What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-10 · 808 added, 337 removed, 6 unchanged (99% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

for the periods indicated.

The discussion should be read in conjunction with our consolidated financial statements and the notes presented

In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results

of Operations contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ significantly

from those expressed, implied or anticipated in these forward-looking statements as a result of certain factors discussed herein and

any other periodic reports filed and to be filed with the Securities and Exchange Commission.

Note Regarding Forward-Looking Statements

report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based

on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s

Statements that are not historical facts are forward-looking statements.

Words such as “expect,” “outlook,”

“forecast,” “would,” “could,” “should,” “project,” “intend,”

“plan,” “continue,” “sustain”, “on track”, “believe,” “seek,”

“estimate,” “anticipate,” “may,” “assume,” and variations of such words and similar expressions

are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities

Litigation Reform Act of 1995.

These forward- looking statements are not guarantees of future performance and involve risks, assumptions

and uncertainties, including, but not limited to, those described in our reports that we file or furnish with the Securities and Exchange

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual

results may vary materially from those indicated or anticipated by such forward-looking statements.

Accordingly, you are cautioned not

to place undue reliance on these forward-looking statements, which speak only as of the date they are made.

Except to the extent required

by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result

of new information, future events, changes in assumptions or otherwise.

of the Company

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

As of the date of this filing, our

name has been changed to Marathon Digital Holdings, Inc.

On December 7, 2011, we changed our name to American Strategic Minerals Corporation

and were engaged in exploration and potential development of uranium and vanadium minerals business.

In June 2012, we discontinued our

minerals business and began to invest in real estate properties in Southern California.

In October 2012, we discontinued our real estate

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

On November 1, 2017, we entered into a merger agreement with Global Bit Ventures, Inc.

(“GBV”), which is focused on mining

digital assets.

We have since purchased our cryptocurrency mining machines and established a data center in Canada to mine digital assets.

Following the merger, we intended to add GBV’s existing technical capabilities and digital asset miners and expand our activities

in the mining of new digital assets, while at the same time harvesting the value of our remaining IP assets.

On June 28, 2018, the board

has determined that it is in the best interests of the Company and its shareholders to allow the Amended Merger Agreement to expire on

its current termination date of June 28, 2018 without further negotiation or extension.

The Board approved to issue 750,000 shares of

our common stock to GBV as a termination fee for cancelling the proposed merger between the two companies.

The fair value of the common

stocks was $2,850,000.

“Business – Recent Developments”

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS has been amended and restated to give effect to the restatement, as more fully described

in NOTE 2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENT to our accompanying audited Consolidated Financial Statements

contained in this Form 10-K.

For further detail regarding the Restatement, see EXPLANATORY NOTE and Part II, ITEM 9A.

CONTROLS AND PROCEDURES

contained in this Form 10-K.

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

a 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.

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

on March 1, 2021.

As of December 31, 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.

crypto market developments and impacts to the Company

year ended December 31, 2022 was a challenging year for the crypto sector in general, as macroeconomic conditions (including higher inflation

and a rising interest rates environment as compared to recent years) resulted in weaker equity markets and a general “risk off”

sentiment that had a negative impact on bitcoin prices.

This challenging set of circumstances was exacerbated by a series of unforeseen

events which hit the sector, including:

de-pegging of $LUNA in the second quarter of 2022;

bankruptcies of key players in the digital assets sector, including Three Arrows Capital, Voyager, and Celsius;

fourth quarter 2022 collapse of FTX, which drove additional credit related bankruptcies and a significant decline in bitcoin prices

and bitcoin mining rig prices.

The Company’s operating results, Consolidated Balance Sheets and

stock price were adversely impacted by this series of events and the overall unfavorable macroeconomic climate in 2022.

The resulting

declines in financial performance and operational challenges faced by the Company in 2022 were primarily evident in the following areas:

of bitcoin mining rigs and advances to vendors:

We experienced significant declines in the fair value of bitcoin mining rigs

during the fourth quarter of 2022.

As a result, the Company assessed the need for an impairment write-down of both bitcoin mining

rigs (held as fixed assets) and advances to vendors (a current asset) representing deposits associated with the future delivery of

We recognized impairment charges for both the bitcoin mining rigs and the advances to vendors – a total impairment

of approximately $332,933 thousand.

assets - impairment and decline in carrying value:

We experienced impairments of $173,215 thousand, realized and unrealized

losses on digital assets held within Investment Fund of $85,017 thousand and, to a lesser extent unrealized losses of $14,460 thousand

on digital assets held on our Consolidated Balance Sheets during the year ended December 31, 2022.

margin decline:

The profitability of our operations declined due to depressed bitcoin prices and delays in scaling our operations.

Total margin was a loss of $33,673 thousand in the current-year period compared with income of $116,768 thousand in the prior-year

period, a decline of $150,441 thousand.

Direct impact of vendor bankruptcy filing :

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

Bankruptcy Code.

As a result, the company

recorded an impairment charge of $39,000 thousand during the third quarter of 2022.

During the fourth quarter of 2022, the company

estimated that an additional $16,674 thousand in deposits had likely been impaired and as such recorded an additional impairment

value of digital assets and impacts to loan collateral and primary lender:

assets - fair value decline :

At December 31, 2022, the fair value of a single bitcoin was approximately $16,548 thousand,

a 64% decline in fair value from December 31, 2021, when a single bitcoin had a fair value of $46,306 thousand.

At December 31, 2022,

the Company held approximately 7,816 unrestricted bitcoin ($129,335 thousand fair value) on the Consolidated Balance Sheets.

assets utilized as collateral - fair value declines and additional collateral requirements:

On November 9, 2022, bitcoin

prices declined to a new yearly low on concerns of financial instability in the industry as a result of the FTX collapse.

the Company was required to provide an additional 1,669 bitcoin (valued at $16,213 per bitcoin) as collateral for its outstanding

borrowings under its Term Loan and revolving line of credit (“RLOC”) facilities with Silvergate Bank, for a total collateral balance

of 9,490 bitcoin (or approximately $153,861 thousand fair value).

The Company’s total bitcoin holdings as of November

9, 2022, were 11,440 bitcoin, of which 1,950 (approximately $31,615 thousand) were unrestricted.

During November and December

2022, the Company repaid $50,000 thousand in RLOC borrowings.

These repayments enabled the Company to reduce its bitcoin held

as collateral to approximately 4,416 bitcoin (approximately $73,074 thousand fair value) by December 31, 2022.

of bankruptcies and the collapse of FTX on our primary lender:

Prior to the termination of the facilities on March 8, 2023,

Silvergate Bank served as the lender for our Term Loan and RLOC facilities, through which we had the right to borrow up to $200,000 thousand

provided we post sufficient collateral in bitcoin.

March 1, 2023, Silvergate Bank filed disclosures with the SEC regarding its troubled financial condition, including doubts about

its ability to continue operating as a going concern, and notice to postpone the filing of its Annual Report on Form 10-K with the SEC

due to a material decline in its client deposits and inadequate capitalization.

This has led to leading crypto business clients leaving

the bank, creating both a credit void as well as reputational risk for crypto clients.

On March 8, 2023, Silvergate announced its

intention to wind down operations and voluntarily liquidate the bank.

February 6, 2023, the Company provided Silvergate Bank with the required 30-day notice stating the Company’s intent to prepay the

outstanding balance on its term loan facility as well as the Company’s intent to terminate the term loan facility.

and Silvergate Bank subsequently agreed to terminate the RLOC facility.

On March 8, 2023, the Company prepaid the term loan and terminated

the RLOC facility with Silvergate Bank.

Signature Bank closure:

On March 12, 2023,

Signature Bank was closed by its state chartering authority, the New York State Department of Financial Services.

On that same date

the FDIC was appointed as receiver and transferred all the deposits and substantially all of the assets of Signature Bank to Signature

Bridge Bank, N.A., a full-service bank that is being operated by the FDIC.

The Company automatically became a customer of Signature

Bridge Bank, N.A.

as part of this action.

The Company held approximately $142,000 thousand cash deposits at Signature Bridge Bank,

as of March 12, 2023.

Normal banking activities resumed on Monday, March 13, 2023.

We anticipate that businesses in this and related business sectors may

continue to experience economic volatility and operational challenges, and the first half of 2023 will likely continue to be a period

of challenge and uncertainty in the industry.

We are continuously monitoring the economic environment in which we operate and evaluating

strategic opportunities which we may decide to undertake as part of our strategic growth initiatives;

however, we offer no assurances

that any strategic opportunities we choose to pursue will be successful or achieved on a time scale or within the budget we anticipate,

if at all, in our competitive and evolving industry.

RISK FACTORS for additional discussion regarding potential impacts our

competitive and evolving industry may have on our business.

Accounting Policies and Estimates

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

following accounting policies relate to the significant areas involving management’s judgments and estimates in the preparation

of our financial statements, and are those that we believe are the most critical to aid your understanding and evaluation of 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.

December 31, 2021, we carried $123.2 million of digital assets on our balance sheet, consisting of the approximately 3,321 bitcoins,

and held $268.5 million in cash and cash equivalents, compared to $2.3 million of digital assets and $141.3 million in cash and cash

equivalents at December 31, 2020, reflecting the shift in our liquid assets.

As of March 9, 2022, we held approximately 9,007

bitcoins, of which, 4,794 bitcoins were acquired at an aggregate purchase price of $150 million at an average purchase price

of approximately $31,168 per bitcoin, inclusive of fees and expenses.

We expect to purchase additional bitcoin in future periods,

though we may also sell bitcoin in future periods as needed to generate Cash Assets for treasury management purposes.

assets loan receivable

from contracts with customers

and Equipment

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.

On January 14, 2021, the Company

sold its inventory of approximately 5,900 S9, 13.5 TH/s miners.

As such, management determined that those crypto-currency machines were

impaired by a total of $871,302 based upon an assessment as of December 31, 2020.

During the year ended December 31, 2019 we moved certain

of our bitcoin miners to a new location in the United States and recorded an impairment of $447,776 in our leasehold improvements in

Digital assets (bitcoin) are included in current and other assets in the

accompanying Consolidated Balance Sheets.

Digital assets awarded to the Company through its mining activities are accounted for in accordance

with the Company’s revenue recognition policy below.

assets are accounted for as intangible assets with indefinite useful lives and are recorded at cost less impairment in accordance with

ASC 350 – “Intangibles-Goodwill and Other” (“ASC 350”).

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.

Whenever the exchange-traded price of digital assets declines

below its carrying value, the Company has determined that it is more likely than not that an impairment exists and records impairment

equal to the amount by which the carrying value exceeds the fair value at that point in time.

The Company has deemed the price of digital

assets to be a level two input under the ASC 820 - “Fair Value Measurement” (“ASC 820”) hierarchy as there are

multiple observable inputs (exchanges) that provide slightly differing benchmarks of digital asset value.

Subsequent reversal of impairment

losses is not permitted.

Purchases of digital assets by the Company are included within investing

activities in the accompanying Consolidated Statements of Cash Flows, while digital assets awarded to the Company through its mining activities

are included as a reconciling item within operating activities on the accompanying Consolidated Statements of Cash Flows.

digital assets are included within investing activities in the accompanying Consolidated Statements of Cash Flows and any realized gains

or losses from such sales are included in other income (expense) in the Consolidated Statements of Other Comprehensive Income (Loss).

assets loan receivable

the Company loans digital assets to a borrower for a specific period of time in exchange for a fee akin to interest, the Company first

evaluates whether to derecognize such loaned digital assets based on an evaluation of relevant control and asset derecognition considerations

that include whether:

Company has transferred present rights to the economic benefits associated with the digital asset for a different right to receive

digital assets in the future;

Company cannot sell, pledge, loan, or otherwise use the lent digital assets while the loan is outstanding, as those rights have been

transferred to the borrower;

in the realization of the economic benefits associated with the digital asset loan receivable is exposure to credit risk of the borrower;

borrower of the digital assets can deploy those assets at its discretion for the duration of the lending arrangement and bears the

risk of loss or theft of those assets, and otherwise has the ability to direct the use of the assets transferred.

the Company concludes derecognition is appropriate, the Company derecognizes the loaned digital assets it no longer controls and recognizes

a right to receive back in the future the loaned digital assets.

The digital asset loan receivable is recorded at the fair value of the

underlying loaned digital assets.

Any difference between the fair value of the loaned digital assets and their pre-transfer carrying amount

(i.e., derecognition amount) is recognized as a gain in the Consolidated Statements of Other Comprehensive Income (Loss).

Throughout the

loan period, the digital asset loan receivable continues to be measured at the fair value of the underlying loaned digital asset with

changes recorded in operating income (loss) in current period earnings.

When the digital assets on loan are returned to the Company, the

receivable is derecognized and such loaned digital assets are re-recorded on the Company’s Consolidated Balance Sheets at the pre-derecognition

carrying value of the digital asset loan receivable with no gain or loss realized at the derecognition of the loan.

At loan commencement and throughout the loan period, the Company considers

and accounts for the credit risk of the borrower using the principles in Topic 326 – “Financial Instruments - Credit Losses”

(“Topic 326”) to measure any credit impairment.

The digital asset loan receivable is presented net of any allowance for credit

The Company utilizes the probability of default (“PD”) loss given default (“LGD”) approach to estimating

the allowance for credit loss (“ACL”) at origination and subsequent reporting periods.

In order to apply the PD LGD approach,

management considers the lifetime of the digital asset loan receivable, the reasonable and supportable forecast period, and the PD LGD.

The Company uses each instrument’s life of loan period for estimating current expected credit losses, unadjusted by any prepayment

risk as any risk would be immaterial to either the repayment in kind or the accrued loan fee receivable.

from contracts with customers

The Company recognizes revenue in accordance with FASB ASC Topic 606 –

“Revenue from Contracts with Customers” (“ASC 606”).

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.

The following five steps are applied to achieve that

core principle:

Identify the contract with the customer;

Identify the performance obligations in the contract;

Determine the transaction price;

Allocate the transaction price to the performance obligations in the contract;

Recognize the revenue when the Company satisfies a performance obligation.

order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in

the contract and identify each promised good or service that is distinct.

A performance obligation meets ASC 606’s definition of

a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met:

The customer can

benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e.,

the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is

separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the

context of the contract).

a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services

is identified that is distinct.

transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods

or services to a customer.

The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

When determining the transaction price, an entity must consider the effects of all of the following:

consideration

estimates of variable consideration

existence of a significant financing component in the contract

consideration

Consideration

payable to a customer

consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of

cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

The transaction price

allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time

as appropriate.

Company’s ongoing major or central operation is to provide computing power to collectives of third-party bitcoin miners (such collectives,

“mining pools”) as a participant (“Participant”) and bitcoin transaction verification services to the bitcoin

network through a Company-operated mining pool as the operator and a participant (“Operator”) (such activity as Participant

and Operator, collectively, “mining”).

The Company currently mines in a self-operated pool, which was previously open to

third-party pool participants from September 2021 until May 2022.

As an Operator, the Company provides transaction verification services.

Transaction verification services are an output of the Company’s ordinary activities;

therefore, the Company views the transaction

requestor as a customer and accounts for the transaction fees it earns as revenue from contracts with customers under ASC 606.

network is not an entity such that it may meet the definition of a customer;

however, the Company has concluded it is appropriate to apply

ASC 606 by analogy to block rewards earned from the network.

A contract exists under ASC 606 at the point the Company successfully validates

a transaction to the distributed ledger.

At this point, the performance obligation to validate the requested transaction has been satisfied

and a contract is deemed to exist.

The Company also, from time to time, engages unrelated third-party

mining enterprises (“pool participants”) to contribute computing power, and in exchange, remits transaction fees and

block rewards to pool participants on a pro rata basis according to each respective pool participant’s contributed computing

power (hash rate).

The Company determined that it controls the service of providing transaction verification services to the network

and requester as the Company’s wallet as Operator is recorded on the distributed ledger as the transaction verifier of record,

the pool participants enter into contracts with the Company and not the network or requester, and the Company delegates mining work

to pool participants.

Therefore, the Company records all of the transaction fees and block rewards earned from transactions assigned

to MaraPool as revenue, and the portion of the transaction fees and block rewards remitted to MaraPool participants as cost of

606-10-32-21 requires entities to measure the estimated fair value of noncash consideration at contract inception, which is the same

the time the block reward and transaction fee is earned and the performance obligation to the requester and the network is fulfilled

by successfully validating the applicable block of transactions.

For reasons of operational practicality, the Company applies an

accounting convention to use the daily quoted closing U.S.

dollar spot rate of bitcoin each day to determine the fair value of

bitcoin earned as transaction fees and block rewards in the Company’s wallet during that day.

This accounting convention does

not result in materially different revenue recognition from using the fair value of the bitcoin earned at contract inception (i.e.,

the moment a block is earned) and has been consistently applied in all periods presented.

As a Participant, the Company has entered into digital asset mining pools

by executing contracts, with the mining pool operators to provide computing power to the mining pool.

The contracts are terminable at

any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power

to the mining pool operator.

In exchange for providing computing power, the Company is entitled to a fractional share of the fixed block

award and transaction fees the mining pool operator receives, for successfully adding a block to the blockchain.

The Company’s fractional

share of the block reward and transaction fee is based on the proportion of computing power the Company contributed to the mining pool

operator to the total computing power contributed by all mining pool participants in solving the block.

Providing computing power on rigs to solve complex cryptographic algorithms

in support of blockchain mining (in a process known as “solving a block”) is the primary output of the Company’s ordinary

The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining

pool operators.

The transaction consideration the Company receives is non-cash (i.e., bitcoin) and entirely variable as it is unknown

at each contract inception whether the Company will earn any consideration during the period, and if it does become entitled to consideration,

how much consideration it will be entitled to.

In accordance with FASB ASC 606-10-32-11 and 32-12, the Company constrains

the variable consideration to which it is entitled and does not recognize revenue for such amounts until it receives confirmation of the

amount, usually via the settlement of the fractional share of block reward and transaction fee in the Company’s digital wallet (i.e.,

at that point, the variability is resolved and there is no longer the reasonable possibility of significant reversal of revenue).

settlement occurs, estimation of the variable consideration to which the Company is entitled, which depends on inputs unknowable to the

Company, carries the risk of a significant revenue reversal from mis-estimation.

Settlement of consideration typically occurs within 24

hours of when a block is won unless such block is won over a weekend or holiday, in which case settlement can take up to 72 hours.

The Company uses its accounting convention to recognize revenue using the

daily quoted closing U.S.

dollar spot rate of bitcoin on the day the transaction fees and block rewards are settled in the Company’s

However, this accounting convention does not result in materially different revenue recognition from using the fair value of the

bitcoin earned at contract inception and has been consistently applied in all periods presented.

There is currently no definitive guidance under GAAP or alternative accounting

framework for the accounting for digital assets recognized as revenue or held, and management expects to exercise significant judgment

in determining the appropriate accounting treatment.

In the event authoritative guidance is enacted by the FASB, the Company may be required

to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

and Equipment

Company has long-lived assets that consist primarily of property and equipment stated at cost, net of accumulated depreciation and impairment,

as applicable.

The depreciation charge is calculated on a straight-line basis and depends on the estimated useful lives of each type

of asset and, in certain circumstances, estimates of fair values and residual values.

The Company’s property and equipment is composed

of bitcoin miners which are largely homogeneous and have approximately the same useful lives.

Accordingly, the Company utilizes the group

method of depreciation for its bitcoin miners.

The Company updates the estimated useful lives of its asset group of bitcoin mining rigs

periodically as information on the operations of the mining rigs indicates changes are required.

The Company assesses and adjusts the

estimated useful lives of its mining rigs when there are indicators that the productivity of the mining assets are higher or lower than

the assigned estimated useful lives.

tests for items of property and equipment other than mining rigs are performed annually and the recoverable amounts in property equipment

are determined based on the higher of value-in-use or fair value less costs to sell.

of long-lived assets

reviews long-lived assets that consist primarily of bitcoin mining rigs, and other long-lived assets such as patents held, 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.

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

value of the asset following the fair value measurement framework in ASC 820.

primary objectives of accounting for income taxes are to recognize the amount of income taxes payable or refundable for the current year,

and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements

or tax returns.

The Company accounts for income taxes in accordance with ASC 740 - “Income Taxes” (“ASC 740”),

using the asset and liability method.

Under this method, deferred tax assets and liabilities are calculated based on enacted tax rates

and are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of

assets and liabilities, and for operating losses and tax credit carryforwards.

The effect on deferred tax assets and liabilities of a

change in tax rates is recognized in operations in the period that includes the enactment date.

Management must make assumptions, judgments

and estimates to determine our income tax benefit or expense and our deferred tax assets and liabilities.

We recognize tax positions

when they are more likely than not of being sustained.

Recognized tax positions are measured at the largest amount of benefit greater

than 50 % likely of being realized.

Each period, we evaluate tax positions and adjust related tax assets and liabilities in light

of changing facts and circumstances.

record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.

Accordingly, the need to establish such allowance is assessed periodically by considering matters such as future reversals of existing

taxable temporary differences, projected future taxable income, tax planning strategies and results of recent operations.

Accounting Pronouncements

See NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES to our Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.

Financial Measures

are providing supplemental financial measures for (i) non-GAAP income from operations that excludes the impact of depreciation and amortization

of fixed assets, impairment losses on mined cryptocurrency, server maintenance contract amortization and stock compensation expense and

(ii) non-GAAP net income and non-GAAP diluted earnings per share that exclude the impact of depreciation and amortization of fixed assets,

impairment losses on mined cryptocurrency, change in fair value of warrant liability, server maintenance contract amortization and stock

compensation expense, net of withholding taxes.

These supplemental financial measures are not measurements of financial performance under

generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures

may not be comparable to similarly titled measures of other companies.

Management uses these non-GAAP financial measures internally to

help understand, manage, and evaluate our business performance and to help make operating decisions.

believe that these non-GAAP financial measures are also useful to investors and analysts in comparing our performance across reporting

periods on a consistent basis.

The first supplemental financial measure excludes non-cash operational expenses that we believe are not

reflective of our general business performance such as (i) depreciation and amortization of fixed assets, (ii) significant impairment

losses on mined cryptocurrency, (iii) server maintenance contract amortization and (iv) stock compensation expense, net of withholding

taxes that could vary significantly in comparison to other companies.

second set of supplemental financial measures excludes the impact of (i) depreciation and amortization of fixed assets, (ii) significant

impairment losses on mined cryptocurrency, (iii) change in fair value of warrant liability (iv) server maintenance contract amortization

and (v) stock compensation expense, net of withholding taxes.

We believe the use of these non-GAAP financial measures can also facilitate

comparison of our operating results to those of our competitors.

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

in accordance with GAAP.

For example, we expect that share-based compensation expense, which is excluded from the first two non-GAAP

financial measures, will continue to be a significant recurring expense over the coming years and is an important part of the compensation

provided to certain employees, officers, and directors.

Similarly, we expect that depreciation and amortization of fixed assets will

continue to be a recurring expense over the term of the useful life of the assets.

We have also excluded impairment losses on mined cryptocurrency

from the first two non-GAAP financial measures, which may occur in future periods as a result of our continued holdings of significant

amounts of bitcoin.

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.

following is a reconciliation of our non-GAAP income from operations for the three months and year ending December 31, 2021, respectively,

which excludes the impact of (i) depreciation and amortization of fixed assets (ii) impairment losses on mined cryptocurrency (iii) server

maintenance contract amortization and (iv) stock compensation expense, net of withholding taxes, to its most directly comparable GAAP

measures for the periods indicated:

For the Three Months Ended

For the Year Ended

Reconciliation of non-GAAP income from operations:

Income (loss) from Operations

$ (4,953,470 )

$ (1,257,172 )

$ (85,087,730 )

$ (9,833,104 )

$ (4,239,111 )

Depreciation and Amortization of Fixed Assets

Impairment of mined cryptocurrency

Server maintenance contract amortization

Stock Compensation Expense, net of withholding taxes

Non-GAAP income (loss) from operations

$ (2,591,355 )

$ 118,720,085

$ (4,662,750 )

$ (2,913,881 )

following are reconciliations of our non-GAAP net income and non-GAAP diluted earnings per share for the three months and year ending

December 31, 2021, respectively, in each case excluding the impact of (i) depreciation and amortization of fixed assets (ii) impairment

losses on mined cryptocurrency (iii) change in fair value of warrant liability (iv) server maintenance contract amortization and (v)

stock compensation expense, net of withholding taxes, to its most directly comparable GAAP measures for the periods indicated:

For the Three Months Ended

For the Twelve Months Ended

Reconciliation of non-GAAP net income:

Net (loss) income

$ (5,234,227 )

$ (1,151,843 )

$ (36,174,506 )

$ (10,447,771 )

$ (3,699,060 )

Non-cash adjustments to Net Income (loss)

Depreciation and Amortization of Fixed Assets

Impairment of mined cryptocurrency

Change in fair value of warrant liability

Server maintenance contract amortization

Stock Compensation Expense, net of withholding taxes

Total Non-cash adjustments to Net Income (Loss)

$ 204,856,101

Non-GAAP net (loss) income

$ (2,581,174 )

$ 168,681,595

$ (4,967,829 )

$ (2,400,064 )

Reconciliation of non-GAAP diluted earnings (loss) per share:

Diluted (loss) earnings per share

Depreciation and Amortization of Fixed Assets (per diluted share)

Impairment of mined cryptocurrency (per diluted share)

Change in fair value of warrant liability (per diluted share)

Server maintenance contract amortization (per diluted share)

Stock Compensation Expense, net of withholding taxes (per diluted share)

Non-GAAP diluted earnings (loss) per share

Issued Accounting Standards

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

of Operations for the Years Ended December 31, 2021, December 31, 2020 and December 31, 2019

generated revenues of $150.5 million during the year ended December 31, 2021 as compared to $4.4 million during the year ended December

For the year ended December 31, 2021, this represented an increase of $146.1 million or 3,353%.

Revenue for the years ended

December 31, 2021 and 2020 were derived primarily from cryptocurrency mining.

During 2021, the Company placed into service over 30,000

bitcoin mining machines while increasing the Company’s hash rate by approximately 1800%.

This increase resulted in the Company

generating an average of 1.6 bitcoin per day in January 2021 to generating approximately 15.6 bitcoin per day in December 2021.

generated revenues of $4.4 million during the year ended December 31, 2020 as compared to $1.2 million during the year ended December

For the year ended December 31, 2020, this represented an increase of $3.2 million or 268%.

Revenue for the years ended December

31, 2020 and 2019 were derived primarily from cryptocurrency mining.

cost of revenues during the year ended December 31, 2021 and 2020 amounted to approximately $33.7 million and $7.0 million, respectively.

For the year ended December 31, 2021, this represented an increase of $26.7 million or 381%.

Direct costs of revenue include cohosting

fees, electricity, depreciation and amortization expenses of the cryptocurrency mining machines and patents, contingent payments

to patent enforcement legal costs, patent enforcement advisors and inventors as well as various non-contingent costs associated with

enforcing the Company’s patent rights and otherwise in developing and entering into settlement and licensing agreements that generate

the Company’s revenue.

cost of revenues during the year ended December 31, 2020 and 2019 amounted to approximately $7.0 million and $2.5 million, respectively.

For the year ended December 31, 2020, this represented an increase of $4.5 million or 182%.

Direct costs of revenue include cohosting

fees, electricity, depreciation and amortization expenses of the cryptocurrency mining machines and patents, contingent payments

to patent enforcement legal costs, patent enforcement advisors and inventors as well as various non-contingent costs associated with

enforcing the Company’s patent rights and otherwise in developing and entering into settlement and licensing agreements that generate

the Company’s revenue.

incurred other operating expenses of $201.8 million for the year ended December 31, 2021 and $7.2 million for the year ended December

For the year ended December 31, 2021, this represented an increase of $194.6 million or 2,702%.

These expenses primarily consisted

of the impairment of mining equipment, compensation to our officers, directors and employees, professional fees and consulting incurred

in connection with the day-to-day operation of our business.

incurred other operating expenses of $7.2 million for the year ended December 31, 2020 and $2.9 million for the year ended December 31,

For the year ended December 31, 2020, this represented an increase of $4.3 million or 144%.

These expenses primarily consisted

of the impairment of mining equipment, compensation to our officers, directors and employees, professional fees and consulting incurred

in connection with the day-to-day operation of our business and break-up fee to GBV.

operating expenses consisted of the following:

Other Operating Expenses

and related taxes (1)

$ 164,285,755

Consulting fees (2)

Professional fees (3)

Other general and administrative

Impairment of cryptocurrencies (5)

Impairment of equipment

and leasehold improvements (6)

$ 201,855,397

expense and related taxes:

Compensation expense includes cash compensation and related payroll taxes and benefits, and non-cash equity

compensation expenses.

For the year ended December 31, 2021 and 2020, compensation expense and related payroll taxes were $164.3

million and $4.7 million, an increase of $159.6 million or 3,373%.

During the years ended December 31, 2021 and 2020, we recognized

non-cash employee and board equity-based compensation of $160.8 million and $1.2 million, respectively.

ended December 31, 2020 and 2019, compensation expense and related payroll taxes were $4.7 million and $1.5 million, an increase

of $3.3 million or 221%.

During the years ended December 31, 2020 and 2019, we recognized non-cash employee and board equity-based

compensation of $1.2 million and $0.9 million, respectively.

For the year ended December 31, 2021 and 2020, we incurred consulting fees of $0.5 million and $0.3 million, respectively,

an increase of $0.2 million or 76%.

For the year ended December 31, 2020 and 2019, we incurred consulting fees of $0.3 million and

$0.1 million, respectively, an increase of $0.2 million or 131%.

Consulting fees include consulting fees primarily for investor relations

and public relations services as well as other consulting services.

The increase in consulting fees for the year ended December 31,

2020 compared to the same period in the prior year was primarily due to the write-off of prepaid consulting fees from a prior period.

For the year ended December 31, 2021 and 2020, professional fees were $5.3 million and $0.7 million, respectively, an increase

of $4.5 million or 618%.

For the year ended December 31, 2020 and 2019, professional fees were $0.7 million and $0.4 million, respectively,

an increase of $0.3 million or 74%.

Professional fees primarily reflect the costs of professional outside accounting fees, legal

fees and audit fees.

The increase in professional fees was mainly the result of legal fees related to the Convertible Debt and ATM

financing offerings.

We 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.

For each period in question, we define

adjusted EBITDA as (a) GAAP net income (loss) plus (b) adjustments to add back the impacts of (1) depreciation and amortization, (2) interest

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

expense, (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

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 Interim 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.

the first quarter of 2022, the Company announced its intention of exiting the facility in Hardin, MT (“Hardin”).

28, 2022, the Company terminated its power purchase agreements and commenced the acceleration of its exit from Hardin.

This exit was

completed in September 2022.

The Company had deployed approximately 30,000 mining rigs at Hardin.

During the year ended December 31,

2022, the Company recorded accelerated hosting and depreciation costs related to this early exit from the Hardin facility.

to the accelerated depreciation expense, upon exiting the facility the Company determined that the useful lives of the remaining mining

rigs formerly deployed at Hardin should be reduced from 36 months to 24 months.

late 2021, the Company contracted with a joint venture among Compute North and affiliates of NextEra Energy for hosting services in McCamey,

TX and expected its mining rigs to begin coming online during the second quarter of 2022.

King Mountain Upton Wind, LLC (“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 (PUHCA) as tenants-in

common with a retail energy customer.

However, the approval of this petition was delayed until July 15, 2022, when the Federal Energy

Regulatory Commission (“FERC”) found that King Mountain would retain its status as an EWG notwithstanding a proposal to share

ownership of the Interconnection Facilities as tenants-in-common with a retail energy customer.

As a result, the bulk of the Company’s

rigs did not come online until the early part of the fourth quarter.

On December 15, 2022, US

Bitcoin Corp (“US Bitcoin”) replaced Compute North as a joint venture partner (and the operator of the facility) as a result

of the Compute North bankruptcy.

July 2022, the Company expanded certain hosting arrangements

with Compute North in Granbury, TX.

On December 15, 2022, US Bitcoin Corp replaced Compute

North as the operator of this facility as a result of the Compute North Bankruptcy.

the third and fourth quarters of 2022 the Company entered into a series of agreements to secure additional hosting capacity with Applied

Digital as the partner at Garden City, TX, Ellendale, ND, and Jamestown, ND.

These sites are expected to come online in phases during

the first and second quarters of 2023.

of Operations – Year ended December 31, 2022 compared to December 31, 2021 (Restated)

Summary Table:

Years ended December 31,

(in thousands)

(Unfavorable)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

For the year ended December 31, 2021 and 2020, other general and administrative expenses were

$2.2 million and $0.6 million, respectively, an increase of $1.7 million or 302%.

For the year ended December 31, 2020 and 2019,

other general and administrative expenses were $0.6 million and $0.5 million, respectively, an increase of $0.1 million or 18%.

and administrative expenses reflect the other non-categorized operating costs of the Company and include expenses related to being

a public company, rent, insurance, technology and other expenses incurred to support the operations of the Company.

of cryptocurrencies:

For the year ended December 31, 2021 and 2020, impairment of cryptocurrencies were $29.6 million and $0, an

increase of $29.6 million or 100%.

Impairment of cryptocurrencies reflect the impairment of the bitcoin earned by the Company subject

to FASB ASC 350 Intangibles – Goodwill and Other .

of equipment and leasehold improvements:

For the years ended December 31, 2020 and 2019, the Company recorded a loss on the impairment

of equipment and leasehold improvements in the amounts of $0.9 million and $0.4 million.

reported operating loss from continuing operations of $85.1 million and $9.8 million for the years ended December 31, 2021 and 2020,

respectively.

We reported operating loss from continuing operations of $9.8 million and $4.2 million for the years ended December 31,

2020 and 2019, respectively.

Income (Expenses)

other income was $71.9 million for the year ended December 31, 2021 compared to total other expenses of $0.6 million for the year ended

December 31, 2020.

Total other expenses were $0.6 million for the year ended December 31, 2020 compared to total other income of $0.7

million for the year ended December 31, 2019.

The changes are related to the unrealized gains associated with the purchase of 4,812.66

bitcoin held in an investment fund of one.

Loss Available to Common Shareholders

reported net loss of $36.2 million, $10.4 million and $3.5 million for the year ended December 31, 2021, 2020 and 2019, respectively.

and Capital Resources

Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates

continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

reflected in the consolidated financial statements, the Company had and accumulated deficit of approximately $152.2 million, $116.1

million and $105.6 million at December 31, 2021, December 31, 2020 and December 31, 2019, respectively, a net loss of approximately $36.2

million, $10.4 million and $3.5 million, respectively, and approximately $18.2 million, $7.8 million and $3.3 million net

cash used in operating activities for the year ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively.

is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate

on an ongoing basis.

At December 31, 2021, the Company’s cash and cash equivalents balances totaled $268.5 million compared to

$141.3 million at December 31, 2020.

The increase in liquidity is due to the issuance of $747.5 million in convertible notes during 2021.

working capital increased by $389.4 million, to working capital of $674.4 million at December 31, 2021 from working

capital of $285.0 million at December 31, 2020.

used in operating activities was $18.2 million, $7.8 million and $3.3 million during the year ended December 31, 2021, December

31, 2020 and December 31, 2019, respectively.

used in investing activities was $891.9 million, $81.3 million and cash provided of $1.2 million for the year ended December 31,

2021, December 31, 2020 and December 31, 2019, respectively.

provided by financing activities was $1.037 billion, $229.7 million and $0.2 million during the year ended December 31, 2021, December

31, 2020 and December 31, 2019, respectively.

During 2019, the Company issued 172,126

shares of common stock under the At The Market Offering for the total proceeds of $255,893, net of offering cost of $10,442.

During 2020, the Company issued 54,301,698

shares of common stock under the At The Market Offering for the total proceeds of $307,064,401, net of offering cost of $9,405,129.

On March 30, 2020, the Company issued 350,250 shares

of common stock in exchange for S9 miners with a fair market value of $612,938.

On June 1, 2020, the Company issued 2,023,739 shares

of common stock in exchange for the conversion and extinguishment of the note payable outstanding in an amount of $999,106.

On October 6, 2020, the Company issued 6,000,000 shares

of common stock in exchange for five years of services pursuant to the Power Purchase Agreement and Data Facility Services Agreement for

the total proceeds of $0, net of offering cost of $0 valued at the time of execution at $1.87 per share or $11,220,000 in aggregate.

Selected short-term and long-term contractual obligations and

$ 632,635,125

$ 640,110,125

$ 754,975,000

$ 1,417,510,125

believe that existing cash and cash equivalents held by us and cash and cash equivalents anticipated to be generated by us are sufficient

to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least the next 12 months.

As of December 31, 2021, we held approximately 8,115 bitcoin, including the 4,794 bitcoin held in the investment fund.

4,812.66 bitcoin was purchased and placed into an investment fund in January 2021 for an average price of $31,168 per bitcoin.

2021, 18 bitcoin were liquidated as needed by the investment manager in order to pay the management fee and other operating expenses

of the fund pursuant to the management agreement.

We do not believe we will need to sell any of our bitcoins within the next twelve months to meet our working capital

requirements, although we may from time to time sell bitcoins as part of treasury management operations, including to increase our

cash balances.

The Bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and

trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to

market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual form and decentralized network.

During times of instability in the Bitcoin market, we may not be able to sell our bitcoins at reasonable prices or at all.

result, our bitcoins are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of

liquidity for us to the same extent as cash and cash equivalents.

In addition, upon sale of our bitcoin, we may incur additional

taxes related to any realized gains or we may incur capital losses as to which the tax deduction may be limited.

Legal reserves

Impairment of deposits due to vendor bankruptcy filing

Impairment of digital assets

Impairment of patents

Impairment of mining equipment and advances to vendors

Realized and unrealized gains (losses) on digital assets loan receivable and

digital assets

Gain on sale of equipment, net of disposals

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Other non-operating income (loss)

Impairment of loan and investment due to vendor bankruptcy filing

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Supplemental information:

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

Total margin (revenues less total cost of revenues)

General and administrative expenses excluding stock-based compensation

Total impairments due to vendor bankruptcy filing

Total change in carrying value of digital assets

Reconciliation to Adjusted EBITDA:

Interest expense

Income tax expense (benefit)

Depreciation and amortization

Stock compensation expense

Impairment of assets due to vendor bankruptcy filing

Impairment of patents

Adjusted EBITDA

We generated revenues of $117,753 thousand for the year ended December 31, 2022 compared with $159,163 thousand in 2021.

thousand decrease in revenue was primarily driven by a $77,286 thousand decrease in revenue resulting from lower bitcoin prices in 2022,

partially offset by increased revenues of $44,570 thousand related to a 30% increase in production year-over-year.

Revenues also declined

by $8,694 thousand in 2022 as the Company ceased operation of a mining pool that included third parties.

Despite the overall increase

in production for the year, the company experienced significant production downtime in the second and third quarters as a result of the

aforementioned exit from Hardin and delays in energization at King Mountain.

Production during the third quarter was down 50% from the

Our best production quarters of 2022 were the first quarter and the fourth quarter.

Cost of revenues :

Cost of revenues

– energy, hosting and other during the year ended December 31, 2022, totaled $72,717 thousand compared with $27,491 thousand in

the prior-year period.

The $45,226 thousand increase was driven by higher production costs of $30,134 thousand per bitcoin mined, accelerated

costs of $18,218 thousand associated with the early exit from Hardin and to a lesser extent, the impact of increased bitcoin production

on costs of $5,566 thousand.

Partially offsetting these increased costs was an $8,694 thousand decline in cost of revenues related to

the discontinuation of the third party mining pool in 2022.

Cost of revenues – depreciation and amortization was $78,709 thousand

in the current-year period compared with $14,904 thousand in the prior-year period, an increase of $63,805 thousand.

This increase was

primarily due to the depreciation acceleration of $36,032 thousand related to our exit of the Hardin, MT facility and increased depreciation

costs of $27,773 thousand associated with a higher number of mining rigs in operation.

Total margin was a loss of $33,673 thousand in the current-year period compared with income of $116,768 thousand in the

prior-year period, a decline of $150,441 thousand.

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

(in thousands)

of higher production activity

of lower bitcoin market prices

of discontinuation of third party mining pool vs prior year

of revenue – energy, hosting and other:

of higher unit costs

of accelerated cost recognition from Hardin exit

of higher production activity

of discontinuation of third party mining pool vs prior year

of revenue – depreciation and amortization:

of accelerated cost recognition from Hardin exit

primarily increased mining rigs in operation

General and administrative expenses :

General and administrative expenses were $56,739 thousand for the year ended December 31, 2022, compared with expenses of $174,355 thousand

in the prior-year period.

Our general and administrative expenses included stock-based (non-cash) compensation expense of $24,595

thousand in the current-year period and $160,786 thousand in the prior-year period.

General and administrative expenses excluding

stock-based compensation was $32,144 thousand in the current-year period compared with $13,569 thousand in the prior-year

This $18,575 thousand increase in expense was primarily due to the increase in the scale of the business, including higher

payroll and benefits costs of $7,173 thousand, increased professional fees of $3,590 thousand, increased insurance costs of $3,810

thousand, higher travel and conference costs of $2,186 thousand and higher costs in various other areas related to the increased

scale of the business, including higher property taxes, banking fees, rent expense, computer costs and equipment repairs.

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, the Company entered into a settlement agreement pursuant to which the

Company agreed to pay $24,000 thousand during the year ended December 31, 2022.

The Company also entered into agreements in respect to seven

other recipients of the same restricted stock unit awards.

Payments related to these agreements during the year ended December 31, 2022

totaled approximately $2,131 thousand in the aggregate.

impairments due to vendor bankruptcy filing:

On September 22, 2022, Compute North filed for restructuring under chapter 11 of

Bankruptcy Code.

During the year ended December 31, 2022, the Company assessed the impairment of assets associated with Compute

North due to the bankruptcy proceedings.

As a result, the Company recorded impairment charges of approximately $24,661 thousand in operating

expenses (related to deposits) and approximately $31,013 thousand (related to certain loans and preferred stock investments) as non-operating

change in carrying value of digital assets:

of digital assets :

We incurred impairments of digital assets during the year ended December 31, 2022 of $173,215 thousand compared

with impairments of $30,329 thousand in the prior-year period.

Realized and unrealized gains (losses) on digital assets

loan receivable and digital assets :

We incurred a loss of $14,460 thousand during the year ended December 31, 2022 compared with

a gain of $557 thousand in the prior year period.

The loss in the current year period was primarily a result of the decline in fair

value of digital asset loan receivable prior to the repayment of the loan in June, 2022.

The gain in the prior year period was primarily

the result of a modest increase in the fair value of the loan receivable.

in fair value of digital assets held in fund :

On June 10, 2022, the company withdrew all remaining bitcoin from its investment

Total changes in the fair value of investment fund from January 1, 2022 through the June 10, 2022 withdrawal date resulted

in an unrealized loss of $85,017 thousand 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 unrealized gain of $74,696 thousand.

The Company recorded an impairment of $919 thousand in the current-year period related to certain patents no longer

utilized in its business operations.

of fixed assets and advances to vendors:

In accordance with ASC 360-10 – “Impairment and Disposal of Long-Lived Assets”

(“ASC 360”), any long-lived asset group that is held and used must be reviewed for impairment whenever events or changes

in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable.

Due to the significant decrease

in fair values of bitcoin mining rigs during the fourth quarter ended December 31, 2022, the Company assessed the need for an impairment

write-down of both bitcoin mining rigs (held as fixed assets) and advances to vendors (a current asset) representing deposits associated

with the future delivery of mining rigs.

In accordance with ASC 360-10, the Company determined that both of these asset categories had

carrying values in excess of fair value, and accordingly, the Company recognized impairment charges for both the bitcoin mining rigs

of $208,622 thousand and the advances to vendors of $124,311 thousand – a total impairment of approximately $332,933 thousand for

the year ended December 31, 2022.

In addition, as part of its periodic review of its fixed asset groups, the Company decided to change

the estimated useful life for its asset group of mining rigs from 5 years to 3 years, effective January 1, 2023.

on sales of equipment, net :

In late 2021, the Company entered into an agreement with DCRBN Ventures Development and Acquisition

LLC (“DCRBN”) in which the Company agreed to sell certain mining rigs to DCRBN in conjunction with the development of commercial

activities at the McCamey, TX facility.

In conjunction with its exit from the Hardin, MT facility, the Company also sold bitcoin mining

rigs to various third parties.

Total cash proceeds from these sales of assets for the year ended December 31, 2022 were $178,371 thousand

and gains resulting from the asset sales totaled $83,880 thousand in the current-year period.

There were no such sales in 2021.

Other non-operating income (loss) :

Other non-operating income was $1,283 thousand during the current year period compared to a loss of $287 thousand in the prior-year period.

The $1,570 thousand favorable variances was primarily due to the absence of warrant expense of $1,048 thousand recorded in the prior-year

period to a lesser extent, increased interest income and other income.

Interest expense increased $13,410 thousand from the prior year as a result of higher interest related to the

convertible notes issued in November 2021 of $6,633 thousand, amortization of debt issuance costs of $3,664 thousand and other

interest costs primarily related to the Company’s Term loan and revolving credit (“RLOC”) facilities.

Income tax (expense) benefit :

Company recorded income tax benefit of $21,838 thousand for the year ended December 31, 2022 compared with an income tax expense of $22,576

thousand in the prior-year period.

The primary drivers of the $44,414 thousand favorable tax variance were favorable federal impacts

the prior-year period of $145,657 thousand), favorable state tax impacts vs.

the prior-year period of $18,684 thousand, and beneficial

impacts of changes in executive compensation deduction limitations of $22,855 thousand partially offset by unfavorable impact of changes

in our valuation allowance of $145,004 thousand

We recorded a net loss of

$686,740 thousand in the current-year period compared with net loss of $37,096 thousand in the prior period.

The $649,644 thousand decline

in earnings was primarily driven by declines in the carrying value of our digital assets of $317,616 thousand in the aggregate, the impairment

of mining rigs and advances to vendors of $332,933 thousand in the aggregate, lower total margin of $150,441 thousand, impairments of

$55,674 thousand related to the Compute North bankruptcy, legal reserves of $26,131 thousand and increased interest expense of $13,410

Partially offsetting these unfavorable variances was a significant reduction in general and administrative expenses of $117,616

thousand primarily associated with lower stock-based compensation, gains on sales of rigs of $83,880 thousand, the $44,414 thousand favorable

income tax variance and a slight increase in other non-operating income.

Adjusted EBITDA :

Adjusted EBITDA was

a loss of $533,701 thousand compared with a positive adjusted EBITDA of $162,740 thousand in the prior-year period.

The $696,441 thousand

decline was primarily driven by declines in the carrying value of our digital assets of $317,616 thousand in the aggregate, the impairment

of mining rigs and advances to vendors of $332,933 thousand in the aggregate, lower total margin excluding depreciation and amortization

of $86,636 thousand, legal reserves of $26,131 thousand, and higher general and administrative expenses, excluding non-cash stock-based

compensation costs of $18,575 thousand.

Partially offsetting these unfavorable variances were gains on the sales of mining rigs of $83,880

thousand and increases in non-operating income of $1,570 thousand.

of Operations – Year ended December 31, 2021 (Restated) compared to December 31, 2020

Summary Table:

Years ended December 31,

(in thousands)

(Unfavorable)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Impairment of mining equipment and advances to vendors

Realized and unrealized gains (losses) on digital assets loan receivable

and digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Supplemental information:

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

Total margin (revenues less total cost of revenues)

General and administrative expenses excluding stock-based compensation

Total change in carrying value of digital assets

Reconciliation to Adjusted EBITDA:

Interest expense

Income tax expense

Depreciation and amortization

Stock compensation expense

Adjusted EBITDA

We generated revenues of $159,163 thousand during the year ended December 31, 2021, compared with $4,357 thousand during the prior-year

The $154,806 thousand increase was primarily attributable to the impact of significantly higher bitcoin prices, which resulted

in a $109,253 thousand increase in revenue, increased production, which resulted in a $36,854 thousand increase in revenue, and, to a lesser extent a $8,699 thousand increase in revenues related to the Company’s operation

of a mining pool that included third parties in 2021.

of revenues :

Cost of revenues - energy, hosting and other during the year ended December 31, 2021, totaled $27,491 thousand compared

with $3,851 thousand in the prior-year period.

The $23,640 thousand increase was driven by increased production of $32,574 thousand,

and increased cost of revenues associated with the third party mining pool of $8,699 thousand partially offset by lower production costs

per bitcoin mined of $17,633 thousand.

Cost of revenues – depreciation and amortization was $14,904 thousand for the year ended

December 31, 2021, compared with $3,064 thousand in 2020, an increase of $11,840 thousand resulting from a higher number of mining rigs

in operation in 2021.

Total margin was $116,768 thousand for the year ended December 31, 2021, compared with a loss of $2,558 thousand in 2020,

an increase of $119,326 thousand.

This increase was driven by the factors discussed above, which are summarized in the table below:

(in thousands)

of higher production activity

of lower bitcoin market prices

of third party mining pool

of revenue – energy, hosting and other:

of higher production activity

of third party mining pool

of decreased cost per bitcoin mined

of revenue – depreciation and amortization:

increased mining rigs in operation

and administrative expenses :

General and administrative expenses were $174,355 thousand for year ended December 31, 2021 compared

with expenses of $6,404 thousand in 2020, an increase of $167,951 thousand.

Our general and administrative expenses included stock-based

(non-cash) compensation expense of $160,786 thousand in the year ended December 31, 2021 compared with $1,178 thousand in the prior-year

General and administrative expenses excluding stock-based compensation increased to $13,569 thousand in 2021 from $5,226 thousand

in 2020, reflecting the increased scope of our operations in 2021 compared to 2020.

in carrying value of digital assets:

of digital assets :

We incurred impairments of digital assets during the year ended December 31, 2021 of $30,329 thousand.

were no such impairments in 2020.

in fair value of digital assets held in fund :

On January 25, 2021, the company purchased $150,000 thousand in bitcoin through

an investment fund.

Total changes in the fair value of the investment fund from the date of inception through December 31, 2021 resulted

in an unrealized gain of $74,696 thousand.

of mining rigs:

The Company recorded an impairment of $871 thousand on certain mining rigs in 2020.

non-operating income :

Other non-operating income was a loss of $287 thousand in 2021 and a loss of $607 thousand in 2020.

Interest expense increased to $1,570 thousand for the year ended December 31, 2021

primarily as a result of interest related to the convertible notes issued in November 2021.

tax expense :

Income tax expense increased to $22,576 thousand in 2021 versus $2 thousand in 2020 primarily due to the impact

executive compensation deduction limitations in 2021 and higher state income taxes partially offset by the impact of a higher valuation

allowance in 2021.

We recorded a net loss

of $37,096 thousand for the year ended December 31, 2021 compared with a net loss of $10,448 thousand in 2020.

The $26,648 thousand decline

was primarily driven by the $167,951 thousand increase in general and administrative expenses, the $30,329 thousand impairment of digital

assets in 2021 and the $22,574 thousand increase in income tax expense in 2021, partially offset by the $119,326 thousand increase in

total margin and the $74,696 thousand unrealized gain on the value of bitcoin held in the investment fund.

Adjusted EBITDA :

Adjusted EBITDA for

the year ended December 31, 2021 was $162,740 thousand compared with a adjusted EBITDA loss of $6,183 thousand in 2020.

thousand increase in adjusted EBITDA was primarily driven by the $131,166 thousand increase in total margin excluding depreciation and

amortization and the $74,696 thousand unrealized gain on the value of bitcoin held in the investment fund, partially offset by the $30,329

thousand impairment of digital assets in 2021, and a $8,343 thousand increase in operating expenses excluding non-cash stock compensation

Condition and Liquidity

For the year ended December 31,

(in thousands)

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash — beginning of period

Cash, cash equivalents and restricted cash — end of period

flows for the year ended December 31, 2022:

Cash, cash equivalents and restricted cash totaled $112,502 thousand at December

31, 2022, a decrease of $156,054 thousand from December 31, 2021.

Cash flows from operating activities resulted in a use of funds of $176,481

thousand, primarily due to a $176,566 thousand use of cash from changes in operating assets and liabilities driven by bitcoin mining revenues,

and, to a lesser extent prepaid expenses associated with new hosting arrangements (a $48,886 thousand use of funds) and deposits associated

with new hosting arrangements (a $24,469 thousand use of funds).

These uses of funds were partially offset by a source of funds from changes

in accounts payable and other accrued expenses.

Cash flows from investing activities resulted in a

use of funds of $390,228 thousand, primarily resulting from advances of $483,840 thousand to vendors related to orders of ASICs miners

for future deployment, a $44,000 thousand use of funds for investment purposes (primarily an increased investment in Auradine) and capitalized

costs of $41,108 thousand associated with purchases of equipment, partially offset by proceeds of $178,371 thousand from the sales of

bitcoin mining rigs.

Cash flows from financing activities resulted in a source of cash of $410,655

thousand, primarily from proceeds from the periodic issuance of common stock under the Company’s At-The-Market facility of $361,486

thousand and proceeds from borrowings outstanding under the term loan agreement of $49,250 thousand.

The maximum borrowings outstanding under the Company’s

revolving credit facilities during the year ended December 31, 2022 was $70,000 thousand.

Total borrowings and repayments under the RLOC

facilities were $120,000 thousand during the year ended December 31, 2022 and there were no borrowings outstanding under the RLOC facility

at December 31, 2022.

Cash flows for the year ended December 31,

Cash, cash equivalents and restricted cash totaled $268,554 thousand at December 31, 2021, an increase of $127,233

thousand from December 31, 2020.

Cash flows from operating activities resulted in a use of funds of $18,966

Cash flows from operating activities before the impact of changes in operating assets and liabilities was a $117,311 thousand

source of funds primarily due to the impact of non-cash stock-based compensation.

This source of funds was more than offset by a $136,277

thousand use of funds from changes in operating assets and liabilities.

This was primarily caused by a use of funds from changes in digital

assets (primarily due to revenues from bitcoin mining) partially offset by a source of funds resulting from changes in accounts payable

and accrued expenses.

Cash flows from investing activities resulted in a use of funds of $891,136

thousand, primarily resulting from advances to vendors of $435,065 thousand, capitalized costs associated with equipment purchases of

$273,851 thousand, purchases of digital assets in the investment fund of $150,000 thousand, and a loan receivable from Compute North of

$30,000 thousand.

flows from financing activities resulted in a source of cash of $1,037,333 thousand, primarily from proceeds from the issuance of convertible

debt of $728,406 thousand and common stock of $312,196 thousand.

Total borrowings and repayments under the Company’s 2021 RLOC

facility were $77,500 thousand during the year ended December 31, 2021 and there were no borrowings outstanding under the 2021 RLOC facility

at December 31, 2021.

Bitcoin holdings as of December 31, 2022:

At December 31, 2022, the Company held approximately 12,232 bitcoin on its balance sheet with a carrying value of $190,717 thousand.

Approximately 4,416 of these bitcoin ($68,875 thousand book value) were being utilized as collateral for borrowings and classified as

digital assets restricted.

The remaining 7,816 bitcoin, with $121,842 thousand book value, were unrestricted bitcoin holdings classified

as digital assets.

December 31, 2022, the fair value of a single bitcoin was approximately $ 16,548 .

result, the fair market value of our bitcoin holdings at December 31, 2022 was approximately (stated in thousands):

bitcoin classified as Digital assets:

utilized as collateral and classified as Digital assets, restricted:

held as collateral for loans (“Digital assets, restricted”):

The Company’s $ 49,882 thousand

term loan and its $100,000 thousand RLOC facility are collateralized by bitcoin at a “loan-to-value” ratio of 65%, meaning

that the initial collateral for a $50,000 thousand loan is bitcoin with a market value of $76,900 thousand.

If the fair market value of

bitcoin held as collateral declines such that the loan-to-value ratio is above 75%, or approximately $66,700 thousand for a $50,000 thousand

loan, the Company is required to add collateral to bring the ratio back to 65%.

If the value of the collateral increases such that the

loan-to-value ratios falls below 65%, the Company can require a return of collateral to bring the ratio back to 65%.

During the month of October 2022, the Company borrowed an additional $50,000

thousand under its RLOC facility for general corporate purposes and provided an additional 3,993 of bitcoin as collateral for this borrowing.

This increased the Company’s collateral balance at that time (for its outstanding $49,882 thousand term loan and the additional

$50,000 thousand RLOC borrowing) to 7,821 bitcoin.

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

instability in the industry as a result of the FTX collapse.

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

(fair valued at $16,213 per bitcoin) as collateral for its outstanding borrowings, bringing its total collateral balance to 9,490 bitcoin

(or approximately $153,900 thousand fair value).

The Company’s total bitcoin holdings as of November 9, 2022, were 11,440 bitcoin,

of which 1,950 (approximately $31,600 thousand) were unrestricted.

During November and December 2022, the Company repaid the $50,000 thousand

in RLOC borrowings.

This repayment enabled the Company to reduce its bitcoin held as collateral to approximately 4,416 bitcoin (with a

fair value of approximately $73,074 thousand) by December 31, 2022.

holdings outlook:

We expect that our future bitcoin holdings will generally increase but will fluctuate from time-to-time, both

in number of bitcoin held and fair value in US dollars, depending upon operating and market conditions.

For example, we would expect:

bitcoin holdings and the value of those holdings will increase most significantly in periods where we experience both higher production

and higher bitcoin prices.

bitcoin holdings and value of those holdings will be mixed in periods with either (1) higher production combined with lower bitcoin

prices, or (2) lower production combined with higher bitcoin prices.

bitcoin holdings and the value of those holdings will most likely decrease in periods where we experience both lower production and

lower bitcoin prices.

We intend to add to our bitcoin holdings primarily through our production

activities and we also intend to sell bitcoin as a means of generating cash to cover monthly operating costs and for general corporate

We do not intend to make any significant purchases of bitcoin on the open market as means of increasing our bitcoin holdings,

although we may buy and sell bitcoin from time-to-time (separately from what is outlined above) for treasury management purposes.

Cash and cash equivalents, excluding restricted cash, totaled $103,705 thousand at December 31, 2022.

The Company expects

to have sufficient liquidity, including cash on hand, cash received from sales of our bitcoin holdings, and access to public capital

markets to support ongoing operations.

Our primary source of funding during 2022 and 2021 (other than the asset sales described above

during 2022) has been capital markets activities (primarily through our At-The-Market facility and our 2021 convertible debt offering).

We will continue to seek to fund our business activities, and especially our growth opportunities, through the public capital markets,

primarily through periodic equity issuances using our At-The-Market facility.

risks to our liquidity outlook would include events that materially diminish our access to capital markets and/or the value of our bitcoin

holdings and production capabilities, including:

to effectively execute our growth strategies.

challenges in the bitcoin mining space and/or additional contagion events (like the FTX collapse) that would damage the credibility

of, and therefore investor confidence in, companies engaged in the digital assets space.

declines in bitcoin prices and/or production, which would impact both the value of our bitcoin holdings and our ongoing profitability.

increases in electricity costs if these cost increases were not accompanied by increases in the price of bitcoin, as this would also

reduce profitability.

Deteriorating

macroeconomic conditions (for example a recession in 2023 that is deeper or longer than current expectations)

January 27, 2023, the Company and FSI entered into an Agreement regarding formation of an Abu Dhabi Global Markets company (the “ADGM

Entity”), whose purpose shall be to jointly (a) establish and operate one or more mining facilities for digital assets;

mine digital assets.

The initial project by the ADGM Entity shall consist of two digital asset mining sites comprising 250 MW in Abu

Dhabi, and the initial equity ownership in the ADGM Entity shall be 80% FSI and 20% the Company, and capital contributions will be made,

subject to the satisfaction or waiver of certain conditions, during the 2023 development period in those proportions, consisting of both

cash and in kind, in amounts of approximately $406,000 thousand in aggregate.

On February 6, 2023, the Company

provided Silvergate Bank with the required 30-day notice stating the Company’s intent to prepay the outstanding balance on its term

loan facility as well as the Company’s intent to terminate the term loan facility.

The Company and Silvergate subsequently agreed

to also terminate the revolving line of credit (“RLOC”) facility.

On March 8, 2023, the term loan prepayment was completed,

and the Company’s term loan and RLOC facilities with Silvergate Bank were terminated.

On March 12, 2023, Signature

Bank was closed by its state chartering authority, the New York State Department of Financial Services.

On the same date the Federal Deposit Insurance Corporation (“FDIC”) was

appointed as receiver and transferred all customer deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank,

N.A., a full-service bank that is being operated by the FDIC.

The Company automatically became a customer of Signature Bridge Bank, N.A.

as part of this action.

The Company held approximately $142,000 thousand cash deposits at

Signature Bridge Bank, N.A.as of March 12, 2023.

Normal banking activities resumed on Monday, March 13, 2023.

Sheet Arrangements

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis