Item 1a. Risk Factors
An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Annual Report, including our financial statements and related notes, before making a decision to invest in our securities. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business, financial condition and operating results.
Risks Related to our Business and Operations
Energy costs in the regions where we operate may increase.
Our operations require significant amounts of electrical power and our business, financial condition, and results of operations may be impacted by the unavailability of power and/or price fluctuations in the power market. Energy costs generally are subject to government regulation, natural occurrences (including weather) and local supply and demand for energy. The availability and pricing of energy may be negatively affected by governmental or regulatory changes in energy policies in the jurisdictions in which we operate. In addition, the Company is exposed to negative impacts of changes in tax policy, including but not limited to, being precluded from claiming back input taxes or other specific taxes imposed on hashrate provisions, as well as risks of losing any existing energy rebates or tax rebates across some or all jurisdictions.
In particular, the Russian invasion of Ukraine is affecting the supply of oil and natural gas in Europe. Natural gas is a primary source of energy for homes and industry in Europe. While it is impossible to predict what affect the conflict in Ukraine could have on the Company's operations in Sweden, our energy pricing is currently buffered partially by the ability to enter into forward energy agreements for the purchase of electricity. Our Swedish operation utilizes approximately 34 MW of renewable hydroelectric energy, which represents approximately 7.6% of our global overall utilization of hydroelectric energy.
In addition, the instability in Venezuela and the outbreak of military conflict in Iran, including restrictions on transit of ships through the Strait of Hormuz, has and may continue to disrupt the supply of energy products including oil and other petroleum-based products. These circumstances have led to a decrease in the availability of such products and consequently an increase in their prices.
The Company has operations multiple jurisdictions that have regulated electrical power supplies, such as Sweden, the Provinces of Québec and New Brunswick, and Paraguay. There can be no assurance that electricity can be provided on terms which are economic for the Company's current and future operations, anticipated growth, and sustainability.
Given the limited availability of power and constraints in many markets, if our power purchase agreements were terminated, delayed, or not renewed on favorable terms, we may be unable to find an adequate replacement at a reasonable cost, or at all.
Prolonged power outages or disruptions in the power supply may adversely affect our business, operations and financial condition.
Our operations are also vulnerable to prolonged power outages or other disruptions in the supply of electricity. Power availability and prices may also be materially impacted by other factors outside of our control, such as: supply disruptions, including plant outages and transmission disruptions; changes in power transmission infrastructure and generation capacity in the markets in which we operate; changes in law, including environmental laws, rules and regulations; extreme weather conditions and other natural disasters; supply chain disruption of components needed to transmit electricity; labor disputes; security breaches, including cybersecurity attacks on local grid providers, and changes in the demand for power or patterns of power usage. An interruption in power availability or increase in power costs could materially and adversely affect our business, financial condition, and results of operations.
Our development and growth of new projects are subject to risks that could cause delays or increased costs and could adversely affect our business.
Our ongoing and planned development of existing and planned facilities is subject to various factors, and may be delayed or adversely affected by factors beyond the Company's control, including delays in the delivery or installation of equipment by suppliers, difficulties in integrating new equipment into existing infrastructure, shortages in materials or labor, defects in design or construction, diversion of management resources, insufficient funding or other resource constraints. Actual costs for development may exceed the Company's planned budget. Delays, cost overruns, changes in market circumstances and other factors may result in different outcomes than those intended.
The development of facilities and any other development and growth projects that HIVE may undertake in the future are, and may continue to be, subject to execution and capital cost risks, including, but not limited to, risks relating to regulatory approvals; financing and availability of financing; cost escalations; cash flow constraints; construction delays; supply chain constraints; skilled labor and capital constraints cost reduction plans and strategic reviews. The occurrence of any of the foregoing risks may have a material adverse effect on HIVE, its liquidity and financial condition, its ability to operate, its workforce and its cash flow.
Server malfunctions or failures could harm our business.
There is a risk of serious malfunctions in servers or central processing units and/or their collapse. HIVE works to reduce this risk by employing a team of experts with many years of experience in building and managing data centers. HIVE utilizes this team of experts that enables, among other things, control, management and reporting of malfunctions in real time, which enables ongoing control over the operation of the equipment, including its cooling. While malfunctions in central servers, or central processing units may only occur on a specific server farm or part of it or for short periods of time, such server crashes or failures may cause significant economic damage to the Company.
Risk of physical security breach or theft.
We maintain operations in Paraguay, where we may be subject to heightened risks related to physical security and the potential for theft or unauthorized access to our facilities, equipment, or assets. While we implement commercially reasonable security measures, including on-site security personnel, surveillance, and access controls, the effectiveness of these measures cannot be guaranteed. Any successful physical breach or theft at our Paraguayan operations could result in physical harm to employees and agents of the Company, hostage taking and ransom demands, the loss or compromise of critical equipment, disruption of operations, increased costs and potential legal or reputational harm. In addition, repeated or significant incidents could require us to incur additional expenses to enhance security or seek other appropriate remedies, which may adversely affect our financial condition or results of operations.
Risk of physical threats to management.
Due to the nature of the Company's business, public profile, digital asset exposure and publicly disclosed infrastructure and asset holdings, the Company and certain of its directors, officers and employees may face heightened risks relating to theft, cyber extortion, fraud, physical security threats, kidnapping, ransom demands, coercion, targeted attacks or other criminal activity. Public disclosure relating to the Company's operations, digital assets, infrastructure, executive personnel or strategic initiatives may increase the visibility of the Company and its personnel to malicious actors. This increased risk may make it difficult for the Company to hire and retain talented personnel.
We may be unable to obtain adequate insurance coverage.
The Company's operations and computing equipment are subject to all of the hazards and risks normally encountered by blockchain, high performance computing and digital asset companies. Natural disasters, including floods, fires, inclement weather, mudslides, earthquakes, or other similar events beyond the control of the Company or its suppliers, any of which could result in damage to, or destruction of, ASIC and/or GPU based computing equipment, damage to life or property, environmental damage, and possible legal liability for which the Company may not be insured or is underinsured. Further, any failure in the Company's software, including software that maintains our ability to effectively manage our data centers, could have a material adverse effect on the Company's business, results of operations and financial condition.
Notably, the Company is unable to obtain insurance covering the loss of its cryptocurrency assets. To the extent possible, the Company will maintain insurance against risks in the operation of its business and in amounts that it believes to be reasonable, such insurance will contain exclusions and limitations on coverage. If we incur losses that are material, our business, operating results and financial condition could be adversely affected and we may not have insurance coverage. Even in the case of a loss for which the Company maintains insurance, there is no guarantee that such insurance coverage will be sufficient or that insurance proceeds will be paid to us.
Hazards associated with high-voltage electricity transmission and industrial operations may result in suspension of our operations or the imposition of civil or criminal penalties.
The operations of the Company are subject to hazards associated with high-voltage electricity transmission and the supply of utilities to the facilities of the Company at an industrial scale. These hazards include the possibility of explosions, fires, severe inclement weather, natural disasters, flooding, mechanical failure, unscheduled downtime, brown-outs, equipment interruptions, remediation, chemical spills, discharges or releases of toxic or hazardous substances or gases and other environmental risks. The hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage. The happening of any of these events could result in of operations and the imposition of civil or .
Future Profits/Losses and Production Revenues/Expenses
Further development and acquisition of server farms and data centers and the ongoing operation of the existing facilities will require additional capital and monthly expenses. The Company's operating expenses and capital expenditures may increase in subsequent years as we add needed consultants, personnel and equipment associated with the maintenance and updating of the existing facilities and any other facilities the Company may acquire. There is no assurance that the Company will be successful in obtaining the required financing for these or other purposes, including for general working capital.
We have previously engaged in strategic transactions, including acquisitions of companies, technologies and personnel. In the future, we may seek additional opportunities to grow our ASIC compute and HPC operations, including through purchases of miners, equipment and facilities from other operating companies and through development of new facilities. Our ability to grow through future acquisitions and development will depend on the availability of, and our ability to identify, suitable acquisition and investment opportunities, our ability to compete effectively to attract those opportunities and the availability of financing to complete acquisitions. Future acquisitions and development may require us to issue common stock that would dilute our current stockholders' percentage ownership.
We may incur substantial costs to maintain and upgrade our hardware over time and to grow our business .
ASICs, GPUs and other necessary equipment for our operations are subject to malfunction and obsolescence. Moreover, much of the hardware we use in our facilities has a finite life and will require replacement over time as our hardware ages. In particular, the rapid pace of technological advancements in GPU hardware presents a risk of hardware obsolescence. As newer and more efficient GPUs are developed and deployed, existing hardware may quickly become outdated, leading to reduced performance, compatibility issues with new software or systems, and potential difficulties in sourcing customers looking to utilize the hardware.
To remain competitive, the Company will continue to invest in hardware and equipment at its facilities required for maintaining the Company's ASIC and HPC activities. Should competitors introduce new services/software embodying new technologies, the Company's hardware and equipment and its underlying technology may become uncompetitive or obsolete and require substantial capital to replace such equipment. There can be no assurance that new hardware will be readily available when the need is identified.
Equipment in the HIVE Facilities will require replacement from time to time. Shortages of graphics processing units, in particular, may lead to unnecessary downtime as the Company searches for replacement equipment to ensure the HIVE Facilities are running smoothly. Moreover, new and unforeseeable technology, whether hardware or software-based, could disrupt the industries in which we operate.
Our reliance on third-party suppliers could adversely affect our operations.
We rely on third-party manufacturers for equipment and materials, including ASICS and GPUs. The equipment used in our operations is generally manufactured by third parties using a large amount of commodity inputs (for example, steel, copper, aluminum). Increased demand from the cryptocurrency industry, the HPC market, data centers and similar sectors has exacerbated on-going global supply chain issues. Shortages in global semiconductor chip supply may impact procurement timelines for equipment. Such issues may cause delays in the delivery of, or increases in the cost of, the equipment used in our operations, which could materially impact our operating results and may delay our expansion plans.
Further, procurement from suppliers which manufacture equipment outside of North America exposes us to additional risks, such as import and export licensing and control requirements, difficulties associated with transacting business with parties in foreign jurisdictions, increased costs and uncertainties associated with enforcing contractual obligations, and other unexpected or unfavorable changes in other regulations and applicable regulatory requirements.
Increasing scrutiny of our environmental, social and governance ("ESG") practices and the impacts of climate change could increase our operating costs, divert management attention from our strategic goals, and adversely affect our business.
In recent years, investor advocacy groups, certain institutional investors, investment funds and other influential investors have increasing focused on ESG practices, and have placed increasing importance on the environmental and community impacts of their investments. Enhanced public awareness and concern regarding environmental risks, including global climate change, may result in increased public scrutiny of our business. As a result, our management's time and energy may be diverted from executing on our strategic goals towards responding to such scrutiny and further advancing our ESG practices, which may not necessarily enhance the value of our Common Shares or positively impact shareholder return.
In addition, the impacts of climate change may affect the availability and cost of materials, natural resources and sources and supplies of energy, which may increase the cost of our operations. Changes in U.S. federal policy, including actions by the current administration signaling a shift away from supporting renewable energy, could result in fewer renewable energy projects being constructed and lead to increases in electricity prices, which may adversely affect our energy costs and the availability of renewable power for our operations. Other factors which may impact our profitability include, but are not limited to, fluctuating demand for Bitcoin and other cryptocurrencies, insurance and other operating costs, and damage incurred as a result of extreme weather events. New environmental laws, regulations or industry standards may be adopted with little or no notice to us and may impose significant operational restrictions and compliance requirements on our operations. The cost of compliance with changes in government regulations has the potential to reduce the profitability of our operations or cause delays in the development of new digital infrastructure projects.
Cybersecurity threats and hacking attacks could compromise our systems and data, resulting in material adverse effects on our business, financial condition, and results of operations.
Threats to network and data security are increasingly diverse and sophisticated, and security breaches, computer malware and computer hacking attacks have been an increasing concern and could be enhanced or facilitated by AI. Despite our efforts and processes in place to prevent them, our computer servers and systems may be vulnerable to cybersecurity risks, such as denial-of-service attacks, physical or electronic break-ins, social engineering attacks, including phishing and business email compromise, employee theft or misuse and similar disruptions from unauthorized tampering. Techniques used to breach security change frequently and are generally not recognized until launched against a target. We may not be able to promptly detect that a cyber has occurred, implement security measures in a timely manner or, if and when implemented, we may be determine the extent to which these measures could be .
Recent developments in the cyber threat landscape include use of AI and machine learning to mount more frequent and sophisticated cyber extortion and ransomware attacks. A party who is able to compromise the security measures on our networks or the security of our infrastructure could misappropriate the proprietary or sensitive information belonging to us, our customers, or our employees, or cause interruptions or malfunctions in our operations or our customers’ operations. In the event of a security breach, we may suffer damage to our key systems and experience interruption in our services, loss of ability to control or operate our equipment or loss of critical data that could interrupt our operations. Any breaches that may occur in the future could us to increased risk of lawsuits, regulatory , of existing or potential customers, relating to of proprietary information, to our reputation, and increases in our security costs, which could have a material effect on our business, financial condition, and results of operations.
We rely on third-party custody providers' solutions to safeguard digital assets from theft, loss, destruction or other issues relating to cyberattacks. Notwithstanding the safeguards implemented to protect our assets, the third-party security systems may not be impenetrable or free from defect, and any loss due to a security breach, software defect or event outside of our control will be borne by us.
Our business is highly dependent on a small number of equipment suppliers. If we are unable to procure the required equipment to maintain and grow our business, our expansion plans, business, financial performance, financial condition and results of operations.
The success of our business is dependent on our ability to acquire and configure appropriate hardware solutions to remain competitive and to pursue our growth strategies. There number of suppliers who can provide AI/HPC equipment or the equipment necessary for our hashrate business is limited, and the market price and availability of equipment can be volatile.. There can be no assurance that we can acquire enough hardware or replacement parts on a cost-effective basis, or at all, for the maintenance and expansion of our operations. For example, historically Bitmain has been a key supplier of equipment. Higher Bitcoin prices increase the demand for this type of equipment, which in turn increases equipment cost. Additionally, as more participants enter the industry, the demand for equipment may outpace supply, thereby creating shortages. Our expansion into the HPC and AI services market requires equipment specifically designed for HPC and AI services, which typically comes from different suppliers. However, demand for GPUs and other equipment utilized for HPC and AI workloads and there can be no assurance that we will be able to procure needed equipment on cost-effective terms or at all.
If we cannot obtain a sufficient quantity of equipment needed for our hashrate services or our HPC business, at commercially acceptable prices, our growth expectations, our planned HPC and AI expansion, , liquidity, financial condition and results of operations will be adversely impacted. Even if we are able to procure equipment, we may encounter delays and incur added costs as a result of the time it takes to negotiate terms and install new hardware. Further, the pricing, delivery schedule and other terms of any such alternative source may be less favorable, and there can be no assurance that we will be able to procure necessary hardware at commercially acceptable prices or at all in order to implement our business strategy which includes expanding and diversifying our revenue sources by offering HPC and AI services or otherwise. As a result, any change in our equipment suppliers could adversely affect our expansion plans, business, financial performance, financial condition and results of operations.
Risks Related to ASIC Compute
Regulatory changes or actions may alter the nature of an investment in the Company or restrict the use of cryptocurrencies in a manner that adversely affects the Company's operations.
As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies with certain governments deeming them illegal while others have allowed their use and trade. On-going and future regulatory actions may alter, perhaps to a materially adverse extent, the ability of the Company to continue to operate.
We earn Bitcoin in exchange for computational power used for hashing calculations from mining pool operators. Regulatory action, particularly in the United States, may negatively affect the value of Bitcoin, which is the focus of our mining operations. Enforcement actions by the SEC or other regulators against trading platforms and exchanges may indirectly negatively affect the Company if these actions have the effect of limiting public access to Bitcoin. The effect of any future regulatory change on the Company or any cryptocurrency that the Company may mine is impossible to predict, but such change could be substantial and adverse to the Company.
Governments may in the future curtail or outlaw, the acquisition, use or redemption of cryptocurrencies. Ownership of, holding or trading in cryptocurrencies may then be considered illegal and subject to sanction. Governments may in the future take regulatory actions that may increase the cost and/or subject cryptocurrency companies to additional regulation or prohibit or severely restrict the right to acquire, own, hold, sell, use or trade cryptocurrencies or to exchange cryptocurrencies for fiat currency. By extension, similar actions by other governments, may result in the restriction of the acquisition, ownership, holding, selling, use or trading in our Common Shares. Such a restriction could result in the Company liquidating its Bitcoin or other cryptocurrency inventory at unfavorable prices and may adversely affect the Company's shareholders.
The value of cryptocurrencies may be subject to volatility and momentum pricing risk.
Momentum pricing typically is associated with growth stocks and other assets whose valuation and prior price performance, as determined by the investing public, may give rise to anticipated future appreciation in value. Cryptocurrency market prices are determined primarily using data from various exchanges, over-the-counter markets, and derivative platforms. Momentum pricing may have resulted, and may continue to result, in speculation regarding future appreciation in the value of cryptocurrencies, inflating and making their market prices more volatile. As a result, they may be more likely to fluctuate in value due to changing investor confidence in future appreciation (or depreciation) in their market prices, which could adversely affect the value of the Company's cryptocurrency inventory and thereby affect the Company's shareholders.
The profitability of the Company's operations will be significantly affected by changes in prices of cryptocurrencies. Cryptocurrency prices are highly volatile, can fluctuate substantially and are affected by numerous factors beyond the Company's control, including hacking, demand, inflation and expectations with respect to the rate of inflation, global or regional political or economic events and acceptance of cryptocurrencies as a substitute for cash. If cryptocurrency prices should decline and remain at low market levels for a sustained period while network difficulty does not decrease proportionally, the Company could determine that it is not economically feasible to continue ASIC based compute activities.
Volatility may have an impact on the value of HIVE's inventory of currencies. We try to mitigate this risk by combining daily sales of cryptographic currencies and converting part of the balance of the excess HIVE profits into U.S. dollars, Canadian dollars, and/or other investment assets that will ensure coverage of current operating expenses and capital expenditures in order to hedge the risk of volatility with regard to HIVE expenses.
Negative media coverage (highlighting for example, financial scandals related to crypto exchanges, regulatory actions and lawsuits against industry participants) and downward trends in pricing may adversely affect investor confidence, and ultimately, the value of the Company's digital currency inventory which may have a material adverse effect on the Company, including an adverse effect on the Company's profitability from current operations. The Company currently holds Bitcoin. Other coins that we mine using our GPU-based systems yield mining rewards in those crypto currencies, however, we regularly exchange those coins for Bitcoin. Further, as a result, the Company is more exposed to volatility in the Bitcoin market.
Cryptocurrency exchanges and other trading venues are relatively new and, in most cases, largely unregulated and may therefore be more exposed to fraud and failure.
To the extent that cryptocurrency exchanges or other trading venues are involved in fraud or experience security failures or other operational issues, or to the extent they maintain inadequate reserves against their extensions of credit, such events or actions could result in a reduction in cryptocurrency prices.
Cryptocurrency market prices depend, directly or indirectly, on the prices set on exchanges and other trading venues, which are new and, in most cases, largely unregulated as compared to established, regulated exchanges for securities, derivatives and other currencies. For example, during the past six years, a number of cryptocurrency exchanges have been closed due to fraud, business failure or security breaches.
The Company may also be exposed to volatility in the cryptocurrency industry generally, including in sectors of the crypto industry that do not directly apply to the Company's business of providing ASIC based compute to mining pools but that are integral to the cryptocurrency industry as a whole. Negative developments in any aspect of the crypto industry, including trading platforms, individual coins and exposure of scams, appear to affect the market perception of the industry as a whole. As a result, the value of our stock and our Bitcoin assets may be subject to greater volatility stemming from industry developments not directly related to our mining business.
Our reliance on third-party mining pool service providers may have a negative impact on our business.
We receive Bitcoin rewards through third-party mining pool operators. We provide ASIC based computing power to mining pools, which in turn use such computing power to operate nodes and validate blocks on the blockchain. We receive a pro-rata share of Bitcoin mined from the mining pool operator based on the computing power we contribute.
We are dependent on the accuracy of the mining pool operator's record keeping to accurately calculate the network's statistically expected reward for our hashrate, and the global average transaction fees revenue per block. While we may have internal methods of tracking both the hashrate we provide and the network's statistically expected reward for that hashrate, the mining pool operator uses its own record-keeping to determine our reward. We may have little means of recourse against the mining pool operator if we fail to receive a payout or if we determine the calculation of the reward paid out to us by the mining pool operator is incorrect, other than by leaving the pool. If we are unable to consistently obtain accurate proportionate rewards from our mining pool operators, we may experience reduced reward for our efforts, which would have an adverse effect on our business, financial condition, and operations.
Possibility of Less Frequent or Cessation of Monetization of Cryptocurrencies
A decision by the Company to cease monetization of cryptocurrencies or to monetize cryptocurrencies less frequently could increase the risk of our cryptocurrencies decreasing in value and the risk of loss or theft of our cryptocurrencies. This in turn, may increase the level of audit risk for the Company's auditors in the area of auditing the existence and ownership rights of crypto-asset holdings. If the Company's auditors deem the audit risk too high, there is risk that the current auditors could withdraw from the audit which, in turn, would increase the risk of the Company's not being able to comply with the requirement for reporting annual audited financial statements as part of its ongoing continuous disclosure requirements as a publicly listed company.
Cryptocurrency Network Difficulty and Impact of Increased Global Computing Power
Network difficulty is a measure of how difficult it is to solve the cryptographic hash that is required to validate a block of transactions and earn a cryptocurrency reward from mining. If the network difficulty increased at a significantly higher rate than the Company's hashrate and the price of cryptocurrency did not increase at the same rate as network difficulty, then the profitability of the Company's operations would be significantly affected. There can be no assurance that cryptocurrency prices will increase in proportion to the rate of increase of network difficulty as network difficulty is subject to volatility in growth. As demand for Bitcoin has increased, the global network hashrate has increased, and to the extent more adoption of Bitcoin occurs, the demand for Bitcoin should increase, drawing more mining companies into the industry and further increasing the global network hashrate. Also, as new and more powerful and energy-efficient mining servers are deployed, the global network hashrate will continue to increase, meaning our respective percentage of the total daily will unless we deploys additional hashrate at pace with the growth of global hashrate. As a result, to compete in this highly competitive industry, we believe we will need to continue to acquire new miners, both to replace those to ordinary wear and tear and other , and to increase our hashrate to keep up with a growing global network hashrate.
Banks may not provide banking services, or may cut off banking services, to businesses that provide cryptocurrency-related services or that accept cryptocurrencies as payment.
A number of companies that provide Bitcoin and/or other cryptocurrency-related services have been unable to find banks that are willing to provide them with bank accounts and banking services. Similarly, a number of such companies have had their existing bank accounts closed by their banks. Banks may refuse to provide bank accounts and other banking services to cryptocurrency-related companies or companies that accept cryptocurrencies for a number of reasons, such as perceived compliance risks or costs. The difficulty that many businesses that provide Bitcoin and/or other cryptocurrency-related services have and may continue to have in finding banks willing to provide them with bank accounts and other banking services may be currently decreasing the usefulness of cryptocurrencies as a payment system and harming public perception of cryptocurrencies or could decrease its usefulness and harm its public perception in the future. Similarly, the usefulness of cryptocurrencies as a payment system and the public perception of cryptocurrencies could be damaged if banks were to close the accounts of many or of a few key businesses providing Bitcoin and/or other cryptocurrency-related services. This could decrease the market prices of cryptocurrencies and affect the value of the Company's Bitcoin inventory.
The impact of geopolitical events on the supply and demand for cryptocurrencies is uncertain.
Crises may motivate large-scale purchases of cryptocurrencies which could increase the price of cryptocurrencies rapidly. This may increase the likelihood of a subsequent price decrease as crisis-driven purchasing behavior wanes, adversely affecting the value of the Company's cryptocurrency inventory.
As an alternative to fiat currencies that are backed by central governments, cryptocurrencies which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralised means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of Bitcoin either globally or locally. Large-scale sales of cryptocurrencies would result in a reduction in their market prices and adversely affect the Company's operations and profitability.
Quantum computing may compromise cryptographic security underlying blockchain networks.
Advances in quantum computing may, over time, compromise the cryptographic algorithms that secure blockchain networks and digital assets, including Bitcoin.
Most existing blockchain protocols, including those supporting Bitcoin, rely on elliptic curve cryptography ("ECC") to secure wallet addresses, validate transactions and maintain network integrity. Quantum computing technologies, if sufficiently developed, could enable the efficient solving of the elliptic curve discrete logarithm problem, thereby undermining the security assumptions of ECC and potentially allowing unauthorized access to digital wallets, transaction forgery, or other network disruptions.
Recent research suggests that the quantum computing resources required to compromise ECC may be lower than previously estimated. While large-scale, fault-tolerant quantum computers capable of such attacks are not known to exist today, continued advancements in quantum computing may accelerate the timeline for when such risks become practical.
The potential impact of a successful quantum attack includes, among other things:
• unauthorized access to cryptocurrency holdings associated with vulnerable wallet addresses;
• loss of confidence in blockchain networks and digital assets;
• disruptions to transaction validation and network operations; and
• increased volatility or decline in the market value of cryptocurrencies.
Efforts are underway across the industry to develop and implement post-quantum cryptographic ("PQC") solutions designed to be resistant to quantum attacks. However, the transition to PQC may require significant protocol-level changes, coordination across decentralized networks, and extended implementation timelines. There can be no assurance that such solutions will be adopted in a timely manner, or at all, or that they will be effective in mitigating quantum-related risks.
In addition, uncertainty regarding the timing and feasibility of quantum computing breakthroughs, as well as public perception of such risks, may itself adversely affect market confidence in cryptocurrencies, independent of any actual technological compromise.
The Company monitors developments in quantum computing and cryptography and may, where feasible, adopt operational or technical measures intended to mitigate associated risks. However, given the decentralized nature of blockchain networks, the Company's ability to influence or control protocol-level changes is limited.
Any of the foregoing could have a material adverse effect on the Company's business, financial condition, results of operations, and the market price of its securities.
The further development and acceptance of the cryptographic and algorithmic protocols governing the issuance of and transactions in cryptocurrencies is subject to a variety of factors that are difficult to evaluate.
The use of cryptocurrencies to, among other things, buy and sell goods and services and complete other transactions, is part of a new and rapidly evolving industry that employs digital assets based upon a computer-generated mathematical and/or cryptographic protocol. The growth of this industry in general, and the use of cryptocurrencies in particular, is subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may adversely affect the Company's operations. A significant portion of cryptocurrency demand may be attributable to speculation. The failure of retail and commercial marketplaces to adopt cryptocurrency payment methods may result in increased volatility and/or a reduction in market prices, either of which may adversely impact the Company's operations and profitability. The factors affecting the further development of the industry, include, but are not limited to:
• Continued worldwide growth in the adoption and use of cryptocurrencies;
• Governmental and quasi-governmental regulation of cryptocurrencies and their use, or restrictions on or regulation of access to and operation of the network or similar cryptocurrency systems;
• Changes in consumer demographics and public tastes and preferences;
• The maintenance and development of the open-source software protocol of the network;
• The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;
• General economic conditions and the regulatory environment relating to digital assets; and
• Negative consumer sentiment and perception of Bitcoin specifically and cryptocurrencies generally.
The Company's operations, investment strategies, and profitability may be adversely affected by competition from other methods of investing in cryptocurrencies.
The Company competes with other users and/or companies that are mining cryptocurrencies and other potential financial vehicles, possibly including securities backed by or linked to cryptocurrencies through entities similar to the Company. In particular, the entry of exchange traded funds holding Bitcoin offers an alternative path to investing in Bitcoin. Market and financial conditions, and other conditions beyond the Company's control, may make it more attractive to invest in other financial vehicles, or to invest in cryptocurrencies directly which could limit the market for the Company's Common Shares and reduce their liquidity.
The Company's Bitcoin may be subject to loss, theft or restriction on access.
There is a risk that some or all of the Company's Bitcoin could be lost or stolen. Access to the Company's coins could also be restricted by cybercrime (such as a denial of service ("DDoS") attack)against Fireblocks, Bank Frick or other third-party storage provider that the Company may use in the future. Any of these events may adversely affect the operations of the Company and, consequently, its investments and profitability.
As a measure of security against hackers, the Company holds its Bitcoin in segregated, secure storage wallets, maintained by Fireblocks, a leading provider of crypto asset secure storage and management, which specializes in securely storing crypto currencies. HIVE has not pledged or "staked" its Bitcoin assets as collateral against debt or other obligations of any kind. HIVE's Bitcoin is not stored on any exchange. HIVE's Bitcoin is never loaned to any third party.
Notwithstanding our proactive arrangements to protect our Bitcoin from hackers, there is no guarantee that our security measures, or the security measures of Fireblocks, will be effective. The Company may not be able to access or liquidate its digital currency inventory if one or more such storage solutions failed or was compromised.
Cryptocurrencies are controllable only by the possessor of both the unique public and private keys relating to the local or online digital wallet in which they are held, which wallet's public key or address is reflected in the network's public Blockchain. The Company will publish the public key relating to digital wallets in use when it verifies the receipt of cryptocurrency transfers and disseminates such information into the network, but it will need to safeguard the private keys relating to such digital wallets. To the extent such private keys are lost, destroyed or otherwise compromised, the Company will be unable to access its coins and such private keys will not be capable of being restored by network. Any loss of private keys relating to digital wallets used to store the Company's cryptocurrency inventories could adversely affect its investments and profitability.
Bitcoin transactions are generally irreversible. If our Bitcoin is stolen, lost, or incorrectly transferred may be irretrievable, and we may limited or no effective means of recovery;
Cryptocurrency transactions are irrevocable and stolen or incorrectly transferred Bitcoin may be irretrievable. As a result, any incorrectly executed or fraudulent Bitcoin transaction could adversely affect the Company's investments. Incorrectly executed transactions may be the result of computer or human error, despite rigorous controls to prevent such errors.
Coin transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction. In theory, cryptocurrency transactions may be reversible with the control or consent of a majority of processing power on the network. Once a transaction has been verified and recorded in a block that is added to the Blockchain, an incorrect transfer or theft of Bitcoin generally will not be reversible and the Company may not be capable of seeking compensation for any such transfer or theft. Although the Company's transfers of Bitcoin will regularly be made by experienced members of the management team, it is possible that, through computer or human error, or through theft or criminal action, the Company's Bitcoin could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts.
If the award of Bitcoin for solving blocks and transaction fees are not sufficiently high, miners may not have an adequate incentive to continue mining and may cease their mining operations.
As the number of Bitcoin awarded for solving a block in the Blockchain decreases, the incentive for miners to continue to contribute processing power to the network will transition from a set reward to transaction fees. Either the requirement from miners of higher transaction fees in exchange for recording transactions in the Blockchain or a software upgrade that automatically charges fees for all transactions may decrease demand for the relevant coins and prevent the expansion of the network to retail merchants and commercial businesses, resulting in a reduction in the price of the relevant cryptocurrency that could adversely impact the Company's cryptocurrency inventory and investments.
If the award of coins for solving blocks and transaction fees are not sufficiently high, miners may not have an adequate incentive to continue mining and may cease their mining operations. Miners ceasing operations would reduce collective processing power, which would adversely affect the confirmation process for transactions (i.e., decreasing the speed at which blocks are added to the Blockchain until the next scheduled adjustment in difficulty for block solutions) and make the network more vulnerable to a malicious actor or botnet obtaining control in excess of fifty percent of the processing power. Any reduction in confidence in the confirmation process or processing power of the network may adversely impact the Company's mining activities, inventory of coins, and future investment strategies.
The 2028 Bitcoin Halving may adversely affect the Company's profitability.
The "minting" of new Bitcoin is part of the mining process. Each time a block is created, the first transaction in the block issues a certain number of Bitcoin to the Miner who created the block. Every 210,000 blocks, or roughly every 4 years, the amount of Bitcoin issued to miners in the transaction is cut in half. This is called "block reward halving" or "halving". Each halving event may have a potential deleterious impact on the Company's profitability, as fewer Bitcoin will be rewarded for each new block recorded. Based on the fundamentals of Bitcoin mining and historical data on Bitcoin prices and the network Difficulty rate after a halving event, it is unlikely that the network Difficulty rate and price after the halving event would remain at the prevailing level prior to the halving event, when Bitcoin rewards per block are halved; this may offset some of the impact of the halving event. Nevertheless, there is a risk that a future halving event may render the Company unprofitable and unable to continue as a going .
The most recent halving event occurred on April 20, 2024 when the block reward decreased from 6.25 Bitcoin to 3.125 Bitcoin, which means that currently there are 450 newly minted Bitcoin issued per day. Accordingly, the next halving event is expected to occur in 2028 (the "2028 Bitcoin Halving").
Forks in the Bitcoin network may occur in the future, which may affect the value of Bitcoin held by us.
Contributors can propose refinements or improvements to the Bitcoin network's source code that alter the protocols and software that govern the Bitcoin network and the properties of Bitcoin, including the irreversibility of transactions and limitations on the mining of new Bitcoin. This is known as a "fork." In the event a developer or group of developers proposes modifications to the Bitcoin network that are not accepted by a majority of miners and users, but that are nonetheless accepted by a substantial plurality of miners and users, two or more competing and incompatible blockchain implementations could result running in parallel, yet lacking interchangeability and necessitating exchange-type transactions to convert currencies between the two forks. This is known as a "hard fork."
The value of Bitcoin after the creation of a fork is subject to many factors, including the value of the fork product, market reaction to the creation of the fork product, and the occurrence of additional forks in the future. It may be unclear following a fork which fork represents the original asset and which is the new asset. However, we may not be able, or it may not be practical, to secure or realize the economic benefit of the new asset for various reasons. For instance, we may determine that there is no safe or practical way to custody the new asset, that trying to do so may pose an unacceptable risk to our holdings in the old asset, or that the costs of taking possession and/or maintaining ownership of the new digital asset exceed the benefits of owning the new digital asset. Additionally, laws, regulation, or other factors may prevent us from benefiting from the new asset even if there is a safe and practical way to custody and secure the new asset. As such, we may not be able to realize the economic benefit of a fork, either immediately or ever, which could adversely affect the value of the Bitcoin we hold as well as our business, financial condition, and results of operations.
Bitcoin is a form of technology which may become redundant or obsolete in the future.
Bitcoin is currently the market leader, in terms of value and recognition, in the digital assets market, driven in large part by having the largest user base and the largest combined mining power in use to secure the Bitcoin network. It is generally understood that having more users and miners makes a digital asset more useful and secure, which in turn makes it more attractive and valuable, thereby encouraging new participants to enter the market.
Despite the advantages that the Bitcoin network holds over other digital asset networks, new technologies, platforms or other digital assets could emerge that become more popular than Bitcoin. If an alternative digital asset obtains significant market share-either in market capitalization, mining power, use as a payment technology or use as a store of value, Bitcoin’s market share and value may be reduced. Preferences in the digital assets markets shift away from proof-of work networks such as the Bitcoin network, or the if market otherwise adopts new digital assets, could result in a significant reduction in the value of Bitcoin, which could have a material adverse effect on our business, prospects or operations, including the value of the Bitcoin that we mine or otherwise acquire or hold for our own account.
Risks Related to HPC Businesses
Our ability to identify suitable locations and regulatory constraints could adversely impact our development pipeline, expansion strategy, and results of operations.
There is significant competition for suitable data center sites, particularly in supply-constrained geographies with access to reliable, low-cost power and robust fiber connectivity. Our ability to identify, acquire and development suitable locations may be impacted by factors outside our control, including regulatory or permitting delays, community opposition, or changes in local land use or environmental regulations. Securing agreements for power interconnection, and obtaining the necessary permits, approvals, and licenses to construct and operate data centers, may be delayed, denied, or become cost prohibitive due to regulatory processes or evolving policy priorities.
Governmental actions, including the introduction of new regulations or restrictions on data centers, may reduce the availability of electricity, increase its cost, or otherwise adversely affect our business and development pipeline. In addition, development and construction delays, cost overruns, changes in market dynamics, environmental or community constraints, and the inability to continue securing suitable data center locations may adversely impact our operations, expansion strategy, financial condition, and results of operations.
The HPC market is highly competitive, and we face established competitors who may have more resources.
The HPC market is highly competitive and is rapidly evolving. We face significant competition from established data center operators, hyperscalers and specialized AI infrastructure companies. These companies may have multiple advantages over us, including greater scale, established customer relationships, technical expertise, and more ready access to capital. If our infrastructure does not meet customers' performance requirements, if we experience service interruptions or reliability issues, or if customer demand does not scale as anticipated, utilization rates at our facilities could be lower than expected. Any failure to attract sufficient demand, deliver consistent performance, or scale these initiatives effectively could adversely affect our data center revenues, margins and overall growth strategy.
Our HPC business may not be profitable.
In the 2024 financial year, the Company commenced an expansion into the HPC space through the conversion of certain graphics processing units ("GPU") cards into an on-demand GPU cloud service for companies operating in the AI industry. For the fiscal year ended March 31, 2026 the Company achieved revenues from its HPC hosting operations of approximately $19.5 million, against operating and maintenance costs approximately $8.7 million. For the fiscal year ended March 31, 2025, revenue from HPC hosting operations was approximately $10 million, against operating and maintenance costs of approximately $6.1 million. Although the Company has been able to generate revenue from our HPC business, there is no assurance that it will achieve profitability in the future, whether due to a lack of customer acceptance, technological challenges, competing products, weakening economic conditions, increased regulatory costs or other factors, which would have a material adverse effect on the Company's overall business, operations and financial results.
The Teaming Agreement with Bell Canada Inc. is a framework for collaboration and business development opportunities and does not guarantee future customer volumes, revenues or deployments.
While the Teaming Agreement establishes a framework whereby BUZZ is a preferred sovereign GPU as a service provider, it does not guarantee future customer volumes, revenues or deployments. If BUZZ loses its status as a preferred provider, or is unable to capitalize on opportunities arising from the Teaming Agreement, our HPC growth strategy may be adversely affected.
Our expansion into HPC may divert resources from our core Bitcoin mining operations, limit our power capacity for mining, and introduce operational complexity.
While we intend to continue our Bitcoin mining operations, our expansion into HPC may reduce the capital, personnel, and infrastructure available for our mining business. In particular, if we re-allocate power capacity to HPC workloads, our ability to mine Bitcoin may be reduced, which in turn could diminish our profitability. In addition, expanding into the HPC market may also increase operational complexity and place additional demands on our management, technical and support teams, which could negatively affect our overall performance, strategic execution and profitability.
The GPU compute market is rapidly evolving and volatile. If we are unable to adapt to changing market conditions, our business, operations and financial condition may be adversely affected .
The market for HPC and AI services is driven in large part by demand for data center space capable of supporting GPUs, server clusters, high-performance applications, and specialized solutions and is characterized by rapid advances in technologies. In order to remain competitive, we must continually invest in and deploy new hardware, equipment and systems. New technologies or products may emerge that provide better performance or are more cost efficient than our current infrastructure, and could reduce the competitiveness, useful life or residual value of the Company's current GPU infrastructure. If we are unable to successfully implement new technologies or maintain competitiveness with other industry participants, our business, operations and financial condition may be adversely affected.
Our expansion into AI and HPC infrastructure is highly capital intensive, and there can be no assurance we will be able to obtain financing on favorable terms, or at all.
The Company's AI and HPC infrastructure strategy is highly capital intensive and may require substantial debt, equipment financing, leasing arrangements or other financing obligations to acquire GPUs, networking equipment and related infrastructure. Our ability to arrange new financing, either at the corporate level, a non-recourse project-level subsidiary or otherwise, and the costs of such capital, are dependent on numerous factors, including market volatility, availability of credit from banks and other financial institutions, investor confidence, our level of indebtedness and our financial performance. Debt financing, equipment financing, leasing arrangements or other financing obligations that we may incur may contain financial covenants, restrictions, enforcement mechanisms and other terms that limit our ability to take certain corporate and operational actions. Adverse business conditions, customer losses or market volatility could increase refinancing risk, liquidity pressure, financing costs or the risk of creditor enforcement actions.
We may not be able to obtain additional debt, equity or equity-linked financing, or other forms of financing, on favorable terms, if at all, which could impair our growth and our further development of HPC and AI services, adversely affect our existing operations and require us to seek additional capital, sell assets or restructure or refinance our indebtedness. In addition, if the terms of additional financing are less favorable or require us to comply with more onerous covenants or restrictions, our business operations could be restricted. Any of the foregoing could adversely impact our financial condition, cash flows and results of operations.
The Company may enter into long-term infrastructure or financing commitments in anticipation of future customer demand. If customer contracts are delayed, reduced, terminated, not renewed, or if counterparties fail to perform their obligations, the Company's revenues, cash flows, and growth strategy could be materially adversely affected.
Developing and constructing data center campuses requires substantial up-front capital expenditures, including for land, electrical infrastructure, interconnection and specialized equipment. We may enter into agreements to develop space or lease facilities for specific HPC customers during the early stages of the development process. If we were to fail to meet our development obligations, or to timely complete facilities, the customer may be entitled to terminate its agreement, seek damages, or pursue other remedies. Further, if a customer defaults or fails to make timely rent or other payments, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment. In addition, we may be required to undertake significant financial commitments and assurances, such as security deposits, letters of credit, or minimum payment commitments prior to securing a customer or entering into revenue-generating agreements. If we are not able to complete an HPC data center in a timely manner, if development costs are higher than we currently estimate, if a counterparty fails to perform its obligations, or if we are to secure tenants, our revenues, cash flows, and growth strategy could be materially affected.
The regulatory landscape surrounding the HPC and AI industries is rapidly evolving and may limit our ability to grow our HPC business.
The regulatory landscape surrounding the HPC and AI industries is evolving rapidly, and we anticipate increased scrutiny and potential regulation in the near and long term. These developments may affect our business and operations in ways that are difficult to predict. Regulators are increasingly scrutinizing the development and operation of data centers regarding energy consumption, land use, carbon emissions, water usage, environmental impacts, data-sovereignty considerations, and national-security-related issues. New requirements, such permitting requirements, energy standards, carbon-reduction mandates, sustainability reporting rules, or operational restrictions specific to data centers, AI infrastructure, or high-density compute environment may be imposed. Further, with respect to AI, there are growing concerns about the ethical implications and potential misuse of the emerging AI technologies. Regulators and policymakers are increasingly focused on the governance, ethical use, and potential misuse of AI systems and advanced computing technologies, as well as cybersecurity, data protection, export controls, and compliance obligations applicable to large-scale data center and HPC infrastructure. Regulations targeting large-scale compute operations or digital infrastructure may cause us to incur significant compliance costs, and may limit our ability to grow our HPC business.
General Risk Factors
Future Capital Needs, Uncertainty of Additional Financing and Dilution
The ability of the Company to secure any required financing to sustain operations and expansion plans will depend in part upon prevailing capital market conditions and business success. There can be no assurance that the Company will be successful in its efforts to secure any additional financing or additional financing on terms satisfactory to management.
The Company currently anticipates that the internally generated funds will be sufficient for working capital requirements. However, the Company will need to raise additional funds to support more rapid expansion, including expansion of its HPC business and to develop new or enhanced services and products, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. We have primarily funded our growth through at-the-market ("ATM") offerings of our common stock or through other issuances. The Company may be required to raise additional funds through ATM public or private financing, strategic relationships, undertaking financing transactions at the subsidiary level, or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to the Company, or at all. If adequate funds are not available on acceptable terms the Company may be unable to develop or enhance its business, take advantage of future opportunities or respond to competitive pressures, any of which could have a material effect on the Company's business, financial condition and operating results.
Furthermore, we have primarily funded our growth through at-the-market ("ATM") offerings and other issuances of our common stock. Any additional equity or convertible debt financing may be dilutive to shareholders and debt financing, if available, may involve restrictive covenants. If additional funds are raised through the issuance of equity securities, the percentage ownership of the shareholders of the Company will be reduced, shareholders may experience additional dilution in net book value per share, or such equity securities may have rights, preferences or privileges senior to those of the holders of the common shares. The issuance of additional shares of our common stock dilutes the ownership interests of existing stockholders, and future equity sales could further dilute existing holdings and may reduce the market price of our common stock.
Management of Growth
The Company has recently experienced, and may continue to experience, rapid growth in the scope of its operations, particularly with respect to its HPC business. This growth has resulted in increased responsibilities for the Company's existing personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage its current operations and any future growth effectively, the Company will need to continue to implement and improve its operational, financial and management information systems, as well as hire, manage and retain its employees and maintain its corporate culture including technical and customer service standards. There can be no assurance that the Company will be able to manage such growth effectively or that its management, personnel or systems will be adequate to support the Company's operations.
Additional Funding Requirements and Dilution
Further acquisitions and development of additional data centers will require additional capital to fund ongoing operating and capital expenditures, and the Company will require funds to operate as a public company. There is no assurance that the Company will be successful in obtaining the required financing for these or other purposes, including for general working capital. Also, the issuance of additional securities and the exercise of purchase warrants, stock options and other convertible securities will result in dilution of the equity interests of any persons who are or may become holders of shares of the Company.
Loss of key employees & contractors, or an inability to attract and retain personnel, may harm our business.
The Company depends on a number of key employees and contractors, the loss of any one of whom could have an adverse effect on the Company. The Company will not have and is not expected to purchase key person insurance on such individuals, which insurance would provide the Company with insurance proceeds in the event of their death. Without key person insurance, the Company may not have the financial resources to develop or maintain its business until it replaces the individual. The development of the business of the Company will be dependent on its ability to attract and retain highly qualified employees and consultants. The Company will face competition for personnel from other employers. If the Company is unable to attract or retain qualified personnel as required, it may not be able to adequately manage and implement its business plan.
Global Financial Conditions
Global financial conditions over the last few years have been characterized by volatility and the bankruptcy of several financial institutions or the rescue thereof by governmental authorities. These factors may affect the ability of the Company to obtain equity or debt financing in the future on terms favorable to it. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. If such levels of volatility and market turmoil continue, the operations of the Company may suffer adverse impact and the price of the Common Shares may be adversely affected.
Pandemics
The Company cautions that current global uncertainty about pandemics and their potential effect on the broader global economy may significantly negatively affect the Company.
Conflicts of Interest
Certain of the officers and directors of the Company are also directors, officers or shareholders of other companies. Such associations may give rise to conflicts of interest from time to time. The directors of the Company will be required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity of the Company. If a conflict arises at a meeting of the Board, any director in a conflict will disclose his interest and abstain from voting on such matter. In determining whether or not the Company will participate in any project or opportunity, the director will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.
Liquid Market for Securities
Even though currently the Company's Common Shares, which trade on the TSX, and NASDAQ have an active and liquid market, there can be no assurance that an active and liquid market for the Common Shares will continue or be maintained.
We do not intend to pay dividends in the foreseeable future.
To date, the Company has not paid any dividends on its outstanding securities and the Company does not expect to do so in the foreseeable future. Any decision to pay dividends on the Company's Common Shares will be made by the Board of Directors. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired or at a price equal to or greater than the price at which they purchased their shares.
Interest Rate Risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company has not entered into any derivative contracts to manage this risk. The Company will be exposed to interest rate changes on its investments that are expected to pay interest, and any credit facilities it may have that bear interest at a floating rate. Changes in the prime lending rate would affect earnings and could adversely affect the Company's profitability.
Currency Exchange Risk
The Company is exposed to fluctuations in currency exchange rates, which could negatively affect its financial condition and results of operations. In particular, exchange rate fluctuations may affect the costs that the Company incurs in its operations. Cryptocurrencies are generally sold in U.S. dollars and the Company's costs are incurred principally in Canadian dollars as well as other foreign currencies. The appreciation of non-U.S. dollar currencies against the U.S. dollar could increase the cost of mining in U.S. dollar terms. In addition, the Company holds cash balances in both U.S. dollars and Canadian dollars the values of which are impacted by fluctuations in currency exchange rates.
The market price for our common shares may be volatile and subject to wide fluctuations, which could have a negative impact on our shareholders.
In recent years, the securities markets in the United States and Canada, have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations in price that have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that continual fluctuations in price will not occur, and the trading price of the Company's shares may be subject to large fluctuations and may decline below the price at which an investor acquired its shares. The trading price may increase or decrease in response to a number of events and factors, which may not be within the Company's control nor be a reflection of the Company's actual operating performance, underlying asset values or prospects. Accordingly, investors may not be able to sell their securities at or above their acquisition cost.
Common shares issuable upon exchange of the Exchangeable Notes may dilute the ownership interest of our shareholders or may adversely affect the market price of our common shares.
The exchange of the 0% Exchangeable Notes due 2031 issued by HIVE Bermuda 2026 Ltd. and exchangeable into shares of HIVE (the "Exchangeable Notes" or the "Notes") may dilute the ownership interests of our shareholders. Upon conversion of the Exchangeable Notes, we will generally have the right to elect to settle conversions by paying or delivering, as applicable, cash, common shares or a combination of cash and common shares. If we elect to settle these obligations in common shares or a combination of cash and common shares, any sales in the public market of our common shares issuable upon such conversion could adversely affect prevailing market prices of our common shares. Also, the existence of the Notes may encourage short selling by market participants as a result of hedging or arbitrage trading activity that we expect certain investors in the Notes engage in, or anticipated conversion of the Notes into our common shares could depress the price of our common shares.
We may be unable to raise the funds necessary to repurchase the Exchangeable Notes for cash following a fundamental change or to pay any cash amounts due upon maturity or conversion of the Exchangeable Notes.
Noteholders may, subject to a limited exception, require us to repurchase their Exchangeable Notes following a "Fundamental Change" (as defined under the Indenture) at a cash repurchase price generally equal to the principal amount of the Exchangeable Notes to be repurchased, plus accrued and unpaid interest, if any. Upon maturity of the Exchangeable Notes, we must pay their principal amount and accrued and unpaid interest in cash, unless they have been previously repurchased, redeemed or exchanged. In addition, upon exchange, we will satisfy part or all of our obligation in cash unless we elect to settle exchanges solely in our common shares. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Exchangeable Notes or pay any cash amounts due upon their maturity or exchange. In addition, applicable law and regulatory authorities may restrict our ability to repurchase the Exchangeable Notes or to pay any cash amounts due upon their maturity or exchange.
The fundamental change repurchase feature of the Notes may delay or prevent an otherwise beneficial takeover attempt of the Company.
Certain provisions in the Exchangeable Notes and the Indenture could make a third-party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a Fundamental Change, then, subject to certain exceptions, noteholders will have the right to require us to repurchase their Exchangeable Notes for cash. In addition, if a takeover constitutes a Make-Whole Fundamental Change (as defined in the Indenture), then we may be required to temporarily increase the exchange rate. In either case, and in other cases, our obligations under the Exchangeable Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common shares may view as favorable.
The capped call transactions may affect the trading price of the Exchangeable Notes and the market price of our common shares.
In connection with the pricing of the Exchangeable Notes, we entered into privately negotiated capped call transactions certain financial institutions (the "option counterparties"). The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of the Notes, as the case may be, with such reduction and/or offset subject to a cap.
In connection with establishing their initial hedges of the capped call transactions, the Company expects the option counterparties or their respective affiliates to purchase common shares and/or enter into various derivative transactions with respect to the common shares concurrently with or shortly after the pricing of the Notes, and such option counterparties or their respective affiliates may unwind these various derivative transactions and/or sell common shares in open market transactions. This activity could increase (or reduce the size of any decrease in) the market price of the common shares or the Notes at that time.
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to the common shares and/or purchasing or selling common shares or other securities of the Company in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to an exchange of the Notes). This activity could also cause or avoid an increase or decrease in the market price of our common shares or the Notes.
We are subject to counterparty risk with respect to the capped call transactions.
The option counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions and could adversely affect the option counterparties' performance under the capped call transactions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common shares. In addition, upon a default by an option counterparty, we may suffer more dilution, the effect of which would not be compensated for, than we currently anticipate with respect to our common shares. We can provide no assurance as to the financial or viability of the option counterparties.
We face risks associated with our current indebtedness, and our failure to service debt or remain in compliance with certain covenants may have a material adverse effect on our business, financial condition, and results of operations.
As described in more detail in this Annual Report, and we and certain of our subsidiaries have entered into debt financing, including the Exchangeable Notes, and we may become party to additional debt financing arrangements in the future. Our level of indebtedness could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. Agreements governing our current debt obligations, and any debt we may incur in the future, may contain financial covenants and covenants that restrict our and our subsidiaries' ability to take certain corporate and operational actions. As a result of these covenants, we may be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs. Any violation by us of any of these covenants could provide the lender with the ability to accelerate the maturity of the indebtedness and exercise a variety of remedies, including foreclosing on any collateral securing the debt.
Risks Related to Certain Regulatory Compliance and Other Legal Matters
As we continue to expand, our obligations to comply with the laws, rules, regulations and policies across a variety of jurisdictions will increase and we may be subject to investigations and enforcement actions by Canadian, U.S. and non-U.S. regulators and governmental authorities.
The Company is incorporated under the laws of British Columbia. Our corporate headquarters are in Texas, and our primary properties are located in Sweden, Paraguay, and the Provinces of Québec and New Brunswick. As we expand our international activities, we have become increasingly obligated to comply with the laws, rules, regulations, policies, and legal interpretations of multiple jurisdictions. Laws regulating financial services, the internet, computing, digital assets and related technologies in the various jurisdictions often impose different, and potentially conflicting obligations, as well as broader liability, on us. Moreover, laws and regulations related to economic sanctions, export controls, anti-bribery and anti-corruption, and other international activities may restrict or limit our ability to engage in transactions or dealings with certain counterparties in, or with, certain countries or territories, or in certain activities.
Due to the international scope of our operations, multiple regulators with a broad discretion to audit and examine our business have oversight over our activities, and we may be subject to examinations, inquiries, reviews, and investigations. To the extent we have not complied, or are deemed to have not complied, with such laws, rules, and regulations, we could be subject to significant fines, revocation of licenses, limitations on our offerings, reputational harm, and other regulatory consequences, each of which may be significant and could adversely affect our business, financial condition, and results of operations.
Energy Tariffs in Paraguay
The Company previously announced plans to construct and develop two data center facilities located in Valenzuela and Yguazú, Paraguay (the "HIVE Paraguay Facilities"). The HIVE Paraguay Valenzuela Facility is currently in the preliminary planning stage and the HIVE Paraguay Yguazú Facility has commenced operations. The contracted term of these power purchase agreements extends until December 31, 2027. Thereafter, continued operation will rely on the Company's ability to renegotiate these agreements. The success and profitability of these facilities will depend largely on the cost of electricity. In June 2024, ANDE announced a 14% increase in energy tariffs. It is currently expected that the increase in the energy tariffs will contribute to an increase in operational costs and negatively impact the potential profitability of the HIVE Paraguay Facilities. Management of the Company cannot accurately predict the potential impact of the tariff increase on the Company at this time.
There is a risk that energy tariffs in Paraguay could be subject to further increases by ANDE. These increased costs may not be fully offset through increases in the price of Bitcoin, which could have a material adverse effect on our business, financial condition, and results of operations. There is also a risk that the power purchase agreements may not be extended by ANDE.
The application of the U.S. Commodity Exchange Act, as amended (the "CEA") and the regulations promulgated thereunder by the U.S. Commodity Futures Trading Commission ("CFTC") to our business is unclear and is subject to change in a manner that is difficult to predict.
The CFTC has stated that Bitcoin falls within the definition of a "commodity" under the CEA. As a result, the CFTC has general enforcement authority to police against manipulation and fraud in the spot markets for Bitcoin. The CFTC also has regulatory and supervisory authority with respect to commodity futures, options, and/or swaps (Commodity Interests") and certain transactions in commodities offered to retail purchasers on a leveraged, margined, or financed basis. Furthermore, trusts, syndicates, and other collective investment vehicles operated for the purpose of trading in Commodity Interests may be subject to regulation and oversight by the CFTC and the National Futures Association as "commodity pools."
Changes in our activities, the CEA, or the CFTC's rules, or if our mining activities or transactions in Bitcoin were deemed by the CFTC to involve Commodity Interests and the operation of a commodity pool for our shareholders, may subject us to additional regulatory requirements, licenses, and approvals, which could result in significant increased compliance and operational costs. If we determine it is not possible or practicable to comply with such additional regulatory and registration requirements, we may seek to cease certain of our operations. Any such action may adversely affect an investment in our business.
We are involved in legal proceedings from time to time, which could adversely affect us .
From time to time, we have been, and may in the future be, a party to legal and regulatory proceedings, including matters involving governmental agencies or regulators, entities with whom we do business, and other proceedings, whether arising in the ordinary course of business or otherwise. Litigation, regardless of outcome, may result in significant expenditures, diversion of our management's time and attention from the operation of the business and damage to our reputation or relationship with third parties, which could materially and adversely affect our results of operations, strategy, and financial performance.
Regulatory changes reclassifying Bitcoin as a security could lead to the Company being classified as an "investment company" under the Investment Company Act of 1940 (the "1940 Act") and could adversely affect the market price of Bitcoin and the market price of our listed securities.
While the SEC and its staff have taken the position that Bitcoin (in its current form) is not a security, such statements are not official policy statements by the SEC and reflect only the speakers' views and are not binding on the SEC or any other agency or court. Moreover, the legal and regulatory landscape surrounding cryptocurrency continues to evolve, and SEC rules and applicable law are subject to change. A contrary determination by the SEC could lead to our being classified as an "investment company" under the 1940 Act. Under the 1940 Act, investment companies are subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition. If we were to be reclassified as an investment company, compliance with the requirements of the 1940 Act applicable to registered investment companies may make it difficult for us to continue our current operations and this would materially and adversely affect our business, financial condition and results of operations.
In addition, if Bitcoin is determined to constitute a security for purposes of the federal securities laws, the additional regulatory restrictions imposed by such a determination could adversely affect the market price of Bitcoin and in turn adversely affect the market price of our listed securities.
The ability of shareholders to bring actions or enforce judgments against us or our directors and executive officers may be limited.
The Company is incorporated under the laws of the Province of British Columbia, most of the Company's officers and directors are not U.S. residents. Moreover, all or a substantial portion of the assets of the Company or the foregoing persons are located outside of the U.S. Consequently, it may be difficult for United States investors to effect service of process within the United States upon us or upon such persons who are not residents of the United States, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under United States securities laws. A judgment of a United States court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or us predicated solely upon such civil liabilities.
Imposition of U.S. Tariffs
While HIVE is a corporation organized pursuant to the laws of the Province of British Columbia with operations outside the United States, trade policy enacted by the U.S. could affect jurisdictions in which the Company operates as well as third parties with which the Company does business. The U.S. has previously enacted, and has proposed to enact, new tariffs (or increases of existing tariffs) on certain items imported from other countries. Following their enactment other countries have previously enacted, or have proposed to enact, new tariffs on imports of U.S. goods. Subsequently, the U.S. and various countries subject to those tariffs have engaged in trade negotiations and, in some instances, agreed to suspend or terminate certain tariffs. It is uncertain whether additional treaties or other trade policies will be enacted or modified by the U.S. or any other government or trade organization in the future. Future changes by the U.S. and foreign governments to trade or investment policies, treaties and tariffs, as well as fluctuations in exchange rates, or the perception that any these changes could occur, could adversely affect third party manufacturers on which the Company relies, as well as the future of the Company's relationships with those third-party manufacturers, which could have an adverse impact on the Company's business, financial condition and results of operations. In addition, actions by foreign markets to implement further trade policy changes, including limiting foreign investment or trade, increasing regulatory or taking other actions that apply to the jurisdictions in which the Company operates or in which third parties with which the Company does business operate, could impact the Company's business, financial condition and results of operations.
We are subject to extensive environmental regulation, and failure to comply with environmental laws or changes in such laws could result in significant liabilities and have a material adverse effect on our business.
All of the Company's operations will be subject to environmental regulations, which can make operations expensive or prohibitive. The continued evolvement of environmental regulations may lead to the imposition of stricter standards, more diligent enforcement, and heavier fines and penalties for noncompliance. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations or cause delays in the development of mining projects.
The Company may be subject to potential risks and liabilities associated with pollution of the environment through its use of electricity to mine cryptocurrencies. In addition, environmental hazards may exist on a property in which the Company directly or indirectly holds an interest which are unknown to the Company at present which have been caused by previous or existing owners or operators of the property which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. To the extent the Company is subject to environmental liabilities, the payment of such liabilities or the costs that it may incur to remedy environmental pollution would reduce funds otherwise available to it and could have a material adverse effect on the Company. If the Company is unable to fully remedy an environmental problem, it might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. The potential exposure may be significant and could have a material adverse effect on the Company.
Because we have ceased to be a foreign private issuer, we are required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we have incurred and may continue to incur additional legal, accounting, and other expenses that we would not incur as a foreign private issuer.
As a foreign private issuer ("FPI"), as such term is defined under the Exchange Act, the Corporation was exempt from certain of the provisions of U.S. federal securities laws until January 1, 2026. The Corporation determined that, as of September 30, 2025, the Corporation no longer qualified as a "foreign private issuer" (as such term is defined under Rule 405 of the Securities Act). Accordingly, as of April 1, 2026, we do not use the forms and rules designated for foreign private issuers and are subject to the same reporting and disclosure requirements applicable to U.S. domestic issuers. We are now required to file periodic reports and financial statements prepared in accordance with GAAP with the SEC on Form 10-K and Form 10-Q, as applicable, as well as current reports on Form 8-K, which are more detailed and extensive than the forms available to a foreign private issuer. We must also comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders have become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we have lost our ability to rely upon exemptions from certain Nasdaq corporate governance requirements. As a U.S.-listed public company, we are subject to the same reporting and disclosure requirements applicable to U.S. domestic issuers, and we have incurred and may continue to incur significant additional legal, accounting and other expenses that we did not incur as a foreign private issuer, and may incur accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.
The regulatory and legislative developments related to climate change may materially adversely affect our brand, reputation, business, results of operations and financial position.
Multiple governmental units and other regulatory bodies have enacted, introduced or are contemplating legislative and regulatory changes in response to the increasing focus on climate change and its potential impacts, including from governmental bodies, interest groups and stakeholders. Legislation and increased regulation regarding climate change could restrict our operations and energy supply and impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting.
Further, the jurisdictions in which we operate could impose or increase taxes or regulatory fees on the electricity that we purchase, which could result in substantially higher energy costs. Data centers require a significant amount of electrical power to operate, and increased taxes or fees could put us at a competitive disadvantage. Any future climate-related regulations could also adversely impact our ability to compete with companies situated in areas not subject to such limitations. Given the political significance and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how climate-related legislation and regulation will affect our financial condition, operating performance and ability to compete. Further, increased awareness and any adverse publicity in the global marketplace about potential contribution to climate change by us or other companies in our industry could harm our reputation. Any of the foregoing could have a material adverse effect on our financial position, results of operations and cash flows.
The rapidly evolving and uncertain regulatory landscape for cryptocurrencies exposes us to legal risks, compliance costs, and potential business disruptions.
Our business operates within a complex and evolving regulatory framework that includes a wide range of federal, state, and international laws, rules, and policies. These include regulations governing financial services, securities, commodities, money transmission, consumer lending, privacy, cybersecurity, taxation, anti-bribery, sanctions, anti-money laundering, and other areas. Many of these laws were enacted before the rise of cryptocurrencies and blockchain technology, creating uncertainty in their interpretation and application.
Regulatory bodies, including the SEC, CFTC, federal energy regulators, and other financial oversight agencies, frequently modify and reinterpret existing rules, leading to inconsistencies across jurisdictions. As a result, we must exercise judgment in determining how certain laws apply to our operations, and regulators may not always agree with our interpretations. If we are found to be in violation of any applicable laws, rules or policies, we could face significant fines, license revocations, product or service restrictions, reputational damage, and other regulatory consequences that could materially impact our business.
Additionally, failures of major cryptocurrency trading platforms and lenders, such as FTX Trading Ltd., Celsius Network LLC, Voyager Digital, and Three Arrows Capital, have intensified calls for stricter oversight of the cryptocurrency economy. In response, legislative and regulatory bodies in the U.S. and abroad are actively considering new regulations that could affect our operations. Increased scrutiny and regulatory actions may subject us to audits, examinations, investigations, and enforcement proceedings that could disrupt our business and increase compliance costs
Given the unpredictable nature of cryptocurrency regulation and enforcement, any adverse regulatory developments, whether through new laws, changing interpretations, or enforcement actions, could negatively impact our reputation, business operations, financial condition, and ability to offer competitive products and services.
Risks Related to Taxation
Tax Consequences Generally
As more fully described in this section "RISK FACTORS-Risks Related investment in the Company may have tax consequences in Canada, the United States or another jurisdiction, depending on each particular existing or prospective shareholder's specific circumstances. Such tax consequences are not described herein, and this Annual Report is not intended to be, nor should it be construed to be, legal or tax advice to any particular shareholder. Existing and prospective shareholders should consult their own tax advisors with respect to any such tax considerations.
Passive Foreign Investment Company Regulations Could Affect U.S. Shareholders
Generally, if for any taxable year, 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets are held for the production of, or produce, passive income, we would be characterized as a "passive foreign investment company" or "PFIC" for U.S. federal income tax purposes. For purposes of the above calculations, we will be treated as if we hold our proportionate share of the assets of, and receive directly our proportionate share of the income of, any other corporation in which we directly or indirectly own at least 25%, by value, of the shares of such corporation. Passive income includes, among other things, dividends, interest, certain non-active rents and royalties, net gains from the sale or exchange of property producing such income and net foreign currency gains. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or raised in a public offering, marketable securities, and other assets that may produce passive income. The determination as to whether a non-U.S. corporation is a PFIC is a factual determination made on an annual basis after the close of each taxable year.
This determination is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, and the determination will depend on, among other things, the composition of the non-U.S. corporation's income, expenses and assets, as well as the relative value of its assets (which may fluctuate with the non-U.S. corporation's market capitalization), from time to time and the nature of its activities. While not free from doubt, the Company does not believe it was a PFIC for 2025 and does not expect to be a PFIC for 2026; however, PFIC status is determined annually, and whether the Company will be a PFIC for any year is uncertain. Moreover, the application of the PFIC rules to digital assets and to Bitcoin in particular as well as transactions related thereto is subject to uncertainty. Accordingly, there can be no assurance that the Company will not be classified as a PFIC for the current taxable year or for any future taxable year. If we are a PFIC for any taxable year during which a U.S. person holds our Common Shares, we would continue to be treated as a PFIC with respect to that U.S. person for such taxable year and, unless the U.S. person makes certain elections, for future years even if we cease to be a PFIC. If we are characterized as a PFIC, U.S. holders of our Common Shares may suffer adverse U.S. federal income tax consequences, including the treatment of all or a portion of any realized on the sale of our Common Shares as ordinary income, rather than as capital , the of the preferential income tax rate applicable to dividends received on our Common Shares by individuals who are U.S. holders, the addition of interest charges to the tax on such and certain distributions, and required compliance with certain reporting requirements. A U.S. shareholder of a PFIC generally may mitigate certain of these U.S. federal income tax consequences by making a Qualified Electing Fund ("QEF") election or a mark-to-market election. However, we do not intend to provide the information necessary for U.S. Holders to make QEF elections if we are classified as a PFIC. Prospective U.S. Holders contemplating an investment in the Common Shares are urged to consult their tax advisors regarding the Company's status as a PFIC and the U.S. federal income tax consequences that may apply if the Company is determined to be a PFIC in any taxable year.
Risk of potential adverse U.S. federal income tax consequences to 10% or greater United States shareholders
If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our Common Shares, such person may be treated as a "United States shareholder" with respect to each "controlled foreign corporation" in our group. A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of "Subpart F income," "global intangible low-taxed income," and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. Subpart F income generally includes dividends, interest, certain non-active rents and royalties, gains from the sale of securities and income from certain transactions with related parties, and "global intangible low-taxed income" generally consists of net income of the controlled foreign corporation, other than Subpart F income and certain other types of income, in excess of certain thresholds. In addition, a United States Shareholder that realizes gain from the sale or exchange of shares in a controlled foreign corporation may be required to classify a portion of such gain as dividend income rather than capital gain. A non-U.S. corporation generally will be classified as a controlled foreign corporation for U.S. federal income tax purposes if United States Shareholders own, directly, indirectly or , more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation after applying complex attribution rules.
We are not committing to assist investors in determining whether we or any of our non-U.S. subsidiaries are treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or to furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. If we or any of our subsidiaries are classified as both a controlled foreign corporation and a "passive foreign investment company" or "PFIC" (as discussed above), we or such subsidiary generally will not be treated as a PFIC with respect to those United States persons that meet the definition of a United States Shareholder during the period in which we or such subsidiary are a controlled foreign corporation. A United States person should consult its advisors regarding the potential application of these rules to an investment in our Common Shares.
Transfer Pricing
We have cross-border transactions among the entities within our company group in relation to various aspects of our business. Canadian and U.S. transfer pricing regulations, as well as regulations applicable in other countries in which we operate, require that any transaction involving associated enterprises be on arm's-length terms and conditions. We view the transactions entered into among the Company and our subsidiaries to be priced on arm's length terms and conditions and to be in accordance with the relevant transfer pricing regulations. If, however, a tax authority in any jurisdiction were to successfully assert that the terms and conditions of such transactions are not arm's length or that other income of our subsidiaries should be taxed in that jurisdiction, we may incur increased tax liability, including accrued interest and penalties, which would cause our tax expense to increase, possibly materially, thereby reducing profitability and cash flow.
An adverse tax decision in respect of our Swedish subsidiaries may have an adverse on our business, operations and financial condition.
The Company's wholly owned subsidiaries located in Sweden (Bikupa Datacenter AB ("Bikupa") and Bikupa Datacenter 2 AB ("Bikupa 2")) received decision notice of assessments ("the decision(s)"), on December 28, 2022, December 21, 2023, December 22, 2023, May 28, 2024, October 14 and 16, 2024, March 18, 2025, September 23, 2025, October 14, 2025 for Bikupa and February 14, 2023, December 21, 2023, June 14, 2024, September 11 and 23, 2024, March 21, 2025, June 12, 2025, August 11, 2025, November 26, 2025 and March 25, 2026 for Bikupa 2 respectively, from the Swedish Tax Agency in connection with the application of VAT and its ability to recover input VAT against certain equipment and other charges in a total amount of SEK 765.6 million or approximately $80.5 million. The assessments cover the period December 2020 to June 2025 for Bikupa, and the period April 2021 to December 2025 for Bikupa 2, expressing the intent to reject the recovery of all the VAT for the periods under assessment and repayment of amounts previously received plus applicable interest.
The Company filed a formal appeal in connection with the December 28, 2022, Bikupa decision on February 9, 2023; however, there can be no guarantee that the Company will achieve a favourable outcome in its appeal. A formal appeal for Bikupa 2 in relation to the February 14, 2023, decision was filed on March 10, 2023, by the Company. The Company engaged an independent legal firm and independent audit firm in Sweden with expertise in these matters to assist in the appeal process. The Company does not believe that the decision has merit because in management's opinion and those of the Company's independent advisors, the decision is not compatible with the current applicable law and therefore the amount claimed to be owed by the Company is not probable. According to general principles regarding the placement of the burden of proof, it is up to the Swedish Tax Agency to provide sufficient evidence in support of its decision. It is the Company's opinion; the Swedish Tax Agency has not substantiated their claim. We are not aware of any precedent cases, authoritative literature, or other statement that supports the STA's position. EU guidelines and a ruling from the Swedish Council for Advance Tax Rulings together with an IT forensic expert opinion and legal opinion from a Swedish Professor of VAT support the company’s position. The cases have gone through the Administrative Court and the Court of Appeal and are currently being appealed by the company to the Supreme Administrative Court.
It is not yet known when this dispute will be resolved; the due process following appeals and the court ruling could extend beyond a year. Furthermore, given that the industry is rapidly developing, there can be no guarantee that changes to the laws or policies of Sweden will not have a negative impact on the Company's tax position with respect to the eligibility of the claimed VAT.
The Company has another claim related to VAT assessments that arose in connection with Bikupa Real Estate AB and the 2023 purchase of the Little Boden facility (formerly referred to as "Boden 2"). The Company has disputed the STA's claim; however, the STA has obtained a decision from the Administrative Court upholding the claim. The Company has appealed this decision. The Company's external tax advisors do not believe that this VAT assessment represents a material liability for the Company.
It is not yet known when these disputes will be resolved; the due process following appeals and the court ruling could extend well beyond a year. Furthermore, given that the industry is rapidly developing, there can be no guarantee that changes to the laws or policies of Sweden will not have a negative impact on the Company's tax position with respect to the eligibility to reclaim VAT in the future.
If the Company is unsuccessful in its appeals, the full amount could be payable including other items such as penalties and interest that may continue to accrue, which would likely have an adverse affect in our business, operations and financial condition.
We may be subject to tax audits by regulators such as the Canada Revenue Agency (the "CRA"), which administers the federal goods and services tax and harmonized provincial sales tax ("GST/HST") and Revenu Québec (which administers the Quebec provincial sales tax, or "QST"). Any adverse determination may result in negatively affect our business, financial conditions and results of operations.
HIVE, including its subsidiaries and affiliated companies, has in recent years been subject, and in the future may continue to be subject, to a number of audits conducted by governmental tax authorities. As a result of these audits, certain reassessments have been issued in relation to a number of HIVE's affiliates in Canada. In some cases, we have disagreed with these reassessments, which, in our view, do not accurately reflect the current and applicable tax legislation as it pertains to our operations in Canada. Where we believe appropriate, HIVE or its subsidiaries have initiated formal administrative procedures to dispute these reassessments, which include submission of formal objections to the relevant tax authorities. These objections challenge the interpretation and application of the legislation as adopted by the authorities.
Currently, two of the Company's subsidiaries have claimed significant consumption tax credits, most of which are being withheld pending resolution of ongoing audits by the CRA:
9376-9974 Quebec Inc. has filed for and claimed approximately C$8.2 million in consumption tax credits, which to date remain unpaid; and
Hive Atlantic Datacentres Ltd. has filed for and claimed approximately C$40.4 million in consumption tax credits, which to date remain unpaid.
While HIVE believes its tax estimates and position regarding the applicable tax legislation are reasonable, the final determination of the audits could have a material adverse impact on HIVE's business, financial condition and results of operations.
