Bitfarms Stock

Bitfarms Ltd. engages in the mining of cryptocurrency.

The company, through its subsidiaries, owns and operates server farms, consisted of computers (referred to as a ‘Miner’) designed for the purpose of validating transactions on the Bitcoin (BTC) Blockchain (referred to as ‘Mining’). The company generally operates Miners 24 hours a day producing computational power (measured by hashrate) which it sells to Mining Pools (as defined herein), for a formula-driven rate commonly known in the industry as Full Pay Per Share (FPPS). Under FPPS, pools compensate Mining Companies for their hashrate based on what the pool would be expected to generate in revenue for a given time period if there was no randomness involved. The fee paid by a Mining Pool to the company for its hashrate may be in cryptocurrency, U.S. dollars, or other currency. The company accumulates the cryptocurrency fees it receives or exchanges them for U.S. dollars, as determined to be needed, through reputable and established cryptocurrency trading platforms. Mining Pools generate revenue by Mining with purchased hashrate through the accumulation of block rewards and transaction fees issued by the BTC network.

As of March 20, 2023, the company operated ten total server farms around the world. Seven server farm facilities are located in Quebec, Canada, with electrical infrastructure capacity of 148 MW for Mining Bitcoin; one server farm facility is located in Washington State, United States, with operational electrical infrastructure capacity of 20 MW and expansion opportunities up to 24 MW; one server farm facility is located in Villarrica, Paraguay, with electrical infrastructure capacity of 10 MW; and one server farm facility is located in Argentina, with operational electrical infrastructure capacity of 50 MW, of which 10 MW are operating. The company has contracts securing an aggregate of 160 MW, 10 MW and 24 MW of hydro-electric green energy in Quebec, Paraguay, and Washington, respectively, and up to 210 MW of natural gas energy in Argentina. In addition, the company owns proprietary software, known as the MGMT System, that is used to control, manage, report and secure mining operations. The MGMT System scans and reports the location, status, computing power and temperature of all Miners at regular intervals to allows the company to monitor performance and maximize up-time. The MGMT System was substantially upgraded during 2022 and is continually getting updated to enhance its features and improve its functionality. The revised system is referred to as MGMT-2.

Volta provides electrician services to both commercial and residential customers in Quebec, while assisting the company in building and maintaining its server farms in Quebec.

Business and Strategy

The company’s strategy consists of mainly constructing and operating server farms using a geographically diversified portfolio of energy sources. In support of the strategy, the company has sourced electrical power from Hydro-Quebec, Hydro-Sherbrooke, Hydro-Magog and predominantly power grid operators in Washington state and Paraguay. The company has also entered into an agreement with a private energy producer to secure exclusive use of up to 210 MW of natural gas-powered electricity in Argentina.

The company’s server farms are operated by the MGMT-2 System, a proprietary software suite comprised of three operating programs that control, manage, report and secure the operation. One program in the suite of software is the central point of the infrastructure, and saves the status of the company’s Miners into a database at 30 second intervals. A second program in the suite connects directly to the first program to do the scanning of all the company’s Miners and return the data for analysis and storage. Additionally, the company has an automated cooling management system which autonomously controls exhaust fans to maintain the optimal temperature of the Miners at the locations in which they are operated, based on prevailing ambient conditions.

Digital Asset Management Program

The company’s Digital Asset Management Program commenced in early January 2021 following the implementation of internal controls, counter-party risk assessments and custody arrangement reviews. Rather than selling all Bitcoin mined at then-prevailing market rates, the company decided to retain Bitcoin through its custodial arrangements.

Custody of Crypto Assets

The company retains Coinbase Trust Company LLC as its third-party custodian. Coinbase Trust Company LLC is a US-based fiduciary and qualified custodian under New York Banking Law and is licensed by the state of New York to custody digital assets.

De la Pointe Property

The company completed Stages 1 and 2 of the Sherbrooke Expansion at the De la Pointe Property representing 30 MW of electrical infrastructure, which was operational from 2019 to 2022. In response to complaints concerning noise at the De la Pointe Property and indications from Sherbrooke municipal officials that they were reviewing applicable regulations, the company met with community residents and city officials on several occasions during 2020 and 2021.

Garlock

In March 2022, the company acquired an existing building in Sherbrooke (Garlock). Garlock was completed in two phases and began operations during November and December 2022, representing 18 MW of electrical infrastructure.

Significant Events

In September 2021, the company entered into a contract with PROA, to provide engineering, procurement, and construction services for the Argentina facility. PROA specializes in utility-grade electrical infrastructure and civil construction with relevant expertise in the design and construction of electrical interconnections, high voltage electrical lines, and transformers needed for operations of the size of the planned Argentina facility.

On October 7, 2021, the company announced that it had entered into engineering, procurement and construction contracts with Proyectos y Obras Americanas S.A.(PROA) and Dreicon, as the owner’s engineer to commence construction of a 210 MW production facility in Argentina.

On March 17, 2022, the company began operations in Phase one of the Bunker.

On March 11, 2022, the company acquired a building in Sherbrooke Quebec expected to accommodate 18 MW of electrical infrastructure (Garlock).

On December 16, 2022, the company announced that it had completed the sale of the De la Pointe Property.

During the second quarter of 2022, the company added 3 MW of electrical infrastructure and is operating approximately 20 MW of electrical infrastructure with the majority of the company’s Antminer S19j Pro Miners generating approximately 600 PH/s in this facility. The company’s power supplier has provided a preliminary indication that the next 6 MW of in-process applications are expected to be energized in the first half of 2023 with the remaining 3 MW of in-process applications estimated to be energized after 2027 due to the nearby substation being at capacity.

Products and Services

The company provides the service of validating and verifying transactions on the blockchain for Bitcoin, generating cryptocurrency and transaction fees through the Mining process, as well as provision of electrical services through 9159-9290 Québec Inc., a wholly owned subsidiary of the Company, which also operates under the name Volta Électrique Inc. (Volta).

Hardware and Software

The main components of the company’s cryptocurrency mining operation are specialized computers, frequently referred to as ASIC Miners, that consist of ASIC chips, a power supply unit (PSU), network components, security components, electronic components, cooling components and other ancillary hardware. The hardware consists primarily of WhatsMiner M30S, M31s and M31s+ and Bitmain S19js miners, which comprise most of the company’s mining power; and peripheral computer hardware required to operate the Miners. As of December 31, 2022, the c ompany owned and operated approximately 51,000 ASIC Miners. The majority of the company’s operating ASIC Miners and those recently secured by purchase order in connection with the expansion plans are primarily manufactured by MicroBT and Bitmain Technologies Inc., each leading suppliers of ASIC Miners for the blockchain and Mining industry. The Miners are typically purchased directly from the manufacturer; however, during periods of elevated demand and pricing conditions, the company has made purchases through secondary suppliers on occasion. Software is used to control and to provide management, reporting and security of cryptographic coin mining systems. The company’s software suite consists of three operating programs a software program that provides a real-time status report and reports problems in near-real time; a web interface, management software program that displays various events and alerts by sending short message service (SMS) messages or other alert methods; and a software program that enables management and supervision of the cooling equipment (efficient cooling is an essential condition for the operation of the server farm). The software can be scaled to manage an unlimited number of ASIC components and sites. The software is regularly updated by the company to incorporate new or upgraded features.

Custody of Crypto Assets

The company’s crypto assets, Bitcoin, is mined to multi-signature wallets that the company controls. On a regular basis, the company transfers Bitcoin from its multi-signature wallets to an external third-party custodian, Coinbase Trust Company, LLC (Coinbase Custody). Coinbase Custody is a US-based fiduciary and qualified custodian under New York Banking Law and is licensed by the state of New York to custody digital assets. Coinbase Custody provides only custodial services to the company and does not use a sub-custodian. Coinbase Custody is not a related party to the company. Coinbase Custody is a fiduciary of § 100 of the New York Banking Law and is licensed to custody its clients’ digital assets in trust on their behalf. Coinbase Custody is a qualified custodian for purposes of § 206 (4) -2(d)(6) of the Advisers Act of 1940, as amended.

As of March 20, 2023, the company had accumulated 385 BTC. The company is unaware of any security breaches involving Coinbase Custody which have resulted in the company’s crypto assets being lost or stolen, and anything with regards to Coinbase Custody’s operations that would adversely affect the company’s ability to obtain an unqualified audit opinion on its audited financial statements.

History

Bitfarms Ltd. was founded in 2017. The company was incorporated under the Canada Business Corporations Act in 2018 and continued under the Business Corporations Act (Ontario) in 2021.