial instruments, including cash, amounts receivable, accounts payable and accrued liabilities, pre-funded warrants liability, amount owing for Miner Lease Agreement, loans payable, deposit payable approximates their carrying value due to their short-term nature. Promissory note receivable is due from an arm's length third party, the fair value of this note are measured using relevant market input (Level 3). Digital currencies are measured at fair value using the quoted price on Coinmarketcap (Level 2).

 

Risks

 

The Company is exposed to a variety of financial related risks.

 

Credit risk

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash, amounts receivable, promissory note receivable and loan receivable. The cash is deposited in a bank account held with one major bank in the United States so there is a concentration of credit risk. This risk is managed by using a major bank that is a high credit quality financial institution as determined by rating agencies. The Company believes no impairment is necessary in respect of amounts receivable, promissory note receivable and loan receivable as balances are monitored on a regular basis with the result that exposure to bad debt is insignificant.

 

- 15 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

16. Financial instruments and risk management (continued)

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk by maintaining cash balances to ensure that it is able to meet its short term and long-term obligations as and when they fall due. The Company manages cash projections and regularly updates projections for changes in business and fluctuations cause in digital currency prices and exchange rates.

 

The following table summarizes the expected maturity of the Corporation’s significant financial liabilities based on the remaining period from the balance sheet date to the contractual maturity date:

 

As at March 31, 2022  Payments by period             
   Less than
1 year		   1-3 years   4-5 years   More than
5 years		   Total   Carrying
Value		 
Accounts payable and accrued liabilities  $2,076,260   $-   $        -   $          -   $2,076,260   $2,076,260 
Amount owing - Miner Lease Agreement   1,370,674    -    -    -    1,370,674    1,370,674 
Deposit payable   -    139,041    -    -    139,041    139,041 
   $3,446,934   $139,041   $-   $-   $3,585,975   $3,585,975 

 

As at December 31, 2021  Payments by period             
   Less than
1 year		   1-3 years   4-5 years   More than
5 years		   Total   Carrying
Value		 
Accounts payable and accrued liabilities  $2,272,850   $-   $         -   $         -   $2,272,850   $2,272,850 
Amount owing - Miner Lease Agreement   2,940,412    -    -    -    2,940,412    2,940,412 
Deposit payable   -    1,788,500    -    -    1,788,500    1,788,500 
   $5,213,262   $1,788,500   $-   $-   $7,001,762   $7,001,762 

 

Foreign currency risk

 

Currency risk relates to the risk that the fair values or future cash flows of the Company’s financial instruments will fluctuate because of changes in foreign exchange rates. Exchange rate fluctuations affect the costs that the Company incurs in its operations.

 

The Company’s functional and presentation currency is the US dollar. As the Company operates in an international environment, some of the Company’s financial instruments and transactions are denominated in currencies other than an entity’s functional currency. The fluctuation of the Canadian dollar in relation to the US dollar will consequently impact the profitability of the Company and may also affect the value of the Company’s assets and liabilities and the amount of shareholders’ equity. As at March 31, 2022 and December 31, 2021, the foreign currency risk was considered minimal.

 

- 16 -

 

 

Digihost Technology Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2022
(Expressed in United States Dollars) (Unaudited)

 

16. Financial instruments and risk management (continued)

 

Digital currency risk

 

Digital currency prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. The profitability of the Company is directly related to the current and future market price of digital currencies; in addition, the Company may not be able liquidate its holdings of digital currencies at its desired price if required. A decline in the market prices for digital currencies could negatively impact the Company’s future operations. The Company has not hedged the conversion of any of its sales of digital currencies.

 

Digital currencies have a limited history and the fair value historically has been very volatile. Historical performance of digital currencies is not indicative of their future price performance. The Company’s digital currencies currently consist of Bitcoin and Ethereum.

 

At March 31, 2022, had the market price of the Company’s holdings of Bitcoin and Ethereum increased or decreased by 10% with all other variables held constant, the corresponding asset value increase or decrease respectively would amount to $3,953,689 (December 31, 2021 - $3,055,157).

 

17. Capital management

 

The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of equity comprised of issued share capital, reserves and loans payable. The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share issuances or by undertaking other activities as deemed appropriate under the specific circumstances. The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect to capital risk management remains unchanged from the period ended March 31, 2022.

 

- 17 -