What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-10 · 2470 added, 1657 removed, 289 unchanged (93% of the section changed)

3 unchanged sentences

to Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS (PCAOB ID No.

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS (PCAOB ID No.

CONSOLIDATED BALANCE SHEETS (Restated)

CONSOLIDATED STATEMENTS OF OPERATIONS (Restated)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS (Restated)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

the Board of Directors and Stockholders of

Marathon Digital Holdings, Inc.

the Board of Directors and Stockholders of Marathon Digital Holdings, Inc.

& Subsidiaries

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& 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.

31, 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the period in the year

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 year ended December 31, 2020, in conformity

with accounting principles generally accepted in the United States of America.

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

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determined that there are no critical audit matters.

have served as the Company’s auditor since 2017.

We have served as the Company’s auditor since 2017.

Las Vegas, NV

March 16, 2021

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Stockholders and Board of Directors of

Digital Holdings, Inc.

the Shareholders and Board of Directors of Marathon Digital Holdings, Inc.

on the Financial Statements

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

have audited the accompanying consolidated balance sheets 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.

31, 2022, and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two

years in the period ended December 31, 2022, 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, 2022, and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022,

in conformity with accounting principles generally accepted in the United States of America.

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.

the Company’s internal control over financial reporting as of December 31, 2022, 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 [·], 2023 , expressed an adverse opinion on the effectiveness of the Company’s internal control over financial

reporting because of the existence of material weaknesses.

of Previously Issued Financial Statements

discussed in Note 2 to the financial statements, the Company has restated its financial statements as of December 31, 2021 and for the

year then ended to correct certain misstatements.

in Accounting Principle

discussed in Note 3 to the financial statements, the Company retrospectively changed its accounting for crypto lending arrangements.

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.

financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent

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and Exchange Commission and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

3 unchanged sentences

and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates

Our audits 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

We believe that our audits provide a

reasonable basis for our opinion.

Audit Matters

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated

critical audit matters communicated below 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) relates to accounts or disclosures that are material to the financial

(1) relate 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

The communication of critical audit matters

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.

disclosed in Note 2 of the financial statements, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts

matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

disclosed in Note 2 to the financial statements, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts

with Customers .

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relevant systems.

the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial

this matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial

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.

hardware is located, which included an observation of the physical and environmental controls and mining equipment inventory, (ii) independently

confirming certain financial and performance data directly with the blockchain network, (iii) 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, (iv) independently confirming the completeness and accuracy of digital assets

rewarded to the Company as consideration of providing computing power to third-party mining pools, and (v) confirming the digital asset

balances directly with the custodian of the Company’s wallets.

of Property and Equipment and Advances to Vendors

disclosed in Note 4 to the financial statements, the Company impaired certain property and equipment and advances to vendors and recognized

a charge of approximately $332 million during the year ended December 31, 2022.

principal consideration for our determination that auditing impairment of property and equipment and advances to vendors is a critical

audit matter is due to the degree of complexity and judgment used by management in developing the fair value measurement, which led to

a high degree of audit judgment and subjectivity and significant effort in performing procedures relating to fair value measurement

this matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial

These procedures included, among others, (i) evaluating the appropriateness of the method used by management to determine

the fair value of the asset group, (ii) evaluating the reasonableness of the assumptions used to estimate the fair value measurement

of each asset within the asset group;

and (iii) testing the completeness, accuracy and relevance of underlying data used in the impairment

have served as the Company’s auditor since 2021 .

MARATHON DIGITAL HOLDINGS, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

BALANCE SHEETS

December 31, 2021

(in thousands, except share and per share data)

December 31, 2022

Current assets:

Cash and cash equivalents

$ 268,522,019

$ 141,322,776

Digital currencies

Digital currencies, restricted

Restricted cash

Digital assets

Digital assets held in Fund

Other receivable

Investment fund

Loan receivable

Prepaid expenses and other current assets

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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

Prepaid service contract

Property and equipment (net of accumulated depreciation of $ 16,622 and $ 21,313 , respectively)

Advances to vendors

Long term deposits

Long term prepaids

Right-of-use assets

Deposit, non-current

Investment in SAFE Agreements

Intangible assets, net of accumulated amortization of $ 280,497 and $ 207,598 for December 31, 2021 and 2020, respectively

Digital assets, restricted

Intangible assets (net of accumulated amortization of $ 280 at December 31, 2021)

Total other assets

$ 1,448,244,423

$ 313,251,239

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

Current portion of accrued bond interest

Current portion of lease liability

Warrant liability

Accounts payable

Accrued expenses

Legal reserve payable

Operating lease liabilities

Current portion of accrued interest

Total current liabilities

Long-term liabilities:

Convertible notes payable

SBA PPP loan payable

Notes payable

Operating lease liabilities

Deferred tax liabilities

Total long-term liabilities

Total liabilities

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

Preferred stock, 0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Common stock, 0.0001 par value, 200,000,000 shares authorized;

145,565,916 and 102,733,273 issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

( 152,229,783 )

( 116,055,277 )

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 1,448,244,423

$ 313,251,239

accompanying notes are an integral part to these audited Consolidated Financial Statements.

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AND SUBSIDIARIES

STATEMENTS OF OPERATIONS

For the Years Ended December 31,

Cryptocurrency mining revenue

$ 150,463,770

STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share data)

Year ended December 31,

(in thousands, except share and per share data)

Total revenues

Operating costs and expenses

Cost of revenue

Impairment of mining equipment

Impairment of leasehold improvements

Compensation and related taxes

Consulting fees

Professional fees

General and administrative

Impairment of mined cryptocurrency

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Legal reserves

Impairment of deposits due to vendor bankruptcy filing

Impairment of digital assets

Impairment of patents

Impairment of mining equipment and advances to vendors

Realized and unrealized gains (losses) on digital assets loan receivable and

digital assets

Gain on sale of equipment, net of disposals

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Income (loss) from operations

( 85,087,730 )

( 9,833,104 )

( 4,239,111 )

Other income (expenses)

Gain from extinguishment of debt

Other income (expenses)

Foreign exchange loss

Loss on conversion of note

Change in fair value of investment in NYDIG fund

Realized gain (loss) on sale of digital currencies

Change in fair value of warrant liability

( 1,048,286 )

Change in fair value of mining payable

Interest income

Operating income (loss)

Other non-operating income (loss)

Impairment of loan and investment due to vendor bankruptcy filing

Interest expense

( 1,569,731 )

Total other (expenses) income

Loss before income taxes

$ ( 13,153,785 )

$ ( 10,445,371 )

$ ( 3,517,065 )

Provision for income taxes

( 23,020,721 )

$ ( 36,174,506 )

$ ( 10,447,771 )

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

$ ( 686,740 )

Net income (loss) per share, basic and diluted:

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

$ ( 686,740 )

accompanying notes are an integral part to these audited Consolidated Financial Statements.

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STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share and per share data)

Preferred Stock

Additional Paid-in

Other Comprehensive

Total Stockholders’

as of December 31, 2018

$ 105,461,396

$ ( 102,090,441 )

$ ( 450,719 )

based compensation

value adjustment and additional shares issued due to reverse split

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

stock issued for purchase of mining servers

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

( 3,517,065 )

as of December 31, 2019

$ 109,705,051

$ ( 105,607,506 )

Comprehensive

Stockholders’

(in thousands, except share and per share data)

Balance as of December 31, 2019

$ ( 105,608 )

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Options exercised for cash

( 10,447,771 )

Balance as of December 31, 2020

$ ( 116,056 )

$ ( 116,055,277 )

$ ( 450,719 )

$ 311,744,964

Stock-based compensation, net of tax withholding

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Common stock issued for service and license agreements

Net loss (Restated)

Balance as of December 31, 2021 (Restated)

$ ( 153,603 )

Stock-based compensation, net of tax withholding

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

Common stock issued for service and license agreements

Balance as of December 31, 2022

1 unchanged sentence

$ ( 840,343 )

$ ( 450,719 )

$ 683,023,381

accompanying notes are an integral part to these audited Consolidated Financial Statements.

3 unchanged sentences

For the Years Ended December 31,

(in thousands)

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:

Amortization of patents and website

Amortization of leasehold improvements

Deferred tax liability

Loss on conversion of debt

Impairment of mining equipment

Impairment of leasehold improvements

Realized gain (loss) on sale of digital currencies

Change in fair value of warrant liability

Change in fair value of mining payable

Change in fair value of investment securities

( 73,778,545 )

Gain on PPP loan forgiveness

Impairment of cryptocurrencies

Depreciation and amortization

Amortization of prepaid service contract

Gain on sale of equipment, net of disposals

Deferred tax expense (benefit)

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Realized and unrealized gains (losses) on digital assets loan receivable and

digital assets

Impairment of digital assets

Impairment of mining equipment and advances to vendors

Stock-based compensation

Amortization of right-of-use assets

Bad debt allowance

Change in prepaid service contract

Amortization of debt issuance costs

Impairment of patents

Impairment of assets related to vendor bankruptcy filing

Other adjustments from operations, net

Changes in operating assets and liabilities:

Digital currencies

( 150,512,940 )

( 4,357,443 )

( 1,185,227 )

Lease liability

Digital assets

Prepaid expenses and other assets

Accounts payable and accrued expenses

Accrued interest on bond payable

Legal reserve payable

Accrued interest

Net cash used in operating activities

( 18,218,560 )

( 7,773,704 )

( 3,318,655 )

CASH FLOWS FROM INVESTING ACTIVITIES

Sale of digital currencies

Interest received from digital currencies, restricted

Advances to vendors

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 )

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 )

Sales of property and equipment

Sale of digital currencies

Purchase of digital assets in Investment Fund

Purchase of equity investments

Deconsolidation of Investment Fund

Sale of digital assets in Investment Fund

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds received on issuance of notes payable

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

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

( 12,571,668 )

( 7,069,955 )

Proceeds from issuance of convertible debt, net of agent’s discount

Other offering costs

Proceeds from line of credit

Repayment from line of credit

( 77,500,000 )

Proceeds from issuance of common stock, net of issuance costs

Proceeds from term loan borrowings, net of issuance costs

Proceeds from issuance of convertible debt, net of issuance costs

Proceeds received on issuance of note payable

Borrowings from revolving credit agreement

Repayments of revolving credit agreement

Value of shares withheld for taxes

( 4,713,652 )

Proceeds from issuance of common stock and warrant, net

Proceeds received on exercise of options and warrants

Net cash provided by financing activities

1,037,334,480

Net (decrease) increase in cash and cash equivalents

( 1,858,208 )

Cash and cash equivalents — beginning of period

Cash and cash equivalents — end of period

$ 141,322,776

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash — beginning of period

Cash, cash equivalents and restricted cash — end of period

Supplemental Information

Cash paid during the year for:

Supplemental schedule of non-cash investing and financing activities:

Par value adjustment due to reverse split

Receivable due to share issuance

Digital assets transferred from Investment Fund

Common stock issued for purchase of mining servers

Reduction of share commitment for purchase of mining servers

Options exercised into common stock

Warrants exercised into common shares

Restricted stock issuance

Common stock issued for note conversion

Warrants exercised into common stock

Operating lease assets obtained in exchange for new operating lease liabilities

Collection of loan denominated in Bitcoin

Issuance of loan denominated in Bitcoin

Reclassifications from advances to vendor to property and equipment upon receipt of equipment

Common stock issued for service and license agreements

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1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

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

The Company expanded its activities in the mining of new digital assets, while at the same time harvesting the value of its remaining

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.

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

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 .

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.

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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

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.

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.

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.

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.

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.

July 29, 2020, the Company announced the purchase of 700

next generation M31S+ASIC Miners from MicroBT.

The miners arrived mid-August of 2020.

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

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

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

gross purchase price of $ 24,801,000 .

The parties confirm that the total hashrate of the Antminers under this agreement shall not be less

than 1,155,000 TH/s.

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

of 8.63 % to the purchase price adjusting the amount due to $ 22,660,673 .

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

of December 31, 2021, the Company has paid the entire purchase price under this agreement and received all 10,500

units from Bitmain.

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”).

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.

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.

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

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

The initial term of the Power Purchase Agreement is five years, with

up to five additional three-year extensions, as mutually agreed, assuming 75% energy utilization of the initial 30 MW of energy supplied

to the Facility .

Marathon purchased certain mining infrastructure and equipment for the Facility from Beowulf for a purchase price of

$ 750,000 , and Marathon has the right, at no additional cost, to construct and access the Facility on land adjacent to the Hardin Station

pursuant to a lease agreement with Beowulf.

After the execution of the contract, the Company entered into additional miner purchase agreements.

Due to the increased size of the Company’s fleet of miners, Phase I was increased from the initial 30 MW to 70 MW, while Phase

II will encompass the completion of the remaining 30 MW for the project.

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

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

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

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

of its common stock.

During Phase II, Marathon will issue to Beowulf an additional 350,000 shares of its common stock – 150,000

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

The cost to maintain and run

the Facility will be $0.006/kWh.

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

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

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

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.

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.

of the November 12, 2020, the Company sold all shares of our common stock available thereunder for an aggregate purchase price of $ 100,000,000

under our 2020 At the Market Offering pursuant to our registration statement on Form S-3 declared effective by the SEC on August 6, 2020,

which was the total amount available for sale thereunder.

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

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

The gross purchase

price is $ 23,770,000 with 10 % of the purchase price due within 48 hours of execution of the contract, 30 % due on January 14, 2021, 10 %

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

Subsequent to executing this agreement, due to the additional

executed contracts, Bitmain applied a discount of 8.63 % to the purchase price adjusting the amount due to $ 21,718,649 .

As of December

31, 2021, the Company has paid the entire purchase price under this agreement and received all 10,000 units from Bitmain.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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.

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

Company commenced mining bitcoin in 2018 and is solely focused on the mining of bitcoin and ancillary opportunities within the Bitcoin

ecosystem which is consistently evolving.

term “Bitcoin” with a capital “B” is used to denote the Bitcoin protocol which implements a highly available,

public, permanent, and decentralized ledger.

The term “bitcoin” with a lower case “b” is used to denote the token,

2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

previously disclosed in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on February

28, 2023, certain of the Company’s previously filed interim unaudited and annual audited Consolidated Financial Statements

should no longer be relied upon and a restatement is required for these previously issued Consolidated Financial Statements.

The Consolidated Financial Statements for the year ended December 31, 2022 include restated Consolidated Financial Statements for the year ended December 31, 2021.

addition, we have restated our Unaudited Quarterly Financial Data for the interim periods within the years 2021 and 2022 as

presented in NOTE 16 – QUARTERLY FINANCIAL DATA (UNAUDITED) .

of financial information and prior periods presented was necessary to correct for the following:

(i) Revenue Recognition –

Principal versus Agent, (ii) Impairment of Digital Assets, (iii) NYDIG Digital Assets Fund III, LP – Consolidation Gross

versus Net Presentation, (iv) NYDIG Digital Assets Fund III, LP – Financial Statement Reclassification (v)

Disposal of Assets (vi) Other Adjustments, and (vii) the income tax adjustments due to the forementioned errors .

Recognition – Principal versus Agent

Company corrected its previous conclusion that as the operator of Marapool (“Operator”), third-party mining pool

participants (“pool participants”) are its customer.

The Company previously viewed such pool participants as principal

to the delivery of transaction verification services to the network and requester and therefore recognized revenue net of amount

remitted to pool participants’ pro rata entitlement to block rewards and transaction fees.

The Company has since corrected its

revenue recognition policy and concluded that the Company’s customers are the transaction requestor and the blockchain

network, and that the Company controls the transaction verification services as an Operator.

This results in recognition of all

transaction fees and block rewards earned from transaction verification services performed by the Company in its role as an

Operator of MaraPool as revenue from contracts with customers under Topic 606, with the portion of the transaction fees and block

rewards remitted to MaraPool participants as cost of revenues.

impacts of the Revenue Recognition – Principal versus Agent correction are as follows:

ERROR CORRECTION OF REVENUE RECOGNITION

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

September 30,

Consolidated Statements of Comprehensive Income (Loss) Impact

Total revenues

Cost of revenues - energy, hosting and other

Net income (loss) impact

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

September 30,

Consolidated Statements of Comprehensive Income (Loss) Impact

Total revenues

Cost of revenues - energy, hosting and other

Net income (loss) impact

of Digital Assets

The Company corrected its calculation of impairment on digital assets that used the U.S.

Dollar bitcoin spot rate at a standard cutoff

time instead of the lowest U.S.

Dollar bitcoin spot rate at any point in time during the day.

The Company’s correction of this calculation results in it

recognizing impairment in an amount by which the carrying value exceeds the fair value of the digital assets at any point in time during

impacts of the Impairment of Digital Assets correction are as follows:

ERROR CORRECTION OF DIGITAL ASSETS

As of (unaudited)

(in thousands)

March 31, 2022

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.

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.

to the timing of the proceeds received, another current receivable was recorded in an amount of $ 74.8

million as of December 31, 2020.

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

Okamoto, CEO was awarded a cash bonus of $ 2,000,000

which was paid before year end 2020.

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.

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

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%.

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.

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

of $ 20.00 per share.

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

rights and obligations of the parties.

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

The Company received gross proceeds

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

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.

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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

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

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

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

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

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

million of the $ 14

million in expedite fees recorded as a deposit on the balance sheet and loaned Compute North $ 30

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.

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.

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.

June 30, 2022

September 30, 2022

December 31, 2022

Consolidated Balance Sheets Impact

Digital assets

Digital assets, restricted - Current assets

Digital assets, restricted - Other assets

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

September 30,

Consolidated Statements of Comprehensive Income (Loss) Impact

Impairment of digital assets

Net income (loss) impact

of (unaudited)

Balance Sheets Impact

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

September 30,

Consolidated Statements of Comprehensive Income (Loss) Impact

Impairment of digital assets

Net income (loss) impact

Digital Assets Fund III, LP – Consolidation Gross versus Net Presentation

accounted for its investment in the NYDIG Digital Assets Fund III, LP (“Fund”) at fair value with changes in fair value

recognized in net income, resulting in the recognition of the Fund’s assets net of liabilities, and unrealized and realized

gains net of expenses.

Management subsequently determined that the Company should have consolidated the Fund under the voting

interest model and therefore should have presented assets of the Fund, liabilities, gains, and expenses on a gross basis.

previously revised certain period amounts included in it’s Form 10-Q for interim period ended September 30, 2022 as stated

within NOTE 16 – QUARTERLY FINANCIAL DATA (UNAUDITED).

However, the error has been reflected throughout this document for

purposes of comparability within the restatement adjustments.

Digital Assets Fund III, LP – Financial Statement Reclassification

and unrealized gains (losses) on digital assets held in investment fund were incorrectly classified as other non-operating income.

reclassification was required to correctly classify realized and unrealized gains (losses) on digital assets held in investment fund

as operating income for all periods presented.

impacts of the Fund errors are as follows:

CORRECTION OF FUNDS

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

As of (unaudited)

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

Consolidated Balance Sheets Impact

Cash and cash equivalents

Digital assets held in Fund

Accrued expenses

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

September 30,

Consolidated Statements of Comprehensive Income (Loss) Impact

General and administrative expenses

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Change in fair value of digital assets held in Fund

Net income (loss) impact

(in thousands)

March 31, 2021

June 30, 2021

September 30, 2021

December 31, 2021

As of (unaudited)

(in thousands)

March 31, 2021

June 30, 2021

September 30, 2021

December 31, 2021

Consolidated Balance Sheets Impact

Cash and cash equivalents

Digital assets held in Fund

Accrued expenses

Three months ended (unaudited)

(in thousands)

September 30,

Consolidated Statements of Comprehensive Income (Loss) Impact

General and administrative expenses

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Change in fair value of digital assets held in Fund

Net income (loss) impact

The Company identified an error in its calculation

on gain on sale of mining equipment due to exclusion of capitalized shipping and customs costs that should have been allocated to the

sold mining equipment.

This error if uncorrected would have resulted in an over-impairment of remaining mining equipment (not sold) when such mining equipment was subsequently

The impacts of this error are as follows:

ERROR CORRECTION OF DISPOSAL OF ASSETS

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

As of (unaudited)

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

Consolidated Balance Sheets Impact

Property and equipment, net

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

September 30,

Consolidated Statements of Comprehensive Income (Loss) Impact

Gain on sale of equipment, net of disposals

Net income (loss) impact

Company corrected other errors relating to (i) accruals for legal expenses, (ii) valuation of bifurcated derivatives related to the

SAFE investments, (iii) accumulated comprehensive income and other income, and (iv) classification of prepaid expenses between

short-term and long-term, as follows:

ERROR CORRECTION OF OTHER ADJUSTMENTS

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

As of (unaudited)

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

Consolidated Balance Sheets Impact

Prepaid expenses and other current assets

Long term prepaids

Accrued expenses

Accumulated other comprehensive loss

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

September 30,

Consolidated Statements of Comprehensive Income (Loss) Impact

General and administrative expenses

Other non-operating income (loss)

Net income (loss) impact

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

As of (unaudited)

(in thousands)

March 31, 2021

June 30, 2021

September 30, 2021

December 31, 2021

Consolidated Balance Sheets Impact

Prepaid expenses and other current assets

Accounts payable

Accrued expenses

Accumulated other comprehensive loss

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

March 31, 2021

September 30, 2021

December 31, 2021

Consolidated Statements of Comprehensive Income (Loss) Impact

General and administrative expenses

Net income (loss) impact

Foreign currency translation adjustments

Comprehensive income (loss)

Tax Adjustments

a result of the adjustments to the restated financial statements presented, our income tax expense decreased by approximately $ 781

thousand for the year ended December 31, 2021,

primarily due to changes in deferred taxes as a result of the cumulative impact of the restatement.

See NOTE 7 – INCOME TAXES ,

for additional details regarding income taxes.

CORRECTION OF INCOME TAX EFFECT

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

As of (unaudited)

(in thousands)

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

Consolidated Balance Sheets Impact

Accrued expenses

Deferred tax liabilities

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

March 31, 2022 (Restated)

2022 (Restated)

September 30, 2022 (Restated)

December 31, 2022

Consolidated Statements of Comprehensive Income (Loss) Impact

Income tax benefit (expense)

Net income (loss) impact

(in thousands)

March 31, 2021

June 30, 2021

September 30, 2021

December 31, 2021

As of (unaudited)

(in thousands)

March 31, 2021

June 30, 2021

September 30, 2021

December 31, 2021

Consolidated Balance Sheets Impact

Deferred tax liabilities

(in thousands)

September 30,

Three months ended (unaudited)

(in thousands)

March 31, 2021

September 30, 2021

December 31, 2021

Consolidated Statements of Comprehensive Income (Loss) Impact

Income tax benefit (expense)

Net income (loss) impact

Policy Adjustments

Company also recorded adjustments to the Consolidated Financial Statements relating to the full retrospective adoption of crypto loan

derecognition guidance issued by the SEC in December 2022, which includes considerations under ASU 2016-13, “Financial Instruments

- Credit Losses (ASC 326) Measurement of Credit Losses on Financial Instruments”.

See further discussion in NOTE 3 – SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES and NOTE 5 – DIGITAL ASSET LOAN RECEIVABLE, NET OF ALLOWANCE .

Consolidated Financial Statements

the restated year ended December 31, 2021, the following tables shows the effects, by financial statement line item, on the

Company’s Consolidated Balance Sheets, Consolidated Statements of Other Comprehensive Income (Loss) and Consolidated Statements

of Cash Flows of:

1) the corrections as described above, and 2) the full retrospective adoption of crypto loan derecognition

guidance issued by the SEC in December 2022, which includes considerations under ASU 2016-13, “ Financial Instruments - Credit

Losses (ASC 326) Measurement of Credit Losses on Financial Instruments”.

SCHEDULE OF RESTATEMENTS

Consolidated Balance Sheets (in thousands)

Restatement Adjustments

Accounting Policy Adjustments

As of December 31, 2021

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.

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.

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

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

This balance is classified as digital currencies, restricted on the balance sheet.

and Uncertainties

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

(in thousands)

Restatement Adjustments

Accounting Policy Adjustments

Current assets:

Cash and cash equivalents

Digital assets

Digital assets held in Fund

Other receivable

Digital assets, restricted

Prepaid expenses and other current assets

Total current assets

Other assets:

Property and equipment, net

Advances to vendors

Long term prepaids

Intangible assets, net

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses

Current portion of accrued interest

Total current liabilities

Long-term liabilities:

Notes payable

Deferred tax liabilities

Total long-term liabilities

Commitments and Contingencies

Stockholders’ Equity:

Preferred stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

Consolidated Statements of Other Comprehensive Income (Loss)

(in thousands, except share and per share data)

Restatement Adjustments

Accounting Policy Adjustments

Year ended December 31, 2021

(in thousands, except share and per share data)

Restatement Adjustments

Accounting Policy Adjustments

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

Consolidated Statements of Cash Flows (in thousands)

(in thousands, except share and per share data)

Restatement Adjustments

Accounting Policy Adjustments

Year ended December 31, 2021

(in thousands)

Restatement Adjustments

Accounting Policy Adjustments

CASH FLOWS FROM OPERATING ACTIVITIES

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

Depreciation and amortization

Deferred tax expense (benefit)

Realized and unrealized losses (gains) on digital assets held within Investment Fund

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Change in fair value of digital assets held in Investment Fund

Impairment of digital assets

Stock-based compensation

Other adjustments from operations, net

Changes in operating assets and liabilities:

Digital assets

Prepaid expenses and other assets

Accounts payable and accrued expenses

Accrued interest

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Advances to vendors

Loan receivable

Purchase of property and equipment

Purchase of digital assets in Fund

Purchase of equity investments

Sale of digital assets in Fund

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock, net of issuance costs

Proceeds from issuance of convertible debt, net of issuance costs

Borrowings from revolving credit agreement

Repayments of revolving credit agreement

Value of shares withheld for taxes

Proceeds received on exercise of options and warrants

Net cash provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash — beginning of period

Cash, cash equivalents and restricted cash — end of period

3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation and Principles of Consolidation

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,

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

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

All intercompany balances

and transactions have been eliminated.

accompanying Consolidated Financial Statements include the accounts of the Company and its wholly owned and controlled subsidiaries.

Intercompany balances and transactions have been eliminated in consolidation.

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.

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.

and Cash Equivalents

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.

Reclassifications

prior period amounts have been reclassified to conform to the current period presentation.

These reclassifications have no effect on

the reported financial position, results of operations, or cash flows.

Previously reported compensation and related taxes, consulting

fees, and professional fees have now been reclassified within general and administrative expenses.

In addition, previously reported change

in fair value of warrant liability and interest income have now been reclassified as other non-operating income and realized and unrealized

gains (losses) on digital assets held in investment fund has now been reclassified as operating income.

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

2 unchanged sentences

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

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.

https://www.coindesk.com/indices/xbx/

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when

events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.

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.

reward for a bitcoin miner changes roughly every four years, or after every 210,000 blocks are mined and gets reduced by half each time,

this whole process is called bitcoin halving.

The last halving occurred on May 11, 2020 and reduced the reward per block to 6.25 BTC.

following table presents the activities of the digital currencies for the years ended December 31, 2021 and 2020:

SCHEDULE OF ACTIVITIES OF DIGITAL CURRENCIES

Digital currencies at December 31, 2019

Additions of digital currencies

Realized gain on sale of digital currencies

Sale of digital currencies

( 2,102,394 )

Digital currencies at December 31, 2020

Additions of digital currencies

Realized gain on sale of digital currencies

Impairment of cryptocurrencies

( 29,552,991 )

Interest received on cryptocurrencies, restricted

Disposition of digital currencies

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.

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

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

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

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.

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.

assets include the Crypto Currency Patent with original estimated useful life of 17

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.

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.

The Company’s ASICs mining rigs 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.

and Cash Equivalents

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 (“FDIC”).

For the years ended December 31, 2022 and 2021, the Company’s bank balances

exceeded the FDIC limit of $ 250 thousand

in amount of $ 111,505 thousand and $ 267,635

thousand, 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, 2022 and 2021, the Company had cash equivalents

thousand and $ 266,635

thousand, respectively.

cash represents cash balances that support commercial letters of credit and are restricted from withdrawal.

The following table provides

a reconciliation of the total cash, cash equivalents and restricted cash reported on the Consolidated Balance Sheets to the corresponding

amounts reported on the Consolidated Statements of Cash Flows.

SCHEDULE OF RESTRICTED CASH

(in thousands)

As of December 31,

(in thousands)

Cash and cash equivalents

Restricted cash

Cash, cash equivalents and restricted cash

assets and Digital assets, restricted

assets are included in current and other assets in the Consolidated Balance Sheets.

Digital assets are accounted for as indefinite-lived

intangible assets, and are initially measured at cost, in accordance with ASC 350 – “Intangibles-Goodwill and Other”

Digital assets, restricted represent collateral for long-term loans and as such, are classified as a non-current

digital assets are not amortized, but are 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 intangible asset is impaired.

exchange-traded price of digital assets declines below its carrying value, the Company has determined that an impairment exists and

records impairment equal to the amount by which the carrying value exceeds the fair value.

following tables presents the activities of the digital assets and digital assets, restricted for the years

ended December 31, 2022 and 2021:

SCHEDULE OF ACTIVITIES OF DIGITAL ASSETS

(in thousands)

Digital assets and digital assets, restricted at December 31, 2020

Additions of digital assets

Impairment of digital assets

Derecognition of loaned digital assets

Disposition of digital assets

Digital assets and digital assets, restricted at December 31, 2021 (Restated)

Additions of digital assets

Transfer of digital assets from digital assets held in Fund

Recognition of loaned digital assets

Impairment of digital assets

Disposition of digital assets

Digital assets and digital assets, restricted at December 31, 2022

December 31, 2022, the Company held approximately 12,232 bitcoin

with a carrying value of $ 190,717 thousand.

The 7,816 bitcoin

were classified on the Consolidated Balance Sheets as digital assets with a carry value of approximately $ 121,842 thousand

and digital assets, restricted of 4,416 bitcoin

with a carrying value of approximately $ 68,875 thousand.

At December 31, 2022, the fair market value of the Company’s bitcoin holdings was approximately $ 202,409

thousand, including digital assets and digital assets, restricted.

Digital assets, restricted is comprised of bitcoins held as

collateral for the term loan.

At December 31, 2021, the Company held approximately 2,721 bitcoin

with a carrying value of $ 95,225 thousand

and a fair value of $ 126,000 thousand.

assets held in Fund

January 25, 2021, the Company entered into a limited partnership agreement with NYDIG Digital Assets Fund III, LP

(“Fund”) wherein the Fund purchased 4,813

bitcoin in an aggregate purchase price of $ 150,000

The Company owned 100 %

of the limited partnership interests and consolidated the Fund under a voting interest model.

The consolidated assets in the

investment fund are included in current assets in the Consolidated Balance Sheets under the caption digital assets held in

Fund qualified and operated as an investment company for accounting purposes pursuant to the accounting and reporting guidance under

ASC 946 – “Financial Services – Investment Companies” (“ASC 946”), which requires fair value

measurement of the Fund’s investments in digital assets.

The Company retains the Fund’s investment company specific accounting

principles under ASC 946 upon consolidation.

The digital assets held by the Fund were traded on a number of active markets globally,

including the over-the-counter market and digital asset exchanges.

A fair value measurement under ASC 820 - “Fair Value

Measurement” (“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).

The fair value of the assets within the Fund were determined using the price of bitcoin provided by the

OTC market, the Fund’s principal market for bitcoin as of 11:59:59 p.m.

in New York for financial reporting purposes.

purposes of continuous (daily) fair value measurement, such assets within the Fund were measured using the daily price of bitcoin

provided by the OTC market at 4:00 p.m.

Any changes in the fair value of the assets were recorded in the Consolidated

Statements of Other Comprehensive Income (Loss) under the caption realized and unrealized gains (losses) on digital assets held within investment

June 10, 2022, the Company redeemed 100% of its limited partnership interest in the Fund in exchange for approximately 4,769 bitcoin

with a fair market value of approximately $ 137,844 thousand .

This bitcoin was transferred

from the Fund’s custodial wallet to the Company’s digital wallet.

Upon redemption, the Company no longer had a majority voting

interest in the Fund and therefore deconsolidated the Fund in accordance with ASC 810 – “Consolidation” (“ASC

The Company did not record any gain or loss upon deconsolidation as the digital assets in the Fund were measured at fair

Subsequent to the transfer, the bitcoin transferred to the Company’s digital wallet has been accounted for at cost less

impairment in line with its digital assets measurement policy as described under “Digital assets and Digital assets, restricted ”.

The activity in the Fund for the twelve months ended December 31, 2022 and twelve months ended December 31, 2021 was as follows:

SCHEDULE OF DIGITAL CURRENCIES HELD IN FUND

Digital assets held in Fund at December 31, 2020

(in thousands)

Purchase of digital assets held in Fund

Unrealized appreciation on digital assets held in Fund

Disposition of digital assets held in Fund

Digital assets held in Fund at December 31, 2021 (Restated)

Unrealized depreciation on digital assets held in Fund

Disposition of digital assets held in Fund

Realized loss on in-kind distribution

Digital assets transferred out of Fund

Digital assets held in Fund at December 31, 2022

Company contracts with other service providers for hosting of its mining rigs and operational support in data centers where the company’s

mining rigs are deployed.

These arrangements also call for advance payments to be made to vendors in conjunction with the contractual

obligations associated with these services.

We classify these payments as Deposits on the balance sheet.

of December 31, 2022 and December 31, 2021, such deposits totaled approximately $ 43,253 thousand and $ 34,458 thousand, respectively.

Company evaluates its financing and service arrangements to determine whether certain arrangements contain features that qualify as embedded

derivatives requiring bifurcation in accordance with ASC 815 - “Derivatives and Hedging” (“ASC 815”).

derivatives that are required to be bifurcated from the host instrument or arrangements are accounted for and valued as separate financial

For derivatives that are assets or liabilities, the derivative instrument is initially recorded at its fair value and is

then remeasured at each reporting date with changes in the fair value reported in the statements of operations.

Derivative assets or

liabilities are classified in the Consolidated Balance Sheets as current or non-current based on whether settlement of the instrument could be required

within 12 months of the Consolidated Balance Sheets date.

and Equipment

The Company’s property and equipment is composed of bitcoin mining rigs which are largely homogeneous and have approximately the same

useful lives.

Accordingly, the Company applies the group method of depreciation on a straight-line basis for its bitcoin mining rigs.

will assess and adjust the estimated useful lives of its mining rigs when there are indicators that the productivity of the mining assets

are higher or lower than the assigned estimated useful lives.

Company contracts with bitcoin mining equipment manufacturers in procuring mining rigs necessary for the operation of its bitcoin mining

A typical agreement calls for a certain percentage of the total order to be paid in advance at specific intervals, usually

within several days of execution of a specific contract and periodically thereafter with final payments due prior to each shipment date.

We account for these payments as Advances to vendors on the balance sheet.

to the decrease in the cost of bitcoin mining rigs that was driven by the drop in bitcoin prices during the fourth quarter ended

December 31, 2022, the Company evaluated the need for an impairment write-down of its contracts with bitcoin mining equipment

manufacturers.

The Company compared the prices of the miner rigs under contract to the fair value of mining rigs as of December 31,

2022, and determined that an impairment loss should be recognized.

Accordingly, the Company recognized an impairment charge of

$ 208,622 thousand

on its mining rigs and reduced its Advances to vendors for purchase of mining rigs by $ 124,311 on the Consolidated Balance

Sheets for the year ended December 31, 2022.

of December 31, 2022 and December 31, 2021, advances to vendors was $ 488,299 thousand

and $ 466,255

thousand, respectively.

See also discussion regarding property and equipment impairment in NOTE 4 - PROPERTY AND EQUIPMENT.

which may be made from time to time for strategic reasons (and not to engage in the business of investments) are included in non-current

assets in the Consolidated Balance Sheets.

Investments without a readily determinable fair value are recorded at cost minus impairment,

plus or minus changes from observable price changes in orderly transactions for identical or similar investments of the same issuer in

accordance with the measurement alternative described in ASC 321 - “Investments – Equity Securities” (“ASC 321”).

As part of the Company’s policy to maximize return on strategic investment opportunities, while preserving capital and limiting

downside risk, the Company may at times enter into equity investments or Simple Agreements for Future Equity (“SAFE”) agreements.

nature and timing of the Company’s investments will depend on available capital at any particular time and the investment opportunities

identified and available to the Company.

December 21, 2021 and December 31, 2021, the Company entered into two separate SAFE agreements classified on the Consolidated Balance Sheets as non-current

SAFE agreements are accounted for as equity securities without readily determinable fair value at cost minus impairment, as adjusted

for observable price changes in orderly transactions for identical or similar investment of the same issue pursuant to ASC 321.

February 3, 2022, the Company invested approximately $ 10,000

thousand in convertible preferred stock of Compute

North Holdings, Inc.

The acquisition of convertible preferred stock was accounted for as investments in equity securities without readily

determinable fair value at cost minus impairment, as adjusted for observable price changes in orderly transactions for identical or similar

investment of the same issuer pursuant to ASC 321.

This investment was subject to an impairment of $ 10,000

thousand following Compute North’s chapter

11 Bankruptcy filing in September 2022 (See NOTE 9 – COMPUTE NORTH BANKRUPTCY ).

May 3, 2022, the Company converted $ 2,000

thousand from a SAFE

investment into preferred stock while purchasing an additional $ 3,500

thousand of preferred

stock in Auradine, Inc.

along with entering into a commitment to acquire $ 30,000

thousand of additional shares of preferred stock.

This forward contract was accounted for under ASC 321 as an equity security.

September 27, 2022, the Company increased its investment in the preferred stock of Auradine, Inc.

by $ 30,000 thousand, bringing its total

carrying amount of investment in Auradine, Inc.

preferred stock to $ 35,500 thousand.

The preferred stock is accounted for as investments

in equity securities without a readily determinable fair value at cost minus impairment, as adjusted for observable price changes in

orderly transactions for identical or similar investments from the same issuer pursuant to ASC 321.

During 2022, there were no noted

impairments or other adjustments (See NOTE 15 –

RELATED PARTY TRANSACTIONS ).

of December 31, 2022, the Company has one remaining SAFE investment with a carrying value of $ 1,000 thousand, with no noted impairments

or other adjustments.

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

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

of Long-lived Assets

5 unchanged sentences

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

2016, the FASB issued Accounting Standards Update (ASU) 2016-01, Financial Instruments — Overall (Subtopic 825-10):

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.

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

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

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

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.

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:

the year ended December 31, 2022 , we impaired the mining patent intangible asset and recorded an impairment charge of $ 919 thousand.

We also impaired certain mining rigs and recorded an impairment charge of $ 208,622 thousand

(see NOTE 4 – PROPERTY AND EQUIPMENT ).

From Contracts with Customers

Company recognizes revenue in accordance with ASC Topic 606 – “Revenue from Contracts with Customers” (“ASC

The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of

promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in

exchange for those goods or services.

The following five steps are applied to achieve that core principle:

Identify the contract with the customer

7 unchanged sentences

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).

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

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).

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

5 unchanged sentences

consideration

● Constraining

estimates of variable consideration

6 unchanged sentences

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

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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.

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.

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.

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.

Party Transactions

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.

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

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.

December 31, 2021 Mr.

Okamoto retired from the Company and as such as of December 31, 2021 no bonus has been accrued.

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

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

Value of Financial Instruments

of the five-step model to the Company’s mining operations

Company’s ongoing major or central operation is to provide computing power to collectives of third-party bitcoin miners (such collectives,

“mining pools”) as a participant (“Participant”) and bitcoin transaction verification services to the bitcoin

network through a Company-operated mining pool as the operator and a participant in a private pool (“Operator”) (such activity

as Participant and Operator, collectively, “mining”).

The Company currently mines in a self-operated pool, which was previously

open to third-party pool participants from September 2021 until May 2022.

following table presents revenue of the Company disaggregated for those arrangements in which the Company is the Operator and Participant:

SCHEDULE OF DISAGGREGATION OF REVENUE

(in thousands)

Year ended December 31,

(in thousands)

Revenues from contracts with customers

Operator - Transaction fees

Other revenue

Operator - Block rewards

Total revenue

Operator, the Company provides transaction verification services.

Transaction verification services are an output of the

Company’s ordinary activities;

therefore, the Company views the transaction requestor as a customer and accounts for the

transaction fees its earns as revenue from a contract with a customer under ASC 606.

The bitcoin network is not an entity such that

it may not meet the definition of a customer;

however, the Company has concluded it is appropriate to apply ASC 606 by analogy to

block rewards earned from the network.

A contract exists under ASC 606 at the point the Company successfully validates a

transaction to the distributed ledger.

At this point, the performance obligation to validate the requested transaction has been

satisfied and a contract is deemed to exist as follows:

transaction requester, the bitcoin network and the Company have approved the contract and have evidenced they are committed to the

transaction at the point of successfully validating and adding the transaction to the distributed ledger.

The parties’ rights,

the consideration to be transferred, and the payment terms are clear.

The transaction has commercial substance and collection of the

block reward and transaction fees to which the Company is entitled is probable because they are transferred to the Company as part

of closing a successful block.

By successfully mining a block, the Company

satisfies its lone performance obligation of providing transaction verification services and, thus, recognizes revenue

at that point in time.

The amount to which the Company is entitled for successfully validating a block of transactions is fixed at the

point in time the contract is deemed to exist and the performance obligation is satisfied.

Thus, there is no variable consideration.

Company also, from time to time, engages unrelated third-party mining enterprises (“pool participants”) to contribute computing

power, and in exchange, remits transaction fees and block rewards to pool participants on a pro rata basis according to each respective

pool participant’s contributed computing power ( hash rate).

The MaraPool wallet (owned by the Company as Operator) is recorded

on the distributed ledger as the proof of work winner and assignee of all validations and, therefore, the transaction verifier of record.

The pool participants enter into contracts with the Company as Operator;

they do not directly enter into contracts with the network or

the requester and are not known verifiers of the transactions assigned to the pool.

As Operator, the Company delegates mining work to

the pool participants utilizing software that algorithmically assigns work to each individual miner.

By virtue of its selection and operation

of the software, the Company as Operator controls delegation of work to the pool participants.

This indicates that the Company directs

the mining pool participants to contribute their hash rate to solve in areas that the Company designates.

Therefore, the Company determined

that it controls the service of providing transaction verification services to the network and requester.

Accordingly, the Company records

all of the transaction fees and block rewards earned from transactions assigned to MaraPool as revenue, and the portion of the transaction fees and block rewards remitted to MaraPool participants as cost of revenues.

The Company operated a mining pool, Marapool, that engaged third-party pool participants from September 2021

until May 2022.

ASC 606-10-32-21 requires entities to measure the estimated fair value of noncash consideration at contract inception, which is the same time the block reward and transaction fee is earned and the performance obligation to the requester and the network is fulfilled by

successfully validating the applicable block of transactions.

For reasons of operational practicality, the Company applies an accounting

convention to use the daily quoted closing U.S.

dollar spot rate of bitcoin each day to determine the fair value of bitcoin earned as

transaction fees and block rewards in the Company’s wallet during that day.

This accounting convention does not result in materially

different revenue recognition from using the fair value of the bitcoin earned at contract inception (i.e., the moment a block is solved)

and has been consistently applied in all periods presented.

associated with providing the bitcoin transaction verification services to the Customers, such as rent, electricity cost, and transaction

fees and block rewards are recorded as cost of revenues.

Depreciation on digital asset mining equipment is recorded as a component of

cost of revenues.

When the Company is a Participant in a third-party operated mining pool, the Company provides computing power (hash rate) that is an output

of the Company’s ordinary activities in exchange for consideration.

The Company considers the third-party mining pool operators

its customer under Topic 606.

These contracts are period-to-period contracts because they are terminable at any time by either party without

compensation.

A new contract is determined to exist each period that neither the Company, nor the pool operator, terminates the arrangement.

The provision of computing power is the only performance obligation under our arrangements with third-party mining pool operators.

transaction consideration the Company receives is non-cash (i.e., bitcoin) and entirely variable as it is unknown at each contract inception

whether the Company will earn any consideration during the period, and if it does become entitled to consideration, how much consideration

it will be entitled to.

In accordance with FASB ASC 606-10-32-11 and 32-12, the Company constrains the variable consideration to which it is entitled and does

not recognize revenue for such amounts until it receives confirmation of the amount , usually via the settlement of the fractional share

of block reward and transaction fee in the Company’s digital wallet (i.e., at that point, the variability is resolved and there

is no longer the reasonable possibility of significant reversal of revenue).

Before settlement occurs, estimation of the variable consideration

to which the Company is entitled, which depends on inputs unknowable to the Company, carries the risk of a significant revenue reversal

from mis-estimation.

Settlement of consideration typically occurs within 24 hours of when a block is won unless such block is won over

a weekend or holiday, in which case settlement can take up to 72 hours.

The Company uses its accounting convention to recognize revenue using the daily quoted closing U.S.

dollar spot rate of bitcoin on the

day the transaction fees and block rewards are settled in the Company’s wallet.

However, this accounting convention does not result

in materially different revenue recognition from using the fair value of the bitcoin earned at contract inception and has been consistently

applied in all periods presented.

associated with providing computing power services to third-party operated mining pools, such as rent and electricity cost are recorded

as cost of revenues.

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

Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for

the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities

and their respective tax bases and operating loss and tax credit carry forwards.

Deferred tax assets and liabilities are measured using

enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that

includes the enactment date.

A valuation allowance is required to the extent any deferred tax assets may not be realizable.

740 - “Income Taxes ” (“ASC 740”), also clarifies the accounting for uncertainty in income taxes recognized

in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement

recognition and measurement of a tax position taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax

position must be more-likely-than-not to be sustained upon examination by taxing authorities.

ASC 740 also provides guidance on derecognition,

classification, interest and penalties, accounting in interim periods, disclosure and transition.

Accounting Pronouncements

Company continually assesses any new accounting pronouncements to determine their applicability.

When it is determined that a new accounting

pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change

to its Consolidated Financial Statements and assures that there are proper controls in place to ascertain that the Company’s Consolidated Financial Statements properly reflect the change.

December 2022, the Securities Exchange Commission (“SEC”) provided additional guidance on accounting for loaned digital assets.

The Company has therefore adopted the following accounting policy with retrospective application for arrangements where the Company loans

digital assets to a borrower for a specific period of time in exchange for a fee akin to an interest rate.

adoption, the Company first evaluates whether to derecognize loaned crypto assets based on an evaluation of all relevant control and

asset derecognition considerations.

Such considerations include whether the borrower has the right to use the digital assets at its sole

discretion (e.g.,to sell, pledge digital assets to a third party) and whether the lender has transferred present rights to economic benefits

associated with the digital asset for a different right to receive digital assets in the future.

derecognition of the underlying loaned digital assets is appropriate, the Company will derecognize the loaned digital asset it no longer

controls, and recognize a right to receive back in the future the loaned digital asset (“digital asset loan receivable”).

digital asset loan receivable is recorded at the then-current (i.e., time of transfer) fair value of the loaned crypto assets with any

difference between the fair value of the loaned crypto assets and their pre-transfer carrying amount recognized as a gain in the Consolidated Statements of Other Comprehensive Income (Loss).

Throughout the loan period, the digital asset loan receivable will continue to be measured at the fair value of the underlying

loaned digital asset with changes recorded in operating income (loss).

loan commencement and throughout the loan period, the Company considers and accounts for credit risk of the borrower (i.e., risk the

borrower will not return the loaned crypto assets), using the principles in Topic 326 to measure

any credit impairment.

The digital asset loan receivable is presented net of any allowance for credit losses on the Company’s Consolidated Balance Sheets.

When the digital assets on loan are returned to the Company, such loaned digital assets are re-recorded on the Company’s

Consolidated Balance Sheets at the carrying value of the digital asset loan receivable immediately prior to derecognition with no gain or loss realized at the end of the loan.

4 – PROPERTY AND EQUIPMENT

components of property and equipment as of December 31, 2022 and 2021 are:

OF COMPONENTS OF PROPERTY AND EQUIPMENT

(in thousands, except useful life)

Construction in progress

Gross property, equipment

Accumulated depreciation

Property and equipment, net

Company records mining rigs not yet placed into service as construction in progress.

Upon energization of the mining rigs, the mining

rigs are reclassified to “Mining rigs” and depreciated over the estimated useful life.

Company’s depreciation expense related to property and equipment for the years ended December 31, 2022 and December 31, 2021 was

$ 78,709 thousand and $ 14,904 thousand, respectively.

late 2021, the Company entered into an agreement with DCRBN Ventures Development and Acquisition LLC (“DCRBN”) in which the

Company agreed to sell certain mining rigs to DCRBN in conjunction with the development of commercial activities at the McCamey, TX facility.

In conjunction with its exit from the Hardin, MT facility, the Company also sold bitcoin mining rigs to various third parties.

cash proceeds from these sales of assets for the year ended December 31, 2022 were $ 178,371 thousand and gains resulting from the asset

sales totaled $ 83,880 thousand in the current-year period.

There were no such sales in 2021.

connection with the exit from the Hardin, MT facility (“Hardin”) in September 2022, the Company recorded additional

depreciation expense related to approximately 1,800 bitcoin mining rigs that were previously deployed at Hardin that were no longer in

operating condition based on inspections of the assets at the facility and experience with the assets formerly deployed at Hardin in

the weeks following redeployment.

In addition, the Company determined that the useful lives of the remaining mining rigs formerly

deployed at Hardin should be reduced from 36 months to 24 months.

These assets had a book value of approximately $ 12,358

thousand as of September 30, 2022.

accordance with ASC 360 - “Impairment and Disposal of Long-Lived Assets” (“ASC 360”), long-lived asset

(group) that is held and used must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying

amount of the long-lived asset (group) might not be recoverable.

Due to the decrease in the cost of bitcoin mining rigs that was

driven by the drop in bitcoin prices during the fourth quarter ended December 31, 2022, the Company assessed the need for an

impairment write-down of its bitcoin mining rigs.

In accordance with ASC 360-10, the Company first determined that the carrying

value of its bitcoin miners is not recoverable.

As its bitcoin mining rigs further had a carrying value in excess of fair value, the Company recognized an impairment charge for its bitcoin mining rigs of approximately $ 208,622

thousand for the year ended December 31, 2022.

The fair value of the bitcoin miners determined primarily using observable prices for

similar assets as of December 31, 2022 was $ 265,000

thousand (Level 2).

a result of the above impairment charge for its asset group of bitcoin mining rigs, the Company re-evaluated and reduced the estimated

useful life for its asset group of mining rigs from 5 to 3 years, effective January 1, 2023.

of December 31, 2022, the Company had $ 488,299 thousand,

net of a $ 124,311 thousand

impairment charge per below, of Advances to vendors for the purchase of mining rigs on the consolidated balance sheet.

December 31, 2021, the Company had $ 466,255 thousand

of Advances to vendors for purchase of mining rigs on the consolidated balance sheet.

to the decrease in the cost of bitcoin mining rigs that was driven by the drop in bitcoin prices during the fourth quarter ended December

31, 2022, the Company evaluated the need for an impairment write-down of its contracts with bitcoin mining equipment manufacturers.

Company compared the prices of the miner rigs under contract to the fair value of mining rigs as of December 31, 2022, and determined

that an impairment loss should be recognized.

Accordingly, the Company recognized an impairment charge of $ 124,311 thousand and reduced

its Advances to vendors on the consolidated balance sheet for the year ended December 31, 2022.

5 - DIGITAL ASSET LOAN RECEIVABLE, NET OF ALLOWANCE

Company’s digital asset loan receivable represents two separate digital asset loans made to NYDIG Funding, LLC (“NYDIG”)

in August 2021 and December 2021 under a master securities loan agreement, which was terminated at the point of full repayment

in kind for both loans in June 2022.

A total of 600 bitcoin were loaned to NYDIG.

No collateral was posted to Marathon under the terms

of the two loans.

The digital assets loan receivables were initially and subsequently measured at the fair value of the underlying bitcoin

lent at the time of the transfer, approximately $ 27,241 thousand, and adjusted for expected credit losses, with changes in fair value

recorded as unrealized gains and losses in the Consolidated Statements of Other Comprehensive Income (Loss).

A loan fee was accrued daily, based on the daily

closing price of the underlying bitcoin and a set percentage rate, and paid in cash on a monthly basis consistent with each loan’s

confirmation terms.

the limited size and nature of the Company’s digital asset loan receivables, the Company utilized the probability of default (“PD”)

loss given default (“LGD”) approach to estimating the allowance for credit loss (“ACL”) at origination and subsequent

reporting periods.

In order to apply the PD LGD approach, management considered the lifetime of the digital asset loan receivable, the

reasonable and supportable forecast period, and the PD LGD.

The contractual maturity of each digital asset loan receivable was one year from

As such, the Company used each instrument’s life of loan period for estimating

current expected credit losses, unadjusted by any prepayment risk as any risk would be immaterial

to either the repayment in kind or the accrued loan fee receivable that is due in cash on

a monthly basis.

and supportable forecast period:

Given the relatively short term nature of the loans, the

Company set the reasonable and supportable period to the life of loan.

As such, no reversion

or post-reversion methodology was required.

quality information and associated probability of default of NYDIG:

In order to assess the

credit risk of the borrower, Marathon estimated a NYDIG synthetic credit rating as of March 31, 2022 and December

31, 2021 using an Ordinal Logistic Regression Model (“Regression

The Regression Model is a widely used statistical model to classify a company

into credit ratings and to estimate PD based on certain business metrics, including total

assets, total debt, revenues, EBIT, and net income.

Based on the Regression Model results,

the Company estimated NYDIG’s synthetic credit rating of “CCC-” as of March 31, 2022 and “B” as of December

The associated probability of default

was approximately 2.9 % and 7.4 % , respectively.

of losses given default:

Given no collateral was posted, the Company assumed a loss given

default of 100.0% of the original and subsequent reporting digital asset loan receivable and

the accrued loan fee.

addition, the accrued loan fee receivable is reported separately from the digital asset loan receivable and its carrying amount is de

minimis at the reporting date.

As a result, the reported ACL includes only the impact of any unpaid accrued loan fee receivable at the

reporting date.

loans were fully repaid by NYDIG in June 2022 at which time the 600

bitcoin were reclassified into digital assets at the carrying value of the digital assets loan receivable immediately prior to its

derecognition at the end of loan.

The Company did not have any digital asset loan receivables outstanding as of

December 31, 2022.

As such, the Company recorded an allowance for loan losses as of December 31, 2021 with an initial provision

expense of approximately $851 thousand.

As of December 31, 2022 the company recognized a corresponding provision benefit of

approximately $851 thousand for the June 2022 repayment in full, resulting in $0 remaining allowance for loan losses at the

end of the year.

6 - FAIR VALUE MEASUREMENT

Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that

4 unchanged sentences

The levels of the fair value hierarchy are:

inputs such as quoted market prices in active markets for identical assets or liabilities

market-based inputs or unobservable inputs that are corroborated by market data

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

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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.

prices in active markets for identical assets or liabilities that are accessible at the measurement date;

other than quoted prices in active markets for identical assets and liabilities included within Level 1 that are observable for the

asset or liability, either directly or indirectly, and

Inputs that are generally unobservable for the asset or

carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, restricted cash, other receivable,

deposits, prepaid expenses and other current assets, property and equipment, advances to vendors, accounts payable, accrued

expenses, and legal reserve payable, approximate their estimated fair market value based on the short-term maturity of these

to the significant increase in current market interest rates for convertible notes and the high conversion price of our notes in relation

to our current stock price, the carrying value of our convertible notes are significantly above the current fair value.

The estimated

fair value of our convertible notes as of December 31, 2022, is approximately $ 173,200 thousand

compared to a carrying value less unamortized debt discount of $ 732,289 thousand.

carrying value of our term loan, operating lease liabilities and other long-term liabilities approximate fair value as the related interest

rates approximate rates currently available to the Company.

assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant

11 unchanged sentences

Fair value measured at December 31, 2022

Total carrying

Significant other

observable inputs

(in thousands)

Money Market Accounts

$ 266,635,158

Investment Fund

$ 223,778,545

Warrant liability

Fair value measured at December 31, 2020

Total carrying

Quoted prices in

active markets

Significant other

observable inputs

Warrant liability

were no transfers between Level 1, 2 or 3 during the years ended December 31, 2021 and 2020.

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

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

of warrant liabilities

SCHEDULE OF FAIR VALUE OF WARRANT LIABILITIES

Outstanding as of December 31, 2019

Change in fair value of warrants

Outstanding as of December 31, 2020

Cashless exercise of warrants

( 1,370,723 )

Change in fair value of warrants

Outstanding as of December 31, 2021

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.

Fair value measured at December 31, 2021 (Restated)

(in thousands)

Significant other observable inputs

Significant unobservable inputs

Money Market Accounts

Other receivable 1

Digital assets held in Fund

(1) Includes digital

assets loan receivable that was initially and subsequently measured at fair value using quoted prices for the underlying digital assets.

December 31, 2021, the Company had 600 bitcoin as a loan to NYDIG.

This loan of bitcoin was recorded as a digital asset loan receivable

within other receivable.

(see NOTE 5 – DIGITAL ASSET LOAN RECEIVABLE, NET OF ALLOWANCE ).

The 600 bitcoin were returned to the Company on June 10, 2022.

The digital assets loaned represent the fair value of the 600 bitcoin

underlying the loan as Level 2 inputs for the year ended December 31, 2021 as bitcoin prices can be determined

based on several exchange prices.

June 10, 2022, the Company withdrew approximately 4,769

bitcoin from its investment in NYDIG Digital Assets Fund III, LP and transferred the bitcoin directly into the Company’s

As a result, the Company will no longer receive “mark-to-market” accounting for the bitcoin formerly held in

the Fund and the 4,769

bitcoin will now be classified as digital assets on the Consolidated Balance Sheets and subject to impairment analysis as an

indefinite-lived intangible.

Company’s investments (see NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ) are classified within Level 3 of

the fair value hierarchy because the fair value is determined using the Monte Carlo Simulation Model and by utilizing significant

unobservable inputs including probability of financing events, subordinated recovery rate, and credit spread of the investees.

The Company will update its assumptions each reporting period based on new developments and record such

amounts at fair value based on the revised assumptions.

December 31, 2022, 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

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 Consolidated Statements of Other Comprehensive Income (Loss), 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.

following table provides a reconciliation of the beginning and ending balances of our recurring fair value measurements, using significant

unobservable inputs (Level 3).

The Company did not make any transfers into or out of Level 3 of the fair value hierarchy during the years

ended December 31, 2022 and 2021:

SCHEDULE OF RECONCILIATION OF THE BEGINNING AND ENDING BALANCES OF OUR RECURRING FAIR VALUE MEASUREMENTS

(in thousands)

Investment in Preferred Stock

Investment in SAFEs

Carrying value at December 31, 2020

Impairment and change in fair value

Carrying value at December 31, 2021 (Restated)

Impairment and change in fair value

Carrying value at December 31, 2022

Non-recurring

measurement of Fair Value

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”).

Company accounts for its digital assets as indefinite-lived intangible assets in accordance with ASC 350 - “Intangibles

– Goodwill and Other” (“ASC 350”).

The Company’s digital assets 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.

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,

As of December 31, 2021, the fair value of the approximate 3,321 bitcoin held as digital currencies is approximately $ 152.8 million.

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.

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

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.

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

and Diluted Net Loss per Share

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.

Pursuant to guidance from ASC 820 , the Company is required to determine the nonrecurring fair

value measurement used to determine impairment of the digital assets held on the Consolidated Balance Sheets.

The Company will

record impairment losses as the fair value falls below the carrying value of the digital

The digital assets 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 assets was December 31, 2022.

Company had an outstanding carrying balance of digital assets of approximately $ 190,717

thousand, and fair value net of impairment losses incurred of $ 173,215

thousand for the year ended December 31, 2022.

As of December 31, 2022, the fair value of the bitcoin held as digital assets was

approximately $ 202,409

thousand (Level 2).

accordance with ASC 360 - “Impairment and Disposal of Long-Lived Asset s ” (“ASC 360”), long-lived asset

(group) that is held and used must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying

amount of the long-lived asset (group) might not be recoverable.

Due to the decrease in the cost of bitcoin mining rigs that was driven

by the drop in bitcoin prices during the fourth quarter ended December 31, 2022, the Company assessed the need for an impairment write-down

of it’s bitcoin miners.

In accordance with ASC 360-10, the Company determined that its bitcoin miners had a carrying value in excess

of fair value, and accordingly, the Company recognized an impairment charge for its bitcoin rigs of approximately $ 208,622 thousand

for the year ended December 31, 2022.

The fair value of the bitcoin rigs determined primarily using observable prices for similar assets

as of December 31, 2022 was $ 202,409 thousand (Level 2).

7 - INCOME TAXES

Company accounts for income taxes under ASC 740 - “Income Taxes” (“ASC 740”), 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.

additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

tax expense (benefit) attributable to income from continuing operations was $ 21,838

thousand and $ 22,576

thousand for the years ended December 31, 2022 and 2021, 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:

OF PRETAX INCOME FROM CONTINUING OPERATIONS

(in thousands, except percentage data)

Federal income tax expense (benefit) at the statutory rate

$ ( 148,801 )

State income taxes, net of federal tax expense

Executive compensation deduction limitation

Excess tax benefit related to share-based compensation

Nondeductible other expenses

Change in valuation allowance

Prior year true-ups

Income tax expense (benefit) from continuing operations

components of the provision for income taxes are as follows:

OF PROVISION FOR INCOME TAXES

(in thousands)

Current income tax expense (benefit)

Total current income tax expense

Deferred expense

Total deferred tax expense (benefit)

Change in valuation allowance

Net deferred tax expense after valuation allowance (benefit)

Income tax provision (benefit)

tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at

December 31, 2022 and 2021 are presented below:

OF DEFERRED TAX ASSETS AND LIABILITIES

(in thousands)

Deferred tax assets:

Tax credit carryforwards

Net operating loss carryforwards

Intangible assets

Stock compensation

Digital assets

Disallowed Interest

Bad debt reserve

Research and development costs

Accruals, reserves and other

Impairment loss

Total gross deferred tax assets

Less valuation allowance

Net deferred tax assets

Deferred tax liabilities:

Unrealized gains

Prepaid service contracts

Property and equipment

Total gross deferred liabilities

Net deferred tax liability

valuation allowance for deferred tax assets as of December 31, 2022 and 2021 was $ 130,527 thousand and nil , respectively.

The net change

in the total valuation allowance was an increase of $ 130,527 thousand in the year ended December 31, 2022.

year ended December 31, 2022, the Company concluded, based upon all available evidence, it was more likely than not that it would not

have sufficient future taxable income to realize the Company’s federal and state deferred tax assets.

As a result, the Company

established a valuation allowance against deferred tax assets that are not supported by reversing deferred tax liabilities.

December 31, 2022, the Company has net operating loss carryforwards for federal income tax purposes of $ 217,503

thousand, which are available to offset future

taxable income.

The Company has net operating loss carryforwards for state income tax purposes of $ 46,983

thousand which are available to offset future

state taxable income.

The Company has interest carryforward in the amount of $ 10,076

thousand which has no expiration.

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 $ 86,000 thousand of tax attributes is limited by Section 382/383

as of December 31, 2022.

The Section 382/383 limitation in conjunction with the twenty-year carryforward limitation caused $ 33,500 thousand

of attributes to be deemed worthless, which resulted in a write-off of the related deferred tax assets in 2021.

addition, the Company has the following attributes and credit carryforwards:

OF ATTRIBUTES AND CREDIT CARRYFORWARDS

(in thousands)

Federal net operating loss carryforwards

Federal net operating loss carryforwards - indefinite life

State net operating loss carryforwards

Interest carryforwards

reconciliation of the beginning and ending amount of total unrecognized tax benefits for the tax years ended December 31, 2022, and 2021

is as follows:

OF UNRECOGNIZED TAX BENEFITS ROLL FORWARD

(in thousands)

Balance, beginning of year

Increase related to prior year tax positions

Increase related to current year tax positions

Balance, end of year

Company has established a reserve against its federal R&D tax credits generated in 2022 and previous years.

The Company has also

established a reserve related to its executive compensation deduction limitation in 2022.

addition, the Company has the following attributes and credit carryforwards:

OF NET OPERATING LOSS CARRYFORWARDS

(in thousands)

Federal net operating loss carryforwards

Federal net operating loss carryforwards - indefinite life

of December 31, 2022, the total amount of unrecognized tax benefits was $ 5,252 thousand, all of which was offset against deferred tax

If the unrecognized tax benefits were recognized as of December 31, 2022, there would be a $ 5,252 thousand 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 Statements of Other Comprehensive Income (Loss).

Interest and penalty

expense amounted to nil and nil, respectively, in 2022 and 2021.

accrued interest and penalties were nil and nil, respectively, in 2022.

The Company does not currently expect any of its remaining unrecognized

tax benefits to be recognized in the next twelve months.

Company files federal and state income tax returns.

The 2018-2021 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.

8 - NET LOSS PER SHARE

loss per common share is calculated in accordance with ASC 260 - “Earnings Per Share” (“ASC 260”).

per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

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.

that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at December

1 unchanged sentence

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

As of December 31,

For the year ended December 31,

Warrants to purchase common stock

Restricted stock

Conversion of convertible notes

Options to purchase common stock

Restricted stock units

Convertible notes to exchange common stock

Total dilutive shares

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

SCHEDULE OF COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE

For the Years Ended December 31,

For the year ended December 31,

Net loss attributable to common shareholders

$ ( 686,740 )

$ ( 10,447,771 )

$ ( 3,517,065 )

Weighted average common shares - basic

Weighted average common shares - diluted

Loss per common share - basic

Loss per common share - diluted

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

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

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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.

lease expenses, if any, are recorded when incurred.

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.

Accounting Pronouncements

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.

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

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.

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

3 – DEPOSIT, PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

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

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

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

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

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

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.

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.

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.

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.

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

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

The parties confirm that the total hashrate of the Antminers under this agreement shall not be less

than 1,155,000 TH/s.

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

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

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

1,500 Units on or before

January 31, 2021;

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

March 31, 2021;

April 30, 2021, May 31, 2021 and June 30, 2021.

As of December 31, 2021, the Company has paid the entire purchase price under this agreement and has received 10,500 units from Bitmain.

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

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.

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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:

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,

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.

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

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

addition to the initial 4,000 miners delivered to the Hardin facility in February, Bitmain 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.

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.

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.

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

Mining equipment

Construction in Progress

Mining patent

Gross property, equipment and intangible assets

Accumulated depreciation and amortization

( 21,591,958 )

( 6,687,957 )

Property, equipment and intangible assets, net

$ 277,174,020

of December 31, 2021, intangible assets amortization are as follows:

OF INTANGIIBLE ASSETS AMORTIZATION

As of December 31, 2020, intangible assets amortization

are as follows:

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

Weighted average common shares - basic and diluted

Loss per common share - basic and diluted

9 – COMPUTE NORTH BANKRUPTCY

September 22, 2022, Compute North Holdings, Inc.

(along with its affiliated debtors, collectively, “Compute North”), filed

for chapter 11 bankruptcy protection in the U.S.

Bankruptcy Court for the Southern District of Texas under chapter 11 of the U.S.

Code (11 U.S.

Code section 101 et seq .).

The Company’s financial exposure to Compute North at the time of the bankruptcy

filing included:

● Approximately

thousand in Convertible Preferred Stock of Compute North Holdings, Inc.

● Approximately

$ 21,000 thousand related to an unsecured Senior Promissory note with Compute North LLC.

● Approximately

$ 50,000 thousand in operating deposits with Compute North primarily related to the King Mountain

and Wolf Hollow hosting facilities.

Company’s financial exposure to Compute North on the date of the Bankruptcy was approximately $ 81,000

During the third quarter t he Company assessed

the impairment of these assets given the bankruptcy proceedings and estimated that the preferred stock, the unsecured loan, and approximately

thousand in deposits were fully impaired.

As a result, the company recorded an impairment charge

thousand during the third quarter of 2022.

During the fourth quarter of 2022, the company estimated

that an additional $ 16,674

in deposits had likely been impaired and as such recorded an additional impairment charge .

On February 16, 2023, the Bankruptcy Court approved the Debtors Plan of Reorganization, pursuant to which Marathon’s

claim has been fixed at $ 40,000 thousand as an unsecured claim to be paid out according to the timing and percentages within the approved

Debtor’s plan.

10 - STOCKHOLDERS’ EQUITY

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.

of December 31, 2021, we have 102,733,273 shares of our common stock and no shares of our preferred stock issued and outstanding.

The Market Offering Agreement

July 19, 2019, we entered into an At The Market Offering Agreement (the “Agreement”) with H.C.

Wainwright & Co., LLC

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 .

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.

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.

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.

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.

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

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.

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

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

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

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.

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.

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.

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

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

under the Agreements.

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

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

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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 .

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 .

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 .

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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 .

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 .

On February 11, 2022, the Company

entered into an At-The-Market Offering Agreement, or sales agreement, with H.C.

Wainwright & Co., LLC (“Wainwright”)

relating to shares of its common stock.

In accordance with the terms of the sales agreement, the Company may offer and sell shares

of our common stock having an aggregate offering price of up to $ 750,000

thousand from time to time through Wainwright acting as its sales agent.

As of December 31, 2022, the Company had sold 42,142

thousand shares of common stock for an aggregate purchase price of $ 361,482

thousand, net of offering costs pursuant to this At-The-Market Offering Agreement.

Stock Warrants

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

summary of the Company’s issued and outstanding stock warrants and changes during the year ended December 31, 2022 and 2021 is

SUMMARY OF OUTSTANDING STOCK WARRANTS

Number of Warrants

Weighted Average

Exercise Price

Average Remaining Contractual Life

Outstanding as of December 31, 2019

Life (in years)

Outstanding as of December 31, 2020

Outstanding as of December 31, 2021 (Restated)

Outstanding as of December 31, 2022

Warrants exercisable as of December 31, 2022

aggregate intrinsic value of options outstanding and exercisable at December 31, 2021 was $ 2,549,588 .

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

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.

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.

Stock Options

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.

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.

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.

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

summary of the stock options as of December 31, 2021 and changes during the year ended is as follows:

SUMMARY OF STOCK OPTIONS

Exercise Price

Average Remaining Contractual Life

Outstanding as of December 31, 2020

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

aggregate intrinsic value of options outstanding and exercisable at December 31, 2021 was $ 0 .

aggregate intrinsic value of warrants outstanding and exercisable at December 31, 2022 and 2021 was $ 0

and $ 2,500 thousand, respectively.

summary of the restricted stock award activity (represented by restricted stock units (RSUs) for the year ended December 31, 2022 and

2021, as follows:

summary of the RSUs as of December 31, 2022 and 2021, respectively and changes during the period are presented below:

SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY

Weighted Average Grant Date Fair Value

Average Grant

Date Fair Value

Nonvested at December 31, 2020

( 8,237,595 )

Nonvested at December 31, 2021 (Restated)

Nonvested at December 31, 2022

5 – DEBT, COMMITMENTS AND CONTINGENCIES

of December 31, 2022, unrecognized stock-based compensation expense of approximately $ 15,000 thousand

remains to be recognized over the weighted average period of approximately 2.3 years.

11 – ACCRUED EXPENSES

of December 31, 2022 and 2021, the Company’s accrued expenses consisted of the following:

OF ACCRUED LIABILITIES

(in thousands)

Non-income taxes

Total accrued expenses

consists of the following:

SCHEDULE OF DEBT

(in thousands, except for interest rate data)

Maturity Date

Interest Rate

Convertible note

$ 747,500,000

debt discount

December 1, 2026

unamortized debt discount

Total convertible notes, net of discount

$ 728,405,922

Revolving credit line

August 5, 2024 *

unamortized deferred fees

Total loans and debt

current portion

Long term portion

$ 728,405,922

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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 ”).

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 .

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.

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

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

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:

Availability:

During the year ended December 31, 2022 and 2021, there was amortization of debt issuance costs of $ 3,945

thousand and $ 0

thousand, respectively.

Interest expense was

$ 14,980 thousand

and $ 1,570 thousand

for the years ended December 31, 2022 and 2021, respectively.

following summarizes the Company’s repayments due on the Term loan and Convertible Note in each of the next 5 years, and thereafter

(in thousands):

OF REPAYMENTS DUE ON THE TERM LOAN AND CONVERTIBLE NOTE

Repayment Amount

and Term Loan facilities

October 1, 2021, the Company entered into a Revolving Credit and Security Agreement with Silvergate Bank pursuant to which Silvergate

agreed to loan the Company up to $ 100,000 thousand on

a revolving basis.

July 28, 2022, the Company entered into a new Revolving Credit and Security Agreement (the “Agreement” or “RLOC”)

with Silvergate Bank (the “Bank”) pursuant to which Silvergate agreed to loan the Company up to $ 100 ,000 thousand on a revolving basis pursuant to the terms of the Agreement.

This facility refinanced and

replaced an existing $ 100 ,000 thousand facility the Company had in place with the Bank.

the same date the Company also entered into a $ 100,000 thousand principal term loan facility

(the “Term Loan”).

The terms of the facilities set forth in the RLOC and the Term Loan are as follows:

is on August 5, 2024 .

of the facilities:

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.

of the Loan Commitment to the Bank (or $ 250,000 );

due at RLOC closing.

Unused Commitment Fee:

its closing date up to and including the termination date of the Agreement.

Company may borrow up to $ 100.0 million on the term loan, with $ 50.0 million to be made as of the Closing Date (the “Initial

Draw”), and $ 50.0 million to be made, at Borrower’s request, on or before April 25, 2023 (the “Delayed Draw”),

and subject to satisfaction of the conditions set forth in the Term Loan Agreement.

0.35 % of the Loan Commitment to the Bank (or $ 350 thousand);

due at RLOC closing (and on each anniversary if the RLOC continues for

more than one year).

An origination fee of $ 150 thousand and a contingent draw fee in the amount of $ 250 thousand (the, “Contingent Draw Fee”)

upon the execution of the Term Loan Agreement.

This Contingent Draw Fee will be refunded to the Company if it borrows the Delayed

Draw by no later than November 25, 2022.

per annum of the portion of the unused Loan Commitment, payable monthly in arrears.

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.

Interest only

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.

Rate and Payments

the facilities:

Interest only to be paid monthly, with principal all due at maturity.

The interest rate is defined as the higher of (i) the Floor

Rate and (ii) Prime Rate plus the Applicable Margin.

“Floor Rate” shall mean, as of any date of determination:

for any days during an Interest Period the Loan to Value (“LTV”) Ratio is less than 40%, (b) six percent (6.00%) for

any days during an Interest Period the LTV Ratio is greater than or equal to 40% and less than 55%, and (c) 6.75% for any day the

LTV Ratio is greater than or equal to 55%.

The Applicable Margin means at any time:

(a) 1.25% for any days during an Interest Period

the LTV Ratio is less than 40%, (b2.00% for any days during an Interest Period the LTV Ratio is greater than or equal to40% and less

than 55%, and (c) 2.75% for any days during an Interest Period the LTV Ratio is greater than or equal to 55%.

Interest, which shall be due on the principal amount of the loan, at the higher of 5.75 % and the Prime Rate plus 1.75 %, only

to be paid monthly, with principal all due at maturity.

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.

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.

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 .

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.

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.

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.

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.

for the facilities:

RLOC and term loan facilities are secured by a pledge of a sufficient amount of Company’s right, title and interest in and

to bitcoin 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.

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

The Bank may also file a UCC financing statement on the pledged collateral.

The Company bears the risk of loss from market

value declines of its collateral pursuant to its obligation to pledge additional bitcoin if its market value declines such that outstanding

borrowings under the RLOC are undercollateralized.

The Company may also withdraw its collateral from the Collateral Account if market

value of bitcoin increases and outstanding borrowings under the RLOC are overcollateralized or if such borrowings are repaid in whole

Advance Rates

the facilities:

origination, the Company must ensure the Collateral Account balance has sufficient bitcoin to cause the LTV ratio to equal 65 % (or

less) (“Minimum Advance Rate”) on the unpaid principal balance of the facilities.

If at any time the LTV ratio exceeds

75 %, the Company must bring the rate of advance to the Minimum Advance Rate.

for the facilities:

Company must maintain a minimum adjusted net worth of $ 350.0 million.

The Company must maintain a minimum unrestricted and unencumbered

cash of $ 25.0 million.

November 18, 2021, the Company issued $ 650,000

thousand principal of its 1.0 %

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

thousand principal of Notes, which additional Notes were purchased on November 23, 2021, for an aggregate principal amount of Notes purchased

All references in this disclosure to “Notes” includes the Notes issued on both November 18, 2021 and November 23,

Notes are the Company’s senior, unsecured obligations and are (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.

Notes 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.

Notes will mature on December 1, 2026, unless earlier repurchased, redeemed or converted.

Before the close of business on the

business day immediately before September 1, 2026, noteholders will have the right to convert their Notes only upon the occurrence

of certain events .

From and after September 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 thousand 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

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 $ 100,000 thousand 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.

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.

Notes 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, are

subject to a 30-day cure period);

(ii) the Company’s failure to send certain notices under the Indenture within specified periods

(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 thousand;

and (vi) certain events of bankruptcy, insolvency and reorganization involving the Company

or any of its significant subsidiaries.

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.

February 2016, the FASB issued ASU No.

2016-02 - “Leases” (“ASC 842”), and has since issued amendments thereto,

related to the accounting for leases.

ASC 842 establishes a right-of-use, or ROU model that requires a lessee to record a ROU asset and

a lease liability on the Consolidated Balance Sheets for all leases with terms longer than 12 months.

Leases will be classified as either finance or

operating, with classification affecting the expense recognition in the Consolidated Statements of Other Comprehensive Income (Loss).

Effective January 1, 2019, the Company adopted

The Company determines if an arrangement contains a lease at inception based on whether or not the Company has the right to

control the asset during the contract period and other facts and circumstances.

Company leases office space in the United States under operating lease agreements.

Office space is the Company’s only material

underlying asset class under operating lease agreements.

The Company has no material finance leases.

Aren’t required to give exact

addresses – up to us

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

February 14, 2022, the Company rented an office located at Tower 101, 101 NE Third Avenue, Fort Lauderdale, Florida, 33301, for a term

of 63 months.

March 1, 2022, the Company rented an office located at 300 Spectrum Center Drive, Irvine CA, 92618, for a term of 24 months.

May 1, 2022, the Company rented warehouse space located at 3306 5 th Street SE, East Wenatchee, Washington, 98802, for a term

of 24 months.

September 21, 2022, the Company rented warehouse space located at 512 N.

Douglas Ave., Oklahoma City, OK, 73106, for a term of 36 months.

of December 31, 2022, the Company’s right-of-use (“ROU”) assets and total lease liabilities were $ 1,276 thousand and

$ 1,343 thousand, respectively for leases in the United States.

As of December 31, 2021, the Company’s ROU assets and total lease

liabilities were nil.

The Company has amortized the right-of-use assets totaling $ 110 thousand for the year ended December 31, 2022.

lease costs are recorded on a straight-line basis within operating expenses.

1 unchanged sentence

the following:

OF COMPONENTS OF LEASE COST

For the Year Ended

December 31, 2021

December 31, 2020

SCHEDULE OF COMPONENTS OF LEASE COST

For the year ended December 31,

(in thousands)

Operating leases

3 unchanged sentences

Total rent expense

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

OF MINIMUM LEASE PAYMENTS

For the Year Ended

December 31, 2021

December 31, 2020

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

SUMMARY OF MINIMUM LEASE PAYMENTS

For the year ended December 31,

(in thousands, except term and discount rate data)

Operating cash flows from operating leases

1 unchanged sentence

Weighted-average discount rate – operating leases

Less present value discount

Less current portion of operating lease liabilities

Non-current operating lease liabilities

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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.

7 and 22, 2019, defendants filed motions to dismiss the amended complaint and on April 5, 2019, plaintiffs filed an opposition to those

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.

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;

OF LEASE LIABILITY MATURITY

(in thousands)

Imputed interest

Present value of lease liability

Company entered into an arrangement with Applied Blockchain for the use of an energized cryptocurrency mining facility under which the

Company pays for electricity per megawatt based on usage.

The Company has determined that it has a lease of one of the facilities governed

by this arrangement (Ellendale) as the Company has contracted to take substantially all of the output of such facility.

This lease is

expected to commence in the first quarter of 2023.

14 - LEGAL PROCEEDINGS

January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and Restitution

(“Complaint”) against the Company and 10 Doe Defendants.

The Complaint alleges six causes of action against the Company,

(1) Breach of Written Contract;

(2) Breach of Implied Contract;

1 unchanged sentence

(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.

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

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

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.

(5) Intentional Interference

with Prospective Economic Relations;

and (6) Negligent Interference with Prospective Economic Relations, which is the one plead against

“all Defendants” and is most likely to involve later named defendants.

The claims arise from the same set of facts, Ho alleges

that the Company profited from commercially sensitive information he shared with the Company and then it refused 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.

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.

The Company 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 2nd, 5th and 6th causes of action.

Discovery is substantially 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.

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 thousand 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 scheduled

for May 2023.

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

1 unchanged sentence

In conjunction therewith, the Company filed a Current Report on Form 8-K on October 13, 2020.

The 8-K discloses that,

The 8-K disclosed that,

pursuant to a Data Facility Services Agreement, the Company issued 6,000,000 shares of restricted common stock, in transactions exempt

6 unchanged sentences

We are cooperating with the SEC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

6 - INCOME TAXES

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.

tax expense attributable to income from continuing operations was $ 23,020,721 and

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:

OF PRETAX INCOME FROM CONTINUING OPERATIONS

Federal income tax expense (benefit) at the statutory rate

$ ( 2,762,295 )

$ ( 2,229,606 )

State income taxes, net of federal tax expense

Executive Compensation Deduction Limitation

Excess Tax Benefit Related to Share-Based Compensation

( 1,909,197 )

Nondeductible Other Expenses

Change in Valuation Allowance

( 14,477,083 )

Change in Expected Utilization of Tax Attributes

Income tax expense (benefit) from continuing operations

components of the provision for income taxes are as follows:

OF PROVISION FOR INCOME TAXES

Current income tax expense (benefit)

Total Current Income Tax Expense

Deferred expense

Total Deferred Tax Expense

Change in Valuation Allowance

( 14,477,083 )

( 9,079,841 )

Net Deferred Tax Expense after Valuation Allowance

Income Tax Provision

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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.

OF DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets:

Tax Credit carryforwards

Net Operating Loss carryforwards

Capital Loss carryforwards

Intangible assets

Stock Compensation

Accruals, reserves and other

Digital Currencies

Total gross deferred tax assets

Less Valuation Allowance

( 14,477,083 )

Net deferred tax assets

Class Action Complaint

December 17, 2021, a putative class action complaint was filed in the United States District Court for the District of Nevada, against

the Company and present and former senior management.

The complaint alleges securities fraud related to the disclosure of an SEC investigation

previously made by the Company on November 15, 2021.

Plaintiff Tad Schlatre served the complaint on the Company on March 1, 2022.

September 12, 2022, the court appointed Carlos Marina as lead plaintiff.

On October 21, 2022, lead plaintiff voluntarily dismissed the

complaint without prejudice.

February 18, 2022, a shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against

current and former members of the Company’s board of directors and senior management.

The complaint is based on allegations substantially

similar to the allegations in the December 2021 putative class action complaint, related to the Company’s disclosure of an SEC

investigation previously made by the Company on November 15, 2021.

On March 4, 2022, the complaint was served on the Company.

4, 2022, the defendants moved to dismiss the complaint.

May 5, 2022, a second shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against

current and former members of the Company’s board of directors and senior management.

The second shareholder derivative complaint

is based on allegations substantially similar to the allegations in the February 18, 2022 derivative complaint.

On May 11, 2022, the

defendants moved to dismiss the second shareholder derivative complaint.

June 1, 2022, the Court entered an order consolidating the two derivative actions.

A June 13, 2022 scheduling order provided for plaintiffs

to file a consolidated complaint and for renewed motions to dismiss the consolidated shareholder derivative complaint.

On November 22,

2022, before a consolidated complaint was due, plaintiffs voluntarily dismissed both actions without prejudice.

On November 23, 2022,

both actions were closed.

the year ended December 31, 2022, the Company recorded a $ 26,000

thousand legal reserve charge related to the fair value of certain stock grants used for personal income tax reporting purposes during

The majority of this reserve was related to a claim made by the Company’s former Chairman and CEO.

In working on this initial

claim, the Company discovered that seven other individuals were also impacted by the same issue, including one current board member and

the current Chairman and CEO.

The total amount of this portion of the reserve amounted to approximately $ 2,000

Legal settlements that were accrued but remained unpaid as of December 31, 2022 of $ 1,171

thousand were classified as “legal reserve payable”.

North Bankruptcy

September 22, 2022, Compute North filed for chapter 11 bankruptcy protection.

Compute North provides operating services to the Company

and hosts our mining rigs in multiple facilities.

We delivered miners to Compute North, which then installed the mining rigs in several

facilities, operated and maintained the mining rigs, and provides energy to keep the miners operating.

In chapter 11, Compute North is

currently seeking to sell substantially all of its assets, including its direct and indirect ownership interests in the facilities that

house the Company’s miners.

Compute North may also seek to assume and assign the Compute North agreements to which the Company

is party to one or more third-party purchasers of Compute North’s assets or it may seek to reject such agreements.

Compute North’s chapter 11 cases could cause a disruption in services provided by Compute North to us and, therefore, could have

an adverse effect on our operations in the facilities managed by Compute North.

this stage of Compute North’s chapter 11 cases, it is difficult to predict whether Marathon will receive any meaningful recovery

on account of its claims.

15 - RELATED PARTY TRANSACTIONS

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.

September 23, 2022, the Company made an incremental 30,000

thousand investment in Auradine, Inc., bringing its total holdings in Auradine to $ 35,500

thousand based upon a previously issued and disclosed SAFE instrument.

Said Ouissal, a director of the Company, owns approximately 10 %

of the issued and outstanding shares of Auradine, and Fred Thiel, the Company’s Chairman and CEO, sits on Auradine’s Board

of Directors.

On November 3, 2022, the Company’s Board met and determined that Said Ouissal is no longer deemed to be an independent

director of the Company.

As a result, Mr.

Ouissal stepped down from the Audit and Compensation Committees.

16 – QUARTERLY FINANCIAL DATA (UNAUDITED)

following tables present the impacts of the restatement adjustments, as described in NOTE 2 – RESTATEMENT OF CONSOLIDATED

FINANCIAL STATEMENT .

Restated Consolidated Statements of Stockholders’ Equity are not presented as all impacted items on

those statements, net income (loss), accumulated deficit, and total stockholders’ equity, are presented within the following

This quarterly information has been prepared on the same basis as the Consolidated Financial Statements and includes all

adjustments necessary to state fairly the information for the interim periods presented, which management considers necessary for a

fair presentation when read in conjunction with the Consolidated Financial Statements and notes.

We believe these comparisons of

consolidated quarterly selected financial data are not necessarily indicative of future performance.

Interim Consolidated Balance Sheets

following Unaudited Interim Consolidated Balance Sheets tables present the impacts of the restatement adjustments as of the periods

ended March 31, 2021 and 2022, June 30, 2021 and 2022, and September 30, 2021 and 2022.

For the impacts of the restatement

adjustments for the Consolidated Balance Sheets as of December 31, 2021 refer to NOTE 2 – RESTATEMENT OF CONSOLIDATED

FINANCIAL STATEMENT .

The period ended December 31, 2022 was not subject to restatement and is presented in Part I of ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

SCHEDULE OF UNAUDITED INTERIM BALANCE SHEET

(in thousands)

March 31, 2021

(in thousands)

Current assets:

Cash and cash equivalents

Restricted cash

Digital assets

Digital assets held in Fund

Other receivable

Loan receivable

Digital assets, restricted

Prepaid expenses and other current assets

Total current assets

Other assets:

Property and equipment, net

Assets held for sale

Advances to vendors

Digital assets, restricted

Long term deposits

Long term prepaids

Right-of-use assets

Intangible assets, net

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses

Legal reserve payable

Warrant liability

Short term borrowings - revolving credit line

Operating lease liabilities

Current portion of accrued bond interest

Total current liabilities

Long-term liabilities:

Notes payable

Operating lease liabilities

Deferred tax liabilities

Unrealized Gains

SBA PPP loan payable

Total long-term liabilities

Commitments and Contingencies

Stockholders’ Equity:

Preferred stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

(in thousands)

June 30, 2021

(in thousands)

Current assets:

Cash and cash equivalents

Digital assets

Digital assets held in Fund

Prepaid expenses and other current assets

Total current assets

Other assets:

Property and equipment, net

Long term prepaids

Intangible assets, net

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses

Warrant liability

Total current liabilities

Commitments and Contingencies

Stockholders’ Equity:

Preferred stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

(in thousands)

September 30, 2021

(in thousands)

Current assets:

Cash and cash equivalents

Digital assets

Digital assets held in Fund

Other receivable

Digital assets, restricted

Prepaid expenses and other current assets

Total current assets

Other assets:

Property and equipment, net

Long term prepaids

Intangible assets, net

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses

Warrant liability

Total current liabilities

Commitments and Contingencies

Stockholders’ Equity:

Preferred stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

(in thousands)

March 31, 2022

(in thousands)

Current assets:

Cash and cash equivalents

Restricted cash

Digital assets

Digital assets held in Fund

Other receivable

Digital assets, restricted

Prepaid expenses and other current assets

Total current assets

Other assets:

Property and equipment, net

Advances to vendors

Long term prepaids

Right-of-use assets

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses

Operating lease liabilities

Current portion of accrued interest

Total current liabilities

Long-term liabilities:

Notes payable

Operating lease liabilities

Deferred tax liabilities

Total long-term liabilities

Commitments and Contingencies

Stockholders’ Equity:

Preferred stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

(in thousands)

June 30, 2022

(in thousands)

Current assets:

Cash and cash equivalents

Restricted cash

Digital assets

Digital assets, restricted

Prepaid expenses and other current assets

Total current assets

Other assets:

Property and equipment, net

Assets held for sale

Advances to vendors

Long term prepaids

Right-of-use assets

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses

Short term borrowings - revolving credit line

Operating lease liabilities

Current portion of accrued interest

Total current liabilities

Long-term liabilities:

Notes payable

Operating lease liabilities

Deferred tax liabilities

Total long-term liabilities

Commitments and Contingencies

Stockholders’ Equity:

Preferred stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

(in thousands)

September 30, 2022

(in thousands)

Current assets:

Cash and cash equivalents

Restricted cash

Digital assets

Other receivable

Prepaid expenses and other current assets

Total current assets

Other assets:

Property and equipment, net

Advances to vendors

Long term deposits

Long term prepaids

Right-of-use assets

Digital assets, restricted

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses

Legal reserve payable

Operating lease liabilities

Current portion of accrued interest

Total current liabilities

Long-term liabilities:

Notes payable

Operating lease liabilities

Deferred tax liabilities

Total long-term liabilities

Commitments and Contingencies

Stockholders’ Equity:

Preferred stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

Consolidated Interim Statements of Other Comprehensive Income (Loss)

following Unaudited Interim Statements of Other Comprehensive Income (Loss) tables present the impacts of the restatement adjustments for the periods ended March

31, 2021 and 2022, June 30, 2021 and 2022, and September 30, 2021 and 2022.

For the impacts of the restatement adjustments for the Statements

of Other Comprehensive Income (Loss) for the period ended December 31, 2021 refer to NOTE 2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENT .

The Statements of Other Comprehensive Income (Loss) for the period ended December 31, 2022 was not subject to restatement and is presented in Part I of ITEM

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

SCHEDULE OF UNAUDITED INTERIM STATEMENT OF OPERATIONS

(in thousands, except share and per share data)

For the three months ended

March 31, 2021

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Legal reserves

Impairment of deposits due to vendor bankruptcy filing

Impairment of digital assets

Impairment of patents

Impairment of mining equipment and advances to vendors

Realized and unrealized gains (losses) on digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Gain on sale of equipment, net of disposals

Total operating expenses

Operating loss

Impairment of loan and investment due to vendor bankruptcy filing

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income before income taxes

Income tax benefit (expense)

Net income (loss)

Net income (loss) per share, basic:

Net income (loss) per share, diluted:

Weighted average shares outstanding, basic:

Weighted average shares outstanding, diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the three months ended

June 30, 2021

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

$ ( 108,885 )

Prepaid service contracts

$ ( 110,829 )

Property and equipment

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the six months ended

June 30, 2021

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the three months ended

September 30, 2021

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the nine months ended

September 30, 2021

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the three months ended

December 31, 2021

(in thousands, except share and per share data)

Total Revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Realized and unrealized gains (losses) on digital assets loan receivable and

digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net income per share, basic:

Net income per share, diluted:

Weighted average shares outstanding, basic:

Weighted average shares outstanding, diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the three months ended

March 31, 2022

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Impairment of patents

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income ( loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the three months ended

June 30, 2022

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Gain on sale of equipment, net of disposals

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

$ ( 191,646 )

$ ( 208,466 )

Total gross deferred liabilities

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the six months ended

June 30, 2022

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Impairment of digital assets

Impairment of patents

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Gain on sale of equipment, net of disposals

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

$ ( 204,605 )

$ ( 221,319 )

Net deferred tax liability

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the three months ended

September 30, 2022

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Legal reserves

Impairment of deposits due to vendor bankruptcy filing

Impairment of digital assets

Gain on sale of equipment, net of disposals

Total operating expenses

Operating income (loss)

Impairment of loan and investment due to vendor bankruptcy filing

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

(in thousands, except share and per share data)

For the nine months ended

September 30, 2022

(in thousands, except share and per share data)

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Legal reserves

Impairment of deposits due to vendor bankruptcy filing

Impairment of digital assets

Impairment of patents

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Gain on sale of equipment, net of disposals

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating income (loss)

Change in fair value of digital assets held in Fund

Other non-operating income (loss)

Impairment of loan and investment due to vendor bankruptcy filing

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

$ ( 280,028 )

valuation allowance for deferred tax assets as of December 31, 2021 and 2020 was $ 0 and

$ ( 294,014 )

respectively.

The net change in the total valuation allowance was a decrease of $ 14,477,083 in

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.

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.

OF NET OPERATING LOSS CARRYFORWARDS

Federal Net Operating Loss Carryforwards

Federal Net Operating Loss Carryforwards - Indefinite Life

State Net Operating Loss carryforwards

382 and Section 383 of the Internal Revenue Code limit the utilization of U.S.

tax attribute carryforwards following a change of

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 .

addition, the Company has the following attributes and credit carryforwards as follows:

OF ATTRIBUTES AND CREDIT CARRYFORWARDS

Federal R&D Tax Credit Carryforwards

State alternative minimum tax credit carryforwards

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:

OF UNRECOGNIZED TAX BENEFITS ROLL FORWARD

Balance, beginning of year

Increase related to prior year tax positions

Decrease related to prior year tax positions

Increase related to current year tax positions

Lapse of statute of limitation

Change in tax rate

Balance, end of year

tax benefits that reduce a net operating loss, similar tax loss or tax credits carryforward are presented as a reduction to deferred

income taxes.

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

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.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

to Consolidated Financial Statements

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.

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,

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.

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

For the three months ended

(in thousands, except share and per share data)

December 31, 2022

Total revenues

Costs and expenses

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

General and administrative expenses

Legal reserves

Impairment of deposits due to vendor bankruptcy filing

Impairment of digital assets

Impairment of mining equipment and advances to vendors

Total operating expenses

Operating income (loss)

Other non-operating income (loss)

Interest expense

Income (loss) before income taxes

Income tax benefit (expense)

$ ( 392,726 )

Net income (loss) per share, basic and diluted:

Net loss per share, basic:

Weighted average shares outstanding, basic and diluted:

Weighted average shares outstanding, basic:

Interim Consolidated Statements of Cash Flows

following Unaudited Interim Consolidated Statement of Cash Flow tables present the impacts of the restatement adjustments for the

periods ended March 31, 2021 and 2022, June 30, 2021 and 2022, and September 30, 2021 and 2022.

For the impacts of the restatement

adjustments for the Consolidated Statement of Cash Flows for the period ended December 31, 2021 refer to NOTE 2 –

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENT .

The Consolidated Statements of Cash Flows for the period ended December 31, 2022 was not

subject to restatement and is presented in Part I of ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

SCHEDULE OF UNAUDITED INTERIM STATEMENT OF CASH FLOWS

(in thousands)

For the three months ended

March 31, 2021

(in thousands)

Cash flows from operating activities

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

Realized and unrealized losses (gains) on digital assets held within Investment Fund

Change in fair value of digital assets held in Investment Fund

Impairment of digital assets

Other adjustment from operations, net

Proceeds from sale of digital currencies in fund

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Other adjustment from operations, net

Realized gain (loss) on sale of digital currencies

Deferred tax expense

Impairment of digital currencies

Gain on Sale of Asset, net of disposals

Realized and unrealized losses (gains) on digital currencies held in fund

Changes in operating assets and liabilities:

Prepaid expenses and other assets

Accounts payable and accrued expenses

All other adjustments to reconcile net loss to net cash used in operating activities

Net cash used in operating activities

Cash flows from investing activities

Deconsolidation of Fund

All other adjustments to reconcile net loss to net cash used in investing activities

Net cash used in investing activities

Cash flows from financing activities

All other adjustments to reconcile net loss to net cash used in financing activities

Net cash used in financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash — beginning of period

Cash, cash equivalents, and restricted cash — end of period

(in thousands)

For the six months ended

June 30, 2021

(in thousands)

Cash flows from operating activities

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

Realized and unrealized losses (gains) on digital assets held within Investment Fund

Change in fair value of digital assets held in Investment Fund

Impairment of digital assets

Other adjustment from operations, net

Changes in operating assets and liabilities:

Accounts payable and accrued expenses

All other adjustments to reconcile net loss to net cash used in operating activities

Net cash used in operating activities

Cash flows from investing activities

All other adjustments to reconcile net loss to net cash used in investing activities

Net cash used in investing activities

Cash flows from financing activities

All other adjustments to reconcile net loss to net cash used in financing activities

Net cash used in financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash — beginning of period

Cash, cash equivalents, and restricted cash — end of period

(in thousands)

For the nine months ended

September 30, 2021

(in thousands)

Cash flows from operating activities

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

Realized and unrealized losses (gains) on digital assets held within Investment Fund

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Change in fair value of digital assets held in Investment Fund

Impairment of digital assets

Other adjustment from operations, net

Changes in operating assets and liabilities:

Prepaid expenses and other assets

Accounts payable and accrued expenses

All other adjustments to reconcile net loss to net cash used in operating activities

Net cash used in operating activities

Cash flows from investing activities

All other adjustments to reconcile net loss to net cash used in investing activities

Net cash used in investing activities

Cash flows from financing activities

All other adjustments to reconcile net loss to net cash used in financing activities

Net cash used in financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash — beginning of period

Cash, cash equivalents, and restricted cash — end of period

(in thousands)

For the three months ended

March 31, 2022

(in thousands)

Cash flows from operating activities

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

Deferred tax benefit

Realized and unrealized losses (gains) on digital assets held within Investment Fund

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Change in fair value of digital assets held in Investment Fund

Impairment of digital assets

Other adjustment from operations, net

Changes in operating assets and liabilities:

Prepaid expenses and other assets

Accounts payable and accrued expenses

All other adjustments to reconcile net loss to net cash used in operating activities

Net cash used in operating activities

Cash flows from investing activities

All other adjustments to reconcile net loss to net cash used in investing activities

Net cash used in investing activities

Cash flows from financing activities

All other adjustments to reconcile net loss to net cash used in financing activities

Net cash used in financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash — beginning of period

Cash, cash equivalents, and restricted cash — end of period

(in thousands)

For the six months ended

June 30, 2022

(in thousands)

Cash flows from operating activities

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

Gain on sale of assets

Deferred tax expense

Realized and unrealized losses (gains) on digital assets held within Investment Fund

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Change in fair value of digital assets held in Investment Fund

Impairment of digital assets

Other adjustment from operations, net

Changes in operating assets and liabilities:

Prepaid expenses and other assets

All other adjustments to reconcile net loss to net cash used in operating activities

Net cash used in operating activities

Cash flows from investing activities

Deconsolidation of Fund

All other adjustments to reconcile net loss to net cash used in investing activities

Net cash used in investing activities

Cash flows from financing activities

All other adjustments to reconcile net loss to net cash used in financing activities

Net cash used in financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash — beginning of period

Cash, cash equivalents, and restricted cash — end of period

(in thousands)

For the nine months ended

September 30, 2022

(in thousands)

Cash flows from operating activities

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

Gain on Sale of Asset, net of disposals

Deferred tax expense

Realized and unrealized losses (gains) on digital currencies held within Investment Fund

Realized and unrealized gains (losses) on digital assets loan receivable and digital assets

Change in fair value of digital assets held in Investment Fund

Impairment of digital currencies

Other adjustment from operations, net

Changes in operating assets and liabilities:

Prepaid expenses and other assets

Accounts payable and accrued expenses

All other adjustments to reconcile net loss to net cash used in operating activities

Net cash used in operating activities

Cash flows from investing activities

Deconsolidation of Fund

All other adjustments to reconcile net loss to net cash used in investing activities

Net cash used in investing activities

Cash flows from financing activities

All other adjustments to reconcile net loss to net cash used in financing activities

Net cash used in financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash — beginning of period

Cash, cash equivalents, and restricted cash — end of period

17 – SUBSEQUENT EVENTS

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.

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.

January 27, 2023, the Company and FSI entered into an Agreement regarding formation of an Abu Dhabi Global Markets company (the “ADGM

Entity”), whose purpose shall be to jointly (a) establish and operate one or more mining facilities for digital assets;

mine digital assets.

The initial project by the ADGM Entity shall consist of two digital asset mining sites comprising 250 MW in Abu

Dhabi, and the initial equity ownership in the ADGM Entity shall be 80% FSI and 20% the Company , and capital contributions will be made,

subject to the satisfaction or waiver of certain conditions, during the 2023 development period in those proportions, consisting of both

cash and in kind, in amounts of approximately $ 406,000 thousand in aggregate.

On February 6, 2023, the Company

provided Silvergate Bank with the required 30-day notice stating the Company’s intent to prepay the outstanding balance on its

term loan facility as well as the Company’s intent to terminate the term loan facility.

The Company and Silvergate

subsequently agreed to also terminate the revolving line of credit (“RLOC”) facility.

On March 8, 2023, the term loan

prepayment was completed, and the Company’s term loan and RLOC facilities with Silvergate Bank were terminated.

On March 12, 2023, Signature Bank

was closed by its state chartering authority, the New York State Department of Financial Services.

On the same date the Federal

Deposit Insurance Corporation (“FDIC”) was appointed as receiver and transferred all customer deposits and substantially all of the

assets of Signature Bank to Signature Bridge Bank, N.A., a full-service bank that is being operated by the FDIC.

Company automatically became a customer of Signature Bridge Bank, N.A.

as part of this action.

The Company held approximately $ 142,000

thousand cash deposits at Signature Bridge Bank, N.A.as of March 12, 2023.

Normal banking activities resumed on Monday, March 13,

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data