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What changed in MARA Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MARA Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+612 added−503 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-16)

Top changes in MARA Holdings, Inc.'s 2023 10-K

612 paragraphs added · 503 removed · 305 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIt was also a year of adaptation, as the Company had to overcome several operational and financial headwinds, including: ● Our primary mining facility in Hardin, MT going offline after being damaged by a storm in mid-2022 8 ● Delays in the energization of the McCamey, TX site during the second and third quarters of 2022 ● Our largest hosting partner (Compute North) entering bankruptcy in September 2022 ● A significant decline in the price of bitcoin, which resulted in impairments of our bitcoin holdings throughout the year and an impairment charges related to the value of our mining rigs and certain contracts during the fourth quarter of 2022 ● Challenged financial markets and macroeconomic conditions Our primary focus in 2023 will be the realization of the full energization of our fleet of nearly 200,000 bitcoin mining rigs and growing our total operational hashrate from 7.0 exahashes per second at year end 2022 to over 23 exahashes per second by the third quarter of 2023.
Biggest changeThe year ended December 31, 2023 was a year of adaptation, as we overcame several operational and financial headwinds that occurred during 2022, including: • Our primary mining facility in Hardin, Montana went offline after being damaged by a storm in mid-2022; • Delays in the energization of the McCamey, Texas site during the second and third quarters of 2022; • Compute North, our largest hosting partner, entered bankruptcy proceedings in September 2022; • A significant decline in the price of bitcoin, which resulted in impairments of our bitcoin holdings throughout 2022 and an impairment charge related to the value of our mining rigs and certain contracts during the fourth quarter of 2022; and • Challenging financial markets and macroeconomic conditions throughout 2022.
The Bitcoin blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block height 210,000; (2) on July 9, 2016 at block height 420,000; (3) on May 11, 2020 at block height 630,000, when the reward was reduced to its current level of 6.25 bitcoin per block.
The Bitcoin blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block height 210,000; (2) on July 9, 2016 at block height 420,000; and (3) on May 11, 2020 at block height 630,000, when the reward was reduced to its current level of 6.25 bitcoin per block.
The digital asset mining industry is a highly competitive and evolving industry and new competitors and/or emerging technologies could enter the market and affect our competitiveness in the future. VI. INTELLECTUAL PROPERTY We actively use specific hardware and software for our digital asset mining operations.
The digital asset mining industry is a highly competitive and evolving industry and new competitors and/or emerging technologies could enter the market and affect our competitiveness in the future. INTELLECTUAL PROPERTY We actively use specific hardware and software for digital asset mining operations.
Miners can range from individual enthusiasts to professional mining operations with dedicated data centers. Miners may organize themselves in mining pools. The Company competes or may in the future compete with other companies that focus all or a portion of their activities on owning or operating digital asset exchanges, developing programming for the blockchain, and mining activities.
Miners can range from individual enthusiasts to professional mining operations with dedicated data centers. Miners may organize themselves in mining pools. We compete or may in the future compete with other companies that focus all or a portion of their activities on owning or operating digital asset exchanges, developing programming for the blockchain, and mining activities.
Therefore, as new and existing miners deploy additional hash rate, the global network hash rate will continue to increase, meaning a miner’s share of the global network hash rate (and therefore its chance of earning bitcoin rewards) will decline if it fails to deploy additional hash rate at pace with the industry. 7 II C.
Therefore, as new and existing miners deploy additional hash rate, the global network hash rate will continue to increase, meaning a miner’s share of the global network hash rate (and therefore its chance of earning bitcoin rewards) will decline if it fails to deploy additional hash rate at pace with the industry.
At present, the information concerning the activities of these enterprises is not readily available as the vast majority of the participants in this sector do not publish information publicly or the information may be unreliable.
Currently, the information concerning the activities of these enterprises is not readily available as the vast majority of the participants in this sector do not publish information publicly or the information may be unreliable.
This focus consisted of both the expansion of operations of our core bitcoin mining business (operating mining rigs at third-party owned and operated data centers) and operating MaraPool – our proprietary bitcoin mining pool which orchestrates the operation of our fleet of mining rigs.
This focus consisted of both the expansion of operations of our core bitcoin mining business (operating mining rigs at third-party owned and operated data centers), acquiring and operating bitcoin mining sites to host our own bitcoin mining rigs, and operating MaraPool, our proprietary bitcoin mining pool which orchestrates the operation of our fleet of mining rigs.
The next halving for the Bitcoin blockchain is anticipated to occur on or around March 2024 at block height 840,000. This process will reoccur until the total amount of bitcoin currency rewards issued reaches 21,000 thousand and the theoretical supply of new bitcoin is exhausted, which is expected to occur around 2140.
The next halving for the Bitcoin blockchain is anticipated to occur around April 2024 at block height 840,000. This process will recur until the total amount of bitcoin currency rewards issued reaches 21.0 million, and the theoretical supply of new bitcoin is exhausted, which is expected to occur around 2140.
The final step in our R&D process is testing and validation. This involves conducting thorough testing of the prototype to identify any issues or flaws, and to ensure that it meets our quality standards. We also conduct market testing to gather feedback from real-world users, and we use this feedback to refine and improve the product or service.
This involves conducting thorough testing of the prototype to identify any issues or flaws, and to ensure that it meets our rigorous quality standards. We also conduct market testing to gather feedback from real-world users, and use this feedback to refine and improve the product or service.
Several public companies (traded in the U.S. and Internationally), such as the following, may be considered to compete with us: ● Riot Platforms, Inc. ● Cipher Mining Inc. ● Hut 8 Mining Corp. ● Hive Blockchain Technologies Ltd. ● Bitfarms, Ltd. ● Cleanspark, Inc. ● Iris Energy Limited ● Bit Digital, Inc. ● Argo Blockchain plc ● TeraWulf Inc. ● Greenidge Generation Holdings Inc. ● Core Scientific, Inc. ● Stronghold Digital Mining, Inc.
While there is limited available information regarding non-public competitors, several public companies (traded in the United States and internationally), such as the following, may be considered to compete with us: • Argo Blockchain plc; • Bitfarms Ltd.; • Bit Digital, Inc.; • Cipher Mining Inc.; • Cleanspark, Inc.; • Core Scientific, Inc.; • Greenidge Generation Holdings Inc.; • Hive Digital Technologies Ltd.; • Hut 8 Corp.; • Iris Energy Limited; • Riot Platforms, Inc.; • Stronghold Digital Mining, Inc.; and • TeraWulf Inc.
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. I.B.
As used throughout this Annual Report, 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.
As demand for bitcoin has increased, the global network hash rate has increased rapidly, and as more adoption of bitcoin occurs, we expect the demand for new bitcoin will likewise increase as more mining companies are drawn into the industry by this increased demand.
As demand for bitcoin increases, the global network hash rate rapidly increases, and as more adoption of bitcoin occurs, we expect the demand for new bitcoin will likewise increase as more mining companies are drawn into the industry by this increase in demand. Further, as more and increasingly powerful mining rigs are deployed, the network difficulty for Bitcoin increases.
The prices of digital assets, including bitcoin, have experienced substantial volatility, meaning that high or low prices may be based on speculation and incomplete information, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting.
The prices of digital assets, including bitcoin, have historically experienced substantial volatility, and digital asset prices have in the past and may in the future be driven by speculation and incomplete information, subject to rapidly changing investor sentiment, and influenced by factors such as technology, macroeconomic conditions, regulatory void or changes, fraudulent actors, manipulation, and media reporting.
This is made possible through the use of blockchain technology, which is a distributed ledger that records and verifies all transactions on the network. 6 The Bitcoin blockchain is a public, transparent, and immutable record of all transactions that have ever occurred on the network.
This is possible by using blockchain technology, which is a distributed ledger that records and verifies all transactions on the network. The Bitcoin blockchain is a public, transparent, and unalterable record of all transactions that have ever occurred on the peer-to-peer network.
This ledger is maintained by a network of computers, known as nodes, that work together to verify and validate new transactions. Each transaction is cryptographically signed and added to the blockchain as a new block, which is then permanently recorded and cannot be altered or deleted.
Each confirmed transaction is cryptographically signed and permanently recorded in the blockchain as a new block, and cannot be altered or deleted. The block chain is maintained by a robust and public open-source architecture consisting of a network of computers, known as nodes, that work together to verify and validate new transactions.
At a predetermined block, the mining reward is cut in half, hence the term “halving”. For bitcoin the reward was initially set at 50 bitcoin currency rewards per block.
At a predetermined block, the mining reward is cut in half, hence the term “halving.” For example, the reward for adding a single block to the blockchain was initially set at 50 bitcoin currency rewards.
Once we have identified a promising idea, the next step is to develop a prototype. This typically involves creating a small-scale version of the product or service, which can be tested and evaluated in order to identify potential issues and improve the design. We also conduct market research to understand the potential market for the product or service.
This typically involves creating a small-scale version of the product or service, which can be tested and evaluated in order to identify potential issues and improve the design. We conduct market research to understand the potential market for the product or service. The final step in our R&D process is testing and validation.
The mining process helps to support the infrastructure of the network by providing the computational power needed to verify transactions and add new blocks to the blockchain. As more people become interested in mining bitcoin, the network becomes more secure and efficient. III. A.
Bitcoin mining plays a key role in the maintenance and growth of the Bitcoin network by providing the computational power needed to verify transactions and add new blocks to the blockchain. As consumers increasingly become interested in mining bitcoin, the network becomes more secure and efficient.
Overall, our R&D process is designed to support the creation and development of innovative technology advancements that ensure we maintain our competitive advantages and improves our position as a leading bitcoin miner.
Overall, our R&D process is designed to support the creation and development of innovative technology advancements that ensure we maintain our competitive advantages and improve its position as a leading bitcoin miner. We believe that this process is essential for driving growth, staying ahead of the competition, and achieving success.
OVERVIEW OF BITCOIN “HALVING” EVENTS The Bitcoin halving is a phenomenon that occurs approximately every four years on the Bitcoin network. The halving is a key part of the Bitcoin protocol, and it serves to control the overall supply and reduce the risk of inflation in digital assets using a Proof-of-Work consensus algorithm.
Halving is a key part of the Bitcoin protocol and serves to control the overall supply and reduce the risk of inflation in digital assets using a Proof-of-Work consensus algorithm.
When a user sends a transaction on the Bitcoin network, it is broadcast to the network and added to the pool of unconfirmed transactions known as the “mempool.” Mining rigs then compete in a sort of lottery required to add these transactions to the blockchain, which is the decentralized ledger that records all Bitcoin transactions.
When a user sends a transaction on the Bitcoin network, it is broadcast to the network and added to a pool of unconfirmed transactions known as the “mempool.” Mining rigs then compete in a sort of lottery to “solve a block,” which confirms a transaction and adds it to the blockchain, and the mining rig receives a reward in the form of newly minted bitcoin.
Further, as more and increasingly powerful mining rigs are deployed, the network difficulty for Bitcoin has increased. Network difficulty is a measure of how difficult it is to solve a block on the Bitcoin blockchain, which is adjusted every 2016 blocks (every 2 weeks approximately) so that the average time between each block remains ten minutes.
Network difficulty is a measure of how difficult it is to solve a block on the Bitcoin blockchain, which is adjusted every 2,016 blocks, or approximately every two weeks, so that the average time between each block is approximately ten minutes.
We believe that these companies have the potential to drive significant innovation and growth, and we are committed to supporting their development through investments in both hardware and software companies 9 Another key aspect of our strategy is to prioritize investments in companies that are aligned with our values and mission.
One key element of our investment strategy is to focus on companies that are at the forefront of emerging technologies and industries. We believe targeted companies have the potential to drive significant innovation and growth, and we are committed to supporting the development through investments in both hardware and software companies.
We believe that our stakeholders expect us to support businesses that operate in a responsible and sustainable manner, and we are committed to making investments that reflect these values. Overall, our investment strategy is designed to support our growth and success, while propelling us to be the most advanced, agile, and efficient bitcoin miner.
Overall, our investment strategy is designed to support our growth and success, while propelling our business to be the most advanced, agile, and efficient bitcoin miner. We are committed to making strategic investments that align with both our vision and values, and believe this approach will help us achieve long-term success.
OVERVIEW OF BITCOIN Bitcoin is a decentralized digital asset that operates on a peer-to-peer network, allowing users to send and receive payments without the need for intermediaries such as banks.
BITCOIN BLOCKCHAIN Bitcoin and Bitcoin Mining Bitcoin is a decentralized digital asset that operates on a peer-to-peer network, allowing users to send and receive payments without the need for banks and other intermediaries. Bitcoin is not linked to any fiat currency or country’s monetary policy, therefore serves as a store of value outside of government control.
Bitcoin (as well as other digital assets) may have value based on various factors, including their acceptance as a means of exchange by consumers and producers, scarcity, and market demand which are beyond our control.
Further, the value of bitcoin and other digital assets may be significantly impacted by factors beyond our control, including consumer trust in the market acceptance of bitcoin as a means of exchange by consumers and producers.
The first step in our R&D process is ideation, which is the process of generating and evaluating new ideas. We encourage our team members to come up with creative and innovative ideas, and we provide them with the resources and support they need to explore these ideas further.
We encourage our team members to come up with creative and innovative ideas, and then we provide them with the resources and support they need to explore these ideas further. Once we have identified a promising idea, the next step is to develop a prototype.
Key activities and milestones throughout 2022 included the following: ● We deployed capital to secure the most efficient ASICs mining rigs through contracts that included price protection clauses which benefited the Company as ASICs prices declined throughout the second and third quarters of 2022. ● We shut down operations at the coal powered Hardin, MT data center facility ● We started operations at the wind powered site in McCamey, TX and other smaller sites ● We focused on securing additional hosting services for our planned expansion of operations, entering into third-party hosting relationships with Applied Digital to host S19XP mining rigs at sites in Texas and North Dakota. ● We increased our hashrate from 3.5 exahashes per second at the beginning of the year to 7.0 exahashes per second at the end of 2022.
The transaction closed on January 12, 2024; 8 Table of Contents • We deployed capital to secure the most efficient Application Specific Integrated Circuit mining rigs (“ASICs”) through contracts that included price protection clauses which benefited the Company as ASICs prices declined throughout the second and third quarters of 2023; • We continued operations at a wind-powered site in McCamey, Texas and other smaller sites, which have increased our use of renewable sources of energy; • We secured additional hosting services to further our planned expansion of operations, entering into third-party hosting relationships with Applied Digital Corporation (“APLD”) to host S19XP mining rigs at sites in Texas and North Dakota; and • We increased our hash rate from 7.0 and 7.0 installed and energized exahashes per second, respectively, as of December 31, 2022 to 25.2 and 24.7 installed and energized exahashes per second, respectively, as of December 31, 2023.
R&D PROCESS We place a strong emphasis on research and development (R&D) as a key driver of innovation and growth. Our R&D process is designed to support the creation and development of new tools and processes that are an integral part of our overall business strategy and enhance our productivity as an advanced and sustainable bitcoin miner.
Our R&D process is designed to support the creation and development of new tools and processes intended to serve an integral part of our overall business strategy and enhance our market position as an advanced and sustainable bitcoin miner. The first step in the R&D process is ideation, which is the process of generating and evaluating new ideas.
One of the key advantages of the Bitcoin blockchain is that it allows for trustless, secure transactions without the need for a central authority. Because the blockchain is decentralized and transparent, all users can verify the legitimacy of a transaction without having to rely on a third party.
Because the blockchain is decentralized and transparent, all users can verify the legitimacy of a transaction without having to rely on a third party. This eliminates the need for intermediaries, which can be slow and expensive, and makes the network resistant to censorship and fraud.
Factors Affecting Profitability Market Price of Bitcoin Our business is heavily dependent on the price of bitcoin.
Many factors influence the price of Bitcoin, and potential increase or decrease in prices in advance of or following the future halving is unknown. Factors Affecting Profitability Market Price of Bitcoin Our business is heavily dependent on the price of bitcoin.
While there is limited available information regarding our non-public competitors, we believe that our recent acquisition and ongoing deployment of miners positions us well among the publicly traded companies involved in the digital asset mining industry.
We believe our recent acquisition of two currently operational bitcoin mining sites, totaling 390 megawatts of capacity, in Granbury, Texas and Kearney, Nebraska and our ongoing deployment of miners positions us well among the publicly traded companies involved in the digital asset mining industry.
We may in the future plan to seek further patents in connection with our existing and planned blockchain and digital asset related operations. We do expect to rely upon trade secrets, trademarks, service marks, trade names, copyrights and other intellectual property rights and expect to license the use of intellectual property rights owned and controlled by others.
We rely upon the following to protect and enforce our proprietary information and intellectual property: 12 Table of Contents • trade secrets; • trademarks; • service marks; • trade names; • copyrights; and • other intellectual property rights. Additionally, we expect to license the use of intellectual property rights owned and controlled by others.
ITEM 1. BUSINESS I. CORPORATE OVERVIEW I.A. HISTORY AND PIVOT TO BITCOIN MINING 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. Marathon’s strategy is to produce and hold bitcoin (after paying for cash operating costs of production) as a long term investment.
ITEM 1. BUSINESS CORPORATE OVERVIEW Marathon is a digital asset technology company that is principally engaged in producing or “mining” digital assets with a focus on the Bitcoin ecosystem. Our strategic initiatives primarily focus on mining and holding bitcoin as a long-term investment.
In certain cases, source code and other software assets may be subject to an open source license, as much technology development underway in this sector is open source. For these works, we intend to adhere to the terms of any license agreements that may be in place. 11 We do not currently own any patents except as set forth below.
In certain cases, source code and other software assets may be subject to an open-source license, as much of the technology development underway in our sector is open source. We currently own five patents in the United States and have six patent applications pending. The expiration dates of our patents range from March 2036 and November 2043.
CORPORATE INFORMATION In 2022, we moved our corporate headquarters to Fort Lauderdale, FL and maintain an address at 101 SE 3 rd Avenue, Suite 1200, Fort Lauderdale, FL 33301. We also maintain a West Coast office at 300 Spectrum Center Drive, Suite 950, Irvine, CA 92618. Our website is www.mara.com .
We operated as Marathon Patent Group, Inc. until March 1, 2021, when we changed our name to Marathon Digital Holdings, Inc. Our corporate headquarters are located at 101 SE Third Avenue, Suite 1200, Fort Lauderdale, Florida 33301. We also maintain a West Coast office at 300 Spectrum Center Drive, Suite 950, Irvine, California 92618.
Additionally, we expect to operationalize a number of technology innovations developed by our technology team and partners including mining using immersion as well as new hardware and software solutions to optimize mining rig performance and the reliability of MaraPool operations. III B.
Refer to the “Liquidity and Capital Resources” section, for further information. 9 Table of Contents We also expect to deploy several technological innovations developed by our technology team and partners. These innovations include new immersion-cooling systems, hardware, and software solutions that are designed to optimize mining rig performance and the reliability of our operations.
In addition, we have developed and may further develop certain proprietary software applications for purposes of our digital asset mining operation. We have two patent applications pending with the USPTO: US Application No. 17/751370 Systems And Methods For Decreasing Counterparty Settlement Risk Marathon Digital Holdings US Application No. 17/975229 Systems And Methods For Overclocking Mining Rigs Marathon Digital Holdings
We also have developed, and may further develop, certain proprietary software applications for purposes of its digital asset mining operation and may license proprietary software application to third parties.
We believe that this process is essential for driving growth and staying ahead of the competition, and we are committed to continuously improving and refining it to support our success. III C. OUR STRATEGIC INVESTMENTS We are committed to pursuing strategic investments that align with our vision and values.
Strategic Investments We are committed to pursuing strategic investments that align with our vision and values. Our strategic focus is to identify and partner with companies that we believe will generate synergies to create long-term value for our stockholders.
STRATEGIC FOCUS The Company’s focus at the onset of 2022 was on growth execution and transition into a larger operation.
STRATEGIC FOCUS Our focus in 2023 was on growth execution and transition into a more mature organization with diversified portfolio of bitcoin mining technologies and assets.
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Holding bitcoin is a strategy to act as a store of value, supported by a robust and public open source architecture, that is not linked to any country’s monetary policy and can therefore serve as a store of value outside of government control.
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Bitcoin is seeing increasing adoption, and, due to its limited supply, we believe it offers opportunity for appreciation in value and long-term growth prospects for our business.
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We believe that bitcoin offers additional opportunity for appreciation in value with increasing adoption due to its limited supply. We may also explore opportunities to become involved in businesses ancillary to our bitcoin mining business as favorable market conditions and opportunities arise. We were incorporated in the State of Nevada on February 23, 2010 under the name Verve Ventures, Inc.
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In addition to mining and holding bitcoin, from time to time we have explored, and we may in the future explore, opportunities to become more involved in businesses that expand or supplement those directly related to the self-mining of bitcoin as favorable market conditions and opportunities arise.
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On December 7, 2011, we changed our name to American Strategic Minerals Corporation and were engaged in exploration and potential development of a uranium and vanadium minerals business. In June 2012, we discontinued our minerals business and began to invest in real estate properties in Southern California.
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For example, we have considered or engaged in owning and operating bitcoin mining facilities or data centers, selling proprietary software or technology to third parties operating in the Bitcoin ecosystem, offering advisory and consulting services to support bitcoin mining ventures in domestic and international jurisdictions, and generating electricity from renewable energy resources or methane gas capture to power bitcoin mining projects.
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In October 2012, we commenced our IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc. We purchased digital asset mining machines and established a data center in Canada to mine digital assets in 2017. The Company ceased operating in Canada in 2020 and relocated all owned mining rigs from Canada to the U.S.
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The Company is committed to carbon neutrality and growing operations through predominately renewable energy sources. Our business is also active in Bitcoin-related projects related to the technological development of immersion, hardware, firmware, mining pools and side chains that use the blockchain cryptography.
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The Company has since expanded its activities in the mining of bitcoin across the U.S. The Company changed its name to Marathon Digital Holdings, Inc. on March 1, 2021. As of December 31, 2022, the Company is solely focused on the mining of bitcoin and ancillary opportunities within the Bitcoin ecosystem.
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As of December 31, 2023, we operated approximately 210,000 mining rigs globally, with an installed and energized hash rate of approximately 25.2 and 24.7 exahashes per second, respectively. During the year ended December 31, 2023, we mined 12,852 bitcoin, an increase of 8,708 bitcoin, or 210.1%, over the prior year.
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As of February 20, 2023, we had 30 full-time employees and we expect this number to continue to grow in support of the increased scale of the business. We believe our employee relations to be good. I.C. 2022 AND 2023 EVENTS Effective March 31, 2022, Hugh Gallagher was appointed Chief Financial Officer of the Company.
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We remain focused on maximizing our chances of successfully solving blocks on the Bitcoin blockchain by growing our hash rate, or the amount of computational power we devote to supporting the bitcoin blockchain, to enhance our ability to successfully solving blocks.
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On March 31, 2022, the Company amended its previously announced 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 (“2P1”), pursuant to which Beowulf and 2P1 have been designing and developing a data center facility of up to 110-megawatts (the “Facility”) located next to, and supplied energy directly from, Beowulf’s power generation station in Hardin, MT.
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Generally, the greater the share a single mining rig can capture of the blockchain’s total network hash rate, or the aggregate hash rate deployed to solving a block on the Bitcoin blockchain, the greater the rig’s chances of solving a block and therefore earning the reward.
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As part of the Company’s mandate to become carbon neutral by the end of the 2022 fiscal year, the Company, Beowulf and 2P1 agreed to terminate the Data Facility Services Agreement, the Power Purchase Agreement and the Ground Lease for the Facility as of August 15, 2022, and the Company redeployed its Hardin-installed mining rigs to renewable power facilities in the third quarter of 2022.
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Currently, the reward for each solved block is equal to 6.25 bitcoin plus transaction fees and, as of December 31, 2023, the price of a bitcoin was $42,288. As additional mining operators enter the market in response to increased demand for bitcoin, the blockchain’s network hash rate grows.
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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 agreed to loan the Company up to $100 million on a revolving basis pursuant to the terms of the Agreement and the $100 million principal amount revolving credit note issued by the Company in favor of the Bank under the Agreement (“Note”). 5 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.
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As we expect this trend to continue, we will need to continue to grow our hash rate to compete in our dynamic and highly competitive industry. 7 Table of Contents Bitcoin “Halving” Events Bitcoin halving is a phenomenon that has historically occurred approximately every four years on the Bitcoin network.
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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.
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Key activities and milestones throughout 2023 included the following: • In December 2023, we entered into a definitive agreement to acquire two currently operational bitcoin mining sites, totaling 390 megawatts of capacity, in Granbury, Texas and Kearney, Nebraska, to reduce the cost per coin of our current operations at these sites and further transition from the asset-light organization to one that manages a diversified and resilient portfolio of bitcoin mining operations.
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Effective September 14, 2022, the Company amended its Amended and Restated Bylaws to document the previously disclosed unanimous Board approval to reduce its quorum requirements to 33-1/3% of the issued and outstanding shares of common stock of the Company. On September 22, 2022, Compute North Holdings, Inc.
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Our primary focus in 2024 is to keep our current fleet of over 210,000 bitcoin mining rigs energized and running optimally while increasing our total operational hash rate. Our operational hash rate was 7.0 exahashes per second as of December 31, 2022 and was more than 24.7 exahashes per second as of December 31, 2023.
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(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 .). Compute North provided operating services to the Company and hosted our mining rigs in multiple facilities.
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We anticipate further growth of our operational hash rate in 2024 as we bring newly acquired bitcoin miners into operation. We expect to increase our operational hash rate to approximately 35 to 37 exahashes per second in 2024. By December 31, 2025, we plan to reach 50 exahashes per second in operational hash rate.
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On December 15, 2022, US Bitcoin Corp (“US Bitcoin”) replaced Compute North as the operator of the facilities in McCamey, TX, Granbury, TX and Kearney, NE as a result of the Compute North bankruptcy. We currently have arrangements in place with respect to the McCamey, Granbury and Kearney facilities. We no longer operate at South Souix City.
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To support this growth, we have placed orders with multiple manufacturers for approximately 22 exahashes per second and hold the option to purchase an additional 23 exahashes per second. Additionally, we expect to expand our data center capacity through a portfolio approach with a healthy mix of asset-light, asset-heavy, and joint venture partnerships.
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On February 16, 2023, the Bankruptcy Court approved the Debtors Plan of Reorganization, pursuant to which Marathon’s claim has been fixed at $40,000 thousand as an unsecured claim to be paid out according to the timing and percentages within the approved Debtor’s plan.
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Historically, we have grown quickly to become one of the world’s largest publicly traded bitcoin mining companies. We achieved this milestone through an asset-light strategy, which involved deploying our bitcoin miners at third-party hosted sites.
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In connection with a dispute concerning the settlement of certain restricted stock unit awards previously granted to Merrick D. Okamoto, former Chief Executive Officer and Chairman of the Company on October 12, 2022, the Company entered into a settlement agreement with Mr. Okamoto, pursuant to which the Company agreed to pay Mr. Okamoto $24,000 thousand. Mr.
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This approach saved us significant amounts of capital that would have otherwise been invested in data center infrastructure and allowed us to allocate more capital into revenue-generating assets, including bitcoin miners. During the year ended December 31, 2023 we shifted our strategy from an asset-light business model to a diversified and resilient portfolio approach directly supporting our bitcoin mining operations.
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Okamoto agreed to a settlement and a broad release of known or unknown claims against the Company, which relate to the Company’s Amended 2018 Equity Incentive Plan or related restricted stock unit award agreements.
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This approach involves managing a strategic mix of third-party hosted sites and self-owned and operated sites, which we believe will help the business weather market downturns by optimizing its cost structure. In January 2024, we acquired two data centers totaling 390 megawatts.
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The Company also entered into agreements in respect to seven other recipients of the same restricted stock unit awards including a director and our current Chief Operating Officer and Chief Executive Officer and Chairman. Payments related to these agreements totaled approximately $2,100 thousand in the aggregate. Effective November 21, 2022, John Lee was appointed Chief Accounting Officer of the Company.
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Following this acquisition, our operations are moving towards being more evenly split between third-party hosted and self-owned and operated sites. In 2023, we launched a joint venture in Abu Dhabi, United Arab Emirates, which operates two sites with a total capacity of 250 megawatts, of which we own 20%.
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On January 27, 2023, the Company and FS Innovation, LLC (“FSI”) entered into a Shareholders’ Agreement (the “Agreement”) regarding formation of an Abu Dhabi Global Markets company (the “ADGM Entity”), whose purpose shall be to jointly (a) establish and operate one or more mining facilities for digital assets; and (b) mine digital assets (collectively, the “Business”).
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These sites operate in one of the world’s most challenging environments, with summertime temperatures of approximately 115 degrees Fahrenheit and 98% humidity. We believe our state-of-the-art immersion technology deployed at these sites has resulted in the bitcoin mining rigs operating with minimal human intervention and need for repairs.
Removed
The initial project by the ADGM Entity shall consist of two digital asset mining sites comprising 250 MW in Abu Dhabi, and the initial equity ownership in the ADGM Entity shall be 80% FSI and 20% the Company, and capital contributions will be made, subject to the satisfaction or waiver of certain conditions, during the 2023 development period in those proportions, consisting of both cash and in kind, in amounts of approximately $406,000 thousand in aggregate.
Added
In addition, in November 2023 we launched a joint venture project in Paraguay to support 20 megawatts and expect operations to commence at the site during the quarter ending June 30, 2024. We intend to continue our international expansion efforts into 2024.
Removed
FSI will appoint four directors to the board of the ADGM Entity, and the Company will appoint one director. Unless otherwise not permitted by applicable law, the digital assets mined by the ADGM Entity will be distributed to the Company and FSI twice a month in proportion to their respective equity interests in the ADGM Entity.
Added
To support this shift in strategy and to capitalize on opportunities for international expansion and industry consolidation, we strengthened our liquidity position – a priority that we intend to continue focusing on in 2024. Our combined cash and cash equivalents and bitcoin reserve totaled nearly $1.0 billion as of December 31, 2023.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe risks to our liquidity outlook would include the following: ● Deteriorating macroeconomic conditions as a result of the potential for recession in 2023 discussed in the media ● Additional challenges arising from catastrophic events (such the FTX collapse and multiple bankruptcies of bitcoin mining companies in 2022 and 2023) that would adversely affect the credibility of, and therefore investor confidence in, companies engaged in the digital assets space ● Additional declines in bitcoin prices and/or production, and increases in electricity costs which could adversely impact both the value of our bitcoin holdings and our ongoing profitability ● Further instability in the banking system and collapse of more banking institutions which could put the liquidity and cash assets of third parties with which we do business such as miner hosting entities and suppliers and us, if we bank in the future with an institution which subsequently collapses If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our bitcoin, we may lose some or all of our bitcoin and our financial condition and results of operations could be materially adversely affected Security breaches and cyberattacks are of particular concern with respect to our bitcoin.
Biggest changeThe risks to our liquidity outlook would include the following: • deteriorating macroeconomic conditions such as the impact of inflation and increased interest rates and the corresponding impact on our ability to borrow funds or refinance existing indebtedness; • additional challenges arising from catastrophic events (such the FTX collapse and multiple bankruptcies of bitcoin mining companies in 2022 and 2023) that would adversely affect the credibility of, and therefore investor confidence in, companies engaged in the digital assets space; • additional declines in bitcoin prices and/or production, and increases in electricity costs which could adversely impact both the value of our bitcoin holdings and our ongoing profitability; and • further instability in the banking system and the possible collapse of more banking institutions which could put the liquidity and cash assets of third parties with which we do business such as miner hosting entities and suppliers and us, if we bank in the future with an institution which subsequently collapses.
In such a case, and if the modification is material and/or not backwards compatible with the prior version of Bitcoin network software, a fork in the blockchain could develop and two separate Bitcoin networks could result, one running the pre-modification software program and the other running the modified version (i.e., a second “Bitcoin” network).
In such a case, and if the modification is material and/or not backwards compatible with the prior version of Bitcoin network software, a fork in the blockchain could develop and two separate Bitcoin networks could result with one running the pre-modification software program and the other running the modified version (i.e., a second “Bitcoin” network).
We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.
We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet periodic reporting obligations.
Such circumstances would have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which would have a material adverse effect on our business, prospects or operations as well as and potentially the value of any cryptocurrencies we hold or expect to acquire for our own account and harm investors.
Such circumstances would have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which would have a material adverse effect on our business, prospects or operations as well as and potentially the value of any cryptocurrencies we hold or expect to acquire for our own account and harm our investors.
Lower digital asset prices could result in further tightening of profit margins, particularly for professionalized mining operations with higher costs and more limited capital reserves, creating a network effect that may further reduce the price of digital assets until mining operations with higher operating costs become unprofitable and remove mining power from the respective digital asset network.
Lower digital asset prices may result in further tightening of profit margins, particularly for professionalized mining operations with higher costs and more limited capital reserves, creating a network effect that may further reduce the price of digital assets until mining operations with higher operating costs become unprofitable and remove mining power from the respective digital asset network.
For example, as to a particular event of loss, the only source of recovery for us might be limited to the extent identifiable, other responsible third parties (e.g., a thief or terrorist), any of which may not have the financial resources (including liability insurance coverage) to satisfy a valid claim of ours.
For example, as to a particular event of loss, the only source of recovery for us might be limited to the extent identifiable, other responsible third parties (e.g., a thief or terrorist), any of which may not have the financial resources (including liability insurance coverage) to satisfy a valid claim.
The security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of ours, or otherwise, and, as a result, an unauthorized party may obtain access to our, private keys, data or bitcoins.
The security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee, or otherwise, and, as a result, an unauthorized party may obtain access to our private keys, data or bitcoins.
While we have implemented and maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire our bitcoin through entities subject to anti money laundering regulation and related compliance rules in the United States, if we are found to have purchased any of our bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and further transactions or dealings in bitcoin may be restricted or prohibited.
While we continue to maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire our bitcoin through entities subject to anti-money laundering regulation and related compliance rules in the United States, if we are found to have purchased any of our bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and further transactions or dealings in bitcoin may be restricted or prohibited.
If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining on any digital asset network, including the Bitcoin network, it may be able to alter the blockchain by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the blockchain can add valid blocks.
If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining on any digital asset network, it may be able to alter the blockchain by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the blockchain can add valid blocks.
Any of these, individually or in aggregate, could have a material adverse effect on our earnings, cash flows and financial condition. From time to time, social and political factors play a role in unprecedented and unanticipated judicial outcomes that could adversely affect us. Non-compliance with policies and regulations could result in regulatory investigations, litigation and, ultimately, sanctions.
Any of these, individually or in aggregate, could have a material adverse effect on our earnings, cash flows and financial condition. From time to time, social and political factors play a role in unprecedented and unanticipated judicial outcomes that could adversely affect our business. Non-compliance with policies and regulations could result in regulatory investigations, litigation and, ultimately, sanctions.
While this treatment creates a potential tax reporting requirement for any circumstance where the ownership of a bitcoin passes from one person to another, usually by means of bitcoin transactions (including off-blockchain transactions), it preserves the right to apply capital gains treatment to those transactions which may adversely affect an investment in our Company.
While this treatment creates a potential tax reporting requirement for any circumstance where the ownership of a bitcoin passes from one person to another, usually by means of bitcoin transactions (including off-blockchain transactions), it preserves the right to apply capital gains treatment to those transactions which may adversely affect an investment in our securities.
In a low profit margin environment, a higher percentage could be sold into the digital asset exchange market more rapidly, thereby potentially reducing digital asset prices.
In a low profit margin environment, a higher percentage could be sold into the digital asset exchange market more rapidly, potentially reducing digital asset prices.
Over the past two years, digital asset mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation mining rigs. Currently, new processing power brought onto the digital asset networks is predominantly added by incorporated and unincorporated “professionalized” mining operations. Professionalized mining operations may use proprietary hardware or sophisticated machines.
Over the past two years, digital asset mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation mining rigs. Currently, new processing power brought onto the digital asset networks is predominantly added by “professionalized” mining operations. Professionalized mining operations may use proprietary hardware or sophisticated machines.
As an alternative to fiat currencies that are backed by central governments, digital assets such as bitcoins, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events.
As an alternative to fiat currencies that are backed by central governments, digital assets such as bitcoin, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services. It is unclear how such supply and demand will be impacted by geopolitical events.
Based on our assessment, as of December 31, 2022, we concluded that our internal control over financial reporting contained material weaknesses. To remediate these material weaknesses, our management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.
Based on our assessment, as of December 31, 2023, we concluded that our internal control over financial reporting contained material weaknesses. To remediate these material weaknesses, our management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.
If regulatory changes or interpretations require the regulation of bitcoins under the Securities Act and Investment Company Act by the Commission, we may be required to register and comply with such regulations. To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in extraordinary, non-recurring expenses to us.
If regulatory changes or interpretations require the regulation of bitcoins under the Securities Act and Investment Company Act by the SEC, we may be required to register and comply with such regulations. To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in extraordinary, non-recurring expenses to us.
The holders of these securities may be expected to exercise or convert such options, warrants and convertible securities at a time when we would be able to obtain additional equity capital on terms more favorable than such securities or when our Common Stock is trading at a price higher than the exercise or conversion price of the securities.
The holders of these securities may be expected to exercise or convert such options, warrants and convertible securities at a time when it would be able to obtain additional equity capital on terms more favorable than such securities or when our common stock is trading at a price higher than the exercise or conversion price of the securities.
Currently, the NYSDFS has finalized its “BitLicense” framework for businesses that conduct “virtual currency business activity,” the Conference of State Bank Supervisors has proposed a model form of state level “virtual currency” regulation and additional state regulators including those from California, Idaho, Virginia, Kansas, Texas, South Dakota and Washington have made public statements indicating that virtual currency businesses may be required to seek licenses as money transmitters.
Currently, the NYSDFS has finalized its “BitLicense” framework for businesses that conduct “virtual currency business activity,” the Conference of State 28 Table of Contents Bank Supervisors has proposed a model form of state level “virtual currency” regulation and additional state regulators including those from California, Idaho, Virginia, Kansas, Texas, South Dakota and Washington have made public statements indicating that virtual currency businesses may be required to seek licenses as money transmitters.
Using alternate blocks, the malicious actor could “double-spend” its own digital assets (i.e., spend the same digital assets in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintains control.
Using alternate blocks, the malicious actor or botnet could “double-spend” its own digital assets (i.e., spend the same digital assets in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintains control.
Moreover, new laws, regulations, or interpretations may result in additional litigation, regulatory investigations, and enforcement or other actions, including preventing or delaying us from offering certain products or services offered by our competitors or could impact how we offer such products and services.
Moreover, new laws, regulations, or interpretations may result in additional litigation, regulatory investigations, and enforcement or other actions, including preventing or delaying it from offering certain products or services offered by our competitors or could impact how we offer such products and services.
While it is possible that we may declare a dividend after a large settlement, investors should not rely on such a possibility, nor should they rely on an investment in us if they require income generated from dividends paid on our capital stock.
While it is possible that we may declare a dividend after a large settlement, investors should not rely on such a possibility, nor should they rely on an investment in our securities if they require income generated from dividends paid on our capital stock.
Additionally, one or more states may conclude bitcoins and other digital assets we may own are a security under state securities laws which would require registration under state laws including merit review laws which would adversely impact us since we would likely not comply.
Furthermore, one or more states may conclude bitcoins and other digital assets we own or may own are a security under state securities laws which would require registration under state laws including merit review laws which would adversely impact us since we would likely not comply.
A professionalized mining operation may be more likely to sell a higher percentage of its newly mined digital assets rapidly if it is operating at a low profit margin—and it may partially or completely cease operations if its profit margin is negative.
A professionalized mining operation may be more likely to sell a higher percentage of its newly mined digital assets rapidly if it is operating at a low profit margin—and it may partially or completely stop operations if its profit margin is negative.
In numerous other states, including Connecticut and New Jersey, legislation is being proposed or has been introduced regarding the treatment of bitcoin and other digital assets. Marathon will continue to monitor for developments in such legislation, guidance or regulations.
In numerous other states, including Connecticut and New Jersey, legislation is being proposed or has been introduced regarding the treatment of bitcoin and other digital assets. We will continue to monitor for developments in such legislation, guidance or regulations.
Certain governments and regulatory bodies have, in our opinion, exceeded their constitutional authority by: attempting unilaterally to amend or cancel existing agreements or arrangements; failing to honour existing contractual commitments; and seeking to adjudicate disputes between private litigants.
Certain governments and regulatory bodies have, in our opinion, exceeded their constitutional authority by: • attempting unilaterally to amend or cancel existing agreements or arrangements; • failing to honor existing contractual commitments; and • seeking to adjudicate disputes between private litigants.
For example, following the failure of several prominent crypto trading venues and lending platforms, such as FTX, Celsius Networks, Voyager and Three Arrows Capital in 2022 (even though these do not directly affect our business), the U.S. Congress expressed the need for both greater federal oversight of the crypto economy and comprehensive cryptocurrency legislation.
For example, following the failure of several prominent crypto trading venues and lending platforms, such as FTX, Celsius Networks, Voyager and Three Arrows Capital in 2022 (even though these do not directly affect our business), the 32 Table of Contents U.S. Congress expressed the need for both greater federal oversight of the crypto economy and comprehensive cryptocurrency legislation.
The effect of any future regulatory change on us, bitcoins, or other digital assets is impossible to predict, but such change could be substantial and adverse to us and could adversely affect an investment in us.
The effect of any future regulatory change on us, bitcoins, or other digital assets is impossible to predict, but such change could be substantial and adverse to us and could adversely affect an investment in our securities.
The exercise, conversion or exchange of options, warrants or convertible securities, including for other securities, will dilute the percentage ownership of our shareholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital.
The exercise, conversion or exchange of options, warrants or convertible securities, including for other securities, will dilute the percentage ownership of our stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital.
Potential impacts include: forced divestment of assets; expropriation of property; cancellation or forced renegotiation of contract rights; additional taxes including windfall taxes, restrictions on deductions and retroactive tax claims; antitrust claims; changes to trade compliance regulations; price controls; local content requirements; foreign exchange controls; changes to environmental regulations; changes to regulatory interpretations and enforcement; and changes to disclosure requirements.
Potential impacts include: • forced divestment of assets; • expropriation of property; • cancellation or forced renegotiation of contract rights; • additional taxes including windfall taxes; • restrictions on deductions and retroactive tax claims; • antitrust claims; • changes to trade compliance regulations; • price controls; 30 Table of Contents • local content requirements; • foreign exchange controls; • changes to environmental regulations; • changes to regulatory interpretations and enforcement; and • changes to disclosure requirements.
A substantial majority of miners and Bitcoin users must consent to those software modifications by downloading the altered software or upgrade that implements the changes; otherwise, the changes do not become a part of the Bitcoin network.
A substantial majority of miners and Bitcoin users must consent to those software modifications by downloading the altered software or upgrade that implements the changes. If not, the changes do not become a part of the Bitcoin network.
Additionally, intellectual property laws and regulations differ among states, and countries. Variations in the patent laws and regulations or in interpretations of patent laws and regulations in the United States and other countries may diminish the value of our intellectual property and may change the impact of third-party intellectual property on us.
Additionally, intellectual property laws and regulations differ among states, and countries. Variations in patent laws and regulations or in interpretations of patent laws and regulations in the United States and other countries may diminish the value of our intellectual property and may change the impact of third-party intellectual property on our business.
To the extent that such malicious actor or botnet does not yield its majority control of the processing power or the digital asset community does not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible. Such changes could adversely affect an investment in us.
To the extent that such malicious actor or botnet does not yield its majority control of the processing power or the digital asset community does not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible. Such changes could adversely affect an investment in our securities.
Even though we do not function in the manner of an ETF and do not offer continuous share creation and redemption at NAV, it is possible that we nevertheless could face regulatory scrutiny from the SEC, as a company with securities traded on The Nasdaq Capital Market.
Even though we do not function in the manner of an ETF, nor do we offer continuous share creation and redemption at NAV, it is possible that we could nevertheless face regulatory scrutiny from the SEC, as a company with securities traded on Nasdaq.
If regulatory changes or interpretations of our activities require the licensing or other registration of us as a money transmitter (or equivalent designation) under state law in any state in which we operate, we may be required to seek licensure or otherwise register and comply with such state law.
If regulatory changes or interpretations of our activities require the licensing or other registrations as a money transmitter (or equivalent designation) under state law in any state in which we operate, we may be required to seek licensure or otherwise register and comply with such state law.
Congress and certain U.S. agencies (e.g., the CFTC, the Commission, FinCEN and the Federal Bureau of Investigation) have begun to examine the operations of the Bitcoin network, bitcoin users and the bitcoin exchange market.
Congress and certain U.S. agencies (e.g., the CFTC, the SEC, FinCEN and the Federal Bureau of Investigation) have begun to examine the operations of the Bitcoin network, bitcoin users and the bitcoin exchange market.
In the near future, various governmental and regulatory bodies, including in the United States, may introduce new policies, laws, and regulations relating to crypto assets and the crypto economy generally, and crypto asset platforms in particular.
In the near future, various governmental and regulatory bodies, including in the United States, may introduce new policies, laws, and regulations relating to crypto assets, the crypto economy, and crypto asset platforms.
Any widespread delays in the recording of transactions could result in a loss of confidence in that digital asset network, which could adversely impact an investment in us. To the extent that any miners cease to record transaction in solved blocks, such transactions will not be recorded on the blockchain.
Any widespread delays in the recording of transactions could result in a loss of confidence in that digital asset network, which could adversely impact an investment in our securities. To the extent that any miners cease to record transaction in solved blocks, such transactions will not be recorded on the blockchain.
Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence in some or all digital asset networks’ long-term viability or the ability of end-users to hold and transfer digital assets may adversely affect an investment in us.
Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence in some or all digital asset networks’ long-term viability or the ability of end-users to hold and transfer digital assets may adversely affect an investment in our securities.
If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any digital asset network, including the Bitcoin network, it is possible that such actor or botnet could manipulate the blockchain in a manner that adversely affects an investment in us.
If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any digital asset network, including the Bitcoin network, it is possible that such actor or botnet could manipulate the blockchain in a manner that adversely affects an investment in our securities.
The approach towards and possible crossing of the 50% threshold indicate a greater risk that a single mining pool could exert authority over the validation of digital asset transactions.
The approach towards and possible crossing of the 50% threshold indicates a greater risk that a single mining pool could exert authority over the validation of digital asset transactions.
To the extent that the profit margins of digital asset mining operations are not high, operators of digital asset mining operations are more likely to immediately sell their digital assets earned by mining in the digital asset exchange market, resulting in a reduction in the price of digital assets that could adversely impact an investment in us.
To the extent that the profit margins of digital asset mining operations are not high, operators of digital asset mining operations are more likely to immediately sell their digital assets earned by mining in the digital asset exchange market, resulting in a reduction in the price of digital assets that could adversely impact an investment in our securities.
We believe that these actions will remediate the material weakness. However, the remediation cannot be deemed successful until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively.
We believe that these actions will remediate such material weaknesses. However, the remediation cannot be deemed successful until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively.
Furthermore, in most hosting contracts, there is a requirement that the miner agree to permit the hosting company to place a lien on the actual mining machines being hosted.
Furthermore, in most hosting contracts, there is a requirement that the miner agrees to permit the hosting company to place a lien on the actual mining machines being hosted.
We believe we have addressed all of the Staff concerns; however, until the Staff has completed its review, we have no assurance that unresolved comments, or additional comments from the Staff, will not result in the need for additional restatements of our previously-issued financial statements.
While we believe we have addressed all of the Staff’s concerns, until the Staff has completed its review, we have no assurance that unresolved comments, or additional comments from the Staff, will not result in the need for additional restatements of our previously issued financial statements.
Any systemic delays in the recording and confirmation of transactions on the blockchain could result in greater exposure to double-spending transactions and a loss of confidence in certain or all digital asset networks, which could adversely impact an investment in us.
Any systemic delays in the recording and confirmation of transactions on the blockchain could result in greater exposure to double-spending transactions and a loss of confidence in certain or all digital asset networks, which could adversely impact an investment in our securities.
Current and future legislation and the Commission rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which bitcoins are treated for classification and clearing purposes. The Commission’s July 25, 2017 Report expressed its view that digital assets may be securities depending on the facts and circumstances.
Current and future legislation and the SEC rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which bitcoins are treated for classification and clearing purposes. The SEC’s July 25, 2017 Report expressed its view that digital assets may be securities depending on the facts and circumstances.
If the hosting company files for bankruptcy, it may take months for the liens to be lifted, while the bankruptcy court and parties litigate these contracts and resolves issues as to ownership of assets and related areas. In these contracts, we also are often required to make significant deposits against future mining fees.
If the hosting company files for bankruptcy, it may take 22 Table of Contents months for the liens to be lifted, while the bankruptcy court and parties litigate these contracts and resolves issues as to ownership of assets and related areas. In these contracts, we are often required to make significant deposits against future mining fees.
In addition, even if we are able to internally develop new inventions, in order for those inventions to be viable and to compete effectively, we would need to develop and maintain, and we would be heavily reliant upon, a proprietary position with respect to such inventions and intellectual property.
In addition, even if we are able to internally develop new inventions, in order for those inventions to be viable and to compete effectively, we would need to develop and maintain a proprietary position with respect to such inventions and intellectual property.
The shares of our restricted Common Stock will be freely tradable upon the earlier of: (i) effectiveness of a registration statement covering such shares and (ii) the date on which such shares may be sold without registration pursuant to Rule 144 (or other applicable exemption) under the Securities Act of 1933, as amended (“Securities Act”).
The shares of our restricted common stock will be freely tradable upon the earlier of: (i) effectiveness of a registration statement covering such shares; and (ii) the date on which such shares may be sold without registration pursuant to Rule 144 (or other applicable exemption) under the Securities Act of 1933.
The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that it deems reasonable or appropriate.
If federal or state legislatures or agencies initiate or release tax determinations that change the classification of bitcoins as property for tax purposes (in the context of when such bitcoins are held as an investment), such determination could have a negative tax consequence on our Company or our shareholders.
If federal or state legislatures or agencies initiate or release tax determinations that change the classification of bitcoins as property for tax purposes (in the context of when such bitcoins are held as an investment), such determination could have a negative tax consequence on us or our stockholders.
The further development and acceptance of digital asset networks and other digital assets, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of digital asset systems may adversely affect an investment in us.
The development and acceptance of digital asset networks and other digital assets, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of digital asset systems may adversely affect an investment in our securities.
Moreover, we may be required to register as a commodity pool operator and to register us as a commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting an investment in us.
Moreover, we may be required to register as a commodity pool operator and to register the Company as a commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting an investment in our securities.
The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying and accessing bitcoin, institutional demand for bitcoin as an investment asset, consumer demand for bitcoin as a means of payment, and the availability and popularity of alternatives to bitcoin.
The pace of worldwide growth in the adoption and use of bitcoin could depend on the following: • public familiarity with digital assets; • ease of buying and accessing bitcoin; • institutional demand for bitcoin as an investment asset; • consumer demand for bitcoin as a means of payment; and • the availability and popularity of alternatives to bitcoin.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act. Section 404 requires that we document and test our internal control over financial reporting and issue management’s assessment of our internal control over financial reporting. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act. Section 404 requires that we document and test our internal control over financial reporting and issue management’s assessment of our internal control over financial reporting. We assessed the effectiveness of our internal controls over financial reporting as of December 31, 2023.
The open-source structure of the Bitcoin network protocol means that the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the protocol. A failure to properly monitor and upgrade the protocol could damage the Bitcoin network and an investment in us.
The open-source structure of the Bitcoin network protocol means the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the protocol. A failure to properly monitor and upgrade the protocol could damage the Bitcoin network and an investment in our securities.
If an actual or perceived breach of our security system occurs, the market perception of the effectiveness of our security system could be harmed, which could adversely affect an investment in us.
If an actual or perceived breach of our security system occurs, the market perception of the effectiveness of our controls could be harmed, which could adversely affect an investment in our securities.
Either the requirement from miners of higher transaction fees in exchange for recording transactions in the blockchain or a software upgrade that automatically charges fees for all transactions may decrease demand for digital assets and prevent the expansion of the digital asset networks to retail merchants and commercial businesses, resulting in a reduction in the price of digital assets that could adversely impact an investment in us.
Either the requirement from miners of higher transaction fees in exchange for recording transactions in the blockchain or a software upgrade that automatically charges fees for all transactions may decrease demand for digital assets and prevent the expansion of the digital asset networks to retail merchants and 18 Table of Contents commercial businesses, resulting in a reduction in the price of digital assets that could adversely impact an investment in our securities.
As a result, any incorrectly executed digital asset transactions could adversely affect an investment in us. Digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on the respective digital asset network.
As a result, any incorrectly executed digital asset transactions could adversely affect an investment in our securities. Digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on that digital asset network.
In the event of any such requirement, to the extent Marathon decides to continue, the required registrations, licensure and regulatory compliance steps may result in extraordinary, non-recurring expenses to us. We may also decide to cease Marathon’s operations.
In the event of any such requirement, to the extent we decide to continue, the required registrations, licensure and regulatory compliance steps may result in extraordinary, non-recurring expenses to us. We may also decide to cease our operations.
You should carefully consider the risks, factors, and uncertainties described below, together with the other information contained in this Annual Report, as well as the risk, factors, uncertainties, and other information we disclose in other filings we make with the SEC before making an investment decision regarding our securities. We may be classified as an inadvertent investment company .
You should carefully consider the risks, factors, and uncertainties described below, together with the other information contained in this Annual Report, as well as the risk, factors, uncertainties, and other information we disclose in other filings we make with the SEC before making an investment decision regarding our securities.
Bitcoins have been deemed to fall within the definition of a commodity and, we may be required to register and comply with additional regulation under the CEA, including additional periodic report and disclosure standards and requirements.
Bitcoins have been deemed to fall within the definition of a commodity, and we may be required to register and comply with additional regulations under the CEA, including additional periodic reports and disclosure standards and requirements.
Both the parent company and each of our subsidiaries require certain financial, managerial and other resources, which could create challenges to our ability to successfully manage our subsidiaries and operations and impact our ability to assure compliance with our policies, practices and procedures.
Both Marathon and each of our subsidiaries require certain financial, managerial and other resources, which could create challenges to our ability to successfully manage our subsidiaries and operations and impact our ability to assure compliance with our policies, practices and procedures.
We rely on NYDIG’s 100% cold storage custody solution held in a purpose-built physically-secure environment based on established, industry best practices to safeguard our digital assets from theft, loss, destruction or other issues relating to hackers and technological attack. We believe that it may become a more appealing target of security threats as the size of our bitcoin holdings grow.
We rely on third-party custody providers’ 100% cold-storage custody solutions held in a purpose-built physically secure environment based on established, industry best practices to safeguard digital assets from theft, loss, destruction or other issues relating to hackers and technological attack. We believe we may become a more appealing target of security threats as the size of our bitcoin holdings grow.
If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease all or certain parts of our operations. Any such action would likely adversely affect an investment in us and investors may suffer a complete loss of their investment.
If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease all or certain parts of our operations. Any such action would likely adversely affect an investment in our securities and investors may suffer a complete loss of their investment. Our bitcoin holdings could subject us to regulatory scrutiny.
Currently, there are no known incentives for miners to elect to exclude the recording of transactions in solved blocks; however, to the extent that any such incentives arise (e.g., a collective movement among miners or one or more mining pools forcing bitcoin users to pay transaction fees as a substitute for or in addition to the award of new bitcoins upon the solving of a block), actions of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the blockchain.
However, to the extent that any such incentives arise (e.g., a collective movement among miners or one or more mining pools forcing bitcoin users to pay transaction fees as a substitute for or in addition to the award of new bitcoins upon the solving of a block), actions of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the blockchain.
If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, the accuracy and timeliness of the filing of our annual and quarterly reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, there may be materially adverse effects as to the accuracy and timeliness of the filing of our annual and quarterly reports, and it could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
They require the investment of significant capital for the acquisition of this hardware, the leasing of operating space (often in data centers or warehousing facilities), incurring of electricity costs and the employment of technicians to operate the mining farms.
Professionalized mining operations require: • the investment of significant capital for the acquisition of such hardware; • the leasing of operating space (often in data centers or warehousing facilities); • incurring of electricity costs; and • the employment of technicians to operate the mining farms.
Moreover, patent application delays could cause delays in recognizing revenue from our internally generated patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market.
Moreover, patent application delays could cause delays in recognizing revenue from our internally generated patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market. We are not actively pursuing any commercialization opportunities or internally generated patents.
However, there are significant risks associated with any such intellectual property we may develop principally including the following: ● Patent applications we may file may not result in issued patents or may take longer than we expect to result in issued patents; ● We may be subject to interference proceedings; ● We may be subject to opposition proceedings in the U.S. or foreign countries; ● Any patents that are issued to us may not provide meaningful protection; ● We may not be able to develop additional proprietary technologies that are patentable; ● Other companies may challenge patents issued to us; ● Other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies; ● Other companies may design around technologies we have developed; ● And enforcement of our patents would be complex, uncertain and very expensive.
However, there are significant risks associated with any such intellectual property we may develop principally including the following: • patent applications we may file may not result in issued patents or may take longer than we expect to result in issued patents; • we may be subject to interference proceedings; • we may be subject to opposition proceedings in the United States or foreign countries; • any patents that are issued to us may not provide meaningful protection; • we may not be able to develop additional proprietary technologies that are patentable; • other companies may challenge patents issued to us; • other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies; • other companies may design around technologies we have developed; and • enforcement of our patents would be complex, uncertain and very expensive. 23 Table of Contents We cannot be certain that patents, once issued, will provide us with adequate protection from competing products.
Such additional federal or state regulatory obligations may cause Marathon to incur extraordinary expenses, possibly affecting an investment in the Shares in a material and adverse manner. Furthermore, Marathon and its service providers may not be capable of complying with certain federal or state regulatory obligations applicable to MSBs and MTs.
Such additional federal or state regulatory obligations may cause us to incur extraordinary expenses, possibly affecting an investment our securities in a material and adverse manner. Furthermore, we and our service providers may not be capable of complying with certain federal or state regulatory obligations applicable to MSBs and MTs.
Decreased use and demand for bitcoins that we have accumulated may adversely affect their value and may adversely impact an investment in us.
Decreased use and demand for bitcoins that we have accumulated may adversely affect its value and may adversely impact an investment in it.
Such a fork in the blockchain typically would be addressed by community-led efforts to merge the forked blockchains, and several prior forks have been so merged. This kind of split in the Bitcoin network could materially and adversely impact an investment in us and, in the worst-case scenario, harm the sustainability of the Bitcoin network’s economy.
Such a fork in the blockchain is typically addressed by community-led efforts to merge the forked blockchains, and several prior forks have been so merged. This kind of split in the Bitcoin network could materially and adversely impact an investment in our securities and harm the sustainability of the Bitcoin network’s economy.
In such alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new digital assets or transactions using such control.
Within the alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transaction. However, it could not generate new digital assets or transactions using such control.
Fluctuations in the price of bitcoin may significantly influence the market price of our bitcoin holdings and therefore the price of our class A common stock To the extent investors view the value of our class A common stock as linked to the value or change in the value of our bitcoin, fluctuations in the price of bitcoin may significantly influence the market price of our class A common stock.
To the extent investors view the value of our common stock as linked to the value or change in the value of our bitcoin, fluctuations in the price of bitcoin may significantly influence the market price of our common stock.
For example, malicious attacks by “miners” who validate bitcoin transactions, inadequate mining fees to incentivize validating of bitcoin transactions, hard “forks” of the Bitcoin blockchain into multiple blockchains, and advances in quantum computing could undercut the integrity of the Bitcoin blockchain and negatively affect the price of bitcoin.
For example, malicious attacks by “miners” who validate bitcoin transactions, inadequate mining fees to incentivize validating of bitcoin transactions, “hard forks” of the Bitcoin blockchain, and advances in quantum computing could undercut the integrity of the Bitcoin blockchain and negatively affect the price of bitcoin.
The factors affecting the further development of the digital asset industry, as well as the digital asset networks, include: ● Continued worldwide growth in the adoption and use of bitcoins and other digital assets; ● Government and quasi-government regulation of bitcoins and other digital assets and their use, or restrictions on or regulation of access to and operation of the digital asset network or similar digital assets systems; ● The maintenance and development of the open-source software protocol of the Bitcoin network; ● Changes in consumer demographics and public tastes and preferences; ● The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; ● General economic conditions and the regulatory environment relating to digital assets; ● The impact of regulators focusing on digital assets and digital securities and the costs associated with such regulatory oversight; and ● A decline in the popularity or acceptance of the digital asset networks of bitcoin, or similar digital asset systems, could adversely affect an investment in us. 13 Significant contributors to all or any digital asset network could propose amendments to the respective network’s protocols and software that, if accepted and authorized by such network, could adversely affect an investment in us.
The factors affecting the further development of the digital asset industry, as well as the digital asset networks, include: • continued worldwide growth in the adoption and use of bitcoins and other digital assets; 17 Table of Contents • government and quasi-government regulation of bitcoins and other digital assets and their use, or restrictions on or regulation of access to and operation of the digital asset network or similar digital assets systems; • the maintenance and development of the open-source software protocol of the Bitcoin network; • changes in consumer demographics and public tastes and preferences; • the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; • general economic conditions and the regulatory environment relating to digital assets; • the impact of regulators focusing on digital assets and digital securities and the costs associated with such regulatory oversight; and • a decline in the popularity or acceptance of the digital asset networks of bitcoin, or similar digital asset systems, could adversely affect an investment in our securities.
Furthermore, we believe that, as our assets grow, it may become a more appealing target for security threats such as hackers and malware. 17 We rely on NYDIG’s 100% cold storage custody solution held in a purpose-built physically-secure environment based on established, industry best practices to safeguard our digital assets from theft, loss, destruction or other issues relating to hackers and technological attack.
Furthermore, as our assets grow, we may become a more appealing target for security threats such as hackers and malware. We rely on third-party custody providers’ 100% cold-storage custody solutions held in a purpose-built physically secure environments based on established, industry best practices to safeguard digital assets from theft, loss, destruction or other issues relating to hackers and technological attack.
Any such action may adversely affect an investment in us. 20 To the extent that digital assets including bitcoins and other digital assets we may own are deemed by the Commission to fall within the definition of a security, we may be required to register and comply with additional regulation under the 1940 Act, including additional periodic reporting and disclosure standards and requirements and the registration of our Company as an investment company.
To the extent that digital assets including bitcoins and other digital assets we own or may own are deemed by the SEC to fall within the definition of a security, we may be required to register and comply with additional regulation under the Investment Act, including additional periodic reporting and disclosure standards and requirements and our registration as an investment company.
Our bitcoin holdings could subject us to regulatory scrutiny As noted above, several bitcoin investment vehicles have attempted to list their shares on a U.S. national securities exchange to permit them to function in the manner of an ETF with continuous share creation and redemption at NAV.
Several bitcoin investment vehicles have attempted to list their shares on a U.S. national securities exchange to permit them to function in the manner of an ETF with continuous share creation and redemption at NAV.

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Item 2. Properties

Properties — owned and leased real estate

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ITEM 2. PROPERTIES The Company leases office space at the following locations under operating lease agreements: ● 1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144 ● Tower 101, 101 NE Third Avenue, Fort Lauderdale, Florida, 33301 ● 300 Spectrum Center Drive, Irvine CA, 92618 ● 3306 5th Street SE, East Wenatchee, Washington, 98802 ● 512 N.
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ITEM 2. PROPERTIES Our corporate headquarters are located in Fort Lauderdale, Florida, where we lease office space. As of December 31, 2023, we leased additional office space at locations throughout the United States.
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We also lease facilities throughout the United States to support our bitcoin mining operations and have recently entered into definitive agreements to acquire two currently operational bitcoin mining sites in Granbury, Texas and Kearney, Nebraska.
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The following table provides details regarding our most significant properties as of December 31, 2023, all of which are leased: Site Location Mega-watts Energized Exahash Lease Expiration McCamey, Texas 216 7.7 August 2027 Garden City, Texas 100 4.5 July 2027 Ellendale, North Dakota 180 7.8 July 2027 Jamestown, North Dakota 40 1.4 December 2027

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeOn 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.
Biggest changeOn November 23, 2022, we and certain of our affiliates timely filed proofs of claim asserting various claims against Compute North, including: (i) claims arising under hosting agreements between us and Compute North LLC; (ii) claims arising under that certain Senior Promissory Note, dated as of July 1, 2022, by and between us, 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. 36 Table of Contents On February 9, 2023, the Bankruptcy Court approved a settlement stipulation between us and Compute North, pursuant to which the proofs of claim filed by us and certain of its affiliates were resolved, and we received a single allowed unsecured claim against Compute North LLC in the amount of $40.0 million and its preferred equity interests in Compute North in the amount of 39,597 shares of Series C Preferred Stock was confirmed.
On May 11, 2022, the defendants moved to dismiss the second shareholder derivative complaint. 30 On June 1, 2022, the Court entered an order consolidating the two derivative actions. A June 13, 2022 scheduling order provided for plaintiffs to file a consolidated complaint and for renewed motions to dismiss the consolidated shareholder derivative complaint.
On May 11, 2022, the defendants moved to dismiss the second shareholder derivative complaint. On June 1, 2022, the Court entered an order consolidating the two derivative actions. A June 13, 2022, scheduling order provided for plaintiffs to file a consolidated complaint and for renewed motions to dismiss the consolidated shareholder derivative complaint.
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, which is the one plead against “all Defendants” and is most likely to involve later named defendants.
The Complaint alleges six causes of action against us: 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, which is the one plead against “all Defendants” and is most likely to involve later named defendants.
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 our miners.
During the course of the Chapter 11 cases, Compute North sold substantially all of its 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 our miners.
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.
At this time, we 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.
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 exchange, we 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 provision set forth in the Plan.
On May 5, 2022, a second shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against current and former members of the Company’s board of directors and senior management. The second shareholder derivative complaint is based on allegations substantially similar to the allegations in the February 18, 2022 derivative complaint.
On May 5, 2022, a second shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against current and former members of our Board and senior management. The second shareholder derivative complaint is based on allegations substantially similar to the allegations in the February 18, 2022 derivative complaint.
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.
Due to outstanding issues of fact and law, it is impossible to predict the outcome at this time; however, after consulting legal counsel, we are confident that we will prevail in this litigation, since we did not have a contract with Mr.
In its ruling on the summary judgment motion and at the pre-trial conference on February 24, 2022, the Court noted that a jury is more likely to accept $150,000 as an appropriate damages amount if liability is found, as opposed to the various theories espoused by Ho that result in multi-million-dollar recoveries.
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 $0.2 million 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.
Derivative Complaints On February 18, 2022, a shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against current and former members of the Company’s board of directors and senior management.
Derivative Complaints On February 18, 2022, a shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against current and former members of our board of directors (the “Board”) and senior management.
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 22, 2021, we responded to the Complaint with a general denial and the assertion of applicable affirmative defenses. Then, on February 25, 2021, we removed the action to the United States District Court in the Central District of California, where the action remains pending. We filed a motion for summary judgment/adjudication of all causes of action.
The complaint is based on allegations substantially similar to the allegations in the December 2021 putative class action complaint, related to the Company’s disclosure of an SEC investigation previously made by the Company on November 15, 2021. On March 4, 2022, the complaint was served on the Company. On April 4, 2022, the defendants moved to dismiss the complaint.
The complaint is based on allegations substantially similar to the allegations in the December 2021 putative class action complaint, related to our disclosure of an SEC investigation we previously made on November 15, 2021. On March 4, 2022, we were served the complaint. On April 4, 2022, the defendants moved to dismiss the complaint.
We 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.
Compute North provided operating services to us and hosted our mining rigs at multiple facilities. We 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.
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.
In a disclosure statement filed on December 19, 2022, Compute North 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 March 31, 2023.
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.
The claims arise from the same set of facts where Ho alleges that we profited from commercially sensitive information he shared with us and then we refused to compensate him for his role in securing the acquisition of a supplier of energy for us.
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.
In conjunction therewith, we filed a Current Report on Form 8-K on October 13, 2020, which discloses that, pursuant to a Data Facility Services Agreement, we issued 6,000,000 shares of restricted common stock, in transactions exempt from registration under Section 4(a)(2) of the Securities Act.
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 our Form 8-K dated October 13, 2020. We understand that the SEC may be investigating whether or not there may have been any violations of the federal securities law.
During the quarter ended September 30, 2021, we, and certain of our executives, received a subpoena to produce documents and communications concerning the Hardin, Montana data center facility described in our Current Report on Form 8-K dated October 13, 2020.
We are cooperating with the SEC. On January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and Restitution (“Complaint”) against the Company and 10 Doe Defendants.
We understand that the SEC may be investigating whether or not there may have been any violations of the federal securities law. We are 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 (the “Complaint”) against us and ten Doe Defendants.
ITEM 3. 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 our mining rigs at multiple facilities.
ITEM 3. LEGAL PROCEEDINGS Compute North Bankruptcy On September 22, 2022, Compute North Holdings, Inc. (currently doing business as Mining Project Wind Down Holdings, Inc.) and certain of its affiliates (collectively, “Compute North”) filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”).
Information Subpoena 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, MT. In conjunction therewith, the Company filed a Current Report on Form 8-K on October 13, 2020.
The defendants’ time to respond has been extended until after the appointment of a lead plaintiff. Information Subpoena On October 6, 2020, we entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts in Hardin, Montana.
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 the week of May 8, 2023.
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 is likely to commence on or around April 8, 2024. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 38 Table of Contents PART II
On November 22, 2022, before a consolidated complaint was due, plaintiffs voluntarily dismissed both actions without prejudice. On November 23, 2022, both actions were closed. Putative Class Action Complaint On December 17, 2021, a putative class action complaint was filed in the United States District Court for the District of Nevada, against the Company and present and former senior management.
On November 22, 2022, before a consolidated complaint was due, plaintiffs voluntarily dismissed both actions without prejudice. On November 23, 2022, both actions were closed.
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On December 20, 2022, the Bankruptcy Court approved a stipulation among and between the Company, Compute North, Generate Lending, LLC and certain affiliates (“Generate”), and MVP Logistics, LLC (“MVP”), whereby Compute North, Generate, and MVP agreed to allow the Company to retrieve our uninstalled miners located at relevant facilities and reject all Compute North’s agreements with us.
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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 our Board 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.
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Compute North also agreed to release all its claims against the Company regarding certain disputed invoices for warehousing and logistics.
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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 our Board 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.
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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 $40,000,000 and its Preferred Equity Interests in Compute North Holdings, Inc. in the amount of 39,597 shares of Series C Preferred Stock was confirmed.
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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 our Board 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.
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The complaint alleges securities fraud related to the disclosure of an SEC investigation previously made by the Company on November 15, 2021. Plaintiff Tad Schlatre served the complaint on the Company on March 1, 2022. On September 12, 2022, the court appointed Carlos Marina as lead plaintiff. On October 21, 2022, lead plaintiff voluntarily dismissed the complaint without prejudice.
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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 our Board 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.
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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”).
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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.
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Putative Class Action Complaint 37 Table of Contents On March 30, 2023, a putative class action complaint was filed in the United States District Court for the District of Nevada, against us and present and former senior management, alleging claims under Section 10(b) and 20(a) of the Exchange Act arising out of our announcement of accounting restatements on February 28, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is currently quoted on The NASDAQ Capital Market under the symbol “MARA”. Holders As of March 13, 2023, there were 254 holders of record of 167,247,030 shares of the Company’s Common Stock.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is currently listed on Nasdaq under the symbol “MARA.” Holders As of December 31, 2023, there w ere 49 holders of record of 242,829,391 shares of our common stock.
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Securities Authorized for Issuance under Equity Compensation Plans 2012, 2014, 2017 and 2018 Equity Incentive Plans The following table gives information about the Company’s common stock that may be issued upon the exercise of options granted to employees, directors and consultants under its 2012, 2014, 2017 and 2018 Equity Incentive Plans as of December 31, 2022.
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Dividends We have never paid cash dividends on our capital stock and have no current plans to do so in the foreseeable future. Issuer Repurchases of Equity Securities None.
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On August 1, 2012, our board of directors and stockholders adopted the 2012 Equity Incentive Plan, pursuant to which 96,154 shares of our common stock are reserved for issuance as awards to employees, directors, consultants, advisors and other service providers.
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On September 16, 2014, our board of directors adopted the 2014 Equity Incentive Plan, subsequently approved by the shareholders on July 31, 2015, pursuant to which up to 125,000 shares of our common stock, stock options, restricted stock, preferred stock, stock-based awards and other awards are reserved for issuance as awards to employees, directors, consultants, advisors and other service providers.
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On September 6, 2017, our board of directors adopted the 2017 Equity Incentive Plan, subsequently approved by the shareholders on September 29, 2017, pursuant to which up to 625,000 shares of our common stock, stock options, restricted stock, preferred stock, stock-based awards and other awards are reserved for issuance as awards to employees, directors, consultants, advisors and other service providers.
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On January 1, 2018, our board of directors adopted the 2018 Equity Incentive Plan, subsequently approved by the shareholders on March 7, 2018, pursuant to which up to 2,500,000 shares of our common stock, stock options, restricted stock, preferred stock, stock-based awards and other awards are reserved for issuance as awards to employees, directors, consultants, advisors and other service providers.
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On January 15, 2021, the Company’s shareholders approved an increase in the number of shares authorized for issuance under the 2018 Equity Incentive Plan by 5,000,000 shares, which increase took effect automatically.
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As of March 13, 2023, the 2012, 2014, 2017 and 2018 Equity Incentive Plans had outstanding grants and remaining unissued shares, taking into account issuance of restricted stock to officers and directors, as follows: Equity Compensation Plan Information Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 324,375 $ 25.00 4,013,834 Equity compensation plans not approved by security holders — — — Total 324,375 $ 25.00 4,013,834 Recent Repurchases of Securities None. 32 ITEM 6.
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RESERVED ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our Consolidated Financial Statements and the notes presented herein.
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In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.
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Our actual results could differ significantly from those expressed, implied, or anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.
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Cautionary Note Regarding Forward-Looking Statements This report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs, and our management’s assumptions. Statements that are not historical facts are forward-looking statements.
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Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “sustain”, “on track”, “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
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These forward- looking statements are not guarantees of future performance and involve risks, assumptions, and uncertainties, including, but not limited to, those described in our reports that we file or furnish with the Securities and Exchange Commission.
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Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made.
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Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise. Restatement of Previously Issued Financial Statements

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese sites are expected to come online in phases during the first and second quarters of 2023. 41 Results of Operations – Year ended December 31, 2022 compared to December 31, 2021 (Restated) Financial Summary Table: Years ended December 31, (in thousands) 2022 2021 (Restated) Favorable (Unfavorable) Total revenues $ 117,753 $ 159,163 $ (41,410 ) Costs and expenses Cost of revenues Cost of revenues - energy, hosting and other (72,717 ) (27,491 ) (45,226 ) Cost of revenues - depreciation and amortization (78,709 ) (14,904 ) (63,805 ) Total cost of revenues (151,426 ) (42,395 ) (109,031 ) Operating expenses General and administrative expenses (56,739 ) (174,355 ) 117,616 Legal reserves (26,131 ) — (26,131 ) Impairment of deposits due to vendor bankruptcy filing (24,661 ) — (24,661 ) Impairment of digital assets (173,215 ) (30,329 ) (142,886 ) Impairment of patents (919 ) — (919 ) Impairment of mining equipment and advances to vendors (332,933 ) — (332,933 ) Realized and unrealized gains (losses) on digital assets loan receivable and digital assets (14,460 ) 557 (15,017 ) Gain on sale of equipment, net of disposals 83,880 — 83,880 Realized and unrealized gains (losses) on digital assets held within Investment Fund (85,017 ) 74,696 (159,713 ) Total operating expenses (630,195 ) (129,431 ) (500,764 ) Operating income (loss) (663,868 ) (12,663 ) (651,205 ) Other non-operating income (loss) 1,283 (287 ) 1,570 Impairment of loan and investment due to vendor bankruptcy filing (31,013 ) — (31,013 ) Interest expense (14,980 ) (1,570 ) (13,410 ) Income (loss) before income taxes (708,578 ) (14,520 ) (694,058 ) Income tax benefit (expense) 21,838 (22,576 ) 44,414 Net income (loss) $ (686,740 ) $ (37,096 ) $ (649,644 ) Supplemental information: Bitcoin (“BTC”) production during the period, in BTC 4,144 3,197 947 Total margin (revenues less total cost of revenues) $ (33,673 ) $ 116,768 $ (150,441 ) General and administrative expenses excluding stock-based compensation $ (32,144 ) $ (13,569 ) $ (18,575 ) Total impairments due to vendor bankruptcy filing $ (55,674 ) $ — $ (55,674 ) Total change in carrying value of digital assets $ (272,692 ) $ 44,924 $ (317,616 ) Reconciliation to Adjusted EBITDA: Net (loss) $ (686,740 ) $ (37,096 ) $ (649,644 ) Exclude: Interest expense 14,980 1,570 13,410 Exclude: Income tax expense (benefit) (21,838 ) 22,576 (44,414 ) EBIT (693,598 ) (12,950 ) (680,648 ) Exclude: Depreciation and amortization 78,709 14,904 63,805 EBITDA (614,889 ) 1,954 (616,843 ) Stock compensation expense 24,595 160,786 (136,191 ) Impairment of assets due to vendor bankruptcy filing 55,674 — 55,674 Impairment of patents 919 — 919 Adjusted EBITDA $ (533,701 ) $ 162,740 $ (696,441 ) 42 Revenues : We generated revenues of $117,753 thousand for the year ended December 31, 2022 compared with $159,163 thousand in 2021.
Biggest changeAdjusted EBITDA also benefited from the absence of several expenses recorded in the prior year period: the impairment of digital assets of $182.9 million; impairment of mining equipment and advances to vendors of $332.9 million; losses on digital assets held within investment fund of $85.0 million; legal reserves of $26.1 million; and losses on digital assets loan receivable of $14.5 million, partially offset by the net gain on sale of equipment of $83.9 million. 47 Table of Contents Year ended December 31, 2022 compared to December 31, 2021 Years ended December 31, Favorable (dollars in thousands) 2022 2021 (Unfavorable) Total revenues $ 117,753 $ 159,163 $ (41,410) Costs and expenses Cost of revenues Cost of revenues - energy, hosting and other (72,715) (27,492) (45,223) Cost of revenues - depreciation and amortization (78,709) (14,904) (63,805) Total cost of revenues (151,424) (42,396) (109,028) Operating expenses General and administrative expenses (56,739) (174,356) 117,617 Legal reserves (26,131) — (26,131) Impairment of deposits due to vendor bankruptcy filing (24,661) — (24,661) Impairment of digital assets (182,891) (22,252) (160,639) Impairment of patents (919) — (919) Impairment of mining equipment and advances to vendors (332,933) — (332,933) Gains (losses) on digital assets loan receivable and gains on digital assets (14,460) 2,157 (16,617) Gain on sale of equipment, net of disposals 83,879 — 83,879 Gains (losses) on digital assets held within investment fund (85,017) 74,696 (159,713) Total operating expenses (639,872) (119,755) (520,117) Operating loss (673,543) (2,988) (670,555) Impairment of loan and investment due to vendor bankruptcy filing (31,013) — (31,013) Interest expense (14,981) (1,569) (13,412) Other non-operating income (loss) 1,283 (288) 1,571 Loss before income taxes (718,254) (4,845) (713,409) Income tax benefit (expense) 24,232 (24,968) 49,200 Net loss $ (694,022) $ (29,813) $ (664,209) Supplemental information: bitcoin ("BTC") production during the period, in whole BTC $ 4,144 $ 3,197 $ 947 Total margin (total revenues less total cost of revenues) (33,671) 116,767 (150,438) General and administrative expenses excluding stock-based compensation (32,144) (13,570) (18,574) Total impairments due to vendor bankruptcy filing (55,674) — (55,674) Total change in carrying value of digital assets (282,368) 54,601 (336,969) Reconciliation to Adjusted EBITDA: Net loss $ (694,022) $ (29,813) $ (664,209) Exclude: Interest expense 14,981 1,569 13,412 Exclude: Income tax expense (benefit) (24,232) 24,968 (49,200) EBIT (703,273) (3,276) (699,997) Exclude: Depreciation and amortization 78,709 14,904 63,805 EBITDA (624,564) 11,628 (636,192) Stock compensation expense 24,595 160,786 (136,191) Impairment of assets due to vendor bankruptcy filing 55,674 — 55,674 Impairment of patents 919 — 919 Adjusted EBITDA $ (543,376) $ 172,414 $ (715,790) 48 Table of Contents Revenues : The Company generated revenues of $117.8 million for the year ended December 31, 2022, compared to $159.2 million in 2021.
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; and ● Step 5: Recognize the revenue when the Company satisfies a performance obligation.
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; and • Step 5: Recognize revenue when the Company satisfies a performance obligation.
Due to the significant decrease in fair values of bitcoin mining rigs during the fourth quarter ended December 31, 2022, the Company assessed the need for an impairment write-down of both bitcoin mining rigs (held as fixed assets) and advances to vendors (a current asset) representing deposits associated with the future delivery of mining rigs.
Due to the significant decrease in fair values of bitcoin mining rigs during the fourth quarter ended December 31, 2022, the Company assessed the need for an impairment write-down of both bitcoin mining rigs (held as fixed assets) and advances to vendors (a non-current asset) representing deposits associated with the future delivery of mining rigs.
Accordingly, the Company utilizes the group method of depreciation for its bitcoin miners. The Company updates the estimated useful lives of its asset group of bitcoin mining rigs periodically as information on the operations of the mining rigs indicates changes are required.
Accordingly, the Company utilizes the group method of depreciation for its bitcoin mining rigs. The Company updates the estimated useful lives of its asset group of bitcoin mining rigs periodically as information on the operations of the mining rigs indicates changes are required.
If the Company concludes derecognition is appropriate, the Company derecognizes the loaned digital assets it no longer controls and recognizes a right to receive back in the future the loaned digital assets. The digital asset loan receivable is recorded at the fair value of the underlying loaned digital assets.
If the Company concludes derecognition is appropriate, the Company derecognizes the loaned digital assets that it no longer controls and recognizes a right to receive back in the future such loaned digital assets. The digital asset loan receivable is recorded at the fair value of the underlying digital assets.
Income taxes The primary objectives of accounting for income taxes are to recognize the amount of income taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.
Income taxes The primary objectives of accounting for income taxes are to recognize the amount of income taxes payable or refundable for the current year, and to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Management must make assumptions, judgments and estimates to determine our income tax benefit or expense and our deferred tax assets and liabilities.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Management must make assumptions, judgments and estimates to determine the Company’s income tax benefit or expense and deferred tax assets and liabilities.
When determining the transaction price, an entity must consider the effects of all of the following: ● Variable consideration 37 ● 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 will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
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 core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The 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.
Impairment of fixed assets and advances to vendors: In accordance with ASC 360-10 – “Impairment and Disposal of Long-Lived Assets” (“ASC 360”), any long-lived asset group that is held and used must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable.
Impairment of fixed assets and advances to vendors: In accordance with ASC 360-10 – Impairment and Disposal of Long-Lived Assets , any long-lived asset group that is held and used must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable.
In addition, as part of its periodic review of its fixed asset groups, the Company decided to change the estimated useful life for its asset group of mining rigs from 5 years to 3 years, effective January 1, 2023.
In addition, as part of its periodic review of its fixed asset groups, the Company changed the estimated useful life for its asset group of mining rigs from 5 years to 3 years, effective January 1, 2023.
The depreciation charge is calculated on a straight-line basis and depends on the estimated useful lives of each type of asset and, in certain circumstances, estimates of fair values and residual values. The Company’s property and equipment is composed of bitcoin miners which are largely homogeneous and have approximately the same useful lives.
The depreciation charge is calculated on a straight-line basis and depends on the estimated useful lives of each type of asset and, in certain circumstances, estimates of fair values and residual values. The Company’s property and equipment is primarily composed of bitcoin mining rigs, which are largely homogeneous and have approximately the same useful lives.
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct.
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.
The maximum borrowings outstanding under the Company’s revolving credit facilities during the year ended December 31, 2022 was $70,000 thousand. Total borrowings and repayments under the RLOC facilities were $120,000 thousand during the year ended December 31, 2022 and there were no borrowings outstanding under the RLOC facility at December 31, 2022.
The maximum borrowings outstanding under the Company’s revolving credit facilities during the year ended December 31, 2022, was $70.0 million. Total borrowings and repayments under the RLOC facilities were $120.0 million during the year ended December 31, 2022, and there were no borrowings outstanding under the RLOC facility at December 31, 2022.
We recognize tax positions when they are more likely than not of being sustained. Recognized tax positions are measured at the largest amount of benefit greater than 50 % likely of being realized. Each period, we evaluate tax positions and adjust related tax assets and liabilities in light of changing facts and circumstances.
The Company recognizes tax positions when they are more likely than not of being sustained. Recognized tax positions are measured at the largest amount of benefit greater than 50% likely of being realized. Each period, the Company evaluates tax positions and adjust related tax assets and liabilities in light of changing facts and circumstances.
Bankruptcy Code. During the year ended December 31, 2022, the Company assessed the impairment of assets associated with Compute North due to the bankruptcy proceedings. As a result, the Company recorded impairment charges of approximately $24,661 thousand in operating expenses (related to deposits) and approximately $31,013 thousand (related to certain loans and preferred stock investments) as non-operating expenses.
During the year ended December 31, 2022, the Company assessed the impairment of assets associated with Compute North due to the bankruptcy proceedings. As a result, the Company recorded impairment charges of approximately $24.7 million in operating expenses (related to deposits) and approximately $31.0 million (related to certain loans and preferred stock investments) as non-operating expenses.
In accordance with ASC 360-10, the Company determined that both of these asset categories had carrying values in excess of fair value, and accordingly, the Company recognized impairment charges for both the bitcoin mining rigs of $208,622 thousand and the advances to vendors of $124,311 thousand – a total impairment of approximately $332,933 thousand for the year ended December 31, 2022.
In accordance with ASC 360-10, the Company determined that both of these asset categories had carrying values in excess of fair value, and accordingly, the Company recognized impairment charges for both the bitcoin mining rigs of $208.6 million and the advances to vendors of $124.3 million – a total impairment of approximately $332.9 million for the year ended December 31, 2022.
The sales of digital assets are included within investing activities in the accompanying Consolidated Statements of Cash Flows and any realized gains or losses from such sales are included in other income (expense) in the Consolidated Statements of Other Comprehensive Income (Loss).
The sales of digital assets are included within investing activities in the accompanying Consolidated Statements of Cash Flows and any gains or losses from such sales are included in operating expenses in the Consolidated Statements of Comprehensive Income (Loss).
Purchases of digital assets by the Company are included within investing activities in the accompanying Consolidated Statements of Cash Flows, while digital assets awarded to the Company through its mining activities are included as a reconciling item within operating activities on the accompanying Consolidated Statements of Cash Flows.
Digital assets awarded to the Company through its mining activities are included as a reconciling item within operating activities on the accompanying Consolidated Statements of Cash Flows.
Digital assets loan receivable When the Company loans digital assets to a borrower for a specific period of time in exchange for a fee akin to interest, the Company first evaluates whether to derecognize such loaned digital assets based on an evaluation of relevant control and asset derecognition considerations that include whether: ● the Company has transferred present rights to the economic benefits associated with the digital asset for a different right to receive digital assets in the future; ● the Company cannot sell, pledge, loan, or otherwise use the lent digital assets while the loan is outstanding, as those rights have been transferred to the borrower; ● inherent in the realization of the economic benefits associated with the digital asset loan receivable is exposure to credit risk of the borrower; and ● the borrower of the digital assets can deploy those assets at its discretion for the duration of the lending arrangement and bears the risk of loss or theft of those assets, and otherwise has the ability to direct the use of the assets transferred.
Digital assets loan receivable When the Company loans digital assets to a third-party entity, the Company first evaluates whether to derecognize such digital assets based on an evaluation of relevant control and asset derecognition considerations that include whether: • The Company has transferred present rights to the economic benefits associated with the digital asset for a different right to receive digital assets in the future; • The Company cannot sell, pledge, loan, or otherwise use the lent digital assets while the loan is outstanding, as those rights have been transferred to the borrower; 54 Table of Contents • Inherent in the realization of the economic benefits associated with the digital asset loan receivable is exposure to credit risk of the third-party entity; and • The third-party entity that holds the digital assets can deploy those assets at its discretion for the duration of the lending arrangement and bears the risk of loss or theft of those assets, and otherwise has the ability to direct the use of the assets transferred.
The Company uses each instrument’s life of loan period for estimating current expected credit losses, unadjusted by any prepayment risk as any risk would be immaterial to either the repayment in kind or the accrued loan fee receivable.
The Company uses each instrument’s life of loan period for estimating current expected credit losses, unadjusted by any prepayment risk as any risk would be immaterial to either the repayment in kind or the accrued loan fee receivable. Revenues The Company recognizes revenue in accordance with ASC 606.
Gain on sales of equipment, net : In late 2021, the Company entered into an agreement with DCRBN Ventures Development and Acquisition LLC (“DCRBN”) in which the Company agreed to sell certain mining rigs to DCRBN in conjunction with the development of commercial activities at the McCamey, TX facility.
Gain on sales of equipment, net : In late 2021, the Company entered into an agreement with DCRBN in which the Company agreed to sell certain mining rigs to DCRBN in conjunction with the development of commercial activities at the McCamey, Texas facility.
Total changes in the fair value of investment fund from January 1, 2022 through the June 10, 2022 withdrawal date resulted in an unrealized loss of $85,017 thousand in the current year period. During the prior-year period, the change in fair value of the bitcoin held in the investment fund was an unrealized gain of $74,696 thousand.
Total changes in the fair value of investment fund from January 1, 2022 through the June 10, 2022 withdrawal date resulted in a realized loss of $85.0 million in the current year period. During the prior year period, the change in fair value of the bitcoin held in the investment fund was an unrealized gain of $74.7 million.
For example, we would expect: ● Our bitcoin holdings and the value of those holdings will increase most significantly in periods where we experience both higher production and higher bitcoin prices. 48 ● Our bitcoin holdings and value of those holdings will be mixed in periods with either (1) higher production combined with lower bitcoin prices, or (2) lower production combined with higher bitcoin prices. ● Our bitcoin holdings and the value of those holdings will most likely decrease in periods where we experience both lower production and lower bitcoin prices.
For example, the Company would expect: • The Company’s bitcoin holdings and the value of those holdings will increase most significantly in periods where it experiences both higher production and higher bitcoin prices; • The Company’s bitcoin holdings and value of those holdings will be mixed in periods with either (1) higher production combined with lower bitcoin prices, or (2) lower production combined with higher bitcoin prices; and • The Company’s bitcoin holdings and the value of those holdings will most likely decrease in periods where it experiences both lower production and lower bitcoin prices.
Throughout the loan period, the digital asset loan receivable continues to be measured at the fair value of the underlying loaned digital asset with changes recorded in operating income (loss) in current period earnings.
Throughout the period that the digital asset loan receivable is outstanding, the receivable will be measured at the fair value of the underlying loaned digital asset with changes recorded in operating income (loss) in current period earnings.
The Company accounts for income taxes in accordance with ASC 740 - “Income Taxes” (“ASC 740”), using the asset and liability method.
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes, using the asset and liability method.
Impairment of patents: The Company recorded an impairment of $919 thousand in the current-year period related to certain patents no longer utilized in its business operations.
Impairment of patents: The Company recorded an impairment of $0.9 million in the current year period related to certain patents no longer utilized in its business operations.
Cash flows from operating activities resulted in a use of funds of $176,481 thousand, primarily due to a $176,566 thousand use of cash from changes in operating assets and liabilities driven by bitcoin mining revenues, and, to a lesser extent prepaid expenses associated with new hosting arrangements (a $48,886 thousand use of funds) and deposits associated with new hosting arrangements (a $24,469 thousand use of funds).
Cash flows from operating activities resulted in a use of funds of $176.5 million, primarily due to a $176.6 million use of cash from changes in operating assets and liabilities driven by bitcoin mining revenues, and, to a lesser extent prepaid expenses associated with new hosting arrangements (a $48.9 million use of funds) and deposits associated with new hosting arrangements (a $24.5 million use of funds).
The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.
The consideration promised in a contract with a customer 55 Table of Contents may include fixed amounts, variable amounts, or both.
Partially offsetting these unfavorable variances were gains on the sales of mining rigs of $83,880 thousand and increases in non-operating income of $1,570 thousand.
Partially offsetting these unfavorable variances were gains on the sales of mining rigs of $83.9 million and increases in non-operating income of $1.6 million.
We intend to add to our bitcoin holdings primarily through our production activities and we also intend to sell bitcoin as a means of generating cash to cover monthly operating costs and for general corporate purposes.
The Company intends to add to its bitcoin holdings primarily through its production activities and it also intends to sell bitcoin as a means of generating cash to cover monthly operating costs and for general corporate purposes.
The bitcoin network is not an entity such that it may meet the definition of a customer; however, the Company has concluded it is appropriate to apply ASC 606 by analogy to block rewards earned from the network. A contract exists under ASC 606 at the point the Company successfully validates a transaction to the distributed ledger.
The bitcoin network is not an entity such that it may not meet the definition of a customer; however, the Company has concluded that it is appropriate to apply ASC 606 by analogy to block rewards earned from the bitcoin network.
Partially offsetting these unfavorable variances was a significant reduction in general and administrative expenses of $117,616 thousand primarily associated with lower stock-based compensation, gains on sales of rigs of $83,880 thousand, the $44,414 thousand favorable income tax variance and a slight increase in other non-operating income.
Partially offsetting these unfavorable variances was a significant reduction in general and administrative expenses of $117.6 million primarily associated with lower stock-based compensation, gains on sales of mining rigs of $83.9 million, a $49.2 million favorable income tax variance and a slight increase in other non-operating income.
Partially offsetting these increased costs was an $8,694 thousand decline in cost of revenues related to the discontinuation of the third party mining pool in 2022. Cost of revenues – depreciation and amortization was $78,709 thousand in the current-year period compared with $14,904 thousand in the prior-year period, an increase of $63,805 thousand.
Partially offsetting these increased costs was an $8.7 million decline in cost of revenues related to the discontinuation of the third party mining pool in 2022. Cost of revenues – depreciation and amortization was $78.7 million in the current year period compared to $14.9 million in the prior year period.
Despite the overall increase in production for the year, the company experienced significant production downtime in the second and third quarters as a result of the aforementioned exit from Hardin and delays in energization at King Mountain. Production during the third quarter was down 50% from the prior year.
Despite the overall increase in production for the year, the Company experienced significant production downtime in the second and third quarters of 2022 as a result of the closure of the Hardin, Montana facility and delays in energization at the McCamey, Texas facility. Production during the third quarter of 2022 was down 50% from the prior year period.
Our best production quarters of 2022 were the first quarter and the fourth quarter. Cost of revenues : Cost of revenues – energy, hosting and other during the year ended December 31, 2022, totaled $72,717 thousand compared with $27,491 thousand in the prior-year period.
The Company's best production quarters of 2022 were the first quarter and the fourth quarter. Cost of revenues – energy, hosting and other during the year ended December 31, 2022, totaled $72.7 million compared to $27.5 million in the prior year period.
In conjunction with its exit from the Hardin, MT facility, the Company also sold bitcoin mining rigs to various third parties. Total cash proceeds from these sales of assets for the year ended December 31, 2022 were $178,371 thousand and gains resulting from the asset sales totaled $83,880 thousand in the current-year period. There were no such sales in 2021.
In conjunction with its closure from the Hardin, Montana facility, the Company also sold bitcoin mining rigs to various third parties. Total cash proceeds from the sale of assets for the year ended December 31, 2022 were $178.4 million and gains resulting from the asset sales totaled $83.9 million in the current year period.
Total Margin : Total margin was a loss of $33,673 thousand in the current-year period compared with income of $116,768 thousand in the prior-year period, a decline of $150,441 thousand.
Total Margin : Total margin was a loss of $33.7 million in the current year period compared with income of $116.8 million in the prior year period, a decline of $150.4 million.
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 contracts with customers under ASC 606.
Operator As Operator, the Company provides transaction verification services to the transaction requestor, in addition to the bitcoin network. Transaction verification services are an output of the Company’s ordinary activities; therefore, the Company views the transaction requestor as a customer and recognizes the transaction fees as revenue from contracts with customers under ASC 606.
Cash flows from financing activities resulted in a source of cash of $410,655 thousand, primarily from proceeds from the periodic issuance of common stock under the Company’s At-The-Market facility of $361,486 thousand and proceeds from borrowings outstanding under the term loan agreement of $49,250 thousand.
Cash flows from financing activities resulted in a source of cash of $410.7 million, primarily from proceeds from the periodic issuance of common stock under the Company’s ATM of $361.5 million and proceeds from borrowings outstanding under the term loan agreement of $49.3 million.
The Company’s ongoing major or central operation is to provide computing power to collectives of third-party bitcoin miners (such collectives, “mining pools”) as a participant (“Participant”) and bitcoin transaction verification services to the bitcoin network through a Company-operated mining pool as the operator and a participant (“Operator”) (such activity as Participant and Operator, collectively, “mining”).
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 transaction requestor, in addition to the bitcoin network through a Company-operated mining pool as the operator (“Operator”) (such activity, “mining”) and to provide a service of performing hash calculations to third-party pool operators alongside collectives of third-party bitcoin miners (such collectives, “mining pools”) as a participant (“Participant”).
The Company also, from time to time, engages unrelated third-party mining enterprises (“pool participants”) to contribute computing power, and in exchange, remits transaction fees and block rewards to pool participants on a pro rata basis according to each respective pool participant’s contributed computing power (hash rate).
From September 2021 until May 2022, the Company engaged unrelated third-party mining enterprises (“pool participants”) to contribute hash calculations, 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 hash calculations.
Therefore, the Company records all of the transaction fees and block rewards earned from transactions assigned to MaraPool as revenue, and the portion of the transaction fees and block rewards remitted to MaraPool participants as cost of revenues.
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.
As a result, the Company assessed the need for an impairment write-down of both bitcoin mining rigs (held as fixed assets) and advances to vendors (a current asset) representing deposits associated with the future delivery of mining rigs.
Due to the significant decrease in fair values of bitcoin mining rigs during the fourth quarter ended December 31, 2022, the Company assessed the need for an impairment write-down of both bitcoin mining rigs (held as fixed assets) and advances to vendors (a long-term asset) representing deposits associated with the future delivery of mining rigs.
The Company also entered into agreements in respect to seven other recipients of the same restricted stock unit awards. Payments related to these agreements during the year ended December 31, 2022 totaled approximately $2,131 thousand in the aggregate. Total impairments due to vendor bankruptcy filing: On September 22, 2022, Compute North filed for restructuring under chapter 11 of the U.S.
Payments related to these agreements during the year ended December 31, 2022, totaled approximately $2.1 million in the aggregate. 49 Table of Contents Total impairments due to vendor bankruptcy filing: On September 22, 2022, Compute North filed for restructuring under Chapter 11 of the U.S. Bankruptcy Code.
The $696,441 thousand decline was primarily driven by declines in the carrying value of our digital assets of $317,616 thousand in the aggregate, the impairment of mining rigs and advances to vendors of $332,933 thousand in the aggregate, lower total margin excluding depreciation and amortization of $86,636 thousand, legal reserves of $26,131 thousand, and higher general and administrative expenses, excluding non-cash stock-based compensation costs of $18,575 thousand.
The $715.8 million decline was primarily driven by declines in the carrying value of digital assets of $337.0 million, the impairment of mining rigs and advances to vendors of $332.9 million, lower total margin excluding depreciation and amortization of $86.6 million, legal reserves of $26.1 million, and higher general and administrative expenses, excluding non-cash stock-based compensation costs of $18.6 million, and the Company’s voluntary change in accounting principle impacts.
ASC 606-10-32-21 requires entities to measure the estimated fair value of noncash consideration at contract inception, which is the same 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.
In accordance with ASC 606-10-32-21, the Company measures the estimated fair value of the non-cash consideration (block reward and transaction fees) at contract inception, which is at the time the performance obligation to the requester and the network is fulfilled by successfully validating a block.
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. Accordingly, the need to establish such allowance is assessed periodically by considering matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and results of recent operations.
Accordingly, the need to establish such allowance is assessed periodically by considering matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and results of recent operations.
The digital asset loan receivable is presented net of any allowance for credit losses. The Company utilizes the probability of default (“PD”) loss given default (“LGD”) approach to estimating the allowance for credit loss (“ACL”) at origination and subsequent reporting periods.
The Company utilizes the probability of default (“PD”) loss given default (“LGD”) approach to estimating the allowance for credit loss (“ACL”) at origination and subsequent reporting periods. In order to apply the PD LGD approach, management considers the lifetime of the digital asset loan receivable, the reasonable and supportable forecast period, and the PD LGD.
We do not intend to make any significant purchases of bitcoin on the open market as means of increasing our bitcoin holdings, although we may buy and sell bitcoin from time-to-time (separately from what is outlined above) for treasury management purposes. Liquidity outlook: Cash and cash equivalents, excluding restricted cash, totaled $103,705 thousand at December 31, 2022.
The Company does not intend to make any significant purchases of bitcoin on the open market as means of increasing its bitcoin holdings, although it may buy and sell bitcoin from time to time (separately from what is outlined above) for treasury management purposes.
This decline was driven by the factors discussed above, which are summarized in the table below: Revenue: (in thousands) ● Impact of higher production activity $ 44,570 ● Impact of lower bitcoin market prices (77,286) ● Impact of discontinuation of third party mining pool vs prior year (8,694) Cost of revenue – energy, hosting and other: ● Impact of higher unit costs (30,134) ● Impact of accelerated cost recognition from Hardin exit (18,218) ● Impact of higher production activity (5,566) ● Impact of discontinuation of third party mining pool vs prior year 8,694 Cost of revenue – depreciation and amortization: ● Impact of accelerated cost recognition from Hardin exit (36,032) ● Other, primarily increased mining rigs in operation (27,773) $ (150,439) General and administrative expenses : General and administrative expenses were $56,739 thousand for the year ended December 31, 2022, compared with expenses of $174,355 thousand in the prior-year period.
This decline was driven by the factors discussed above, which are summarized in the table below: Revenue: (in thousands) ● Impact of higher amount of bitcoin produced $ 44,570 ● Impact of lower average price of bitcoin produced (77,286) ● Impact of discontinuation of third party mining pool vs prior year (8,694) Cost of revenue – energy, hosting and other: ● Impact of higher costs due to growth in hash rate (35,699) ● Impact of accelerated costs related to the closure of Hardin facility (18,218) ● Impact of discontinuation of third party mining pool vs prior year 8,694 Cost of revenue – depreciation and amortization: ● Impact of accelerated costs related to the closure of Hardin facility (36,032) ● Increased due to deployment of mining rigs (27,773) $ (150,438) General and administrative expenses : General and administrative expenses were $56.7 million for the year ended December 31, 2022, compared to $174.4 million in the prior year period, a decrease of $117.6 million, or approximately 67.5%.
Bitcoin holdings outlook: We expect that our future bitcoin holdings will generally increase but will fluctuate from time-to-time, both in number of bitcoin held and fair value in US dollars, depending upon operating and market conditions.
Bitcoin holdings outlook: The Company expects that its future bitcoin holdings will generally increase but will fluctuate from time to time, both in number of bitcoin held and fair value in US dollars, subject to market conditions and other factors outside of the Company’s control.
This increase was primarily due to the depreciation acceleration of $36,032 thousand related to our exit of the Hardin, MT facility and increased depreciation costs of $27,773 thousand associated with a higher number of mining rigs in operation.
The $63.8 million, or approximately 428.1%, increase was primarily due to the acceleration of depreciation of $36.0 million related to the closure of the Hardin, Montana facility and increased depreciation costs of $27.8 million associated with a higher number of mining rigs in operation.
The $649,644 thousand decline in earnings was primarily driven by declines in the carrying value of our digital assets of $317,616 thousand in the aggregate, the impairment of mining rigs and advances to vendors of $332,933 thousand in the aggregate, lower total margin of $150,441 thousand, impairments of $55,674 thousand related to the Compute North bankruptcy, legal reserves of $26,131 thousand and increased interest expense of $13,410 thousand.
The $664.2 million decline in earnings was primarily driven by declines in the carrying value of digital assets of $317.6 million, the impairment of mining rigs and advances to vendors of $332.9 million, lower total margins of $150.4 million, impairments of $55.7 million related to the Compute North bankruptcy, legal reserves of $26.1 million, increased interest expense of $13.4 million, and the Company’s voluntary change in accounting principle impacts.
Critical Accounting Policies and Estimates The following accounting policies relate to the significant areas involving management’s judgments and estimates in the preparation of our financial statements, and are those that we believe are the most critical to aid your understanding and evaluation of this management discussion and analysis: ● Digital assets ● Digital assets loan receivable ● Revenue from contracts with customers ● Property and Equipment ● Impairment of long-lived assets ● Income taxes 35 Digital assets Digital assets (bitcoin) are included in current and other assets in the accompanying Consolidated Balance Sheets.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The following accounting policies relate to the significant areas involving management’s judgments and estimates in the preparation of the Company’s financial statements, and are those that it believes are the most critical to aid the understanding and evaluation of this management discussion and analysis: 53 Table of Contents • Digital assets • Digital assets loan receivable • Revenues • Long-lived assets • Income taxes Digital assets Digital assets (bitcoin) are included in current and other assets in the accompanying 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.
Adjusted EBITDA is not meant to be considered in isolation and should be read only in conjunction with our Interim Reports on Form 10-Q and our Annual Reports on Form 10-K as filed with the Securities and Exchange Commission.
These non-GAAP measures are not meant to be considered in isolation and should be read only in conjunction with the Company’s Quarterly Reports on Form 10-Q and its Annual Reports on Form 10-K as filed with the SEC.
Our general and administrative expenses included stock-based (non-cash) compensation expense of $24,595 thousand in the current-year period and $160,786 thousand in the prior-year period. General and administrative expenses excluding stock-based compensation was $32,144 thousand in the current-year period compared with $13,569 thousand in the prior-year period.
The Company’s general and administrative expenses included stock-based (non-cash) compensation expense of $32.6 million in the current year period and $24.6 million in the prior year period.
Interest expense : Interest expense increased $13,410 thousand from the prior year as a result of higher interest related to the convertible notes issued in November 2021 of $6,633 thousand, amortization of debt issuance costs of $3,664 thousand and other interest costs primarily related to the Company’s Term loan and revolving credit (“RLOC”) facilities. 44 Income tax (expense) benefit : The Company recorded income tax benefit of $21,838 thousand for the year ended December 31, 2022 compared with an income tax expense of $22,576 thousand in the prior-year period.
Interest expense : Interest expense increased $13.4 million from the prior year as a result of higher interest related to the convertible notes issued in November 2021 of $6.6 million, amortization of debt issuance costs of $3.7 million and other interest costs primarily related to the Term loan and revolving credit (“RLOC”) facilities.
The risks to our liquidity outlook would include events that materially diminish our access to capital markets and/or the value of our bitcoin holdings and production capabilities, including: ● Failure to effectively execute our growth strategies. ● Additional challenges in the bitcoin mining space and/or additional contagion events (like the FTX collapse) that would damage the credibility of, and therefore investor confidence in, companies engaged in the digital assets space. ● Additional declines in bitcoin prices and/or production, which would impact both the value of our bitcoin holdings and our ongoing profitability. ● Significant increases in electricity costs if these cost increases were not accompanied by increases in the price of bitcoin, as this would also reduce profitability. ● Deteriorating macroeconomic conditions (for example a recession in 2023 that is deeper or longer than current expectations) Subsequent Events On January 27, 2023, the Company and FSI entered into an Agreement regarding formation of an Abu Dhabi Global Markets company (the “ADGM Entity”), whose purpose shall be to jointly (a) establish and operate one or more mining facilities for digital assets; and (b) mine digital assets.
The risks to the Company’s liquidity outlook would include events that materially diminish its access to capital markets and/or the value of its bitcoin holdings and production capabilities, including: • Failure to effectively execute the Company’s growth strategies; • Challenges in the bitcoin mining space and/or additional contagion events (such as the FTX collapse and subsequent bankruptcies of bitcoin mining companies in 2022 and 2023) which could damage the credibility of, and therefore investor confidence in, companies engaged in the digital assets space including Marathon; • Declines in bitcoin prices and/or production, which would impact both the value of the Company’s bitcoin holdings and its ongoing profitability; • Significant increases in electricity costs if these cost increases were not accompanied by increases in the price of bitcoin, as this would also reduce profitability; and • Deteriorating macroeconomic conditions, including the impacts of inflation and increased interest rates, as well as instability in the banking system.
For each period in question, we define adjusted EBITDA as (a) GAAP net income (loss) plus (b) adjustments to add back the impacts of (1) depreciation and amortization, (2) interest expense, (3) income tax expense (benefit) and (4) adjustments for non-cash and non-recurring items which currently include (i) stock compensation expense, (ii) impairments of patents and (iii) impairment losses related to the Compute North bankruptcy. 40 Adjusted EBITDA is not a measurement of financial performance under GAAP and, as a result, this measure may not be comparable to similarly titled measures of other companies.
The Company defines adjusted EBITDA as (a) GAAP net income (loss) plus (b) adjustments to add back the impacts of (1) depreciation and amortization, (2) interest expense, (3) income tax expense (benefit) and (4) adjustments for non-cash and non-recurring items which currently include (i) stock compensation expense, (ii) impairments of patents and (iii) gains and losses on extinguishment of debt.
The Company expects to have sufficient liquidity, including cash on hand, cash received from sales of our bitcoin holdings, and access to public capital markets to support ongoing operations.
The Company expects to have sufficient liquidity, including cash on hand, cash received from sales of its bitcoin holdings, and access to public capital markets to support ongoing operations. The Company will continue to seek to fund its business activities, and especially its growth opportunities, through the public capital markets, primarily through periodic equity issuances using its at-the-market facilities.
The gain in the prior year period was primarily the result of a modest increase in the fair value of the loan receivable. ● Change in fair value of digital assets held in fund : On June 10, 2022, the company withdrew all remaining bitcoin from its investment fund.
The gain in the prior year period includes the impact of the Company’s voluntary change in accounting principle to account for the gains (losses) on digital assets on a FIFO basis of $1.6 million. • Change in fair value of digital assets held in fund : On June 10, 2022, the Company withdrew all remaining bitcoin from its investment fund.
The $41,410 thousand decrease in revenue was primarily driven by a $77,286 thousand decrease in revenue resulting from lower bitcoin prices in 2022, partially offset by increased revenues of $44,570 thousand related to a 30% increase in production year-over-year. Revenues also declined by $8,694 thousand in 2022 as the Company ceased operation of a mining pool that included third parties.
The $41.4 million, or approximately 26.0%, decrease in revenue was primarily driven by a $77.3 million decrease in revenue resulting from lower bitcoin prices in 2022, partially offset by increased revenues of $44.6 million related to a 30% increase in production year-over-year.
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.
Management reviews the Company’s long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of their carrying amount to the undiscounted future cash flows expected to be generated thereby.
Other non-operating income (loss) : Other non-operating income was $1,283 thousand during the current year period compared to a loss of $287 thousand in the prior-year period. The $1,570 thousand favorable variances was primarily due to the absence of warrant expense of $1,048 thousand recorded in the prior-year period to a lesser extent, increased interest income and other income.
The $1.6 million, or approximately 545.5% increase was primarily due to the absence of warrant expense of $1.0 million recorded in the prior year period and to a lesser extent, increased interest and other income.
Total change in carrying value of digital assets: ● Impairment of digital assets : We incurred impairments of digital assets during the year ended December 31, 2021 of $30,329 thousand.
Total change in carrying value of digital assets: • Impairment of digital assets : The Company incurred impairments of digital assets during the year ended December 31, 2022 of $182.9 million compared with impairments of $22.3 million in the prior year period.
The Company assesses and adjusts the estimated useful lives of its mining rigs when there are indicators that the productivity of the mining assets are higher or lower than the assigned estimated useful lives. 39 Impairment tests for items of property and equipment other than mining rigs are performed annually and the recoverable amounts in property equipment are determined based on the higher of value-in-use or fair value less costs to sell.
The Company assesses and adjusts the estimated useful lives of its mining rigs when there are indicators that the productivity of the mining assets are higher or lower than the assigned estimated useful lives.
Management uses both adjusted EBITDA and the supplemental information provided herein as a means of understanding, managing, and evaluating business performance and to help inform operating decision making. We rely primarily on our Consolidated Condensed Financial Statements to understand, manage, and evaluate our financial performance and use the non-GAAP financial measures only supplementally.
Management uses adjusted EBITDA, total margin excluding depreciation and amortization, and the supplemental information provided herein as a means of understanding, managing, and evaluating business performance and to help inform operating decision making.
Financial Condition and Liquidity For the year ended December 31, (in thousands) 2022 2021 (Restated) Net cash used in operating activities $ (176,481 ) $ (18,966 ) Net cash used in investing activities (390,228 ) (891,136 ) Net cash provided by financing activities 410,655 1,037,333 Net (decrease) increase in cash, cash equivalents and restricted cash (156,054 ) 127,231 Cash, cash equivalents and restricted cash — beginning of period 268,556 141,323 Cash, cash equivalents and restricted cash — end of period $ 112,502 $ 268,554 Cash flows for the year ended December 31, 2022: Cash, cash equivalents and restricted cash totaled $112,502 thousand at December 31, 2022, a decrease of $156,054 thousand from December 31, 2021.
Financial Condition and Liquidity The following table presents a summary of the Company’s cash flow activity for the year ended December 31, 2023 and 2022: For the year ended December 31, (in thousands) 2023 2022 Net cash used in operating activities $ (315,651) $ (176,478) Net cash provided by (used in) investing activities 4,595 (390,228) Net cash provided by financing activities 555,864 410,655 Net increase (decrease) in cash, cash equivalents and restricted cash 244,808 (156,051) Cash, cash equivalents and restricted cash — beginning of period 112,505 268,556 Cash, cash equivalents and restricted cash — end of period $ 357,313 $ 112,505 Cash flows for the year ended December 31, 2023: Cash and cash equivalents totaled $357.3 million at December 31, 2023, an increase of $244.8 million from December 31, 2022.
Digital assets awarded to the Company through its mining activities are accounted for in accordance with the Company’s revenue recognition policy below. Digital assets are accounted for as intangible assets with indefinite useful lives and are recorded at cost less impairment in accordance with ASC 350 – “Intangibles-Goodwill and Other” (“ASC 350”).
Prior to the adoption of ASU 2023-08, Digital assets were accounted for as intangible assets with indefinite useful lives and are recorded at cost less impairment in accordance with ASC 350 – Intangibles-Goodwill and Other .
When the digital assets on loan are returned to the Company, the receivable is derecognized and such loaned digital assets are re-recorded on the Company’s Consolidated Balance Sheets at the pre-derecognition carrying value of the digital asset loan receivable with no gain or loss realized at the derecognition of the loan. 36 At loan commencement and throughout the loan period, the Company considers and accounts for the credit risk of the borrower using the principles in Topic 326 – “Financial Instruments - Credit Losses” (“Topic 326”) to measure any credit impairment.
At loan commencement and throughout the loan period, the Company considers and accounts for the credit risk of the borrower using the principles in Topic 326 – Financial Instruments - Credit Losses (“Topic 326”) to measure any credit impairment. The digital asset loan receivable is presented net of any allowance for credit losses.
Cash flows from investing activities resulted in a use of funds of $390,228 thousand, primarily resulting from advances of $483,840 thousand to vendors related to orders of ASICs miners for future deployment, a $44,000 thousand use of funds for investment purposes (primarily an increased investment in Auradine) and capitalized costs of $41,108 thousand associated with purchases of equipment, partially offset by proceeds of $178,371 thousand from the sales of bitcoin mining rigs.
Cash flows from investing activities resulted in a use of funds of $390.2 million, primarily resulting from advances of $483.8 million to vendors related to orders of ASICs miners for future deployment, a $44.0 million use of funds for investment purposes primarily due to an investment in Auradine, Inc.
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 Bank subsequently agreed to terminate the RLOC facility.
In March, 2023, the Company prepaid the outstanding balance on its term loan facility with Silvergate Bank and terminated the term loan facility. The Company and Silvergate agreed to also terminate the RLOC facility.
This $18,575 thousand increase in expense was primarily due to the increase in the scale of the business, including higher payroll and benefits costs of $7,173 thousand, increased professional fees of $3,590 thousand, increased insurance costs of $3,810 thousand, higher travel and conference costs of $2,186 thousand and higher costs in various other areas related to the increased scale of the business, including higher property taxes, banking fees, rent expense, computer costs and equipment repairs. 43 Legal reserves: In connection with a dispute concerning the settlement of certain restricted stock unit awards previously granted to the Company’s former Chief Executive Officer and Chairman, the Company entered into a settlement agreement pursuant to which the Company agreed to pay $24,000 thousand during the year ended December 31, 2022.
Legal reserves: In connection with a dispute concerning the settlement of certain restricted stock unit awards previously granted to the Company’s former Chief Executive Officer and Chairman, the Company entered into a settlement agreement pursuant to which the Company agreed to pay $24.0 million during the year ended December 31, 2022.
The Company has deemed the price of digital assets to be a level two input under the ASC 820 - “Fair Value Measurement” (“ASC 820”) hierarchy as there are multiple observable inputs (exchanges) that provide slightly differing benchmarks of digital asset value. Subsequent reversal of impairment losses is not permitted.
The Company has deemed the price of digital assets to be a Level 1 input under the ASC 820 - Fair Value Measurement hierarchy as these were based on observable quoted prices in the Company’s principal market for identical assets. Subsequent reversal of impairment losses is not permitted.
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. The Company determines the amount of impairment to record based on the fair value of the asset following the fair value measurement framework in ASC 820.
If such assets are not recoverable based on that test, impairment is recorded in the amount by which the carrying amount of the assets exceeds their fair value as determined in accordance with ASC 820.
Adjusted EBITDA : Adjusted EBITDA was a loss of $533,701 thousand compared with a positive adjusted EBITDA of $162,740 thousand in the prior-year period.
Adjusted EBITDA : Adjusted EBITDA was a loss of $543.4 million for the year ended December 31, 2022 compared to a positive adjusted EBITDA of $172.4 million in the prior year period.
Impairment of long-lived assets Management reviews long-lived assets that consist primarily of bitcoin mining rigs, and other long-lived assets such as patents held, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Impairment of fixed assets and advances to vendors: In accordance with ASC 360-10 – Impairment and Disposal of Long-Lived Assets , any long-lived asset group that is held and used must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable.
In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations. Property and Equipment The Company has long-lived assets that consist primarily of property and equipment stated at cost, net of accumulated depreciation and impairment, as applicable.
Depreciation on digital asset mining equipment is also recorded as a component of cost of revenues. Long-lived assets The Company has long-lived assets that consist primarily of property and equipment stated at cost, net of accumulated depreciation and impairment, as applicable.
Total change in carrying value of digital assets: ● Impairment of digital assets : We incurred impairments of digital assets during the year ended December 31, 2022 of $173,215 thousand compared with impairments of $30,329 thousand in the prior-year period. ● Realized and unrealized gains (losses) on digital assets loan receivable and digital assets : We incurred a loss of $14,460 thousand during the year ended December 31, 2022 compared with a gain of $557 thousand in the prior year period.
The Company’s impairment of digital assets for the years ending December 31, 2022 and 2021 includes the impact of the Company’s voluntary change in accounting principle to account for the disposition of digital assets on a first-in-first-out (“FIFO”) basis, of $9.7 million and $8.1 million, respectively. • Gains (losses) on digital assets loan receivable and gains on digital assets : The Company incurred a loss of $14.5 million during the year ended December 31, 2022 compared with a gain of $2.2 million in the prior year period.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIf the value of the collateral increases such that the loan-to-value ratios falls below 65%, the Company can require a return of collateral to bring the ratio back to 65%. ● Declines in the fair market value of bitcoin also impact the Adjusted Net Worth covenant in our loan agreements, as this covenant allows for Net Worth to be calculated based in the fair market value (and not the carrying value) of our digital assets. ● Declines in the fair market value of bitcoin also impact the cash value that would be realized if we were to sell our bitcoin for cash, therefore having a negative impact on our liquidity.
Biggest changeThis exposure would generally manifest itself in the following areas: • Declines in the fair market value of bitcoin will impact the cash value that would be realized if we were to sell our bitcoin for cash, therefore having a negative impact on our liquidity. • We occasionally enter into derivative financial instruments to manage our exposure resulting from fluctuations in the price of bitcoin.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. Market Price Risk of Bitcoin.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discu ssion about our mar ket risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. 59 Table of Contents Market Price Risk of Bitcoin.
The Company holds a significant amount of bitcoin and as such, we are exposed to the impact of market price changes in bitcoin on our bitcoin holdings.
We hold a significant amount of bitcoin, as such, we are exposed to the impact of market price changes in bitcoin on its bitcoin holdings.
At December 31, 2022, the Company held approximately 12,232 bitcoin and the fair value of a single bitcoin was approximately $16,545, meaning that the fair value of our bitcoin holdings on that date was approximately $202,409 thousand . Approximately 4,417 of these bitcoin, or $73,100 thousand, were being utilized as collateral for borrowings.
At December 31, 2023, we held approximately 15,126 bitcoin and the fair value of a single bitcoin was approximately $42,288, meaning that the fair value of our bitcoin holdings on that date was approximately $639.7 million. 60 Table of Contents
Removed
This exposure would generally manifest itself in the following areas: ● We account for our bitcoin holdings as indefinite lived intangible assets and we record impairment charges whenever the carrying value of our bitcoin holdings on the balance sheet exceeds their fair market value.
Removed
Subsequent recovery of bitcoin prices would not impact the carrying value of bitcoin on the balance sheet, as recovery of previously recorded impairment charges are not allowed under US GAAP. ● Declines in the fair market value of bitcoin also impact the value of collateral for our loan facilities.
Removed
If the fair market value of bitcoin held as collateral declines such that the loan-to-value ratio is above 75%, the Company is required to add collateral to bring the ratio back to 65%.
Removed
The remaining 7,815 bitcoin, or $129,300 thousand, were unrestricted bitcoin holdings. Interest rate risk.
Removed
Prior to the termination of its credit facilities on March 8, 2023, the Company was exposed to interest rate risk as both our Term Loan and RLOC facilities called for interest at a variable rate tied to the Wall Street Journal Prime Rate (“WSJ Prime”), which was 7.75% as of March 8, 2023.
Removed
Our Term Loan facility called for interest rates at the WSJ Prime rate plus a margin of 1.75% or 9.50% as of March 8, 2023.
Removed
Our RLOC facility called for interest rates at the WSJ Prime rate plus a margin that varies based on the collateral posted as follows: ● 1.25% margin (9.00% currently) if the RLOC LTV Ratio is less than 40% ● 2.00% margin (9.75% currently) if the RLOC LTV Ratio is greater than 40% but less than 55% ● 2.75% margin (10.50% currently) if the RLOC LTV Ratio is greater than 55% 50

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