S-4/A 1 tm235928-8_s4a.htm S-4/A tm235928-8_s4a - none - 60.4479815s
As filed with the Securities and Exchange Commission on June 12, 2023
Registration No. 333-269738
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
HUT 8 CORP.
Delaware
(State or other jurisdiction of
incorporation or organization)
7374
(Primary Standard Industrial
Classification Code Number)
92-2056803
(IRS Employer
Identification No.)
c/o U.S Data Mining Group, Inc.
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Phone: (305) 224-6427
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Corporation Service Company
251 Little Falls Drive
Wilmington, Delaware 19808
Phone: (650) 560-4753
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Ryan J. Dzierniejko
June S. Dipchand
Skadden, Arps, Slate,
Meagher & Flom LLP
One Manhattan West
New York, NY 10001
(212) 735-3000
Curtis Cusinato
Matthew Hunt
Bennett Jones LLP
3400 One First Canadian Place
Toronto, ON M5X 1A4
(416) 863-1200
Aniss Amdiss
Chief Legal Officer and Corporate Secretary,
Hut 8 Mining Corp.
24 Duncan Street, Suite 500
Toronto, ON M5V 2B8
(647) 256-1992
Daniella G. Silberstein
Raffael M. Fiumara
Greenberg Traurig, P.A.
333 S.E. 2nd Avenue, Suite 4400
Miami, FL 33131
(305) 579-0500
Amanda Linett
Stikeman Elliott LLP
5300 Commerce Court West
199 Bay Street
Toronto, ON, M5L 1B9
(416) 869-5500
Approximate date of commencement of proposed sale of the securities to the public:   As soon as practicable after this registration statement becomes effective and upon consummation of the merger described in the enclosed prospectus.
If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated file” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule I3e-4(i) (Cross-Border Issuer Tender Offer)
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the SEC, acting pursuant to said section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not distribute or issue the securities being registered pursuant to the registration statement (of which this preliminary prospectus forms a part) until the registration statement, as filed with the Securities and Exchange Commission, is effective. This preliminary prospectus is not an offer to sell nor should it be considered a solicitation of an offer to buy the securities described herein in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 12, 2023
[MISSING IMAGE: lg_hut8-4clr.jpg]
44,231,514 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
TO BE ISSUED IN CONNECTION WITH THE PROPOSED MERGER OF U.S. DATA MINING GROUP, INC. AND MERGER SUB, A WHOLLY-OWNED SUBSIDIARY OF HUT 8 CORP.
This prospectus of Hut 8 Corp., a Delaware corporation (“New Hut,” “us” or “we”), relates to shares of New Hut common stock, par value $0.01 per share (“New Hut common stock” or “New Hut Shares”), to be issued to the holders of capital stock of U.S. Data Mining Group, Inc., a Nevada corporation doing business as “US BITCOIN” ​(“USBTC”), as provided for by a Business Combination Agreement dated February 6, 2023, by and among Hut 8 Mining Corp., a corporation existing under the laws of British Columbia (“Hut 8”), USBTC and New Hut (the “Business Combination Agreement”). A copy of the Business Combination Agreement and the plan of arrangement (“Plan of Arrangement”) is attached as an exhibit to the registration statement on Form S-4 (the “Registration Statement”) of which this prospectus forms a part.
Pursuant to the Business Combination Agreement, (i) Hut 8 and its direct wholly-owned subsidiary, Hut 8 Holdings Inc. (“Hut 8 Holdings”), a corporation existing under the laws of British Columbia, will, as part of a court-sanctioned plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia) (the “BCBCA”), be amalgamated to continue as one British Columbia corporation (“Hut Amalco”), with the capital of Hut Amalco being the same as the capital of Hut 8 (the “Amalgamation”), (ii) following the Amalgamation, and pursuant to the Arrangement, each common share of Hut Amalco (other than any shares held by dissenting shareholders) will be exchanged for 0.2000 of a share of New Hut common stock (the “Hut 8 Share Exchange”), which will effectively result in a consolidation of the common shares of Hut 8 (the “Hut Shares”) on a five to one (5 to 1) basis and (iii) following the completion of the Arrangement, a newly-formed direct wholly-owned Nevada subsidiary of New Hut (“Merger Sub”) will merge with and into USBTC, with each share of Series A preferred stock of USBTC, $0.00001 par value per share (“Series A Preferred”), Series B preferred stock of USBTC, $0.00001 par value per share (“Series B Preferred”), Series B-1 preferred stock of USBTC, $0.00001 par value per share (“Series B-1 Preferred”) and common stock of USBTC, $0.00001 par value per share (“USBTC common stock”), being exchanged for 0.6716 of a share of New Hut common stock in a merger executed in accordance with the relevant provisions of the Nevada Revised Statutes (the “NRS”), as amended (the “Merger,” and together with the Arrangement, the “Business Combination”). The shares of New Hut common stock issued to shareholders of Hut 8 (the “Hut 8 shareholders”) under the Arrangement will be issued pursuant to an exemption from registration under Section 3(a)(10) of the U.S. Securities Act of 1933, as amended (the “Securities Act”). As a result of the Business Combination, both Hut Amalco and USBTC will become wholly-owned subsidiaries of New Hut. New Hut intends to list its shares on the Nasdaq Stock Exchange (“Nasdaq”) and the Toronto Stock Exchange (the “TSX”) under the trading symbol “HUT” following the completion of the Business Combination, subject to the approval of Nasdaq and the TSX.
New Hut is an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 and applicable rules of the United States Securities and Exchange Commission (“SEC”), and therefore is eligible to rely on reduced public company reporting requirements.
This is not a proxy statement. We are not asking you for a proxy and you are requested not to send us a proxy.
We encourage you to carefully read this prospectus and the documents incorporated by reference in this prospectus in their entirety, including the section titled “Risk Factors” beginning on page 26 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 
ADDITIONAL INFORMATION
This prospectus incorporates by reference important business and financial information about Hut 8 from other documents that may not be included in or delivered with this prospectus. For a listing of the documents incorporated by reference into this prospectus, see the section entitled “Where You Can Find Additional Information.” You can obtain the documents incorporated by reference into this prospectus through Hut 8’s profile on the SEC website at www.sec.gov and also on the SEDAR website maintained by the Canadian Securities Administrators at www.sedar.com. Copies of the documents incorporated by reference into this prospectus may also be obtained on request without charge from the Corporate Secretary of Hut 8 at Suite 500, 24 Duncan Street, Toronto, Ontario, Canada, M5V 2B8, by telephone at 647-256-1992.
As a result of registering the securities offered hereby, New Hut will become subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, will file reports and other information with the SEC. Reports and other information that will be filed by New Hut will be available at the SEC website at www.sec.gov.
IMPORTANT NOTE ABOUT THIS PROSPECTUS
This document, which forms part of a Registration Statement filed with the SEC by New Hut (File No. 333-269738), constitutes a prospectus of New Hut under Section 5 of the Securities Act with respect to the shares of New Hut common stock to be issued to USBTC stockholders (as defined herein) pursuant to the Merger.
All information concerning Hut 8 contained in this prospectus has been furnished by Hut 8 and all information concerning USBTC contained in this prospectus has been furnished by USBTC. Hut 8 does not have independent knowledge of the matters set forth herein regarding USBTC or its subsidiaries, and USBTC does not have independent knowledge of the matters set forth herein regarding Hut 8 or its subsidiaries.
You should rely only on the information contained in or incorporated by reference into this prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is not lawful to make any such offer or solicitation.
This prospectus is dated                , 2023, and you should not assume that the information contained in this prospectus is accurate as of any date other than such date. Neither the delivery of this prospectus nor the issuance by New Hut of shares of New Hut common stock registered hereunder shall, under any circumstances, create any implication that there has been no change in the assets, properties or affairs of New Hut, Hut 8 or USBTC since such date or that the information contained herein is correct as of any time subsequent to such date.
CURRENCY AND EXCHANGE RATE DATA
Unless otherwise specified, currency amounts referenced in this prospectus are in U.S. dollars. References to “$” or “US$” are to U.S. dollars and references to “C$” are to Canadian dollars.
The following table lists, for each period presented, the high and low exchange rates, the average of the exchange rates during the period indicated, and the exchange rates at the end of the period indicated, of one U.S. dollar in exchange for Canadian dollars, based on the closing exchange rate published by the Bank of Canada for the applicable periods.
Year ended December 31,
2022
2021
High
$ 1.3856 $ 1.2942
Low
$ 1.2451 $ 1.2040
Average
$ 1.3011 $ 1.2535
Period-End
$ 1.3544 $ 1.2678

 
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QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION
The following questions and answers briefly address some questions that you, as a securityholder of USBTC, may have regarding the Business Combination. These questions and answers, as well as the summary section that follows, are not meant to be a substitute for the information contained in the remainder of this prospectus, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this prospectus. You are urged to read this prospectus in its entirety. Additional important information is also contained in the documents incorporated by reference in and the exhibits to the Registration Statement of which this prospectus forms a part. You should pay special attention to the “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 24 of this prospectus and to the “Risk Factors” beginning on page 26 of this prospectus.
Why am I receiving this prospectus?
New Hut is providing this prospectus to the USBTC stockholders (the “USBTC stockholders”) because New Hut has entered into the Business Combination Agreement, pursuant to which Merger Sub will merge with and into USBTC, with each share of Series A Preferred, Series B Preferred, Series B-1 Preferred and USBTC common stock being exchanged for 0.6716 of a share of New Hut common stock in a merger executed in accordance with the relevant provisions of the NRS. As a result of the Merger, USBTC will become a wholly-owned subsidiary of New Hut. Pursuant to the Registration Statement of which this prospectus forms a part, New Hut is registering shares of New Hut common stock issuable to USBTC stockholders upon the consummation of the Business Combination (the “Closing”), in accordance with the Business Combination Agreement. Applicable requirements of the federal securities laws require New Hut to provide you with information regarding the Business Combination. This prospectus contains important information about the Business Combination, the Business Combination Agreement, and certain related matters, and you should read this prospectus carefully. However, please be aware that this prospectus is not a proxy statement or notice of meeting and that we are not asking you for a proxy and you are requested not to send us a proxy.
The Merger must be approved by at least (i) a majority of the voting power of the outstanding USBTC capital stock, voting together as a single class on an as-converted basis, and (ii) separately, the holders of a majority of the outstanding shares of the Series A Preferred (voting together as a single and separate class on an as-converted basis) including the affirmative vote of JHS Bitcoin Mining LLC (“JHS”) (the “USBTC Stockholder Approval”). Following the effectiveness of the Registration Statement of which this prospectus forms a part, USBTC intends to solicit the USBTC Stockholder Approval by way of a written consent of the USBTC stockholders (the “USBTC Consent”).
The Arrangement will require the approval of at least 6623% of the votes cast by the Hut 8 shareholders present in person or represented by proxy at a special meeting of Hut 8 shareholders held for the purpose of approving the Business Combination and the transactions contemplated thereby (the “Hut 8 Meeting”). Securityholders of USBTC will not be required to vote on or approve the Arrangement.
Why are the two companies proposing the Business Combination?
The Business Combination is expected to create a strengthened player in the digital asset mining, hosting, managed infrastructure operations, and high performance computing space with strong financial and operating metrics. New Hut will be led by a combined board of directors and management team of Bitcoin miners, energy experts, and business leaders, bringing together the powerful cultures, strengths, and capabilities of both Hut 8 and USBTC.
Key strategic advantages of the Business Combination include:
A strengthened financial position and flexibility
New Hut aims to benefit from a combined balance sheet with greater financial stability, which is expected to strengthen New Hut’s ability to navigate market cycles and increases New Hut’s flexibility to grow and invest in new opportunities. New Hut anticipates being included in new stock indexes and improved access to capital given its increased scale and new U.S. headquarters.

 
New Hut is expected to benefit from a combined installed self-mining capacity of 7.5 exahashes per second (“EH/s”) and 253 megawatts (“MW”) of total energy currently available from five sites with current self-mining operations: Medicine Hat, Alberta; Drumheller, Alberta; Niagara Falls, New York; Kearney, Nebraska; Granbury, Texas; and King Mountain, Texas. The 1.7 EH/s installed self-mining capacity at the King Mountain, Texas site is owned by the joint venture (the “King Mountain JV”) in which USBTC has a 50% membership interest alongside NextEra Energy, Inc. (“NextEra”).
An accelerated diversification strategy for New Hut
New Hut is expected to have an enhanced revenue profile from distinct business lines. New Hut is expected to generate monthly recurring revenue from: hosting services denominated in fiat from existing long-term clients, managed infrastructure operations for Bitcoin mining sites looking to maximize the potential of their facilities, hardware equipment sales to customers, and the MicroBT-certified repair center business serving customers across North America and Northern Europe.
Maintaining commitment to advancing the high performance computing traditional data center business
New Hut will be committed to the continued advancement of the high performance computing business, which continues to be a key focus of New Hut’s diversified strategy and is expected to generate monthly recurring revenue from approximately 370 North American customers.
A strengthened, proven and trusted senior leadership team and board of directors with a track record of value creation
The combined New Hut executive team will lead approximately 210 team members to deliver on the existing and proven strategy of growing long-term sustainable operations.
A growing pipeline of opportunities
New Hut will benefit from a strong pipeline of growth opportunities at existing, greenfield and brownfield sites.
Enhancing New Hut’s position in one of the world’s high-potential Bitcoin mining regions
The Business Combination looks to solidify New Hut as a Bitcoin mining entity with operating capacity at high-quality sites in Alberta, Canada, and Texas, Nebraska, and New York in the United States.
Advancing commitment to driving improvements across all ESG metrics
The Business Combination will improve New Hut’s overall energy mix to include wind, hydro and nuclear sources solidifying the Hut 8 and USBTC team’s commitment and focus on ESG goals.
Improving New Hut’s energy expertise and hedging capabilities
The USBTC team will bring significant leadership in energy origination, development, demand response, hedging, grid stabilization and analytics to New Hut, which will enhance New Hut’s ability to better plan around stable and predictable energy usage and mitigate fluctuating prices across markets.
To review the reasons for the Business Combination in greater detail, see the sections titled “The Business Combination — The Hut 8 Board’s Reasons for the Business Combination” and “The Business Combination — The USBTC Board’s Reasons for the Business Combination” beginning on pages 86 and 87, respectively, of this prospectus.
What will USBTC stockholders and Hut 8 securityholders receive in the Business Combination?
Pursuant to the terms of the Business Combination Agreement, each share of Series A Preferred, Series B Preferred, Series B-1 Preferred and USBTC common stock will be exchanged for 0.6716 of a share of New Hut common stock (the “USBTC Exchange Ratio”). In addition, each option to purchase USBTC common stock (a “USBTC Option”) outstanding immediately prior to Closing shall automatically be exchanged for an
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option (each, a “USBTC Replacement Option”) entitling the holder to purchase that number of shares of New Hut common stock equal to the product obtained when the number of shares of USBTC common stock subject to such USBTC Option immediately prior to the Closing is multiplied by the USBTC Exchange Ratio (rounded down to the nearest whole share), at an exercise price for each share of New Hut common stock that may be purchased under such USBTC Replacement Option equal to the quotient obtained when the exercise price per share of USBTC common stock, as of immediately prior to the Closing, under such exchanged USBTC Option is divided by the USBTC Exchange Ratio (rounded up to the nearest whole cent). See the section entitled “The Business Combination Agreement — Treatment of USBTC Securities,” beginning on page 114 of this prospectus.
In accordance with the Business Combination Agreement, pursuant to the Arrangement, each Hut 8 common share outstanding immediately prior to the effective time of the Arrangement (other than any such shares in respect of which a registered Hut 8 shareholder validly exercises dissent rights) will be exchanged for 0.2000 of a share of New Hut common stock (the “Hut 8 Exchange Ratio”). The Hut 8 Exchange Ratio effectively results in a consolidation of the existing Hut Shares on a five to one (5 to 1) basis.
In accordance with the Business Combination Agreement, pursuant to the Arrangement, each option to purchase Hut 8 common shares (a “Hut 8 Option”) outstanding immediately prior to the effective time of the Arrangement shall automatically be exchanged for an option (each, a “Hut 8 Replacement Option”) entitling the holder to purchase that number of shares of New Hut common stock equal to the product obtained when the number of Hut 8 common shares subject to such Hut 8 Options immediately prior to the effective time of the Arrangement is multiplied by the Hut 8 Exchange Ratio (rounded down to the nearest whole share), at an exercise price for each share of New Hut common stock that may be purchased under such Hut 8 Replacement Option equal to the quotient obtained when the exercise price per Hut 8 common share, as of immediately prior to the effective time of the Arrangement, under the applicable exchanged Hut 8 Option is divided by the Hut 8 Exchange Ratio (rounded up to the nearest whole cent).
In accordance with the Business Combination Agreement, pursuant to the Arrangement, the terms of each Hut 8 restricted share unit (each a “Hut 8 RSU”) outstanding immediately prior to the effective time of the Arrangement will be adjusted so that upon settlement each holder of a Hut 8 RSU shall be entitled to receive either (i) a cash payment equal to the product of the market value of a share of New Hut common stock and the Hut 8 Exchange Ratio, (ii) that number of shares of New Hut common stock equal to the Hut 8 Exchange Ratio or (iii) a combination of cash and shares of New Hut common stock.
In accordance with the Business Combination Agreement, pursuant to the Arrangement, the terms of each Hut 8 deferred share unit (each a “Hut 8 DSU”) outstanding immediately prior to the effective time of the Arrangement will be adjusted so that upon settlement each holder of a Hut 8 DSU shall be entitled to receive either (i) a cash payment equal to the product of the market value of a share of New Hut common stock and the Hut 8 Exchange Ratio, (ii) that number of shares of New Hut common stock equal to the Hut 8 Exchange Ratio or (iii) a combination of cash and shares of New Hut common stock.
In accordance with the Business Combination Agreement, pursuant to the Arrangement, each holder of common share purchase warrants of Hut 8 issued on June 15, 2021 (each a “Hut 8 June 2021 Warrant”) shall be entitled to receive (and such holder shall accept) upon the exercise of such holder’s Hut 8 June 2021 Warrant, in lieu of Hut 8 common shares to which such holder was theretofore entitled upon such exercise, that number of shares of New Hut common stock equal to the product obtained when the number of Hut 8 common shares subject to such Hut 8 June 2021 Warrant immediately prior to the effective time of the Arrangement is multiplied by the Hut 8 Exchange Ratio, at an exercise price for each share of New Hut common stock equal to the quotient obtained when the exercise price per Hut 8 common share under such Hut 8 June 2021 Warrant is divided by the Hut 8 Exchange Ratio (provided that (A) no fractional share of New Hut common stock will be issued upon any particular exercise of Hut 8 June 2021 Warrants, and the aggregate number of shares of New Hut common stock to be issued upon exercise by a holder of one or more Hut 8 June 2021 Warrants shall be rounded down to the nearest whole number, and (B) the aggregate exercise price payable on any particular exercise of Hut 8 June 2021 Warrants shall be rounded up to the nearest whole cent).
In accordance with the Business Combination Agreement, pursuant to the Arrangement, each holder of warrants to acquire Hut 8 common shares issued by Hut 8 on June 15, 2021 and expiring on June 15, 2023,
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and warrants to acquire Hut 8 common shares issued by Hut 8 on September 17, 2021 and expiring on September 17, 2026 (together, “Hut 8 Compensation Warrants”) shall be entitled to receive (and such holder shall accept) upon the exercise of such holder’s Hut 8 Compensation Warrant, in lieu of Hut 8 common shares to which such holder was entitled upon such exercise, that number of shares of New Hut common stock equal to the product obtained when the number of Hut common shares subject to such Hut 8 Compensation Warrant immediately prior to the effective time of the Arrangement is multiplied by the Hut 8 Exchange Ratio, at an exercise price for each share of New Hut common stock equal to the quotient obtained when the exercise price per Hut 8 common share under the former Hut 8 Compensation Warrant is divided by the Hut 8 Exchange Ratio (provided that (A) no fractional share of New Hut common stock will be issued upon any particular exercise of Hut 8 Compensation Warrants, and the aggregate number of shares of New Hut common stock to be issued upon exercise by a holder of one or more Hut 8 Compensation Warrants shall be rounded down to the nearest whole number, and (B) the aggregate exercise price payable on any particular exercise of Hut 8 Compensation Warrants shall be rounded up to the nearest whole cent). For more information, please see “The Business Combination Agreement — Treatment of Hut Securities; Plan of Arrangement,” beginning on page 112 of this prospectus.
As a result of the Business Combination, Hut 8 shareholders and USBTC stockholders will each own, as a group, approximately 50% of the common stock of New Hut, with New Hut having an expected approximately 88.5 million shares of its common stock outstanding, in each case on a fully-diluted in-the-money basis. The below chart illustrates the impact of the Hut 8 Exchange Ratio and the USBTC Exchange Ratio on a fully-diluted basis, assuming the exercise of all fully vested in-the-money derivative securities that were outstanding on May 21, 2023:
[MISSING IMAGE: fc_hut8usbitcoin-4c.jpg]
What happens if the Business Combination is not completed?
If the Business Combination is not completed for any reason, USBTC stockholders will not receive any consideration for their USBTC securities, and neither USBTC nor Hut 8 will be acquired by New Hut. If the Business Combination Agreement is terminated under certain circumstances, Hut 8 may be required to pay USBTC a termination fee of US$10,000,000, as described under the section titled “The Business Combination Agreement — Termination” beginning on page 129 of this prospectus.
If I am a USBTC stockholder, how will I receive the consideration to which I will become entitled pursuant to the Business Combination Agreement?
Prior to the Closing, New Hut will appoint Computershare Investor Services Inc. (the “Depositary”) or another depositary mutually agreed to by Hut 8 and USBTC for purposes of exchanging certain consideration to be paid under the Business Combination Agreement.
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After receipt by the Depositary of (i) a letter of transmittal and (ii) instructions for use in effecting the surrender of USBTC certificates in exchange for the applicable consideration, if applicable and required, New Hut will cause the Depositary, following completion of the Business Combination, to issue the amount of shares of New Hut common stock that such USBTC stockholder has the right to receive pursuant to the Business Combination Agreement.
Are there any important risks related to the Business Combination or Hut 8’s or USBTC’s businesses of which I should be aware?
Yes, there are important risks related to the Business Combination and Hut 8’s, USBTC’s and the combined company’s businesses. We urge you to read carefully and in its entirety the section titled “Risk Factors” beginning on page 26 of this prospectus as well as the additional risk factors concerning Hut 8 that are incorporated into this prospectus by reference.
Are USBTC stockholders entitled to seek appraisal or dissenter’s rights?
Under applicable Nevada law, stockholders of a Nevada corporation may, subject to certain conditions, be entitled to dissent from a transaction and demand payment of the fair value of such stockholder’s securities in the event of certain corporate actions, including certain mergers. Under Nevada law, USBTC stockholders are entitled to dissenters’ rights if exercised in accordance with applicable law. For additional information, please see the sections titled “The Business Combination — USBTC Stockholder Appraisal and Dissenter’s Rights” and “Appraisal and Dissenter’s Rights” beginning on pages 107 and 241, respectively, of this prospectus.
Are Hut 8 Shareholders entitled to seek appraisal or dissenter’s rights?
Registered holders of Hut Shares may exercise rights of dissent in connection with the Arrangement under Section 238 of the BCBCA, as modified by the Interim Order, the Final Order and the Plan of Arrangement (each as defined herein), provided that the written objection to the special resolution approving the Arrangement to be adopted by Hut 8 shareholders at the Hut 8 Meeting (the “Arrangement Resolution”) must be provided not later than 4:00 p.m. Toronto time two Business Days immediately preceding the date of the Hut 8 Meeting. See the section entitled “The Business Combination Agreement — Dissenting Shares” beginning on page 114 of this prospectus.
What are the U.S. federal income tax consequences of the Merger to U.S. USBTC stockholders?
New Hut, Hut 8 and USBTC each intend that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, be treated as an exchange by Hut 8 shareholders and USBTC stockholders, respectively, that qualifies under Section 351(a) of the Code. If the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, were to so qualify, then neither gain nor loss generally will be recognized by USBTC stockholders upon the exchange of USBTC common stock for New Hut common stock in the Merger. As discussed in more detail in the section entitled “U.S. Federal Income Tax Consequences” beginning on page 135, there is significant uncertainty as to whether the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code. The Arrangement and the Merger are not conditioned on the receipt of an opinion of counsel that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code, and there can be no assurance that such an opinion of counsel can or will be obtained. In addition, neither Hut 8 nor USBTC has requested, and neither intends to request, any ruling from the U.S. Internal Revenue Service (“IRS”) as to the U.S. federal income tax consequences of the Arrangement and the Merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to the parties’ position that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, qualify under Section 351(a) of the Code. Accordingly, if there is a final determination that the Merger is a taxable exchange for United States federal income tax purposes, then a USBTC stockholder that is a United States person that exchanges USBTC common stock in the Merger would generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the fair market value (determined as of the Merger Effective Time) of the New Hut common stock received and (ii) the holder’s adjusted tax basis in the USBTC common stock
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exchanged therefor. For a more complete discussion of the United States federal income tax consequences of the Merger, see the section entitled “U.S. Federal Income Tax Consequences” beginning on page 135.
What are the conditions to the completion of the Business Combination?
Completion of the Business Combination is subject to certain closing conditions, including, but not limited to, the effectiveness of the Registration Statement, the Hut 8 Shareholder Approval, the USBTC Stockholder Approval, receipt of required regulatory approvals and satisfaction (or, to the extent permitted by applicable law, waiver) of other conditions to the consummation of the Business Combination contained in the Business Combination Agreement. For more information, see the section entitled “The Business Combination Agreement — Conditions to Completion of the Business Combination” beginning on page 127.
When is the Business Combination expected to be completed?
Hut 8 and USBTC currently expect the Business Combination to close in the second quarter of 2023, subject to the receipt of required court orders and regulatory approvals and the satisfaction (or, to the extent permitted by applicable law, waiver) of the other conditions to the Business Combination contained in the Business Combination Agreement. However, it is possible that factors outside the control of Hut 8 and USBTC could require Hut 8 and USBTC to complete the Business Combination at a later time or not complete the Business Combination at all.
Will the New Hut common stock issued to USBTC stockholders pursuant to the Business Combination be traded on an exchange?
Yes. It is a condition to completion of the Business Combination that the shares of New Hut common stock to be issued to Hut 8 shareholders and USBTC stockholders in the Business Combination be approved for listing on both Nasdaq and the TSX.
Who can help answer my questions?
If you are a USBTC stockholder and would like a copy of this prospectus, or if you have questions about the Business Combination or the other matters discussed in this document, you should submit a request in writing to the Corporate Secretary of USBTC at 1221 Brickell Avenue, Suite 900, Miami, Florida 33131 or by telephone at (305) 224-6427.
Where can I find more information about Hut 8 and USBTC?
You can find more information about Hut 8 and USBTC from the various sources described under “Where You Can Find More Information” beginning on page 242 of this prospectus.
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SUMMARY
This summary highlights selected information included in this prospectus and may not contain all of the information that is important to you. To better understand the Business Combination, you should carefully read this entire prospectus and its exhibits and the other documents referred to in this prospectus. Additional important information about Hut 8 is also contained in the exhibits to the Registration Statement of which this prospectus forms a part, and in the documents incorporated by reference into this prospectus. For a description of, and instructions as to how to obtain, this information, see the section titled “Where You Can Find More Information” beginning on page 242 of this prospectus. Each item in this summary includes a page reference directing you to a more complete description of that item.
Parties to the Business Combination Agreement
Hut 8
Hut 8 is a large innovation-focused digital asset miner, led by a team of business-building technologists, bullish on Bitcoin, blockchain, Web 3.0, and bridging the nascent and traditional high performance computing worlds. With two operational digital asset mining sites located in Southern Alberta, Hut 8 has a high capacity rate and large inventory of unencumbered, self-mined Bitcoin. With 36,000 square feet of geo-diverse data centre space and cloud capacity connected to electrical grids powered by significant renewables and emission-free resources, Hut 8 is revolutionizing conventional assets to create the first hybrid data centre model that serves both the traditional high performance compute (Web 2.0) and nascent digital asset computing sectors, blockchain gaming, and Web 3.0. Hut 8 was the first Canadian digital asset miner to list on the Nasdaq Global Select Market.
Hut 8 Mining Corp.
24 Duncan Street, Suite 500
Toronto, ON M5V 2B8
Phone: (647) 256-1992
Hut 8’s common shares are listed on Nasdaq and the TSX under the symbol “HUT.”
For additional information about Hut 8, see the section titled “Information about Hut 8” beginning on page 138 of this prospectus.
USBTC
USBTC is an industrial-scale operator of Bitcoin mining sites. The company’s strategy is to design, build and operate sites where there is access to low-cost and sustainable sources of electricity. The company operates four sites across the United States with access to approximately 730 MW of electricity and fully built out rack space.
USBTC has several revenue streams: self-mining, hosting, managed infrastructure operations and equipment sales. Self-mining refers to all USBTC-owned machines that contribute computing power to mining pools in exchange for Bitcoin. Hosting refers to USBTC operating third party-owned machines at its sites in exchange for a hosting fee. Managed infrastructure operations refers to USBTC operating third-party-owned Bitcoin mining sites in exchange for a property management fee. Equipment sales refers to USBTC selling mining or infrastructure equipment to third-parties.
USBTC owns and operates a Bitcoin mining facility in Niagara Falls, New York with access to approximately 50 MW of electricity (the “Alpha Site”). In December 2022, USBTC acquired from Compute North Member LLC (“CN Member”) their entire membership interest in TZRC LLC (“TZRC”), representing 50% of all issued and outstanding membership interests in the King Mountain JV with NextEra. The King Mountain JV owns a Bitcoin mining site in Upton County, Texas with access to approximately 280 MW of electricity (the “Echo Site”). The Echo Site is co-located behind-the-meter at a wind farm.
USBTC is the site operator for three Bitcoin mining sites through its US Mining Infrastructure Operations subsidiaries (“USMIO”). USMIO leads all aspects of site operations, including accounting, curtailment and customer relations if the site owner is also a hosting provider. The first site is located in Kearney, Nebraska and has access to approximately 100 MW of electricity (the “Charlie Site”). The second site is located in Granbury, Texas and has access to approximately 300 MW of electricity (the “Delta Site”). The third site is the Echo Site owned by the King Mountain JV, which has access to approximately 280 MW of electricity.
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USBTC views its managed infrastructure operations business as a strategic partnership with its clients; the company structures its property management agreements to incentivize the long-term growth and sustainability of its clients’ sites.
USBTC was incorporated under the laws of the State of Nevada on December 4, 2020 under the name U.S. Data Group, Inc. USBTC changed its name to U.S. Data Mining Group, Inc. on December 15, 2020, and does business as “US BITCOIN CORP.”
U.S. Data Mining Group, Inc. dba US BITCOIN CORP.
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Phone: (305) 224-6427
For additional information about USBTC, see the section titled “Information about USBTC” beginning on page 148 of this prospectus.
New Hut
New Hut is a corporation incorporated in the State of Delaware on January 27, 2023 for the purpose of effecting the Business Combination. To date, New Hut has not conducted any activities other than those incident to its formation, the execution of the Business Combination Agreement, the preparation of regulatory filings made in connection with the transactions contemplated by the Business Combination Agreement and other matters related to such transactions. After completion of the transactions contemplated by the Business Combination Agreement, New Hut will be the parent entity and successor corporation to Hut 8 and USBTC. New Hut intends to list its shares on Nasdaq and the TSX under the trading symbol “HUT” following the completion of the Business Combination, subject to the approval of Nasdaq and the TSX.
New Hut is expected to benefit from a combined installed self-mining capacity of 7.5 EH/s and 253 MW of total energy currently available from five sites with current self-mining operations: Medicine Hat, Alberta; Drumheller, Alberta; Niagara Falls, New York; Kearney, Nebraska; Granbury, Texas; and King Mountain, Texas. The 1.7 EH/s installed self-mining capacity at the King Mountain, Texas site is owned by the King Mountain JV in which USBTC has a 50% membership interest alongside NextEra.
Hut 8 Corp.
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Phone: (305) 224-6427
For additional information about New Hut, see the section titled “Information about New Hut Upon Completion of the Business Combination” beginning on page 202 of this prospectus.
The Business Combination and the Business Combination Agreement
The terms and conditions of the Business Combination described below are contained in the Business Combination Agreement, which is attached to this document as an exhibit to the Registration Statement of which this prospectus forms a part and is incorporated by reference herein in its entirety. You are encouraged to read the Business Combination Agreement carefully, as it is the legal document that governs the Business Combination.
If the Arrangement Resolution is passed and all other conditions to closing of the Business Combination are satisfied, then pursuant to the Arrangement (i) Hut 8 and its wholly-owned subsidiary, Hut 8 Holdings, will be amalgamated by way of a short-form vertical amalgamation, with Hut Amalco having the same capital as the capital of Hut 8 immediately prior to the Amalgamation, and (ii) following the Amalgamation, the common shares in the capital of Hut Amalco (other than any shares in respect of which a registered Hut 8 shareholder has validly exercised dissent rights) will be exchanged for shares of New Hut common stock based on the Hut 8 Exchange Ratio. Following the completion of the Arrangement, pursuant to the Merger, Merger Sub will be merged with and into USBTC, with USBTC surviving the Merger as a subsidiary of New Hut. Pursuant to the Merger, holders of USBTC capital stock will receive shares of New Hut common stock based on the USBTC Exchange Ratio. As a result of the Business Combination, among other things, New Hut will become the ultimate parent of Hut 8, USBTC, and their respective subsidiaries. New Hut intends to list its shares on Nasdaq and the TSX under the trading symbol “HUT” following the completion of the Business
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Combination, subject to the approval of Nasdaq and the TSX. Consequently, following the closing, New Hut stockholders are expected to be able to trade their New Hut common stock on either exchange, in either currency.
For more information, see the section titled “The Business Combination Agreement” beginning on page 109 of this prospectus.
Hut 8 Board’s Reasons for the Business Combination
At a meeting held on February 6, 2023, the Board of Directors of Hut 8 (the “Hut 8 Board”) unanimously determined that (i) the Business Combination was consistent with and in furtherance of the long-term business strategy of Hut 8 and in the best interests of Hut 8, and (ii) consummation of the Business Combination on the terms and conditions substantially as set forth in the Business Combination Agreement were advisable and in the best interests of Hut 8. In evaluating and ultimately approving the transactions contemplated by the Business Combination Agreement, the Hut 8 Board engaged in numerous discussions, including with Hut 8’s management and its financial and legal advisors, held meetings, received materials for review and consideration and considered a variety of alternatives available to the company. For additional information, please read the section titled “The Business Combination — The Hut 8 Board’s Reasons for the Business Combination” beginning on page 86 of this prospectus.
USBTC Board’s Reasons for the Business Combination
The Board of Directors of USBTC (the “USBTC Board”) has unanimously determined that the Business Combination Agreement, the Merger and the Business Combination are in the best interests of, and are fair to USBTC and the USBTC stockholders. In evaluating and ultimately approving the transactions contemplated by the Business Combination Agreement, the USBTC Board engaged in numerous discussions, including with USBTC’s management and its financial and legal advisors, held meetings, received materials for review and consideration and considered a variety of alternatives available to the company. For additional information, please read the section titled “The Business Combination — The USBTC Board’s Reasons for the Business Combination” beginning on page 87 of this prospectus.
Fairness Opinion of Stifel GMP
Hut 8 retained Stifel Nicolaus Canada Inc. (“Stifel GMP”) to act as its financial advisor in connection with the Business Combination. On February 6, 2023, Stifel GMP rendered its opinion to the Hut 8 Board to the effect that, as of that date and based upon and subject to the assumptions, limitations and qualifications and other matters set forth therein, the USBTC Exchange Ratio was fair, from a financial point of view, to Hut 8.
The full text of Stifel GMP’s opinion, dated as of February 6, 2023, which describes the assumptions made, procedures followed, matters considered and limitations on the reviews undertaken, is attached as an exhibit to the Registration Statement of which this prospectus forms a part. The summary of the Stifel GMP written opinion set forth herein is qualified in its entirety by reference to the full text of its written opinion. The holders of Hut 8 stock are urged to read the Stifel GMP opinion carefully and in its entirety. Stifel GMP provided its opinion for the information and assistance of the Hut 8 Board. The Stifel GMP opinion does not constitute a recommendation as to how the Hut 8 Board, Hut 8 shareholders or USBTC stockholders should vote or act with respect to the Business Combination.
For additional information, please read the section titled “The Business Combination — Fairness Opinion of Stifel GMP” beginning on page 88 of this prospectus.
Fairness Opinion of Kroll, LLC
On February 6, 2023, Kroll, LLC (“Duff & Phelps” or “Kroll”), operating through its Duff & Phelps Opinions Practice, rendered its oral opinion to the Hut 8 Board (which was subsequently confirmed in writing by delivery of its written opinion dated the same date) to the effect that, subject to the assumptions, qualifications, limitations and other matters considered by Duff & Phelps in connection with the preparation of its opinion, as of such date, the USBTC Exchange Ratio in the proposed Business Combination was fair, from a financial point of view, to Hut 8.
The full text of Duff & Phelps’ opinion is included as an exhibit to the Registration Statement of which this prospectus forms a part and describes the assumptions made, procedures followed, matters considered and
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limitations on the review undertaken by Duff & Phelps. The summary of Duff & Phelps’ opinion in this prospectus is qualified in its entirety by reference to the full text of the opinion. Neither Duff & Phelps’ opinion nor the summary of its opinion and the related analyses set forth in this prospectus is intended to be or constitutes a recommendation to any shareholder of the Company as to how such holder should act with respect to the proposed Business Combination.
For additional information, please read the section titled “The Business Combination — Fairness Opinion of Kroll” beginning on page 92 of this prospectus.
No Solicitation of Alternative Transactions
Pursuant to the Business Combination Agreement, among other restrictions, Hut 8 and its subsidiaries shall not, directly or indirectly, do or authorize or permit any of its subsidiaries or representatives to do, any of the following:

solicit, initiate, encourage or otherwise knowingly facilitate any inquiries, proposals or offers relating to any acquisition proposal or that may reasonably be expected to constitute or lead to an acquisition proposal;

enter into, engage in, continue or otherwise participate in any discussions or negotiations with any party (other than USBTC) regarding any acquisition proposal;

withdraw, amend, modify or qualify, or publicly propose or state an intention to withdraw, amend, modify of qualify, the board recommendation;

accept, approve, endorse or recommend, execute or enter into, or publicly propose to accept, approve, endorse or recommend, execute or enter into, any letter of intent, agreement in principle, agreement, arrangement, offer or understanding in respect of an acquisition proposal;

accept, approve, endorse or recommend, or publicly propose to accept, approve, endorse or recommend, or take no position or remain neutral with respect to, any acquisition proposal;

cause its representative to conduct any solicitation, encouragement, discussion, negotiation, or other activities with parties other than USBTC with respect any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to, an acquisition proposal; or

continue access to and disclosure of any of its confidential information, including any data room and any confidential information, properties, facilities, books and records of Hut 8 or its subsidiaries.
Hut 8 is required within two (2) business days of the date of the Business Combination Agreement to request and exercise all rights it has to require: (i) the return or destruction of all copies of any confidential information regarding Hut 8 or any of its subsidiaries provided to any party other than USBTC who has entered into a confidentiality agreement or similar agreement with Hut 8 relating to an acquisition proposal and (ii) the destruction of all material including such confidential information regarding Hut 8 or any of its subsidiaries using commercially reasonable efforts to ensure compliance.
Hut 8 shall promptly notify USBTC, at first orally, and then within twenty-four (24) hours in writing, of any acquisition inquiry, proposal, offer or request, and shall provide USBTC with copies of all material received in respect of the proposal. Hut 8 shall keep USBTC reasonably informed of the status of material developments. For additional information, please read the section titled “The Business Combination Agreement — Solicitation” beginning on page 124 of this prospectus.
Regulatory Approvals
The parties are required to execute and file, or join in the execution and filing of, any application, notification or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental entity, whether federal, state, local or foreign, that may be reasonably required, or that Hut 8 or USBTC may reasonably request, in connection with the Business Combination.
Specifically, Hut 8 and USBTC are required to make all applicable filings under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) in connection with the Business Combination by February 16, 2023 and neither the Antitrust Division of the United States Department of Justice nor the United States Federal Trade Commission (the “FTC”) shall object to the consummation of the Business
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Combination. Hut 8 and USBTC filed the required notifications with the Antitrust Division and the FTC on February 8, 2023, and the waiting period expired on March 10, 2023. The expiration of the waiting period means the parties have satisfied the regulatory requirements under the HSR Act.
The Competition Act (Canada) (“Competition Act”) requires that certain classes of transactions be notified to the Canadian Commissioner of Competition (the “Commissioner”) (“Notifiable Transactions”). The Business Combination constitutes a Notifiable Transaction. Subject to certain limited exceptions, the parties to a Notifiable Transaction cannot complete the transaction until they have submitted the information prescribed pursuant to Subsection 114(1) of the Competition Act to the Commissioner and the applicable waiting period has expired or been terminated by the Commissioner. The waiting period is 30 calendar days after the day on which the parties to the transaction submit the prescribed information, provided that the Commissioner has not notified the parties that the Commissioner requires additional information that is relevant to the Commissioner’s assessment of the transaction (a “Supplementary Information Request”). If there is a Supplementary Information Request, the parties cannot complete their transaction until 30 calendar days after compliance with such Supplementary Information Request. A transaction may be completed before the end of the applicable waiting period if the Commissioner notifies the parties that the Commissioner does not, at such time, intend to challenge the transaction. Alternatively, or in addition to filing the prescribed information, a party to a Notifiable Transaction may apply to the Commissioner for an advance ruling certificate (an “ARC”) or a “no-action” letter, which may be issued by the Commissioner in respect of a proposed transaction if the Commissioner is satisfied that there are not sufficient grounds on which to apply to the Competition Tribunal for an order challenging the transaction. The parties applied to the Commissioner for an ARC or a “no-action” letter and a waiver under paragraph 113(c) of the Competition Act on February 13, 2023. On March 8, 2023, the Commissioner issued a “no-action” letter to Hut 8 in respect of the Business Combination. Receipt of the “no-action” letter constitutes Competition Act Approval under the Business Combination Agreement.
In connection with the Business Combination, the parties intend to deliver a notification and listing application to the TSX, and have submitted an application to Nasdaq, regarding the listing of New Hut common stock that will be registered pursuant to the Registration Statement and issued pursuant to the Arrangement.
Neither Hut 8 nor USBTC can provide assurance that any such regulatory approvals will not result in the delay or abandonment of the Business Combination. For additional information, please read the section titled “The Business Combination — Regulatory Approvals” beginning on page 105 of this prospectus.
Conditions to the Completion of the Business Combination
As more fully described in this prospectus and in the Business Combination Agreement, the obligations of Hut 8 and USBTC to complete the Business Combination are subject to the satisfaction of a number of conditions, including the following (among others):

the parties have obtained a final order (the “Final Order”) of the Supreme Court of British Columbia (the “Court”) approving the Arrangement under the BCBCA;

the parties have obtained the consents, authorizations, waivers, clearances, exemptions and approvals of any requisite governmental entity;

no law or order is in effect that makes the completion of the Business Combination illegal or otherwise prohibits or enjoins Hut 8 and USBTC, as applicable, from completing the Business Combination;

the required USBTC stockholder approvals and Hut 8 shareholder approvals have been received;

the Registration Statement has become effective;

the covenants, representations, and warranties of Hut 8 and USBTC in the Business Combination Agreement have not been breached, subject to certain limitations;

New Hut has complied with its obligations under the Business Combination Agreement;

approvals have been obtained to list shares of New Hut common stock on Nasdaq and the TSX;

holders of not more than 5% of the shares of USBTC common stock and holders of not more than 5% of the Hut Shares have exercised dissent rights, as applicable, subject to certain limitations;
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the New Hut incentive plan has been made effective;

the amended New Hut organizational documents have been filed and become effective;

the executive employment agreements for New Hut have been executed in a manner satisfactory to Hut 8 and USBTC, as applicable; and

the absence of a material adverse effect as defined in the Business Combination Agreement, subject to certain limitations.
For additional information, please read the section titled “The Business Combination Agreement — Conditions to Completion of the Business Combination” beginning on page 127 of this prospectus.
Hut 8 Shareholder Approval
Unless varied by the Interim Order, the Arrangement Resolution must be approved by the affirmative vote of at least two-thirds of the votes cast on the Arrangement Resolution by Hut 8 shareholders present in person or represented by proxy at the Hut 8 Meeting. The Arrangement Resolution must receive such shareholder approval in order for Hut 8 to seek the Final Order of the Court and implement the Arrangement.
For additional information, please read the section titled “The Business Combination — Hut 8 Shareholder Approval” beginning on page 105 of this prospectus.
USBTC Stockholder Approval
Pursuant to USBTC’s fourth amended and restated articles of incorporation (the “USBTC Articles”), the Merger must be approved by at least (i) a majority of the voting power of the outstanding USBTC capital stock, voting together as a single class on an as-converted basis, as applicable, and (ii) separately, the holders of a majority of the outstanding shares of the Series A Preferred (voting together as a single and separate class on an as-converted basis) including the affirmative vote of JHS.
Following the effectiveness of the Registration Statement, of which this prospectus forms a part, USBTC intends to solicit the USBTC Stockholder Approval by way of a written consent of the USBTC stockholders.
USBTC cannot provide assurance that the USBTC Stockholder Approval will be obtained or will not result in the delay or abandonment of the Business Combination.
For additional information, please see the section titled “The Business Combination — USBTC Stockholder Approval” beginning on page 105 of this prospectus.
The Support Agreements
Hut 8 Support Agreements
In connection with Hut’s entry into the Business Combination Agreement, each member of the Hut 8 Board and each senior officer of Hut (the “Hut 8 Supporting Shareholders”) who holds Hut Shares entered into voting and support agreements (the “Hut 8 Support Agreements”) with USBTC to, among other things, (i) vote in favor of the Arrangement Resolution, and (ii) not, without having first obtained the prior written consent of USBTC, directly or indirectly, sell, transfer, grant a security interest in or otherwise dispose of any right or interest in their Hut Shares, all in accordance with the terms of the Hut 8 Support Agreements as further described in this prospectus.
For additional information, please read the section titled “The Business Combination Agreement — The Support Agreements — Hut 8 Support Agreement” beginning on page 133 of this prospectus.
USBTC Stockholder Support Agreement
In connection with USBTC’s entry into the Business Combination Agreement, USBTC directors, executive officers and Jordan Levy and Mario Germano Giuliani (“Germano”), two existing USBTC stockholders (along with all other stockholders that they beneficially control, which includes JHS and MGG Strategic SICAF SIF) who collectively owned, as of May 31, 2023, approximately 41.4% of the outstanding voting securities of USBTC (the “USBTC Supporting Stockholders”) have entered into a stockholder support agreement (the “USBTC Stockholder Support Agreement”) with USBTC and Hut 8, pursuant to which each
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USBTC Supporting Stockholder agreed to, among other things, following the effectiveness of this Registration Statement of which this prospectus forms a part, vote at any meeting of the USBTC stockholders, and execute any action by written consent of the USBTC stockholders, all of such USBTC stockholder’s USBTC securities beneficially owned by such USBTC stockholder at such time in favor of the approval of the Business Combination Agreement as the plan of merger for the Merger and all other transactions contemplated by the Business Combination Agreement.
For additional information, please see the section titled “The Business Combination Agreement — The Support Agreements — USBTC Stockholder Support Agreement” beginning on page 134 of this prospectus.
Termination of the Business Combination Agreement
The Business Combination Agreement may be terminated in certain circumstances, including the following (among others):

by the mutual written agreement of Hut 8 and USBTC;

subject to certain limitations, by either Hut 8 or USBTC if the Business Combination is not consummated by September 30, 2023;

by either Hut 8 or USBTC following a failure to obtain shareholder consent or stockholder approval, as applicable;

subject to certain limitations, by either Hut 8 or USBTC upon breach of certain representations, warranties, covenants, agreements, or other obligations of the parties contained in the Business Combination Agreement;

subject to certain limitations, by either Hut 8 or USBTC upon the occurrence of a material adverse effect as defined in the Business Combination Agreement; and

by Hut 8 if the Hut 8 Board authorizes Hut 8 to enter into a written agreement with respect to a superior proposal as defined in the Business Combination Agreement, subject to certain limitations.
For additional information, please read the section titled “The Business Combination Agreement — Termination” beginning on page 129 of this prospectus.
Termination Fee
Except as otherwise provided in the Business Combination Agreement, New Hut is required to pay all costs and expenses incurred by Hut 8 and USBTC in connection with the Business Combination. If the Business Combination Agreement is terminated under certain circumstances and conditions, Hut 8 and USBTC, as applicable, may be required to pay the other party an expense reimbursement payment for reasonable documented expenses incurred in connection with the Business Combination in an amount not to exceed C$500,000 or C$2,000,000, respectively, depending on the circumstances of termination.
If the Business Combination Agreement is terminated under certain circumstances and conditions, Hut 8 may be required to pay USBTC a termination fee of US$10,000,000.
For additional information, please read the sections titled “The Business Combination Agreement — Termination Fee Payable by Hut 8” and “The Business Combination Agreement — Fees and Expenses” beginning on pages 130 and 131, respectively, of this prospectus.
Interests of Directors and Executive Officers
Certain of Hut 8’s directors and executive officers may have interests in the Business Combination that may be different from, or in addition to, the interests of Hut 8 shareholders generally. The Hut 8 Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and in overseeing the negotiation of, the Business Combination and in approving the Business Combination Agreement.
These interests include, among other things, rights to indemnification and directors’ and officers’ liability insurance that will survive the completion of the Business Combination.
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Certain of USBTC’s directors and executive officers may have interests in the Business Combination that may be different from, or in addition to, the interests of USBTC stockholders generally. The USBTC Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and in overseeing the negotiation of, the Business Combination and in approving the Business Combination Agreement.
These interests include, among other things, the potential acceleration of the vesting periods for certain USBTC Options held by certain USBTC officers and rights to indemnification and directors’ and officers’ liability insurance that will survive the completion of the Business Combination.
For additional information, please see the section titled “Interests of Hut 8’s Directors and Executive Officers in the Business Combination” and “Interests of USBTC’s Directors and Executive Officers in the Business Combination” beginning on pages 146 and 200, respectively, of this prospectus.
Listing of New Hut Common Stock
New Hut expects to obtain approval to list the shares of New Hut common stock to be issued pursuant to the Business Combination Agreement on Nasdaq and the TSX, which approvals are conditions to the Closing. Accordingly, the parties have submitted an application to Nasdaq and an application will be made to the TSX to have the shares of New Hut common stock to be issued pursuant to the Business Combination approved for listing on Nasdaq and the TSX, respectively, under the symbol “HUT.” For additional information, please read the section titled “The Business Combination — Regulatory Approvals” beginning on page 105 of this prospectus.
Comparison of Rights of USBTC stockholders
USBTC is organized under the laws of the State of Nevada, whereas New Hut is organized under the laws of the State of Delaware. Accordingly, differences in rights of holders of USBTC capital stock compared to New Hut common stock arise from differences between Nevada and Delaware law and their respective constituent documents. As a USBTC stockholder, your rights with respect thereto are governed by Nevada law, as well as USBTC’s organizational documents. Following the completion of the Business Combination, USBTC stockholders will own shares of New Hut common stock and the rights of the USBTC stockholders with respect to the New Hut common stock will be governed by the Delaware General Corporations Law and the New Hut organizational documents. For a description of the key differences and additional information, please see the section titled “Comparison of Rights of Stockholders” beginning on page 208 of this prospectus.
Accounting Treatment of the Business Combination
Anticipated Accounting Treatment
The Business Combination will be accounted for using the acquisition method in accordance with US GAAP. USBTC has preliminarily been identified as the “acquirer” and as a result will obtain control over Hut 8 upon consummation of the Business Combination. Pursuant to the Business Combination, New Hut, which is currently a wholly-owned subsidiary of USBTC incorporated for the purpose of effecting the Business Combination, will issue shares of New Hut common stock to the Hut 8 shareholders and USBTC stockholders to acquire 100% of the share capital of both Hut 8 and USBTC. The Business Combination will be carried out by exchanging equity interests and there is no other consideration being exchanged. The determination of the accounting acquirer where equity interests are exchanged is sometimes unclear, and in the case of the Business Combination requires consideration of factors such as the relative voting rights of the parties, existence of large minority interests, the composition of the governing body and senior management, terms of the exchange of the equity interests, relative sizes of the combining entities and other factors. The purchase consideration will be allocated to the fair value of the acquired assets and liabilities and will be based on management’s best estimate of the fair value based on currently available information. The actual amount allocated to certain identifiable assets could vary as the purchase price allocation is finalized. 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, the relative fair values of USBTC and Hut 8 at Closing and other considerations set out in ASC 805. A change in the determination of the accounting acquirer would significantly impact the pro forma financial information included in this prospectus as well as the actual accounting for the Business Combination at Closing. For additional information, please read the section titled “The Business Combination — Accounting Treatment of the Business Combination” beginning on page 108 of this prospectus.
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U.S. Federal Income Tax Consequences
New Hut, Hut 8 and USBTC each intend that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, be treated as an exchange by Hut 8 shareholders and USBTC stockholders, respectively, that qualifies under Section 351(a) of the Code. If the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, were to so qualify, then neither gain nor loss generally will be recognized by USBTC stockholders that are United States persons upon the exchange of USBTC common stock for New Hut common stock in the Merger. As discussed in more detail in the section entitled “U.S. Federal Income Tax Consequences” beginning on page 135, there is significant uncertainty as to whether the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code. The Arrangement and the Merger are not conditioned on the receipt of an opinion of counsel that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code, and there can be no assurance that such an opinion of counsel can or will be obtained. In addition, neither Hut 8 nor USBTC has requested, and neither intends to request, any ruling from the IRS as to the U.S. federal income tax consequences of the Arrangement and the Merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to the parties’ position that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, qualify under Section 351(a) of the Code. Accordingly, if there is a final determination that the Merger is a taxable exchange for United States federal income tax purposes, then a USBTC stockholder that is a United States person that exchanges USBTC common stock in the Merger would generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the fair market value (determined as of the Merger Effective Time) of the New Hut common stock received and (ii) the holder’s adjusted tax basis in the USBTC common stock exchanged therefor. For a more complete discussion of the United States federal income tax consequences of the Merger, see the section entitled “U.S. Federal Income Tax Consequences” beginning on page 135.
USBTC Stockholder Appraisal and Dissenters’ Rights
Under the NRS, any USBTC stockholder who does not vote in favor of or consent to the Merger will have the right to dissent from the Merger and, in lieu of receiving the merger consideration for such shares provided under the Business Combination Agreement, obtain payment of the fair value of the stockholder’s shares, but only if the stockholder (1) delivers to USBTC a statement of intent (as defined in NRS 92A.095) by the date specified in the advance notice statement (as defined in NRS 92A.006) provided in connection with the approval by the USBTC stockholders of the Merger by written consent, (2) demands payment, pursuant to NRS 92A.440, in accordance with a dissenter’s notice sent by USBTC and (3) otherwise complies with all other applicable requirements of under NRS 92A.300 through NRS 92A.500, inclusive, and the definitions relating thereto set forth in NRS Chapter 92A (the “Nevada Dissenter’s Rights Statutes”). If USBTC and a former stockholder that remains entitled to and properly asserts dissenter’s rights cannot agree on as to the fair value, USBTC must then commence a proceeding in Nevada state district court to determine the fair value, which may be more than, equal to, or less than the value of the Merger consideration for such shares provided under the Business Combination Agreement. There is no right of dissent with respect to any share of USBTC stock that was not issued and outstanding on the date of the announcement of the Business Combination to the USBTC stockholders. Failure to follow the procedures set forth in the Nevada Dissenter’s Rights Statutes will result in the forfeiture of dissenter’s rights. You are encouraged to read these provisions carefully and in their entirety. Moreover, due to the complexity of the procedures for exercising dissenter’s rights, stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. For additional information, please see the sections titled “The Business Combination — USBTC Stockholder Appraisal and Dissenter’s Rights” and “Appraisal and Dissenters’ Rights” beginning on pages 107 and 241, respectively, of this prospectus.
Risk Factors
In evaluating the Business Combination Agreement and the Business Combination, you should carefully read this prospectus and the documents incorporated herein by reference. In particular, you should consider the factors discussed in the section titled “Risk Factors” beginning on page 26 of this prospectus.
15

 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HUT 8
You should read the following summary historical financial data of Hut 8 together with Hut 8’s consolidated financial statements and the related notes incorporated by reference in this prospectus and Hut 8’s Management’s Discussion and Analysis for the year ended December 31, 2022, included as Exhibit 99.3 to Hut 8’s Annual Report on Form 40-F for the year ended December 31, 2022, and Hut 8’s Management’s Discussion and Analysis for the three months ended March 31, 2023, included as Exhibit 99.3 on Hut 8’s Form 6-K dated May 11, 2023. The summary consolidated statements of operations and comprehensive income (loss) information for the years ended December 31, 2022 and 2021 and the summary consolidated statements of financial position information as of December 31, 2022 have been derived from Hut 8’s audited consolidated financial statements and related notes incorporated by reference in this prospectus. The summary consolidated interim statements of operations and comprehensive income (loss) information for the three months ended March 31, 2023 and 2022 and the summary consolidated interim statements of financial position as of March 31, 2023 have been derived from Hut 8’s unaudited consolidated interim financial statements for the three months ended March 31, 2023 and 2022. Hut 8’s consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (the “IASB”) and are presented in Canadian dollars. Hut 8’s historical results are not necessarily indicative of the results it expects in the future, and its results for any interim period are not necessarily indicative of results that may be expected for any full year.
Three Months Ended
March 31,
Year Ended
December 31,
(in thousands of Canadian dollars, except share numbers)
2023
2022
2022
2021
Consolidated Statements of Operations and Comprehensive Income
Revenue
$ 19,021 $ 53,333 $ 150,682 $ 173,774
Cost of revenue
(25,228) (36,878) (175,649) (84,976)
Gross (loss) profit
(6,207) 16,455 (24,967) 88,798
General and administrative expenses
(24,346) (11,534) (49,821) (40,265)
Gain on disposition of digital assets
4,955 182
Impairment of mining infrastructure and servers
(113,876)
Operating (loss) income
(25,598) 4,921 (188,664) 48,715
Foreign exchange gain (loss)
(7) (711) (1,276) (3,143)
Net finance (expense) income
(1,432) (1,292) (6,670) 1,498
Amortization
(177) (229) (648)
Gain (loss) on revaluation of warrants liability
(127) 54,140 98,810 (114,161)
Net (loss) income before tax and revaluation on digital assets
(27,341) 56,829 (98,448) (67,091)
Gain (loss) on revaluation of digital asset
134,772 (134,772)
Deferred income tax (expense) recovery
1,072 (1,121) (9,593) (5,620)
Net (loss) income
$ 108,503 $ 55,708 $ (242,813) $ (72,711)
Other comprehensive (loss) income
Revaluation (loss) gain on digital assets, net of tax
7,705 (4,949) (103,540) 57,859
Totals comprehensive (loss) income
$ 116,208 $ 50,759 $ (346,353) $ (14,852)
Net income per common share
Basic
$ 0.49 $ 0.33 $ (1.29) $ (0.54)
Diluted
$ 0.47 $ 0.31 $ (1.29) $ (0.54)
16

 
(in thousands of Canadian dollars)
As at March 31, 2023
As at December 31, 2022
Consolidated Statements of Financial Position
Cash
$ 15,904 $ 30,515
Digital assets
352,436 203,627
Total assets
541,453 412,937
Total liabilities
70,811 61,547
Total shareholder’s equity
$ 470,642 $ 351,390
17

 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF USBTC
You should read the following summary historical financial data of USBTC together with USBTC’s consolidated financial statements and the related notes included elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USBTC” section of this prospectus. USBTC has derived the consolidated statement of operations data for the year ended June 30, 2022 and the period from December 4, 2020 (inception) through June 30, 2021 from USBTC’s audited consolidated financial statements for the year ended June 30, 2022 included elsewhere in this prospectus. The consolidated statement of operations data for the nine months ended March 31, 2023 and 2022 (restated) and the consolidated balance sheet data as of March 31, 2023 have been derived from USBTC’s unaudited condensed consolidated financial statements for the nine months ended March 31, 2023 included elsewhere in this prospectus. USBTC’s unaudited interim condensed consolidated financial statements were prepared on the same basis as its audited consolidated financial statements and, in USBTC’s opinion, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly in all material respects its financial position and results of operations for such periods in accordance with generally accepted accounting principles (“GAAP”). USBTC’s historical results are not necessarily indicative of the results that may be expected in the future, and its results for any interim period are not necessarily indicative of results that may be expected for any full year.
18

 
Consolidated Statement of Operations Data:
Nine Months Ended
March 31,
Year Ended
June 30,
December 4,
2020 through
June 30,
(in thousands of US dollars)
2023
2022
(restated)(2)
2022
2021
Consolidated Statement of Operations Data:
Revenue:
Revenue, net – cryptocurrency mining
$ 33,389 $ 47,147 $ 68,164 $ 4,272
Mining equipment sales
3,635
Management fees
4,453
Cost reimbursements
3,674
Hosting services
16,480 58 5,566
Total revenue
61,631 47,205 73,730 4,272
Costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown below)
Services
29,886 13,504 25,783 1,464
Mining Equipment
3,112
Depreciation and amortization
14,715 5,458 11,591 391
General and administrative
20,704 21,671 31,325 12,144
Impairment of cryptocurrency
2,835 12,019 30,301 1,254
Realized (gain) on sale of cryptocurrency
(3,573) (5,455)
Impairment of long-lived assets
63,574
Total costs and expenses
131,253 52,652 93,545 15,253
Operating loss
(69,622) (5,447) (19,815) (10,981)
Other expense:
Interest expense
(22,278) (3,401) (6,919) (200)
Equity in earnings (losses) of unconsolidated joint venture
2,774
Gain on debt extinguishment
23,683
Total other income (expense)
4,179 (3,401) (6,919) (200)
Loss before income tax benefit (provision)
(65,443) (8,848) (26,734) (11,181)
Income tax benefit (provision)
1,519 2,332 (5,069) 2,097
Net loss
$ (63,924) $ (6,516) $ (31,803) $ (9,084)
Basic and diluted net loss per share
$ (1.51) $ (0.19) $ (0.91) $ (0.32)
Basic and diluted weighted average number of shares outstanding
42,281,945 34,394,667 34,863,338 27,959,039
Additional Financial Data
Adjusted EBITDA(1)
$ 23,530 $ 13,735 $ 7,240 $ (94)
(1)
Adjusted EBITDA is a non-GAAP financial measure. For the definition of Adjusted EBITDA and a reconciliation to USBTC’s most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure.”
(2)
The unaudited interim consolidated financial statements ended March 31, 2022 were restated to correct for the following: (i) Stock-based Compensation and (ii) income tax adjustments. For further details, see Note 2 of USBTC’s unaudited interim consolidated financial statements for the nine months ended March 31, 2023 and 2022, included elsewhere in this prospectus.
19

 
(in thousands of US dollars)
As of March 31, 2023
Consolidated Balance Sheet Data:
Cash and cash equivalents
$ 8,670
Cryptocurrency, net
1,004
Total assets
194,025
Long term debt
155,906
Total liabilities
165,279
Additional paid-in capital
35,054
Accumulated deficit
(104,811)
Total stockholders’ equity
28,746
Total capitalization
184,652
Non-GAAP Financial Measure
Adjusted EBITDA
USBTC relies on Adjusted EBITDA to evaluate its business, measure its performance, and make strategic decisions. Adjusted EBITDA is a non-GAAP financial measure. USBTC defines Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, further adjusted by USBTC’s share of depreciation and amortization embedded in the equity in earnings (losses) from USBTC’s unconsolidated joint venture, removal of one-time transaction costs, the impairment of long-lived assets and stock-based compensation expense in the period presented.
The USBTC Board and management team use Adjusted EBITDA to assess its financial performance because it allows them to compare its operating performance on a consistent basis across periods by removing the effects of USBTC’s capital structure (such as varying levels of interest expense and income), asset base (such as depreciation and amortization) and other items (such as one-time costs mentioned above) that impact the comparability of financial results from period to period. USBTC presents Adjusted EBITDA because it believes it provides useful information regarding the factors and trends affecting USBTC’s business in addition to measures calculated under GAAP. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. USBTC believes that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing its financial performance and results of operations across reporting periods by excluding items it does not believe are indicative of its core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. USBTC’s non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons USBTC considers them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future USBTC may incur expenses that are the same as or similar to some of the adjustments in such presentation. USBTC’s presentation of Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of USBTC’s results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in USBTC’s industry, USBTC’s definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
The following table presents a reconciliation of Adjusted EBITDA to the GAAP financial measure of net income (loss) for the period from December 4, 2020 (inception) through June 30, 2021, the fiscal year ended June 30, 2022 and for the nine months ended March 31, 2023 and 2022.
20

 
Nine Months Ended
March 31,
Year Ended
June 30,
December 4,
2020 through
June 30,
(in thousands of US dollars)
2023
2022
(restated)(3)
2022
2021
Adjusted EBITDA:
Net loss
$ (63,924) $ (6,516) $ (31,803) $ (9,084)
Interest
22,278 3,401 6,919 200
Income tax (benefit) provision
(1,519) (2,332) 5,069 (2,097)
Depreciation and amortization
14,715 5,458 11,591 391
Share of unconsolidated joint venture depreciation and amortization
7,792
One-time costs(1)
6,288 6,288
Impairment of long-lived assets(2)
63,574
Gain on debt extinguishment
(23,683)
Stock-based compensation expense
4,297 7,435 9,176 10,496
Adjusted EBITDA
$ 23,530 $ 13,734 $ 7,240 $ (94)
(1)
One-time costs represent cash payments of approximately $5.3 million for certain employees and advisors related to their personal income taxes on the issuance of stock grants and a $1.0 million payment made to a government agency associated with the Rescission Offer (as defined below) For more information, see the section titled “Risk Factors — Risks Relating to USBTC’s Business — USBTC has completed a rescission offer of privately issued securities, with one offeree choosing to accept USBTC’s rescission offer to date (the “Rescission Offer”)” beginning on page 52 of this prospectus.
(2)
During the nine-month period ended March 31, 2023, adverse changes in business climate, including decreases in the price of Bitcoin and the resulting decrease in the market price of miners and mining equipment, indicated that an impairment triggering event had occurred. Testing performed indicated the estimated fair value of the USBTC’s miners, mining equipment and other mining operation assets to be less than their net carrying value as of December 31, 2022. An impairment charge of approximately $63.6 million was recognized, decreasing the net carrying value of USBTC’s assets to their estimated fair value.
(3)
The unaudited interim consolidated financial statements ended March 31, 2022 were restated to correct for the following: (i) Stock-based Compensation and (ii) income tax adjustments. For further details, see Note 2 of USBTC’s unaudited interim consolidated financial statements for the nine months ended March 31, 2023 and 2022 included elsewhere in this prospectus.
21

 
SELECTED HISTORICAL UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following selected unaudited pro forma condensed combined financial data was prepared using the acquisition method of accounting for business combinations under U.S. GAAP, with USBTC being the accounting acquirer. The following information should be read in conjunction with the respective audited consolidated financial statements of Hut 8 and USBTC for the year ended December 31, 2022 and June 30, 2022, respectively, including the respective notes thereto, the unaudited financial statements of Hut 8 for the six months ended June 30, 2021 and June 30, 2022, the unaudited financial statements of Hut 8 for the three months ended March 31, 2023, the historical unaudited financial statements of USBTC for the nine months ended March 31, 2023, the historical audited consolidated financial statements of the King Mountain JV for the period from November 24, 2021 (inception) through December 31, 2021 and the historical audited financial statements of the King Mountain JV for the year ended December 31, 2022, which are either incorporated by reference into this prospectus or included elsewhere in this prospectus.
The selected unaudited pro forma combined statement of comprehensive income for the nine months ended March 31, 2023 and for the year ended June 30, 2022 has been prepared to give effect to the Business Combination as if it occurred on July 1, 2021. The selected unaudited pro forma combined statement of financial position as at March 31, 2023 has been prepared to give effect to the Business Combination as if it had occurred on March 31, 2023.
The selected pro forma condensed combined financial data, which is preliminary in nature, has been derived from, and should be read in conjunction with, the more detailed unaudited pro forma combined financial information of the combined company and the accompanying notes appearing in the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements.” The unaudited pro forma condensed combined financial statements have been presented in accordance with SEC Regulation S-X Article 11 for illustrative purposes only and are not necessarily indicative of what New Hut’s financial position or results of operations actually would have been had the Business Combination been completed as of the dates indicated. In addition, the selected unaudited pro forma condensed combined financial data does not purport to project the future financial position or operating results of the combined company.
(thousands of US dollars)
For the Nine Months
Ended March 31, 2023
For the Year Ended
June 30, 2022
Unaudited Pro Forma Combined Statement of Operations
Revenue
$ 116,535 $ 238,119
Operating income (loss)
(252,434) (89,268)
Earnings/(loss) before income tax benefit
(250,755) (112,684)
Net earnings/(loss)
(245,157) (130,724)
Earnings/(loss) per common share — basic & diluted
(3.51) (2.31)
(thousands of US dollars)
As at
March 31, 2023
Unaudited Pro Forma Combined Balance Sheet
Total assets
$ 660,654
Total liabilities
210,141
Net assets
450,513
22

 
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
Hut 8 Common Shares
Hut 8 common shares have been listed on Nasdaq under the symbol “HUT” since June 15, 2021 and on the TSX under the symbol “HUT” since October 8, 2019. Prior to that date, Hut 8 common shares were listed on the TSX Venture Exchange under the symbol “HUT” from March 6, 2018. Prior to March 6, 2018, there was no public trading market for Hut 8 common shares. As part of the Business Combination, Hut 8 common shares will be delisted from Nasdaq and the TSX.
New Hut expects to obtain approval to list the shares of New Hut common stock on Nasdaq and the TSX under the symbol “HUT,” approvals of which are conditions to closing the Business Combination.
The closing price of Hut 8 common shares on Nasdaq and the TSX on February 6, 2023, the last trading day before the public announcement of the Business Combination Agreement, was $2.38 and C$3.19 per share, respectively. The closing prices of Hut 8 common shares on Nasdaq and the TSX on June 9, 2023, the last practicable trading day prior to the distribution of this prospectus, was $1.91 and C$2.55 per share, respectively.
The market price of Hut 8 common shares is subject to fluctuation. You should anticipate that the market value of the shares of New Hut common stock that you will be entitled to receive under the Business Combination may increase or decrease. You are urged to obtain current market quotations for Hut 8 common shares and to review carefully the other information contained in this prospectus or documents filed with the SEC. For additional information, please see the section titled “Where You Can Find More Information” beginning on page 242 of this prospectus.
Hut 8 has never declared or paid dividends on its capital stock. New Hut currently intends to retain all available funds and future earnings and does not anticipate declaring or paying any cash dividends in the foreseeable future. New Hut may enter into credit agreements or other borrowing arrangements in the future that will restrict its ability to declare or pay cash dividends or make distributions on its capital stock. Any future determination regarding the declaration and payment of dividends on New Hut common stock will be at the discretion of the board of directors of New Hut (the “New Hut Board”) and will depend on then-existing conditions, including New Hut’s results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the New Hut Board deems relevant.
USBTC Capital Stock
None of USBTC’s shares are listed or traded publicly. USBTC is a privately held company, and there is no established public trading market for its securities.
USBTC had 45,696,749 issued and outstanding shares of USBTC common stock and 18,617,250 issued and outstanding shares of USBTC Preferred Stock as of May 31, 2023. The total number of shares of USBTC Preferred Stock consists of 7,824,000 shares of Series A Preferred Stock, 10,000,000 shares of Series B Preferred Stock, and 793,250 shares of Series B-1 Preferred Stock. No shares of Series C Preferred Stock have been issued.
Comparative Per Share Market Price
The following table sets forth the closing sale prices per share of Hut 8 common shares on February 6, 2023 on Nasdaq and the TSX, the last full trading day immediately preceding the public announcement of the Business Combination Agreement, and on June 9, 2023, the latest practicable date prior to the date of this prospectus. USBTC is a privately held company, and there is no established public trading market for its securities.
Hut 8 Common Shares
USBTC Capital Stock
Nasdaq
TSX
February 6, 2023
$ 2.38
C$3.19
N/A
June 9, 2023
$ 1.91
C$2.55
N/A
23

 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this prospectus contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions, that, if proven incorrect or do not materialize, could cause the results of Hut 8, USBTC or New Hut following the Business Combination to differ materially from those expressed or implied by these forward-looking statements. Forward-looking statements generally are identified by the words “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and similar expressions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include projections of earnings, revenues, synergies, accretion or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings, approvals and the closing related to the Business Combination; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.
Forward-looking statements in this prospectus may include, for example, statements about:

expectations related to the terms and timing of the completion of the Business Combination;

the occurrence of any event giving rise to the right of a party to terminate the Business Combination Agreement;

expectations related to the projected capitalization of New Hut following the completion of the Business Combination;

projections relating to the future financial performance of Hut 8, USBTC and New Hut;

the expected directors and officers of New Hut after the completion of the Business Combination;

the expected benefits of the Business Combination;

the expected financial and business performance following the completion of the Business Combination;

New Hut’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, and plans;

the ability to expand the business of New Hut and provide new offerings, services and features and make enhancements to its business;

potential adverse reactions or changes to business relationships resulting from the announcement or completion of the transactions;

developments and projections relating to New Hut’s competitors and industries;

the ability to compete with existing and new competitors in existing and new markets and offerings;

the ability to acquire new businesses or pursue strategic transactions;

the ability to protect patents, trademarks, and other intellectual property rights;

the effect of the substantial additional indebtedness New Hut will incur in connection with the Business Combination;

the expectations regarding the effects of existing and developing laws and regulations; and

global and domestic economic conditions and their impact on demand for New Hut’s markets and offerings.
The following factors or events, among others, could cause actual results to differ materially from those described in the forward-looking statements:

Hut 8’s and USBTC’s ability to establish and maintain strategic collaborations, licensing or other arrangements, and the terms of and timing such arrangements;
24

 

the timing to consummate the Business Combination;

the failure to satisfy the conditions to the Closing;

the inherent uncertainty associated with financial or other projections;

the inherent risks, costs and uncertainties associated with integrating the businesses successfully and risks of not achieving all or any of the anticipated benefits and synergies of the Business Combination, or the risk that the anticipated benefits and synergies of the Business Combination may not be fully realized or take longer to realize than expected;

unexpected costs, liabilities or delays in connection with or with respect to the Business Combination;

the diversion of Hut 8 and USBTC management time on issues related to the Business Combination;

the occurrence of any event, change or other circumstance that could give rise to the termination of the Business Combination Agreement;

the failure to consummate or delay in consummating the Business Combination;

the effect of the announcement or pendency of the Business Combination on Hut 8’s or USBTC’s customers, employees and business relationships, operating results, ability to retain and hire key personnel and businesses generally;

changes in the financial or operating performance of Hut 8 or USBTC or more generally due to broader stock market movements and the performance of peer group companies;

competitive pressures in the markets in which Hut 8 and USBTC operate;

the risk that the anticipated tax treatment of the Business Combination is not obtained;

potential legal proceedings relating to the Business Combination and the outcome of any such legal proceeding;

changes in laws or regulations; and

changes in general economic conditions.
For additional information concerning factors that could cause actual conditions, events or results to materially differ from those described in the forward-looking statements, please refer to the section titled “Risk Factors” beginning on page 26 of this prospectus. Additionally, see the section titled “Where You Can Find More Information” beginning on page 242 of this prospectus.
The risks and uncertainties described and referred to above are not exclusive and further information concerning Hut 8, USBTC and New Hut and their respective businesses, including factors that potentially could materially affect their respective businesses, financial condition or operating results, may emerge from time to time. You are urged to consider these factors carefully in evaluating these forward-looking statements, and not to place undue reliance on any forward-looking statements. The forward-looking statements in this prospectus speak only as of the date of this prospectus. Except as required by law, none of New Hut, Hut 8 or USBTC assumes any obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
25

 
RISK FACTORS
Investing in New Hut and New Hut common stock involves a high degree of risk. In addition to the other information included in this prospectus, including the matters addressed in the section entitled “Cautionary Note Concerning Forward-Looking Statements” beginning on page 24, you should carefully consider the risks described below before deciding whether to invest in New Hut and New Hut common stock, including the risk factors associated with each of the businesses of Hut 8 and USBTC, because these risk factors may affect the operations and financial results of New Hut. In addition, you should read and consider Hut 8’s risk factors that may be found in its Annual Information Form for the year ended December 31, 2022, included as Exhibit 99.1 to Hut 8’s Annual Report on Form 40-F for the year ended December 31, 2022; in its Management’s Discussion and Analysis for the year ended December 31, 2022, included as Exhibit 99.3 to Hut 8’s Annual Report on Form 40-F for the year ended December 31, 2022; and in its Management’s Discussion and Analysis for the three months ended March 31, 2023, included as Exhibit 99.3 to its Form 6-K dated May 11, 2023. Furthermore, you should read and consider the other information in this prospectus and the other documents incorporated by reference herein. See the section entitled “Where You Can Find More Information” beginning on page 242 for the location of information incorporated by reference into this prospectus. Additional risks and uncertainties not presently known to Hut 8 or USBTC or that are not currently believed to be important also may adversely affect the Business Combination and New Hut following the Business Combination.
Risks Related to the Business Combination
Hut 8 shareholders and USBTC stockholders cannot be sure of the value of the Business Combination consideration they will receive.
Hut 8 shareholders and USBTC stockholders will receive a fixed number of shares of New Hut common stock in the Business Combination, rather than a number of shares of New Hut common stock with a particular fixed market value. The values of Hut 8 common shares and USBTC common stock at the effective time may vary significantly from their prices on the date prior to the date the Business Combination Agreement was executed, the date of this prospectus or the date on which Hut 8 shareholders and USBTC stockholders approve the Business Combination. Because the respective Hut 8 and USBTC exchange ratios are fixed and will not be adjusted to reflect any changes in the prices of Hut 8 common shares or USBTC common stock, the market value of the New Hut common stock issued as part of the Business Combination, and the Hut 8 common shares and USBTC common stock surrendered as part of the Business Combination, may be higher or lower than the values of these shares on earlier dates. All of the consideration to be received by Hut 8 shareholders and USBTC stockholders will be New Hut common stock. At the time of approval, Hut 8 shareholders and USBTC stockholders will not know or be able to determine the value of the New Hut common stock they may receive upon completion of the Business Combination. Changes in the prices of Hut 8 common shares and USBTC common stock may result from a variety of factors that are beyond the control of Hut 8 or USBTC, including changes in their respective businesses, operations and prospects, regulatory considerations, governmental actions, and legal proceedings and other developments.
Neither Hut 8 nor USBTC is permitted to terminate the Business Combination Agreement solely because of changes in the prices of either party’s common stock. There is no assurance that the Business Combination will be completed, that there will not be a delay in the completion of the Business Combination, or that all or any of the anticipated benefits of the Business Combination will be obtained.
The Business Combination Agreement may be terminated in accordance with its terms and the Business Combination may not be consummated.
The completion of the Business Combination is subject to the satisfaction or waiver of a number of conditions. Those conditions include, but are not limited to: (i) obtaining the Interim Order and Final Order of the Court on terms consistent with the Business Combination Agreement; (ii) the receipt of requisite approvals by the requisite shareholders of Hut 8 and USBTC; (iii) the absence of certain governmental restraints or prohibitions preventing completion of the Business Combination; (iv) no order, legal prohibition, or injunction preventing or restricting the consummation of the Business Combination; (v) the effectiveness of the registration statement of which this prospectus forms a part and the absence of any threatened or initiated stop order or proceedings by the SEC; (vi) the approval of New Hut’s listing applications with Nasdaq and the TSX on terms satisfactory to each of the parties; (vii) the execution and delivery of executive employment agreements
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for the leadership team of New Hut; (viii) the effectiveness of a “rolling” or “evergreen” omnibus equity incentive plan (or similar plan) with a number of shares reserved thereunder representing approximately 10% of the fully-diluted capitalization of New Hut, adopted by the board of directors of New Hut immediately after closing; (ix) dissent rights having not been exercised with respect to more than 5.0% of the issued and outstanding shares of Hut 8 and not more than 5.0% of the outstanding USBTC shares remaining eligible to exercise dissenter’s rights under the Nevada Dissenter’s Rights Statutes; (x) the truth and correctness of the representations and warranties made by both parties (generally subject to certain “materiality” and “material adverse effect” qualifiers); (xi) the performance of or compliance with, by Hut 8 and USBTC, their respective obligations, covenants and agreements under the Business Combination Agreement in all material respects; and (xii) the absence since the date of the Business Combination Agreement of any (a) state of facts, circumstance, condition, event, change, development, occurrence, result, effect, action or omission that has had or would reasonably be expected to have, individually in the aggregate, a material adverse effect with respect to the other party or (b) material adverse effect with respect to the other party.
No assurance can be given that the required Hut 8 shareholder and USBTC stockholder consents and approvals, as applicable, will be obtained or that the required conditions to closing will be satisfied. Any delay in completing the Business Combination could cause New Hut not to realize, or to be delayed in realizing, some or all of the benefits that Hut 8 and USBTC expect to achieve if the Business Combination is successfully completed within their expected time frame.
In addition, if the Business Combination is not completed by September 30, 2023, subject to certain limitations, either Hut 8 or USBTC may choose not to proceed with the Business Combination, and the parties can mutually decide to terminate the Business Combination Agreement at any time prior to the consummation of the Business Combination. In addition, Hut 8 or USBTC may elect to terminate the Business Combination Agreement in certain other circumstances. If the Business Combination Agreement is terminated, Hut 8 and USBTC may incur substantial fees in connection with termination of the Business Combination Agreement, including a potential termination fee in certain circumstances, and will not recognize the anticipated benefits of the Business Combination. See “The Business Combination Agreement — Termination” beginning on page 129 of this prospectus.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.
Before the transactions contemplated by the Business Combination Agreement can be completed, various approvals must be obtained from regulatory agencies in the United States and Canada. In deciding whether to grant these approvals, the relevant governmental entities will consider a variety of factors, including the regulatory standing of each of the parties. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain one or more of the required regulatory approvals or delay receipt of required approvals.
The terms of the approvals that are granted may impose conditions, limitations, obligations or costs, or place restrictions on the conduct of Hut 8’s or USBTC’s business or require changes to the terms of the transactions contemplated by the Business Combination Agreement and the corporate governance updates. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the Business Combination Agreement and the corporate governance updates, imposing additional material costs on or otherwise reducing the anticipated benefits of the Business Combination if the Business Combination is consummated successfully within the expected timeframe. Nor can there be any assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Business Combination. Additionally, the completion of the Business Combination is conditioned on the absence of certain orders or injunctions issued by any court of competent jurisdiction or other legal restraints that would prohibit or make illegal the consummation of any of the transactions contemplated by the Business Combination Agreement.
Termination of the Business Combination Agreement could negatively impact Hut 8 and/or USBTC.
If the Business Combination Agreement is terminated in accordance with its terms and the Business Combination is not consummated, the ongoing businesses of Hut 8 and USBTC may be adversely affected by
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a variety of factors. Hut 8’s and USBTC’s respective businesses may be adversely impacted by the failure to pursue other beneficial opportunities during the pendency of the Business Combination, by the failure to obtain the anticipated benefits of completing the Business Combination, by payment of certain costs relating to the Business Combination, and by the focus of their respective managements on the Business Combination for an extended period of time rather than on management opportunities or other issues. The market price of Hut 8 common shares might decline as a result of any such failures to the extent that the current market prices reflect a market assumption that the Business Combination will be completed.
In addition, if the Business Combination Agreement is terminated under certain circumstances, Hut 8 may be required to pay a termination fee of US$10,000,000 to USBTC. See “The Business Combination Agreement — Termination Fee Payable by Hut 8.” Hut 8 or USBTC may also be negatively impacted if the Business Combination Agreement is terminated and their respective boards seek but are unable to find another business combination or strategic transaction offering equivalent or more attractive consideration than the consideration to be provided in the Business Combination, or if the respective companies become subject to litigation related to entering into or failing to consummate the Business Combination, including direct actions by Hut 8 shareholders or USBTC stockholders, as applicable, against the directors and/or officers of Hut 8 or USBTC for breaches of fiduciary duty, or derivative actions brought by Hut 8 or USBTC stockholders in the name of the respective companies.
Hut 8’s and USBTC’s directors and executive officers have interests in the Business Combination that may be different from, or in addition to, the interests of Hut 8 and USBTC stockholders generally.
When considering the recommendations of the boards of directors of Hut 8 or USBTC, as applicable, with respect to the proposals described in this prospectus, Hut 8 shareholders and USBTC stockholders should be aware that the directors and executive officers of each of Hut 8 and USBTC may have interests in the Business Combination and have arrangements that are different from, or in addition to, those of Hut 8 shareholders and USBTC stockholders generally. These interests and arrangements include the continued employment of certain executive officers of Hut 8 and USBTC by New Hut or its subsidiaries, the continued service of certain independent directors of Hut 8 and USBTC as directors of New Hut or its subsidiaries, the treatment in the Business Combination of outstanding equity, other equity-based and incentive awards, other compensation and benefit arrangements, including potential severance payments for certain officers upon termination, and the right to continued indemnification and insurance coverage for former Hut 8 and USBTC directors and officers by New Hut.
Hut 8 shareholders and USBTC stockholders should be aware of these interests when they consider voting or consenting, as applicable, to approve and adopt the Business Combination Agreement.
The Hut 8 Board and USBTC Board were aware of these interests and considered these interests, among other matters, when each approved and declared advisable the Business Combination Agreement and the transactions contemplated by the Business Combination Agreement on the terms and subject to the conditions set forth in the Business Combination Agreement and will recommend that Hut 8 shareholders and USBTC stockholders, respectively, approve the Business Combination Agreement. The interests of Hut 8 and USBTC directors and executive officers are described in more detail in the sections of this prospectus titled “Interests of Hut 8’s Directors and Executive Officers in the Business Combination” and “Interests of USBTC’s Directors and Executive Officers in the Business Combination” beginning on pages 146 and 200, respectively, of this prospectus.
Hut 8 and USBTC will incur significant costs in connection with the Business Combination.
Hut 8 and USBTC have incurred and expect to incur a number of non-recurring costs associated with the Business Combination. These costs and expenses include fees paid to financial, legal and accounting advisors, potential employment-related costs, filing fees, printing expenses and other related charges. Some of these costs are payable by Hut 8 and USBTC regardless of whether the Business Combination is completed. There are also a large number of processes, policies, procedures, operations, technologies and systems that may or must be integrated in connection with the Business Combination and the integration of the two companies’ businesses. While both Hut 8 and USBTC have assumed that a certain level of expenses would be incurred in
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connection with transactions contemplated by the Business Combination Agreement, there are many factors beyond their control that could affect the total amount or the timing of the integration and implementation expenses.
There may also be additional unanticipated significant costs in connection with the Business Combination that New Hut may not recoup. These costs and expenses could reduce the realization of efficiencies, strategic benefits and additional income Hut 8 and USBTC expect to achieve from the Business Combination. Although Hut 8 and USBTC expect that these benefits will offset the transaction expenses and implementation costs over time, this net benefit may not be achieved in the near term or at all.
The failure to integrate Hut 8’s business and USBTC’s business successfully in the expected time frame could adversely affect New Hut’s future results.
The success of the Business Combination will depend, in large part, on the parties’ ability to realize the anticipated benefits from combining Hut 8’s business with USBTC’s business. A successful integration will require focusing a substantial amount of resources and management attention to the integration process, which may divert resources and focus from the development and operation of Hut 8’s and USBTC’s regular business operations. New Hut’s business or results of operations could also be adversely affected by any issues attributable to either company’s operations that arise or are based on events or actions that occur before the Closing. The integration process is subject to a number of risks and uncertainties, and no assurance can be given as to the realization of anticipated benefits in full or in part or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs and could adversely affect New Hut’s future business, financial conditions, operating results and prospects.
Potential difficulties that may be encountered in the integration process include the following:

challenges and difficulties associated with managing the larger, more complex, combined company;

conforming standards, controls, procedures and policies, and compensation structures between the companies;

retaining and integrating talent from the two companies, including key employees, while maintaining focus on expanding and maintaining the business;

consolidating corporate and administrative infrastructures;

coordinating geographically dispersed organizations;

addressing possible differences in business backgrounds, corporate cultures and management philosophies;

potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Business Combination;

effecting potential actions that may be required in connection with obtaining regulatory approvals;

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Business Combination and integrating the companies’ operations; and

difficulties in delivering on New Hut’s strategy, including the ability of the Business Combination to accelerate growth in the combined business.
Hut 8’s and USBTC’s business relationships may be subject to disruption due to uncertainty associated with the Business Combination, which could have an adverse effect on Hut 8’s and USBTC’s results of operations, cash flows and financial position.
Parties with which Hut 8 and USBTC do business may experience uncertainty associated with the Business Combination, including with respect to current or future business relationships with Hut 8, USBTC or the combined company following the completion of the Business Combination. Hut 8’s and USBTC’s relationships may be subject to disruption as persons with whom Hut 8 and/or USBTC have a business relationship may have concerns about a larger, more international organization, or otherwise, and may delay
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or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with Hut 8 or USBTC, as applicable, or consider entering into business relationships with parties other than Hut 8 or USBTC. These disruptions could have a material adverse effect on the results of operations, cash flows and financial position of Hut 8, USBTC or New Hut following the completion of the Business Combination, including an adverse effect on the parties’ ability to realize the expected benefits of the Business Combination. The risk, and adverse effect, of any disruption could be exacerbated by a delay in the completion of or failure to complete the Business Combination.
Hut 8 and USBTC will be subject to certain contractual restrictions while the Business Combination is pending.
The Business Combination Agreement restricts each of Hut 8 and USBTC from making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and expenditures, paying dividends, repurchasing or issuing securities outside of existing share repurchase and equity award programs, and taking other specified actions until the earlier of the completion of the Business Combination or the termination of the Business Combination Agreement without the consent of the other party. These restrictions may prevent Hut 8 and USBTC from pursuing attractive business opportunities that may arise prior to the completion of the Business Combination and could have the effect of delaying or preventing other strategic transactions. Adverse effects arising from the pendency of the Business Combination could be exacerbated by any delays in consummation of the Business Combination or the termination of the Business Combination Agreement. See “The Business Combination Agreement — Covenants Regarding the Conduct of the Business” beginning on page 119.
Uncertainties associated with the Business Combination may cause a loss of management personnel and other key employees, and Hut 8, USBTC and New Hut may have difficulty attracting and motivating management personnel and other key employees, which could adversely affect the future businesses and operations of Hut 8, USBTC and New Hut.
The success of the Business Combination will depend in part on the retention of personnel critical to the business and operations of New Hut due to, for example, their technical skills or management expertise. Competition for qualified personnel can be intense.
Current and prospective employees of Hut 8 and USBTC may experience uncertainty about their future role with Hut 8 and USBTC until strategies with regard to these employees are announced or executed, which may impair Hut 8’s and USBTC’s ability to attract, retain and motivate key personnel prior to and following the Business Combination. Employee retention may be particularly challenging during the pendency of the Business Combination, as employees of Hut 8 and USBTC may experience uncertainty about their future roles with New Hut. If Hut 8 and USBTC are unable to retain personnel, Hut 8 and USBTC could face disruptions in their operations, loss of existing business partners, loss of key information, expertise or know-how, and unanticipated additional recruitment and training costs. In addition, the loss of key personnel could diminish the anticipated benefits of the Business Combination.
If key employees of Hut 8 or USBTC depart, New Hut may have to incur significant costs in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent relating to the business of each of Hut 8 or USBTC, and New Hut’s ability to realize the anticipated benefits of the Business Combination may be adversely affected. In addition, there could be disruptions to or distractions for the workforce and management associated with integrating employees into New Hut. Accordingly, no assurance can be given that New Hut will be able to attract or retain key employees of Hut 8 or USBTC to the same extent that those companies have been able to attract or retain their own employees in the past.
The Business Combination and the integration of USBTC may subject New Hut to certain liabilities associated with USBTC or liabilities that may arise in connection with the completion of the Business Combination, as there has been no public market for USBTC capital stock and the lack of a public market makes it difficult to determine the fair market value of USBTC.
The Business Combination and the integration of USBTC with Hut 8 into New Hut may pose special risks, including write-offs or restructuring charges, unanticipated costs, and the loss of key employees. There can be no assurance that the integration will be accomplished effectively or in a timely manner. In addition, the
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Business Combination and the integration of USBTC will subject New Hut to liabilities that may exist at USBTC or may arise in connection with the completion of the Business Combination, some of which may be unknown. Although Hut 8 and Hut 8 advisers have conducted due diligence on the operations of USBTC, there can be no guarantee that Hut 8 is aware of all liabilities of USBTC. These liabilities, and any additional risks and uncertainties related to the Business Combination not currently known to Hut 8 or that Hut 8 may currently deem immaterial or unlikely to occur, could negatively impact Hut 8’s, USBTC’s or New Hut’s business, financial condition and results of operations, including profitability. Further, USBTC’s business is different in certain ways from Hut 8’s, and USBTC’s results of operations may as a result be affected by factors that differ from those currently affecting Hut 8’s results of operations.
Additionally, the outstanding shares of USBTC capital stock are privately held and are not traded on any public market. The lack of a public market may make it more difficult to determine the fair market value of USBTC than if the outstanding shares of USBTC capital stock were traded publicly. The value ascribed to USBTC capital stock in other contexts, including in private valuations or financings, may not be indicative of the price at which the outstanding shares of USBTC capital stock may have traded if they were traded on a public market. The consideration to be paid to USBTC stockholders in the Business Combination was determined based on negotiations between the parties and likewise may not be indicative of the price at which the outstanding shares of USBTC capital stock may have traded if they were traded on a public market.
The Merger may be treated as a taxable exchange for U.S. federal income tax purposes.
New Hut, Hut 8 and USBTC each intend that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, be treated as an exchange by Hut 8 shareholders and USBTC stockholders, respectively, that qualifies under Section 351(a) of the Code. If the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, were to so qualify, then neither gain nor loss generally will be recognized by USBTC stockholders that are United States persons upon the exchange of USBTC common stock for New Hut common stock in the Merger. As discussed in more detail in the section entitled “U.S. Federal Income Tax Consequences” beginning on page 135, there is significant uncertainty as to whether the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code. The Arrangement and the Merger are not conditioned on the receipt of an opinion of counsel that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code, and there can be no assurance that such an opinion of counsel can or will be obtained. In addition, neither Hut 8 nor USBTC has requested, and neither intends to request, any ruling from the IRS as to the U.S. federal income tax consequences of the Arrangement and the Merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to the parties’ position that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, qualify under Section 351(a) of the Code. Accordingly, if there is a final determination that the Merger is a taxable exchange for United States federal income tax purposes, then a USBTC stockholder that is a United States person that exchanges USBTC common stock in the Merger would generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the fair market value (determined as of the Merger Effective Time) of the New Hut common stock received and (ii) the holder’s adjusted tax basis in the USBTC common stock exchanged therefor. For a more complete discussion of the United States federal income tax consequences of the Merger, see the section entitled “U.S. Federal Income Tax Consequences” beginning on page 135.
Litigation may be instituted against New Hut, members of New Hut’s Board of Directors, Hut 8, members of the Hut 8 Board of Directors, USBTC, members of the USBTC Board of Directors and Merger Sub challenging the Business Combination and adverse judgments in these lawsuits may prevent the Business Combination from becoming effective within the expended timeframe or at all.
Lawsuits in connection with the Business Combination may be filed against Hut 8, USBTC, New Hut, Merger Sub, and/or their respective directors and officers, which could prevent or delay the consummation of the Business Combination and result in additional costs to Hut 8 and USBTC. The ultimate resolution of any lawsuits cannot be predicted with certainty, and an adverse ruling in any such lawsuit may cause the Business Combination to be delayed or not to be completed, which could cause Hut 8 and USBTC not to realize some or all of the anticipated benefits of the Business Combination. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Business Combination is consummated may adversely affect
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New Hut’s business, financial condition, results of operations and cash flows. Hut 8 and USBTC cannot currently predict the outcome of or reasonably estimate the possible loss or range of loss from any such lawsuits or claims.
The Business Combination may be completed even though material adverse changes may result from the announcement of the Business Combination, industry-wide changes or other causes.
In general, either party can refuse to complete the Business Combination if there is a material adverse effect affecting the other party prior to the Closing. However, some types of changes that would result in a material adverse effect of either party are excluded from the definition of a Material Adverse Effect according to the Business Combination Agreement, and do not permit either party to refuse to complete the Business Combination. If such adverse changes occur but Hut 8 and USBTC still complete the Business Combination, the market price of New Hut common stock may suffer. For a more complete discussion of what constitutes a Material Adverse Effect in respect of USBTC or Hut 8 under the Business Combination Agreement, see the section titled “The Business Combination Agreement — Representations and Warranties” beginning on page 116 of this prospectus.
Hut 8 or USBTC may waive one or more of the closing conditions without re-soliciting shareholder approval.
Hut 8 or USBTC may determine to waive, in whole or in part, one or more of the conditions to its obligations to consummate the Business Combination. Hut 8 or USBTC currently expect to evaluate the materiality of any waiver and its effect on Hut 8 shareholders or USBTC stockholders, as applicable, in light of the facts and circumstances at the time to determine whether any amendment of this prospectus, in the case of Hut 8, or any re-solicitation of proxies or voting cards is required in light of such waiver. Any determination whether to waive any condition to the Business Combination or as to re-soliciting shareholder approval or amending this prospectus as a result of a waiver will be made by Hut 8 or USBTC, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.
Hut 8 and USBTC will be subject to business uncertainties while the Business Combination is pending.
Uncertainty about the completion or effect of the Business Combination may affect the relationship between Hut 8 and USBTC and their respective suppliers, customers, distributors, licensors and licensees and may have an adverse effect on Hut 8 and USBTC, and consequently on New Hut. This uncertainty may cause strategic partners or others that deal with Hut 8 and USBTC to delay or defer entering into contracts with Hut 8 and USBTC or making other decisions concerning Hut 8 and USBTC or seek to change or cancel existing business relationships with Hut 8 or USBTC, which could negatively affect their respective businesses. Any delay or deferral of those decisions or changes in existing agreements could have a material adverse effect on the respective businesses of Hut 8 and USBTC, regardless of whether the Business Combination is ultimately completed.
Third parties may terminate or alter existing contracts or relationships or with Hut 8 or USBTC.
Each of Hut 8 and USBTC has contracts with customers, vendors, distributors, landlords, licensors, lenders, and other business partners which may require Hut 8 or USBTC, as applicable, to obtain consent from these other parties in connection with the Business Combination. If these consents cannot be obtained, the counterparties to these contracts and other third parties with which Hut 8 and/or USBTC currently have relationships may have the ability to terminate, reduce the scope of or otherwise materially adversely alter their relationships with either or both parties in anticipation of the Business Combination, or with the combined company following the Business Combination. The pursuit of such rights may result in Hut 8, USBTC or New Hut suffering a loss of potential future revenue or incurring liabilities in connection with a breach of such agreements and may lose rights that are material to its business. Any such disruptions could limit New Hut’s ability to achieve the anticipated benefits of the Business Combination. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Business Combination or the termination of the Business Combination Agreement.
Both Hut 8 shareholders and USBTC stockholders will have a reduced ownership and voting interest after the Business Combination and will exercise less influence over management.
After the completion of the Business Combination, Hut 8 shareholders and USBTC stockholders will own a smaller percentage of New Hut than they currently own of Hut 8 and USBTC, respectively. It is expected that
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on a fully-diluted in-the-money basis Hut 8 shareholders will hold approximately 50%, and USBTC stockholders will hold approximately 50%, of the shares of New Hut common stock outstanding immediately after consummation of the Business Combination. Consequently, Hut 8 shareholders, as a group, and USBTC stockholders, as a group, will each have reduced ownership and voting power in the combined company compared to their ownership and voting power in Hut 8 and USBTC, respectively.
Shares of New Hut common stock to be received by Hut 8 shareholders and USBTC stockholders will have rights different from the shares of Hut 8 common shares and USBTC common stock and preferred stock, respectively.
Upon completion of the Business Combination, Hut 8 shareholders and USBTC stockholders will no longer be shareholders of Hut 8 and/or USBTC, as applicable, but will instead be shareholders of New Hut. The rights of former Hut 8 shareholders and USBTC stockholders who become New Hut stockholders will be governed by the New Hut charter and bylaws, each of which will be adopted, prior to the effective time, in substantially the form attached as exhibits to the Registration Statement of which this prospectus forms a part. The rights associated with shares of New Hut common stock are different from the rights associated with shares of Hut 8 common shares or USBTC common and preferred stock. For more information, see the section titled “Comparison of Rights of Stockholders” beginning on page 208 of this prospectus.
The Business Combination Agreement limits Hut 8’s ability to pursue alternatives to the Business Combination and contains provisions that could affect the decisions of a third party considering making an alternative acquisition proposal to Hut 8.
The Business Combination Agreement prohibits Hut 8 from soliciting, initiating, or encouraging alternative proposals with respect to a merger, acquisition or business combination from any third party. Under the terms of the Business Combination Agreement, Hut 8 may, in certain circumstances, communicate and discuss with a third party regarding a superior proposal that, among other criteria, if consummated, would result in such third party acquiring not less than all the outstanding shares of Hut 8 or substantially all of the assets of Hut 8 and the board of directors of Hut 8 in good faith determines to be more financially favorable to shareholders of Hut 8. In addition, before the Hut 8 board enters into a definitive agreement with respect to a superior proposal, USBTC generally has an opportunity to offer to modify the terms of the Business Combination and Hut 8 has an obligation to negotiate in good faith regarding such an offer. Under specified circumstances, upon termination of the combination Business Combination Agreement in connection with a superior proposal, Hut 8 may be required to pay USBTC a termination fee of US$10,000,000. These provisions could affect the decision by a third party to make a competing acquisition proposal, including the structure, pricing, and terms proposed by a third party seeking to acquire or merge with Hut 8.
New Hut’s consolidated indebtedness will increase substantially following completion of the Business Combination. This increased level of indebtedness could adversely affect New Hut, including by decreasing its business flexibility.
Upon completion of the Business Combination, New Hut will assume an estimated $194 million of outstanding net debt of Hut 8 and USBTC. The increased indebtedness could have the effect of, among other things, reducing New Hut’s flexibility to respond to changing business and economic conditions. In addition, the amount of cash required to pay interest on New Hut’s increased indebtedness levels will increase following completion of the Business Combination, and the demands on New Hut’s cash resources will correspondingly increase. The increased levels of indebtedness following completion of the Business Combination could also reduce funds available for capital expenditures, share repurchases and dividends, and other activities and may create competitive disadvantages for New Hut relative to other companies with lower debt levels.
The market price of New Hut’s common stock may be volatile, and holders of New Hut’s common stock could lose a significant portion of their investment due to drops in the market price of New Hut’s common stock following completion of the Business Combination.
The market price of New Hut’s common stock may be volatile, and following completion of the Business Combination shareholders may not be able to resell their New Hut common stock at or above the price at which they acquired the common stock pursuant to the Business Combination Agreement or otherwise due to
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fluctuations in its market price, including changes in price caused by factors unrelated to the combined company’s operating performance or prospects.
Specific factors that may have a significant effect on the market price for the New Hut’s common stock include, among others, the following:

changes in stock market analyst recommendations or earnings estimates regarding the combined company’s common stock, other companies comparable to it or companies in the industries they serve;

actual or anticipated fluctuations in the combined company’s operating results or future prospects;

reaction to public announcements by the combined company;

strategic actions taken by the combined company or its competitors, such as any contemplated business separation, acquisitions or restructurings;

failure of the combined company to achieve the perceived benefits of the Business Combination, including financial results and anticipated synergies, as rapidly as or to the extent anticipated by financial or industry analysts;

adverse conditions in the financial market or general U.S. or international economic conditions, including those resulting from war, incidents of terrorism and responses to such events; and

sales of common stock by the combined company, members of its management team or significant shareholders.
Risks Related to the Combined Business
The Business Combination and the expansion of the combined company may lead to an increase in competitive pressure from both existing competitors and new entrants in the already highly competitive digital asset mining industry.
As a result of the Business Combination, New Hut will operate in a greater geographical area than each of Hut 8 and USBTC, separately, does currently. A number of competitors both in North America and around the world conduct digital asset mining operations similar to those conducted by Hut 8 and USBTC. Existing competitors and new entrants in North America and the rest of the world may engage in aggressive customer acquisition campaigns, develop superior offerings or consolidate with other entities and achieve benefits of scale.
In addition, recent developments in the digital asset industry, including several high-profile bankruptcies and escalation of regulatory oversight, could lead to increases in mergers, acquisitions, and other strategic transaction activity in the industry among New Hut’s competition, and increasing consolidation in the digital asset industry. This could significantly alter the competitive landscape in which New Hut expects to operate and lead to increasing competition in digital asset mining as well as adversely impact New Hut’s access to capital and other opportunities.
Such competitive pressures in an already highly competitive market may materially erode New Hut’s market share and negatively impact New Hut’s revenue, and may hinder New Hut’s expansion, which could adversely impact the combined company after the completion of the Business Combination.
Whether or not the Business Combination is completed, the announcement and pendency of the Business Combination will divert significant management resources to complete the Business Combination, which could have an adverse effect on their respective businesses, financial results, and/or market prices.
Whether or not the Business Combination is completed, the announcement and pendency of the Business Combination could cause disruptions in the businesses of Hut 8 and USBTC by directing the attention of management of each of Hut 8 and USBTC toward the completion of the Business Combination. Hut 8 and USBTC have each diverted significant management resources in an effort to complete the Business Combination and are each subject to restrictions contained in the Business Combination Agreement on the conduct of their respective businesses. If the efforts and actions required of Hut 8 and USBTC in order to consummate the Business Combination are more difficult, costly or time consuming than expected, such
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efforts and actions could result in the additional diversion of each company’s management’s attention and resources or the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses, which could adversely affect the business and financial results of Hut 8 or USBTC, as applicable. If the Business Combination is not completed, Hut 8 and USBTC will have incurred significant costs, including the diversion of management resources, for which they will have received little or no benefit.
Hut 8 and USBTC will incur significant transaction- and integration-related costs in connection with the Business Combination, and any such costs could adversely affect New Hut’s ability to execute on its integration plan.
Hut 8 and USBTC expect to incur a number of non-recurring costs associated with the Business Combination and combining the operations of the two companies. Additionally, each of Hut 8 and USBTC will incur significant transaction costs related to the Business Combination, some of which must be paid even if the Business Combination is not completed. These costs are substantial and include financial advisory, legal and accounting costs. New Hut also will incur significant integration-related fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. Hut 8 and USBTC continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Business Combination and the integration of the two companies’ businesses. Although Hut 8 and USBTC expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow New Hut to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
New Hut’s future results will suffer if it does not effectively manage its expanded operations following the Business Combination.
Following the Business Combination, the size of the business of New Hut will increase significantly beyond the current size of either Hut 8’s or USBTC’s current businesses on a stand-alone basis. New Hut’s future success depends, in part, upon its ability to manage this expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurance that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements and other benefits currently anticipated from the Business Combination.
Coordinating the businesses of Hut 8 and USBTC may be more difficult, costly or time-consuming than expected and New Hut may fail to realize the anticipated benefits of the Business Combination, which may adversely affect New Hut’s business results and negatively affect the value of New Hut’s shares following the Business Combination.
The success of the Business Combination will depend on, among other things, the ability of Hut 8 and USBTC to coordinate their businesses under New Hut in a manner that facilitates growth opportunities. However, Hut 8 and USBTC may not be able to successfully coordinate their respective businesses in a manner that permits anticipated growth to be realized, without adversely affecting current revenues and investments. If the combined company is not able to successfully achieve these objectives, the anticipated benefits of the Business Combination may not be realized fully, or at all, or may take longer to realize than expected. Specifically, the following issues, among others, must be addressed in order to realize the anticipated benefits of the Business Combination so the combined company performs as expected:

coordinating the businesses of Hut 8 and USBTC and meeting the capital requirements of the combined company, in a manner that permits the combined company to achieve the growth anticipated to result from the Business Combination;

coordinating the companies’ technologies;

coordinating the companies’ operating practices, internal controls and other policies, procedures and processes;

addressing possible differences in business backgrounds and corporate cultures;

coordinating geographically dispersed organizations; and

effecting actions that may be required in connection with obtaining regulatory approvals.
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Furthermore, the board of directors of New Hut will consist of the certain directors of Hut 8 and certain directors of USBTC. Combining the boards of directors of each company into New Hut’s board could require the reconciliation of differing priorities and philosophies.
An inability to realize the full extent of the anticipated benefits of the Business Combination, as well as any delays encountered in the combination process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company after the completion of the Business Combination. In addition, the actual coordination of the Hut 8 and USBTC businesses under New Hut may result in additional and unforeseen expenses, and the anticipated benefits of the coordination plan may not be realized. If Hut 8 and USBTC are not able to adequately address coordination challenges, they may be unable to successfully coordinate their operations or realize the anticipated benefits of the coordination of the two companies.
The market price of New Hut common stock may decline following the Business Combination.
The market price of New Hut common stock may decline following the Business Combination, and Hut 8 shareholders and USBTC stockholders who receive New Hut common stock as a result of the Business Combination could see a decrease in the value of their investment in New Hut common stock, if, among other things, New Hut is unable to achieve the expected growth in earnings, or if the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies, from the Business Combination are not realized, or if the transaction costs related to the Business Combination are greater than expected. The market price may also decline if New Hut does not achieve the perceived benefits of the Business Combination as rapidly or to the extent anticipated by investors or financial or industry analysts or if the effect of the Business Combination on New Hut’s financial position, results of operations or cash flows is not consistent with the expectations of investors or financial or industry analysts. In addition, many New Hut stockholders and USBTC stockholders may decide to sell the shares of New Hut common stock they receive as a result of the Business Combination. Any such sales of New Hut common stock could have the effect of depressing the market price for New Hut common stock. Moreover, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, the New Hut common stock, regardless of the actual operating performance of the combined company.
New Hut’s business may be impacted by differences in Canadian and U.S. operations.
Hut 8 currently has its head office and conducts its business operations in Canada, while USBTC has its head office and conducts it business operations in the United States. New Hut expects to maintain the existing physical operations of Hut 8 and USBTC in Canada and the United States, respectively. However, New Hut’s principal executive offices will be located in the United States. Certain existing Hut 8 relationships, including with employees, suppliers, contract research organizations, partners, collaborators, governments and other stakeholders, may be subject to disruption as a result of this shift in management and operations to the United States. Conversely, certain existing USBTC relationships could be impacted as a result of the addition of operations outside of the United States. Specifically, certain stakeholders may be reluctant to engage in business with Hut 8 and/or USBTC prior to, or with New Hut following completion of, the Business Combination, or may impose additional conditions on or apply less favorable terms to transactions involving Hut 8, USBTC and/or New Hut. This could have an adverse effect on the business and operations of Hut 8 and USBTC prior to, or New Hut following, completion of the Business Combination.
The rights of New Hut stockholders under Delaware law may differ from the rights of USBTC stockholders under the Nevada law.
Upon completion of the Business Combination, the rights of New Hut stockholders will be governed by applicable Delaware law. While there will be substantial similarities between their rights after the Business Combination and their rights as stockholders of USBTC prior to the Business Combination, there will be some differences, for example with respect to removal of directors, proxy voting, restrictions on dividends and other distributions, exculpation of officers and directors, appraisal and dissenter’s rights, certain restrictions on business combinations and takeovers, and inspection rights. As shown by the examples above, if the Business Combination is consummated, in certain circumstances, holders of shares of New Hut common stock may be afforded different protections under the Delaware General Corporations Law (the “DGCL”)
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than USBTC stockholders had under Nevada law. For additional information, please read the section titled “Comparison of Rights of Stockholders” beginning on page 208 of this prospectus.
The Business Combination will result in changes to the Board of Directors at the combined company.
Upon completion of the Business Combination, the composition of the Board of Directors of New Hut will be different from the current boards of Hut 8 and USBTC. New Hut’s Board of Directors will consist of five (5) directors selected by Hut 8 and five (5) directors selected by USBTC. This composition of New Hut’s Board of Directors may affect the future decisions of the company.
The combined company may be exposed to increased litigation, which could have an adverse effect on the combined company’s business and operations.
New Hut may be exposed to increased litigation from shareholders, customers, suppliers, consumers and other third parties due to the combination of Hut 8’s business and USBTC’s business following the Business Combination. Such litigation may have an adverse impact on New Hut’s business and results of operations or may cause disruptions to the New Hut’s operations.
If New Hut fails to develop or maintain an effective system of internal controls in the future, it may not be able to accurately report its financial condition or results of operations, which may adversely affect investor confidence in New Hut and, as a result, the value of the New Hut common stock.
Effective internal controls are necessary for New Hut to provide reliable financial reports, prevent fraud and operate successfully as a public company. If New Hut cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. If USBTC fails to remediate the material weakness in its internal control over financial reporting or identify any new material weaknesses in the future, it could limit its ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of New Hut’s annual or interim consolidated financial statements. In such case, New Hut may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in its financial reporting and the prices of its securities may decline as a result. New Hut cannot assure you that any measures it may take in the future will be sufficient to avoid potential future material weaknesses.
As a result of being a public company, New Hut will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of its internal control over financial reporting beginning in the year following its first annual report required to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by New Hut management in its internal control over financial reporting. Additionally, when New Hut ceases to be an “emerging growth company” under the federal securities laws, New Hut’s independent registered public accounting firm may be required to express an opinion on the effectiveness of New Hut’s internal controls. If New Hut is unable to confirm that New Hut’s internal control over financial reporting is effective, or if its independent registered public accounting firm is unable to express an unqualified opinion on the effectiveness of New Hut’s internal controls, New Hut could lose investor confidence in the accuracy and completeness of its financial reports, which could cause the price of New Hut common stock to decline.
The projections and forecasts presented in this prospectus may not be an indication of the actual results of the transaction or Hut 8’s, USBTC’s or New Hut’s future results.
This prospectus contains projections and forecasts relating to each of Hut 8, USBTC and New Hut. None of the projections and forecasts included in this prospectus have been prepared with a view toward public disclosure other than to certain parties involved in the Business Combination, or toward complying with SEC guidelines, GAAP or IFRS. Accordingly, such projections and forecasts should not be viewed as public guidance. The projections and forecasts were prepared based on numerous variables and assumptions which are inherently uncertain and may be beyond the control of Hut 8, USBTC and New Hut. Important factors that may affect actual results of Hut 8, USBTC and New Hut or could lead to such projections and forecasts not being achieved include, but are not limited to: each of Hut 8’s and USBTC’s ability to obtain power at its operational sites at favorable rates, their abilities to maintain operations at their existing operational sites and Hut 8’s ability to restart operations at its North Bay site, volatility in the price of Bitcoin, the potential future
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regulation of the digital asset industry and the state of the market for digital assets generally, closing of the Business Combination and the timing thereof, the ability to successfully integrate Hut 8 and USBTC, and other factors described under the captions “Cautionary Note Concerning Forward-Looking Statements” and “Risk Factors” in this prospectus. Investors are accordingly cautioned not to place undue reliance on the projections, as the projections may be materially different than actual results.
Risks Relating to Hut 8’s Business
If Bitcoin were determined to be an investment security, Hut 8 could be required to register as an investment company.
The SEC and its staff have taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities laws. Although public statements by senior officials and the staff of the SEC indicate that the SEC does not intend to take the position that Bitcoin is a security (in its current form), such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court.
The classification of Bitcoin as a security by the SEC could result in Hut 8 being deemed to be an “investment company” under the U.S. Investment Company Act. Classification as an investment company under the U.S. Investment Company Act requires registration with the SEC. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time consuming and restrictive and would require a restructuring of Hut 8’s operations, and Hut 8 would be very constrained in the kind of business it could do as a registered investment company. Further, Hut 8 would become subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the U.S. Investment Company Act regime. Hut 8 registering and complying with relevant regulation would result in Hut 8 incurring substantial additional expenses and would have a materially adverse impact on Hut 8’s operations.
Regulatory changes or actions may alter the nature of an investment in Hut 8 or restrict the use of digital assets in a manner that adversely affects its operations.
As digital assets have grown in both popularity and market size, governments around the world have reacted differently to digital assets with certain governments deeming them illegal while others have allowed their use and trade. Certain countries such as China and Russia have taken harsh regulatory action to curb the use of digital assets and may continue to take regulatory action in the future that could severely restrict the right to acquire, own, hold, sell or use these digital assets or to exchange them for fiat currency. Such restrictions may adversely affect Hut 8 as the large-scale use of Bitcoin as a means of exchange is presently confined to certain regions globally. Ongoing and future regulatory actions may alter, perhaps to a materially adverse extent, the ability of Hut 8 to continue as a going concern or to pursue its strategy at all. Ongoing and future regulatory actions may also have a material adverse effect on the value of any Bitcoin Hut 8 mines or otherwise acquires or holds for its own account. The effect of any future regulatory change on Hut 8 or any digital asset that Hut 8 may mine is impossible to predict, but such change could be substantial and adverse. Investors should consult their tax advisers regarding the substantial uncertainty regarding the tax consequences of an investment in Bitcoin.
Governments may, in the future, restrict or prohibit the acquisition, use or redemption of digital assets. Ownership of, holding of trading in digital assets may then be considered illegal and subject to sanctions. Governments may also take regulatory action that may increase the cost and/or subject digital asset mining companies to additional regulation. Bitcoin and other digital assets are viewed differently across various regulatory and standards-setting organizations internationally, as well as in the United States at the federal and state levels. For example, the Financial Action Task Force (“FATF”) and the IRS consider a digital asset as currency or an asset or property. Further, the IRS applies general tax principles that apply to property transactions to transactions involving virtual currency. The U.S. Commodity Futures Trading Commission (“CFTC”) classifies Bitcoin as a commodity. The SEC has also publicly stated that it considers Bitcoin to be a commodity, but that some digital assets should be categorized as securities. On July 25, 2017, the SEC released an investigative report which indicates that the SEC would, in some circumstances, consider the offer and sale of Blockchain tokens pursuant to an initial coin offering subject to U.S. securities laws. How a digital asset is characterized by a regulator impacts the rules that apply to activities related to that digital asset. Similarly,
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on August 24, 2017, the Canadian Securities Administrators published CSA Staff Notice 46-307 — Cryptocurrency Offerings, providing guidance on whether initial coin offerings, pursuant to which tokens are offered to investors, are subject to Canadian securities laws.
Digital asset trading platforms may also be subject to increased regulation, and there is a risk that increased compliance costs are passed through to users. There is a risk that a lack of stability in the Bitcoin exchange market and the closure or temporary shutdown of Bitcoin exchanges due to fraud, business failure, hackers, malware or government-mandated restrictions may reduce confidence in the Bitcoin network and result in greater volatility in or suppression of Bitcoin’s value. Note that although Bitcoin is not currently treated as a security by the SEC, the exchanges on which Bitcoin is traded typically provide trading services with respect to numerous other digital assets, some of which may be deemed to be securities by the SEC, and some of them are currently under investigation by the SEC and other regulators. This could result in a decrease in the overall price of Bitcoin which could have a material adverse impact on Hut 8’s operations and financial performance.
The SEC has recently proposed regulations which would require investment advisers (including fund managers of many funds) to custody all digital assets they hold on behalf of clients with “qualified custodians.” Because the majority of digital assets exchanges are not “qualified custodians,” and because these exchanges require users to prefund their trades (in effect requiring users to place digital assets in custody with them), it may be practically impossible for investment advisers to hold digital assets on behalf of their institutional clients or managed funds. The exit of institutional investors and funds from the market for Bitcoin could have a material adverse effect on the price of Bitcoin and thus on Hut 8’s results of operations.
Governments may in the future take regulatory actions that prohibit or severely restrict the right to acquire, own, hold, sell, use or trade digital assets or to exchange digital assets for fiat currency. By extension, similar actions by other governments may result in the restriction of the acquisition, ownership, holding, selling, use or trading in Hut 8’s common shares. Such a restriction could result in Hut 8 liquidating its Bitcoin inventory at unfavorable prices and may adversely affect Hut 8’s shareholders.
Hut 8 may face several risks due to disruptions in the digital asset markets, including but not limited to the risk from depreciation in Hut 8’s stock price, financing risk, risk of increased losses or impairments in its investments or other assets, risks of legal proceedings and government investigations, and risks from price declines or price volatility of digital assets.
The use of digital assets to, among other things, buy and sell goods and services and complete other transactions is part of a new and rapidly evolving industry that employs digital assets based upon a computer generated mathematical and/or cryptographic protocol. The growth of this industry in general, and the use of digital assets in particular, is subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may adversely affect Hut 8’s operations. The factors affecting the further development of the industry, include, but are not limited to:

Continued worldwide growth in the adoption and use of digital assets;

Governmental regulation of digital assets and their use, or restrictions on or regulation of access to and operation of the network or similar digital asset systems. See the section entitled “Risk Factors — Risks Relating to Hut 8’s Business — Regulatory changes or actions may alter the nature of an investment in Hut 8 or restrict the use of digital assets in a manner that adversely affects its operations”;

Changes in consumer demographics and public tastes and preferences;

The maintenance and development of the open source software protocol of the network;

The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;

General economic conditions and the regulatory environment relating to digital assets; and

Consumer sentiment and perception of Bitcoin specifically and digital assets generally.
Many digital asset exchanges currently do not provide the public with significant information regarding their ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace may lose confidence in, or may experience problems relating to, digital asset exchanges, which
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may cause the price of Bitcoin to decline. For example, in the first half of 2022, each of Celsius Network LLC, et al. (“Celsius”), Voyager Digital Ltd., et al. (“Voyager”), and Three Arrows Capital (“Three Arrows”) declared bankruptcy, resulting in a loss of confidence among participants in the digital asset ecosystem and negative publicity surrounding digital assets more broadly. In November 2022, BlockFi Inc. (“BlockFi”) and FTX Trading Ltd. (“FTX”), the third largest digital asset exchange by volume at the time, halted customer withdrawals and shortly thereafter, FTX and its subsidiaries filed for bankruptcy. Most recently, in January 2023, Genesis Global Holdco, LLC, et al. (“Genesis”) filed for bankruptcy.
In response to these events, the digital asset markets, including the market for Bitcoin specifically, have experienced extreme price volatility and several other entities in the digital asset industry have been, and may continue to be, negatively affected, further undermining confidence in the digital asset market and in Bitcoin. These events have also negatively impacted the liquidity of the digital asset market as certain entities affiliated with FTX engaged in significant trading activity. If the liquidity of the digital asset market continues to be negatively impacted by these events, digital asset prices, including the price of Bitcoin, may continue to experience significant volatility and confidence in the digital asset markets may be further undermined. A perceived lack of stability in the digital asset exchange market and the closure or temporary shutdown of digital asset exchanges due to business failure, hackers or malware, government-mandated regulation or fraud, may reduce confidence at least in part in digital asset networks and result in greater volatility in Bitcoin’s value. Because the value of Bitcoin is derived from the continued willingness of market participants to exchange government-issued currency that is designated as legal tender in its country of issuance through government decree, regulation or law for Bitcoin, should the marketplace for Bitcoin be jeopardized or disappear entirely, permanent and total loss of the value of Bitcoin may result. Such a decrease in Bitcoin price may have a material and adverse effect on Hut 8’s results of operations and financial condition as the results of Hut 8’s operations are significantly tied to the price of Bitcoin.
The failure or insolvency of large exchanges like FTX may cause the price of Bitcoin to fall and decrease confidence in the ecosystem, which could adversely affect an investment in Hut 8. Such market volatility and decrease in Bitcoin price may have a material and adverse effect on Hut 8’s results of operations and financial condition as the results of Hut 8’s operations are significantly tied to the price of Bitcoin.
As of the date hereof, Hut 8 has not experienced any material impact resulting from the bankruptcy filings of FTX, Three Arrows, Celsius, Voyager, BlockFi, and Genesis and the attendant disruptions in the digital asset markets. Genesis is owned by Digital Currency Group Inc. (“DCG”), which also owns Foundry Digital LLC (“Foundry”), one of Hut 8’s mining pool providers; however, at this time, Hut 8 believes it is not subject to any material risks arising from its previous exposure to Genesis. Hut 8 entered into a master borrow agreement on January 6, 2021, which was subsequently amended on August 24, 2021, pursuant to which Hut 8 provided Genesis Global Capital, LLC (“Genesis Capital”) with an unsecured loan of 1,000 Bitcoin that carried an interest rate of 2.00% per annum. The 1,000 Bitcoin that were loaned to Genesis Capital were returned to Hut 8 on May 12, 2022, and no Bitcoin is currently loaned by Hut 8 to Genesis Capital pursuant to the master borrow agreement or any other similar arrangement. Other than the Genesis entities, Hut 8 (i) has no direct exposure to any digital asset entities that have recently filed for bankruptcy; (ii) has no assets that may not be recovered due to these bankruptcies; and (iii) has no exposure to any other counterparties, customers, custodians or other digital asset market third parties known to Hut 8 to have (x) experienced material excessive redemptions or withdrawals or suspended redemptions or withdrawals of digital assets, (y) the digital assets of their customers unaccounted for, or (z) experienced material compliance failures.
Events in 2022 have increased the likelihood that U.S. federal and state legislatures and regulatory agencies will enact laws and regulations to regulate digital assets and digital asset intermediaries, such as digital asset exchanges and custodians.
The collapse of TerraUSD and Luna and the bankruptcy filings of FTX and its subsidiaries, Three Arrows, Celsius, Voyager, Genesis and BlockFi have resulted in calls for heightened scrutiny and regulation of the digital asset industry, with a specific focus on digital asset exchanges, platforms, and custodians. Federal and state legislatures and regulatory agencies are expected to introduce and enact new laws and regulations to regulate digital asset intermediaries, such as digital asset exchanges and custodians. The U.S. regulatory regime — namely the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the SEC, the CFTC, the Financial Crimes Enforcement Network of the U.S. Treasury Department (“FinCEN”), the Office
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of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (“FDIC”), and the Federal Bureau of Investigation) as well as the White House have issued reports and releases concerning digital assets, including Bitcoin and digital asset markets. However, the extent and content of any forthcoming laws and regulations are not yet ascertainable with certainty, and it may not be ascertainable in the near future. It is possible that new laws and increased regulation and regulatory scrutiny may require Hut 8 to comply with certain regulatory regimes, which could result in new costs for Hut 8. Hut 8 may have to devote increased time and attention to regulatory matters, which could increase costs. New laws, regulations, and regulatory actions could significantly restrict or eliminate the market for, or uses of, digital assets including Bitcoin, which could have a negative effect on the value of Bitcoin, which in turn would have a negative effect on the value of Hut 8’s common shares.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or nonperformance by financial institutions or transactional counterparties, could adversely affect Hut 8’s current and projected business operations and Hut 8’s financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.
For example, Hut 8’s cash is held in accounts at Canadian banking institutions. Cash held in non-interest-bearing and interest-bearing operating accounts may exceed the Canada Deposit Insurance Corporation (“CDIC”) insurance limits in Canada. If such banking institutions were to fail, Hut 8 could lose all or a portion of those amounts held in excess of such insurance limitations. As the FDIC continues to address the situation with Silicon Valley Bank (“SVB”), Signature Bank (“Signature Bank”) and other banking institutions, the risk of loss in excess of insurance limitations and otherwise has increased across financial institutions. There is no guarantee that the CDIC, U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion. Any loss that Hut 8 may experience in the future could have a material and adverse effect on Hut 8’s ability to pay its operational expenses or make other payments and may require Hut 8 to move its accounts to other banks, which could cause delays in making payments to its vendors and employees, among other counterparties, and cause other business and operational disruptions.
Risks Relating to USBTC’s Business
If USBTC fails to effectively manage its growth, its business, financial condition and results of operations would be harmed.
USBTC is a development stage company with a small management team and is subject to the strains of ongoing development and growth, which will place significant demands on management and operational and financial infrastructure. Although USBTC may not grow as expected, if USBTC fails to manage its growth effectively or to develop and expand its managerial, operational and financial resources and systems, USBTC’s business and financial results would be materially harmed.
USBTC may not be able to manage growth effectively, which could damage its reputation, limit growth and negatively affect USBTC’s operating results. Further, USBTC cannot provide any assurance that it will successfully identify all emerging trends and growth opportunities in its business sector and USBTC may lose out on those opportunities. Such circumstances could have a material adverse effect on USBTC’s business, prospects or operations.
USBTC is an early-stage company with limited operating history and may never become profitable.
USBTC is an early-stage company currently focused on developing Bitcoin mining operations and investing in blockchain-focused technologies, newly formed in December 2020, and has a limited operating history. To date, USBTC has incurred losses as set forth below and may never become profitable. USBTC has built a Bitcoin mining operation, operating specialized computers manufactured by Bitmain, Canaan and MicroBT (also known as “miners”) that generate Bitcoin. USBTC had a net loss of $31.8 million and $9.1 million for
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the fiscal year ended June 30, 2022 and the period from December 4, 2020 (inception) through June 30, 2021 (audited), respectively. In addition, USBTC had a net loss of $63.9 million for the nine months ended March 31, 2023 (unaudited) and $6.5 million for the nine months ended March 31, 2022 (restated, unaudited). As of March 31, 2023, USBTC had an accumulated deficit of $104.8 million.
Additionally, there can be no assurance that additional funding will be available to USBTC for the development of its business, which will require the commitment of substantial resources. USBTC may be required to liquidate its digital assets (including Bitcoin assets) if other capital is not available to it on commercially reasonable terms. Accordingly, you should consider USBTC’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that USBTC may be unable to:

successfully implement or execute its business plan, or demonstrate that its business plan is sound;

adjust to changing conditions or keep pace with increased demand; or

attract and retain an experienced management team; or raise sufficient funds in the capital markets to effectuate its business plan.
USBTC operates in an industry subject to various regulatory and technological uncertainties.
USBTC operates Bitcoin mining operations in New York, Texas, and Nebraska. As Bitcoin, other digital assets, and blockchain technologies evolve and become more widely available, the services and products associated with them may evolve. Future regulations may require USBTC to change its business model to comply fully with federal and state laws regulating power generation, Bitcoin mining, or provision of Bitcoin mining services to third parties.
To remain competitive with peers, USBTC may need to modify aspects of its business model from time to time. USBTC cannot offer any assurance that these or any other changes will be successful or will not result in harm to its business. USBTC may not be able to manage its growth effectively, which could damage its reputation, limit its growth, and negatively affect its operating results. Furthermore, USBTC cannot provide any assurance that it will successfully identify all emerging trends and growth opportunities in the market. As a result, USBTC may not capture those opportunities. Such circumstances could have a material adverse effect on the USBTC’s business, prospects or operations.
The cost of obtaining new and replacement miners and parts has historically been capital-intensive and is likely to continue being capital-intensive, which could materially and adversely affect USBTC’s business, financial condition, and results of operations.
USBTC’s mining operations can only be profitable if the costs, inclusive of hardware and electricity costs, associated with mining digital assets is lower than the price of the digital assets mined at the time of sale. Miners experience ordinary wear and tear from operation and may also face more significant malfunctions caused by factors which may be beyond the company’s control. Additionally, as technology evolves, the company may acquire newer models of miners to remain competitive in the market.
For example, the miners and other equipment purchased by USBTC since the company’s inception will eventually degrade due to ordinary wear and tear from usage and may also be lost or damaged due to factors outside of the USBTC’s control. When this happens, these miners and equipment need to be repaired or replaced. The process of upgrading mines and equipment requires substantial capital investment, and USBTC may face challenges in executing upgrades on a timely and cost-effective basis based on availability of new miners and the company’s access to adequate capital. If USBTC is unable to obtain a sufficient unit volume of miners and equipment at scale, it may be unable to remain competitive in a highly competitive and evolving industry. If this happens, USBTC may not be able to mine digital assets as efficiently or at a comparable scale as competitors. As a result, the company’s business, financial condition, and results of operations could suffer. This could, in turn, materially and adversely affect the trading price of the company’s common stock and investors could lose part or all of their investment.
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The price of new miners may be linked to the price of Bitcoin and other digital assets, and the cost of obtaining new and replacement miners may increase if the price of Bitcoin rises, which could materially and adversely affect USBTC’s business, financial condition and results of operations.
There are reports indicating that miner manufacturers adjust miner prices based on the price of Bitcoin. As a result, the USBTC’s cost of obtaining new miners can be unpredictable and significantly higher than USBTC’s historical cost of obtaining new miners. USBTC’s business, financial condition, and results of operations are dependent on its ability to sell the Bitcoin it mines at a price greater than its cost to produce Bitcoin. As the cost of obtaining new miners increases, the cost of producing Bitcoin also increases. This requires a corresponding increase in the price of Bitcoin for USBTC to maintain profitability.
USBTC observed a significant increase in market demand for miners when Bitcoin prices rose into the end of the calendar year 2021. Concurrently, USBTC observed a significant increase in the unit price of new model miners in the market. While USBTC cannot know definitively if these two phenomena are linked, it has observed a measurable increase in the price of new miners offered by manufacturers coinciding with a rise in the price of Bitcoin. If this phenomena exists in the future, USBTC may obtain new miners and other hardware from manufacturers or from other third parties at a cost higher than its historical cost.
USBTC incurs a significant upfront capital cost each time it acquires new miners, and the company may not realize the benefit of these capital expenditures. If this occurs, the company’s business, financial condition, and results of operations could be materially and adversely affected should the future price of Bitcoin not be sufficiently high.
USBTC may be unable to purchase miners at scale or face delays or difficulty in obtaining new miners at scale, which could materially and adversely affect its business, financial condition, and results of operations.
In the past, USBTC has observed periods of shortage in new miners available for purchase and a delay in delivery schedules for new miner purchases. There is no assurance that miner manufacturers or any other equipment manufacturers will be able to keep pace with potential surges in demand for mining equipment. It is uncertain how manufacturers will respond to increased global demand and whether they fulfill purchase orders fully and in a timely manner.
In the event that miner manufacturers or other suppliers are not able to keep pace with, or fail to satisfy, demand, USBTC may not be able to purchase miners or other equipment in sufficient quantities or on the delivery schedules required to meet its business needs. Additionally, should any suppliers default on purchase agreements with USBTC, the company may need to pursue recourse under international jurisdictions, which could be costly and time-consuming. Furthermore, there is no guarantee that USBTC would succeed in recovering any of the deposits paid for such purchases, which could materially and adversely affect its business, financial condition, and results of operations.
Miner manufacturers may continue requiring significant advance deposits before orders are fulfilled and delivered.
In the past, miner manufacturers have required advance deposits for miner purchases. If this continues in the future, USBTC may need to tie up significant amounts of cash several months before it receives and is able to deploy purchased miners to generate revenue. These advance deposits further drive the financial burden of operating a capital-intensive business. Miner manufacturers holding a deposit from USBTC may go out of business before delivering purchased miners, or for other reasons fail to deliver the miners associated with the deposit. There is no certainty that, in such circumstances, USBTC would succeed in recovering any of its deposit, which could materially and adversely affect its business, financial condition, and results of operations.
USBTC may acquire other businesses and/or assets or form strategic alliances or joint ventures that could negatively affect its operating results, dilute shareholder ownership, increase debt, or cause it to incur significant expenses; notwithstanding the foregoing, USBTC’s growth may depend on its success in identifying and completing such transactions.
USBTC may seek to pursue additional acquisitions of businesses and/or assets and/or enter into strategic alliances or joint ventures. However, it cannot offer any assurance that any such acquisition or partnership will be successful. USBTC may not be able to identify suitable partners or acquisition candidates and may not be
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able to complete such transactions on favorable terms, if at all. If USBTC completes any acquisitions, it may not be able to integrate these acquisitions successfully into its existing business. In addition, in the event that USBTC acquires any existing businesses, it may assume unknown or contingent liabilities.
Any future acquisitions also could result in the issuance of stock, incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a negative impact on the company’s business, financial condition, and results of operations. Integration of an acquired company may also disrupt ongoing operations and require management resources that would otherwise be focused on developing and expanding the company’s existing business. USBTC may experience losses related to potential investments in other companies, which could materially and adversely affect its business, financial condition, and results of operations. Furthermore, USBTC may not realize the anticipated benefits of any acquisition, strategic alliance or joint venture if those benefits do not materialize.
Although USBTC expects that the acquisition of the King Mountain JV interest will result in benefits to it, USBTC may not realize those benefits due to unforeseen difficulties.
USBTC recently acquired its 50% interest in the King Mountain JV, including assuming an approximately $96.8 million promissory note in connection with the acquisition. USBTC acquired this interest on an “as is” basis from a bankruptcy administrator or trustee with limited representations, which limits USBTC’s recourse against the sellers of the interest after closing, which in turn may expose us to unexpected material losses or expenses after the closing. USBTC’s diligence investigations with respect to the King Mountain JV were limited, which may also expose us to unexpected material losses or expenses after the closing.
USBTC may be unable to raise the additional capital needed to grow its business.
If the price of Bitcoin declines, and as the company expects to need to raise additional capital to expand its operations and pursue its growth strategy, and to respond to competitive pressures or unanticipated working capital requirements, USBTC may seek but fail to obtain additional debt or equity financing on favorable terms, if at all, which could impair its growth and adversely affect its existing operations. If USBTC were to raise additional equity financing, its shareholders may experience significant dilution of their ownership interest, and the value of their investment could decline. Furthermore, if USBTC were to raise additional debt financing, the company’s debtors would likely have priority over holders of equity with respect to order of payment preference. USBTC may be required to accept terms that restrict its ability to incur additional indebtedness or take other actions, including terms that require it to maintain a specified level of liquidity or other balance sheet ratios that may not be in the interests of other shareholders.
If there are significant changes to the method of validating blockchain transactions, such changes could reduce demand for USBTC’s blockchain hosting services or for USBTC’s miner equipment.
New digital asset transaction protocols are continuously being deployed, and existing and new protocols are in a state of constant change and development. While certain validation protocols currently employ a “proof of work” consensus algorithm, whereby transaction processors are required to expend significant amounts of electrical and computing power to solve complex mathematical problems in order to validate transactions and create new blocks in a blockchain, there may be a shift towards adopting alternative validating protocols. These protocols may include a “proof of stake” algorithm or an algorithm based on a protocol other than proof of work, which may decrease the reliance on computing power as an advantage to validating blocks. USBTC’s transaction processing operations, and, to USBTC’s knowledge, the operations of its potential hosting customers, are currently designed to primarily support a proof of work consensus algorithm. Should the algorithm shift from a proof of work validation method to a proof of stake method, mining would require less energy and may render any company that maintains advantages in the current climate (for example, from lower priced electricity, processing, real estate or hosting) less competitive. As a result of USBTC’s efforts to optimize and improve the efficiency of its digital asset mining operations, USBTC may be exposed to the risk in the future of losing the benefit of its capital investments and the competitive advantage USBTC hopes to gain from this as a result, and may be negatively impacted if a switch to proof of stake validation were to occur. Any such change to transaction validating protocols could have a material adverse effect on USBTC’s business, financial condition and results of operations.
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Failure to price hosting contracts correctly may lead USBTC to operate these contracts at a loss, which could have a material adverse effect on its business, financial condition, and results of operations.
USBTC hosting contracts may be structured with margin-based or cost-plus pricing that considers the estimated power consumption of hosting client miners and other costs of service. USBTC’s ability to generate a profit on contracts with such pricing structures requires that it accurately forecast these costs over the contracted time period. Failure to do so could have a material adverse effect on the business, financial condition, and results of operations.
Failure of critical systems of the hosting facilities operated by USBTC and the services provided by USBTC could have a material adverse effect on its business, financial condition, and results of operations.
The critical systems of the hosting facilities operated by USBTC and the services provided by USBTC are subject to failure. Any failure in the critical systems of any hosting facility operated by USBTC or services provided by USBTC, including a breakdown in critical plant, equipment or services, routers, switches or other equipment, power supplies or network connectivity, whether or not within the company’s control, could result in service interruptions to the company’s customers and/or damage to equipment, which could significantly disrupt the normal business operations of the company’s customers, harm the company’s reputation, and reduce the company’s revenue. Temporary downtime at any hosting facility operated by USBTC could reduce the amount of Bitcoin mined by the company and thereby reduce the profitability of its hosting customers. The destruction or severe impairment of any of the hosting facilities operated by USBTC could result in significant downtime and loss of customer data. Since the company’s ability to attract and retain customers depends on its ability to provide a reliable service, even minor interruptions in service could harm the company’s reputation and negatively impact its revenue and profitability. Any of these events may result in financial penalty, which could have a material adverse effect on its business, financial condition, and results of operations.
The services provided by USBTC are subject to temporary or permanent interruption by factors that include but are not limited to:

Power loss;

Equipment failure;

Human error and accidents;

Theft, sabotage, and vandalism;

Failure by USBTC or its suppliers to provide adequate service or maintain equipment;

Network connectivity downtime and fiber cuts;

Service interruptions resulting from server relocation;

Security breaches of infrastructure;

Improper or inadequate building maintenance by the company;

Physical, electronic, and cybersecurity breaches;

Animal incursions;

Fire, earthquake, hurricane, tornado, flood and other natural disasters;

Extreme temperatures;

Water damage;

Public health emergencies; and

Terrorism.
Moreover, service interruptions and equipment failures may expose USBTC to potential legal liability. As the services provided by USBTC may be critical to its customers’ business operations, any disruption in services could result in lost profit or other indirect or consequential damages to its customers. Although customer
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contracts typically contain provisions limiting the company’s liability, there can be no assurance that a court would enforce any contractual limitations on the company’s liability in the event that one of its customers brings a lawsuit against it as the result of a service interruption that they ascribe to the company. The outcome of any such lawsuit would depend on the specific facts of the case and any legal and policy considerations that the company may not be able to mitigate. In such cases, USBTC may be liable for substantial damage awards, which could have a material adverse effect on its business, financial condition, and results of operations.
USBTC may not be able to obtain new hosting and transaction processing hardware or purchase such hardware at competitive prices during times of high demand, which could have a material adverse effect on its business, financial condition and results of operations.
Historically, an increase in interest and demand for digital assets has led to a shortage of hosting and transaction processing hardware and increased prices. USBTC and its customers and potential customers have experienced, and may in the future experience, difficulty in obtaining new equipment or replacement components for USBTC’s and its customers’ existing equipment, including graphics processing units and application-specific integrated circuit chipsets and computer servers, which has had, and in the future may have, a material impact on the demand for USBTC’s services and associated revenue. Currently, restrictions on digital asset mining in China have increased availability of used mining equipment and decreased prices of new mining equipment. In addition, these restrictions have decreased available mining facilities in China and increased demand for hosting in countries outside of China including the United States. To the extent miners view this used equipment as a viable alternative to purchasing new miners from USBTC, USBTC’s equipment sales may suffer, which could have a material adverse effect on USBTC’s business, financial condition and results of operations.
USBTC’s commercial success depends in large part on its ability to contribute computing power to pools that mine digital assets for the company and its hosting customers, attract and retain customers within the company’s hosting and property management businesses, and sell mining equipment profitably. Increases in power costs or an inability to mine digital assets efficiently at favorable prices will reduce the company’s operating margins, impact its ability to attract and retain customers, and harm its growth prospects and could have a material adverse effect on USBTC’s business, financial condition and results of operations.
USBTC’s growth depends in large part on its ability to contribute computing power to pools that mine digital assets for the company and its hosting customers, attract and retain customers within the company’s hosting and property management businesses, and sell mining equipment profitably. With respect to its hosting and property management businesses, USBTC may not be able to attract and retain customers for a number of reasons, including if:

there is a reduction in the demand for USBTC’s services due to macroeconomic factors;

there is a reduction in demand for USBTC’s services due to a broader secular reduction in demand for such services in the underlying digital asset mining sector;

USBTC is unable to provide services that meet the needs of existing or potential customers;

USBTC fails to effectively market the company and its services to potential customers;

USBTC fails to price its hosting or property management services attractively;

USBTC provides hosting or property management services that are deemed by existing and potential customers to be inferior to those of its competitors;

USBTC fails to meet customers’ ongoing and evolving program qualification standards, based on a range of factors, including available power, preferred site design specifications, security considerations and connectivity;

businesses decide to host or manage sites internally as an alternative to the use of USBTC’s services;

USBTC fails to successfully communicate the benefits of its services to potential customers;

USBTC is unable to strengthen awareness of its brand; and

potential customers are unable to secure the digital asset mining equipment required to engage USBTC in the capacity of a third party hosting provider or property manager.
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If USBTC is unable to obtain hosting or property management customers at favorable terms or at all, it could have a material adverse effect on its business, financial condition and results of operations.
USBTC generates a meaningful share of its hosting revenue from a small number of customers, and the loss of, or a significant decrease in business from, a number of these customers and/or a failure to attract new customers could have a material adverse effect on the company’s business, financial condition, and results of operations.
To date, USBTC has generated a significant share of its hosting revenue from a small number of customers. Any failure to meet customer expectations could result in the cancellation or non-renewal of hosting contracts and loss of associated revenue. Any event leading to the early termination of a hosting contract, including, but not limited to, customer bankruptcy or force majeure events that disrupt facility operations or damage customer miners, could result in the loss of revenue associated with those contracts. If USBTC were unable to offset lost revenue by refilling vacant capacity with other miners in the case of customer churn or by repossessing miners in the case of customer default, it could have a material adverse effect on the company’s business, financial condition, and results of operations.
If USBTC does not accurately predict its hosting facility requirements, it could have a material adverse effect on its business, financial condition and results of operations.
The costs of building out, leasing and maintaining USBTC’s hosting facilities may constitute a significant portion of USBTC’s capital and operating expenses. In order to manage growth and ensure adequate capacity for USBTC’s digital mining operations and new and existing hosting customers while minimizing unnecessary excess capacity costs, USBTC continuously evaluates its short- and long-term data center capacity requirements. If USBTC overestimates its business’ capacity requirements or the demand for its services and therefore secure excess data center capacity, USBTC’s operating margins could be materially reduced. If USBTC underestimates its data center capacity requirements, USBTC may not be able to service the expanding needs of its existing customers and may be required to limit new customer acquisition, which could have a material adverse effect on its business, financial condition and results of operations.
USBTC operates a number of data centers for third party owners under the USMIO brand and cannot execute changes to strategy and operations without owner consent, which could result in suboptimal financial performance and may have a material adverse effect on the company’s business, financial condition, and results of operations.
USBTC has entered into property management agreements (“PMAs”) with the owners of Charlie, Delta, and Echo. Under these agreements, USBTC is paid a fixed fee to operate each data center and partakes in an incentive structure that compensates USBTC for introducing and executing initiatives that increase revenue and decrease costs. At times, USBTC may recommend certain changes to a data center’s strategy or operations, including, but not limited to, modification of the data center’s energy curtailment approach, repricing or cancellation or existing customer hosting contracts, or hiring new personnel, to increase revenue, decrease costs, and/or strengthen data center operations.
As the given data center owner must consent to certain changes recommended by USBTC, and as the given owner may not consent to such changes, USBTC will not always have ultimate control over key decisions that drive the financial and operating performance of these data centers. If USBTC is unable to implement decisions required to operate these data centers profitably and effectively, it could negatively impact the revenue and profitability of its partners and harm the reputation of both its partners and USBTC. This could have a material adverse effect on USBTC’s business, financial condition, and results of operations.
Furthermore, if USBTC were to fail to meet the expectations of third party data owners for any reason within or beyond its control, its partners could cancel or decline to renew its contracts with USBTC. If USBTC were unable to offset lost revenue by securing new PMAs, it could have a material adverse effect on the company’s business, financial condition, and results of operations.
USBTC faces certain risks associated with its current joint venture and may face similar risks in the future by entering into other joint ventures, and the materialization of any of these risks may have a material adverse effect on the company’s business, financial condition, and results of operations.
Joint ventures inherently involve a lesser degree of control over business strategy and operations, thereby potentially increasing the financial, legal, operational, regulatory, and/or compliance risks associated with
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them, and require the diversion of financial and management resources from existing operations or alternative opportunities. USBTC may be dependent on partners, controlling shareholders, management, or other persons or entities who control the joint venture and who may have business interests, strategies, or goals that are inconsistent or competitive with those of USBTC. Furthermore, joint venture partners receive access to USBTC’s intellectual property and other resources, which introduces the risk of theft and/or exploitation.
For example, USBTC owns a 50% membership interest in a joint venture with one of the world’s largest renewable energy producers with respect to the Echo data center in King Mountain, Texas. Decision making control over the joint venture’s actions rests in a committee of four member managers, two from each Member of the joint venture (USBTC and its partner). If the member managers of USBTC and its joint venture partner are not aligned with respect to business interests, strategies, or goals, or if the member managers of USBTC and its joint venture partner cannot reach agreement in decision-making processes, there is a risk that USBTC may not be able to operate the King Mountain site optimally from a financial, legal, operational, regulatory, and/or compliance perspective. If this situation materializes, it may have a material adverse effect on the company’s business, financial condition, and results of operations.
Business decisions or other actions or omissions of the partners, controlling shareholders, management, or other persons or entities who control them may adversely affect the value of USBTC’s interest in the joint venture, result in litigation or regulatory action against USBTC, and may otherwise damage USBTC’s reputation and brand. USBTC’s ability to realize value from its joint ventures may be limited by applicable securities laws and regulations. If USBTC fails to address the foregoing risks or other problems encountered in connection with past or future joint ventures, new technologies, services, and other assets, it could have a material adverse effect on the company’s business, financial condition, and results of operations.
USBTC faces certain risks associated with its current indebtedness, and failure to service debt under contracted terms may have a material adverse effect on the company’s business, financial condition, and results of operations.
USBTC is subject to a number of risks associated with its indebtedness. USBTC must dedicate a portion of its cash flows from operations to pay debt service costs, and it therefore has less funds available for operations and other purposes. All else being equal, USBTC is more vulnerable to economic downturns and fluctuations in interest rates, less able to withstand competitive pressures and less flexible in reacting to changes in the industry and general economic conditions. If USBTC were to default under any of its existing credit facilities or if its creditors demand payment of a portion or all of its indebtedness, USBTC may not have sufficient funds to make such payments and/or it may result in the repossession of assets encumbered by its creditors.
For example, pursuant to USBTC’s loan agreement with Anchorage Lending CA, LLC (“Anchorage”), USBTC and certain of its subsidiaries are obligated to repay the amount borrowed from Anchorage of approximately $49.0 million. In addition, pursuant to the loan agreement, the outstanding loan amount is secured by certain assets of USBTC and certain of its subsidiaries. In the event that USBTC and/or certain of its subsidiaries fail to pay the outstanding loan amounts or otherwise default under the loan agreement, Anchorage will be entitled to, amongst other remedies, (i) declare the outstanding loan amount immediately due and payable and/or (ii) enforce the rights granted to it pursuant to its security interests, including foreclosing upon the assets subject to the security interest. In addition, USBTC assumed a $96.8 member loan at a subsidiary level in connection with its King Mountain JV acquisition. While USBTC, as a parent entity, is not a guarantor under the loan, in the event that USBTC and/or its subsidiaries fail to pay the outstanding loan amounts or otherwise defaults under the loan, it may have a material adverse effect on USBTC’s business, financial condition and results of operations.
If USBTC is unable to increase the operating scale of its Alpha and Echo data centers as planned, the company will be required to find alternative options to increase the operating scale of its data center portfolio. If this scenario were to materialize and if USBTC was unsuccessful in its effort to expand its operating scale by other means, it may adversely affect your investment.
USBTC plans to increase the operating scale of its Alpha and Echo data centers by energizing additional miners at each site. The company faces several risks as it executes this plan, including, but not limited to, the risk that USBTC fails to secure regulatory approval and the risk that it is not prepared, for reasons within or beyond its control, to energize miners in a timely manner or at all upon their delivery. If USBTC is unable to
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successfully increase the operating scale of its Alpha and Echo data centers, and if the company were unsuccessful in its effort to expand its operating scale by other means, it may adversely affect your investment.
USBTC may face risks of Internet disruptions, which could have an adverse effect on the price of Bitcoin.
A disruption of the Internet may affect the use of Bitcoin and subsequently the value of USBTC’s securities. Generally, Bitcoin and USBTC’s business of mining digital assets is dependent upon the Internet. A significant disruption in Internet connectivity could disrupt a currency’s network operations until the disruption is resolved and have an adverse effect on the price of Bitcoin and USBTC’s ability to contribute computing power to pools that mine Bitcoin.
USBTC may become dependent on third-party brokers and direct suppliers to source some or all of its miners, and failure to properly manage these relationships, or the failure of these brokers or suppliers to perform as expected, could have a material adverse effect on USBTC’s business, prospects or operations.
While USBTC has historically purchased miners directly from miner manufacturers, it may in the future rely on third-party brokers or other suppliers to source some or all of its miners. USBTC cannot ensure that business interruptions will not occur as a result of the potential failure of these brokers or suppliers to perform as expected, for reasons including, but not limited to, the failure to secure acceptable or a sufficient number of miners for USBTC.
Like USBTC, many of USBTC’s industry peers have purchased mining equipment at scale in the past, which has at times resulted in a worldwide shortage of mining equipment and extended delivery schedules for new miner purchases. USBTC cannot ensure that miner manufacturers will be able to keep pace with potential increases in demand for mining equipment in the future. Furthermore, resource constraints or regulatory barriers could affect USBTC’s ability to purchase and secure miners. For example, China has experienced power shortages in the past, which at times led to business disruptions to certain of USBTC’s miner manufacturer suppliers. There is a possibility that certain miner manufacturers may relocate their manufacturing activities from China to other countries following the September 2021 regulatory blanket ban on digital asset mining and transactions in China. Such factors, including power outages and the relocation of manufacturing activities, could result in cancellations or delays and may negatively impact USBTC’s ability to receive mining equipment on a timely basis or at all.
In the past, increased demand for miners has also limited the supply of miners that brokers can source. USBTC cannot ensure that brokers, if engaged, or suppliers will continue to perform to USBTC’s satisfaction or under commercially attractive terms. Brokers or suppliers may also decline USBTC’s orders to fulfill orders from a competitor, which could harm USBTC’s competitive position. If USBTC’s brokers or suppliers were to not provide services according to USBTC’s needs or to become unable to produce and deliver the volume of miners required by USBTC, USBTC may not be able to find alternative means of purchasing and securing miners in a timely manner. Any delays, interruptions, or increased costs resulting from these dynamics could have a material adverse effect on USBTC’s business, prospects or operations.
USBTC may become involved in legal proceedings from time to time, which could adversely affect USBTC. USBTC cannot predict the outcome of any legal proceedings with respect to its current and past business activities.
From time to time, USBTC may be a party to legal and regulatory proceedings, including matters involving governmental agencies or regulators, entities with whom it does business and other proceedings, whether arising in the ordinary course of business or otherwise. USBTC evaluates its exposure to legal and regulatory proceedings and establishes reserves, if required, for the estimated liabilities in accordance with generally accepted accounting principles. Assessing and predicting the outcome of these matters involves substantial uncertainties and contingencies. Such matters can be time-consuming, divert management’s attention and resources, cause us to incur significant expenses or liabilities, or require USBTC to change its business practices. In addition, the expenses and liabilities of litigation and other proceedings, and the timing of these expenses from period to period, are difficult to estimate, subject to change, and could adversely affect USBTC’s business, financial condition and results of operations.
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For example, USBTC, and its wholly-owned subsidiary, U.S. Data Technologies Ltd. were defendants in a lawsuit filed by the City of Niagara Falls and the Director of the Department of Code Enforcement of the City of Niagara Falls on November 17, 2022 (City of Niagara Falls, et al. v. U.S. Data Technologies Group Ltd., et al., index no. E178623/2022, Niagara County Supreme Court), pursuant to which the plaintiffs were seeking to enjoin USBTC’s digital asset mining operations in Niagara Falls on the basis of alleged non-compliance with, and absence of required permits under, Niagara Falls’ recently amended zoning ordinance (the “Niagara Falls Litigation”). On December 1, 2022, the Niagara County Supreme Court issued a temporary restraining order directing USBTC to restrain from violating the law, continuing to mine digital assets, and engaging in business on the property. USBTC believed that the enactment of the recent amendment to the zoning ordinance was procedurally invalid and constitutionally unsound. In connection with the Niagara Falls Litigation, on April 7, 2023, USBTC entered into a settlement with the City of Niagara Falls (the “Niagara Falls Settlement”), which settled all such claims underlying the Niagara Falls Litigation and terminated the temporary restraining order against USBTC. In connection with the Niagara Falls Settlement, USBTC was required to pay the City of Niagara Falls a $100,000 compliance fee as well as $180,000 of the city’s attorney’s fees incurred with the Niagara Falls Litigation. In addition, USBTC is subject to ongoing noise level restrictions, which if not complied with, could result in fines under the terms of the Niagara Falls Settlement. For more information regarding the Niagara Falls Settlement, see “Information about USBTC — Legal Proceedings.” Any violation of the noise restraints under the Niagara Falls Settlement may result in the accumulation of fines or the voluntary shutdown of the site’s operations, both of which would have a material adverse effect on USBTC’s business and results of operations.
In addition, responding to lawsuits brought against USBTC and governmental inquiries or legal actions that USBTC may initiate, can often be expensive and time-consuming and disruptive to normal business operations. Moreover, the results of complex legal proceedings and governmental inquiries could adversely affect USBTC’s business, results of operations or financial condition, and USBTC could incur substantial monetary liability and/or be required to change its business practices.
The properties included in USBTC’s mining and hosting network may experience damages, including damages that are not covered by insurance.
USBTC’s current mining and hosting operations in New York, Nebraska and Texas are, and any future mines USBTC establishes will be, subject to a variety of risks relating to physical condition and operation, including:

the presence of construction or repair defects or other structural or building damage;

any noncompliance with or liabilities under applicable environmental, health or safety regulations or requirements or building permit requirements;

any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods and windstorms; and

and claims by employees and others for injuries sustained at USBTC properties.
For example, a mine could be rendered inoperable, temporarily or permanently, as a result of a fire or other natural disaster or by a terrorist or other attack on the mine. The security and other measures USBTC takes to protect against these risks may not be sufficient. Additionally, a mine could be materially adversely affected by a power outage or loss of access to the electrical grid or loss by the grid of cost-effective sources of electrical power generating capacity. Given the power requirement, it would not be feasible to run miners on back-up power generators in the event of a power outage. USBTC’s insurance may cover all or a portion of the replacement cost of any lost or damaged miners, but does not cover any interruption of its mining activities; USBTC’s insurance therefore may not be adequate to cover the losses it suffers as a result of any of these events. In the event of an uninsured loss, including a loss in excess of insured limits, at any of the mines in its network, such mines may not be adequately repaired in a timely manner or at all and USBTC may lose some or all of the future revenues anticipated to be derived from such mines.
USBTC has previously identified material weaknesses in its internal control over financial reporting. These material weaknesses could continue to adversely affect USBTC’s ability to report its results of operations and financial condition accurately and in a timely manner.
In connection with the preparation of USBTC’s consolidated financial statements as of June 30, 2022 and for the fiscal year ended June 30, 2022, management and its independent registered public accounting firm
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identified material weaknesses in internal controls over accounting for revenue related transactions, accounting for income taxes, accounting for equity method investments and accounting for complex transactions. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. USBTC’s management is responsible for the internal control over financial reporting of USBTC and is taking steps to address the material weaknesses, including:

Expanding the accounting and finance functions of USBTC by hiring additional employees within the accounting and finance departments of the USBTC, which has already been initiated and expected to be fully operational by June 30, 2023;

The engagement of a third-party firm to assist USBTC in its income tax preparation process;

The engagement of a third-party firm to assist USBTC in its equity accounting processes;

The engagement of a third-party firm to assist USBTC for its complex revenue and other transactions;

The implementation of additional, stronger controls relating to its revenue recognition and impairment process on a go forward basis; and

The implementation of an oversight process where third-party firms are managed by senior team members and reliance on any third-party reports is reviewed and approved by authorized personnel at USBTC.
USBTC expects its remediation plan described above to be fully completed by December 31, 2023. USBTC has not incurred any material expenses to date with respect to its remediation plan, and it does not expect to incur any material additional costs through its completion. USBTC will also continue to expend the necessary resources, including accounting-related costs to significantly enhance management oversight. If any of these new or improved controls and systems do not perform as expected, USBTC may experience additional deficiencies in its controls.
There can be no assurance that other material weaknesses will not arise in the future. Any material weaknesses in USBTC’s internal control over financial reporting could cause New Hut to fail to meet its future reporting obligations or could result in material misstatements in its financial statements, which in turn could have an adverse effect on its financial condition. Any material weakness could also adversely affect the results of the periodic management evaluations and, to the extent New Hut is no longer an emerging growth company, the annual auditor attestation reports regarding the effectiveness of New Hut’s internal control over financial reporting that will be required under Section 404 of the Sarbanes- Oxley Act of 2002. Internal control deficiencies could also cause investors to lose confidence in the reported financial information which could have an adverse effect on the trading price of New Hut’s securities.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or nonperformance by financial institutions or transactional counterparties, could adversely affect USBTC’s current and projected business operations and financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.
For example, the majority of USBTC’s cash is held in accounts at U.S. banking institutions. Cash held in non-interest-bearing and interest-bearing operating accounts may exceed the FDIC insurance limits. If such banking institutions were to fail, USBTC could lose all or a portion of those amounts held in excess of such insurance limitations. While the FDIC took control of SVB, on March 10, 2023, USBTC did not have any accounts with SVB and therefore did not experience any specific risk of loss related to SVB. The FDIC also took control of Signature Bank on March 12, 2023. USBTC maintained certain operating accounts with Signature Bank prior to its closure and has since transferred all of its deposits previously held with the bank to other banking institutions. The Federal Reserve announced that account holders with Signature Bank would be made whole. However, as the FDIC continues to address the situation with SVB, Signature Bank and other
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banking institutions, the risk of loss in excess of insurance limitations and otherwise has increased across financial institutions. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion. Any loss that USBTC may experience in the future could have a material and adverse effect on USBTC’s ability to pay its operational expenses or make other payments, and may require USBTC to move its accounts to other banks, which could cause delays in making payments to its vendors and employees, among other counterparties, and cause other business and operational disruptions.
USBTC has completed a rescission offer of privately issued securities, with one offeree choosing to accept USBTC’s rescission offer to date (the “Rescission Offer”).
In July 2021, USBTC offered to repurchase 31,422 shares of Series A Preferred Stock of USBTC (the “Series A Shares”), 62,431 shares of common stock of USBTC sold during the USBTC’s “founder” round (the “Founder Common Shares”), 37,510 shares of common stock of USBTC sold during the USBTC’s “seed” round (the “Seed Common Shares,” and together with the Founder Common Shares, the “Rescission Offer Common Shares,” and the Series A Shares, the “Rescission Shares”) and up to an aggregate principal amount of $5.87 million promissory notes outstanding plus applicable accrued interest outstanding (the “Promissory Notes,” and together with the Rescission Shares, the “Rescission Securities”). The Rescission Securities were originally purchased in private transactions by certain persons who are or were residents of California, Florida, Illinois, Maryland, Massachusetts, Pennsylvania, Nevada, New Jersey, New York, Texas, Virginia, Washington, Puerto Rico, Canada, the Cayman Islands, Hong Kong and the United Arab Emirates at the time such Rescission Securities were purchased.
Management of USBTC became aware that (i) court orders (the “SEC Orders”) against two of USBTC’s now-former stockholders, John Stetson and Mark Groussman, which, among other things, restrain and enjoin such stockholders from violating certain federal securities laws, may have precluded USBTC from relying on certain federal and state securities exemptions for the offerings since such stockholders may have been deemed “promoters” based on certain of their activities in one or more of the offerings, (ii) it is possible that payments made to certain persons may be deemed as a commission or finder’s fee in connection with one or more of the offerings and (iii) given the fact that proper notification and/or other provisions for an exemption may not have been complied with, the sale of certain Rescission Securities may not have been in compliance with state securities, “blue sky” or other applicable laws. Additionally, a current beneficial owner of securities of USBTC is a family member of a third defendant implicated in the SEC Order. It is possible the USBTC stockholder relationship with such individual could be subject to regulatory scrutiny and alleged by regulators as USBTC acting in concert with the bad actor defendants. Because of the aforementioned items, it is possible that the disclosure provided to subscribers in the aforementioned offerings was incomplete. As a result, USBTC elected to conduct the Rescission Offer. All equity previously held by Messrs. Stetson and Groussman and any of their family members and/or affiliates has been sold to other equity holders of USBTC, and USBTC has taken all other actions necessary as of August 2021 so that Messrs. Stetson and Groussman no longer have any involvement with USBTC.
The Rescission Offer remained open until the earlier of (i) the date on which USBTC received written responses from all offerees and (ii) 30 days after delivery of the Rescission Offer. As of the date of this prospectus, the Rescission Offer has closed and only one holder of 126 Series A Shares elected to have USBTC redeem his investment and rescind his purchase of the Series A Shares. If all securityholders were to have accepted the Rescission Offer, USBTC would have been required to pay approximately $41.2 million in the aggregate. As of the date of this prospectus, USBTC has voluntarily paid off the $5.87 million in Promissory Notes. USBTC has experienced significant negative cash flow from operations to date and may continue to experience significant negative cash flow in the future. While USBTC has experienced historical losses and liquidity issues, it had enough cash or cash equivalents to pay the one holder of Series A Shares. However, in the future, should additional holders of Rescission Securities seek to rescind their prior purchases or should the validity of the Rescission Offer be contested for any reason, USBTC may not have enough cash or cash equivalents to pay any holders of Rescission Securities who may claim they continue to have a right to rescind their purchase of Rescission Securities.
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USBTC is subject to orders in three states, Massachusetts, Maryland and Virginia, and its failure to comply with federal and state securities laws and regulations in connection with the Rescission Offer could subject USBTC to additional enforcement actions, monetary fines and penalties, disqualifications under federal securities laws, and impair its ability to raise capital in the future.
USBTC is relying upon exemptions from the securities registration provisions of the federal and state securities laws and regulations in connection with the Rescission Offer. In relying upon such exemptions, USBTC has the burden of ensuring compliance with such laws for the Rescission Offer, including the applicable state anti-fraud provisions. As of the date of this prospectus, USBTC has voluntarily disclosed the Rescission Offer and corresponded with the state securities regulators in the states of California, Maryland, New Jersey, Pennsylvania, Virginia, Massachusetts and Washington regarding the Rescission Offer and has been advised by all such states that no further actions are necessary. Given that USBTC believes that the Rescission Securities were exempt from registration under Section 4(a)(2) of the Securities Act, USBTC does not believe there were any violations of federal securities laws, and as such, has not notified any federal regulators regarding the Rescission Offer.
In connection with the Rescission Offer, the Commonwealth of Massachusetts, Office of the Secretary of the Commonwealth, Securities Division (the “Massachusetts Division”) issued a Consent Order, Docket No. E-2022-0011, on March 22, 2022 (the “Massachusetts Order”) in lieu of a hearing. The Massachusetts Order recited that the Massachusetts Division had conducted an investigation of USBTC pursuant to the Massachusetts Uniform Act, Mass. Gen. Laws c. 110A the (“Massachusetts Securities Act”) and the regulations promulgated thereunder (the “Massachusetts Regulations”), and reviewed self-reported allegations of alleged sales of unregistered securities of USBTC in the State of Massachusetts in potential violation of the Massachusetts Securities Act and Massachusetts Regulations which securities had not been determined to be exempt from registration requirements. As had been agreed by and consented to by USBTC, the Massachusetts Order, in summary, required USBTC to (i) permanently cease and desist from committing violations of the Massachusetts Securities Act; (ii) offer to rescind securities purchase transactions with five Massachusetts residents; (iii) submit the necessary paperwork and pay the necessary fees in order to register the sales to the Massachusetts residents with the Massachusetts Division; and (iv) pay an administrative fine in the amount of $1.0 million. With respect to the requirement to offer rescission, USBTC resent the Rescission Offer provided in July 2021, with additional Massachusetts-specific disclaimers, to the five Massachusetts residents, who collectively held 4,335 Series A Shares, in April 2022. The Massachusetts investors reconfirmed their declination of the offer to rescind. In April 2022, USBTC paid the $1.0 million administrative fine.
In connection with the Rescission Offer, USBTC entered into a Stipulation for Consent Order, Case No. 2021-0127, on November 5, 2021 (the “Maryland Order”) in lieu of a hearing, following receipt of a Consent Order from the Maryland Securities Division of the Office of the Attorney General Division (the “Division”). The Maryland Order recited that the Commissioner had reviewed allegations that unregistered securities of USBTC were sold by USBTC in the State of Maryland in violation of Section 11-101 et seq. of the Maryland Securities Act, Md. Code Ann., Corps. And Ass’ns. (the “Maryland Securities Act”) which securities had not been determined to be exempt from registration requirements. As had been agreed by USBTC, the Maryland Order, in summary, required USBTC to offer to rescind securities purchase transactions with three Maryland residents, admit to the jurisdiction of the Division as to substance and entry of the Maryland Order, and comply with the provisions of the Maryland Securities Act in any and all such future Maryland offers and sales of securities. With respect to the requirement to offer rescission, USBTC resent the Rescission Offer provided in July 2021, with additional Maryland-specific disclaimers, to the three Maryland residents, who collectively held 1,876 Seed Shares and 126 Series A Shares, in November 2021. The Maryland investors reconfirmed their declination of the offer to rescind.
In connection with the Rescission Offer, USBTC entered into a Settlement Order, Case No. 2021-00029, on October 26, 2021 (the “Virginia Order”) in lieu of a hearing, following receipt and approval of the Settlement Order from the Commonwealth of Virginia, State Corporation Commission’s (the “Commission”) Division of Securities and Retail Franchising (Richmond) (the “Virginia Division”). The Virginia Order recited that the Virginia Division had conducted an investigation of USBTC pursuant to Section 13.1-518 of the Virginia Securities Act (the “Virginia Act”) and Section 13.1-501 et seq. of the Code of Virginia, and reviewed self-reported allegations of alleged sales of unregistered securities of USBTC in the State of Virginia in violation of Section 13.1-507 of the Virginia Act which securities had not been determined to be exempt from
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registration requirements. As had been agreed by and consented to by USBTC, the Virginia Order, in summary, required USBTC to (i) offer to rescind securities purchase transactions with four Virginia residents; (ii) pay to Virginia a monetary penalty and fees to defray the Division investigatory costs in the amounts of $5,000 and $1,000, respectively; (iii) admit to the jurisdiction and authority of the Commission as to substance and entry of the Virginia Order, and (iv) comply with the provisions of the Virginia Securities Act in any and all such future Virginia offers and sales of securities. With respect to the requirement to offer rescission, USBTC resent the Rescission Offer provided in July 2021, with additional Virginia- specific disclaimers, to the four Virginia residents, who collectively held 750 Founder Common Shares, 1,875 Seed Common Shares and 441 Series A Shares, in October 2021. The Virginia investors reconfirmed their declination of the offer to rescind.
If, for any reason, USBTC fails to comply with the applicable state securities exemptions, or has failed in the past to comply, it may, among other things, subject USBTC to both investigations and administrative actions by federal and/or state regulatory agencies, administrative fines and penalties, disqualifications from use of exemptions under federal securities laws, or actions for rescission or for damages. There is no guarantee that USBTC will not become subject to such actions in the future. Such actions, if commenced, could have a material adverse effect on USBTC’s ability to raise necessary capital in the future. While USBTC has always endeavored to fully comply with all such laws, there is no assurance that any non-compliance will not have a material adverse effect on USBTC.
USBTC may continue to have potential liability even after the Rescission Offer is complete.
USBTC issued the Rescission Securities which may not have been exempt from the registration or qualification requirements under the federal and state securities laws of certain states at the time of issuance. In order to address this issue, USBTC made the Rescission Offer to all holders of any outstanding Rescission Securities which may have been issued without an exemption from the registration and qualification requirements under applicable foreign, federal and state securities laws and USBTC has since received responses from all holders of Rescission Securities regarding the Rescission Offer. However, the Securities Act does not provide that a Rescission Offer will extinguish a holder’s right to rescind the purchase of a security that was not registered or exempt from the registration requirements under the Securities Act. Consequently, in the future, holders may choose to exercise their rescission rights. There is no guarantee that this will not happen, and, as such, USBTC may remain liable under the Securities Act for the purchase price of the Rescission Securities subject to the Rescission Offer.
USBTC’s Regulatory Related Risks
If USBTC were deemed to be an investment company under the Investment Company Act, applicable restrictions could make it impractical or impossible for USBTC to continue its business as contemplated and could have a material adverse effect on its business, financial condition and results of operations.
Under Sections 3(a)(1)(A) and (C) of the Investment Company Act, a company generally will be deemed to be an “investment company” for purposes of the Investment Company Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. USBTC does not believe that it is an “investment company,” as such term is defined in either of those sections of the Investment Company Act. USBTC intends to conduct its operations so that it will not be deemed an investment company.
USBTC believes that it is not engaged in the business of investing, reinvesting, or trading in securities, and USBTC does not hold itself out as being engaged in those activities. To date, the SEC staff have treated Bitcoin as a commodity, but it is possible that the SEC may deem Bitcoins and other digital assets an investment security in the future, although USBTC does not believe any of the Bitcoin it owns, acquires or mines are securities. As a result of USBTC’s investments and its digital asset mining activities, it is possible that the investment securities USBTC holds in the future could exceed 40% of its total assets, exclusive of U.S. government securities and cash items, particularly if such SEC treatment changes, and, accordingly, USBTC could determine that USBTC has become an inadvertent investment company under the second definition above. An inadvertent investment company can avoid being classified as an investment company if it can rely
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on one of the exclusions or exemptions under the Investment Company Act. One such exemption, Rule 3a-2 under the Investment Company Act, allows an inadvertent investment company a grace period of one year from the earlier of (a) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. As of the date hereof, USBTC does not believe it is an inadvertent investment company. If USBTC does become an inadvertent investment company in the future, USBTC may take actions to cause the investment securities held by it to be less than 40% of its total assets, which may include acquiring assets with the cash and Bitcoin on hand or liquidating investment securities or Bitcoin or seeking a no-action letter from the SEC if USBTC is unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner. Liquidating investment securities or Bitcoin could result in losses.
As the Rule 3a-2 exemption is available to a company no more than once every three years, and assuming no other exclusion or exemption is available to USBTC, USBTC would have to keep within the 40% limit for at least three years after it relies on Rule 3a-2 and subsequently cease being an inadvertent investment company. This may limit USBTC’s ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on USBTC’s earnings. In any event, USBTC does not intend to become an investment company engaged in the business of investing and trading securities.
Classification as an investment company under the Investment Company Act requires registration with the SEC. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time consuming, expensive and restrictive and would require a restructuring of USBTC’s operations, and USBTC would be very constrained in the kind of business it could do as a registered investment company. Further, USBTC would become subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the Investment Company Act regime. The cost of such compliance would result in USBTC incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact on USBTC’s operations. Furthermore, USBTC’s classification as an investment company could adversely affect its ability to engage in future combinations, acquisitions or other transactions on a tax-free basis.
USBTC is subject to a highly-evolving regulatory landscape and any adverse changes to, or its failure to comply with, any laws and regulations could adversely affect its business, prospects or operations.
Bitcoin and other forms of digital assets have been the source of significant regulatory scrutiny in the United States and internationally. Bitcoin and other digital assets are viewed disparately across various regulatory and standards-setting organizations internationally, as well as in the United States at the federal and state levels. For example, the FATF and the IRS consider a digital asset as currency or an asset or property. Further, the IRS applies general tax principles that apply to property transactions to transactions involving virtual currency. The CTFC classifies Bitcoin as a commodity. The SEC has also publicly stated that it considers Bitcoin to be a commodity, but that some digital assets should be categorized as securities. How a digital asset is characterized by a regulator impacts the rules that apply to activities related to that digital asset.
As digital assets have grown in both popularity and market size, governments around the world have reacted differently. Certain governments have deemed digital assets illegal or have severely curtailed the use of digital assets by prohibiting the acceptance of payment in Bitcoin and other digital assets for consumer transactions and barring banking institutions from accepting deposits of digital assets. Other nations, however, allow digital assets to be used and traded without significant restrictions. In some jurisdictions, such as in the United States, digital assets are subject to regulatory requirements and considerations. For example, the SEC and its staff have taken the position that certain cryptocurrencies fall within the definition of a “security” under the U.S. federal securities laws and have issued reports, orders, and statements that provide guidance on when a cryptocurrency may be a security for purposes of the U.S. federal securities laws. The SEC generally does not provide advance guidance or confirmation on the status of any particular cryptocurrency as a security. Public statements made by senior officials at the SEC indicate that the SEC does not intend to take the position that Bitcoin is a security (as currently offered and sold). However, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or
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court and cannot be generalized to any other digital asset. As of the date of this prospectus, with the exception of certain centrally issued digital assets that have received “no-action” letters from the SEC staff, Bitcoin is the only digital asset that senior officials at the SEC have publicly stated is unlikely to be considered a security. If laws and regulations evolve or the SEC changes its position with respect to whether Bitcoin is regarded as a type of security, we may be subject to Investment Company Act and other regulations surrounding securities.
There is also a risk that relevant authorities in any jurisdiction may impose more onerous regulation on or scrutiny of Bitcoin, for example banning its use, regulating its operation, or otherwise changing its regulatory treatment. Such changes could involve significant compliance or other costs, or otherwise have a material adverse impact on USBTC’s business model, operations, and financial performance. If the use of Bitcoin is made illegal in jurisdictions where Bitcoin is currently traded, the available market for Bitcoin may contract. For example, on September 24, 2021, the People’s Bank of China announced that all activities involving digital assets in mainland China are illegal, which corresponded with a significant decrease in the price of Bitcoin. If another government with considerable economic power were to ban digital assets or related activities, this could have further adverse impact on the price of Bitcoin.
Digital asset trading platforms may also be subject to increased regulation, and there is a risk that increased compliance costs are passed through to users, including USBTC, as it exchanges Bitcoin earned through its mining activities. There is a risk that a lack of stability in the Bitcoin exchange market and the closure or temporary shutdown of Bitcoin exchanges due to fraud, business failure, hackers, malware, or government-mandated restrictions may reduce confidence in the Bitcoin network and result in greater volatility in or suppression of Bitcoin’s value and consequently have a material adverse impact on USBTC’s operations and financial performance. Note that although Bitcoin is not currently treated as a security by the SEC, the exchanges on which Bitcoin is traded typically provide trading services with respect to numerous other digital assets, some of which may be deemed to be securities by the SEC, and some of them are currently under investigation by the SEC and other regulators as well. If any of these exchanges are shut down due to regulatory action or have their activities significantly curtailed or otherwise modified, it could become more difficult for USBTC and other holders of Bitcoin to monetize holdings. This could also result in a decrease in the overall price of Bitcoin which could have a material adverse impact on USBTC’s operations and financial performance.
The SEC has recently proposed regulations which would require investment advisers (including fund managers of many funds) to custody all digital assets they hold on behalf of clients with “qualified custodians.” Because the majority of digital assets exchanges are not “qualified custodians,” and because these exchanges require users to prefund their trades (in effect requiring users to place digital assets in custody with them), it may be practically impossible for investment advisers to hold digital assets on behalf of their institutional clients or managed funds. The exit of institutional investors and funds from the market for Bitcoin could have a material adverse effect on the price of Bitcoin and thus on USBTC’s results of operations.
In the U.S., the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the CTFC, the SEC, FinCEN and the Federal Bureau of Investigation) have begun to examine the operations of the Bitcoin network, Bitcoin users and the Bitcoin exchange market, in light of the FTX and other bankruptcies. Increasing regulation and regulatory scrutiny may result in new costs for USBTC and its management may have to devote increased time and attention to regulatory matters or change aspects of its business. Increased regulation may also result in limitations on the use cases of Bitcoin. In addition, regulatory developments may require USBTC to comply with certain regulatory regimes. For example, to the extent that USBTC’s activities cause it to be deemed a “money service business” under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act (“BSA”), USBTC may be required to comply with FinCEN regulations, including those that would mandate it to implement certain anti-money laundering programs, make certain reports to FinCEN and maintain certain records.
Furthermore, in the future, foreign governments may decide to subsidize or in some other way support certain large-scale Bitcoin mining projects, thus adding hashrate to the overall network. Such circumstances could have a material adverse effect on the amount of Bitcoin that USBTC may be able to mine as well as the value of Bitcoin and, consequently, USBTC’s business, prospects, financial condition and operating results.
USBTC cannot be certain as to how future regulatory developments will impact the treatment of Bitcoin under the law, and ongoing and future regulation and regulatory actions could significantly restrict or
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eliminate the market for or uses of Bitcoin and materially and adversely impact USBTC’s business. If USBTC fails to comply with such additional regulatory and registration requirements, it may seek to cease certain of its operations or be subjected to fines, penalties and other governmental action. Such circumstances could have a material adverse effect on USBTC’s ability to pursue its business model at all, which could have a material adverse effect on its business, prospects or operations and potentially the value of any digital assets it holds or expect to acquire for its own account.
Blockchain technology may expose USBTC to sanctioned or blocked persons or may result in unintentional or inadvertent violations of sanctions, laws and regulations.
USBTC is subject to the rules enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), including prohibitions on conducting direct or indirect business with persons named on, or owned or controlled by persons named on, OFAC’s various sanctions lists, including the Specially Designated Nationals and Blocked Persons list. USBTC is also prohibited from direct or indirect dealings with persons located in, organized in, or nationals of, jurisdictions subject to U.S. embargos (as of today, Cuba, Iran, North Korea, Syria, and the Crimea region), and may be prohibited from dealing with persons in other jurisdictions subject to limited U.S. sanctions such as Venezuela and Russia. However, because of the pseudonymous nature of blockchain transactions, USBTC may inadvertently and without knowledge directly or indirectly engaging in transactions with or for the benefit of prohibited persons. OFAC sanctions violations are typically regarded as “strict liability” violations, meaning USBTC may be held responsible for transacting with prohibited parties even if USBTC has no knowledge that a particular counter party is a prohibited person under the OFAC sanctions regulations.
If it is determined that USBTC has transacted with prohibited persons, even inadvertently, this could result in reputational harm, the imposition of fines or penalties, and costs associated with governmental inquiries and investigations. All of the foregoing could be substantial.
The digital asset economy is novel and has little to no access to policymakers or lobbying organizations, which may harm USBTC’s ability to effectively react to proposed legislation and regulation of digital assets or digital asset platforms adverse to its business.
As digital assets have grown in both popularity and market size, various U.S. federal, state, and local and foreign governmental organizations, consumer agencies and public advocacy groups have been examining the operations of digital asset networks, users and platforms, with a focus on how digital assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist enterprises, and the safety and soundness of platforms and other service providers that hold digital assets for users. Many of these entities have called for heightened regulatory oversight, and have issued consumer advisories describing the risks posed by digital assets to users and investors. For instance, in July 2019, then-U.S. Treasury Secretary Steven Mnuchin stated that he had “very serious concerns” about digital assets. In recent months, members of Congress have made inquiries into the regulation of digital assets, and Gary Gensler, Chair of the SEC, has made public statements regarding increased regulatory oversight of digital assets. Outside the United States, several jurisdictions have banned so-called initial coin offerings, such as China and South Korea, while Canada, Singapore, Hong Kong, have opined that token offerings may constitute securities offerings subject to local securities regulations. In July 2019, the United Kingdom’s Financial Conduct Authority proposed rules to address harm to retail customers arising from the sale of derivatives and exchange-traded notes that reference certain types of digital assets, contending that they are “ill-suited” to retail investors due to extreme volatility, valuation challenges and association with financial crimes. In May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading, and in September 2021, Chinese regulators instituted a blanket ban on all digital asset mining and transactions, including overseas digital asset exchange services taking place in China, effectively making all digital asset-related activities illegal in China (the “China Ban”).
The digital asset economy is novel and has little to no access to policymakers and lobbying organizations in many jurisdictions. Competitors from other, more established industries, including traditional financial services, may have greater access to lobbyists or governmental officials, and regulators that are concerned about the potential for digital assets for illicit usage may effect statutory and regulatory changes with minimal or discounted inputs from the digital asset economy. As a result, new laws and regulations may be proposed
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and adopted in the United States and internationally, or existing laws and regulations may be interpreted in new ways that harm the digital asset economy or digital asset platforms, which could adversely impact USBTC’s business.
Bitcoin’s and other digital assets’ status as a “security,” a “commodity” or a “financial instrument” in any relevant jurisdiction is subject to a high degree of uncertainty and if USBTC is unable to properly characterize a digital asset, USBTC may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect USBTC’s business, operating results, and financial condition.
The SEC and its staff have taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis. The SEC Staff has indicated that the determination of whether or not a digital asset is a security depends on the characteristics and use of that particular asset. The SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset as a security. However, the SEC and its staff have taken positions that certain digital assets are “securities” — often in the context of enforcement actions — and USBTC does not currently hold any digital assets for which the SEC or its staff has taken such a position. Prior public statements by senior officials at the SEC indicate that the SEC does not intend to take the position that Bitcoin is a security (in its current form). Bitcoin is the only digital asset as to which senior officials at the SEC have publicly expressed such a view. Moreover, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court, cannot be generalized to any other digital asset and may evolve. Similarly, although the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for analyzing whether any given digital asset is a security in April 2019, this framework is also not a rule, regulation, or statement of the SEC and is not binding on the SEC. With the exception of certain centrally issued digital assets that have received “no-action” letters from the SEC staff, Bitcoin is the only digital asset that senior officials at the SEC have publicly stated is unlikely to be considered a security. To date, USBTC only holds Bitcoin which, as stated above, has not been treated as a “security” by the SEC. However, USBTC has implemented an analysis framework to assess whether any digital assets USBTC may hold in the future may be deemed to be a “security” in light of the guidance released to date by the SEC. USBTC’s analysis framework takes into account (i) U.S. federal securities laws, case law and other published guidance, (ii) available information and facts relating to the digital asset and (iii) USBTC’s deep understanding of the digital asset technologies it may choose to hold in the future. In addition, in conducting the legal analysis relating to whether a digital asset constitutes a “security” under the U.S. federal securities laws, USBTC requires that the analysis be performed in close consultation with subject-matter experts from functional areas of USBTC, such as operations, product, data, engineering and security, who can provide significant technical expertise, as well as external legal counsel. Although USBTC’s policies and procedures are intended to enable it to make risk-based assessments regarding the likelihood that a particular digital asset could be deemed a security under applicable laws, including federal securities laws, USBTC’s assessments are not definitive legal determinations or binding as to whether a particular digital asset is a security under such laws. Accordingly, regardless of USBTC’s conclusions, USBTC could be subject to legal or regulatory action in the event the SEC or a court were to determine that a digital asset supported by USBTC’s platform is a “security” under U.S. law.
In November 2022, FTX, a leading digital asset exchange filed for bankruptcy in the Bahamas and the United States which was followed by a criminal indictment against senior management, including the founder. These proceedings had a significant adverse impact on USBTC’s industry. In January 2023, the SEC sued two digital asset companies, Genesis Global Capital, LLC and Gemini Trust Company, LLC, for selling unregistered securities. The SEC’s complaint alleged that digital asset companies’ activities constituted an offer and sale of securities under applicable law and should have been registered with the SEC. Whether there will be additional legislation or regulation of digital assets is uncertain. While USBTC believes its holdings are not a security, USBTC cannot assure you that future legislation or regulation will not have an adverse effect upon USBTC.
To the extent that the SEC or a court determines that any digital assets USBTC holds, or chooses to hold in the future, are securities, that determination could prevent USBTC from continuing to hold or mine those digital assets. It could also result in regulatory enforcement penalties and financial losses in the event that USBTC has liability to its customers and needs to compensate them for any losses or damages. USBTC could be subject to judicial or administrative sanctions for failing to offer or sell the digital asset in compliance with
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securities registration requirements. Such an action could result in injunctions and cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Moreover, the networks on which such digital assets are used might be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, any determination that Bitcoin or Ethereum is a security could draw negative publicity and cause a decline in the general acceptance of digital assets. Also, it would make it more difficult for Bitcoin or Ethereum, as applicable, to be traded, cleared, and custodied as compared to other digital assets that are not considered to be securities. Lastly, any determination that a digital asset USBTC holds, or chooses to hold in the future, is a “security” may require USBTC to register as an investment company under the Investment Company Act.
Certain digital assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of digital assets as “securities.” If Bitcoin or any other supported digital asset is deemed to be a security under any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such supported digital asset. For instance, all transactions in such supported digital asset would have to be registered with the SEC or other foreign authority, or conducted in accordance with an exemption from registration, which could severely limit its liquidity, usability and transactability. Moreover, the networks on which such supported digital assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the digital asset. Also, it may make it difficult for such supported digital asset to be traded, cleared, and custodied as compared to other digital assets that are not considered to be securities.
It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoin or other digital assets, participate in blockchains or utilize similar digital assets in one or more countries, which would adversely affect USBTC’s business operations.
Although currently digital assets generally are not regulated or are lightly regulated in most countries, countries such as China and Russia have taken harsh regulatory action to curb the use of digital assets and may continue to take regulatory action in the future that could severely restrict the right to acquire, own, hold, sell or use these digital assets or to exchange them for fiat currency. In 2021, China instituted the China Ban. In other nations, including Russia, it is illegal to accept payment in Bitcoin or other digital assets for consumer transactions, and banking institutions are barred from accepting deposits of Bitcoin. Such restrictions may adversely affect USBTC as the large-scale use of Bitcoin as a means of exchange is presently confined to certain regions globally. Such circumstances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects, or operations and potentially the value of any Bitcoin USBTC mines or otherwise acquires or holds for its own account, ultimately harming investors.
USBTC’s business may be subject to substantial energy regulation and may be adversely affected by legislative or regulatory changes, as well as liability under, or any future inability to comply with, existing or future energy regulations or requirements. USBTC is required to obtain, and to comply with, government permits and approvals.
USBTC’s business may be subject to extensive U.S. federal, state and local laws. Compliance with, or changes to, the requirements under these legal and regulatory regimes may cause USBTC to incur significant additional costs or adversely impact USBTC’s ability to compete on favorable terms with competitors. Failure to comply with such requirements could result in the shutdown of a non-complying facility, the imposition of liens, fines, and/or civil or criminal liability and/or costly litigation before the agencies and/or in state or federal court.
The regulatory environment has undergone significant changes in the last several years due to state and federal policies affecting wholesale competition and the creation of incentives for the addition of large amounts of new renewable generation and, in some cases, transmission. These changes are ongoing, and USBTC cannot predict the future design of the power markets or the ultimate effect that the changing regulatory environment will have on USBTC’s business. If competitive restructuring of the electric power markets is reversed, discontinued, delayed or materially altered, USBTC’s business, financial condition, results of operations and prospects could be negatively impacted.
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USBTC may become subject to environmental laws and regulations that could increase its costs of doing business and adversely impact its business, financial condition and results of operations.
USBTC’s operations may be subject to federal, state and local laws and regulations governing air and water quality, hazardous and solid waste disposal and other environmental matters. One or more of these developments could adversely impact USBTC’s operations, increase USBTC’s environmental compliance costs and potentially reduce the extent of USBTC’s business, any of which could have a material adverse effect on USBTC’s business, results of operations and financial condition.
The regulatory and legislative developments related to climate change may materially adversely affect USBTC’s brand, reputation, business, results of operations and financial position.
A number of governments or governmental bodies have introduced or are contemplating legislative and regulatory changes in response to the increasing focus on climate change and its potential impact, including from governmental bodies, interest groups and stakeholders. For example, the Paris Agreement became effective in November 2016, and signatories are required to submit their most recent emissions goals in the form of nationally determined contributions. Despite USBTC’s sustainability objectives in sourcing electricity from renewable energy sources, given the very significant amount of electrical power required to operate Bitcoin mining machines, as well as the environmental impact of mining for the rare earth metals used in the production of mining servers, the Bitcoin mining industry may become a target for future environmental and energy regulation. Legislation and increased regulation regarding climate change could impose significant costs on USBTC and its suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, costs to purchase renewable energy credits or allowances and other costs to comply with such regulations. Specifically, imposition of a tax or other regulatory fee in a jurisdiction where USBTC operates or on electricity that USBTC purchases could result in substantially higher energy costs, and due to the significant amount of electrical power required to operate Bitcoin mining machines, could in turn put USBTC facilities at a competitive disadvantage. Any future climate change regulations could also negatively impact USBTC’s ability to compete with companies situated in areas not subject to such limitations. Given the political significance and uncertainty around the impact of climate change and how it should be addressed, USBTC cannot predict how legislation and regulation will affect USBTC’s financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by USBTC or other companies in the same industry could harm USBTC’s reputation. Any of the foregoing could have a material adverse effect on USBTC’s financial position, results of operations and cash flows.
USBTC’s cost of compliance with existing and new environmental laws could have a material adverse effect on USBTC.
USBTC is subject to extensive environmental regulation by governmental authorities, including the United States Environmental Protection Agency (“EPA”), and state environmental agencies and/or attorneys general. USBTC may incur significant additional costs beyond those currently contemplated to comply with these regulatory requirements. If USBTC fails to comply with these regulatory requirements, USBTC could be forced to reduce or discontinue operations or become subject to administrative, civil or criminal liabilities and fines. Existing environmental regulations could be revised or reinterpreted, new laws and regulations could be adopted or become applicable to USBTC or its facilities, and future changes in environmental laws and regulations could occur, including potential regulatory and enforcement developments related to air emissions, all of which could result in significant additional costs beyond those currently contemplated to comply with existing requirements. Any of the foregoing could have a material adverse effect on USBTC.
The EPA has recently finalized or proposed several regulatory actions establishing new requirements for control of certain emissions from sources, including electricity generation facilities. While USBTC does not currently own any electricity generation facilities, in the future, the EPA may also propose and finalize additional regulatory actions that may adversely affect USBTC’s ability to cost-effectively develop new generation facilities. Future federal and/or state regulatory actions could require USBTC to install significant additional control equipment, resulting in potentially material costs of compliance for new power generation facilities USBTC may possibly pursue in the future, including capital expenditures, higher operating and fuel
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costs and potential production curtailments. These costs could have a material adverse effect on USBTC. USBTC may not be able to obtain or maintain all required environmental regulatory approvals. If there is a delay in obtaining any required environmental regulatory approvals, if USBTC fails to obtain, maintain or comply with any such approval or if an approval is retroactively disallowed or adversely modified, the operation of future or current generation facilities could be stopped, disrupted, curtailed or modified or become subject to additional costs. Any such stoppage, disruption, curtailment, modification or additional costs could have a material adverse effect on USBTC.
In addition, USBTC may be responsible for any on-site liabilities associated with the environmental condition of facilities that USBTC has acquired, leased, developed or sold, regardless of when the liabilities arose and whether they are now known or unknown. In connection with certain acquisitions and sales of assets, USBTC may obtain, or be required to provide, indemnification against certain environmental liabilities. Another party could, depending on the circumstances, assert an environmental claim against USBTC or fail to meet its indemnification obligations to USBTC.
USBTC could be materially and adversely affected if currently proposed and/or new regulations are implemented or if new federal or state legislation or regulations are adopted to address global climate change, or if USBTC is subject to lawsuits for alleged damage to persons or property resulting from greenhouse gas (“GHG”) emissions.
There is attention and interest nationally and internationally about global climate change and how GHG emissions, such as CO2, contribute to global climate change. Over the last several years, the U.S. Congress and state and federal authorities have considered and debated several proposals intended to address climate change using different approaches, including a cap on carbon emissions with emitters allowed to trade unused emission allowances (cap-and-trade), a tax on carbon or GHG emissions, incentives for the development of low-carbon technology and federal renewable portfolio standards. A number of federal court cases have been filed in recent years asserting damage claims related to GHG emissions, and the results in those proceedings could establish adverse precedent that might apply to companies (including USBTC) that produce GHG emissions. USBTC could be materially and adversely affected if new federal and/or state legislation or regulations are adopted to address global climate change or if USBTC are subject to lawsuits for alleged damage to persons or property resulting from GHG emissions.
USBTC’s Power Generation-Related Risks
USBTC’s financial performance may be impacted by price fluctuations in the power market, as well other market factors that are beyond USBTC’s control.
USBTC’s revenues, cost of doing business, results of operations and operating cash flows generally may be impacted by price fluctuations in the power market and other market factors beyond USBTC’s control. Market prices for power, capacity and other ancillary services are unpredictable and tend to fluctuate substantially. Unlike most other commodities, electric power can only be stored on a very limited basis and generally must be produced concurrently with its use. As a result, power prices are subject to significant volatility due to supply and demand imbalances, especially in the day-ahead and spot markets. Long- and short-term power prices may also fluctuate substantially due to other factors outside of USBTC’s control, including:

changes in generation capacity in USBTC’s markets, including the addition of new supplies of power as a result of the development of new plants, expansion of existing plants, the continued operation of uneconomic power plants due to state subsidies, or additional transmission capacity;

environmental regulations and legislation;

electric supply disruptions, including plant outages and transmission disruptions;

changes in power transmission infrastructure;

fuel transportation capacity constraints or inefficiencies;

changes in law, including judicial decisions;

weather conditions, including extreme weather conditions and seasonal fluctuations, including the effects of climate change;
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changes in commodity prices and the supply of commodities, including but not limited to natural gas, coal and oil;

changes in the demand for power or in patterns of power usage, including the potential development of demand-side management tools and practices, distributed generation, and more efficient end-use technologies;

development of new fuels, new technologies and new forms of competition for the production of power;

fuel price volatility;

economic and political conditions;

supply and demand for energy commodities;

supply chain disruption of electrical components needed to transmit energy;

availability of competitively priced alternative energy sources;

ability to procure satisfactory levels of inventory; and

changes in capacity prices and capacity markets.
Such factors and the associated fluctuations in power and prices could affect wholesale power generation profitability and cost of power for USBTC’s Bitcoin mining activities. While USBTC does not generate power for itself today, USBTC may choose to do so in the future. The above risks could apply to USBTC’s current or future energy procurement.
Global conflict, increasing tensions between the United States and Russia, and other effects of the ongoing conflict in Ukraine, could negatively impact USBTC’s business, results of operations, and financial condition.
Global conflict could increase costs and limit availability of energy and other resources USBTC depends upon for its business operations. For example, while USBTC does not operate in Russia or Ukraine, the increasing tensions between the United States and Russia and the other effects of the ongoing conflict in Ukraine have resulted in many broader economic impacts such as the United States imposing sanctions and bans against Russia and Russian products imported into the United States. Such sanctions and bans have impacted and may continue to impact commodity pricing such as fuel and energy costs, making it more expensive for USBTC to conduct its mining operations. Further sanctions, bans or other economic actions in response to the ongoing conflict in Ukraine or in response to any other global conflict could result in an increase in costs, further disruptions to USBTC’s supply chain, and/or a lack of consumer confidence resulting in reduced demand. While the extent of such items is not presently known, any of them could negatively impact USBTC’s business, results of operations, and financial condition.
Maintenance, expansion and refurbishment of power generation facilities involve significant risks that could result in unplanned power outages or reduced output and could have a material adverse effect on USBTC’s Bitcoin mining activities, results of operations, cash flows and financial condition.
USBTC is subject to liability risks relating to the competitive power generation business and its operations. USBTC currently draws power from various power sources, which include the New York Independent System Operator (“NYISO”) grid and the Electric Reliability Council of Texas (“ERCOT”) grid. Those grids and any power plants or facilities that USBTC may acquire in the future require periodic maintenance and repair. Any unexpected failure, including failure associated with breakdowns, forced outages or any unanticipated capital expenditures could result in reduced profitability.
USBTC cannot be certain of the level of capital expenditures that will be required due to changing environmental and safety laws (including changes in the interpretation or enforcement thereof), needed facility repairs and unexpected events (such as natural disasters or terrorist attacks). The unexpected requirement of large capital expenditures could have a material adverse effect on USBTC’s business, liquidity, financial condition and results of operations. If USBTC significantly modifies a unit, USBTC may be required to install the best available control technology or to achieve the lowest achievable emission rates as such terms are defined under the new source review provisions of the federal Clean Air Act, as amended from time to time, which would likely result in substantial additional capital expenditures.
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The conduct of USBTC’s physical and commercial operations subjects USBTC to many risks, including risks of potential physical injury, property damage or other financial liability, caused to, or by, employees, customers, contractors, vendors, contractual or financial counterparties and other third parties.
Natural or manmade events may cause the production of power to fall below USBTC’s expectations.
USBTC’s electricity demand depends upon its various power grids’ ability to maintain the working order of their power generation facilities. A natural or manmade disaster, severe weather such as snow and ice storms, or accident could adversely affect the ability of energy source and miners to operate or require USBTC to shut down its facilities, miners or related operations. To the extent USBTC experiences a prolonged interruption with respect to its power source or a transmission outage due to natural or manmade events, USBTC’s supply of electricity could materially decrease. USBTC may also incur significant repair and clean-up costs associated with these events. The effect of the failure of established power sources to operate as planned as described above could have a material adverse effect on USBTC’s business, financial condition and results of operations.
The grids that USBTC relies on for energy may not be able to operate as planned, which may increase USBTC’s expenses and decrease its revenues and have an adverse effect on USBTC’s business, financial condition and results of operations.
The operation of the grids USBTC relies on, including the NYISO and ERCOT grids, as well as USBTC’s information technology systems and other assets and conduct of other activities subjects USBTC to a variety of risks, including the breakdown or failure of equipment, accidents, security breaches, viruses or outages affecting information technology systems, labor disputes, obsolescence, delivery/ transportation problems and disruptions of fuel supply and performance below expected levels. These events may impact USBTC’s ability to conduct its businesses efficiently and lead to increased costs, expenses or losses. Planned and unplanned outages with respect to the power grids that USBTC relies on may require USBTC to purchase power at then-current market prices which could have a negative impact on the cost structure of USBTC’s Bitcoin mining operations.
USBTC may be required to obtain, and to comply with, government permits and approvals.
USBTC may be required to obtain, and to comply with, numerous permits and licenses from federal, state and local governmental agencies. The process of obtaining and renewing necessary permits and licenses can be lengthy and complex and can sometimes result in the establishment of conditions that make the project or activity for which the permit or license was sought unprofitable or otherwise unattractive. In addition, such permits or licenses may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits or licenses, or failure to comply with applicable laws or regulations, may result in the delay or temporary suspension of USBTC’s operations.
USBTC’s inability to procure and comply with the permits and licenses that may be required for its operations, or the cost to us of such procurement or compliance, could have a material adverse effect on USBTC. In addition, new environmental legislation or regulations, if enacted, or changed interpretations of existing laws, may cause activities at USBTC’s facilities to need to be changed to avoid violating applicable laws and regulations or elicit claims that historical activities at USBTC’s facilities violated applicable laws and regulations. In addition to the possible imposition of fines in the case of any such violations, USBTC may be required to undertake significant capital investments and obtain additional operating permits or licenses, which could have a material adverse effect on USBTC. For example, USBTC entered into the Niagara Falls Settlement, which requires compliance with certain conditions in connection with its operations at its Alpha Site. Any noncompliance could result in fines under the Niagara Falls Settlement or other adverse consequences, such as further litigation or the shutdown of the site’s operations, which would have a material adverse effect on USBTC’s business, financial position and results of operations. See “Risks Related to USBTC’s Business — USBTC may become involved in legal proceedings from time to time, which could adversely affect USBTC. USBTC cannot predict the outcome of any legal proceedings with respect to its current and past business activities.”
In addition, natural risks such as earthquake, flood, lightning, hurricane and wind, other human-made hazards, such as nuclear accidents, dam failure, gas or other explosions, mine area collapses, fire, structural collapse, machinery failure and other dangerous incidents are inherent risks in its operations. These and other
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hazards can cause significant personal injury or loss of life, severe damage to and destruction of property, plant, equipment, and transmission lines, contamination of, or damage to, the environment and suspension of operations. Further, USBTC’s employees and contractors work in, and the general public may be exposed to, potentially dangerous environments at or near USBTC’s operations. As a result, employees, contractors, customers and the general public are at risk for serious injury, including loss of life.
USBTC’s Digital Asset Mining Related Risks
The open-source structure of the digital asset network protocol, including Bitcoin, means that the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the protocol. A failure to properly monitor and upgrade the protocol could damage that network and an investment in USBTC.
The Bitcoin network, for example, operates based on an open-source protocol maintained by contributors, largely on the Bitcoin Core project on GitHub. As an open source project, Bitcoin is not represented by an official organization or authority. As the Bitcoin network protocol is not sold and its use does not generate revenues for contributors, contributors are generally not compensated for maintaining and updating the Bitcoin network protocol. Although the MIT Media Lab’s Digital Currency Initiative funds the current maintainer, Wladimir J. van der Laan, among others, this type of financial incentive is not typical. The lack of guaranteed financial incentive for contributors to maintain or develop the Bitcoin network and the lack of guaranteed resources to adequately address emerging issues with the Bitcoin network may reduce incentives to address the issues adequately or in a timely manner. Changes to a digital asset network which USBTC is mining on may adversely affect an investment in USBTC.
Significant Bitcoin network contributors could propose amendments to the Bitcoin network’s protocols and software that, if accepted and authorized by the Bitcoin network, could adversely affect an investment in USBTC.
Significant Bitcoin network contributors could propose refinements or improvements to the Bitcoin network’s source code through one or more software upgrades that alter the protocols and software that govern the Bitcoin network and the properties of Bitcoin, including the irreversibility of transactions and limitations on the mining of new Bitcoins. Proposals for upgrades and discussions relating thereto take place on online forums. For example, there is an ongoing debate regarding altering the Bitcoin blockchain by increasing the size of blocks to accommodate a larger volume of transactions. Although some proponents support an increase, other market participants oppose an increase to the block size as it may deter miners from confirming transactions and concentrate power into a smaller group of miners. To the extent that a significant majority of the users and miners on the Bitcoin network install such software upgrade(s), the Bitcoin network would be subject to new protocols and software that may adversely affect an investment in USBTC securities.
The further development and acceptance of digital asset networks and other digital assets, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of digital asset systems may adversely affect an investment in USBTC.
Digital assets built on blockchain technology were only introduced in 2008 and remain in the early stages of development. The use of digital assets to, among other things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs digital assets, including Bitcoin, based upon a computer-generated mathematical and/or cryptographic protocol. The growth of this industry in general, and the use of Bitcoin in particular, is subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may occur unpredictably.
Recent events in the industry, such as filing for and seeking protection of Chapter 11 proceedings by major market participants, may have significant impact on further development and acceptance of digital asset networks and digital assets as they exposed how unpredictable and turbulent the digital assets industry can be. Specifically, the Chapter 11 Bankruptcy filings of digital asset exchange FTX (including its affiliated hedge fund, Alameda Research LLC) significantly reduced confidence in the digital assets industry as it was one of the largest digital asset trading platforms. Furthermore, it also revealed potential systemic risks and industry contagion as a significant number of other major market participants were affected by FTX’s Chapter 11 filing  — namely, among others, BlockFi, as one of the largest digital assets lending companies. Failure of key
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institutions in the digital asset industry highlights the risk of systemic interconnectedness between major market participants and the effect it could have on the industry as a whole.
The closure and temporary shutdown of major digital asset exchanges and trading platforms, such as FTX, due to fraud or business failure, has disrupted investor confidence in digital assets and led to a rapid escalation of oversight of the digital asset industry. Thus, the failures of key market participants and systemic contagion risk is expected to, as a consequence, invite stricter regulatory scrutiny. All this could have a negative impact on further development and acceptance of digital asset networks and digital assets, including Bitcoin. See “— USBTC is subject to a highly-evolving regulatory landscape and any adverse changes to, or its failure to comply with, any laws and regulations could adversely affect its business, prospects or operations.”
Other factors that could affect further development and acceptance of digital asset networks and other digital assets include, but are not limited to:

continued worldwide growth in the adoption and use of digital assets as a medium of exchange;

governmental and quasi-governmental regulation of Bitcoin and its use, or restrictions on or regulation of access to and operation of the Bitcoin network or similar digital asset systems;

changes in consumer demographics and public tastes and preferences;

the maintenance and development of the open-source software protocol of the network, including software updates and changes to network protocols that could introduce bugs or security risks;

the increased consolidation of contributors to the Bitcoin blockchain through mining pools;

the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;

the use of the networks supporting digital assets for developing smart contracts and distributed applications;

general economic conditions and the regulatory environment relating to digital assets;

environmental restrictions on the use of power to mine Bitcoin and a resulting decrease in global Bitcoin mining operations;

an increase in Bitcoin transaction costs and a resultant reduction in the use of and demand for Bitcoin; and

negative consumer sentiment and perception of Bitcoin specifically and digital assets generally.
The outcome of these factors could have negative effects on USBTC’s ability to continue as a going concern or to pursue its business strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations as well as potentially negative effect on the value of any Bitcoin USBTC mines or otherwise acquires or hold for its own account, which would harm investors in USBTC securities.
Although USBTC does not hold any Bitcoin for third parties, its business, financial condition, and results of operations may still be adversely affected by recent events beyond its control.
While USBTC does not hold any Bitcoin for third parties, its business, financial condition, and results of operations could be adversely affected by recent events beyond its control, including the fallout from the Chapter 11 Bankruptcy filings of FTX, Three Arrows, digital asset hosting provider Compute North LLC (“Compute North”), Celsius, Voyager, BlockFi, and Genesis. Most recently, in January 2023, Genesis filed for Chapter 11 bankruptcy. Genesis is owned by DCG, who also owns Foundry, one of USBTC’s mining pool operators, and Genesis Global Trading, Inc., one of USBTC’s digital asset brokers. At this time, USBTC believes that there are no material risks to its business arising from previous exposure to Genesis. USBTC sold approximately 1,822 Bitcoin to Genesis for the period from April 2022 to July 2022, for which USBTC has received all cash settled as part of those transactions.
In September 2022, Compute North filed for Chapter 11 bankruptcy. At the time, Compute North was hosting 500 machines owned by USBTC at one of its Texas facilities. The Texas facility was acquired by a third-party
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institutional investor that now hosts the 500 machines and also selected USBTC to operate the facility through a formal request-for-proposal process. The Texas facility is what USBTC now refers to as the Delta Site.
Other than Genesis and Compute North, USBTC (i) has no direct exposure to any digital asset entities that have recently filed for Chapter 11 bankruptcy; (ii) has no assets that may not be recovered due to these bankruptcies; and (iii) has no exposure to any other counterparties, customers, custodians or other digital asset market third parties known to USBTC to have (x) experienced material excessive redemptions, withdrawals or suspended redemptions or withdrawal of digital assets, (y) the digital assets of their customers unaccounted for, or (z) experienced material compliance failures. USBTC’s business, financial condition and results of operations may not be immune to unfavorable investor sentiment resulting from these recent developments in the broader digital asset industry.
USBTC’s reliance on a third-party mining pool service providers, Foundry, Ultimus and ViaBTC, for its mining revenue payouts may have a negative impact on its operations such as a result of cyber-attacks against the mining pool operator and/or USBTC’s limited recourse against the mining pool operator with respect to rewards paid to USBTC.
USBTC receives digital asset mining rewards from its mining activity through third-party mining pool operators, Foundry, Ultimus and ViaBTC. Mining pools allow miners to combine their processing power, increasing their chances of solving a block and getting paid by the network. USBTC provides computing power to mining pools, which use this computing power to operate nodes and validate blocks on the blockchain. The pools then distribute USBTC’s pro-rata share of Bitcoin mined to USBTC based on the computing power USBTC contributes.
Under USBTC’s mining pool agreements with Foundry, Ultimus and ViaBTC, USBTC’s daily payout is calculated based on USBTC’s Hashrate contribution delivered to the pool in the applicable calculation period, after deducting the applicable pool fee, if any. USBTC’s pool fee in relation to these agreements is currently below 1.0% of its daily payout. In addition, pool participants will receive transaction fees as the mining pool solves blocks on a pro rata basis with respect to each pool participant’s Hashrate contributed. USBTC did not use the Ultimus pool prior to October 3, 2022, nor the Foundry pool prior to April 15, 2022.
Furthermore, USBTC may terminate these agreements and withdraw from the mining pool at any time at USBTC’s election by giving notice to the pool operators. Should one of USBTC’s pool operator’s systems suffer downtime due to a cyber-attack, software malfunction or other similar issues, it will negatively impact USBTC’s ability to mine and receive Bitcoin mining rewards. Furthermore, USBTC is dependent on the accuracy of the mining pool operators’ record keeping to accurately record the total processing power provided by USBTC and other mining pool participants to the pool for a given Bitcoin mining application in order to assess the proportion of that total processing power USBTC provided.
While USBTC has internal methods of tracking both its processing power provided and the total used by the pool, the mining pool operator uses its own recordkeeping to determine USBTC’s proportion of a given reward. USBTC has little means of recourse against mining pool operators if USBTC determines the proportion of the reward paid out to USBTC by the mining pool operator is incorrect, other than leaving the pool. If USBTC is unable to consistently obtain accurate proportionate rewards from its mining pool operators, USBTC may experience reduced reward for its efforts, which would have an adverse effect on USBTC’s business and operations.
Banks and financial institutions vary in the services they provide to businesses that engage in Bitcoin-related activities or that accept Bitcoin as payment.
Although a number of significant U.S. banks and investment institutions, such as Goldman Sachs, Citigroup, J. P. Morgan and BlackRock, allow customers to carry and invest in Bitcoin and other digital assets, the acceptance and use by banks of digital assets, including Bitcoin, varies. However, a number of companies that provide Bitcoin or other digital asset-related services have been unable to find banks or financial institutions that are willing to provide them with bank accounts and other services. This risk may be further exacerbated in the current environment in light of several high-profile bankruptcies in the digital assets industry, as well as recent bank failures, which have disrupted investor confidence in digital assets and led to a rapid escalation of
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oversight of the digital asset industry. For example, certain banks have implemented enhanced know-your-customer and anti-money laundering requirements in connection with potential digital asset customers. These enhanced requirements may make it more difficult for digital asset-related companies to find banking or financial services.
Additionally, a number of companies and individuals or businesses associated with digital assets may have had and may continue to have their existing banking services discontinued with financial institutions in response to government action, particularly in China, where regulatory response to digital assets has been to exclude their use for ordinary consumer transactions. In May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading. In September 2021, Chinese regulators instituted the China Ban. However, in 2020, the Office of the Comptroller of the Currency of the U.S. Treasury Department announced that national banks and federal savings associations may provide digital asset custody services for customers. USBTC cannot accurately predict the level and scope of services that these institutions will offer to businesses engaging in Bitcoin or other digital asset related activities.
The usefulness of Bitcoin, the only digital asset USBTC currently mines, as a payment system and the public perception of Bitcoin could be damaged if banks or financial institutions were to close the accounts of businesses engaging in Bitcoin and/or other digital asset-related activities. This could occur as a result of compliance risk, cost, government regulation or public pressure. The risk applies to securities firms, clearance and settlement firms, national stock and derivatives on commodities exchanges, the over-the-counter market, and the Depository Trust Company, which, if any of such entities adopts or implements similar policies, rules or regulations, could negatively affect its relationships with financial institutions and impede USBTC’s ability to convert Bitcoin to fiat currencies. Such factors could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and harm investors.
USBTC may face several risks due to disruptions in the digital asset markets, including but not limited to, financing risk, risk of increased losses or impairments in its investments or other assets, risks of legal proceedings and government investigations, reputational risk and risks from price declines or price volatility of digital assets.
In the second half of 2022 and beginning of 2023, some of the well-known digital asset market participants, including digital asset lenders Celsisus, Voyager, Three Arrows and Genesis, declared bankruptcy, resulting in a loss of confidence in participants of the digital asset ecosystem and negative publicity surrounding digital assets more broadly. In November 2022, FTX, the third largest digital asset exchange by volume at the time, halted customer withdrawals and shortly thereafter, FTX and its subsidiaries filed for bankruptcy. See “— Although USBTC does not hold any Bitcoin for third parties, its business, financial condition, and results of operations may still be adversely affected by recent events beyond its control.
In response to these events, the digital asset markets, including the market for Bitcoin specifically, have experienced extreme price volatility and several other entities in the digital asset industry have been, and may continue to be, negatively affected, further undermining confidence in the digital assets markets and in Bitcoin. These events have also negatively impacted the liquidity of the digital assets markets as certain entities affiliated with FTX engaged in significant trading activity. If the liquidity of the digital assets markets continues to be negatively impacted by these events, digital asset prices (including the price of Bitcoin) may continue to experience significant volatility and confidence in the digital asset markets may be further undermined. These events are continuing to develop and it is not possible to predict at this time all of the risks that they may pose to USBTC, its customers or on the digital asset industry as a whole.
Although USBTC does not believe its exposure to these entities has had a material effect on its business, the failure or insolvency of large exchanges like FTX may cause the price of Bitcoin to fall and decrease confidence in the ecosystem. Such market volatility and decrease in Bitcoin price have had a material and adverse effect on USBTC’s results of operations and financial condition and USBTC expects that its results of operations to continue to be affected by the Bitcoin price as the results of USBTC’s operations are significantly tied to the price of Bitcoin.
The impact of geopolitical and economic events on the supply and demand for digital assets, including Bitcoin, is uncertain and could lead to increased volatility.
Geopolitical crises may motivate large-scale purchases of Bitcoin and other digital assets, which could increase the price of Bitcoin and other digital assets rapidly. This may increase the likelihood of a subsequent price
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decrease as crisis-driven purchasing behavior dissipates, adversely affecting the value of USBTC’s inventory following such downward adjustment. Such risks are similar to the risks of purchasing commodities in generally uncertain times, such as the risk of purchasing, holding or selling gold. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in Bitcoin as investors focus their investment on less volatile asset classes as a means of hedging their investment risk.
How such supply and demand will be impacted by geopolitical events is largely uncertain but could be harmful to USBTC and investors in its common stock. Political or economic crises may motivate large-scale acquisitions or sales of Bitcoin either globally or impacted markets. Such events could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin it mine or otherwise acquires or holds for its own account.
Governmental actions may have a materially adverse effect on the digital asset mining industry as a whole, which would have an adverse effect on USBTC’s business and results of operations.
In April 2022, the New York State Assembly voted to approve a bill that would impose a two-year moratorium on issuing air permits to fossil fuel-based electric generating facilities that supply energy to digital asset mining facilities. In effect, this bill would impose a two-year hold on new proof-of-work digital asset mining facilities in New York that use behind-the-meter carbon-based fuel to power their operations or the renewal of permits issued to existing proof-of-work digital asset mining facilities (or their third party energy plant) that seek to increase their behind-the-meter carbon sourced energy. The bill still must be passed by the New York State Senate and signed by the Governor of New York and it is uncertain whether the bill will become law. USBTC does not operate any fossil fuel-based electric generation facilities, nor does it source its electricity from behind-the-meter carbon-based fuel, and would not be subject to the proposed moratorium. However, given the preliminary stage of the proposed bill, it is possible that future amendments or other legislation passed in New York State may have an effect on USBTC.
Because USBTC is unable to influence or predict future regulatory actions taken by governments in the United States, China or elsewhere, USBTC may have little opportunity or ability to respond to rapidly evolving regulatory positions which may have a materially adverse effect on its industry and, therefore, its business and results of operations. If further adverse regulatory action is taken by various governmental entities, USBTC’s business may suffer and investors in its securities may lose part or all of their investment.
USBTC may not be able to compete with other companies, some of whom have greater resources and experience.
USBTC may not be able to compete successfully against present or future competitors. USBTC does not have the resources to compete with larger providers of similar services at this time. The digital asset industry has attracted various high-profile and well-established operators, some of which have substantially greater liquidity and financial resources than USBTC does. Additionally, the number of Bitcoin and other digital asset mining companies has increased in recent years. With the limited resources USBTC has available, USBTC may experience great difficulties in expanding and improving its network of computers to remain competitive. Competition from existing and future competitors, particularly those that have access to competitively priced energy, including energy providers themselves, could result in USBTC’s inability to secure acquisitions and partnerships that USBTC may need to expand its business in the future. This competition from other entities with greater resources, experience and reputations may result in USBTC’s failure to maintain or expand its business, as USBTC may never be able to successfully execute its business plan. If USBTC is unable to expand and remain competitive, its business could be negatively affected which would have an adverse effect on the trading price of its common stock, which would harm investors in USBTC.
Acceptance and/or widespread use of Bitcoin and other digital assets is uncertain.
Currently, there is a relatively limited use of any digital assets, with Bitcoin being the most utilized, in the retail and commercial marketplace, thus contributing to price volatility that could adversely affect an investment in USBTC’s common stock. Banks and other established financial institutions may refuse to process funds for Bitcoin transactions, process wire transfers to or from Bitcoin exchanges, Bitcoin-related companies or service providers, or maintain accounts for persons or entities transacting in Bitcoin. Conversely, a significant portion
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of Bitcoin demand is generated by investors seeking a long-term store of value or speculators seeking to profit from the short- or long-term holding of the asset. Price volatility undermines Bitcoin’s role as a medium of exchange, as retailers are much less likely to accept it as a form of payment. Market capitalization for Bitcoin as a medium of exchange and payment method may always be low.
The relative lack of acceptance of Bitcoin in the retail and commercial marketplace, or a reduction of such use, limits the ability of end users to use Bitcoin to pay for goods and services. Such lack of acceptance or decline in acceptances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of Bitcoin USBTC mines or otherwise acquires or holds for its own account.
The characteristics of digital assets have been, and may in the future continue to be, exploited to facilitate illegal activity such as fraud, money laundering, tax evasion and ransomware scams; if any of USBTC’s customers do so or are alleged to have done so, it could adversely affect USBTC.
Digital currencies and the digital currency industry are relatively new and, in many cases, lightly regulated or largely unregulated. Some types of digital currency have characteristics, such as the speed with which digital currency transactions can be conducted, the ability to conduct transactions without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, the irreversible nature of certain digital currency transactions and encryption technology that anonymizes these transactions, that make digital currency particularly susceptible to use in illegal activity such as fraud, money laundering, tax evasion and ransomware scams. Two prominent examples of marketplaces that accepted digital currency payments for illegal activities include Silk Road, an online marketplace on the dark web that, among other things, facilitated the sale of illegal drugs and forged legal documents using digital currencies and AlphaBay, another darknet market that utilized digital currencies to hide the locations of its servers and identities of its users. Both of these marketplaces were investigated and closed by U.S. law enforcement authorities. U.S. regulators, including the SEC, Commodity Futures Trading Commission, and Federal Trade Commission, as well as non-U.S. regulators, have taken legal action against persons alleged to be engaged in Ponzi schemes and other fraudulent schemes involving digital currencies. In addition, the Federal Bureau of Investigation has noted the increasing use of digital currency in various ransomware scams.
While USBTC believes that its risk management and compliance framework, which includes thorough reviews it conducts as part of its due diligence process, is reasonably designed to detect any such illicit activities conducted by its potential or existing customers, USBTC cannot ensure that it will be able to detect any such illegal activity in all instances. Because the speed, irreversibility and anonymity of certain digital currency transactions make them more difficult to track, fraudulent transactions may be more likely to occur. USBTC, or its potential banking counterparties, may be specifically targeted by individuals seeking to conduct fraudulent transfers, and it may be difficult or impossible for USBTC to detect and avoid such transactions in certain circumstances. If one of USBTC’s customers (or in the case of digital currency exchanges, their customers) were to engage in or be accused of engaging in illegal activities using digital currency, USBTC could be subject to various fines and sanctions, including limitations on its activities, which could also cause reputational damage and adversely affect its business, financial condition and results of operations.
The decentralized nature of digital asset systems may lead to slow or inadequate responses to crises, which may negatively affect USBTC’s business.
The decentralized nature of the governance of digital asset systems may lead to ineffective decision making that slows development or prevents a network from overcoming emergent obstacles. Governance of many digital asset systems is by voluntary consensus and open competition with no clear leadership structure or authority. To the extent lack of clarity in corporate governance of the Bitcoin system leads to ineffective decision making that slows development and growth of Bitcoin, the value of USBTC’s securities may be adversely affected.
Digital assets may have concentrated ownership and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital asset.
Historically, a limited number of Bitcoin wallets held a significant portion of the Bitcoins in circulation. Moreover, it is possible that other persons or entities control multiple wallets that collectively hold a significant
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number of Bitcoins, even if they individually only hold a small amount, and it is possible that some of these wallets are controlled by the same person or entity. Similar or more concentrated levels of ownership may exist for other digital assets as well. As a result of this concentration of ownership, large sales or distributions by such holders could have an adverse effect on the market price of Bitcoin and other digital assets.
USBTC’s operations, investment strategies and profitability may be adversely affected by competition from other methods of investing in Bitcoin.
USBTC competes with other users and/or companies that are mining Bitcoin and other potential financial vehicles, including securities backed by or linked to Bitcoin through entities similar to USBTC. Market and financial conditions, and other conditions beyond USBTC’s control, may make it more attractive to invest in other financial vehicles, or to invest in Bitcoin directly, which could limit the market for its shares and reduce its liquidity. The emergence of other financial vehicles and exchange-traded funds have been scrutinized by regulators and such scrutiny and the negative impressions or conclusions resulting from such scrutiny could be applicable to USBTC and impact USBTC’s ability to successfully pursue its strategy or operate at all, or to establish or maintain a public market for its securities. Such circumstances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on its business, prospects or operations and potentially the value of any Bitcoin it mines or otherwise acquires or holds for its own account, and harm investors.
The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.
The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or an alternative to distributed ledgers altogether. USBTC’s business utilizes presently existent digital ledgers and blockchains and USBTC could face difficulty adapting to emergent digital ledgers, blockchains, or alternatives thereto. This may adversely affect USBTC and its exposure to various blockchain technologies and prevent USBTC from realizing the anticipated profits from its investments. Such circumstances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin it mines or otherwise acquires or holds for its own account, and harm investors.
The loss or destruction of private keys required to access any digital assets held in custody for USBTC’s own account may be irreversible. If USBTC is unable to access its private keys or if USBTC experiences a hack or other data loss relating to its ability to access any digital assets, it could cause regulatory scrutiny, reputational harm, and other losses.
Digital assets are generally controllable only by the possessor of the unique private key relating to the digital wallet in which the digital assets are held. While blockchain protocols typically require public addresses to be published when used in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the digital assets held in such a wallet. To the extent that any of the private keys relating to USBTC’s hot wallet or cold storage containing digital assets held for its own account or for its customers is lost, destroyed, or otherwise compromised or unavailable, and no backup of the private key is accessible, USBTC will be unable to access the digital assets held in the related wallet. Further, USBTC cannot provide assurance that its wallet will not be hacked or compromised. Digital assets and blockchain technologies have been, and may in the future be, subject to security breaches, hacking, or other malicious activities. Any loss of private keys relating to, or hack or other compromise of, digital wallets used to store USBTC’s customers’ digital assets could adversely affect USBTC’s ability to access or sell its digital assets, and subject USBTC to significant financial losses. As such, any loss of private keys due to a hack, employee or service provider misconduct or error, or other compromise by third parties could hurt USBTC’s brand and reputation, result in significant losses, and adversely impact its business. The total value of digital assets in USBTC’s possession and control is significantly greater than the total value of insurance coverage that would compensate USBTC in the event of theft or other loss of funds.
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If USBTC or its third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to its Bitcoin, USBTC may lose some or all of its Bitcoin and its financial condition and results of operations could be materially adversely affected.
Security breaches and cyberattacks are of particular concern with respect to USBTC’s Bitcoin. Bitcoin and other blockchain-based digital assets have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. A successful security breach or cyberattack could result in a partial or total loss of USBTC’s Bitcoin in a manner that may not be covered by insurance or indemnity provisions of the custody agreement with a custodian who holds USBTC’s Bitcoin. Such a loss could have a material adverse effect on USBTC’s financial condition and results of operations.
USBTC may be subject to additional various risks associated with holding digital assets held by custodians in custody for its own account.
USBTC safeguards and keeps its digital assets private by utilizing storage solutions provided by NYDIG Trust Company LLC, Fidelity Digital Asset Services, LLC (“Fidelity”), and Coinbase Global, Inc., which all require multi-factor authentication and use both cold and hot storage. In light of the significant amount of Bitcoin USBTC holds, USBTC continues to consider a greater degree of diversification in the use of custodial services as the extent of potential risk of loss is dependent, in part, on the degree of diversification. The insurance that covers losses of USBTC’s Bitcoin holdings covers only a small fraction of the value of the entirety of USBTC’s Bitcoin holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services USBTC has or that such coverage will cover losses with respect to USBTC’s Bitcoin.
In addition, USBTC believes that existing law and the terms and conditions of its contractual arrangements with its custodians would not result in the Bitcoin held by its custodians being considered part of the custodian’s bankruptcy estate were the custodian to file for bankruptcy. However, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial accounts and, if USBTC’s custodially-held Bitcoin were, in the event of a bankruptcy of any of its custodians, nevertheless considered to be the property of a bankruptcy estate, the Bitcoin custodially-held on USBTC’s behalf could be subject to bankruptcy proceedings and USBTC could be treated as a general unsecured creditor of the custodian, inhibiting its ability to exercise ownership rights with respect to such Bitcoin. Any such outcome could have a material adverse effect on USBTC’s financial condition and the market price of its common stock.
The price of Bitcoin may be affected by the sale of Bitcoin by other vehicles investing in Bitcoin or tracking Bitcoin markets.
The global market for Bitcoin is characterized by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical protocols under which Bitcoin is mined permit the creation of a limited, predetermined amount of currency, while others have no limit established on total supply. To the extent that other vehicles investing in Bitcoin or tracking Bitcoin markets form and come to represent a significant proportion of the demand for Bitcoin, large redemptions of the securities of those vehicles and the subsequent sale of Bitcoin by such vehicles could negatively affect Bitcoin prices and therefore affect the value of the Bitcoin inventory USBTC holds. Such events could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin it mines or otherwise acquires or holds for its own account.
There are risks related to technological obsolescence, the vulnerability of the global supply chain to Bitcoin hardware disruption, and difficulty in obtaining new hardware which may have a negative effect on USBTC’s business.
USBTC’s mining operations can only be successful and ultimately profitable if the costs of mining Bitcoin, including hardware and electricity costs, associated with mining Bitcoin are lower than the price of a Bitcoin. As USBTC’s mining facility operates, its miners experience ordinary wear and tear and general hardware breakdown, and may also face more significant malfunctions caused by a number of extraneous factors beyond USBTC’s control. The physical degradation of USBTC’s miners will require USBTC to, over time, replace those miners which are no longer functional. Additionally, as the technology evolves, USBTC may be required
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to acquire newer models of miners to remain competitive in the market. Reports have been released which indicate that players in the mining equipment business adjust the prices of miners according to Bitcoin mining revenues, so the cost of new machines is unpredictable but could be extremely high. As a result, at times, USBTC may obtain miners and other hardware from third parties at premium prices, to the extent they are available. In order to keep pace with technological advances and competition from other mining companies, it will be necessary to purchase new miners, which will eventually need to be repaired or replaced along with other equipment from time to time to stay competitive. This upgrading process requires substantial capital investment, and USBTC may face challenges in doing so on a timely and cost-effective basis. Also, because USBTC expects to depreciate all new miners, USBTC’s reported operating results will be negatively affected.
The global supply chain for Bitcoin miners is presently constrained due to unprecedented demand coupled with a global semiconductor (including microchip) shortage and further amplified due to the COVID-19 pandemic, with a significant portion of available miners being acquired by companies with substantial resources. Semiconductors are utilized in various devices and products and are a crucial component of miners; supply chain constraints coupled with increasing demand has led to increased pricing and limited availability for semiconductors. Prices for both new and older models of miners have been on the rise and these supply constraints are expected to continue for the foreseeable future. China, a major supplier of Bitcoin miners, has seen a production slowdown as a result of COVID-19. Should similar outbreaks or other disruptions to the China-based global supply chain for Bitcoin hardware occur, USBTC may not be able to obtain adequate replacement parts for its existing miners or to obtain additional miners on a timely basis, if at all, or USBTC may only be able to acquire miners at premium prices. Such events could have a material adverse effect on USBTC’s ability to pursue its strategy, which could have a material adverse effect on its business and the value of its securities.
Moreover, USBTC may experience unanticipated disruptions to operations or other difficulties with its supply chain due to volatility in regional markets where its miners are sourced, particularly China and Taiwan, changes in the general macroeconomic outlook, political instability, expropriation or nationalization of property, civil strife, strikes, insurrections, acts of terrorism, acts of war or natural disasters. For example, USBTC’s business operations may be adversely affected by the current and future political environment in China. China’s government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. In May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading. In September 2021, Chinese regulators instituted the China Ban. USBTC’s ability to source miners from China may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs and other matters.
USBTC may not adequately respond to price fluctuations and rapidly changing technology, which may negatively affect its business.
Competitive conditions within the Bitcoin industry require that USBTC use sophisticated technology in the operation of its business. The industry for blockchain technology is characterized by rapid technological changes, new product introductions, enhancements and evolving industry standards. New technologies, techniques or products could emerge that might offer better performance than the software and other technologies USBTC currently utilizes, and USBTC may have to manage transitions to these new technologies to remain competitive. USBTC may not be successful, generally or relative to its competitors in the Bitcoin industry, in timely implementing new technology into its systems, or doing so in a cost-effective manner. During the course of implementing any such new technology into its operations, USBTC may experience system interruptions and failures during such implementation. Furthermore, there can be no assurances that USBTC will recognize, in a timely manner or at all, the benefits that it may expect as a result of its implementing new technology into its operations. As a result, USBTC’s business and operations may suffer, and there may be adverse effects on the value of USBTC’s securities.
The Bitcoin reward for successfully uncovering a block will halve several times in the future and Bitcoin value may not adjust to compensate USBTC for the reduction in the rewards USBTC receives from its mining efforts.
Halving is a process incorporated into many proof-of-work consensus algorithms that reduces the coin reward paid to miners over time according to a pre-determined schedule. This reduction in reward spreads out the release of digital assets over a long period of time resulting in an ever smaller number of coins being mined. At
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a predetermined block, the mining reward is cut in half, hence the term “halving.” For Bitcoin, the reward was initially set at 50 Bitcoin currency rewards per block and this was cut in half to 25 on November 28, 2012 at block 210,000, then again to 12.5 on July 9, 2016 at block 420,000. The most recent halving for Bitcoin happened on May 11, 2020 at block 630,000 and the reward reduced to 6.25. The next halving will likely occur in 2024. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million, which is expected around 2140. While the Bitcoin price has had a history of price fluctuations around the halving of its rewards, there is no guarantee that the price change will be favorable or would compensate for the reduction in mining reward. If a corresponding and proportionate increase in the trading price of Bitcoin or a proportionate decrease in mining difficulty does not follow these anticipated halving events, the revenue USBTC earns from its Bitcoin mining operations would see a corresponding decrease, which would have a material adverse effect on its business and operations.
USBTC’s future success will depend upon the value of Bitcoin and other digital assets; the value of Bitcoin may be subject to pricing risk and has historically been subject to wide swings.
USBTC’s operating results will depend on the value of Bitcoin because it is the only digital asset it currently mines. Specifically, USBTC’s revenues from its Bitcoin mining operations are based on two factors: (1) the number of Bitcoin rewards USBTC successfully mines and (2) the value of Bitcoin. In addition, USBTC’s operating results are directly impacted by changes in the value of Bitcoin, because under the value measurement model, both realized and unrealized changes will be reflected in USBTC’s statement of operations (i.e., USBTC measures Bitcoin for impairment daily using the lowest intra-day price as determined by USBTC’s principal market). This means that USBTC’s operating results will be subject to swings based upon increases or decreases in the value of Bitcoin. Further, USBTC’s current miners are principally utilized for mining Bitcoin and do not generally mine other digital assets, such as Ethereum, that are not mined utilizing the “SHA-256 algorithm.” If other digital assets were to achieve acceptance at the expense of Bitcoin causing the value of Bitcoin to decline, or if Bitcoin were to switch its proof of work encryption algorithm from SHA-256 to another algorithm for which USBTC’s miners are not specialized, or the value of Bitcoin were to decline for other reasons, particularly if such decline were significant or over an extended period of time, USBTC’s operating results would be adversely affected, and there could be a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on its business, prospects or operations, and harm investors.
The market price of Bitcoin, which has historically been volatile and is impacted by a variety of factors (including those discussed herein), is determined primarily using data from various exchanges, over-the-counter markets and derivative platforms. Furthermore, such prices may be subject to factors such as those that impact commodities, more so than business activities, which could be subjected to additional influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Pricing may be the result of, and may continue to result in, speculation regarding future appreciation in the value of Bitcoin, or USBTC’s share price, inflating and making their market prices more volatile or creating “bubble” type risks for both Bitcoin and shares of USBTC’s securities.
Demand for Bitcoin is driven, in part, by its status as the most prominent and secure digital asset. It is possible that digital assets other than Bitcoin could have features that make them more desirable to a material portion of the digital asset user base, resulting in a reduction in demand for Bitcoin, which could have a negative impact on the price of Bitcoin and adversely affect an investment in USBTC.
Bitcoin, as an asset, holds “first-to-market” advantages over other digital assets. This first-to-market advantage is driven in large part by having the largest user base and, more importantly, the largest mining power in use to secure its blockchain and transaction verification system. Having a large mining network results in greater user confidence regarding the security and long-term stability of a digital asset’s network and its blockchain; as a result, the advantage of more users and miners makes a digital asset more secure, which makes it more attractive to new users and miners, resulting in a network effect that strengthens the first-to-market advantage.
Despite the marked first-mover advantage of the Bitcoin network over other digital asset networks, it is possible that another digital asset could become materially popular due to either a perceived or exposed shortcoming of the Bitcoin network protocol that is not immediately addressed by the Bitcoin contributor community or a perceived advantage of an altcoin that includes features not incorporated into Bitcoin. If a
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digital asset obtains significant market share (either in market capitalization, mining power or use as a payment technology), this could reduce Bitcoin’s market share as well as other digital assets USBTC may become involved in and have a negative impact on the demand for, and price of, such digital assets and could adversely affect an investment in USBTC. It is possible that USBTC will mine alternative digital assets in the future, but USBTC may not have as much experience to date in comparison to USBTC’s experience mining Bitcoin, which may put USBTC at a competitive disadvantage.
Forks in a digital asset network may occur in the future which may affect the value of Bitcoin held by USBTC.
To the extent that a significant majority of users and miners on a digital asset network install software that changes the digital asset network or properties of a digital asset, including the irreversibility of transactions and limitations on the mining of new digital asset, the digital asset network would be subject to new protocols and software. However, if less than a significant majority of users and miners on the digital asset network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” of the network, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the digital asset running in parallel, yet lacking interchangeability and necessitating exchange-type transaction to convert currencies between the two forks. Additionally, it may be unclear following a fork which fork represents the original asset and which is the new asset. Different metrics adopted by industry participants to determine which is the original asset include: referring to the wishes of the core developers of a digital asset, blockchains with the greatest amount of hashing power contributed by miners or validators; or blockchains with the longest chain. A fork in the Bitcoin network could adversely affect an investment in USBTC securities or its ability to operate.
USBTC may not be able to realize the economic benefit of a fork, either immediately or ever, which could adversely affect an investment in its securities. If USBTC holds Bitcoin at the time of a hard fork into two digital assets, industry standards would dictate that USBTC would be expected to hold an equivalent amount of the old and new assets following the fork. However, USBTC may not be able, or it may not be practical, to secure or realize the economic benefit of the new asset for various reasons. For instance, USBTC may determine that there is no safe or practical way to custody the new asset, that trying to do so may pose an unacceptable risk to its holdings in the old asset, or that the costs of taking possession and/or maintaining ownership of the new digital asset exceed the benefits of owning the new digital asset. Additionally, laws, regulation or other factors may prevent us from benefiting from the new asset even if there is a safe and practical way to custody and secure the new asset.
If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any digital asset network, including the Bitcoin network, it is possible that such actor or botnet could manipulate the blockchain in a manner that adversely affects an investment in USBTC.
If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining on any digital asset network, including the Bitcoin network, it may be able to alter the blockchain by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the blockchain can add valid blocks. In such alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new digital assets or transactions using such control. Using alternate blocks, the malicious actor could “double-spend” its own digital assets (i.e., spend the same digital assets in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintains control. To the extent that such a malicious actor or botnet does not yield its majority control of the processing power or the digital asset community does not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible. Such changes could adversely affect an investment in USBTC.
For example, in late May and early June 2014, a mining pool known as Ghash.io approached and, during a 24- to 48-hour period in early June may have exceeded, the threshold of 50% of the processing power on the Bitcoin network. To the extent that Ghash.io did exceed 50% of the processing power on the network, reports indicate that such threshold was surpassed for only a short period, and there are no reports of any malicious activity or control of the blockchain performed by Ghash.io. Furthermore, the processing power in the mining