As at		Note				December 31, 2022				December 31, 2021
Assets
Current assets
Cash						$	30,515			$	140,127
Accounts receivable and other							1,589				647
Digital assets			7				203,627				323,946
Deposits and prepaid expenses			6				9,892				3,359
							245,623				468,079
Non-current assets
Plant and equipment			8				124,959				96,126
Deposits and prepaid expenses			6				27,220				156,503
Intangible assets and goodwill			9				15,135				–
Total assets						$	412,937			$	720,708
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities			10			$	13,916			$	9,569
Lease liabilities			12				4,325				216
Loans payable			11				11,892				16,278
							30,133				26,063
Non-current liabilities
Lease liabilities			12				16,973				427
Loans payable			11				14,229				23,773
Warrant liability			14				212				99,021
Deferred tax liabilities			24				–				5,456
Total liabilities							61,547				154,740
Shareholders’ equity
Share capital			15				767,641				636,597
Warrants			15				2,122				2,163
Contributed surplus							12,700				11,928
Accumulated deficit							(431,073	)			(188,260	)
AOCI - Unrealized gain on digital asset revaluation			7				–				103,540
Total shareholders’ equity							351,390				565,968
Total liabilities and shareholders’ equity						$	412,937			$	720,708

“Jaime Leverton”	“Joseph Flinn”
Director & Chief Executive Officer	Director

For the years ended December 31		Note				2022				2021
Revenue			20			$	150,682			$	173,774
Cost of revenue			21				(175,649	)			(84,976	)
Gross (loss) profit							(24,967	)			88,798
General and administrative expenses			22				(49,821	)			(40,265	)
Gain on disposition of digital assets			7				–				182
Impairment of mining infrastructure and servers			8				(113,876	)			–
Operating (loss) income							(188,664	)			48,715
Foreign exchange loss							(1,276	)			(3,143	)
Finance expense			11, 12				(7,592	)			(1,355	)
Finance income							922				2,853
Amortization			9				(648	)			–
Gain (loss) on revaluation of warrant liability			14				98,810				(114,161	)
Net loss before tax and revaluation on digital assets							(98,448	)			(67,091	)
Loss on revaluation of digital assets			7				(134,772	)			–
Deferred income tax expense			24				(9,593	)			(5,620	)
Net loss						$	(242,813	)		$	(72,711	)
Other comprehensive income
Revaluation (loss) gain on digital assets, net of taxes			7				(103,540	)			57,859
Total comprehensive loss						$	(346,353	)		$	(14,852	)
Loss per share:
Basic			13			$	(1.29	)		$	(0.54	)
Diluted			13			$	(1.29	)		$	(0.54	)

For the years ended December 31		2022				2021
Cash provided by (used in):
Operating activities:
Net loss		$	(242,813	)		$	(72,711	)
Change in non-cash operating items:
Digital assets mined			(133,040	)			(165,398	)
Digital assets traded for cash			–				1,291
Depreciation and amortization			94,528				23,288
Impairment of mining infrastructure and servers			113,876				–
Gain on disposition of digital assets			–				(182	)
Loss on revaluation of digital assets			134,772				–
(Gain) loss on revaluation of warrant liability			(98,810	)			114,161
Share based payments			6,913				9,876
Deferred income tax expense			9,593				5,620
Net finance (income) expense and other			6,670				(1,498	)
Foreign exchange loss			1,276				3,143
			(107,035	)			(82,410	)
Net change in working capital (note 23)			2,001				2,169
Net cash used in operating activities			(105,034	)			(80,241	)
Investing activities
Purchase of plant and equipment			(72,701	)			(86,431	)
Deposits and prepaid expenses			(733	)			(148,636	)
Business acquisition			(30,174	)			–
Net cash used in investing activities			(103,608	)			(235,067	)
Financing activities
Repayment of loan payable			–				(25,372	)
Finance draws from equipment financing			–				56,397
Debt issuance cost			–				(1,426	)
Repayment of loan payable for financed equipment			(16,380	)			(14,950	)
Proceeds from issuance of common shares, net of issuance cost			124,855				390,895
Proceeds from exercise of warrants and options			14				49,359
Finance income received			923				2,413
Finance expense paid			(5,012	)			(1,349	)
Payment of lease obligations			(4,574	)			(126	)
Net cash provided by financing activities			99,826				455,841
(Decrease) Increase  in cash			(108,816	)			140,533
Cash, beginning of year			140,127				2,816
Effect of movement in exchange rates on cash held in foreign currencies			(796	)			(3,222	)
Cash, end of year		$	30,515			$	140,127

For the year ended		Number of shares				Share capital				Warrants				Contributed surplus				Accumulated deficit				Accumulated other comprehensive income				Total
Balance, December 31, 2021			169,590,061			$	636,597			$	2,163			$	11,928			$	(188,260	)		$	103,540			$	565,968
Net loss			–				–				–				–				(242,813	)			–				(242,813	)
Other comprehensive loss			–				–				–				–				–				(103,540	)			(103,540	)
Comprehensive loss			–				–				–				–				(242,813	)			(103,540	)			(346,353	)
Other equity movements
Shares issued for equity raises			49,646,368				124,771				–				–				–				–				124,771
Shares issued on vesting of RSU			1,197,499				5,601				–				(5,601	)			–				–				–
Shares issued on vesting of DSU			76,296				574				–				(574	)			–				–				–
Shares issued under employee stock purchase plan			33,022				84				–				–				–				–				84
Shares issued on exercise of warrants			863				3				(2	)			–				–				–				1
Shares issued on exercise of options			3,333				11				–				(5	)			–				–				6
Expiry of broker warrants			–				–				(39	)			39				–				–				–
Share based payments			–				–				–				6,913				–				–				6,913
Balance, December 31, 2022			220,547,442			$	767,641			$	2,122			$	12,700			$	(431,073	)		$	–			$	351,390

For the year ended		Number of shares				Share capital				Shares to be issued				Warrants				Contributed surplus				Accumulated deficit				Accumulated other comprehensive income				Total
Balance, December 31, 2020			97,245,223			$	178,231			$	398			$	2,560			$	4,234			$	(115,549	)		$	45,681			$	115,555
Net loss			–				–				–				–				–				(72,711	)			–				(72,711	)
Other comprehensive income			–				–				–				–				–				–				57,859				57,859
Comprehensive income (loss)			–				–				–				–				–				(72,711	)			57,859				(14,852	)
Other equity movements
Shares issued for equity raises			58,682,500				314,756				–				4,959				–				–				–				319,715
Shares issued on exercise of RSU			317,313				990				–				–				(990	)			–				–				–
Shares issued on exercise of DSU			42,500				48				–				–				(48	)			–				–				–
Shares issued on exercise of options			170,639				1,207				–				–				(484	)			–				–				723
Shares issued on exercise of warrants			8,661,887				31,679				–				(5,288	)			–				–				–				26,391
Shares issued on exercise of warrant liability			4,089,999				109,288				–				–				–				–				–				109,288
Shares issued on settlement of accounts payable			380,000				398				(398	)			–				–				–				–				–
Expiry of broker warrants			–				–				–				(68	)			68				–				–				–
Share based payments			–				–				–				–				9,876				–				–				9,876
Share based payments withholding			–				–				–				–				(728	)			–				–				(728	)
Balance, December 31, 2021			169,590,061			$	636,597			$	–			$	2,163			$	11,928			$	(188,260	)		$	103,540			$	565,968

1.	Nature of presentation:

2.	Basis of presentation:

(a)	Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Standards Interpretations Committee.

These consolidated financial statements were approved and authorized for issuance by the Board of Directors on March 8, 2023.

(b)	Application of IFRS

IFRS does not currently provide specific guidance to address many aspects of the digital asset industry. The Company is required to make judgments as to the application of IFRS and the selection of its accounting policies. The Company has disclosed its presentation, recognition and derecognition, and measurement of digital assets, and the recognition of revenue as well as significant assumptions and judgments, however, if specific guidance is enacted by the IASB in the future, the impact may result in changes to the Company’s earnings and financial position as presented.

(c)	Basis of presentation

These consolidated financial statements have been prepared on a historical cost basis except for some financial instruments that have been measured at fair value. All amounts are presented in Canadian Dollars (“CAD”), unless otherwise stated.

Certain comparative figures have been reclassified where necessary to conform with current year presentation.

(d)	Consolidation

These consolidated financial statements include the assets, liabilities, revenues and expenses of the Company and all entities in which the Company has a controlling interest. Subsidiaries are entities that the Company controls either when it is exposed, or has rights, to variable returns from its involvement with the entities and has the ability to affect those returns through its power over the entities.

The significant operating subsidiaries of the Company included in the consolidated financial statements are as follows:

	% Ownership
Hut 8 Holdings Inc.	100%
Hut 8 High Performance Computing Inc.	100%

All intercompany transactions, balances, income and expenses are eliminated on consolidation.

(e)	Functional and presentation currency

Items included in the consolidated financial statements of the Company and its wholly owned subsidiaries are measured using the currency of the primary economic environment in which the entity operates. These consolidated financial statements have been prepared in Canadian dollars, which is the Company’s functional and presentation currency.

(f)	Use of estimates and judgements

The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. Actual results may differ from those estimates.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company.

Estimates and underlying assumptions are reviewed by management on an ongoing basis, and revisions to accounting estimates are recognized in the period giving rise to the change.

The following are the significant judgement, estimates and assumptions that have been made in applying the Company’s accounting policies that have the most significant effect on the amounts in the consolidated financial statements:

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income.

The Company’s liability for unrecognized tax benefits requires the use of assumptions and significant judgment to estimate the exposures associated with the Company’s filing position. Although the Company believes that the judgments and estimates made are reasonable, actual results could differ and resulting adjustments could materially affect effective income tax rate and income tax provision. Any changes, based on additional available information, are accounted for prospectively as a change in accounting estimate.

Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

 

(ii)

Impairment of non-financial assets and goodwill

Impairment exists when the carrying value of an asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. These calculations are based on available data, other observable inputs and projections of cash flows, all of which are subject to estimates and assumptions. Recoverable amounts are also sensitive to assumptions about the future usefulness of in-process development and the related marketing rights.

(iii)

Revenue recognition and value of digital assets

There is currently no specific definitive guidance in IFRS or alternative accounting frameworks for the accounting for the mining of digital assets and subsequent measurement of the digital assets held. Management has exercised significant judgment in determining appropriate accounting treatment. Management has determined that revenues should be recognized as the fair value of digital assets received in exchange for mining services on the date that digital assets are received and subsequently measured as an intangible asset. In the event authoritative guidance is enacted by the IASB, the Company may be required to change its policies which could result in a change in the Company’s financial position and earnings. Management has exercised significant judgement in determining the completion stage for this revenue stream and examined various factors surrounding the substance of the Company’s operations and determined the stage of completion being the completion and addition of a block to blockchain.

(iv)

Warrant liability

The Company uses the Black-Scholes method to determine the fair value of the warrant liability for the warrants that are not publicly traded. The Black-Scholes method requires significant judgement in determining the fair value such as volatility and a risk-free rate of return. A change in these inputs could lead to significant change in the fair value of the warrant liability. The Company uses the publicly listed prices for the warrants that are traded on the public markets to determine the fair value of the warrant liability.

(v)

Plant and equipment

Estimates of useful lives, residual values and methods of depreciation are reviewed annually. Any changes, based on additional available information, are accounted for prospectively as a change in accounting estimate.

(vi)

Functional and presentation currency

The functional currency of the Company has been assessed by management based on consideration of the currency and economic factors that mainly influence the Company’s digital currencies assets, production and operating costs, financing and related transactions. Specifically, the Company considers the currencies in which digital currencies are most commonly denominated and the currencies in which expenses are settled, by each entity, as well as the currency in which each entity receives or raises financing. Changes to these factors may have an impact on the judgment applied in the determination of the Company’s functional currency.

(vii)

Goodwill

(viii)

Accounts receivable and other

The Company is required to assess whether accounts receivables are collectible from customers. Accordingly, Management establishes an allowance for expected credit losses (“ECLs”) for non-payment and delinquent accounts based on historic trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for Management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. If future collections differ from estimates, future profits could be adversely affected.

(ix)

Business combinations

3.	Significant accounting policies:

The accounting policies set out below have been applied consistently to all years presented, except for the change in estimate discussed in Note 4, in these consolidated financial statements.

(i)	Transactions in foreign currency

Within each entity, transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on dates of transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at that date. Foreign exchange differences arising on translation are recognized in the statement of operations. Non-monetary assets and liabilities that are measured at historical cost are translated using the exchange rate at the date of the transaction.

(iii)

Cash

Cash is comprised of bank balances and are primarily held in Canadian dollars and U.S. dollars.

(iv)	Revenue recognition

The Company records revenue from contracts with customers in accordance with IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) as follows:

-

Identify the contract with a customer;

-

Identify the performance obligations in the contract;

-

Determine the transaction price, which is the total consideration provided by the customer;

-

Allocate the transaction price among the performance obligations in the contract based on their relative fair values; and

-

Recognize revenue when (or as) the Company satisfies a performance obligation.

The following are the specific revenue recognition criteria which must be met before revenue is recognized:

The Company has entered into contracts with mining pools and has undertaken the performance obligation of providing computing power to the mining pool in exchange for non-cash consideration in the form of digital asset. Revenue is recognized upon receipt of Bitcoin in exchange for its mining activities at the fair market value of the Bitcoin received. The fair value is determined using the closing Bitcoin price per www.coinmarketcap.com (“Coinmarketcap”).

Management considers the prices quoted on Coinmarketcap to be a level 2 input under IFRS 13 Fair Value Measurement. Any difference between the fair value of digital assets recorded upon receipt from mining activities and the actual realized price upon disposal are recorded as a gain or loss on disposition of digital assets.

b.

Revenues from hosting

The Company has also entered into hosting contracts where it operates mining equipment on behalf of third parties within its facilities. Revenue from hosting contracts is measured as the Company meets its obligation of operating the hosted equipment over time.

-

Monthly recurring revenue (“MRR”) from high performance computing services are recognized as service revenue ratably over the enforceable term of individual contracts which is typically the stated term. The Company satisfies its performance obligation as these services are made available over time. The Company believes this method to be the best representation of transfer of services as it is consistent with industry practice to measure satisfaction through passage of time.

-

Transaction price is determined as the list price of services (net of discounts) that the Company delivers to its customers, taking into account the term of each individual contract, and the ability to enforce and collect the consideration.

-

Revenue from installation services, which are not treated as distinct performance obligations, are recognized over the enforceable term of individual contracts consistent with the schedule of MRR discussed above.

-

Usage revenue (overage and consumption-based services) is recorded as service revenue in the month the usage is incurred/service is consumed by the customer, based on a fixed agreed upon amount per unit consumed.

-

Payment is typically due at the beginning of each month for MRR services and at the end of each month for usage revenue.

Sale of bundled services

The Company offers certain customers bundled connectivity, colocation, and cloud services. Total consideration in contracts with customers are allocated to distinct performance obligations based on their stand-alone selling prices. The Company determined the stand-alone selling price to be the list price at which the Company sells connectivity, and colocation and cloud services.

(v)	Plant and equipment

Plant and equipment are comprised of digital asset mining servers and related infrastructure and right of use of assets. Plant and equipment are recognized at initial cost less accumulated depreciation and impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset, including those attributable to bringing the asset to its intended working condition.

A gain or loss on disposal of a plant and equipment is determined by comparing the proceeds from disposal with its carrying amount, and is recognized as a gain (loss) on disposal in the consolidated statements of operations and comprehensive loss.

Based on the Company and the industry’s limited history to date, Management is limited by the market data available. Furthermore, the data available also includes data derived from the use of economic modelling to forecast future digital assets and the assumptions reflected in such forecasts, including digital asset’s price and network difficulty, as well as derived from Management’s assumptions which are inherently judgmental. Based on current data available, Management has determined that the straight-line method of depreciation best reflects the current expected useful life of mining equipment and related infrastructure. Management will review estimates at each reporting date and will revise such estimates as and when data become available. Management will review the appropriateness of its assumption related to residual value at each reporting date. The estimated useful lives of the Company’s plant and equipment are as follows:

Mining infrastructure	6 – 10 years
Mining servers	2 years
Data centre infrastructure	8 years
Computer and network equipment	3 years
Leasehold improvements	3 years

(vi)	Digital assets

Digital assets meet the definition of intangible assets in IAS 38 Intangible Assets as they are identifiable non-monetary assets without physical substance. They are initially recorded at cost and the revaluation method is used to measure the digital assets subsequently. Where digital assets are recognized as revenue, the fair value of the Bitcoin received is considered to be the cost. Under the revaluation method, increases in fair value are recorded in other comprehensive income, while decreases are recorded in profit or loss. The Company revalues its digital assets at the end of each of its three interim financial reporting periods and at its annual financial reporting period end date. There is no recycling of gains from other comprehensive income to profit or loss. However, to the extent that an increase in fair value reverses a previous decrease in fair value that has been recorded in profit or loss, that increase is recorded in profit or loss. Decreases in fair value that reverse gains previously recorded in other comprehensive income are recorded in other comprehensive income.

Digital assets are measured at fair value using the quoted price on Coinmarketcap. Coinmaketcap is a pricing aggregator, as the principal market or most advantageous market is not always known. The Company believes any price difference amongst the principal market and an aggregated price to be immaterial. Management considers this fair value to be a Level 2 input under IFRS 13 Fair Value Measurement fair value hierarchy as the price on this source represents an average of quoted prices on multiple digital currency exchanges.

The Company’s determination to classify its holding of Bitcoin as current assets is based on management’s assessment that its Bitcoin held can be considered to be a commodity, the availability of liquid markets to which the Company may sell a portion of its holdings.

(vii)

Financial Instruments

 

(a)

Recognition and initial measurement of financial assets:

The Company initially recognizes accounts receivable on the date that they originated. All other financial assets are recognized initially on the trade date or when the Company becomes a party to the contractual provisions of the instrument.

Financial assets except for those trade receivables that do not contain significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

 

(b)

Classification and subsequent measurement of financial assets:

 

On initial recognition, a financial asset is classified in one of those categories at amortized cost, fair value through other comprehensive income (FVOCI), or FVTPL.

Financial assets are not subsequently reclassified except if and in the period the Company changes its business model for managing its financial assets. The amortized cost is subsequently reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss.

After initial recognition, financial assets carried at amortized cost are measured at amortized cost using the effective interest method. Discounting is omitted where the effect of discounted is immaterial.

Assets at FVTPL are measured at fair value with gains and losses recognized in profit or loss.

Financial assets that are measured using FVOCI are measured at fair value with gains and losses recognized in other comprehensive income.

Financial assets carried at amortized costs include cash and accounts receivable. Deposits are recorded at FVTPL.

(c)

Financial liabilities: Classification, subsequent measurement, and gains and losses:

The Company initially recognizes financial liabilities on the trade date at which time the Company becomes a party to the contractual provisions of the instrument. Financial liabilities are classified and measured at amortized cost or FVTPL. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Financial liabilities of the Company carried at the amortized cost include loans payable, and accounts payable and accrued liabilities. Warrant liability is carried at FVTPL.

(d)

Derecognition:

Financial assets:

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. Any gain or loss on derecognition is recognized in profit or loss.

Financial liabilities:

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

(e)

Impairment

The Company recognizes loss allowances for expected credit losses (“ECLs”). The Company uses the single expected credit loss impairment model, which is based on changes in credit quality since initial application.

Measurement of ECLs:

ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. Management establishes an allowance for ECLs for non-payment and delinquent accounts based on historic trends of the probability of default, timing of recoveries, and the amount of loss incurred, adjusted for Management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. If future collections differ from estimates, future profits could be adversely affected.

Presentation of allowance for ECLs in the statement of financial position:

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

(f)

Fair value of financial instruments:

 

Fair values of financial instruments are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

◾

Level 1 ‐ quoted prices (unadjusted) in active markets for identical assets or liabilities;

◾

Level 2 ‐ inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and

◾

Level 3 ‐ inputs for the asset or liability that are not based on observable market data.

Each type of fair value is categorized based on the lowest level input that is significant to the fair value measurement.

(viii)

Impairment of non-financial asset and goodwill

The Company’s identifiable tangible and intangible assets with finite useful lives are reviewed for indicators of impairment at each statement of financial position date and when events or changes in circumstances indicate that they may be impaired. Impairments are recorded when the recoverable amount of assets are less than their carrying amounts. The recoverable amount is the higher of an asset’s fair value less cost of disposal or its value in use.

Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, had no impairment charge been recorded.

(ix)

Leases

At the inception of a contract, the Company assesses whether a contract is or contains a lease based on whether the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

The Company leases office premises, mining sites and equipment. Under IFRS 16, the Company recognizes a right-of-use asset and a lease liability at lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is measured at amortized cost using the effective interest method. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is re measured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

The Company has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized. The Company leases equipment that are not material under IFRS 16.

The Company presents right-of-use assets in plant and equipment, whereas lease liabilities are presented separately in the statement of financial position.

(xii)

Non-monetary transactions

Where the Company is settling a liability for the purchase of goods and services where the price was established in a fiat currency, the difference between the liability settled and the fair value of the digital assets transferred is recognized as a gain or loss on settlement. Otherwise, the transaction is measured based on the fair value of the digital assets exchanged. Any difference between the fair value of the digital assets exchanged and the carrying amount of the digital assets is recognized in profit and loss.

(xiii)

Loss per share

The calculation of earnings per common share is based on the reported net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated on the treasury stock basis. Where potentially dilutive equity instruments are anti-dilutive, basic and diluted earnings per share are the same.

(xiv)

Share capital

Common shares are classified as an equity instrument. Incremental costs directly attributable to the issuance of common shares are recognized as a reduction of equity, net of the related tax effect.

(xv)

Warrants

The Company issues warrant, which entitles the holder to buy the Company’s common shares at an exercise price within a certain time frame. The warrants include a cashless exercise clause, which may result in a variable number of shares being issued for a fixed price due to the use of volume-weighted average price of shares. The Company does not expect the warrants to be exercised on a cashless basis. The Company records these warrants as a financial liability. Upon exercising, the Company records the exercised warrants at fair value immediately before settlement and records the gain or loss through the consolidated statements of operations and comprehensive loss. The Company subsequently measures the warrants at fair value at each reporting date and records the gain or loss through the consolidated statements of operations and comprehensive loss. The broker warrants issued do not include a cashless exercise feature and are classified as equity instruments. Consideration received on the sale of a share and share purchase warrant is allocated using the fair value method.

(xvi)

Contributed Surplus

Contributed surplus includes consideration recognized pursuant to equity-settled share based compensation.

(xvii)

Share based transactions

Equity-settled share based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

The Company issued broker warrants as part of brokered private placement offering for common shares. Broker warrants are measured at fair value at the date of the offering and accounted for as a separate component of shareholders’ equity. When the broker warrants are exercised, the proceeds received together with the related amount allocated as a separate component of shareholders’ equity are allocated to capital stock. If the broker warrants expire unexercised, the related amount separately allocated to shareholders’ equity is allocated to contributed surplus.

(xviii)

Share based compensation plan

Under the Company’s long-term incentive plan, the Company may grant participants restricted share units (“RSUs”), deferred share units (“DSUs”) and stock options (“Options”). RSUs, DSUs and Options, are collectively referred to as “LTIP Units.” LTIP Units are redeemable either for one common share or for an amount in cash equal to the fair market value of one common share (at the option of the Company).

DSUs become redeemable only on the participant’s termination of employment. RSUs generally vest over a three-year period after the date of grant, and may be subject to performance vesting criteria. The Options have different vesting terms based on the individual agreement. The expense related to DSUs, RSUs and Options is measured based on the fair value of the awards at the grant date. The expense is recognized separately in the consolidated statements of operations and comprehensive loss over the vesting period, which is the period over which all of the specified vesting conditions are satisfied. At the end of each reporting period, the Company reassesses its estimates of forfeitures, and recognizes the impact of any revisions into profit or loss. When LTIP Units are redeemed, they are issued to the participant and are recorded as share capital.

(xix)

Income taxes

Income tax comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income, in which case the income tax is also recognized directly in equity or other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to offset the amounts and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Deferred tax is recognized in respect of all qualifying temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.

Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.

(xx)	Provisions

Provisions are recognized when the Company has a present obligation to a third-party and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. The obligation may be legal, regulatory or contractual or it may represent a constructive obligation deriving from the Company’s actions where, by an established pattern of past practice or published policies, the Company creates a valid expectation on the part of other parties that the Company will discharge certain responsibilities.

(xxi)

Segment reporting

The reporting segments are identified on the basis of information that is reviewed by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Company has one reporting segment and all revenues and non-current assets are in Canada.

(xxii)

Standards that are not yet effective and have not been adopted early by the Company

At the date of authorization of these consolidated financial statements, several new, but not yet effective, standards and amendments to existing standards and interpretation 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 consolidated financial statements.

4.	Change in estimate

Plant and equipment

During the year ended December 31, 2021, Management performed an operational efficiency review of its mining equipment, which resulted in changes in the expected useful life of its Infrastructure assets. Previously estimated with a 4-year useful life, the Infrastructure assets are now estimated to have a useful life of 10 years from the date put into service. The result is a change in estimate and applied prospectively. Notwithstanding any future addition to the Infrastructure assets, the effect of the change in useful life on actual and expected depreciation expense, effective the year ended December 31, 2021, is as follows:

		2021				2022				2023				2024				2025				2026				2027				2028				2029
(Decrease) increase in depreciation expense			(9,826	)			(4,672	)			2,204				2,688				2,688				2,688				2,686				1,394				149

Change in tax position

During the year ended December 31, 2021, Management determined that the tax treatment for the digital asset revaluation should be accounted for as capital gain in nature. Previously, the Company accounted for the revaluation as part of business income for tax purposes. The result is a change in estimate and applied prospectively. The Company recorded an income tax recovery of $7,213 to other comprehensive income and $2,136 was recorded to profit and loss for the year ended December 31, 2021.

		Fair value
Accounts receivable and other		$	1,887
Plant and equipment			23,239
Intangible assets			4,240
Goodwill			11,543
Accounts payable and accrued liabilities			(1,212	)
Lease liabilities			(9,523	)
		$	30,174

6.	Deposits and prepaid expenses

The components of deposits and prepaid expenses are as follows:

As at		December 31, 2022				December 31, 2021
Current
Prepaid insurance		$	1,778			$	1,580
Prepaid electricity			3,191				1,308
Deposits related to power purchase agreement			3,000				–
Miscellaneous deposits			1,923				471
Total current deposits and prepaid expenses		$	9,892			$	3,359
Non-current
Deposits for equipment purchase		$	–			$	110,761
Deposits related to power purchase agreement			17,000				20,000
Deposits related to operating site development			902				18,609
Deposits related to electricity supply under electricity supply agreement			8,522				6,252
Other			796				881
Total non-current deposits and prepaid expenses		$	27,220			$	156,503

7.	Digital Assets

The Company’s Bitcoin are either held in custody, subject to lending arrangements or pledged as collateral. The details of the Bitcoin are as follows:

		Amount								Number of digital assets
As at		December 31, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Digital assets - held in custody		$	203,627			$	206,531				9,086				3,518
Digital assets loaned or pledged
Lending arrangements(i)			–				117,415				–				2,000
Total digital assets		$	203,627			$	323,946				9,086				5,518

(i)	Bitcoin subject to lending arrangements.

Below is the Company’s bitcoin mined and transacted:

		Amount				Number of Bitcoin
Total digital assets, January 1, 2021		$	101,962				2,762
Bitcoin mined			165,398				2,786
Bitcoin traded for cash			(1,291	)			(30	)
Gain on disposition of digital assets			182				–
Revaluation of digital assets			57,695				–
Total digital assets, December 31, 2021		$	323,946				5,518
Bitcoin mined			133,040				3,568
Revaluation of digital assets			(253,359	)			–
Total digital assets, December 31, 2022		$	203,627				9,086

During the year ended December 31, 2022, the Company traded Bitcoin for cash totaling $nil (December 31, 2021 – $1.3 million) with a cost of $nil (December 31, 2021 – $1.1 million), which resulted in a realized gain on the sale of Bitcoin of $nil (December 31, 2021 – $ million).

Digital assets held are revalued each reporting period based on the fair market value of the price of Bitcoin on the reporting date. As at December 31, 2022, the price of Bitcoin was $22,412 (US$16,548) (December 31, 2021 – $58,707 (US$46,306)), resulting in a revaluation loss for the year ended December 31, 2022, of $253.4 million. The Company recorded $103.5 million of the loss in other comprehensive loss, net of taxes of $15.1 million, and the remaining $134.8 million was recorded in the statement of operations. As at December 31, 2021, the price of Bitcoin was $58,707 (US$46,306), resulting in a revaluation gain for the year ended December 31, 2021, of $57.9 million, net of tax recovery of $0.2 million. This gain was recorded to other comprehensive income.

Digital Assets – lending arrangements

The Company entered into arrangements with third parties whereby, from time to time, the Company may lend a portion of its digital assets for a period of time (the “Lending Arrangements”). The third parties must return the same amount and type of digital assets upon expiry of the lending period or upon exercise of a call option by the Company. In return for access to certain of the Company’s digital assets, the third parties must pay a borrow fee to the Company.

During the year ended December 31, 2022, the Company suspended its Lending Arrangements with Genesis Global Capital LLC (“Genesis”) and Galaxy Digital LLC (“Galaxy”). The Lending Arrangements with Genesis and Galaxy were subject to a borrow fee, unsecured, due on demand, and repayable in the same amount and type of digital assets. As at December 31, 2022, there are nil Bitcoin (December 31, 2021 – 1,000 Bitcoin) loaned to Genesis and nil Bitcoin (December 31, 2021 – 1,000 Bitcoin) loaned to Galaxy under the Lending Arrangements. The annual borrow fee with respect to the Lending Arrangements ranged from 2.00% - 2.25%. The Lending Arrangement with Galaxy included a guarantee in support of the Lending Arrangement.

As of December 31, 2022, the Company determined the fair value of the digital assets loaned under the Lending Arrangements was $nil (December 31, 2021 – $117.4 million).

During the year ended December 31, 2022, the Company recorded borrow fee income of $0.9 million (December 31, 2021 – $2.8 million). Borrow fee income is recognized within finance income on the consolidated statements of operations and comprehensive loss. As at December 31, 2022, the Company has a borrow fee receivable balance of $nil (December 31, 2021 – $0.4 million).

8.	Plant and equipment

		Mining infrastructure				Mining servers				Data centre infrastructure				Computer and network equipment				Leasehold improvements				Right-of-use assets				Total
Cost
Balance, January 1, 2021		$	45,287			$	88,215			$	–			$	–			$	–			$	504			$	134,006
Additions			1,420				85,012				–				–				–				460				86,892
Balance, December 31, 2021			46,707				173,227				–				–				–				964				220,898
Additions			35,229				157,176				444				6,297				572				13,632				213,350
Acquired through business acquisition			–				–				8,815				4,531				287				9,606				23,239
Balance, December 31, 2022		$	81,936			$	330,403			$	9,259			$	10,828			$	859			$	24,202			$	457,487
Accumulated Depreciation and Impairment
Balance, January 1, 2021		$	21,860			$	79,522			$	–			$	–			$	–			$	101			$	101,483
Depreciation			6,027				17,073				–				–				–				189				23,289
Balance, December 31, 2021			27,887				96,595				–				–				–				290				124,772
Depreciation			5,177				81,820				1,222				2,083				160				3,418				93,880
Impairment			25,999				87,877				–				–				–				–				113,876
Balance, December 31, 2022		$	59,063			$	266,292			$	1,222			$	2,083			$	160			$	3,708			$	332,528
Net book value as of
December 31, 2021		$	18,820			$	76,632			$	–			$	–			$	–			$	674			$	96,126
December 31, 2022		$	22,873			$	64,111			$	8,037			$	8,745			$	699			$	20,494			$	124,959

The Company has assessed four cash generating units (“CGUs”): Drumheller, North Bay, Medicine Hat that are part of the digital asset mining line of business, and a separate CGU for high performance computing line of business with the same name. For the year ended December 31, 2022, the Company identified indicators of impairment for its digital asset mining Cash-Generating Units (“CGU”) and tested its digital asset mining CGUs for impairment. Management has determined the recoverable amount as the Value in Use (“VIU”) for the three digital asset mining CGUs based on geographical area and distinct cashflows: Medicine Hat, Drumheller, and North Bay. These CGUs include mining infrastructure and mining server plant and equipment. The significant assumptions in determining the VIU included the following:

		December 31, 2022
Starting Bitcoin price		$	22,412(US$16,548)
Starting network difficulty		35,364 billion
Discount rate			18.80% –18.90	%
Monthly Bitcoin price growth			2.00% – 2.80	%
Difficulty growth rate			2.80	%

For the year ended December 31, 2022, the Company assessed the VIU of the digital asset mining CGUs. Due to depressed digital asset mining economics, specifically decline in the price of Bitcoin throughout periods during the year ended December 31, 2022, the Company recorded an impairment charge on its digital asset mining CGUs. The difference between the carrying value and recoverable amount of the Company’s digital asset mining CGUs was $98.6 million. The impairment of mining infrastructure and servers by CGU is listed below:

CGU		Carrying value				Recoverable value				Impairment
Medicine Hat		$	79,449			$	44,000			$	35,449
Drumheller			38,062				10,000				28,062
North Bay			73,130				38,000				35,130
		$	190,641			$	92,000			$	98,641

For the year ended December 31, 2022, the Company identified indicators of impairment for its graphics processing unit (“GPU”) mining group of assets and tested its GPU mining group of assets for impairment. Management has determined the recoverable amount of the GPU mining group of assets to be its fair value less costs of disposal (“FVLCD”). Due to the Ethereum Merge during the year ended December 31, 2022, where the Ethereum network changed its consensus mechanism from proof-of-work to proof-of-stake, the Company was unable to mine the Ethereum network using the GPU mining group of assets. The Company was unsuccessful in finding an alternative digital asset to mine with profitable mining economics using the GPU mining group of assets. As a result, the Company recorded an impairment charge on its GPU mining group of assets. The difference between the pre-impairment carrying value and the recoverable amount of the Company’s GPU mining group of assets is $15.2 million.

During the year ended December 31, 2021, due to the positive mining economics, increasing prices of Bitcoin relative to the network difficulty levels, the Company did not record any impairment charges.

9.	Intangible assets and goodwill

		Customer relationships				Goodwill				Total
Cost
Balance, December 31, 2021			–				–				–
Acquired through business acquisition		$	4,240			$	11,543			$	15,783
Balance, December 31, 2022		$	4,240			$	11,543			$	15,783
Balance, December 31, 2021			–				–				–
Amortization			648				–				648
Balance, December 31, 2022		$	648			$	–			$	648
Net book value as of
December 31, 2021		$	–			$	–			$	–
December 31, 2022		$	3,592			$	11,543			$	15,135