Document:

Exhibit 4.5

 

 

HUT
8 MINING CORP.

 

Unaudited
Condensed Consolidated Interim Financial Statements 

Amended
and Restated 

(In
Canadian dollars)

 

Three
and nine months ended September 30, 2020 and 2019

     1

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Unaudited
Condensed Consolidated Interim Statements of Financial Position 

Amended
and Restated

 

	 	 	September 30,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Assets	 	 	 	 	 	 	 	 
	Current assets	 	 	 	 	 	 	 	 
	Cash	 	$	2,259,951	 	 	$	2,946,017	 
	Digital assets (Note 5)	 	 	14,119,230	 	 	 	10,484,106	 
	Digital assets collateral (Note 5)	 	 	26,843,667	 	 	 	-	 
	Digital assets receivable (Note 5)	 	 	66,608	 	 	 	943,438	 
	Deposits and prepaid expenses (Note 4)	 	 	3,214,703	 	 	 	321,189	 
	 	 	 	46,504,159	 	 	 	14,694,750	 
	Non-current assets	 	 	 	 	 	 	 	 
	Plant and equipment (Note 6)	 	 	21,132,230	 	 	 	34,883,085	 
	Digital assets collateral (Note 5)	 	 	-	 	 	 	15,883,182	 
	Deposits and prepaid expenses (Note 4)	 	 	4,573,405	 	 	 	5,776,227	 
	Total assets	 	$	72,209,794	 	 	$	71,237,244	 
	Liabilities and shareholders’ equity	 	 	 	 	 	 	 	 
	Current liabilities	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities (Note 7)	 	$	4,090,633	 	 	$	2,496,864	 
	Loans payable (Note 8)	 	 	27,006,311	 	 	 	6,231,548	 
	 	 	 	31,096,944	 	 	 	8,728,412	 
	Non-current liabilities	 	 	 	 	 	 	 	 
	Loans payable (Note 8)	 	 	-	 	 	 	19,807,075	 
	 	 	 	31,096,944	 	 	 	28,535,487	 
	Shareholders’ equity	 	 	 	 	 	 	 	 
	Share capital (Note 9)	 	 	177,158,850	 	 	 	170,622,599	 
	Contributed surplus (Note 9)	 	 	4,069,867	 	 	 	5,300,480	 
	Warrants (Note 9)	 	 	2,763,301	 	 	 	1,367,901	 
	Accumulated deficit	 	 	(142,879,169	)	 	 	(134,589,223	)
	 	 	 	41,112,850	 	 	 	42,701,757	 
	Total liabilities and shareholders’ equity	 	$	72,209,794	 	 	$	71,237,244	 

 

Reporting
entity and going concern (Note 1) 

Subsequent
event (Note 13)

 

Approved
on behalf of the Board:

 

	“Bill Tai”	“Joseph Flinn”
	Director	Director

     2

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Unaudited
Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss) 

Amended
and Restated 

For
the three and nine months ended September 30, 2020 and September 30, 2019

 

	 	 	Three
    months ended September 30,	 	 	Nine
    months ended September 30,	 
	 	 	2020	 	 	2019	 	 	2020	 	 	2019	 
	 	 	 	 	 	(Restated
    - Note 14)	 	 	 	 	 	(Restated
    - Note 14)	 
	Revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Digital
    assets mined (Note 5)	 	$	5,264,369	 	 	$	26,749,874	 	 	$	27,233,929	 	 	$	67,132,276	 
	Hosting
    fees	 	 	490,363	 	 	 	-	 	 	 	490,363	 	 	 	-	 
	Cost
    of revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Site
    operating costs	 	 	(7,871,231	)	 	 	(11,353,029	)	 	 	(29,120,406	)	 	 	(34,372,623	)
	Depreciation
    (Note 6, 14)	 	 	(3,545,173	)	 	 	(8,178,269	)	 	 	(17,512,599	)	 	 	(24,534,807	)
	Gross
    profit	 	 	(5,661,672	)	 	 	7,218,576	 	 	 	(18,908,713	)	 	 	8,224,846	 
	Gain
    on use of digital assets (Note 5)	 	 	198,369	 	 	 	514,135	 	 	 	1,800,984	 	 	 	5,433,530	 
	Revaluation
    of digital assets (Note 5)	 	 	5,577,854	 	 	 	(10,050,642	)	 	 	13,713,962	 	 	 	8,243,089	 
	 	 	 	5,776,223	 	 	 	(9,536,507	)	 	 	15,514,946	 	 	 	13,676,619	 
	Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Share
    based payments (Note 9)	 	 	(167,743	)	 	 	(670,136	)	 	 	479,892	 	 	 	(2,427,144	)
	Professional	 	 	(379,510	)	 	 	(77,259	)	 	 	(1,320,720	)	 	 	(376,717	)
	General
    and office	 	 	(250,428	)	 	 	(159,114	)	 	 	(748,587	)	 	 	(611,889	)
	Salary
    and benefits	 	 	(149,542	)	 	 	(454,223	)	 	 	(521,329	)	 	 	(970,795	)
	Investor
    and public relations	 	 	-	 	 	 	(2,909	)	 	 	(5,000	)	 	 	(35,577	)
	Regulatory	 	 	(8,485	)	 	 	(13,765	)	 	 	(98,366	)	 	 	(95,596	)
	 	 	 	(955,708	)	 	 	(1,377,406	)	 	 	(2,214,110	)	 	 	(4,517,718	)
	Operating
    income (loss)	 	 	(841,157	)	 	 	(3,695,337	)	 	 	(5,607,877	)	 	 	17,383,747	 
	Foreign
    exchange gain (loss)	 	 	508,606	 	 	 	(370,374	)	 	 	(772,714	)	 	 	703,347	 
	Finance
    expense	 	 	(569,620	)	 	 	(1,146,630	)	 	 	(1,916,313	)	 	 	(3,544,978	)
	Finance
    income	 	 	1,833	 	 	 	23,700	 	 	 	6,959	 	 	 	32,812	 
	Other
    gain	 	 	-	 	 	 	-	 	 	 	-	 	 	 	951,059	 
	Net
    income (loss)	 	$	(900,338	)	 	$	(5,188,641	)	 	$	(8,289,945	)	 	$	15,525,987	 
	Basic
    earning (loss) per share	 	 	(0.01	)	 	 	(0.07	)	 	 	(0.09	)	 	 	0.20	 
	Diluted
    earning (loss) per share	 	 	(0.01	)	 	 	(0.07	)	 	 	(0.09	)	 	 	0.20	 
	Weighted-average
    shares used in	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	computation
    of earningd per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Basic	 	 	96,732,232	 	 	 	78,024,609	 	 	 	92,243,948	 	 	 	76,649,808	 
	Diluted	 	 	97,048,899	 	 	 	78,024,609	 	 	 	92,560,615	 	 	 	77,919,908	 

     3

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Unaudited
Condensed Consolidated Interim Statement of Cash Flows 

Amended
and Restated 

For
the nine months ended September 30, 2020 and September 30, 2019

 

	 	 	2020	 	 	2019	 
	 	 	 	 	 	(Restated - Note 14)	 
	Cash provided by (used in):	 	 	 	 	 	 	 	 
	Operating activities:	 	 	 	 	 	 	 	 
	Net income (loss)	 	$	(8,289,945	)	 	$	15,525,987	 
	Change in non-cash operating items:	 	 	 	 	 	 	 	 
	Digital assets mined	 	 	(27,233,929	)	 	 	(67,132,276	)
	Digital assets converted to fiat currency	 	 	29,030,097	 	 	 	47,527,631	 
	Depreciation	 	 	17,512,599	 	 	 	24,534,807	 
	Gain on use of digital assets	 	 	(1,800,984	)	 	 	(5,433,530	)
	Revaluation of digital assets	 	 	(13,713,962	)	 	 	(8,243,089	)
	Share based payments	 	 	(479,890	)	 	 	2,427,144	 
	Gain on shares issued to settle accounts payable	 	 	-	 	 	 	(951,059	)
	Net finance expense and other	 	 	(620,002	)	 	 	3,309,214	 
	Foreign exchange	 	 	772,714	 	 	 	(703,344	)
	Accretion expense on lease obligations	 	 	19,556	 	 	 	-	 
	 	 	 	(4,803,746	)	 	 	10,861,485	 
	Change in non-cash working capital:	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities	 	 	1,882,550	 	 	 	(2,044,104	)
	Total change in non-cash operating working capital	 	 	1,882,550	 	 	 	(2,044,104	)
	Net cash used in operating activities	 	 	(2,921,196	)	 	 	8,817,381	 
	Investing activities	 	 	 	 	 	 	 	 
	Purchase of mining equipment	 	 	(3,779,746	)	 	 	-	 
	Deposits and prepaid expenses	 	 	(1,672,691	)	 	 	(4,884,383	)
	Net cash used in investing activities	 	 	(5,452,437	)	 	 	(4,884,383	)
	Financing activities	 	 	 	 	 	 	 	 
	Repayment of loan payable	 	 	(6,622,303	)	 	 	(4,306,586	)
	Finance draw from loan payable	 	 	6,615,500	 	 	 	-	 
	Repayment of lease obligations	 	 	(26,150	)	 	 	-	 
	Proceeds from issuance of common shares, net of
    issue costs	 	 	7,719,620	 	 	 	-	 
	Proceeds from exercise of warrants	 	 	900	 	 	 	-	 
	Net cash provided by (used in) financing activities	 	 	7,687,567	 	 	 	(4,306,586	)
	Increase in cash	 	 	(686,066	)	 	 	(373,588	)
	Cash, beginning of year	 	 	2,946,017	 	 	 	3,556,560	 
	Cash, end of period	 	$	2,259,951	 	 	$	3,182,972	 

 

Significant
non-cash transactions included: 

		☐	Expiration
                                         of broker warrants of $1,367,901 (2019 - $Nil);

		☐	Issuance
                                         of broker warrants as share issuance costs valued at $127,986 (2019 - $Nil);

		☐	Payment
                                         in bitcoin of loans payable interest and principle totaling $Nil (2019 - $2,470,746);

		☐	Payment
                                         in bitcoin of accounts payable totaling $Nil (2019 - $7,736,330); and

		☐	Settlement
                                         of accounts payable in common shares valued at $Nil (2019 - $5,855,486).

     4

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Unaudited
Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity 

Amended
and Restated

 

	 	 	Share Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Number of	 	 	 	 	 	Shares to be	 	 	 	 	 	Contributed	 	 	Accumulated	 	 	 	 
	 	 	shares	 	 	Dollar amount	 	 	issued	 	 	Warrants	 	 	surplus	 	 	deficit	 	 	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	 	 	 	192,454	 	 	 	-	 	 	 	-	 	 	 	2,013,002	 	 	 	-	 	 	 	2,205,456	 
	Net loss and comprehensive loss	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	15,525,987	 	 	 	15,525,987	 
	Balance,
    September 30, 2019	 	 	90,438,009	 	 	$	169,370,073	 	 	$	-	 	 	$	1,367,901	 	 	$	6,074,742	 	 	$	(121,145,038	)	 	$	55,667,678	 

 

	 	 	Share Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Number of	 	 	 	 	 	Shares to be	 	 	 	 	 	Contributed	 	 	Accumulated	 	 	 	 
	 	 	shares	 	 	Dollar amount	 	 	issued	 	 	Warrants	 	 	surplus	 	 	deficit	 	 	Total	 
	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	 
	Share issuance costs	 	 	-	 	 	 	(971,527	)	 	 	-	 	 	 	127,986	 	 	 	-	 	 	 	-	 	 	 	(843,541	)
	Shares issued on exercise of RSU	 	 	543,359	 	 	 	1,804,260	 	 	 	-	 	 	 	-	 	 	 	(1,804,260	)	 	 	-	 	 	 	0	 
	Shares issued for exercise of warrants	 	 	500	 	 	 	900	 	 	 	-	 	 	 	(229	)	 	 	229	 	 	 	-	 	 	 	900	 
	Share based payments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(479,892	)	 	 	-	 	 	 	(479,892	)
	Share based payments withholding	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(68,668	)	 	 	-	 	 	 	(68,668	)
	Expiry of broker warrants	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(1,367,901	)	 	 	1,367,901	 	 	 	-	 	 	 	-	 
	Loss on retirement of Bitfury debt	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(245,922	)	 	 	-	 	 	 	(245,922	)
	Net loss and comprehensive loss	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(8,289,945	)	 	 	(8,289,945	)
	Balance, September 30, 2020	 	 	96,732,324	 	 	$	177,158,850	 	 	$	-	 	 	$	2,763,301	 	 	$	4,069,867	 	 	$	(142,879,169	)	 	$	41,112,850	 

     5

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

	1.	Reporting
entity and going concern

 

(a)
Reporting entity

 

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 September 30, 2020, Bitfury Holding BV (“Bitfury”) owned 40% of the Company’s common
shares and is a controlling 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.

 

(b)
Going concern

 

These
unaudited condensed interim consolidated financial statements have been prepared assuming the Company will continue as a going
concern, notwithstanding that the Company has an accumulated deficit. As at September 30, 2020, the Company has a working capital
surplus of $15,407,215 and shareholders’ equity of $41,112,850.

 

The
Company’s ability to continue as a going concern and realize its assets and discharge its liabilities in the normal course
of business is dependent upon maintaining sustained profitability and maintaining the Company’s loans in good standing.
There are various risks and uncertainties affecting the Company’s operations including, but not limited to, the viability
of the economics of bitcoin mining, the liquidity of bitcoin, the Company’s ability to maintain its security of its digital
assets and execute its business plan. As discussed in Note 8, the Genesis loan requires bitcoin collateral. If the bitcoin price
reaches a price where Hut 8 does not have the bitcoin to sufficiently collateralize the loan, then after a cure period of 10 days,
Genesis may be able to liquidate a significant portion of Hut 8’s bitcoin, demand immediate repayment of the loan, or terminate
the loan agreement. The Company’s strategy to mitigate these risks and uncertainties is to execute a business plan aimed
at continued security, operational efficiency, revenue growth, improving overall mining profit, managing operating expenses and
working capital requirements, and securing additional financing, as needed, through one or more of loans and equity investments.
Given the volatility in the financial markets, it may be difficult to raise financing when needed. Failure to implement the Company’s
business plan could have a material adverse effect on the Company’s financial condition and/or financial performance, see
also Note 12. Accordingly, there are material risks and uncertainties that cast significant doubt about the Company’s ability
to continue as a going concern.

 

These
unaudited condensed interim consolidated financial statements do not include any adjustments or disclosures that would be required
if assets are not realized and liabilities and commitments are not settled in the normal course of operations. If the Company
is unable to continue as a going concern, then the carrying value of certain assets and liabilities would require revaluation
to a liquidation basis, which could differ materially from the values presented in the consolidated financial statements

     6

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		2.	Statement
of compliance and basis of presentation

 

(a)
Statement of compliance

 

These
unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard
34, Interim Financial Reporting. Certain information and note disclosures normally included in the audited annual consolidated
financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by
the International Accounting Standards Board (“IASB”), have been omitted or condensed. These condensed interim consolidated
financial statements should be read in conjunction with the Company’s December 31, 2019 audited annual consolidated financial
statements.

 

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
unaudited condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors
for November 12, 2020.

 

(b)
Basis of presentation

 

The
unaudited condensed consolidated interim 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 unaudited condensed consolidated interim 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 unaudited condensed consolidated
interim financial statements have been prepared in Canadian dollars, which is the Company’s functional and presentation
currency.

 

(d)
Consolidation

 

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

 

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

 

The
Company incorporated Hut 8 Asset Management Inc. on November 1, 2018 for the Company’s digital currency trading operations
in Bridgetown, Barbados. No transactions have occurred to date. The Company incorporated Hut 8 Finance Ltd. on January 30, 2019
in Ontario, Canada, which is also related to the digital currency trading operations. 

     7

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019 

 

 

		3.	Significant
accounting policies, judgements, and estimates

 

The
preparation of the Company’s unaudited condensed consolidated interim 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 unaudited condensed consolidated interim 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.

     8

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

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

 

		(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.

 

		(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.

 

		(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.

     9

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

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

 

		(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 the bitcoin blockchain, and as consideration
for these services, the Company receives bitcoin. Revenue is measured based on the fair value of the bitcoin received. The fair
value is determined using the closing bitcoin price per www.coinmarketcap.com (“Coinmarketcap”).
The Company is relying on the data available at Coinmarketcap to be an accurate representation of the closing price for the digital
assets.

 

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.

 

		(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 of its three
interim financial reporting periods and at its annual financial reporting period end date. 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. 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

 

The
Company’s determination to classify its holding of bitcoin as current assets is based on management’s assessment that
its bitcoin held can be considered to be a commodity, the availability of liquid markets to which the Company may sell a portion
of its holdings and that the Company is actively selling its digital currencies in the near future to generate a profit from price
fluctuations. 

     10

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

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

 

		(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.

 

		(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. 

     11

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

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

 

		(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:

 

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

 

		Ÿ	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. 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 Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		4.	Deposits
and prepaid expenses

 

	 	 	September 30, 2020	 	 	December 31, 2019	 
	Current	 	 	 	 	 	 	 	 
	Deposit on equipment order(i)	 	$	2,127,167	 	 	$	-	 
	Prepaid electricity(ii)	 	 	974,558	 	 	 	158,391	 
	Prepaid insurance	 	 	108,455	 	 	 	82,225	 
	Miscelaneous deposits	 	 	4,523	 	 	 	80,573	 
	Total current deposits and prepaids expenses	 	$	3,214,703	 	 	$	321,189	 
	 	 	 	 	 	 	 	 	 
	Non-current	 	 	 	 	 	 	 	 
	Deposits related to electricity supply
    under Electricity Supply
    Agreement(iii)	 	$	4,431,417	 	 	$	5,652,240	 
	Land lease deposit	 	 	141,988	 	 	 	123,987	 
	Total non-current deposits and prepaids expenses	 	$	4,573,405	 	 	$	5,776,227	 

 

		(i)	Payments
                                         for mining equipment to ship from China in November 2020.

 

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

 

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

     13

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		5.	Digital
                                         assets 

 

Digital
assets solely consist of bitcoin. Below summarizes 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	 	 	(68,181,784	)	 	 	(6,883	)
	Bitcoin used for debt and interest payments	 	 	(2,808,396	)	 	 	(449	)
	Bitcoin paid for services	 	 	(7,514,399	)	 	 	(1,397	)
	Gain on use of digital assets	 	 	4,143,311	 	 	 	-	 
	Revaluation of digital assets	 	 	4,273,686	 	 	 	-	 
	Balance, December
    31, 2019	 	$	27,310,725	 	 	 	2,923	 
	Bitcoin mined	 	 	27,233,929	 	 	 	2,282	 
	Bitcoin traded for cash(i)	 	 	(28,986,610	)	 	 	(2,350	)
	Bitcoin paid for services(i)	 	 	(43,485	)	 	 	(4	)
	Gain on use of digital assets(i)	 	 	1,800,983	 	 	 	-	 
	Revaluation of digital assets(ii)	 	 	13,713,962	 	 	 	-	 
	Balance, September
    30, 2020	 	$	41,029,505	 	 	 	2,851	 
	Current portion	 	 	 	 	 	 	 	 
	Digital assets, current(iii)	 	$	14,119,230	 	 	 	981	 
	Bitcoin used as collateral(iv)	 	$	26,843,667	 	 	 	1,865	 
	Digital assets, receivable(v)	 	$	66,608	 	 	 	5	 

 

		(i)	During
                                         the nine months ended September 30, 2020, the Company used its bitcoin for cash, payments
                                         of debts, interest, and other services totaling $29,030,095 with a cost of $27,229,112,
                                         which resulted in a realized gain on use of $1,800,983.

 

		(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 September 30, 2020, the price of bitcoin
                                         was $14,390 (US$10,788) which for the nine months ended September 30, 2020 resulted in
                                         a revaluation gain of $13,713,962.

 

		(iii)	Bitcoin
                                         that is held by Hut 8, is available for use, and not subject to any restrictions or covenants
                                         as at September 30, 2020.

 

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

 

		(v)	Bitcoin
                                         receivable refers to the amount of bitcoin mined that has not been transferred from the
                                         mining pool to the Company. The Company mined approximately 5 bitcoins during September
                                         2020 that were received shortly after the quarter end.

     14

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		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	 	 	869,342	 	 	 	2,910,405	 	 	 	-	 	 	 	3,779,747	 
	As at September 30, 2020	 	 	33,000,208	 	 	 	85,313,886	 	 	 	575,274	 	 	 	118,889,368	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	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	 	 	5,109,866	 	 	 	12,370,514	 	 	 	32,219	 	 	 	17,512,599	 
	Accretion expense	 	 	-	 	 	 	-	 	 	 	18,003	 	 	 	18,003	 
	As at September 30, 2020	 	 	20,168,624	 	 	 	77,464,033	 	 	 	124,481	 	 	 	97,757,138	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net Book Value December 31, 2019	 	 	17,072,108	 	 	 	17,309,962	 	 	 	501,015	 	 	 	34,883,085	 
	Net Book Value September 30, 2020	 	 	12,831,584	 	 	 	7,849,853	 	 	 	450,793	 	 	 	21,132,230	 

 

		(i)	The
                                         right-of-use assets (“ROU”) comprise of a 10-year land lease with the City
                                         of Medicine Hat, dated June 1, 2018, and a three-year sublease with a landlord in Drumheller
                                         with an optional 3-year extension dated May 8, 2017. See Note 8 for the related lease
                                         liability.

 

		☐	The
                                         City of Medicine Hat lease is $1,395 monthly in lease payment. A ROU asset and a related
                                         lease liability had been recognized as such.

 

		☐	The
                                         Drumheller sublease is $1,500 monthly in lease payment. A ROU asset and a related lease
                                         liability had been recognized as such.

 

		7.	Accounts
                                         payable and accrued liabilities 

 

	 	 	September 30, 2020	 	 	December 31, 2019	 
	Accounts payable	 	$	3,575,187	 	 	$	563,868	 
	Other accrued liabilities	 	 	515,446	 	 	 	657,564	 
	Accrued interest	 	 	-	 	 	 	1,275,432	 
	Total	 	$	4,090,633	 	 	$	2,496,864	 

     15

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		8.	Loans
payable

 

	 	 	September 30, 2020	 	 	December 31, 2019	 
	Genesis	 	$	26,678,000	 	 	$	19,482,000	 
	Lease liabilities	 	 	328,311	 	 	 	325,075	 
	Bitfury	 	 	-	 	 	 	6,231,548	 
	 	 	 	27,006,311	 	 	 	26,038,623	 
	Current portion	 	$	27,006,311	 	 	$	4,070,004	 
	Non-current portion	 	$	-	 	 	$	21,968,619	 

 

		(i)	Genesis
loan

 

As
at September 30, 2020, the Company has a loan payable of $26,678,000 (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 three and nine months ended
September 30, 2020, respectively, was $556,384 (US$417,479) (2019 - $Nil), and $1,810,045 (US$1,333,664) (2019 - $Nil). A foreign
exchange gain of $ 578,000 and loss of $106,500 was recognized for the three and nine months ended September 30, 2020 (2019 -
$Nil).

 

		(ii)	Lease
liability

 

A
lease liability for each ROUs was recognized in 2018 amortized cost using the effective interest method. 

     16

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 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	 	 	838,511	 	 	 	1,167,386	 
	Shares issued in settlement of accounts payable	 	 	3,717,433	 	 	 	4,609,617	 
	Shares issued for services	 	 	419,507	 	 	 	667,256	 
	Shares issued for RSUs	 	 	234,700	 	 	 	1,444,980	 
	Balance, December 31, 2019	 	 	90,438,009	 	 	$	170,622,599	 
	Shares issued for RSUs(i)	 	 	543,359	 	 	 	1,804,260	 
	Shares issued for public offering(ii)	 	 	5,750,456	 	 	 	5,702,617	 
	Cost of issuance attributed to public offering(ii)	 	 	-	 	 	 	(971,527	)
	Shares issued for exercise of warrants	 	 	500	 	 	 	900	 
	Balance, September 30, 2020	 	 	96,732,324	 	 	$	177,158,850	 

 

		(i)	During
                                         the nine months ended September 30, 2020, the Company issued 543,359 shares related to
                                         exercise of restricted share units (“RSU”) and reallocated $1,804,260, the
                                         relative fair value of RSU’s net of employment withholdings, from contributed surplus
                                         to share capital.

 

		(ii)	On
                                         June 25, 2020, the Company completed its public offering (the “Offering”),
                                         and, with the underwriters exercising their over-allotment option, issued 5,750,456 units
                                         (“Unit”) at a price of $1.45 per 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 are valued
                                         at $2,635,544 under the related 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 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%.

     17

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		9.	Equity
(continued)

 

		(b)	Warrants

 

The
warrant activity is as follows:

 

	 	 	Grant date	 	Number of warrants	 	 	Value	 
	Balance, January 1, 2019	 	 	 	 	2,882,222	 	 	$	1,367,901	 
	Balance, December 31, 2019	 	 	 	 	2,882,222	 	 	$	1,367,901	 
	 	 	 	 	 	 	 	 	 	 	 
	Broker warrants expired	 	2/7/2020	 	 	(660,000	)	 	 	(1,367,901	)
	Public offering warrants	 	6/25/2020	 	 	5,750,456	 	 	 	2,635,544	 
	Public offering - broker warrants	 	6/25/2020	 	 	345,027	 	 	 	127,986	 
	Warrants exercised	 	7/17/2020	 	 	(500	)	 	 	(229	)
	Balance, September 30, 2020	 	 	 	 	8,317,205	 	 	$	2,763,301	 

 

The
warrants issued and outstanding as at September 30, 2020 are as follows:

 

	 	 	 	 	 	 	Weighted average	 	 	 	 
	 	 	 	 	 	 	remaining contractual	 	 	 	 
	Exercise price	 	 	Number	 	 	life (months)	 	 	Expiry date	 
	$	4.50	 	 	 	2,222,222	 	 	 	36	 	 	9/10/2023	 
	$	1.80	 	 	 	5,749,956	 	 	 	15	 	 	12/25/2021	 
	$	1.45	 	 	 	345,027	 	 	 	21	 	 	6/25/2022	 
	$	2.51	 	 	 	8,317,205	 	 	 	21	 	 	 	 

 

		(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.

     18

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

	9.	Equity
(continued)

 

		(c)	Incentive
plan (continued)

 

Stock
options

 

The
stock option activity is as follows:

 

	 	 	 	Number of	 	 	Weighted average	 
	 	 	 	options	 	 	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	 
	Options outstanding, September 30, 2020	 	 	 	795,000	 	 	$	4.25	 
	Options exercisable, September 30, 2020	 	 	 	536,668	 	 	$	4.78	 

 

As
at September 30, 2020 the Company had the following stock options outstanding:

 

	 	 	 	Number of	 	 	Number of	 	 	Weighted	 	 	Weighted average	 
	Exercise price	 	 	options	 	 	options	 	 	average	 	 	remaining life	 
	 	 	 	outstanding	 	 	exercisable	 	 	exercise price	 	 	(months)	 
	$	1.14	 	 	 	100,000	 	 		-	 	 	$	1.14	 	 	 	51	 
	 	1.80	 	 	 	10,000	 	 	 	-	 	 	 	1.80	 	 	 	49	 
	 	3.00	 	 	 	90,000	 	 	 	60,000	 	 	 	3.00	 	 	 	36	 
	 	5.00	 	 	 	595,000	 	 	 	476,668	 	 	 	5.00	 	 	 	30	 
	$	4.25	 	 	 	795,000	 	 		536,668	 	 	$	4.78	 	 	 	34	 

 

During
the three and nine months ended September 30, 2020, the Company recorded a total of $76,548 and $289,475 (2019 – $195,286
and $798,639), respectively, as share based payments related to stock options. During the three and nine months, 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.

 

	 	 	2020	 	 	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	 

     19

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		9.	Equity
(continued)

 

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 September 30, 2020, rights to receive 406,667 shares have been granted of which none vests in the remainder of 2020, 348,333
vests in 2021, and 58,334 vests in 2022.

 

During
the three and nine months ended September 30, 2020, the Company recognized a total of $91,195 (2019 - $474,849) and $199,841 (2019
 – $1,628,503) 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:

 

	 	 	Nine months ended	 	 	Nine months ended	 
	 	 	September 30, 2020	 	 	September 30, 2019	 
	Salary, fees, and other short-term benefits	 	$	664,112	 	 	$	942,625	 
	Share based payments	 	 	577,171	 	 	 	1,972,472	 
	 	 	$	1,241,283	 	 	$	2,915,097	 

 

During
the three and nine months ended September 30, 2020, the Company was charged $325,884 (2019 - $5,419,253) and $2,259,087 (2019
- $15,475,339), respectively, 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 September 30, 2020, $658,868 (September 30, 2019 - $166,814) 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. 

     20

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 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 period
ended September 30, 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.

     21

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		12.	Financial
                                         Instruments (continued) 

 

		(d)	Foreign
                                         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 September 30, 2020 in Canadian
dollar terms:

 

	 	 	2020	 
	Cash	 	$	1,364,460	 
	Accounts payable	 	 	174,592	 
	Loans payable	 	 	26,678,000	 

 

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 $2,821,705.

 

		(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 have been classified as follows:

 

	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	 	$	-	 	 	$	27,310,725	 	 	$	-	 	 	$	27,310,725	 

 

	September 30, 2020	 	Level 1	 	 	Level 2	 	 	Level 3	 	 	Total	 
	Fair value through profit and loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	$	2,259,951	 	 	$	-	 	 	$	-	 	 	$	2,259,951	 
	Digital assets	 	$	-	 	 	$	41,029,505	 	 	$	-	 	 	$	41,029,505	 

     22

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 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 inventory of digital assets at its desired
price if required. A decline in the market prices for digital assets could negatively impact the Company’s future operations.
The Company has not hedged the conversion of any of its sales of digital assets.

 

Digital
assets have a limited history and the fair value historically has been 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.

 

As
at September 30, 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 $4,102,951.

 

		13.	Subsequent
events

 

On
November 2, 2020, Hut 8 announced the appointment of Jaime Leverton as its new permanent CEO, effective December 1, 2020. The
current Interim CEO, Jimmy Vaiopoulos, will return to his previous position of CFO, while the current Interim CFO will step down
from his position effective November 30, 2020. Viktoriya Griffin will become Hut 8’s full-time Corporate Secretary beginning
December 1, 2020.

 

The
continuing outbreak of the coronavirus, also known as “COVID-19”, is still impacting worldwide economic activity.
Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures
to mitigate the spread of the virus. The outbreak and the related mitigation measures may have an adverse impact on global economic
conditions as well as on the Company’s business activities. The extent to which the coronavirus may impact the Company’s
business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of
the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries
to contain and treat the disease. The effect that these events will have on the price of bitcoin, the ability for the Company
to raise capital and the supply of upgraded equipment remain uncertain and as such, the Company cannot determine their financial
impact at this time. 

     23

     

    

HUT
8 MINING CORP.

 

(In
Canadian dollars) 

Notes
to Unaudited Condensed Consolidated Interim Financial Statements

Amended
and Restated 

For
the three and nine months ended September 30, 2020 and 2019

 

 

		14.	Restatement
of the financial statements

 

The
unaudited condensed consolidated interim financial statements of the Company as at September 30, 2019 and for the period then
ended have been restated to correct material errors and omissions in its prior filing. The Company discovered the deficiencies
in the accounting information subsequent to the filing and issuance of the financial statements. The unaudited condensed consolidated
interim financial statements for the period ended September 30, 2019 have been prepared using the most complete information currently
available. Below are the restated:

 

Period
ended September 30, 2019

 

Unaudited
Condensed Consolidated Interim Statement of Loss and Comprehensive Loss

 

The
net and comprehensive loss for the three months ended September 30, 2019 was increased by $3,445,964 to $5,188,641 from $1,742,677
due to a change in depreciation expense on plant and equipment, which was adjusted to $8,178,269 from $4,732,305.

 

The
net and comprehensive income for the nine months ended September 30, 2019 was decreased by $ 10,337,892 to $15,525,987 from $
25,863,879 due to a change in depreciation expense on plant and equipment, which was adjusted to $24,534,807 from $14,196,915.

 

Unaudited
Condensed Consolidated Interim Statement of Cash flows

 

The
net income for the nine months ended September 30, 2019 was decreased by $10,337,892 which was offset by non-cash depreciation
expense of $10,337,892 resulting in no changes to cash used in operating activities.

     24Exhibit
4.6

 

 

HUT 8 MINING CORP.

 

Management’s Discussion and Analysis

Amended and Restated

 

For the three and nine months ended September 30, 2020

    1 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Introduction

 

This Management’s Discussion
and Analysis (“MD&A”) is dated November 12, 2020, and should be read in conjunction with the unaudited condensed
consolidated interim financial statements for the three and nine months ended September 30, 2020 (“Q3-2020”), the audited
consolidated financial statements for the year ended December 31, 2019, the annual MD&A for the year ended December 31, 2019,
and the annual information form dated April 3, 2020 of Hut 8 Mining Corp., each of which is available on SEDAR at www.sedar.com.

 

In this MD&A, unless the context otherwise requires,
all references to “we”, “us”, “our”, “Hut 8”, and “the Company” refer
to Hut 8 Mining Corp. and its subsidiaries, and all references to “Management” refer to the directors and executive
officers of the Company.

 

Unless otherwise stated, results
are reported in Canadian dollars, unless otherwise noted. The Company applies International Financial Reporting Standards (“IFRS”),
as issued by the International Accounting Standards Board and interpretations issued by the IFRS Interpretations Committee. In
the opinion of Management, all adjustments considered necessary for a fair presentation have been included. The results presented
in the MD&A are not necessarily indicative of the results that may be expected for any future period.

 

Cautionary Note Regarding Forward-Looking Information

 

This MD&A contains certain
forward-looking information and forward-looking statements, as defined in applicable securities laws (collectively referred to
herein as “forward-looking statements”). These statements relate to future events or the Company’s future performance.
All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking
statements can be identified by the use of words such as “plans”, “expects”, “is expected”,
 “budget”, “scheduled”, “estimates”, “continues”, “forecasts”, “projects”,
 “predicts”, “intends”, “anticipates” or “believes”, or variations of, or the negatives
of, such words and phrases, or state that certain actions, events or results “may”, “could”, “would”,
 “should”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated
in such forward-looking statements. The forward-looking statements in this MD&A speak only as of the date of this MD&A
or as of the date specified in such statement.

 

Inherent in forward-looking statements
are risks, uncertainties and other factors beyond the Company’s ability to predict or control. For a list of the factors
that could affect the Company, please make reference to those risk factors referenced the annual information form dated April 3,
2020. Readers are cautioned that such risk factors, uncertainties and other factors are not exhaustive. Actual results and developments
are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in
this MD&A.

 

Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated
in such forward-looking statements. The forward-looking statements in this MD&A speak only as of the date of this MD&A
or as of the date specified in such statement. Specifically, this MD&A includes, but is not limited to, forward-looking statements
regarding: the Company’s ability to meet its working capital needs at the current level for the next twelve-month period;
management’s outlook regarding future trends; sensitivity analysis on financial instruments, which may vary from amounts
disclosed; and general business and economic conditions.

 

All forward-looking statements
herein are qualified by this cautionary statement. Accordingly, readers should not place undue reliance on forward-looking statements.
The Company undertakes no obligation to update publicly, or otherwise revise, any forward-looking statements, whether as a result
of new information or future events or otherwise,
except as may be required by law. If the Company does update one or more forward- looking statements, no inference should be drawn
that it will make additional updates with respect to those or other forward-looking statements, unless required by law.

    2 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Non-GAAP Measures

 

This MD&A presents certain
non-GAAP (“GAAP” refers to Generally Accepted Accounting Principles) financial measures to assist readers in understanding
the Company’s performance. These non-GAAP measures do not have any standardized meaning and therefore are unlikely to be
comparable to similar measures presented by other issuers and should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with GAAP. Management uses these non-GAAP measures to supplement the analysis and evaluation
of operating performance.

 

Throughout this MD&A, the
following terms are used, which are not found in the Chartered Professional Accountants of Canada Handbook and do not have a standardized
meaning under GAAP.

 

EBITDA (Earnings before Interest, Taxes, Depreciation,
and Amortization)

 

		•	“EBITDA” represents net income or loss excluding net finance income or expense, income
tax or recovery, depreciation, and amortization.

 

		•	“Adjusted EBITDA” represents EBITDA adjusted to exclude share-based compensation, fair
value loss or gain on revaluation of digital assets, write-offs, and costs associated with one-time transactions (such as listing
fees).

 

		•	“Adjusted EBITDA Margin” represents Adjusted EBITDA as a percentage of revenue.

 

EBITDA, Adjusted EBITDA, and Adjusted
EBITDA Margin are used to show ongoing profitability without the impact of non-cash accounting policies, capital structure, and
taxation. This provides a consistent comparable metric for profitability.

 

“Mining Profit” represents
gross profit (revenue less cost of revenue), excluding depreciation. “Mining Profit Margin” represents Mining Profit
as a percentage of revenue. Mining Profit and Mining Profit Margin show the cash expenses against the revenue without the impact
of non-cash accounting policies such as depreciation.

 

“Cost per Bitcoin” represents cost of
revenue excluding depreciation, divided by the number of bitcoin mined in the period. This metric is commonly referenced in the
bitcoin mining industry and is important to gain an understanding of the profitability in reference to the price of bitcoin.

    3 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Company

 

Hut 8 is a bitcoin mining company
with industrial scale operations in Alberta, Canada. Hut 8 provides investors with direct exposure to bitcoin through both its
bitcoin mining operation and by holding its bitcoin balance. By owning Hut 8, investors avoid the technical complexity or constraints
of purchasing the underlying cryptocurrency. Investors avoid the need to create online wallets, wire money offshore, and safely
store their bitcoin.

 

For its mining activities, Hut
8 utilizes the BlockBox Data Center AC (“BlockBox”) which is a modular, portable, and more easily upgradeable to the
next generation of silicon technology. The BlockBox is customizable to difference types of mining equipment.

 

The Company was incorporated under
the laws of the Province of British Columbia on June 9, 2011. Its registered office is located at Suite 1700, Park Place, 666 Burrard
St, Vancouver, BC, Canada V6C 2X8, and the headquarter of the Company is located at 130 King St. W, Suite 1800, Toronto, ON, Canada,
M5X 2A2. The Company’s financial year ends on December 31. The Company’s common shares are listed under the symbol “HUT”
on the Toronto Stock Exchange and as “HUTMF” on the OTCQX Exchange.

    4 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Summary

 

Q3-2020 was the first full quarter
after the bitcoin halving where bitcoin production was cut in half while the network hash rate continued to rise, making it one
of the most difficult periods for bitcoin miners to operate. To put this into context, it became 140% more difficult to mine for
a bitcoin from just before the halving event in May 2020 to September 30, 2020, while the bitcoin price increased by 9% in that
same period. The economics of mining bitcoin have significantly improved subsequent to September 30, 2020.

 

Hut 8 has continued to find ways
to reduce costs in Q3- 2020 through a few successful initiatives in the quarter. On July 13, 2020, the Company re- negotiated its
credit facility terms with Genesis Global Capital, LLC (“Genesis) and successfully reduced the interest rate from 9.85% to
8.00% per annum saving approximately $500,000 per year.

 

During Q3-2020, Hut 8 transferred
the Clarke chips from its Drumheller facility to Medicine Hat which brought together Hut 8’s higher efficiency chips with
its best electricity pricing at Medicine Hat. Also, during Q3-2020, Hut 8 completed the transfer of the management of operations
of both the Medicine Hat and Drumheller facilities from Bitfury to Hut 8, providing savings of over $1.5 million per year. With
full control over the sites, Hut 8 will continue to streamline operations while maintaining the highest industry standards.

 

Hut 8’s strategy of mining
and holding bitcoin continued to pay off as there was a $5.6 million gain on the re -measurement of bitcoin holdings at the end
of Q3-2020. Additionally, by only strategically selling bitcoin at higher prices, Hut 8 recorded a $0.2 million gain on use of
digital assets.

 

Near the end of the quarter, Hut
8 completed the installation of 1,000 M31S and 1,000 M31S+ mining equipment at its Medicine Hat facility. The equipment collectively
increased Hut 8’s mining power by approximately 154 PH/s using 6.7 MW of power. The remainder of the equipment purchase,
which consists of 1,590 M30S units is expected to be shipped in November 2020 and provide an additional 140 PH/s using approximately
5.3MW to the Company’s current bitcoin mining fleet.

 

Hut 8 also achieved a milestone
when they became the first company to successfully exit the TSX SandBox which solidifies Hut 8 as a TSX listed issuer. Hut 8 was
also the first issuer to be listed to the TSX via the TSX Sandbox and has been trading on the senior TSX exchange since early October
2019.

    5 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Selected Financial Information

 

	 	 	Three months ended September 30,	 	 	Nine months ended September 30,	 
	 	 	2020	 	 	2019	 	 	2020	 	 	2019	 
	Revenue	 	$	5,754,732	 	 	$	26,749,874	 	 	$	27,724,292	 	 	$	67,132,276	 
	Site operating costs	 	 	(7,871,231	)	 	 	(11,353,029	)	 	 	(29,120,406	)	 	 	(34,372,623	)
	Mining profit	 	 	(2,116,499	)	 	 	15,396,845	 	 	 	(1,396,114	)	 	 	32,759,653	 
	Mining profit margin	 	 	-37	%	 	 	58	%	 	 	-5	%	 	 	49	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation	 	 	(3,545,173	)	 	 	(8,178,269	)	 	 	(17,512,599	)	 	 	(24,534,807	)
	Gross profit	 	$	(5,661,672	)	 	$	7,218,576	 	 	$	(18,908,713	)	 	$	8,224,846	 
	Gross profit margin	 	 	-98	%	 	 	27	%	 	 	-68	%	 	 	12	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expenses	 	 	(787,965	)	 	 	(707,270	)	 	 	(2,694,002	)	 	 	(2,090,574	)
	Share-based compensation	 	 	(167,743	)	 	 	(670,136	)	 	 	479,892	 	 	 	(2,427,144	)
	Gain on use of digital assets	 	 	198,369	 	 	 	514,135	 	 	 	1,800,984	 	 	 	5,433,530	 
	Revaluation of digital assets	 	 	5,577,854	 	 	 	(10,050,642	)	 	 	13,713,962	 	 	 	8,243,089	 
	Net operating income (loss)	 	 	(841,157	)	 	 	(3,695,337	)	 	 	(5,607,877	)	 	 	17,383,747	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net finance expense	 	 	(567,787	)	 	 	(1,122,930	)	 	 	(1,909,354	)	 	 	(3,512,166	)
	Foreign exchange gain (loss)	 	 	508,606	 	 	 	(370,374	)	 	 	(772,714	)	 	 	703,347	 
	Gain on share issuance	 	 	-	 	 	 	-	 	 	 	-	 	 	 	951,059	 
	Net income (loss)	 	$	(900,338	)	 	$	(5,188,641	)	 	$	(8,289,945	)	 	$	15,525,987	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Adjusted EBITDA	 	$	(2,904,464	)	 	$	14,689,575	 	 	$	(3,548,032	)	 	$	30,669,079	 
	Adjusted EBITDA margin	 	 	-50	%	 	 	55	%	 	 	-13	%	 	 	46	%
	Net income (loss) per
    share - basic and diluted	 	$	(0.01	)	 	$	(0.07	)	 	$	(0.09	)	 	$	0.20	 

 

	Assets	 	 	 	 	 	 
	 	 	September 30,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Total assets	 	$	72,209,794	 	 	$	71,237,244	 
	 	 	 	 	 	 	 	 	 
	Total non-current financial liabilities	 	$	-	 	 	$	19,807,075	 

    6 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Discussion of Operations for the three months ended
September 30, 2020

 

During Q3-2020, the Company mined
372 bitcoin, resulting in revenue generation of $5.8 million, compared to the same period of the prior year of 1,965 bitcoin mined
with revenue of $26.8 million. The bitcoin halving occurred on May 11, 2020, effectively cutting down the bitcoin production for
every miner in half. This was the first quarter that every bitcoin miner, including Hut 8, experienced the full effect of the halving.
This led to a difficult quarter for Hut 8 financially, especially during significant transitions on site to increase revenue and
decrease costs. More than halfway through Q3-2020, Hut 8 installed 2,000 new generation bitcoin mining units and finalize the transfer
of site management which will increase the profitability of Hut 8’s operations.

 

Hut 8 also recognized $0.5 million
of hosting revenue after signing up its first client with 6MW of latest generation bitcoin mining equipment. This is a new revenue
stream for Hut 8 and provides consistent recurring revenue with its available electrical capacity and existing infrastructure.

 

Expenses
for Q3-2020 were $1 million, of which there were non-cash share- based payments of $0.2 million compared with the same period
of the prior year expenses of $1.4 million of which there were non-cash share-based payments of $0.7 million. Management has worked
to decrease quarterly expenses, especially after the halving occurred.

 

For Q3-2020,
Hut 8 had a revaluation gain of $5.6 million from adjusting the value of the digital assets held in inventory to the market value
on the reporting date. This gain is from the increase in bitcoin price from US$9,138 on June 30, 2020 to the September 30, 2020
price of US$10,788. Hut 8 also remained strategic at selling its bitcoin inventory for fiat currency, resulting in a realized gain
on use of bitcoin $198k for the three months ended June 30, 2020, compared to the Q3-2019 gain of $514k. In future quarters, the
Company would expect to see unrealized gains or losses based on the price of bitcoin on the reporting date, relative to the price
on the day mined, when revenue is recorded. Hut 8 recorded negative adjusted EBITDA of $2.9 million and net loss of $0.9 million
for Q3-2020 which was due to the worsening bitcoin economics.

 

Below is
a bitcoin price chart and mining difficulty for the nine months ended September 30, 2020 (reference https://coinmarketcap.com/currencies/bitcoin):

 

 

    7 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Selected Quarterly Information

 

The following table summarizes the Company’s
financial information for the last eight quarters:

 

All amounts in 000’s, except for share figures                        

 

	 	 	Dec 31	 	 	Mar 31	 	 	June 30	 	 	Sep 30	 	 	Dec 31	 	 	Mar 31	 	 	June 30	 	 	Sep 30	 
	 	 	2018	 	 	2019	 	 	2019	 	 	2019	 	 	2019	 	 	2020	 	 	2020	 	 	2020	 
		 	Q4	 	 	Q1	 	 	Q2	 	 	Q3	 	 	Q4	 	 	Q1	 	 	Q2	 	 	Q3	 
	Revenue	 	$	12,995	 	 	$	12,102	 	 	$	28,280	 	 	$	26,750	 	 	$	14,858	 	 	$	12,740	 	 	$	9,230	 	 	$	5,755	 
	Net income (loss)	 	 	(116,569	)	 	 	(9,511	)	 	 	30,226	 	 	 	(5,189	)	 	 	(13,395	)	 	 	(10,230	)	 	 	2,840	 	 	 	(900	)
	Net income (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	basic	 	 	(2.18	)	 	 	(0.13	)	 	 	0.38	 	 	 	(0.06	)	 	 	(0.17	)	 	 	(0.11	)	 	 	0.03	 	 	 	(0.01	)
	diluted	 	 	n.a.	 	 	 	n.a.	 	 	 	0.38	 	 	 	n.a.	 	 	 	n.a.	 	 	 	n.a.	 	 	 	0.03	 	 	 	n.a.	 

 

See below for the calculation of Adjusted EBITDA for
the most recent eight quarters:

 

All amounts in 000’s, except per share figures                            

 

	 	 	Dec 31	 	 	Mar 31	 	 	Jun 30	 	 	Sep 30	 	 	Dec 31	 	 	Mar 31	 	 	June 30	 	 	Sep 30	 
	 	 	2018	 	 	2019	 	 	2019	 	 	2019	 	 	2019	 	 	2020	 	 	2020	 	 	2020	 
	 	 	Q4	 	 	Q1	 	 	Q2	 	 	Q3	 	 	Q4	 	 	Q1	 	 	Q2	 	 	Q3	 
	Net income (loss)	 	$	(116,569	)	 	$	(9,511	)	 	$	30,226	 	 	$	(5,189	)	 	$	(13,395	)	 	$	(10,230	)	 	$	2,840	 	 	$	(900	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net finance costs	 	 	-	 	 	 	1,184	 	 	 	1,205	 	 	 	1,123	 	 	 	1,273	 	 	 	649	 	 	 	693	 	 	 	568	 
	Depreciation and amortization	 	 	18,037	 	 	 	8,178	 	 	 	8,178	 	 	 	8,178	 	 	 	8,519	 	 	 	7,009	 	 	 	6,958	 	 	 	3,545	 
	Stock-based compensation	 	 	1,138	 	 	 	1,102	 	 	 	655	 	 	 	670	 	 	 	478	 	 	 	(708	)	 	 	60	 	 	 	168	 
	Revaluation of digital assets	 	 	7,443	 	 	 	(1,043	)	 	 	(17,255	)	 	 	10,052	 	 	 	3,972	 	 	 	1,282	 	 	 	(9,418	)	 	 	(5,578	)
	Gain/loss on use of digital assets	 	 	4,273	 	 	 	253	 	 	 	(5,169	)	 	 	(515	)	 	 	1,288	 	 	 	(914	)	 	 	(689	)	 	 	(198	)
	Foreign exchange	 	 	927	 	 	 	(489	)	 	 	(585	)	 	 	370	 	 	 	(494	)	 	 	2,354	 	 	 	(1,073	)	 	 	(509	)
	Write-off	 	 	85,405	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Other one-off items	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	197	 	 	 	-	 	 	 	542	 	 	 	-	 
	Other gains or losses	 	 	(89	)	 	 	(951	)	 	 	-	 	 	 	-	 	 	 	1,018	 	 	 	-	 	 	 	-	 	 	 	-	 
	Adjusted EBITDA(1)	 	$	565	 	 	$	(1,277	)	 	$	17,256	 	 	$	14,689	 	 	$	2,856	 	 	$	(558	)	 	$	(86	)	 	$	(2,904	)

 

(1) A non-GAAP measure defined above

    8 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

The bitcoin
mining industry does not typically have seasonality; however, the Company may have fluctuations at similar times in the year related
to its electricity prices. The Company’s operations are solely out of Alberta, Canada where 42MW of power is directly from
a power purchase agreement with the City of Medicine Hat and the remainder is from the Alberta electricity grid. Due to the changing
weather in Alberta and seasonal electricity needs, time periods of extreme cold or extreme hot weather may result in higher electricity
costs. Hut 8 manages electricity costs to avoid peak prices and is constantly monitoring its operations to maximize efficiency.

 

During the three months ended
September 30, 2020, the Company incurred $3.86 million in electricity cost for its City of Medicine Hat site and $2.58 million
for its Drumheller site. The below chart shows the effect on operations and profitability of the Company if the average cost of
electricity were to increase by 10%, 20%, and 30%.

 

		 	Jul 2020	 	 	Aug 2020	 	 	Sep 2020	 	 	Total	 
	Electricity Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Drumheller	 	 	889,526	 	 	 	834,761	 	 	 	853,862	 	 	 	2,578,149	 
	City of Medicine Hat	 	 	991,847	 	 	 	1,373,016	 	 	 	1,494,140	 	 	 	3,859,003	 
	Total	 	 	1,881,373	 	 	 	2,207,777	 	 	 	2,348,002	 	 	 	6,437,152	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Sensitivity Analysis	 	 	Q3-2020 Actual	 	 	 	+10%	 	 	 	+20%	 	 	 	+30%	 
	Electricity cost	 	 	6,437,152	 	 	 	7,080,867	 	 	 	7,724,582	 	 	 	8,368,297	 
	Gross profit	 	 	(5,661,672	)	 	 	(6,305,387	)	 	 	(6,949,102	)	 	 	(7,592,818	)
	% change	 	 	 	 	 	 	-11	%	 	 	-23	%	 	 	-34	%
	Net loss	 	 	(900,338	)	 	 	(1,544,053	)	 	 	(2,187,768	)	 	 	(2,831,484	)
	% change	 	 	 	 	 	 	-71	%	 	 	-143	%	 	 	-214	%

 

Industry Overview

 

Bitcoin

 

Bitcoin is a digital currency
that allows peer- to-peer transactions globally over the internet. Bitcoin is independent of any central authority, such as a bank
or government. Instead, bitcoin is governed by a pre-programmed algorithm called Secure Hash Algorithm 256 (SHA-256) that is backed
by millions of computers across the world called “miners”. Bitcoin miners record transactions and check their authenticity.
While fiat currencies are controlled by central banks and governments, bitcoin miners are spread out across the world and store
transactions on the blockchain which is a digital public ledger that can be accessed by anyone. This global and transparent system
is referred to as decentralized control as the management of bitcoin does not have a central point of failure or attack.

 

Unlike fiat currencies, which
have an unlimited supply which is controlled by governments and central banks, the supply of bitcoin is controlled by the SHA-256
to keep its availability scarce and total supply fixed. To date, approximately 18.5 million bitcoin exist and only 21 million bitcoin
will ever exist. It is expected that all bitcoin will be mined by 2140. Due to the scarcity and computational power required to
mine bitcoin, it is often referred to as “digital gold”, as physical gold is also scarce and is costly to mine.

 

Blockchain

 

The bitcoin blockchain is a cloud-based digital public ledger where bitcoin transactions are grouped together and represented as a block in a network chain, containing
all relevant transaction details. The bitcoin blockchain is maintained by a community of miners. All transactions on the blockchain
are transparent and designed to make it impossible to add, remove or change data without being detected by users.

    9 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Bitcoin Mining

 

Mining is the process of verifying
bitcoin transactions by solving a computationally difficult encrypted code, called a “hash”. The hash rate is the number
of attempts at solving the encryption code the equipment can process per second. Miners use equipment that produces a high hash
rate, as it results in more attempts at solving the encrypted code. The average hash rate for a two- week period determines the
network difficulty rate, which is set every two weeks. The network difficulty is a measure of how difficult it is to solve a block.
This computational process of decrypting the code through hashing is referred to as proof of work. Bitcoin miners use powerful
Application Specific Integrated Circuit (“ASIC”) computing chips to compete with each other to correctly solve the
encryption code.

 

The power and efficiency of the
ASIC chip to produce a high number of hashes is essential to successfully mining. When a miner is successful in solving the code,
a block containing transactions is validated and incorporated into the blockchain resulting in an economic incentive payment for
the miner in the amount of 6.25 newly minted bitcoins plus potential transaction fees. This incentive payment halves every four
years, the most recent of which occurred on May 11, 2020.

 

When mining Bitcoin, Hut 8 measures
the output to process in computer hash rates. For example, one PH/s processes one quadrillion hashes per second that constantly
attempts to solve the bitcoin cryptology code and receive the bitcoin incentive payment.

 

Hut 8 Custody of Bitcoin

 

For the protection of its bitcoin
on behalf of shareholders, Hut 8 does not self-custody its bitcoin. Instead, Hut 8 uses the services of BitGo Trust Company Inc.
(“BitGo”). BitGo has US$100 million of insurance backing its digital asset custody and one of the highest levels of
regulatory certifications in the market. BitGo is financially backed by Wall Street firms including Goldman Sachs. Hut 8 utilizes
both cold and hot storage for bitcoin with BitGo.

 

Hut 8 continues to explore new
ways to enhance the custody of its bitcoin and improve security for shareholders.

 

Significant Agreements

 

On November 29, 2017, the Company
entered into a Master Data Centre Purchase Agreement (the “MPA”) with Bitfury. The MPA governs the terms and conditions
for the purchase from Bitfury of certain equipment (the “Data Centres”) used for the purpose of running diverse cryptographic
hash functions in connection with the mining of cryptocurrency. The MPA is for a term of five years, with two successive renewal
terms of one year each.

 

Concurrent with the MPA, on November
29, 2017, the Company entered into a Master Service Agreement (the “MSA”) with Bitfury. In accordance with the MSA,
Bitfury shall provide the management, maintenance, support, logistics and operational services (the “Services”) required
to run the Data Centres. The MSA is for a term of five years, with two successive renewal terms of one year each.

 

On February 21, 2020, the Company
and Bitfury agreed to amend these key agreements, with the intent of reducing operating costs and providing more autonomy to Hut
8 in managing its operations. Hut 8 will have improved flexibility to work with outside equipment vendors and Bitfury will have
the ability to work with other miners in North America as well. On August 4, 2020 and September 2, 2020, Hut 8 completed the transfers
of its City of Medicine Hat and Drumheller sites, respectively, from Bitfury.

 

The Company entered into definitive
agreements with the City of Medicine Hat (“CMH”) for the supply of electric energy, and the lease of land upon which
Hut 8 is constructed its mining facilities. For electricity, an Electricity Supply Agreement
(”ESA”) was executed, whereby CMH will provide electric energy capacity of approximately 67 MW to the new Hut 8 facilities,
which in conjunction with the Company’s approximate 40 MW in operation in Drumheller, will allow Hut 8 to operate at 107
MW in total. The ESA and the land lease have a concurrent term of 10 years. The minimum payments on the land lease are $1,395 per
month up to December 31, 2027.

    10 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Liquidity and Capital Resources

 

As at September 30, 2020, the
Company had a working capital surplus of $15.4 million, (December 31, 2019 - $6.0 million) and shareholders’ equity of $41.1 million.

 

Net cash used in operating activities
was $2.9 million, which does not include the bitcoin mined but not yet converted to cash. Cash used in investing activities amounted
to $5.5 million which was mainly used for purchase of new mining equipment and electricity deposit at the Drumheller facility.
Cash provided by financing activities was $7.7 million, net of the proceeds from the Company’s public offering completed
on June 25, 2020.

 

As at September 30, 2020, the
Company had cash on hand of $2.3 million (December 31, 2019 - $2.9 million) and digital assets of $41.0 million (December 31, 2019
- $27.3 million).

 

The Company’s ability to
continue as a going concern and realize its assets and discharge its liabilities in the normal course of business is dependent
upon maintaining sustained profitability and maintaining the Company’s loans in good standing. There are various risks and
uncertainties affecting the Company’s operations including, but not limited to, the viability of the economics of bitcoin
mining, the liquidity of bitcoin, the Company’s ability to maintain its security of its digital assets and execute its business
plan. The Genesis loan requires bitcoin collateral. If the bitcoin price reaches a price where Hut 8 does not have the bitcoin
to sufficiently collateralize the loan, then after a cure period of 10 days, Genesis may be able to liquidate a significant portion
of Hut 8’s bitcoin, demand immediate repayment of the loan, or terminate the loan agreement.

 

The Company’s strategy to
mitigate these risks and uncertainties is to execute a business plan aimed at continued security, operational efficiency, revenue
growth, improving overall mining profit, managing operating expenses and working capital requirements, and securing additional
financing, as needed, through one or more of loans and equity investments. Given the volatility in the financial markets, it may
be difficult to raise financing when needed. Failure to implement the Company’s business plan could have a material adverse
effect on the Company’s financial condition and/or financial performance. Accordingly, there are material risks and uncertainties
that cast significant doubt about the Company’s ability to continue as a going concern.

 

On November 20, 2019, the Company
finalized a loan for $19,956,000 (US$15,000,000) to Genesis. The loan bears interest at 9.85% per annum, payable monthly, and matures
on May 21, 2021. 85% of the loan is collateralized with bitcoin that has been transferred to Genesis. If the collateralized value
of the bitcoin drops below 75% of the loan, additional bitcoin will be sent to Genesis to bring the collateral level back to 85%.
Conversely, if the collateralized bitcoin value goes over 95% of the loan, bitcoin will be returned to the Company as long as the
85% level remains satisfied. These funds were used to repay the loan with Galaxy.

 

On February 18, 2020, the Company
completed a loan extension with Genesis for $6,615,500 (US$5,000,000). The loan bears interest at 9.85% per annum, payable monthly,
and matures on Feb 18, 2021. 100% of the loan is collateralized with bitcoin that has been transferred to Genesis. If the collateralized
value of the bitcoin drops below 90% of the loan, additional bitcoin will be sent to Genesis to bring the collateral level back
to 100%. Conversely, if the collateralized bitcoin value goes over 110% of the loan, bitcoin will be returned
to the Company as long as the 100% collateral level remains satisfied. These funds were used to repay the loan with Bitfury.

    11 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

On June 25, 2020, the Company
completed its public offering (the “Offering”), and, with the underwriters exercising their over-allotment option,
issued 5,750,456 units (“Unit”) at a price of $1.45 per 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 are determined at $2,635,544 under the related fair value approach using
the Black-Scholes Option Pricing model based on the following assumptions: expected life of 1.5 years, interest 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 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%.

 

On July 13, 2020, the Company
successfully renegotiated key terms of the loans with Genesis. The interest rate on the full amount of the loan, US$ 20 million,
was reduced to 8.00% from 9.85% per annum. The bitcoin collateral required increased from 85% of the loan value to 95%. Additionally,
if the price of bitcoin drops below US$6,500, the bitcoin collateral will automatically drop to 80% of the loan value, while interest
rate adjusts to 10.00% per annum until the bitcoin price once again increases above US$6,500. The loan will continue indefinitely
with Genesis being able to call the loan with five months’ notice, while the Company will have the option to repay with one
month’s notice and no prepayment penalty.

 

Off-Balance Sheet Arrangements

 

As of the date of this MD&A,
the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect
on the results of operations or financial condition of the Company including, without limitation, such considerations as liquidity
and capital resources that have not previously been discussed.

 

Financial Instruments and Business Risks

 

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

 

Credit risk

 

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

 

For the protection of its bitcoin
on behalf of shareholders, Hut 8 does not self-custody its bitcoin. Instead, Hut 8 uses the services of BitGo. BitGo has US$100
million of insurance backing its digital asset custody and one of the highest levels of regulatory certifications in the market.
BitGo is financially backed by Wall Street firms including Goldman Sachs.

 

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.

    12 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

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 September 30, 2020 the contractual
maturities of financial liabilities, including estimated interest payments are as follows:

 

	 	 	Carrying	 	 	Contractual	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	amount	 	 	cash
    flows	 	 	Within
    1 year		 	1
    to 2 years	 	 	2
    to 5 years	 	 	5+
    years	 
	Accounts
    payable and
    accrued liabilities	 	$	4,090,633	 	 	$	4,090,633	 	 	$	4,090,633	 	 	$	-	 	 	$	-	 	 	$	-	 
	Loans payable and
    interest	 	 	26,678,000	 	 	 	28,812,240	 	 	 	28,812,240	 	 	 	-	 	 	 	-	 	 	 	-	 
	Lease
    commitments	 	 	328,311	 	 	 	691,651	 	 	 	35,577	 	 	 	35,577	 	 	 	69,231	 	 	 	551,266	 
	 	 	$	31,096,944	 	 	$	33,594,524	 	 	$	32,938,450	 	 	$	35,577	 	 	$	69,231	 	 	$	551,266	 

 

Foreign Currency Risk

 

Foreign currency risk is the risk
that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Foreign 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.

 

Concentration Risk

 

Concentration risk arises as a
result of the concentration of exposures within the same category, whether it is geographical location, product type, industry
sector or counterparty type. Currently, the Company has its investment highly concentrated in a single asset, bitcoin. The Company
tracks the market price of bitcoin, less the Company’s liabilities and expenses, by investing in the assets of the company
in bitcoin.

 

Price Volatility Risk

 

The Company is at risk due to
a wide fluctuation in the price of bitcoin, the speculative nature of the underlying asset, and negative media coverage. Downward
pricing of bitcoin may adversely affect investor confidence, and subsequently, the value of the Company’s bitcoin inventory,
its stock price, and profitability.

 

Security Risk

 

Bitcoins are controllable only
by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the bitcoins
are held. The bitcoin network requires a public key relating to a digital wallet to be published
when used in a spending transaction and, if keys are lost or destroyed, this could prevent trading of the corresponding bitcoins.

    13 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Security breaches, computer malware
and computer hacking attacks have been a prevalent concern in the bitcoin exchange market since the launch of the bitcoin network.
Any security breach caused by hacking could cause loss of bitcoin investments.

 

Bitcoin Network Risk

 

The open-source structure of the
bitcoin network protocol means that the core developers of the bitcoin network and other contributors are generally not directly
compensated for their contributions in maintaining and developing the bitcoin network protocol. A failure to properly monitor and
upgrade the bitcoin network protocol could damage the bitcoin network.

 

Digital Assets and Risk Management

 

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

 

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 bitcoin;
in addition, the Company may not be able liquidate its inventory of digital assets at its desired price if required. A decline
in the market price for bitcoin could negatively impact the Company’s future operations. The Company has not hedged the conversion
of any of its sales of bitcoin.

 

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

 

Related Party Transactions

 

See the unaudited condensed consolidated
interim financial statements for the three and nine months ended September 30, 2020, for related party transactions with respect
to share issuances.

 

During the three and nine months
ended September 30, 2020, the Company was charged $325,884 (2019 - $5,419,253) and $ 2,259,087 (2019 - $15,475,339), respectively,
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 September 30, 2020, $658,868 (September 30, 2019 - $166,814) 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.

 

These transactions were made on terms equivalent to
those that prevail in arm’s length transactions.

    14 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Critical Accounting Estimates and Accounting Policies

 

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 unaudited condensed consolidated interim financial statements:

 

i.       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.

 

ii.       Revenue
recognition

 

The Company recognizes revenue from the provision
of transaction verification services within the bitcoin blockchain, and as consideration for these services, the Company receives
bitcoin. Revenue is measured based on the fair value of the bitcoin received. The fair value is determined using the closing bitcoin
price each day per Coinmarketcap. The Company is relying on the data available at Coinmarketcap to be an accurate representation
of the closing price for the digital assets.

 

iii.       Fair
value of digital assets

 

Digital assets, consisting solely of bitcoin, are
measured at fair value using the quoted price on Coinmarketcap. Management considers this fair value to be a level two 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. The bitcoin is valued based on the closing price obtained from Coinmarketcap at the reporting period
corresponding to the digital assets mined by the Company.

 

The Company’s determination to classify its holding
of bitcoin as current assets is based on management’s assessment that its bitcoin held can be considered a commodity and
the availability of liquid markets to which the Company may sell a portion or all of its holdings.

 

iv.       Non-monetary
transactions

 

Non-monetary transactions for the exchange of bitcoin
for various goods and services are measured at the fair value determined from the exchange amount. Fair value of the bitcoin is
determined at the time of transaction.

 

v.       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.

    15 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

vi.       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. 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.

 

vii.       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.

    16 

     

    

Hut 8 Mining Corp.

Management’s Discussion and Analysis

Amended and Restated

For the three and nine months ended September 30, 2020

 

Capital Management

 

The Company’s capital currently
consists of Common Shares. The Company’s capital management objectives are to safeguard its ability to continue as a going
concern and to have sufficient capital to be able to identify, evaluate and then acquire an interest in a business or assets. The
Company does not have any externally imposed capital requirements to which it is subject. The Company manages the capital structure
and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To
maintain or adjust the capital structure, the Company may attempt to issue new shares.

 

Management’s Report on
Disclosure Controls and Procedures and Internal Control over Financial Reporting

 

Management is committed to delivering timely and accurate
disclosure of all material information.

 

Disclosure controls and procedures
ensure that reporting requirements are satisfied, and that material information is disclosed in a timely manner. Due to the limitation
on the ability of the officers to design and implement cost-effective policies for disclosure controls and procedures and internal
control over financial reporting, the officers are not making representations that such controls and procedures would identify
and allow for reporting material information on a timely basis, nor are they representing that such procedures are in place that
provide reasonable assurance regarding the reliability of financial reporting.

 

However, as permitted for TSX
issuers, the CEO and CFO individually have certified that after reviewing the unaudited condensed consolidated interim financial
statements for the three months and nine months ended September 30, 2020 and this MD&A of the Company, there are no material
misstatements or omissions, and the filing materially presents the unaudited condensed consolidated interim financial position
and consolidated results of operations and cash flows for the three months and nine months ended September 30, 2020 and all material
subsequent activity up to November 12, 2020.

 

Share Capital

 

As of the date of this MD&A,
the Company has issued, and outstanding share capital comprised of 96,732,324 Common Shares, 795,000 stock options, 8,317,205 warrants,
and 406,667 restricted share units.

 

Additional information and other
publicly filed documents relating to the Company are available through the internet on the Canadian Securities Administrators’
System for Electronic Document Analysis and Retrieval (“SEDAR”), which can be accessed at www.sedar.com.

    17

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