What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-06 · 346 added, 274 removed, 90 unchanged (87% of the section changed)

15 unchanged sentences

It is generally based on industry and other publications that are not produced for purposes of securities offerings or economic

We have not reviewed or included data from all sources and cannot assure investors of the accuracy or completeness of the

data included in this Report.

We have not reviewed or included data from all sources and cannot assure investors of the accuracy or completeness of the data

included in this Report.

Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications

31 unchanged sentences

of the Company

Digital Holdings, Inc.

The Company was incorporated in the State of Nevada on February 23, 2010 under the name Verve

6 unchanged sentences

and the Company commenced IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc.

As of March 31, 2022, the Company no longer holds any legacy IP assets and is solely focused on the mining of bitcoin and ancillary opportunities

within the bitcoin ecosystem under the name Marathon Digital Holdings, Inc.

impact of the worldwide spread of a novel strain of coronavirus (“COVID 19”) has been and continues to be unprecedented and

unpredictable, although less of a concern as it was one year ago, but based on the Company’s current assessment, the Company does

not expect any material impact on its long-term strategic plans, operations and its liquidity due to the worldwide spread of COVID-19.

However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented

to combat the virus throughout the world and its assessment of the impact of COVID-19 may change.

March 31, 2022, Marathon Digital Holdings, Inc.

(the “Company”) amended its previously announced agreements with affiliates

of Beowulf Energy LLC, a Delaware limited liability company (collectively and as applicable, “Beowulf”), and Two Point One,

LLC, a Delaware limited liability company (“2P1”), pursuant to which Beowulf and 2P1 have been designing and developing a

data center facility of up to 110-megawatts (the “Facility”) located next to, and supplied energy directly from, Beowulf’s

power generation station in Hardin, MT.

As part of the Company’s mandate to become carbon neutral by the end of the 2022 fiscal

year, the Company, Beowulf and 2P1 agreed to terminate the Data Facility Services Agreement, the Power Purchase Agreement and the Ground

Lease for the Facility as of August 15, 2022, and the Company will redeploy its Hardin-installed miners to renewable power facilities

on or before September 30, 2022.

March 31, 2022, Douglas Mellinger was appointed as a director to the Board of Directors of Marathon Digital Holdings, Inc.

(the “Company”)

to fill the vacancy created by Merrick Okamoto’s departure at the end of 2021.

Effective the same date, Hugh Gallagher was appointed

as the Company’s Chief Financial Officer, and Simeon Salzman was appointed as its Chief Accounting Officer.

Company began operating its own mining pool in May 2021.

Prior to participating in the Company’s own mining pool, the Company’s

miners contributed hashrate to F2Pool.

BTC earned by the pool are allocated to pool participants based on the proportion of hashrate

contributed to the pool per participant at the time of the reward.

From May 2021 to December 2021, the Company’s miners contributed

approximately 94% of the pool’s total hashrate, with 3 rd party operators contributing approximately 6%.

Effective April

30, 2022, third party miners are no longer permitted to participate in the Company’s mining pool, and prospectively, the Company

will be the only participant and contribute 100% of the pool’s hashrate.

As such, the Company will no longer incur pool fees for operating its own mining pool as the sole customer of the

Accounting Matters

believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management

discussion and analysis:

currencies are included in current assets in the consolidated balance sheets as intangible assets with indefinite useful lives.

currencies are recorded at cost less impairment.

intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events

or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.

exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital currency at the time

its fair value is being measured.

In testing for impairment, the Company has the option to first perform a qualitative assessment to

determine whether it is more likely than not that an impairment exists.

If it is determined that it is not more likely than not that

an impairment exists, a quantitative impairment test is not necessary.

If the Company concludes otherwise, it is required to perform

a quantitative impairment test.

To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset.

Subsequent reversal of impairment losses is not permitted.

At March 31, 2022, we held approximately 4,579 self-mined bitcoin with a carrying value of $155.6 million and carried

on the balance sheet as digital currencies ($135.1 million) and digital currencies, restricted ($20.5 million).

We also held approximately

4,794 bitcoin in an investment fund, which was valued at $218.2 million as of March 31, 2022.

We expect to increase our bitcoin holdings over time primarily through mining activities, though we may purchase

or sell bitcoin in future periods as needed for treasury management or general corporate purposes.

Company recognizes revenue under ASC 606, Revenue from Contracts with Customers.

The core principle of this revenue standard is that

a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration

to which the company expects to be entitled in exchange for those goods or services.

The mining of Bitcoin (“BTC”) is a continuous

process, with computers running calculations 24 hours per day, 7 days per week in support of the bitcoin blockchain, verifying transactions

and adding verified “blocks” of transactions to the blockchain.

When the mining pool in which the Company participates solves

the equation to verify a block, that block is added to the Bitcoin blockchain and the pool is rewarded BTC in return.

Blocks are added

to the bitcoin blockchain on average every 10 minutes, and each new block is a new contract / performance obligation.

The time between

contract inception and receipt of consideration, as it relates to a mining pool, is therefore not materially different.

Company utilizes custodian services, provided by NYDIG, related to allocating and disbursing the pool rewards after they are earned by

The mining rewards (in the form of BTC) are allocated to pool participants based on the proportion of hashrate contributed

to the pool per participant at the time of the reward.

NYDIG confirms this allocation among pool participants within 24 hours of a block

As bitcoin’s blockchain operates 24 hours a day, 365 days a year, in the case where the pool receives mining rewards when

there is a federal holiday or over the weekend (Saturday/Sunday), NYDIG sends the respective earnings report on the next available business

Once participants confirm the NYDIG calculations, the mining rewards are sent to each participants digital wallet, at that time

upon constructive receipt, the Company will then effectively recognize revenue using the closing price during that respective day multiplied

by the bitcoin rewards received.

The Company aggregates all BTC rewards confirmed in any given

day and records revenue in USD at the prevailing market price at the end of the day.

The value of the BTC rewards, utilizing the prevailing

market prices at constructive receipt, is not materially different than the value recognized.

Management utilizes various pricing

sources, including sources readily available to the general public (such as Messari.io, Yahoo Finance and Blockchain.com) to ensure

the reasonableness of our assessment of valuation and we periodically review or back check this assumption for reasonableness.

Company began operating its own mining pool in May 2021.

In addition to mining within the pool, the Company, as pool operator, recognizes

approximately 0.5% of any block reward as pool fee revenue.

This fee is subtracted from BTC rewarded prior to the allocation of the BTC

reward among the pool participants based on contributed hashrate.

As a result, revenues associated directly with bitcoin mining activities

are recorded net of any pool fee with an offsetting cost of revenue.

Pool operator fees were approximately $0.3 million for the three

month period ended March 31, 2022.

There were no pool operator fees recorded in the comparable prior-year period.

Effective April 30,

2022, third party miners are no longer permitted to participate in the Company’s mining pool, and prospectively, the Company will

be the only participant and contribute 100 % of the pool’s hashrate.

As such, the Company will no longer incur pool fees for operating its own mining pool as the sole customer of the

addition to the block rewards and pool operator fees, transaction verification fees are awarded per block reward and vary in amount.

These transaction fees were approximately $0.6 million for the three months ended March 31, 2022 and $0.0 million for the comparable

prior-year period.

of Long-lived Assets

reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may

not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted

future cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized

is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

During the quarter ended March

31, 2022 the Company completed a final review of patents which remained from our legacy as a patent company and determined that there

was no longer any value to these patents.

As a result, the Company wrote those patents off during the quarter, incurring an impairment

The Company commenced mining bitcoin in 2018 and changed its name to Marathon Digital Holdings, Inc.

on March 1, 2021.

As of June 30,

2022, the Company no longer holds any legacy IP assets and is solely focused on the mining of bitcoin and ancillary opportunities within

the bitcoin ecosystem under the name Marathon Digital Holdings, Inc.

the three-month period ended June 30, 2022, deteriorating macroeconomic conditions contributed to a significant downturn in

financial markets.

These conditions were more pronounced in businesses exposed to digital assets, including bitcoin mining.

digital asset companies executed cost savings measures, reduced expansion plans and capital expenditures, sold digital assets and in

some cases executed layoffs of staff.

Holders of digital assets including bitcoin experienced a significant decrease in the value of

their digital asset holdings during the period.

The price of bitcoin dropped from $45,539 on April 1, 2022 to a low of $19,018 on

June 18, 2022, and was $19,785 on June 30, 2022.

The Company faced these same challenges, along with operational issues at our Hardin, MT

facility and delays in the energization of a bitcoin mining facility in Texas.

The Company did not sell any bitcoin during the

period as a means of raising cash, although we did execute a previously-contracted sale of equipment during the quarter, details of

which are included below.

Despite the economic and operational challenges experienced during the quarter, the Company ended the

period with $89.7 million in cash on hand and continues to expect to have sufficient liquidity sources in the future to support

ongoing operations.

Our primarily sources of liquidity are expected to be cash on hand, available borrowing capacity with our

Revolving and Term Loan facilities with Silvergate Bank, our ATM facility and our bitcoin holdings.

brief discussion of some of the more significant recent events impacting the Company’s operations follows.

June 11, 2022, a severe storm passed through Hardin damaging the power generating facility that supplies the data center with power.

As a result, the Company’s bitcoin production at the plant was significantly reduced.

Anticipated repairs to the plant were persistently

delayed until July 14, at which point the plant resumed operations at reduced power levels and operating capacity.

Additional outages

continued to occur at the plant throughout July, and the Company decided to accelerate its exit from Hardin, moving the date up from

the planned date of August 15 to July 28.

As a result, the Company further accelerated the cost of a prepaid service contract and the

remaining depreciation and amortization related to the infrastructure assets at Hardin during the month of July.

The data center infrastructure

assets and the prepaid service contract have therefore been fully depreciated or amortized as of July 31, 2022.

The bitcoin mining servers

that are on site are in the process of being inventoried and removed from the facility and will be sold or redeployed to other locations

in the near future.

June 10, 2022 the Company withdrew approximately 4,769 bitcoin from its investment in NYDIG Digital Assets Fund III, LP, the (“Investment

Fund”) and transferred the bitcoin directly into the Company’s account.

As a result, the Company will no longer receive “mark-to-market”

accounting for the bitcoin formerly held in the Investment Fund and the 4,769 bitcoin will now be classified as “Digital currencies”

on the balance sheet and subject to impairment analysis as a indefinite-lived intangible.

June 14, 2022 the Company terminated its loan of 600 bitcoin with NYDIG.

The Company decided to terminate the bitcoin loan in response

to recent market conditions and its desire to hold all of its bitcoin directly so it could fully utilize these holdings for corporate

purposes as needed, including as collateral for credit facilities.

July 5, 2022, the Company expanded certain hosting arrangements to include an additional 42 megawatts of hosting capacity at a facility near

Granbury, Texas.

The Company expects to have an additional 14,000 miners installed at this facility, bringing the total number of miners

installed near Granbury to 26,000 or approximately 3.6 EH/s.

Based on current construction schedules these miners are expected to be

installed before the end of 2022.

July 12, 2022, the Company entered into an agreement to secure approximately 200 megawatts of hosting capacity for the Company’s

previously purchased miners, including 90 megawatts of hosting capacity in Texas and at least 110 megawatts of hosting capacity

in North Dakota.

The Company expects to have 66,000 miners, representing approximately 9.2 EH/s, hosted across these facilities.

on current construction schedules, installations of the Company’s miners are expected to begin at these facilities during the fourth

quarter of 2022 with all miners installed by approximately mid-year 2023.

As part of this agreement, the Company has an option to increase

hosting capabilities utilizing up to an additional 70 megawatts in North Dakota.

The Company also secured an additional 12 megawatts

of hosting capacity with a variety of other providers and expects to install approximately 4,000 miners, representing approximately 0.8

EH/s, with these hosting providers, starting in August 2022.

July 15, 2022 the Federal Energy Regulatory Commission found that King Mountain Upton Wind, LLC would retain its

status as an exempt wholesale generator notwithstanding a proposal to share ownership of the Interconnection Facilities as tenants-in-common

with a retail energy customer.

King Mountain had filed a petition on April 5, 2022 seeking a declaratory order to confirm its status

as an exempt wholesale generator.

In the Petition, King Mountain stated that it proposed to share ownership of interconnection

facilities that are currently eligible facilities within the meaning of section 32(a)(2) of the Public Utility Holding Company Act

as tenants-in common with a retail energy customer.

King Mountain stated that it intended to sell wholesale electricity from the Generating

Facility to a third party, who would then sell electricity at retail to the owner of a modular data center which would operate adjacent

to the Generating Facility and supply it with renewable energy.

This action enabled the energization a modular data center adjacent to

the Generating Facility.

Approximately 69,000 of the Company’s bitcoin mining machines are located at this data center and energization

enabled this equipment to come online starting on August 5, 2022.

Financial Measures

are providing supplemental non-GAAP financial measures for (i) Adjusted Net Income (ii) Adjusted EBITDA.

define Adjusted Net Income as GAAP net income (or loss) for the period with adjustments to add back the impacts of (1) stock compensation

expense, net of withholding taxes (2) changes in the fair market value of our investment fund and (3) the tax effects of the aforementioned

This non-GAAP measure is used by management to evaluate earnings performance from period-to-period given that (i) we expect

that share-based compensation expense will continue to be a recurring expense that may vary significantly from period-to-period and (ii)

we also hold digital currencies in an investment fund that requires fair value accounting of the bitcoin held in the fund.

this treatment is fundamentally different from the accounting for our self-mined bitcoin (a long-lived intangible that is evaluated

for impairment but not reported at market value) and can also vary significantly from period-to-period, we believe our measure of Adjusted

Net Income provides management and investors with a meaningful view of earnings resulting from current operating activities.

the three months ended March 31,

Net (loss) income

provide investors with a reconciliation from net income to the non-GAAP measure known as Adjusted EBITDA as a component of Management’s

Discussion and Analysis.

For each period in question, we define “Adjusted EBITDA” as (a) GAAP net income (or loss) plus (b)

adjustments to add back the impacts of (1) depreciation and amortization, (2) interest expense, (3) income tax expense and (4) adjustments

for non-cash and non-recurring items (which currently include (i) stock compensation expense, (ii) net of withholding taxes and (iii)

impairments of patents (if any).

EBITDA is not a measurement of financial performance under GAAP and, as a result, this measure may not be comparable to similarly titled

measures of other companies.

Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a

substitute for, measurements prepared in accordance with GAAP.

Adjusted EBITDA is not meant to be considered in isolation and should

be read only in conjunction with our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K as filed with the Securities

and Exchange Commission.

Management uses both Adjusted EBITDA and the supplemental information provided herein as a means of understanding,

managing and evaluating business performance and to help inform operating decision making.

We rely primarily on our Consolidated Condensed

Financial Statements to understand, manage, and evaluate our financial performance and use the non-GAAP financial measures only supplementally .

Issued Accounting Standards

Note 2 to our Consolidated Condensed Financial Statements for a discussion of recent accounting standards and pronouncements.

of Operations

the Three Months ended June 30, 2022 and 2021

Three Months Ended June 30,

(Unfavorable)

$ (4,400,041 )

Cost of revenues - energy, hosting and other

(16,684,759 )

Stock Compensation Expense, net of withholding

(12,628,591 )

Change in FMV of investment fund

Cost of revenues - depreciation and amortization

(24,709,797 )

Income tax impact of adjustments,

Adjusted net income (loss)

(21,772,131 )

(16,472,740 )

Adjusted net income (loss) per share, basic:

Adjusted net income (loss) per share, diluted:

Weighted average shares outstanding, basic:

Weighted average shares outstanding, diluted:

define Adjusted EBITDA as GAAP net income (or loss) for the period with adjustments to add back the impacts of (1) depreciation and amortization

(2) interest expense (3) income tax expense and (4) adjustments for non-cash and non-recurring items which currently include (i) stock

compensation expense, net of withholding taxes (ii) changes in the fair market value of our investment fund (iii) changes in fair

value of warrant liability (iv) impairment of digital currencies and (v) other impairments of long-lived assets.

EBITDA in future periods would also likely include adjustments for unusual or infrequent items that might impact the comparability of

our financial results, for example losses on early extinguishments of debt or unusually large gains or losses on sales of assets if these

items were to occur.

This non-GAAP measure is used by management in evaluating operating performance and we believe it to be a meaningful

non-GAAP measure used by investors to compare the Company’s operating performance with that of other companies within the industry.

the three months ended March 31,

Net income (loss)

(38,800,763 )

Gain on sale of equipment

General and administrative expenses

(12,641,331 )

Depreciation and amortization

Changes in carrying value of digital assets:

Change in fair value of digital currencies held in fund

(79,688,590 )

(114,704,596 )

Impairment of digital currencies

(127,590,231 )

(11,078,660 )

(116,511,571 )

(207,278,821 )

(125,783,256 )

(81,495,565 )

Non-operating income

(191,646,642 )

(108,884,620 )

(82,762,022 )

Bitcoin (“BTC”) production during the period, in BTC

Reconciliation to Adjusted EBITDA

$ (191,646,642 )

$ (108,884,620 )

$ (82,762,022 )

Interest expense

tax expense (benefit)

Income tax expense (benefit)

(178,046,096 )

Adjustments for non-cash

and non-recurring items:

Stock compensation expense,

net of withholding tax

(108,885,401 )

Change in FMV of investment

(69,160,695 )

Change in fair value of

warrant liability

Impairment of digital currencies

Impairment of patents

Depreciation and amortization

(153,336,299 )

(105,947,735 )

(47,388,564 )

Stock compensation expense, net of withholding tax

Adjusted EBITDA

Depreciation and amortization consists of depreciation on fixed assets of approximately $13.9 million, amortization

of prepaid service contracts of approximately $4.7 million and amortization of intellectual property of $12,552 for the three month period

ending March 31, 2022.

supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United

States (“GAAP”) and, as a result, these measures may not be comparable to similarly titled measures of other companies.

uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance and to help make

operating decisions.

We believe that this combination of reconciliations from GAAP net income to Non-GAAP measures is important when

taken together with the GAAP financial results in that they provide a meaningful view of earnings performance for management and investors.

We also believe that these Non-GAAP measures provide additional information to investors about the Company’s performance because

they eliminate certain items not associated with current-period transactions and other significant discrete items that might impact the

comparison of period-to-period results

financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared

in accordance with GAAP.

Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction

with our Consolidated Condensed Financial Statements, which have been prepared in accordance with GAAP.

We rely primarily on such Consolidated

Condensed Financial Statements to understand, manage, and evaluate our business performance and use the non-GAAP financial measures only

supplementally.

Issued Accounting Standards

Note 2 to our consolidated financial statements for a discussion of recent accounting standards and pronouncements.

$ (147,204,075 )

$ (105,071,764 )

$ (42,132,311 )

and Total Margin

We generated revenues of $24.9 million during the

three months ended June 30, 2022 compared with $29.3 million during the three months ended June 30, 2021.

This $4.4 million decrease in

revenue was driven by lower revenue per bitcoin mined ($6.8 million) resulting from lower market prices for bitcoin in the current-year

period when compared with the prior-year period.

This decrease was partially offset by an 8% increase in bitcoin production activity (a

$2.4 million increase in revenues) from the prior-year period.

Cost of revenues – energy, hosting and other during the three months

ended June 30, 2022 amounted to $16.7 million compared with $4.1 million in the prior-year period.

This $12.6 million increase was driven

by accelerated cost recognition associated with the early exit from Hardin ($9.4 million) and to a lesser extent higher costs per bitcoin

Total margin, which we define as revenues less cost of revenues – energy, hosting and other and cost of revenues –

depreciation and amortization, totalled a loss of $16.5 million compared with an income position of $22.3 million in the prior-year period.

This $38.8 million decrease in total margin was driven primarily by the impact of accelerated costs related to the Hardin exit and the

lower revenue per bitcoin mined.

Notwithstanding

the increased mining activities vs.

the prior-year period, our production of bitcoin during the three months ended June 30, 2022 was

negatively impacted by ongoing maintenance issues and the storm at our Hardin, MT facility as well as the delays in energizing our bitcoin

mining equipment at the King Mountain data center in Texas.

on sale of assets

December 2, 2021, we entered into an agreement with DCRBN Ventures Development and Acquisition LLC (“DCRBN”) in

which the Company agreed to sell certain equipment to DCRBN starting in April 2022, in conjunction with the development of commercial

activities at the King Mountain wind farm in McCamey, TX.

During the three months ended June 30, 2022, the Company sold equipment for

cash proceeds totalling $87.2 million and realized a pre-tax gain on the sale of such assets of $58.2 million.

There were no such sales

in the prior-year period.

and administrative expenses

and administrative expenses were $12.6 million for the three months ended June 30, 2022, an increase of $5.8 million from the prior-year

Our general and administrative expenses increased primarily as a result of higher stock-based (non-cash) compensation expense,

which increased to $6.2 million from $0.9 million in the prior-year period;

and higher costs associated with increased business activities.

in carrying value of digital assets:

of digital currencies recorded in operating expenses :

We incurred significant impairment

of digital assets during the three months ended June 30, 2022 as the price of bitcoin declined

to a low of $19,018 on June 18, 2022.

Total impairment expense was $127.6 million for the

three months ended June 30, 2022 compared with an impairment expense of $11.1 million for

the prior-year period.

in fair value of digital currencies recorded in operating income (expense) :

2022 the company withdrew 4,769 bitcoin from its investment fund.

Total changes in the fair

value of investment fund from April 1 through the June 10 withdrawal date resulted in a loss

of $79.7 million in the current year period.

During the prior-year quarter, the change in

fair value of the bitcoin held in the investment fund was a loss of $114.9 million.

Non-operating

income decreased primarily due to changes in the fair value of a stock warrant liability recorded in the prior-year period.

and amortization

and amortization, which we classify as “Cost of revenues – depreciation and amortization” in our statements of operations,

increased significantly when compared to the prior-year period primarily due to the acceleration of depreciation related to our exit

of the Hardin, MT facility (a $15.8 million increase in depreciation) and, to a lesser extent increased depreciation costs associated

with a higher number of mining servers in operation ($4.7 million).

expense increased $3.7 million from the prior-year as a result interest related to the convertible notes issued in November 2021 ($2.8

million) and interest on borrowings outstanding under the Company’s revolving credit agreement ($0.9 million).

tax expense was $9.8 million for the period ended June 30, 2022.

We recorded tax expense despite a pre-tax loss from operations due to

a valuation adjustment related to the certain deferred tax benefits.

recorded a net loss of $(191.6) million in the current year period compared with net loss of $(108.9) million in the prior period.

$82.7 million decline was primarily driven by the impact of declines in the carrying value of our digital assets ($81.5 million), higher

depreciation expense ($21.8 million), lower total margin $(17.0 million), increased income tax expense ($9.8 million), higher operating

expenses ($5.8 million) increased interest expense ($3.7 million) partially offset by the gain on the sale of equipment of $58.1 million.

EBITDA was a loss of $(147.2) million compared with a loss of $(105.1) million in the prior-year period.

$42.1 million decline was primarily driven by the impact of declines in the carrying value of our digital assets ($81.5 million) and

lower total margin $(17.0 million) partially offset by the gain on the sale of equipment ($58.1 million).

of Operations

the Three Months Ended March 31, 2022 and 2021

the three months ended March 31,

Cost of revenues (includes

depreciation and amortization)

Total margin (1)

Operating and administrative

the Six Months ended June 30, 2022 and 2021

Six Months Ended June 30,

(Unfavorable)

Cost of revenues - energy, hosting and other

(29,201,710 )

Operating income (loss)

(23,477,064 )

Other income (loss)

Cost of revenues - depreciation and amortization

(38,586,480 )

Interest expense

Income (loss) before income taxes

(34,910,877 )

(20,223,079 )

Income tax expense (benefit)

Net income (loss)

Gain on sale of equipment

General and administrative expenses

(26,835,089 )

(60,175,421 )

Adjusted net income (loss)

Total margin excluding depreciation and amortization

Adjusted EBITDA

Bitcoin self-mined during the period

Total margin is defined as revenues less cost of revenues

percent variance is not meaningful

Costs, Total Margin

generated revenues of $51.7 million during the three months ended March 31, 2022 as compared to $9.2 million during the three months

ended March 31, 2021.

This $42.6 million increase in revenue was driven by significantly higher mining activity ($50.9 million) partially

offset by lower revenue per bitcoin mined ($8.3 million) resulting from lower market prices for bitcoin compared with the prior year

cost of revenues during the three months ended March 31, 2022 amounted to $26.4 million compared with $2.4 million in the prior-year

This $24 million increase in cost was driven by significantly higher mining activities ($13.4 million) and higher costs per bitcoin

mined ($10.6 million).

The increase in cost per bitcoin mined was primarily related to higher depreciation and amortization expenses

related to significant increases in the number of mining servers placed into service.

margin, defined as revenues less cost of revenue, totaled $25.3 million compared with $6.7 million in the prior year period.

million increase in total margin was driven by higher mining activity ($37.5 million) partially offset by lower revenue per bitcoin mined

($8.3 million) and higher cost of revenue per bitcoin mined ($10.6 million).

incurred operating expenses of $34.5 million for the three months ended March 31, 2022 a decrease of $19.4 million or 36% from the prior-year

Our operating expenses fluctuated significantly due to non-cash expenses including stock compensation, impairments of digital

currencies and impairment of legacy patents.

The tables that follow provide additional details on the components of our operating

expenses and highlight the fluctuations is specific areas:

the Three Months Ended

Compensation and related taxes

Professional fees

Other general and administrative

Impairment of digital currencies

Impairment of patents

operating expenses consisted of the following:

the Three Months Ended

Stock compensation and related

Changes in carrying value of digital assets:

Change in fair value of digital currencies held in fund

(85,016,208 )

(102,339,329 )

Impairment of digital currencies

(147,141,486 )

(11,740,859 )

(135,400,627 )

(232,157,694 )

(237,739,956 )

Non-operating income (expenses)

(204,605,231 )

(25,527,878 )

(179,077,353 )

Bitcoin ("BTC") production during the period, in BTC

Reconciliation to Adjusted EBITDA

$ (204,605,231 )

$ (25,527,878 )

$ (179,077,353 )

Interest expense

Income tax expense (benefit)

(192,485,313 )

(25,525,986 )

(166,959,327 )

Depreciation and amortization

(153,898,833 )

(21,850,383 )

(132,048,450 )

Stock compensation expense, net of withholding tax

(36,499,535 )

Impairment of patents

operating expenses exclusive of the non-cash items listed above totaled $4.7 million for the three months ended March 31, 2022 an increase

of $2.6 million from the prior-year period primarily related to compensation and professional fees associated with increased mining activities.

Adjusted EBITDA

$ (137,571,894 )

$ (167,628,622 )

and Total Margin

We generated revenues of $76.6 million during the

six months ended June 30, 2022 compared with $38.5 million during the six months ended June 30, 2021.

This increase in revenue was driven

by a 132% increase in bitcoin production ($50.9 million) partially offset by lower revenue per bitcoin mined ($12.7 million) resulting

from lower market prices for bitcoin in the current-year period when compared with the prior-year period.

Cost of revenues – energy,

hosting and other during the six months ended June 30, 2022 amounted to $29.2 million compared with $5.7 million in the prior-year period.

This $23.5 million increase was driven by higher costs per bitcoin mined ($15.9 million, including the impact of accelerated costs related

to the exit from Hardin) and increased costs associated with higher bitcoin production ($7.6 million).

Total margin, which we define as

revenues less cost of revenues – energy, hosting and other and cost of revenues – depreciation and amortization, totalled

$8.9 million compared with $29.1 million in the prior-year period.

This $20.2 million decrease in total margin was driven primarily by

the impact of accelerated costs related to the Hardin exit partially offset by the increase in bitcoin production.

Notwithstanding

the increased mining activities vs.

the prior-year period, our production of bitcoin during the six months ended June 30, 2022 was negatively

impacted by ongoing maintenance issues and the storm at our Hardin, MT facility as well as the delays in energizing our bitcoin mining

equipment at the King Mountain data center in Texas.

on sale of assets

December 2, 2021, we entered into an agreement with DCRBN Ventures Development and Acquisition LLC (“DCRBN”) in

which the Company agreed to sell certain equipment to DCRBN starting in April 2022, in conjunction with the development of commercial

activities at the King Mountain wind farm in McCamey, TX.

During the six months ended June 30, 2022, the Company sold equipment for cash

proceeds totalling $87.2 million and realized a pre-tax gain on the sale of such assets of $58.2 million.

There were no such sales in

the prior-year period.

and administrative expenses

and administrative expenses were $26.8 million for the six months ended June 30, 2022 compared with $60.2 million for the prior year

period, a decrease of $33.4 million from the prior-year period.

This decrease was primarily the result of a $36.5 million decrease in

stock-based (non-cash) compensation expense partially offset by higher costs associated with increased business activities.

in carrying value of digital assets:

of digital currencies recorded in operating expenses :

We incurred significant impairment

of digital assets during the six months ended June 30, 2022 as the price of bitcoin hit new

lows in June 2022.

Total impairment expense was $147.1 million for the six months ended June

30, 2022 compared with an impairment expense of $11.7 million for the prior-year period.

in fair value of digital currencies recorded in operating income (expense) :

month of June the company withdrew 4,769 bitcoin from its investment fund.

Total year to

day changes in the fair value of investment fund through the June 10 withdrawal date resulted

in a loss of $85.0 million in the current year period.

During the prior-year period, the

change in fair value of the bitcoin held in the investment fund was an increase in fair value

of $17.3 million.

Non-operating

income (loss)

income (loss) was a net loss of ($5.3) million for the three months ended March 31, 2022 compared with income of $130.4 million in the

prior-year period.

The significant variance in other income (loss) was primarily related to fluctuations in the fair market value impact

of our investment fund, which recorded a decrease in fair market value of $5.5 million in the current-year period and an increase in

fair value of $131.8 million in the prior-year period.

expense increased $2.8 million from the prior year period as a result of the convertible notes issued in November 2021.

Non-operating

income increased primarily due to changes in the fair value of a stock warrant liability recorded in the prior-year period.

and amortization

and amortization, which we classify as “Cost of revenues – depreciation and amortization” in our statements of operations,

increased $34.9 million when compared to the prior-year period primarily due to the acceleration of depreciation related to our exit

of the Hardin, MT facility (a $19.9 million) and increased depreciation costs associated with a higher number of mining servers in operation

when compared with the prior year period ($10.8 million).

expense increased $6.6 million from the prior-year as a result interest related to the convertible notes issued in November 2021 ($5.7

million) and interest on borrowings outstanding under the Company’s revolving credit agreement ($0.9 million).

tax expense (benefit)

tax expenses was a benefit of $4.3 million for the period ended March 31, 2022.

Our effective tax rate from continuing operations was

approximately 24.9% for the three months ended March 31, 2022, and zero for the three months ended March 31, 2021.

The difference

between the US statutory tax rate of 21% was primarily due to state taxes.

income (loss)

significant increases in operational activities and revenues resulting from our bitcoin mining operations, we recorded a GAAP net loss

of $(13.0) million compared with GAAP net income of $83.4 million in the prior period.

This variance was primarily driven by the aforementioned

fluctuation in fair value of our investment fund partially offset by the higher mining activities and lower compensation expenses.

Net Income (loss)

significant increases in operational activities and revenues resulting from our bitcoin mining operations, we recorded an Adjusted net

loss of $(1.8) million compared with Adjusted net income of $2.6 million in the prior period.

This variance was primarily driven by increases

in impairments of digital currencies (and, to a lesser extent, an impairment of certain legacy patents) partially offset by the benefits

of higher toal margin and an income tax expense benefit recorded in the current period.

EBITDA increased to $39.4 million, a $33.3 million increase from the prior year period.

This increase was primarily related to higher

total margin from increased mining activities in the quarter which, excluding the impact of depreciation and amortization recorded as

part of cost of revenues, increased $35.8 million.

This increase was partially offset by increases in operating expenses exclusive

of non-cash expenses.

tax expense was $5.5 million for the six months ended June 30, 2022 compared with a small tax benefit in the prior year.

tax expense despite a pre-tax loss from operations due to a valuation adjustment related to the certain deferred tax benefits record

in the current year period.

recorded a net loss of $(204.6) million in the current year period compared with net loss of $(25.5) million in the prior period.

$179.1 million decline was primarily driven by the impact of declines in the carrying value of our digital assets ($237.7 million), higher

depreciation expense ($34.9 million), and to a lesser extent higher interest expense and income tax expense.

Partially offsetting these

unfavorable variances was the gain on the sale of equipment ($58.1 million), lower general and administrative expenses ($33.3 million),

and higher total margin ($14.7 million).

EBITDA was a loss of $(137.6) million compared with positive Adjusted EBITDA of $30.1 million in the prior year period.

This $167.6 million

decline was primarily driven by the impact of declines in the carrying value of our digital assets ($232.2 million) partially offset

by the gain on the sale of equipment ($58.2 million), higher total margin ($14.7 million).

Condition and Liquidity

company expects to have sufficient liquidity, including cash on hand, available borrowing capacity and, to a lesser extent our bitcoin

holdings, to support ongoing operations.

We will continue to seek to fund the growth in our mining activities through the capital

markets, including both debt and equity issuances.

and cash equivalents totaled $118.5 million at March 31, 2022, a decrease of $150 million from December 31, 2021.

The decrease in cash

and cash equivalents was primarily driven by significant increases in investing activities related to increasing our mining activities,

including advances to vendor ($192.4 million) and to a lesser extent purchases of property and equipment ($6.5 million) and deposits

(6.3 million).

We also invested a total of $10.5 million in various equity investees during the period.

These expenditures were financed

with a combination of cash on hand and proceeds from the issuance of common stock ($85.5 million).

Net cash used by operating

activities was $26.1 million during the period.

March 31, 2022, we held approximately 4,579 self-mined bitcoin with a carrying value of $155.6 million and carried on the balance sheet

as digital currencies ($135.1 million) and digital currencies, restricted ($20.5 million).

We also held approximately 4,794 bitcoin in

an investment fund, which was valued at $218.2 million as of March 31, 2022.

expect to increase our bitcoin holdings over time primarily through mining activities, though we may purchase or sell bitcoin in future

periods as needed for treasury management or general corporate purposes.

were no borrowings outstanding under the Company’s $100 million revolving credit agreement at March 31, 2022.

cash equivalents and restricted cash totalled $89.7 million at June 30, 2022, a decrease of $178.9 million from December 31, 2021.

decrease in cash, cash equivalents and restricted cash was primarily driven by a $334.0 million use of cash from investing activities

resulting primarily from significant levels of advances to vendors related to bitcoin mining server orders ($394.0 million) and, to a

lesser extent, purchases of property and equipment ($13.8 million) and equity investments ($14.0 million) partially offset by proceeds

from assets sales ($87.2 million).

flows from financing activities resulted in a source of cash of $196.0 million, primarily from proceeds from the issuance of common stock

($161.0 million) and proceeds from borrowings outstanding under the Company’s $100 million revolving credit agreement ($35.0 million).

flows from operating activities resulted in a use of funds of $40.8 million.

Positive cash flow impacts of operating activities

before the impact of changes in operating assets and liabilities (a $47.9 million source of funds) were more than offset by a $88.7

million use of funds from changes in operating assets and liabilities, primarily due to changes in digital currencies (a $76.5

million use of funds).

We had $35 million outstanding under its revolving credit agreement at June 30, 2022.

The maximum borrowings outstanding under the

credit agreement during the six months ended June 30, 2022, was $70 million.

Company expects to have sufficient liquidity, including cash on hand and available borrowing capacity to support ongoing operations.

We will continue to seek to fund the growth in our business activities through the capital markets, including both debt and equity issuances.

June 30, 2022, we held approximately 10,055 bitcoin with a total carrying value of $190.4 million on the balance sheet.

Approximately

2,820 bitcoin were being utilized as collateral for revolving credit borrowings and were classified as “digital currencies, restricted”.

The remaining bitcoin were classified as “Digital currencies” on the balance sheet.

The fair market value of our bitcoin holdings

at June 30, 2022 was approximately $198.9 million and the value of a single bitcoin was approximately $19,785.

June 30, 2021 we held a total of 5,784 bitcoin with a total carrying value of $195.9 million on the balance sheet.

The fair market value

of our bitcoin holdings at June 30, 2021 was approximately $202.7 million and the value of a single bitcoin was approximately $35,041.

expect to increase our bitcoin holdings over time primarily through mining activities.

As our mining activities increase, we may sell

a portion of bitcoin produced in future periods to fund monthly operations, for treasury management purposes or for general corporate

Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis