LEASES

9 Months Ended

Sep. 30, 2023

LEASESEffective in May 2021, the Company entered into a ground lease (the “Ground Lease”) related to the Lake Mariner Facility in New York with a counterparty which is a related party due to control by a member of Company management. The

Ground Lease includes fixed payments and contingent payments, including an annual escalation factor as well as the Company’s proportionate share of the landlord’s cost to own, operate and maintain the premises. The Ground Lease originally had an initial term of five years and a renewal term of five years at the option of the Company, subject to the Company not then being in default, as defined.

In July 2022, the Ground Lease was amended to increase the initial term of the lease to eight years and to amend certain other non-financial sections to adjust environmental obligations, site access rights and leasehold mortgage rights. In September 2022, the Company issued 8,510,638 shares with a fair value of $11.5 million as compensation to the landlord for entering into the lease amendment. The Ground Lease, which is classified as an operating lease, was remeasured as of the date of the amendment, resulting in an increase of $11.2 million to both right-of-use asset and operating lease liability in the consolidated balance sheets. The Ground Lease remained classified as an operating lease based on the remeasurement analysis that utilized a discount rate of 12.6%, which was an estimate of the Company’s incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the remeasurement date. Upon expiration of the lease, the buildings and improvements on the premises will revert to the landlord in good order.

For the three and nine months ended September 30, 2023, the Company recorded operating lease expense of $0.3 million and $1.0 million, respectively, including contingent expense of $37,000 and $0.1 million, respectively, in operating expenses – related party in the consolidated statements of operations and made cash lease payments of $0.2 million and $0.8 million, respectively. For the three and nine months ended September 30, 2022, the Company recorded operating lease expense of $0.4 million and $0.5 million, respectively, including contingent expense of $0.1 million and $0.2 million, respectively, in operating expenses – related party in the consolidated statements of operations and made cash lease payments $0.1 million and of $0.2 million, respectively. The remaining lease term based on the terms of the amended Ground Lease as of September 30, 2023 is 10.6 years.

The following is a maturity analysis of the annual undiscounted cash flows of the estimated operating lease liabilities as of September 30, 2023 (in thousands):


Year ending December 31:
2023	$	41
2024	163
2025	163
2026	163
2027	163
Thereafter	1,045
	$	1,738

A reconciliation of the undiscounted cash flows to the operating lease liabilities recognized in the consolidated balance sheet as of September 30, 2023 follows (in thousands):


Undiscounted cash flows of the operating lease	$	1,738
Unamortized discount	780
Total operating lease liability	958
Current portion of operating lease liability	46
Operating lease liability, net of current portion	$	912

During the nine months ended September 30, 2022, the Company entered into a short-term lease arrangement for digital currency miners. The term of the operating lease was two months and concluded in May 2022. There were no variable charges under this arrangement. For the three and nine months ended September 30, 2022, lease expense related to this arrangement of $0 and $1.3 million, respectively, was recorded in operating expenses in the consolidated statements of operations. The Company periodically enters into short term lease arrangements for operating equipment and recorded $0.1 million and $0.2 million under these short-term lease arrangements in operating expenses in the consolidated

statements of operations for the three and nine months ended September 30, 2023, respectively, and $0.3 million for each of the three and nine months ended September 30, 2022.