United States securities and exchange commission logo
August 2, 2023
Asher Genoot
President
Hut 8 Corp.
c/o U.S. Data Mining Group, Inc.
1221 Brickell Avenue, Suite 900
Miami, FL 33131
Re: Hut 8 Corp.
Amendment No. 3 to
Registration Statement on Form S-4
Filed July 17, 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 July
7, 2023 letter.
Amendment No. 3 to Registration Statement on Form S-4
Certain Projected Financial Information Utilized by Hut 8's Financial
Advisors, page 98
1. We note your response
to comment 4 and your additional disclosures, including on page
101 that "Hut 8 has not
implemented any yield enhancement strategies at this time," and
that "[a]ny future
implementation of a yield enhancement strategy would be decided upon
with reference to the
timing of the consummation of the Business Combination." To the
extent that any
expected or known material terms related to any such strategies are
known although not
finalized prior to effectiveness, please revise to update your
disclosure in a
pre-effective amendment to disclose the same and address the substance of
comment 4 to the extent
the information is material and reasonably available.
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
August NameHut 8 Corp.
2, 2023
August
Page 2 2, 2023 Page 2
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Information About Hut 8, page 139
2. We note your disclosure that Hut 8, through Hut 8 Holdings, entered
into a $50 million
credit agreement with Coinbase Credit, Inc. Please disclose the date
on which such
agreement was entered into. Also please tell us how you considered
filing the same as an
exhibit to the registration statement. See Item 601(b)(10) of
Regulation S-K.
3. On page 149 you disclose a new $50 million credit agreement with
Coinbase Credit, Inc.
that requires you to post collateral in the form of bitcoin. Please
tell us your accounting for
collateral under U.S. GAAP and reference for us the authoritative
literature you rely upon
to support your accounting. In your response, tell us:
Who controls the private keys for the posted collateral;
What rights you have to retrieve the posted collateral; and
What rights Coinbase Credit, Inc. and its affiliates have to use
the posted collateral.
Explain whether they can rehypothecate, loan, sell or otherwise
dispose of the posted
collateral.
Key Operating and Financial Indicators, page 141
4. In your response to comment 6, you referred to the note to paragraph
(e) of Item 10(e) of
Regulation S-K, which permits a non-GAAP financial measure that would
otherwise be
prohibited by Item 10(e)(1)(ii) in a filing of a foreign private
issuer if certain conditions
are met. Please address the following:
Since the non-GAAP measure is included in a domestic filing of a
domestic registrant
(i.e., not just incorporated by reference), tell us why you
believe that this note applies
to your non-GAAP measure.
Tell us specifically how you meet the second criterion under the
note to paragraph (e)
in Item 10(e). In this regard, tell us how this specific non-GAAP
measure and its
related adjustments are "required or expressly permitted" by the
Canadian guidance
you reference in your response.
Otherwise, revise the non-GAAP measure to comply with Item
10(e)(1)(ii) by removing
the adjustments for the gain on disposition of digital assets and the
revaluation loss (gain)
of digital assets.
Unaudited Pro Forma Condensed Combined Financial Statements
Note 2. Business Combination Transaction Adjustments, page 229
5. Please confirm, if true, that the 1,441,912 USBTC share issuance
identified in response to
comment 5 and as disclosed on page 200 is included in the $19.5
million pro forma stock
compensation adjustments (c) and (d). If not true, revise your
adjustment to include this
issuance.
6. Based on your response to comment 9, it appears that you have assumed
that there is no
acquisition of control (AOC) in the business combination. Please
address the following:
Revise to discuss the underlying assumptions you made in
determining the amount of
deferred tax liabilities.
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
August NameHut 8 Corp.
2, 2023
August
Page 3 2, 2023 Page 3
FirstName LastName
Tell us how AOC is defined and why you have assumed there is no
AOC.
Tell us the nature of the additional planning on the stub
period pre-acquisition of
control tax return for Hut 8 Holdings Inc. that will be required
to provide for the
desired offset and whether it is even feasible to implement the
necessary tax planning
strategies.
Tell us whether the tax character (i.e., capital versus
ordinary) of your operating loss
carryforwards is the same as the step-up in basis for
cryptocurrencies and that they
can be offset against one another.
Note 4. Adjustments for the effect of reclassifications, foreign exchange and
IFRS / U.S. GAAP
differences for Hut 8, page 231
7. The adjustments for (i) realized gain (loss) on sale of cryptocurrency
on page 233 and (ii)
revaluation (loss) gain on digital assets net of tax on pages 233 and
234, are missing
references to where those adjustments are described. Please revise.
8. We are still considering your response to comment 11 and may have
further comments.
9. We acknowledge your response to comment 12. Please respond to the
following:
You told us that Coinbase is the principal market of Hut 8 under
IFRS 13 and ASC
820. We note that in your historical IFRS financial statements, you
used
Coinmarketcap, not Coinbase, for your fair value measurements of
cryptocurrencies.
o With respect to the error in your historical IFRS financial
statements, provide us
with your analysis of the materiality of the error in your
financial statements for
all periods presented of your fair value measurements of
cryptocurrencies, and
its impact on the various accounts in those statements.
o Add disclosure in this note to explain that Coinbase is the
principal market of
Hut 8 for purposes of both IFRS and U.S. GAAP.
You told us that for purposes of revenue recognition, there is a
difference between
IFRS and U.S. GAAP because U.S. GAAP requires you to measure the
fair value of
non-cash consideration at contract inception, whereas IFRS does
not. Under IFRS,
Hut 8 measures the fair value of non-cash consideration at the time
of receipt. As a
result, for purposes of your reconciled U.S. GAAP statements, there
is a difference
whenever the fair value of the non-cash consideration at the time
of receipt and
inception are different.
o With respect to this difference between IFRS and U.S. GAAP,
provide us with
your analysis of the materiality of the difference in your
financial statements for
all periods presented and its impact on the various accounts
in those statements.
We note that the determination of the timing of contract
inception under U.S.
GAAP is the subject of another comment and resolution of that
comment would
necessarily need to precede the materiality determination.
o After completing the materiality analysis above, also consider
the aggregate
materiality of (i) the IFRS / U.S. GAAP revenue recognition
difference and
(ii) the impact of the error in the principal market (i.e.,
Coinbase not
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
August NameHut 8 Corp.
2, 2023
August
Page 4 2, 2023 Page 4
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Coinmarketcap) on the U.S. GAAP reconciled financial
statements.
o Disclose the difference between IFRS and U.S. GAAP with
respect to your
revenue recognition policies and explain why there is no
adjustment.
USBTC Financial Statements
Note 4. Basis of Presentation, Summary of Significant Accounting Policies and
Recent
Accounting Pronouncements
Revenue Recognition
Cryptocurrency mining, page F-18
10. We are still considering your responses to comments 13, 16, 20, and
related oral
comments, and may have further comments. In the interim, please
address the following:
In response to oral comment 2, you told us that share difficulty
impacts revenue
recognition by influencing how the mining pool operator and mining
pool participant,
in this case Hut 8 or USBTC, have agreed to measure progress in
accordance with the
guidance in ASC 606-10-25-31, whereby a share is considered
the optimal way to
measure Hut 8 s or USBTC s delivery of computing power to the
mining pool.
Considering this and your response, tell us whether the share is
your performance
obligation and not computing power and explain why.
Tell us if there is a mechanism in the computational work of the
pool to ensure
effectiveness by preventing the same hash being submitted by
multiple participants.
In response to oral comment 3, you indicate that all of the 4.3
billion available nonces
are cycled through over 25,000 times a second. Tell us what limits
the nonces to 4.3
billion and why they are not unlimited.
Tell us why you believe the contract provisions with Foundry,
Ultimus and ViaBTC
cited in response to oral comment 5 provide each of these customers
the ability to
terminate the arrangements at any time without penalty as disclosed
by USBTC on
page F-48. Tell us what legal recourse you have, if any, if these
pool operators
terminate their contracts for reasons other than stipulated in the
agreements. Explain
whether you can force these customers to continue to operate their
pools even if they
make decisions to cease operations for valid business reasons, like
mining ceases to
be profitable for them.
Although your response to oral comment 5 addressed the guidance in
Example 2 of
Question 7 of the FASB Q&A you did not appear to address the
concept that the
contract is as long as either party can terminate without penalty.
If your contracts can
be terminated at any time, without penalty by either party, tell us
your consideration
of whether duration is each hash or second.
Further if Example 1 of Question 7 applies, and the contract is as
long as you
continue to provide services, tell us whether contract inception is
the first time you
start mining for the pool. Tell us why you appear to rely on the
payment terms as the
basis for the determination of contract duration.
In response to oral comment 6, the terms and conditions of the
Luxor contract appear
to give it the right not to accept computing power without having
to provide a reason
Asher Genoot
FirstName
Hut 8 Corp.LastNameAsher Genoot
Comapany
August NameHut 8 Corp.
2, 2023
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and this term does not appear to be limited to instances of
platform maintenance,
technical problems, or account suspension. As a result, you
appear to lose the right to
claim any remaining balance. Tell us why Hut 8 nonetheless
believes that this term of
the contract only covers instances of platform maintenance or
technical problems
experienced by Luxor or breaches of the terms by Hut 8. Tell us
why Hut 8 does not
consider this to be a termination clause.
We acknowledge your response to oral comment 12. In connection
with the ViaBTC
contract, you told us that USBTC does not currently have any
hosting customers and
thus the clause would not be triggered. Tell us why USBTC has
hosting services
revenues if it does not have hosting customers.
We acknowledge your response to oral comment 14 regarding the
variability
associated with the consideration receivable. However, your
response did not address
how the block reward portion of the consideration cannot be
reasonably estimated if
network difficulty changes about every two weeks and contract
duration is only one
hour or one day. Tell us why the block reward would be fully
constrained.
Also, in response to oral comment 14, you told us that Hut 8
and USBTC elect to use
an accounting convention to account for the revenue when the
uncertainty is resolved
at the end of the day when the statements are received. Tell us
where the election is
permitted in U.S. GAAP and how it complies with ASC 606.
Tell us how often you receive the ViaBTC report (hourly, daily
with hourly
breakdown, other).
Note 13. Stockholders' Equity
Stock options, page F-30
11. We acknowledge your response to comment 18. As previously requested,
please bridge
the common stock fair values presented in your response to the current
value inherent in
your proposed transaction. In your response, address the following:
Tell us why you granted stock options from August 9, 2022 through
September 2,
2022 at exercise prices of $1.68 or $2.27 per share when your
estimated fair value of
common stock was $0.01 per share.
Explain why your fair value of common stock increased from $0.01
per share on
September 2, 2022 to $0.26 at December 31, 2022 if you
encountered the difficulties
identified in your response at that date.
Confirm that although you indicate that the 22,500 shares of
Series B-1 Preferred
Stock issued on April 20, 2022 is prior to the 250-to-1 stock
split in September 2022,
this amount is post split as it appears to represent the number
of shares necessary to
reconcile the 770,750 shares outstanding at March 31, 2022 to the
793,250 share
outstanding balance at June 30, 2022 as presented in the
condensed consolidated
statements of stockholders' equity that reflect the split on page
F-4.
With respect to the December 31, 2022 valuation:
o Tell us the methods used to determine fair value, including
discounts,
weightings of the three scenarios identified in your
response, material
Asher Genoot
Hut 8 Corp.
August 2, 2023
Page 6
assumptions, and the enterprise value of the company.
o Explain how that enterprise value was allocated to common
and preferred stocks
and liabilities and the values assigned.
o Explain how the valuation considered your most recent sale
of preferred stock.
Tell us the dates of key milestones in your development since
December 31, 2022
through the date of the valuation performed by Duff & Phelps to
bridge the
significant difference in valuations. In your response confirm
that the date of their
determination was February 6, 2023 as stated on page 9 even
though you provided
them information on January 28, 2023 as indicated on page 102.
Finally, we note
from page 97, that they calculated implied aggregate equity value
reference ranges of
approximately $5.89 to $7.72 per share and $387.6 million to
$508.6 million in the
aggregate for USBTC.
Tell us whether you performed any formal equity valuation after
December 31, 2022.
If so tell us when those valuations were performed, what methods
were used, the
material inputs, and the resulting enterprise values and the
values assigned to
common and preferred equity and liabilities. If not, please tell
us the deemed fair
value of your common stock and preferred stock at March 31, 2022
and June 30,
2022 as well as your enterprise value at those dates and explain
how you derived
those values.
Tell us the dates of key milestones in your fair value
development since the Duff
& Phelps fairness opinion and the impact these milestones had on
the value of your
common stock.
Disclose the number of options that were repriced to $0.26 in
January 2023.
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.
FirstName LastNameAsher Genoot Sincerely,
Comapany NameHut 8 Corp.
Division of
Corporation Finance
August 2, 2023 Page 6 Office of Crypto
Assets
FirstName LastName