What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-09 · 416 added, 285 removed, 151 unchanged (82% of the section changed)

22 unchanged sentences

forward-looking statements.

following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations

following discussion and analysis are intended as a review of significant factors affecting our financial condition and results of operations

for the periods indicated.

25 unchanged sentences

of the Company

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

Ventures, Inc.

On December 7, 2011, the Company changed its name to American Strategic Minerals Corporation and were engaged in exploration

and potential development of uranium and vanadium minerals business.

In June 2012, the Company discontinued the minerals business and

began to invest in real estate properties in Southern California.

In October 2012, the Company discontinued its real estate business

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

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

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

On December 7, 2011, the Company

changed its name to American Strategic Minerals Corporation and were engaged in exploration and potential development of uranium and

vanadium minerals business.

In June 2012, the Company discontinued the minerals business and began to invest in real estate properties

in Southern California.

In October 2012, the Company discontinued its real estate business and the Company commenced IP licensing operations,

at which time the Company’s name was changed to Marathon Patent Group, Inc.

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.

As of September 30, 2022, the Company is solely focused on the mining of bitcoin and ancillary opportunities within the bitcoin ecosystem under the name Marathon Digital

Holdings, Inc.

developments for the three-month period ended September 30, 2022

three-month period ended September 30, 2022, was particularly active from an operations and a financial standpoint, with noteworthy events

connection with a dispute concerning the settlement of certain restricted stock unit awards previously granted to Merrick D.

former Chief Executive Officer and Chairman of the Company, on October 12, 2022, the

Company entered into a settlement agreement with Mr.

Okamoto, pursuant to which the Company agreed to pay Mr.

Okamoto $24 million.

Okamoto agreed to a settlement and a broad release of known or unknown claims against the Company, which relate to the Company’s

Amended 2018 Equity Incentive Plan or related restricted stock unit award agreements.

The Company entered into related settlement agreements

in respect to certain restricted stock unit awards previously granted to five other individuals, including a director and our current

Chief Executive Officer and Chairman, which total approximately $1 million in the aggregate.

The expense associated with this settlement

totaled approximately $25 million is listed on the statement of operation as Legal reserves.

The portion of this settlement that remained

unpaid as of September 30, 2022 is listed on the balance sheet as Legal reserve payable and totaled $21.2 million.

All amounts due as

a result of this settlement have been paid as of October 15, 2022.

North Bankruptcy:

On September 22 ,

2022, Compute North filed for chapter 11 bankruptcy protection.

The Company has engaged creditor’s counsel and is vigorously defending

and protecting its various assets at CN facilities and to minimize its long-term financial exposure with regard to the CN Entities.

Company’s financial exposure to Compute North on the date of the Bankruptcy was approximately $81 million, including:

● Approximately

$10 million in convertible preferred stock of Compute North Holdings, Inc.

● Approximately

$21 million related to an unsecured senior promissory note with Compute North LLC.

totaled $30 million at June 30, 2022 but was amended in July with approximately $9 million

in principal being applied as a deposit for the Wolf Hollow site.

● Approximately

$50 million in operating deposits to Compute North entities, including the King Mountain

Joint Venture and the Wolf Hollow site.

Company assessed the impairment of these assets given the bankruptcy proceedings and estimated that the preferred stock, the unsecured

loan, and approximately $8 million in deposits were fully impaired.

As a result, the company recorded an impairment charge of $39 million

as of September 30, 2022, reducing the overall exposure to Compute North to approximately $42 million, primarily in deposits associated

with King Mountain and Wolf Hollow.

The full recoverability of these deposits remains a risk given the ongoing bankruptcy proceedings.

bulk of the Company’s current operations are hosted by a Compute North / NextEra Joint Venture in McCamey, TX (“King Mountain”)

which is not directly subject to the bankruptcy process but is impacted by the bankruptcy proceedings.

of the site started in August and as of November 9, the Company has approximately 64,000 bitcoin mining servers on site and operating.

early July 2022, the Company expanded certain

hosting arrangements with Compute North in Granbury, TX (“Wolf Hollow”).

of November 9, the Company has approximately 6,000 mining servers in operation.

The Company’s understanding is that plans for

additional deployments have been delayed due to uncertainties associated with the Compute North Bankruptcy.

Blockchain Hosting :

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.

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

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.

Based 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.

of the Hardin, MT exit

company completed its previously disclosed exit from the Hardin, MT facility (“Hardin”) in September.

The Company had

deployed approximately 30,000 mining servers at Hardin.

In conjunction with this exit, the Company sold approximately 22,000 bitcoin

mining servers for cash proceeds of $46.5 million, recording a gain on sale of $3.2 million.

The company also recorded additional

depreciation of $4.1 million in the period related to approximately 1,800 bitcoin mining servers that were previously deployed at

Hardin that are no longer in operating condition based on inspections of the assets at the facility and experience with the assets

formerly deployed at Hardin in the weeks following redeployment.

In addition to the depreciation expense recorded within the period,

the company determined that the useful lives of the remaining equipment formerly deployed at Hardin should be reduced from 36 months

to 24 months.

These assets had a book value of approximately $12 million at September 30, 2022.

As such, the annual depreciation on

this equipment will increase to approximately $6 million from approximately $4 million.

Critical Accounting Policies and Estimates

We believe that the following

accounting policies, which are included in the footnotes section of this report, are the most critical to aid you in fully understanding

and evaluating this management discussion and analysis:

● Digital currencies

● Revenue from contracts with customers

● Impairment of long-lived assets

Digital currencies

Digital currencies are included in current and

other assets in the consolidated balance sheets as intangible assets with indefinite useful life and are recorded

at cost less impairment.

An 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.

Impairment 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.

determined that the price of Bitcoin declines to lower than the carrying value, the Company has determined that it is more likely

than not that an impairment exists.

The Company determines the amount of impairment to record based on the fair value of bitcoin

following the fair value measurement framework in ASC 820 – Fair Value Measurement.

If the fair value of bitcoin is

lower than the carrying amount the Company will record an impairment and subsequent reversal of impairment losses is not

Revenues from contracts with customers

The Company recognizes revenue under ASC 606, Revenue

from Contracts with Customers.

The core principle of the 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.

Please refer to footnote 3 for a complete description of this policy.

Impairment of long-lived assets

Management 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.

Financial Measures

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

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

Discussion and Analysis.

1 unchanged sentence

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).

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

of patents and (iii) impairment losses related to the Compute North Bankruptcy.

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

12 unchanged sentences

of Operations

the Three Months ended June 30, 2022 and 2021

Three Months Ended June 30,

the three months ended September 30, 2022 and 2021

Months Ended September 30,

(Unfavorable)

$ (39,017,031 )

Cost of revenues - energy, hosting and other

(16,684,759 )

(12,628,591 )

Cost of revenues - depreciation and amortization

(24,709,797 )

(21,772,131 )

of revenues - energy, hosting and other

(13,772,555 )

of revenues - depreciation and amortization

(26,294,842 )

Gain on sale of equipment

General and administrative expenses

(21,954,644 )

Changes in carrying value of digital assets:

Change in fair value of digital currencies held in fund

(27,376,945 )

(68,821,419 )

Impairment of digital currencies

and administrative expenses

(12,352,008 )

(99,235,984 )

on sale of equipment, net of disposals

(24,960,000 )

Impairment of deposits due to vendor bankruptcy filing

Realized and unrealized gains (losses) on digital currencies held in fund

(42,086,907 )

of digital currencies

change in carrying value of digital currencies

(41,258,908 )

Non-operating income

Impairment of loan and investment due to vendor bankruptcy filing

Other non-operating

$ (75,422,407 )

1 unchanged sentence

$ (53,249,840 )

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

Reconciliation to Adjusted EBITDA

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

Reconciliation

to Adjusted EBITDA

$ (75,422,407 )

2 unchanged sentences

Interest expense

Income tax expense (benefit)

Income tax benefit

(77,420,378 )

6 unchanged sentences

Stock compensation expense, net of withholding tax

Adjusted EBITDA

(93,194,001 )

Impairment of deposits due to vendor bankruptcy filing

Impairment of loan and investment due to vendor bankruptcy filing

$ (8,702,212 )

$ (87,484,515 )

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 Costs of Revenues :

We generated revenues of $12.7 million during the three months ended September 30, 2022 compared with

$51.7 million during the three months ended September 30, 2021.

The $39.0 million decrease in revenue was primarily driven by a $26.3

million decrease in revenue resulting from lower bitcoin production.

This decrease in production resulted from downtime at Hardin in

July and delays in energization at King Mountain in July and August.

Lower market prices for bitcoin in the current-year period contributed

an additional $12.7 million decline in revenue vs the prior-year period.

Cost of revenues – energy, hosting and other during the

three months ended September 30, 2022, totaled $13.8 million compared with $5.9 million in the prior-year period.

The $7.9 million increase

was driven by accelerated cost recognition associated with the early exit from Hardin ($5.7 million) and higher production costs per

bitcoin mined ($5.1 million) partially offset by the impacts of decreased production on costs ($3.2 million).

Cost of revenues - depreciation

and amortization was $26.3 million in the current-year period compared with $4.3 million in the prior-year period, an increase of $22

This increase in expense was primarily due to the acceleration of depreciation related to our exit of the Hardin, MT facility

($11 million in infrastructure depreciation and $4.1 million in mining server depreciation) and, to a lesser extent increased depreciation

costs associated with a higher number of mining servers in operation.

Total margin was a loss of ($27.4) million in the current-year period compared with income of $41.4 million in the

prior-year period, a decline of ($68.8) million.

This decline was driven by the factors discussed above, which are summarized in the

table below (in millions):

of lower production

of lower bitcoin market prices

of revenue – energy, hosting and other:

of lower bitcoin production

of accelerated cost recognition from Hardin exit

of revenue – depreciation and amortization:

of accelerated cost recognition from Hardin exit

primarily increased mining servers in operation

on sales of equipment, net :

On 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 September 30, 2022, the Company sold equipment for cash proceeds totaling $43.6 million and realized a pre-tax gain on the

sale of such assets of $28.7 million.

The Company also completed its previously disclosed exit from the Hardin, MT facility during

the current-year period.

In conjunction with this exit, the Company sold approximately 22,000 bitcoin mining servers for cash

proceeds of $46.5 million and recorded a gain on sale, net of disposal losses of $3.2 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.

General and administrative expenses were $12.4 million for the three months ended September

30, 2022, compared with expenses of $99.2 million in the prior-year period.

Our general and administrative expenses included stock-based

(non-cash) compensation expense of $3.4 million in the current-year period and $96.6 million in the prior-year period.

General and administrative

expenses excluding stock-based compensation was $8.9 million in the current-year period compared with $2.6 million in the prior-year

The $6.3 million increase was primarily due to higher payroll and benefits costs ($3.8 million) and increased insurance expense

($1 million).

Professional fees, travel costs and other expenses also increased due to the increased scope of our operations in the current-year period.

In connection with a dispute concerning the settlement of certain restricted stock unit awards previously granted

to the Company’s former Chief Executive Officer and Chairman, on October 12, 2022, the Company entered into a settlement agreement

pursuant to which the Company agreed to pay $24 million.

Given the outcome of this settlement, the Company entered into related settlement

agreements in respect to five other recipients of the same restricted stock unit awards, including a director and our current Chief Executive

Officer and Chairman.

These related settlements totaled approximately $1 million in the aggregate.

of assets related to vendor bankruptcy filing :

On September 22, 2022, Compute North filed for restructuring under Chapter 11 of the U.S.

Bankruptcy Code.

During the three months ended September 30, 2022, the Company assessed the impairment of assets associated with Compute North given their bankruptcy proceedings.

As a result, the company recorded an impairment charge of approximately $8.0 million (related to deposits) as an

operating expense and an additional impairment charge of approximately $31 million (related to a loan and preferred stock investment)

as non-operating expenses.

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 Six Months ended June 30, 2022 and 2021

Six Months Ended June 30,

of digital currencies :

We incurred impairment of digital assets during the three months ended September 30, 2022 of $5.9 million

compared with an impairment of $6.7 million in the prior-year period.

in fair value of digital currencies held in fund :

On June 10, 2022, the company withdrew 4,769 bitcoin from its investment fund.

As a result, there was no change in the fair value of the digital assets held in the fund during the three months ended September

During the prior-year quarter, the change in fair value of the bitcoin held in the investment fund was a gain of $42.1

Other non-operating

Other non-operating income declined by $23 thousand from the prior-year period.

Interest 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 Term loan and revolving credit

(“RLOC”) facilities ($0.9 million).

tax benefit :

The Company recorded an income tax benefit of $5.8 million for the three-month period ended September 30, 2022

compared with an income tax benefit of $3 thousand in the prior-year period.

We recorded a net loss of ($75.4) million in the current-year period compared with net loss of ($22.2) million in the

prior period.

The $53.2 million decline was primarily driven by lower total margin ($68.8 million), the impairment related to the Compute

North bankruptcy ($39 million), legal reserves ($25 million), declines in the carrying value of our digital assets ($41.3 million), and

increased interest expense ($3.7 million).

Partially offsetting these unfavorable variances was a significant reduction in general and

administrative expenses primarily associated with lower stock-based compensation ($86.9 million), gain on sale of equipment of $31.9

million and the net increase in the income tax benefit.

Adjusted EBITDA was a loss of ($8.3) million compared with a positive Adjusted EBITDA of $78.8 million in the

prior-year period.

The $87.1 million decline was primarily driven by lower total margin excluding the impact of depreciation and

amortization ($46.9 million), declines in the carrying value of our digital assets ($41.3 million), legal reserve ($25 million), and

higher general and administrative expenses excluding non-cash stock based compensation costs ($6.3 million).

Partially offsetting

these unfavorable variances were gain on the sale of equipment of $31.9 million.

the nine months ended September 30, 2022 and 2021

Months Ended September 30,

(Unfavorable)

Cost of revenues - energy, hosting and other

of revenues - energy, hosting and other

(42,974,265 )

(11,647,457 )

Cost of revenues - depreciation and amortization

(31,326,808 )

of revenues - depreciation and amortization

(64,881,323 )

(56,865,522 )

Gain on sale of equipment

General and administrative expenses

(18,525,602 )

(89,044,499 )

Changes in carrying value of digital assets:

Change in fair value of digital currencies held in fund

and administrative expenses

(39,187,098 )

(159,411,404 )

Impairment of digital currencies

on sale of equipment, net of disposals

(24,960,000 )

Impairment of deposits due to vendor bankruptcy filing

Realized and unrealized gains (losses) on digital currencies held in fund

(85,016,208 )

(144,426,236 )

of digital currencies

(153,045,376 )

Non-operating income (expenses)

(18,472,750 )

(134,572,626 )

change in carrying value of digital currencies

(238,061,584 )

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

Reconciliation to Adjusted EBITDA

(278,998,862 )

Impairment of loan and investment due to vendor bankruptcy

non-operating income

$ (280,027,638 )

$ (47,700,445 )

$ (232,327,193 )

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

Reconciliation

to Adjusted EBITDA

$ (280,027,638 )

$ (47,700,445 )

$ (232,327,193 )

Interest expense

Income tax expense (benefit)

Income tax benefit

(269,905,691 )

7 unchanged sentences

(133,460,088 )

Impairment of deposits due to vendor bankruptcy filing

Impairment of loan and investment due to vendor bankruptcy filing

Impairment of patents

Adjusted EBITDA

$ (146,230,207 )

$ 112,649,482

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.

$ (258,879,689 )

and Costs of revenue :

We generated revenues of $89.3 million during the nine months ended September 30, 2022 compared with

$90.2 million during the prior-year period.

The $0.9 million decrease is primarily attributable to the impact of lower market prices

for bitcoin in the current-year ($21.6 million) mostly offset by the impact of increased production when compared to the prior-year period

($20.7 million).

Cost of revenues – energy, hosting and other during the three months ended September 30, 2022 totaled $43 million

compared with $11.6 million in the prior-year period.

The $31.3 million increase was driven by accelerated cost recognition associated

with the early exit from Hardin ($18.2 million) and higher production costs per bitcoin mined ($10.4 million) and to a lesser extent

the impact of the higher costs associated with increased production ($2.7 million).

Cost of revenues – Depreciation and amortization

was $64.9 million in the current-year period compared with $8.0 million in the prior-year period, an increase of $56.8 million .

increase in expense was primarily due to the acceleration of depreciation related to our exit of the Hardin, MT facility ($31.9 million

in infrastructure depreciation and $4.1 million in mining server depreciation) and increased depreciation costs associated with a higher

number of mining servers in operation in the current-year period.

Total margin was a loss of ($18.5) million in the current-year period compared with income of $70.5 million in the

prior-year period, a decline of ($89.0) million.

This decline was driven by the factors discussed above, which are summarized in the

table below (in millions):

of higher production

of lower bitcoin market prices

of revenue – energy, hosting and other:

of higher bitcoin production

of accelerated cost recognition from Hardin exit

of revenue – depreciation and amortization:

of accelerated cost recognition from Hardin exit

primarily increased mining servers in operation

on sales of equipment, net :

On 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 nine months

ended September 30, 2022, the Company sold equipment for cash proceeds totaling $130.9 million and realized a pre-tax gain on the

sale of such assets of $86.9 million.

The Company also completed its previously disclosed exit from the Hardin, MT facility during

the current-year period.

In conjunction with this exit, the Company sold approximately 22,000 bitcoin mining servers for cash

proceeds of $46.5 million and recorded a gain on sale, net of disposal losses of $3.2 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.

General and administrative expenses were $39.2 million for the nine months ended September 30,

2022 compared with expenses of $159.4 million in the prior-year period, a decrease of $120.2 million.

Our general and administrative

expenses included stock-based (non-cash) compensation expense of $18.9 million in the current-year period and $152.3 million in the prior-year period.

General and administrative expenses excluding stock-based compensation increased to $20.3 million in the current year period

compared with $7.1 million in the prior-year period.

The $13.2 million increase was primarily due to higher payroll and benefits costs

($5.4 million), increased insurance expense ($2.2 million) and higher professional fees ($1.6 million).

Other expenses also increased

due to the increased scope of our operations in the current-year period.

In connection with a dispute concerning the settlement of certain restricted stock unit awards previously granted

to the Company’s former Chief Executive Officer and Chairman, on October 12, 2022, the Company entered into a settlement agreement

pursuant to which the Company agreed to pay $24 million.

Given the outcome of this settlement, the Company entered into related settlement

agreements in respect to five other recipients of the same restricted stock unit awards, including a director and our current Chief Executive

Officer and Chairman.

These related settlements totaled approximately $1 million in the aggregate.

of assets related to vendor bankruptcy filing :

On September 22 ,

2022, Compute North filed for restructuring under Chapter 11 of the U.S.

Bankruptcy Code.

During the period ended September 30, 2022,

the Company assessed the impairment of its assets associated with Compute North given their bankruptcy proceedings.

As a result, the

company recorded an impairment charge of approximately $8.0 million (related to deposits) as an operating expense and an additional impairment

charge of approximately $31 million (related to a loan and preferred stock investment) as non-operating expenses.

Impairment of patents :

recorded an impairment of $0.9 million in the current-year period related to certain patents no longer utilized in its business operations.

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)

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 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).

of digital currencies :

We incurred impairment of digital assets during the nine months ended September 30, 2022, of $153 million

compared with an impairment of $18.2 million in the prior-year period, reflecting the overall decline in value of bitcoin in the

current-year period.

in fair value of digital currencies held in fund :

On June 10, 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 ($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 a gain of $59.4 million.

Other non-operating

Other non-operating income increased $378 thousand from the prior-year period.

Interest expense increased $10.3 million from the prior year as a result interest related to the convertible notes

issued in November 2021 and interest on borrowings outstanding under the Company’s Term loan and revolving credit (“RLOC”)

tax benefit :

The company recorded a modest income tax benefit of $193 thousand in the current-year period compared with a benefit

of $3 thousand in the prior-year period.

We recorded a net loss of $(280) million in the current-year period compared with a net loss of $(47.7) million in

the prior period.

The $232.3 million decline was primarily driven by the $279 million decrease in the carrying value of our digital assets,

the $89 million decrease in total margin, the impairment of assets related the Compute North bankruptcy ($39 million), the legal reserve

($25 million), and higher interest expense ($10.3 million).

Partially offsetting these unfavorable variances was a significant decrease

in general and administrative expenses ($120.2 million) associated with lower stock-based compensation and gain on sales of equipment

($90.1 million).

Adjusted EBITDA was a loss of $(145.8) million compared with a positive Adjusted EBITDA of $112.6 million in the

prior-year period.

The $258.9 million decline was primarily driven by the $279 million decrease in the carrying value of our digital

assets, lower total margin excluding the impact of depreciation and amortization $(32.2 million), legal reserves ($25 million), and higher

operating expenses excluding non-cash stock compensation costs ($13.2 million).

The gain on the sales of equipment partially offset these

unfavorable variances.

Condition and Liquidity:

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).

Cash, cash equivalents and restricted cash totaled $64.1 million at September 30, 2022, a decrease

of $204.4 million from December 31, 2021.

The decrease in cash, cash equivalents and restricted cash was primarily driven by a $368.1

million use of cash from investing activities resulting from significant levels of advances to vendors ($482.1 million) and, to a lesser

extent, equity investments ($44.0 million) and purchases of property and equipment ($19.8 million).

These uses of cash were partially

offset by the proceeds from assets sales of $177.4 million.

flows from operating activities resulted in a use of funds of ($84.2) 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.

Cash flows from operating activities before the impact

of changes in operating assets and liabilities (a $18.1 million source of funds) were more than offset by a ($102.3) million use of funds

from changes in operating assets and liabilities, primarily due to changes in digital currencies (an $89.3 million use of funds) prepaid

expenses (a $30.6 million use of funds) and deposits (a $13.6 million use of fund) partially offset by the impact of higher accounts

payable, including a payable related to the legal reserve (a $21.2 million source of funds).

This legal reserve payable was settled in

cash in October 2022.

flows from financing activities resulted in a source of cash of $247.9 million, primarily from proceeds from the issuance of common stock

($198.7 million) and proceeds from borrowings outstanding under the Company’s Term loan agreement ($49.3 million).

borrowed the initial $50 million under our Term Loan facility during the three months ended September 30, 2022.

There were no borrowings

outstanding under our revolving credit facility at September 30, 2022.

The maximum borrowings outstanding under the Company’s revolving

credit facility during the three and nine months ended September 30, 2022, was $35 million and $70 million, respectively.

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”.

We will continue to seek to fund our business activities through the capital markets, primarily through periodic equity

issuances using our At-The-Market facility.

At September 30, 2022, we held approximately 10,670 bitcoin with a total carrying value of $197.2 million on the

balance sheet.

Approximately 3,828 bitcoin were being utilized as collateral for credit facilities 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.

market value of our bitcoin holdings at September 30, 2022 was approximately $207.3 million and the value of a single bitcoin was approximately

During the month of October 2022, the Company borrowed an additional $50 million under its RLOC facility for general corporate

purposes and provided an additional 3,993 bitcoin as collateral for this borrowing.

This increased the Company’s collateral balance

to 7,821 bitcoin.

On November 9, 2022, bitcoin prices declined to a new yearly low on concerns

of financial instability in the crypto industry.

As a result, the Company was required to provide an additional 1,669 bitcoin

(valued at $16,212.50 per bitcoin) as collateral for its $50 million RLOC and $50 million term loan borrowings, bringing its total

collateral balance to 9,490 bitcoin (approximately $153.9 million).

The Company’s total bitcoin holdings as of November 9, 2022,

are approximately 11,440 bitcoin, of which 1,950 (approximately $31.6 million) are unrestricted.

Given the uncertainty around bitcoin

prices in the near-term, the Company has decided to delay previously announced plans to refinance the RLOC with a term loan during the

month of November.

This enables the Company to retain the optionality to repay the RLOC borrowings in the near-term versus committing

to a two-year term loan borrowing which would carry prepayment penalties.

The Company retains an option to draw an additional $50 million

on the term loan through April of 2023.

September 30, 2021 we held a total of 7,035 bitcoin with a total carrying value of $282.7 million on the balance sheet.

The fair market

value of our bitcoin holdings at September 30, 2021 was approximately $308.1 million and the value of a single bitcoin was approximately

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

As our mining activities increase, we will likely

begin selling a portion of bitcoin produced in future periods to fund monthly operating costs, for treasury management purposes or for

general corporate purposes.

Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis