HyperBlock Inc. — Interim / Quarterly Report 2019

Feb 29, 2020

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HyperBlock Inc.

Condensed Interim Consolidated Financial Statements

For the nine months ended September 30, 2019 and 2018

(Expressed in US dollars)

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HyperBlock Inc.

Notice of No Auditors Review of Interim Financial Statements

Under National Instrument 51-102, if an auditor has not performed a review of the condensed interim consolidated financial statements; they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying condensed interim consolidated financial statements of the Company have been prepared by management and approved by the Audit Committee and the Board of Directors of the Company.

The Company’s independent auditors have not performed a review of these condensed interim consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada (CPA Canada) for a review of interim financial statements by an entity’s auditors.

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HyperBlock Inc. Condensed Interim Consolidated Statements of Financial Position (Expressed in US Dollars)

			As at		As at
			September 30, 2019		December 31, 2018
	Note		(unaudited)		(audited)
Assets
Current assets:
Cash		$	1,083,379	$	672,635
Accounts Receivable	4		30,824		616,363
Digital assets	6		1,299,200		1,190,962
Sales tax and other receivables			1,516,856		1,658,178
Due from related party	12		56,678
Prepaid expenses,Deposits and Other	5		2,424,105		2,278,671
Total current assets			6,411,043		6,416,809
Non-current assets:
Property and Equipment	7		14,374,353		16,684,040
Investments	9		3,741,675		3,665,151
Total non-current assets			18,116,028		20,349,191
Total assets		$	24,527,070	$	26,766,000
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities	12	$	4,327,717	$	5,854,152
Due to shareholder	12		-		300,000
Unearned revenue			-		286,933
Lease Liability - current	11		977,033		1,630,716
Fair value of derivative financial liabilities	14		94,961		-
Loan Payable	8		-		102,193
PromissoryNote	8		-		3,414,968
Total current liabilities			5,399,711		11,588,962
Non-current liabilities:
Promissory note	8		3,744,346		-
Shareholder loan	12		2,000,000		-
Fair value of derivative financial liabilities	14		851,695		-
Unearned revenue			-		565,244
Lease Liability	11		5,542,971		6,616,026
Total liabilities			17,538,723		18,770,232
Shareholders' equity
Share capital	10		51,368,164		51,368,164
Reserves			499,206		452,055
Retained deficit			(44,879,023)		(43,824,451)
Total shareholders' equity			6,988,347		7,995,768
Total liabilities and shareholders equity		$	24,527,070	$	26,766,000

Going Concern (Note 1) Subsequent Events (Note 17)

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

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HyperBlock Inc. Condensed Interim Consolidated Statements of Loss and Comprehensive Loss (Expressed in US Dollars) (unaudited)

Note	Three months ended Nine months ended
	September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Revenue Digital assets mined 3 Hashrate sales 3 Hostingsales 3	3,377,322 $ 2,296,927 $ 8,370,641 $ 4,345,280 $ 167,328 - 857,095 920,171 161,189 1,663,472 1,454,144 2,099,672
Total revenue	3,705,839 3,960,399 10,681,880 7,365,123
Expenses General and administrative Operating and maintenance costs Depreciation 7 Salaries and wages 12 Consulting fees Professional fees Share-based payments 10 Other expenses	733,384 278,332 2,493,341 447,601 1,822,840 2,760,771 4,049,574 3,533,806 739,171 870,935 2,066,184 2,342,340 275,648 683,438 1,188,525 855,535 157,816 541,754 959,048 585,523 464,863 1,172,680 1,131,349 1,238,290 11,798 - 47,151 - 60,006 85,589 102,489 152,211
Total operating expenses	4,265,526 6,393,499 12,037,661 9,155,306
Income (Loss) before other items Other items (expenses) Unrealized revaluation loss on digital assets 3 Impairment of property and equipment 6 Loss on disposal of property and equipment Gain (loss) on sale of digital assets Foreign exchange gain (loss) Gain on sale of equipment Transaction costs Gain on settlement of accounts payable Loss on prepaid deposits Change in fair value of derivative instruments 14 Other income	(559,686) (2,433,100) (1,355,782) (1,790,183) (612,828) (441,906) (25,417) (1,545,875) - - - (6,861,000) - - (828,341) - (38,709) (210,135) 849,428 (210,135) (57,185) (709,828) (31,806) (688,857) - - 653,315 - - (2,079,269) - (4,048,726) 34,754 - 34,754 - (117,236) - (117,236) - (946,656) - (946,656) - 225,588 27,221 713,170 28,726
Net loss and comprehensive loss	(2,071,958) $ (5,847,020) $ (1,054,571) $ (15,116,051) $
Weighted average number of common shares outstanding	241,317,133 77,308,656 245,019,670 135,490,776
Basic and diluted net lossper share	(0.01) $ (0.08) $ (0.00) $ (0.11) $

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

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HyperBlock Inc.

Condensed Interim Consolidated Statements of Cash Flows (Expressed in US Dollars) (unaudited)

(Expressed in US Dollars) (unaudited)
		Nine months ended	Nine	months ended
		September 30, 2019	September 30, 2018
OPERATING ACTIVITIES
Net income (loss)	$	(1,054,571)	$	(15,116,051)
Items not affecting cash
Depreciation		2,066,184		2,342,340
Unrealized revaluation (gain) loss on digital assets		25,417		1,545,875
Impairment of mining equipment		-		6,861,000
Interest accretion of lease liabilities		826,867		-
Gain on sale of mining equipment		(653,315)		-
Loss on disposal of property and equipment		828,341		-
Share based payments		47,151		-
Unrealized foreign exchange loss		(62,372)		-
Expenses paid in digital assets		435,745		-
Hashrate hosting and mining revenue received
in digital assets		(10,878,468)		(6,890,568)
Change in fair value of derivative instruments		946,656		-
Changes in non-cash working capital:
Accounts receivable		585,539		(474,555)
Sales tax recoverable		141,322		(1,110,838)
Prepaid expenses and other		(145,433)		(1,637,657)
Unearned revenue		(852,177)		682,937
Due to related party		(56,678)		232,240
Trade and other payables		(1,526,435)		7,803,467
Lease liabilities		(1,241,262)		-
Right of use assets		1,188,653		-
Cash flows from(used in)operatingactivities		(9,378,835)		(5,761,809)
INVESTING ACTIVITIES
Purchase of property and equipment		(2,120,175)		(10,313,273)
Cash acquired on acquistion of Cryptoglobal		-		3,044,470
Acquisition of Project Spokane		-		(11,197,495)
Proceeds on disposal of equipment		1,000,000		-
Cash flows from(used in)investingactivities		(1,120,175)		(18,466,298)
FINANCING ACTIVITIES
Proceeds on issuance of common shares		-		12,918,725
Proceeds from disposal of digital assets		10,294,914		2,130,918
Lease Payments		(1,312,345)		-
Loan received (repaid)		(102,193)		102,193
Promissory note payable		329,378		3,358,671
Shareholder loan		1,700,000		-
Cashprovided byfinancingactivities		10,909,754		18,510,507
Net change in cash, during the period		410,744		(5,717,600)
Cash and cash equivalents, beginning ofperiod		672,635		6,352,154
Cash and cash equivalents, end ofperiod	$	1,083,379	$	634,554

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

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HyperBlock Inc. Condensed Interim Consolidated Statements of Changes in Equity (Expressed in US Dollars) (unaudited)

								Retained
	Number of shares		Amount			Reserves	Earnings (Deficit)			Total Equity
Balance, December 31, 2018	245,520,648		51,368,164		$	452,055	$	(43,824,451)	$	7,995,768
Options and RSUs issued	-			-		22,065		-		22,065
Comprehensiveloss	-			-		-		(1,068,975)		(1,068,975)
Balance, March 31, 2019	245,520,648	$	51,368,164		$	474,120	$	(44,893,426)	$	6,948,858
Options and RSUs issued	-			-		13,288		-		13,288
Comprehensiveloss	-			-		-		2,086,362		2,086,362
Balance, June 30, 2019	245,520,648	$	51,368,164		$	487,408	$	(42,807,064)	$	9,048,509
Options and RSUs issued	-			-		11,798		-		11,798
Comprehensiveloss	-			-		-		(2,071,958)		(2,071,958)
Balance, September 30, 2019	245,520,648	$	51,368,164		$	499,206	$	(44,879,023)		6,988,347

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

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HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars) (unaudited)

1. Nature of operations and going concern

HyperBlock Inc. (formerly HyperBlock Technologies Corp. or “HBTC”) (the “Company” or “HyperBlock”) was incorporated in Ontario, Canada on October 10, 2017. The Company’s head office is 209-140 Yonge St, Toronto Ontario, M5C 1X6. The Company’s principal place of business is Bonner, Montana, USA. The Company is a cryptocurrency mining operator and owns specialized servers used to solve complex computational problems known in the industry as mining, to validate transactions on the blockchain. The Company’s business consists of (i) mining cryptocurrency coins using company-owned servers (ii) the hosting of customer-owned servers for the purpose of their mining cryptocurrency coins, and (iii) the hosting of company-owned servers under which the hash rate has been sold to a single customer. HyperBlock focuses on mining Bitcoin, Bitcoin Cash, Ethereum, Litecoin and other significant crypto currencies.

On July 10, 2018 the Company acquired CryptoGlobal Corp. (“CryptoGlobal”) (the “Transaction”), a blockchain and financial technology company that had a diversified portfolio of mining operations, as well as a proprietary crypto vault solution in development for banks and institutional investors. The Transaction constituted a reverse takeover (“RTO”) of CryptoGlobal by HBTC (Note 10) and the Company changed its name from HyperBlock Technologies Corp. to HyperBlock Inc. and its shares became listed on the Canadian Stock Exchange (“CSE”) under the symbol “HYPR”. On May 17, 2019, the Company was issued a cease trade order for failure to meet its continuous disclosure obligations (the issuance of its annual financial statements and associated filings); management is working to reverse this order.

These condensed interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of operations. These consolidated financial statements do not reflect the adjustments to carrying values of assets and liabilities that would be necessary should the going concern assumption prove to be inappropriate, and these adjustments could be material.

During the nine-month period ended September 30, 2019, the Company generated losses from operations of $1,355,782, and a net loss of $1,054,571 due to the loss on disposition of mining equipment. At September 30, 2019, the Company had an operating loss of $1,355,782, working capital surplus of $1,011,331 and long term debts of $5,744,346. These factors form a material uncertainty that may raise significant doubt regarding the Company’s ability to continue as a going concern. Management intends on financing its future development activities and operations from the sale of equity and debt securities. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing or generate sufficient future cash flows from profitable business activities. The Company raised financing through its CEO in the first fiscal quarter of 2019 (Note 12) and subsequently agreed to a long term note payable for this financing (Note 17).

These condensed interim consolidated financial statements do not include any adjustments or disclosures that would be required if assets are not realized and liabilities and commitments are not settled in the normal course of operations. If the Company is unable to continue as a going concern, then the carrying value of certain assets and liabilities would require revaluation to a liquidation basis, which could differ materially from the values presented in the consolidated financial statements.

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HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars) (unaudited)

2. Basis of Presentation

a) Statement of Compliance and Approval

The condensed interim consolidated financial statements of the Company have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The accounting policies followed in these condensed interim consolidated financial statements are consistent with those applied in the Company’s annual consolidated financial statements for the year ended December 31, 2019. The condensed interim consolidated financial statements do not contain all the disclosures require under IFRS and should be read in conjunction with the Company’s annual financial statements and the notes thereto for the year ended December 31, 2018.

The Board approved these condensed interim consolidated financial statements for issuance on February 28, 2020.

b) Basis of Measurement

The condensed interim consolidated financial statements have been prepared on a historical cost basis, except for financial instruments classified as financial instruments at fair value through profit and loss, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

c) Basis of Consolidation

These condensed interim consolidated financial statements include the financial statements of the Company and entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Name of subsidiary	Country of	Percentage	Functional
	Incorporation	Ownership	Currency
Hyperblock LLC(i)	United States	100%	USD
Blockchain Dynamics Inc.(ii)	Canada	100%	USD

(i) Hyperblock LLC is a wholly-owned subsidiary of the Company, which is consolidated from the date of incorporation on December 27, 2017. Hyperblock LLC acquired substantially all the assets of Project Spokane in an asset acquisition that was completed on July 10, 2018.

(ii) Blockchain Dynamics Inc. is a wholly-owned subsidiary, which is consolidated from the date of control was acquired on July 10, 2018. Blockchain Dynamics Inc. was acquired in the acquisition of CryptoGlobal Corp.

The financial statements of the Company’s subsidiaries are included in the condensed interim consolidated financial statements. All intercompany balances and transactions, income and expenses have been eliminated upon consolidation.

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HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars) (unaudited)

d) Presentation and Functional Currency

These condensed interim consolidated financial statements are presented in the US Dollar, which is also the functional currency of the Company and its subsidiaries.

The functional currency of the Company and its subsidiaries has been determined to be the US dollar by management based on consideration of the currency and economic factors that primarily influence the Company’s revenues from mining digital assets and the costs of its business operation. Specifically, the Company considers digital assets to be principally priced in the US dollar and the US dollar to mainly be the currency in which expenses are denominated and settled, by each entity. Changes to these factors may have an impact on the judgment applied in the determination of the Company’s functional currency

Foreign currency transactions that are in a different currency other than the US dollar are recorded at the exchange rate as at the date of the transaction. At the end of each statement of financial position date, any foreign currency based monetary assets and liabilities are translated using the period end foreign exchange rate. Non-monetary assets and liabilities in foreign currencies other than the functional currency are translated using the historical rate. Gains and losses on transactions are included in the profit and loss.

e) Significant Accounting Judgments and Estimates

The preparation of 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 the reported revenues and expenses during the period. Actual results could differ from these estimates.

Significant assumptions about the future and other sources of estimation and judgment uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made, relate to:

(i) Estimates

Valuation of digital assets

Digital assets consist of cryptocurrency denominated assets and are included in current assets. They are considered to be identifiable non-monetary assets without physical substance and are treated as intangible assets not subjected to amortization, under the scope of IAS 38 Intangible Assets. Digital assets are measured at fair value using the quoted price on www.coinmarketcap.com (“CMC”). 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 digital assets are valued based on the closing price obtained from CMC on the date that the digital assets are earned. The digital assets are revalued based on the closing price on CMC as at the end of each reporting period of the Company. The Company is relying on the data available on CMC to be an accurate representation of the closing price for the different digital assets.

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HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars) (unaudited)

Carrying value of mining equipment and data center

The Company evaluates each asset or cash generating unit every reporting period to determine whether there are any indications of impairment. If any such indication exists, which is often judgmental, a formal estimate of recoverable amount is performed and an impairment loss is recognized to the extent that the carrying amount exceeds the recoverable amount. The recoverable amount of an asset or cash generating Company of assets is measured at the higher of fair value less costs to sell and value in use. The evaluation of asset carrying values for indications of impairment includes consideration of both external and internal sources of information, including such factors as the relationship between mining rewards and the required computing power, digital currency prices, the periodic contribution margin of digital currency mining activities, changes in underlying costs, such as electricity, and technological changes.

When required, the determination of fair value and value in use requires management to make estimates and assumptions about expected revenue from service contracts, digital currency prices, required computing power, technological changes and operating costs, such as electricity. The estimates and assumptions are subject to risk and uncertainty; hence, there is the possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances some or all of the carrying value of the assets may be further impaired or the impairment charge reduced with the impact recorded in the interim statement of comprehensive loss.

Useful life of digital asset mining equipment

Management is depreciating mining equipment over its useful life on a straight-line method basis. The mining equipment is used to generate digital assets (refer to discussion on revenue recognition in Note 3). The rate at which the Company generates digital assets and, therefore, consumes the economic benefits of its mining equipment are influenced by a number of factors including the following:

• the complexity of the mining process which is driven by the algorithms contained within the digital assets open source software;

• the general availability of appropriate computer processing capacity on a global basis;

• technological obsolescence reflecting rapid development in the mining machines such that more recently developed hardware is more economically efficient to run in terms of digital assets mined as a function of operating costs, primarily power costs (i.e., the speed of mining machines evolution in the industry) is such that later mining machines models generally have faster processing capacity combined with lower operating costs and a lower cost of purchase.

Based on the Company’s and the industry’s short life cycle to date, there is limited amount of market data available to management to use in its estimates. Furthermore, the data available also includes data derived from the use of economic modelling to forecast future digital assets and the assumptions included in such forecasts, including the price of Bitcoin and network difficulty, are derived from management’s assumptions which are inherently judgmental. Based on current data available management has determined that the straight-line method of depreciation over three years at an annual rate of 33% best reflects the current expected useful life of mining equipment. Management reviews this estimate at each reporting date and will revise such estimates as and when additional data becomes available.

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HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars) (unaudited)

The mining equipment has no residual value at the end of its useful life. Management reviews the appropriateness of its assumption of zero residual value at each reporting date.

As set out in Note 3 management also assess whether there are any indicators of material impairment of mining equipment at the end of each reporting period and if any such indication exists, the Company will estimate the recoverable amount of its mining equipment.

Business combinations

In a business combination all identifiable assets acquired and liabilities assumed are recorded at their fair values. In determining the allocation of the purchase price in a business combination requires management to make certain judgments and estimates about future events, including but not limited to future revenue, future digital asset prices, and future operating costs.

Fair value measurement of stock options and broker warrants

The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date on which they are granted. Estimating fair value for stock options and broker warrants requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires the determination of the most appropriate inputs to the valuation model including the expected life of the stock options and broker warrants, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for stock options and broker warrants are disclosed in Note 10.

Revenues from Bitcoin mining and related service contracts

The Company recognizes revenue from the provision of transaction verification services within digital currency networks, commonly described as “cryptocurrency mining”. As consideration for these services, the Company receives digital currency from each specific network in which it participates (“coins”). Revenue is measured based on the fair value of the coins received. Digital Assets are measured at fair value using the quoted price and are valued based on the closing price obtained from “coinmarketcap.com” at the reporting period corresponding to the different digital assets mined by the Company. Management believes the data available at “coinmarketcap.com” is an accurate representation of fair value.

The Company has determined that the substance of its Bitcoin mining related service contracts is provision of services under IFRS 15 Revenue from Contracts with Customers . Revenue is recognized only when the amount of the contract and separate performance obligations are identified, the transaction can be measured reliably, the transaction price can be allocated to the performance obligations, and the performance obligation is satisfied. Accordingly, the Company has determined that revenue should be recognized as provision of services under the contract is completed. Determination of separate deliverables under the terms of the contract and completion of performance obligation may be subject to significant judgment exercised by management.

Income taxes

Uncertainties exist with respect to the interpretation of evolving tax regulations relating to digital assets, changes in tax laws, and the amount and timing of future taxable income. The Company has not recognized the value of any deferred tax assets in its statements of financial position.

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HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

The Company recognizes the tax benefit from an uncertain tax position only if it is probable that the tax position will be sustained based on its technical merits. The Company measures and records the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s estimated liabilities related to these matters are adjusted in the period in which the uncertain tax position is effectively settled, the statute limitations for examination expires, or when additional information becomes available. The Company’s liability for unrecognized tax benefits requires the use of assumptions and significant judgment to estimate the exposures associated with our various filing positions. Although the Company believes that the judgments and estimates made are reasonable, actual results could differ and resulting adjustments could materially affect our effective income tax rate and income tax provision.

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 such differences will affect the tax provisions in the period in which such determination is made.

Going concern

The assumption that the Company will be able to continue as a going concern is subject to significant judgments by management including the Company’s short and long-term operating budget, expected profitability, investing and financing activities, and management’s strategic planning.

3. Significant accounting policies (condensed)

The following are a condensed list of accounting policies which are consistent with those applied in the most recent annual consolidated financial statements.

(a) Cash and cash equivalents

Cash and cash equivalents in the consolidated statements of financial position are comprised of cash held in bank accounts, cash held in lawyer trust accounts, and investment broker accounts.

(b) Digital assets

Digital assets consist of crypto currency denominated assets such as Bitcoin, Bitcoin SV, Bitcoin Cash, Ethereum, Litecoin and are classified as current 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. Under the revaluation method, increases in fair value are recorded in other comprehensive income, while decreases are recorded in profit or loss. 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.

Crypto currency held by the Company is valued at their fair value using the closing price listed on “Coinmarketcap.com”, a source that aggregates data from multiple exchanges and applies a methodology

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HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

to determine the best quoted USD price on the date the digital assets were generated. Subsequent to initial recognition, digital assets are remeasured at each reporting period to the US dollar price.

(c) Revenue Recognition

(i) Digital Assets Mined

The Company derives a portion of its revenue from digital asset received for providing mining services to various digital currency blockchains. Mining is the process by which transactions are verified and added to the blockchain. A miner is only able to validate transactions once their servers have solved a computationally difficult puzzle.

Revenue is recognized by the Company when payment, in the form of digital asset, is received for mining services rendered. Revenue earned from digital asset mining activities is recognized at the fair value of the digital asset received as consideration on the date of actual receipt. Fair value is measured using the closing price on “coinmarketcap.com”, on the date of receipt. Revenue is recognized daily at the US dollar value for the digital assets mined.

(ii) Hashrate Sales

Hashrate sales represent contracts under which the Company sells hashing power from its servers to mine digital assets to customers for periods ranging from six to thirty-six months. The contracts are structured such that the customer pays an upfront fee for the initial purchase and pays an additional maintenance fee on a daily basis for the Company to maintain the hashing power. The maintenance fee is a fixed amount in US dollars per Terahash and is automatically deducted on a daily basis from the customer proceeds from digital assets mined.

Revenue from the initial sales of the hashing power is deferred and amortized on a straight-line basis over the length of the contract. Revenue from maintenance fees is recorded on a daily basis as earned.

From time to time, the hashrate that has been sold is used to mine a different digital asset than the one the purchaser has selected (“Arbitrage Revenue”). This may occur when the profitability of mining one digital asset is greater than another with the same hashrate. The Arbitrage Revenue that is generated from time to time has been included in the revenue from digital assets mined as it is immaterial.

(iii) Hosting Sales

Hosting sales represent agreements under which the Company will host servers owned by customers for a monthly fee at the Company’s facility. The Company recognizes revenue from hosting sales when the revenue recognition criteria are met. This results in the monthly fees being recognized on a monthly basis. When customers pay for a period greater than one month, the amount is initially recorded as unearned revenue and recognized on a monthly basis.

(d) Property and Equipment

Items of data centre are recorded at cost less accumulated depreciation. Cost includes all expenditures incurred to bring assets to the location and condition necessary for them to be operated in the manner intended by management.

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HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

Subsequent costs are included in the asset’s carrying amount, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.

Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognized in profit or loss.

The Company depreciates the cost of property and equipment based on straight-line depreciation method over their estimated useful lives from the date they are available for use at the following annual rates:

Data centre containers	10%
Data Centre Mining Equipment	33%
Computers & Networking Equipment	33%
Furniture	20%
Leasehold Improvements	33-50%
Tools & Equipment	20%
Right-of-use assets	Over term of the lease

The assets’ residual values, useful lives and methods of depreciation are reviewed at each fiscal year end and adjusted prospectively, if appropriate.

4. Accounts receivable

At September 30, 2019, included in accounts receivable was $13,432 (December 31, 2018 – $485,870) of digital assets receivable (8.5 Bitcoin Cash and 1.1 Bitcoin) and measured using the relevant digital currency fair value at September 30, 2019, obtained from coinmarketcap.com. There was no revaluation loss on accounts receivable incurred during the period ended September 30, 2019 (December 31, 2018 - $334,753).

5. Prepaid expenses and deposits

Previously included in prepaid expenses and deposits was $1,011,261 in deposits made towards construction costs on the expansion and upgrades to the Montana mining facility. The Company canceled the expansion of the Spokane mining facility in the second quarter of 2019 due to regulatory issues with the local municipality in Montana. The Company was refunded $777,185 in prepaid deposits and incurred expenses of $234,071.

Also included in prepaid expenses and deposits at September 30, 2019 is $375,183, in security deposits made to the utility service providers per terms of the contracts (December 31, 2018 - $508,383). These deposits will be either refunded or applied towards last month service charges upon cancellation of the service agreement.

The Company also made deposits in the quarter of $1,384,350 for new equipment. The equipment was received in the third and fourth quarter of 2019. The remaining prepaid expenses and deposits relate to prepaid insurance and security deposits for professional fees, rent and equipment.

17

HyperBlock Inc.

Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars) (unaudited)

6. Digital assets

Digital assets consist of Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and Dash coins. Below is a continuity of digital assets table showing the year ended December 31, 2018, and the nine-month period ended September 30, 2019.

	$ Units $ Units $ Units $ Units $ Units $ Units $
Ending balance as at December 31, 2018	582,974 $ 161.00 348,500 $ 2,306 108,730 $ 1,280 107,866 $ 1,025 38,508 $ 1,313 4,384 $ 51 1,190,962 $ 7,703,998 1,136 104,202 301 - - 165,730 1,186 396,711 4,700 - - 8,370,641 511,763 60 607,532 1,077 - - - - - - - - 1,119,295 721,373 140 667,159 5,364 - - - - - - - - 1,388,532 (8,495,873) (1,333) (1,097,018) (7,332) (91,467) (1,280) (343,779) (2,112) (263,344) (3,922) (3,433) (51) (10,294,914) (389,130) (70) (46,615) (45) - - - - - - - - (435,745) - 155,929 - (202,488) - (17,262) - 93,414 - (54,311) - (698) - (25,417) - (19,401) - - - - - 5,855 - (355) - (253) - (14,154)
Mined additions Received as payments for hashrate sales Received as payments for hosting sales
Liquidations
Expenses/Purchases paid with crypto currency
Unrealized gain (loss) on digital assets
FX adjustments
Ending balance as at September 30, 2019	771,633 $ 93 381,272 $ 1,671 - $ - 29,086 $ 99 117,209 $ 2,091 - $ - 1,299,200 $

18

HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars) (unaudited)

7. Property and equipment

Management assessed the indicators of possible impairment to the mining equipment and datacenter during the quarter ended September 30, 2019 and resolved that there are no indications of impairment existing and determined the recoverable amount of the mining equipment is equal to the net book value. The impairment loss calculated as of September 30, 2019, was $Nil (September 30, 2018 - $6,861,000).

Property and equipment consist of the following:

Cost Balance, December 31, 2018 Additions Assets classified as held for sale and other disposals Balance, March 31, 2019 Additions Disposals Balance, June 30, 2019 Additions Disposals Balance, September 30, 2019 Accumulated Depreciation and Impairment Balance, December 31, 2018 Depreciation Assets classified as held for sale and other disposals Impairment Balance, March 31, 2019 Depreciation Disposals Balance, June 30, 2019 Depreciation Disposals Balance, June 30, 2019 Net Book Value, December 31, 2018 Net Book Value, September 30, 2019	Mining Equipment Datacenter and Other Right-of-Use Assets Total
	14,580,177 $ 10,621,728 $ 8,697,826 $ 33,899,731 $
	- $ 259,982 $ - $ 259,982 $ (434,133) - $ - $ (434,133)
	14,146,044 $ 10,881,710 $ 8,697,826 $ 33,725,580 $
	187,958 389,507 577,465 $ (841,699) (377,795) (1,219,494)
	14,334,002 $ 10,429,518 $ 8,320,031 $ 33,083,551 $
	1,066,747 215,982 - $ 1,282,728 $ - $ - (1,411,238) (1,411,238)
	15,400,748 $ 10,645,500 $ 6,908,793 $ 32,955,041 $
	(12,401,739) (4,204,963) (608,989) (17,215,691)
	(239,248) (181,903) (305,530) (726,681) 87,448 - - 87,448 - - - -
	(12,553,539) (4,386,866) (914,519) (17,854,924)
	(236,687) (184,810) (178,835) (600,331) - 13,358 55,118 68,476
	(12,790,226) (4,558,318) (1,038,236) (18,386,778)
	(272,147) (198,400) (268,624) (739,171) - - 545,261 545,261
	(13,062,372) (4,756,717) (761,599) (18,580,688)
	2,178,438 $ 6,416,765 $ 8,088,837 $ 16,684,040 $
	2,338,376 $ 5,888,783 $ 6,147,194 $ 14,374,353 $

[1] Mining equipment additions are made up of specialized computer equipment to mine Bitcoin, Bitcoin Cash, Ethereum, Litecoin and Dash.

[2] Right-of-use assets include leased assets which include data center land and building in Montana, and operating facility and office space in Canada. See Note 11.

19

HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

8. Promissory note and loan payable

a) Promissory Note

On January 7, 2018, the Company entered into a purchase agreement with Project Spokane, LLC to acquire substantially all the assets of Spokane which constituted its business. On July 10, 2018, as part of its consideration for Spokane, the Company issued a promissory note to Spokane in the amount of $3,744,346 (CDN $5,000,000) and a fair value of $3,744,346. The fair value was determined using the implied interest rate of 15%. The principal shareholder of Spokane was appointed by HyperBlock to be the Company’s CEO and as such the promissory note is payable to a related party. As at September 30, 2019, the Company had a promissory note payable balance of $3,744,346 owed to Spokane. The note is secured by the assets of the Company and originally matured on July 10, 2019. The loan has no restrictions for early repayment. The loan has no covenants. In July 2019, the Company was able to secure an extension to the maturity date to July 10, 2021, and converted the note to a long term payable with an interest rate of 15% payable each quarter.

b) Bank of Montana Loan

On November 28, 2018, the Company entered into an expansion loan facility with the Bank of Montana for a maximum borrowed amount of $2,625,000. The proceeds of the loan were to be used strictly for the purchase and construction of additional electrical infrastructure at the Spokane datacenter to increase its capacity from 20 MW to 60 MW. The loan was secured by the landlord against the datacenter real estate and cross guaranteed by their corporation, Bonner Property Development, LLC. The expectation of the Company was to increase its lease term upon successfully completing the electrical expansion. The loan had a maturity date of December 1, 2023. The interest rate on the loan was the Primate Rate as published in The Wall Street Journal plus 2.99%. Prime Rate at December 31, 2018 was 3.95%, resulting in total interest on the loan at that date of 6.94%. The interest rate cannot be lower than 8.24% for the life of the loan. Interest payments were calculated on a monthly basis. As at September 30, 2019, the Company had paid $6,393 in interest expense (June 30, 2018 - $Nil). Subsequent to the period of these financials, the Company renegotiated this loan with Bonner Property Development, LLC and used the proceeds to purchase additional servers (Note 17).

9. Investments

On March 14, 2018, the Company invested $3,741,675 (CAD$5.0 million) in a minority interest in Coinsquare through the issuance of 2,857,142 shares of HyperBlock, and the Company received 322,165 common shares of Coinsquare at CAD$15.52 per common share. Coinsquare is an unlisted private company that operates a Canadian based exchange for purchasing and selling cryptocurrencies. The investment in Coinsquare is recorded in the consolidated statements of financial position at September 30, 2019 at its estimated fair value of $3,741,675 (CAD$5.0 million).

10. Share capital and reserves

a) Common Shares

The Company has authorized share capital of an unlimited number of common shares.

Refer to the statement of changes in Equity for a summary of share capital activity.

20

HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

There was no share capital activity for the nine months ended September 30, 2019. As of September 30, 2019, the Company had issued 245,520,648 shares, undiluted weighted average shares outstanding of 245,019,670, and total diluted weighted average shares outstanding of 247,037,478.

b) Incentive Plan

The Company has adopted a Stock Option Plan (“SOP”) under which it is authorized to grant stock options (“Options”) to officers, directors, employees and consultants enabling them to acquire common shares of the Company. The Company has also adopted a Restricted Share Unit Plan (“RSU Plan”) under which it is authorized to gran restricted share units (“RSUs” and, together with Options, “Awards”) to officers, directors, employees and consultants enabling them to acquire common shares of the Company. The maximum number of common shares reserved for issuance of Awards that may be granted under the plan is 10% of the issued and outstanding common shares of the Company.

Stock Options

The stock option activity was as follows:

			Weighted Average Exercise
	Number of Options		Price
Balance, December 31, 2018	7,530,314	$	0.43
Expired,June 30,2019	(3,150,000)	$	0.05
Options Oustanding, September 30, 2019	4,380,314	$	0.70
Options Exercisable, September 30, 2019	3,731,876	$	0.82

As at September 30, 2019 the Company had the following stock options outstanding:

Exercise Price	Number of options outstanding Number of options exercisable Weighted average exercise price Weighted average remaining life (months)
1.49 $ 2.01 $ 2.01 $ 2.07 $ 0.44 $ 0.93 $ 0.05 $	475,763 475,763 1.49 $ 39 509,843 509,843 2.01 $ 39 465,190 465,190 2.01 $ 39 56,423 56,423 2.07 $ 42 395,412 395,412 0.44 $ 45 2,684 2,684 0.93 $ 95 2,475,000 1,826,563 0.05 $ 39
	4,380,314 3,731,876 0.70 $ 40

During the nine months ended September 30, 2019, the Company incurred $22,264 (September 30, 2018 – $Nil) in share-based payments related to stock options. The compensation expenses were based on the fair value of each stock option on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for the nine months ended September 30, 2019 and 2018.

21

HyperBlock Inc.

Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

		2019	2018
Expected life (years)		4.00	n/a
Expected volatility		188%	n/a
Dividend rate		0.00%	n/a
Risk-free interest rate		1.88%	n/a
Weighted average fair value per option granted	$	0.02	n/a

Restricted Share Units (“RSUs”)

The RSU Plan is administered by the Board of Directors as compensation to directors, consultants, and employees. The Board of Directors determines the terms and conditions upon which a grant is made, including any performance criteria or vesting period.

Upon vesting, each RSU entitles the participant to receive one common share, provided that the participant is continuously employed with or providing services to the Company. RSUs track the value of the underlying common shares, but do not entitle the recipient to the underlying common shares until such RSUs vest, nor do they entitle a holder to exercise voting rights or any other rights attached to ownership or control of the common shares, until the RSU vests and the RSU participant receives common shares.

During the year ended December 31, 2018, the Company granted 5,375,000 RSUs to employees, directors and consultants. The RSUs vest immediately for the directors and quarterly over a one-year period for all others. Each RSU shall be settled by the issuance of one common share issued from treasury.

During the nine months ended September 30, 2019, the Company recognized a total of $24,887 (September 30, 2018 - $Nil) as share-based payments related to RSUs. The weighted average fair value of the RSUs granted during the nine months ended September 30, 2019 was $0.026 (CAD$0.035), based on the market price of the Company’s shares on the date the RSUs were granted.

At September 30, 2019, there were 2,225,000 RSUs outstanding (September 30, 2018 – Nil), of which 2,018,750 had vested (September 30, 2018 – Nil).

11. Lease liability

The following table presents the lease obligations of the Company:

		September 30,	December 31,
		2019	2018
Beginning balance	$	8,246,742	$ -
Additions		-	8,697,926
Payment of lease obligations		(1,312,345)	(934,405)
Interest expense on lease obligations		826,867	536,945
Terminated leases		(1,257,024)	-
Foreign exchange		15,764	(53,724)
	$	6,520,004	$ 8,246,742

The following table presents an analysis of the contractual undiscounted cash flows from lease obligations:

22

HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

		September 30,
		2019
Maturity analysis – contractual undiscounted cash flows
Less than one year	$	1,242,365
One to five years		6,362,778
More than five years		4,633,115
Total undiscounted lease obligations as at September 30, 2019		12,238,258
Lease obligations as at September 30, 2019		6,520,004
Current portion		977,033
Non-currentportion	$	5,542,971

The Company’s leases are on facilities used for digital currency mining activities.

12. Key management compensation and related party transactions

(a) Key management compensation

Key management includes personnel having the authority and responsibility for planning, directing and controlling the Company and includes the directors and current executive officers. The value of transactions and outstanding balances relating to key management and entities over which key management have control or significant influence were as follows:

		For the nine months ended	September 30,
		2019	2018
Salaries, wages and benefits, and consulting	$	951,003 $	909,543
fees
Directors’ fees		252,243	115,493
Share-based payments		47,151	-
Total	$	1,250,397$	1,025,036

The Company did not pay any post-employment termination benefits to the related parties during the nine months ended September 30, 2019 or 2018.

(b) Related party transactions and balances

Related party transactions were recorded at their exchange amounts.

During the period ended September 30, 2019, the cumulative loan from the CEO was $2,000,000 (Dec 31, 2018 - $300,000). The on-demand loan was converted to a long-term liability in the quarter. The loan has a maturity date of July 31, 2021 and an interest rate of 15% payable each quarter.

As at September 30, 2019, included in accounts payable and accrued liabilities is $Nil (December 31, 2018 - $159,422) in amounts owing to directors for unpaid salaries, wages and benefits.

As at September 30, 2019, a receivable balance of $56,678 was owed from Spokane for working capital adjustments subsequent to the closing of the July 10, 2018, transaction. As of the date of these financials, the amount has been received in full and no balance is outstanding.

23

HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

13. Segment information

The Company has one operating segment being digital currency mining and related activities. The Company has operations in Canada and the US.

The digital asset mining and data centre are managed on a worldwide basis but operate facilities and sales functions primarily in Canada and the United States.

The geographic information analysis separates the Company’s revenue and non-current assets by the Company’s country of domicile and other countries. In presenting the geographic information, segment revenue has been based on the geographic location of customers and segment assets were based on the geographic location of the assets.

Nine month ended September 30, 2019 Nine month ended September 30,2018 Total revenue 10,284,797 $ 3,404,724 $ Non-current assets Property and equipment 14,295,553 $ 1,255,376 $ US	US	Canada
		Nine month ended September 30, 2019 Nine month ended September 30,2018
		397,082 $ - $ 78,800 $ - $

14. Financial instruments

Fair value hierarchy

Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The hierarchy is summarized as follows:

Level 1: Unadjusted quoted trading prices in active markets for identical financial instruments;

Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly from observable market data; and

Level 3: Inputs that are not based on observable market data.

24

HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

At September 30, 2019:

Cash and cash equivalents Investment in Coinsquare Electricity forward contracts Financial assets and (liabilites) as fair value through profit and loss	Level 1 Level 2 Level 3 $ $ $
	$ 1,083,379 - - - 3,741,675 - -(946,656) -
	$ 1,083,379 $ 2,795,019 $ -

At December 31, 2018:

Financial assets as fair value through profit and loss Cash and cash equivalents Investment in Coinsquare	Level 1 Level 2 Level 3 $ $ $
	$ 672,635 - - - 3,665,151
	$ 672,635 $ 3,665,151 $ -

Cash and cash equivalents are measured using Level 1 inputs. The investment in the private company Coinsquare is measured using Level 2 inputs based on market data consisting of prices paid in recent financings. The electricity forward contracts have been classified as Level 2 within the fair value hierarchy. The fair values of the electricity forward contracts were determined using forward rates and prices corresponding to the Mid-Columbia Peak Power rates. The forward rates and prices were based on spot rates and prices, with forward premiums and discounts taken into consideration. Market data was used to the extent possible. The expected payouts over the term of the forward contracts were discounted to the reporting date using USD OIS (Overnight Indexed Swap) rates.

Financial risk management

The Company is exposed to various financial instrument risks and continuously assesses the impact and likelihood of this exposure. These risks include credit risk, liquidity risk, currency risk, and price risk. Where material, these risks are reviewed and monitored by the Board of Directors.

Credit risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and amounts receivable. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. The carrying amount of financial assets represents the maximum credit exposure. Accounts receivable from one customer of $4,381 (December 31, 2018 - $485,870) was overdue at September 30, 2019 and was not considered to be impaired, and it was collected subsequently.

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 currently settles its financial obligations out of cash or equity, including potential issuance

25

HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

of options or warrants. The Company has a working capital deficit and requires additional financing to meet its current obligations.

Currency risk

As at September 30, 2019, the Company has certain assets and liabilities denominated in CAD. The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currency cash flows. The Company is exposed to foreign currency risk to the extent that the following monetary assets and liabilities are denominated in Canadian dollars:

Cash Sales taxes recoverable Accounts payable Net exposure US dollar equivalent	As at September 30, 2019 CAD$
	150,000 2,023,902 (5,047,657)
	(2,873,755)
	(2,170,018)

Based on the net CAD dollar denominated asset and liability exposures as at September 30, 2019, a 10% fluctuation in the Canadian/US exchange rates would impact the Company’s earnings (loss) for the nine months ended September 30, 2019, by approximately $287,376.

15. Capital management

The Company manages its capital structure in accordance with its strategic objectives, changes in economic conditions, and the risk characteristics of the underlying assets. The Company considers its capital to consist of total equity. The Company is not subject to externally imposed capital requirements.

16. Commitments

Within 1 year Later than 1 year not later than 5 years	Electrical Contracts
	9,116,963 $ 21,677,720 $
	30,794,683 $

The Company has secured fixed electrical pricing for its main crypto mining facility in Missoula County, Montana. The Company secured an additional 10 MW of power at a competitive rate as part of its expansion of the Montana facility intended to begin as of September 2019. As noted in the subsequent events, this expansion was canceled due to regulatory changes, and the Company is actively working with its electrical supplier to resell this excess capacity and reduce its liability. See “Note 17” for additional details.

26

HyperBlock Inc. Notes to the Condensed Interim Consolidated Financial Statements Three and nine months ended September 30, 2019 and 2018 (Expressed in US Dollars)

17. Subsequent events

Subsequent to September 30, 2019, but prior to the financial statement approval date the following significant subsequent events occurred:

a) Promissory Note of $2 million for Server Upgrades

Hyperblock raised $2 million through issuance of a secured promissory note to the Company’s Chairman and CEO. The note is due on July 31, 2021, and carries an interest rate of 15%. These funds were used to purchase T17 and S17 Bitmain servers. The Company had ordered the equipment as of September 30, 2019, and had received the S17 servers in Q4 2019.

b) Bank of Montana Loan

On January 10, 2020, the Company renegotiated a new secured loan agreement with the Bank of Montana and the landlord, for up to $3,540,000 in financing with a three-year amortization that will allow the Company to purchase next generation servers from Bitmain. The loan has an interest rate of approximately 15% and provides the landlord with common share warrants up to 15% of the principal amount withdrawn. As of the release of these financial statements, the Company had incurred transaction costs of $36,000 and had sent deposits to Bitmain for $1,001,966. The servers are expected to be delivered by the end of Q1 2020 and will increase the hash rate at the Montana data center to approximately 285 – 300 Ph/s.

c ) Investor Review

In January 2019, the founders of CryptoGlobal, Rob Segal and James Millership, requested that an Inspector be appointed pursuant to s.161 of the Ontario Business Corporations Act to review the financial terms of the acquisition of CryptoGlobal transaction which were approved as part of a plan of arrangement dated July 10, 2018. Mr. Segal and Mr. Millership have sought to recover from the Company any expenses arising in connection with the review. The Inspector was appointed by the court in July 2019. The Company confirms, as of the date of these financial statements, that there is no insolvency proceeding against it and that it believes there is no other material information relating to its affairs that has not been generally disclosed. No legal claim has been submitted against the Company and no provision has been recorded at September 30, 2019, in relation to this matter. The Company has incurred legal and inspector expenses of approximately $600,000 CDN up to the date of this filing, excluding extra expenses incurred by the auditors and internal staff time to complete this review. The Company currently expects the Inspector’s final report to be completed by the end of Q2 2020.

d ) Resale of excess power

In February 2019, the Company committed to purchasing 5 megawatts of power starting September 1, 2019, to November 30, 2019, and subsequently 10 megawatts of power starting December 1, 2019, to September 30, 2022, at a fixed rate of $38/ MWh. This power was contracted to support the expansion of the data center in Montana and to mitigate volatility in electrical expenses. The expansion was subsequently canceled in Q2 2019 due to regulatory limitations by the local County. The Company is still obligated to buy this power and the value of the commitment is included in the “ Commitments ” section above. The Company is actively working with its local power distributor to increase its 20 MW capacity to partially absorb the 10 MW contract. As of the issue date of these financial statements, the Company has agreed to sell the unused power to the original vendor at $23.75/ MWh from March 1, 2020 to Feb 28, 2021, a loss of $14.25/MWh. This increase in operating expense will be realized in the electrical expenses incurred.

27