CIPHER MINING INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and related notes included elsewhere in this Annual Report. This discussion
contains forward­looking statements based upon current plans, expectations and
beliefs involving risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward­looking statements as a
result of various factors, including those set forth in Part 1, Item 1A, "Risk
Factors" and other factors set forth in other parts of this Annual Report.

Unless the context otherwise requires, references in this Annual Report to the
“Company,” “Cipher,” “Cipher Mining,” “we,” “us” or “our” refers to Cipher
Mining Inc.
and its consolidated subsidiaries, unless otherwise indicated.

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Overview

We are an emerging technology company that develops and operates industrial
scale bitcoin mining data centers. Bitcoin mining is our principal revenue
generating business activity. Cipher Mining Inc., through itself and its
consolidated subsidiaries, including CMTI, currently operates four bitcoin
mining data centers in Texas. Bitcoin mining is our principal revenue generating
business activity.


Our current intention is to continue to expand our bitcoin mining business by
developing additional data centers, expanding capacity at our current data
centers and entering into other arrangements, such as joint ventures or data
center hosting agreements.

Our key mission is to expand and strengthen the Bitcoin network's critical
infrastructure. As of February 28, 2023, we operated approximately 58,500
miners, with an aggregate hashrate capacity of approximately 6.1 EH/s, deploying
approximately 203 MW of electricity, of which we owned approximately 48,500
miners, with an aggregate hashrate capacity of approximately 5.2 EH/s, deploying
approximately 172 MW of electricity.

We operate four bitcoin mining data centers in Texas, including one wholly-owned
and three partially-owned data centers acquired through investments in joint
ventures. Our largest data center is the Odessa Facility which is our
wholly-owned 207 MW facility located in Odessa, Texas. We also operate our
Alborz, Bear and Chief facilities in different sites across Texas pursuant to a
joint venture with WindHQ where we have a 49% membership interest in each
facility. By the end of the first quarter 2023, we anticipate operating
approximately 66,500 miners, capable of generating approximately 6.7 EH/s across
our sites.

Factors Affecting Our Results of Operations


We believe that our performance and future success depend on a number of factors
that present significant opportunities for us. These factors also pose risks and
challenges, including those discussed in Part I, Item 1A. "Risk Factors" of this
Annual Report.

Market Value of Bitcoin.

Our revenues comprise a combination of: (i) block rewards in bitcoin, which are
fixed rewards programmed into the bitcoin software that are awarded to a miner
or a group of miners for solving the cryptographic problem required to create a
new block on a given blockchain and (ii) transaction fees in bitcoin, which are
flexible fees earned for verifying transactions in support of the blockchain.
For further details, see "Business-Revenue Structure."

Our revenues are directly impacted by changes in the market value of bitcoin.
For example, the average bitcoin price for 2020 and 2021 was $11,057 and
$47,385, respectively. Bitcoin price generally declined throughout 2022. As at
December 31, 2022, the price of bitcoin was $16,526. Furthermore, block rewards
are fixed and the Bitcoin network is designed to periodically reduce them
through halving. Currently the block rewards are fixed at 6.25 bitcoin per
block, and it is estimated that it will halve again to 3.125 bitcoin in April
2024. The halving events happen without any regard to ongoing demand, meaning
that if the ongoing demand remains the same after a halving event, whatever
demand was being met by new supply will be restricted, which may necessitate an
adjustment of the price of bitcoin, though there is no definitive evidence of a
causal link between bitcoin's programmatic decrease in supply and broadening
demand. Once the halving occurs, we expect that it could have a negative impact
on our revenues as the reward for each bitcoin mines will be reduced.

Bitcoin miners also collect transaction fees for each transaction they confirm.
Miners validate unconfirmed transactions by adding the previously unconfirmed
transactions to new blocks in the blockchain. Miners are not forced to confirm
any specific transaction, but they are economically incentivized to confirm
valid transactions as a means of collecting fees. Miners have historically
accepted relatively low transaction confirmation fees, because miners have a
very low marginal cost of validating unconfirmed transactions; however, unlike
the fixed block rewards, transaction fees may vary, depending on the consensus
set within the network.
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As the use of the Bitcoin network expands and the total number of bitcoin
available to mine and, thus, the block rewards, declines over time, we expect
the mining incentive structure to transition to a higher reliance on transaction
confirmation fees, and the transaction fees to become a larger proportion of the
revenues to miners.

We have expenses denominated primarily in United States dollars. As such, we are
likely to need to sell a portion of the bitcoin we mine to generate dollars to
meet expenses. This means the market value of bitcoin will always be a
significant factor affecting our results of operations.

Capacity and Efficiency of Mining Machines.


Because the number of bitcoin mined is directly related to the size and
efficiency of a bitcoin mining company's fleet of miners, we believe miners need
to deploy increasingly sophisticated miners in ever greater quantities to remain
competitive. To remain competitive, we will need to increase our hashing power
to maintain market share as the overall hashrate and difficulty of the Bitcoin
network increases.

We believe that our commitment to cost and mining efficiency remains our
competitive advantage. The majority of our capital expenditures have been
directed towards the latest models of mining machines and technology featuring
industry-leading capacity, speed and efficiency. We believe that we operate one
of the most efficient mining rig fleets in the global market. In some periods,
the industry has experienced, and we expect may experience again in the future,
a scarcity of advanced mining rigs. We believe that to maintain our competitive
advantage over the long term, we must develop and maintain strong relationships
across the mining rig supply chain, and strategically invest in state-of-the art
miners at attractive prices, while effectively managing our fleet as it ages
along the obsolescence curve.

All of our miners are housed in air-cooled containers and we do not currently
have any immersion miners. This means we cannot increase the clock rate to speed
up performance of, or "over-clock," our miners, and it is possible that our
miners will experience greater wear-and-tear due to environmental factors,
including temperature changes and dust, than might other miners housed in
immersion cooling containers. See "Risk Factors-Risks Related to Our Business,
Industry and Operations-Bitcoin miners and other necessary hardware are subject
to malfunction, technological obsolescence and physical degradation."

Additionally, our strategy involves curtailing our mining operations, meaning we
turn the miners on and off, for a variety of contractual, economic, weather
related, business or other reasons. We do not know how that cycling on and off
process will affect the efficiency of our miners over time or whether they will
age faster than machines that are not turned on and off as frequently. See "Risk
Factors-Risks Related to Our Business, Industry and Operations-Bitcoin miners
and other necessary hardware are subject to malfunction, technological
obsolescence and physical degradation."

Cost and Source of Power.


Mining bitcoin is a highly power-intensive process, with large amounts of
electrical power required to operate the mining rigs. We believe that cost
efficiency, and particularly, maintaining cost of power efficiency in bitcoin
mining over the long term, will be necessary for success. We currently have a
portfolio of competitively priced electrical power. However, there is no
guarantee that we will be able to negotiate additional power agreements on
similar terms, or at all. See "Risk Factors-Risks Related to Our Business,
Industry and Operations-We may be affected by price fluctuations in the
wholesale and retail power markets" and "-Risks Related to Bitcoin Mining-We may
not adequately respond to price fluctuations and rapidly changing technology,
which may negatively affect our business." Our four data centers are all located
in west Texas and the Texas Panhandle, which are areas that we believe have site
development potential with access to competitively priced electrical power,
whether through grid connection, through solar and wind generation facilities,
or otherwise. Where we can, we anticipate that we will, either directly, or
through our power providers, participate in demand response programs offered by
ERCOT. We believe these strategic investments will generate long-term returns in
the form of controlled access to low cost, responsible sources of power and
differentiate us from our competitors. However, after the initial terms of our
current power purchase arrangements end, we may not be able to secure similarly
competitively priced access to the electrical power needed for out data centers
to mine bitcoin profitably.
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Competition.


Our business environment is constantly evolving, and bitcoin miners can range
from individual enthusiasts to professional mining operations with dedicated
mining facilities. We compete with other companies that focus all or a portion
of their activities on mining activities at scale. In the past few years there
have been many new entrants and existing competitors in the space and a general
increase in the competition for industrial scale bitcoin mining companies.

The number of bitcoin we are able to mine depends on the size of our share of
the total network hashrate. It is very difficult to predict changes in network
hashrate. To the extent that we are unable to maintain our market share, or in
other words, to the extent that the relative portion our network hashrate
represents as compared to the total network hashrate decreases, we may mine
fewer bitcoin than anticipated and the results of our operations may suffer. See
"Risk Factors - Risks Related to Our Business, Industry and Operations - We
operate in a highly competitive industry and we compete against companies that
operate in less regulated environments as well as companies with greater
financial and other resources, and our business, operating results, and
financial condition may be adversely affected if we are unable to respond to our
competitors effectively."

COVID-19 and Supply Chain Constraints.


The COVID-19 pandemic has resulted in significant national and global economic
disruption, has had an effect on our business operations and may, in the future,
continue to affect our business. For example, in early January 2022, we had to
temporarily shut down the construction at the Alborz Facility in response to
employees being impacted by COVID-19. We may also experience disruptions to our
business operations resulting from delays in construction and obtaining
necessary equipment in a timely fashion. Global supply logistics have caused
delays across all channels of distribution, and we have also experienced delays
in certain of our miner delivery schedules. Additionally, the global supply
chain for data center construction equipment, such as transformers and
substations, is presently further constrained due to unprecedented demand. Based
on our current assessments, however, we do not expect any material impact on
long-term development, operations, or liquidity due to the COVID-19 pandemic.
While most countries have either fully lifted or significantly limited their
COVID-19 pandemic restrictions, the COVID-19 or any new epidemics or pandemics
could create significant macroeconomic pressures, which may directly or
indirectly impact our business, results of operations, cash flows, and financial
condition. The full extent to which the COVID-19 pandemic and related
macroeconomic pressures will directly or indirectly impact our business, results
of operations, cash flows, and financial condition will depend on future
developments that are uncertain and cannot be accurately predicted. For further
discussion, see "Risk Factors - Risks Related to Our Business, Industry and
Operations - We are exposed to risks related to disruptions or other failures in
the supply chain for bitcoin mining hardware and related data center hardware,
and difficulties in obtaining new hardware" and "- Any unfavorable global
economic, business or political conditions, epidemics, pandemics or disease
outbreaks or other public health conditions, such as the global COVID-19
pandemic, and the disruption caused by various countermeasures to reduce their
spread, could adversely affect our business, prospects, financial condition, and
operating results."

Components of Our Results of Operations

Revenue


Our revenue consists of bitcoin earned through mining activities at our Odessa
Facility. We currently participate in one mining pool, specifically Foundry. The
provision of computing power in accordance with the mining pool operator's terms
of service is the only performance obligation in our contract with the mining
pool operator. We are entitled to a fractional share of the fixed cryptocurrency
award from the mining pool operator (referred to as a "block reward") and
potentially transaction fees generated from blockchain users and distributed to
individual miners by the mining pool operator.

Our fractional share of the block reward is based on the proportion of computing
power we contributed to the mining pool operator to the total computing power
contributed by all mining pool participants in solving the current algorithm,
over the contract term. The block reward is pre-determined and hard coded into
the protocol governing the relevant blockchain. Our proportionate share of
transaction fees is based on our contributed share of hashrate as a percentage
of total network hashrate during the contract term. The transaction fees are the
aggregate fees paid by
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parties whose transactions are included in the block. Bitcoin earned is measured
at fair value at contract inception and is recognized in revenue over the
contract term as hashrate is provided.

Cost of revenue


Cost of revenue consists primarily of direct production costs of bitcoin mining
operations, consisting mainly of electricity expenses, as well as other
facilities costs associated with our wholly-owned Odessa Facility, but excludes
depreciation which is separately stated.

General and administrative expenses


General and administrative expenses represent salary and other employee costs
including stock-based compensation, insurance expense, rent expense for
non-mining locations, professional fees, including accounting and audit,
consulting, legal, public relations and/or investor relations expenses, taxes
and licenses, travel, and other expenses. We expect our administrative fees to
remain high as we incur the ongoing costs of operating as a public company,
including increased director and officer insurance costs, potential increases in
the number of employees at the Company, and increased travel and conference
participation expenses.

Depreciation


Our depreciation expense consists mainly of depreciation for our miners and
mining equipment, as well as depreciation associated with leasehold improvements
and other capitalized assets associated with our Odessa Facility. It also
includes an immaterial amount of depreciation for other property and equipment
not directly associated with our mining activities. We capitalize the cost of
our mining machines and record depreciation expense on a straight-line basis
over the estimated useful life of the machines, which is generally 5 years.
Leasehold improvements include capitalized asset retirement costs, which are
amortized over the estimated useful life of the related asset. All other
leasehold improvements are depreciated over the lesser of the estimated useful
life of the asset or the remaining life of the related lease.

Change in fair value of derivative asset and power sales


The change in fair value of derivative asset primarily represents the initial
fair value recorded for the derivative asset related to the Luminant Power
Agreement on July 1, 2022, and includes the subsequent changes in fair value
recorded during the reporting period. Additionally, change in fair value of
derivative asset also includes income from our sales of electricity prior to
bitcoin mining operations beginning at the Odessa Facility. Sales of electricity
subsequent to the start of mining operations at the Odessa Facility are recorded
in income from power sales.

Equity in losses of equity investees


Equity in losses of equity investees includes our share of the losses recorded
by Alborz LLC, Bear LLC and Chief LLC. Additionally, it includes the losses that
we recognized upon our contributions of miners to these equity investees, due to
the miners have a lower fair value at the time of the contributions than our
costs paid to obtain them, which resulted in basis differences between the cost
of the investments on our consolidated balance sheet and the amount of our
underlying equity in the net assets of the investee attributed to the miners. We
are accreting these basis differences and recognizing the accretion as a
reduction to our share of the losses recognized by Alborz LLC, Bear LLC and
Chief LLC within the equity in losses of equity investees on the consolidated
statement of operations over the depreciation period for the miners.

Impairment of bitcoin and realized gain on sale of bitcoin


During 2022, we mined bitcoin and received bitcoin as distributions-in-kind from
our equity investees, Alborz LLC, Bear LLC and Chief LLC. All of our bitcoin is
recorded as a current asset on our consolidated balance sheet as we expect to
begin regularly exchanging our bitcoin held for fiat currency to fund our
operating expenses. Cryptocurrencies are accounted for as intangible assets with
indefinite useful lives, and as such is assessed for impairment on a daily
basis. Impairment exists and is recognized when the carrying amount of bitcoin
exceeds its fair value, which is determined based on the lowest daily trading
price of bitcoin based on quoted prices on the
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active trading platform that management has determined is our principal market
for bitcoin. We did recognize a small gain related to immaterial sales of
bitcoin during 2022. The fair value of bitcoin has been highly volatile since we
began to obtain bitcoin through our operating activities, which has impacted our
operating results and we expect volatility in the fair value of bitcoin to
continue for the foreseeable future.

Provision for income taxes


Our provision for income taxes consists of U.S. deferred federal taxes. A
valuation allowance is recorded against substantially all of our net deferred
tax assets, which are composed primarily of federal and state net operating loss
carryforwards, stock-based compensation, non-goodwill intangibles, investments
in joint ventures and lease liabilities; in addition, we have deferred tax
liabilities resulting from our derivative and right-to-use assets. Our ability
to offset our deferred tax liabilities with our deferred tax assets is limited
due to restrictions on the ability to offset taxable income by more than eighty
percent with federal net operating losses. As a result, we have recorded a
deferred tax liability for the expected amount of future taxable income that
isn't covered by net operating losses. We evaluate our ability to recognize our
deferred tax assets annually by considering all positive and negative evidence
available as proscribed by the Financial Accounting Standards Board ("FASB")
under its general principles of Accounting Standards Codification ("ASC") 740,
Income Taxes.

Results of Operations

Comparison of the Year Ended December 31, 2022 and the Eleven Months Ended
December 31, 2021

                                                    Year Ended           Eleven Months Ended
                                                 December 31, 2022        December 31, 2021
 Revenue - bitcoin mining                       $             3,037     $                   -

Costs and operating expenses (income)

 Cost of revenue                                                748                         -
 General and administrative                                  70,836                    72,147
 Depreciation                                                 4,378                         5
 Change in fair value of derivative asset                   (73,479 )                       -
 Income from power sales                                       (458 )                       -
 Equity in losses of equity investees                        36,972                         -
 Realized gain on sale of bitcoin                                (6 )                       -
 Impairment of bitcoin                                        1,467                         -
 Total costs and operating expenses                          40,458                    72,152
 Operating loss                                             (37,421 )                 (72,152 )

 Other income (expense)
 Interest income                                                215                         4
 Interest expense                                              (137 )                     (27 )
 Change in fair value of warrant liability                      130                        22
 Total other income (expense)                                   208                        (1 )

 Loss before taxes                                          (37,213 )                 (72,153 )

 Provision for income taxes                                  (1,840 )                       -
 Net loss                                       $           (39,053 )   $             (72,153 )


Revenue

Revenue for the year ended December 31, 2022 was $3.0 million and was generated
entirely from bitcoin mining operations at our Odessa Facility, which began
mining for bitcoin on November 22, 2022. For the period from November 22, 2022
through December 31, 2022, we mined 180 bitcoin at an average price per coin of
approximately $17,000. We generated no revenue during the eleven months ended
December 31, 2021.
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Cost of revenue


Cost of revenue for the year ended December 31, 2022 was $0.7 million and
consisted primarily of power costs at the Odessa Facility under the Luminant
Power Agreement. We incurred no similar costs during the eleven months ended
December 31, 2021.

General and administrative

General and administrative expenses decreased by $1.3 million to $70.8 million
during the year ended December 31, 2022 from $72.1 million for the eleven months
ended December 31, 2021. The decrease was primarily driven by the reduction in
share-based compensation costs of $22.3 million in 2022, which was partially
offset by increases of $6.2 million for business insurance, $2.4 million for
payroll and payroll-related benefits for employees due to increasing headcount,
$2.0 million for taxes, $1.9 million for accounting and audit services, $1.8
million for legal expenses, $1.5 million for rent expense primarily related to
our headquarters, $1.5 million for office supplies and software, $1.3 million
for consulting expenses, $0.7 million for specific costs of operating as a
public company, $0.7 million each for travel expenses, $0.6 million for board
fees and $0.4 million for placement expenses associated with increased hiring.
Certain costs such as accounting, legal and public company costs were higher
during the year ended December 31, 2022 due to operating as a public company for
the full fiscal year, as well as due to preparation and filing of the
Registration Statement in September 2022. See additional information in
"-Liquidity and Capital Resources" below.

Depreciation


Depreciation for the year ended December 31, 2022 was $4.4 million, an increase
of $4.4 million over depreciation expense for the eleven months ended December
31, 2021, which was immaterial. The increase was due to miners, mining equipment
and leasehold improvements at the Odessa Facility being placed into service in
November 2022 and the recognition of depreciation for those assets, as well as
amortization of the right-of-use asset for the Interconnection Electrical
Facilities that provides power to the Odessa Facility and accretion of the asset
retirement obligation at the Odessa data center and depreciation of the
associated capitalized costs.

Change in fair value of derivative asset


Change in fair value of derivative asset was $73.5 million for the year ended
December 31, 2022 and was driven by the fair value of the Luminant Power
Agreement. The $73.5 million included $83.6 million of income recognized for the
initial derivative asset fair value on July 1, 2022, partially offset by $11.8
million of expense recorded related to a decrease in the fair value of the
Luminant Power Agreement as of December 31, 2022. The change in fair value of
derivative asset in 2022 also included $1.7 million for our sales of electricity
facilitated by Luminant, which were conducted prior to our ability to accept
delivery of power at the Odessa Facility. Subsequent to the Odessa Facility
becoming operational, sales of electricity under our Luminant Power Agreement
are recorded in power sales on the consolidated statement of operations. We had
no effective derivative asset during the eleven months ended December 31, 2021.

Power sales


After the start of mining operations at the Odessa Facility on November 22,
2022, we sold excess electricity that was available under the Luminant Power
Agreement, but not needed in our mining operations at the Odessa Facility, back
to the ERCOT market through Luminant for proceeds of $0.5 million before the end
of the 2022.

Equity in losses of equity investees


Equity in losses of equity investees totaled $37.0 million for the year ended
December 31, 2022 and primarily consisted of losses totaling $33.4 million
recognized by us in relation to miners contributed between June 2022 and October
2022 to Alborz LLC, Bear LLC and Chief LLC that had fair values at the time of
the contributions that were less than the costs we paid to obtain the miners.
These losses created basis differences in our investments in the equity
investees, which we are accreting over the five-year useful life of the miners.
Equity in losses of equity investees was also impacted by the net losses of our
equity investees, for which we recorded expenses of $5.6
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million for our share in their losses for the year ended December 31, 2022;
which was partially offset by $2.0 million of accretion for the basis
differences mentioned above.

Impairment of bitcoin

We recognized a total of $1.5 million of impairment expense on bitcoin earned
from our mining activities and received as distributions from our equity
investees during the year ended December 31, 2022.

Other income (expense)


Other income totaled $0.2 million for the year ended December 31, 2022,
consisting of interest income of $0.2 million from our money market accounts and
$0.1 million from the change in the fair value of our warrant liability; which
was partially offset by $0.1 million of interest expense recognized related to
the Purchase and Sale Agreement with Luminant's affiliate, Vistra Operations
Company, LLC, for the Interconnection Electrical Facilities, which we recorded
as a finance lease on our consolidated balance sheet as of the lease
commencement date on November 22, 2022. Other expense for the eleven months
ended December 31, 2021 was immaterial.

Provision for income taxes


For the year ended December 31, 2022, we recorded a provision for income taxes
of $1.8 million primarily due to our derivative asset related to the Luminant
Power Agreement. In the eleven months ended December 31, 2021, we did not record
any provision or benefit for income taxes.

Liquidity and Capital Resources


We incurred a net loss of $39.1 million and negative cash flows from operations
of $20.9 million for the year ended December 31, 2022. As of December 31, 2022,
we had cash and cash equivalents of $11.9 million, total stockholders' equity of
$342.9 million and an accumulated deficit of $111.2 million. To date, we have
relied in large part on proceeds from the consummation of our business
combination with GWAC (the "Business Combination") to fund our operations.
During the year ended December 31, 2022, we paid approximately $188.1 million as
deposits on equipment, primarily for miners, and had $73.0 million of deposits
on equipment still on our consolidated balance sheet as of December 31, 2022. We
currently do not have any outstanding amounts due associated with purchase
commitments for miners; however, management expects to incur ongoing capital
expenditures in the first half of 2023 related to the Odessa Facility that will
require resources beyond our existing financial resources as of December 31,
2022. Management intends to continue with the infrastructure buildout at the
Odessa Facility to get the site to full capacity in support of our current
business plans. Our management believes that our existing financial resources,
combined with projected cash and bitcoin inflows from its data centers and our
intent and ability to sell bitcoin received or earned, will be sufficient to
enable us to meet our operating and capital requirements for at least 12 months
from the date these consolidated financial statements are issued.

On September 21, 2022, we filed with the Securities and Exchange Commission a
shelf registration statement on Form S-3, which was declared effective on
October 6, 2022 (the "Registration Statement"). The Registration Statement
covers: (i) the offer and sale by us, from time to time in one or more offering,
securities having an aggregate public offering price of up to $500.0 million,
(ii) the offer and sale from time to time by the selling securityholders
identified therein of up to 23,265,565 shares of our Common Stock and the offer
and sale from time to time by the selling securityholders of up to 85,500 of our
warrants and (iii) the offer and sale of (A) up to 8,499,978 shares of Common
Stock that are issuable by us upon the exercise of 8,499,978 public warrants
that were previously registered and (B) up to 114,000 shares of Common Stock
that are issuable by us upon the exercise of 114,000 private placement warrants.

In connection with the filing of the Registration Statement, we also entered
into an at-the-market offering agreement (the "Sales Agreement") with H.C.
Wainwright & Co., LLC (the "Agent"), under which we may, from time to time, sell
shares of our Common Stock having an aggregate offering price of up to $250.0
million in "at-the-market" offerings through the Agent, which is included in the
$500.0 million of securities that may be offered pursuant to the Registration
Statement. Sales of the shares of Common Stock, if any, will be made at
prevailing market prices at the time of sale, or as otherwise agreed with the
Agent. Pursuant to the Sales Agreement, we will pay the Agent a commission of up
to 3.0% of the gross proceeds from the sale of any shares of Common Stock
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under the Sales Agreement. We are not obligated to make any sales of shares of
our Common Stock under the Sales Agreement. We have not sold any shares of our
Common Stock under the Sales Agreement as of the issuance of these consolidated
financial statements.

Cash Flows

The following summarizes our sources and uses of cash for the periods indicated
(in thousands):

                                                   Year Ended           Eleven Months Ended
                                                December 31, 2022        December 31, 2021
 Net cash used in operating activities         $           (20,915 )   $    

(31,666 )

 Net cash used in investing activities                    (173,909 )        

(120,140 )

 Net cash (used in) provided by financing                   (3,090 )
activities                                                                  

361,647

 Net (decrease) increase in cash and cash      $          (197,914 )
equivalents                                                            $             209,841


Operating Activities

Net cash used in operating activities declined by $10.8 million to $20.9 million
for the year ended December 31, 2022 from $31.7 million in the eleven months
ended December 31, 2021. This was primarily driven by a reduction in our net
loss by $33.1 million to $39.1 million in 2022 from $72.2 million in 2021, which
was impacted by a total decrease in non-cash items totaling $53.2 million, which
primarily included the $73.5 million change in fair value of derivative asset
following the effective date of the Luminant Power Agreement on July 1, 2022 and
the $22.3 million reduction in share-based compensation expense; partially
offset by increases in non-cash equity in losses of equity investees of $37.0
million, which was comprised mainly of the $33.4 million of losses recognized
upon our contributions of equipment during the current year, and depreciation
expense of $4.4 million. Additionally, changes in assets and liabilities
resulted in decreases in cash used of $30.9 million between the year ended
December 31, 2022 and the eleven months ended December 31, 2021. This
improvement consisted primarily of an improvement in cash from the following:
prepaid expenses and other current assets of $19.8 million; security deposits of
$3.0 million; accounts payable of $2.2 million (including related party accounts
payable); as well as proceeds from the reduction of scheduled power under the
Luminant Power Agreement of $5.1 million and from power sales of $1.7 million.
These increases in cash were offset by a decrease related to the related party
accounts receivable of $1.1 million.

Investing Activities


Net cash used in investing activities increased by $53.8 million to $173.9
million during the year ended December 31, 2022 from $120.1 million during the
eleven months ended December 31, 2021. This was due to increases of $73.2
million for deposits paid for miners and mining equipment and $34.8 million for
purchases of property and equipment primarily related to construction at the
Odessa Facility, which were partially offset by cash distributions totaling
$54.0 million from Alborz LLC, Bear LLC and Chief LLC.

Financing Activities


Net cash from financing activities decreased by $364.7 million to net cash used
of $3.1 million for the year ended December 31, 2022 from net cash provided of
$361.6 million for the eleven months ended December 31, 2021. The decrease was
due to the cash proceeds received from the Business Combination, net of issuance
costs, of approximately $384.9 million during the eleven months ended December
31, 2021, offset by a $20.2 million reduction in cash used to repurchase shares
to cover the tax obligations of employees resulting from the vesting of RSUs.

Limited Business History; Need for Additional Capital


There is limited historical financial information about the Company upon which
to base an evaluation of our performance. Our business is subject to risks
inherent in the establishment of a new business enterprise, including limited
capital resources, possible delays in exploration and/or development, and
possible cost overruns due to price and cost increases in services. We have no
current intention of entering into a merger or acquisition within the next 12
months. We may require additional capital to pursue certain business
opportunities or respond to technological
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advancements, competitive dynamics or technologies, customer demands,
challenges, acquisitions or unforeseen circumstances. Additionally, we have
incurred and expect to continue to incur significant costs related to becoming a
public company. Accordingly, we may in engage in equity or debt financings or
enter into credit facilities for the above-mentioned or other reasons; however,
we may not be able to timely secure additional debt or equity financings on
favorable terms, if at all. If we raise additional funds through equity
financing, our existing stockholders could experience significant dilution.
Furthermore, any debt financing obtained by us in the future could involve
restrictive covenants relating to our capital raising activities and other
financial and operational matters, which may make it more difficult for us to
obtain additional capital and to pursue business opportunities. If we are unable
to obtain adequate financing on terms that are satisfactory to us, when we
require it, our ability to continue to grow or support the business and to
respond to business challenges could be significantly limited, which may
adversely affect our business plan. For risks associated with this, see "Risks
Factors-Risks Related to Our Business, Industry and Operations-We may need to
raise additional capital, which may not be available on terms acceptable to us,
or at all."

Contractual Obligations and Other Commitments

Leases


On December 17, 2021, we entered into a lease agreement for executive office
space, with an effective term commencing on February 1, 2022 and monthly rent
payments of approximately $0.1 million commencing on June 1, 2022. The initial
lease term is for a period of five years and four months.

We also entered into a series of agreements with affiliates of Luminant,
including the Lease Agreement dated June 29, 2021, with amendment and
restatement on July 9, 2021 (as amended and restated, the "Luminant Lease
Agreement"). The Luminant Lease Agreement leases a plot of land to us where our
data center, ancillary infrastructure and electrical system (the
"Interconnection Electrical Facilities" or "substation") have been set up for
our Odessa Facility. We entered into the Luminant Lease Agreement and the
Luminant Purchase and Sale Agreement to build the infrastructure necessary to
support our planned operations. Management determined that the Luminant Lease
Agreement and the Luminant Purchase and Sale Agreement should be combined for
accounting purposes under ASC 842 (collectively, the "Combined Luminant Lease
Agreement") and that amounts exchanged under the combined contract should be
allocated to the various components of the overall transaction based on relative
fair values.

Our management determined that the Combined Luminant Lease Agreement contains
two lease components; and the components should be accounted for together as a
single lease component, because the effect of accounting for the land lease
separately would be insignificant. Financing for use of the land and substation
is provided by Luminant affiliates, with monthly installments of principal and
interest due over a five-year period starting upon transfer of legal title of
the substation to us (estimated total undiscounted principal payments of $15.0
million).

The Combined Luminant Lease Agreement commenced on November 22, 2022 and has an
initial term of five years, with renewal provisions that are aligned with the
Luminant Power Agreement. At the end of the lease term for the Interconnection
Electrical Facilities, the substation will be sold back to Luminant's affiliate,
Vistra Operations Company, LLC at a price to be determined based upon bids
obtained in the secondary market.
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Mining and Mining Equipment

At December 31, 2022, we had the following contractual obligations and other
commitments for miners and other mining equipment (in thousands):

                                                                                               Expected
                               Original Maximum                                              Shipping for
                 Agreement         Purchase           Open Purchase                          Open Purchase
Vendor             Dates        Commitment (1)         Commitment         Deposits Paid       Commitments
Bitmain        August 20,      $         171,135     $         1,720     $         1,720     February 2023
Technologies   2021 and                                                                      through April
Limited (2)    August 30,                                                                    2023
               2021
SuperAcme      May 6, 2022               222,401              50,660              50,660     January 2023
Technology     and November                                                                  through April
(Hong Kong)    4, 2022                                                                       2023
(2)
Bitfury USA    Various                                        20,638              20,638
and other
vendors
(primarily
for BBACs)
Total                                                $        73,018     $        73,018





(1) Maximum purchase commitment did not consider discounts that we could qualify
for with the respective vendors, which reduced the total cost of the miners.


(2) Pursuant to our agreements with Bitmain and SuperAcme, we are responsible
for all logistics costs related to transportation, packaging for transportation
and insurance related to the delivery of the miners.

We have purchased miners from Bitmain and SuperAcme.


Under our agreement of August 2021 with Bitmain, we purchased a total of 27,000
S19j Pro miners, at an average price of $49.66 per terahash. As of the date of
this filing, we have received all 27,000 of those miners at our data centers in
Texas and we have no further payment obligations under that agreement.

In November and December 2022, we agreed to purchase an additional 5,000 and
2,200 S19j Pro miners, respectively, from Bitmain for delivery in February and
March 2023, respectively. For these miners, we paid an average price of $2.35
per terahash, covering the majority of the purchase price by using accumulated
Bitmain coupons from previous orders. We have no further payments due in respect
of those orders. As of the date of this filing, approximately 4,600 of those
miners have been delivered to us in Texas, and we expect the remainder to be
delivered before the end of April 2023.

Under our framework agreement of September 2021 with SuperAcme, which was
amended and restated by the Amended and Restated Framework Agreement, we agreed
to purchase 60,000 MicroBT M30S, M30S+ and M30S++ miners. In November 2022 we
entered into the Supplementary Agreement with SuperAcme, which amended and
supplemented the Amended and Restated Framework Agreement by changing the
previously agreed fixed and floating price terms for miners that had yet to be
delivered. As of the date of the Supplementary Agreement, SuperAcme had
delivered 17,833 miners to us in Texas, with an aggregate cost of approximately
$51.1 million, and the Company had paid a total of $101.8 million to SuperAcme.
We applied the remaining balance of $50.7 million to purchase miners at the new
fixed and floating price terms set forth in the Supplementary Agreement, and
SuperAcme delivered 17,286 additional miners to us in Texas. Of the miners we
have purchased, SuperAcme has delivered 34,927 miners, and we expect the
remainder to be delivered by the end of April 2023. In total, we have purchased
35,119 MicroBT miners from SuperAcme, at an average price of $28.64 per
terahash.

On October 11, 2021, we entered into an agreement with Bitfury Top HoldCo, made
under, and as a part of, the Master Services and Supply Agreement, to purchase a
total of between 28,000 to 56,000 mining rigs, to be delivered in seven batches
on a monthly basis between June 2022 and December 2022. Generally, under this
agreement, we agreed to pay a maximum price of $6,250 per machine, with an
advance payment of $10.0 million due on or before the third business day
following the execution of the agreement, and advance payments for each
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monthly batch due thereafter in accordance with the terms of the agreement. The
$10.0 million advance payment was paid by us prior to December 31, 2021. The
agreement was a non-binding commitment unless and until confirmed by a mutually
executed order confirmation. We did not enter into any such order confirmations
and, as mentioned above in Item 1A. Risk Factors, we executed the Waiver
Agreement with Bitfury Top HoldCo in April 2022, which provided for the
cancellation of 2,890,173 shares of Common Stock held by Bitfury Top HoldCo as
consideration for the $10.0 million deposit.

We also entered into two agreements with Bitfury USA, a subsidiary of Bitfury
Top HoldCo, made under, and as a part of, the Master Services and Supply
Agreement, to purchase a total of 240 units of BBACs. As of December 31, 2022, a
total of 150 containers have been received, and the rest are expected to be
delivered by April 2023.

Non-GAAP Financial Measures


We are providing supplemental financial measures for (i) non-GAAP loss from
operations that excludes the impact of depreciation and amortization, stock
compensation expense and the non-cash change in fair value of derivative asset
and (ii) non-GAAP net loss and non-GAAP diluted loss per share that excludes the
impact of depreciation and amortization, the non-cash change in fair value of
derivative asset, the non-cash change in fair value of the warrant liability and
stock compensation expense. These supplemental financial measures are not
measurements of financial performance under accounting principles generally
accepted in the United Stated ("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.

We believe that these non-GAAP financial measures are also useful to investors
in comparing our performance across reporting periods on a consistent basis.
Non-GAAP loss from operations excludes non-cash operational expenses that we
believe are not reflective of our general business performance such as (i)
depreciation and amortization, (ii) the non-cash change in fair value of our
derivative asset and (iii) stock compensation expense, which could vary
significantly in comparison to other companies.

Non-GAAP net loss and non-GAAP diluted loss per share exclude the impact of (i)
depreciation and amortization, (ii) non-cash change in fair value of our
derivative asset, (iii) non-cash change in fair value of our warrant liability
and (iv) stock compensation expense. We believe the use of these non-GAAP
financial measures can also facilitate comparison of our operating results to
those of our competitors.

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. For example, we expect that share-based compensation expense, which
is excluded from the 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 will continue to be a
recurring expense over the term of the useful life of the related assets. Our
non-GAAP financial measures are not meant to be considered in isolation and
should be read only in conjunction with our consolidated financial statements
included elsewhere in this Annual Report, which have been prepared in accordance
with GAAP. We rely primarily on such consolidated financial statements to
understand, manage and evaluate our business performance and use the non-GAAP
financial measures only supplementally.
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The following is a reconciliation of our non-GAAP loss from operations, which
excludes the impact of (i) depreciation and amortization, (ii) non-cash change
in fair value of our derivative asset and (iii) stock compensation expense, to
its most directly comparable GAAP measure for the periods indicated (in
thousands):

                                                  Year Ended           Eleven Months Ended
                                               December 31, 2022        December 31, 2021
 Reconciliation of non-GAAP loss from
operations:
 Operating loss                               $           (37,421 )   $     

(72,152 )

 Depreciation and amortization                              5,150                         5
 Change in fair value of derivative asset                 (71,758 )                       -
 Stock compensation expense                                41,504           

63,765

 Non-GAAP loss from operations                $           (62,525 )   $     

(8,382 )



The following are reconciliations of our non-GAAP net loss and non-GAAP basic
and diluted net loss per share, in each case excluding the impact of (i)
depreciation and amortization (ii) non-cash change in fair value of our
derivative asset, (iii) non-cash change in fair value of our warrant liability
and (iv) stock compensation expense, to the most directly comparable GAAP
measures for the periods indicated (in thousands):

                                                  Year Ended           

Eleven Months Ended

                                               December 31, 2022        

December 31, 2021

Reconciliation of non-GAAP net loss:

 Net loss                                     $           (39,053 )   $     

(72,153 )

Non-cash adjustments to net loss:

 Depreciation and amortization                              5,150                         5
 Change in fair value of derivative asset                 (71,758 )                       -
 Change in fair value of warrant liability                    130                        22
 Stock compensation expense                                41,504           

63,765

 Total non-cash adjustments to net loss                   (24,974 )         

63,792

 Non-GAAP net loss                            $           (64,027 )   $     

(8,361 )


 Reconciliation of non-GAAP basic and
diluted net loss per share:
 Basic and diluted net loss per share         $             (0.16 )   $     

(0.33 )

 Depreciation and amortization (per share)                   0.02                         -
 Change in fair value of derivative asset                   (0.29 )                       -

(per share)

 Change in fair value of warrant liability                      -                         -

(per share)

 Stock compensation expense (per share)                      0.17                      0.29
 Non-GAAP basic and diluted net loss per      $             (0.26 )   $               (0.04 )
share


Critical Accounting Policies, Significant Judgments and Use of Estimates


The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
expenses during the reporting period. As of and for the year ended December 31,
2022, the most significant estimates inherent in the preparation of our
consolidated financial statements include, but are not limited to, those related
to equity instruments issued in share-based compensation arrangements,
valuations of the derivative asset, determination of our asset retirement
obligation and the valuation allowance associated with our deferred tax assets.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events.
Accordingly, the actual results could differ significantly from those estimates.
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While our significant accounting policies are described in the notes to our
consolidated financial statements included elsewhere in this Annual Report, we
believe that the following critical accounting policies are most important to
understanding and evaluating our reported and future financial results.

Fair value of financial instruments


Our financial assets and liabilities are accounted for in accordance with ASC
820, Fair Value Measurement, which defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The
fair value hierarchy requires an entity to maximize the use of observable inputs
when measuring fair value and classifies those inputs into three levels:

Level 1 – Observable inputs, such as quoted prices in active markets for
identical assets and liabilities.


Level 2 - Inputs other than Level 1 inputs that are either directly or
indirectly observable, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially
the full term of the instrument's anticipated life.

Level 3 – Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.


To the extent the valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair values
requires more judgement. Accordingly, the degree of judgement exercised by
management in determining fair value is greatest for instruments categorized as
Level 3. A financial instrument's level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair value
measurement.

The carrying values reported in our consolidated balance sheets for cash
(excluding cash equivalents which are recorded at fair value on a recurring
basis), accounts payable and accrued expenses and other current liabilities are
reasonable estimates of their fair values due to the short-term nature of these
items.

Bitcoin

Bitcoin are included in current assets on our consolidated balance sheets.
Bitcoin received through our wholly-owned mining activities are accounted for in
connection with our revenue recognition policy. Bitcoin awarded to us as
distributions-in-kind from equity investees are accounted for in accordance with
ASC 845, Nonmonetary Transactions, and recorded at fair value upon receipt.

Bitcoin held are accounted for as intangible assets with indefinite useful
lives. An intangible asset with an indefinite useful life is not amortized but
assessed for impairment annually, or more frequently, when events or changes in
circumstances occur indicating that it is more likely than not that the
indefinite-lived asset is impaired. Impairment exists when the carrying amount
exceeds its fair value. In testing for impairment, we have 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 management concludes otherwise, we are required to perform a quantitative
impairment test. Management has elected to bypass the optional qualitative
impairment assessment and to track bitcoin activity daily for impairment
assessment purposes. Management determines the fair value of bitcoin on a
nonrecurring basis in accordance with ASC 820, based on quoted prices on the
active trading platform that management has determined is our principal market
for bitcoin (Level 1 inputs). Management performs an analysis each day to
identify whether events or changes in circumstances, principally decreases in
the quoted price of bitcoin on the active trading platform, indicate that it is
more likely than not that its bitcoin are impaired. For impairment testing
purposes, the lowest daily trading price of bitcoin is identified at the single
of bitcoin level. The excess, if any, of the carrying amount of bitcoin and the
lowest daily trading price of bitcoin represents a recognized impairment loss.
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.
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Bitcoin awarded to us through our mining activities are included as an
adjustment to reconcile net loss to cash used in operating activities on the
consolidated statements of cash flows. Proceeds from sales of bitcoin are
included within cash flows from operating activities on the consolidated
statements of cash flows and any realized gains or losses from such sales are
included in costs and operating expenses (income) on the consolidated statements
of operations. The receipt of bitcoin as distributions-in-kind from equity
investees are included within investing activities on the consolidated
statements of cash flows. Bitcoin are sold on a first-in-first-out basis.

Derivative asset


Management determined that, as of July 1, 2022, the Luminant Power Agreement
meets the definition of a derivative under ASC 815, Derivatives and Hedging.
Because we have the ability to sell our electricity rather than take physical
delivery, physical delivery is not probable through the entirety of the contract
and therefore, management does not believe the normal purchases and normal sales
scope exception applies to the Luminant Power Agreement. Accordingly, the
Luminant Power Agreement (the non-hedging derivative contract) is recorded at an
estimated fair value each reporting period with the change in the fair value
recorded in change in fair value of derivative asset in the consolidated
statements of operations.

The estimated fair value of our derivative asset was derived from Level 2 and
Level 3 inputs (i.e., unobservable inputs) due to a lack of quoted prices for
similar type assets and as such, is classified in Level 3 of the fair value
hierarchy. Specifically, the discounted cash flow estimation models contain
quoted spot and forward prices for electricity, as well as estimated usage rates
consistent with the terms of the Luminant Power Agreement, the initial term of
which is five years. The valuations performed by the third-party valuation firm
engaged by management utilized pre-tax discount rates of 6.83% and 7.19% as of
December 31, 2022 and the derivative effective date of July 1, 2022,
respectively, and include observable market inputs, but also include
unobservable inputs based on qualitative judgment related to company-specific
risk factors. Unrealized gains associated with the derivative asset within the
Level 3 category include changes in fair value that were attributable to
amendments to the Luminant Power Agreement, changes to the quoted forward
electricity rates, as well as unobservable inputs (e.g., changes in estimated
usage rates and discount rate assumptions).

Asset retirement obligation


Asset retirement obligations relate to the legal obligations associated with the
retirement of long-lived assets that result from the construction, development
and/or normal operation of a long-lived asset. We currently have one asset
retirement obligation ("ARO") related to the construction of the data center and
installation of the related electrical infrastructure at the Odessa Facility.
ASC 410, Asset Retirement and Environmental Obligations, requires an entity to
record the fair value of a liability for an ARO in the period in which it is
incurred if a reasonable estimate of fair value can be made. Due to the long
lead time involved until decommissioning activities occur, we use a present
value technique to estimate the liability. A liability for the fair value of the
ARO based on the expected present value of estimated future decommissioning
costs with a corresponding increase to the carrying value of the related
long-lived asset (leasehold improvements) was recorded upon commencement of the
lease in November 2022. The estimated capitalized asset retirement costs are
depreciated using the straight-line method over the estimated remaining useful
life of the related long-lived asset, with such depreciation included in
depreciation expense in the consolidated statements of operations. The ARO is
accreted based on the original discount rate and is recognized as an increase in
the carrying amount of the liability and as a charge to accretion expense, which
is included in depreciation expense in the consolidated statements of
operations. Annually, or more frequently if an event occurs that would dictate a
change in assumptions or estimates underlying the obligation, management
reassesses the ARO to determine whether any revisions to the obligation are
necessary. Revisions to the estimated ARO for items such as (i) new liabilities
incurred, (ii) liabilities settled during the period and (iii) revisions to
estimated future cash flow requirements (if any), will result in adjustments to
the related capitalized asset and corresponding liability.

In order to determine the fair value of the ARO, management made certain
estimates and assumptions including, among other things, projected cash flows,
the borrowing interest rate and an assessment of market conditions that could
significantly impact the estimated fair value. These estimates and assumptions
are subjective.
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Investment in equity investees


We account for investments using the equity method of accounting if the
investments provide us with the ability to exercise significant influence, but
not control, over our investees. Significant influence is generally deemed to
exist if we have an ownership interest in the voting stock of an investee of
between 20 percent and 50 percent, or an ownership interest greater than three
to five percent in certain partnerships, unincorporated joint ventures and
limited liability companies, although other factors are considered in
determining whether the equity method of accounting is appropriate. Under this
method, an investment in the common stock of an investee (including a joint
venture) shall be initially measured and recorded at cost; however, an investor
shall initially measure at fair value an investment in the common stock of an
investee (including a joint venture) recognized upon the derecognition of a
distinct nonfinancial asset at the time that control over the distinct
nonfinancial asset is transferred to the equity investee, such as that which
occurs upon our transfer of miners and mining equipment to a joint venture.

Our investments are subsequently adjusted to recognize our share of net income
or losses as they occur. We also adjust our investments upon receipt of bitcoin
from an equity investee, which is accounted for as a distribution-in-kind. Our
share of investees' earnings or losses is recorded, net of taxes, within equity
in losses of equity investees on the consolidated statements of operations.
Additionally, our interest in the net assets of our equity method investees is
reflected on the consolidated balance sheets. If, upon our contribution of
nonfinancial assets to a joint venture, there is any difference between the cost
of the investment and the amount of the underlying equity in the net assets of
the investee, the difference is required to be accounted for as if the investee
were a consolidated subsidiary. If the difference is assigned to depreciable or
amortizable assets or liabilities, then the difference should be amortized or
accreted in connection with the equity earnings based on our proportionate share
of the investee's net income or loss. If we are unable to relate the difference
to specific accounts of the investee, the difference should be considered
goodwill.

We consider whether the fair value of our equity method investments have
declined below their carrying values whenever adverse events or changes in
circumstances indicate that recorded values may not be recoverable. If we
considered any such decline to be other than temporary (based on various
factors, including historical financial results, success of the mining
operations and the overall health of the investee’s industry), then we would
record a write-down to the estimated fair value.

Impairment of long-lived assets

Management reviews long-lived assets, including leases and investments, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset, asset group, or investment may not be recoverable.


Recoverability of assets to be held and used are measured by a comparison of the
carrying amount of an asset to undiscounted future cash flows expected to be
generated by the asset. Because the impairment test for long-lived assets held
in use is based on estimated undiscounted cash flows, there may be instances
where an asset or asset group is not considered impaired, even when its fair
value may be less than its carrying value, because the asset or asset group is
recoverable based on the cash flows to be generated over the estimated life of
the asset or asset group. 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.

Leases


We account for leases in accordance with ASC 842, Leases. Accordingly,
management determines whether an arrangement contains a lease at the inception
of the arrangement. If a lease is determined to exist, the term of such lease is
assessed based on the date on which the underlying asset is made available for
our use by the lessor. Management's assessment of the lease term reflects the
non-cancelable term of the lease, inclusive of any rent-free periods and/or
periods covered by early-termination options which we are reasonably certain of
not exercising, as well as periods covered by renewal options which we are
reasonably certain of exercising. We also determine lease classification as
either operating or finance at lease commencement, which governs the pattern of
expense recognition and the presentation reflected in the consolidated
statements of operations over the lease term.
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For leases with a term exceeding 12 months, a lease liability is recorded on our
consolidated balance sheet at lease commencement reflecting the present value of
our fixed minimum payment obligations over the lease term. A corresponding
right-of-use ("ROU") asset equal to the initial lease liability is also
recorded, adjusted for any accrued or prepaid rents and/or unamortized initial
direct costs incurred in connection with execution of the lease and reduced by
any lease incentives received. For purposes of measuring the present value of
our fixed payment obligations for a given lease, we use our incremental
borrowing rate, determined based on information available at lease commencement,
if rates implicit in our leasing arrangements are not readily determinable. Our
incremental borrowing rate reflects the rate we would pay to borrow on a secured
basis and incorporates the term and economic environment of the associated
lease. ROU assets will be reviewed for impairment, consistent with other
long-lived assets, whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.

Lease expense for operating leases is recognized on a straight-line basis over
the lease term as an operating expense while the expense for finance leases is
recognized as depreciation expense and interest expense using the interest
method of recognition. For leases with a term of 12 months or less, any fixed
payments are recognized on a straight-line basis over the lease term and are not
recognized on the Company's consolidated balance sheet as an accounting policy
election. Leases qualifying for the short-term lease exception are
insignificant. Variable lease costs are expensed as incurred and are not
included in the measurement of ROU assets and lease liabilities.

ASC 842 provides practical expedients for an entity's ongoing accounting. The
Company elected the practical expedient not to separate lease and non-lease
components for all leases, which means all consideration that is fixed, or
in-substance fixed, relating to the non-lease components will be captured as
part of the Company's lease components for balance sheet purposes.

Revenue recognition


We recognize revenue under ASC 606, Revenue from Contracts with Customers. The
core principle of the revenue standard is that a company should recognize
revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the company expects to be
entitled in exchange for those goods or services. The following five steps are
applied to achieve that core principle:

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the
contract

Step 5: Recognize revenue when the company satisfies a performance obligation


In 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).

If 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. The 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:

•
Variable consideration
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Constraining estimates of variable consideration

The existence of a significant financing component in the contract

Noncash consideration

Consideration payable to a customer


Variable 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 standalone selling price is the price at which we would sell a
promised service separately to a customer. The relative selling price for each
performance obligation is estimated using observable objective evidence if it is
available. If observable objective evidence is not available, we use our best
estimate of the selling price for the promised service. In instances where we do
not sell a service separately, establishing standalone selling price requires
significant judgment. We estimate the standalone selling price by considering
available information, prioritizing observable inputs such as historical sales,
internally approved pricing guidelines and objectives, and the underlying cost
of delivering the performance obligation. 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.

Management judgment is required when determining the following: when variable
consideration is no longer probable of significant reversal (and hence can be
included in revenue); whether certain revenue should be presented gross or net
of certain related costs; when a promised service transfers to the customer; and
the applicable method of measuring progress for services transferred to the
customer over time.

We entered into a bitcoin mining pool by executing a contract, which may be
amended from time to time, with a mining pool operator to provide computing
power to the mining pool. Specifically, in November 2022, we entered into a
mining pool contract with Foundry. Providing computing power to a mining pool
operator for the purpose of cryptocurrency transaction verification is an output
of our ordinary activities. The contract is terminable at any time by either
party with no substantive termination penalty. Our enforceable right to
compensation begins when, and lasts for as long as, we provide computing power
to the mining pool operator; our performance obligation extends over the
contract term given our continuous provision of hashrate. This period of time
corresponds with the period of service for which the mining pool operator
determines compensation due to us. Given cancellation terms of the contract, and
our customary business practice, the contract effectively provides us with the
option to renew for successive contract terms of 24 hours. The options to renew
are not material rights because they are offered at the standalone selling price
of computing power. We elected the optional exemption to not disclose the
transaction price allocated to remaining performance obligations that are part
of a contract that has an original expected duration of one year or less.

The provision of computing power in accordance with the mining pool operator's
terms of service is the only performance obligation in our contract with the
mining pool operator, our customer. In exchange for providing computing power
pursuant to Foundry's terms of service, we are entitled to noncash consideration
in the form of bitcoin, measured under the Full Pay Per Share ("FPPS") approach.
Under the FPPS approach, we are entitled to a fractional share of the fixed
bitcoin award from the mining pool operator (referred to as a "block reward")
and potentially transaction fees generated from (paid by) blockchain users and
distributed (paid out) to individual miners by the mining pool operator. Our
fractional share of the block reward is based on the proportion of computing
power we contributed to the mining pool operator to the total computing power
contributed by all mining pool participants in solving the current algorithm,
over the contract term. We are entitled to our relative share of consideration
even if a block is not successfully placed. In other words, we receive
consideration once after the end of each 24-hour contract period, regardless of
whether the pool successfully places a block. Our proportionate share of
transaction fees is based on our contributed share of hashrate as a percentage
of total network hashrate during the contract term.

The mining pool operator calculates block rewards under the FPPS approach
described above and may charge a pool fee for maintenance of the pool that
reduces the amount of block rewards to which we are entitled. Foundry did not
claim a fee for any block rewards earned by us in 2022. After every 24-hour
contract term, we receive a payout and the pool transfers the bitcoin
consideration to our designated bitcoin wallet.

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Noncash consideration is measured at fair value at contract inception. Fair
value of the bitcoin consideration is determined using the quoted price on our
principal market for bitcoin at the beginning of the contract period at the
single bitcoin level (one bitcoin). This amount is recognized in revenue over
the contract term as hashrate is provided. Changes in the fair value of the
noncash consideration due to form of the consideration (changes in the market
price of bitcoin) are not included in the transaction price and hence are not
included in revenue. Changes in fair value of the noncash consideration
post-contract inception that are due to reasons other than form of consideration
(other than changes in the market value of bitcoin) are measured based on the
guidance on variable consideration, including the constraint on estimates of
variable consideration.

Because the consideration to which we expect to be entitled for providing
computing power is entirely variable, as well as being noncash consideration, we
assess the estimated amount of the variable noncash consideration at contract
inception and subsequently, to determine when and to what extent it is probable
that a significant reversal in the amount of cumulative revenue recognized will
not occur once the uncertainty associated with the variable consideration is
subsequently resolved (the "constraint"). Only when significant revenue reversal
is concluded probable of not occurring can estimated variable consideration be
included in revenue. Based on evaluation of likelihood and magnitude of a
reversal in applying the constraint, the estimated variable noncash
consideration is constrained from inclusion in revenue until the end of the
contract term, when the underlying uncertainties have been resolved and number
of bitcoin to which we are entitled becomes known.

There is no significant financing component in these transactions.


Our ability to satisfy the performance obligation under our contract with a
mining pool operator to provide computing power may be contracted to various
third parties and there is a risk that if these parties are unable to perform or
curtail their operations, our revenue and operating results may be affected.
Please see "Business- Business Agreements-Power and Hosting Arrangements" for
additional information about our power arrangements.

Share-based compensation


We account for all share-based payments to employees, consultants and directors,
which may include grants of stock options, stock appreciation rights, restricted
stock awards, and restricted stock units ("RSUs") to be recognized in the
consolidated financial statements, based on their respective grant date fair
values. As of December 31, 2022, we have awarded only RSUs with service-based
vesting conditions ("Service- Based RSUs") and performance-based RSUs with
market-based vesting conditions ("Performance-Based RSUs"). Compensation expense
for all awards is amortized based upon a graded vesting method over the
estimated requisite service period. All share-based compensation expenses are
recorded in general and administrative expense in the consolidated statements of
operations. Forfeitures are recorded as they occur.

The fair value of Service-Based RSUs is the closing market price of our common
stock on the date of the grant. We employ a Monte Carlo simulation technique to
calculate the fair value of the Performance-Based RSUs on the date granted based
on the average of the future simulated outcomes. The Performance-Based RSUs
contain different market-based vesting conditions that are based upon the
achievement of certain market capitalization milestones. Under the Monte Carlo
simulation model, a number of variables and assumptions are used including, but
not limited to, the underlying price of our common stock, the expected stock
price volatility over the term of the award, a correlation coefficient, and the
risk-free rate. The Performance-Based RSUs awarded do not have an explicit
requisite service period, therefore compensation expense is recorded over a
derived service period based upon the estimated median time it will take to
achieve the market capitalization milestone using a Monte Carlo simulation.

Weighted average assumptions used in the November 17, 2021 Monte Carlo valuation
model for Performance-Based RSUs awarded on that date were: expected volatility
of 96.1% and a risk-free rate of 1.60% based upon a remaining term of 10 years.
These assumptions were used to estimate share-based compensation expense related
to our Performance-Based RSUs, which was recognized in our consolidated
financial statements year ended December 31, 2022 and for the eleven months
ended December 31, 2021, and which will continue to impact our consolidated
financial results over the remaining weighted average derived service period of
the Performance-Based RSUs, which, as of December 31, 2022 is expected to occur
over the next 1.4 years.
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Emerging Growth Company


We are an "emerging growth company," as defined in the Jumpstart Our Business
Startups Act of 2012 (the "JOBS Act"). Under the JOBS Act, emerging growth
companies can delay adopting new or revised accounting standards issued
subsequent to the enactment of the JOBS Act until such time as those standards
apply to private companies. We have elected to use this extended transition
period to enable us to comply with new or revised accounting standards that have
different effective dates for public and private companies until the earlier of
the date we (i) are no longer an emerging growth company or (ii) affirmatively
and irrevocably opt out of the extended transition period provided in the JOBS
Act. As a result, our unaudited condensed consolidated financial statements may
not be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.

© Edgar Online, source Glimpses

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