Exhibit 4.12


 


 


 


HUT
8 MINING CORP.


 


Consolidated
Financial Statements


(In
Canadian dollars)


 


Years
ended December 31, 2020 and 2019





     


     


    


 


 


INDEPENDENT
AUDITOR’S REPORT


 


To
the Shareholders of Hut 8 Mining Corp.


 


Opinion


 


We
have audited the consolidated financial statements of Hut 8 Mining Corp. (the “Company”), which comprise the consolidated
statements of financial position as at December 31, 2020 and 2019, and the consolidated statements of income and comprehensive
income, changes in shareholders’ equity and cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).


 


In
our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company
as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards.


 


Basis
for Opinion


 


We
conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.


 


Key
Audit Matters


 


Key
audit matters are those matters, that in our professional judgment, were of most significance in our audit of the financial statements
of the current period. These matters were addressed in the context of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.


 





	Key Audit
    Matter	 	How the
    Matter was Addressed in the Audit
	Reversal
        of impairment loss for plant and equipment:

         

        We
        draw attention to Notes 3 and 6 to the financial statements. At December 31, 2020, the Company has plant and equipment
        with a carrying value of $32.5 million. During the year ended December 31, 2020, the Company recorded an impairment reversal
        in the amount of $13.2 million. Plant and equipment are assessed annually for indicators of impairment or the reversal
        of previously recorded impairment.

         

        The
        recoverable amount of each cash generating unit was determined using a value in use calculation. Significant assumptions
        used in determining the recoverable amount include the discount rate, future bitcoin prices and future increases in mining
        difficulty.

         

        We
        considered this as a key audit matter due to the significant management estimates and judgments required in determining
        the recoverable amount of the cash generating units. Audit procedures to evaluate the reasonableness of management’s
        estimates and assumptions related to expected future bitcoin prices, future increases in mining difficulty and the selection
        of the discount rate required a high degree of auditor judgment and an increased extent of audit effort, including the
        need to involve our valuation experts and professionals with expertise in the industry and was based on assumptions that
        are affected by future market and economic conditions.

         
	 	Our
        procedures included, but were not limited to, the following:

         

        •      With
        the assistance of professionals with expertise in the industry, we evaluated the reasonableness of the expected future
        bitcoin prices and future increases in mining difficulty.

         

        •      With
        the assistance of our valuation experts, we evaluated the reasonableness of the valuation methodology and the discount
        rate by testing the information underlying the determination of the discount rate and the mathematical accuracy of the
        calculation and by developing a range of independent estimates and comparing those to the discount rate selected by management.

         

        •      We
        calculated the impact to the recoverable amounts when reasonable possible changes to the key assumptions are made.

         

        •      We
        reviewed the adequacy of the disclosures made in relation to the impairment reversals in the financial statements.

         





     


     


    




	Revenue
                           from digital assets mined:

         

        We
        draw attention to Notes 3 and 5 to the financial statements. The Company provides transaction verification services within
        the bitcoin blockchain, and as consideration for these services, the Company receives bitcoin. The fair value of the bitcoins
        received during the year ended December 31, 2020 for the provision of these services was $39.0 million.

         

        Due
        to the nature of this revenue source, significant audit effort is required to test the occurrence, accuracy and completeness
        of the revenue recognized, including the use of professionals with expertise in the industry. Consequently, we considered
        this a key audit matter.

         
	 	Our
                           procedures included, but were not limited to, the following:

         

        •      With the assistance of professionals with expertise in the industry, we tested the amounts of bitcoin received from providing
        transaction verification services using an independent node and ensuring that the bitcoin received was in fact from the
        particular mining pool.

         

        •      With the assistance of professionals with expertise in the industry, we assessed the reasonableness of the quantity of
        bitcoin received by testing the computing capacity of the Company’s mining servers, electricity consumption associated
        with this activity and mining pool arrangements.

         

        •      We tested the value of bitcoins received and recognized as revenue by comparing the price per bitcoin to the daily range
        of bitcoin prices listed on Coinmarket.com as well as active bitcoin exchanges.

         

	Existence
        of digital assets:

         

        We
        draw attention to Notes 3, 5, 8 and 12 to the financial statements. The Company holds bitcoin of $102.0 million, including
        $75.5 million held with a third-party custodian and $26.8 million held as collateral by a third- party lender.

         

        We
        considered this a key audit matter due to the magnitude of the digital asset balance and the audit effort involved in
        testing the existence of the bitcoins held with third parties.

         
	 	Our
        procedures included but were not limited to, the following:

         

        •      We obtained confirmations of the quantities and ownership of bitcoin directly from the third-party custodian and the lender
        holding bitcoin as collateral.

         

        •      With the assistance of IT specialists, we assessed the Service Organization Controls Report (the “SOC Report”)
        of the third-party custodian attesting to the appropriateness and effectiveness of the internal control systems established
        by the custodian and to test the design and operating effectiveness of the Company’s complementary user entity controls.

         

        •      With the assistance of IT specialists, we observed the performance of the transfer of a small amount of bitcoin from the
        Company’s cold wallet storage with the custodian to a different wallet to test the rights and ownership of the Bitcoin.

         

        •      With the assistance of professionals with expertise in the industry, we tested that the bitcoins held as collateral by
        the lender were transferred back to the Company upon settlement of the loan subsequent to the year end.

         





     


     


    

Other
Information


 


Management
is responsible for the other information. The other information comprises the information included in Management’s Discussion
and Analysis.


 


Our
opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion
thereon.


 


In
connection with our audit of the financial statements, our responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.


 


We
obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.


 


Responsibilities
of Management and Those Charged with Governance for the Financial Statements


 


Management
is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.


 


In
preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.


 


Those
charged with governance are responsible for overseeing the Company’s financial reporting process.


 


Auditor’s
Responsibilities for the Audit of the Financial Statements


 


Our
objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards,
we exercise professional judgment and maintain professional skepticism throughout the audit. We also:


 


	 	•	Identify
    and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform
    audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
    for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
    error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.



 

	 	•	Obtain
    an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
    circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.



 

	 	•	Evaluate
    the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
    by management.



 

	 	•	Conclude
    on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence
    obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
    ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
    in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate,
    to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
    However, future events or conditions may cause the Company to cease to continue as a going concern.



 

	 	•	Evaluate
    the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial
    statements represent the underlying transactions and events in a manner that achieves fair presentation.



 

We
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.



     


     


    


We
also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.


 


From
the matters communicated with those charged with governance, we determine those matters that were of most significance in the
audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits of such communication.


 


The
engagement partner on the audit resulting in this independent auditor’s report is David Goertz.


 





 


DALE
MATHESON CARR-HILTON LABONTE LLP 

CHARTERED PROFESSIONAL ACCOUNTANTS


Vancouver,
BC


 


March 24, 2021



     


     


    



HUT
8 MINING CORP. 

(In Canadian dollars)

Consolidated Statements of Financial Position as at December 31,


 


	 	 	2020	 	 	2019	 
	Assets	 	 	 	 	 	 
	Current assets	 	 	 	 	 	 	 	 
	Cash	 	$	2,815,939	 	 	$	2,946,017	 
	Accounts receivable	 	 	451,061	 	 	 	-	 
	Deposits and prepaid expenses (Note 4)	 	 	92,014	 	 	 	321,189	 
	Digital assets (Note 5)	 	 	75,505,472	 	 	 	10,484,106	 
	Digital assets collateral (Note 5)	 	 	26,456,199	 	 	 	15,883,182	 
	Digital assets receivable (Note 5)	 	 	-	 	 	 	943,438	 
	 	 	 	105,320,685	 	 	 	30,577,932	 
	Non-current assets	 	 	 	 	 	 	 	 
	Plant and equipment (Note 6)	 	 	32,522,602	 	 	 	34,883,085	 
	Deposits and prepaid expenses (Note 4)	 	 	7,359,046	 	 	 	5,776,227	 
	Total assets	 	$	145,202,333	 	 	$	71,237,244	 
	Liabilities and shareholders’ equity	 	 	 	 	 	 	 	 
	Current liabilities	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities (Note 7)	 	$	3,890,512	 	 	$	2,496,864	 
	Loans payable (Note 8)	 	 	25,756,942	 	 	 	6,231,548	 
	 	 	 	29,647,454	 	 	 	8,728,412	 
	Non-current liabilities	 	 	 	 	 	 	 	 
	Loans payable (Note 8)	 	 	-	 	 	 	19,807,075	 
	 	 	 	29,647,454	 	 	 	28,535,487	 
	Shareholders’ equity	 	 	 	 	 	 	 	 
	Share capital (Note 9)	 	 	178,231,290	 	 	 	170,622,599	 
	Shares to be issued	 	 	398,317	 	 	 	-	 
	Warrants (Note 9)	 	 	2,559,484	 	 	 	1,367,901	 
	Contributed surplus (Note 9)	 	 	4,233,917	 	 	 	5,300,480	 
	Accumulated deficit	 	 	(115,549,069	)	 	 	(134,589,223	)
	AOCI - Unrealized gain on bitcoin revaluation (Note 5)	 	 	45,680,940	 	 	 	-	 
	 	 	 	115,554,879	 	 	 	42,701,757	 
	Total liabilities and shareholders’ equity	 	$	145,202,333	 	 	$	71,237,244	 



 


Nature
of operations (Note 1)


Subsequent events (Note 14)


 


Approved on behalf of the Board:


 


	“Jaime Leverton”	 	“Bill Tai”	 
	Director & Chief Executive Officer	 	Director	 



 

The
accompanying notes are an integral part of these consolidated financial statements.



    4 


     


    





HUT
8 MINING CORP.


(In Canadian dollars)


Consolidated
Statements of Income and Comprehensive Income 

for the years ended December 31,    




 


	 	 	2020	 	 	2019	 
	Revenue	 	 	 	 	 	 	 	 
	Digital assets mined (Note 5)	 	$	38,962,425	 	 	$	81,990,119	 
	Hosting fees	 	 	1,748,102	 	 	 	-	 
	Cost of revenue	 	 	 	 	 	 	 	 
	Site operating costs	 	 	(39,727,850	)	 	 	(45,448,549	)
	Depreciation (Note 6)	 	 	(21,264,918	)	 	 	(33,053,597	)
	Gross profit (loss)	 	 	(20,282,241	)	 	 	3,487,973	 
	Gain on use of digital assets (Note 5)	 	 	2,815,342	 	 	 	4,143,311	 
	Revaluation of digital assets (Note 5)	 	 	13,713,962	 	 	 	4,273,686	 
	 	 	 	16,529,304	 	 	 	8,416,997	 
	Expenses	 	 	 	 	 	 	 	 
	Share based payments (Note 9)	 	 	284,434	 	 	 	(2,905,408	)
	Professional fees	 	 	(1,665,795	)	 	 	(818,487	)
	General and office	 	 	(1,037,126	)	 	 	(845,513	)
	Salary and benefits	 	 	(817,696	)	 	 	(1,356,836	)
	Investor and public relations	 	 	(15,184	)	 	 	(62,907	)
	Regulatory	 	 	(133,796	)	 	 	(131,196	)
	 	 	 	(3,385,163	)	 	 	(6,120,347	)
	 	 	 	 	 	 	 	 	 
	Operating income (loss)	 	 	(7,138,100	)	 	 	5,784,623	 
	Foreign exchange gain	 	 	408,832	 	 	 	1,198,011	 
	Finance expense (Note 8)	 	 	(2,449,167	)	 	 	(4,826,061	)
	Finance income	 	 	8,301	 	 	 	41,244	 
	Reversal of impairment (Note 6)	 	 	13,155,936	 	 	 	-	 
	Other gain (loss)	 	 	5,645	 	 	 	(67,247	)
	Net income before tax	 	 	3,991,447	 	 	 	2,130,570	 
	Deferred income tax recovery (Note 13)	 	 	15,048,707	 	 	 	-	 
	Net income for the year	 	 	19,040,154	 	 	 	2,130,570	 
	 	 	 	 	 	 	 	 	 
	Other
comprehensive income
	 	 	 	 	 	 	 	 
	Items that will not be reclassified to net income	 	 	 	 	 	 	 	 
	Revaluation gain on digital asset, net of tax (Note 5)	 	 	45,680,940	 	 	 	-	 
	Total comprehensive income	 	$	64,721,094	 	 	$	2,130,570	 
	 	 	 	 	 	 	 	 	 
	Basic net income per share 
	 	$	0.20	 	 	$	0.02	 
	Diluted net income per share	 	$	0.20	 	 	$	0.02	 
	Weighted-average number of shares outstanding:	 	 	 	 	 	 	 	 
	Basic	 	 	93,837,221	 	 	 	89,397,573	 
	Diluted	 	 	94,243,888	 	 	 	90,611,007	 



 


The
accompanying notes are an integral part of these consolidated financial statements.



    5 


     


    


HUT
8 MINING CORP.


(In
Canadian dollars)


Consolidated
Statement of Changes in Shareholders’ Equity


 


	 	 	Share
    Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated

    other	 	 	 	 
	 	 	Number
    of
 shares	 	 	Dollar
    amount	 	 	Shares
    to be
 issued	 	 	Warrants	 	 	Contributed

    surplus	 	 	Accumulated

    deficit	 	 	comprehensive

income	 	 	Total	 
	Balance,
    December 31, 2018	 	 	85,227,858	 	 	$	162,733,360	 	 	$	1,167,386	 	 	$	1,367,901	 	 	$	4,061,740	 	 	$	(136,671,025	)	 	$	-	 	 	$	32,659,362	 
	Shares
    issued for mining equipment	 	 	838,511	 	 	 	1,167,386	 	 	 	(1,167,386	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Shares
    issued in settlement of accounts payable	 	 	3,717,433	 	 	 	4,609,617	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	4,609,617	 
	Shares
    issued for services	 	 	419,507	 	 	 	667,256	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	667,256	 
	Share
    based payments	 	 	234,700	 	 	 	1,444,980	 	 	 	-	 	 	 	-	 	 	 	1,460,428	 	 	 	-	 	 	 	-	 	 	 	2,905,408	 
	Share
    based payments withholding	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(221,688	)	 	 	-	 	 	 	-	 	 	 	(221,688	)
	Prior-year
    adjustment due to IFRS 16 transition	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(48,768	)	 	 	-	 	 	 	(48,768	)
	Net
    income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,130,570	 	 	 	-	 	 	 	2,130,570	 
	Balance,
    December 31, 2019	 	 	90,438,009	 	 	 	170,622,599	 	 	 	-	 	 	 	1,367,901	 	 	 	5,300,480	 	 	 	(134,589,223	)	 	 	-	 	 	 	42,701,757	 
	Shares
    issued for public offering	 	 	5,750,456	 	 	 	5,702,617	 	 	 	-	 	 	 	2,635,544	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	8,338,161	 
	Shares
    issuance costs	 	 	-	 	 	 	(971,524	)	 	 	-	 	 	 	127,986	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(843,538	)
	Shares
    issued on vesting of RSU	 	 	543,359	 	 	 	1,804,260	 	 	 	-	 	 	 	-	 	 	 	(1,804,260	)	 	 	-	 	 	 	-	 	 	 	-	 
	Shares
    issued on exercise of options	 	 	33,333	 	 	 	69,176	 	 	 	-	 	 	 	-	 	 	 	(31,179	)	 	 	-	 	 	 	-	 	 	 	37,997	 
	Shares
    issued on exercise of warrants	 	 	480,066	 	 	 	1,004,162	 	 	 	-	 	 	 	(204,046	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	800,116	 
	Shares
    to be issued	 	 	-	 	 	 	-	 	 	 	398,317	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	398,317	 
	Share
    based payments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(284,434	)	 	 	-	 	 	 	-	 	 	 	(284,434	)
	Share
    based payments withholding	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(68,669	)	 	 	-	 	 	 	-	 	 	 	(68,669	)
	Expiry
    of broker warrants	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(1,367,901	)	 	 	1,367,901	 	 	 	-	 	 	 	-	 	 	 	-	 
	Loss
    on retirement of Bitfury debt	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(245,922	)	 	 	-	 	 	 	-	 	 	 	(245,922	)
	Unrealized
    gain on bitcoin revaluation, net of tax	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	45,680,940	 	 	 	45,680,940	 
	Net
    income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	19,040,154	 	 	 	-	 	 	 	19,040,154	 
	Balance,
    December 31, 2020	 	 	97,245,223	 	 	$	178,231,290	 	 	$	398,317	 	 	$	2,559,484	 	 	$	4,233,917	 	 	$	(115,549,069	)	 	$	45,680,940	 	 	$	115,554,879	 




 


The
accompanying notes are an integral part of these consolidated financial statements.



    6 


     


    


HUT
8 MINING CORP.


(In
Canadian dollars)


Consolidated
Statement of Cash Flows for the years ended December 31,


 


	 	 	2020	 	 	2019	 
	Cash provided by (used in):	 	 	 	 	 	 	 	 
	Operating activities:	 	 	 	 	 	 	 	 
	Net income (loss)	 	$	19,040,154	 	 	$	2,130,570	 
	Change in non-cash operating items:	 	 	 	 	 	 	 	 
	Deferred tax recovery	 	 	(15,048,707	)	 	 	-	 
	Digital assets mined	 	 	(38,962,425	)	 	 	(81,990,119	)
	Digital assets converted to fiat currency	 	 	41,526,945	 	 	 	68,181,784	 
	Digital assets paid for services	 	 	43,485	 	 	 	7,514,399	 
	Depreciation	 	 	21,264,918	 	 	 	33,053,597	 
	Gain on use of digital assets	 	 	(2,815,342	)	 	 	(4,143,311	)
	Revaluation of digital assets	 	 	(13,713,962	)	 	 	(4,273,686	)
	Shares issued for services	 	 	-	 	 	 	667,256	 
	Share based payments	 	 	(284,434	)	 	 	2,905,408	 
	Net finance expense and other	 	 	19,691	 	 	 	4,657,544	 
	Reversal of impairment	 	 	(13,155,936	)	 	 	-	 
	Foreign exchange	 	 	(515,007	)	 	 	(1,198,011	)
	Interest expenses	 	 	56,076	 	 	 	78,109	 
	 	 	 	(2,544,544	)	 	 	27,583,540	 
	Change in non-cash working capital:	 	 	 	 	 	 	 	 
	Accounts receivable	 	 	(451,061	)	 	 	-	 
	Accounts payable and accrued liabilities	 	 	1,703,608	 	 	 	(13,074,965	)
	Total change in non-cash operating working capital	 	 	1,252,547	 	 	 	(13,074,965	)
	Net cash provided by (used in) operating activities	 	 	(1,291,997	)	 	 	14,508,575	 
	Investing activities	 	 	 	 	 	 	 	 
	Purchase of mining equipment	 	 	(5,810,969	)	 	 	(9,234,400	)
	Deposits and prepaid expenses	 	 	(1,329,640	)	 	 	(497,734	)
	Net cash used in investing activities	 	 	(7,140,609	)	 	 	(9,732,134	)
	Financing activities	 	 	 	 	 	 	 	 
	Repayment of loan payable	 	 	(6,621,300	)	 	 	(25,253,436	)
	Finance draw from loan payable	 	 	6,615,500	 	 	 	19,956,000	 
	Repayment of lease obligations	 	 	(24,406	)	 	 	(89,549	)
	Proceeds from issuance of common shares, net of issue costs	 	 	7,494,622	 	 	 	-	 
	Proceeds from exercise of warrants and options	 	 	838,112	 	 	 	-	 
	Net cash provided by (used in) financing activities	 	 	8,302,528	 	 	 	(5,386,984	)
	Decrease in cash	 	 	(130,078	)	 	 	(610,543	)
	Cash, beginning of year	 	 	2,946,017	 	 	 	3,556,560	 
	Cash, end of year	 	$	2,815,939	 	 	$	2,946,017	 



 


Significant non-cash transactions included:    


             




	 	•	Payment
    in bitcoin of loans payable interest and principal totaling $Nil (2019 – $2,472,746); and


	 	•	Settlement
    of Accounts Payable with Common shares valued at $Nil (2019 - $4,609,617).


 


The
accompanying notes are an integral part of these consolidated financial statements.



    7 


     


    


HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	1.	Nature
    of operations



 

Hut
8 Mining Corp. (the “Company” or “Hut 8”) was incorporated under the laws of the Province of British Columbia
on June 9, 2011. The registered office of the Company is located at Suite 1700 Park Place, 666 Burrard St, Vancouver BC, Canada,
V6C 2X8 and the headquarter is located at 130 King St. W, Suite 1800, Toronto, ON, Canada, M5X 2A2. The Company’s common
shares are listed under the symbol “HUT” on the Toronto Stock Exchange (“TSX”) and as “HUTMF”
on the OTCQX Exchange. As at December 31, 2020, Bitfury Holding BV (“Bitfury”) owned 33% of the Company’s common
shares and is a significant shareholder and related party of Hut 8. The Company is in the business of utilizing specialized equipment
to solve complex computational problems to validate transactions on the bitcoin blockchain. The Company receives bitcoin in return
for successful service.


 


	2.	Statement
    of Compliance and Basis of Presentation



 

	 	(a)	Statement
    of compliance



 

These
consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting
Standards” (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations
issued by the International Financial Reporting Standards Interpretations Committee (“IFRIC”).


 


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


 


These
consolidated financial statements were approved and authorized for issuance by the Board of Directors on March 24, 2021.


 


	 	(b)	Basis
    of presentation



 

The
consolidated financial statements have been prepared on a historical cost basis except for some financial instruments that have
been measured at fair value.


 


	 	(c)	Functional
    and presentation currency



 

Items
included in the consolidated financial statements of the Company and its wholly owned subsidiaries are measured using the currency
of the primary economic environment in which the entity operates. These consolidated financial statements have been prepared in
Canadian dollars, which is the Company’s functional and presentation currency.


 


	 	(d)	Consolidation



 

These
consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary. All significant
intercompany transactions, balances, income and expenses are eliminated on consolidation.


 


The
Company has 3 wholly owned subsidiaries: Hut 8 Holdings Inc., Hut 8 Asset Management Inc., and Hut 8 Finance Ltd.



    8 


     


    
HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	3.	Significant
    accounting policies, judgements, and estimates



 

The
preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions
that affect the reported amounts; however, uncertainty about these assumptions and estimates could result in outcomes that require
a material adjustment to the carrying amount of the asset or liability affected in future periods. The key assumptions concerning
the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next fiscal year are described below. The Company based
its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and
assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of
the Company.


 


The
following are the estimates and assumptions that have been made in applying the Company’s accounting policies that have
the most significant effect on the amounts in the consolidated financial statements:


 


	 	(i)	Functional
    currency



 

The
functional currency of the Company has been assessed by management based on consideration of the currency and economic factors
that mainly influence the Company’s digital currencies, production and operating costs, financing and related transactions.
Specifically, the Company considers the currencies in which digital currencies are most commonly denominated and the currencies
in which expenses are settled, by each entity, as well as the currency in which each entity receives or raises financing. Changes
to these factors may have an impact on the judgment applied in the determination of the Company’s functional currency.


 


	 	(ii)	Taxes



 

Uncertainties
exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future
taxable income. The Company has not recognized the value of any deferred tax assets in its statements of financial position.


 


The
Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained based on its technical merits. The Company measures and records the tax benefits from such a position based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s estimated
liabilities related to these matters are adjusted in the period in which the uncertain tax position is effectively settled, the
statute of limitations for examination expires or when additional information becomes available. The Company’s liability
for unrecognized tax benefits requires the use of assumptions and significant judgment to estimate the exposures associated with
our various filing positions. Although the Company believes that the judgments and estimates made are reasonable, actual results
could differ and resulting adjustments could materially affect our effective income tax rate and income tax provision.


 


The
Company has earned bitcoin from the commercial activity of bitcoin mining. The Company has followed the published Canada Revenue
Agency (“CRA”) view that bitcoin is a commodity and inventory of the business, the value of which is included in the
calculation of taxable income from the business. Bitcoin is valued in accordance with Section 10 of the Income Tax Act. Revenue
from bitcoin mining is included in taxable income when the bitcoin earned is sold or exchanged for cash or another asset. There
is uncertainty regarding the taxation of cryptocurrency and the CRA may assess the Company differently from the position adopted.
This could result in additional current taxes payable with equal offset to deferred tax expense.



    9 


     


    


HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	3.	Significant
accounting policies, judgements, and estimates (continued)



 


	 	(iii)	Impairment
    of non-financial assets



 

Impairment
exists when the carrying value of an asset exceeds its recoverable amount, which is the higher of its fair value less costs to
sell and its value in use. These calculations are based on available data, other observable inputs and projections of cash flows,
all of which are subject to estimates and assumptions. Recoverable amounts are also sensitive to assumptions about the future
usefulness of in-process development and the related marketing rights. See Note 6 for the discussion regarding impairment of the
Company’s non-financial assets.


 


	 	(iv)	Foreign
    currency translation



 

Within
each entity, transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on
dates of transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies
are translated to the functional currency at the exchange rate at that date. Foreign exchange differences arising on translation
are recognized in the statement of operations. Non-monetary assets and liabilities that are measured at historical cost are translated
using the exchange rate at the date of the transaction.


 


	 	(v)	Fair
    value measurement of stock options and broker warrants



 

The
Company measures the cost of equity-settled transaction by reference to the fair value of the equity instruments at the date on
which they are granted. Estimating fair value requires determining the most appropriate valuation model, which is dependent on
the terms and conditions of the grant. This estimate also requires the determination of the most appropriate inputs to the valuation
model including the expected life of the broker warrants, volatility and dividend yield and making assumptions about them. The
assumptions and models used for estimating fair value for stock options and broker warrants are disclosed in Note 9.


 


	 	(vi)	Revenue
    recognition



 

The
Company recognizes revenue from the provision of transaction verification services within digital currency networks, commonly
described as “crypto currency mining”. As consideration for these services, the Company receives bitcoins from each
specific cryptocurrency mining pool in which it participates. Management has exercised significant judgement in determining the
completion stage for this revenue stream and examined various factors surrounding the substance of the Company’s operations,
and determined the stage of completion being the completion and addition of a block to a blockchain.


 


There
is currently no specific definitive guidance in IFRS or alternative accounting frameworks for the accounting for the production
and mining of bitcoin and management has exercised significant judgment in determining appropriate accounting treatment for the
recognition of revenue. In the event authoritative guidance is enacted by the IASB, the Company may be required to change its
policies which could result in a change in the Company’s financial position and earnings.



    10 


     


    

HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 

		3.	Significant
accounting policies, judgements, and estimates (continued)



 


	 	(vii)	Digital
    assets



 

Digital
assets consist of Bitcoin. Digital assets meet the definition of intangible assets in IAS 38 Intangible Assets as they are identifiable
non-monetary assets without physical substance. They are initially recorded at cost and the revaluation method is used to measure
the digital assets subsequently. Where digital assets are recognized as revenue, the fair value of the bitcoin received is considered
to be the cost of the digital assets. Under the revaluation method, increases in fair value are recorded in other comprehensive
income, while decreases are recorded in profit or loss. The Company revalues its digital asset at the end of each month. There
is no recycling of gains from other comprehensive income to profit or loss. However, to the extent that an increase in fair value
reverses a previous decrease in fair value that has been recorded in profit or loss, that increase is recorded in profit or loss.
Decreases in fair value that reverse gains previously recorded in other comprehensive income are recorded in other comprehensive
income.


 


Digital
assets are measured at fair value using the quoted price on Coinmarketcap. Coinmaketcap is a pricing aggregator, as the principal
market or most advantageous market is not always known. The Company believes any price difference amongst the principal market
and an aggregated price to be immaterial. Management considers this fair value to be a Level 2 input under IFRS 13 Fair Value
Measurement fair value hierarchy as the price on this source represents an average of quoted prices on multiple digital currency
exchanges.


 


	 	(viii)	Non-monetary
    transactions



 

Where
the Company is settling a liability for the purchase of goods and services where the price was established in a fiat currency,
the difference between the liability settled and the fair value of the digital assets transferred is recognized as a gain or loss
on settlement. Otherwise, the transaction is measured based on the fair value of the digital assets exchanged. Any difference
between the fair value of the digital assets exchanged and the carrying amount of the digital assets is recognized in profit and
loss.


 


	 	(ix)	Earnings
    per share



 

The
calculation of earnings per common share is based on the reported net income divided by the weighted average number of shares
outstanding during the period. Diluted earnings per share is calculated on the treasury stock basis. Where potentially dilutive
equity instruments are anti-dilutive, basic and diluted earnings per share are the same.


 


	 	(x)	Share
    issue costs



 

Costs
incurred for the issue of common shares are deducted from share capital. 



    11 


     


    

HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 

		3.	Significant
accounting policies, judgements, and estimates (continued)



 


	 	(xi)	Share
    based transactions



 

Equity-settled
share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received,
except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments
granted, measured at the date the entity obtains the goods or the counterparty renders the service.


 


The
Company issued broker warrants as part of brokered private placement offering for common shares. Broker warrants are measured
at fair value at the date of the offering and accounted for as a separate component of shareholders’ equity. When the broker
warrants are exercised, the proceeds received together with the related amount allocated as a separate component of shareholders’
equity are allocated to capital stock. If the broker warrants expire unexercised, the related amount separately allocated to shareholders’
equity is allocated to contributed surplus.


 


	 	(xii)	Useful
    life of mining equipment



 


Management
is depreciating mining equipment using a straight-line basis, with a useful life of:


 




		Seacan containers and supporting infrastructure	 4 years





		Mining servers	 2 years



 


The
mining equipment is used to generate bitcoin. The rate at which the Company generates digital assets and, therefore, consumes
the economic benefits of its mining equipment are influenced by several factors including, but not limited to, the following:


 


		•	The
complexity of the mining process which is driven by the algorithms contained within the digital assets open source software; and



 


		•	Technological
obsolescence reflecting rapid development in the mining machines such that more recently developed hardware is more economically
efficient to run in terms of digital assets mined as a function of operating costs, primarily power costs (ie., the speed of mining
machines evolution in the industry) is such that later mining machine models generally have faster processing capacity combined
with lower operating costs and a lower cost of purchase.



 


Based
on the Company and the industry’s limited history to date, management is limited by the market data available. Furthermore,
the data available also includes data derived from the use of economic modelling to forecast future digital assets and the assumptions
included in such forecasts, including digital asset’s price and network difficulty, and derived from management’s
assumptions which are inherently judgmental. Based on current data available, management has determined that the straight-line
method of amortization best reflects the current expected useful life of mining equipment. Management will review their estimates
at each reporting date and will revise such estimates as and when data become available. Management will review the appropriateness
of its assumption related to residual value at each reporting date.



    12 


     


    
HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	3.	Significant
    accounting policies, judgements, and estimates (continued)



 

	 	(xiii)	Changes
    in significant accounting policies


 


		•	Amendment
to IFRS 3 – Definition of a Business



 


In
October 2018, the IASB amended IFRS 3, Business Combinations, to clarify the definition of a business, with the objective of assisting
entities in determining whether a transaction should be accounted for as a business combination or as an asset acquisition. The
amendments are applicable to transactions for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after January 1, 2020, with earlier application permitted. The adoption of these amendments did not have
an impact on the Company’s consolidated financial statements but may impact future periods if the Company enters into any
future business combinations.


 


		•	Amendment
to IAS 1 and IAS 8 – Definition of Material



 


In
October 2018, the IASB amended IAS 1, Presentation of Financial Statements, and IAS 8, Accounting Policies, Changes in Accounting
Estimates and Errors, to clarify the definition of material and how it should be applied. In addition, the explanations accompanying
the definition have been improved. The amendments are effective for annual periods beginning on or after January 1, 2020, with
earlier application permitted. The adoption of these amendments did not have a material impact on the Company’s consolidated
financial statements.


 


		•	Amendment
to IAS 1 – Classification of Liabilities as Current or Non-current



 


In
January 2020, the IASB amended IAS 1, Presentation of Financial Statements, to clarify the criterion for classifying a liability
as non-current relating to the right to defer settlement of the liability for at least twelve months after the reporting period.
The amendments are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application permitted.
The adoption of these amendments did not have an impact on the Company’s consolidated financial statements.


 


		•	Amendment
to IFRS 16 – COVID-19-Related Rent Concessions



 


In
May 2020, the IASB amended IFRS 16, Leases, to include a practical expedient which permits lessees not to assess whether rent
concessions that occur as a direct consequence of the COVID- 19 pandemic are lease modifications and, instead, account for those
rent concessions as if they were not lease modifications. In addition, the amendment to IFRS 16 provides specific disclosure requirements
regarding COVID-19 related rent concessions. The amendments are effective for annual reporting periods beginning on or after June
1, 2020, with earlier application permitted. The Company received a total of $3,596 for the year ended December 31, 2020. The
Company elected to apply the practical expedient to all eligible rent concessions. The adoption of these amendments did not have
a material impact on the Company’s consolidated financial statements but may impact future periods if the Company receives
additional rent concessions.



    13 


     


    

HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


		4.	Deposits
and prepaid expenses





 


	 	 	December 31, 2020	 	 	December 31, 2019	 
	Current	 	 	 	 	 	 	 	 
	Prepaid electricity(i)	 	$	-	 	 	$	158,391	 
	Prepaid insurance	 	 	92,014	 	 	 	82,225	 
	Miscelaneous deposits	 	 	-	 	 	 	80,573	 
	Total current deposits and prepaids expenses	 	$	92,014	 	 	$	321,189	 
	 	 	 	 	 	 	 	 	 
	Non-current	 	 	 	 	 	 	 	 
	Deposits
    related to electricity supply under Electricity Supply Agreement(ii)	 	$	5,952,735	 	 	$	5,652,240	 
	Deposit on equipment order(iii)	 	 	1,205,122	 	 	 	-	 
	Land lease deposit	 	 	201,189	 	 	 	123,987	 
	Total non-current deposits and prepaids expenses	 	$	7,359,046	 	 	$	5,776,227	 



 


	 	(i)	Electricity
    deposits for facility in Drumheller, Alberta.



 

	 	(ii)	Payments
    for mining equipment in transit.



 

	 	(iii)	Electricity
    deposits for facility in Medicine Hat, Alberta.



 

		5.	Digital
assets



 


Digital
assets solely consist of bitcoin. Below is the bitcoin mined and transacted.


 


	 	 	Bitcoin	 
	Balance, December 31, 2018	 	$	15,408,189	 	 	 	3,035	 
	 	 	 	 	 	 	 	 	 
	Bitcoin mined	 	 	81,990,119	 	 	 	8,618	 
	Bitcoin traded for cash(i)	 	 	(68,181,784	)	 	 	(6,883	)
	Bitcoin used for debt and interest payments(i)	 	 	(2,472,746	)	 	 	(405	)
	Bitcoin paid for services(i)	 	 	(7,850,049	)	 	 	(1,441	)
	Gain on sale of digital assets(i)	 	 	4,143,311	 	 	 	-	 
	Revaluation of digital assets(ii)	 	 	4,273,686	 	 	 	-	 
	Balance, December 31, 2019	 	$	27,310,725	 	 	 	2,923	 
	 	 	 	 	 	 	 	 	 
	Bitcoin mined	 	 	38,962,425	 	 	 	2,798	 
	Bitcoin traded for cash(i)	 	 	(41,526,945	)	 	 	(2,956	)
	Bitcoin paid for services(i)	 	 	(43,485	)	 	 	(4	)
	Gain on sale of digital assets(i)	 	 	2,815,342	 	 	 	-	 
	Revaluation of digital assets(ii)	 	 	74,443,609	 	 	 	-	 
	Balance, December 31, 2020	 	$	101,961,671	 	 	 	2,761	 
	Current portion	 	 	 	 	 	 	 	 
	Digital assets, current(iii)	 	$	75,505,472	 	 	 	2,045	 
	Bitcoin used as collateral(iv)	 	$	26,456,199	 	 	 	716	 





    14 


     


    

HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	5.	Digital
    assets (continued)



 

		(i)	During
the year ended December 31, 2020, the Company exchanged its bitcoin for cash, and other services totaling $41,570,430 (2019 -
$78,504,579) with a cost of $38,755,088 (2019 - $74,361,268), which resulted in a realized gain on sale of $2,815,342 (2019 -
$4,143,311).



 


		(ii)	Digital
assets held are revalued each reporting period based on the fair market value of the price of bitcoin on the reporting date. As
at December 31, 2020, the price of bitcoin was $36,925 (US$29,002) resulting in a revaluation gain of $74,443,609 (2019 - $4,273,686).
Of this gain, $13,713,962 was recorded as a gain in the net income, which offset the revaluation losses recorded in prior years,
and the remaining $60,729,647 was recorded to other comprehensive income net of taxes of $15,048,707.



 


	 	(iii)	Bitcoin
    that is held by Hut 8 and available for use as at December 31, 2020.



 

	 	(iv)	Digital
    assets held by Genesis as collateral for the loan (Note 8).



 

	6.	Plant
    and equipment



 





	 	 	Infrastructure	 	 	Mining

 servers	 	 	Right-of-use

 assets(i)	 	 	Total	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 
	As at January 1, 2019	 	$	30,006,954	 	 	$	75,292,993	 	 	$	-	 	 	$	105,299,947	 
	Additions	 	 	2,123,912	 	 	 	7,110,488	 	 	 	575,274	 	 	 	9,809,674	 
	As at December 31, 2019	 	 	32,130,866	 	 	 	82,403,481	 	 	 	575,274	 	 	 	115,109,621	 
	Additions	 	 	-	 	 	 	5,810,969	 	 	 	-	 	 	 	5,810,969	 
	Expiration of lease	 	 	-	 	 	 	-	 	 	 	(71,440	)	 	 	(71,440	)
	Reversal of prior-year impairment(ii)	 	 	13,155,936	 	 	 	-	 	 	 	-	 	 	 	13,155,936	 
	As at December 31, 2020	 	$	45,286,802	 	 	$	88,214,450	 	 	$	503,834	 	 	$	134,005,086	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated Depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at January 1, 2019	 	$	8,743,809	 	 	$	38,429,130	 	 	$	-	 	 	$	47,172,939	 
	Depreciation	 	 	6,314,949	 	 	 	26,664,389	 	 	 	74,259	 	 	 	33,053,597	 
	As at December 31, 2019	 	 	15,058,758	 	 	 	65,093,519	 	 	 	74,259	 	 	 	80,226,536	 
	Depreciation	 	 	6,801,080	 	 	 	14,428,573	 	 	 	35,265	 	 	 	21,264,918	 
	Expiration of lease	 	 	-	 	 	 	-	 	 	 	(32,973	)	 	 	(32,973	)
	Accretion expense	 	 	-	 	 	 	-	 	 	 	24,004	 	 	 	24,004	 
	As at December 31, 2020	 	$	21,859,838	 	 	$	79,522,092	 	 	$	100,555	 	 	$	101,482,485	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net Book Value December 31, 2019	 	$	17,072,108	 	 	$	17,309,962	 	 	$	501,015	 	 	$	34,883,085	 
	Net Book Value December 31, 2020	 	$	23,426,964	 	 	$	8,692,358	 	 	$	403,279	 	 	$	32,522,602	 










    15 


     


    

HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	6.	Plant
    and equipment (continued)



 





	 	(i)	The
    right-of-use assets (ROUs) comprises of a 10-year land lease with the City of Medicine Hat, which came into agreement on June
    1, 2018, and a 3-year sublease under Bitfury with a landlord in Drumheller with an optional 3-year extension, which was agreed
    on May 8, 2017. See Note 9 for the related lease liability.


 

		•	The
City of Medicine Hat lease was originally for payment of $10,500 monthly. A ROU asset and a related lease liability had been recognized
as such. On July 1, 2019, the monthly obligation was reduced to $1,395, which results in an immediate de- recognition of the original
ROU asset and recognition of a new ROU asset. A gain of $46,882 was also recognized as a result of this.



 


	 	•	The
    Drumheller sub-lease was originally for payment of $1,500 monthly. A ROU asset and a related lease liability had been
    recognized     as such. In May 2020, the lease expired, which resulted in an immediate de-recognition of the ROU asset and a
    gain of $5,645.





 


	 	(ii)	At
    December 31, 2020, the Company tested its Cash-Generating Units (CGUs) for impairment. Management has determined the recoverable
    amount as the Fair Value for the Drumheller facility and Value in Use (“VIU”) for the Medicine Hat facility. The
    significant assumptions in determining VIU included the following:



 

	 	 	December
31,
 2020
	 	 	December
31,
 2019
	 
	Starting bitcoin price	 	 	$36,925 (US$29,002)	 	 	 	$5,224 (US$3,829)	 
	Starting network difficulty	 	 	18,600 billion	 	 	 	5,619 billion	 
	Discount rate	 	 	25%	 	 	 	21%	 
	Monthly bitcoin price growth	 	 	1.21% - 5.13%	 	 	 	2.4% - 3.0%	 
	Difficulty growth rate	 	 	4.42%	 	 	 	3.90%	 



 


Due
to the positive mining economics, increasing prices of bitcoin related to the difficulty levels during the fourth quarter of 2020,
the Company reversed prior years’ impairment charges on Infrastructure based on Management’s conclusion that, using
the above assumptions, the events and circumstances which led to previous years’ impairment charges no longer exist. Consequently,
in the fourth quarter of 2020, the Company recorded a reversal of prior years’ impairment charges of $13.2 million.


 


The
Company believes a reasonable increase or decrease in the bitcoin price growth and difficulty growth used in the analysis would
not cause the recoverable amount to decrease below the carrying value.


 


	7.	Accounts
    payable and accrued liabilities



 

	 	 	December 31, 2020	 	 	December 31, 2019	 
	Accounts payable	 	$	3,726,309	 	 	$	563,868	 
	Accrued liabilities	 	 	164,203	 	 	 	1,932,996	 
	Total	 	$	3,890,512	 	 	$	2,496,864	 






    16 


     


    

HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	8.	Loans
payable





 


	 	 	December
31, 2020
	 	 	December
31, 2019
	 
	Balance, beginning 
	 	$	26,038,623	 	 	$	32,366,242	 
	Borrowing	 	 	6,615,500	 	 	 	19,956,000	 
	Addition upon adoption of IFRS 16	 	 	-	 	 	 	983,445	 
	Modification of lease	 	 	(44,113	)	 	 	(646,932	)
	Repayments	 	 	(6,645,706	)	 	 	(26,675,748	)
	Accrued interest	 	 	58,033	 	 	 	688,386	 
	Foreign exchange impact	 	 	(511,317	)	 	 	(1,272,871	)
	Gain/loss on retirement of debt	 	 	245,922	 	 	 	640,101	 
	Balance, ending	 	$	25,756,942	 	 	$	26,038,623	 



 


	 	 	 	December
31, 2020
	 	 	 	December
31, 2019
	 
	Genesis	 	$	25,464,000	 	 	$	19,482,000	 
	Lease liability	 	 	292,942	 	 	 	325,075	 
	Bitfury	 	 	-	 	 	 	6,231,548	 
	 	 	 	25,756,942	 	 	 	26,038,623	 
	Current portion	 	$	25,756,942	 	 	$	6,231,548	 
	Non-current portion	 	$	-	 	 	$	19,807,075	 




 

During
the year ended December 31, 2020, the Company made loan repayments of $nil (2019 - $1,137,504) through bitcoin.


 


	 	(i)	Genesis
    loan



 

As
at December 31, 2020, the Company had a loan payable of $25,464,000 (US$20,000,000) to Genesis Global Capital, LLC (“Genesis”).
The loan has an open term where Genesis can call the loan principal, or any part thereof, with a five-month notice to the Company,
and Hut 8 can repay the loan, or any part thereof, to Genesis with one month notice. The loan bears interest at 8% per annum,
which is payable monthly. The loan has a covenant requiring 95% of the loan principal to be collateralized by bitcoin. The bitcoin
for collateral related to the loan are held by Genesis. If the collateralized value of the bitcoin drops below 85% of loan, Genesis
may request additional bitcoin to bring the collateral back to the required levels. Conversely, if the collateralized bitcoin
value goes over 105% of the loan, the Company may request the return of the surplus bitcoin. Additionally, if the price of bitcoin
drops below US$6,500, the collateral requirement will automatically change to 80% of the loan value and the interest rate adjusts
to 10% per annum until the bitcoin price increases above US$6,500 again. Interest expense for the year ended December 31, 2020
was $2,335,520 (US$1,736,952) (2019 – $224,240 (US$170,014)). A foreign exchange gain of $633,500 was recognized for the
year ended December 31, 2020 (2019 – gain of $474,000).


 


On
February 12, 2021, Hut 8 has fully repaid this loan, and all bitcoin collateral was returned to the Company.


 


	 	(ii)	Lease
    liability



 

The
lease liability is measured at amortized cost using the effective interest method.


 


In
May 2020, the Drumheller lease expired, resulting in a write-off of its ROU asset and related lease liability.


    17 


     


    
HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 

	8.	Loans
    payable (continued)



 

	 	(iii)	Bitfury
    loan



 

As
at December 31, 2019, the Company had a loan payable of $6,231,548 (US$4,797,927) to Bitfury, a related party. The loan
payable was unsecured and bore interest at 12% per annum. The loan is carried at amortized cost based on an 18% market
interest rate causing the underlying value to be lower than the original principal value with a difference of $544,727
(US$401,518) at inception which was recognized as a related party contribution in contributed surplus. The loan is split into
a $3,896,400 (US$3,000,000) portion which was to be repaid in $324,700 (US$250,000) installments every month for the next 12
months. For the year ended December 31, 2019, twelve months of installments of the principal were repaid totaling $3,980,103
(US$3,000,000). On November 27, 2019, the Company made an additional $1,327,800 (US$1,000,000) repayment. On February 20,
2020, the Company had fully paid off its remaining debt with Bitfury.


 


During
the year ended December 31, 2020, interest accretion was $19,691 (US$15,046) [2019 – $264,630 (US$199,446)] and
interest accrued was $78,009 (US$59,608) [2019 – $1,275,432 (US$960,800)].


 


During
the year ended December 31, 2020, the Company recorded a foreign exchange loss of $122,183 (2019 – gain of $390,464)
and a loss on retirement of the Bitfury loan of $245,922 (2019 - $nil) to recognized in Contributed Surplus.


 


	 	(iv)	Galaxy
    loan



 

As
at December 31, 2019, the Company had fully repaid the loan with Galaxy. During the year ended December 31, 2019, the Company
paid $21,278,296 (US$16,000,000) of debt principal and an additional $319,174 (US$240,000) as an early repayment fee to retire
the loan ahead of its maturity on March 10, 2021. The interest expense for the period up until November 21, 2019 was $3,029,130
(US$2,273,815) and interest accretion was $345,646 (US$260,190), both of which have been recognized as finance expense A foreign
exchange gain of $408,407 and a loss of $640,101 on debt retirement were recognized for the year ended December 31, 2019.



    18 


     


    

HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	9.	Equity



 

	 	(a)	Common
    shares



 

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


 


	 	 	Number of shares	 	 	Amount	 
	Balance, December 31, 2018	 	 	85,227,858	 	 	$	162,733,360	 
	 	 	 	 	 	 	 	 	 
	Shares issued for mining equipment(i)	 	 	838,511	 	 	 	1,167,386	 
	Shares issued in settlement of accounts payable(ii)	 	 	3,717,433	 	 	 	4,609,617	 
	Shares issued for services(iii)	 	 	419,507	 	 	 	667,256	 
	Shares issued for RSUs(iv)	 	 	234,700	 	 	 	1,444,980	 
	Balance, December 31, 2019	 	 	90,438,009	 	 	$	170,622,599	 
	 	 	 	 	 	 	 	 	 
	Shares issued for RSUs(iv)	 	 	543,359	 	 	 	1,804,260	 
	Shares issued for exercise of options	 	 	33,333	 	 	 	69,176	 
	Shares issued for public offering(v)	 	 	5,750,456	 	 	 	5,702,617	 
	Cost of issuance attributed to public offering	 	 	-	 	 	 	(971,527	)
	Shares issued for exercise of warrants	 	 	480,066	 	 	 	1,004,162	 
	Balance, December 31, 2020	 		97,245,223	 	 	$	178,231,290	 




 

	 	(i)	During
    the year ended December 31, 2018, the Company issued $58,463,070 in common shares as payment for mining equipment. As part
    of the Company’s purchase of 12 upgraded BlockBoxes from Bitfury in Drumheller, US$2 million of the purchase price was
    issued in equity at a share price of $3.15 for an issuance of 838,511 common shares. The purchase was closed on December 31,
    2018 and the process to issue the common shares had begun; however, the share issuance was not finalized until January 15,
    2019. The share issuance was measured at a fair value of $1,167,386 and recognized during the year ended December 31, 2019.



 

	 	(ii)	On
    March 27, 2019, the Company issued 3,717,433 common shares in settlement of outstanding accounts payable to Bitfury of $5,576,150,
    based on a conversion share price of $1.50. The share price on the date of settlement of February 26, 2019 was $1.24 which
    created a gain of $966,533.



 

	 	(iii)	Shares
    are issued for services at times to align key service providers with the overall success of Hut 8. These shares were primarily
    issued as payment of invoices for electricity management services provided for the Company’s facilities.



 

	 	(iv)	During
    the year ended December 31, 2020, the Company issued 543,359 shares (2019 – 234,700 shares) related to exercise of restricted
    share units (“RSU”) and reallocated $1,804,260 (2019 - $1,444,980), the relative fair value of RSU’s net
    of employment withholdings, from contributed surplus to share capital.





    19 


     


    


HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 



	9.	Equity
(continued)



 


	 	(v)	On
    June 25, 2020, the Company completed a public offering (the “Offering”), and, with the underwriters exercising
    their over-allotment option, issued 5,750,456 units (“Unit”) for gross proceeds of $8,338,161. Each unit comprises
    of one common share (each a “Common Share”) and one Common Share purchase warrant of the Company (each a “Warrant”).
    Each Warrant entitles the holder thereof to acquire one additional common share of the Company at an exercise price of $1.80
    per share at any time for a period of 18 months. The Warrants were valued at $2,635,544 under the relative fair value approach
    using the Black-Scholes Option Pricing model based on the following assumptions: expected life of 1.5 years, risk-free rate
    of 0.30%, volatility of 128% and dividend yield of 0%. The Company paid commissions and fees totaling $843,541 and issued
    345,027 broker warrants with an exercise price of $1.45
per share and a fair value of $127,986. The broker warrants are determined using the Black-Scholes Option Pricing model based
on the following assumptions: expected life of 2 years, interest rate of 0.30%, volatility of 118% and dividend yield of 0%





 


	 	(b)	Warrants



 


The warrant
activity is as follows:


 

	 	 	 	Number of

 warrants	 	 	Weighted average

 exercise price	 
	Balance, January 1, 2019	 	 	 	2,882,222	 	 	$	4.61	 
	 	 	 	 	 	 	 	 	 	 
	Balance, December 31, 2019	 	 	 	2,882,222	 	 	$	4.61	 
	 	 	 	 	 	 	 	 	 	 
	Issued(i)	 	 	 	6,095,483	 	 	 	1.78	 
	Exercised(ii)	 	 	 	(480,066	)	 	 	1.67	 
	Expired(iii)	 	 	 	(660,000	)	 	 	5.00	 
	Balance, December 31, 2020	 	 		7,837,639	 	 	$	2.56	 



 


	 	(i)	The
    warrants issued comprise of 5,750,456 warrants related to its public offering on June 25, 2020, and 345,027 broker warrants.



 

	 	(ii)	The
    exercised warrants, which are related to the recent public offering, comprise of 297,200 warrants with an exercise price of
    $1.80 and 182,866 broker warrants with an exercise of $1.45.





 


	 	(iii)	660,000
    broker warrants related to a previous private replacement with an exercise price of $5.00
expired on July 2, 2020.








    20 


     


    


HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	9.	Equity
(continued)



 


The
warrants issued and outstanding as at December 31, 2020 are as follows:


 


	Exercise

 price	 	 	Number	 	 	Weighted average 
remaining contractual

 life (months)	 	 	Expiry date
	$	4.50	 	 	 	2,222,222	 	 	 	33	 	 	9/10/2023
	$	1.80	 	 	 	5,453,256	 	 	 	12	 	 	12/25/2021
	$	1.45	 	 	 	162,161	 	 	 	18	 	 	6/25/2022
	$	2.56	 	 		7,837,639	 	 		18	 	 	 


 

	 	(c)	Incentive
    plan


 


On
March 5, 2018, the Company adopted a Long-Term Incentive Plan (“LTIP”) under which it is authorized to grant stock
options, restricted share units and deferred share units (“Awards”) to officers, directors, employees, and consultants
enabling them to acquire common shares of the Company. The maximum number of common shares reserved for issuance of Awards that
may be granted under the plan is 10% of the issued and outstanding common shares of the Company.


 


Stock options  


 


The stock option activity is as follows:  




 


	 	 	 	Number of

 options	 	 	Weighted average

 exercise price	 
	Balance, January 1, 2019	 	 	 	965,000	 	 	$	4.63	 
	Granted	 	 	 	110,000	 	 	 	1.20	 
	Forfeiture	 	 	 	(165,000	)	 	 	 	 
	Balance, December 31, 2019	 	 	 	910,000	 	 	 	4.34	 
	Forfeiture	 	 	 	(115,000	)	 	 	5.00	 
	Exercised	 	 	 	(33,333	)	 	 	1.14	 
	Options outstanding, December 31, 2020	 	 		761,667	 	 	$	4.38	 
	Options exercisable, December 31, 2020	 	 		540,001	 	 	$	4.76	 



 


As
at December 31, 2020, the Company had the following stock options outstanding:


 





	Exercise
    price	 	 	Number
    of
 options
 outstanding	 	 	Number
    of
 options
 exercisable	 	 	Weighted
    average
 remaining life
 (months)	 
	$	1.14	 	 	 	66,667	 	 	 	-	 	 	 	48	 
	 	1.80	 	 	 	10,000	 	 	 	3,333	 	 	 	46	 
	 	3.00	 	 	 	90,000	 	 	 	60,000	 	 	 	33	 
	 	5.00	 	 	 	595,000	 	 	 	476,668	 	 	 	27	 
	$	4.38	 	 	 	761,667	 	 	 	540,001	 	 	 	30	 




    21 


     


    
HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 

	9.	Equity
    (continued)



 

During
the year ended December 31, 2020, the Company recorded a total of $354,500 (2019 - $856,844) as share-based payments related
to stock options. The Company also recorded a reversal of share-based payments totaling $90,691 due to the forfeiture of
115,000 options. The compensation expense was based on the fair value of each stock option on the date of the grant using the
Black- Scholes option pricing model with the following weighted average assumptions.


 


	 	 	Year ended 
December 31, 2020	 	 	Year ended 
December 31, 2019	 
	Expected life (years)	 	 	n/a	 	 	 	4.96	 
	Expected volatility	 	 	n/a	 	 	 	109.36	%
	Dividend rate	 	 	n/a	 	 	 	0.00	%
	Risk-free interest rate	 	 	n/a	 	 	 	2.00	%
	Weighted average fair value per option granted	 		n/a	 	 	$	3.08	 




 


Restricted
Share Units (“RSUs”)


 


The
Company has a restricted share unit plan that provides for the granting of restricted share units to directors, officers, employees,
and consultants of up to 3,000,000 shares of the Company. Upon vesting, the Company will issue shares from treasury to the employees
for no additional consideration.


 


As
at December 31, 2020, rights to receive 406,667 shares have been granted of which 348,333 vests in 2021, and 58,334 vests in 2022.
During the year ended December 31, 2019, the Company issued 543,359 common shares (2019 - 234,700 common shares) for the rights
that vested, which were net of standard withholdings.


 


During
the year ended December 31, 2020, the Company recognized a total of $562,867 (2019 - $2,084,564) as share-based payments
related to RSUs. The Company also recorded a reversal of share-based payments totaling $1,111,110 previously due to the
forfeiture of 505,050 RSUs.


 


	10.	Related
    party agreements and transactions


 


Related
party transactions


 


Key
management includes members of the Board of Directors and its corporate officers. The aggregate value of transactions relating
to key management personnel and entities over which they have control or significant influence were as follows:


 


	 	 	Year ended  
December 31, 2020	 	 	Year ended  
December 31, 2019	 
	Salary, fees, and other short-term benefits	 	$	1,048,195	 	 	$	1,197,470	 
	Share based payments	 	 	722,055	 	 	 	2,486,260	 
	 	 	$	1,770,250	 	 	$	3,683,730	 



 


During
the year ended December 31, 2020, the Company was charged $2,350,392 (2019 - $19,913,152) in site operating costs by Bitfury.
The reduction in cost is the result of the Company taking over the site management from Bitfury. As at December 31, 2020,
$754,737 (2019 - $394,732) was owed to Bitfury, which has been included in accounts payable.


 


The
Company also made payment to Andrew Kiguel, the previous CEO, through his numbered corporation 1138029 B.C. Ltd, a one-time $500,000
consulting fee to assist with the transition to the Interim CEO.



    22 


     


    




HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 


	11.	Capital
    management



 

The
Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and
benefits to other stakeholders. The capital structure of the Company consists of equity comprised of issued share capital and
reserves. The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company,
upon approval from its Board of Directors, will balance its overall capital structure through new share issuances or by undertaking
other activities as deemed appropriate under the specific circumstances. The Company is not subject to externally imposed capital
requirements and the Company’s overall strategy with respect to capital risk management remains unchanged from the year
ended December 31, 2019.


 


	12.	Financial
    Instruments



 

The
Company’s risk exposures and the impact on the Company’s financial instruments are summarized below.


 


	 	(a)	Credit
    Risk:



 

Financial
instruments that are potentially subject the Company to a concentration of credit risk consist primarily of cash, digital assets,
and prepaid expenses. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions.


 


Hut
8 uses the services of BitGo Trust Company Inc. (“BitGo”). BitGo is considered one of the top custodians for cryptocurrency
and has US$100 million of insurance backing its digital asset custody. Hut 8 does not self-custody its bitcoin.


 


	 	(b)	Interest
    Rate Risk:



 

Interest
rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Company’s exposure to interest rate risk is limited and only relates to its ability to earn interest
income on cash balances nominated in foreign currency at variable rates. Changes in short term interest rates will not have a
significant effect on the fair value of the Company’s cash account.


 


	 	(c)	Liquidity
    Risk:



 

Liquidity
risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company currently settles
its financial obligations out of cash and cash equivalents and digital assets. The Company has a planning and budgeting process
to help determine the funds required to support the Company’s normal spending requirements on an ongoing basis and its expansionary
plans.


 


As
at December 31, 2020, the contractual maturities of financial liabilities, including estimated interest payments are as follows:


 





	 	 	Carrying

 amount	 	 	Contractual

 cash flows	 	 	Within 1

year	 	 	1 to 2 years	 	 	2 to 5 years	 	 	5+ years	 
	Accounts payable and accrued liabilities	 	$	3,890,512	 	 	$	3,890,512	 	 	$	3,890,512	 	 	$	-	 	 	$	-	 	 	$	-	 
	Loans payable and interest	 	 	25,464,000	 	 	 	27,501,120	 	 	 	27,501,120	 	 	 	-	 	 	 	-	 	 	 	-	 
	Lease commitments	 	 	292,942	 	 	 	630,363	 	 	 	17,577	 	 	 	17,577	 	 	 	52,731	 	 	 	542,478	 
	 	 	$	29,647,454	 	 	$	32,021,995	 	 	$	31,409,209	 	 	$	17,577	 	 	$	52,731	 	 	$	542,478	 





    23 


     


    
HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 

	12.	Financial
Instruments (continued)



 


	 	(d)	Currency
    Risk:



 

Currency
risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk
arises from financial instruments (including cash and cash equivalents) that are denominated in a currency other than Canadian
dollars, which represents the functional currency of the Company. The Company’s functional currency is the Canadian dollar
and most purchases are transacted in Canadian dollars. The Company has also transacted in US Dollars to purchase mining equipment
from Bitfury and with loans payable denominated in US Dollars. Management currently does not hedge its foreign exchange risk.


 


The
table below indicates the foreign currencies to which the Company has significant exposure as at December 31, 2020 in Canadian
dollar terms:




 


	 	 	2020	 
	Cash	 	$	368,769	 
	Accounts payable	 	 	30,275	 
	Loans payable	 	 	25,464,000	 



 


The
effect on earnings before tax of a 10% strengthening or weakening of the CAD exchange rate at the balance sheet date for financial
instruments denominated in USD, with all other variables held constant, is $2,586,304.


 


	 	(e)	Fair
    value measurements:



 

	 	(i)	Financial
    hierarchy:



 

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


 


Level
1:  Unadjusted quoted prices in active markets for identical assets and liabilities;


 


Level
2:  Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly
from observable market data; and


 


Level
3:  Inputs that are not based on observable market data.


 


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


 





	December 31, 2020	 	Level 1	 	 	Level 2	 	 	Level 3	 	 	Total	 
	Fair value through profit and loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	$	2,815,939	 	 	$	-	 	 	$	-	 	 	$	2,815,939	 
	Digital assets	 	$	-	 	 	$	101,961,671	 	 	$	-	 	 	$	101,961,671	 



 


	December 31, 2019	 	Level 1	 	 	Level 2	 	 	Level 3	 	 	Total	 
	Fair value through profit and loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	$	2,946,017	 	 	$	-	 	 	$	-	 	 	$	2,946,017	 
	Digital assets	 	$	-	 	 	$	27,310,726	 	 	$	-	 	 	$	27,310,726	 





    24 


     


    
HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 

	12.	Financial
    Instruments (continued)



 

	 	(f)	Digital
    assets and risk management



 

Digital
assets are measured using level two fair values, determined by taking the rate from Coinmarketcap.


 


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


 


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


 


At
December 31, 2020 had the market price of the Company’s holdings of Bitcoin increased or decreased by 10% with all other
variables held constant, the corresponding asset value increase or decrease respectively would amount to $10,326,932.


 


	13.	Income
    taxes



 

Income
tax expense for the years ended December 31, is as follows:


 





	 	 	2020	 	 	2019	 
	Current tax expense	 	$	-	 	 	$	-	 
	Deferred tax recovery	 	 	(15,047,707	)	 	 	-	 
	Total income tax recovery	 	$	(15,047,707	)	 	$	-	 





 


The
reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% to the effective tax rate is
as follows:


 


	 	 	2020	 	 	2019	 
	Net income (loss) before recovery of income taxes	 	$	3,991,447	 	 	$	2,130,570	 
	Canadian statutory tax rate	 	 	26.5	%	 	 	26.5	%
	Expected tax expense (recovery)	 	 	1,057,733	 	 	 	564,601	 
	Permanent differences	 	 	386,788	 	 	 	537,949	 
	Share issuance costs capitalized to equity	 	 	(257,455	)	 	 	-	 
	Prior year true-up	 	 	(2,247,099	)	 	 	(1,546,521	)
	Impact of Change in Tax Rate	 	 	2,799,784	 	 	 	688,385	 
	Utilization of non-capital loss balance	 	 	(15,048,707	)	 	 	55,889	 
	Other	 	 	-	 	 	 	92,057	 
	Change in tax benefits not recognized	 	 	(1,739,751	)	 	 	(392,360	)
	Income tax recovery	 	$	(15,048,707	)	 	$	-	 



 


For
the year ended December 31, 2020, income tax debited to other comprehensive income was $15,048,707 (2019 - $nil)


    25 


     


    
HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 

	13.	Income
    taxes (continued)



 

Deferred
tax assets (liabilities)


 


Deferred
taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the
carrying amount of assets and liabilities. Significant components of the deferred tax assets and liabilities are as follows:


 





	 	 	2020	 	 	2019	 
	Non-capital
    losses	 	$	18,233,106	 	 	$	2,070,809	 
	Capital
    lease obligation	 	 	70,584	 	 	 	64,973	 
	Capital
    losses	 	 	68,837	 	 	 	-	 
	Digital
    assets	 	 	(18,141,931	)	 	 	(1,999,865	)
	Right
    of use asset	 	 	(97,170	)	 	 	-	 
	Capital
    loan	 	 	(133,426	)	 	 	(135,917	)
	Net
    deferred tax asset (liability)	 	$	-	 	 	$	-	 





 


The
movement on the net deferred income tax assets and liabilities is as follows:


 


	 	 	2020	 	 	2019	 
	Beginning	 	$	-	 	 	$	-	 
	Deferred tax recovery recorded in profit or loss	 	 	15,048,707	 	 	 	-	 
	Movement recognized in other comprehensive income	 	 	(15,048,707	)	 	 	-	 
	Net deferred tax asset (liability)	 	$	-	 	 	$	-	 



 




As
at December 31, 2020, the Company had non-capital loss carryforwards of $30,456,595 (2019 - $49,631,207) that may be used to
offset future taxable income and will expire in periods between 2039 and 2040. Share issue and financing costs of $3,388,076
(2019 - $3,842,849) will be fully amortized in 2024. Deferred tax assets have not been recognized because it is not probable
that future taxable profit will be available against which the Company can utilize the benefits therefrom.


 


	14.	Subsequent
    events



 

As
of December 31, 2020, the Company recorded shares to be issued to a service provider at fair value of $398,317 for electricity
management services provided to the Company’s facilities during the year ended December 31, 2020. On January 4, 2021, the
Company issued 380,000 common shares to the service provider.


 


On
January 13, 2021, the Company successfully closed a private placement of equity securities for gross proceeds of CAD$77,500,000,
which consisted of the sale of 15,500,000 common shares and warrants to purchase up to 7,750,000 common shares at a purchase price
of CAD$5.00 per share and associated warrant. Each warrant will entitle the holder to purchase one common share at an exercise
price of CAD$6.25 per common share at any time prior to the second anniversary of the issuance date.


 


On
January 22, 2021, the Company finalized an equipment financing loan of US$11.8 million from Foundry Digital LLC, a wholly-owned
subsidiary of Digital Currency Group (DCG). The Company will use all proceeds from this loan and provide a USD$2.9 million deposit
to order 5,400 units of Whatsminer M30S bitcoin mining machines from MicroBT, adding 475 petahashes per second (PH/s) to its bitcoin
mining capacity over the next six months. The equipment financing will be a 12 month term with an annual interest rate of 16.5%.



    26 


     


    

HUT 8 MINING CORP. 

(In Canadian dollars)

Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019


 






 

	14.	Subsequent
    events (continued)



 

From
January 1, 2021 up to the date of the financial statements, 5,026,912 warrants and 107,306 options have been exercised resulting
in a gross cash proceed of $24.7 million to the Company.


 


Subsequent
to the year ended December 31, 2020, the Company granted 3,290,000 RSU to key management members with various vesting terms arranging
from 1/6th every six months to 1/3rd annually.


 


Subsequent
to the year ended December 31, 2020, the Company granted 177,500 deferred share units to directors vesting 50% upon grant date,
25% on June 30, 2021, and 25% on December 31, 2021.


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