Argo Blockchai. Regulatory News (ARB)

PRESS RELEASE

29 April 2019

Argo Blockchain Plc 

("Argo or "the Group")

Audited 2019 Results

Revenues surge 11-fold as mining operations gain momentum

Argo Blockchain Plc, a leading UK-based cryptocurrency miner, (LSE: ARB), is pleased to announce its audited results for the year ended 31 December 2019.

Financial highlights

● Revenue increased by 11-fold to £8.62 million (2018: £0.76m)

● Gross margin increased to 35% (2018: -54%)

● Operating loss reduced by 80% to £0.83m (2018: £4.14m loss)

● EBITDA* amounted to £1.39m (2018: £3.66m loss)

● Net loss attributable to shareholders declined to £0.69m (2018: £4.12m loss)

Operating highlights

● Successfully transitioned from a consumer-facing 'mining-as-a-service' to a proprietary mining model in response to challenging industry conditions in Q1 2019

● Executed a £15m capital investment program to establish one of the world's leading cryptomining platforms by a company listed on a major stock exchange

● Total number of Bitcoin (BTC) mined was approximately 1,330

● Mining hardware in production increased by 306% to approximately 7,000 by year-end

Post period highlights

● Total mining hardware in production increased by 10,000 to 17,000 machines in Q1 2020 and on track to reach approximately 18,000 or 730 Petahash (PH) capacity shortly.

● Appointed new leadership team in January 2020 under executive chairman Ian MacLeod and chief executive Peter Wall to drive Argo's next phase of growth and development

Commenting on the results, Peter Wall, chief executive said:

"Despite challenging trading conditions in 2019 we have successfully executed a strategic transition from a consumer facing business to emerge as a significant cryptocurrency miner listed on a leading international exchange.

"Having completed a major expansion of our mining infrastructure Argo is on track to deliver strong growth in the first half compared with the corresponding period last year. We entered 2020 with considerable business momentum and an efficient mining platform which puts us in a favourable competitive position to navigate the evolving and dynamic cryptocurrency ecosystem."

*Earnings before interest, tax, depreciation and amortisation

For further enquiries please contact:

About Argo:

Argo Blockchain plc is a global leader in cryptocurrency mining with one of the world's largest and most efficient operations. Argo is headquartered in London, UK and its shares are listed on the Main Market of the London Stock Exchange under the ticker: ARB. www.argomining.com

See Argo's largest facility in Quebec:

https://youtu.be/LDWWaZ75Zbk

Chairman's Statement

I am pleased to report that in 2019 Argo achieved strong growth and made major strides towards its long-term goal of being the leading publicly traded crypto-miner in the world. This was the first full year of operations since the Group was founded and listed on the London Stock Exchange. These results are also the first to be announced since I joined the Board in January.

The focus of 2018, our inaugural period, was to develop a strategic plan based off offering crypto mining as a service and to raise the necessary capital to launch that business. However, due to a prolonged and severe industry downturn in late 2018 and 2019, it was necessary to pivot from operating a consumer-facing business to mining for our own account.

Managing this significant reset of our business model took considerable time, expense and energy. Despite the challenges, Argo made the strategic change successfully and managed to execute a substantial investment in mining infrastructure prior to the year-end. Total capital expenditure in the year amounted to £15m, funded almost entirely from internal sources and cash generated from its growing mining activities.

Revenue for the year increased by 11-fold from £0.76m to £8.62m and Argo delivered a positive EBITDA of £1.39m compared with a £3.66m EBITDA loss in the previous year. The attributable loss fell sharply to £0.69m from £4.12m in 2018.

The results were achieved in a volatile and uncertain pricing environment for Bitcoin, which began the year at a price around US$3,800, then soared to almost US$12,000 in the second quarter before retracing back to under US$7,000 during the final quarter.

A number of Board level changes occurred during the year as Argo realigned its leadership team for the next phase of its growth. Jonathan Bixby and Mike Edwards stepped down as executive directors in May 2019 and January 2020 respectively.

In early January 2020, Peter Wall, previously vice president of operations, became chief executive, while I assumed the role of executive chairman. Matthew Shaw was appointed an independent non-executive director in July, while Gil Penchina stepped down from a similar role late last year.

Progress made in 2019 means that Argo is now favourably positioned to capitalise on the biggest change facing the industry in the past four years - namely, the halving of Bitcoin rewards available to miners which will occur in May of this year. Based on previous experience, the halving of rewards will increase pressure on miners using older technology, likely making their mining efforts unprofitable. This will most likely decrease the network hashrate, which should have the effect of reducing the mining difficulty. We expect this change to work to Argo's advantage, as the Group's infrastructure is built from the newer generation of efficient mining machines.

Thanks to Argo's strong operational base and know-how, the Board remains confident of delivering further growth. Long-term prospects for cryptocurrencies, led by Bitcoin, also continue to strengthen. Institutional investors, large scale industrial clients as well as major jurisdictions show a growing interest in digital currencies as a new investment class. At the same time, investor confidence in fiat currencies may be undermined as the COVID-19 pandemic, following in the wake of the 2008 global financial crises, prompts many governments to loosen their monetary and fiscal policies to unprecedented levels. This may spur wider acceptance of Bitcoin's utility over the long term.

On behalf of the Board, I would also like to thank all shareholders for their support and Argo's staff and commercial partners for their hard work during the year. We are an agile and lean group with a large, efficient mining platform. As a result, Argo is in excellent shape and the Board looks to the future with confidence.

Operating and financial review

In early 2019, Argo shifted from operating a consumer-facing mining-as-a-service business to mining for our own account. This strategic change significantly lowered annual operating costs as marketing, customer acquisition, client support, account management and other expenses associated with running a consumer-focused business were eliminated. In addition, the Group reduced its head count from 11 to 7.

The full benefits of these actions are expected to be felt in the current year. The savings also released funds that helped to ride out the downturn and continue investment in a state-of-the art mining platform as planned.

In 2019, as Argo worked to build the Group into a major player in the cryptocurrency mining world, it adopted a three-step strategy for our mining operations. First, we identified and purchased the most efficient and cost-effective machines available, timing our procurement when prices were attractive. Second, our technical team installed and optimised those machines to achieve the best performance possible. Lastly, we monitored and configured the machines as required to ensure excellent results. 

In 2019, we purchased three different machine types - Z11 Bitmain Antminers, which mine the Equihash algorithm, along with S17 and T17 Bitmain Antminers, which use the SHA-256 algorithm to mine Bitcoin.

The Z11 machines have focused on mining the cryptocurrency privacy-focused coin ZCash, and since installing 1,000 of these machines in May 2019, they have achieved a return on investment (ROI) of 174%. 

The S17s (2700 machines) and T17s (1000 machines) installed in 2019 have mined exclusively Bitcoin, and their results have also been good. The portion of these machines installed in H1 2019 have all achieved over 100% ROI.  

All of this meant that Argo's overall mining capacity increased from 1,700 machines located at two sites in 2018 to approximately 7,000 machines in production at three sites in Canada by the end of 2019. Overall, 85% of our increased mining capacity is currently deployed to mine Bitcoin.

Argo rounded off the year with the completion of a significant capital investment in its mining capacity with an order for 10,000 T17 Antminer machines, which went into production slightly ahead of schedule in Q1 2020. Together with another 1,000 S17+ Antminers, due to go into production shortly, the total number of machines in production will rise to approximately 18,000 machines (730PH), a 157% increase in total machines from 2019. This installed capacity will drive further growth in 2020.  

Trading conditions in the first half of 2019 were significantly better than in the second half. Argo benefitted from significantly higher Bitcoin price, which rose to almost $12,000, resulting in a cash mining margin of over 70% in the Q2. These gains were eroded in H2 2019 as the price of Bitcoin experienced a major correction and mining difficulty levels rose accordingly.

In addition, during the second half of 2019 Argo also incurred foreign exchange losses of £0.40m (after experiencing a significant gain in the first half), losses of £0.33m on crypto asset fair value movements and termination fees of £0.24m.

In August 2019, Argo announced a new hosting agreement with GPU.one to increase access to energy from 14 megawatt (MW) as at June 2019 to 64MW on similar terms to its existing agreement.

Financial review

Revenue increased from £0.76m to £8.6m attributable to increased mining activities. The number of data centres increased from two to three over 2019.

In line with Argo's risk mitigation policy, cryptocurrencies generated by mining operations are sold for fiat currency at regular intervals. The timing of such sales is determined by Argo's management team led by chief executive Peter Wall.

Total administrative expenses for the year were £3.89m (2018: £3.73m) which included management and staff termination fees of £0.24m, foreign exchange losses of £0.4m and losses on crypto asset fair value movements of £0.33m. 2020 administrative costs are anticipated to have fewer one time expenses and to generally come in lower than in 2019.

Management and staffing costs, represented as consulting fees and salaries, totaled £1.475m (2018: £1.12m). These costs are also expected to come in lower in 2020. 

Depreciation of computer hardware amounted to £2.08m (2018: £0.42m) and was accounted under cost of sales.

Cash balances were £0.16m as at 31 December 2019 (2018: £16.39m) and short-term loans relating to new hardware purchases amounted to £1.1m as at that date. The decrease in cash balances reflects a £15m investment in mining infrastructure. Cryptocurrencies held at the year-end amounted to £1m.

As at 28 April 2020 Argo held £1.5m cash and £0.8m in cryptocurrencies based on yesterday's closing price. The short-term loans outstanding at the year-end are on track to be fully repaid in June 2020.

Outlook for 2020

Argo entered 2020 with a clear business strategy and its mining operations continue to gain momentum as new production capacity is brought onstream. As announced previously, 918 Bitcoin were mined in the first quarter of 2020, more than double the number produced in the previous three months, resulting in £6m revenue based on average BTC prices for Q1 2020. 

With our mining infrastructure set to increase to 18,000 machines shortly, Argo remains on track for strong growth in the first half of 2020 compared to the corresponding period last year. Having successfully completed a major expansion, the current focus is to optimise operations and increase efficiency levels further prior to the halving.

Trading conditions are likely to remain dynamic amid social and market uncertainty related to the Covid-19 pandemic and the upcoming halving of the price of BTC.

While cryptocurrency mining is challenging, given the dynamic nature of the effort required to mine rewards, overall the Board considers Argo to be well positioned to benefit from a sustained improvement in the Bitcoin price and mining conditions. As a result, the Board looks to the future with cautious optimism.

Independent auditor's report

The Group's auditor has reported on the accounts and their audit report is unqualified. The audit report includes an emphasis of matter paragraph which draws the user's attention to the fact that the Directors do not consider that the outbreak of Covid-19 will impact the use of the going concern basis for the preparation of the financial statements. The independent auditor's report is set out in full in the 2019 Annual Report and Financial Statements, available on the Group's website.

DIRECTORS' REPONSIBILITIES STATEMENT

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and company and of the profit and loss of the Group for that period.

In preparing these financial statements, the directors are required to:

· Select suitable accounting policies and then apply them consistently;

· Make judgements and accounting estimates that are reasonable and prudent;

· State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

GROUP STATEMENT OF COMPREHENSIVE INCOME

The income statement has been prepared on the basis that all operations are continuing operations.

GROUP STATEMENT OF FINANCIAL POSITION

COMPANY STATEMENT OF FINANCIAL POSITION

As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The Company's total comprehensive loss for the year was £689,621 (2018: £1,779,612).

GROUP STATEMENT OF CHANGES IN EQUITY

COMPANY STATEMENT OF CHANGES IN EQUITY

GROUP STATEMENT OF CASH FLOWS

COMPANY STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

1. COMPANY INFORMATION

Argo Blockchain plc ("the company") is a public company, limited by shares, and incorporated in England and Wales. The registered office is Room 4, 1st Floor 50 Jermyn Street, London, United Kingdom, SW1Y 6LX. The company was incorporated on 5 December 2017 as GoSun Blockchain Limited and changed its name to Argo Blockchain Limited on 21 December 2017. Also on 21 December 2017, the company re-registered as a public company, Argo Blockchain plc. Argo Blockchain plc acquired a 100% subsidiary, Argo Blockchain Canada Holdings Inc. (together "the Group"), incorporated in Canada, on 12 January 2018.

On 3 August 2018 the company placed 156,250,000 ordinary shares at a price of 16 pence per ordinary share and gained admission to the official list (by way of Standard Listing under chapter 14 of the Listing Rules) and to trading on the London Stock Exchange's main market for listed securities.

On 1 September 2018 the Company acquired 100% of Argo Mining Limited for £1, which was dormant in the period ended 31 December 2018 and 2019.

The principal activity of the group is that of a crypto asset mining.

The financial statements cover the year ended 31 December 2019.

2. BASIS OF PREPARATION

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.

The financial statements are prepared in sterling, which is the functional currency of the company and Group. Monetary amounts in these financial statements are rounded to the nearest £. Entities within the Group which have a functional currency that is different to that of the parent, are presented in the Group's presentational currency of Sterling. Where group entities' functional currencies are different from the parent, the assets and liabilities presented are translated at the closing rate as at the Balance Sheet date. Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions).

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.

3. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

Going concern

The preparation of consolidated financial statements requires an assessment on the validity of the going concern assumption. The Directors have reviewed projections for a period of at least 12 months from the date of approval of the Financial Statements. The Group currently has an increasing level of revenues from its crypto mining activities. In making their assessment of going concern, the Directors acknowledge that the Group has increasing cash reserves now that it has paid off the final balance owed for the acquisition of 17,000 mining machines now in operation and can therefore confirm that they hold sufficient funds to ensure the Group continues to meet its obligations as they fall due for a period of at least one year from date of approval of these Financial Statements. The Directors have considered the impacts of Covid-19 and conclude that there are no material factors that are likely to affect the ability of the Group to continue as a going concern. Accordingly, the Board believes it is appropriate to adopt the going concern basis in the preparation of the Financial Statements.

Revenue recognition

Mined income: The Group recognised revenue during the period in relation to mined crypto. The Group enters into contracts with the blockchain. The performance obligation is identified to be the delivery of crypto into the Group's wallet once an algorithm has been solved. The transaction price is the fair value of crypto mined, being the fair value per cointracker.io on the transaction date, and this is allocated to the number of crypto mined. These criteria for performance obligation are assessed to have occurred once the crypto has been received in the Group's wallet. Mining earnings are made up of the baseline block reward and transaction fees of between 5 to 10%, however, these are bundled together in the daily deposits from mining and therefore not capable of being analysed separately.

Corporate Resellers: This income stream is in respect of the sale of packages for the provision of a specified power level over a given time frame. One sale was made during the year, for 3 months of 12,000 TH power of the Group's mining machines for which the Group earned £239,000. The Group recognises this income once the performance obligations of power and time and been met.

Subscription revenue: Prior to refocusing the Group's strategy away from mining as a service ("Maas") in the early part of the year, the Group recognised revenue during the period based on subscription revenues received monthly in advance of the MaaS facilities offered. Each contract was renewable on a monthly basis and the Group did not offer any longer term agreements to subscribers. The Group previously entered into contracts with the subscriber. Revenue which arose from subscription sales under these subscription contracts was recognised when the price was determinable, the product had been delivered in accordance with the terms of the contract, the significant risks and rewards of ownership had been transferred to the customer and collection of the sales price was reasonable assured. These criteria for performance obligation were assessed to have occurred once the crypto mining service had been delivered to the customer.

Basis of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

The group consists of Argo Blockchain plc and its wholly owned subsidiaries Argo Innovation Labs Inc and Argo Innovation Labs Limited, the latter remaining dormant.

In the parent company financial statements, investments in subsidiaries, joint ventures and associates are accounted for at cost less impairment.

The consolidated financial statements incorporate those of Argo Blockchain plc and all of its subsidiaries (i.e. entities that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year are consolidated using the purchase method. Their results are incorporated from the date that control passes. On the basis that Argo Innovation Labs Limited was dormant during the year and is immaterial to the Group, it was not included in these consolidated financial statements.

All financial statements are made up to 31 December 2019. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.

Segmented reporting

The directors consider that the Group has only one significant reporting segment being crypto mining and all this is earned by the Canadian subsidiary. The allocation of costs to secondary revenue streams would be impracticable. Accordingly, no segmental analysis is considered necessary due to the nature of the business.

Intangible assets

Intangible fixed assets comprising of the Group's website and supporting software platform relates partly to the user interface for customers, and as such has been revenue generating and will be should the Group return to MaaS.

Intangible assets are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recorded within administration expenses.

Costs relating to the development of website and software are capitalised once all the development phase recognition criteria of IAS 38 "Intangible Assets" are met. When the software is available for its intended use, amortisation is charged on a straight-line basis over the estimated useful life of 5 years.

The useful life represents management's view of the expected period over which the Group will receive benefits from the Website, as well as anticipation of future events which may impact their useful life, such as changes in technology.

Tangible fixed assets

Tangible fixed assets comprise of mining and computer equipment, and data centre improvements.

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses. Cost includes the original purchase price of the asset and any costs attributable to bringing the asset to its working condition for its intended use. An item of property, plant and equipment is recognised as an asset if it is probable that future economic benefits associated with the asset will flow to the entity, and the cost of the asset can be measured reliably.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their estimated useful lives of 3 years in the case of mining and computer equipment and 5 years in the case of the data centre improvements, on a straight line basis. Depreciation is recorded in the Statement of Comprehensive Income within cost of sales.

Management assesses the useful lives based on historical experience with similar assets as well as anticipation of future events which may impact their useful life, such as changes in technology.

Digital assets

Digital assets, including tokens and cryptocurrency, which do not qualify for recognition as cash and cash equivalents or financial assets, and have an active market which provides pricing information on an ongoing basis.

The Group has assessed that it acts in a capacity as a commodity broker trader as defined in IAS2, Inventories, in characterising its holding of Digital assets as inventory. If assets held by commodity broker-traders are principally acquired for the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders' margin, such assets are accounted for as inventory, and changes in fair value (less costs to sell) are recognised in profit or loss.

Impairment of fixed assets

At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and demand deposits with banks and other financial institutions, that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. The Group considers the credit risk on cash and cash equivalents to be limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

Financial instruments

Financial assets: Financial assets are recognised in the Balance Sheet when the group becomes party to the contractual provisions of the instrument.

Financial assets are classified into specified categories. The classification depends on the nature and purpose of the financial assets and is determined at the time of recognition.

Financial assets are subsequently measured at amortised cost, fair value through OCI, or fair value through profit and loss.

The classification of financial assets at initial recognition that are debt instruments depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. The Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.

In order for a financial asset to be classified and measured at amortised cost, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Subsequent measurement: For purposes of subsequent measurement, financial assets are classified in four categories:

• Financial assets at amortised cost

• Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)

• Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)

• Financial assets at fair value through profit or loss

Equity Instruments: The Group subsequently measures all equity investments at fair value. Where the Group's management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group's right to receive payments is established. Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

Financial assets at amortised cost (debt instruments): This category is the most relevant to the Group.

The Group measures financial assets at amortised cost if both of the following conditions are met:

• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Interest received is recognised as part of finance income in the statement of profit or loss and other comprehensive income. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group's financial assets at amortised cost include other receivables and cash and cash equivalents.

Derecognition: A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group's consolidated Balance sheet) when:

• The rights to receive cash flows from the asset have expired; or

• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Impairment of financial assets: The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

The Group recognises an allowance for ECLs for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For other receivables due in less than 12 months, the Group applies the simplified approach in calculating ECLs, as permitted by IFRS 9. Therefore, the Group does not track changes in credit risk, but instead, recognises a loss allowance based on the financial asset's lifetime ECL at each reporting date.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year and not subject to enforcement activity.

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. The Company has an Intercompany loan due from its 100% Canadian subsidiary for which there is no formal agreement including payment date and therefore it cannot be considered to be in breach of an agreement and accordingly the loan is not subject to adjustments and is maintained at its book value in the financial statements.

Financial liabilities: Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group's financial liabilities include trade and other payables and loans.

Subsequent measurement: The measurement of financial liabilities depends on their classification, as described below:

Loans and borrowings and trade and other payables: After initial recognition, interest-bearing loans and borrowings and trade and other payables are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the statement of profit or loss and other comprehensive income when the liabilities are derecognised, as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss and other comprehensive income.

This category generally applies to trade and other payables.

Derecognition: A financial liability is derecognised when the associated obligation is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss and other comprehensive income.

Equity instruments: Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Financial risk management: Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Taxation

The tax expense represents the sum of tax currently payable and deferred tax.

Current tax: The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax: Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

Employee benefits

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of non-current assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee's services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

The group does not have any pension schemes.

Share-based payments

Equity-settled share based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using the Black-Scholes model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. A corresponding adjustment is made to equity.

When the terms and condition of equity settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.

Cancellations or settlements are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.

Foreign exchange

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are determined in foreign currencies are retranslated at the rates prevailing on the reporting end date - Gains and losses arising on translation are included in the income statement for the period. At each reporting end date, non-monetary assets and liabilities that are determined in foreign currencies are retranslated at the rates prevailing on the opening balance sheet date. Gains and losses arising on translation are included in the other comprehensive income and contained within the Foreign currency translation reserve.

4. FINANCIAL RISK FACTORS

The Group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group's overall risk management programme seeks to minimise potential adverse effects on the Group's financial performance. Risk management is undertaken by the Board of Directors.

Market Risk

The Group is dependent on the state of the cryptocurrency market and general sentiment of crypto assets as a whole. During the year the Group managed the company's cryptocurrency through a carefully structured active management strategy for all Group held crypto assets. It is designed to protect the Company in the event that crypto prices decrease, but would also have the potential to provide an upside in a rising crypto asset market. This strategy was executed both internally and through a treasury services contract with Protos Asset Management, a Swiss-based company with a focus on asset management. Internally, the Argo team exchanged cryptocurrency to fiat currency on a weekly and monthly basis through exchange accounts held at Binance, Coinsquare, and Kraken. For treasury management - Protos used a 'trend-following' strategy to adjust Argo's cryptocurrency holdings on a weekly basis into various cryptocurrencies and stable coins.

The Group is also subject to market fluctuations in foreign exchange rates. The subsidiary (Argo Innovation Labs Inc.) is based in Canada, and transacts in CAD$, USD$ and GBP. Crypto currency is primarily convertible into fiat through USD currency pairs and through USD denominated stable coins, and is the primary method for the Group for conversion into cash. The Group monitors exchange rates on a constant basis and maintains bank accounts in all applicable currency denominations.

Credit risk

Credit risk arises from cash and cash equivalents as well as any outstanding receivables. Management does not expect any losses from non-performance of these receivables. The amount of exposure to any individual counter party is subject to a limit, which is assessed by the Board.

The Group considers the credit risk on cash and cash equivalents to be limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

The company considers the intercompany loan to its subsidiary (Argo Innovation Labs Inc.) fully recoverable through review of projected cash flows and acceptance of regular repayments.

The carrying amount of financial assets recorded in the financial statements represent the Group's maximum exposure to credit risk. The company does not hold any collateral or other credit enhancements to cover this credit risk.

Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Board updates cashflow projections on a regular basis and closely monitors the cryptocurrency market on a daily basis. Accordingly, the Group's controls over expenditure are carefully managed, in order to maintain its cash reserves.

Capital risk management

The Group's objectives when managing capital is to safeguard the Group's ability to continue as a going concern, in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.

The Group entered into short-term financing arrangements during the year, to increase capital for mining hardware purchases. As at 31 December 2019, £1,084,218 remained outstanding and is due to be fully repaid by June 2020.

The Group monitors capital on the basis of the total equity held by the Group, being £20,737,942.

5. ADOPTION OF NEW AND REVISED ARTICLES

The Company has adopted all recognition, measurement and disclosure requirements of IFRS, including any new and revised standards and Interpretations of IFRS, in effect for annual periods commencing on or after 1 January 2019.

Standards which are in issue but not yet effective:

At the date of authorisation of these financial statements, the following Standards and Interpretation, which have not yet been applied in these financial statements, were in issue but not yet effective.

The company have not early adopted any of the above standards and the directors are assessing the impact on future financial statements.

6. KEY JUDGEMENTS AND ESTIMATES

In the application of the Group's accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are outlined below.

Share-based payments

In the prior period, share based payments were made based on the fees due to certain individuals for services to be performed by them in the future. In calculating these payments, where possible the Directors consulted with professional advisers to establish the market rate for these services. In addition to this, the company has also issued warrants and options which have been valued in accordance with the Black Scholes model. A lot of estimation and judgement is required by the directors when using the Black Scholes method. Further details of these estimates are available in note 23.

Valuation of tangible and intangible fixed assets

The directors considered at length whether any further impairments were required on the value of the mining and computer equipment, and website and underlying software. In doing so they made use of forecasts of revenues and expenditure prepared by the Group and came to the conclusion that further impairment of those assets were unnecessary based on current forecasts.

Valuation of cryptocurrencies

The Board monitors regularly the values of the cryptocurrencies and any market forecasts. During the period, the Group entered into crypto currency transactions, which were assessed for fair value in line with the requirements of IAS2, Inventories. In characterising its holding of Digital assets as inventory. If assets held by commodity broker-traders are principally acquired for the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders' margin, such assets are accounted for as inventory, and changes in fair value (less costs to sell) are recognised in profit or loss. Revaluations were made with such regularity that as at the end of the reporting period the carrying amount of the asset does not differ materially from its fair value. All revaluations were made with reference to level 1 information, being crypto currencies actively traded on the open market. As at 31st December 2019 the Group held £1,040,964 of crypto currency (see note 22).

7. REVENUE

Due to the nature of Crypto currency mining, it is not possible to provide a geographical split of the revenue stream.

8. EXPENSES BY NATURE

9. AUDITOR'S REMUNERATION

10. EMPLOYEES

The average monthly number of persons (including directors) employed by the group during the period was:

Their aggregate remuneration comprised:

11. DIRECTORS' AND KEY MANAGEMENT REMUNERATION

The amounts above are remunerated through both salaries (of which, some are included in note 10) and through service companies (as disclosed in note 28). The highest paid director during the year was Mike Edwards, earning £343,555.

12. TAXATION

The actual charge for the period can be reconciled to the expected charge based on the profit or loss and the standard rate of tax as follows:

The group has tax losses available to be carried forward and used against trading profits arising in future periods of £8,728,978 (2018: £3,629,902). A deferred tax asset of £2,094,955 (2018: £871,176) calculated at a weighted average rate of 24% has not been recognised in respect of the tax losses carried forward on the basis that there is insufficient certainty over the level of future profits to utilise against this amount.

13. EARNINGS PER SHARE

The basic earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number of shares in issue.

The Group and Company has in issue 44,854,769 warrants and options at 31 December 2019. The loss attributable to equity holders and weighted average number of ordinary shares for the purposes of calculating diluted earnings per ordinary share are identical to those used for basic earnings per ordinary share. This is because the exercise of warrants and options would have the effect of reducing the loss per ordinary share and is therefore anti-dilutive.

14. INVESTMENT IN SUBSIDIARIES

Details of the company's subsidiaries at 31 December 2019 are as follows:

** The provision of cryptocurrency mining services.

The company's interest in Argo Innovation Labs Inc. was acquired on incorporation of that Company, previously named Argo Blockchain Canada Holdings Inc,. on 12 January 2018.

The registered office of Argo Blockchain Canada Holdings Inc. is 700-401 West Georgia Street, Vancouver BC V6B 5A1 Canada. On 8 January 2019 that company changed its name to Argo Innovation Labs Inc.

On 1 September 2018 the Company acquired 100% of Argo Mining Limited for £1. The registered office is Room 4, 1st Floor 50 Jermyn Street, London, United Kingdom, SW1Y 6LX. On 14 January 2019 that company changed its name to Argo Innovation Labs Limited. This company was dormant in the year ended 31 December 2019.

15. INVESTMENTS

On 27 June 2019 the Group made a strategic investment in GPU.one Holding Inc, (3682 av. du Musée, Montréal (Québec) H3G 2C9) a Canadian corporation which hosts the Group's mining gear and supplies power. The Group acquired 192,308 Class A Shares at a price of CDN$0.52 per share for CDN$100,000. This represents an interest of 0.4% in the share capital of GPU.one Holding Inc.

16. FINANCIAL ASSETS FAIR VALUED THROUGH PROFIT & LOSS

During the period, the Group entered into a convertible loan note in the amount of CDN$2,314,334, without a coupon, repayable on 26 June 2027 and convertible, subject to certain conditions, into Class A Shares based on a price per share of 90% of the fair value of GPU.one at the time of conversion. The directors have reviewed the treatment of this asset and consider it should be treated as a non-current financial asset fair valued through profit or loss, at £1,346,236. The financial asset was revalued on a fair value basis at the year ended 31 December 2019.

Based on the issue price of the Class A Shares to the Group and the current issued share capital of GPU.one Holding Inc. if the conversion took place now this would represent an interest of approximately 10% of GPU.one Holding Inc.

17. INTANGIBLE FIXED ASSETS

All intangible assets are held by the subsidiary, Argo Innovation Labs Inc.

18. TANGIBLE FIXED ASSETS

All property, plant and equipment is owned by the subsidiary, Argo Innovation Labs Inc.

19. OTHER RECEIVABLES (NON-CURRENT)

On 26 June 2019 the Group agreed an amendment to the master service agreement with GPU.One Holding Inc. whereby the service contract for the supply of hosting and power would attract lower costs and terminate on 26 June 2022. Early termination of the contract by the Group would result in costs equivalent to 4 months of power usage, deductible from the deposit. These deposits are fixed and are to be drawn down upon during the final months of the contract term as a prepayment for hosting and power.

20. FINANCIAL INSTRUMENTS

The directors consider the carrying amounts of financial instruments in the financial statements approximate to their fair values.

21. TRADE AND OTHER RECEIVABLES

Amounts due from group companies consist of an intercompany loan made to the 100% subsidiary, Argo Innovation Labs Inc. and is eliminated on consolidation. This debtor is greater than 90 days and is considered recoverable through regular payments from the subsidiary.

Other receivables consist of prepayments for expenses and an amount of £75,512 paid for crypto assets purchased but not received as at 31 December 2019.

Other taxation and social security consist of purchase tax in the UK and Canada. UK VAT debtors are less than 30 days old. Canadian GST and QST debtors are greater than 90 days as at 31 December 2019.

The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.

22. DIGITAL ASSETS

The Group mined crypto assets during the year, which are recorded at fair value on the day of acquisition. Movements in fair value between acquisition (date mined) and disposal (date sold), and the movement in fair value in crypto assets held at the year end, are recorded in the profit and loss account.

At the period end, the Group held crypto assets representing a fair value of £1,040,964. The breakdown of which can be seen below:

23. SHARE OPTIONS AND WARRANTS

The following options and warrants over Ordinary Shares have been granted by the company and are outstanding:

The weighted average remaining contractual life of options and warrants as at 31 December 2019 is 3 years.

If the exercisable shares had been exercised on 31st December 2019 this would have represented 11% of the enlarged share capital.

At the grant date, the fair value of the warrants issued have been determined using the Black-Scholes option pricing model. Volatility was calculated based on data from comparable listed technology start-up companies, with an appropriate discount applied due to being an unlisted entity at the grant date. Risk free interest has been based on UK Government Gilt rates for an equivalent term. As the exercise price was equal or above the market value of the shares during the period to 31 December 2019, and share prices fell during the period, the marketability of shares was low and as such a discount rate of between 75% and 90% was placed on the fair value of the shares depending on amounts and timing. The Directors note that the expense for the fair value of options and warrants are not material during the period and therefore not included in the accounts.

24. SHARE CAPITAL

25. RESERVES

The following describes the nature and purpose of each reserve:

26. TRADE AND OTHER PAYABLES

Within other creditors is an amount of £5,000 (2018: £5,000) owed to related parties in relation to securing trade agreements and facilitating the business and expenditure accrued during the early stages of the business.

The directors consider that the carrying value of trade and other payables is approximately equal to their fair value.

27. COMMITMENTS AND OPERATING LEASES

The Group's material contractual commitments relate solely in regards to the master services agreement with GPU.one, which provides hosting, power and support services. Whilst management do not envisage terminating agreements with GPU.one in the immediate future, it is impracticable to determine monthly commitments due to large fluctuations in power usage and variations on foreign exchange rates, and as such a commitment over the contract life has not been determined. The Director's consider that the early termination fee, drawn down from deposits held by GPU.one (see note 19) represents the minimum committed payment due.

28. RELATED PARTY TRANSACTIONS

Rental agreement

The Company rents office space from Dukemount Capital plc, for which Timothy Le Druillenec was a Director during the period up until 1 February 2019. During the period, payments of £3,300 were made with a balance of £Nil outstanding as at 31 December 2019.

The Group also rents office space from Vernon blockchain Inc, for which Peter Wall (considered to be key management personal) was a Director during the period. During the period, payments of £9,314 (2018: £30,471) were made with a balance of £16,299 outstanding as at 31 December 2019 (2018: £Nil).

For each agreement, there is no long term commitment, and these transactions were made on an arm's length basis.

Protos Asset Management

During the year, the Group obtained services from Protos Asset Management in regards to crypto portfolio management. Protos Asset Management is paid a monthly management fee of USD$5,000 and a percentage performance payment based on the relative success of the portfolio against the market. Matthew Shaw, appointed on 17 July 2019 as a non-executive of Argo Blockchain Plc founded Protos Asset Management. During the period of his directorship, the Group paid £83,553 in service fees.

Key management compensation

Key management includes Directors (executive and non-executive) and senior management. The compensation paid to related parties in respect of key management for employee services during the period was made only from Argo Innovation Labs Inc, amounting to: £413,340 paid to Possibilities Training Group Ltd in respect of the fees and Termination payment of Jonathan Bixby; £343,555 paid to MSE Management Inc. in respect of the fees of Mike Edwards; £17,086 paid to POMA Enterprises Limited in respect of fees of Matthew Shaw; £250,218 paid to Blockchain Consulting in respect of fees of Inderpreet Hothi; £216,639 paid to Vernon Blockchain Inc in respect fees of Peter Wall. Other key management received £19,643. These are not inclusive of the related party transactions disclosed above.

29. CONTROLLING PARTY

There is no controlling party of the Group.

30. POST BALANCE SHEET EVENTS

On 5 February, an announcement was made as to the grant of options to the management team.

The assessment of the COVID-19 situation will need continued attention and will evolve over time. In our view, COVID-19 is considered to be a non-adjusting post statement of financial position event and no adjustment is made in the financial statements as a result. The rapid development and fluidity of the COVID-19 virus make it difficult to predict the ultimate impact at this stage. Due to the nature of the Group's activities, the impact has been minimal. Management will continue to assess the impact of COVID-19 on the Group and Company, however, it is not possible to quantify the impact, if any, at this stage.