# MARA Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [MARA Holdings, Inc.](/companies/mara.md) (CIK 1507605)
- Form: 10-Q
- Filed: 2023-11-08
- Accepted by EDGAR: Nov 8, 2023, 16:55 ET
- Period: 2023-09-30
- Accession: 0001493152-23-039927
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1507605/000149315223039927/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1507605/000149315223039927/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $97.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $230.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $113.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $256.8m | us-gaap:CostOfGoodsAndServicesSold |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$15.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$35.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $2.5m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $9.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $73.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $351.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $64.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $37.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.35 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.36 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.21 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 189,506,521 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 169,162,821 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$224.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $25.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $101.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $432.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.38bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $38.2m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2023-09-30 | $1.02bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 61,322 characters.

*Unless otherwise indicated or the context otherwise requires, references to “Marathon,” and the “Company” refer to Marathon Digital Holdings, Inc. and its consolidated subsidiaries. All dollar amounts referenced in this Item 2 are in thousands, except per share, bitcoin, and per bitcoin amounts.*

This report on Form 10-Q (“Report”) and other written and oral statements made from time to time by us may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company’s forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed, and actual future results may vary materially.

Information regarding market and industry statistics contained in this Report is included based on information available to the Company that the Company believes is accurate. It is generally based on industry and other publications that are not produced for purposes of securities offerings or economic analysis. The Company has not reviewed or included data from all sources and cannot assure investors of the accuracy or completeness of the data included in this Report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. The Company does not assume any obligation to update any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.

*The following discussion and analysis are intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the Company’s consolidated financial statements and the notes presented herein. 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. 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.*

### Business Overview

Marathon is a digital asset technology company dedicated to securing and supporting the Bitcoin ecosystem. The business is focused on producing or “mining” bitcoin using one of the largest and most efficient fleets of highly specialized computers in the industry. The Company successfully leverages technology across the value chain to improve efficiency and increase market share. The Company is also committed to carbon neutrality and growing operations through predominately renewable sources of energy. The Company’s “asset-light” capital strategy has fueled significant market share gains while also helping build one of the largest bitcoin positions on the balance sheet among its North American publicly traded peers. As of September 30, 2023, the Company had nearly 180,000 mining rigs in operation and owned 13,716 bitcoin. With its strong balance sheet and significant scale, the Company’s strategy has recently evolved beyond “asset-light” to include joint ventures with the Company’s landmark project located in Abu Dhabi.

### Recent Developments

On October 24, 2023, the Company commenced a new At The Market offering program with H.C. Wainwright & Co., LLC, acting as sales agent, under which it may offer and sell shares of its Common Stock from time to time through the sales agent having an aggregate offering price of up to $750,000. As of November 8, 2023, the Company had sold no shares under this program.

During September 2023, the Company entered into privately negotiated exchange agreements with certain holders of its 1.00% Convertible Senior Notes due 2026 (the “Notes”). In total, the Company exchanged $416,793 aggregate principal amount of Notes for an aggregate 31,722,417 shares of Company common stock. The Company recorded a gain on the exchange of Notes for the Company’s common stock in the amount of $82,600 to “Net gain from extinguishment of debt” on the Condensed Consolidated Statements of Operations.

The Company issued 15,000 shares of Series A Preferred Stock for total gross proceeds of $14,286 before deducting the placement agent’s fees and other estimated offering expenses on June 5, 2023. During the third quarter ended September 30, 2023, all of the outstanding Series A Preferred Stock were redeemed at 105% of the $1,000 stated value per share for $15,750.

On July 27, 2023, the Company’s shareholders approved an amendment to the Company’s articles of incorporation that increased the amount of common stock authorized for issuance to 500,000,000 with a par value of $0.0001 per share.

The Company has continued its focus on expanding its operational capabilities during the period both domestically and internationally.

- On January 27, 2023, Marathon Digital Holdings, Inc. (the “Company”) and Zero Two (formerly known as FS Innovation, LLC) entered into a Shareholders’ Agreement (the “Agreement”) regarding the 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”).
- The Company also made progress in installing and energizing its operations at various locations throughout the US, and in particular its two North Dakota sites. Additionally, the Garden City, TX site was fully installed and began to come online during October 2023.

Bitcoin production increased to 3,490 bitcoin, including 23 bitcoin earned through the Company’s equity method investee, during the three months ended September 30, 2023, an average of 37.9 bitcoin per day. During the three months ended September 30, 2022, the Company produced 616 bitcoin, an average of 6.7 bitcoin per day. The 467% increase in production was primarily the result of increasing the scale of the Company’s operations.

Bitcoin prices also rebounded significantly during the 2023 period, increasing from $16,530 per bitcoin at December 31, 2022 to $26,961 per bitcoin at September 30, 2023. This increase in the market value of bitcoin resulted in lower levels of impairment recorded during the nine month period ended September 30, 2023, and a higher market value of the Company’s bitcoin holdings at September 30, 2023, as compared to December 31, 2022.

The Company has continued to sell some of its bitcoin as a means of offsetting monthly cash operating costs. The Company sold 7,054 bitcoin for total proceeds of $179,509, realizing gains on sales of bitcoin of $70,686 during the nine months ended September 30, 2023. There were no such sales in the prior-year period.

The Company terminated its credit facilities with Silvergate Bank and responded to the closure of Signature Bank by diversifying its cash management services among multiple institutions. Key activities during the period related to these efforts included the following:

- 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. On March 8, 2023, the Company prepaid the term loan and terminated the RLOC facility with Silvergate Bank.
- On March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services. On that same date the FDIC was appointed as receiver and transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, N.A., a full-service bank that was being operated by the FDIC. The Company held approximately $142,000 of cash deposits at Signature Bridge Bank, N.A. when normal banking activities resumed on March 13, 2023. The Company reduced its balances at Signature Bridge Bank and its successor institution by transferring funds to other financial institutions and through other treasury management activities. The Company no longer has any deposits at Signature Bank or its successor.

### 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:

- Digital assets
- Revenue from contracts with customers
- Long-lived assets
- Income taxes

#### Digital assets

Digital assets (bitcoin) are included in current and other assets in the accompanying condensed consolidated balance sheets due to the Company’s ability to sell bitcoin in a highly liquid marketplace and the selling of bitcoin to fund operating expenses to support operations. 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*. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Whenever the exchange-traded price of digital assets declines below its carrying value, the Company has determined that it is more likely than not that an impairment exists and records impairment equal to the amount by which the carrying value exceeds the fair value at that point in time. 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.

Digital assets awarded to the Company through its mining activities are included as a reconciling item within operating activities on the accompanying condensed consolidated statements of cash flows. The sales of digital assets are included within investing activities in the accompanying condensed consolidated statements of cash flows and any gains or losses from such sales are included in operating expenses in the condensed consolidated statements of operations.

#### Revenues from contracts with customers

The Company recognizes revenue in accordance with FASB ASC Topic 606 – *Revenue from Contracts with Customers*. The core principle of the revenue standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

- Step 1: Identify the contract with the customer
- Step 2: Identify the performance obligations in the contract
- Step 3: Determine the transaction price
- Step 4: Allocate the transaction price to the performance obligations in the contract
- Step 5: Recognize the revenue when the Company satisfies a performance obligation

In order to identify the performance obligations in a contract with a customer, an entity must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met:

- The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct); and
- The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:

- Variable consideration
- Constraining estimates of variable consideration
- The existence of a significant financing component in the contract
- Noncash consideration
- Consideration payable to a customer

Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized under the accounting contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time, as appropriate.

The Company’s ongoing major or central operation is to provide bitcoin transaction verification services to the bitcoin network through a Company-operated mining pool as the operator (“Operator”) (such activity, “mining”) and to provide computing power to perform hash calculations to pool operators alongside collectives of third-party bitcoin miners (such collectives, “mining pools”) as a participant (“Participant”). The Company currently mines in a self-operated pool, which was previously open to third-party pool participants from September 2021 until May 2022.

#### Operator

As Operator, the Company provides transaction verification services. Transaction verification services are an output of the Company’s ordinary activities; therefore, the Company views the transaction requestor as a customer and accounts for the transaction fees it earns as revenue from a contract with a customer under ASC 606. The bitcoin network is not an entity such that it may not meet the definition of a customer; however, the Company has concluded it is appropriate to apply ASC 606 by analogy to block rewards earned from the network. The Company is currently entitled to the block reward of 6.25 bitcoin from the bitcoin network for each successful block. The Company is also entitled to the transaction fee paid by the transaction requester payable in bitcoin for each successful block. A contract exists under ASC 606 at the point the Company successfully validates a transaction to the distributed ledger. At this point, the performance obligation to validate the requested transaction has been satisfied and a contract is deemed to exist.

The Company engaged unrelated third-party mining enterprises (“pool participants”) to contribute computing power, and in exchange, remitted transaction fees and block rewards to pool participants on a pro rata basis according to each respective pool participant’s contributed computing power (“hash rate”). The Company determined that it controlled the service of providing transaction verification services to the network and requester as the Company’s wallet as Operator was recorded on the distributed ledger as the transaction verifier of record, the pool participants entered into contracts with the Company and not the network or requester, and the Company delegated mining work to pool participants. Therefore, 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.

In accordance with ASC 606-10-32-21, the Company measures the estimated fair value of noncash consideration at contract inception, which is at the time the block reward and transaction fee is earned and the performance obligation to the requester and the network is fulfilled by successfully validating the applicable block of transactions. The Company applies the quoted spot rate for bitcoin determined using the Company’s primary trading platform for bitcoin at the time the block reward and transaction fee is earned to measure revenues.

#### Participant

The Company participates in multiple third-party operated mining pools only when the Company-operated mining pool is not available. The payout methodologies differ depending on the type of third-party operated mining pool. Pay-Per-Share (“PPS”) and Full-Pay-Per-Share (“FPPS”) pools pay rewards based on a contractual formula, which primarily calculates the hash rate provided by the Company to the mining pool as a percentage of total network hash rate, and other inputs. For PPS and FPPS pools, the Company is entitled to consideration even if a block is not successfully placed by the mining pool operator. The Company also participates in third-party mining pools that pay rewards only when the pool successfully mines a block. For these pools, the Company only earns a reward when the third-party pool successfully mines a block and its reward is the fractional share of the successfully mined block and transaction fees based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the algorithm.

When the Company is a Participant in a third-party operated mining pool, the Company provides hash rate that is an output of the Company’s ordinary activities in exchange for consideration. The Company considers the third-party mining pool operators to be its customers under Topic 606. These contracts are period-to-period contracts because they are terminable at any time by either party without compensation. A new contract is determined to exist each period (i.e., second, minute, hour) that neither the Company, nor the pool operator, terminates the arrangement. Such implied renewal option is not a material right because the pricing in the renewal periods is the same as the initial contract and there are no upfront or incremental fees in the initial contract or the terms, conditions, and compensation amounts for the renewal options are at the then market rates.

When the Company participates in PPS and FPPS pools, which pay rewards based on a contractual formula, the Company recognizes revenue based on the Company’s daily contributed hash rate and other network-driven inputs, such as the total hash rate contributed by all pool participants. The variable consideration (reward) the Company will be entitled to for its contribution of hash rate can be reasonably estimated based on the contribution of hash rate and other network inputs such as total contributed hash rate. The Company measures revenue earned based on the average daily spot rate of bitcoin determined using the Company’s primary trading platform for bitcoin.

When the Company participates in third-party pools that pay rewards only when the pool successfully mines a block, the Company recognizes its fractional share of the block and transaction fees using the spot rate of bitcoin at the time that the block is successfully mined.

Providing computing power on mining rigs to solve complex cryptographic algorithms in support of blockchain mining (in a process known as “solving a block”) is the primary output of the Company’s ordinary activities. The provision of computing power is the only performance obligation under the Company’s arrangements with third-party mining pool operators. The transaction consideration the Company receives is non-cash (i.e., bitcoin) and variable. For third-party pools that pay rewards only when the pool successfully mines a block, the consideration to which the Company will be entitled to for its efforts remain variable and is not estimable until the pool successfully solves a block, at which point in time the Company can then estimate its fractional share of the bitcoin to which it is entitled to for its contribution to the pool’s successful efforts. For PPS and FPPS pools, which pay rewards based on a contractual formula that does not depend on the pool successfully mining any blocks during the period in which the Company contributes computing power, the Company can reasonably estimate the variable consideration to which it will be entitled to for providing computing power as such power is being provided based on the contributed hash rate and other inputs.

The Company satisfies its performance obligation to provide computing power to the pool operator over time as described in FASB ASC 606-10-25-27(a) as the pool operator simultaneously consumes and receives benefits from the Company’s provision of computing power, which it uses continuously as an input to the pool’s efforts to solve a block.

Expenses associated with providing computing power services to third-party operated mining pools, such as hosting fees, electricity costs, and related fees are recorded as cost of revenues. Depreciation on digital asset mining equipment is also recorded as a component of cost of revenues.

#### 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. 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. 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. 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 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. 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.

#### Income taxes

The primary objectives of accounting for income taxes are (i) to recognize the amount of income taxes payable or refundable for the current year, and (ii) to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The Company accounts for income taxes in accordance with ASC 740 - *Income Taxes*, using the asset and liability method. Under this method, deferred tax assets and liabilities are calculated based on enacted tax rates and are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities and for operating losses and tax credit carryforwards. 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 income tax benefit or expense and deferred tax assets and liabilities. 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.

The Company recorded a valuation allowance to reduce deferred tax assets to the net amount that the Company believes 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.

### Recent Issued Accounting Standards

See **NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** to the condensed consolidated financial statements for a discussion of recent accounting standards and pronouncements.

### Non-GAAP Financial Measures

In addition to the Company’s results determined in accordance with GAAP, the Company also provides adjusted EBITDA and total margin excluding depreciation and amortization, which are non-GAAP measures. The Company provides investors with reconciliations from net loss to adjusted EBITDA and total margin to total margin excluding depreciation and amortization as components of Management’s Discussion and Analysis. 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 defines total margin excluding depreciation and amortization as (a) GAAP total margin less (b) depreciation and amortization.

Adjusted EBITDA and total margin excluding depreciation and amortization are not financial measures of performance under GAAP and, as a result, these measures may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. These non-GAAP measures are not meant to be considered in isolation and should be read only in conjunction with the Company’s Interim Reports on Form 10-Q and its Annual Reports on Form 10-K as filed with the Securities and Exchange Commission. 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. The Company relies primarily on its condensed consolidated financial statements to understand, manage, and evaluate its financial performance and use the non-GAAP financial measures only supplementally.

### Results of Operations – Three months ended September 30, 2023 compared to the three months ended September 30, 2022

### Financial Summary Table:

|  | Three Months Ended September 30, 2023 | 2022 (As Restated) | Favorable (Unfavorable) |
| --- | ---: | ---: | ---: |
| **Total revenues** | $97,849 | $12,690 | $85,159 |
| **Costs and expenses** |  |  |  |
| **Cost of revenues** |  |  |  |
| Cost of revenues - energy, hosting and other | (59,628) | (13,773) | (45,855) |
| Cost of revenues - depreciation and amortization | (53,548) | (26,295) | (27,253) |
| Total cost of revenues | (113,176) | (40,068) | (73,108) |
| **Operating expenses** |  |  |  |
| General and administrative expenses | (20,141) | (12,144) | (7,997) |
| Impairment of digital assets | (11,885) | (1,375) | (10,510) |
| Gains on digital assets and gains (losses) on digital assets loan receivable | 31,720 | — | 31,720 |
| Gain on sale of equipment, net of disposals | — | 29,819 | (29,819) |
| Legal reserves | — | (24,960) | 24,960 |
| Impairment of deposits due to vendor bankruptcy filing | — | (7,987) | 7,987 |
| Total operating expenses | (306) | (16,647) | 16,341 |
| **Operating loss** | (15,633) | (44,025) | 28,392 |
| Net gain from extinguishment of debt | 82,600 | — | 82,600 |
| Equity in net earnings of unconsolidated affiliate | (647) | — | (647) |
| Impairment of loan and investment due to vendor bankruptcy filing | — | (31,013) | 31,013 |
| Interest expense | (2,536) | (3,752) | 1,216 |
| Other non-operating income | 426 | 238 | 188 |
| **Income (loss) before income taxes** | 64,210 | (78,552) | 142,762 |
| Income tax benefit (expense) | (73) | 6,090 | (6,163) |
| **Net income (loss)** | $64,137 | $(72,462) | $136,599 |
| **Supplemental information:** |  |  |  |
| bitcoin (“BTC”) production during the period, in whole BTC (1) | 3,490 | 616 | 2,874 |
| Average BTC per day, in whole BTC | 37.9 | 6.7 | 31.2 |
| General and administrative expenses excluding stock-based compensation | $(14,630) | $(8,721) | $(5,909) |
| Installed Hash Rate (Exahashes per second) - at end of period (2) | 23.1 | 3.8 | 19.3 |
| Energized Hash Rate (Exahashes per second) - at end of period (2) | 19.1 | 3.8 | 15.3 |
| Average operational Hash Rate (Exahashes per second) (3) | 12.1 | N/A | N/A |

(1) Includes 23 bitcoin produced by the Company’s equity method investee for the three months ended September 30, 2023.

(2) The Company defines Energized Hash Rate as the total hash rate that could be generated if all installed and energized machines were running at 100% of manufacturers specifications. The Company uses this metric only as an indicator of progress in bringing mining rigs online. The Company defines Installed Hash Rate as the total hash rate that could be generated if all installed machines were running at 100% of manufacturers specifications. The Company uses this metric only as an indicator of progress in deploying mining rigs at its production sites. The Company believes that these metrics are useful as an indicator of potential bitcoin production. However, these metrics cannot be tied directly to any production level expected to be actually achieved as (a) there may be delays in the energization of Installed Hash Rate (b) the Company cannot predict when installed and energized mining rigs may be offline for any reason, including curtailment or machine failure and (c) the Company cannot predict Global Hash Rate (and therefore the Company’s share of the Global Hash Rate), which has a significant impact on the Company’s ability to generate bitcoin in any given period.

(3) Defined as the daily Average Operational Hash Rate online during the period. Data not available for prior periods.

| Reconciliation to Total margin excluding depreciation and amortization: | Three Months Ended September 30, 2023 | 2022 (As Restated) | Favorable (Unfavorable) |
| --- | ---: | ---: | ---: |
| **Total revenues** | $97,849 | $12,690 | $85,159 |
| Total cost of revenues | (113,176) | (40,068) | (73,108) |
| **Total margin (total revenues less total cost of revenues)** | (15,327) | (27,378) | 12,051 |
| Exclude: Depreciation and amortization | 53,548 | 26,295 | 27,253 |
| **Total margin excluding depreciation and amortization** | $38,221 | $(1,083) | $39,304 |
| **Reconciliation to Adjusted EBITDA:** |  |  |  |
| **Net income (loss)** | $64,137 | $(72,462) | $136,599 |
| Exclude: Interest expense | 2,536 | 3,752 | (1,216) |
| Exclude: Income tax expense (benefit) | 73 | (6,090) | 6,163 |
| **EBIT** | 66,746 | (74,800) | 141,546 |
| Exclude: Depreciation and amortization (1) | 54,032 | 26,295 | 27,737 |
| **EBITDA** | 120,778 | (48,505) | 169,283 |
| Exclude: Stock compensation expense | 5,511 | 3,423 | 2,088 |
| Exclude: Net gain from extinguishment of debt | (82,600) | — | (82,600) |
| Exclude: Impairment of deposits due to vendor bankruptcy filing | — | 7,987 | (7,987) |
| Exclude: Impairment of loan and investment due to vendor bankruptcy filing | — | 31,013 | (31,013) |
| **Adjusted EBITDA** | $43,689 | $(6,082) | $49,771 |

(1) Includes approximately $484 of depreciation and amortization as the Company’s share in the results of its equity method investee reported in Equity in net earnings of unconsolidated affiliate for the three months ended September 30, 2023.

***Revenues***: The Company generated revenues of $97,849 for the three months ended September 30, 2023 as compared with $12,690 in the prior-year period. The $85,159 or approximately 671% increase in revenue was primarily driven by an increase in production year-over-year of $59,186 and $25,973 from the increase in bitcoin prices in the current year period. Average daily bitcoin production was 37.9 bitcoin in the current year period compared with 6.7 in the prior-year period, reflecting the increasing scale of the Company’s operations.

***Cost of revenues:*** Cost of revenues – energy, hosting and other during the three months ended September 30, 2023 totaled $59,628 as compared with $13,773 in the prior-year period. The $45,855 or approximately 333% increase was driven by the impact of increased bitcoin production of $54,800, partially offset by lower production costs of $3,245 and the absence of accelerated costs associated with the exit of the Hardin, Montana facility in the prior-year period of $5,700. Cost of revenues – depreciation and amortization during the three months ended September 30, 2023, totaled $53,548 as compared with $26,295 in the prior-year period. The $27,253 or approximately 104% increase in depreciation was primarily due to an increase in mining rigs in operation related to the increased scale of the business, partially offset by the absence of accelerated depreciation of $15,100 recorded in the prior-year period related to the exit of the Hardin, Montana facility.

***Total Margin***: Total margin was a loss of $15,327 in the current three months ended September 30, 2023 as compared with a loss of $27,378 in the prior-year period, an improvement of $12,051 or approximately 44%. The following table summarizes the factors that impacted the increase in total margin for the three months ended September 30, 2023 compared to the prior-year period:

| Revenue: |  |
| --- | ---: |
| ● Higher production activity | $59,186 |
| ● Higher bitcoin market prices | 25,973 |
| Cost of revenue – energy, hosting and other: |  |
| ● Lower unit costs | 3,245 |
| ● Accelerated cost recognition from Hardin exit | 5,700 |
| ● Higher production activity | (54,800) |
| Cost of revenue – depreciation and amortization: |  |
| ● Accelerated cost recognition from Hardin exit | 15,100 |
| ● Other, primarily increased mining rigs in operation | (42,353) |
|  | $12,051 |

***General and administrative expenses***: General and administrative expenses were $20,141 for the three months ended September 30, 2023 as compared with expenses of $12,144 in the prior-year period, an increase of $7,997 or approximately 66%. General and administrative expenses included stock-based (non-cash) compensation expense of $5,511 in the current period and $3,423 in the prior-year period. The increase in stock-based compensation is primarily related to additional restricted stock unit issuances associated with increases in headcount. General and administrative expenses excluding stock-based compensation was $14,630 in the current period as compared with $8,721 in the prior-year period. This $5,909 or approximately 68% increase in expense was primarily due to the increasing scale of business, including payroll and benefits, professional fees, and other costs. The Company’s headcount increased from 20 employees in the prior-year period to 48 employees in 2023.

***Impairment of digital assets:*** The Company incurred impairments of digital assets during the three months ended September 30, 2023 of $11,885 as compared with impairments of $1,375 in the prior-year period, an increase of $10,510 or approximately 764%. This increase in impairment is primarily related to the increased holdings of bitcoin compared to the prior-year period.

***Gains on digital assets and gains on digital assets loan receivable:*** The Company recognized gains of $29,717 on the sale of approximately 2,300 bitcoin during the three months ended September 30, 2023. There were no such sales in the prior-year period. The Company also recognized a gain of $2,003 during the three months ended September 30, 2023 as a result of an increase in fair value of digital assets that were derecognized as collateral and was repaid in September 2023.

***Net gain on extinguishment of debt***: On September 7, 2023, the Company entered into agreements with certain holders of Convertible Notes due 2026 (the “Notes”) to exchange an aggregate $416,793 principal amount of Notes for 31,722,417 shares of the Company’s common stock and recorded a gain in the amount of $82,600.

***Equity in net earnings of unconsolidated affiliate***: During the three months ended September 30, 2023, the Company recorded its share of net losses for its 20% interest in the ADGM Entity in the amount of $647, which began mining operations during the quarter. The Company’s share of the ADGM Entity’s results included earnings of 23 bitcoin and approximately $484 of depreciation and amortization during the three months ended September 30, 2023.

***Interest expense***: Interest expense decreased $1,216 or 32% from the prior-year period as a result of lower interest costs primarily as a result of the exchange of $416,793 aggregate principal amount of Notes during the three months ended September 30, 2023 as compared with the prior-year period. Additionally, the Company terminated its revolving line of credit and term loan facilities during the three months ended March 31, 2023.

***Other non-operating income***: Other non-operating income was $426 during the three months ended September 30, 2023 as compared with $238 in the prior-year period. The $188 favorable variance was primarily due to increased interest income.

***Income tax benefit (expense)***: The Company recorded an income tax expense of $73 for the three months ended September 30, 2023 as compared with an income tax benefit of $6,090 in the prior-year period. The tax variance of $6,163 or approximately 101% was primarily due to the establishment of a valuation allowance in the year ended December 31, 2022, as the Company determined it was more likely than not that they would not have sufficient future taxable income to realize the Company’s federal and state deferred tax assets.

***Net income (loss)***: The Company recorded net income of $64,137 for the three months ended September 30, 2023 as compared with a net loss of $72,462 in the prior-year period. This $136,599 or approximately 189% improvement was primarily driven by the impact of the gain on extinguishment of debt, gain on sale of digital assets, and the lack, during the current year, of impairments due to vendor bankruptcy filing, legal reserves, partially offset by net gain on sale of equipment in the prior-year period.

***Adjusted EBITDA***: Adjusted EBITDA was $43,689 in the three months ended September 30, 2023 as compared with an adjusted EBITDA loss of $6,082 in the prior-year period. The $49,771 or approximately 818% increase in adjusted EBITDA was primarily driven by higher revenues of $85,159 and positive impact of gains on digital assets of $31,720.

### Results of Operations – Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

### Financial Summary Table:

|  | Nine Months Ended September 30, 2023 | 2022 (As Restated) | Favorable (Unfavorable) |
| --- | ---: | ---: | ---: |
| **Total revenues** | $230,740 | $89,336 | $141,404 |
| **Costs and expenses** |  |  |  |
| **Cost of revenues** |  |  |  |
| Cost of revenues - energy, hosting and other | (148,227) | (42,981) | (105,246) |
| Cost of revenues - depreciation and amortization | (108,556) | (64,882) | (43,674) |
| Total cost of revenues | (256,783) | (107,863) | (148,920) |
| **Operating expenses** |  |  |  |
| General and administrative expenses | (55,977) | (38,127) | (17,850) |
| Impairment of digital assets | (26,399) | (156,500) | 130,101 |
| Gains on digital assets and gains (losses) on digital assets loan receivable | 72,689 | (14,460) | 87,149 |
| Losses on digital assets held within investment fund | — | (85,017) | 85,017 |
| Gain on sale of equipment, net of disposals | — | 83,879 | (83,879) |
| Legal reserves | — | (24,960) | 24,960 |
| Impairment of deposits due to vendor bankruptcy filing | — | (7,987) | 7,987 |
| Impairment of patents | — | (919) | 919 |
| Total operating expenses | (9,687) | (244,091) | 234,404 |
| **Operating loss** | (35,730) | (262,618) | 226,888 |
| Net gain from extinguishment of debt | 82,267 | — | 82,267 |
| Equity in net earnings of unconsolidated affiliate | (647) | — | (647) |
| Impairment of loan and investment due to vendor bankruptcy filing | — | (31,013) | 31,013 |
| Interest expense | (9,136) | (10,314) | 1,178 |
| Other non-operating income | 1,366 | 620 | 746 |
| **Income (loss) before income taxes** | 38,120 | (303,325) | 341,445 |
| Income tax benefit (expense) | (351) | 901 | (1,252) |
| **Net income (loss)** | $37,769 | $(302,424) | $340,193 |
| **Supplemental information:** |  |  |  |
| bitcoin (“BTC”) production during the period, in whole BTC (1) | 8,610 | 2,582 | 6,028 |
| Average BTC per day, in whole BTC | 31.5 | 9.5 | 22.1 |
| General and administrative expenses excluding stock-based compensation | $(42,070) | $(19,251) | $(22,819) |
| Installed Hash Rate (Exahashes per second) - at end of period | 23.1 | 3.8 | 19.3 |
| Energized Hash Rate (Exahashes per second) - at end of period | 19.1 | 3.8 | 15.3 |
| Average operational Hash Rate (Exahashes per second) | 12.1 | N/A | N/A |

(1) Includes 23 bitcoin produced by the Company’s equity method investee for the nine months ended September 30, 2023.

| Reconciliation to Total margin excluding depreciation and amortization: | Nine Months Ended September 30, 2023 | 2022 (As Restated) | Favorable (Unfavorable) |
| --- | ---: | ---: | ---: |
| **Total revenues** | $230,740 | $89,336 | $141,404 |
| Total cost of revenues | (256,783) | (107,863) | (148,920) |
| **Total margin (total revenues less total cost of revenues)** | (26,043) | (18,527) | (7,516) |
| Exclude: Depreciation and amortization | 108,556 | 64,882 | 43,674 |
| **Total margin excluding depreciation and amortization** | $82,513 | $46,355 | $36,158 |
| **Reconciliation to Adjusted EBITDA:** |  |  |  |
| **Net income (loss)** | $37,769 | $(302,424) | $340,193 |
| Exclude: Interest expense | 9,136 | 10,314 | (1,178) |
| Exclude: Income tax expense (benefit) | 351 | (901) | 1,252 |
| **EBIT** | 47,256 | (293,011) | 340,267 |
| Exclude: Depreciation and amortization (1) | 109,040 | 64,882 | 44,158 |
| **EBITDA** | 156,296 | (228,129) | 384,425 |
| Exclude: Stock compensation expense | 13,907 | 18,876 | (4,969) |
| Exclude: Net gain from extinguishment of debt | (82,267) | — | (82,267) |
| Exclude: Impairment of deposits due to vendor bankruptcy filing | — | 7,987 | (7,987) |
| Exclude: Impairment of loan and investment due to vendor bankruptcy filing | — | 31,013 | (31,013) |
| Exclude: Impairment of patents | — | 919 | (919) |
| **Adjusted EBITDA** | $87,936 | $(169,334) | $257,270 |

(1) Includes approximately $484 of depreciation and amortization as the Company’s share in the results of its equity method investee reported in Equity in net earnings of unconsolidated affiliate for the nine months ended September 30, 2023.

***Revenues***: The Company generated revenues of $230,740 for the nine months ended September 30, 2023 as compared with $89,336 in the prior-year period. The $141,404 or approximately 158% increase in revenue was primarily driven by an increase in production year-over-year of $208,566, partially offset by a $67,162 decrease in revenue resulting from lower bitcoin prices in the current year period. Average daily bitcoin production was 31.5 bitcoin in the current year period compared with 9.5 in the prior-year period, reflecting the increasing scale of the Company’s operations.

***Cost of revenues:*** Cost of revenues – energy, hosting and other during the nine months ended September 30, 2023 totaled $148,227 as compared with $42,981 in the prior-year period. The $105,246 or approximately 245% increase was driven by the impact of increased bitcoin production of $121,967 and higher production costs of $1,470, partially offset by the absence of accelerated costs associated with the exit of the Hardin, Montana facility in the prior-year period of $18,191. Cost of revenues – depreciation and amortization during the nine months ended September 30, 2023, totaled $108,556 as compared with $64,882 in the prior-year period. The $43,674 or approximately 67% increase was primarily due to an increase in mining rigs in operation related to the increased scale of the business, partially offset by the absence of accelerated depreciation of $35,035 recorded in the prior-year period related to the exit of the Hardin, Montana facility.

***Total Margin***: Total margin was a loss of $26,043 in the current nine months ended September 30, 2023 as compared with a loss of $18,527 in the prior-year period, a decrease of $7,516 or approximately 41%. The following table summarizes the factors that impacted the decline in total margin for the nine months ended September 30, 2023 as compared to the prior-year period:

| Revenue: |  |
| --- | ---: |
| ● Higher production activity | $208,566 |
| ● Lower bitcoin market prices | (67,162) |
| Cost of revenue – energy, hosting and other: |  |
| ● Higher unit costs | (1,470) |
| ● Accelerated cost recognition from Hardin exit | 18,191 |
| ● Higher production activity | (121,967) |
| Cost of revenue – depreciation and amortization: |  |
| ● Accelerated cost recognition from Hardin exit | 35,035 |
| ● Other, primarily increased mining rigs in operation | (78,709) |
|  | $(7,516) |

***General and administrative expenses***: General and administrative expenses were $55,977 for the nine months ended September 30, 2023 as compared with expenses of $38,127 in the prior-year period, an increase of $17,850 or approximately 47%. General and administrative expenses included stock-based (non-cash) compensation expense of $13,907 in the current period and $18,876 in the prior-year period. The decrease in stock-based compensation is primarily related to generally lower value of the Company’s stock when compared to the prior-year, partially offset by additional restricted stock unit issuances associated with increases in headcount. General and administrative expenses excluding stock-based compensation was $42,070 in the current period as compared with $19,251 in the prior-year period. This $22,819 or approximately 119% increase in expense was primarily due to the increasing scale of business, including payroll and benefits, professional fees, higher property taxes, and other third party costs. The Company’s headcount increased from 20 employees in the prior-year period to 48 employees in 2023.

***Impairment of digital assets:*** The Company incurred impairments of digital assets during the nine months ended September 30, 2023 of $26,399 as compared with $156,500 in the prior-year period. This $130,101 or approximately 83% decrease in impairment is primarily related to bitcoin prices that have generally been increasing during the current year period compared with prices that were generally decreasing during the prior-year period.

***Gains on digital assets and losses on digital assets loan receivable:*** The Company recognized gains of $70,686 on the sale of approximately 7,054 bitcoin during the nine months ended September 30, 2023. There were no such sales in the prior-year period. The Company recognized a loss of $14,460 in the prior-year period as a result of a decrease in fair value of digital asset loan receivable that was repaid in September, 2022. The Company also recognized a gain of $2,003 during the three months ended September 30, 2023 as a result of an increase in fair value of digital assets that were derecognized as collateral and was repaid in September 2023.

***Losses on digital assets held within Investment Fund:*** The Company exited the investment fund in June 2022 and as such, there were no such gains or losses in the current year period. Total changes in the fair value of the Company’s investment fund during the nine months ended September 30, 2022 resulted in a loss of $85,017.

***Gain on sale of equipment, net of disposals:*** The Company recorded a net gain on the sale of equipment of $83,879 in the prior-year period.

***Legal reserves:*** The Company recorded an reserve for a dispute in the amount of $24,960 in the prior-year period that has been paid.

***Impairment of deposits due to vendor bankruptcy filing:*** The Company recorded an impairment charge related to the Compute North vendor bankruptcy filing in the amount of $7,987 in the prior year period.

***Impairment of loan and investment due to vendor bankruptcy filing:*** *The Company recorded an impairment charge related to the Compute North vendor bankruptcy filing in the amount of $31,013 in the prior year period.*

***Impairment of patents:*** The Company recorded an impairment of $919 in the prior-year period related to certain patents no longer utilized in its business operations.

***Other non-operating income***: Other non-operating income was $1,366 during the nine months ended September 30, 2023 as compared with $620 in the prior-year period. The $746 favorable variance was primarily due to increased interest income.

***Net gain on extinguishment of debt***: On February 6, 2023, the Company provided Silvergate Bank with the required 30-day notice stating the Company’s intent to prepay the outstanding balance on its term loan facility as well as the Company’s intent to terminate the term loan facility. The Company and Silvergate subsequently agreed to also terminate the revolving line of credit (“RLOC”) facility. On March 8, 2023, the term loan prepayment was completed, and the Company’s term loan and RLOC facilities with Silvergate Bank were terminated and the Company recorded a loss in the amount of $333 to “Net gain from extinguishment of debt” on the Condensed Consolidated Statements of Operations. On September 7, 2023, the Company entered into agreements with certain holders of Convertible Notes due 2026 (the “Notes”) to exchange an aggregate $416,793 principal amount of Notes for 31,722,417 shares of the Company’s common stock and recorded a gain in the amount of $82,600.

***Interest expense***: Interest expense was $9,136 for the nine months ended September 30, 2023 as compared to $10,314 in the prior year period as a result of lower interest costs primarily as a result of the exchange of $416,793 aggregate principal amount of Notes during the nine months ended September 30, 2023 as compared with the prior-year period. Additionally, the Company terminated its revolving line of credit and term loan facilities during the three months ended March 31, 2023.

***Income tax benefit (expense)***: The Company recorded income tax expense of $351 for the nine months ended September 30, 2023 as compared with income tax benefit of $901 in the prior-year period. The tax variance of 1,252 or approximately 139% was primarily due to the establishment of a valuation allowance in the year ended December 31, 2022, as the Company determined it was more likely than not that they would not have sufficient future taxable income to realize the Company’s federal and state deferred tax assets.

***Net income (loss)***: The Company recorded net income of $37,769 for the nine months ended September 30, 2023 as compared with net loss of $302,424 in the prior-year period. This $340,193 or approximately 112% favorable variance was primarily driven by the impact of the gain on sale of digital assets, net gain on extinguishment of debt, favorable variances related to lower impairment of digital assets and the absence of losses on digital assets held within the investment fund, losses on digital assets loan receivable, partially offset by net gain on sales of equipment in the prior year period.

***Adjusted EBITDA***: Adjusted EBITDA was $87,936 in the nine months ended September 30, 2023 as compared with an adjusted EBITDA loss of $169,334 in the prior-year period. The $257,270 increase in adjusted EBITDA was primarily driven by positive impacts of gains on digital assets of $72,689 and lower impairment of digital assets of $130,101. Adjusted EBITDA also benefited from the absence of several expenses recorded in the prior-year period, including losses on digital assets held within the investment fund of $85,017, legal reserves of $24,960 and losses on digital assets loan receivable of $14,460, partially offset by the net gain on sale of equipment of $83,879.

### Financial Condition and Liquidity

The following table presents a summary of the Company’s cash flow activity for the nine months ended September 30, 2023 and 2022.

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(224,487) | $(83,743) |
| Net cash used in investing activities | (373) | (368,573) |
| Net cash provided by financing activities | 213,565 | 247,899 |
| Net decrease in cash, cash equivalents and restricted cash | (11,295) | (204,417) |
| Cash, cash equivalents and restricted cash — beginning of period | 112,505 | 268,556 |
| Cash, cash equivalents and restricted cash — end of period | $101,210 | $64,139 |

***Cash flows:*** Cash, cash equivalents and restricted cash totaled $101,210 at September 30, 2023, a decrease of $11,295 from December 31, 2022. Restricted cash was $0 at September 30, 2023 as the Company replaced cash-collateralized letters of credit with cash deposits which removed restrictions on $8,800 of restricted cash during the quarter ended March 31, 2023, as a result of the closure of Signature Bank.

Cash flows from operating activities resulted in a use of funds of $224,487, as cash provided from operating activities before changes in operating assets and liabilities of $36,062 was more than offset by a use of cash of $260,549 from changes in operating assets and liabilities. Changes in cash flow from operating assets and liabilities were driven by a use of funds associated with changes in digital assets ($230,740 due to the non-cash adjustment for bitcoin mining revenues), deposits ($21,671 resulting from increased deposits associated with hosting agreements), prepaid expenses of $11,588 and accounts payable of $3,359.

Cash flows from investing activities resulted in a use of funds of $373, primarily resulting from investments made as part of the establishment of the ADGM Entity (a $66,754 use of funds), advances to vendors of $87,315, and capital expenditures of $25,813, partially offset by proceeds from the sale of bitcoin of $179,509.

Cash flows from financing activities resulted in a source of cash of $213,565, primarily from proceeds from the issuance of common stock under the Company’s At-The-Market facility of $265,786 was partially offset by the repayment of the Company’s term loan facility of $50,000. On March 8, 2023, the Company terminated both its term loan and its RLOC facilities with Silvergate Bank.

***Bitcoin holdings as of September 30, 2023:*** At September 30, 2023, the Company held approximately 13,716 bitcoin on its balance sheet with a carrying value of $286,801. The Company’s holdings as of September 30, 2023 excluded 10 bitcoins earned and pending distribution from the Company’s equity method investee, the ADGM Entity. The fair value of a single bitcoin was approximately $26,961. As a result, the fair market value of the Company’s bitcoin holdings at September 30, 2023 was approximately $369,797. 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, depending upon operating and market conditions. The Company intends to add to its bitcoin holdings primarily through its production activities and will also continue to sell bitcoin as a means of generating cash to fund monthly operating costs and for general corporate purposes. 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.

During the quarter ended September 30, 2023, the Company hedged a portion of its bitcoin holdings to mitigate near-term volatility while maintaining a long-term strategy of maximizing the size and value of the Company’s treasury. Gains and losses on hedging activity will impact earnings; however, the Company believe the strategy provides resiliency to the organization and downside risk during volatile market conditions due to the upcoming halving while maximizing the Company’s bitcoin valuation potential.

***Company’s At The Market Offering Programs and Proceeds:*** In February 2022, the Company commenced an At The Market offering program with H.C. Wainwright & Co., LLC, as sales agent, which allowed it to sell and issue shares of up to approximately $750,000 of its Common Stock from time-to-time. During the first three quarters of 2023, the Company issued 32,305,554 shares of Common Stock under the 2022 At The Market offering program for total proceeds of $265,786, net of commissions and other offering related expenses.

During October 2023, the Company completed its 2022 At The Market Offering Program, and on October 24, 2023, the Company filed a new registration statement for a new At The Market Program for up to $750,000, with H.C. Wainwright & Co., LLC. This facility provides the Company with additional access to capital, as needed, subject to market conditions. As of October 23, 2023, the Company issued 12,374,713 shares of Common Stock under its original At The Market offering program for total proceeds of $100,656, net of commissions and other offering related expenses, completing its 2022 At The Market Offering Program. As of November 8, 2023, the Company had not sold shares under the new program.

***Liquidity outlook:*** Cash and cash equivalents totaled $101,210 and fair value of bitcoin holdings was $369,797 at September 30, 2023. The combined value of cash and cash equivalents and bitcoin was $471,007. 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 facility.

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 (like the FTX collapse) that would damage the credibility of, and therefore investor confidence in, companies engaged in the digital assets space.
- 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.
- Deteriorating macroeconomic conditions (for example a recession in 2023 that is deeper or longer than current expectations).

#### Off-balance Sheet Arrangements

None.

## Market risk

As filed, 1,306 characters.

The following discussion about the Company’s market risk exposures involves forward-looking statements. Actual results could differ materially from those discussed in the forward-looking statements.

***Market Price Risk of Bitcoin.*** The Company holds a significant amount of bitcoin; therefore, it is exposed to the impact of market price changes in bitcoin on its bitcoin holdings. This exposure would generally manifest itself in the following areas:

- The Company accounts for its bitcoin holdings as indefinite lived intangible assets and records impairment charges whenever the carrying value of bitcoin holdings on the balance sheet exceeds their fair market value. 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 current U.S. GAAP.
- Declines in the fair market value of bitcoin will impact the cash value that would be realized if the Company were to sell its bitcoin for cash, therefore having a negative impact on its liquidity.

At September 30, 2023, the Company held approximately 13,716 bitcoin and the fair value of a single bitcoin was approximately $26,961, meaning that the fair value of its bitcoin holdings on that date was approximately $369,797.

## Controls and procedures

As filed, 6,778 characters.

### Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Interim Report to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on this evaluation, the Company’s management concluded that its disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2023 due to the following material weaknesses.

### Material Weaknesses in Internal Control and Plan for Remediation

Based on its evaluation, management identified material weaknesses in internal control over financial reporting. These material weaknesses included:

- a material weakness related to the application and interpretation of generally accepted accounting principles (“GAAP”) that resulted in errors in four specific accounting areas, including consolidation, impairment of digital assets, disposal of property and equipment and principal versus agent considerations in revenue recognition, and accounting for and reporting of digital assets.
- a material weakness related to the design and implementation of user access controls to ensure appropriate segregation of duties, or program change management controls for certain financially relevant systems impacting the Company’s processes around revenue recognition and digital assets to ensure that IT program and data changes affecting the Company’s (i) financial IT applications, (ii) digital currency mining equipment, and (iii) underlying accounting records, are identified, tested, authorized and implemented appropriately to validate that data produced by its relevant IT system(s) were complete and accurate. Automated process-level controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency.
- a material weakness related to the ineffective design of a key manual control to detect material misstatements in revenue.

These material weaknesses create a reasonable possibility that a material misstatement to the Company’s consolidated financial statements or disclosures would not be prevented or detected on a timely basis.

### Remediation

The Company’s Board of Directors and management take internal control over financial reporting and the integrity of its financial statements seriously. Management continues to work to improve its controls related to the material weaknesses described above. Management will continue to implement measures to remediate the material weaknesses, such that these controls are designed, implemented, and operating effectively. In order to achieve the timely implementation of the above, Management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:

- Continue the process that was started during 2022 of adding to the Company’s internal resources to enhance its capabilities in the areas of technical accounting, financial reporting, and internal controls, including a full time person dedicated to internal controls
- Continue the process started during 2022 of utilizing external third-party technical accounting resources to supplement the Company’s ability to interpret and apply GAAP as it continues to build its internal capabilities in these areas
- Continue to utilize external third-party audit and SOX 404 implementation firms to enable the Company to improve the Company’s controls related to its material weaknesses.
- Continue to evaluate existing processes and implement new processes and controls where necessary in connection with remediating the Company’s material weaknesses, such that these controls are designed, implemented, and operating effectively

The Company recognizes that the material weaknesses in its internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. Because the Company’s remediation efforts are ongoing, it cannot provide any assurance that these remediation efforts will be successful or that its internal control over financial reporting will be effective as a result of these efforts.

The Company continues to evaluate and work to improve its internal control over financial reporting related to the identified material weaknesses, and management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. In addition, the Company will report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.

As part of the Company’s ongoing program to implement changes and further improve its internal controls and in conjunction with its Code of Ethics, the Company’s independent directors have been working with management to include protocols and measures aimed at ensuring quality of its internal controls. Among those measures is the implementation of a whistle blower hotline, which allows third parties to anonymously report noncompliant activity. The hotline may be accessed as follows:

To file a report, use the Client Code “MarathonPG” and pick one of the following options:

- Call: 1-877-647-3335
- Click: http://www.RedFlagReporting.com

### Changes in Internal Controls.

There have been no changes in the Company’s internal control over financial reporting during the nine months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting other than the ongoing remediation efforts undertaken by management.

The Company has engaged accounting consultants to aid it in remediating the issues identified in its Form 10-K for 2022 to ensure consistent and appropriate financial reporting in those areas identified.

**PART II - OTHER INFORMATION** (All dollar amounts expressed in PART II Items 1-4 are expressed in thousands unless otherwise indicated.)

## Risk factors

As filed, 2,061 characters.

There are no updates or changes to the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 except as set forth below.

***Further significant disruptions in the crypto asset markets, such as those experienced in the second half of 2022, may cause further material impairment of the value and use of the Company’s mining rigs.***

During the fourth quarter of 2022, the per coin price of bitcoin reached a low of approximately $15,500 from a high of almost $21,500 earlier in the quarter. This decrease in the price of bitcoin, combined with the general market sentiment caused in large part by the FTX collapse and various bitcoin company related bankruptcies and restructurings, led to a material decline in the fair value of the Company’s mining rigs and deposits for future mining rig purchases. As a result, the Company recorded an impairment charge of $332,933 on these assets during that period, although operations were unaffected and continued throughout the period in question. Furthermore, future decreases in the value of bitcoin could cause the Company to record additional impairments in the value of these and future mining rig assets.

In addition, if bitcoin prices dropped to levels below that experienced in 2022 and held at those levels for a significant period of time, it could impact the Company’s profitability to the point that the Company would have to consider whether there would be less diminution of value if the Company were to leave certain of its mining rigs to idle until the price of bitcoin recovered.

Theoretically, there is a minimum bitcoin price that is so low that Marathon would want to turn off its mining rigs. However, this is a complex projection involving multiple ever-changing, dynamic variables. Marathon has multiple mining sites and hosting partners, all with different hosting prices, electricity prices, and contract structures. These costs, some fixed and some variable, would need to be compared to the current revenue being produced by the mining rigs.

Filed Nov 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-039927. Last ingested by Listed: Nov 10, 2026, 02:35 ET. No prices; not investment advice.