MARA Holdings, Inc. 10-Q

Item 1. Financial Statements MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) September 30, 2023 December 31, 2022 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 101,210 $ 103,705 Restricted cash — 8,800 Digital assets 286,801 121,842 Other receivable 1,193 18 Deposits 7,104 2,350 Prepaid expenses and other current assets 36,338 40,833 Total current assets 432,646 277,548 Property and equipment, net 741,659 273,026 Advances to vendors 23,964 488,299 Investments 103,038 37,000 Long-term deposits 57,820 40,903 Long-term prepaids 24,152 8,317 Right-of-use assets 501 1,276 Digital assets, restricted — 68,875 Total long-term assets 951,134 917,696 TOTAL ASSETS $ 1,383,780 $ 1,195,244 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 15,219 $ 1,312 Accrued expenses 21,702 22,295 Legal reserve payable — 1,171 Operating lease liabilities 150 326 Accrued interest 1,102 1,011 Total current liabilities 38,173 26,115 Long-term liabilities: Notes payable 325,266 732,289 Term loan — 49,882 Operating lease liabilities 388 1,017 Total long-term liabilities 325,654 783,188 Stockholders’ Equity: Preferred stock, 0.0001 par value, 50,000,000 shares authorized and no shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively — — Common stock, 0.0001 par value, 500,000,000 shares authorized; 210,184,718 and 145,565,916 issued and outstanding at September 30, 2023 and December 31, 2022, respectively 21 15 Additional paid-in capital 1,822,504 1,226,267 Accumulated deficit ( 802,572 ) ( 840,341 ) Total stockholders’ equity 1,019,953 385,941 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,383,780 $ 1,195,244 The accompanying notes are an integral part to these unaudited condensed consolidated financial statements. 1 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (unaudited) 2023 2022 2023 2022 Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 (As Restated) (As Restated) Total revenues $ 97,849 $ 12,690 $ 230,740 $ 89,336 Costs and expenses Cost of revenues Cost of revenues - energy, hosting and other ( 59,628 ) ( 13,773 ) ( 148,227 ) ( 42,981 ) Cost of revenues - depreciation and amortization ( 53,548 ) ( 26,295 ) ( 108,556 ) ( 64,882 ) Total cost of revenues ( 113,176 ) ( 40,068 ) ( 256,783 ) ( 107,863 ) Operating expenses General and administrative expenses ( 20,141 ) ( 12,144 ) ( 55,977 ) ( 38,127 ) Impairment of digital assets ( 11,885 ) ( 1,375 ) ( 26,399 ) ( 156,500 ) Gains on digital assets and gains (losses) on digital assets loan receivable 31,720 — 72,689 ( 14,460 ) Losses on digital assets held within investment fund — — — ( 85,017 ) Gain on sale of equipment, net of disposals — 29,819 — 83,879 Legal reserves — ( 24,960 ) — ( 24,960 ) Impairment of deposits due to vendor bankruptcy filing — ( 7,987 ) — ( 7,987 ) Impairment of patents — — — ( 919 ) Total operating expenses ( 306 ) ( 16,647 ) ( 9,687 ) ( 244,091 ) Operating loss ( 15,633 ) ( 44,025 ) ( 35,730 ) ( 262,618 ) Net gain from extinguishment of debt 82,600 — 82,267 — Equity in net earnings of unconsolidated affiliate ( 647 ) — ( 647 ) — Impairment of loan and investment due to vendor bankruptcy filing — ( 31,013 ) — ( 31,013 ) Interest expense ( 2,536 ) ( 3,752 ) ( 9,136 ) ( 10,314 ) Other non-operating income 426 238 1,366 620 Income (loss) before income taxes 64,210 ( 78,552 ) 38,120 ( 303,325 ) Income tax benefit (expense) ( 73 ) 6,090 ( 351 ) 901 Net income (loss) 64,137 ( 72,462 ) 37,769 ( 302,424 ) Series A Preferred Stock accretion to redemption value — — ( 2,121 ) — Net income (loss) attributable to common stockholders $ 64,137 $ ( 72,462 ) $ 35,648 $ ( 302,424 ) Net income (loss) attributable to common stockholders per common stock - basic $ 0.36 $ ( 0.62 ) $ 0.21 $ ( 2.76 ) Weighted average common stock outstanding - basic 179,602,722 116,533,816 169,162,821 109,492,865 Net income (loss) attributable to common stockholders per common stock - diluted $ 0.35 $ ( 0.62 ) $ 0.21 $ ( 2.76 ) Weighted average common stock outstanding - diluted 189,506,521 116,533,816 169,162,821 109,492,865 The accompanying notes are an integral part to these unaudited condensed consolidated financial statements. 2 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share and per share data) (unaudited) For the Three Months Ended September 30, 2023 Number Amount Capital Deficit Equity Common Stock Additional Paid-in Accumulated Total Stockholders’ Number Amount Capital Deficit Equity Balance as of June 30, 2023 174,209,038 $ 17 $ 1,461,188 $ ( 866,709 ) $ 594,496 Stock-based compensation, net of tax withholding 70,963 — 5,598 — 5,598 Issuance of common stock, net of offering costs/At-the-market offering 4,182,300 1 36,950 — 36,951 Exchange of convertible notes for common stock 31,722,417 3 318,768 — 318,771 Net income — — — 64,137 64,137 Balance as of September 30, 2023 210,184,718 $ 21 $ 1,822,504 $ ( 802,572 ) $ 1,019,953 For the Nine Months Ended September 30, 2023 Common Stock Additional Paid-in Accumulated Total Stockholders’ Number Amount Capital Deficit Equity Balance as of December 31, 2022 145,565,916 $ 15 $ 1,226,267 $ ( 840,341 ) $ 385,941 Stock-based compensation, net of tax withholding 590,831 — 13,807 — 13,807 Issuance of common stock, net of offering costs/At-the-market offering 32,305,554 3 265,783 — 265,786 Series A Preferred Stock accretion to redemption value — — ( 2,121 ) — ( 2,121 ) Exchange of convertible notes for common stock 31,722,417 3 318,768 — 318,771 Net Income — — — 37,769 37,769 Balance as of September 30, 2023 210,184,718 $ 21 $ 1,822,504 $ ( 802,572 ) $ 1,019,953 For the Three Months Ended September 30, 2022 Common Stock Additional Paid-in Accumulated Total Stockholders’ Number Amount Capital Deficit Equity Balance as of June 30, 2022 (As Restated) 113,865,235 $ 11 $ 1,016,722 $ ( 376,281 ) $ 640,452 Stock-based compensation, net of tax withholding 41,650 — 3,417 — 3,417 Issuance of common stock, net of offering costs/At-the-market offering 2,903,520 1 37,659 — 37,660 Net loss — — — ( 72,462 ) ( 72,462 ) Balance as of September 30, 2022 (As Restated) 116,810,405 $ 12 $ 1,057,798 $ ( 448,743 ) $ 609,067 For the Nine Months Ended September 30, 2022 Common Stock Additional Paid-in Accumulated Total Stockholders’ Number Amount Capital Deficit Equity Balance as of December 31, 2021 (As Restated) 102,733,273 $ 10 $ 835,694 $ ( 146,319 ) $ 689,385 Balance 102,733,273 $ 10 $ 835,694 $ ( 146,319 ) $ 689,385 Stock-based compensation, net of tax withholding 417,380 — 18,824 — 18,824 Issuance of common stock, net of offering costs/At-the-market offering 13,459,752 2 198,700 — 198,702 Common stock issued for long term service contract 200,000 — 4,580 — 4,580 Net loss — — — ( 302,424 ) ( 302,424 ) Net Income (loss) — — — ( 302,424 ) ( 302,424 ) Balance as of September 30, 2022 (As restated) 116,810,405 $ 12 $ 1,057,798 $ ( 448,743 ) $ 609,067 Balance 116,810,405 $ 12 $ 1,057,798 $ ( 448,743 ) $ 609,067 The accompanying notes are an integral part to these unaudited condensed consolidated financial statements. 3 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) 2023 2022 Nine Months Ended September 30, 2023 2022 (As Restated) OPERATING ACTIVITIES Net income (loss) $ 37,769 $ ( 302,424 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 108,556 64,882 Amortization of prepaid service contract — 22,781 Deferred tax expense 351 ( 908 ) Losses on digital assets held within investment fund — 85,017 (Gains) on digital assets and (gains) losses on digital assets loan receivables ( 72,689 ) 14,460 Impairment of digital assets 26,399 156,500 Gain on sale of equipment, net of disposals — ( 83,879 ) Stock-based compensation 13,907 18,876 Amortization of debt issuance costs 2,780 2,956 Equity in net earnings of unconsolidated affiliate 647 — Impairment of patents — 919 Impairment of assets related to vendor bankruptcy filing — 39,000 Gain on extinguishment of debt, net ( 82,267 ) — Other adjustments from operations, net 609 1,406 Changes in operating assets and liabilities: Revenues from digital asset production ( 230,740 ) ( 89,330 ) Deposits ( 21,671 ) ( 13,629 ) Prepaid expenses and other assets ( 11,588 ) ( 31,434 ) Accounts payable and accrued expenses 3,359 7,888 Legal reserve payable — 21,200 Accrued interest 91 1,976 Net cash used in operating activities ( 224,487 ) ( 83,743 ) INVESTING ACTIVITIES Advances to vendors ( 87,315 ) ( 482,098 ) Purchase of property and equipment ( 25,813 ) ( 19,829 ) Sale of property and equipment — 177,371 Proceeds from sale of digital assets 179,509 — Investments in joint venture ( 66,754 ) — Purchase of equity investments — ( 44,000 ) Sale of digital currencies in investment fund — 483 Deconsolidation of fund — ( 500 ) Net cash used in investing activities ( 373 ) ( 368,573 ) FINANCING ACTIVITIES Proceeds from issuance of common stock, net of issuance costs 265,786 198,701 Proceeds from issuance of preferred stock, net of issuance costs 13,629 — Redemption of preferred stock ( 15,750 ) — Net change in revolving credit agreement borrowings — — Proceeds from term loan borrowings, net of issuance costs — 49,250 Repayment of term loan borrowings ( 50,000 ) Value of shares withheld for taxes ( 100 ) ( 52 ) Net cash provided by financing activities 213,565 247,899 Net decrease in cash, cash equivalents and restricted cash ( 11,295 ) ( 204,417 ) Cash, cash equivalents and restricted cash — beginning of period 112,505 268,556 Cash, cash equivalents and restricted cash — end of period $ 101,210 $ 64,139 The accompanying notes are an integral part to these unaudited condensed consolidated financial statements. 4 MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share and per bitcoin amounts) (unaudited) NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS Marathon Digital Holdings, Inc. and subsidiaries (the “Company” or “Marathon”) is a digital asset technology company that produces or “mines” digital assets with a focus on the blockchain ecosystem and the generation of digital assets. The Company incorporated in the State of Nevada on February 23, 2010 under the name Verve Ventures, Inc. In October 2012, the Company commenced its IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc. The Company purchased digital asset mining machines and established a data center in Canada to mine digital assets in 2017. The Company ceased operations in Canada in 2020 and consolidated all operations in the U.S. at the time. The Company has since expanded bitcoin mining activities across the U.S. and internationally. The Company changed its name to Marathon Digital Holdings, Inc. on March 1, 2021. As of September 30, 2023, the Company is focused on the mining of bitcoin and ancillary opportunities within the Bitcoin ecosystem. Ancillary businesses are those that relate to the Bitcoin ecosystem but are not directly related to the self-mining of bitcoin. The ancillary businesses that relate directly to mining may include, but will not be limited to, management of bitcoin mining facilities for third party owners, advisory and consulting services to third parties seeking to set up and operate bitcoin mining facilities and joint ventures for bitcoin mining projects in domestic and international jurisdictions such as the Company’s project in Abu Dhabi, United Arab Emirates. The Company also seeks to be involved in Bitcoin related projects including, but not limited to, development of technologies in immersion, hardware, firmware, mining pools and side chains that use the blockchain cryptography. The Company may also become involved in electricity generation from renewable energy resources or methane gas capture to power bitcoin mining projects. The 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, bitcoin. NOTE 2 – VOLUNTARY CHANGE IN ACCOUNTING PRINCIPLE During the quarter ended March 31, 2023 and effective January 1, 2023, the Company enacted a voluntary change in accounting principle from last-in-first-out (“LIFO”) to first-in-first-out (“FIFO”) in order to more accurately reflect the disposition of its digital assets. The change from LIFO to FIFO impacted the carrying value of digital asset loans made in August 2021 and December 2021, which was terminated at the point of repayment in kind for both loans in June 2022. The change in accounting principle resulted in a decrease in the carrying value of digital assets loaned and increased the gain on loaned digital assets for the year ended December 31, 2021. The change in accounting principle resulted in additional impairment of digital assets during the quarters ended March 31 and June 30, 2023. In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the change has been reflected in the consolidated statements of operations through retrospective application to the quarter ended March 31, 2022. 5 The impacts of the voluntary change in accounting principle from LIFO to FIFO are as follows: SCHEDULE OF VOLUNTARY CHANGE IN ACCOUNTING PRINCIPLE As of December 31, 2021 (Restated) Condensed Consolidated Balance Sheet Impact Accumulated deficit 7,284 Three months ended (unaudited) March 31, 2022 (Restated) June 30, 2022 (Restated) September 30, 2022 (Restated) Consolidated Statements of Comprehensive Income (Loss) Impact Impairment of digital assets $ ( 5,660 ) $ ( 4,017 ) $ — Income tax benefit (expense) 1,412 ( 380 ) 232 Net income (loss) impact $ ( 4,248 ) $ ( 4,397 ) $ 232 Net income (loss) per share, basic and diluted impact $ ( 0.04 ) $ ( 0.04 ) $ — Six months ended (unaudited) Nine months ended (unaudited) Year ended June 30, 2022 (Restated) September 30, 2022 (Restated) December 31, 2022 (Restated) Consolidated Statements of Comprehensive Income (Loss) Impact Impairment of digital assets $ ( 9,677 ) $ ( 9,677 ) $ ( 9,677 ) Income tax benefit (expense) 1,032 1,264 2,393 Net income (loss) impact $ ( 8,645 ) $ ( 8,413 ) $ ( 7,284 ) Net income (loss) per share, basic and diluted impact $ ( 0.08 ) $ ( 0.08 ) $ ( 0.06 ) As of (unaudited) March 31, 2022 June 30, 2022 September 30, 2022 (Restated) Condensed Consolidated Balance Sheet Impact Digital assets $ 4,017 $ — $ — Deferred tax liabilities 981 1,361 1,129 Accumulated deficit 3,036 ( 1,361 ) ( 1,129 ) NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed 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. The Company has prepared the condensed consolidated financial statements in accordance with U.S. GAAP and regulations of the U.S. Securities and Exchange Commission applicable to interim financial information, which permit the omission of certain disclosure to the extent they have not changed materially since the latest annual financial statements. These condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for any future fiscal periods in 2023 or for the full year ending December 31, 2023. These financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 16, 2023. 6 Use of Estimates and Assumptions The preparation of financial statements in conformity with U.S. 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, estimates of the useful lives of property and equipment, realization of long-lived assets, deferred income taxes, unrealized tax positions and realization of digital assets. Cash and Cash Equivalents and Restricted Cash The Company considers all highly liquid investments and other short-term investments with a maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at financial institutions that are insured by the FDIC. During March 2023, the Company began to participate, to the extent practicable, in insured cash sweep programs which “sweep” its deposits across multiple FDIC insured accounts, each with deposits of no more than $ 250 . As of September 30, 2023, substantially all of the Company’s cash and cash equivalents were FDIC insured. Restricted cash as of December 31, 2022, principally represented those cash balances that support commercial letters of credit and are restricted from withdrawal. During March 2023, the Company eliminated its outstanding letters of credit. The following table provides a reconciliation of the total cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets to the corresponding amounts reported on the condensed consolidated statements of cash flows. SCHEDULE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH September 30, 2023 December 31, 2022 September 30, 2022 Cash and cash equivalents $ 101,210 $ 103,705 $ 55,339 Restricted cash — 8,800 8,800 Cash, cash equivalents and Restricted cash $ 101,210 $ 112,505 $ 64,139 Digital Assets and Digital Assets, Restricted Digital assets are included in current assets in the condensed consolidated balance sheets due to the Company’s ability to sell bitcoin in a highly liquid marketplace and the selling of bitcoin to fund operating expenses to support operations. In addition, digital assets provided as collateral for long-term loans were reported as Digital assets, restricted at December 31, 2022 and classified as long-term assets in the condensed consolidated balance sheets. The proceeds from the sale of digital assets are included within investing activities in the accompanying condensed consolidated statements of cash flows and any gains or losses from such sales are included in operating expenses in the condensed consolidated statements of operations. The Company measures gains or losses on the disposition of digital assets in accordance with the first-in-first-out (“FIFO”) method of accounting. Digital assets are accounted for as indefinite-lived intangible assets, and are initially measured in accordance with FASB Accounting Standards Codification (“ASC”) Topic 350 – Intangibles-Goodwill and Other . 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. Whenever the exchange-traded price of digital assets declines below its carrying value, the Company has determined that an impairment exists and records an impairment equal to the amount by which the carrying value exceeds the fair value. Refer to NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Out-of-Period Adjustment, for a discussion of an adjustment related to impairment of digital assets. During the first quarter of 2023, the term loan was terminated and the restrictions on digital assets lapsed (refer to NOTE 11 – DEBT , for further discussion). 7 The following table presents the activities of digital assets and digital assets, restricted for the nine months ended September 30, 2023: SCHEDULE OF ACTIVITY OF DIGITAL CURRENCIES Digital assets and digital assets, restricted at December 31, 2022 $ 190,717 Additions of digital assets 230,391 Digital assets received as dividends 342 Impairment of digital assets ( 26,399 ) Proceeds from sale of digital assets ( 179,509 ) Gain on digital assets 72,689 Payment of advisory fees ( 1,430 ) Digital assets at September 30, 2023 $ 286,801 As of September 30, 2023, the Company held approximately 13,716 bitcoin classified on the condensed consolidated balance sheets as “Digital assets”, with a carrying value of $ 286,801 . As of September 30, 2023, the Company had earned 10 bitcoin that were pending distribution from the Company’s equity method investee, the ADGM Entity. At September 30, 2023, the fair market value of the Company’s bitcoin holdings was approximately $ 369,797 based on Level 1 inputs. As of December 31, 2022, the Company held approximately 12,232 bitcoin, relating to digital assets and digital assets, restricted, with a carrying value of $ 190,717 and a fair value of $ 202,199 based on Level 1 inputs. Digital assets held in fund On January 25, 2021, the Company entered into a limited partnership agreement with NYDIG Digital Assets Fund III, LP (the “Fund”) pursuant to which the Fund purchased 4,813 bitcoin for 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 were included in current assets in the condensed consolidated balance sheets under the caption “Digital assets held in fund.” The 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 , 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 Company recorded changes in the fair value of the assets in the condensed consolidated statements of operations under the caption “Losses on digital assets held within Investment Fund.” On 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 . 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 . The Company did not record any gain or loss upon deconsolidation as the digital assets in the Fund were measured at fair value. Subsequent to the transfer, the bitcoin transferred to the Company’s digital wallet was accounted for at cost less impairment in line with its digital assets measurement policy as described under “Digital Assets and Digital assets, restricted.” Embedded Derivatives The 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 . Embedded derivatives that are required to be bifurcated from the host instrument or arrangements are accounted for and valued as separate financial instruments. 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. The Company classifies derivative assets or liabilities in the condensed consolidated balance sheets as current or non-current based on whether settlement of the instrument could be required within 12 months of the condensed consolidated balance sheet date. The Company had no derivative assets or liabilities as of September 30, 2023 and December 31, 2022. Deposits The Company contracts with service providers for hosting of its equipment and operational support in data centers where the Company’s equipment is deployed. These arrangements require advance payments to vendors in conjunction with the contractual obligations associated with these services. The Company classifies these payments as “Long-term deposits” on the condensed consolidated balance sheets. 8 Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation and impairment, as applicable. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment is primarily composed of bitcoin mining rigs which are largely homogeneous and have approximately the same useful lives. Accordingly, the Company utilizes the group method of depreciation for its bitcoin mining rigs. The Company will update the estimated useful lives of its bitcoin mining server group periodically as information on the operations of the mining equipment indicates changes are required. The Company will assess and adjust the estimated useful lives of its mining equipment when there are indicators that the productivity of the mining assets is longer or shorter than the assigned estimated useful lives. Investments Investments, 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 condensed 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 . 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”). The 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. On February 3, 2022, the Company purchased convertible preferred stock of Compute North Holdings, Inc. with a purchase price of approximately $ 10,000 . 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. The Company impaired this investment by approximately $ 10,000 following Compute North’s Chapter 11 Bankruptcy filing during September 2022 (See NOTE 9 – COMPUTE NORTH BANKRUPTCY ). On May 3, 2022, the Company converted $ 2,000 from its prior Auradine, Inc. SAFE investment into preferred stock while purchasing additional Auradine preferred stock with a purchase price of $ 3,500 . At the same time, the Company entered into a commitment to acquire additional shares of Auradine preferred stock with a purchase price of $ 30,000 . This forward contract was accounted for under ASC 321 as an equity security. On September 27, 2022, the Company purchased additional shares of Auradine preferred stock with a purchase price of $ 30,000 , bringing its total carrying amount of investment in Auradine, Inc. preferred stock to $ 35,500 , with no noted impairments or other adjustments. 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 (refer to NOTE 14 – RELATED PARTY TRANSACTIONS ). During the third quarter ended September 30, 2023, the Company entered into an agreement with Auradine to secure certain rights to future purchases by the Company from Auradine for which the Company paid $ 15,000 , which is included in Long-term prepaids in the condensed consolidated balance sheets. As of the nine months ended September 30, 2023 and year ended December 31, 2022, the Company has one remaining SAFE investment with a carrying value of $ 1,000 , with no noted impairments or other adjustments. Equity Method Investments The Company accounts for investments in which it owns between 20 % and 50 % of the common stock or has the ability to exercise significant influence, but not control, over the investee using the equity method of accounting in accordance with ASC 323 - Equity Method Investments and Joint Ventures . Under the equity method, an investor initially records an investment in the stock of an investee at cost and adjusts the carrying amount of the investment to recognize the investor’s share of the earnings or losses of the investee after the date of acquisition. 9 On January 27, 2023, the Company and Zero Two (formerly known as FS Innovation, LLC) entered into a Shareholders’ Agreement regarding the formation of an Abu Dhabi Global Markets company (the “ADGM Entity”) in which the Company has a 20 % ownership interest. The Company accounts for this investment under the equity method. The ADGM Entity started mining operations during the quarter ended September 30, 2023. The Company’s share of net losses was $ 647 for the three and nine months ended September 30, 2023. As of September 30, 2023, the Company’s investment in the ADGM Entity was $ 66,038 and is included in Investments in the condensed consolidated balance sheets. Stock-based Compensation The 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. Impairment of Long-lived Assets Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Revenues From Contracts with Customers The Company recognizes revenue under ASC 606 – Revenue from Contracts with Customers . The core principle of the revenue standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Refer to NOTE 4 – REVENUE FROM CONTRACTS WITH CUSTOMERS , for further discussion. Income Taxes Effective Tax Rate The effective tax rate (“ETR”) from continuing operations was 0.11 % and 0.92 % for the three and nine months ended September 30, 2023, respectively, and 7.75 % and 0.30 % for the three and nine months ended September 30, 2022, respectively. The difference between the US statutory tax rate of 21 % was primarily due to the change in valuation allowance as a result of current year activity. Income Tax in Interim Periods The Company records its tax expense or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. The income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised. Uncertainties The Company files federal and state income tax returns. The 2019-2021 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. The Company does not currently expect any of its remaining unrecognized tax benefits to be recognized in the next twelve months. 10 Recent Accounting Pronouncements The 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 condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s condensed consolidated financial statements properly reflect the change. Recently Issued Accounting Pronouncements On March 28, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-01, Leases (Topic 842): Common Control Arrangements . The amendments in ASU 2023-01 improve current GAAP by clarifying the accounting for leasehold improvements associated with common control leases, thereby reducing diversity in practice. Additionally, the amendments provide investors and other allocators of capital with financial information that better reflects the economics of those transactions. The new standard is effective for the Company for its fiscal year beginning January 1, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard. On June 30, 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security and is not included in the equity security’s unit of account. The new standard is effective for the Company for its fiscal year beginning January 1, 2024, with early adoption permitted. The Company adopted ASU 2022-03 on July 1, 2023, which adoption did not have a material impact on the Company’s condensed consolidated financial statements. NOTE 4 – REVENUE FROM CONTRACTS WITH CUSTOMERS The Company recognizes revenue in accordance with ASC 606. The core principle of the revenue standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the Company satisfies a performance obligation In order to identify the performance obligations in a contract with a customer, an entity must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: ● The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct); and ● The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract). If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct. 11 The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following: ● Variable consideration ● Constraining estimates of variable consideration ● The existence of a significant financing component in the contract ● Noncash consideration ● Consideration payable to a customer Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized under the accounting contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time, as appropriate. Application of the five-step model to the Company’s mining operations The Company’s ongoing major or central operation is to provide bitcoin transaction verification services to the bitcoin network through a Company-operated mining pool as the operator (“Operator”) (such activity, “mining”) and to provide computing power to perform hash calculations to pool operators alongside collectives of third-party bitcoin miners (such collectives, “mining pools”) as a participant (“Participant”). The Company currently mines in a self-operated pool, which was previously open to third-party pool participants from September 2021 until May 2022. The following table presents the Company’s revenues disaggregated for those arrangements in which the Company is the Operator and Participant: SCHEDULE OF DISAGGREGATION OF REVENUE 2023 2022 2023 2022 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues from contracts with customers Operator - Block rewards 92,779 10,495 197,200 81,818 Operator - Transaction fees 2,378 106 9,787 3,898 Participant 2,677 2,089 23,404 $ 3,620 Other revenue 15 — 349 $ — Total revenues $ 97,849 $ 12,690 $ 230,740 $ 89,336 12 Operator As 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 it 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. The Company is currently entitled to the block reward of 6.25 bitcoin from the bitcoin network for each successful block. The Company is also entitled to the transaction fee paid by the transaction requester payable in bitcoin for each successful block. 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: ● The 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, earns 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. The Company engaged unrelated third-party mining enterprises (“pool participants”) to contribute computing power, and in exchange, remitted 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 winner of proof of work block rewards and assignee of all validations and, therefore, the transaction verifier of record. The pool participants entered into contracts with the Company as Operator; they did not directly enter into contracts with the network or the requester and were not known verifiers of the transactions assigned to the pool. As Operator, the Company delegated mining work to the pool participants utilizing software that algorithmically assigned work to each individual miner. By virtue of its selection and operation of the software, the Company as Operator controlled delegation of work to the pool participants. This indicated that the Company directed the mining pool participants to contribute their hash rate to solve in areas that the Company designates. Therefore, the Company determined that it controlled the service of providing transaction verification services to the network and requester. Accordingly, the Company recorded 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 that engaged third-party pool participants from September 2021 until May 2022. In accordance with ASC 606-10-32-21, the Company measures the estimated fair value of noncash consideration at contract inception, which is at the 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. The Company applies the quoted spot rate for bitcoin determined using the Company’s primary trading platform for bitcoin at the time the block reward and transaction fee is earned to measure revenues. Expenses associated with providing the bitcoin transaction verification services to the customers, such as hosting fees, electricity costs, and related fees are recorded as cost of revenues. Depreciation on digital asset mining equipment is also recorded as a component of cost of revenues. Participant The Company participates in multiple third-party operated mining pools only when the Company-operated mining pool is not available. The payout methodologies differ depending on the type of third-party operated mining pool. Pay-Per-Share (“PPS”) and Full-Pay-Per-Share (“FPPS”) pools pay rewards based on a contractual formula, which primarily calculates the hash rate provided by the Company to the mining pool as a percentage of total network hash rate, and other inputs. For PPS and FPPS pools, the Company is entitled to consideration even if a block is not successfully placed by the mining pool operator. The Company also participates in third-party mining pools that pay rewards only when the pool successfully mines a block. For these pools, the Company only earns a reward when the third-party pool successfully mines a block and its reward is the fractional share of the successfully mined block and transaction fees based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the algorithm. 13 When the Company is a Participant in a third-party operated mining pool, the Company provides 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 to be its customers 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 (e.g., second, minute, hour) that neither the Company, nor the pool operator, terminates the arrangement. Such implied renewal option is not a material right because the pricing in the renewal periods is the same as the initial contract and there are no upfront or incremental fees in the initial contract or the terms, conditions, and compensation amounts for the renewal options are at the then market rates. When the Company participates in PPS and FPPS pools, which pay rewards based on a contractual formula, the Company recognizes revenue based on the Company’s daily contributed hash rate and other network-driven inputs, such as the total hash rate contributed by all pool participants. The variable consideration (reward) the Company will be entitled to for its contribution of hash rate can be reasonably estimated based on the contribution of hash rate and other network inputs such as total contributed hash rate. The Company measures revenue earned based on the average daily spot rate of bitcoin determined using the Company’s primary trading platform for bitcoin. When the Company participates in third-party pools that pay rewards only when the pool successfully mines a block, the Company recognizes its fractional share of the block and transaction fees using the spot rate of bitcoin at the time that the block is successfully mined. Providing computing power on mining rigs to solve complex cryptographic algorithms in support of blockchain mining (in a process known as “solving a block”) is the primary output of the Company’s ordinary activities. The provision of computing power is the only performance obligation under the Company’s arrangements with third-party mining pool operators. The transaction consideration the Company receives is non-cash (i.e., bitcoin) and variable. For third-party pools that pay rewards only when the pool successfully mines a block, the consideration to which the Company will be entitled to for its efforts remain variable and is not estimable until the pool successfully solves a block, at which point in time the Company can then estimate its fractional share of the bitcoin to which it is entitled to for its contribution to the pool’s successful efforts. For PPS and FPPS pools, which pay rewards based on a contractual formula that does not depend on the pool successfully mining any blocks during the period in which the Company contributes computing power, the Company can reasonably estimate the variable consideration to which it will be entitled to for providing computing power as such power is being provided based on the contributed hash rate and other inputs. The Company satisfies its performance obligation to provide computing power to the pool operator over time as described in FASB ASC 606-10-25-27(a) as the pool operator simultaneously consumes and receives benefits from the Company’s provision of computing power, which it uses continuously as an input to the pool’s efforts to solve a block. Expenses associated with providing computing power services to third-party operated mining pools, such as hosting fees, electricity costs, and related fees, are recorded as cost of revenues. Depreciation on digital asset mining equipment is also recorded as a component of cost of revenues. NOTE 5 – ADVANCES TO VENDORS AND DEPOSITS The Company contracts with bitcoin mining equipment manufacturers in procuring equipment necessary for the operation of its bitcoin mining operations. 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. The Company accounts for these payments as “Advances to vendors” on the condensed consolidated balance sheets. As of September 30, 2023 and December 31, 2022, such advances totaled approximately $ 23,964 and $ 488,299 , respectively. In addition, the Company contracts with other service providers for the hosting of its equipment and operational support in data centers where the Company’s equipment is deployed. These arrangements also call for advance payments to be made to vendors in conjunction with the contractual obligations associated with these services. The Company classifies these payments as “Short-term prepaids” and “Long-term deposits” on the condensed consolidated balance sheets. 14 NOTE 6 – PROPERTY AND EQUIPMENT The components of property and equipment as of September 30, 2023 and December 31, 2022 are: SCHEDULE OF COMPONENTS OF PROPERTY AND EQUIPMENT Useful life (Years) September 30, 2023 December 31, 2022 Mining rigs 3 $ 679,196 $ 116,634 Containers 10 5,611 1,614 Other 7 240 206 Construction in progress — 181,790 171,194 Total gross property, equipment 866,837 289,648 Less: Accumulated depreciation ( 125,178 ) ( 16,622 ) Property and equipment, net $ 741,659 $ 273,026 The Company’s depreciation expense related to property and equipment for the three months ended September 30, 2023 and 2022 was $ 53,548 and $ 26,295 , respectively. The Company’s depreciation expense related to property and equipment for the nine months ended September 30, 2023 and 2022 was $ 108,556 and $ 64,882 , respectively. NOTE 7 – FAIR VALUE MEASUREMENT The Company measures certain financial and non-financial assets and liabilities at fair value on a recurring or non-recurring basis. The Company uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are: Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions The carrying amounts reported in the condensed 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 instruments. Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to their fair value measurement. The Company measures the fair value of its marketable securities and investments by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs included reported trades and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs. 15 Recurring measurement of fair value The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of December 31, 2022, respectively: SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS Recurring fair value measured at September 30, 2023 (in thousands) Total carrying value at September 30, 2023 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets: Cash and cash equivalents (1) 45,988 45,988 — — Recurring fair value measured at December 31, 2022 Total carrying value at December 31, 2022 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets: Cash and cash equivalents (1) $ 92,044 $ 92,044 $ — $ — (1) Represents money market accounts. Excludes $55,222 and $ 11,661 of cash and cash equivalents as of September 30, 2023 and December 31, 2022, respectively. There were no transfers among Levels 1, 2 or 3 during the nine months ended September 30, 2023. Non-recurring measurement of fair value The following tables present information about the Company’s assets and liabilities measured at fair value on a non-recurring basis and therefore, not included in the tables above. These assets include (a) digital assets and digital assets, restricted that are initially recorded at cost and subsequently impaired as the fair value falls below its carrying value and (b) mining rigs and advances to vendors that are written down to fair value 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. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., impairment). The Company’s estimated level within the fair value hierarchy of these assets and liabilities as of September 30, 2023 and December 31, 2022, respectively, are: SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON NON-RECURRING BASIS Non-recurring fair value measured at September 30, 2023 Total carrying value at September 30, 2023 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets: Digital assets $ 286,801 $ 369,797 $ — $ — Non-recurring fair value measured at December 31, 2022 Total carrying value at December 31, 2022 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets: Digital assets 121,842 — 129,201 — Property and equipment, net (1) 271,280 — 271,280 — Advances to vendors 488,299 — 488,299 — Digital assets, restricted 68,875 — 72,998 — (1) Represents mining rigs. Excludes $ 1,746 of Property and equipment relating to containers, website and leasehold improvements. 16 During the three months ended March 31, 2023, the fair value of digital assets were transferred from Level 2 to Level 1, as a result of using the quoted price in the active market in accordance with ASC 820. There were no other transfers among Levels 1, 2 or 3 during the nine months ended September 30, 2023. In addition, as of September 30, 2023 and December 31, 2022, the Company had convertible notes outstanding with carrying values of $ 325,266 and $ 732,289 and fair values of $ 237,980 and $ 166,842 , respectively, based on Level 1 quoted prices in active markets. As of September 30, 2023 and December 31, 2022, there were no other assets and liabilities measured at fair value on a non-recurring basis. NOTE 8 – NET INCOME (LOSS) PER SHARE Net income per common share is calculated in accordance with ASC Topic 260 – Earnings Per Share . Basic income per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. For the three and nine months ended September 30, 2023, the Company recorded net income and as such, the Company calculated the impact of dilutive common stock equivalents for dilutive earnings per share. For the three and nine months ended September 30, 2022, the Company had net losses and as such, the computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share are as follows: SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE 2023 2022 2023 2022 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Warrants to purchase common stock 324,375 324,375 324,375 324,375 Restricted stock units — 1,113,132 3,753,431 1,113,132 Convertible notes to exchange common stock — 9,812,955 4,341,422 9,812,955 Total dilutive shares 324,375 11,318,601 6,459,630 11,235,430 The following table sets forth the computation of basic and diluted loss per share: SCHEDULE OF COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE 2023 2022 2023 2022 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (As Restated) (As Restated) Basic earnings per common share: Net income (loss) attributable to common shareholders - basic $ 64,137 $ ( 72,462 ) $ 35,648 $ ( 302,424 ) Weighted average common shares - basic 179,602,722 116,533,816 169,162,821 109,492,865 Net income (loss) attributable to common stockholders per common stock - basic $ 0.36 ( 0.62 ) 0.21 ( 2.76 ) Diluted earnings per common share: Net income (loss) attributable to common shareholders - basic $ 64,137 $ ( 72,462 ) $ 35,648 $ ( 302,424 ) Add: Notes interest expense, net of tax 2,451 — — — Net income (loss) attributable to common stockholders per common stock - diluted $ 66,588 $ ( 72,462 ) $ 35,648 $ ( 302,424 ) Weighted average common shares - basic 179,602,722 116,533,816 169,162,821 109,492,865 Restricted stock awards 1,413,329 — — — Convertible Notes 8,475,470 — — — Preferred stock 15,000 — — — Weighted average common shares - diluted 189,506,521 116,533,816 169,162,821 109,492,865 Net income (loss) attributable to common stockholders per common stock - diluted $ 0.35 $ ( 0.62 ) $ 0.21 $ ( 2.76 ) 17 NOTE 9 – COMPUTE NORTH BANKRUPTCY On 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. Bankruptcy Code (11 U.S. Code section 101 et seq .). Marathon’s financial exposure to Compute North at the time of the bankruptcy filing included: – Approximately $ 10,000 in Convertible Preferred Stock of Compute North Holdings, Inc. – Approximately $ 21,000 related to an unsecured Senior Promissory note with Compute North LLC. – Approximately $ 50,000 in operating deposits with Compute North primarily related to the King Mountain and Wolf Hollow hosting facilities. The Company recorded an impairment charge of $ 39,000 for the nine months ended September 30, 2022 and $ 55,674 for the year ended December 31, 2022. On February 16, 2023, the Bankruptcy Court approved the Debtors Plan of Reorganization, pursuant to which Marathon’s claim was fixed at $ 40,000 as an unsecured claim to be paid out according to the timing and percentages within the approved Debtor’s plan. The Company has yet to receive the settlement funds. NOTE 10 – STOCKHOLDERS’ EQUITY Common Stock On July 27, 2023, the Company’s shareholders approved an amendment to the Company’s articles of incorporation that increased the amount of common stock authorized for issuance to 500,000,000 with a par value of $ 0.0001 per share. Shelf Registration Statement on Form S-3 and At-The-Market Offering Agreement On February 11, 2022, the Company entered into an At-The-Market Offering Agreement, or sales agreement, with H.C. Wainwright & Co., LLC relating to shares of the Company’s common stock. In accordance with the terms of the sales agreement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 750,000 from time to time through Wainwright acting as its sales agent. As of September 30, 2023, the Company has sold 74,447,287 shares of common stock for an aggregate purchase price of $ 627,272 , net of offering costs, pursuant to this At-The-Market Offering Agreement. In February 2022, the Company commenced an At The Market offering program with H.C. Wainwright & Co., LLC, as sales agent, which allowed it to sell and issue shares of up to approximately $ 750,000 of its Common Stock from time-to-time. During the first three quarters of 2023, the Company issued 32,305,554 shares of Common Stock under the 2022 At The Market offering program for total proceeds of $ 265,786 , net of commissions and other offering related expenses. Common Stock Warrants A summary of the Company’s issued and outstanding stock warrants and changes during the period ended September 30, 2023 is as follows: SUMMARY OF OUTSTANDING STOCK WARRANTS Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Outstanding as of December 31, 2022 324,375 $ 25.00 2.5 Issued — 0.00 0.0 Expired — 0.00 0.0 Exercised — 0.00 0.0 Outstanding as of September 30, 2023 324,375 $ 25.00 2.0 18 Restricted Stock A summary of the restricted stock award activity (represented by restricted stock units (“RSUs”)) for the nine months ended September 30, 2023 is as follows: SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY Number of Units Weighted Average Grant Date Fair Value Nonvested at December 31, 2022 1,255,648 $ 22.60 Granted 3,350,763 8.33 Vested ( 679,947 ) 20.02 Forfeited ( 173,033 ) $ 9.42 Nonvested at September 30, 2023 3,753,431 $ 10.93 Series A Preferred Stock On June 5, 2023, the Company entered into a securities purchase agreement for the purchase of 15,000 shares of Series A redeemable convertible preferred stock. On June 8, 2023, upon closing of the offering, the Company issued 15,000 shares of Series A Preferred Stock for total gross proceeds of $ 14,286 before deducting the placement agent’s fees and other estimated offering expenses. Each share of Series A Preferred Stock had a purchase price of $ 952.38 , representing an original issue discount of approximately 5 % of the $ 1,000 stated value of each share. Each share of Series A Preferred Stock was convertible into shares of the Company’s common stock at an initial conversion price of $ 14.52 per share, at the option of the holder, at any time following the Company’s receipt of stockholder approval for an increase in its authorized shares of common stock. The Series A Preferred Stock was recorded outside of stockholder’s equity as mezzanine equity. At June 30, 2023, the Company increased the carrying value of Series A Preferred Stock to its redemption value and recorded the difference to additional paid-in capital. During the third quarter ended September 30, 2023, all of the outstanding Series A Preferred Stock were redeemed at 105 % of the $ 1,000 stated value per share for $ 15,750 . NOTE 11 – DEBT On November 18, 2021, the Company issued $ 650,000 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”). On November 23, 2021, pursuant to terms of the Notes, the initial purchasers of the Notes purchased an additional $ 97,500 principal of Notes for an aggregate principal amount of Notes purchased of $ 747,500 . All references in this disclosure to “Notes” includes the Notes issued on both November 18, 2021 and November 23, 2021. The 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. The Notes will mature on December 1, 2026, unless earlier repurchased, redeemed or converted, which scenarios the Company is currently contemplating and may consummate in advance of the maturity date. 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 one thousand dollar principal amount of Notes, which represents an initial conversion price of approximately $ 76.17 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. 19 In September 2023, the Company entered into privately negotiated exchange agreements with certain holders of its Notes. In total, the Company exchanged $ 416,793 principal amount of Notes for an aggregate 31,722,417 shares of Company common stock. The Company evaluated the exchange of debt to determine if it was an extinguishment or a modification of the debt. Due to the addition of a substantive conversion feature, the Company determined that the exchange was an extinguished of debt. The Company measured the gain on extinguishment of debt based on the carrying value of the Notes, the fair value of the Company’s common stock issued in the exchange and related transaction costs. The Company recorded a gain on the exchange of Notes for the Company’s common stock in the amount of $ 82,600 to “Net gain from extinguishment of debt” on the Condensed Consolidated Statements of Operations. As of September 30, 2023 and December 31, 2022, Notes outstanding, net of unamortized discounts of approximately $ 5,441 and $ 15,211 , respectively, were $ 325,266 and $ 732,289 , respectively. On July 28, 2022, the Company entered into a Revolving Credit and Security Agreement (the “Agreement”) with Silvergate Bank (the “Bank”) pursuant to which Silvergate had agreed to loan the Company up to $ 100,000 on a revolving basis pursuant to the terms of the Agreement. This facility refinanced and replaced an existing $ 100,000 facility the Company had in place with the Bank. On the same date, the Company also entered into a $ 100,000 principal term loan facility (the “Term Loan”) with Silvergate. See Form 10-K for the year ended December 31, 2022 for the terms of the facilities set forth in the Agreement and the Term Loan. 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 and the Company recorded a loss in the amount of $ 333 to “Net gain on extinguishment of debt” on the Condensed Consolidated Statements of Operations. NOTE 12 – LEASES Leases The Company leases office space in the United States under operating lease agreements. The Company also entered into an arrangement with Applied Blockchain for the use of energized cryptocurrency mining facilities under which the Company pays for electricity per megawatt based on usage. The Company has determined that it has embedded operating leases at two of the facilities governed by this arrangement that commenced in January and March 2023, and has elected not to separate lease and non-lease components. Payments made for these two operating leases are entirely variable and are based on usage of electricity, and the Company therefore does not record a right-of-use asset or lease liability associated with the leases. Variable lease cost during the nine months ended September 30, 2023 are disclosed in the table below. Office space and mining facilities comprise the Company’s material underlying asset classes under operating lease agreements. The Company has no material finance leases. As of September 30, 2023, the Company’s right-of-use (“ROU”) assets and total lease liabilities were $ 501 and $ 538 , respectively. As of December 31, 2022, the Company’s ROU assets and total lease liabilities were $ 1,276 and $ 1,343 , respectively. The Company has amortized right-of-use assets totaling $ 57 and $ 79 for the three months ended September 30, 2023 and 2022, respectively. The Company has amortized right-of-use assets totaling $ 224 and $ 178 for the nine months ended September 30, 2023 and 2022, respectively. Operating lease costs are recorded on a straight-line basis within operating expenses. The Company’s total lease expense is comprised of the following: SCHEDULE OF COMPONENTS OF LEASE COST 2023 2022 2023 2022 For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Operating leases Operating lease cost $ 65 $ 114 $ 250 $ 214 Operating lease expense 65 114 250 214 Short-term lease rent expense 8 7 28 22 Variable lease cost 26,263 — 46,201 — Total rent expense $ 26,336 $ 121 $ 46,479 $ 236 20 Additional information regarding the Company’s leasing activities as a lessee is as follows: SUMMARY OF MINIMUM LEASE PAYMENTS For the Nine Months Ended September 30, 2023 2022 Operating cash flows from operating leases $ 319 $ 261 Weighted-average remaining lease term – operating leases 3.3 3.9 Weighted-average discount rate – operating leases 5 % 5 % SCHEDULE OF LEASE LIABILITY MATURITY Year Amount 2023 (remaining) $ 66 2024 166 2025 143 2026 147 2027 63 Thereafter — Total $ 585 NOTE 13 – LEGAL PROCEEDINGS Compute North Bankruptcy On September 22, 2022, Compute North Holdings, Inc. (currently d/b/a Mining Project Wind Down Holdings, Inc.) and certain of its affiliates (collectively, “Compute North”) filed for chapter 11 bankruptcy protection. Compute North provided operating services to the Company and hosted its mining rigs at multiple facilities. The Company delivered miners to Compute North, which then installed the mining rigs at those facilities, operated and maintained the mining rigs, and provided energy to keep the miners operating. During the course of the chapter 11 cases, Compute North sold substantially all of their assets in a series of 363 sale transactions, including Compute North’s ownership interests in non-debtor entities that own or partially-own facilities that house the Company’s miners. On November 23, 2022, the Company and certain of its affiliates timely filed proofs of claim asserting various claims against Compute North, including: (i) claims arising under hosting agreements between the Company and Compute North LLC; (ii) claims arising under that certain Senior Promissory Note, dated as of July 1, 2022, by and between the Company, as Lender, and Compute North LLC, as Borrower; (iii) claims arising from the breach of a letter of intent between us and Compute North LLC; and (iv) claims for daily lost revenue, profits and other damages against Compute North. On February 9, 2023, the Bankruptcy Court approved a settlement stipulation between the Company and Compute North, pursuant to which the proofs of claim filed by the Company and certain of its affiliates were resolved, and the Company received a single allowed unsecured claim against Compute North LLC in the amount of $ 40,000 and its Preferred Equity Interests in Compute North Holdings, Inc. in the amount of 39,597 shares of Series C Preferred Stock was confirmed. In exchange, the Company agreed to vote in favor of Compute North’s chapter 11 plan. On February 16, 2023, the Bankruptcy Court confirmed Compute North’s chapter 11 plan (the “Plan”), pursuant to which Compute North will liquidate its remaining assets and distribute proceeds arising therefrom in accordance with the waterfall set forth in the Plan. In its disclosure statement filed on December 19, 2022, the Compute North Debtors projected that holders of allowed general unsecured claims could recover anywhere between 8% to 65% on their claims, while holders of preferred equity interests are expected to recover nothing on their interests . The Plan became effective on March 31, 2023. At this time, the Company cannot predict the quantum of its potential recovery on account of its allowed general unsecured claim and preferred equity interests or the timing of when it would receive any distributions under the Plan on account of its claims and interests. 21 Putative Class Action Complaint On March 30, 2023, 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, alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) arising out of the Company’s announcement of accounting restatements on February 28, 2023. The defendants’ time to respond has been extended until after the appointment of a lead plaintiff. To date, no lead plaintiff has been appointed. Derivative Complaints On June 22, 2023, a shareholder derivative complaint was filed in the Circuit Court of the 17th Judicial Circuit for Broward County, Florida, against current members of the Company’s board of directors and senior management, alleging claims for breach of fiduciary duty and unjust enrichment based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint. On July 8, 2023, 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, alleging claims under Sections 14(a), 10(b), and 21D of the Exchange Act, and for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint. On July 12, 2023, a third 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, alleging claims under Section 14(a) of the Exchange Act and for breach of fiduciary duty, based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint. On July 13, 2023, a fourth shareholder derivative complaint was filed in the Circuit Court of the 17th Judicial Circuit for Broward County, Florida, against current members of the Company’s board of directors and senior management, alleging claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint. On August 14, 2023, the two derivative actions pending in the United States District Court for the District of Nevada were consolidated (the “Nevada Derivative Action”). On October 16, 2023, the parties to the derivative actions pending in the Circuit Court of the 17th Judicial Circuit for Broward County, Florida filed an agreed order to stay both actions pending completion of the Nevada Derivative Action. Information Subpoenas On October 6, 2020, the Company entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts in Hardin, Montana. In conjunction therewith, the Company filed a Current Report on Form 8-K on October 13, 2020. The 8-K discloses that, pursuant to a Data Facility Services Agreement, the Company issued 6,000,000 shares of restricted Common Stock, in transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. During the quarter ended September 30, 2021, the Company and certain of its executives received a subpoena to produce documents and communications concerning the Hardin, Montana data center facility described in the Company’s Form 8-K dated October 13, 2020. The Company received an additional subpoena from the SEC on April 10, 2023, relating to, among other things, transactions with related parties. The Company understands that the SEC may be investigating whether or not there may have been any violations of the federal securities law. The Company is cooperating with the SEC. Ho v. Marathon On January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and Restitution (“Complaint”) against the Company. The Complaint alleges six causes of action against the Company, (1) Breach of Written Contract; (2) Breach of Implied Contract; (3) Quasi-Contract; (4) Services Rendered; (5) Intentional Interference with Prospective Economic Relations; and (6) Negligent Interference with Prospective Economic Relations. The 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. 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. 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 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. The trial has been rescheduled for January 29, 2024, and is scheduled for four days, including jury selection. 22 NOTE 14 – RELATED PARTY TRANSACTIONS On September 23, 2022, the Company made an incremental $ 30,000 investment in Auradine, Inc., bringing its total holdings in Auradine to $ 35,500 based upon a previously issued and disclosed SAFE instrument. Said Ouissal, a director of the Company, currently owns approximately 5 % of the issued and outstanding shares of Auradine, and Fred Thiel, the Company’s Chairman and CEO, sits on Auradine’s Board of Directors. NOTE 15 – SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION The following table provides supplemental disclosure of Condensed Consolidated Statements of Cash Flows information: SCHEDULE OF SUPPLEMENTAL INFORMATION 2023 2022 Nine Months Ended September 30, 2023 2022 Supplemental information Cash paid during the year for: Income taxes $ 785 $ 7 Interest 6,200 5,382 Supplemental schedule of non-cash investing and financing activities: Series A Preferred Stock accretion to redemption value $ 2,121 $ — Operating lease assets obtained in exchange for new operating lease liabilities — 1,539 Digital currencies transferred from fund — 137,845 Unpaid proceeds from sale of property and equipment — 1,000 Reclassifications from advances to vendor to property and equipment upon receipt of equipment 551,650 260,575 Common stock issued for service and license agreements — 4,580 Exchange of convertible notes for common stock 318,771 — NOTE 16 – SUBSEQUENT EVENTS The Company has evaluated other subsequent events through the date the consolidated financial statements were available to be issued and has concluded that no such events or transactions took place that would require disclosure and in this Note 16 other than as disclosed below. On October 24, 2023, the Company commenced a new At The Market offering program with H.C. Wainwright & Co., LLC, acting as sales agent, under which it may offer and sell shares of its Common Stock from time to time through the sales agent having an aggregate offering price of up to $ 750,000 . The sales agent will be compensated at a commission rate equal to up to 3.0 % of the gross sales price per share sold. As of November 8, 2023, the Company had sold no shares under this program. 23