United States securities and exchange commission logo
March 23, 2023
Asher Genoot
President
Hut 8 Corp.
c/o U.S. Data Mining Corp.
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Re: Hut 8 Corp.
Registration
Statement on Form S-4
Filed February 13,
2023
File No. 333-269738
Dear Asher Genoot:
We have reviewed your registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe our comments apply to your
facts and
circumstances or do not believe an amendment is appropriate, please tell
us why in your
response.
After reviewing any amendment to your registration statement and
the information you
provide in response to these comments, we may have additional comments.
Registration Statement on Form S-4
General
1. Please provide
disclosure of any significant crypto asset market developments material to
understanding or
assessing Hut 8's and USBTC's respective business, financial condition
and results of
operations, or share price since either company's last reporting period,
including any material
impact from the price volatility of crypto assets.
Questions and Answers about the Business Combination
What are the U.S. federal income tax consequences of the Merger..., page
5
2. You disclose that the
parties intend that the Hut 8 Share Exchange occurring pursuant to
the Arrangement and the
Merger, together, be treated as an exchange by Hut 8
Asher Genoot
Hut 8 Corp.
March 23, 2023
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shareholders and USBTC stockholders, respectively, that qualifies
under Section 351(a) of
the Internal Revenue Code. Since it appears that the tax consequences
to the transaction
are material to shareholders, please file a tax opinion as an exhibit
to the registration
statement. Refer to Item 601(b)(8) of Regulation S-K. For guidance,
please refer to Staff
Legal Bulletin No. 19, Section III.A.2.
Selected Unaudited Financial Data as of January 31, 2023, page 23
3. The combined financial information does not appear to comply with the
requirements for
the presentation of pro forma financial information in Article 11 of
Regulation S-X.
Please either remove this presentation, or explain to us the purpose
of the presentation and
the basis for its presentation. Refer to Item 11-02(a)(12) of
Regulation S-X.
Market Price of and Dividends on Common Equity
Comparative Per Share Market Price, page 24
4. Please disclose the market value of Hut 8 on an equivalent per share
basis. Refer to Item
3(g) of Form S-4.
Risk Factors, page 27
5. To the extent material, please discuss any reputational harm that
either Hut 8 or USBTC
may face in light of recent disruptions in the crypto asset markets,
including bankruptcies,
crypto asset price volatility, and legal proceedings involving
prominent crypto platforms.
For example, discuss how market conditions have affected how either
company's business
is perceived by customers, counterparties, and regulators, and whether
there is a material
impact on its operations or financial condition.
6. Please describe any material risks to either Hut 8's or USBTC's
business from the
possibility of regulatory developments related to crypto assets and
crypto asset markets.
Identify material pending crypto legislation or regulation and
describe any material
effects it may have on either company's business, financial condition,
and results of
operations.
7. Please describe any material risks that either Hut 8 or USBTC faces
related to the
assertion of jurisdiction by U.S. and foreign regulators and other
government entities over
crypto assets and crypto asset markets.
8. To the extent material, please describe any gaps that either Hut 8's or
USBTC's respective
FirstName LastNameAsher Genoot
board or management have identified with respect to risk management
processes and
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policies in light8 of
Corp.
current crypto asset market conditions as well as
any changes they have
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23, 2023 Page 2 those gaps.
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9. Please describe any material financing, liquidity, or other risks that
either Hut 8 or
USBTC faces related to the impact that the current crypto asset market
disruption has had,
directly or indirectly, on:
The value of the crypto assets or miners that either company uses
as collateral; or
The value of either company's crypto assets, miners or mining real
estate used by
others as collateral, as applicable in each case.
10. To the extent material to either Hut 8 or USBTC, please describe any
of the following
risks from disruptions in the crypto asset markets:
Risk from depreciation in either company's stock price.
Risk of loss of customer demand for either company's products and
services.
Financing risk, including equity and debt financing.
Risk of increased losses or impairments in either company's
investments or other
assets.
Risks of legal proceedings and government investigations, pending
or known to be
threatened, in the United States or in other jurisdictions
against either company or its
affiliates.
Risks from price declines or price volatility of crypto assets.
Risks of increased regulation of the crypto asset industry.
Risks Related to USBTC's Business, page 38
11. Please expand on your statement on page 46 that an adverse outcome
of the Niagara Falls
Litigation may affect U.S. Data Technologies Group Ltd. s permits
and operations with
respect to its Niagara Falls data site. Describe the potential
practical implications of an
adverse decision in the Niagara Falls Litigation, including whether
the site may be
required to be closed and its impact on USBTC s business performance
and results of
operations.
USBTC s Power Generation-Related Risks
Maintenance, expansion and refurbishment of power generation facilities...,
page 58
12. We note your references to "NYISO" and "ERCOT" on page 58 of your
filing. Please
ensure that all acronyms and terms are defined when first used. Refer
to Rule 421(b) of
the Securities Act of 1933, as amended.
USBTC's future success will depend upon the value of Bitcoin, page 67
13. Please tell us why you disclose that USBTC will be marking Bitcoin to
fair value each
quarter since this policy does not appear consistent with that
disclosed on page F-31.
The Business Combination, page 75
14. We note that Hut 8 and USBTC provided certain financial forecasts and
projections to the
financial advisors and that the financial advisors relied upon these
financial projections in
preparing their fairness opinions. Please disclose in this section the
financial projections
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and forecasts provided to the financial advisors or explain why such
information is not
material to security holders.
Fairness Opinion of Stifel GMP, page 82
15. Please revise to quantify the fees Hut 8 paid to Stifel GMP when it
rendered its fairness
opinion. Also please quantify the fees payable to Stifel GMP
contingent on completion of
the Business Combination or an alternative transaction. Refer to Item
4(b) of Form S-4
and Item 1015(b)(4) of Regulation M-A.
Accounting Treatment of the Business Combination, page 95
16. Please tell us about the pertinent facts and circumstances you
considered in determining
the acquirer in the business combination. Refer to ASC 805-10,
including ASC 805-10-
55-12. Further, you disclose that the preliminary assessment of the
accounting acquirer is
subject to evaluation and may be impacted by matters such as New Hut
board rights
related to tie-break votes and the relative fair values of USBTC and
Hut 8 at closing.
Include a discussion of these matters in your response.
The Business Combination Agreement
Conditions to Completion of the Business Combination, page 114
17. We note your disclosure that certain conditions to the consummation of
the business
combination may be waived by mutual consent of the Parties. Please
specify which, if
any, conditions may not be waived by mutual consent of the Parties.
Information About Hut 8, page 125
18. To the extent material, please discuss how the bankruptcies of
companies in crypto asset-
related businesses and the downstream effects of those bankruptcies
have impacted or
may impact Hut 8's business, financial condition, customers, and
counterparties, either
directly or indirectly. Clarify whether Hut 8 has material assets that
may not be recovered
due to the bankruptcies or may otherwise be lost or misappropriated.
19. To the extent material to an understanding of Hut 8's business, please
describe any direct
or indirect exposures to other counterparties, customers, custodians,
or other participants
in crypto asset markets known to:
Have filed for bankruptcy, been decreed insolvent or bankrupt,
made any assignment
for the benefit of creditors, or have had a receiver appointed
for them.
Have experienced excessive redemptions or suspended redemptions or
withdrawals
of crypto assets.
Have the crypto assets of their customers unaccounted for.
Have experienced material corporate compliance failures.
20. To the extent material, please explain whether Hut 8's crypto assets
serve as collateral for
any loan, margin, rehypothecation, or other similar activities to
which Hut 8 or its
affiliates are a party. If so, identify and quantify the crypto assets
used in these financing
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arrangements and disclose the nature of Hut 8's relationship for loans
with parties other
than third-parties. State whether there are any encumbrances on the
collateral. Discuss
whether the current crypto asset market disruption has affected the
value of the underlying
collateral. Please include similar disclosure for Hut 8's miners used
as collateral.
21. Please revise to address the following:
Discuss Hut 8's intentions to mine, invest in or transact in
crypto assets other than
Bitcoin and update this disclosure in future filings as
appropriate;
Describe Hut 8's process, if any, for analyzing whether a
particular crypto asset that it
intends to mine, invest in, or transact in is a "security" within
the meaning of Section
2(a)(1) of the Securities Act, including whether and how the
recent completion of
Ethereum's transition to Proof-of-Stake consensus has impacted its
analysis. Disclose
that this is a risk-based judgment and does not constitute a legal
determination
binding on regulators or the courts; and
Expand the risk factors section to describe the specific potential
consequences to Hut
8 and to investors if it is subsequently determined that Hut 8 has
participated in the
unregistered issuance or distribution of securities, including the
specific risks inherent
in its business model that may necessitate corrective measures as
a result of judicial
or regulatory actions.
22. Refer to your disclosure in your Annual Information Form, which has
been filed as
Exhibit 99.1 to Hut 8's Annual Report on Form 40-F for the year ended
December 31,
2021 and revise to address the following points:
On page 11, you disclose that Hut 8 provides cloud services and
data centre
colocation services to its customers. Please revise to briefly
discuss Hut 8's fee
structure for providing such services to its customers and include
illustrative
examples, as appropriate.
On page 12, you disclose that Hut 8 has entered into agreements
with each of ATCO
Electric Ltd., City of Medicine Hat and Validus for the provision
of power or use of
electricity. Please revise to describe in greater detail the
material terms and
conditions of these agreements, including, without limitation, the
material obligations
of the parties, the duration of the agreement and the material
termination provisions.
On page 13, you state that the primary seasonality that Hut 8
experiences is related to
potential changes in electricity prices and that electricity is
your largest expense.
Please revise to provide a discussion of your average cost of
electricity for the
periods presented, and whether there are any known trends
regarding the fluctuations
in the cost of electricity. In addition, consider including a
discussion of the
differences in the cost of electricity for each of the geographic
regions you operate.
On page 16, we note the statements in the bottom risk factor that
the Commission's
views regarding whether a particular crypto asset falls within the
definition of a
security under the U.S. federal securities laws have
"evolved over time and it is
difficult to predict the direction or timing of any continuing
evolution. It is also
possible that a change in the governing administration or the
appointment of new
SEC commissioners could substantially impact the views of the SEC
and its staff."
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Hut 8 Corp.
March 23, 2023
Page 6
Please remove these statements as the legal tests are
well-established by U.S.
Supreme Court case law and the Commission and staff have issued
reports, orders,
and statements that provide guidance on when a crypto asset may
be a security for
purposes of the U.S. federal securities laws.
Information About USBTC, page 129
23. Please revise this section of your filing to address comments 18
through 20 above as they
apply to your disclosure concerning USBTC.
Business Overview, page 129
24. Please discuss USBTC's intentions to mine, invest in or transact in
crypto assets other than
Bitcoin and update this disclosure in future filings as appropriate.
25. You disclose that USBTC owns a 50% interest in the King Mountain JV
with a "leading
North American energy company." Please identify your joint venture
partner.
Reactor: Energy Curtailment, page 130
26. We note your disclosure regarding Reactor, an advanced, algorithmic
energy curtailment
platform that USBTC believes will drive significant Bitcoin mining
profitability for
USBTC. Please provide further detail regarding Reactor, its
development, its role in
USBTC s current operations and any measurable changes in energy
efficiency,
profitability or any other relevant metrics that may drive USBTC s
results of operations.
Custody Policy, page 132
27. Please revise this section to address the following:
Provide quantified disclosure regarding the respective portions of
USBTC's Bitcoin
balance held by each of the third-party custodians referenced.
Disclose the material terms of USBTC's arrangement with each
third-party custodian,
including, for example, in what manner the relevant custodian is
required to store
USBTC's crypto assets, whether it is contractually required to
hold USBTC's crypto
assets in cold storage, what security precautions the custodian is
required to
undertake, what inspection rights USBTC has, and what type of
insurance, if any, the
custodian is required to have to protect USBTC from loss.
Also please apply this comment to the same or similar disclosures of Hut
8 throughout the
filing, as applicable.
FirstName LastNameAsher Genoot
28. You disclose that USBTC uses third-party custody solutions to safeguard
its bitcoin and
Comapany
"doesNameHut 8 Corp.
not currently hold any bitcoin for third parties." Please
disclose whether USBTC
March has any current
23, 2023 Page 6plans or intentions to hold any crypto assets for third
parties in the future.
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King Mountain JV, page 133
29. Please disclose the material terms of the King Mountain JV Senior
Note, including
repayment terms, principal events of default, and any security
interests that the lenders
may hold. Please clarify the nature of USBTC's assumption of the note,
including whether
the JV partner has also assumed the note.
Anchorage, page 134
30. We note your disclosure that the Refinanced Loan Agreement with
Anchorage Lending
CA, LLC is repaid through profits generated from those certain
USBTC miners
underlying the security interest, as further specified in the
Refinanced Loan
Agreement USBTC is not required to make a minimum monthly payment.
Please
provide further disclosure regarding USBTC s repayment obligations,
including how
profit from the relevant miners is determined, what would occur in the
event that the
relevant miners were rendered inoperative or generated lower profit
than expected, what
would constitute a payment default under the agreement and other
relevant terms.
Cost of Electricity, page 145
31. On page 146, if material, please disclose the amount of demand
response payments netted
within your costs of electricity for each period. If not material,
separately tell us the
amounts netted for each period.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of
USBTC
Trends and Key Factors Affecting USBTC's Performance
Halving, page 145
32. Please disclose the steps you are taking to address and/or mitigate
the impacts of halving,
as well as the potential impact of decreased rewards on revenues and
economics of your
business model.
Key Operating and Financial Indicators, page 146
33. We note the trends and key factors affecting your performance
discussed on page 145.
Please include in the table on page 146 quantification of your key
indicators for the
network hash rate and difficulty, and the number of miners for each
period presented to
provide context and support trends in your key operating and financial
indicators. If
material, also disclose the number of miners that were non-operational
in those periods.
34. Please balance your tabular disclosure and following narrative
disclosures to include, with
equal or greater prominence, the most comparable GAAP measure to
Adjusted EBITDA.
See Item 10(e)(1)(i)(A) of Regulation S-K and Question 102.10(a) of
the Compliance and
Disclosure Interpretations on Non-GAAP Financial Measures.
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35. Please revise to include a breakeven analysis for USBTC s mining
operations or any other
crypto assets that it earns or mines that compares the cost to earn or
mine one crypto asset
with the value of the crypto asset. Please provide a discussion of how
USBTC expects the
Business Combination to impact its breakeven analysis in the future.
Also please apply
this comment to the same or similar disclosures of Hut 8 throughout
the filing, as
applicable.
Critical Accounting Policies and Significant Estimates, page 148
36. Please revise your disclosure to provide the qualitative and
quantitative information
necessary to understand the estimation uncertainty and the impact the
critical accounting
estimates have had or are reasonably likely to have on your financial
condition or results
of operations to the extent the information is material and reasonably
available. In your
revised disclosure discuss why each critical accounting estimate is
subject to uncertainty
and, to the extent the information is material and reasonably
available, how much each
estimate and/or assumption has changed over a relevant period, and the
sensitivity of the
reported amount to the methods, assumptions and estimates underlying
its calculation. See
Item 303(b)(3) of Regulation S-K and Instruction 3 to Item 303(b).
Digital Asset Mining, page 150
37. Please expand your disclosure regarding USBTC's arrangements with
mining pool
operators to address the following:
Provide more detailed disclosure regarding each mining pool,
including how each
pool operates, the transaction fees paid and the amount of reward
received from each
pool.
Disclose the material terms of any service agreements with such
providers, including
the term and termination provisions thereof.
Clarify how USBTC calculates or verifies its proportion of the
contributed computing
power resulting in the amount of cryptocurrency awarded.
Also please apply this comment to the same or similar disclosures of
Hut 8 throughout the
filing, as applicable.
38. Please briefly discuss whether USBTC's business strategy is to hold
its crypto assets for
investment or convert them into fiat currency immediately upon receipt
or soon thereafter.
Discuss the average period between receipt of USBTC's crypto assets
and the subsequent
conversion into fiat currency and quantify the fees incurred. Please
revise to disclose
whether USBTC has a specific policy for how it will determine when to
sell crypto assets
for fiat currency to fund operations or growth and through what
exchange or if USBTC
intends to hold its mining rewards for investment purposes. To the
extent USBTC has an
agreement with a third-party exchange for converting crypto assets to
fiat currency, please
disclose the material terms and file the agreement as an exhibit or
tell us why this is not
required by Item 601(b)(10) of Regulation S-K. Also please apply this
comment to the
same or similar disclosures of Hut 8 throughout the filing, as
applicable.
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Common Stock Valuations, page 152
39. Please provide us your analysis supporting the decline in the fair
value of USBTC
common stock from $4.34 per share in March 2022 to $0.01 per share in
August 2022. In
your response also tell us why the exercise price of the options
granted in August 2022
was reduced from the March 2022 exercise price of $4.34 per share to
only $1.78 per
share if the fair value of common stock at that time was $0.01 per
share.
Results of Operations, page 153
40. Please discuss, including quantitatively where possible, all known
trends or uncertainties
that have had, or that you reasonably expect will have, a material
favorable or unfavorable
impact on revenue or results of operations. We note by way of example
that USBTC is
currently subject to the Niagara Falls Litigation (page 46).
The year ended June 30, 2022 compared to the period from December 4, 2020
(inception)
through June 30, 2021, page 156
41. It appears that the $3.8 million of payments to your officers
disclosed in the last two
paragraphs on page 162 may be included in the $5.3 million of cash
payments to certain
employees and advisors included in your one time cost non-GAAP
adjustment. Please
confirm whether this is true or not. Regardless, tell us how cash
payments to current
employees do not represent normal cash operating expenses similar to
other cash
compensation paid to your employees that should not be removed from
non-GAAP
performance measures under Question 100.01 of the Compliance and
Disclosure
Interpretations on Non-GAAP Financial Measures.
Unaudited Pro Forma Condensed Combined Statement of Financial Condition, page
194
42. Please consider revising the title of this section as your pro forma
financial information is
not limited to a statement of financial condition.
43. Please revise your introductory disclosure to also discuss the debt
extinguishment
transaction presented in Note 3 as required by Item 11-02(a)(2) of
Regulation S-X.
44. Please tell us your consideration for presenting the Note 2
Acquisition Transaction
Adjustments before the Note 3 Debt Extinguishment adjustments in your
pro forma
financial statements and including a subtotal column presenting the
proposed business
combination to differentiate it from the debt extinguishment.
45. With respect to other transactions or events that have occurred such
as the Niagara Falls
litigation of USBTC and the shut down of Hut 8 s North Bay facility
and the associated
relocation of miners, please tell us your consideration for presenting
Management's
Adjustments under Item 11-02(a)(7) of Regulation S-X. In your response
tell us whether
the inclusion of pro forma adjustments for these events would enhance
an understanding
of the pro forma effects of your proposed transaction since we note
these transactions
Asher Genoot
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March 23, 2023
Page 10
are not included or discussed. If so, revise your presentation to
provide Management's
Adjustments or tell us why they are not warranted. If not, tell us why
they would not
enhance such an understanding.
Unaudited Pro Forma Combined Statement of Operations, page 196
46. Please revise pages 196 and 197 to present historical basic and
diluted per share amounts
and the number of shares used to calculate such per share amounts on
the face of the pro
forma condensed statement of operations. Refer to Item 11-02(a)(9)(i)
of Regulation S-X.
Note 1. Basis of Presentation, page 198
47. You disclose that New Hut elected not to present Autonomous Entity
Adjustments. We
note that under Item 11-02(a)(6) of Regulation S-X, you must include
adjustments that
depict the registrant as an autonomous entity if the conditions in
Item 11-01(a)(7) are met
(i.e., the registrant previously was a part of another entity and such
presentation is
necessary to reflect operations and financial position of the
registrant as an autonomous
entity). As the presentation of Autonomous Entity Adjustments is not
optional, please
revise your disclosure to remove the indication that you elected not
to provide them.
Note 2. Business Combination Transaction Adjustments, page 199
48. In the introduction to the table in pro forma adjustment a) you
disclose that you
determined the purchase using the share price as of February 10, 2023,
but in the table you
disclose that the price is as of February 6, 2022. Please revise.
49. Please disclose in more detail how you determined the adjustment to
depreciation and
amortization expenses. For example, explain how you changed the method
of depreciation
and/or useful lives of the assets.
50. Please tell us how your pro forma statement of financial position
presents current and
deferred income taxes. In your response explain why there are no
apparent pro forma
adjustments for income taxes and reference for us the authoritative
literature you rely
upon to support your position.
Note 3. Adjustment for USBTC debt extinguishment, page 201
51. Please explain to us why the pro forma footnotes do not include any
impact to your
FirstName LastNameAsher Genoot
revenues and related costs given that you exchanged miners with the
finance
Comapany NameHut
company. Refer8 to
Corp.
Item 11-02(a)(11)(i) of Regulation S-X. Please also
disclose the
March number
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miners
10 exchanged.
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Note 4. Adjustments for the effect of reclassifications, foreign exchange and
IFRS / U.S. GAAP
differences for Hut 8, page 201
52. We note that the tables all state that the amounts are in thousands of
U.S. dollars. It
appears that only the amounts in the last column of the tables are in
U.S. dollars and the
other columns are in Canadian dollars. If true, please revise to
clarify.
53. Please disclose the basis for the conversion from Canadian dollars to
U.S. dollars.
54. For U.S. GAAP purposes, you classify Hut 8's cryptocurrency in current
assets. Please tell
us how your classification of cryptocurrencies as current assets is
consistent with the
definition of current assets in ASC 210-10-20.
55. We note that you made a U.S. GAAP adjustment to reverse the impact of
applying the
revaluation model for cryptocurrency under IFRS as the revaluation
model is prohibited
under U.S. GAAP and any impairment losses recognized cannot be
subsequently reversed.
With respect to the accounting for impairment under U.S. GAAP please
address the
following and reference for us the authoritative literature you rely
upon to support your
accounting:
Briefly disclose Hut 8's accounting policy for impairment of
cryptocurrency under
U.S. GAAP.
Disclose the timing of the assessment. Tell us whether you
considered using the
lowest intraday amount. Refer to ASC 350-30-35-18B.
Tell us the market(s) you use to determine the quoted price used
to assess impairment
for Hut 8's cryptocurrency holdings.
Tell us how you identified the principal markets. Explain to us
the process you
undertook to evaluate the various exchanges on which Hut 8 trades
and how this
process and ultimate conclusion conforms to the guidance in ASC
Topic 820 and
ASC 820-10-35-5A.
56. We note that you reflect no U.S. GAAP adjustments to the Hut 8
financial statements for
the recognition of revenue. Please provide us with a thorough
accounting analysis,
including what literature applies to these arrangements (e.g., ASC
842, ASC 606, ASC
460, etc.). To the extent ASC 606 is the applicable guidance, please
ensure your analysis
describes, in appropriate detail, your application of the five steps
in ASC 606 and cites the
authoritative literature supporting that application. Also ensure your
analysis highlights
significant accounting judgments you made and the alternatives, if
any, that you
considered and rejected. In your response, specifically address the
following for Hut
8's self-mining:
Provide us a representative sample of the contracts with Hut 8's
customers for self-
mining.
Substantiate how the provision of computing power to the mining
pool is Hut 8's sole
performance obligation.
Tell us the types of cryptocurrencies mined by Hut 8 (for example,
bitcoin, ethereum,
etc.).
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Tell us whether there are any penalties for contract
termination by either party. Tell
us what happens if Hut 8 cancels midterm. Also explain whether
Hut 8 can withdraw
computing power midterm and reinstitute it later that same day.
Tell us how you determine contract inception.
Tell us the payment terms for cryptocurrencies earned from the
mining pool operator,
including identifying the form of consideration (including the
type of
cryptocurrency), how the amount of consideration is determined,
and when Hut 8
is paid.
Explain the timing of when Hut 8 measures the value of any
non-cash consideration
under ASC 606-10-32-21.
Explain the application of any variable consideration
constraints.
Tell us the market used to value the non-cash consideration and
how it was
determined. Explain to us whether this is your principal market.
57. Please tell us why there is no income tax impact of GAAP adjustments
on the historical
statement of operations for Hut 8 for the three months ended September
30, 2022 and no
apparent US GAAP income tax adjustments on the historical statement of
financial
condition at September 30, 2022.
58. Regarding adjustment 4(c), please tell us why there is no warrant
liability under US
GAAP at either the Hut 8 level or at the combined pro forma level. In
your response
specifically clarify whether the warrants are exercisable in Canadian
dollars or U.S.
dollars and the impact this has on your classification at either the
Hut 8 or combined pro
forma level.
Financial Statements of USBTC
Note 3. Basis of Presentation, Summary of Significant Accounting Policies and
Recent
Accounting Pronouncements
Revenue Recognition
Cryptocurrency mining, page F-9
59. Please address the following related to your cryptocurrency mining
revenue recognition.
In your response, where appropriate, reference for us the
authoritative literature you rely
upon to support your accounting:
Provide us with the contracts you have with each of your mining
pool operators.
Tell us specifically how you determine contract inception for each
mining pool
contract.
Tell us the payment terms from each mining pool operator. Explain
to us the method
you use to estimate variable consideration in your arrangements
and how you apply
the variable consideration constraint in ASC 606-10-32-11 through
32-13. Also
describe for us the agreed-upon calculation that measures the
bitcoin that could have
been mined with your contributed hashrate.
In your disclosure, clarify whether just the transaction fee or
all of the consideration
received for your mining pool activities is variable and whether
it is constrained.
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You disclose that you measure consideration received at fair
value by using the
quoted price of the related cryptocurrency at contract inception
and you also disclose
that you value the non-cash consideration at fair value when
notified of the earnings.
Please reconcile and revise as necessary and tell us how you
considered ASC 606-10-
32-21 which requires noncash consideration to be measured at
contract inception.
Tell us why it is appropriate to deduct operating fees to the
mining pool operator
from revenue. Clarify whether the single amount (i.e., the net
fees received)
represents the transaction price paid to you in satisfaction of
your performance
obligation to the pool operator and if the amounts retained by
the pool operator relate
to the activities it must undertake to fulfill its contract with
you.
Tell us your accounting for the receivables denominated in
cryptocurrencies.
60. You disclose that your enforceable right to compensation only begins
when you provide
computing power to the mining pool operator, and exists in any period
that you provide
computing power (hourly or daily period depending on the mining pool
operator). Please
address how this disclosure reconciles with your determination of the
timing of contract
inception. In circumstances when you are not performing at the
beginning of each hour /
day but commence performance at some point within the hour / day,
please clarify for us
when contract inception occurs. Refer, for example, to ASC
606-10-25-4. Similarly, if you
start and stop performing more than one time within an hour / day,
tell us what constitutes
contract inception and how many contracts you have during that hour.
Further, if you
provide continuous performance across more than one hour / day, tell
us what constitutes
contract inception and contract duration and the reasons why. Please
cite the relevant ASC
606 guidance that supports your determination.
Hosting services, page F-10
61. Please tell us the material rights and obligations of the parties to
your hosting transactions.
Provide us with a thorough accounting analysis, including what
literature applies to these
arrangements (e.g., ASC 842, ASC 606, ASC 460, etc.). To the extent
ASC 606 is the
applicable guidance, please ensure your analysis describes, in
appropriate detail, your
application of the five steps in ASC 606 and cites the authoritative
literature supporting
that application. Also ensure your analysis highlights significant
accounting judgments
you made and the alternatives, if any, that you considered and
rejected.
Mining equipment sales, page F-11
62. Please tell us the material rights and obligations of the parties to
your mining equipment
transactions. Provide us with a thorough accounting analysis,
including what literature
applies to these arrangements (e.g., ASC 842, ASC 606, ASC 460, etc.).
To the extent
ASC 606 is the applicable guidance, please ensure your analysis
describes, in appropriate
detail, your application of the five steps in ASC 606 and cites the
authoritative literature
supporting that application. Also ensure your analysis highlights
significant accounting
judgments you made and the alternatives, if any, that you considered
and rejected.
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63. Please tell us why you do not have mining equipment inventory on your
balance sheet.
Tell us the nature of the mining equipment you sell and how and when
you obtain the
equipment for sale. Tell us how a customer takes possession or control
of the equipment
and describe any obligation you have to dispose of the mining
equipment. Also tell us
whether your mining equipment sales include any other performance
obligations, such as
hosting services.
Note 15. Subsequent Events
Acquisition, page F-19
64. You disclose that on December 6, 2022, you acquired a 50% membership
interest in a
joint venture. Please tell us about your analysis in determining
whether you are required to
provide audited financial statements and pro forma financial
information for this
acquisition. Refer to Rule 3-05 and Article 11 of Regulation S-X.
Strategic Operator Agreements, page F-19
65. Please address the following related to your strategic operator
agreements. In your
response, where appropriate, reference for us the authoritative
literature you rely upon to
support your accounting:
Tell us the significant terms of your strategic operator
agreements, including payment
terms.
Tell us your revenue recognition accounting policy for the
strategic operator
agreements.
Tell us how you measure progress toward satisfaction of the
performance obligation.
Tell us how you determine the transaction price, including
estimating variable
consideration and assessing whether an estimate of variable
consideration is
constrained.
Consolidated Statements of Operations, page F-24
66. Please state separately the amount of costs of revenues for tangible
goods sold and
services. Refer to Item 5-03(b)(2) of Regulation S-X.
Consolidated Statements of Cash Flows, page F-26
67. Please tell us why it is appropriate to classify the proceeds from the
sale of
cryptocurrencies as an operating activity and reference for us the
authoritative literature
you rely upon to support your accounting. In your response, tell us how
long you hold
FirstName LastNameAsher Genoot
cryptocurrencies before selling them for cash. Provide us the general
time frame you hold
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Note 3. Basis of Presentation, Summary of Significant Accounting Policies and
Recent
Accounting Pronouncements
Cryptocurrency, net, page F-31
68. You classify your cryptocurrency (bitcoin) in current assets. Please
tell us how your
classification of cryptocurrencies as current assets is consistent
with the definition of
current assets in ASC 210-10-20.
69. You disclose that you perform a quantitative impairment test daily,
determining the fair
value of your cryptocurrency by using the quoted price as determined
by your principal
market. Please address the following and reference for us the
authoritative literature you
rely upon to support your accounting:
Tell us the market(s) you use to determine the quoted price used
to assess impairment
for your cryptocurrency holdings.
Tell us how you identify the principal market. Explain to us the
process you
undertook to evaluate the various exchanges on which you trade
and how this process
and ultimate conclusion conforms to the guidance in ASC Topic 820
in general and
specifically in ASC 820-10-35-5A.
Disclose the timing of the quoted price used in your assessment.
Tell us whether you
considered using the lowest intraday amount. Refer to ASC
350-30-35-18B.
Explain how you apply the qualitative assessment given the
existence of a quoted
price on apparently active markets.
Stock-based compensation, page F-34
70. Please revise your policy disclosure to clarify how/when you record
compensation for
awards with market conditions versus those with performance
conditions.
Note 5. Cryptocurrency, page F-36
71. Please revise your rollforward of cryptocurrencies to remove the
proceeds from sale and
realized gains/losses on crypto currencies and replace them with the
carrying value of the
cryptocurrencies sold. Provide sufficient supplementary disclosure
below the
reconciliation to relate the carrying value of cryptocurrencies sold
to the realized
gains/losses on cryptocurrencies sold on your statements of
operations. In this regard, we
note that the sale proceeds themselves does not impact the
cryptocurrencies account
balance on your general ledger. Furthermore, tell us why the "proceeds
from the sale of
cryptocurrency in accounts receivable" is a line item in your
rollforward if it does not
represent carrying value and/or was not included in the beginning
balance of
cryptocurrencies.
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Exhibits
72. Please revise to disclose the material terms of the lease agreement
between U.S. Data
Technologies Group Ltd. and 2747 Buffalo Avenue, LLC filed as Exhibit
10.12 to the
registration statement.
73. The fairness opinion provided by Stifel GMP filed as Exhibit 99.1
indicates that it is
provided to the Board of Directors of Hut 8 for "its exclusive use
only...and may not be
used or relied upon by any other person...without [Stifel GMP's] prior
written consent."
Please also refer to similar language contained in the fairness
opinion provided by Kroll,
LLC filed as Exhibit 99.2. Please remove this limitation on reliance
as it is inconsistent
with the disclosure relating to the fairness opinions.
74. Please tell us what consideration you have given to filing the
following documents as
exhibits to the registration statement:
any agreements that memorialize USBTC's joint venture arrangements
in connection
with its 50% ownership interest in the King Mountain JV, as
discussed on page 133;
and
the property management agreements that USBTC has entered into
with the owners
of Charlie, Delta, and Echo, respectively, as discussed on pages
44 and 133.
Please refer to Item 601(b)(10) of Regulation S-K.
75. Please ensure each exhibit is in the proper text-searchable format.
See Rules 301 and 304
of Regulation S-T. For example, we note Exhibits 10.6 through 10.8 and
10.12 are not in
text-searchable format.
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We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration. Please
allow adequate
time for us to review any amendment prior to the requested effective date of
the registration
statement.
You may contact Kate Tillan at 202-551-3604 or Mark Brunhofer at
202-551-3638 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Christopher Wall at 202-551-4162 or David Lin at 202-551-3552 with any
other
questions.
Sincerely,
Division of
Corporation Finance
Office of Crypto
Assets