EX-99.2 3 brhc10043926_ex99-2.htm EXHIBIT 99.2
Exhibit 99.2


HUT 8 MINING CORP.

Unaudited Condensed Consolidated Interim Financial Statements
(In thousands of Canadian dollars)

For the three and nine months ended September 30, 2022 and 2021

1
HUT 8 MINING CORP.
Unaudited Condensed Consolidated Interim Statements of Financial Position
(In thousands of Canadian dollars)

As at
  
Note
    
September 30, 2022
    
December 31, 2021
  
                   
Assets
                  
Current assets
                  
Cash
        
$
33,021
    
$
140,127
  
Accounts receivable and other
          
1,853
      
647
  
Digital assets
    
6
      
223,420
      
323,946
  
Deposits and prepaid expenses
    
5
      
7,629
      
3,359
  
             
265,923
      
468,079
  
Non-current assets
                        
Plant and equipment
    
7
      
207,365
      
96,126
  
Deposits and prepaid expenses
    
5
      
75,396
      
156,504
  
Intangible assets and goodwill
    
8
      
13,234
      
–
  
Total assets
          
$
561,918
    
$
720,709
  
                         
Liabilities and shareholders' equity
                        
Current liabilities
                        
Accounts payable and accrued liabilities
          
$
12,344
    
$
9,570
  
Lease liabilities
            
3,920
      
216
  
Loans payable
    
9
      
11,532
      
16,278
  
             
27,796
      
26,064
  
Non-current liabilities
                        
Lease liabilities
            
17,298
      
427
  
Loans payable
    
9
      
17,529
      
23,773
  
Warrants liability
            
4,518
      
99,021
  
Deferred tax liabilities
            
–
      
5,456
  
Total liabilities
            
67,141
      
154,741
  
                         
Shareholders' equity
                        
Share capital
    
10
      
725,648
      
636,597
  
Warrants
            
2,122
      
2,163
  
Contributed surplus
            
11,412
      
11,928
  
Accumulated deficit
            
(244,405
)
    
(188,260
)
AOCI - Unrealized gain on bitcoin revaluation
            
–
      
103,540
  
Total shareholder's equity
            
494,777
      
565,968
  
Total liabilities and shareholders' equity
          
$
561,918
    
$
720,709
  

See accompanying notes to the unaudited condensed consolidated interim financial statements.

2
HUT 8 MINING CORP.
Unaudited Condensed Consolidated Interim Statements of Operations and Comprehensive Income
(In thousands of Canadian dollars, except for per share amounts)

         
Three Months Ended
    
Nine Months Ended
  
For the periods ended September 30
  
Note
    
2022
    
2021
    
2022
    
2021
  
Revenue
    
13
    
$
31,671
    
$
50,341
    
$
128,849
    
$
115,873
  
Cost of revenue
    
14
      
(45,611
)
    
(21,234
)
    
(130,175
)
    
(57,642
)
Gross (loss) profit
            
(13,940
)
    
29,107
      
(1,326
)
    
58,231
  
                                         
General and administrative expenses
    
15
      
(11,216
)
    
(10,836
)
    
(35,028
)
    
(26,171
)
Gain on disposition of digital assets
            
–
      
–
      
–
      
182
  
Operating (loss) income
            
(25,156
)
    
18,271
      
(36,354
)
    
32,242
  
                                         
Foreign exchange loss
            
(844
)
    
(759
)
    
(1,528
)
    
(1,402
)
Finance expense
            
(1,913
)
    
(579
)
    
(5,620
)
    
(949
)
Finance income
            
48
      
765
      
920
      
2,122
  
Amortization
            
(344
)
    
–
      
(916
)
    
–
  
Gain on revaluation of warrants liability
            
(2,917
)
    
–
      
94,504
      
–
  
Net (loss) income before tax and revaluation of digital assets
      
(31,126
)
    
17,698
      
51,006
      
32,013
  
                                         
Gain (loss) on revaluation of digital assets
      
7,340
      
–
      
(97,558
)
    
–
  
Deferred income tax (expense) recovery
            
–
      
5,676
      
(9,593
)
    
6,455
  
Net (loss) income
          
$
(23,786
)
  
$
23,374
    
$
(56,145
)
  
$
38,468
  
                                         
Other comprehensive (loss) income
                          
Items that will not be reclassified to net income
          
Revaluation (loss) gain on digital assets, net of tax      
–
      
44,141
      
(103,540
)
    
46,675
  
Total comprehensive (loss) income
          
$
(23,786
)
  
$
67,515
    
$
(159,685
)
  
$
85,143
  
                                         
Net (loss) income per share:
                                        
Basic
          
$
(0.12
)
  
$
0.16
    
$
(0.31
)
  
$
0.30
  
Diluted
          
$
(0.12
)
  
$
0.15
    
$
(0.31
)
  
$
0.28
  
                                         
Weighted average number of shares outstanding:
  
Basic
            
194,530,097
      
146,491,754
      
181,089,802
      
127,798,882
  
Diluted
            
194,530,097
      
156,041,887
      
181,089,802
      
137,349,015
  

3
HUT 8 MINING CORP.
Unaudited Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity
(In thousands of Canadian dollars)

For the nine months ended
  
Number of shares
    
Share capital
    
Warrants
    
Contributed surplus
    
Accumulated deficit
    
Accumulated other comprehensive income (loss)
    
Total
  
Balance, December 31, 2021
    
169,590,061
    
$
636,597
    
$
2,163
    
$
11,928
    
$
(188,260
)
  
$
103,540
    
$
565,968
  
Net loss
    
–
      
–
      
–
      
–
      
(56,145
)
    
–
      
(56,145
)
Other comprehensive loss
    
–
      
–
      
–
      
–
      
–
      
(103,540
)
    
(103,540
)
Comprehensive income
    
–
      
–
      
–
      
–
      
(56,145
)
    
(103,540
)
    
(159,685
)
Other equity movements
                                                        
Shares issued for equity raises
    
25,429,978
      
83,261
      
–
      
–
      
–
      
–
      
83,261
  
Shares issued on vesting of RSU
    
1,097,499
      
5,147
      
–
      
(5,147
)
    
–
      
–
      
–
  
Shares issued on vesting of DSU
    
76,296
      
574
      
–
      
(574
)
    
–
      
–
      
–
  
Shares issued under employee stock purchase plan
    
17,826
      
55
      
–
      
–
      
–
      
–
      
55
  
Shares issued on exercise of warrants
    
863
      
3
      
(2
)
    
–
      
–
      
–
      
1
  
Shares issued on exercise of options
    
3,333
      
11
      
–
      
(5
)
    
–
      
–
      
6
  
Expiry of broker warrants
    
–
      
–
      
(39
)
    
39
      
–
      
–
      
–
  
Share based payments
    
–
      
–
      
–
      
5,171
      
–
      
–
      
5,171
  
Balance, September 30, 2022
    
196,215,856
    
$
725,648
    
$
2,122
    
$
11,412
    
$
(244,405
)
  
$
–
    
$
494,777
  

For the nine months ended
  
Number of shares
    
Share capital
    
Shares to be issued
    
Warrants
    
Contributed surplus
    
Accumulated deficit
    
Accumulated other comprehensive income
    
Total
  
Balance, December 31, 2020
    
97,245,223
    
$
178,231
    
$
398
    
$
2,560
    
$
4,234
    
$
(115,549
)
  
$
45,681
    
$
115,555
  
Net income
    
–
      
–
      
–
      
–
      
–
      
38,468
      
–
      
34,468
  
Other comprehensive income
    
–
      
–
      
–
      
–
      
–
      
–
      
46,675
      
46,675
  
Comprehensive income
    
–
      
–
      
–
      
–
      
–
      
38,468
      
46,675
      
85,143
  
Other equity movements
                                                                
Shares issued for equity raises
    
58,682,500
      
337,773
      
–
      
50,396
      
–
      
–
      
–
      
388,169
  
Shares issued on vesting of RSU
    
317,313
      
986
      
–
      
–
      
(986
)
    
–
      
–
      
–
  
Shares issued on vesting of DSU
    
42,500
      
53
      
–
      
–
      
(53
)
    
–
      
–
      
–
  
Shares issued on exercise of options
    
170,639
      
1,207
      
–
      
–
      
(484
)
    
–
      
–
      
723
  
Shares issued on exercise of warrants
    
7,538,522
      
41,748
      
–
      
(8,618
)
    
–
      
–
      
–
      
33,130
  
Shares issued on settlement of
accounts payable
    
380,000
      
398
      
(398
)
    
–
      
–
      
–
      
–
      
–
  
Share based payments
    
–
      
–
      
–
      
–
      
7,325
      
–
      
–
      
7,325
  
Share based payments withholding
    
–
      
–
      
–
      
–
      
(728
)
    
–
      
–
      
(728
)
Balance, September 30, 2021
    
164,376,697
    
$
560,396
    
$
–
    
$
44,338
    
$
9,308
    
$
(77,081
)
  
$
92,356
    
$
629,317
  

4
HUT 8 MINING CORP.
Unaudited Condensed Consolidated Interim Statements of Cash Flows
(In thousands of Canadian dollars)

For the nine months ended September 30
  
2022
    
2021
  
             
Cash provided by (used in):
            
             
Operating activities:
            
Net (loss) income
  
$
(56,145
)
  
$
38,468
  
Change in non-cash operating items:
                
Digital assets mined
    
(115,694
)
    
(109,849
)
Digital assets traded for cash
    
–
      
1,291
  
Depreciation and amortization
    
65,524
      
13,972
  
Gain on disposition of digital assets
    
–
      
(182
)
Loss on revaluation of digital assets
    
97,558
      
–
  
Gain on revaluation of warrants liability
    
(94,504
)
    
–
  
Share based payments
    
5,171
      
7,325
  
Income tax expense (recovery)
    
9,593
      
(6,455
)
Net finance expense (income) and other
    
4,700
      
(1,173
)
Foreign exchange loss
    
1,528
      
1,402
  
     
(82,269
)
    
(55,201
)
Net change in working capital (Note 16)
    
(459
)
    
1,512
  
Net cash used in operating activities
    
(82,728
)
    
(53,689
)
                 
Investing activities
                
Purchase of plant and equipment
    
(138,380
)
    
(34,075
)
Deposits and prepaid expenses
    
78,108
      
(99,905
)
Business acquisition
    
(30,174
)
    
–
  
Net cash used in investing activities
    
(90,446
)
    
(133,980
)
                 
Financing activities
                
Repayment of loan payable
    
–
      
(25,372
)
Finance draws from equipment financing
    
–
      
18,069
  
Repayment of equipment financing
    
(13,578
)
    
(8,859
)
Proceeds from issuance of common shares, net of issuance costs
    
83,314
      
388,169
  
Proceeds from exercise of warrants and options
    
15
      
33,853
  
Finance income received
    
898
      
2,026
  
Finance expense paid
    
(5,160
)
    
(813
)
Payment (recovery) of lease obligations
    
(1,586
)
    
(48
)
Net cash provided by financing activities
    
63,903
      
407,025
  
(Decrease) increase in cash
    
(109,271
)
    
219,356
  
Cash, beginning of period
    
140,127
      
2,816
  
Effect of movement in exchange rates on cash held in foreign currencies
    
2,165
      
1,053
  
Cash, end of period
  
$
33,021
    
$
223,225
  

5
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
1.
Organization and nature of the business

Hut 8 Mining Corp. was incorporated under the laws of the Province of British Columbia on June 9, 2011. The registered office of the Company is located at 745 Thurlow Street, Suite 2400, Vancouver, BC, Canada V6E 0C5 and the headquarters are located at 24 Duncan St., Suite 500, Toronto, ON, Canada, M5V 2B8. Hut 8 Mining Corp.’s common shares are listed under the symbol “HUT” on the Toronto Stock Exchange and The Nasdaq Global Select Market.

Hut 8 Mining Corp. and its subsidiaries (the “Company”) are primarily in the business of the mining of digital assets – with an operational focus on utilizing specialized equipment to solve complex computational problems to validate transactions on different blockchains and receiving Bitcoin in return for successful services. Additionally, the Company operates cloud and colocation date centre facilities in Canada targeting enterprise customers seeking high performance computing services.

These unaudited condensed consolidated interim financial statements (“interim financial statements”) were approved by the Company’s Board of Directors on November 10, 2022.

2.
Basis of preparation

These interim financial statements for the three and nine months ended September 30, 2022 and 2021 have been prepared in accordance with International Accounting Standards 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”).

These interim financial statements do not include all the disclosures required by International Financial Reporting Standards (“IFRS”) for annual consolidated financial statements and accordingly should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021 (“annual financial statements”) prepared in accordance with IFRS as issued by the IASB. Certain comparative figures have been reclassified to conform to current presentation.

The preparation of the interim financial statements requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and reported assets, liabilities, revenue and expenses, consistent with those described in the Company’s annual financial statements and as described in these interim financial statements. Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical experience and other assumptions that are considered reasonable in the circumstances. The actual amount or values may vary in certain instances from the assumptions and estimates made. Changes will be recorded, with corresponding effect in profit or loss, when, and if, better information is obtained. The future impact of uncertainties around the outbreak of the novel coronavirus (“COVID-19”) pandemic could generate, in future reporting periods, a significant risk of material adjustment to the reported amounts of assets, liabilities, revenue and expenses in the interim financial statements. Examples of accounting estimates and judgments that may be impacted by the pandemic include: revenue recognition, impairment of goodwill and intangible assets, and allowance for expected credit losses.

The Company is in the business of digital currencies, many aspects of which are not specifically addressed by current IFRS guidance. IFRS does not currently provide specific guidance to address many aspects of the digital asset industry. The Company is required to make judgments as to the application of IFRS and the selection of its accounting policies. The Company has disclosed its presentation, recognition and derecognition, and measurement of digital currencies, and the recognition of revenue as well as significant assumptions and judgments, however, if specific guidance is enacted by the IASB in the future, the impact may result in changes to the Company’s earnings and financial position as presented.

6
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
During the nine months ended September 30, 2021, Management reviewed the Company’s accounting classification related to the digital assets under lending agreement. Under the revised assessment, changes in fair value are recorded in other comprehensive income. Prior to this change, the revaluation of the fair value of the loans receivable was accounted for through profit or loss. Certain comparative figures have been reclassified to conform with this presentation.

3.
Selected significant accounting policies

  (a)
Revenue recognition

The high performance computing business earns revenue by providing cloud and colocation services to clients. Revenue is measured at the fair value of the consideration received or receivable for services, net of discounts and sales taxes. Revenue is recognized as the related services are provided to customers. The Company applies the five step IFRS 15 Revenue from Contracts with Customers model in determining the appropriate treatment of its various sources of revenue. The principal sources of revenue to the Company and recognition of these revenues are as follows:


 -
Monthly recurring revenue (“MRR”) from high performance computing services are recognized as service revenue ratably over the enforceable term of individual contracts which is typically the stated term. The Company satisfies its performance obligation as these services are made available over time. The Company believes this method to be the best representation of transfer of services as it is consistent with industry practice to measure satisfaction through passage of time.


-
Transaction price is determined as the list price of services (net of discounts) that the Company delivers to its customers, taking into account the term of each individual contract, and the ability to enforce and collect the consideration.


-
Revenue from installation services, which are not treated as distinct performance obligations, are recognized over the enforceable term of individual contracts consistent with the schedule of MRR discussed above.


-
Usage revenue (overage and consumption-based services) is recorded as service revenue in the month the usage is incurred/service is consumed by the customer, based on a fixed agreed upon amount per unit consumed.


-
Payment is typically due at the beginning of each month for MRR services and at the end of each month for usage revenue.


(i)
Sale of bundled services

The Company offers certain customers bundled connectivity, colocation, and cloud services. Total consideration in contracts with customers are allocated to distinct performance obligations based on their stand-alone selling prices. The Company determined the stand-alone selling price to be the list price at which the Company sells connectivity, and colocation and cloud services.


 (ii)
Service Credits

The Company has obligations for credits under its contracts with customers when certain criteria are met. Credits are measured at agreed upon contractual rates and are recognized net of revenue and presented in total revenue on the statement of comprehensive loss.

7
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022

(b)
Goodwill:

Goodwill represents the excess of the cost of the Company’s business acquisitions over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is carried at cost less accumulated impairment charges and is not amortized but is subject to an impairment test annually and whenever impairment indicators are identified.


 (c)
Intangible assets

Intangible assets consist of customer relationships acquired through acquisitions or business combinations.

Intangible assets acquired as part of business acquisitions are measured initially at fair value.

Intangible assets with a finite life are amortized on a straight-line basis over their estimated useful lives. Amortization is recognized over the assets’ estimated useful lives as follows:

Customer relationships
8 years

Amortization expense has been presented in profit or loss as amortization. Assets are removed from asset and accumulated amortization balances once they become fully amortized. Proceeds from disposals are netted against the related assets and accumulated amortization, and resulting gains and losses are included in profit or loss.

4.
Business acquisition

On January 31, 2022, the Company completed its acquisition of TeraGo’s cloud and colocation high performance computing business. The purchase price of the acquisition was $30.2 million. The purchase price on Closing was satisfied by delivering cash. The acquisition consisted of five data centres across Canada. The high performance computing business spans from Toronto, Ontario to Vancouver, British Columbia with more than 36,000 square feet of geo-diverse data centre space.

The acquisition has been accounted for using the acquisition method of accounting. The goodwill is primarily attributable to the ability to expand the Company’s presence in the digital asset ecosystem and strengthen its competitive position. The goodwill is deductible for tax purposes. The Company is currently evaluating the fair value of the assets acquired and liabilities assumed, and given the recent date of acquisition, the process is still ongoing. The allocation of the purchase consideration for this acquisition is preliminary and is as follows:

       
Net working capital
  
$
691
  
Plant and equipment
    
24,856
  
Intangible assets
    
11,000
  
Goodwill
    
3,150
  
Lease liabilities
    
(9,523
)
   
$
30,174
  

As at September 30, 2022, $1.1 million of acquisition-related costs had been incurred and are included in the unaudited condensed consolidated interim statements of operations and comprehensive income for the nine months ended September 30, 2022. The pro forma operating revenue and profit related to the acquisition is not material for the three and nine months ended September 30, 2022.

8
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
5.
Deposits and prepaid expenses

As at
  
September 30, 2022
    
December 31, 2021
  
Current
            
Prepaid insurance
  
$
2,763
    
$
1,580
  
Prepaid electricity
    
611
      
1,308
  
Deposits related to power purchase agreement
    
3,000
      
–
  
Other
    
1,255
      
471
  
Total current deposits and prepaid expenses
  
$
7,629
    
$
3,359
  
                 
Non-current
                
Deposits for equipment purchase
  
$
46,001
    
$
110,761
  
Deposits related to power purchase agreement
    
17,000
      
20,000
  
Deposits related to operating site development
    
2,962
      
18,609
  
Deposits related to electricity supply under
electricity supply agreement
    
8,522
      
6,253
  
Other
    
911
      
881
  
Total non-current deposits
  
$
75,396
    
$
156,504
  

6.
Digital assets

The Company’s Bitcoin are either held in custody or subject to lending arrangements. The details of the Bitcoin are as follows:

   
Amount
    
Number of digital assets
  
As at
  
September 30, 2022
    
December 31, 2021
    
September 30, 2022
    
December 31, 2021
  
Digital assets held in custody
  
$
223,420
    
$
206,531
      
8,388
      
3,518
  
Digital assets subject to lending arrangement
    
–
      
117,415
      
–
      
2,000
  
Total digital assets
  
$
223,420
    
$
323,946
      
8,388
      
5,518
  

Below is the Company’s Bitcoin mined and transacted:

   
Amount
    
Number of Bitcoin
  
Total digital assets, January 1, 2021
  
$
101,962
      
2,762
  
Bitcoin mined
    
165,398
      
2,786
  
Bitcoin traded for cash
    
(1,291
)
    
(30
)
Gain on disposition of digital assets
    
182
      
–
  
Revaluation of digital assets
    
57,695
      
–
  
Total digital assets, December 31, 2021
  
$
323,946
      
5,518
  
Bitcoin mined
    
115,694
      
2,870
  
Revaluation of digital assets
    
(216,220
)
    
–
  
Total digital assets, September 30, 2022
  
$
223,420
      
8,388
  

Digital assets held are revalued each reporting period based on the fair market value of the price of Bitcoin on the reporting date. As at September 30, 2022, the price of Bitcoin was $26,635 (US$19,432) (December 31, 2021 – $58,707 (US$46,306)), resulting in a revaluation loss for the nine months ended September 30, 2022, of $216.2 million. The Company recorded $103.5 million of the loss in other comprehensive loss, net of taxes of $15.1 million, and the remaining loss of $97.6 million was recorded in statement of profit or loss. As at September 30, 2021, the price of Bitcoin was $55,794 (US$43,791), resulting in a revaluation gain for the nine months ended September 30, 2021, of $46.7 million, net of taxes of $6.5 million. This gain was recorded to other comprehensive income
.
9
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
7.
Plant and equipment

The changes in the carrying value of plant and equipment are as follows:

   
Mining infrastructure
    
Mining servers
    
Data centre infrastructure
    
Computer and network equipment
    
Leasehold improvements
    
Right-of-use assets
    
Total
  
Cost
                                          
Balance, January 1, 2021
  
$
45,287
    
$
88,215
    
$
–
    
$
–
    
$
–
    
$
504
    
$
134,006
  
Additions
    
1,420
      
85,012
      
–
      
–
      
–
      
460
      
86,892
  
Balance, December 31, 2021
    
46,707
      
173,227
      
–
      
–
      
–
      
964
      
220,898
  
Additions
    
30,148
      
106,974
      
283
      
610
      
365
      
12,611
      
150,991
  
Acquired through business acquisition
    
–
      
–
      
10,432
      
4,531
      
287
      
9,606
      
24,856
  
Balance, September 30, 2022
  
$
76,855
    
$
280,201
    
$
10,715
    
$
5,141
    
$
652
    
$
23,181
    
$
396,745
  
                                                         
Accumulated Depreciation
                                                        
Balance, January 1, 2021
  
$
21,860
    
$
79,522
    
$
–
    
$
–
    
$
–
    
$
101
    
$
101,483
  
Depreciation
    
6,027
      
17,073
      
–
      
–
      
–
      
189
      
23,289
  
Balance, December 31, 2021
    
27,887
      
96,595
      
–
      
–
      
–
      
290
      
124,772
  
Depreciation
    
3,212
      
57,050
      
877
      
1,161
      
80
      
2,228
      
64,608
  
Balance, September 30, 2022
  
$
31,099
    
$
153,645
    
$
877
    
$
1,161
    
$
80
    
$
2,518
    
$
189,380
  
                                                         
Net book value as of
                                                        
December 31, 2021
  
$
18,820
    
$
76,632
    
$
–
    
$
–
    
$
–
    
$
674
    
$
96,126
  
September 30, 2022
  
$
45,756
    
$
126,556
    
$
9,828
    
$
3,980
    
$
572
    
$
20,663
    
$
207,365
  

During the nine months ended September 30, 2022, the Company made $12,611 (September 30, 2021 – $nil) in non-cash additions to right-of-use assets.

10
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
8.
Intangible assets and goodwill

   
Customer Relationships
    
Goodwill
    
Total
  
Cost
                  
Balance, January 1, 2021
  
$
–
    
$
–
    
$
–
  
Additions
    
–
      
–
      
–
  
Balance, December 31, 2021
    
–
      
–
      
–
  
Acquired through business acquisitions
    
11,000
      
3,150
      
14,150
  
Balance, September 30, 2022
  
$
11,000
    
$
3,150
    
$
14,150
  
                         
Accumulated Amortization
                        
Balance, January 1, 2021
  
$
–
    
$
–
    
$
–
  
Amortization
    
–
      
–
      
–
  
Balance, December 31, 2021
    
–
      
–
      
–
  
Amortization
    
916
      
–
      
916
  
Balance, September 30, 2022
  
$
916
    
$
–
    
$
916
  
                         
Net book value as of
                        
December 31, 2021
  
$
–
    
$
–
    
$
–
  
September 30, 2022
  
$
10,084
    
$
3,150
    
$
13,234
  

9.
Loans payable

The Company has a loan outstanding as at September 30, 2022, of $30.2 million with Trinity Capital Inc. (December 31, 2021 – $34.2 million), net of deferred financing costs of $1.1 million (December 31, 2021 – $1.4 million). The loan bears an interest rate of 9.5% and is secured against the financed equipment.

The Company has a loan outstanding as at September 30, 2022, of $nil (December 31, 2021 – $5.9 million) with Foundry Digital LLC. The loan bore an interest rate of 16.5% and was secured against the financed equipment, as well as digital currency and future mined digital currencies by the financed equipment. The Company settled the loan during the nine months ended September 30, 2022.

11
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
10.
Equity

 
(a)
Common shares

The Company has authorized share capital of an unlimited number of common shares.

   
Number of shares
    
Amount
  
Balance, January 1, 2021
    
97,245,223
    
$
178,231
  
Shares issued for services(i)
    
380,000
      
398
  
Shares issued for RSUs and DSUs(ii)
    
359,813
      
1,039
  
Shares issued for exercise of options
    
170,639
      
1,207
  
Shares issued for equity raises, net of issuance cost ($4,003)
    
58,682,500
      
314,756
  
Shares issued on exercise of warrant liability
    
4,089,999
      
109,287
  
Shares issued for exercise of warrants
    
8,661,887
      
31,679
  
Balance, December 31, 2021
    
169,590,061
      
636,597
  
Shares issued for equity raises, net of issuance cost ($2,241)
    
25,429,978
      
83,261
  
Shares issued for RSUs and DSUs(ii)
    
1,173,795
      
5,721
  
Shares issued under employee share purchase plan
    
17,826
      
55
  
Shares issued for exercise of options
    
3,333
      
11
  
Shares issued on exercise of warrants
    
863
      
3
  
Balance, September 30, 2022
    
196,215,856
    
$
725,648
  


(i)
Shares issued as payment of invoices to key service providers.

(ii)
Shares issued upon vesting of restricted share units (“RSU”) and deferred share units (“DSU”), net of employment withholdings.

February 2022 At-the-market Equity Program (“February 2022 ATM”)

On February 11, 2022, the Company entered into the February 2022 ATM offering agreement to sell the Company’s common shares with maximum proceeds of up to $82.3 million (US$65.0 million). The Company completed the February 2022 ATM on July 18, 2022 and during the nine months ended September 30, 2022 issued 24,429,460 common shares totaling $82.3 million (US$65.0 million) under the ATM and incurred $2.2 million (US$1.7 million) in issuance cost.

August 2022 At-the-market Equity Program (“August 2022 ATM”)

On August 17, 2022, the Company entered into the August 2022 ATM equity distribution agreement to sell the Company’s commons shares with maximum proceeds of up to $274.1 million (US$200.0 million). During the nine months ended September 30, 2022, the Company issued 1,000,518 common shares totaling $2.6 million (US$2.0 million) under the August 2022 ATM and incurred $0.06 million (US$0.04 million) in issuance cost. Subsequent to the nine months ended September 30, 2022, the Company did not complete any issuances under the August 2022 ATM.

12
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
 
(b)
Incentive plan

Stock options

The stock option activity is as follows:

   
Number of options
    
Weighted average exercise price
  
Balance, January 1, 2021
    
761,667
    
$
4.38
  
Granted
    
60,000
      
6.57
  
Forfeiture
    
(104,361
)
    
1.96
  
Exercised
    
(170,639
)
    
4.23
  
Options outstanding, December 31, 2021
    
546,667
      
5.13
  
Exercised
    
(3,333
)
    
1.80
  
Forfeiture
    
(63,334
)
    
2.30
  
Options outstanding, September 30, 2022
    
480,000
    
$
5.00
  
Options exercisable, September 30, 2022
    
480,000
    
$
5.00
  

During the nine months ended September 30, 2022, the Company recorded a total of $0.1 million (September 30, 2021 – $0.2 million) as share-based compensation expense related to stock options. During the nine months ended September 30, 2021, the Company also recorded a reversal of share-based compensation totaling $0.2 million due to forfeiture of 63,334 options. The compensation expense was based on the fair value of each stock option on the date of the grant using the Black-Scholes option pricing model. No stock options were granted for the nine months ended September 30, 2022.

Restricted Share Units (“RSUs”) and Deferred Share Units (“DSUs”)

During the nine months ended September 30, 2022, the Company recorded a total $5.4 million (September 30, 2021 – $7.4 million) as share-based compensation expense related to RSUs and DSUs.

11.
Financial instruments and risk management

Financial hierarchy:

Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The hierarchy is summarized as follows:

Level 1:
Unadjusted quoted prices in active markets for identical assets and liabilities;
Level 2:
Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly from observable market data; and
Level 3:
Inputs that are not based on observable market data.

The Company’s financial instruments have been classified as follows:

13
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
September 30, 2022
  
Level 1
    
Level 2
    
Level 3
    
Total
  
Fair value carried through profit and loss
                        
Warrants Liability
  
$
–
    
$
4,518
    
$
–
    
$
4,518
  
Deposits
    
77,485
      
–
      
–
    
$
77,485
  
                                 
December 31, 2021
  
Level 1
    
Level 2
    
Level 3
    
Total
  
Fair value carried through profit and loss
                                
Warrants Liability
    
–
      
99,021
      
–
    
$
99,021
  
Deposits
  
$
156,093
    
$
–
    
$
–
    
$
156,093
  

The Company determined that the carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate the corresponding fair value because of the relatively short periods to maturity of these instruments and the low credit risk.

The loans payable balance has a carrying value of $29.1 million (December 31, 2021 – $40.1 million) and a fair value of $30.2 million (December 31, 2021 – $41.5 million). The fair value is determined based on the cost of borrowing for a company with a similar risk profile (Level 2).

12.
Digital assets and risk management

(a)
Digital assets

Digital assets are measured using Level 2 fair values, determined by taking the rate from CoinMarketCap.

Digital asset prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. The profitability of the Company is directly related to the current and future market price of digital assets; in addition, the Company may not be able liquidate its inventory of digital assets at its desired price if required. A decline in the market prices for digital assets could negatively impact the Company’s future operations. The Company has not hedged the conversion of any of its sales of digital assets.

Digital assets have a limited history and the fair value historically has been relatively volatile. Historical performance of digital assets is not indicative of their future price performance. The Company’s digital assets currently solely consist of Bitcoin.

The Company’s digital assets subject to Lending Arrangements are exposed to credit risk. The Company limits its credit risk by loaning the digital assets to counterparties that are believed to have sufficient capital to meet their obligations as they come due based on the Company’s review of their size, credit quality and reputation. As of each reporting period, the Company assesses if there are significant increases in credit risk requiring recognition of a loss or write-down. Such loss or write-down would be reflected in the fair value of the digital assets subject to Lending Arrangements. While the Company intends to only transact with counterparties that it believes to be creditworthy, there can be no assurance that a counterparty will not default and that the Company will not sustain a material loss on a transaction as a result. During the nine months ended September 30, 2022, the Company terminated the Lending Agreements and retrieved the digital assets lent under the Lending Agreements.

The Company uses the services of BitGo Trust Company Inc. and NYDIG Trust Company LLC. The Company does not self-custody its Bitcoin.

As at September 30, 2022, had the market price of Bitcoin increased or decreased by 10% with all other variables held constant, the corresponding digital assets value increase or decrease respectively would amount to $22.3 million.

14
HUT 8 MINING CORP.

(In thousands of Canadian dollars, except for per share amounts)
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2022
13.
Revenue

The details of our revenue by type are as follows:

   
Three months ended
    
Nine months ended
  
For the periods ended September 30
  
2022
    
2021
    
2022
    
2021
  
Digital assets mined
  
$
27,268
    
$
47,935
    
$
115,694
    
$
109,849
  
High performance computing
    
4,403
      
–
      
12,404
      
–
  
Hosting fees
    
–
      
2,406
      
751
      
6,024
  
Total revenue
  
$
31,671
    
$
50,341
    
$
128,849
    
$
115,873
  

14.
Cost of revenue

The details of our costs of revenue by type are as follows:

   
Three months ended
    
Nine months ended
  
For the periods ended September 30
  
2022
    
2021
    
2022
    
2021
  
Site operating costs
  
$
(20,272
)
  
$
(16,042
)
  
$
(65,567
)
  
$
(43,670
)
Depreciation
    
(25,339
)
    
(5,192
)
    
(64,608
)
    
(13,972
)
Total cost of revenue
  
$
(45,611
)
  
$
(21,234
)
  
$
(130,175
)
  
$
(57,642
)

15.
General and administrative expenses

The details of our general and administrative expenses by type are as follows:

   
Three months ended
    
Nine months ended
  
For the periods ended September 30
  
2022
    
2021
    
2022
    
2021
  
Professional fees
  
$
(1,507
)
  
$
(1,792
)
  
$
(6,127
)
  
$
(5,010
)
General, marketing, office and other
    
(1,869
)
    
(383
)
    
(5,150
)
    
(823
)
Sales tax expense
    
(1,462
)
    
(4,001
)
    
(6,649
)
    
(5,802
)
Share based payments
    
(1,895
)
    
(2,801
)
    
(5,171
)
    
(7,325
)
Salary and benefits
    
(2,012
)
    
(670
)
    
(5,798
)
    
(3,207
)
Insurance expense
    
(1,894
)
    
(852
)
    
(4,319
)
    
(1,680
)
Investor relations and regulatory
    
(577
)
    
(337
)
    
(1,814
)
    
(2,324
)
Total general and administrative expense
  
$
(11,216
)
  
$
(10,836
)
  
$
(35,028
)
  
$
(26,171
)

16.
Supplementary cashflow information

Change in working capital for the nine months ended September 30, 2022 and 2021 was as follows:

For the nine months ended September 30
  
2022
    
2021
  
Accounts receivable and other
  
$
(51
)
  
$
355
  
Prepaid expenses
    
(495
)
    
(3,582
)
Accounts payable and accrued liabilities
    
87
      
4,739
  
   
$
(459
)
  
$
1,512
  


15