What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-16 compared with 2020-03-24 · 1068 added, 564 removed, 590 unchanged (73% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

FINANCIAL STATEMENTS

to Financial Statements

to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENT OF STOCKHOLDERS’

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

CONSOLIDATED STATEMENTS OF CASH FLOWS

2 unchanged sentences

the Board of Directors and Stockholders of

Marathon Patent Group, Inc.

and subsidiaries

Marathon Digital Holdings, Inc.

& Subsidiaries

(formerly known as Marathon

Patent Group, Inc)

on the Financial Statements

have audited the accompanying consolidated balance sheets of Marathon Patent Group, Inc.

and subsidiaries (the Company) as of

December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, stockholders’

equity and cash flows for each of the years in the two year period ended December 31, 2019, and the related notes (collectively

referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in

all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of

its operations and its cash flows for each of the years in the two year period ended December 31, 2019, in conformity with accounting

principles generally accepted in the United States of America.

in Accounting Principles

discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019

due to the adoption of ASU No.

2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective

Company’s Ability to Continue as a Going Concern

accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit, recurring losses, and

expects continuing future losses that raise substantial doubt exists about the Company’s ability to continue as a going

Management’s evaluation of the events and conditions and management’s plans regarding these matters are also

described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of

this uncertainty.

have audited the accompanying consolidated balance sheets of Marathon Digital Holdings, Inc.

& Subsidiaries (the Company)

as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’

cash flows for the two years ended December 31, 2020, and the related notes (collectively referred to as the consolidated

financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial

positions of the Company as of December 31, 2020, and the consolidated results of its operations and its cash flows for

the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

consolidated financial statements are the responsibility of the Company’s management.

20 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Audit Matters:

audit matters are matters arising from the current period audit of the financial statements that were communicated or required

to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements,

and (2) involved our especially challenging, subjective, or complex judgments.

determined that there are no critical audit matters.

have served as the Company’s auditor since 2017.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

1 unchanged sentence

Current assets:

and cash equivalents

expenses and other current assets

current assets

Other assets:

and equipment, net of accumulated depreciation and impairment charges of $6,157,786 and $4,338,931 for December 31, 2019 and

2018, respectively

assets, net of accumulated amortization of $136,422 and $65,245 for December 31, 2019 and 2018, respectively

AND STOCKHOLDERS’

Current liabilities:

payable and accrued expenses

servers payable

portion of lease liability

notes payable

Cash and cash equivalents

$ 141,322,776

Digital currencies

Other receivable

Prepaid expenses and other current assets

Total current assets

Non-current assets:

Property and equipment, net of accumulated depreciation of $6,480,359

and $3,487,323 for December 31, 2020 and 2019, respectively

Prepaid service contract

Right-of-use assets

Intangible assets, net of accumulated amortization

of $207,598 and $136,422 for December 31, 2020 and 2019, respectively

Total non-current assets

$ 313,251,239

LIABILITIES AND STOCKHOLDERS’

Current liabilities:

notes payable

Accounts payable and accrued expenses

Mining servers payable

Current portion of operating lease liability

Warrant liability

Total current liabilities

Long-term liabilities

and Contingencies

Convertible notes payable

SBA PPP loan payable

Operating lease liability

Total long-term liabilities

Total liabilities

Commitments and Contingencies

Stockholders’

stock, $0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding at December 31, 2019 and 2018, respectively

stock, $0.0001 par value;

Preferred stock, 0.0001 par value, 50,000,000 shares authorized, no shares

issued and outstanding at December 31, 2020 and 2019, respectively

Common stock, 0.0001 par value;

200,000,000 shares authorized;

8,458,781 and 6,379,992 issued and outstanding at December 31, 2019

and 2018, respectively

paid-in capital

other comprehensive loss

and 8,458,781 issued and outstanding at December 31, 2020 and 2019, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

(116,055,277 )

(105,607,506 )

stockholders’

LIABILITIES AND STOCKHOLDERS’

Total stockholders’

TOTAL LIABILITIES AND STOCKHOLDERS’

$ 313,251,239

accompanying notes are an integral part to these audited consolidated financial statements.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

the Years Ended

Cryptocurrency

mining revenue

costs and expenses

STATEMENTS OF OPERATIONS

For the Years Ended

Cryptocurrency mining revenue

Total revenues

Operating costs and expenses

Cost of revenue

of mining equipment

of leasehold improvements

and related taxes

and administrative

fee - issuance of shares to GBV

operating expenses

(12,076,336 )

income (expenses)

from extinguishment of debt

exchange (loss) gain

gain (loss) on sale of digital currencies

in fair value of warrant liability

in fair value of mining payable

of debt discount

Impairment of mining equipment

Impairment of leasehold improvements

Compensation and related taxes

Consulting fees

Professional fees

General and administrative

Total operating expenses

Operating loss

Other income (expenses)

before income taxes

$ (3,517,065 )

$ (12,745,190 )

loss attributable to common stockholders

$ (3,517,065 )

$ (12,814,324 )

loss per share, basic and diluted:

average shares outstanding, basic and diluted:

Gain from extinguishment of debt

Other income (expenses)

Foreign exchange loss

Loss on conversion of note

Realized gain on sale of digital currencies

Change in fair value of warrant liability

Change in fair value of mining payable

Interest income

Interest expense

Total other (expenses) income

Loss before income taxes

$ (10,447,771 )

$ (3,517,065 )

Other comprehensive

gain on foreign currency translation

Comprehensive

loss attributable to Marathon Patent Group, Inc.

Income tax expense

$ (10,447,771 )

$ (3,517,065 )

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

accompanying notes are an integral part to these audited consolidated financial statements.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

4 unchanged sentences

$ 105,461,396

based compensation

of Series E preferred stock

stock issued for acquisition of patents

common stock for exercise of warrants

stock issuance related to note conversion

fee - issuance of shares to GBV

translation gain

$ (102,090,441 )

Stock based compensation

Par value adjustment

and additional shares issued due to reverse split

Issuance of common stock,

net of offering costs/At-the-market offering

Common stock issued

for purchase of mining servers

Balance as of December

$ 109,705,051

as of December 31, 2018

$ (105,607,506 )

based compensation

value adjustment and additional shares issued due to reverse split

of common stock, net of offering costs/At-the-market offering

stock issued for purchase of mining servers

Stock based compensation

Issuance of common stock,

net of offering costs/At-the-market offering

Common stock issued

for purchase of mining servers

Common stock issued

for note conversion

Common stock issued

for long term service contract

Issue common stock and

warrant for cash

Warrant exercised for

Options exercised for

(10,447,771 )

as of December 31, 2020

1 unchanged sentence

$ (116,055,277 )

$ 311,744,964

accompanying notes are an integral part to these audited consolidated financial statements.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

the Years Ended

FLOWS FROM OPERATING ACTIVITIES

For the Years Ended

CASH FLOWS FROM OPERATING ACTIVITIES

$ (10,447,771 )

$ (3,517,065 )

Adjustments to reconcile

net loss to net cash used in operating activities:

of patents and website

(gain) loss on sale of digital currencies

in fair value of warrant liability

in fair value of mining payable

of mining equipment

of leasehold improvements

based compensation

of debt discount

of right-of-use assets

debt allowance

fee - issuance of shares to GBV

in operating assets and liabilities:

expenses and other assets

payable and accrued expenses

cash used in operating activities

FLOWS FROM INVESTING ACTIVITIES

of digital currencies

Acquisition of patents

of property and equipment

cash provided by (used in) investing activities

FLOWS FROM FINANCING ACTIVITIES

from issuance of common stock/At-the-market offering

costs for the issuance of common stock/At-the-market offering

cash provided by financing activities

Effect of foreign exchange

Net decrease in cash

and cash equivalents

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of patents and website

Loss on conversion of debt

Realized gain on sale of digital currencies

Change in fair value of warrant liability

Change in fair value of mining payable

Impairment of mining equipment

Impairment of leasehold improvements

Stock based compensation

Amortization of right-of-use assets

Change in prepaid service contract

Changes in operating assets and liabilities:

Digital currencies

Operating lease liability

Prepaid expenses and other assets

Accounts payable and accrued expenses

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Sale of digital currencies

Purchase of property and equipment

(17,742,315 )

and cash equivalents —

beginning of period

and cash equivalents —

end of period

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest expense

Cash paid during the year for income taxes

schedule of non-cash investing and financing activities:

value adjustment due to reverse split

of Series E Preferred Stock to common stock

stock issued for acquisition of patents

stock issued for purchase of assets

stock issued for note conversion

stock issuance

servers payable

exercised into common shares

Deposits for the purchase of mining servers

(65,647,592 )

Net cash (used in) provided by investing activities

(81,287,513 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds received on SBA PPP notes payable

Proceeds from issuance of common stock/At-the-market offering

Offering costs for the issuance of common stock/At-the-market offering

Proceeds from issuance of common stock and warrant, net

Proceeds received on exercise of warrants

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents —

beginning of year

Cash and cash equivalents —

$ 141,322,776

Supplemental schedule of non-cash investing and financing activities:

Par value adjustment due to reverse split

Receivable due to share issuance

Common stock issued for long-term service contract

Common stock issued for purchase of mining servers

Reduction of share commitment for purchase of mining

Common stock issued for note conversion

Restricted stock issuance

accompanying notes are an integral part to these audited consolidated financial statements.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

1 unchanged sentence

1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Patent Group, Inc.

(the “Company”) was incorporated in the State of Nevada on February 23, 2010 under the name Verve

Ventures, Inc.

On December 7, 2011, the Company changed its name to American Strategic Minerals Corporation and were engaged in

exploration and potential development of uranium and vanadium minerals business.

In June 2012, the Company discontinued the minerals

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

In October 2012, the Company discontinued its real

estate business when the former CEO joined the firm and the Company commenced IP licensing operations, at which time the Company’s

name was changed to Marathon Patent Group, Inc.

On November 1, 2017, the Company entered into a merger agreement with Global Bit

Ventures, Inc.

Digital Holdings, Inc.

(the “Company”) was incorporated in the State of Nevada on February 23, 2010 under the name

Verve Ventures, Inc.

On December 7, 2011, the Company changed its name to American Strategic Minerals Corporation and were engaged

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

In June 2012, the Company discontinued the

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

In October 2012, the Company discontinued

its real estate business when the former CEO joined the firm and the Company commenced IP licensing operations, at which time

the Company’s name was changed to Marathon Patent Group, Inc.

On November 1, 2017, the Company entered into a merger agreement

with Global Bit Ventures, Inc.

(“GBV”), which is focused on mining digital assets.

The Company purchased cryptocurrency mining machines

and established a data center in Canada to mine digital assets.

The Company expanded its activities in the mining of new digital

assets, while at the same time harvesting the value of its remaining IP assets.

In order to streamline and create efficiencies,

we outsource most of our operations to service providers, and our Granby facility and its bitcoin mining operations are provided

by Block Maintain, Inc.

Additionally, 24 hour security at our facility is provided by Securitas Canada, and financial operations

are provided by Chord Advisors, LLC.

The Company purchased cryptocurrency

mining machines and established a data center in Canada to mine digital assets.

The Company expanded its activities in the mining

of new digital assets, while at the same time harvesting the value of its remaining IP assets.

As of October 2020, the financial

operations were brought in house and are completed by the Company’s accounting team that consists of a Chief Financial Officer,

Chief Operating Officer and bookkeeper.

Subsequent to December 31, 2020, the Company hired a full-time Controller.

moved all of our data mining operations to our new facility in Hardin Montana.

Company’s Board of Directors adopted the reverse stock split approved by its shareholders at its December 2018 Board Meeting.

1 unchanged sentence

business on April 8, 2019 was combined into one issued and outstanding share of common stock, with no change in par value per

All share and per share values for all

periods presented in the accompanying consolidated financial statements have been retroactively adjusted to reflect

the 1:4 Reverse Split.

All share and per share values for all periods presented in the accompanying consolidated financial statements have been

retroactively adjusted to reflect the 1:4 Reverse Split.

January 1, 2018, our Board adopted the 2018 Equity Incentive Plan, subsequently approved by the stockholders on March 7, 2018,

10 unchanged sentences

equity requirement.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

September 30, 2019, the Company consummated the purchase of 6000 S-9 Bitmain 13.5 TH/s Bitcoin Antminers (“Miners”)

13 unchanged sentences

The Company recorded change

in fair value of mining payable of $507,862 during the year ended December 31, 2019.

There is no requirement for the Company to

make a payment in cash in lieu of issuing the remaining shares.

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

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

reflected in the consolidated financial statements, the Company had an accumulated deficit of approximately $105.6 million at

December 31, 2019, a net loss of approximately $3.5 million and approximately $3.3 million net cash used in operating activities

for the year ended December 31, 2019.

These factors raise substantial doubt about the Company’s ability to continue as a

going concern.

PATENT GROUP, INC.

in fair value of mining payable of $66,547 and $507,862 during the year ended December 31, 2020 and 2019, respectively..

is no requirement for the Company to make a payment in cash in lieu of issuing the remaining shares.

Subsequent to year end, on

January 14, 2021, the Company sold its inventory of approximately 5,900 S9, 13.5 TH/s miners.

As such, management determined that

those crypto-currency machines were impaired by a total of $871,302 based upon an assessment as of December 31, 2020.

The Company believes

that bitcoin is attractive because it can serve as a store of value, supported by a robust and public open source architecture,

that is untethered to sovereign monetary policy and can therefore serve as a hedge against inflation.

Bitcoin exists entirely

in electronic form, as virtually irreversible public transaction ledger entries on the blockchain, and transactions in bitcoin

are recorded and authenticated not by a central repository, but by a decentralized peer-to-peer network.

This decentralization

avoids certain threats common to centralized computer networks, such as denial of service attacks, and reduces the dependency

of the bitcoin network on any single system.

While the bitcoin network as a whole is decentralized, the private keys used to access

bitcoin balances are not widely distributed and are held on hardware (which can be physically controlled by the holder or by a

third party such as a custodian) or via software programs on third-party servers and loss of such private keys results in an inability

to access, and effective loss of, the corresponding bitcoin.

Consequently, bitcoin holdings are susceptible to all of the risks

inherent in holding any electronic data, such as power failure, data corruption, security breach, communication failure, and user

error, among others.

These risks, in turn, make bitcoin subject to theft, destruction, or loss of value from hackers, corruption,

or technology-specific factors such as viruses that do not affect conventional fiat currency.

In addition, the bitcoin network

relies on open source developers to maintain and improve the bitcoin protocol.

Accordingly, bitcoin may be subject to protocol

design changes, governance disputes such as “forked”

protocols, competing protocols, and other open source-specific

risks that do not affect conventional proprietary software.

The Company believes

that in the context of the economic and public health crisis precipitated by COVID-19 and the unprecedented government financial

stimulus measures adopted around the world, decreasing interest rates, as well as the breakdown of trust in and between political

institutions and political parties in the United States and globally, bitcoin represents a more attractive store of value than

fiat currency, and further that opportunity for appreciation in the value of bitcoin exists in the event that such factors lead

to even more widespread adoption of bitcoin as a treasury reserve alternative.

May 11, 2020, the Company purchased 700 new generation M305+ASIC Miners from MicroBT for approximately $1.3 million.

The 700 miners

produce 80/Th and will generate 56 PH/s (petahash) of hashing power, compared to the Company’s current S-9 production of

These next generation MicroBT ASIC miners are markedly more energy efficient than our existing Bitmain models.

miners were delivered to the Company’s Hosting Facility in June and are producing Bitcoins.

Company purchased 660 latest generation Bitmain S19 Pro Miners on May 12, 2020, 500 units on May 18, 2020 and an additional 500

units on June 11, 2020.

These miners produce 110 TH/s and will generate 73 PH/s (petahash) of hashing power, compared to the Company’s

S-9 production of 46 PH/s.

The Company made the payments of approximately $4.2 million in the second quarter of 2020 and received

660 of the 1,660 units at its Hosting Facility in August, and its hosting partner, Compute North, had installed them upon their

Of the 1,000 remaining S-19 Pro Miners due to arrive in the 4 th quarter, 500 were received in November and

installed in the Company’s Hosting Facility in Montana, while 500 were received and installed during the remainder of the

4 th quarter.

These miners will produce an additional 110 PH/s increasing the Company to an aggregate Hashpower of 294

July 29, 2020, the Company announced the purchase of 700 next generation M31S+ASIC Miners from MicroBT.

The miners arrived mid-August.

August 13, 2020, the Company entered into a Long Term Purchase Contract with Bitmaintech PTE., LTD (“Bitmain”) for

the purchase of 10,500 next generation Antminer S-19 Pro ASIC Miners.

The purchase price per unit is $2,362 ($2,206 with a 6.62%

discount) for a total gross purchase price of $24,801,000.

The parties confirm that the total hashrate of the Antminers under

this agreement shall not be less than 1,155,000 TH/s.

Subsequent to executing this agreement, due to the additional executed contracts,

Bitmain applied a total net discount of 8.63% to the purchase price adjusting the amount due to $22,660,673.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

on the Company’s current revenue and profit projections, management is uncertain that the Company’s existing cash

will be sufficient to fund its operations through at least the next twelve months from the issuance date of the consolidated

financial statements, raising substantial doubt regarding the Company’s ability to continue operating as a going concern.

If we do not meet our revenue and profit projections or the business climate turns negative, then we will need to:

additional funds to support the Company’s operations;

provided, however, there is no assurance that the Company will

be able to raise such additional funds on acceptable terms, if at all.

If the Company raises additional funds by issuing securities,

existing stockholders may be diluted;

strategic alternatives.

adequate funds are not available, we may be required to curtail our operations or other business activities or obtain funds through

arrangements with strategic partners or others that may require us to relinquish rights to certain technologies or potential markets.

The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification

of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going

Company shall pay for the Antminers as follows:

percent (20%) of the total purchase price shall be paid as a nonrefundable down payment within forty-eight (48) hours of execution

of the agreement.

Company shall pay the twenty percent (20%) of the total purchase price prior to September 20, 2020.

Company shall pay the ten percent (10%) of the total purchase price prior to October 10, 2020.

Company shall pay the remaining fifty percent (50%) of the total purchase price in equal monthly installments due not less

than fifty-five (55) days prior to the scheduled delivery of the Product(s) as follows:

thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the first installment of

products to be shipped to the Company in January 2021.

thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the second installment of

the products to be shipped to the Company in February 2021.

thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the third installment of

the products to be shipped to the Company in March 2021.

thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the fourth installment of

the products to be shipped to the Company in April 2021.

thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the fifth installment of

the products to be shipped to the Company in May 2021.

thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the sixth installment of

the products to be shipped to the Company in June 2021.

of December 31, 2020, the Company has paid $15,052,648 of the total balance of $22,660,679.

to the timely payment of the purchase price, Bitmain shall deliver products according to the following schedule:

1,500 Units on

or before January 31, 2021;

and 1,800 units on or before each of February 28, 2021;

March 31, 2021;

April 30, 2021, May 31, 2021

and June 30, 2021.

October 6, 2020, the Company entered into a series of agreements with affiliates of Beowulf Energy LLC, a Delaware limited liability

company (collectively and as applicable, “Beowulf”) and Two Point One, LLC, a Delaware limited liability company (“2Pl”;

Marathon, Beowulf and 2Pl each a “Party”

and, collectively, the “Parties”).

Beowulf and 2Pl have been

designing and developing a data center facility of up to 100-megawatts (the “Facility”) that will be located next

to, and supplied energy directly from, Beowulf’s power generating station in Hardin, MT (the “Hardin Station”).

The Facility is being developed in two phases to reach its 100 MW capacity, and the Hardin Station will supply the Facility exclusively

with energy to operate Bitcoin mining servers.

projected build out cost for Phase I is approximately $23 million, which is front loaded as the infrastructure is being built

for the full 100 MW project.

Phase I accounts for 70 MW of the 100 MW project.

It entails high voltage equipment to break down

the full 100 MW load from the generating station, and thereafter, the infrastructure cost per MW is a matter of distributing power

at a container level.

Assuming market conditions similar to current, the build out cost for Phase II works out to approximately

$200,000 - $250,000 per MW.

These are all in costs covering all equipment and labor needed starting from the power coming off

the Generating Station distributed down to running the actual miners:

including breakers, transformers, switches, containers,

PDUs, fans, network cables, and the like.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

and Beowulf entered into an exclusive Power Purchase Agreement for the initial supply of 30 MW (Phase I), and up to 100 MW in

the aggregate (Phase II), of energy load to the Facility at a cost of $0.028/kWh.

The initial term of the Power Purchase Agreement

is five years, with up to five additional three-year extensions, as mutually agreed, assuming 75% energy utilization of the initial

30 MW of energy supplied to the Facility.

Marathon purchased certain mining infrastructure and equipment for the Facility from

Beowulf for a purchase price of $750,000, and Marathon has the right, at no additional cost, to construct and access the Facility

on land adjacent to the Hardin Station pursuant to a lease agreement with Beowulf.

After the execution of the contract, the Company

entered into additional miner purchase agreements.

Due to the increased size of the Company’s fleet of miners, Phase I was

increased from the initial 30 MW to 70 MW, while Phase II will encompass the completion of the remaining 30 MW for the project.

and 2P1 will provide operation and maintenance services for the Facility pursuant to a Data Facility Services Agreement, in exchange

for an initial issuance of 3,000,000 shares of Marathon’s common stock to each of Beowulf and 2Pl valued at the time of

execution at $1.87 per share or $11,220,000 in aggregate.

Upon completion of Phase I, Marathon will issue to Beowulf an additional

150,000 shares of its common stock.

During Phase II, Marathon will issue to Beowulf an additional 350,000 shares of its common

stock –

150,000 shares upon reaching 60 MW of Facility load and 200,000 at completion of the full 100 MW of Facility load.

The cost to maintain and run the Facility will be $0.006/kWh.

All shares issued under the Data Facility Services Agreement are

issued pursuant to transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933.

October 19, 2020, David Lieberman retired as the Company’s Chief Financial Officer, and Simeon Salzman was appointed Chief

Financial Officer.

October 23, 2020, the Company executed a contract with Bitmain to purchase an additional 10,000 next generation Antminer S-19

Pro ASIC Miners.

The 2021 delivery schedule will be 2,500 Units in January, 4,500 Units in February and the final 3,000 Units

in March 2021.The gross purchase price is $23,620,000 with 30% due upon the execution of the contract and the balance paid over

the next 4 months.

Subsequent to executing this agreement, due to the additional executed contracts, Bitmain applied a discount

of 8.63% to the purchase price adjusting the amount due to $21,581,594.

As of December 31, 2020, the Company has paid $13,634,645

of the total balance of $21,581,594.

of the November 12, 2020, the Company sold all shares of our common stock available thereunder for an aggregate

purchase price of $100,000,000 under our 2020 At the Market Offering pursuant to our registration statement on Form S-3 declared

effective by the SEC on August 6, 2020, which was the total amount available for sale thereunder.

December 8, 2020, the Company executed a contract with Bitmain to purchase an additional 10,000 next generation Antminer S-19j

Pro ASIC Miners, with 6,000 units to be delivered in August 2021, and the remaining 4,000 units to be delivered in September 2021.

The gross purchase price is $$23,770,000 with 10% of the purchase price due within 48 hours of execution of the contract, 30%

due on January 14, 2021, 10% due on February 15, 2021, 30% due on June 15, 2021 and 20% due on July 15, 2021.

Subsequent to executing

this agreement, due to the additional executed contracts, Bitmain applied a discount of 8.63% to the purchase price adjusting

the amount due to $21,718,649.

As of December 31, 2020, the Company has paid $2,192,307 of the total balance of $21,718,649.

December 11, 2020, the Company entered into an At The Market Agreement with HC Wainwright for up to $200,000,000.

On January 12,

2021, the Company also announced that it had successfully completed its previously announced $200 million shelf offering by

utilizing its at-the-market (ATM) facility.

As a result, the Company ended the 2020 fiscal year with $141.3 million in cash and

81,974,619 shares outstanding.

December 23, 2020, the Company executed a contract with Bitmain to purchase an additional 70,000 next generation Antminer S-19

ASIC Miners, with 7,000 units to be delivered in July 2021, and the remaining 63,000 units to be delivered in December 2021.

purchase price is $167,763,451.

The purchase price for the miners shall be paid as follows:

20% within 48 hours of signing

30% on or before March 1, 2021;

4.75% on June 15, 2021;

1.76% on July 15, 2021;

4.58% on August 15, 2021;

on September 15, 2021;

17.63% on October 15, 2021 and 11.55% on November 15, 2021.

As of December 31, 2020, the Company has paid

$33,552,690 of the total balance of $167,763,452.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

On December 31, 2020, the Company sold

6,632,712 shares of common stock pursuant to the At The Market offering.

Proceeds of $77.1 million net of offering costs of $2.3

million were received on January 4, 2021.

Due to the timing of the proceeds received, an other current receivable was recorded

in an amount of $74.8 million.

December 31, 2020, the Board of Directors of the Company ratified the following arrangements approved by its Compensation Committee:

Okamoto, CEO was awarded a cash bonus of $2,000,000 which was paid before year end 2020.

He was also awarded a special bonus of

1,000,000 RSUs with immediate vesting.

He was given a new three-year employment agreement effective January 1, 2021 with the same

salary and bonus as the prior agreement.

He was also granted the following:

award of 1,000,000 RSUs when the company’s market

capitalization reaches and sustains a market capitalization for 30 consecutive days above $500,000,000;

award of 1,000,000 RSUs

priced when the company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above

$750,000,000;

award of 2,000,000 RSUs priced at lowest closing stock price in past 30 trading days when the company’s market

capitalization reaches and sustains a market capitalization for 30 consecutive days above $1,000,000,000;

and award of 2,000,000

RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above

$2,000,000,000.

As of March 12, 2021, Mr.

Okamoto had earned all bonuses set forth, and as a result of the maximum shares available

under the Company’s 2018 Equity Incentive Plan having been issued, he is owed an additional 2,547,392 RSUs, for which the

Company will, within 15 business days of the date of this report, file a proxy statement on Schedule 14A to hold an annual or

special meeting of shareholders to gain shareholder approval to increase the number of shares available under the Plan in a sufficient

number to cover issuance of these 2,547,392 RSUs.

Salzman, CFO, was granted a bonus payment of $40,000 in cash;

and a bonus of 91,324 RSUs with immediate vesting.

James Crawford,

COO, was granted a bonus payment of $127,308 in cash and a stock bonus of 57,990 RSUs with immediate vesting.

Furthermore, per

his employment agreement, his base salary for the 2021 will be increased by 3%.

for directors of the board for 2021 as follows:

(i) cash compensation of $60,000 per year for each director, plus an additional

$15,000 per year for each committee chair, paid 25% at the end of each calendar quarter;

(ii) for existing directors, the equivalent

of 54,795 RSUs;

and (iii) for newly elected directors, a one-time grant of 91,324 RSUs, vesting 25% each calendar quarter during

For clarification, new directors will also receive the same annual compensation as existing directors in addition to their

one time grant.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

accompanying consolidated financial statements include the accounts of the Company’s subsidiaries, Marathon Crypto Mining,

Inc., Crypto Currency Patent Holding Company and Soems Acquisition Corp.

For consolidated entities where the Company owns less

than 100% of the subsidiary, the Company records net loss attributable to non-controlling interests in its consolidated statements

of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective non-controlling

Inc., Crypto Currency Patent Holding Company and Soems Acquisition Corp, all of which are dormant as of December 31, 2020.

consolidated entities where the Company owns less than 100% of the subsidiary, the Company records net loss attributable to non-controlling

interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained

in such entities by the respective non-controlling parties.

Company’s consolidated financial statements include the accounts of the Company and its subsidiaries.

2 unchanged sentences

of Estimates and Assumptions

preparation of financial statements in conformity with US 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

financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could

differ from those estimates.

Significant estimates made by management include, but are not limited to, estimating the useful

lives of patent assets and fixed assets, the assumptions used to calculate fair value of warrants and options granted, realization

of long-lived assets, deferred income taxes, unrealized tax positions and the realization of digital currencies.

preparation of financial statements in conformity with US 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 financial

statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those

Significant estimates made by management include, but are not limited to, estimating the useful lives of patent assets

and fixed assets, the assumptions used to calculate fair value of warrants and options granted, realization of long-lived assets,

deferred income taxes, unrealized tax positions and the realization of digital currencies.

and Cash Equivalents

6 unchanged sentences

For the years ended December 31, 2020 and 2019, the Company’s

bank balances exceeded the FDIC insurance limit.

To reduce its risk associated with the failure of such financial institution,

the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

As of December 31,

2019 and 2018, the Company did not have any cash equivalents.

bank balances exceeded the FDIC insurance limit in an amount of $140.3 million and $0.2 million, respectively.

To reduce its risk

associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial

institution in which it holds deposits.

As of December 31, 2020 and 2019, the Company did not have any cash equivalents.

segments are defined as components of an enterprise about which separate financial information is available that is evaluated

4 unchanged sentences

The Company’s Crypto-currency

Machines are located in Canada and United States and the Company has employees only in the United States and views its operations

as one operating segment as the CODM reviews financial information on a consolidated basis in making decisions regarding resource

Machines are located in the United States, and the Company has employees only in the United States and views its operations as

one operating segment as the CODM reviews financial information on a consolidated basis in making decisions regarding resource

allocations and assessing performance.

1 unchanged sentence

Digital currencies are recorded at cost less impairment.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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.

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

Impairment exists when the carrying amount exceeds its fair value.

In testing for impairment, the Company has the option to first

perform a qualitative assessment to determine whether it is more likely than not that an impairment exists.

If it is determined

that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.

If the Company

concludes otherwise, it is required to perform a quantitative impairment test.

To the extent an impairment loss is recognized,

the loss establishes the new cost basis of the asset.

Subsequent reversal of impairment losses is not permitted.

In testing for impairment, the Company has the

option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists.

If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.

If the Company concludes otherwise, it is required to perform a quantitative impairment test.

To the extent an impairment

loss is recognized, the loss establishes the new cost basis of the asset.

Subsequent reversal of impairment losses is not

The reward for a bitcoin miner changes roughly every four years, or after every 210,000 blocks are mined and gets

reduced by half each time, this whole process is called bitcoin halving.

The last halving occurred on May 11, 2020 and reduced

the reward per block to 6.25 BTC.

following table presents the activities of the digital currencies for the years ended December 31, 2020 and 2019:

Digital currencies

at December 31, 2017

of digital currencies

Realized loss on sale

of digital currencies

Digital currencies

at December 31, 2018

Additions of digital

Realized gain on sale

of digital currencies

currencies at December 31, 2019

Digital currencies at December 31, 2018

Additions of digital currencies

Realized gain on sale of digital currencies

Sale of digital currencies

Digital currencies at December 31, 2019

Additions of digital currencies

Realized gain on sale of digital currencies

Sale of digital currencies

Digital currencies at December 31, 2020

Crypto-currency

15 unchanged sentences

specialized equipment.

Management has determined that a two year diminishing value best reflects the current expected useful life

of transaction verification servers.

This assessment takes into consideration the availability of historical data and management’s

expectations regarding the direction of the industry including potential changes in technology.

Management will review this estimate

annually and will revise such estimates as and when data comes available.

Property and equipment are stated at cost, net of accumulated depreciation.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Subsequent to December

31, 2020, management has determined that the expected useful life of transaction verification servers would be five years.

Prior to December 31, 2020, management depreciated these servers over two years.

This assessment takes into consideration the

availability of historical data and management’s expectations regarding the direction of the industry including potential

changes in technology.

Management will review this estimate annually and will revise such estimates as and when data comes available.

the extent that any of the assumptions underlying management’s estimate of useful life of its transaction verification servers

7 unchanged sentences

costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

48 unchanged sentences

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

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

3 unchanged sentences

computing power in crypto asset transaction verification services is an output of the Company’s ordinary activities.

provision of computing power is the only performance obligation in the Company’s contracts with pool operators.

The transaction

consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received,

which is not materially different than the fair value at contract inception.

provision of computing power is the only performance obligation in the Company’s contracts with third party pool operators.

The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value

on the date received, which is not materially different than the fair value at contract inception.

The consideration is all variable.

Because it is

not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the Company

successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration

it will receive, at which time revenue is recognized.

There is no significant financing component in these transactions.

Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained

until the Company successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation

of the consideration it will receive, at which time revenue is recognized.

There is no significant financing component in these

transactions.

value of the digital asset award received is determined using the average U.S.

2 unchanged sentences

associated with running the digital currency mining business, such as rent and electricity cost are also recorded as cost of revenues.

Depreciation on digital currency mining equipment is recorded as a component of costs and expenses.

Depreciation on digital currency mining equipment is recorded as a component of cost of revenues.

Party Transactions

19 unchanged sentences

As of December 31, 2020 and 2019, no bonus has been accrued.

October 15, 2018, the Company entered into a 2-year Employment Agreement, subject to successive 1 year extension, with David Lieberman,

pursuant to which Mr.

Lieberman will serve as the Chief Financial Officer of the Company.

Pursuant to the terms of the Lieberman

Agreement, Mr.

Lieberman shall receive a base salary at an annual base salary of $180,000 (subject to annual 3% cost of living

increase) and an annual bonus up to 100% of base salary as determined by the Compensation Committee or the Board.

As further consideration

Lieberman’s services, the Company agreed to issue Mr.

Lieberman 10-year stock options to purchase 50,000 shares

of Common Stock, with a strike price of $2.32 per share, vesting 50% on the date of grant and 25% on each 6 months anniversary

of the date of grant.

As of December 31, 2019 and 2018 no bonus has been accrued.

July 22, 2019, the Company granted David Lieberman, James Crawford and other three board directors 5-year stock options to purchase

1 unchanged sentence

each 6 months anniversary of the date of grant.

On October 19, 2020, David Lieberman retired and at that time, his shares of common

stock fully vested.

Note 1 for a description of bonuses and restricted stock unit awards to related parties ratified by the Board of Directors as

of December 31, 2020.

Value of Financial Instruments

8 unchanged sentences

inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

17 unchanged sentences

and 2019, respectively:

value measured at December 31, 2019

carrying value at December 31,

prices in active markets

other observable inputs

unobservable inputs

value measured at December 31, 2018

carrying value at December 31,

prices in active markets

other observable inputs

unobservable inputs

were no transfers between Level 1, 2 or 3 during the year ended December 31, 2019.

Fair value measured at December 31, 2020

Total carrying

Quoted prices in

active markets

Significant other

observable inputs

Warrant liability

Fair value measured at December 31, 2019

Total carrying

Quoted prices in

active markets

Significant other

observable inputs

Warrant liability

were no transfers between Level 1, 2 or 3 during the years ended December 31, 2020 and 2019.

December 31, 2020, the Company had an outstanding warrant liability in the amount of $322,437 associated with warrants that were

5 unchanged sentences

Outstanding as of December 31, 2018

in fair value of warrants

Change in fair value of warrants

Outstanding as of December 31, 2019

in fair value of warrants

Outstanding as

of December 31, 2019

Change in fair value of warrants

Outstanding as of December 31, 2020

The fair value of the warrant liabilities

are marked-to-market each reporting period and changes in fair value are recorded as a non-operating gain or loss in our statement

of operations, until they are completely exercised.

The fair value is determined each reporting period using the Black-Scholes

option pricing model and is affected by changes in inputs to that model including our stock price, expected stock price volatility,

dividends, interest rates and expected term.

The assumptions used in valuing the warrant liability as of the year ended December

31, 2020 were exercise price of $4.80 per share;

implied stock price of $10.44;

expected volatility of 44.47%;

expected dividend

risk free interest rate of 1.70%;

and expiration date of 2.17 years.

Company accounts for income taxes pursuant to the provision of Accounting Standards Codification (“ASC”) 740-10, “Accounting

6 unchanged sentences

not be realized.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

26 unchanged sentences

at December 31, 2020 and 2019 are as follows:

of December 31,

to purchase common stock

Options to purchase

notes to exchange common stock

As of December 31,

Warrants to purchase common stock

Options to purchase common stock

Convertible notes to exchange common stock

following table sets forth the computation of basic and diluted loss per share:

the Years Ended December 31,

attributable to common shareholders

For the Years Ended December 31,

Net loss attributable to common shareholders

$ (10,447,771 )

1 unchanged sentence

Weighted average common shares - basic and diluted

Loss per common share

- basic and diluted

Loss per common share - basic and diluted

of Long-lived Assets

5 unchanged sentences

impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the

Based on its reviews, management determined that its crypto-currency machines were impaired by a total of $2,222,688 based

upon an assessment as of December 31, 2018, including consideration of the decline in bitcoin values which occurred commencing

in late December 2017 and into 2018.

And during the year ended December 31, 2019, the Company’s leasehold improvements were

impaired by $447,776.

Subsequent to year end, on January 14, 2021, the Company sold its inventory of approximately 5,900 S9, 13.5 TH/s miners

for $616,236.

As of December 31, 2020, these assets had a net book value of $1,487,538.

As such, management determined that those

crypto-currency machines were impaired by a total of $871,302 based upon an assessment as of December 31, 2020.

During the year

ended December 31, 2020 and 2019, the Company’s leasehold improvements were impaired by $0 and $447,776, respectively.

Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated

3 unchanged sentences

best estimates and involve inherent uncertainties and the application of management’s judgment.

PATENT GROUP, INC.

These assumptions are the

expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying

stock and the expected forfeiture rate.

Expected volatility is calculated based on the historical volatility of the Company’s

common stock over the expected term of the option.

Risk–free interest rates are calculated based on continuously compounded

risk–free rates for the appropriate term.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

11 unchanged sentences

if any, are recorded when incurred.

calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components.

excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and

calculating the right of use asset and lease liability, the Company elected to combine lease and non-lease components.

excluded short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and

recognizes rent expense on a straight-line basis over the lease term.

11 unchanged sentences

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging

(Topic 815), and Leases (Topic 842):

Effective Dates , which, among other items, allows public business entities that qualify

as smaller reporting companies for SEC reporting purposes additional time to implement the guidance related to FASB ASC 326 .

Under ASU 2019-10, the effective date for such entities is deferred to fiscal years, and interim periods within those fiscal years,

beginning after December 15, 2022.

Earlier application is still allowed for fiscal years beginning after December 15, 2018, including

interim periods within those fiscal years.

The Company is currently evaluating the impact of this standard on its consolidated

financial statements and related disclosures.

June 2018, the FASB issued ASU 2018-07, “

26 unchanged sentences

a material impact on the Company’s consolidated financial statements.

May 2017, the FASB issued ASU No.

2017-09, Compensation - Stock Compensation (Topic 718):

Scope of Modification Accounting .

This ASU provides clarity about which changes to the terms or conditions of a share-based payment award require the application

of modification accounting.

Specifically, ASU 2017-09 clarifies that changes to the terms or conditions of an award should be

accounted for as a modification unless all of the following are met:

1) the fair value of the modified award is the same as the

fair value of the original award immediately before the original award is modified, 2) the vesting conditions of the modified

award are the same as the vesting conditions of the original award immediately before the original award is modified and 3) the

classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the

original award immediately before the original award is modified.

ASU 2017-09 is effective for annual reporting periods beginning

after December 15, 2017 and early adoption is permitted.

The Company adopted ASU 2017-09 on January 1, 2018 and the adoption did

not have a material impact on the Company’s accounting for share-based payment awards, as changes to awards’

and conditions subsequent to the grant date are unusual and infrequent in nature.

PATENT GROUP, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805):

Clarifying the Definition of a Business (“ASU

2017-01”), which clarifies the definition of a business and assists entities with evaluating whether transactions should

be accounted for as acquisitions (or disposals) of assets or businesses.

Under this guidance, when substantially all of the fair

value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent

In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and

a substantive process that together significantly contribute to the ability to create an output.

The amended guidance also narrows

the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition.

This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted.

Company adopted ASU 2017-01 on January 1, 2018 and the adoption did not have a material impact on the Company’s consolidated

financial statements and notes thereto.

February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among

14 unchanged sentences

and elected the package of practical expedients described above.

Based on the analysis, on January 1, 2019, the Company recorded right of use assets of approximately $388,425, lease liability

of approximately $289,283 and eliminated deferred rent of approximately $99,141.

May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers , as a new Topic, (ASC) Topic 606.

new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized.

The core principle 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 entity expects to be entitled in exchange for those goods or services.

In August 2015, the FASB issued ASU No.

2015-14, Revenue from Contracts with Customers:

Deferral of the Effective Date, which

deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with

early adoption permitted but not earlier than the original effective date.

This ASU must be applied retrospectively to each period

presented or as a cumulative-effect adjustment as of the date of adoption.

The Company adopted ASU 2014-09 on January 1, 2018

under the modified retrospective approach and the adoption did not have a material impact on the Company’s results of operations,

cash flows and financial position.

Based on the analysis, on January 1, 2019, the Company recorded

right of use assets of approximately $388,425, lease liability of approximately $289,283 and eliminated deferred rent of approximately

new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a

future date are not expected to have a material impact on the consolidated financial statements upon adoption.

PATENT PURCHASES

January 11, 2018, the Company entered into a Patent Rights Purchase and Assignment

Agreement (the “Agreement”), with XpresSpa Group, Inc., a Delaware Corporation (the “Seller”) and Crypto

Currency Patent Holdings Company LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“CCPHC”).

Pursuant to the Agreement, the Seller agreed to irrevocably assign, sell, grant, transfer and convey, and CCPHC agreed to accept

and acquire, the exclusive right, title and interest in and to certain patents owned by the Seller (“Assigned IP”),

subject to the terms and conditions set forth in the Agreement.

As consideration for the Assigned IP, the Seller shall receive

(i) payment in the amount of $250,000 from CCPHC and (ii) 62,500 shares of common stock of the Company, par value $0.0001 per

share (the “Consideration Shares”), with piggyback registration rights.

The Consideration Shares shall be issued by

the Company to the Seller, subject to the terms and conditions of a lock-up agreement.

The fair value of the 62,500 shares was

$960,000 and was based upon the closing price of the Company’s common stock.

a condition to the Agreement, the Seller agreed to enter into a lock-up agreement with the Company, which lock-up agreement is

included as an exhibit to the Agreement (the “Lock-up Agreement”).

Pursuant to the Lock-up Agreement, the Seller shall

not directly or indirectly offer, sell, pledge or transfer, or otherwise dispose of, the Consideration Shares for a period of

180 days commencing on January 11, 2018 and ending on July 11, 2018;

provided, however, upon the effective date of the registration

for resale of the Consideration Shares, and on each day thereafter, one twentieth (1/20) of the Consideration Shares shall be

released from the restrictions contained in the Lock-up Agreement and may be freely sold, transferred, traded or otherwise disposed

Notwithstanding the foregoing, in the event that the Consideration Shares, in whole or in part, are not registered for resale

on the 6-month anniversary of the date of issuance of the Consideration Shares (“Six-Month Date”), the holders thereof

may sell, transfer, trade or otherwise dispose of one twentieth (1/20) of the Consideration Shares on the Six-Month Date and on

each day thereafter.

PATENT GROUP, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

addition, the Company agreed to issue 6,250 shares of the Company’s common stock to Andrew Kennedy Lang, one of the named

inventors of the patents, in exchange for consulting services, and 12,500 shares of the Company’s common stock to another

individual in exchange for consulting services, in connection with the acquisition of the Assigned IP.

The fair value of these

shares was $278,750 and was based upon the closing price of the Company’s common stock on date of agreement.

recorded the fair value of these shares as a component of compensation and related taxes expense.

PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

14 unchanged sentences

The Company recorded change

in fair value of mining payable of $507,862 during the year ended December 31, 2019.

There is no requirement for the Company to

make a payment in cash in lieu of issuing the remaining shares.

February 7, 2018, Marathon Crypto Mining, Inc.

(“MCM”), a Nevada corporation and wholly owned subsidiary of the Company,

entered into an agreement to acquire 1,400 Bitmain’s Antminer S9 miners (“Antminer S9s”).

The purchase price

was $4,557,072.

The Company also paid installation costs of $694,647 (total paid and capitalized was $5,251,719).

will depreciate the Antminer S9’s and related installation costs over a two-year period.

Depreciation for the year ended

December 31, 2018 was $2,003,696.

During the year ended December 31, 2018, the Company recorded a $2,222,688 charge for

the impairment of the mining equipment and $447,776 for the impairment of the leasehold improvements during the year ended December

February 12, 2018, in connection with the intended mining operations of MCM, the Company assumed a lease contract dated November

11, 2017 (the “Lease Agreement”) by and between 9349-0001 Quebec Inc.

(the “Lessor”) and Blocespace Inc.,

formerly known as Cryptoespace Inc.

(the “Lessee”).

Pursuant to the Lease Agreement, among other things, the Lessee

leases a building of 26,700 square feet (the “Property”) in Quebec, Canada, for an initial term of five (5) years

(the “Term”), commencing on December 1, 2017 and terminating on November 30, 2022.

The Lessee shall pay a monthly

rent of $10,013 CAD plus tax, or an annual rent of $120,150 CAD plus tax (“Yearly Rent”).

At the signing of the Lease

Agreement, the Lessee paid the Lessor a deposit equal to the Yearly Rent which amount will be dispersed during the Term as set

forth in the Lease Agreement.

Lease expense for the year ended December 31, 2019 and 2018 were $107,372 and $88,043.

Lessee assigned the Lease Agreement to MCM pursuant to an Assignment and Assumption Agreement (the “Assignment”) by

and between the Company and the Lessee’s parent company, Bloctechnologies Canada Inc.

Subject to the terms and conditions

of the Assignment, MCM agreed to observe all the covenants and conditions of the Lease Agreement, including the payment of all

The Company shall be responsible for all necessary capital expenditures in connection with capital improvements to

the Property to set up MCM’s mining operations.

in fair value of mining payable of $66,547 and $507,862 during the year ended December 31, 2020 and 2019, respectively.

There is no requirement for the Company to make a payment in cash in lieu of issuing the remaining shares.

May 11, 2020, the Company signed a Contract Addendum with Compute North, to pause and suspend services under its Colocation Agreement.

This will suspend all production of Bitcoin using our S-9 miners.

May 11, 2020, the Company purchased 700 new generation M305+ASIC Miners from MicroBT for approximately $1.3 million.

The 700 miners

produce 80/Th and will generate 56 PH/s (petahash) of hashing power, compared to the Company’s current S-9 production of

These next generation MicroBT ASIC miners are markedly more energy efficient than our existing Bitmain models.

miners were delivered to the Company’s Hosting Facility in June 2020 and are producing Bitcoins.

Company purchased 660 latest generation Bitmain S19 Pro Miners on May 12, 2020, 500 units on May 18, 2020 and an additional 500

units on June 11, 2020.

These miners produce 110 TH/s and will generate 73 PH/s (petahash) of hashing power, compared to the Company’s

S-9 production of 46 PH/s.

The Company made the payments of approximately $4.2 million in the second quarter of 2020 and received

660 of the 1,660 units at its Hosting Facility in August, and its hosting partner, Compute North, had installed them upon their

Of the 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter, 500 were received in November and installed

in the Company’s Hosting Facility in Montana, while 500 are anticipated to be received and installed during the remainder

of the 4th quarter.

These miners will produce an additional 110 PH/s increasing the Company to an aggregate Hashpower of 294 PH/s.

July 29, 2020, the Company announced the purchase of 700 next generation M31S+ASIC Miners from MicroBT.

The miners arrived mid-August.

On August 13, 2020, the Company entered into a Long Term Purchase Contract with Bitmaintech PTE., LTD (“Bitmain”)

for the purchase of 10,500 next generation Antminer S-19 Pro ASIC Miners.

purchase price per unit is $2,362 ($2,206 with a 6.62% discount) for a total purchase price of $24,801,000 (with a 6.62% discount

for a discounted price of $23,159,174).

The parties confirm that the total hashrate of the Antminers under this agreement shall

not be less than 1,155,000 TH/s.

to executing this agreement, due to the additional executed contracts, Bitmain applied a total net discount of 8.63% to the purchase

price adjusting the amount due to $22,660,673.

to the timely payment of the purchase price, Bitmain shall deliver products according to the following schedule:

1,500 Units on

or before January 31, 2021;

and 1,800 units on or before each of February 28, 2021;

March 31, 2021;

April 30, 2021, May 31, 2021

and June 30, 2021.

As of December 31, 2020, the Company has paid $15,052,648 of the total balance of $22,660,673.

October 23, 2020, the Company executed a contract with Bitmain to purchase an additional 10,000 next generation Antminer S-19

Pro ASIC Miners.

The 2021 delivery schedule will be 2,500 Units in January, 4,500 Units in February and the final 3,000 Units

in March 2021.The gross purchase price is $23,620,000 with 30% due upon the execution of the contract and the balance paid

over the next 4 months.

Subsequent to executing this agreement, due to the additional executed contracts, Bitmain applied a discount

of 8.63% to the purchase price adjusting the amount due to $21,581,594.

As of December 31, 2020, the Company has paid $13,634,645 of the total balance of $21,581,594.

December 8, 2020, the Company executed a contract with Bitmain to purchase an additional 10,000 next generation Antminer S-19j

Pro ASIC Miners, with 6,000 units to be delivered in August 2021, and the remaining 4,000 units to be delivered in September 2021.

The gross purchase price is $23,770,000 with 10% of the purchase price due within 48 hours of execution of the contract, 30%

due on January 14, 2021, 10% due on February 15, 2021, 30% due on June 15, 2021 and 20% due on July 15, 2021.

Subsequent to executing

this agreement, due to the additional executed contracts, Bitmain applied a discount of 8.63% to the purchase price adjusting

the amount due to $21,718,649.

As of December 31, 2020, the Company has paid $2,192,307 of the total balance of $21,718,649.

December 23, 2020, the Company executed a contract with Bitmain to purchase an additional 70,000 next generation Antminer S-19

ASIC Miners, with 7,000 units to be delivered in July 2021, and the remaining 63,000 units to be delivered in December 2021.

purchase price is $167,763,451.

The purchase price for the miners shall be paid as follows:

20% within 48 hours of signing

30% on or before March 1, 2021;

4.75% on June 15, 2021;

1.76% on July 15, 2021;

4.58% on August 15, 2021;

on September 15, 2021;

17.63% on October 15, 2021 and 11.55% on November 15, 2021.

As of December 31, 2020, the Company has paid

$33,552,690 of the total balance of $167,763,451.

February 1, 2021, Marathon announced that Bitmain had shipped approximately 4,000 S-19 Pro ASIC miners to the Company’s

mining facility in Hardin, MT, all of which were delivered as scheduled.

addition to the initial 4,000 miners delivered to the Hardin facility in February, Bitmain recently shipped another 6,300 miners

A portion of this new shipment has already been received and installations are progressing.

Marathon expects all 10,300

miners to be installed by the end of March, at which point the Company’s mining fleet will consist of 12,920 miners generating

approximately 1.4 EH/s.

components of property, equipment and intangible assets as of December 31, 2020 and 2019 are:

Useful life (Years)

December 31, 2020

December 31, 2019

Mining equipment

Gross property, equipment

and intangible assets

Construction in Progress

Right to mining patent

Gross property, equipment and intangible assets

Accumulated depreciation and amortization

equipment and intangible assets, net

Company’s depreciation expense for the years ended December 31, 2019 and 2018 were $0.9 million and $2.0 million, and amortization

expense were $71,177 and $66,017 for the year ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, intangible assets amortization are as follows:

PATENT GROUP, INC.

Property, equipment and intangible assets, net

of December 31, 2020, intangible assets amortization are as follows:

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

1 unchanged sentence

4 - STOCKHOLDERS’

B Convertible Preferred Stock

of December 31, 2019 and 2018, there was no share of Series B Convertible Preferred Stock outstanding.

E Preferred Stock

the year ended December 31, 2018, 1,378 shares of the Series E Convertible Preferred Stock had been converted to the Company’s

Common Stock and there was no Series E Convertible Preferred Stock outstanding as of December 31, 2019 and 2018.

are authorized to issue 200,000,000 shares of common stock and 50,000,000 shares of preferred stock, at $.0001 par value per share.

As of December 31, 2020, we have 81,974,619 shares of our common stock and no shares of our preferred stock issued and outstanding.

The Market Offering Agreement

5 unchanged sentences

The Agreement provides for the sale of shares of our Common Stock (“Shares”) having an aggregate offering price of

up to $7,472,417 (the Company’s ability to offer shares under the Agreement is limited to the amount of shares it may sell

pursuant to General Instruction I.B.6.

up to $7,472,417.

to the terms and conditions set forth in the Agreement, H.C.

15 unchanged sentences

or terminate the Agreement.

the year ended December 31, 2019, 172,126 shares of common stock were issued under the At The Market Offering for the total proceeds

of $255,893, net of offering cost of $10,399.

July 23, 2020, the Company entered into an underwriting agreement with H.C.

The Company agreed to sell H.C.

7,666,666 shares of its common stock, including the exercise in full by H.C.

Wainwright of the option to purchase an additional

999,999 shares of common stock, at a public offering price of $0.90 per share.

The gross proceeds of this offering, which closed

on July 28, 2020, were approximately $6.9 million, and proceeds, net of underwriting discount and expenses of $0.6 million, were

$6.3 million.

Additionally, representative’s warrant to purchase 536,667 shares of our common stock with a five year term

and an exercise price of $1.125 per share were issued.

Registration Statements on Form S-3 and At The Market Offering Agreements

August 13, 2020, the Company’s Shelf Registration Statement on Form S-3, filed on August 6, 2020, was declared effective

by the SEC, along with the Company’s At The Market Offering Agreement, entered into by the Company and H.C.

Co., LLC, as Exhibit 1.1 to the Form S-3 (the “2020 At The Market Agreement”).

This 2020 At the Market Agreement establishes

an at-the-market equity program pursuant to which the Company may offer and sell shares of its common stock, par value $0.0001

per share, with an aggregate offering price of up to $100 million, from time to time as set forth in the agreement.

December 22, 2020, the Company’s Shelf Registration Statement on Form S-3, filed on December 11, 2020, was declared effective

by the SEC, along with the Company’s At The Market Offering Agreement, entered into by the Company and H.C.

Co., LLC, as Exhibit 1.1 to the Form S-3 (the “2020 At The Market Agreement”).

This 2020 At the Market Agreement establishes

an at-the-market equity program pursuant to which the Company may offer and sell shares of its common stock, par value $0.0001

per share, with an aggregate offering price of up to $200 million, from time to time as set forth in the agreement.

the year ended December 31, 2020, 54,301,698 shares of common stock were issued under the Company’s 2020 At The Market Agreements

for total proceeds of approximately $307.1 million, net of offering costs, of $9.4 million, and the Company has sold all shares

possible under the Agreements.

the year ended December 31, 2019, 172,126 of common stock were issued under the Company’s 2019 At The Market Agreements

for total proceeds of approximately $0.3 million, net of offering costs, of $0.01 million, and the Company has sold all shares

possible under the Agreements.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

Purchase Agreement

14 unchanged sentences

The Company recorded change

in fair value of mining payable of $507,862 during the year ended December 31, 2019.

There is no requirement for the Company to

make a payment in cash in lieu of issuing the remaining shares.

in fair value of mining payable of $66,547 and $507,862 during the year ended December 31, 2020 and 2019, respectively..

is no requirement for the Company to make a payment in cash in lieu of issuing the remaining shares.

with Beowulf Energy

October 6, 2020, the Company entered into a series of agreements with affiliates of Beowulf Energy LLC, a Delaware limited liability

company (collectively and as applicable, “Beowulf”) and Two Point One, LLC, a Delaware limited liability company (“2Pl”;

Marathon, Beowulf and 2Pl each a “Party”

and, collectively, the “Parties”).

Beowulf and 2Pl have been

designing and developing a data center facility of up to 100-megawatts (the “Facility”) that will be located next

to, and supplied energy directly from, Beowulf’s power generating station in Hardin, MT (the “Hardin Station”).

The Facility is being developed in two phases to reach its 100 MW capacity, and the Hardin Station will supply the Facility exclusively

with energy to operate Bitcoin mining servers.

projected build out cost for Phase I is approximately $14 million, which is front loaded as the infrastructure is being built

for the full 100 MW project.

It entails high voltage equipment to break down the full 100 MW load from the generating station,

and thereafter, the infrastructure cost per MW is a matter of distributing power at a container level.

Assuming market conditions

similar to current, the build out cost for Phase II works out to approximately $200,000 - $250,000 per MW.

These are all in costs

covering all equipment and labor needed starting from the power coming off the Generating Station distributed down to running

the actual miners:

including breakers, transformers, switches, containers, PDUs, fans, network cables, and the like.

and Beowulf entered into an exclusive Power Purchase Agreement for the initial supply of 30 MW (Phase I), and up to 100 MW in

the aggregate (Phase II), of energy load to the Facility at a cost of $0.028/kWh.

The initial term of the Power Purchase Agreement

is five years, with up to five additional three-year extensions, as mutually agreed, assuming 75% energy utilization of the initial

30 MW of energy supplied to the Facility.

Marathon purchased certain mining infrastructure and equipment for the Facility from

Beowulf for a purchase price of $750,000, and Marathon has the right, at no additional cost, to construct and access the Facility

on land adjacent to the Hardin Station pursuant to a lease agreement with Beowulf.

and 2P1 will provide operation and maintenance services for the Facility pursuant to a Data Facility Services Agreement, in exchange

for an initial issuance of 3,000,000 shares of Marathon’s common stock to each of Beowulf and 2Pl valued at the time of

execution or $1.87 per share.

Upon completion of Phase I, Marathon will issue to Beowulf an additional 150,000 shares of its common

During Phase II, Marathon will issue to Beowulf an additional 350,000 shares of its common stock –

150,000 shares

upon reaching 60 MW of Facility load and 200,000 at completion of the full 100 MW of Facility load.

The cost to maintain and run

the Facility will be $0.006/kWh.

All shares issued under the Data Facility Services Agreement are issued pursuant to transactions

exempt from registration under Section 4(a)(2) of the Securities Act of 1933.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

2020 Common Stock Activity

October 1, 2019, the Company issued 150,000 shares of its common stock to a consultant.

The fair value of the common stock was

PATENT GROUP, INC.

the month of January 2020, the Company issued 118,524 shares of common stock under the At The Market Offering for the total proceeds

of $131,215, net of offering cost of $5,045.

the month of February 2020, the Company issued 186,211 shares of common stock under the At The Market Offering for the total proceeds

of $220,802, net of offering cost of $8,687.

the month of March 2020, the Company issued 98,340 shares of common stock under the At The Market Offering for the total proceeds

of $49,874, net of offering cost of $3,042.

March 30, 2020, the Company issued 350,250 shares of common stock in exchange for S9 miners with a fair market value of $612,938.

the month of April 2020, the Company issued 3,016,385 shares of common stock under the At The Market Offering for the total proceeds

of $1,514,969, net of offering cost of $58,532.

the month of May 2020, the Company issued 5,987,723 shares of common stock under the At The Market Offering for the total proceeds

of $3,607,398, net of offering cost of $127,765.

the month of June 2020, the Company issued 1,540,710 shares of common stock under the At The Market Offering for the total proceeds

of $1,537,346, net of offering cost of $51,526.

June 1, 2020, the Company issued 2,023,739 shares of common stock in exchange for the conversion and extinguishment of the note

payable outstanding in an amount of $999,106.

the month of August 2020, the Company issued 5,820,761 shares of common stock under the At The Market Offering for the total proceeds

of $20,178,935, net of offering cost of $630,283.

the month of September 2020, the Company issued 943,981 shares of common stock under the At The Market Offering for the total

proceeds of $2,516,199, net of offering cost of $78,874.

the month of October 2020, the Company issued 7,813,218 shares of common stock under the At The Market Offering for the total

proceeds of $21,320,409, net of offering cost of $665,773.

October 6, 2020, the Company issued 6,000,000 shares of common stock in exchange for five years of services pursuant to the Power

Purchase Agreement and Data Facility Services Agreement for the total proceeds of $0, net of offering cost of $0 valued at the

time of execution at $1.87 per share or $11,220,000 in aggregate.

the month of November 2020, the Company issued 5,851,295 shares of common stock under the At The Market Offering for the total

proceeds of $16,685,649, net of offering cost of $519,992.

the month of December 2020, the Company issued 22,924,550 shares of common stock under the At The Market Offering for the total

proceeds of $239,301,605, net of offering cost of $7,255,610.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

1 unchanged sentence

Common Stock Activity

the year ended December 31, 2018, the Company issued 954,871 shares of Common Stock to Note Holders in connection with debt conversions,

54,600 shares of Common Stock were issued to Board members for their services, 1,377,886 shares of Common Stock with respect to

the conversion of Series E Convertible Preferred Stock, 4,433 shares of Common Stock in connection with the exercise of a warrant,

62,500 shares of Common Stock issued pursuant to a patent purchase, 56,250 shares of Common Stock issued to consultants and 750,000

to GBV as a termination fee for canceling the merger agreement.

The termination fee was valued based upon the closing stock price

as of June 28, 2018 or $3.80 per common share.

October 1, 2019, the Company issued 150,000 shares of its common stock to a consultant.

The fair value of the common stock was

Stock Warrants

summary of the status of the Company’s outstanding stock warrants and changes during year ended is as follows:

Number of Warrants

Weighted Average

Exercise Price

5 unchanged sentences

Warrants exercisable as of December 31, 2020

The aggregate intrinsic value of options

outstanding and exercisable at December 31, 2020 was $1,395,921.

July 23, 2020, the Company entered into an underwriting agreement with H.C.

The Company agreed to sell H.C.

7,666,666 shares of its common stock, including the exercise in full by H.C.

Wainwright of the option to purchase an additional

999,999 shares of common stock, at a public offering price of $0.90 per share.

The gross proceeds of this offering, which closed

on July 28, 2020, were approximately $6.9 million, and proceeds, net of underwriting discount and expenses of $0.6 million, were

$6.3 million.

Additionally, representative’s warrant to purchase 536,667 shares of our common stock with a five year term

and an exercise price of $1.125 per share were issued.

Stock Options

6 unchanged sentences

based on the average volatility of comparable companies over the comparable prior period.

October 12, 2018, the Company granted its executive officers and board members 1,362,500 option to purchase 1,362,500 shares of

the Company’s common stock, with an exercise price of $2.32 per share, vesting 50% on the date of grant and 25% on each

6 months anniversary of the date of grant.

The options were valued based on the Black-Scholes model, using the strike of $2.32

per share, an average expected term of 5.19 years, volatility of 39.35% based on the average volatility of comparable companies

over the comparable prior period.

grant date fair value of stock options granted to employees during the years ended December 31, 2019 and 2018 were $163,165 and

$1,377,678, respectively.

Estimated future stock-based compensation expense relating to unvested stock options is approximately

$28,590 as of December 31, 2019 and will be amortized over the remaining 0.8 year.

summary of the stock options as of December 31, 2019 and changes during the period are presented below:

May 5, 2020, the Compensation Committee of the Board of Directors held a meeting and approved bonuses and stock option grants

for Directors and Officers for their contributions to the growth of Marathon Patent Group, Inc., for the year ended December 31,

Total awards to be granted amounted to 1,158,138 restricted stock units at a price of $0.43 per unit with a term of one

year, vesting quarterly in equal amounts, and (ii) cash award of $105,000 to Merrick Okamoto and $54,000 to David Lieberman.

addition, the Compensation Committee agreed to cancel 1,587,500 existing stock options for Directors, Officers and outside legal

counsel, and replace them with 1,587,500 restricted stock units at a price of $0.43 per unit with a term of one year, vesting

quarterly in equal amounts.

to the conversion of stock options to restricted stock options during 2020, the grant date fair value of stock options granted

to employees during the years ended December 31, 2020 and 2019 were $0 and $163,165, respectively.

Estimated future stock-based

compensation expense relating to unvested stock options is approximately $0 as of December 31, 2020.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

summary of the stock options as of December 31, 2020 and changes during the year ended is as follows:

Weighted Average

Exercise Price

Average Remaining Contractual Life

Weighted Average

Contractual Life

Outstanding as of December 31, 2019

Outstanding as

of December 31, 2019

Options vested and

expected to vest as of December 31, 2019

Outstanding as of December 31, 2020

Options vested and expected to vest as of December 31, 2020

Options vested and exercisable as of December 31, 2020

PATENT GROUP, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

summary of the stock options as of December 31, 2018 and changes during the period are presented below:

aggregate intrinsic value of options outstanding and exercisable at December 31, 2020 was $210,000.

summary of the stock options as of December 31, 2019 and changes during the year ended is as follows:

Exercise Price

Average Remaining Contractual Life

Weighted Average

Contractual Life

Outstanding as of December 31, 2018

Outstanding as

of December 31, 2018

Options vested and

expected to vest as of December 31, 2018

Outstanding as of December 31, 2019

Options vested and expected to vest as of December 31, 2019

Options vested and exercisable as of December 31, 2019

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

summary of the RSUs as of December 31, 2020 and 2019, respectively and changes during the period are presented below:

Weighted Average

Grant Date Fair

Nonvested at December 31, 2018

Nonvested at December 31, 2019

Nonvested at December 31, 2020

Weighted Average

Grant Date Fair

Nonvested at December 31, 2019

Nonvested at December 31, 2020

Number of Units

Weighted Average

Grant Date Fair

Anticipated Vesting

March 31, 2021

5 - DEBT, COMMITMENTS AND CONTINGENCIES

Included in the Accounts payable and accrued

expenses amount of approximately $1.0 million, $0.4 million relates to trade accounts payable incurred in the ordinary course

of business while $0.6 million relates to accrued expenses.

consists of the following:

Convertible Note

debt discount

Convertible notes, net of discount

Total convertible notes, net of discount

current portion

August 14, 2017, the Company entered into a unit purchase agreement (the “Unit Purchase Agreement”) with certain

accredited investors providing for the sale of up to $5,500,000 of 5% secured convertible promissory notes (the

“Convertible Notes”), which are convertible into shares of the Corporation’s common stock, and the issuance

of warrants to purchase 1,718,750 shares of the Company’s Common Stock (the “Warrants”).

The Convertible

Notes are convertible into shares of the Company’s Common Stock at the lesser of (i) $0.80 per share or (ii) the

closing bid price of the Company’s common stock on the day prior to conversion of the Convertible Note;

provided that

such conversion price may not be less than $0.40 per share.

Long term portion

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

August 14, 2017, the Company entered into a unit purchase agreement (the “Unit Purchase Agreement”) with certain accredited

investors providing for the sale of up to $5,500,000 of 5% secured convertible promissory notes (the “Convertible Notes”),

which are convertible into shares of the Corporation’s common stock, and the issuance of warrants to purchase 1,718,750

shares of the Company’s Common Stock (the “Warrants”).

The Convertible Notes are convertible into shares of

the Company’s Common Stock at the lesser of (i) $0.80 per share or (ii) the closing bid price of the Company’s common

stock on the day prior to conversion of the Convertible Note;

provided that such conversion price may not be less than $0.40 per

The Warrants have an exercise price of $4.80 per share.

closings of the Unit Purchase Agreement, the Company issued $5,500,000 in Convertible Notes to the investors.

The remaining

balance of the Convertible Notes were due to mature on May 31, 2018.

On February 10, 2020, the investor agreed to extend the

maturity date to September 1, 2021, and the conversion price will be changed to the lower of, the closing price on the

previous days close prior to the conversion request or a maximum conversion price of $1.00 and a floor of $0.80.

bears interest at the rate of 5% per annum and accrues but is not paid in cash.

As of December 31, 2019, the Company had an

outstanding obligation pursuant to the Convertible Notes in the amount of $999,106.

interest as of December 31, 2019 and 2018 were $194,935 and $144,981.

During the year ended December 31, 2019 the interest expense

was $49,954 and $72,104 for the year ended December 31, 2018, respectively.

During the years ended December 31, 2019 and 2018,

the amortization of debt discount was $0 and $2,290,028, respectively.

In two closings of the Unit Purchase Agreement, the Company issued

$5,500,000 in Convertible Notes to the investors.

The remaining balance of the Convertible Notes were due to mature on May 31,

On February 10, 2020, the investor agreed to extend the maturity date to September 1, 2021, and the conversion price will

be changed to the lower of, the closing price on the previous days close prior to the conversion request or a maximum conversion

price of $1.00 and a floor of $0.80.

The note bears interest at the rate of 5% per annum and accrues but is not paid in cash.

the year ended December 31, 2020, $999,106 remaining balance of the Convertible Notes and $215,136 of accrued and unpaid interest

were converted into 2,023,739 shares of the Company’s Common Stock, and the Company recorded $364,833 of expenses pursuant

to the inducement of the conversion terms.

of convertible debt that has fallen “out of the money”

(the conversion price is more than the applicable stock price)

sometimes want to encourage conversion of the debt into its equity securities anyhow.

To do that, they can provide an incentive,

lasting for a brief period, for holders of the debt to exercise their conversion privilege.

Frequently, this inducement will take

the form of a temporary lessening of the conversion price (and consequent increase in the “conversion ratio,”

determines how many shares can be converted from each bond).

Less often, the issuer may transfer cash or other property to those

holders who can be persuaded to exercise the conversion privilege.

Statement of Financial Accounting Standards No.

Conversions of Convertible Debt, addresses the financial-accounting ramifications of such arrangements.

The statement applies

only to conversions that comply with two conditions.

They must conform to changed conversion privileges that are exercisable for

only a limited period.

Further, they must include the issuance of all stock that can be issued in accordance with conversion privileges

included in the terms of the debt at issuance.

the year ended December 31, 2020 and 2019, there was no amortization of debt discount.

Interest expenses were $20,984 and $49,954

for the years ended December 31, 2020 and 2019, respectively.

May 6, 2020, the Company entered into a Paycheck Protection Program Promissory Note agreement with a bank which is providing $62,500

to the Company.

The note accrues interest at a rate of 1% per annum and matures on May 6, 2022.

The Company will apply for 100%

forgiveness when the forgiveness portal is opened for submission by the bank.

June 1, 2018, the Company rented its corporate office at 1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144, on

5 unchanged sentences

lease right-of-use assets, operating lease liabilities, and noncurrent operating lease liabilities on the balance sheets.

PATENT GROUP, INC.

to December 31, 2020, the Company entered into a termination agreement with the Lessor to agree to terminate the lease as of March

As of that date, the Company was fully released and discharged from any and all obligations under the Lease Agreement.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

3 unchanged sentences

of the following:

the Year Ended

For the Year Ended

December 31, 2020

Operating leases

Operating lease cost

Operating lease expense

lease rent expense

Short-term lease rent expense

Total rent expense

information regarding the Company’s leasing activities as a lessee is as follow:

the Year Ended

For the Year Ended

December 31, 2020

cash flows from operating leases

Weighted-average remaining

lease term –

Operating cash flows from operating leases

Weighted-average remaining lease term –

operating leases

Weighted-average discount

Weighted-average discount rate –

operating leases

of December 31, 2019, contractual minimal lease payments are as follows:

present value discount

Lease current portion of operating lease liabilities

Less present value discount

Less current portion of operating lease liabilities

Non-current operating lease liabilities

March 27, 2018, Jeffrey Feinberg, purportedly joined by the Jeffrey L.

Jeffrey Feinberg v.

Marathon Patent

Group, Inc., Doug Croxall, and Francis Knuettel II, Superior Court of the State of California, County of Los Angeles, Case

Number BC673128;

August 21, 2017

On August 21, 2017,

plaintiff Jeffrey Feinberg filed his Complaint against the Company and its Chief Executive Officer and Chief Financial Officer,

purporting to state claims under Sections 11, 12(a)(2) and 15 of the federal Securities Act of 1933, and to state common law claims

for “actual fraud and fraudulent concealment,”

constructive fraud, and negligent misrepresentation.

Feinberg sought

unspecified money damages, as well as costs and attorneys’

fees, and equitable or injunctive relief, all based on allegations

that he purchased Company securities and was induced to continue holding shares of the Company’s common stock through his

reliance on a series of purported misstatements and omissions concerning the Company’s financial performance and future

On October 10, 2017,

all defendants filed a motion to dismiss or to stay the action, contending that Feinberg’s claims were encompassed by various

written contracts in which he had agreed that any disputes he had with the Company should be litigated exclusively in the courts

in New York City.

While that motion was pending, on November 14, 2017, Feinberg voluntarily dismissed his complaint, in its entirety,

without prejudice.

On March 27, 2018,

Feinberg, purportedly joined by the Jeffrey L.

Feinberg Personal Trust and the Jeffrey L.

Feinberg Family

Trust, filed a complaint against the Company and certain of its former officers and directors.

The complaint was filed in the

Supreme Court of the State of New York, County of New York.

The plaintiffs purported to state claims under Sections 11, 12(a)(2)

and 15 of the federal Securities Act of 1933 and common law claims for “actual fraud and fraudulent concealment,”

constructive fraud, and negligent misrepresentation, seeking unspecified money damages (including punitive damages), as well as

costs and attorneys’

fees, and equitable or injunctive relief.

On June 15, 2018, the defendants filed a motion to dismiss

all claims asserted in the complaint and, on July 27, 2018, the plaintiffs filed an opposition to that motion.

The court heard

argument on the motion and, on January 15, 2019, the court granted the motion to dismiss, allowing 30 days for the filing of an

amended complaint.

On February 15, 2019, Jeffrey Feinberg, individually and as trustee of the Jeffrey L.

Feinberg Personal Trust,

and Terrence K.

Ankner, as trustee of the Jeffrey L.

Feinberg Family Trust, filed an amended complaint that purports to state

the same claims and seeks the same relief sought in the original complaint.

On March 7 and 22, 2019, defendants filed motions

to dismiss the amended complaint and on April 5, 2019, plaintiffs filed an opposition to those motions.

The court heard oral argument

on the motions to dismiss on July 9, 2019, and at the conclusion of the argument the court took the motions under submission.

The parties are waiting for the court’s rulings on the motions to dismiss and, while the motions have been under submission,

no discovery has been taken and there have been no other significant developments in the case.

July 20, 2018, Tony Ramirez filed a complaint against the Company and certain of its former directors.

The complaint was filed

in the United States District Court for the Central District of California.

Ramirez alleged that he was a shareholder of the

Company and purported to assert a single claim under Section 14(a) of the Securities and Exchange Act of 1934 and SEC Rule 14a-9

promulgated thereunder.

The parties entered into a “Settlement Agreement and Mutual Release”

and the case was voluntarily

dismissed with prejudice on December 17, 2018.

MARATHON PATENT GROUP, INC.

Feinberg Family Trust, refiled the alleged

claims described above in a lawsuit filed in the Supreme Court of the State of New York, County of New York.

The new lawsuit is

entitled Jeffrey Feinberg, Jeffrey L.

Feinberg Personal Trust, and Jeffrey L.

Feinberg Family Trust v.

Marathon Patent Group,

Inc., Doug Croxall, and Francis Knuettel II , Index No.

651463/2018 (the “NY Action”).

The plaintiffs purported

to state claims under Sections 11, 12(a)(2) and 15 of the federal Securities Act of 1933, and to state common law claims for “actual

fraud and fraudulent concealment,”

constructive fraud, and negligent misrepresentation.

The plaintiffs sought unspecified

money damages (including punitive damages), as well as costs and attorneys’

fees, and equitable or injunctive relief, all

based on allegations that over a period extending from approximately May 2015 through May 2017 they purchased Company securities

and were induced to continue holding shares of the Company’s stock through their reliance on a series of purported misstatements

and omissions concerning the Company’s financial performance and future prospects.

On June 15, 2018, all

defendants filed a motion to dismiss the complaint in the NY Action asserting, among other arguments, that the Jeffrey L.

Personal Trust and the Jeffrey L.

Feinberg Family Trust lack capacity to sue, that the purported state law “holder”

claims are barred as a matter of law, and that plaintiffs otherwise failed to state facts sufficient to state a claim.

opposed the motion.

After the motion was fully briefed, the court conducted an oral argument on January 16, 2019.

At the conclusion

of the argument, the court granted the motion to dismiss, allowing plaintiff Feinberg 30 days’

time to replead.

In addition, concurrent

with filing their motion to dismiss, the defendants filed a motion to stay discovery pursuant to the mandatory stay provisions

of the Private Securities Litigation Reform Act of 1995 and local state rules.

The plaintiffs filed a statement of non-opposition

to the motion to stay discovery, and on January 9, 2019, the court granted that motion.

On February 15, 2019,

Feinberg, in his individual capacity and purportedly as trustee of the Jeffrey L.

Feinberg Personal Trust, and Terrence K.

purportedly as trustee of the Jeffrey L.

Feinberg Family Trust, filed what they styled as an “Amended Complaint.”

These plaintiffs purport to state claims against the Company, Doug Croxall and Francis Knuettel II under Sections 11, 12(a)(2)

and 15 of the federal Securities Act of 1933, and to state common law claims for “actual fraud and fraudulent concealment,”

constructive fraud, and negligent misrepresentation.

In the Amended Complaint, the plaintiffs seek unspecified money damages (including

punitive damages), as well as costs and attorneys’

fees, and equitable or injunctive relief, all based on allegations that

over a period extending from approximately May 2015 through May 2017 they purchased Company securities and were induced to continue

holding shares of the Company’s stock through their reliance on a series of purported misstatements and omissions concerning

the Company’s financial performance and future prospects.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

to Consolidated Financial Statements

On March 7, 2019, defendants

Marathon Patent Group, Inc.

and Doug Croxall filed a motion to dismiss the Amended Complaint, and on March 22, 2019, defendant

Francis Knuettel II filed a motion to dismiss the Amended Complaint.

On April 5, 2019, plaintiffs filed an opposition to defendants’

motions to dismiss, and on April 17, 2019 defendants filed reply papers in support of the motions to dismiss.

On July 9, 2019,

the court heard the parties’

oral arguments and, at the conclusion of those arguments, took the motions to dismiss under

On March 13, 2020, the court issued its Decision in which it granted the motions to dismiss in full and ordered that

the case be dismissed with prejudice.

On or about May 4, 2020, the plaintiffs filed a notice of appeal.

Plaintiffs filed their

opening appellate brief on January 4, 2021, and defendants filed their responsive appellate briefs on February 3, 2021.

are now awaiting oral argument on the appeal.

part of the cancellation of certain indebtedness owed to Fortress Investment Group, LLC, we transferred ownership of various patents,

27 unchanged sentences

for the years ended December 31, 2020 and 2019:

Computed “expected”

tax expense (benefit)

federal statutory income tax rate

State and local income taxes, net of federal benefit

Non-Deductible Expenses

Change in valuation allowance

Effective tax rate

The components of the provision for income

taxes are as follows:

Income Tax Provision

Company has a deferred tax asset, which is summarized as follows at December 31:

12 unchanged sentences

therefore, a full valuation allowance has been recorded against its net deferred tax assets.

of December 31, 2019 and 2018, the Company had NOL carry-forwards for federal and state purposes of approximately $2.6 million

and $11.4 million, respectively, which will begin to expire in 2034 (Estimated).

The utilization of NOL and credit carry-forwards

may be limited under the provisions of the Internal Revenue Code (“IRC”) Section 382, as amended, and similar state

IRC Section 382 generally imposes an annual limitation on the amount of NOL carry-forwards that may be used to offset

taxable income where a corporation has undergone significant changes in stock ownership.

MARATHON PATENT GROUP, INC.

of December 31, 2020 and 2019, the Company had NOL carry-forwards for federal and state purposes of approximately $45.6

million and $27.2 million, respectively, which will begin to expire in 2034 (Estimated).

The utilization of NOL and credit

carry-forwards may be limited under the provisions of the Internal Revenue Code (“IRC”) Section 382, as amended, and

similar state provisions.

IRC Section 382 generally imposes an annual limitation on the amount of NOL carry-forwards that may

be used to offset taxable income where a corporation has undergone significant changes in stock ownership.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

to Consolidated Financial Statements

of December 31, 2020 and 2019, the Company has not recorded liability for unrecognized tax benefit.

7 unchanged sentences

2018, the company dissolved those subsidiaries that were required to file tax returns that had no tax due for 2018.

Marathon Patent

Marathon Digital

Holdings, Inc.

moved its headquarters to Las Vegas, Nevada on June 1, 2018 so it is required to file a final tax return with the

7 unchanged sentences

OF BUSINESS, for details)

Company believes that bitcoin is attractive because it can serve as a store of value, supported by a robust and public open source

architecture, that is untethered to sovereign monetary policy and can therefore serve as a hedge against inflation.

Bitcoin exists

entirely in electronic form, as virtually irreversible public transaction ledger entries on the blockchain, and transactions in

bitcoin are recorded and authenticated not by a central repository, but by a decentralized peer-to-peer network.

This decentralization

avoids certain threats common to centralized computer networks, such as denial of service attacks, and reduces the dependency

of the bitcoin network on any single system.

While the bitcoin network as a whole is decentralized, the private keys used to access

bitcoin balances are not widely distributed and are held on hardware (which can be physically controlled by the holder or by a

third party such as a custodian) or via software programs on third-party servers and loss of such private keys results in an inability

to access, and effective loss of, the corresponding bitcoin.

Consequently, bitcoin holdings are susceptible to all of the risks

inherent in holding any electronic data, such as power failure, data corruption, security breach, communication failure, and user

error, among others.

These risks, in turn, make bitcoin subject to theft, destruction, or loss of value from hackers, corruption,

or technology-specific factors such as viruses that do not affect conventional fiat currency.

In addition, the bitcoin network

relies on open source developers to maintain and improve the bitcoin protocol.

Accordingly, bitcoin may be subject to protocol

design changes, governance disputes such as “forked”

protocols, competing protocols, and other open source-specific

risks that do not affect conventional proprietary software.

Company believes that in the context of the economic and public health crisis precipitated by COVID-19 and the unprecedented government

financial stimulus measures adopted around the world, decreasing interest rates, as well as the breakdown of trust in and between

political institutions and political parties in the United States and globally, bitcoin represents a more attractive store of

value than fiat currency, and further that opportunity for appreciation in the value of bitcoin exists in the event that such

factors lead to even more widespread adoption of bitcoin as a treasury reserve alternative.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

Subsequent Events

February 2020, the investor agreed to extend the maturity date of the Convertible Notes to March 2, 2020.

In consideration of

the payment of $65,000, the maturity date of the Convertible Notes is extended by another 18 months to September 1, 2021, and

the conversion price will be changed to the lower of, the closing price on the previous days close prior to the conversion request

or a maximum conversion price of $1.00 and a floor of $0.80.

The Company made the payment on February 11, 2020.

On January 6, 2021, the Company issued

566,279 shares pursuant to the 2018 Equity Incentive Plan for shares that vested as of December 31, 2020.

Subsequent to year end,

the Company issued 170,904 and 23,500 shares of common stock pursuant to warrant and option exercises, respectively.

January 12, 2021, the Company also announced that it had successfully

completed its previously announced $200 million shelf offering by utilizing its at-the-market (ATM) facility.

Pursuant to the

terms of the offering 12,500,000 shares of common stock were issued at a value of $20 per share.

As a result, the Company ended

the 2020 fiscal year with $141.3 million in cash and 81,974,619 shares outstanding.

January 15, 2021, the Company, held an annual meeting of stockholders (the “Meeting”).

As of the record date for the

Meeting, 51,403,280 shares of common stock were issued and outstanding.

A total of 33,981,556 shares of common stock, constituting

a quorum, were present and accounted for at the Meeting.

At the Meeting, the Company’s stockholders approved the following

Common shares

Increase in Shares

Incentive Plan by 5

Election of Merrick

Ratification of

Advisory Vote

Broker Non-Vote

January 12, 2021, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with

certain purchasers named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a

registered direct offering (the “Offering”), 12,500,000 shares of its common stock (the “Securities”)

at an offering price of $20.00 per share.

Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchasers and customary

indemnification rights and obligations of the parties.

The closing of the Offering occurred on January 15, 2021.

The Company received

gross proceeds of $250,000,000 in connection with the Offering, before deducting placement agent fees and related offering expenses.

to a letter agreement, dated August 2020 (the “Engagement Letter”), the Company engaged H.C.

Wainwright & Co.,

LLC (the “Placement Agent”) as placement agent in connection with the Offering.

The Placement Agent agreed to use

its reasonable best efforts to arrange for the sale of the Securities.

The Company agreed to pay to the Placement Agent a cash

fee of 5.0% of the aggregate gross proceeds raised in the Offering.

Company also issued to designees of the Placement Agent warrants to purchase up to 3.0% of the aggregate number of shares of Common

Stock sold in the transactions, or warrants to purchase up to 375,000 shares of Common Stock (the “Placement Agent Warrants”).

The Placement Agent Warrants have an exercise price equal to 125% of the offering price per share (or $25.00 per share).

also agreed to pay the Placement Agent $50,000 for accountable expenses, to reimburse an investor’s legal fees in an amount

up to $7,500 and to pay $12,900 for the Placement Agent’s clearing fees.

to the terms of the Engagement Letter, the Placement Agent has the right, for a period of twelve months following the closing

of the Offerings, to act (i) as financial advisor in connection with any merger, consolidation or similar business combination

by the Company and (ii) as sole book-running manager, sole underwriter or sole placement agent in connection with certain debt

and equity financing transactions by the Company.

January 19, 2021, David Lieberman resigned as a director of the Company.

On the same date, the Company’s Board appointed

Kevin DeNuccio as a director to fill the vacancy created by Mr.

Lieberman’s resignation.

DeNuccio is the Founder and General Partner of Wild West Capital LLC since 2012 where he focused on angel investments, primarily

in SAAS software start-ups.

brings to Marathon more than 25 years of experience as a chief executive, global sales leader, public and private board member,

and more than a dozen angel investments, managing and growing leading technology businesses.

He served in senior executive positions

with Verizon, Cisco Systems, Ericsson, Redback Networks, Wang Laboratories and Unisys Corporation.

January 25, 2021, the Company announced that it has purchased 4,812.66 BTC in an aggregate

purchase price of $150 million.

February 11, 2021, the Company issued 4,701,442 shares of common stock pursuant to the 2018

Equity Incentive Plan.

March 1, 2021, the Company changed its name to Marathon Digital Holdings, Inc.

March 7, 2021, the Company entered into a termination agreement with the 9349-0001 Quebec Inc., to agree to terminate the outstanding

As of that date, the Company was fully released and discharged from any and all obligations under the Lease Agreement.

In November 2017, the Company assumed a lease in connection with the mining operations in Quebec, Canada.

Company has evaluated subsequent events through the date of the consolidated financial statements were available to be issued

2 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data