UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from _______to______

MARATHON DIGITAL HOLDINGS, INC.

(Exact Name of Registrant as Specified in Charter)

Nevada

001-36555

01-0949984

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

1180 North Town Center Drive, Suite 100 Las Vegas, NV		89144
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 702-945-2773

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		MARA		The Nasdaq Capital Market

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, 99,634,123 shares of common stock are issued and outstanding as of August 13, 2021.

TABLE OF CONTENTS

		Page
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Condensed Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020	3
	Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	4
	Consolidated Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	5
	Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (unaudited)	6
	Notes to Unaudited Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, “Marathon Digital Holdings, Inc.,” “we,” “us,” “our” and similar terms refer to Marathon Patent Group, Inc., a Nevada corporation, and its subsidiaries.

Item 1. Financial Statements

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

	June 30,			December 31,
	2021			2020
	(Unaudited)			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	170,615,847		$	141,322,776
Digital currencies		28,966,404			2,271,656
Other receivable		-			74,767,226
Deposit		121,582,865			65,647,592
Investment fund		166,915,071			-
Prepaid expenses and other current assets		3,570,683			2,399,965
Total current assets		491,650,870			286,409,215

Other assets:
Property and equipment, net of accumulated depreciation and impairment charges of $10,120,373 and $6,480,359 for June 30, 2021 and December 31, 2020, respectively		80,151,147			17,224,321
Prepaid service contract		11,095,026			8,415,000
Right-of-use assets		-			200,301
Intangible assets, net of accumulated amortization of $243,187 and $207,598 for June 30, 2021 and December 31, 2020, respectively		966,813			1,002,402
Total other assets		92,212,986			26,842,024
TOTAL ASSETS	$	583,863,856		$	313,251,239

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	2,626,242		$	999,742
Current portion of lease liability		-			121,596
Warrant liability		718,329			322,437
Total current liabilities		3,344,571			1,443,775
Long-term liabilities
SBA PPP loan payable		-			62,500
Total long-term liabilities		-			62,500
Total liabilities		3,344,571			1,506,275

Commitments and Contingencies		-			-

Stockholders’ Equity:
Preferred stock, 0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively		-			-
Common stock, 0.0001 par value; 200,000,000 shares authorized; 99,634,123 and 81,974,619 issued and outstanding at June 30, 2021 and December 31, 2020, respectively		9,963			8,197
Additional paid-in capital		722,543,196			428,242,763
Accumulated other comprehensive loss		(450,719	)		(450,719	)
Accumulated deficit		(141,583,155	)		(116,055,277	)
Total stockholders’ equity		580,519,285			311,744,964
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	583,863,856		$	313,251,239

The accompanying notes are an integral part to these unaudited consolidated condensed financial statements.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Revenues
Cryptocurrency mining revenue	$	29,321,857		$	286,161		$	38,474,672		$	878,648
Total revenues		29,321,857			286,161			38,474,672			878,648

Operating costs and expenses
Cost of revenue		6,993,834			740,483			9,400,249			1,893,724
Compensation and related taxes		4,082,767			1,060,480			56,488,554			1,294,137
Consulting fees		105,355			24,313			218,960			66,125
Professional fees		2,160,775			162,552			2,473,807			309,194
General and administrative		278,860			89,566			586,050			198,503
Impairment of mined cryptocurrency		11,078,660			-			11,740,859			-
Total operating expenses		24,700,251			2,077,394			80,908,479			3,761,683
Income (loss) from Operations		4,621,606			(1,791,233	)		(42,433,807	)		(2,883,035	)
Other income (expenses)
Other income		64,484			-			63,014			106,408
Loss on conversion of note		-			(364,832	)		-			(364,832	)
Change in fair value of investment in NYDIG fund		(114,907,879	)		-			16,915,071			-
Realized gain (loss) on sale of digital currencies		989			8,482			935			4,260
Change in fair value of warrant liability		1,196,004			(6,563	)		(395,892	)		3,224
Change in fair value of mining payable		-			-			-			(66,547	)
Interest income		141,379			499			325,207			2,379
Interest expense		(1,203	)		(7,549	)		(2,406	)		(20,984	)
Total other (expenses) income		(113,506,226	)		(369,963	)		16,905,929			(336,092	)
Income (loss) before income taxes	$	(108,884,620	)	$	(2,161,196	)	$	(25,527,878	)	$	(3,219,127	)
Income tax expense		-			-			-			-
Net income (loss)	$	(108,884,620	)	$	(2,161,196	)	$	(25,527,878	)	$	(3,219,127	)

Net income (loss) per share, basic and diluted:	$	(1.09	)	$	(0.13	)	$	(0.26	)	$	(0.26	)
Weighted average shares outstanding, basic and diluted:		99,466,946			16,291,610			96,922,964			12,473,568

The accompanying notes are an integral part to these unaudited consolidated condensed financial statements.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three Months Ended June 30, 2021

	Number		Amount		Number		Amount		Capital		Deficit			Income (Loss)			Equity
	Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Number		Amount		Number		Amount		Capital		Deficit			Income (Loss)			Equity
Balance as of March 31, 2021		-	$	-		99,370,465	$	9,937	$	716,862,400	$	(32,698,535	)	$	(450,719	)	$	683,723,083
Stock based compensation, net of tax withholding		-		-		99,520		10		875,973		-			-			875,983
Issuance of common stock, net of offering costs/At-the-market offering
Issuance of common stock, net of offering costs/At-the-market offering, shares
Common stock issued for purchase of mining servers
Common stock issued for purchase of mining servers, shares
Common stock issued for note conversion
Common stock issued for note conversion, shares
Options exercised on cashless basis
Options exercised on cashless basis, shares
Warrants exercised for cash
Warrant exercised for cash, shares
Common stock issued for cashless exercise of warrants		-		-		2,044		-		-		-			-			-
Common stock issued for service and license agreements						162,094		16		4,804,823		-			-			4,804,839
Net income		-		-		-		-		-		(108,884,620	)		-			(108,884,620	)
Balance as of June 30, 2021		-	$	-		99,634,123	$	9,963	$	722,543,196	$	(141,583,155	)	$	(450,719	)	$	580,519,285

For the Three Months Ended June 30, 2020

	Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Number		Amount		Number		Amount		Capital		Deficit			Income (Loss)			Equity
Balance as of March 31, 2020		-	$	-		9,212,106	$	922	$	110,284,952	$	(106,665,437	)	$	(450,719	)	$	3,169,718
Stock based compensation		-		-		2,745,639		275		648,475		-			-			648,750
Issuance of common stock, net of offering costs/At-the-market offering		-		-		10,544,818		1,054		6,420,835		-			-			6,421,889
Common stock issued for note conversion						2,023,739		202		1,578,872		-			-			1,579,074
Warrants exercised for cash		-		-		-		-		-		-			-			-
Net loss		-		-		-		-		-		(2,161,196	)		-			(2,161,196	)
Balance as of June 30, 2020		-	$	-		24,526,302	$	2,453	$	118,933,134	$	(108,826,633	)	$	(450,719	)	$	9,658,235

For the Six Months Ended June 30, 2021

	Preferred Stock				Common Stock				Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Number		Amount		Number		Amount		Capital			Deficit			Income (Loss)			Equity
Balance as of December 31, 2020		-	$	-		81,974,619	$	8,197	$	428,242,763		$	(116,055,277	)	$	(450,719	)	$	311,744,964
Stock based compensation, net of tax withholding		-		-		4,800,962		480		51,907,098			-			-			51,907,578
Issuance of common stock, net of offering costs/At-the-market offering		-		-		12,500,000		1,250		237,428,370			-			-			237,429,620
Options exercised on cashless basis		-		-		23,500		3		(3	)		-			-			-
Warrant exercised for cash		-		-		170,904		17		160,145			-			-			160,162
Common stock issued for cashless exercise of warrants		-		-		2,044		0		-			-			-			0
Common stock issued for service and license agreements		-		-		162,094		16		4,804,823			-			-			4,804,839
Net loss		-		-		-		-		-			(25,527,878	)		-			(25,527,878	)
Balance as of June 30, 2021		-	$	-		99,634,123	$	9,963	$	722,543,196		$	(141,583,155	)	$	(450,719	)	$	580,519,285

For the Six Months Ended June 30, 2020

	Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Number		Amount		Number		Amount		Capital		Deficit			Income (Loss)			Equity
Balance as of December 31, 2019		-	$	-		8,458,781	$	846	$	109,705,051	$	(105,607,506	)	$	(450,719	)	$	3,647,672
Stock based compensation		-		-		2,745,639		275		671,713		-			-			671,988
Issuance of common stock, net of offering costs/At-the-market offering		-		-		10,947,893		1,095		6,805,911		-			-			6,807,006
Common stock issued for purchase of mining servers		-		-		350,250		35		171,587		-			-			171,622
Common stock issued for note conversion		-		-		2,023,739		202		1,578,872		-			-			1,579,074
Net loss		-		-		-		-		-		(3,219,127	)		-			(3,219,127	)
Net income loss												(3,219,127	)					(3,219,127	)
Balance as of June 30, 2020		-	$	-		24,526,302	$	2,453	$	118,933,134	$	(108,826,633	)	$	(450,719	)	$	9,658,235

The accompanying notes are an integral part to these unaudited consolidated condensed financial statements.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	2021			2020
	For the Six Months Ended
	June 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(25,527,878	)	$	(3,219,127	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		3,640,014			1,010,270
Amortization of patents and website		35,589			35,588
Realized gain (loss) on sale of digital currencies		(935	)		(4,260	)
Change in fair value of warrant liability		395,892			(3,224	)
Change in fair value of mining payable		-			66,547
Change in fair value of investment securities		(16,915,071	)		-
Gain on PPP loan forgiveness		(62,500	)		-
Impairment of cryptocurrencies		11,740,859			-
Stock based compensation		55,717,561			671,988
Amortization of right-of-use assets		200,301			52,117
Changes in operating assets and liabilities:
Digital currencies		(38,474,672	)		(878,648	)
Lease liability		(121,596	)		(53,736	)
Prepaid expenses and other assets		954,094			58,886
Accounts payable and accrued expenses		1,626,500			173,555
Net cash used in operating activities		(6,791,842	)		(2,090,044	)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of digital currencies		40,000			775,349
Purchase of investment securities		(150,000,000	)		(1,277,455	)
Purchase of property and equipment		(66,566,839	)		-
Deposits for the purchase of mining servers		(55,935,273	)		(4,195,200	)
Net cash used in investing activities		(272,462,112	)		(4,697,306	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds received on issuance of notes payable		-			62,500
Proceeds from issuance of common stock/At-the-market offering		324,768,493			7,061,603
Offering costs for the issuance of common stock/At-the-market offering		(12,571,648	)		(254,597	)
Value of shares withheld for taxes		(3,809,983	)		-
Proceeds received on exercise of options and warrants		160,163			-
Net cash provided by financing activities		308,547,025			6,869,506

Net increase in cash and cash equivalents		29,293,071			82,156
Cash and cash equivalents — beginning of period		141,322,776			692,963
Cash and cash equivalents — end of period	$	170,615,847		$	775,119

Supplemental schedule of non-cash investing and financing activities:
Common stock issued for purchase of mining servers	$	-		$	171,622
Reduction of share commitment for purchase of mining servers	$	-		$	408,625
Options exercised into common stock	$	3		$	-
Common stock issued for note conversion	$	-		$	1,579,074
Common stock issued for service and license agreements	$	4,804,839		$	-

The accompanying notes are an integral part to these unaudited consolidated condensed financial statements.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization

Marathon Digital Holdings, Inc. (the “Company”) was incorporated in the State of Nevada on February 23, 2010 under the name Verve Ventures, Inc. On December 7, 2011, the Company changed its name to American Strategic Minerals Corporation and were engaged in exploration and potential development of uranium and vanadium minerals business. In June 2012, the Company discontinued the minerals business and began to invest in real estate properties in Southern California. In October 2012, the Company discontinued its real estate business when the former CEO joined the firm and the Company commenced IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc. On November 1, 2017, the Company entered into a merger agreement with Global Bit Ventures, Inc. (“GBV”), which is focused on mining digital assets. The Company purchased cryptocurrency mining machines and established a data center in Canada to mine digital assets. The Company expanded its activities in the mining of new digital assets, while at the same time harvesting the value of its remaining IP assets. As of June 30, 2021, the Company has since terminated the lease in Canada and deployed over 17,300 of our data mining operations in our facility in Hardin, Montana.

On August 13, 2020, the Company entered into a Long Term Purchase Contract with Bitmaintech PTE., LTD (“Bitmain”) for the purchase of 10,500 next generation Antminer S-19 Pro ASIC Miners. The purchase price per unit is $2,362 ($2,206 with a 6.62% discount) for a total gross purchase price of $24,801,000. The parties confirm that the total hashrate of the Antminers under this agreement shall not be less than 1,155,000 TH/s. Subsequent to executing this agreement, due to the additional executed contracts, Bitmain applied a total net discount of 8.63% to the purchase price adjusting the amount due to $22,660,673.

Subject to the timely payment of the purchase price, Bitmain shall deliver products according to the following schedule: 1,500 Units on or before January 31, 2021; and 1,800 units on or before each of February 28, 2021; June 30, 2021; April 30, 2021, May 31, 2021 and June 30, 2021. As of June 30, 2021, the Company has paid the entire purchase price under this agreement and has received 9,399 units from Bitmain with an additional 1,101 in transit.

On October 6, 2020, the Company entered into a series of agreements with affiliates of Beowulf Energy LLC, a Delaware limited liability company (collectively and as applicable, “Beowulf”) and Two Point One, LLC, a Delaware limited liability company (“2Pl”; Marathon, Beowulf and 2Pl each a “Party” and, collectively, the “Parties”). Beowulf and 2Pl have been designing and developing a data center facility of up to 100-megawatts (the “Facility”) that will be located next to, and supplied energy directly from, Beowulf’s power generating station in Hardin, MT (the “Hardin Station”). The Facility is being developed in two phases to reach its 100 MW capacity, and the Hardin Station will supply the Facility exclusively with energy to operate Bitcoin mining servers.

The projected build out cost for Phase I is approximately $23 million, which is front loaded as the infrastructure is being built for the full 100 MW project. Phase I accounts for 70 MW of the 100 MW project. It entails high voltage equipment to break down the full 100 MW load from the generating station, and thereafter, the infrastructure cost per MW is a matter of distributing power at a container level. Phase II accounts for 30 MW of the 100 MW project and is anticipated to cost approximately $9 million. The total projected build out cost for the full 100 MW project is approximately $32 million. These are all in costs covering all equipment and labor needed starting from the power coming off the Generating Station distributed down to running the actual miners: including breakers, transformers, switches, containers, PDUs, fans, network cables, and the like. As of June 30, 2021, the Company has paid all of the required installments totaling $33 million in actual costs related to the 100 MW build out.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Marathon and Beowulf entered into an exclusive Power Purchase Agreement for the initial supply of 30 MW (Phase I), and up to 100 MW in the aggregate (Phase II), of energy load to the Facility at a cost of $0.028/kWh. The initial term of the Power Purchase Agreement is five years, with up to five additional three-year extensions, as mutually agreed, assuming 75% energy utilization of the initial 30 MW of energy supplied to the Facility. Marathon purchased certain mining infrastructure and equipment for the Facility from Beowulf for a purchase price of $750,000, and Marathon has the right, at no additional cost, to construct and access the Facility on land adjacent to the Hardin Station pursuant to a lease agreement with Beowulf. After the execution of the contract, the Company entered into additional miner purchase agreements. Due to the increased size of the Company’s fleet of miners, Phase I was increased from the initial 30 MW to 70 MW, while Phase II will encompass the completion of the remaining 30 MW for the project.

Beowulf and 2P1 will provide operation and maintenance services for the Facility pursuant to a Data Facility Services Agreement, in exchange for an initial issuance of 3,000,000 shares of Marathon’s common stock to each of Beowulf and 2Pl valued at the time of execution at $1.87 per share or $11,220,000 in aggregate. Upon completion of Phase I, Marathon will issue to Beowulf an additional 150,000 shares of its common stock. During Phase II, Marathon will issue to Beowulf an additional 350,000 shares of its common stock – 150,000 shares upon reaching 60 MW of Facility load and 200,000 at completion of the full 100 MW of Facility load. The cost to maintain and run the Facility will be $0.006/kWh. All shares issued under the Data Facility Services Agreement are issued pursuant to transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933.

On October 23, 2020, the Company executed a contract with Bitmain to purchase an additional 10,000 next generation Antminer S-19 Pro ASIC Miners. The 2021 delivery schedule will be 2,500 Units in January, 4,500 Units in February and the final 3,000 Units in March 2021.The gross purchase price is $23,620,000 with 30% due upon the execution of the contract and the balance paid over the next 4 months. Subsequent to executing this agreement, due to the additional executed contracts, Bitmain applied a discount of 8.63% to the purchase price adjusting the amount due to $21,581,594. As of June 30, 2021, the Company has paid the entire purchase price under this agreement and has received 10,000 units from Bitmain.

On December 8, 2020, the Company executed a contract with Bitmain to purchase an additional 10,000 next generation Antminer S-19j Pro ASIC Miners, with 6,000 units to be delivered in August 2021, and the remaining 4,000 units to be delivered in September 2021. The gross purchase price is $23,770,000 with 10% of the purchase price due within 48 hours of execution of the contract, 30% due on January 14, 2021, 10% due on February 15, 2021, 30% due on June 15, 2021 and 20% due on July 15, 2021. Subsequent to executing this agreement, due to the additional executed contracts, Bitmain applied a discount of 8.63% to the purchase price adjusting the amount due to $21,718,649. As of June 30, 2021, the Company has paid $17,374,924 of the total balance of $21,718,649.

On December 23, 2020, the Company executed a contract with Bitmain to purchase an additional 70,000 next generation Antminer S-19 ASIC Miners, with 7,000 units to be delivered by August 2021, 2,100 units to be delivered by September 2021, 6,500 units to be delivered by October 31, 2021, 14,700 units to be delivered by November 30, 2021, 24,500 units to be delivered by December 31, 2021 and 15,200 units to be delivered by January 31, 2022. The purchase price is $167,763,451. The purchase price for the miners shall be paid as follows: 20% within 48 hours of signing of contract; 30% on or before March 1, 2021; 4.75% on June 15, 2021; 1.76% on July 15, 2021; 4.58% on August 15, 2021; 10.19% on September 15, 2021; 17.63% on October 15, 2021 and 11.55% on November 15, 2021. As of June 30, 2021, the Company has paid $91,080,311 of the total balance of $167,763,452.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

On December 31, 2020, the Company sold 6,632,712 shares of common stock pursuant to the At The Market offering. Proceeds of $77.1 million net of offering costs of $2.3 million were received on January 4, 2021. Due to the timing of the proceeds received, an other current receivable was recorded in an amount of $74.8 million. As of June 30, 2021, this amount was received in full.

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

Merrick Okamoto, CEO was awarded a cash bonus of $2,000,000 which was paid before year end 2020. He was also awarded a special bonus of 1,000,000 RSUs with immediate vesting. He was given a new three-year employment agreement effective January 1, 2021 with the same salary and bonus as the prior agreement. He was also granted the following: award of 1,000,000 RSUs when the company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $500,000,000; award of 1,000,000 RSUs priced when the company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $750,000,000; award of 2,000,000 RSUs priced at lowest closing stock price in past 30 trading days when the company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $1,000,000,000; and award of 2,000,000 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $2,000,000,000. As of March 12, 2021, Mr. Okamoto had earned all bonuses set forth, and as a result of the maximum shares available under the Company’s 2018 Equity Incentive Plan having been issued, he is owed an additional 2,547,392 RSUs, for which the Company will, within 15 business days of the date of this report, file a proxy statement on Schedule 14A to hold an annual or special meeting of shareholders to gain shareholder approval to increase the number of shares available under the Plan in a sufficient number to cover issuance of these 2,547,392 RSUs. As of June 30, 2021, these shares are still due to be issued.

On January 12, 2021, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “Offering”), 12,500,000 shares of its common stock (the “Securities”) at an offering price of $20.00 per share.

The Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchasers and customary indemnification rights and obligations of the parties. The closing of the Offering occurred on January 15, 2021. The Company received gross proceeds of $250,000,000 in connection with the Offering, before deducting placement agent fees and related offering expenses.

On January 25, 2021, the Company announced that it has purchased 4,812.66 BTC in an aggregate purchase price of $150 million through an investment fund of one managed by NYDIG as the general partner, while the Company retains 100% of the limited partner interests. We expect to purchase additional bitcoin held by the investment fund in future periods, though we may also sell bitcoin in future periods as needed to generate Cash Assets for treasury management purposes.

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

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

On March 7, 2021, the Company entered into a termination agreement with the 9349-0001 Quebec Inc., to agree to terminate the outstanding lease. As of that date, the Company was fully released and discharged from any and all obligations under the Lease Agreement. In November 2017, the Company assumed a lease in connection with the mining operations in Quebec, Canada.

On May 21, 2021, Marathon Digital Holdings, Inc. (the “Company”) entered into a binding letter of intent with Compute North, LLC to host 73,000 Bitcoin Miners over a staged in implementation between October 2021 and March 2022. The hosting cost is $0.50 per machine per month and the hosting rate will be $0.044 per kWh. In order to build out the infrastructure without paying for the capital expenditure, the Company will provide an 18 month bridge loan to Compute North of up to $67 million dollars, in tranches, based upon specified requirements being met. The terms of the contract are limited to three years with increases thereafter capped at three percent per year thereafter. The Company has also agreed to pay up to $14 million in expedite fees for construction/electrical and supply chain expediting activities. As of June 30, 2021, the Company paid $8 million of the $14 million in expedite fees recorded as a deposit on the balance sheet.

Risks and Uncertainties

The impact of the worldwide spread of a novel strain of coronavirus (“COVID 19”) has been and continues to be unprecedented and unpredictable, but based on the Company’s current assessment, the Company does not expect any material impact on its long-term strategic plans, operations and its liquidity due to the worldwide spread of COVID-19. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world and its assessment of the impact of COVID-19 may change.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated condensed financial statements, including the accounts of the Company’s subsidiaries, Marathon Crypto Mining, Inc., Crypto Currency Patent Holding Company and Soems Acquisition Corp., have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. These consolidated condensed 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. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s most recent Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year ended December 31, 2021.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, estimating the useful lives of patent assets and fixed assets, the assumptions used to calculate fair value of warrants and options granted, realization of long-lived assets, deferred income taxes, unrealized tax positions and the realization of digital currencies.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Digital Currencies

Digital currencies are included in current assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment.

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

Halving – The bitcoin blockchain and the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “Halving”. The last halving for bitcoin occurred on May 12, 2020. Many factors influence the price of bitcoin and potential increases or decreases in prices in advance of or following a future halving is unknown.

The following table presents the activities of the digital currencies for the six months ended June 30, 2021:


Digital currencies at December 31, 2020	$	2,271,656
Additions of digital currencies		38,474,672
Realized gain on sale of digital currencies		935
Impairment of cryptocurrencies		(11,740,859	)
Sale of digital currencies		(40,000	)
Digital currencies at June 30, 2021	$	28,966,404

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Investment Fund

In 2016, the FASB issued Accounting Standards Update (ASU) 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, that requires entities to generally measure investments in equity securities at fair value and recognize changes in fair value in net income.

On January 25, 2021, the Company entered into a limited partnership agreement with NYDIG Digital Assets Fund III, LP (“fund”) whereas the fund purchased 4,812.66 BTC in an aggregate purchase price of $150 million. The Company owns 100% of the limited partnership interest. The investment fund is included in current assets in the consolidated balance sheets.

Each Fund qualifies and operates as an investment company for accounting purposes pursuant to the accounting and reporting guidance under ASC 946, Financial Services – Investment Companies, which requires fair value measurement of the Fund’s investments in digital assets. The digital assets held by each Fund are traded on a number of active markets globally, including the over-the-counter (“OTC”) market and digital asset exchanges. A fair value measurement under ASC 820 for an asset assumes that the asset is exchanged in an orderly transaction between market participants either in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset (ASC 820-10-35-5). An entity must have access to the principal (or most advantageous) market at the measurement date (ASC 820-10-35-6A).

Fair Value of Financial Instruments

The Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are:

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities

	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data

	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, accounts payable, and accrued expenses, approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying value of notes payable and other long-term liabilities approximate fair value as the related interest rates approximate rates currently available to the Company.

Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to their fair value measurement. The Company measures the fair value of its marketable securities 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 of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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 June 30, 2021 and December 31, 2020, respectively:

	Fair value measured at June 30, 2021
	Total carrying value at June 30,		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
	2021		(Level 1)		(Level 2)		(Level 3)
Assets
Investment Fund	$	166,915,071		-	$	166,915,071		-

Liabilities
Warrant liability	$	718,329	$	-	$	-	$	718,329

	Fair value measured at December 31, 2020
	Total carrying value at December 31,		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
	2020		(Level 1)		(Level 2)		(Level 3)
Liabilities
Warrant liability	$	322,437	$	-	$	-	$	322,437

There were no transfers between Level 1, 2 or 3 during the three months ended June 30, 2021.

Fair value of warrant liabilities

At June 30, 2021, the Company had an outstanding warrant liability in the amount of $718,329 associated with warrants that were issued in January 2017 and January 2021 and warrants issued related to the Convertible Notes issued in August and September of 2017. The following table rolls forward the fair value of the Company’s warrant liability, the fair value of which is determined by Level 3 inputs for the three months ended June 30, 2021.

	Fair value
Outstanding as of December 31, 2020	$	322,437
Change in fair value of warrants		395,892
Outstanding as of June 30, 2021	$	718,329

Non-recurring measurement of Fair Value

The Company accounts for its digital currencies as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. The Company’s digital currencies are initially recorded at fair value upon receipt (or “carrying value”). On a quarterly basis, they are measured at carrying value, net of any impairment losses incurred since receipt. Pursuant to guidance from ASC 820, Fair Value Measurement, the Company is required to determine the non-recurring fair value measurement used to determine impairment of the digital currencies held on the balance sheet. The Company will record impairment losses as the fair value falls below the carrying value of the digital currencies. The digital currencies can only be marked down when impaired and not marked up when their value increases. The resulting carrying value represents the fair value of the asset. The last impairment date for the digital currencies was June 30, 2021. The Company had an outstanding carrying balance of digital assets of approximately $29 million, net of impairment losses incurred of $11.7 million for the six month period ended June 30, 2021. As of June 30, 2021, the fair value of the approximate 971 bitcoin held as digital currencies is approximately $33.8 million.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Net Income and Basic and Diluted Net Income (Loss) per Share

Net income (loss) for the three and six months ended June 30, 2021 is $(108,884,620) and $(25,527,878); however approximately $16.9 million of that income was generated as an unrealized gain from the change in value of our “fund of one” investment. In addition, the Company had previously generated NOL carry-forwards for federal and state purposes of approximately $45.6 million and $27.2 million, respectively. As such, the Company would not owe corporate income taxes as of June 30, 2021. Net income (loss) per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive.

Potentially dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows:

	As of June 30,
	2021		2020
Warrants to purchase common stock		457,837		164,222
Restricted stock		199,038		2,065,479
Options to purchase common stock		81,120		140,182
Total		737,995		2,369,883

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

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2021			2020			2021			2020
Net loss attributable to common shareholders	$	(108,884,620	)	$	(2,161,196	)	$	(25,527,878	)	$	(3,219,127	)

Denominator:
Weighted average common shares - basic and diluted		99,466,946			16,291,610			96,922,964			12,473,568
Income (loss) per common share - basic and diluted	$	(1.09	)	$	(0.13	)	$	(0.26	)	$	(0.26	)

Recent Accounting Pronouncements

The Company adopted Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”)” effective as of January 1, 2021, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 3 – DEPOSIT, PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

On May 11, 2020, the Company signed a Contract Addendum with Compute North, to pause and suspend services under its Colocation Agreement. This suspended all production of Bitcoin using our S-9 miners.

On May 11, 2020, the Company purchased 700 new generation M305+ASIC Miners from MicroBT for approximately $1.3 million. The 700 miners produce 80/Th and will generate 56 PH/s (petahash) of hashing power, compared to the Company’s current S-9 production of 46 PH/s. These next generation MicroBT ASIC miners are markedly more energy efficient than our existing Bitmain models. These miners were delivered to the Company’s Hosting Facility in June 2020 and are producing Bitcoins.

The Company purchased 660 latest generation Bitmain S19 Pro Miners on May 12, 2020, 500 units on May 18, 2020 and an additional 500 units on June 11, 2020. These miners produce 110 TH/s and will generate 73 PH/s (petahash) of hashing power, compared to the Company’s S-9 production of 46 PH/s. The Company made the payments of approximately $4.2 million in the second quarter of 2020 and received 660 of the 1,660 units at its Hosting Facility in August, and its hosting partner, Compute North, had installed them upon their arrival. Of the 1,000 remaining S-19 Pro Miners due to arrive in the 4^th quarter, 500 were received in November and installed in the Company’s Hosting Facility in Montana, while 500 are anticipated to be received and installed during the remainder of the 4^th quarter. These miners will produce an additional 110 PH/s increasing the Company to an aggregate Hashpower of 294 PH/s.

On July 29, 2020, the Company announced the purchase of 700 next generation M31S+ASIC Miners from MicroBT. The miners arrived mid-August.

On August 13, 2020, the Company entered into a Long Term Purchase Contract with Bitmaintech PTE., LTD (“Bitmain”) for the purchase of 10,500 next generation Antminer S-19 Pro ASIC Miners.

The purchase price per unit is $2,362 ($2,206 with a 6.62% discount) for a total purchase price of $24,801,000 (with a 6.62% discount for a discounted price of $23,159,174). The parties confirm that the total hashrate of the Antminers under this agreement shall not be less than 1,155,000 TH/s.

Subject to the timely payment of the purchase price, Bitmain is and has been scheduled deliver products according to the following schedule: 1,500 Units on or before January 31, 2021; and 1,800 units on or before each of February 28, 2021; June 30, 2021; April 30, 2021, May 31, 2021 and June 30, 2021. As of June 30, 2021, the Company has paid the entire purchase price under this agreement and has received 9,399 units from Bitmain with an additional 1,101 in transit.

SEC Form 10-Q filed by Marathon Patent Group, Inc.