MARA Holdings, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MARATHON DIGITAL HOLDINGS, INC. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 Index to Consolidated Financial Statements REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS (PCAOB ID No. 688 ) F-2 CONSOLIDATED BALANCE SHEETS F-4 CONSOLIDATED STATEMENTS OF OPERATIONS F-5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS F-7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F-8 to F-31 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS To the Board of Directors and Stockholders of Marathon Digital Holdings, Inc. & Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Marathon Digital Holdings, Inc. & Subsidiaries (the Company) as of December 31, 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the period in 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 position of the Company as of December 31, 2020, and the consolidated results of its operations and its cash flows for the period in the two years ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters: Critical 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. We determined that there are no critical audit matters. RBSM LLP We have served as the Company’s auditor since 2017. Las Vegas, NV March 16, 2021 F- 2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Marathon Digital Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Marathon Digital Holdings, Inc. (the “Company”) as of December 31, 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 9, 2022 , expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of a material weakness. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter 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) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition As disclosed in Note 2 of the financial statements, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers . The Company provides computing power in crypto asset transaction verification services to the blockchain network. The transaction consideration received by the Company, if any, is a non-cash consideration, which the Company measures at fair value on the date received. The principal consideration for our determination that performing procedures related to revenue recognition is a critical audit matter is due to the complexities involved in auditing completeness and occurrence of the revenue recognized by the Company particularly in light of material weakness identified in the design and effectiveness of certain internal controls over the IT environment for certain financially relevant systems. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others, (i) performing site visitations of the Company’s facility where the mining hardware is located, which included an observation of the physical and environmental controls and mining equipment inventory, (ii) on a sample basis testing the hashing power contributed by the Company’s mining hardware, (iii) independently confirming certain financial and performance data directly with the blockchain network, (iv) performing certain substantive analytical procedures using hashing power data and electricity consumption data to determine the completeness and occurrence of digital assets rewarded to the Company as consideration for services rendered, and (v) confirming the digital asset balances directly with the custodian of the Company’s wallets. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2021 . Costa Mesa, CA March 9, 2022 F- 3 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS December 31, December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 268,522,019 $ 141,322,776 Digital currencies 102,805,980 2,271,656 Digital currencies, restricted 20,437,284 - Other receivable - 74,767,226 Deposit 34,458,347 65,647,592 Investment fund 223,778,545 - Loan receivable 30,000,000 - Prepaid expenses and other current assets 8,148,016 2,399,965 Total current assets 688,150,191 286,409,215 Other assets: Property and equipment, net of accumulated depreciation and impairment charges of $ 21,311,461 and $ 6,480,359 for December 31, 2021 and 2020, respectively 276,242,794 17,224,321 Prepaid service contract 13,665,589 8,415,000 Right-of-use assets - 200,301 Deposit, non-current 466,254,623 - Investment in SAFE Agreements 3,000,000 - Intangible assets, net of accumulated amortization of $ 280,497 and $ 207,598 for December 31, 2021 and 2020, respectively 931,226 1,002,402 Total other assets 760,094,232 26,842,024 TOTAL ASSETS $ 1,448,244,423 $ 313,251,239 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 12,927,139 $ 999,742 Current portion of accrued bond interest 867,260 - Current portion of lease liability - 121,596 Warrant liability - 322,437 Total current liabilities 13,794,399 1,443,775 Long-term liabilities Convertible notes payable 728,405,922 - SBA PPP loan payable - 62,500 Deferred tax liabilities 23,020,721 - Total long-term liabilities 751,426,643 62,500 Total liabilities 765,221,042 1,506,275 Commitments and Contingencies - Stockholders’ Equity: Preferred stock, 0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding at December 31, 2021 and 2020, respectively - - Common stock, 0.0001 par value; 200,000,000 shares authorized; 102,733,273 and 81,974,619 issued and outstanding at December 31, 2021 and 2020, respectively 10,273 8,197 Additional paid-in capital 835,693,610 428,242,763 Accumulated other comprehensive loss ( 450,719 ) ( 450,719 ) Accumulated deficit ( 152,229,783 ) ( 116,055,277 ) Total stockholders’ equity 683,023,381 311,744,964 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,448,244,423 $ 313,251,239 The accompanying notes are an integral part to these audited consolidated financial statements. F- 4 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 2021 2020 2019 For the Years Ended December 31, 2021 2020 2019 Revenues Cryptocurrency mining revenue $ 150,463,770 $ 4,357,443 $ 1,185,227 Total revenues 150,463,770 4,357,443 1,185,227 Operating costs and expenses Cost of revenue 33,696,103 7,001,128 2,482,181 Impairment of mining equipment - 871,302 - Impairment of leasehold improvements - - 447,776 Compensation and related taxes 164,285,755 4,730,143 1,475,450 Consulting fees 531,677 302,561 130,813 Professional fees 5,268,485 733,741 422,335 General and administrative 2,216,489 551,672 465,783 Impairment of mined cryptocurrency 29,552,991 - - Total operating expenses 235,551,500 14,190,547 5,424,338 Income (loss) from operations ( 85,087,730 ) ( 9,833,104 ) ( 4,239,111 ) Other income (expenses) Gain from extinguishment of debt - - 181,995 Other income (expenses) 81,827 115,876 - Foreign exchange loss - - ( 11,873 ) Loss on conversion of note - ( 364,833 ) - Change in fair value of investment in NYDIG fund 73,778,545 - - Realized gain (loss) on sale of digital currencies 14,175 15,466 36,092 Change in fair value of warrant liability ( 1,048,286 ) ( 309,588 ) 26,234 Change in fair value of mining payable - ( 66,547 ) 507,862 Interest income 677,415 18,343 33,651 Interest expense ( 1,569,731 ) ( 20,984 ) ( 51,915 ) Total other (expenses) income 71,933,945 ( 612,267 ) 722,046 Loss before income taxes $ ( 13,153,785 ) $ ( 10,445,371 ) $ ( 3,517,065 ) Provision for income taxes ( 23,020,721 ) ( 2,400 ) - Net loss $ ( 36,174,506 ) $ ( 10,447,771 ) $ ( 3,517,065 ) Net income (loss) per share, basic and diluted: $ ( 0.36 ) $ ( 0.13 ) $ ( 0.53 ) Weighted average shares outstanding, basic and diluted: 99,337,587 81,408,340 6,664,238 The accompanying notes are an integral part to these audited consolidated financial statements. F- 5 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY Number Amount Number Amount Capital Deficit Loss Equity Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders’ Number Amount Number Amount Capital Deficit Loss Equity Balance as of December 31, 2018 - $ - 6,379,992 $ 638 $ 105,461,396 $ ( 102,090,441 ) $ ( 450,719 ) $ 2,920,874 Stock based compensation - - 150,000 15 933,667 - - 933,682 Par value adjustment and additional shares issued due to reverse split - - 5,413 1 ( 1 ) - - - Issuance of common stock, net of offering costs/At-the-market offering - - 172,126 17 245,477 - - 245,494 Common stock issued for purchase of mining servers - - 1,751,250 175 3,064,512 - - 3,064,687 Common stock issued for note conversion Common stock issued for note conversion, shares Common stock issued for long term service contract Common stock issued for long term service contract, shares Issue common stock and warrant for cash Issue common stock and warrant for cash, shares Options exercised on cashless basis Options exercised on cashless basis, shares Warrant exercised for cash Warrant exercised for cash, shares Common stock issued for cashless exercise of warrants Common stock issued for cashless exercise of warrants, shares Common stock issued for service and license agreements Common stock issued for service and license agreements, shares Options exercised for cash Options exercised for cash, shares Net loss - - - - - ( 3,517,065 ) - ( 3,517,065 ) Balance as of December 31, 2019 - $ - 8,458,781 $ 846 $ 109,705,051 $ ( 105,607,506 ) $ ( 450,719 ) $ 3,647,672 Stock based compensation - - 2,745,639 275 1,178,334 - - 1,178,609 Issuance of common stock, net of offering costs/At-the-market offering - - 54,301,698 5,430 297,653,840 - - 297,659,270 Common stock issued for purchase of mining servers - - 350,250 35 171,587 - - 171,622 Common stock issued for note conversion - - 2,023,739 202 1,578,873 - - 1,579,075 Common stock issued for long term service contract - - 6,000,000 600 11,219,400 - - 11,220,000 Issue common stock and warrant for cash - - 7,666,666 767 6,270,833 0 - 6,271,600 Warrant exercised for cash - - 413,233 41 464,846 - - 464,887 Options exercised for cash - - 14,613 1 ( 1 ) - - - Net loss - - - - - ( 10,447,771 ) - ( 10,447,771 ) Balance as of December 31, 2020 - $ - 81,974,619 $ 8,197 $ 428,242,763 $ ( 116,055,277 ) $ ( 450,719 ) $ 311,744,964 Stock based compensation, net of tax withholding - - 7,671,317 767 156,071,609 - - 156,072,376 Issuance of common stock, net of offering costs/At-the-market offering - - 12,500,000 1,250 237,428,370 - - 237,429,620 Options exercised on cashless basis - - 23,500 3 ( 3 ) - - - Warrant exercised for cash - - 221,946 22 1,445,358 - - 1,445,380 Common stock issued for cashless exercise of warrants - - 29,797 3 1,370,705 - - 1,370,708 Common stock issued for service and license agreements - - 312,094 31 11,134,808 - - 11,134,839 Net loss - - - - - ( 36,174,506 ) - ( 36,174,506 ) Balance as of December 31, 2021 - $ - 102,733,273 $ 10,273 $ 835,693,610 $ ( 152,229,783 ) $ ( 450,719 ) $ 683,023,381 The accompanying notes are an integral part to these audited consolidated financial statements. F- 6 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 2021 2020 2019 For the Years Ended December 31, 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ ( 36,174,506 ) $ ( 10,447,771 ) $ ( 3,517,065 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 14,831,102 2,993,036 923,304 Amortization of patents and website 71,176 71,176 71,177 Amortization of leasehold improvements 1,723 - - Deferred tax liability 23,020,721 - - Loss on conversion of debt - 364,833 - Impairment of mining equipment - 871,302 - Impairment of leasehold improvements - 447,776 Realized gain (loss) on sale of digital currencies ( 11,659 ) ( 15,466 ) ( 36,092 ) Change in fair value of warrant liability 1,048,286 309,588 ( 26,234 ) Change in fair value of mining payable - 66,547 ( 507,862 ) Change in fair value of investment securities ( 73,778,545 ) - - Gain on PPP loan forgiveness ( 62,500 ) - - Impairment of cryptocurrencies 29,552,991 - - Stock based compensation 160,786,028 1,178,609 933,682 Amortization of right-of-use assets 200,301 96,986 82,840 Bad debt allowance - - Change in prepaid service contract - 561,000 - Changes in operating assets and liabilities: Digital currencies ( 150,512,940 ) ( 4,357,443 ) ( 1,185,227 ) Lease liability ( 121,596 ) ( 86,842 ) ( 72,548 ) Prepaid expenses and other assets 136,200 644,059 ( 435,159 ) Accounts payable and accrued expenses 11,927,398 ( 23,318 ) 2,753 Accrued interest on bond payable 867,260 - - Net cash used in operating activities ( 18,218,560 ) ( 7,773,704 ) ( 3,318,655 ) CASH FLOWS FROM INVESTING ACTIVITIES Sale of digital currencies - 2,102,394 1,220,178 Interest received from digital currencies, restricted - - - Loan receivable ( 30,000,000 ) - - Purchase of investment securities ( 150,000,000 ) - - Purchase of SAFE investments ( 3,000,000 ) - - Purchase of property and equipment ( 273,851,299 ) ( 17,742,315 ) ( 5,225 ) Deposits for the purchase of mining servers ( 435,065,378 ) ( 65,647,592 ) - Net cash provided by (used in) investing activities ( 891,916,677 ) ( 81,287,513 ) 1,214,953 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds received on issuance of notes payable - 62,500 - Proceeds from issuance of common stock/At-the-market offering 324,768,476 229,961,998 255,893 Offering costs for the issuance of common stock/At-the-market offering ( 12,571,668 ) ( 7,069,955 ) ( 10,399 ) Proceeds from issuance of convertible debt, net of agent’s discount 728,812,500 - - Other offering costs ( 406,578 ) - - Proceeds from line of credit 77,500,000 - - Repayment from line of credit ( 77,500,000 ) - - Value of shares withheld for taxes ( 4,713,652 ) - - Proceeds from issuance of common stock and warrant, net - 6,271,600 - Proceeds received on exercise of options and warrants 1,445,402 464,887 - Net cash provided by financing activities 1,037,334,480 229,691,030 245,494 Net (decrease) increase in cash and cash equivalents 127,199,243 140,629,813 ( 1,858,208 ) Cash and cash equivalents — beginning of period 141,322,776 692,963 2,551,171 Cash and cash equivalents — end of period 268,522,019 $ 141,322,776 $ 692,963 Supplemental schedule of non-cash investing and financing activities: Par value adjustment due to reverse split $ - $ - $ 1 Receivable due to share issuance $ - $ 74,767,226 $ - Common stock issued for purchase of mining servers $ - $ 171,622 $ 3,064,687 Reduction of share commitment for purchase of mining servers $ - $ 408,625 $ 1,021,562 Options exercised into common stock $ 3 $ - $ - Warrants exercised into common shares $ 1,370,723 $ - $ - Restricted stock issuance $ - $ - $ 15 Common stock issued for note conversion $ - $ 1,579,074 $ - Common stock issued for service and license agreements $ 11,134,839 $ 11,220,000 $ - The accompanying notes are an integral part to these audited consolidated financial statements. F- 7 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Organization Marathon 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 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. 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. We have also moved all of our data mining operations that were operating in Canada prior to 2021 to our new facility in Hardin, Montana. The Company’s Board of Directors adopted the reverse stock split approved by its shareholders at its December 2018 Board Meeting. Upon the effectiveness of the reverse stock split, every four shares of issued and outstanding common stock before the open of business on April 8, 2019 was combined into one issued and outstanding share of common stock, with no change in par value per share. 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 . On January 1, 2018, our Board adopted the 2018 Equity Incentive Plan, subsequently approved by the stockholders on March 7, 2018, pursuant to which up to 625,000 shares of common stock, stock options, restricted stock, preferred stock, stock-based awards and other awards are reserved for issuance as awards to employees, directors, consultants, advisors and other service providers. On May 21, 2019, the Company received notice from the Nasdaq Capital Market (the “Capital Market”) that the Company has failed to maintain a minimum of $ 2,500,000 in stockholders’ equity for continued listing as required under Listing Rule 5550(b)(1) as its Form 10-Q for the period ended March 31, 2019 reported stockholders’ equity of $ 2,158,192 . On July 23, 2019, we announced Nasdaq approved the Company’s plan to regain compliance, and the Company was required to file its Form 10-Q for the period ending September 30, 2019 with the SEC on or before November 13, 2019, which it did, evidencing compliance with the stockholders’ equity requirement. F- 8 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements On September 30, 2019, the Company consummated the purchase of 6000 S-9 Bitmain 13.5 TH/s Bitcoin Antminers (“Miners”) from SelectGreen Blockchain Ltd., a British Columbia corporation, for which the purchase price was $ 4,086,250 or 2,335,000 shares of its common stock at a price of $ 1.75 per share. As a result of an exchange cap requirement imposed in conjunction with the Company’s Listing of Additional Shares application filed with Nasdaq to the transaction, the Company issued 1,276,442 shares of its common stock which represented $ 2,233,773 of the $ 4,086,250 (constituting 19.9 % of the issued and outstanding shares on the date of the Asset Purchase Agreement) and upon the receipt of shareholder approval, at the Annual Shareholders Meeting to be held on November 15, 2019, the Company can issue the balance of the 1,058,558 unregistered common stock shares. The shareholders did approve the issuance of the additional shares at the Annual Shareholders Meeting. The Company has issued an additional 474,808 at $ 0.90 per share. The $ 513,700 set forth on the balance sheet for mining servers payable reflects the fair value of 583,750 shares to be issued at $ 0.88 per share to conclude the purchase of the Miners at December 31, 2020. The Company recorded change 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. 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. On 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 46 PH/s. These next generation MicroBT ASIC miners are markedly more energy efficient than our existing Bitmain models . These miners were delivered to the Company’s Hosting Facility in June 2020 and are producing Bitcoins. The 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 2020, and its hosting partner, Compute North, had installed them upon their arrival. Of the 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter of 2020, 500 were received in November of 2020 and installed in the Company’s Hosting Facility in Montana, while another 60 miners were received and placed into service in January 2021. The remaining 440 miners that were anticipated to arrive in the 4 th quarter of 2020 were cancelled and the Company received a refund of the original purchase price of $ 1.1 million in January 2021. On July 29, 2020, the Company announced the purchase of 700 next generation M31S+ASIC Miners from MicroBT. The miners arrived mid-August of 2020. 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. 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 . F- 9 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of December 31, 2021, the Company has paid the entire purchase price under this agreement and received all 10,500 units from Bitmain. On 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 designed and developed a data center facility of up to 100-megawatts (the “Facility”) that is located next to, and supplied energy directly from, Beowulf’s power generating station in Hardin, MT (the “Hardin Station”). The Facility was 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. The 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. Marathon 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. 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 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. On 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, 2021, the Company has paid the entire purchase price under this agreement and received all 10,000 units from Bitmain. As 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. On 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, 2021, the Company has paid the entire purchase price under this agreement and received all 10,000 units from Bitmain. F- 10 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements On 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. The Company ended the 2020 fiscal year with $ 141.3 million in cash and 81,974,619 shares outstanding. On 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. The purchase price is $ 167,763,451 . The purchase price for the miners shall be paid as follows: 20 % within 48 hours of signing of contract; 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; 10.19 % on September 15, 2021; 17.63 % on October 15, 2021 and 11.55 % on November 15, 2021 . As of December 31, 2021, the Company has paid the entire purchase price under this agreement and received approximately 40,000 units from Bitmain. 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, another current receivable was recorded in an amount of $ 74.8 million as of December 31, 2020. Effective December 31, 2020, the Board of Directors of the Company ratified the following arrangements approved by its Compensation Committee: Merrick 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 December 31, 2021, Mr. Okamoto had earned all bonuses set forth. Sim 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 was increased by 3%. Compensation for directors of the board for 2021 was 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 2021 . For clarification, new directors will also receive the same annual compensation as existing directors in addition to their one time grant. On 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. The 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. On January 25, 2021, the Company announced that it has purchased 4,812.66 BTC in an aggregate purchase price of $ 150 million through an investment fund of one managed by NYDIG as the general partner, while the Company retains 100% of the limited partner interests. We expect to purchase additional bitcoin held by NYDIG Digital Assets Fund III, LP, the investment fund in future periods, though we may also sell bitcoin in future periods as needed to generate Cash Assets for treasury management purposes. F- 11 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements On February 11, 2021, the Company issued 4,701,442 shares of common stock pursuant to the 2018 Equity Incentive Plan. Effective March 1, 2021, the Company changed its name to Marathon Digital Holdings, Inc. On March 7, 2021, the Company entered into a termination agreement with the 9349-0001 Quebec Inc., to agree to terminate the outstanding lease. 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. On May 21, 2021, Marathon Digital Holdings, Inc. (the “Company”) entered into a binding letter of intent with Compute North, LLC to host 73,000 Bitcoin Miners over a staged in implementation between October 2021 and March 2022. The hosting cost is $0.50 per machine per month and the hosting rate will be $0.044 per kWh. In order to build out the infrastructure without paying for the capital expenditure, the Company will provide an 18 month bridge loan to Compute North of up to $ 67 million dollars, in tranches, based upon specified requirements being met. The terms of the contract are limited to three years with increases thereafter capped at three percent per year thereafter. The Company has also agreed to pay up to $ 14 million in expedite fees for construction/electrical and supply chain expediting activities. As of December 31, 2021, the Company paid $ 8 million of the $ 14 million in expedite fees recorded as a deposit on the balance sheet and loaned Compute North $ 30 million. On September 3, 2021, the Company entered into a master agreement with Compute North, LLC whereas the Company will pay an initial deposit of $ 14.6 million in aggregate over five instalments. As of December 31, 2021, the Company paid the full $ 14.6 million initial deposit recorded as advances to vendor on the balance sheet. On July 30, 2021, Marathon Digital Holdings, Inc. (the “Company”) entered into a fully executed contract with Bitmain to purchase an additional 30,000 S-19j Pro ASIC Miners, with 5,000 units scheduled to be delivered in each of January 2022, February 2022, March 2022, April 2022, May 2022, and June 2022. The purchase price is $126,000,000 with (i) 25% of the purchase price due paid within one day of execution of the contract, (ii) 35% of the purchase price of each batch due in consecutive months with 35% of the January 2022 batch due immediately, and then 35% of each of the remaining five batches due on the 15th of each consecutive month starting August 15, 2021, through December 15, 2021 and (iii) the remaining 40% of the purchase price of each batch due on the 15th of each consecutive month starting November 15, 2021 and then 40% of each of the remaining five batches due on the 15th of each consecutive month through April 2022. As of December 31, 2021, the Company has paid $ 92,015,375 of the total balance of $ 120,711,500 . The amounts paid are classified as advances to vendor on the balance sheet. On August 27, 2021, Marathon Digital Holdings, Inc. (the “Company”) entered into a Master Securities Loan Agreement (the “Agreement”) with NYDIG Funding, LLC (“NYDIG”). Pursuant to the Agreement, the Company will loan its bitcoin (“BTC”) to NYDIG with an interest rate of three percent (3%) per annum. Interest accrues daily and is payable on a monthly basis. The Agreement provides that the Company may recall its BTC at any time. NYDIG shall, prior to or concurrently with the transfer of the of the BTC to NYDIG, but in no case later than the close of business on the day of such transfer, transfer to the Company collateral with a market value at least equal to 100% of the market value of the loaned BTC, and the Company is granted a first priority lien on such collateral. As of December 31, 2021, the Company loaned 300 BTC to NYDIG. This balance is classified as digital currencies, restricted on the balance sheet. On December 21, 2021 and December 30, 2021, the Company entered into two separate Simple Agreement for Future Equity (“SAFE”) agreements classified on the balance sheet as non-current assets. Pursuant to ASC 323, Equity Method of Accounting for Investments , an investment in another company is recorded as an asset on the balance sheet at cost. An equity method investment is valued as of a specific reporting date with any activity related to the investment recorded through the income statement. Investments are typically current assets if the Company intends to sell them within a year, however as SAFEs have no expiration date, the Company intends to classify these types of investments as a noncurrent asset due to the indefinite life of the conversion. This balance is classified as investment in SAFE agreements on the balance sheet. On December 22, 2021, Marathon Digital Holdings, Inc. (the “Company”) entered into another Master Securities Loan Agreement (the “Agreement”) with NYDIG Funding, LLC (“NYDIG”). Pursuant to the Agreement, the Company will loan its bitcoin (“BTC”) to0 NYDIG with an interest rate of two and a quarter percent (2.25%) per annum. Interest accrues daily and is payable on a monthly basis. The Agreement provides that the Company may recall its BTC at any time. NYDIG shall, prior to or concurrently with the transfer of the of the BTC to NYDIG, but in no case later than the close of business on the day of such transfer, transfer to the Company collateral with a market value at least equal to 100% of the market value of the loaned BTC, and the Company is granted a first priority lien on such collateral. As of December 31, 2021, the Company loaned an additional 300 BTC for a total amount of 600 BTC to NYDIG. This balance is classified as digital currencies, restricted on the balance sheet. Risks and Uncertainties The impact of the worldwide spread of a novel strain of coronavirus (“COVID 19”) has been and continues to be unprecedented and unpredictable, but based on the Company’s current assessment, the Company does not expect any material impact on its long-term strategic plans, operations and its liquidity due to the worldwide spread of COVID-19. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world and its assessment of the impact of COVID-19 may change. F- 12 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company’s subsidiaries, Marathon Crypto Mining, Inc., MARA Pool, LLC, Crypto Currency Patent Holding Company and Soems Acquisition Corp, all of which are dormant as of December 31, 2021. 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 parties. The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated. Use of Estimates and Assumptions The 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, realization of long-lived assets, deferred income taxes, unrealized tax positions, the realization of digital currencies and stock-based compensation expense. Cash and Cash Equivalents The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation. The Company’s accounts at this institution are insured, up to $ 250,000 , by the Federal Deposit Insurance Corporation (“FDIC”). For the years ended December 31, 2021 and 2020, the Company’s bank balances exceeded the FDIC insurance limit in an amount of $ 267.8 million and $ 140.3 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, 2021 and 2020, the Company had cash equivalents of $ 266.6 million and $ 129.8 million, respectively. Segment Reporting Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group in deciding how to allocate resources and in assessing performance. Our chief operating decision–making group (“CODM”) is composed of the chief executive officer and chief financial officer. The Company currently operates in the Digital Currency Blockchain segment. The Company’s Crypto-currency 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. Digital Currencies Digital currencies are included in current assets in the consolidated balance sheets as an indefinite lived intangible asset. Digital currencies are recorded at cost less impairment. In performing the quantitative impairment test of the mined BTC balances as well as recordation of daily revenues,as described in ASC 350-30-35-19, the Company utilizes the pricing of BTC on a nightly basis from Coindesk.com ( https://www.coindesk.com/price/bitcoin/ ). The CoinDesk Bitcoin Price Index (XBX) is the world’s leading reference for the price of bitcoin, used by the largest institutions active in crypto assets. It is the crypto market standard, benchmarking billions of dollars in registered financial products and pricing hundreds of millions in daily over-the-counter transactions. Built for replicability and reliability, in continuous operation since 2014, the “XBX” is relied upon by asset allocators, asset managers, market participants and exchanges Bitcoin, ether and gold prices are taken at approximately 4pm New York time 1 . Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices. 1 https://www.coindesk.com/indices/xbx/ F- 13 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, 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. Halving 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. The following table presents the activities of the digital currencies for the years ended December 31, 2021 and 2020: SCHEDULE OF ACTIVITIES OF DIGITAL CURRENCIES Digital currencies at December 31, 2019 $ 1,141 Additions of digital currencies 4,357,443 Realized gain on sale of digital currencies 15,466 Sale of digital currencies ( 2,102,394 ) Digital currencies at December 31, 2020 $ 2,271,656 Additions of digital currencies 150,463,770 Realized gain on sale of digital currencies 11,659 Impairment of cryptocurrencies ( 29,552,991 ) Interest received on cryptocurrencies, restricted 129,170 Disposition of digital currencies ( 80,000 ) Digital currencies at December 31, 2021 $ 123,243,264 Loan Receivable On May 21, 2021, Marathon Digital Holdings, Inc. (the “Company”) entered into a binding letter of intent with Compute North, LLC to host 73,000 Bitcoin Miners over a staged in implementation between October 2021 and March 2022. The hosting cost is $0.50 per machine per month and the hosting rate will be $0.044 per kWh. In order to build out the infrastructure without paying for the capital expenditure, the Company will provide an eighteen-month bridge loan to Compute North of up to $ 67 million dollars, in tranches, based upon specified requirements being met. The loan receivable is structured as an interest-only loan with no pre-payment penalty. The interest rate shall be 0% for the initial twelve-month period and 12% for the last six months. As of December 31, 2021, the Company paid $ 30 million dollars and is classified as a loan receivable on the balance sheet. The Company expects the loan receivable to be repaid during 2022. Property and Equipment 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. The Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. 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 reviews this estimate annually and will revise such estimates as and when data comes available. To the extent that any of the assumptions underlying management’s estimate of useful life of its transaction verification servers are subject to revision in a future reporting period either as a result of changes in circumstances or through the availability of greater quantities of data then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets. Intangible Assets Intangible assets include the Crypto Currency Patent with original estimated useful life of 17 years. The Company amortizes the cost of the intangible assets over their estimated useful lives on a straight-line basis. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent. The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company will perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the group of assets for which we can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company will measure any impairment by comparing the fair value of the asset or asset group to its carrying value. During the year ended December 31, 2021 and 2020, there was no impairment to the intangible assets. Impairment of Long-lived Assets Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 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, 2021 and 2020, the Company’s leasehold improvements were impaired by $ 0 and $ 0 , respectively. F- 14 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Investment Fund In 2016, the FASB issued Accounting Standards Update (ASU) 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, that requires entities to generally measure investments in equity securities at fair value and recognize changes in fair value in net income. On January 25, 2021, the Company entered into a limited partnership agreement with NYDIG Digital Assets Fund III, LP (“Fund”) whereas the Fund purchased 4,812.66 BTC in an aggregate purchase price of $ 150 million. The Company owns 100 % of the limited partnership interest. The investment fund is included in current assets in the consolidated balance sheets. The Fund qualifies and operates as an investment company for accounting purposes pursuant to the accounting and reporting guidance under ASC 946, Financial Services – Investment Companies, which requires fair value measurement of the Fund’s investments in digital assets. The digital assets held by the Fund are traded on a number of active markets globally, including the over-the-counter (“OTC”) market and digital asset exchanges. A fair value measurement under ASC 820 for an asset assumes that the asset is exchanged in an orderly transaction between market participants either in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset (ASC 820-10-35-5). An entity must have access to the principal (or most advantageous) market at the measurement date (ASC 820-10-35-6A). Pursuant to a management agreement, the Fund paid the Investment Manager a management fee (the “Management Fee”), payable monthly, computed at a rate of 0.50 % per annum of the net asset value of such limited partner’s capital account, according to the opening NAV of the first day of each calendar month with such opening NAV being equal to the NAV as of 4pm ET on the last day of each preceding calendar month (taking into account expenses of the Fund charged to the Fund but without taking into account any withdrawal occurring on such date). Effective March 25, 2021, the rate was reduced to 0.30 % per annum. In the event of an additional capital contribution, a withdrawal of a limited partner’s capital account or the termination of the Fund as of a date other that the first day of a calendar month, the Management Fee payable will be prorated based on the number of days elapsed in that calendar month. Payment of the Management Fee may be deferred in the General Partner’s discretion. The Fund’s bitcoin may be liquidated by the Investment Manager as needed in order to pay the Management Fee or other operating expenses of the Fund. Revenue Recognition The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the Company satisfies a performance obligation In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract). If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following: ● Variable consideration ● Constraining estimates of variable consideration ● The existence of a significant financing component in the contract ● Noncash consideration ● Consideration payable to a customer Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. F- 15 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate. Providing computing power in crypto asset transaction verification services to the network is the only performance obligation under our arrangements with the network. 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 the time the Company has earned the award. 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. Fair value of the digital asset award received is determined using the average U.S. dollar spot rate of the related digital currency at the time of receipt. Expenses 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 cost of revenues. Related Party Transactions Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On October 11, 2018, the Company entered into a 2-year Employment Agreement, subject to successive 1 year extension , with Merrick Okamoto, pursuant to which Mr. Okamoto will serve as the Executive Chairman and Chief Executive Officer of the Company. Pursuant to the terms of the Agreement, Mr. Okamoto shall receive a base salary at an annual base salary of $ 350,000 (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 for Mr. Okamoto’s services, the Company agreed to issue Mr. Okamoto 10 -year stock options to purchase 1,250,000 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. On December 31, 2021 Mr. Okamoto retired from the Company and as such as of December 31, 2021 no bonus has been accrued. On July 22, 2019, the Company granted David Lieberman, James Crawford and other three board directors 5 -year stock options to purchase total of 200,000 shares of common stock, with an exercise price of $ 2.04 per share, vesting 50 % on the date of grant and 25 % on 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. See 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. Fair Value of Financial Instruments The Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are: Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. F- 16 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, accounts payable, and accrued expenses, approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying value of notes payable and other long-term liabilities approximate fair value as the related interest rates approximate rates currently available to the Company. Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to their fair value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs included reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs. The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of December 31, 2021 and 2020, respectively: SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS Fair value measured at December 31, 2021 Total carrying value at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2021 (Level 1) (Level 2) (Level 3) Assets Money Market Accounts $ 266,635,158 $ 266,635,158 $ - $ - Investment Fund $ 223,778,545 $ - $ 223,778,545 $ - Liabilities Warrant liability $ - $ - $ - $ - Fair value measured at December 31, 2020 Total carrying value at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2020 (Level 1) (Level 2) (Level 3) Liabilities Warrant liability $ 322,437 $ - $ - $ 322,437 There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2021 and 2020. At December 31, 2021, the Company had an outstanding warrant liability in the amount of $ 0 associated with warrants that were issued in January 2017 and warrants issued related to the Convertible Notes issued in August and September of 2017. The following table rolls forward the fair value of the Company’s warrant liability, the fair value of which is determined by Level 3 inputs for the year ended December 31, 2021. F- 17 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements FV of warrant liabilities SCHEDULE OF FAIR VALUE OF WARRANT LIABILITIES Fair value Outstanding as of December 31, 2019 $ 12,849 Change in fair value of warrants 309,588 Outstanding as of December 31, 2020 $ 322,437 Cashless exercise of warrants ( 1,370,723 ) Change in fair value of warrants 1,048,286 Outstanding as of December 31, 2021 $ - 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. Non-recurring measurement of Fair Value The Company accounts for its digital currencies as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, I ntangibles – Goodwill and Other . The Company’s digital currencies are initially recorded at fair value upon receipt (or “carrying value”). On a quarterly basis, they are measured at carrying value, net of any impairment losses incurred since receipt. Pursuant to guidance from ASC 820, Fair Value Measurement, the Company is required to determine the nonrecurring fair value measurement used to determine impairment of the digital currencies held on the balance sheet. The Company will record impairment losses as the fair value falls below the carrying value of the digital currencies. The digital currencies can only be marked down when impaired and not marked up when their value increases. The resulting carrying value represents the fair value of the asset. The last impairment date for the digital currencies was December 31, 2021. The Company had an outstanding carrying balance of digital assets of approximately $ 123.2 million, net of impairment losses incurred of $ 29.6 million for the year ended December 31, 2021. As of December 31, 2021, the fair value of the approximate 3,321 bitcoin held as digital currencies is approximately $ 152.8 million. Income Taxes The Company accounts for income taxes pursuant to the provision of Accounting Standards Codification (“ASC”) 740-10, “Accounting for Income Taxes” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provision of the ASC 740-10 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is most likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with the tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. F- 18 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Basic and Diluted Net Loss per Share Net loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at December 31, 2021 and 2020 are as follows: SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE 2021 2020 As of December 31, 2021 2020 Warrants to purchase common stock 326,779 287,656 Restricted stock 642,094 - Conversion of convertible notes 9,812,955 - Options to purchase common stock - 106,120 Total 10,781,828 393,776 The following table sets forth the computation of basic and diluted loss per share: SCHEDULE OF COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE 2021 2020 2019 For the Years Ended December 31, 2021 2020 2019 Net loss attributable to common shareholders $ ( 36,174,506 ) $ ( 10,447,771 ) $ ( 3,517,065 ) Denominator: Weighted average common shares - basic 99,337,587 81,408,340 6,664,238 Weighted average common shares - diluted 99,337,587 81,408,340 6,664,238 Loss per common share - basic $ ( 0.36 ) $ ( 0.13 ) $ ( 0.53 ) Loss per common share - diluted $ ( 0.36 ) $ ( 0.13 ) $ ( 0.53 ) Stock-Based Compensation The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards and forfeiture rates. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. 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. F- 19 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Leases The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred. In calculating the right of use asset and lease liability, the Company elected to combine lease and non-lease components. The Company 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. Recent Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “ Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”)” , which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company has adopted this pronouncement and has determined there has been no material impact of this standard on its consolidated financial statements and related disclosures. In 2020, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to address the complexity in accounting for certain financial instruments with characteristics of liabilities and equity. Amongst other provisions, the amendments in this ASU significantly change the guidance on the issuer’s accounting for convertible instruments and the guidance on the derivative scope exception for contracts in an entity’s own equity such that fewer conversion features will require separate recognition, and fewer freestanding instruments, like warrants, will require liability treatment. This guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company adopted ASU 2020-06 early as of January 1, 2021. Such adoption did not result in any material changes to its financial position, results of operations or cash flows. Any 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. F- 20 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – DEPOSIT, PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS On September 30, 2019, the Company consummated the purchase of 6000 S-9 Bitmain 13.5 TH/s Bitcoin Antminers (“Miners”) from SelectGreen Blockchain Ltd., a British Columbia corporation, for which the purchase price was $ 4,086,250 or 2,335,000 shares of its common stock at a price of $ 1.75 per share. As a result of an exchange cap requirement imposed in conjunction with the Company’s Listing of Additional Shares application filed with Nasdaq to the transaction, the Company issued 1,276,442 shares of its common stock which represented $ 2,233,773 of the $ 4,086,250 (constituting 19.9 % of the issued and outstanding shares on the date of the Asset Purchase Agreement) and upon the receipt of shareholder approval, at the Annual Shareholders Meeting to be held on November 15, 2019, the Company can issue the balance of the 1,058,558 unregistered common stock shares. The shareholders did approve the issuance of the additional shares at the Annual Shareholders Meeting. The Company has issued an additional 474,808 at $ 0.90 per share. The $ 513,700 set forth on the balance sheet for mining servers payable reflects the fair value of 583,750 shares to be issued at $ 0.88 per share to conclude the purchase of the Miners at December 31, 2020. The Company recorded change in fair value of mining payable of $0 and $ 66,547 during the year ended December 31, 2021 and 2020, respectively. There is no requirement for the Company to make a payment in cash in lieu of issuing the remaining shares. On 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. On 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 46 PH/s. These next generation MicroBT ASIC miners were markedly more energy efficient than the Bitmain S-9 models. These miners were delivered to the Company’s Hosting Facility in June 2020 and are producing Bitcoins. The 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 of 2020, and its hosting partner, Compute North, had installed them upon their arrival. Of the 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter of 2020, 500 were received in November of 2020 and installed in the Company’s Hosting Facility in Montana, while another 60 miners were received and placed into service in January 2021. The remaining 440 miners that were anticipated to arrive in the 4 th quarter of 2020 were cancelled and the Company received a refund of the original purchase price of $ 1.1 million in January 2021. On July 29, 2020, the Company announced the purchase of 700 next generation M31S+ASIC Miners from MicroBT. The miners arrived mid-August of 2020. 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. The 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. 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 . Subject 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, 2021, the Company has paid the entire purchase price under this agreement and has received 10,500 units from Bitmain. On 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 was for 2,500 units to be delivered in January, 4,500 units to be delivered in February and the final 3,000 units to be delivered in March 2021.The gross purchase price was $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, 2021, the Company has paid the entire purchase price under this agreement and has received 10,000 units from Bitmain. On 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, 2021, the Company has paid the entire purchase price under this agreement and has received 10,000 units from Bitmain. F- 21 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements On 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 by August 2021, 2,100 units to be delivered by September 2021, 6,500 units to be delivered by October 31, 2021, 14,700 units to be delivered by November 30, 2021, 24,500 units to be delivered by December 31, 2021 and 15,200 units to be delivered by January 31, 2022. The purchase price is $167,763,451. The purchase price for the miners shall be paid as follows: 20% within 48 hours of signing of contract; 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; 10.19% on September 15, 2021; 17.63% on October 15, 2021 and 11.55% on November 15, 2021. As of December 31, 2021, the Company has paid the entire purchase price under this agreement and has received 40,000 units from Bitmain. On 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. In addition to the initial 4,000 miners delivered to the Hardin facility in February, Bitmain has shipped another 26,050 miners to Hardin. Marathon has received over 30,050 miners as of December 31, 2021 and subsequent to year end increased its active mining fleet to approximately 32,710 miners generating approximately 3.6 EH/s. On December 21, 2021, the Company executed a contract with Bitmain to purchase an additional 78,000 next generation Antminer S-19 XP Miners, with 13,000 units being delivered in each of July 2022, August 2022, September 2022, October 2022, November 2022 and December 2022. The purchase price is $ 879,060,000 . The purchase price for the miners shall be paid as follows: 35% of the total amount within two days of execution of the purchase contract, 35% of each single shipment price at least six months prior to each such shipment, and the remaining 30% of each single shipment price at least one month prior to each such shipment . As of December 31, 2021, the Company has paid $ 307,671,000 of the purchase price. As of December 31, 2021, approximately $ 466.3 million cash paid for miners was recorded as a deposit on the balance sheet. The components of property, equipment and intangible assets as of December 31, 2021 and 2020 are: SCHEDULE OF COMPONENTS OF PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS Useful life (Years) December 31, 2021 December 31, 2020 Website 7 $ 121,787 $ 121,787 Mining equipment 5 163,868,283 12,989,318 Construction in Progress N/A 133,565,908 10,593,575 Mining patent 17 1,210,000 1,210,000 Gross property, equipment and intangible assets 298,765,978 24,914,680 Less: Accumulated depreciation and amortization ( 21,591,958 ) ( 6,687,957 ) Property, equipment and intangible assets, net $ 277,174,020 $ 18,226,723 As of December 31, 2021, intangible assets amortization are as follows: SCHEDULE OF INTANGIIBLE ASSETS AMORTIZATION 2022 71,176 2023 71,176 2024 71,176 2025 71,176 2026 71,176 Thereafter 575,346 Total $ 931,226 As of December 31, 2020, intangible assets amortization are as follows: 2021 71,176 2022 71,176 2023 71,176 2024 71,176 2025 71,176 Thereafter 646,522 Total $ 1,002,402 F- 22 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 4 - STOCKHOLDERS’ EQUITY We 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, 2021, we have 102,733,273 shares of our common stock and no shares of our preferred stock issued and outstanding. Common Stock At The Market Offering Agreement On July 19, 2019, we entered into an At The Market Offering Agreement (the “Agreement”) with H.C. Wainwright & Co., LLC (“H.C. Wainwright”) which establishes an at-the-market equity program pursuant to which we may offer and sell shares of our common stock, par value $ 0.0001 per share (“Common Stock”), from time to time as set forth in the Agreement. The Agreement provides for the sale of shares of our Common Stock (“Shares”) having an aggregate offering price of up to $ 7,472,417 . Subject to the terms and conditions set forth in the Agreement, H.C. Wainwright will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon our instructions. We have provided H.C. Wainwright with customary indemnification rights, and H.C. Wainwright will be entitled to a commission at a fixed rate equal to three percent (3.0%) of the gross proceeds per Share sold. In addition, we have agreed to pay certain expenses incurred by H.C. Wainwright in connection with the Agreement, including up to $ 25,000 of the fees and disbursements of their counsel. The Agreement will terminate upon the earlier of sale of all of the Shares under the Agreement or July 19, 2022 unless terminated earlier by either party as permitted under the Agreement. Sales of the Shares, if any, under the Agreement shall be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on the Nasdaq Capital Market, at market prices or as otherwise agreed with H.C. Wainwright. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Agreement or terminate the Agreement. Follow On Offering On July 23, 2020, the Company entered into an underwriting agreement with H.C. Wainwright. The Company agreed to sell H.C. Wainwright 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. Shelf Registration Statements on Form S-3 and At The Market Offering Agreements On 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. Wainwright & 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. On 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. Wainwright & 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. On January 12, 2020, 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. The 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. Pursuant 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. The 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). The Company 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. Pursuant 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. As of December 31, 2021, warrants to purchase up to 324,375 shares of Common Stock related to the Securities Purchase Agreement remain outstanding. During 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. During 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. F- 23 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Other 2020 Common Stock Activity During 2020, the Company issued 54,301,698 shares of common stock under the At The Market Offering for the total proceeds of $ 307,064,401 , net of offering cost of $ 9,405,129 . On 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 . On 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 . On 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. F- 24 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 2019 Common Stock Activity During 2019, the Company issued 172,126 shares of common stock under the At The Market Offering for the total proceeds of $ 255,893 , net of offering cost of $ 10,442 . On October 1, 2019, the Company issued 150,000 shares of its common stock to a consultant. The fair value of the common stock was $ 259,500 . Common Stock Warrants A summary of the status of the Company’s outstanding stock warrants and changes during year ended is as follows: SUMMARY OF OUTSTANDING STOCK WARRANTS Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Outstanding as of December 31, 2019 182,191 $ 25.04 2.8 Issued 536,667 $ 1.13 4.6 Expired ( 17,969 ) 59.14 - Exercised ( 413,233 ) 1.13 - Outstanding as of December 31, 2020 287,656 $ 12.64 2.7 Issued 375,000 25.00 4.3 Expired ( 19,792 ) 27.20 - Exercised ( 316,085 ) 14.42 - Outstanding as of December 31, 2021 326,779 $ 25.54 3.5 Warrants exercisable as of December 31, 2021 326,779 $ 25.54 3.5 The aggregate intrinsic value of options outstanding and exercisable at December 31, 2021 was $ 2,549,588 . On July 23, 2020, the Company entered into an underwriting agreement with H.C. Wainwright. The Company agreed to sell H.C. Wainwright 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. Pursuant 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. The 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). The Company 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. Pursuant 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. As of December 31, 2021, warrants to purchase up to 324,375 shares of Common Stock related to the Securities Purchase Agreement remain outstanding. Common Stock Options On July 22, 2019, the Company’s board has approved to issue 275,000 shares of option to purchase the Company’s common stock to 8 employees and consultants for the service they provided. The options have a five -year term with an exercise price of $ 2.04 , 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 $ 2.04 per share, an average expected term of 2.69 years, volatility of 39.46 % based on the average volatility of comparable companies over the comparable prior period. On 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, 2020. 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. In 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. Due 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, 2021 and 2020 were $ 0 and $ 0 , respectively. Estimated future stock-based compensation expense relating to unvested stock options is approximately $ 0 as of December 31, 2021. F- 25 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements A summary of the stock options as of December 31, 2021 and changes during the year ended is as follows: SUMMARY OF STOCK OPTIONS Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Outstanding as of December 31, 2020 106,120 $ 44.32 4.28 Exercised ( 25,000 ) 2.04 - Expired ( 81,120 ) - - Outstanding as of December 31, 2021 - $ - - Options vested and expected to vest as of December 31, 2021 - $ - - Options vested and exercisable as of December 31, 2021 - $ - - The aggregate intrinsic value of options outstanding and exercisable at December 31, 2021 was $ 0 . A summary of the RSUs as of December 31, 2021 and 2020, respectively and changes during the period are presented below: SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY Number of Units Weighted Average Grant Date Fair Value Nonvested at December 31, 2020 566,279 $ 0.43 Granted 8,313,410 $ 20.89 Vested ( 8,237,595 ) $ 18.31 Nonvested at December 31, 2021 642,094 $ 35.93 NOTE 5 – DEBT, COMMITMENTS AND CONTINGENCIES Debt consists of the following: SCHEDULE OF DEBT Maturity Interest December 31, December 31, Date Rate 2021 2020 Convertible Note 11/15/2026 1 % $ 747,500,000 $ - Less: debt discount 19,094,078 - Total convertible notes, net of discount $ 728,405,922 $ - Total $ 728,405,922 $ - Less: current portion - - Long term portion $ 728,405,922 $ - F- 26 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements During the year ended December 31, 2021 and 2020, there was amortization of debt discount of $ 0.3 million and $ 0 , respectively. Interest expenses were $ 1.6 million and $ 22,815 for the years ended December 31, 2021 and 2020, respectively. Convertible Note On November 18, 2021, the Company issued $ 650,000,000 principal amount of its 1.00 % Convertible Senior Notes due 2026 (the “ Notes ”). The Notes were issued pursuant to, and are governed by, an indenture (the “ Indenture ”), dated as of November 18, 2021, between the Company and U.S. Bank National Association, as trustee (the “ Trustee ”). Pursuant to the purchase agreement between the Company and the initial purchasers of the Notes, the Company also granted the initial purchasers an option, for settlement within a period of 13 days from, and including, November 18, 2021 to purchase up to an additional $ 97,500,000 principal amount of Notes, which additional Notes were purchased on November 23, 2021, for an aggregate principal amount of Notes purchased of $ 747,500,000 . All references in this disclosure to “Notes” includes the Notes issued on both November 18, 2021 and November 23, 2021.. The Notes will be the Company’s senior, unsecured obligations and will be (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries. The Notes will accrue interest at a rate of 1.00 % per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2022. The Notes will mature on December 1, 2026, unless earlier repurchased, redeemed or converted. Before the close of business on the business day immediately before June 1, 2026, noteholders will have the right to convert their Notes only upon the occurrence of certain events . From and after June 1, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 13.1277 shares of common stock per $ 1,000 principal amount of Notes, which represents an initial conversion price of approximately $ 76.17 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. The Notes will be redeemable, in whole or in part (subject to certain limitations described below), at the Company’s option at any time, and from time to time, on or after December 6, 2024 and on or before the 21st scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (2) the trading day immediately before the date the Company sends such notice. However, the Company may not redeem less than all of the outstanding Notes unless at least $ 100.0 million aggregate principal amount of Notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice. In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted during the related redemption conversion period. If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock. The Notes will have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the Company’s failure to comply with certain covenants in the Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company in its other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture; (v) certain defaults by the Company or any of its subsidiaries with respect to indebtedness for borrowed money of at least $ 50,000,000 ; and (vi) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries. If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the Company) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25% of the aggregate principal amount of Notes then outstanding, by notice to the Company and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 270 days at a specified rate per annum not exceeding 0.50% on the principal amount of the Notes. Revolving Credit Line On October 1, 2021, Marathon Digital Holdings, Inc. (the “Company”) entered into a Revolving Credit and Security Agreement (the “Agreement”) with Silvergate Bank (the “Bank”) pursuant to which Silvergate has agreed to loan the Company up to $ 100,000,000 on a revolving basis pursuant to the terms of the Agreement and the $ 100,000,000 principal amount revolving credit note issued by the Company in favor of the Bank under the Agreement (“Note”). The terms of the facility (“RLOC”) set forth in the Agreement and Note are as follows: Initial Term: One ( 1 ) Year Availability: The RLOC shall be made available from time to time to the Company for periodic draws (provided no event of default then exists) from its closing date up to and including the one- year anniversary of the loan date. Origination Fee: 0.25 % of the Loan Commitment to the Bank (or $ 250,000 ); due at RLOC closing. Unused Commitment Fee: 0.25 % per annum of the portion of the unused Loan Commitment, payable monthly in arrears. Renewal: The RLOC may be renewed annually by agreement between the Bank and the Company, subject to (without limitation): (i) Company makes a request for renewal, in writing, no less than sixty (60) days prior to the then current maturity date, (ii) no event of default then exists, (iii) Company provides all necessary documentation to extend the RLOC, (iv) Company has paid all applicable fees related to the loan renewal, and (v) the Bank has approved such extension request according to its internal credit policies as determined by the Bank in its sole and absolute discretion. If the Bank approves a request by Company to renew the RLOC upon any maturity, then a Renewal Fee of 0.25 % of the Loan Commitment (or $ 250,000 ) shall be due and payable upon extension of the Loan Commitment. Payments: Interest only to be paid monthly, with principal all due at maturity. Collateral: The RLOC will be secured by a pledge of a sufficient amount of Company’s right, title and interest in and to bitcoin and/or U.S. Dollar (“USD”) stored in a custody account for the benefit of the Bank (the “Collateral Account”). the Bank will establish a Collateral Account with a regulated custodial entity (the “Custodian”) that has been approved by the Bank. the Bank and Custodian will have a custodial agreement to perfect the security interest in the pledged Collateral Account which, among other things, allows for 1) the Bank to monitor the balance of the Collateral Account and 2) allows the Bank to have exclusive control over the Collateral Account including liquidation of the collateral in the event of Company’s default under the terms of the RLOC. the Bank may also file a UCC financing statement on the pledged collateral. Minimum Advance Rate: At origination, the Company must ensure the Collateral Account balance has sufficient bitcoin (and/or US$) to cause a Loan to Value (the “LTV”) ratio of 65 % (or less) (“Minimum Advance Rate”) on the unpaid principal balance of the RLOC. Covenants: The Company must maintain a minimum debt to equity ratio of 0.5:1. The Company must maintain a minimum liquidity of $ 25,000,000 . On November 9, 2021, the Company received a waiver letter from Silvergate Bank whereas Silvergate Bank has waived its default rights with respect to noncompliance of Section VII. Negative Covenants 7.3 Indebtedness and Section VI. Affirmative Covenants 6.5. Financial Covenants. Silvergate Bank accepts and acknowledges convertible notes in the aggregate principal amount up to $ 650,000,000 , plus an option to purchase an additional $ 97,500,000 principal amount of Convertible Notes shall not constitute “Indebtedness” for purpose of Section 7.3 of the Revolving Credit and Security Agreement. Further the maximum debt-to-equity ratio in Section 6.5 shall be revised to be 1.50:1.00 . Note Payable On 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 applied and received 100 % loan forgiveness in 2021. Leases Effective June 1, 2018, the Company rented its corporate office at 1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144, on a month to month basis. The monthly rent is $ 1,997 . A security deposit of $ 3,815 has been paid. The Company also assumed a lease in connection with the mining operations in Quebec, Canada. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, and noncurrent operating lease liabilities on the balance sheets. The Company entered into a termination agreement with the Lessor to agree to terminate the lease as of March 7, 2021. As of that date, the Company was fully released and discharged from any and all obligations under the Lease Agreement. Operation lease costs are recorded on a straight-line basis within operating expenses. The Company’s total lease expense is comprised of the following: SCHEDULE OF COMPONENTS OF LEASE COST For the Year Ended December 31, 2021 December 31, 2020 Operating leases Operating lease cost $ - $ 106,727 Operating lease expense - 106,727 Short-term lease rent expense 31,104 26,363 Total rent expense $ 31,104 $ 133,090 Additional information regarding the Company’s leasing activities as a lessee is as follow: SUMMARY OF MINIMUM LEASE PAYMENTS For the Year Ended December 31, 2021 December 31, 2020 Operating cash flows from operating leases $ - $ 96,908 Weighted-average remaining lease term – operating leases - 0.3 Weighted-average discount rate – operating leases 0.0 % 6.5 % 2021 - 126,783 2022 - - Total - 126,783 Less present value discount - ( 5,187 ) Less current portion of operating lease liabilities - ( 121,596 ) Non-current operating lease liabilities $ - $ - F- 27 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Legal Proceedings Feinberg Litigation On March 27, 2018, Jeffrey 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. 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. Oral argument on the appeal was conducted on April 1, 2021. On April 22, 2021, the court’s Appellate Division issued its Decision and Order affirming the dismissal of the case. Ho Matter On January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and Restitution (“Complaint”) against Marathon Patent Group, Inc., now known as Marathon Digital Holdings, Inc. (the “Company”) in the Superior Court of the State of California for the County of Riverside. The Complaint alleges six causes of action against the Company, (1) Breach of Written Contract; (2) Breach of Implied Contract; (3) Quasi-Contract; (4) Services Rendered; (5) Intentional Interference with Prospective Economic Relations; and (6) Negligent Interference with Prospective Economic Relations. The Complaint seeks damages, restitution, punitive damages, and costs of suit. The claims arise from the same set of facts. Ho alleges that the Company profited from commercially-sensitive information he shared with the Company, purportedly under a mutual non-disclosure agreement, and that the Company failed to compensate him for his role in securing the acquisition of a supplier of energy for the Company. On February 22, 2021, the Company responded to Mr. Ho’s Complaint with a general denial and the assertion of applicable affirmative defenses. Then, on February 25, 2021, the Company removed the action to the United States District Court in the Central District of California, where the action remains pending. Marathon filed a motion for summary judgment/adjudication of all causes of action. On February 11, 2022, the Court granted the motion and dismissed Ho’s 2 nd , 5 th and 6 th causes of action. Discovery is closed. The Court held a pre-trial conference on February 24, 2022, where it vacated the March 3, 2022 trial date and ordered the parties to meet and confer on a new trial date, which will likely be after June 2022, given the Court’s current backlog as a result of Covid. The Court discussed the various theories of damages maintained by the parties. In its ruling on the summary judgment motion and at the pre-trial conference on February 24, 2022, the Court noted that a jury is more likely to accept $ 150,000 as an appropriate damages amount if liability is found, as opposed to the various theories espoused by Ho that result in multi-million dollar recoveries. Due to outstanding issues of fact and law, it is impossible to predict the outcome at this time; however, after consulting legal counsel, the Company is confident that it will prevail in this litigation, since it did not have a contract with Mr. Ho and he did not disclose any commercially-sensitive information under any mutual nondisclosure agreement that was used to structure any joint venture with energy providers. Trial is set to begin on May 26, 2022. Information Subpoena On October 6, 2020, the Company entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts in Hardin, MT. In conjunction therewith, the Company filed a Current Report on Form 8-K on October 13, 2020. The 8-K discloses that, pursuant to a Data Facility Services Agreement, the Company issued 6,000,000 shares of restricted Common Stock, in transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. During the quarter ended September 30, 2021, the Company and certain of its executives received a subpoena to produce documents and communications concerning the Hardin, Montana data center facility described in our Form 8-K dated October 13, 2020. We understand that the SEC may be investigating whether or not there may have been any violations of the federal securities law. We are cooperating with the SEC. F- 28 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 6 - INCOME TAXES The Company accounts for income taxes under ASC Topic 740: Income Taxes, which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry-forwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Income tax expense attributable to income from continuing operations was $ 23,020,721 and $ 2,400 for the years ended December 31, 2021 and 2020, respectively, and differed from the amounts computed by applying the U.S. federal income tax rate of 21 % to pretax income from continuing operations as a result of the following: SCHEDULE OF PRETAX INCOME FROM CONTINUING OPERATIONS 2021 2020 Federal income tax expense (benefit) at the statutory rate ( 21.0 )% $ ( 2,762,295 ) ( 21.0 )% $ ( 2,229,606 ) State income taxes, net of federal tax expense 57.7 % 7,593,773 ( 7.0 )% ( 745,190 ) Executive Compensation Deduction Limitation 229.7 % 30,213,175 4.2 % 444,031 Excess Tax Benefit Related to Share-Based Compensation ( 14.5 )% ( 1,909,197 ) 0.0 % - Nondeductible Other Expenses 1.7 % 225,278 0.0 % - Change in Valuation Allowance ( 110.1 )% ( 14,477,083 ) 23.9 % 2,533,165 Change in Expected Utilization of Tax Attributes 32.5 % 4,281,445 0.0 % - Other, net ( 1.1 )% ( 144,375 ) 0.0 % - Income tax expense (benefit) from continuing operations 174.9 % $ 23,020,721 0.1 % $ 2,400 The components of the provision for income taxes are as follows: SCHEDULE OF PROVISION FOR INCOME TAXES 2021 2020 Current income tax expense (benefit) Federal - State $ 1,600 $ 2,400 Total Current Income Tax Expense 1,600 2,400 Deferred expense Federal 29,904,031 - State 7,592,173 - Total Deferred Tax Expense 37,496,204 9,079,841 Change in Valuation Allowance ( 14,477,083 ) ( 9,079,841 ) Net Deferred Tax Expense after Valuation Allowance 23,019,121 ( 0 ) Income Tax Provision $ 23,020,721 $ 2,400 F- 29 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 are presented below. SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 12/31/2021 12/31/2020 Deferred tax assets: Tax Credit carryforwards $ 163,211 $ 31,961 Net Operating Loss carryforwards 25,422,829 11,467,248 Capital Loss carryforwards - 758,731 Intangible assets 1,055,099 2,995,317 Stock Compensation 447,487 246,975 Accruals, reserves and other 269,096 143,079 Digital Currencies 7,255,674 - Other - 144,358 Total gross deferred tax assets 34,613,396 15,787,669 Less Valuation Allowance - ( 14,477,083 ) Net deferred tax assets 34,613,396 1,310,586 Deferred tax liabilities: - - Unrealized Gains ( 18,294,723 ) - Prepaid service contracts ( 4,395,095 ) Property and equipment ( 34,942,699 ) ( 1,310,586 ) Total gross deferred liabilities ( 57,632,517 ) ( 1,310,586 ) Net deferred tax liability $ ( 23,019,121 ) $ - The valuation allowance for deferred tax assets as of December 31, 2021 and 2020 was $ 0 and $ 14,477,083 , respectively. The net change in the total valuation allowance was a decrease of $ 14,477,083 in 2021. At year ended December 31, 2021, the Company concluded, based upon all available evidence, it was more likely than not that it would have sufficient future taxable income to realize the Company’s federal and state deferred tax assets. As a result, the Company released $ 14.5 million of valuation allowance associated with deferred tax assets and recognized a corresponding benefit from income taxes in the consolidated statement of operations for the year ended December 31, 2021. The Company’s conclusion regarding the realizability of such deferred tax assets was based on the scheduled reversal of existing deferred tax liabilities. At December 31, 2021, the Company has net operating loss carryforwards for federal income tax purposes of $ 109,130,270 , which are available to offset future taxable income. The Company has net operating loss carryforwards for state income tax purposes of $ 54,106,348 which are available to offset future state taxable income. SCHEDULE OF NET OPERATING LOSS CARRYFORWARDS Gross Amount Expiring Federal Net Operating Loss Carryforwards 3,314,298 2034 - 2035 Federal Net Operating Loss Carryforwards - Indefinite Life 105,815,972 Indefinite State Net Operating Loss carryforwards 54,106,348 2035 - 2041 Section 382 and Section 383 of the Internal Revenue Code limit the utilization of U.S. tax attribute carryforwards following a change of control. Based on the Company’s analysis under Section 382, approximately $ 76.2 million of tax attributes is limited by Section 382/383 as of December 31, 2021. The Section 382/383 limitation in conjunction with the twenty-year carryforward limitation caused $ 37.8 million of attributes to be deemed worthless, which resulted in a write-off of the deferred asset . In addition, the Company has the following attributes and credit carryforwards as follows: SCHEDULE OF ATTRIBUTES AND CREDIT CARRYFORWARDS Federal R&D Tax Credit Carryforwards 131,250 2040 - 2041 State alternative minimum tax credit carryforwards 40,457 A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the tax years ended December 31, 2021, and 2020 is as follows: SCHEDULE OF UNRECOGNIZED TAX BENEFITS ROLL FORWARD 2021 2020 Balance, beginning of year $ - $ - Increase related to prior year tax positions 25,000 - Decrease related to prior year tax positions - - Increase related to current year tax positions 18,750 - Settlements - - Lapse of statute of limitation - - Change in tax rate - - Balance, end of year $ 43,750 $ - Unrecognized tax benefits that reduce a net operating loss, similar tax loss or tax credits carryforward are presented as a reduction to deferred income taxes. The company has established a reserve against its federal R&D tax credits generated in 2021. As of December 31, 2021, the total amount of unrecognized tax benefits was $ 43,750 , all of which was offset against deferred tax assets. If the unrecognized tax benefits were recognized as of December 31, 2021, there would be a $ 43,750 favorable impact that would affect the effective rate on income from continuing operations. The Company also accrues for interest and penalties on its uncertain tax positions and includes such charges in its income tax provision in the Consolidated Statement of Operations. Interest and penalty expense amounted to nil and nil, respectively, in 2021. Total accrued interest and penalties were nil and nil, respectively, in 2021. The Company does not currently expect any of its remaining unrecognized tax benefits to be recognized in the next twelve months. The Company files federal and state income tax returns. The 2018-2020 tax years generally remain subject to examination by the IRS and various state taxing authorities, although the Company is not currently under examination in any jurisdiction. F- 30 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements In 2018, the company dissolved those subsidiaries that were required to file tax returns that had no tax due for 2018. 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 state of California for 2018. The company believes there will be no tax due in the state of California other than the $ 800 Minimum Franchise fee that all companies are required to pay. Management does not believe there are any material tax liabilities owed with respect to its operations in Canada, since Management believes there is a loss from the Canadian operations. Such operations have been outsourced. (See NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS, for details) The Coronavirus Aid, Relief, and Economic Security (CARES) Act, was enacted March 27, 2020. Among the business provisions, the CARES Act provided for various payroll tax incentives, changes to net operating loss carryback and carryforward rules, business interest expense limitation increases, and bonus depreciation on qualified improvement property. Additionally, the Consolidated Appropriations Act of 2021 was signed on December 27, 2020 which provided additional COVID relief provisions for businesses. The Company has evaluated the impact of both the Acts and has determined that any impact is not material to its financial statements. NOTE 7 – Subsequent Events On February 11, 2022, we entered into an At The Market Offering Agreement, or sales agreement, with H.C. Wainwright & Co., LLC, or Wainwright, relating to shares of our common stock offered by this prospectus supplement. In accordance with the terms of the sales agreement, we may offer and sell shares of our common stock having an aggregate offering price of up to $ 750,000,000 from time to time through Wainwright acting as our sales agent. As of December 31, 2021, the market price of bitcoin was approximately $ 46,306 per Yahoo Finance. Subsequent to year end, the price of bitcoin decreased to approximately $ 35,030 on January 22, 2022. Pursuant to ASC 350, the Company anticipates recording an impairment charge on its mined bitcoin of approximately $ 21 million for the decrease in the market price of bitcoin during January 2022. The Company has evaluated subsequent events through the date of the consolidated financial statements were available to be issued and has concluded that no such events or transactions took place that would require disclosure herein except as stated directly above. F- 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.