What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-16 compared with 2022-03-10 · 167 added, 169 removed, 213 unchanged (61% of the section changed)

16 unchanged sentences

Report on Internal Control over Financial Reporting

Our management is responsible for establishing

and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance

with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).

Our internal control over financial reporting is a process

designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements

for external purposes of accounting principles generally accepted in the United States.

A material weakness is a deficiency, or a combination

of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement

of our annual or interim financial statements will not be prevented or detected on a timely basis.

A significant deficiency is a deficiency,

or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important

enough to merit attention by those responsible for oversight of the company’s financial reporting.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness to future periods

are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the

policies and procedures may deteriorate.

management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)

and 15d-15(f) under the Exchange Act.

Our management is also required to assess and report on the effectiveness of our internal control

over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).

Our internal control

over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is

a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected

on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting

that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s

financial reporting.

of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that

the degree of compliance with the policies and procedures may deteriorate.

assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.

2 unchanged sentences

- Integrated Framework in the 2013 COSO framework.

Based on this evaluation, management identified a weakness in internal control over

financial reporting related to Information Technology General Controls (ITGC).

Specifically, the

Company did not design and/or implement user access controls to ensure appropriate segregation of duties or program change management

controls for certain financially relevant systems impacting the Company’s processes around revenue recognition and digital assets

to ensure that IT program and data changes affecting the Company’s (i) financial IT applications, (ii) digital currency mining

equipment, and (iii) underlying accounting records, are identified, tested, authorized and implemented appropriately to validate that

data produced by its relevant IT system(s) were complete and accurate.

Automated process-level controls and manual controls that are

dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such

In addition, the Company has not effectively designed a manual key control to detect material misstatements in revenue.

material weakness described above did not result in a material misstatement to the Company’s previously issued consolidated financial

statements, nor in the consolidated financial statements included in this Annual Report on Form 10-K.

The effectiveness of our internal control over

financial reporting as of December 31, 2021, has been audited by our independent registered public accounting firm, Marcum, LLP, as stated

in their report on management’s internal control over financial reporting, which is also included in Item 8, “Financial Statements

and Supplementary Data,” of this 2021 Form 10-K.

As noted above, during

the initial audit over the internal controls over financial reporting (“ICFR”) a material

weakness was identified related to certain ITGCs over user access, segregation of duties and change management controls.

management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the

effectiveness of internal control over financial reporting, we understand the importance of developing a resolution plan aligned with

management and overseen by the Audit Committee of our Board of Directors.

Our plan includes the following:

Enhance our remediation team

by continuing to increase our headcount in 2022 in key financial reporting and information technology roles (i.e.

as we have increased

from three full time employees as of December 31, 2020 to ten full time employees as of December 31, 2021).

Continue to utilize an external third-party

internal audit and SOX 404 implementation firm to work to improve the Company’s

controls related to our material weaknesses, specifically relating to user access and change management surrounding the Company’s

IT systems and applications.

Continue to implement new processes and

controls and engage external resources when required in connection with remediating this material weakness, such

on this evaluation, management identified a weakness in internal control over financial reporting related to the application and interpretation

of generally accepted accounting principles (“GAAP”) primarily in the areas of consolidation, impairment of digital assets,

disposal of property and equipment and principal versus agent considerations in revenue recognition.

In addition, the Company has not

designed or implemented user access controls to ensure appropriate segregation of duties, or program

change management controls for certain financially relevant systems impacting the Company’s processes around revenue recognition

and digital assets to ensure that IT program and data changes affecting the Company’s (i) financial IT applications, (ii) digital

currency mining equipment, and (iii) underlying accounting records, are identified, tested, authorized and implemented appropriately

to validate that data produced by its relevant IT system(s) were complete and accurate.

Automated process-level controls and manual controls

that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result

of such deficiency.

The Company has also not effectively designed a key manual control to detect material misstatements in revenue.

material weakness related to the application and interpretation of GAAP, as described above, resulted in a material misstatement to the

Company’s previously issued consolidated financial statements.

The material weakness associated with the manual control over revenue

recognition did not result in a material misstatement to the Company’s previously issued consolidated financial statements, nor

in the consolidated financial statements included in this Annual Report on Form 10-K.

a result of the material weaknesses outlined above, the report of our independent registered public accounting firm for the fiscal year

ended December 31, 2022, Marcum LLP, regarding its audit of our internal control over financial reporting as of December 31, 2022, which

is included below under the heading “Report of Independent Registered Public Accounting Firm on Internal Control over Financial

Reporting”, expresses an adverse opinion on our internal control over financial reporting as of December 31, 2022.

Board of Directors, Audit Committee and management take internal control over financial reporting and the integrity of our financial

statements seriously.

is responsible its assessment of the effectiveness of internal controls over financial reporting and is committed to improving its controls

related to the material weaknesses described above, such that these controls are designed, implemented, and operating effectively.

order to achieve the timely implementation of the above, Management has commenced the following actions and will continue to assess additional

opportunities for remediation on an ongoing basis:

the process we started during 2022 of adding to our internal resources to enhance our capabilities

in the areas of technical accounting, financial reporting, and internal controls

the process started during 2022 of utilizing external third-party technical accounting resources

to supplement our ability to interpret and apply GAAP as we continue to build our internal

capabilities in these areas

to utilize external third-party audit and SOX 404 implementation firms to enable the company

to improve the Company’s controls related to our material weaknesses.

to evaluate existing processes, and implement new processes and controls where necessary

in connection with remediating our material weaknesses, such

that these controls are designed, implemented, and operating effectively.

Continue to formalize our policies and processes over including

those over outside service providers with a specific focus on enhancing design and documentation related to (i) developing and communicating

additional policies and procedures to govern the areas of IT change management and user access processes and related control activities

and (ii) develop robust processes to validate data received from third-parties and relied upon to generate financial statements is

complete and accurate.

that the material weaknesses in our internal control over financial reporting will not be considered remediated until the remediate controls

operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively.

our remediation efforts involve our outsource service providers, we cannot provide any assurance that these remediation efforts will

be successful or that our internal control over financial reporting will be effective as a result of these efforts.

to evaluate and work to improve our internal control over financial reporting related to the identified material weaknesses and management

may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above.

In addition, we report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.

Change in Internal Control Over Financial Reporting

Other than what is disclosed above there were no changes in the Company’s

internal control over financial reporting during the quarter ended December 31, 2021.

recognize that the material weaknesses in our internal control over financial reporting will not be considered remediated until the remediate

controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively.

Because our remediation efforts are ongoing, we cannot provide any assurance that these remediation efforts will be successful or that

our internal control over financial reporting will be effective as a result of these efforts.

continue to evaluate and work to improve our internal control over financial reporting related to the identified material weaknesses

and management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan

described above.

In addition, we will report the progress and status of the above remediation efforts to the Audit Committee on a periodic

in Internal Control Over Financial Reporting

than what is disclosed above there were no changes in the Company’s internal control over financial reporting during the quarter

ended December 31, 2022.

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONTROL OVER FINANCIAL REPORTING

To the Stockholders

and Board of Directors of

INTERNAL CONTROL OVER FINANCIAL REPORTING

the Stockholders and Board of Directors of

Digital Holdings, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Marathon

Digital Holdings, Inc.

’s (the “Company”) internal control over financial reporting as of December 31, 2021 ,

based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations

of the Treadway Commission.

In our opinion,

because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of the control

criteria, the Company has not maintained effective internal control over financial reporting

as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee

of Sponsoring Organizations of the Treadway Commission.

weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a

reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented

have audited Marathon Digital Holdings, Inc.’s (the “Company”) internal control over financial reporting as of December

31, 2022, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring

Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weaknesses described in the following paragraph

on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial

reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework (2013) issued by the

Committee of Sponsoring Organizations of the Treadway Commission.

material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there

is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented

or detected on a timely basis.

The following material weakness have been identified and

included in “Management’s Annual Report on Internal Control Over Financial Reporting”:

Company did not design and/or implement user access controls to ensure appropriate segregation of duties or program change management

controls for certain financially relevant systems impacting the Company’s processes

around revenue recognition and digital assets to ensure that IT program and data changes affecting the Company’s (i) financial

IT applications, (ii) digital currency mining equipment, and (iii) underlying accounting records, are identified, tested, authorized

and implemented appropriately to validate that data produced by its relevant IT system(s) were complete and accurate.

Automated process-level

controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined

to be ineffective as a result of such deficiency.

In addition, the Company has not effectively designed a manual key control to

detect material misstatements in revenue.

This material

weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the fiscal December 31, 2021

consolidated financial statements, and this report does not affect our report dated March

9, 2022 on those financial statements.

We have also audited, in accordance with the standards

of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company

as of December 31, 2021 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year

then ended and our report dated March 9, 2022 expressed an unqualified opinion on those financial statements.

The Company’s

management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness

of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal Control Over Financial

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based

on our audit.

We are a public accounting firm

registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

our audit in accordance with the standards of the PCAOB.

Those standards require that we

plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained

in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control

over financial reporting, assessing the risk that a material weakness exists, and testing

and evaluating the design and operating effectiveness of internal control based on the assessed

The following material weaknesses have been identified and included in “Management’s Annual

Report on Internal Control Over Financial Reporting”:

The Company had a material weakness related to

the application and interpretation of generally accepted accounting principles primarily in the areas of consolidation, impairment of

digital assets, disposal of property and equipment, and principal versus agent considerations in revenue recognition.

In addition, the Company has not designed or

implemented user access controls to ensure appropriate segregation of duties or program change management controls for certain financially

relevant systems impacting the Company’s processes around revenue recognition and digital assets to ensure that IT program and data

changes affecting the Company’s (i) financial IT applications, (ii) digital currency mining equipment, and (iii) underlying accounting

records, are identified, tested, authorized and implemented appropriately to validate that data produced by its relevant IT system(s)

were complete and accurate.

Automated process-level controls and manual controls that are dependent upon the information derived from

such financially relevant systems were also determined to be ineffective as a result of such deficiency.

The Company has also not effectively

designed a manual key control to detect material misstatements in revenue.

These material weaknesses were considered in

determining the nature, timing and extent of audit tests applied in our audit of the fiscal December 31, 2022 consolidated financial

statements, and this report does not affect our report dated March 16, 2023 on those financial statements.

We have also audited, in accordance with the

standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of

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

of the two years in the period ended December 31, 2022, of the Company, and our report dated March 16, 2023 expressed an unqualified

opinion on those financial statements.

Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment

of the effectiveness of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal

Control Over Financial Reporting”.

Our responsibility is to express an opinion on the Company’s internal control over financial

reporting based on our audit.

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

to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange

Commission and the PCAOB.

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

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

reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing

the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based

on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control

over Financial Reporting

internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial

reporting and the preparation of financial statements for external purposes in accordance

with generally accepted accounting principles.

A company’s internal control over financial

reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable

detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance

that transactions are recorded as necessary to permit preparation of financial statements

in accordance with generally accepted accounting principles, and that receipts and expenditures

of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition

of the company’s assets that could have a material effect on the financial statements.

that our audit provides a reasonable basis for our opinion.

and Limitations of Internal Control over Financial Reporting

company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance

with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection

of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of

any evaluation of effectiveness to future periods are subject to the risk that controls may

become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

/s/ Marcum LLP

Costa Mesa, California

March 9, 2022

any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that degree of compliance with the policies or procedures may deteriorate.

Mesa, California

OTHER INFORMATION

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

information required by this Item is incorporated herein by reference to the information provided under the headings “Executive

Officers of the Company,” “Election of Directors – Nominees,” and “Corporate Governance and the Board of

Directors and its Committees” in our definitive proxy statement to be filed with the SEC not later than 120 days after the fiscal

year ended December 31, 2021 (the “2022 Proxy Statement”).

information required by this Item is incorporated herein by reference to the information provided under the headings

“Executive Officers of the Company,” “Election of Directors – Nominees,” and “Corporate

Governance and the Board of Directors and its Committees” in our definitive proxy statement on Schedule 14A to be filed with

the SEC not later than 120 days after the fiscal year ended December 31, 2022 (the “2023 Proxy Statement”).

EXECUTIVE COMPENSATION

1 unchanged sentence

Officers of the Company,” “Election of Directors – Nominees,” and “Corporate Governance and the Board of

Directors and its Committees” in our definitive proxy statement to be filed with the SEC not later than 120 days after the fiscal

year ended December 31, 2021 (the “2022 Proxy Statement”).

Directors and its Committees” in our 2023 Proxy Statement.

SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

1 unchanged sentence

Officers of the Company,” “Election of Directors – Nominees,” and “Corporate Governance and the Board of

Directors and its Committees” in our definitive proxy statement to be filed with the SEC not later than 120 days after the fiscal

year ended December 31, 2021 (the “2022 Proxy Statement”).

Directors and its Committees” in our 2023 Proxy Statement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

1 unchanged sentence

Officers of the Company,” “Election of Directors – Nominees,” and “Corporate Governance and the Board of

Directors and its Committees” in our definitive proxy statement to be filed with the SEC not later than 120 days after the fiscal

year ended December 31, 2021 (the “2022 Proxy Statement”).

Directors and its Committees” in our 2023 Proxy Statement.

PRINCIPAL ACCOUNTING FEES AND SERVICES

1 unchanged sentence

Officers of the Company,” “Election of Directors – Nominees,” and “Corporate Governance and the Board of

Directors and its Committees” in our definitive proxy statement to be filed with the SEC not later than 120 days after the fiscal

year ended December 31, 2021 (the “2022 Proxy Statement”).

EXHIBITS [to be updated]

Directors and its Committees” in our 2023 Proxy Statement.

following exhibits are filed as part of this Annual Report on Form 10-K.

13 unchanged sentences

Form of At The Market Offering Agreement (70)

Amendment to Bylaws (74)

Form of Unit Purchase Agreement dated as of August 14, 2017.

52 unchanged sentences

Employment Agreement with Fred Thiel (60)

Intentionally omitted

Intentionally

Binding Letter of Intent with Compute North, LLC (62)

4 unchanged sentences

Amended Hosting Agreement between the Company and Compute North dated as of November 30, 2021 (67)

Agreement, dated November 30, 2021 of Marathon Compute North 1 LLC(67)

Operating Agreement, dated November 30, 2021 of Marathon Compute North 1 LLC(67)

Hosting Agreement between the Company and the LLC dated as of November 30, 2021 (67)

1 unchanged sentence

Employment Agreement (69)

Employment Agreement for Hugh Gallagher (71)

Hardin, MT Amendment Agreements (72)

Silvergate Agreements (73)

Auradine Agreements (74)

Employment Agreement for John Lee (75)

Shareholders Agreement with FSI*

Termination Agreement with Silvergate Bank*

Code of Business Conduct and Ethics (43)

6 unchanged sentences

Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer*

Instance Document

Taxonomy Extension Schema Document

Taxonomy Calculation Linkbase Document

Taxonomy Label Linkbase Document

Taxonomy Presentation Linkbase Document

Taxonomy Extension Definition Document

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Calculation Linkbase Document

XBRL Taxonomy Label Linkbase Document

XBRL Taxonomy Presentation Linkbase Document

XBRL Taxonomy Extension Definition Document

Filed herein .

60 unchanged sentences

filed as Exhibit 99.1 to 8-K filed on April 30, 2021

Intentionally omitted

Intentionally

filed as Exhibit 10.1 to 8-K filed on May 27, 2021

2 unchanged sentences

filed as Exhibits 10.1 and 10.2 to 10-Q dated November 15, 2021

filed as Exhibits 4.1 and 4.2, respectively, to 8-K dated November 18, 2021 and 8-K dated

November 24, 2021

filed as Exhibits 4.1 and 4.2, respectively, to 8-K dated November 18, 2021 and 8-K dated November 24, 2021

filed as Exhibits 10.1, 10.2 and 10.3, respectively, to 8-K dated December 6, 2021

2 unchanged sentences

filed as Exhibit 4.12 to Registration Statement filed on Form S-3ASR dated February 11, 2022

Previously filed as Exhibit 10.1 to Form 8-K dated April 5, 2022

Previously filed as Exhibit 10.1 to Form 10-Q filed

on May 6, 2022

Previously filed as Exhibit 10.1 to Form 10-Q filed

on August 9, 2023

Previously filed as Exhibits 4.1 and 10.1 to Form 10-Q filed on November

Previously filed as Exhibit 10.1 to Form 8-K filed

on November 28, 2022

Filed herewith.

FORM 10-K SUMMARY

5 unchanged sentences

Executive Officer)

Simeon Salzman

Hugh Gallagher

Financial Officer

3 unchanged sentences

Executive Officer and Chairman

March 9, 2022

(Principal Executive Officer)

Simeon Salzman

Executive Officer)

Hugh Gallagher

Financial Officer

(Principal Financial and Accounting Officer)

Financial and Accounting Officer)

Georges Antoun

Kevin DeNuccio

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 9A. Controls and Procedures