Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on this evaluation, the Company’s management concluded that its disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2023 due to the previously identified material weakness.
As further discussed below under “Management’s Annual Report on Internal Control Over Financial Reporting,” management has identified certain material weaknesses, as set forth below. The Company has developed a remediation plan for the weaknesses, which is described below under “Remediation.” As a result of such material weaknesses, the report of the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2023, Marcum LLP, regarding its audit of the Company’s internal control over financial reporting as of December 31, 2023, 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 the Company’s internal control over financial reporting as of December 31, 2023.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.
Management’s Annual Report on Internal Control over Financial Reporting
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. Because of its 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 the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim Consolidated Financial Statements will not be prevented or detected on a timely basis.
Management utilized the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to assess the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. Based on that assessment and the material weaknesses described below, Marathon’s management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2023.
Material Weaknesses in Internal Control and Plan for Remediation
Based on its evaluation, management previously identified a material weakness in internal control over financial reporting that remained open as of year-end. The material weakness included:
• A material weakness related to the ineffective design or implementation of information technology general controls or an alternative key manual control to prevent or detect material misstatements in revenue.
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The material weaknesses associated with the design and implementation of 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.
Remediation
The Company’s Board of Directors and management take internal control over financial reporting and the integrity of its financial statements seriously. Management continues to work to improve its controls related to the material weaknesses described above. Management will continue to implement measures to remediate the material weaknesses, such that these controls are designed, implemented, and operating effectively. In 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:
• Continue the process that was started during 2022 of adding to the Company’s internal resources to enhance its capabilities in the areas of technical accounting, financial reporting, and internal controls, including a full-time person dedicated to internal controls;
• Continue to utilize external third-party audit and SOX 404 implementation firms to enable the Company to improve the Company’s controls related to its material weaknesses; and
• Continue to evaluate existing processes and implement new processes and controls where necessary in connection with remediating the Company’s material weaknesses, such that these controls are designed, implemented, and operating effectively.
• Continue to work and guide our vendors in the industry that are not accustomed to SOX requirements to enhance and progress the industry forward to be full SOX compliant.
The Company recognizes that the material weaknesses in its internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. Because the Company’s remediation efforts are ongoing, it cannot provide any assurance that these remediation efforts will be successful or that its internal control over financial reporting will be effective as a result of these efforts.
The Company continues to evaluate and work to improve its 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, the Company will report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.
As part of the Company’s ongoing program to implement changes and further improve its internal controls and in conjunction with is Code of Ethics, the Company’s independent directors have been working with management to include protocols and measures aimed at ensuring quality of its internal controls. Among those measures is the implementation of a whistle blower hotline, which allows third parties to anonymously report noncompliant activity. The hotline may be accessed as follows:
To file a report, use the Client Code “MarathonPG” and pick one of the following options:
• Call: 1-877-647-3335
• Click: http://www.RedFlagReporting.com
Change in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting other than the ongoing remediation efforts undertaken by management.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Stockholders and Board of Directors of Marathon Digital Holdings, Inc.
Adverse 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, 2023, 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, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A 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 has been identified and included in “Management’s Annual Report on Internal Control Over Financial Reporting”:
• The Company has not designed or implemented effective information technology general controls or an alternative manual control to prevent or 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, 2023 consolidated financial statements, and this report does not affect our report dated February 28, 2024 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, 2023 and 2022 and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, of the Company and our report dated February 28, 2024 expressed an unqualified opinion on those financial statements.
Basis for Opinion
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 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.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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 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
A 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 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,
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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.
Because 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
Marcum LLP
Costa Mesa, California
February 28, 2024
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be disclosed in the Company’s definitive proxy statement on Schedule 14A for our 2024 annual meeting of stockholders (the “2024 Proxy Statement”) and is incorporated herein by reference. Our 2024 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2023 pursuant to Regulation 14A under the Exchange Act. We have adopted a code of business conduct and ethics (our “Code of Ethics”) which is applicable to our directors, executive officers and employees, a copy of which is available on our website (https://ir.mara.com/corporate-governance/governance-documents). We intend to disclose future amendments to certain provisions of the Code of Ethics, or waivers of such provisions, at the same location on our website identified above. The inclusion of our website address in this Annual Report does not include or incorporate by reference the information on the website into this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be disclosed in our 2024 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be disclosed in our 2024 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be disclosed in our 2024 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be disclosed in our 2024 Proxy Statement and is incorporated herein by reference.
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PART IV
ITEM 15. EXHIBITS
The following exhibits are filed as part of this Annual Report.
Exhibit Number
Exhibit Description Form
Date of First Filing
Exhibit Number
Provided Herewith
3.1
Restated Articles of Incorporation of Marathon Digital Holdings, Inc.
X
3.2
Amended and Restated Bylaws of Marathon Digital Holdings, Inc.
X
4.1
Description of Capital Stock
X
4.2
Indenture, dated November 18, 2021, by and between Marathon Digital Holdings, Inc. and U.S. Bank National Association
Form 8-K
11/18/2021
4.1
4.3
Form of Common Stock Purchase Warrant
Form S-1
6/29/2020
4.5
10.1#
Marathon Digital Holdings, Inc. Amended and Restated 2018 Equity Incentive Plan
X
10.2#
Form of Restricted Stock Unit Agreement
X
10.3
At-the-Market Offering Agreement, dated October 24, 2023, by and between Marathon Digital Holdings, Inc. and H.C. Wainwright & Co., LLC
Form S-3
10/24/2023
4.12
10.4#
Employee Employment Agreement, dated August 30, 2017, by and between Marathon Patent Group, Inc. and James Crawford
Form 8-K 9/05/2017
10.3
10.5#
Executive Employment Agreement, dated April 26, 2021, by and between Marathon Patent Group, Inc. and Fred Thiel
Form 8-K
4/30/2021
99.1
10.6#
Employment Agreement, dated December 20, 2021, by and between Marathon Digital Holdings, Inc. and Ashu Swami
Form 8-K
1/03/2022
10.1
10.7#
Executive Employment Agreement, dated November 21, 2022, by and between Marathon Digital Holdings, Inc. and John Lee
Form 8-K
11/28/2022
10.1
10.8#
Executive Employment Agreement, dated May 31, 2023, by and between Marathon Digital Holdings, Inc. and Salman Khan
Form 8-K
6/06/2023
10.1
10.9#
Executive Employment Agreement, dated July 29, 2022, by and between Marathon Digital Holdings, Inc. and Adam Swick
X
10.10
NYDIG Digital Asset Custodial Terms and Conditions, dated July 27, 2021, by and between Marathon Digital Holdings, Inc. and NYDIG Execution LLC
Form 10-Q
05/10/2023
10.1
10.11
Shareholders’ Agreement, dated January 2023, by and between Marathon Digital Holdings, Inc. and FS Innovation LLC
Form 10-K
3/16/2023
10.63
19.1
Marathon Digital Holdings, Inc. Statement of Policies and Procedures Governing Material Nonpublic Information and the Prevention of Insider Trading
X
21.1 Subsidiaries of Marathon Digital Holdings, Inc.
X
23.1
Consent of Marcu m LLP
X
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24.1
Power of Attorney (included on the signature page) X
31.1
Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1*
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
97.1
Marathon Digital Holdings, Inc. Policy for the Recovery of Erroneously Awarded Compensation
X
101.INS
Inline XBRL Instance Document X
101.SCH
Inline XBRL Taxonomy Extension Schema Document X
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104
Cover Page Interactive Data File (embedded within the Inline XBRL document) X
# Indicates management contract or compensatory plan.
* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
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ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: February 28, 2024
MARATHON DIGITAL HOLDINGS, INC.
By: /s/ Fred Thiel
Name: Fred Thiel
Title: Chief Executive Officer and Executive Chairman
(Principal Executive Officer)
By: /s/ Salman Khan
Name: Salman Khan
Title: Chief Financial Officer
(Principal Financial Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Salman Khan and Zabi Nowaid, and each or either of them, acting individually, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them, or their or his or her substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature Title Date
/s/ Fred Thiel Chief Executive Officer and Executive Chairman
February 28, 2024
Fred Thiel (Principal Executive Officer)
/s/ Salman Khan Chief Financial Officer February 28, 2024
Salman Khan (Principal Financial Officer)
/s/ Kevin DeNuccio
Director February 28, 2024
Kevin DeNuccio
/s/ Sarita James
Director February 28, 2024
Sarita James
/s/ Said Ouissal
Director February 28, 2024
Said Ouissal
/s/ Georges Antoun
Director February 28, 2024
Georges Antoun
/s/ Douglas Mellinger
Director February 28, 2024
Douglas Mellinger
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