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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-10 · 526 added, 419 removed, 147 unchanged (87% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

otherwise indicated or the context otherwise requires, references to “Marathon,” and the “Company” refer to Marathon

Digital Holdings, Inc.

and its consolidated subsidiaries.

All dollar amounts referenced in this Item 2 are in thousands, except per share, bitcoin, and per bitcoin amounts.

report on Form 10-Q (“Report”) and other written and oral statements made from time to time by us may contain so-called “forward-looking

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or current facts.

These statements are likely to address our growth strategy, financial results and product and development programs.

One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our

forward-looking statements.

These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including

some that are known and some that are not.

No forward-looking statement can be guaranteed, and actual future results may vary materially.

regarding market and industry statistics contained in this Report is included based on information available to us that we believe is

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

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

included in this Report.

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

and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services.

We do not assume any obligation to update any forward-looking statement.

As a result, investors should not place undue reliance on these

forward-looking statements.

following discussion and analysis are 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.

The Company was incorporated in the State of Nevada

on February 23, 2010 under the name Verve Ventures, Inc.

In October 2012, 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 March 31, 2023, the Company is solely focused on the mining of bitcoin and

ancillary opportunities within the Bitcoin ecosystem under the name Marathon Digital Holdings, Inc.

and operates primarily in the United

States and with certain strategic joint ventures in the Middle East under development.

during the three months ended March 31, 2023

These statements are likely to address the Company’s growth strategy, financial results and product and development

One must carefully consider any such statement and should understand that many factors could cause actual results to differ

from the Company’s forward-looking statements.

These factors may include inaccurate assumptions and a broad variety of other risks

and uncertainties, including some that are known and some that are not.

No forward-looking statement can be guaranteed, and actual future

results may vary materially.

regarding market and industry statistics contained in this Report is included based on information available to the Company that the

Company believes is accurate.

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

offerings or economic analysis.

The Company has not reviewed or included data from all sources and cannot assure investors of the accuracy

or completeness of the data included in this Report.

Forecasts and other forward-looking information obtained from these sources are

subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market

acceptance of products and services.

The Company does not assume any obligation to update any forward-looking statement.

investors should not place undue reliance on these forward-looking statements.

following discussion and analysis are intended as a review of significant factors affecting the Company’s financial condition and

results of operations for the periods indicated.

The discussion should be read in conjunction with the Company’s consolidated financial

statements and the notes presented herein.

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.

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.

is a digital asset technology company dedicated to securing and supporting the Bitcoin ecosystem.

The business is focused on producing

or “mining” bitcoin using one of the largest and most efficient fleets of highly specialized computers in the industry.

Company successfully leverages technology across the value chain to improve efficiency and increase market share.

The Company is also

committed to carbon neutrality and growing operations through predominately renewable sources of energy.

The Company’s “asset-light”

capital strategy has fueled significant market share gains while also helping build one of the largest bitcoin positions on the balance

sheet among our North American publicly traded peers.

As of June 30, 2023, the Company had nearly 150,000 mining rigs in operation and owned

12,538 bitcoin.

With its strong balance sheet and significant scale, the Company’s strategy has recently evolved beyond “asset-light”

to include joint ventures with our landmark project located in Abu Dhabi.

Company has continued its focus on expanding its operational capabilities during the period both domestically and internationally.

January 27, 2023, the Company and FS Innovation, LLC (“FSI”) entered into

a Shareholders’ Agreement (the “Agreement”) regarding formation of an Abu Dhabi Global Markets company (the “ADGM

January 27, 2023, Marathon Digital Holdings, Inc.

(the “Company”) and FS Innovation, LLC (“FSI”) entered into

a Shareholders’ Agreement (the “Agreement”) regarding the 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;

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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 million in aggregate.

FSI will appoint four

directors to the board of the ADGM Entity, and the Company will appoint one director.

in those proportions, consisting of both cash and in kind, in amounts of approximately $406,000 in aggregate.

FSI will appoint four directors

to the board of the ADGM Entity, and the Company will appoint one director.

otherwise not permitted by applicable law, the digital assets mined by the ADGM Entity will be distributed to the Company and FSI twice

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The Garden City, TX site is fully installed but is pending regulatory approval and was therefore not yet operational

at March 31, 2023.

Bitcoin production increased to 2,195 bitcoin during the three months ended March 31, 2023, an average of 24.4 bitcoin

During the three months ended March 31, 2022, we produced 1,259 bitcoin, an average of 14.0 bitcoin per day.

The 74% increase

in production was a result of increasing the scale of our operations, primarily from the commencement and ramp up of operations at our

North Dakota sites.

at June 30, 2023.

Bitcoin production increased to 2,926 bitcoin during the three months ended June 30, 2023, an average of 32.2 bitcoin

During the three months ended June 30, 2022, the Company produced 1,259 bitcoin, an average of 14.0 bitcoin per day.

increase in production was primarily the result of increasing the scale of the Company’s operations.

prices also rebounded significantly during the 2023 period, increasing from $16,548 per bitcoin at December 31, 2022 to $30,467 per bitcoin

at March 31, 2023.

at June 30, 2023.

This increase in the market value of bitcoin resulted in lower levels of impairment recorded during the period, and

a higher market value of our bitcoin holdings at March 31, 2023 compared with December 31, 2022.

a higher market value of the Company’s bitcoin holdings at June 30, 2023 compared with December 31, 2022.

Company also commenced a program to sell some of its bitcoin as a means of offsetting monthly cash operating costs.

We sold 2,900 bitcoin

for total proceeds of $62,646 thousand, realizing gains on sales of bitcoin of $17,615 thousand during the three months ended March 31,

The Company sold

4,754 bitcoin for total proceeds of $113,928, realizing gains on sales of bitcoin of $40,120 during the six months ended June 30, 2023.

There were no such sales in the prior-year period.

Company terminated its credit facilities with Silvergate Bank and responded to the closure of Signature Bank by diversifying its cash

management services among several institutions.

management services among multiple institutions.

Key activities during the period related to these efforts included the following:

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bank that was being operated by the FDIC.

The Company held approximately $142,000 thousand

cash deposits at Signature Bridge Bank, N.A.

The Company held approximately $142,000 of cash

deposits at Signature Bridge Bank, N.A.

when normal banking activities resumed on March 13,

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by transferring funds to other financial institutions and through other treasury management

The Company no longer has any deposits at Signature Bank or its successors.

The Company no longer has any deposits at Signature Bank or its successor.

June 5, 2023, the Company entered into a securities purchase agreement for the purchase of

15,000 shares of Series A redeemable convertible preferred stock.

On June 8, 2023, upon closing

of the offering, the Company issued 15,000 shares of Series A Preferred Stock for total gross

proceeds of $14,286 before deducting the placement agent’s fees and other estimated

offering expenses.

Each share of Series A Preferred Stock had a purchase price of $952.38,

representing an original issue discount of approximately 5% of the $1,000 stated value of

Each share of Series A Preferred Stock is convertible into shares of the Company’s

common stock at an initial conversion price of $14.52 per share, at the option of the holder,

at any time following the Company’s receipt of stockholder approval for an increase

in its authorized shares of common stock.

The Company will be permitted to compel conversion

of the Series A Preferred Stock after the fulfillment of certain conditions and subject to

certain limitations (see NOTE 11 – STOCKHOLDERS’ EQUITY, Series A Preferred

Stock to the condensed consolidated financial statements for additional information).

Accounting Policies and Estimates

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:

of the Company’s financial statements, and are those that it believes are the most critical to aid the understanding and evaluation

of this management discussion and analysis:

from contracts with customers

assets (bitcoin) are included in current and other assets in the accompanying consolidated condensed balance sheet.

assets (bitcoin) are included in current and other assets in the accompanying condensed consolidated balance sheets.

Digital assets awarded

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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 1 input under the ASC 820 - “Fair Value Measurement” (“ASC 820”) hierarchy as these were

based on observable quoted prices in the Company’s principal market for identical assets.

Subsequent reversal of impairment losses

is not permitted.

of digital assets by the Company are included within investing activities in the accompanying consolidated condensed statements of cash

ASC 350 – Intangibles-Goodwill and Other .

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 1 input

under the ASC 820 - Fair Value Measurement hierarchy as these were based on observable quoted prices in the Company’s principal

market for identical assets.

Subsequent reversal of impairment losses is not permitted.

of digital assets by the Company are included within investing activities in the accompanying condensed 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 condensed statements of cash flows.

The sales of digital assets are included within investing

activities in the accompanying consolidated condensed statements of cash flows and any realized gains or losses from such sales are included

in operating expenses in the consolidated condensed statements of operations.

activities on the accompanying condensed consolidated statements of cash flows.

The sales of digital assets are included within operating

activities in the accompanying condensed consolidated statements of cash flows and any gains or losses from such sales are included

in operating expenses in the condensed consolidated statements of operations.

from contracts with customers

Company recognizes revenue in accordance with FASB ASC Topic 606 – “Revenue from Contracts with Customers” (“ASC

The core principle of the revenue standard is that an entity 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:

Company recognizes revenue in accordance with FASB ASC Topic 606 – Revenue from Contracts with Customers .

The core principle

of the revenue standard is that an entity 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.

following five steps are applied to achieve that core principle:

Identify the contract with the customer

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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).

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);

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

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was previously open to third-party pool participants from September 2021 until May 2022.

As Operator, the Company provides transaction verification services.

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 a contract with a customer under ASC 606.

The bitcoin network

is not an entity such that it may not 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 engaged unrelated third-party mining enterprises (“pool

participants”) to contribute computing power, and in exchange, remitted 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”).

determined that it controlled the service of providing transaction verification services to the network and requester as the Company’s

wallet as Operator was recorded on the distributed ledger as the transaction verifier of record, the pool participants entered into contracts

with the Company and not the network or requester, and the Company delegated mining work to pool participants.

Therefore, the Company

recorded 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 revenues.

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

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 solved) and has

been consistently applied in all periods presented.

the Company is a Participant in a third-party operated mining pool, the Company provides hash rate that is an output

of the Company’s ordinary activities in exchange for consideration.

The Company considers the third-party mining pool operators

its customers under Topic 606.

These contracts are period-to-period contracts because they are terminable at any time by either party

without compensation.

A new contract is determined to exist each period (i.e., second, minute, hour) that neither the Company, nor the

pool operator, terminates the arrangement.

consideration to which the Company is entitled is a fractional share of the block award and transaction fees;

the amount of which

is based on the proportion of the Company’s contributed hash rate to the total computing power contributed by all mining pool participants

in solving the current algorithm as calculated and determined by the pool operator, usually through usage of a mining software, net of

any pool fees due to the pool operator.

The Company receives the consideration in aggregate typically within 24 hours of winning the

block, and any disputes to the consideration to which the Company is entitled can be made by notifying and resolving the issues with

the pool operators.

However, there have not been any subsequent adjustments to the fees received, therefore the Company concludes that

it is probable that a significant reversal of revenue recognized will not occur upon settlement.

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 computing power is the only performance obligation under our arrangements with third-party 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

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 a contract with a customer under ASC 606.

The bitcoin network is not an entity such that it may not 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.

Company engaged unrelated third-party mining enterprises (“pool participants”) to contribute computing power, and in exchange,

remitted 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 controlled the service of providing transaction

verification services to the network and requester as the Company’s wallet as Operator was recorded on the distributed ledger as

the transaction verifier of record, the pool participants entered into contracts with the Company and not the network or requester, and

the Company delegated mining work to pool participants.

Therefore, the Company recorded 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 revenues.

During the three months ended June 30, 2023, the Company changed its operator

accounting policy from measuring the block reward and transaction fees using the end of day spot rate for bitcoin to the quoted spot rate

at the time the block reward and transaction fees are earned.

accordance with ASC 606-10-32-21, the Company measures the estimated fair value of noncash consideration at contract inception, which

is the same 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.

The Company applies the quoted spot rate for bitcoin determined using

the Company’s primary trading platform for bitcoin at the time the block reward and transaction fee is earned to measure revenues.

Company participates in multiple third-party operated mining pools only when our Company-operated mining pool is not available.

methodologies differ depending on the payout third-party operated mining pool.

Pay-Per-Share (PPS) and Full-Pay-Per-Share (FPPS) pools

pay rewards based on a contractual formula, which primarily calculates the hash rate provided by the Company to the mining pool as a

percentage of total network hash rate, and other inputs.

For PPS and FPPS pools, the Company is entitled to consideration even if a block

is not successfully placed by the mining pool operator.

The Company also participates in third-party mining pools that pay rewards only

when the pool successfully mines a block.

For these pools, the Company only earns a reward when the third-party pool successfully mines

a block and its reward is the fractional share of the successfully mined block and transaction fee 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 algorithm.

the Company is a Participant in a third-party operated mining pool, the Company provides hash rate that is an output of the Company’s

ordinary activities in exchange for consideration.

The Company considers the third-party mining pool operators its customers under Topic

These contracts are period-to-period contracts because they are terminable at any time by either party without compensation.

contract is determined to exist each period (i.e., second, minute, hour) that neither the Company, nor the pool operator, terminates

the arrangement.

the Company participates in PPS and FPPS pools, which pay rewards based on a contractual formula, the Company recognizes revenue based

on the daily contributed hash rate and other inputs measured at the average daily spot rate of bitcoin determined using the Company’s

primary trading platform for bitcoin.

The Company participates in third-party operated pools only when our Company-operated mining pool

is not available, therefore, the duration of contributed hash rate will fluctuate during any given day.

Accordingly, we measure the reward

for PPS and FPPS pools based on the daily average spot rate to match the contribution of hash rate which can occur throughout the day.

the Company participates in third-party pools that pay rewards only when the pool successfully mines a block, the Company recognizes

its fractional share of the block and transaction fees using the spot rate of bitcoin at the time that the block is successfully mined.

computing power on mining 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 activities.

The provision of computing power is

the only performance obligation under the Company’s arrangements with third-party 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.

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 fees in the Company’s digital wallet.

Since the Company does not have visibility on its contributed

computing power relative to the pool’s total computing power, which is one of the key inputs that determine the fractional block

reward and transaction fees share to which it is entitled to;

therefore, it only knows the amount of non-cash consideration to which

it is entitled upon settlement of the Company’s earned fractional share into its digital wallet.

Because of this and the fact that

the Company’s fractional share substantively varies from block to block, it is not probable that a significant reversal of revenue

will not occur until the uncertainty related to the Bitcoin to which the Company is entitled ultimately resolves at settlement.

At settlement,

the total block reward and transaction fees consideration earned by the pool operator are allocated and distributed (with no provision

for, or risk of, clawback) by the pool operator to each participant based on each participant’s contribution of computing power.

Consequently, at that point in time, the risk of significant revenue reversal abates such that consideration should be added to the transaction

price (and revenue recognized accordingly).

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.

Company uses its accounting convention to measure revenue based upon 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 wallet.

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.

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 primarily 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.

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 primarily

composed of bitcoin mining rigs, which are largely homogeneous and have approximately the same useful lives.

Accordingly, the Company utilizes

the group method of depreciation for its bitcoin mining rigs.

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.

reviews the Company’s long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount

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with ASC 820.

The primary objectives of accounting for income taxes

are (i) to recognize the amount of income taxes payable or refundable for the current year, and (ii) to recognize deferred tax liabilities

and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.

accounts for income taxes in accordance with ASC 740 - “Income Taxes” (“ASC 740”), using the asset and liability

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

Recognized tax positions are measured at the largest amount of benefit greater than 50% likely of being realized.

the Company evaluates tax positions and adjust related tax assets and liabilities in light of changing facts and circumstances.

The Company records 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.

primary objectives of accounting for income taxes are (i) to recognize the amount of income taxes payable or refundable for the current

year, and (ii) to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in

that financial statements or tax returns.

The Company accounts for income taxes in accordance with ASC 740 - Income Taxes , 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 the income tax benefit or expense and deferred tax assets and liabilities.

The Company recognizes 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, the Company evaluates tax positions and adjust related tax assets and liabilities in

light of changing facts and circumstances.

Company records a valuation allowance to reduce deferred tax assets to the net amount that the Company believes 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.

Issued Accounting Standards

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to our consolidated condensed financial statements for a discussion

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to the condensed consolidated financial statements for a discussion

of recent accounting standards and pronouncements.

Financial Measures

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) losses

on extinguishment of debt.

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.

of Operations – Three months ended March 31, 2023 compared to the three months ended March 31, 2022

addition to our results determined in accordance with GAAP, the Company also provides adjusted EBITDA and total margin excluding depreciation

and amortization, which are non-GAAP measures.

The Company provides investors with reconciliations from net loss to adjusted EBITDA and

total margin to total margin excluding depreciation and amortization as components of Management’s Discussion and Analysis.

Company defines 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) losses on extinguishment of debt.

The Company defines total margin

excluding depreciation and amortization as (a) GAAP total margin less (b) depreciation and amortization.

EBITDA and total margin excluding depreciation and amortization are not financial measures of performance under GAAP and, as a result,

these measures 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.

These non-GAAP measures

are 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 adjusted EBITDA, total margin excluding depreciation

and amortization, and the supplemental information provided herein as a means of understanding, managing, and evaluating business performance

and to help inform operating decision making.

The Company relies primarily on our condensed consolidated financial statements to understand,

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

of Operations – Three months ended June 30, 2023 compared to the three months ended June 30, 2022

Summary Table:

Months Ended March 31,

(in thousands)

Three Months Ended June 30,

(Unfavorable)

(As Restated)

Total revenues

1 unchanged sentence

Cost of revenues

Cost of revenues - energy,

hosting and other

of revenues - depreciation and amortization

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 patents

Realized gains on digital assets and unrealized

gains (losses) on digital assets loan receivable

Realized and unrealized

gains (losses) on digital assets held within Investment Fund

operating expenses

Gains on digital assets and losses on digital assets loan receivable

Gain on sale of equipment, net of disposals

Losses on digital assets held within investment fund

Total operating expenses

Operating loss

Other non-operating income

Loss from extinguishment of debt

Interest expense

Loss before income taxes

Income tax benefit (expense)

Bitcoin (“BTC”) production during

the period, in whole BTC

Income tax expense

Supplemental information:

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

Average BTC per day, in whole BTC

Total margin (total revenues less total cost

General and administrative expenses excluding stock-based compensation

Installed Hash Rate (Exahashes per second) - at end of period (1)

Energized Hash Rate (Exahashes per second) - at

end of period (1)

Average operational Hash Rate (Exahashes per second) (2)

Reconciliation to Total margin excluding depreciation and amortization:

Total revenues

Total cost of revenues

Total margin (total revenues less total cost of revenues)

Depreciation and amortization

Total margin excluding depreciation and amortization

General and administrative expenses excluding

stock-based compensation

Installed Hash Rate (Exahashes per second)

- at end of period (1)

Energized Hash Rate (Exahashes per second)

- at end of period (1)

Reconciliation

to Adjusted EBITDA:

Reconciliation to Adjusted EBITDA:

Interest expense

Income tax expense (benefit)

Income tax expense

Depreciation and amortization

Stock compensation expense

Loss from extinguishment

Impairment of patents

The Company defines Energized

Hash Rate as the total hash rate that could theoretically be generated if all mining rigs that have been operational / energized are

currently in operation and running at 100% of the manufacturers’ specifications (includes mining servers that are offline for

maintenance or similar reasons).

The Company uses this metric as an indicator of progress in bringing rigs on-line.

The Company defines

Installed Hash Rate as the sum of Energized Hash Rate and hash rate that has been installed but is not yet operational (e.g.

rigs that have been installed, but are not yet energized and in operation).

The Company uses this metric as an indicator of progress

in deploying mining rigs at its production sites.

Hash rates are estimates based on the manufacturers’ specifications.

The Company believes that

these metrics are useful as an indicator of potential bitcoin production.

However, these metrics cannot be tied directly to any production

level expected to be actually achieved as (a) there may be delays in the energization of Installed Hash Rate (b) the Company cannot

predict when installed and energized rigs may be offline for any reason, including curtailment or machine failure and (c) the Company

cannot predict Global Hash Rate (and therefore the Company’s share of the Global Hash Rate), which has significant impact on

the Company’s ability to generate bitcoin in any given period.

We generated revenues of $51,132 thousand for the three months ended March 31, 2023 compared with $51,723 thousand in the prior-year

The $591 thousand decrease in revenue was primarily driven by a $39,044 thousand decrease in revenue resulting from lower bitcoin

prices in the current year period, partially offset by increased revenues of $38,453 thousand related to a 74% increase in production

year-over-year.

Average daily bitcoin production was 24.4 bitcoin in the current year period compared with 14.0 in the prior-year

period, reflecting the increasing scale of our operations.

Adjusted EBITDA

Company defines Energized Hash Rate as the total hash rate that could be generated if all

installed and energized machines were running at 100% of manufacturers specifications.

Company uses this metric only as an indicator of progress in bringing mining rigs on-line.

defines Installed Hash Rate as the total hash rate that could be generated if all installed

machines were running at 100% of manufacturers specifications.

The Company uses this metric

only as an indicator of progress in deploying mining rigs at its production sites.

believes that these metrics are useful as an indicator of potential bitcoin production.

these metrics cannot be tied directly to any production level expected to be actually achieved

as (a) there may be delays in the energization of Installed Hash Rate (b) the Company cannot

predict when installed and energized mining rigs may be offline for any reason, including curtailment

or machine failure and (c) the Company cannot predict Global Hash Rate (and therefore the

Company’s share of the Global Hash Rate), which has a significant impact on the Company’s

ability to generate bitcoin in any given period.

(2) Defined as the daily Average Operational Hash Rate online during the period.

Data not available for prior periods.

The Company generated revenues of $81,759 for the three months ended June 30, 2023 as compared with $24,923 in the prior-year period.

The $56,836 or approximately 228% increase in revenue was primarily driven by an increase in production year-over-year of $78,224, partially

offset by a $21,388 decrease resulting from lower bitcoin prices in the current year period.

Average daily bitcoin production was 32.2

bitcoin in the current year period compared with 7.8 in the prior-year period, reflecting the increasing scale of the Company’s

of revenues :

Cost of revenues – energy, hosting and other during the three months ended March 31, 2023, totaled

$33,377 thousand compared with $12,522 thousand in the prior-year period.

The $20,855 thousand increase was driven by higher production

costs of $17,022 thousand, and the impact of increased bitcoin production of $6,974 thousand partially offset by the absence of accelerated

costs associated with the exit of the Hardin facility in the prior-year period of $3,141 thousand.

Cost of revenues – depreciation

and amortization during the three months ended March 31, 2023, totaled $17,733 thousand compared with $13,877 thousand in the prior-year

The increase in depreciation was primarily related to an increase in mining rigs in operation related to the increased scale

of the business partially offset by the absence of accelerated depreciation of $4,629 thousand recorded in the prior-year period related

to the exit from Hardin.

Total margin was a loss of $22 thousand in the current three months ended March 31, 2023 compared with income of $25,324

thousand in the prior-year period, a decline of $25,302 thousand.

This decline 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

Cost of revenues – energy, hosting

of higher unit costs

of accelerated cost recognition from Hardin exit

of higher production activity

Cost of revenues – depreciation

and amortization:

of accelerated cost recognition from Hardin exit

primarily increased mining rigs in operation

Cost of revenues – energy, hosting and other during the three months ended June 30, 2023 totaled $55,222

as compared with $16,686 in the prior-year period.

The $38,536 or approximately 231% increase was driven by the impact of increased bitcoin

production of $51,229, partially offset by lower production costs of $3,343 and the absence of accelerated costs associated with the

exit of the Hardin, Montana facility in the prior-year period of $9,350.

Cost of revenues – depreciation and amortization during the

three months ended June 30, 2023, totaled $37,275 as compared with $24,710 in the prior-year period.

The $12,565 or approximately 51%

increase in depreciation was primarily due to an increase in mining rigs in operation related to the increased scale of the business,

partially offset by the absence of accelerated depreciation of $15,306 recorded in the prior-year period related to the exit of the Hardin,

Montana facility.

Total margin was a loss of $10,738 in the current three months ended June 30, 2023 as compared with a loss of $16,473

in the prior-year period, a decline of $5,735 or approximately 35%.

The following table summarizes the factors that impacted the decline

in total margin for the three months ended June 30, 2023 compared to the prior-year period:

Higher production activity

Lower bitcoin market prices

Cost of revenue – energy, hosting and other:

Lower unit costs

Accelerated cost recognition from Hardin exit

Higher production activity

Cost of revenue – depreciation and amortization:

Accelerated cost recognition from Hardin exit

Other, primarily increased mining rigs in operation

and administrative expenses :

General and administrative expenses were $15,344 thousand for the three

months ended March 31, 2023, compared with expenses of $15,515 thousand in the prior-year period.

General and administrative expenses were $20,491 for the three months ended June 30, 2023 as compared

with expenses of $10,469 in the prior-year period, an increase of $10,022 or approximately 96%.

Our general and administrative expenses

included stock-based (non-cash) compensation expense of $3,945 thousand in the current period and $9,275 thousand in the prior-year period.

The decrease in stock-based compensation is primarily related to generally lower value of the Company’s stock when compared to the

prior year partially offset by additional restricted stock unit issuances associated with increases in headcount.

General and administrative

expenses excluding stock-based compensation was $11,399 thousand in the current period compared with $6,240 thousand in the prior-year

This $5,159 thousand increase in expense was primarily due to the increases associated with the larger scale of the business,

including higher cash compensation and benefits costs of $2,080 thousand (resulting primarily from an increase in headcount from 13 employees

in the prior-year period to over 30 employees in 2023), increased professional fees of $2,358 thousand and increased insurance costs of

$1,158 thousand.

included stock-based (non-cash) compensation expense of $4,451 in the current period and $6,176 in the prior-year period.

in stock-based compensation is primarily related to lower average restricted stock unit grant date fair value, partially offset by additional

restricted stock unit issuances associated with increases in headcount.

General and administrative expenses excluding stock-based compensation

was $16,040 in the current period as compared with $4,293 in the prior-year period.

This $11,747 or approximately 274% increase in expense

was primarily due to payroll, professional fees, higher property taxes, other third party costs related to the increasing scale of business and contributions in support of the Bitcoin

Payroll increased primarily due to performance incentives and headcount, which increased from 17 employees in the prior-year period to over 40 employees in 2023.

of digital assets:

We incurred impairments of digital assets during the three months ended

March 31, 2023 of $6,151 thousand compared with impairments of $17,647 thousand in the prior-year period.

The Company incurred impairments of digital assets during the three months ended June 30, 2023 of $8,363 as

compared with impairments of $131,581 in the prior-year period, a decrease of $123,218 or approximately 94%.

This decrease in impairment

1 unchanged sentence

generally decreasing during the prior-year period.

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

utilized in its business operations.

Realized gains on digital assets and unrealized

gains (losses) digital assets loan receivable:

The Company recognized realized gains of $17,615 thousand on the sale of approximately

2,900 bitcoin during the three months ended March 31, 2023.

Gains on digital assets and losses on digital assets loan receivable:

The Company recognized gains of $23,354

on the sale of approximately 1,854 bitcoin during the three months ended June 30, 2023.

There were no such sales in the prior-year period.

We incurred a loss of $461 thousand during the three

months ended March 31, 2022 primarily a result of the decline in fair value of digital asset loan receivable prior to the repayment of

the loan in June, 2022.

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

The Company exited the fund in June 2022 and as

such, there were no such gains or losses in the current year period.

Total changes in the fair value of the Company’s

investment fund during the three months ended March 31, 2022 resulted in an unrealized loss of $5,328 thousand.

non-operating income (loss) :

Other non-operating income was $791 thousand during the three months ended March 31, 2023 compared

with $247 thousand in the prior-year period.

The $544 favorable variance was primarily due to increased interest income.

on extinguishment of debt :

On March 8, 2023 the Company paid $50,000 thousand to Silvergate Bank and terminated its term loan

On that same date, the Company and Silvergate Bank also agreed to terminate the Company’s revolving credit facility (“RLOC”).

Although there were no prepayment penalties associated with these actions, the Company incurred a loss on extinguishment of debt of $333

thousand related to the write-off of the unamortized balance of debt issuance costs associated with the facilities.

Interest expense increased $946 thousand from the prior-year period as a result of higher interest costs associated

with the company’s term loan facility.

The Company incurred interest costs on the $50,000 thousand outstanding balance on the term

loan facility from January 1 through March 8, 2023.

There were no borrowings on the term loan facility in the prior-year period.

tax (expense) benefit :

The Company recorded income tax expense of $75 thousand for the three months ended March 31, 2023 compared

with an income tax benefit of $4,262 thousand in the prior-year period.

The unfavorable tax variance of $4,337 thousand was primarily

due to the establishment of a valuation allowance in the year ended December 31, 2022, as the Company determined it was more likely than

not that they would not have sufficient future taxable income to realize the Company’s federal and state deferred tax assets.

income (loss) :

The Company recorded a net loss of $7,235 thousand for the three months ended March 31, 2023 compared with net

loss of $12,851 thousand in the prior-year period.

This $5,616 thousand improvement in net loss was primarily driven by the impact of

the realized gain on sale of digital assets and favorable variances related to the impairment of digital assets and realized gains and

losses on digital assets held within the investment fund partially offset by lower total margin.

Adjusted EBITDA was $18,611 thousand in the three months ended March 31, 2023 compared with $9,772 thousand in the

The Company recognized a loss of $13,999 in the prior-year period as a result of a decline in fair value of digital assets loan receivable

that was repaid in June, 2022.

Losses on digital assets held within Investment Fund:

The Company exited the fund in June 2022 and as such, there were no such

gains or losses in the current year period.

Total changes in the fair value of the Company’s investment fund during the three months

ended June 30, 2022 resulted in a loss of $79,689.

non-operating income :

Other non-operating income was $148 during the three months ended June 30, 2023 as compared with $135 in

the prior-year period.

The $13 or approximately 10% favorable variance was primarily due to increased interest income.

Interest expense decreased $908 or approximately 24% from the prior-year period as a result of lower interest costs

primarily as a result of the absence of the line of credit facility during the three months ended June 30, 2023 as compared with the

prior-year period.

The $8,839 thousand increase in adjusted EBITDA was primarily driven by positive impacts of realized gains on

digital assets sold of $17,615 thousand and lower impairment of digital assets of $11,496 thousand.

Adjusted EBITDA also benefited

from the absence of several expenses recorded in the prior-year period, including realized and unrealized losses on digital

assets held within the investment fund of $5,328 thousand and realized gains on digital assets and unrealized gains (losses) on

digital assets loan receivable of $461 thousand.

These favorable variances were partially offset by lower total margin excluding

depreciation and amortization of $21,446 thousand and higher general and administrative expenses excluding stock-based compensation

of $5,159 thousand.

The Company terminated the line of credit facility during the three months ended March 31, 2023.

tax expense :

The Company recorded income tax expense of $203 for the three months ended June 30, 2023 as compared with an income

tax expense of $10,862 in the prior-year period.

The favorable tax variance of $10,659 or approximately 98% was primarily due to the

establishment of a valuation allowance in the year ended December 31, 2022, as the Company determined it was more likely than not that

they would not have sufficient future taxable income to realize the Company’s federal and state deferred tax assets.

The Company recorded a net loss of $19,133 for the three months ended June 30, 2023 as compared with a net loss of $212,626

in the prior-year period.

This $193,493 or approximately 91% improvement in net loss was primarily driven by the impact of the gain on sale of digital assets and favorable variances related to the impairment of digital assets and losses on digital assets

held within the investment fund partially offset by lower total margin.

Adjusted EBITDA was $25,636 in the three months ended June 30, 2023 as compared with an adjusted EBITDA loss of $167,130

in the prior-year period.

The $192,766 or approximately 115% increase in adjusted EBITDA was primarily driven by positive impacts of gains on digital assets sold of $23,354 and lower impairment of digital assets of $123,218.

Adjusted EBITDA also benefited from

the absence of several expenses recorded in the prior-year period, including losses on digital assets held within

the investment fund of $79,689 and gains on digital assets and losses on digital assets loan receivable of $13,999.

These favorable variances were partially offset by lower total margin excluding depreciation and amortization of $18,300 and higher general

and administrative expenses excluding stock-based compensation of $11,747.

of Operations – Six months ended June 30, 2023 compared to the six months ended June 30, 2022

Summary Table:

Six Months Ended June 30,

(Unfavorable)

(As Restated)

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 patents

Gains on digital assets and losses on digital assets loan receivable

Gain on sale of equipment, net of disposals

Losses on digital assets held within investment fund

Total operating expenses

Operating loss

Other non-operating income

Loss from extinguishment of debt

Interest expense

Loss before income taxes

Income tax expense

Supplemental information:

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

Average BTC per day, in whole BTC

General and administrative expenses excluding stock-based compensation

Installed Hash Rate (Exahashes per second) - at end of period

Energized Hash Rate (Exahashes per second) - at end of period

Average operational Hash Rate (Exahashes per second)

Reconciliation to Total margin excluding depreciation and amortization:

Total revenues

Total cost of revenues

Total margin (total revenues less total cost of revenues)

Depreciation and amortization

Total margin excluding depreciation and amortization

Reconciliation to Adjusted EBITDA:

Interest expense

Income tax expense

Depreciation and amortization

Stock compensation expense

Loss from extinguishment of debt

Impairment of patents

Adjusted EBITDA

The Company generated revenues of $132,891 for the six months ended June 30, 2023 as compared with $76,646 in the prior-year period.

The $56,245 or approximately 73% increase in revenue was primarily driven by an increase in production year-over-year of $122,961, partially

offset by a $66,716 decrease in revenue resulting from lower bitcoin prices in the current year period.

Average daily bitcoin production

was 28.3 bitcoin in the current year period compared with 10.9 in the prior-year period, reflecting the increasing scale of the Company’s

of revenues :

Cost of revenues – energy, hosting and other during the six months ended June 30, 2023 totaled $88,599

as compared with $29,208 in the prior-year period.

The $59,391 or approximately 203% increase was driven by the impact of increased bitcoin

production of $67,069 and higher production costs of $4,813, partially offset by the absence of accelerated costs associated with the

exit of the Hardin, Montana facility in the prior-year period of $12,491.

Cost of revenues – depreciation and amortization during the

six months ended June 30, 2023, totaled $55,008 as compared with $38,587 in the prior-year period.

The $16,421 or approximately 43% increase

was primarily due to an increase in mining rigs in operation related to the increased scale of the business, partially offset by the

absence of accelerated depreciation of $19,935 recorded in the prior-year period related to the exit of the Hardin, Montana facility.

Total margin was a loss of $10,716 in the current six months ended June 30, 2023 as compared with income of $8,851 in

the prior-year period, a decline of $19,567 or approximately 221%.

The following table summarizes the factors that impacted the decline

in total margin for the six months ended June 30, 2023 as compared to the prior-year period:

Higher production activity

Lower bitcoin market prices

Cost of revenue – energy, hosting and other:

Higher unit costs

Accelerated cost recognition from Hardin exit

Higher production activity

Cost of revenue – depreciation and amortization:

Accelerated cost recognition from Hardin exit

Other, primarily increased mining rigs in operation

and administrative expenses :

General and administrative expenses were $35,836 for the six months ended June 30, 2023 as compared

with expenses of $25,983 in the prior-year period, an increase of $9,853 or approximately 38%.

Our general and administrative expenses

included stock-based (non-cash) compensation expense of $8,396 in the current period and $15,451 in the prior-year period.

in stock-based compensation is primarily related to generally lower value of the Company’s stock when compared to the prior-year,

partially offset by additional restricted stock unit issuances associated with increases in headcount.

General and administrative expenses

excluding stock-based compensation was $27,440 in the current period as compared with $10,532 in the prior-year period.

or approximately 161% increase in expense was primarily due to payroll, professional fees, higher property taxes, and other third party costs related to the increasing scale of business.

Payroll increased primarily due to performance incentives and headcount, which increased from 17 employees in the prior-year period to over 40 employees

of digital assets:

The Company incurred impairments of digital assets during the six months ended June 30, 2023 of $14,514 as

compared with $154,898 in the prior-year period.

This $140,384 or approximately 91% decrease in impairment is primarily related to bitcoin

prices that have generally been increasing during the current year period compared with prices that were generally decreasing during

the prior-year period.

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

in its business operations.

Gains on digital assets and losses on digital assets loan receivable:

The Company recognized gains of $40,969

on the sale of approximately 4,754 bitcoin during the six months ended June 30, 2023.

There were no such sales in the prior-year period.

The Company recognized a loss of $14,460 in the prior-year period as a result of the decline in fair value of digital asset loan receivable

that was repaid in June, 2022.

Losses on digital assets held within Investment Fund:

The Company exited the investment fund in June 2022 and as such, there

were no such gains or losses in the current year period.

Total changes in the fair value of the Company’s investment fund during

the six months ended June 30, 2023 resulted in a loss of $85,017.

non-operating income :

Other non-operating income was $940 during the six months ended June 30, 2023 as compared with $382 in

the prior-year period.

The $558 or approximately 146% favorable variance was primarily due to increased interest income.

on extinguishment of debt :

On March 8, 2023 the Company paid $50,000 to Silvergate Bank and terminated its term loan facility.

On that same date, the Company and Silvergate Bank also agreed to terminate the Company’s RLOC.

Although there were no prepayment

penalties associated with these actions, the Company incurred a loss on extinguishment of debt of $333 related to the write-off of the

unamortized balance of debt issuance costs associated with the facilities.

Interest expense remained relatively flat for the six months ended June 30, 2023 as compared with the prior year period.

tax expense :

The Company recorded income tax expense of $278 for the six months ended June 30, 2023 as compared with $5,190 in

the prior-year period.

The favorable tax variance of $4,912 or approximately 95% was primarily due to the establishment of a valuation

allowance in the year ended December 31, 2022, as the Company determined it was more likely than not that they would not have sufficient

future taxable income to realize the Company’s federal and state deferred tax assets.

The Company recorded a net loss of $26,368 for the six months ended June 30, 2023 as compared with net loss of $229,735

in the prior-year period.

This $203,367 or approximately 89% favorable variance in net loss was primarily driven by the impact of the gain on sale of digital assets and favorable variances related to the impairment of digital assets and losses on digital

assets held within the investment fund and gain on digital assets and losses on digital assets loan receivable, partially

offset by lower total margin.

Adjusted EBITDA was $44,247 in the six months ended June 30, 2023 as compared with an adjusted EBITDA loss of $163,027

in the prior-year period.

The $207,274 increase in adjusted EBITDA was primarily driven by positive impacts of gains on digital

assets sold of $40,969 and lower impairment of digital assets of $140,384.

Adjusted EBITDA also benefited from the absence of several

expenses recorded in the prior-year period, including losses on digital assets held within the investment fund of $85,017, gain

on the sale of equipment, net of disposals of $54,060 and gains on digital assets and losses on digital assets loan

receivable of $13,999.

These favorable variances were partially offset by the absence of gain on sale of equipment, net of disposals

and $16,908 higher general and administrative expenses excluding stock-based compensation during the six months ended June 30, 2023 as

compared with the prior year period.

Condition and Liquidity

Months Ended March 31,

(in thousands)

following table presents a summary of our cash flow activity for the six months ended June 30, 2023 and 2022.

Six Months Ended June 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing

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

Cash and cash equivalents totaled $124,882 thousand at March 31, 2023, an increase of $12,377 thousand from December 31,

Restricted cash was zero at March 31, 2023, a decrease of $8,800 thousand as the Company replaced cash-collateralized letters of

credit with cash deposits during the quarter as a result of the closure of Signature Bank.

flows from operating activities resulted in a use of funds of $28,812 thousand, as cash provided from operating activities before

changes in operating assets and liabilities of $5,648 thousand was more than offset by a use of cash of $34,460 thousand from

changes in operating assets and liabilities.

Changes in cash flow from operating assets and liabilities were driven by uses of funds

associated with bitcoin production revenues of $50,941 thousand and increases in deposits of $23,124 thousand resulting from

deposits associated with hosting agreements and deposits made as replacements for letters of credit.

Prepaid expenses also increased, resulting in a use of cash of $20,738 thousand as the Company prepaid certain expenses due in early

Net cash provided by financing activities

Net increase (decrease) 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

Cash and cash equivalents totaled $127,961 at June 30, 2023, an increase of $15,456 from December 31, 2022.

cash was $14,286 at June 30, 2023, representing the net proceeds held in escrow related to the issuance of Series A Preferred Stock during

The Company replaced cash-collateralized letters of credit with cash deposits which released restrictions on $8,800 of restricted

cash during the quarter ended March 31, 2023, as a result of the closure of Signature Bank.

flows from operating activities resulted in a use of funds of $142,868, as cash provided from operating activities before changes in operating

assets and liabilities of $14,265 was more than offset by a use of cash of $43,205 from changes in operating assets and liabilities.

Changes in cash flow from operating assets and liabilities were driven by a use of funds associated with changes in digital assets ($132,557

due to the non-cash adjustment for bitcoin mining revenues), deposits

($19,325 resulting from increased deposits associated with hosting agreements) and deposits made as replacements for letters of credit

Prepaid expenses also increased, resulting in a use of cash of $6,963 as the Company prepaid certain expenses due in early

April as a means of ensuring a smooth transition from Signature Bank in March 2023.

These uses of funds were partially offset by

proceeds from the sale of bitcoin of $62,646 thousand.

flows from investing activities resulted in a use of funds of $72,029 thousand, primarily resulting from investments made as part of the

establishment of the ADGM Entity (a $43,194 thousand use of funds), advances to vendors of $11,565 thousand, and capital expenditures

of $17,270 thousand.

flows from financing activities resulted in a source of cash of $113,218 thousand, primarily from proceeds from the issuance of

common stock under the Company’s At-The-Market facility of $163,295 thousand partially offset by the repayment of the

Company’s term loan facility of $50,000 thousand.

There were no borrowings outstanding under the Company’s revolving

credit facility during the three months ended March 31, 2023.

On March 8, 2023, the Company terminated both its term loan and its

RLOC facilities with Silvergate Bank.

holdings as of March 31, 2023:

At March 31, 2023, the Company held approximately 11,466 bitcoin on its balance sheet with a carrying

value of $189,087 thousand.

flows from investing activities resulted in a use of funds of $33,951, primarily resulting from investments made as part of the establishment

of the ADGM Entity (a $62,918 use of funds), advances to vendors of $61,834, and capital expenditures of $23,316, partially offset by proceeds from the sale of bitcoin of $113,928.

flows from financing activities resulted in a source of cash of $192,275, primarily from proceeds from the issuance of common stock under

the Company’s At-The-Market facility of $228,833 partially offset by the repayment of the Company’s term loan facility of

There were no borrowings outstanding under the Company’s revolving credit facility during the six months ended June 30,

On March 8, 2023, the Company terminated both its term loan and its RLOC facilities with Silvergate Bank.

holdings as of June 30, 2023:

At June 30, 2023, the Company held approximately 12,538 bitcoin on its balance sheet with a carrying

value of $234,412.

The fair value of a single bitcoin was approximately $30,467.

As a result, the fair market value of our bitcoin

holdings at March 31, 2023 was approximately $326,487 thousand.

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.

We intend to add to our bitcoin holdings primarily through our production activities and we also will continue to sell bitcoin as a means

As a result, the fair market value of our bitcoin holdings

at June 30, 2023 was approximately $381,992.

The Company expects that its 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.

intends to add to its bitcoin holdings primarily through its production activities and will also continue to sell bitcoin as a means

of generating cash to fund monthly operating costs and for general corporate purposes.

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 totaled $124,882 thousand at March 31, 2023.

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.

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.

The Company does not intend to make any significant

purchases of bitcoin on the open market as means of increasing its bitcoin holdings, although it may buy and sell bitcoin from time-to-time

(separately from what is outlined above) for treasury management purposes.

Cash and cash equivalents totaled $127,961 and bitcoin was $381,992 at June 30, 2023.

The combined value of cash

and cash equivalents and bitcoin was $509,953.

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.

The Company will

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

primarily through periodic equity issuances using its 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

4 unchanged sentences

in the digital assets space.

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

and our ongoing profitability.

in bitcoin prices and/or production, which would impact both the value of its bitcoin holdings

and its ongoing profitability.

● Significant

6 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis