United States securities and exchange commission logo
May 19, 2023
Asher Genoot
President
Hut 8 Corp.
c/o U.S. Data Mining Corp.
1221 Brickell Avenue, Suite 900
Miami, FL 33131
Re: Hut 8 Corp.
Amendment No. 1 to
Registration Statement on Form S-4
Filed April 18,
2023
File No. 333-269738
Dear Asher Genoot:
We have reviewed your amended 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.
Unless we note
otherwise, our references to prior comments are to comments in our March
23, 2023 letter.
Amendment No. 1 to Form S-4 filed April 18, 2023
Questions and Answers about the Business Combination
What are the U.S. federal income tax consequences of the Merger..., page
5
1. We note your response
to comment 2, but we are unable to agree that a tax opinion is not
required by Item
601(b)(8) of Regulation S-K. We view the tax consequences of the
transaction to be
material to shareholders, and the parties have provided representations
that each party intends
for the transaction to be tax-free under Section 351(a) of the
Internal Revenue Code.
Refer to Section 3.9 of the Merger Agreement where the parties
agree to treat the
Hut Share Exchange and the Merger consistently with the Intended Tax
Treatment and to not
take any position on any Tax return or otherwise take any Tax
Asher Genoot
Hut 8 Corp.
May 19, 2023
Page 2
reporting position inconsistent with such treatment and to act
in good faith, consistent
with the intent of the Parties and the Intended Tax Treatment of the
Hut Share Exchange
and the Merger as set forth herein and to use commercially reasonable
efforts to not take
any action, or knowingly fail to take any action, except as expressly
provided to the
contrary in this Agreement or the Plan of Arrangement, if such action
or failure to act
would reasonably be expected to prevent the Hut Share Exchange or the
Merger from
qualifying for the Intended Tax Treatment. Accordingly, please file
a tax opinion as an
exhibit to the registration statement. To the extent there is any
uncertainty, counsel may
issue a should opinion; however, we expect counsel to explain
why it cannot give a
will opinion and to describe the degree of uncertainty in the
opinion.
Risk Factors
Hut 8 may face several risks due to disruptions in the digital asset
markets..., page 38
2. We note your response to comment 10 and your new risk factor captioned
Hut 8 may
face several risks due to disruptions in the digital asset markets...
on page 38. Please
briefly explain the "quasi governmental regulation of digital assets
and their use" that you
reference in the second bullet and clarify how any related
requirements could present
material risks to Hut 8.
USBTC is subject to a highly-evolving regulatory landscape..., page 54
3. We note your added disclosure that "in the United States, digital
assets are subject to
extensive, and in some cases overlapping, ambiguous and evolving
regulatory
requirements and considerations." Please revise this risk factor to
provide more details
regarding your references to "overlapping" and "ambiguous"
regulations, and to clarify
that 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.
Bitcoin's and other digital assets' status as a "security"..., page 56
4. You state here that [w]ith respect to all other digital assets,
there is currently no certainty
under the applicable legal test that such assets are not securities.
Please revise to clarify
that all other digital assets does not include the significant
number of specific digital
assets that have been identified as securities by the SEC and its
staff. In addition, the
disclosure in this risk factor would also apply to Hut 8. Please
revise your risk factors
disclosure in this document and confirm that Hut 8 will revise its
disclosure in future
periodic reports accordingly.
The Business Combination, page 79
FirstName LastNameAsher Genoot
5. Following a review of your response to comment 14, we reissue it. As the
projections
Comapany NameHut
appear to have 8been
Corp.
used by each of Stifel GMP and Kroll in preparation
of the
May 19, 2023 Pagecash
discounted 2 flow analyses, please revise to disclose such
projections.
FirstName LastName
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
May NameHut 8 Corp.
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Page 3 2023 Page 3
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Accounting Treatment of the Business Combination, page 99
6. We acknowledge your response to comment 16. Given that you indicate
that
"approximately 50%" of the common stock of the combined company will
be held by the
owners of each pre-combination company on a "fully-diluted
in-the-money basis," please
provide us share information expected to be outstanding upon
completion of the
transaction by the prior owners of Hut 8 and USBTC broken down as
follows:
Shares actually outstanding;
Share equivalents that are in-the-money; and
Share equivalents that are out-of-the-money.
In your response, tell us how you determined whether shares are in- or
out-of-the-money
and explain whether any share equivalents have voting rights at the
date of your
anticipated transaction and, if so, tell us how many. Finally, given
the judgment involved
and your disclosure that the determination of the accounting acquirer
could change at
closing of your proposed transaction and that such a change could
significantly impact
your pro forma financial information presented in your filing, tell us
your consideration
for disclosing quantified summary information if Hut 8 were deemed to
be the accounting
acquirer.
Information About Hut 8
Digital Asset Mining, page 129
7. We note your response to comment 38. Please revise this section to
provide more details
regarding Hut 8's sale of crypto assets similar to those that you
provided regarding
USBTC in response to this comment as they relate to fees and average
period of holding
prior to conversion in order to fund operations. Also disclose any
other purposes that
USBTC or Hut 8 convert bitcoins into fiat currency other than to fund
or grow operations.
Custody Policy, page 132
8. We note your response to comment 27 and your disclosures on pages 132
and 141
regarding the custody policies of Hut 8 and USBTC, respectively.
Please include
disclosure in these sections regarding your intentions for custody
following the Business
Combination.
Information About USBTC
Anchorage, page 144
9. We note your response to comment 30. Please expand this section to
provide more details
regarding how payments are made to the Outstanding Loan through
profits generated from
certain USBTC miners. Describe the time periods when you calculate
whether profit has
been generated, if there is a minimum amount of profit required to be
generated before a
payment is made, how you identify which miners' profits are utilized
for repayment, and
other details that describe how payments are made.
Asher Genoot
Hut 8 Corp.
May 19, 2023
Page 4
Cost to Mine a Bitcoin, page 157
10. We note your revisions on pages 130 and 157 in response to comment 35.
Please further
revise to provide quantified disclosure regarding your breakeven
analysis for USBTC s
and Hut 8's respective mining operations or any other crypto assets
that they earn or mine
that compares the cost to earn or mine one crypto asset with the value
of the crypto asset.
Also please discuss any known trends related to your breakeven
analysis as of the most
recent practicable date. As a non-exclusive example, clarify whether
your cost of revenue
and mining inputs have materially increased or decreased and provide a
discussion of the
bitcoin price volatility since June 30, 2022. Furthermore, please
provide support for your
statement on page 157 that USBTC has "assessed forward energy pricing
from quoted
prices in the futures market which suggests a decrease in electricity
pricing in the near
future relative to the most recent market conditions."
Management's Discussion and Analysis of Financial Condition and Results of
Operations of
USBTC
Key Operating and Financial Indicators, page 157
11. We note the revisions to the disclosure made in response to comment
34, however please
revise to also disclose in the table and discuss after the table, with
equal or greater
prominence, your net loss.
Unaudited Pro Forma Combined Statement of Financial Position, page 211
12. Please revise your pro forma statements and notes as necessary for the
following:
The New Hut column on the unaudited pro forma combined statement of
financial
condition should be blank but shows $14,226,000 of prepaid expenses
and other
current assets as of December 31, 2022;
On page 212, you reflect two subtotal and total balances for share
capital and four
subtotal and total balances for accumulated deficit instead of a
single balance for
these accounts;
The number of weighted average shares outstanding on page 213 do not
align;
The amounts, totals, and subtotals presented for Hut 8 on page 213
do not all agree to
the last column in the statement in Note 5 on page 221;
On page 213 you show a '-' in two columns for the header Cost of
revenues (exclusive
of depreciation and amortization) and it appears that the line items
Services and
Mining equipment should be indented to reflect that these two items
are under the
header; and
FirstName
On page 214 youGenoot
LastNameAsher show a header for Cost of revenues (exclusive of
depreciation and
Comapany amortization)
NameHut 8 Corp. and it appears that the line item Services should
either be indented to
reflect
May 19, 2023 Page 4that the item is under the header, or incorporated into the
header.
FirstName LastName
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
May NameHut 8 Corp.
19, 2023
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Note 2. Business Combination Transaction Adjustments, page 216
13. We acknowledge your response to comment 50. Tell us why the step-up in
book basis to
fair value of digital assets to be acquired would result in deferred
tax assets and not
deferred tax liabilities as it appears to be a taxable temporary
difference under ASC 740-
10-25-23. To the extent that you agree that a deferred tax liability
should be recorded,
revise your business combination transactions adjustments to include
this deferred tax
liability and tell us the impact this deferred tax liability has on
your ability to recognize
previously existing USBTC deferred tax assets. To the extent that any
previously existing
valuation allowance would be reversed, reflect that reversal in pro
forma income outside
acquisition accounting under ASC 805-740-30-3. To the extent
appropriate, reference for
us the authoritative literature you rely upon to support your
position.
14. On page F-26 you disclose the existence of stock options that vest
only upon the
completion of an initial public offering. Please tell us whether the
transaction
contemplated in this registration statement qualifies as an event that
will trigger vesting. If
so, include a pro forma adjustment to reflect expense recognition or
tell us why such an
adjustment is not warranted.
Note 3. Adjustment for USBTC debt extinguishment, page 218
15. We acknowledge your response to comment 51. Based on the disclosures
on pages 144 -
145 and F-59, please explain to us in more detail how the
restructuring of the Anchorage
ELSA resulted in you deploying an additional 21,000 miners.
Note 5. Adjustments for the effect of reclassifications, foreign exchange and
IFRS / U.S. GAAP
differences for Hut 8, page 219
16. Please respond to the following related to your table on page 221:
Tell us why you reclassified the amount of $113,876 for impairment
of mining
infrastructure and servers within operating loss to loss on
revaluation of digital assets
within other expenses.
Tell us why you eliminated the amounts for finance expense,
finance income, and
amortization within the reclassification column.
Revise so that the columns and rows properly foot and cross-foot.
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
May NameHut 8 Corp.
19, 2023
May 19,
Page 6 2023 Page 6
FirstName LastName
17. We acknowledge your response to comment 54. Explain to us in more
detail how your
classification of cryptocurrencies as current assets is consistent
with the definition of
current assets in ASC 210-10-20 by addressing each of the following:
Tell us how you reasonably expect to realize your cryptocurrencies
in cash through
sale or otherwise when it appears that you hold significant
amounts of these assets on
your balance sheet as of December 31, 2022.
For cryptocurrency held at December 31, 2022, tell us the average
length of time held
and the turnover frequency, explaining how you calculated the
turnover.
Tell us your consideration for carrying a portion of your holdings
that are not
expected to be sold for cash as long-term.
18. We acknowledge your response to comment 55. Please address the
following:
As previously requested, briefly disclose in the pro forma notes
Hut 8's accounting
policy for impairment of cryptocurrency under U.S. GAAP, including
the timing of
the assessment.
You told us that the fair value of your bitcoin was determined
using the price of
bitcoin provided by Coinbase because that aligns with USBTC. ASC
820 defines
principal market as the market with the greatest volume and level
of activity for the
asset or liability. Explain to us how your selection of Coinbase
complies with ASC
820. Refer to ASC 820-10-35.
Tell us the market(s) in which you entered into transactions to
sell bitcoin during the
periods presented in the pro forma statements and the volume of
sales in each
market. Refer to ASC 820-10-35-5A.
Tell us volume of activity for each of the markets for those
periods.
Explain why the market in which you normally enter into
transactions to sell bitcoin
with the greatest market-based volume and level of activity for
bitcoin is not your
principal market. Provide us with contrary evidence that exists.
Reconcile your response with your response to comment 56 wherein
you told us you
use Coinmarketcap to determine the fair value of your bitcoin
because you sell
bitcoin in various markets and therefore there is no principal
market. You also told
us that Coinmarketcap provides an amount that would be
representative of bitcoins
traded in the market. Discuss how your measurement of fair value
for bitcoins earned
as revenue and those reflected as intangible assets complies with
ASC 820.
19. We acknowledge your response to comment 56. Please address the
following:
As previously requested, give us representative sample contracts
with your mining
pool operators. Provide at least one for each type of service
(i.e., FPPS and PPS+).
Substantiate for us why the contribution of hash rate is your
performance obligation.
In your response, for each type of contract identified in the
preceding bullet, tell us:
o What a "Share" is in the context of FPPS and PPS+;
o Your consideration for treating each nonce you are assigned as
a performance
obligation or whether the range of all nonces for an
individual block is a
separate performance obligation; and
o Tell us how/when you report your work performed to the pool
operator. In this
Asher Genoot
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regard, explain whether you report each nonce completed or
only report when
all nonces assigned are completed or at some point in
between.
Given that it appears that your contracts can be terminated at
any time without
penalty and likely have no minimum service period requirement,
tell us your
consideration for the guidance in Examples 1 and 2 of Question 7
to the FASB
Revenue Recognition Implementation Q&As and the impact on your
determination
of both contract inception and contract duration.
You told us the digital assets you receive are noncash
consideration and must be
valued at fair value as of the inception of the contract. You
also told us that contract
inception is each day when Hut 8 begins providing hash rate power
to the Pool. As
such, explain why you determine the fair value of the non-cash
consideration based
on the closing price of the digital assets each day. Tell us how
this complies with
ASC 606.
Tell us how you have insight into whether the amount of bitcoin
received from the
pool operator is the appropriate amount given the variable nature
of your hash rate
related to the entire pool.
Note 6. Hut 8's results of operations for the 12 months ended June 30, 2022,
page 223
20. Please revise to provide a similar note calculating the results of
operations of Hut 8 for the
six months ended December 31, 2022.
Incorporation of Certain Information by Reference, page 230
21. Please revise to show that the filing date is April 18, 2023 for the
audit report of Raymond
Chabot Grant Thornton LLP included in Hut 8 s Report of Foreign
Private Issuer on Form
6-K.
Financial Statements of USBTC
Condensed Consolidated Balance Sheets, page F-2
22. Please revise to remove the label Audited from the June 30, 2022
column. While the
amounts may have been derived from your audited statements, this
presentation of those
amounts does not include an audit report and full disclosures required
for audited financial
statements.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3. Basis of Presentation, Summary of Significant Accounting Policies and
Recent
Accounting Pronouncements
Revenue Recognition
Cryptocurrency mining, page F-13
23. We acknowledge your responses to comments 59 and 60. Please address
the following:
Of the three contracts you provide, only the ViaBTC contract
clearly indicates that it
is on a PPS+ basis. Tell us the bases of each of the other two
contracts.
Asher Genoot
Hut 8 Corp.
May 19, 2023
Page 8
Tell us how the Foundry USA Pool Service Agreement and the Ultimus
Pool Terms
of Service identify your promises and related performance obligations
as well as
contract consideration and payment terms. If these items are
contained in another
agreement or other webpage not available to the general public on
their respective
websites, provide us a copy of those agreements/terms.
Substantiate for us why the provision of computing power is your
only performance
obligation. In your response, for each type of contract identified in
the preceding
bullet, tell us:
o How/when you report your work performed to the pool operator. In
this regard,
explain whether you report each nonce completed or only report
when all
nonces assigned are completed or at some point in between;
o Your consideration for treating each nonce you are assigned as a
performance
obligation or whether the range of all nonces for an individual
block is a
separate performance obligation; and
o What a "Share" is in the context of FPPS and PPS+.
You disclose that you measure the non-cash consideration at fair
value based on the
quoted price of the related cryptocurrency at contract inception.
Tell us in more detail
how you perform this process since we note from your response to
comment 60 that
contract inception is the point in any period (hourly or daily) in
which USBTC begins
to provide computing power.
Disclose when you recognize revenue from your cryptocurrency mining.
As previously requested, 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.
Given that it appears that your contracts can be terminated at any
time without
penalty and likely have no minimum service period requirement, tell
us your
consideration for the guidance in Examples 1 and 2 of Question 7 to
the FASB
Revenue Recognition Implementation Q&As and the impact on your
determination
of both contract inception and contract duration.
As it relates to your Strategic Co-operation Agreement with ViaBTC
Technology
Limited, tell us how the one-year term of that agreement and
automatic renewals
impact your determination of contract duration for your mining pool
participation.
Tell us how the requirement to offer discounts to your customers to
incentivize them
to use ViaBTC product offerings as stipulated in Intension "a" in
your agreement
impacts your revenue recognition and transaction price associated
with your mining
pool participation activities.
Tell us how you have insight into whether the amount of bitcoin
received from the
FirstName LastNameAsher Genoot
pool operator is the appropriate amount given the variable nature
of your hash rate
Comapany related
NameHut 8 Corp.
to the entire pool.
May 19, 2023 Page 8your principal market.
Disclose
FirstName LastName
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
May NameHut 8 Corp.
19, 2023
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Page 9 2023 Page 9
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Hosting services, page F-15
24. We acknowledge your response to comment 61. Please respond to the
following:
With respect to your analysis under ASC 842-10-15-4, tell us how
you considered
whether the customer has the ability to dictate when the miners run
or sit idle in
determining whether the agreement is a lease.
Tell us how you are recognizing the consideration payable under
the equipment
agreement and where you reflect that consideration in your
statement of operations.
Management fees, page F-15
25. We acknowledge your response to comment 65. Please respond to the
following:
Disclose the method(s) used for measuring progress toward
satisfaction of your
performance obligations.
Disclose the nature of the consideration received for the
management fees and
reimbursements and references for us the authoritative literature
you rely upon to
support your accounting.
Note 9. Investments in Unconsolidated Joint Venture, page F-19
26. From the disclosures in this note it appears that your share of the
book equity of TZRC
exceeds the cost of your investment. Please tell us and disclose how
you account for this
difference. In your response, separately reference for us the
authoritative literature you
rely upon to support your accounting.
Consolidated Statements of Cash Flows, page F-35
27. We acknowledge your response to comment 67. You told us that you hold
mined bitcoin
on average for a period of 7 to 30 days before monetizing them. Given
the length of time
held, please tell us how management considered the guidance in ASC
230-10-45-12(c) in
determining that all of the proceeds from the sale of digital assets
should be reflected
within operating activities.
Financial Statements of TZRC LLC
Note 2. Basis of Presentation, Summary of Significant Accounting Policies and
Recent
Accounting Pronouncements
Impairment of Property and Equipment, page F-68
28. Given the significant decline in the fair value of bitcoin relative to
historical prices, tell us
why you have no impairment of your mining equipment and related
assets. In this regard,
we note many mining companies, including both USBTC and Hut 8,
recorded mining
equipment impairment in 2022.
Asher Genoot
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Hut 8 Corp.LastNameAsher Genoot
Comapany
May NameHut 8 Corp.
19, 2023
May 19,
Page 10 2023 Page 10
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Revenue recognition
Cryptocurrency mining, page F-70
29. Please respond to the following:
Tell us how the Foundry USA Pool Service Agreement provided by
USBTC
identifies your promises and related performance obligations as
well as contract
consideration and payment terms. If these items are contained in
another agreement
or other webpage not available to the general public on its
website, provide us a copy
of that agreement/terms.
Substantiate for us why the provision of computing power is your
only performance
obligation. In your response, for each type of contract identified
in the preceding
bullet, tell us:
o How/when you report your work performed to the pool
operator. In this regard,
explain whether you report each nonce completed or only
report when all
nonces assigned are completed or at some point in between;
o Your consideration for treating each nonce you are assigned
as a performance
obligation or whether the range of all nonces for an
individual block is a
separate performance obligation; and
o What a "Share" is in the context of FPPS.
You disclose that your enforceable right to compensation only
begins when, and lasts
for as long as, you provide computing power to the mining pool
operator, your
performance obligation extends over the contract term given your
continuous
provision of hash rate, and this period of time corresponds with
the period of service
for which the mining pool operators determine compensation due to
you. Tell us in
more detail about the term of your contracts and the period of
service for which the
mining pool operators determine your compensation. In your
response tell us your
consideration of the guidance in Examples 1 and 2 of Questions 7
to the FASB
Revenue Recognition Implementation Q&As and the impact on your
determination
of both contract inception and contract duration.
You disclose that you measure the fair value of the cryptocurrency
consideration
using the quoted price on your primary trading platform for
bitcoin at the beginning
of the contract period. Tell us how you determine when inception
occurs for
purposes of measuring the fair value under ASC 606-10-32-21.
Tell us how you have insight into whether the amount of bitcoin
received from the
pool operator is the appropriate amount given the variable nature
of your hash rate
related to the entire pool.
Tell us the market(s) you use to determine the quoted price used
to value the non-
cash consideration.
Tell us how you identify these market(s). Refer to ASC Topic 820,
including ASC
820-10-35-5A.
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
May NameHut 8 Corp.
19, 2023
May 19,
Page 11 2023 Page 11
FirstName LastName
Notes to Unaudited Interim Consolidated Financial Statements, page F-84
30. Please revise the header to your financial statement footnotes as
these financial statements
are audited and are not for an interim period.
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 Eric Envall at (202) 551-3234 or David Lin at (202) 551-3552 with any
other questions.
Sincerely,
Division of
Corporation Finance
Office of Crypto
Assets