Prairie Operating Co. (PROP) FY 2023 MD&A

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

You
should read the following discussion and analysis of our financial condition and results of operations for the fiscal years ended December
31, 2023 and 2022 together with our consolidated financial statements and related notes and other financial information appearing in
this Annual Report. The discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions
concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing
of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those
described under the headings “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing
elsewhere in the Annual Report.

Overview

We are an independent oil and
gas company focused on the acquisition and development of crude oil, natural gas and NGLs. We currently hold attractive acreage in the
DJ Basin that our experienced management team intends to develop, deploying next-generation technology and techniques in an environmentally
efficient manner. In addition to growing production through our drilling operations, we also seek to grow our business through accretive
acquisitions, focusing on assets with the following criteria: (i) producing reserves, with opportunities to add accretive, undeveloped
bolt-on acreage; (ii) ample, high rate-of-return inventory of drilling locations that can be developed with cash flow reinvestment; (iii)
strong well-level economics; (iv) liquids-rich assets; and (v) accretive valuation.

As
of December 31, 2023, all of the Company’s E&P assets were acquired in the Exok Transaction (as described herein) and Exok
Option Purchase (as defined herein) and consist of certain oil and gas leasehold interests with no existing oil and gas production or
revenue. In February 2024, we acquired the Genesis Bolt-on Assets offsetting our existing assets. We refer to the assets acquired in
these transactions as our “Genesis Assets.” In all, the total Genesis Assets include 24,351 net mineral acres in, on and
under 37,985 gross acres. In addition, in January 2024, we entered into a definitive agreement with NRO to acquire producing acreage
and PUDs that are complementary to our existing acreage, which we refer to as the “Central Weld Assets.” We have no current
drilling or completion operations. As such, our current activities are focused on obtaining requisite permits to begin drilling wells
on our Genesis Assets, as well as funding and closing the NRO Acquisition, which we anticipate in the first half of 2024. In 2023, we
also engaged in cryptocurrency mining operations and these operations accounted for all of our revenues in 2023. In January 2024, we
divested all of our cryptocurrency mining assets. See “Business—Recent Developments” for more information regarding
the NRO and Genesis Bolt-On Assets acquisitions, as well as the sale of our Cryptocurrency mining operations.

53

Background

The
Merger, Exok Transaction and Related Events

On
May 3, 2023, the Company completed the Merger, pursuant to which, among other things, Merger Sub merged with and into Prairie LLC,
with Prairie LLC surviving and continuing to exist as a Delaware limited liability company and a wholly owned subsidiary of the
Company. Upon consummation of the Merger, the Company changed its name from “Creek Road Miners, Inc.” to “Prairie
Operating Co.” The Merger was accounted for as a reverse asset acquisition; as a result, our cryptocurrency mining operations
are reported as commencing on May 3, 2023, concurrent with the Merger and prior revenues and expenses of Creek Road related to
cryptocurrency mining activities are not presented in this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” or the accompanying financial statements.

In
connection with the Merger, we acquired oil and gas leases covering approximately 3,158 net mineral acres in, on and under 4,494 gross
acres from Exok for $3.0 million. To fund the Exok Transaction, the Company sold an aggregate of approximately $17.4 million of Series
D Preferred Stock with a stated value of $1,000 per share and convertible into shares of common stock at a price of $5.00 per share,
Series A warrants to purchase 3,475,250 shares of common stock at an exercise price of $6.00 per share (“Series D A Warrants”)
and Series B warrants to purchase 3,475,250 shares of common stock at an exercise price of $6.00 per share (“Series D B Warrants”)
in a private placement (the “Series D PIPE”) pursuant to securities purchase agreements, dated May 3, 2023, by and between
the Company and each of the investors thereto (the “Series D PIPE Investors”).

On
August 15, 2023, the Company exercised its option under the Exok Transaction to purchase approximately 20,328 net mineral acres in, on
and under approximately 32,695 additional gross acres from Exok (the “Exok Option Assets”). The Company acquired this acreage
for $25.3 million consisting of (i) $18.0 million in cash (the “Cash Consideration”) to Exok, (ii) issuance of 670,499 shares
of the Company’s common stock and warrants to purchase 670,499 shares of common stock (“Exok Warrants”) to affiliates
of Exok, and (iii) direct transaction costs. The Cash Consideration was funded from the Series E preferred issuance (see below).

The
Company received an aggregate of $20.0 million in proceeds from the Series E private placement (the “Series E PIPE”) in exchange
for 20,000 shares of Series E preferred stock, par value $0.01 per share (“Series E Preferred Stock”) along with 39,614 shares
of the Company’s common stock, and Series A warrants to purchase 4,000,000 shares of the Company’s common stock (the “Series
E A Warrants”) and Series B warrants to purchase 4,000,000 shares of common stock (the “Series E B Warrants” and together
with the Series E A Warrants, the “Series E PIPE Warrants”).

See
“Business—Background” for more information regarding the Merger, the Exok Transaction and related events in
2023.

Reverse
Stock Split

On
October 16, 2023, the Company effected the Reverse Stock Split at an exchange ratio of 1:28.5714286. Unless otherwise noted, all per
share and share amounts presented herein have been retroactively adjusted for the effect of the Reverse Stock Split.

Cryptocurrency
Mining Operations and Sale

For
the year ended December 31, 2023, we generated all of our revenue through our cryptocurrency mining activities. During 2023, our cryptocurrency
mining activities consisted of engaging Atlas Power Hosting, LLC (“Atlas”) to operate our cryptocurrency mining assets, some
of which were owned by Creek Road prior to the Merger and others that we acquired following the Merger. Pursuant to the Atlas MSA, we
did not own, control or take custody of Bitcoin during 2023; rather, Atlas retained all Bitcoin rewards and remitted net revenue from
cryptocurrency mining to us in the form of US dollars pursuant to the Atlas MSA. Since the Merger was accounted for as a reverse asset
acquisition, our cryptocurrency mining operations are reported as commencing on May 3, 2023, concurrent with the Merger and prior revenues
and expenses of Creek Road related to cryptocurrency mining activities are not presented in this “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” or the accompanying financial statements.

On
January 23, 2024, we completed the Crypto Sale, pursuant to which we sold all of our cryptocurrency assets and assigned our interests
under the Atlas MSA to the Crypto Purchaser. Accordingly, we do not expect to engage in cryptocurrency mining activities in 2024 or thereafter.
This disposition did not meet the requirements of held for sale classification at December 31, 2023, but will require presentation as
discontinued operations in prospective financial statements. We expect to recognize a loss of $1.1 million in conjunction with this disposition.
See “Business—Sale of Crypto Assets” for more information about the sale of our cryptocurrency assets and assignment
of the Atlas MSA.

NRO
Acquisition

On
January 11, 2024, we entered into the NRO Agreement, to acquire the Central Weld Assets for total consideration of $94.5 million, subject
to certain closing price adjustments and other customary closing conditions. The Purchase Price consists of $83.0 million in cash and
$11.5 million in deferred cash payments. The Company deposited $9 million of the Purchase Price into an escrow account on January 11,
2024, which will be released to Seller upon the earlier of the closing date and August 15, 2024 (the “Outside Date”). Portions
of the Deposit are subject to earlier release under certain circumstances if the closing has not occurred on or prior to June 17, 2024.
See “Business—Recent Developments—NRO Acquisition” for a description of the NRO Agreement. We expect to
fund the transaction through a combination of public and/or private issuance of common stock, cash on hand, and proceeds from existing
warrant exercises. While we expect to close the NRO Acquisition in the first half of 2024, such acquisition is subject to a number of
closing conditions. Satisfaction of some of these conditions is beyond our control. If these conditions are not satisfied or waived,
the NRO Acquisition will not be completed. See “Risk Factors—Risks Related to the NRO Acquisition.”

Liquidity

The
Company had a net loss of $79.1 million for the year ended December 31, 2023 and working capital (defined as current assets less current
liabilities) of $8.1 million at December 31, 2023. Cash and cash equivalents totaled $13.0 million at December 31, 2023. Our current
working capital decreased upon the $9.9 million deposit payment associated with the NRO Agreement and acquisition of the Genesis Bolt-on
Assets and is expected to further decrease in the future due to expenses incurred in connection with our business and until revenue is
recognized from our E&P business and/or we raise additional capital through the exercise of existing warrants or through the public
and/or private markets. We cannot predict if we will be profitable in the near future, or ever. We may continue to incur losses for an
indeterminate period of time and may be unable to achieve profitability. An extended period of losses and negative cash flow may prevent
us from successfully operating and expanding our business. See “—Liquidity
and Capital Resources,” “Risk Factors—We will require significant additional
capital to fund our growing operations; we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations,”
“Risk Factors—We have historically incurred significant losses, and may be unable to generate profitability. Our ability
to successfully operate and expand our business is dependent on the consummation of the NRO Acquisition or our ability to raise additional
capital to support our drilling program on our existing assets,” and “Risk Factors—We will require significant
additional capital to fund our growing operations; we may not be able to obtain sufficient capital and may be forced to limit the scope
of our operations” for more information.

Results
of Operations

54

Loss
from operations

Loss
from operations increased $33.2 million for the year ended December 31, 2023, compared to the period from June 7, 2022 (date of inception)
through December 31, 2022. The $1.5 million increase in cryptocurrency mining revenues resulting from the commencement of such operations
upon the Merger was more than offset by a $34.7 million increase in operating costs and expenses, as discussed below.

Operating
Costs and Expenses

Operating
costs and expenses increased $34.7 million for the year ended December 31, 2023 compared to the period from June 7, 2022 (date of inception)
to December 31, 2022.

Cryptocurrency
mining. The increase in cryptocurrency mining costs of $0.5 million for the year ended December 31, 2023 over the period from June
7, 2022 (date of inception) to December 31, 2022, respectively, is due to the commencement of cryptocurrency operations upon the Merger.

Depreciation,
depletion and amortization. The increase of $1.0 million in depreciation, depletion and amortization (“DD&A”) for
the year ended December 31, 2023 over the period from June 7, 2022 (date of inception) to December 31, 2022 is due to the commencement
of cryptocurrency operations upon the Merger. There was no DD&A associated with E&P for any of the respective periods.

General
and administrative. General and administrative expenses for the year ended December 31, 2023 increased $15.8 million over the period
from June 7, 2022 (date of inception) to December 31, 2022. This was primarily due to employment and benefit costs of $4.5 million, stock-based
compensation of $3.0 million, investor relations costs of $2.8 million, legal and accounting costs of $1.8 million, Board fees and expenses
$1.0 million, professional services of $0.6 million, insurance of $0.4 million and other costs of $1.7 million.

Impairment
of cryptocurrency mining equipment. The impairment of $17.1 million for the year ended December 31, 2023 is due to the $16.6 million
adjustment required to write-off the excess of the allocated purchase price of the Merger over the fair value of the acquired net assets,
the subsequent write-off of $0.2 million shipping and customs fees incurred on cryptocurrency miners after the Merger and $0.3 million
for impairment of the remaining mobile data centers and deposits on mobile data centers at December 31, 2023.

55

Exploration.
The increase in exploration expenses of $0.3 million for the year ended December 31, 2023 over the period from June 7, 2022 (date of
inception) to December 31, 2022 is due to delay rentals incurred on oil and gas leases. There were no such costs in 2022.

Other
income and expenses

Interest
income. Interest income for the year ended December 31, 2023 increased $0.2 million compared to the period from June 7, 2022 (date
of inception) to December 31, 2022. This increase was entirely due to interest earned on our cash balance in the current period and not
in the prior year period.

Interest
expense. Interest expense for the year ended December 31, 2023 increased $0.1 million compared to the period from June 7, 2022 (date
of inception) to December 31, 2022. This increase was entirely due to interest on the AR Debentures and SBA loan resulting from the Merger
and certain financing costs incurred in 2023.

Loss
on adjustment to fair value – warrant liabilities. The loss for the year ended December 31, 2023 increased $39.8 million compared
to the period from June 7, 2022 (date of inception) to December 31, 2022. This increase was entirely due to the change in fair value
of warrant liabilities that were reclassified from and to permanent equity during the period. The change in fair value was due to the
increase in the share price of the Company’s common stock.

Loss
on adjustment to fair value - AR Debentures. The loss for the year ended December 31, 2023 increased $3.8 million compared to the
period from June 7, 2022 (date of inception) to December 31, 2022. These increases were entirely due to the change in fair value of the
AR Debentures from the Merger through the date of their conversion in October 2023. The change in fair value was primarily due to the
increase in the share price of the Company’s common stock.

Loss
on adjustment to fair value - Obligation Shares. The loss for the year ended December 31, 2023 increased $1.5 million compared to
the period from June 7, 2022 (date of inception) to December 31, 2022, respectively. This increase was entirely due to the change in
fair value of the Obligation Shares (as defined herein) liability from the Merger through issuance of the Obligation Shares in September
2023. The change in fair value was due to the increase in the share price of the Company’s common stock.

Liquidated
damages. Liquidated damages of $0.5 million were recorded for the year ended December 31, 2023 as a result of the registration statement
registering the resale of certain shares of the Company’s common stock and shares of common stock underlying the Series D Preferred
Stock and Series D PIPE Warrants having not been declared effective within the timeframe required under the related registration rights
agreement. There were no such costs in 2022.

56

Liquidity
and Capital Resources

Overview

Our
E&P activities will require us to make significant operating and capital expenditures. In 2023, our primary sources of liquidity
were the Series D PIPE and the Series E PIPE, which funded the purchase of the Initial Genesis Assets and working capital, as well
as proceeds from the exercise of warrants, which funded, among other things, working capital and the deposit for the NRO Acquisition
in 2024. Since we sold our only revenue-generating assets in January 2024 and do not yet have any operating E&P assets, we will
require additional capital to fund our development program and operations. Our primary uses of cash have been for the acquisition
and development of oil and natural gas properties and payments of general, administrative and operating costs.

In
addition, in order to close the NRO Acquisition, we will need to raise $74 million in cash, subject to customary closing adjustments.
We do not currently have sufficient cash or committed capital to close the NRO Acquisition. While we are seeking to raise the necessary
capital through an offering of common stock, there is no assurance that we will be successful in raising sufficient funds from the proposed
offering or through other sources. If we are unable to raise sufficient funds to close the NRO Acquisition, or if we are unable to close
the acquisition for other reasons, we will need to seek other sources of capital to fund our development activity and operations until
our other E&P assets are generating revenues. Under certain circumstances, if we are unable to close the NRO Acquisition, we would
lose the deposit. See “Risk Factors – We do not
currently have sufficient funds or committed financing necessary to consummate the NRO Acquisition and the NRO Agreement does not include
a financing condition.”

We
do not currently have significant capital commitments outside of the NRO Acquisition. However, even if we are able to close the NRO Acquisition,
we expect that we will need to access additional capital through public and/or private markets in order to fund our E&P development
and strategy. The availability of such additional capital is subject to numerous factors including prices of oil and natural gas and
the overall health of the U.S. and global economic environment and are largely outside of the control of the Company. There can be no
assurance that the Company can obtain such additional capital. The amount and allocation of future capital expenditures will depend upon
a number of factors, including the amount and timing of cash flows from operations, investing and financing activities, and timing and
cost of additional capital sources.

Because
we are the operator of all of our acreage, the timing and level of our capital spending is largely discretionary and within our control.
We could choose to defer a portion of planned capital expenditures depending on a variety of factors, including, but not limited to,
the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs, the level of
participation by other working interest owners, the success of our drilling activities, prevailing and anticipated prices for oil, natural
gas and NGLs, the availability of necessary equipment, infrastructure and capital.

We
expect to continue funding our business and strategic plans with cash on hand and proceeds from exercises of warrants, if any. Currently,
we have no debt outstanding. We expect to enter into a revolving credit facility primarily to support our hedging program, but we do
not intend to utilize such facility to fund our drilling program. We believe our approach to leverage will permit us to grow production
while mitigating adverse impacts of commodity price volatility. We expect that limiting our use of leverage will provide flexibility
to slow our development pace when commodity prices are not supportive and to accelerate when prices rise. In the near term, we intend
to primarily deploy our cash flow towards development.

Working
Capital

We
define working capital as current assets less current liabilities. At December 31, 2023 we had working capital of $8.1 million and at
December 31, 2022 we had a working capital deficit of $2.1 million. Our current working capital decreased upon the deposit payment associated
with the NRO Agreement and is expected to further decrease in the future due to expenses incurred in connection with our business and
until revenue is recognized from our E&P business and/or we raise additional capital through the exercise of existing warrants or
through the public and/or private markets. Cash and cash equivalents totaled $13.0 million and $0.1 million at December 31, 2023 and
December 31, 2022, respectively.

57

Cash
Flows from Operating, Investing and Financing Activities

The
following table summarizes our cash flows for the periods indicated:

Analysis
of Cash Flow Changes for the Year Ended December 31, 2023 and Period from June 7, 2022 (date of inception) through December 31, 2022

Operating
Activities

Net
cash used in operating activities was $11.9 million for the year ended December 31, 2023, compared to $0.0 million in the prior year
period. The increase resulted primarily from a net loss of $79.1 million, which was partially offset by the add back for non-cash
expenses for the impairment of cryptocurrency mining equipment of $17.1 million, losses on adjustment to fair value of certain
financial instruments of $45.1 million, stock based compensation expense of $2.9 million, change in working capital of $1.1 million
and depreciation and amortization expense of $1.0 million.

Net
cash used in operating activities for the period from June 7, 2022 (date of inception) to December 31, 2022 was related to bank charges
and is reflective of the Company’s limited activity initially after its formation.

Investing
Activities

Net cash used in investing activities
was $23.7 million for the year ended December 31, 2023 and primarily resulted from the $21.2 million acquisition of unproved oil and gas
properties, cash paid in the reverse asset acquisition, net of cash received of $2.0
million and capital investments of $0.4 million.

There was no cash used in or
provided by investing activities for the period from June 7, 2022 (date of inception) to December 31, 2022 reflective of the Company’s
limited activity initially after formation.

Financing Activities

Net cash provided by financing
activities was $48.6 million for the year ended December 31, 2023, compared to $0.1 million for the period from June 7, 2022 (date of
inception) to December 31, 2022, and primarily resulted from $17.4 million of proceeds from the Series D PIPE, $20.0 million from the
Series E PIPE, and $12.5 million from the exercise of warrants, partially offset by financing costs of $1.1 million and $0.2 million from
the payoff of the SBA loan.

Going
Concern Analysis

The
Company had a net loss of $79.1 million for the year ended December 31, 2023. We cannot predict if we will be profitable in the near
future, or ever. We may continue to incur losses for an indeterminate period of time and may be unable to achieve profitability. An extended
period of losses and negative cash flow may prevent us from successfully operating and expanding our business. We may be unable to achieve
or sustain profitability on a quarterly or annual basis. At December 31, 2023, we had cash and cash equivalents of $13.0 million, working
capital of $8.1 million, and an accumulated deficit of $78.9 million.

Subsequent to December 31, 2023,
our cash and cash equivalents were reduced by $9.9 million due to the Deposit and Genesis Bolt-on Assets. We expect that our cash balance
will decline until we are able to obtain financing through public or private capital markets and/or upon the exercise of common stock
warrants. As of December 31, 2023, the Company had common stock warrants with exercise prices of $6.00 per share of common stock and expiring
through August 2024 (see Note 15) that, if all were exercised, would represent cash proceeds to the Company of approximately $32.4 million.
Based on recent and current prices of the Company’s common stock, the Company expects such warrants to be exercised. The Company
received $1.2 million of cash proceeds from such warrant exercises in the period from January 1, 2024 through March 15, 2024. However,
there is no assurance that the remainder of such common stock warrants will ultimately be exercised.

58

The
assessment of liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company
can meet its obligations and has adequate liquidity to operate. Significant assumptions used in the Company’s forecasted model
of liquidity in the next 12 months include our current cash position and our ability to manage spending. Based on an assessment of these
factors, management believes that the Company will have adequate liquidity for its operations for at least the 12 months from the date
the Company’s financial statements are issued.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The consolidated
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets, or the amounts and classification of liabilities that may result from the matters discussed herein.

Off-Balance
Sheet Arrangements

We
do not have any off-balance sheet arrangements.

Critical
Accounting Policies and Estimates

The
preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States
(“GAAP”), requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our
historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under
the circumstances. Actual results may differ under different estimates and assumptions. The accounting estimates and assumptions discussed
in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently
involve significant judgments and uncertainties.

Property
and equipment

E&P.
We follow the successful efforts method of accounting for our oil and natural gas properties. Under this method, exploration costs such
as exploratory geological and geophysical costs, expiration of unproved leasehold, delay rentals and exploration overhead are expensed
as incurred. All costs related to production, general corporate overhead and similar activities are also expensed as incurred. All property
acquisition costs and development costs are capitalized when incurred.

Exploratory
drilling costs are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, drilling
costs remain capitalized and are classified as proved properties. Costs of unsuccessful wells are charged to exploration expense. For
exploratory wells that find reserves that cannot be classified as proved when drilling is completed, costs continue to be capitalized
as suspended exploratory drilling costs if there have been sufficient reserves found to justify completion as a producing well and sufficient
progress is being made in assessing the reserves and the economic and operational viability of the project. If we determine that future
appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed. In some
instances, this determination may take longer than one year. We review the status of all suspended exploratory drilling costs quarterly.
Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of natural
gas and oil are capitalized.

Costs
of drilling and equipping successful wells, costs to construct or acquire facilities, and associated asset retirement costs are depreciated
using the unit-of-production (“UOP”) method based on total estimated proved developed oil and natural gas reserves. Costs
of acquiring proved properties, including leasehold acquisition costs transferred from unproved properties, are depleted using the UOP
method based on total estimated proved developed and undeveloped reserves.

59

Proceeds
from the sales of individual oil and natural gas properties and the capitalized costs of individual properties sold or abandoned are
credited and charged, respectively, to accumulated depreciation, depletion and amortization, if doing so does not materially impact the
depletion rate of an amortization base. Generally, no gain or loss is recognized until an entire amortization base is sold. However,
a gain or loss is recognized from the sale of less than an entire amortization base if the disposition is significant enough to materially
impact the depletion rate of the remaining properties in the amortization base.

When
circumstances indicate that the carrying value of proved oil and natural gas properties may not be recoverable, we compare unamortized
capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which
identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based
on our estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant
data, are lower than the unamortized capitalized costs, the capitalized costs are reduced to fair value. Fair value is generally estimated
using the income approach described in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic
(“ASC”) 820, Fair Value Measurements. If applicable, we utilize prices and other relevant information generated by market
transactions involving assets and liabilities that are identical or comparable to the item being measured as the basis for determining
fair value. The expected future cash flows used for impairment reviews and related fair value measurements are typically based on judgmental
assessments of commodity prices, pricing adjustments for differentials, operating costs, capital investment plans, future production
volumes, and estimated proved reserves, considering all available information at the date of review. These assumptions are applied to
develop future cash flow projections that are then discounted to estimated fair value, using a market-based weighted average cost of
capital.

Cryptocurrency
Mining. Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful
lives of 2 to 5 years. Leasehold improvements are amortized over the shorter of the useful lives of the related assets, or the lease
term. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized.
Gains and losses on disposals are included in the consolidated statements of operations.

Management
assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from
the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment
loss is recognized to write down the asset to its estimated fair value.

Cryptocurrency
mining assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. An estimate of undiscounted future cash flows produced by the asset, or the appropriate grouping of assets, is
compared to the carrying value to determine whether an impairment exists, pursuant to the provisions of ASC 360-10 “Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” If an asset is determined to be impaired,
the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate
of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows and fundamental analysis.

Warrant
liabilities

The
Company evaluates all of its financial instruments, including issued private placement stock purchase warrants, to determine if such
instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to GAAP. The Company accounts for warrants
as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable
GAAP. Management’s assessment considers whether the warrants are freestanding financial instruments, whether they meet the definition
of a liability, and whether the warrants meet all of the requirements for equity classification.

For
warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the
time of issuance. For warrants that are precluded from equity classification, they are recorded as a liability at their fair value on
the date of such classification and subject to remeasurement on each balance sheet date with changes in the estimated fair value of the
warrants to be recognized statements of operations.

As
of December 31, 2023, the Company had no liability-classified warrants.

60

Fair
value of financial instruments

ASC
820, Fair Value Measurements and Disclosures, defines fair value, establishes a consistent framework for measuring fair value, and expands
disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value
is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions
that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes
a fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level
1 valuations – Consist of observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active
markets as of the reporting date.

Level
2 valuations – Consist of observable market-based inputs or unobservable inputs that are corroborated by market data. These
are inputs other than quoted prices in active markets included in Level 1 that are either directly or indirectly observable as of the
reporting date.

Level
3 valuations – Consist of unobservable inputs that are not corroborated by market data and may be used with internally developed
methodologies that result in management’s best estimate of fair value.

Commitments
and Contingencies

The
Company is subject to various litigation, claims and proceedings, that arise in the ordinary course of business. The Company recognizes
a liability for such loss contingencies when it believes it is probable a liability has been incurred, and the amount can be reasonably
estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range,
the Company accrues that amount. When no amount within the range is a better estimate than any other amount the Company accrues the minimum
amount in the range. The outcomes of any such currently pending matters are not expected to have a material adverse effect on the Company’s
financial position or results of operations.

Revenue
Recognition

The
Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. The underlying principle of ASC 606 is
to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.

Revenues
are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration
that we expect to receive in exchange for those goods or services. The Company applies the following five steps in order to determine
the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:

The
Company’s cryptocurrency mining assets that were in service in 2023 were operated under the Atlas MSA, whereby Atlas hosted, operated,
and managed the Company’s assets. The Company received payment in U.S. dollars for the net mining revenue representing the dollar
value of the cryptocurrency award generated less power and other costs. The Company did not receive or own cryptocurrencies under this
contract.

Cryptocurrency
Mining Costs

The
Company’s cryptocurrency mining costs consisted primarily of direct costs under the Atlas MSA, but exclude depreciation and amortization,
which are separately stated in the Company’s consolidated statements of operations.

Income
taxes

We
account for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences,
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. At December 31, 2023,
the Company had a full valuation allowance to offset its net deferred tax assets.

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