Unless specifically set forth to the contrary, “Marathon, ~~Patent Group, Inc.,~~” “we,” “us,” ~~“our”~~“our,” the “Company,” and similar terms refer to Marathon ~~Patent Group,~~Digital Holdings, Inc., a Nevada corporation, and its subsidiaries. ~~Unless otherwise indicated, the per share information has been adjusted to reflect the four for one reverse stock split that went into effect on October 30, 2017 (the “Reverse Split”).~~

Table of ~~Item 1. Financial Statements~~

MARATHON ~~PATENT GROUP,~~DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~CONDENSED~~ BALANCE SHEETS

~~(Unaudited)~~

September 30, 2017 December 31, 2016

ASSETS
Current assets:
Cash $ 122,172 $ 4,998,314
Restricted Cash 3,919,718 -
Total cash 4,041,890 4,998,314
Accounts receivable - net of allowance for bad debt of $387,976 and $387,976 for September 30, 2017 and December 31, 2016 123,630 95,069
Note receivable 588,864 225,982
Prepaid expenses and other current assets, net of discounts of $2,659 for September 30, 2017 and $3,724 for December 31, 2016 108,878 202,067
Total current assets 4,863,262 5,521,432

Other assets:
Property and equipment, net of accumulated depreciation of $133,224 and $108,407 for September 30, 2017 and December 31, 2016 9,803 28,329
Intangible assets, net of accumulated amortization of $12,813,915 and $11,323,185 for September 30, 2017 and December 31, 2016 7,590,213 12,314,628
Other non current assets, net of discounts of $797 for December 31, 2016 - 201,203
Goodwill 228,401 222,843
Total other assets 7,828,417 12,767,003

Total Assets $ 12,691,679 $ 18,288,435

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,954,836 $ 7,217,078
Clouding IP earn out - current portion 32,637 81,930
Revenue share liability 1,225,000 -
Warrant liability 2,411,750 -
Notes payable, net of discounts of $5,837,363 and $852,404 for September 30, 2017 and December 31, 2016 15,582,156 13,162,007
21,206,379 20,461,015

Long-term liabilities
Notes Payable, net of discount of $57,763 for December 31, 2016 - 4,670,502
Clouding IP earn out 681,175 1,400,082
Revenue share liability - 1,000,000
Other long term liability 37,236 43,978
Total long-term liabilities 718,411 7,114,562

Total liabilities 21,924,790 27,575,577

Stockholders' Deficit:
Preferred stock Series B, $.0001 par value, 50,000,000 shares authorized: 195,501 issued and outstanding at September 30, 2017 and December 31, 2016 78 78
Common stock, $.0001 par value; 200,000,000 shares authorized; 7,776,016 and 4,638,118 at September 30, 2017 and December 31, 2016 3,111 1,856
Additional paid-in capital 61,833,077 49,877,710
Accumulated other comprehensive income (loss) (450,623 ) (1,060,390 )
Accumulated deficit (70,427,472 ) (57,942,548 )

Total Marathon Patent Group stockholders' equity (9,041,829 ) (9,123,294 )

Noncontrolling interests (191,282 ) (163,848 )

Total deficit (9,233,111 ) (9,287,142 )

Total liabilities and stockholders' deficit $ 12,691,679 $ 18,288,435

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

~~Table of Contents~~


	March 31,		December 31,
	2024		2023
(in thousands, except share and per share data)	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	324,268	$	357,313

Digital assets	1,234,695		639,660

Accounts receivable, net	8,368		—



Deposits	40,855		7,240
Prepaid expenses and other current assets	32,574		25,590
Total current assets	1,640,760		1,029,803


Property and equipment, net	802,332		671,772
Advances to vendors	261,140		95,589
Investments	112,203		106,292

Long-term deposits	59,164		59,790
Long-term prepaids	21,055		27,284
Right-of-use assets	7,817		443


Goodwill	30,852		—
Intangible assets, net	21,664		—

Total long-term assets	1,316,227		961,170
TOTAL ASSETS	$	2,956,987	$	1,990,973

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	33,274	$	11,343
Accrued expenses	32,242		22,291

Derivative instrument	4,263		—
Operating lease liabilities	1,352		124


Total current liabilities	71,131		33,758
Long-term liabilities:
Notes payable	326,083		325,654


Operating lease liabilities	13,060		354

Deferred tax liabilities	52,842		15,286
Other long-term liabilities	16,978		—
Total long-term liabilities	408,963		341,294





Stockholders’ Equity:
Preferred stock, par value $0.0001 per share, 50,000,000 shares authorized and no shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively	—		—
Common stock, par value $0.0001 per share, 500,000,000 shares authorized; 268,944,172 shares and 242,829,391 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively	27		24
Additional paid-in capital	2,707,333		2,183,537

Accumulated deficit	(230,467)		(567,640)
Total stockholders’ equity	2,476,893		1,615,921
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,956,987	$	1,990,973

Table of Cont e nts

MARATHON ~~PATENT GROUP,~~DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF OPERATIONS ~~AND COMPREHENSIVE INCOME~~

~~(Unaudited)~~

For the Three
Months Ended
30-Sep-17 For the Three
Months Ended
30-Sep-16 For the Nine
Months Ended
30-Sep-17 For the Nine
Months Ended
30-Sep-16

Revenues $ 162,713 $ 43,113 $ 609,650 $ 36,452,551

Expenses
Cost of revenues 64,836 1,094,378 1,544,322 19,202,118
Amortization of patents and website 457,419 2,030,886 1,803,264 6,018,196
Compensation and related taxes 1,871,946 1,252,571 3,718,034 3,406,841
Consulting fees 133,018 257,420 189,819 903,032
Professional fees 616,125 432,496 1,686,955 1,336,201
General and administrative 213,130 183,771 599,416 612,284
Goodwill impairment - - - 83,000
Patent impairment 723,218 5,531,383 723,218 6,525,273
Total operating expenses 4,079,692 10,782,905 10,265,028 38,086,945

Operating loss from continuing operations (3,916,979 ) (10,739,792 ) (9,655,378 ) (1,634,394 )

Other income (expenses)
Other income (expense) 2,252,886 (37,116 ) 3,151,418 (68,647 )
Foreign exchange (loss) (480,240 ) (175,850 ) (463,191 ) (238,073 )
Loss on debt extinguishment (283,237 ) - (283,237 ) -
Loss on sale of company (1,519,875 ) - (1,519,875 ) -
Change in fair value adjustment of Clouding IP earn out 754,321 1,954,378 768,200 2,122,208
Warrant income (expense) (1,909,879 ) - (1,914,786 ) -
Interest income 931 931 2,793 2,793
Interest expense (1,283,223 ) (649,065 ) (2,416,722 ) (2,500,321 )
Total other income (expenses) (2,468,316 ) 1,093,278 (2,675,400 ) (682,040 )

Loss from continuing operations before benefit for income taxes (6,385,295 ) (9,646,514 ) (12,330,778 ) (2,316,434 )

Income tax benefit (expense) (12,191 ) 3,347,909 (29,433 ) 26,974

Net Income (loss) (6,397,486 ) (6,298,605 ) (12,360,211 ) (2,289,460 )

Net income (loss) attributable to Noncontrolling interests (280,000 ) 24,195 (124,714 ) 27,918

Net (loss) attributable to common shareholders $ (6,677,486 ) $ (6,274,410 ) $ (12,484,925 ) $ (2,261,542 )

Income (loss) per common share:
Basic $ (1.06 ) $ (1.67 ) $ (2.24 ) $ (0.61 )
Diluted

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 6,270,299 3,761,786 5,564,465 3,736,213

Net loss $ (6,677,486 ) $ (6,274,410 ) $ (12,484,925 ) $ (2,261,542 )
Other comprehensive loss:
Unrealized gain on foreign currency translation 482,622 209,159 609,768 306,411
Comprehensive loss (6,194,864 ) (6,065,251 ) (11,875,157 ) (1,955,131 )
Less: comprehensive income (loss) related to non-controlling interest (280,000 ) 24,195 (124,714 ) 27,918
Comprehensive loss attributable to Marathon Patent Group, Inc. $ (6,474,864 ) $ (6,041,056 ) $ (11,999,871 ) $ (1,927,213 )

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

~~Table of Contents~~

(unaudited)


	Three Months Ended March 31,
(in thousands, except share and per share data)		2024		2023




Total revenues		165,198		51,132

Costs and expenses
Cost of revenues


Mining and hosting services		(90,211)		(33,377)
Depreciation and amortization		(77,995)		(17,733)
Total cost of revenues		(168,206)		(51,110)
Operating expenses
General and administrative expenses		(73,311)		(15,135)
Gains on digital assets		488,807		137,398
Change in fair value of derivative		(15,252)		—
Early termination expenses		(22,097)		—

Amortization of intangible assets		(2,969)		—
Research and development		(2,466)		(209)







Total operating expenses		372,712		122,054
Operating income		369,704		122,076
Gain on investments		5,236		—
Net loss from extinguishment of debt		—		(333)
Loss on hedge instruments		(2,292)		—
Equity in net income of unconsolidated affiliate		1,259		—


Interest expense		(1,256)		(3,760)
Other non-operating income		2,573		791
Income before income taxes		375,224		118,774
Income tax expense		(38,051)		(75)
Net income		$	337,173	$	118,699



Net income per share of common stock - basic		$	1.30	$	0.75
Weighted average shares of common stock - basic		259,098,664		159,186,506

Net income per share of common stock - diluted		$	1.26	$	0.72
Weighted average shares of common stock - diluted		267,912,443		168,999,461

Table of Cont e nts

MARATHON ~~PATENT GROUP,~~DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)





















For the Three Months Ended March 31, 2024

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
(in thousands, except share data)	Number	Amount
Balance at December 31, 2023	242,829,391	$	24	$	2,183,537	$	(567,640)	$	1,615,921
Stock-based compensation, net of tax withholding	2,312,768	—		51,041		—		51,041
Issuance of common stock, net of offering costs/At-the-Market offering	24,663,351	3		489,290		—		489,293





Repurchase of shares in settlement of restricted stock	(861,338)	—		(16,535)		—		(16,535)



Net income	—	—		—		337,173		337,173
Balance at March 31, 2024	268,944,172	$	27	$	2,707,333	$	(230,467)	$	2,476,893





















For the Three Months Ended March 31, 2023

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
(in thousands, except share data)	Number	Amount
Balance at December 31, 2022	145,565,916	$	15	$	1,226,267	$	(840,341)	$	385,941
Stock-based compensation, net of tax withholding	336,511	—		3,868		—		3,868
Issuance of common stock, net of offering costs/At-the-market offering	21,357,175	2		163,293		—		163,295
Cumulative effect of the adoption of ASU 2023-08	—	—		—		11,483		11,483








Net income	—	—		—		118,699		118,699
Balance at March 31, 2023	167,259,602	$	17	$	1,393,428	$	(710,159)	$	683,286

Table of Cont e nts

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(Unaudited)~~

For The
Nine Months Ended
September 30, 2017 For The
Nine Months Ended
September 30, 2016
Cash flows from operating activities:
Net loss $ (12,484,924 ) $ (2,261,542 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation 1,248 3,780
Amortization of patents and website 1,803,264 6,018,196
Deferred tax asset - 531,757
Deferred tax liability - (638,268 )
Loss on sale of companies - -
Warrant liability - -
Impairment of intangible assets 704,678 6,525,273
Impairment of goodwill - 83,000
Stock based compensation 1,523,187 1,541,615
Stock issued for services - 136,000
Non-cash interest, discount, and financing costs (4,397,381 ) 952,231
Change in fair value of Clouding earnout (768,200 ) (2,122,198 )
Allowance for doubtful accounts - 12,226
Beneficial conversion feature 4,017,729 -
Noncontrolling interest (27,435 ) (27,918 )
Other non-cash adjustments 182,024 96,996
Changes in operating assets and liabilities
Accounts receivable (28,561 ) 43,763
Bonds posted with courts - 883,695
Prepaid expenses and other assets (269,693 ) (6,652 )
Other non current assets 201,203 -
Accounts payable and accrued expenses (5,262,242 ) (557,832 )

Net cash and restricted cash provided by (used in) operating activities (14,805,103 ) 11,214,122

Cash flows from investing activities:
Acquisition of patents - (3,552,656 )
Disposal of patents 2,771,757 -
Purchase of property, equipment, and other intangible assets (6,291 ) (8,387 )
Net cash provided by (used in) investing activities 2,765,466 (3,561,043 )

Cash flows from financing activities:
Payment on note payable in connection with the acquisition of Medtech and Orthophoenix - (2,953,779 )
Payment on Fortress note payable (63,286 ) (5,379,105 )
Payment on 3D Nano license note payable (100,000 ) -
Cash received upon issuance of equity (net of issuance costs) 5,158,906 -
Issuance of warrants 2,549,084 -
Issuance of convertible notes payable 5,500,000
Medtronic note payable 600,000 -
Payment of Medtronic note payable (600,000 )
Payments on Seimens notes payable (1,750,000 ) -
Payments on notes payable to vendors (125,000 ) -
Payments on notes payable, net (103,000 ) (578,804 )
Net cash provided (used in) by financing activities 11,066,704 (8,911,688 )

Effect of exchange rate changes on cash 16,509 (1,592 )

Net decrease in cash (956,424 ) (1,260,201 )

Cash at beginning of period 4,998,314 2,555,151

Cash and restricted cash at end of period $ 4,041,890 $ 1,294,950

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest expense $ 368,923 $ 1,187,074
Taxes paid $ 29,433 $ 27,682
Cash invested in 3D Nano $ - $ 115,000

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Revenue share liability incurred in conjunction with note payable $ 225,000 $ -
Warrant issued in conjunction with common stock issuance $ 257,957 $ -
Note payable issued in conjunction with the acquisition of Munitech patents $ - $ 1,755,635
Note payable issued in conjunction with the acquisition of GE patent - 1,000,000
Note payable issued in conjunction with the acquisition of3D Nano license - 200,000

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

~~Table of Contents~~

(unaudited)


	Three Months Ended March 31,
(in thousands)	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	337,173	$	118,699
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	77,995		17,733


Deferred tax expense	37,556		75

Gains on digital assets	(488,807)		(137,398)



Gain on investments	(5,236)		—
Loss on hedge instruments	2,292		—
Stock-based compensation	51,913		3,945
Change in fair value of derivative	15,252		—
Early termination expenses	22,097		—
Amortization of intangible assets	2,969		—
Amortization of debt issuance costs	429		971
Equity in net income of unconsolidated affiliate	(1,259)		—


Loss on extinguishment of debt, net	—		333
Other adjustments from operations, net	4,307		1,290
Changes in operating assets and liabilities:

Revenues from digital assets production	(144,423)		(50,941)

Accounts receivable	3,514		—
Deposits	(1,259)		(23,124)

Prepaid expenses and other assets	(2,072)		(20,738)
Accounts payable and accrued expenses	(781)		(2,303)


Net cash used in operating activities	(88,340)		(91,458)
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to vendors	(225,166)		(11,565)
Acquisition, net of cash acquired	(183,815)		—
Deposits for acquisitions	(25,000)		—
Purchase of property and equipment	(9,088)		(17,270)

Proceeds from sale of digital assets	44,770		62,646

Purchase of digital assets	(7,293)		—
Investment in equity method investments	(2,999)		(43,194)
Purchase of equity investments	(8,000)		—


Net cash used in investing activities	(416,591)		(9,383)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of issuance costs	489,293		163,295


Repurchase of shares in settlement of restricted stock	(16,535)		—





Repayments of revolving credit agreement	—		(50,000)
Value of shares withheld for taxes	(872)		(77)

Net cash provided by financing activities	471,886		113,218

Net increase (decrease) in cash, cash equivalents and restricted cash	(33,045)		12,377
Cash, cash equivalents and restricted cash — beginning of period	357,313		112,505
Cash, cash equivalents and restricted cash — end of period	$	324,268	$	124,882

Table of Cont e nts

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to ~~Unaudited~~Condensed Consolidated ~~Condensed~~ Financial Statements

(unaudited)

NOTE 1 -– ORGANIZATION AND DESCRIPTION OF BUSINESS

~~Organization~~

Marathon ~~Patent Group,~~Digital Holdings, Inc.’s and subsidiaries (the “Company” or “Marathon”) ~~business~~ is to acquire patents and patent rights and to monetize the value of those assets to generate revenue and profit for the Company. We acquire patents and patent rights from their owners, who range from individual inventors to Fortune 500 companies. Part of our acquisition strategy is to acquire or invest in patents and patent rights that cover a wide-range of subject matter, which allows us to achieve the benefits of a growing diversified portfolio of assets. Generally, the patents and patent rights that we acquire are characterized by having large identifiable companies who are or have been usingdigital asset technology ~~that infringes our patents and patent rights. We generally monetize our portfolio of patents and patent rights by entering into license discussions, and if~~company that is ~~unsuccessful, initiating enforcement activities against any infringing parties~~principally engaged in producing or “mining” digital assets with a focus on the objective of entering into a standard form of comprehensive settlement and license agreement that may include the granting of non-exclusive retroactive and future rights to use the patented technology, a covenant not to sue, a release of the party from certain claims, the dismissal of any pending litigation and other terms that are appropriate in the circumstances. Our strategy has been developed with the expectation that it will result in a long-term, diversified revenue stream for the Company.

Bitcoin ecosystem. The Company ~~was~~ incorporated in the State of Nevada on February 23, 2010 under the name Verve Ventures, Inc. On December 7, 2011, we changed our name to American Strategic Minerals Corporation and were engaged in the business of exploration and potential development of uranium and vanadium minerals business. In June 2012, we discontinued our minerals business and began to invest in real estate properties in Southern California. In October 2012, ~~we discontinued our real estate business when our CEO joined~~ the ~~firm and we~~Company commenced ~~our current business,~~its IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc.

~~On October~~ The Company purchased digital asset mining machines and established a data center in Canada to mine digital assets in 2017. The Company ceased operations in Canada in 2020 and consolidated all operations in the U.S. at the time. The Company has since expanded bitcoin mining activities across the U.S. and internationally. The Company changed its name to Marathon Digital Holdings, Inc. on March 1, ~~2012, the shareholders holding a majority~~2021. As of ~~the Company’s voting capital had voted and authorized~~March 31, 2024, the Company is primarily focused on mining and holding bitcoin as a long-term investment. Bitcoin is seeing increasing adoption, and due to ~~change the name of~~its limited supply, the Company believes it offers opportunity for appreciation in value and long-term growth prospects for its business.

The term “Bitcoin” with a capital “B” is used to ~~Marathon Patent Group, Inc. (the “Name Change”).~~denote the Bitcoin protocol which implements a highly available, public, permanent, and decentralized ledger. The ~~Board of Directors approved~~term “bitcoin” with a lower case “b” is used to denote the Name Change on October 1, 2012. The Board of Directors determined the name “Marathon Patent Group, Inc.” better reflected the long-term strategy in exploring other opportunities and the identity of the Company going forward. On February 15, 2013, the Company filed the Certificate of Amendment with the Secretary of State of the State of Nevada in order to effectuate the Name Change.

On July 18, 2017, shareholders of record holding a majority of the outstanding voting capital of the Company approved a reverse stock split of the Company’s issued and outstanding common stock by a ratio of not less than one-for-four and not more than one-for-twenty-five, with such ratio to be determined by the Board of Directors, in its sole discretion. On October 25, 2017, the reverse stock split ratio of one (1) for four (4) basis was approved by the Board of Directors. On October 30, 2017, the Company filed a certificate of amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada in order to effectuate a reverse stock split of the Company’s issued and outstanding common stock, par value $0.0001 per share on a one (1) for four (4) basis.

On September 6, 2017, the Board of Directors approved and adopted, subject to shareholder approval on or prior to September 6, 2018, the Company’s 2017 Equity Incentive Plan. The Company’s 2017 Equity Incentive Plan was approved by the shareholders of the Company at a special meeting held on September 29, 2017.

~~All share and per share values for all periods presented in the accompanying consolidated financial statements have been retroactively adjusted to reflect the Reverse Split.~~

token, bitcoin.

NOTE 2 -– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying ~~consolidated condensed financial statements~~unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned and controlled subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The Company has prepared by the ~~Company, without audit, pursuant to the rules~~Condensed Consolidated Financial Statements in accordance with U.S. GAAP and regulations of the U.S. Securities and Exchange Commission ~~(SEC). Certain~~(the “SEC”) applicable to interim financial information, ~~and disclosures normally included in~~which permit the omission of certain disclosure to the extent they have not changed materially since the latest annual financial ~~statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations.~~statements. These ~~consolidated condensed financial statements~~Condensed Consolidated Financial Statements reflect all adjustments ~~(consisting~~consisting only of normal recurring ~~adjustments)~~adjustments which, in the opinion of management, are necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s most recent Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results to be expected for any future fiscal periods in 2024 or for the full ~~year.~~

year ending December 31, 2024.

~~Table of Contents~~

These financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 28, 2024.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with USU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ~~Actual results could differ from those estimates. Significant~~The most significant accounting estimates ~~made by management~~inherent in the preparation of the Company’s financial statements include ~~but are not limited to, estimating~~fair value of assets acquired and liabilities assumed in a business combination, estimates associated with the useful lives of ~~patent assets, the assumptions used to calculate fair value of warrants~~property and ~~options granted, goodwill impairment,~~equipment, realization of long-lived assets, valuation of derivative instruments, deferred income taxes, unrealized tax positions, and ~~business combination accounting.~~

measurement of digital assets. Actual results could differ from those estimates.

Cash

and Cash Equivalents

The Company considers all highly liquid ~~debt instruments~~investments and other short-term investments with a maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at ~~one~~ financial ~~institution~~institutions that is insured by the Federal Deposit Insurance Corporation and restricted cash, held in escrow pursuant to the terms of the Unit Purchase Agreement entered into on August 14, 2017, with another financial institution that is also insured by the Federal Deposit Insurance Corporation. The Company’s accounts held at this institution, up to a limit of $250,000, are insured by the Federal Deposit Insurance Corporation (“FDIC”). During March 2023, the Company began to participate, to the extent practicable, in insured cash sweep programs which “sweep” its deposits across multiple FDIC insured accounts, each with deposits of no more than $250.0 thousand. As of ~~September 30, 2017,~~March 31, 2024, substantially all of the Company’s cash and cash equivalents were FDIC insured.

Table of Cont e nts

Digital Assets

Digital assets are included in current assets in the Condensed Consolidated Balance Sheets due to the Company’s ability to sell bitcoin in a highly liquid marketplace and the sale of bitcoin to fund operating expenses to support operations. The proceeds from the sale of digital assets are included within investing activities in the accompanying Condensed Consolidated Statement of Cash Flows. Following the adoption of ASU 2023-08 effective January 1, 2023, the Company ~~had bank balances exceeding~~measures digital assets at fair value with changes recognized in operating expenses in the ~~FDIC insurance limit. To reduce~~Condensed Consolidated Statements of Operations. The Company tracks its ~~risk~~cost basis of digital assets by-wallet in accordance with the first-in-first-out (“FIFO”) method of accounting. Refer to Note 5 – Digital Assets, for further information.

Accounts Receivable

The Company acquired accounts receivable as a result of its acquisition of GC Data Center Equity Holdings, LLC on January 12, 2024, refer to Note 3 - Acquisitions, for further information, which consist of trade receivables. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts, based on historical and customer specific experience, current economic and market conditions. The allowance for doubtful accounts was $12.2 million as of March 31, 2024.

Deposits

The Company contracts with other service providers for hosting of its equipment and operational support in data centers where the Company’s equipment is deployed. These arrangements typically require advance payments to vendors pursuant to the contractual obligations associated with these services. The Company classifies these payments as “Deposits” or “Long-term deposits” in the ~~failure~~Condensed Consolidated Balance Sheets.

Derivatives

The Company enters into derivative contracts to manage its exposure to fluctuations in the price of ~~such financial institution,~~bitcoin and energy costs and not for any other purpose. In addition, the Company evaluates its financing and service arrangements to determine whether certain arrangements contain features that qualify as embedded derivatives requiring bifurcation in accordance with Accounting Standard Codification (“ASC”) 815 - Derivatives and Hedging. Embedded derivatives that are required to be bifurcated from the host instrument or arrangement are accounted for and valued as separate financial instruments. There were no embedded derivatives requiring separation from the host instrument as of March 31, 2024 and December 31, 2023.

The Company does not elect to designate derivatives as hedges for accounting purposes and as such, records derivatives at ~~least annually~~fair value with subsequent changes in fair value and settlements recognized in earnings. The Company classifies derivative assets or liabilities in the ~~rating~~Condensed Consolidated Balance Sheets as current or non-current based on whether settlement of the ~~financial institution~~instrument could be required within 12 months of the balance sheet date of the Balance Sheets and for derivatives with multiple settlements, based on the term of the contract.

Bitcoin Derivatives

Beginning in the third quarter of 2023, the Company entered into a series of fixed strike option collar contracts to mitigate bitcoin market pricing volatility risk. During the three months ended March 31, 2024, the Company recorded a $2.3 million loss on derivatives as a non-operating charge in the Condensed Consolidated Statements of Operations, all settled through cash payments. There were no derivative instruments outstanding as of March 31, 2024 and December 31, 2023.

Energy Derivatives

The Company acquired a commodity swap contract as a result of its acquisition of GC Data Center Equity Holdings, LLC on January 12, 2024, refer to Note 3 - Acquisitions, for further information. The commodity swap contract hedges price variability in electricity purchases and expires December 31, 2027. The commodity swap contract meets the definition of a derivative due to terms that provide for net settlement. As of March 31, 2024, the estimated fair value of the Company’s derivative instrument was $4.3 million, estimated using observable market-based inputs classified under Level 2 of the fair value hierarchy. The significant assumptions used in the discounted cash flow model to estimate fair value include the discount rate and electricity forward curves.

Table of Cont e nts

During the three months ended March 31, 2024, the Company recorded a $15.3 million loss to “Change in fair value of derivative” in the Condensed Consolidated Statements of Operations for the change in fair value of the commodity swap contract since January 12, 2024, the acquisition date of GC Data Center Equity Holdings, LLC.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and impairment, as applicable. Property and equipment acquired through business combinations are measured at fair value at the acquisition date. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment is primarily composed of bitcoin mining rigs, which are largely homogeneous and have approximately the same useful lives. Accordingly, the Company utilizes the group method of depreciation for its bitcoin mining rigs. The Company will update the estimated useful lives of its bitcoin mining server group periodically if information on the operations of the mining equipment indicates changes are required. The Company will assess and adjust the estimated useful lives of its mining equipment when there are indicators that the productivity of the mining assets is longer or shorter than the assigned estimated useful lives.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is not subject to amortization, and instead, assessed for impairment annually at the end of each fiscal year, or more frequently when events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount in accordance with ASC 350 - Intangibles - Goodwill and Other.

The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, in which case a quantitative impairment test is not required.

As provided for by ASU 2017-04, Simplifying the Test for Goodwill Impairment, the quantitative goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not impaired. An impairment loss is recognized for any excess of the carrying amount of the reporting unit over its fair value up to the amount of goodwill allocated to the reporting unit. Income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit are considered when measuring the goodwill impairment loss, if applicable.

Finite-Lived Intangible Assets

Intangible assets are recorded at cost less any accumulated amortization and any accumulated impairment losses. Intangible assets acquired through business combinations are measured at fair value at the acquisition date.

Intangible assets with finite lives are comprised of customer relationships and intellectual property and are amortized over their estimated useful lives on an accelerated basis over the projected pattern of economic benefits. Finite-lived intangible assets are reviewed for impairment annually, or more frequently when events or changes in circumstances indicate that it is more likely than not that the fair value has been reduced to less than its carrying amount.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805 - Business Combinations, by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, measured at the acquisition date fair value. The determination of fair value involves assumptions, estimates and judgments. The initial allocation of the purchase price is considered preliminary and therefore subject to change until the end of the measurement period (up to one year from the acquisition date). Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net assets acquired. Contingent consideration is included within the purchase price and is initially recognized at fair value as of the acquisition date. Contingent consideration classified as either an asset or liability, is remeasured to fair value each reporting period, until the contingency is resolved. Changes in contingent consideration period-over-period are recognized in earnings.

Acquisition related expenses are recognized separately from the business combination and are expensed as incurred.

Table of Cont e nts

Investments

Investments, which may be made from time to time for strategic reasons, are included in non-current assets in the Condensed Consolidated Balance Sheets. Investments without a readily determinable fair value are recorded at cost minus impairment, plus or minus changes from observable price changes in orderly transactions for identical or similar investments of the same issuer, in accordance with the measurement alternative described in ASC 321 - Investments – Equity Securities.

As part of the Company’s policy to maximize return on strategic investment opportunities, while preserving capital and limiting downside risk, the Company may at times enter into equity investments or Simple Agreements for Future Equity (“SAFE”). The nature and timing of the Company’s investments will depend on available capital at any particular time and the investment opportunities identified and available to the Company. However, we generally do not make investments for speculative purposes and do not intend to engage in the business of making investments.

On January 10, 2024, the Company purchased additional shares of Auradine preferred stock with a purchase price of $8.0 million, bringing the total carrying amount of its investment in Auradine preferred stock to $48.7 million. The preferred stock purchased on January 10, 2024 was similar to the Company’s other investments in Auradine preferred stock and as a result, the Company recorded a $5.2 million “Gain on investments” in the Condensed Consolidated Statement of Operations to adjust the carrying amount of its investments to an observable price in accordance with the measurement alternative in ASC 321. Refer to Note 15 – Related Party Transactions, for further information.

As of March 31, 2024 and December 31, 2023, the Company has one remaining SAFE investment with a carrying value of $1.0 million, with no noted impairments or other adjustments.

During September 2023, the Company entered into an agreement with Auradine, Inc. (“Auradine”) to secure certain rights to future purchases by the Company from Auradine for which the Company paid $15.0 million and recorded to “Long-term prepaids” in the Condensed Consolidated Balance Sheets. The purchase rights that the Company secured do not expire, do not require minimum purchases and include most favored nation and right of first refusal provisions.

On September 27, 2022, the Company purchased additional shares of Auradine preferred stock with a purchase price of $30.0 million, bringing the then total carrying amount of its investment in Auradine preferred stock to $35.5 million, with no noted impairments or other adjustments. Refer to Note 15 – Related Party Transactions, for further information.

On May 3, 2022, the Company converted $2.0 million from its prior Auradine SAFE investment into preferred stock while purchasing additional Auradine preferred stock with a purchase price of $3.5 million. At the same time, the Company entered into a commitment to acquire additional shares of Auradine preferred stock with a purchase price of $30.0 million. This forward contract was accounted for under ASC 321 as an equity security.

Equity Method Investments

The Company accounts for investments in which it ~~holds deposits.~~

~~Accounts Receivable~~

~~The~~owns between 20% and 50% of the common stock or has the ability to exercise significant influence, but not control, over the investee using the equity method of accounting in accordance with ASC 323 - Equity Method Investments and Joint Ventures. Under the equity method, an investor initially records an investment in the stock of an investee at cost and adjusts the carrying amount of the investment to recognize the investor’s share of the earnings or losses of the investee after the date of acquisition.

On January 27, 2023, the Company and Zero Two (formerly known as FS Innovation, LLC) entered into a Shareholders’ Agreement regarding the formation of an Abu Dhabi Global Markets company (the “ADGM Entity”) in which the Company has a ~~policy of reserving~~20% ownership interest and accounted for ~~questionable accounts based on its best estimate of~~as an equity method investment. The ADGM Entity started mining operations during September 2023. During the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. At each of September 30, 2017 and Decemberthree months ended March 31, ~~2016,~~2024, the Company ~~had recorded an allowance for bad debts~~received a non-monetary dividend in the amount of ~~$387,976 and $387,976, respectively. Accounts receivable, net at September 30, 2017 and December 31, 2016, amounted to $123,630 and $95,069, respectively.~~

~~Concentration of Revenue and Geographic Area~~

Revenue from the Company’s patent enforcement activities is considered United States revenue as any payments for licenses included in that revenue are for United States operations irrespective of the location of the licensee’s or licensee’s parent home domicile.

$4.4 million associated with approximately 1,950 miners rigs distributed by Zero Two. The Company ~~had $0~~recorded the mining rigs to property and equipment at fair value and accordingly, recognized an impairment of $4.1 million that reduced our investment in ~~revenues from newly issued patent licenses for both~~ the ~~three months ended September 30, 2017 and the three months ended September 30, 2016.~~ADGM Entity. The ~~revenue~~Company’s share of net operating income was $5.4 million for the three months ended ~~September 30, 2017~~March 31, 2024. As of March 31, 2024, the Company’s investment in the ADGM Entity was $61.4 million and is ~~attributable~~reflected in “Investments” in the Condensed Consolidated Balance Sheets.

Table of Cont e nts

Stock-based Compensation

The Company expenses stock-based compensation to ~~a non-enforcement technology access license for one~~employees and non-employees over the requisite service period based on the grant date fair value of the ~~Company’s subsidiaries~~awards. Refer to Note 11 – Stockholders' Equity, for further information.

Impairment of Long-lived Assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and ~~running royalties~~used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Revenues

The Company recognizes revenue under ASC 606 – Revenue from Contracts with Customers. The core principle of the ~~Company’s Medtech portfolio~~revenue standard is that a reporting entity should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Refer to Note 4 – Revenues, for further information.

Research and Development

Research and development costs consist primarily of contractor costs, equipment, supplies, personnel, and related expenses for research and development activities. Research and development costs are expensed as incurred in accordance with ASC 730 - Research and Development, and are included in operating expenses in the Condensed Consolidated Statement of Operations. Research and development costs were $2.5 million and $0.2 million, for the three months ended ~~September 30, 2016,~~March 31, 2024 and March 31, 2023, respectively.

Income Taxes

Effective Tax Rate

The effective tax rate (“ETR”) from continuing operations was 10.14% for the ~~revenue is attributable~~three months ended March 31, 2024, and 0.06% for the three months ended March 31, 2023. The difference between the U.S. statutory tax rate of 21% was primarily due to ~~running royalties from~~a change in the ~~Company’s Medtech portfolio.~~

Atvaluation allowance as a result of current year activity. The following items caused the ~~current time, we define customers as firms that obtain licenses~~quarterly ETR to be significantly different compared to the Company’s ~~patents, either~~historic annual ETR:

During the period ended March 31, 2024, the Company concluded, based upon all available evidence, that it was more likely than not that it would have sufficient future taxable income to realize the Company’s federal and state deferred tax assets. As a result, the Company is releasing its valuation allowance associated with deferred tax assets, the tax benefit of which is being offset by the tax expense associated with the recording of a deferred tax liability for the increase in the fair value of bitcoin in the Condensed Consolidated Statement of Operations. The Company’s conclusion regarding the realizability of such deferred tax assets was based on the scheduled reversal of deferred tax liabilities.

Income Tax in Interim Periods

The Company records its tax expense or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. The income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period.

Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.

Uncertainties

The Company files federal and state income tax returns. The 2020-2023 tax years generally remain subject to examination by the IRS and various state taxing authorities, although the Company is not currently under examination in any jurisdiction.

The Company does not currently expect any of its remaining unrecognized tax benefits to be recognized in the next twelve months.

Table of Cont e nts

Recent Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement may affect the Company’s financial reporting, the Company undertakes an analysis to determine any required changes to its Condensed Consolidated Financial Statements and assures that there are proper controls in place to ascertain that the Company’s Condensed Consolidated Financial Statements properly reflect the change.

There have been no material changes to our recent accounting pronouncements that were disclosed in our Annual Report on Form 10-K, which was filed with the SEC on February 28, 2024.

NOTE 3 – ACQUISITIONS

GC Data Center Equity Holdings, LLC Acquisition (Granbury, Texas and Kearney, Nebraska)

On January 12, 2024, the Company acquired two operational bitcoin mining sites located in Granbury, Texas and Kearney, Nebraska, totaling 390 megawatts of operational capacity from GC Data Center Equity Holdings, LLC for total consideration of $189.6 million, including a working capital adjustment that was paid during the three months ended March 31, 2024, plus up to an additional $19.6 million of cash, which amount is contingent on the expansion of additional megawatt capacity at the acquired facilities by certain milestone dates during the three year period following the anniversary of closing. The acquisition is intended to improve efficiencies and the scale of operations through the integration of our technology stack and realization of synergies.

The Company will not be taking on any new hosting services customers and will transition to self-mining at these two sites as existing customer agreements expire or are terminated early.

The following table summarizes the components of total purchase consideration:


(in thousands)	January 12, 2024
Initial cash consideration, net of cash acquired	$	175,734
Working capital adjustments	8,081
Estimate fair value contingent earn-out and other	5,832
Total purchase consideration	$	189,647

The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805 - Business Combinations.

Table of Cont e nts

The following table summarizes the preliminary allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed as of January 12, 2024:


(in thousands)	January 12, 2024
Assets
Accounts receivable	$	20,411
Other current assets	8,506
Property and equipment	132,148
Right-of-use asset	8,852
Goodwill	30,852


Customer relationships	22,000
Derivative instrument	10,989
Other non-current assets	6,250
Total assets	$	240,008

Liabilities
Accounts payable and accrued expenses	$	13,940
Lease liability	13,992



Other long-term liabilities	22,429
Total liabilities	50,361
Total purchase consideration	$	189,647

Goodwill is calculated as the excess of the purchase price over the net assets acquired. The Company expects the goodwill balance to be deductible for tax purposes over a period of 15 years. Goodwill is primarily attributed to growth and efficiency opportunities as well as expected synergies from combining the operations of bitcoin mining sites with the Company.

The gross contractual amounts receivable were $24.0 million, of which, $3.6 million is expected to be uncollectible.

The fair value of property and equipment was estimated by applying the cost approach, which estimates fair value using replacement or reproduction cost of an asset of comparable utility, adjusted for loss in value due to depreciation and economic obsolescence. The fair value of the derivative was estimated using a discounted cash flow approach that considers various assumptions including current market prices and electricity forward curves, time value, as well as other relevant economic measures. The fair value of the contingent earn-out was estimated using a discounted cash flow approach, which included assumptions regarding the probability-weighted cash flows of achieving certain capacity development milestones. The fair value of the lease liability was estimated using a discounted cash flow approach, which included assumptions regarding current market prices for similar assets, estimated term and discount rates.

Intangible assets were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The fair values of intangible assets were estimated based on various valuation techniques including the use of discounted cash flow analyses, and multi-period excess earnings valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. These valuation inputs included estimates and assumptions about forecasted future cash flows, long-term revenue growth rates, and discount rates. The fair value of the customer relationships intangible asset was determined using a discounted cash flow model that incorporates the excess earnings method and will be amortized on an accelerated basis over the projected pattern of economic benefits of approximately 4 years. The Company recognized $2.8 million in expense during the three months ended March 31, 2024 for the amortization of these acquired customer relationships.

The results of acquired facilities have been included from the acquisition date. Included in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 was revenues of $20.8 million and net loss before tax of $42.5 million, which includes depreciation in the amount of $5.3 million.

Table of Cont e nts

The following table presents unaudited consolidated pro forma results as if the acquisition of the acquired facilities had occurred as of January 1, 2023 for the indicated periods:


	Three Months Ended March 31,
(in thousands)	2024		2023
Revenue	$	168,291	$	71,127
Income before income taxes	374,060		59,999
Earnings per common share:
Basic	1.30		$	0.38
Diluted	1.25		$	0.37

The unaudited pro forma financial information reflects the acquisition of the acquired facilities by the application of pro forma adjustments to the Company’s historical financial statements as if the acquisition had occurred on January 1, 2023. The unaudited pro forma financial information should not be considered indicative of actual results that would have been achieved had the acquisition of the acquired facilities actually been consummated on the date indicated and does not purport to be indicative of the Company's future financial position or results of operations. These pro forma results include the impact of amortizing certain purchase accounting adjustments such as intangible assets and the impact of the acquisition on interest and income tax expense. No adjustments have been reflected in the pro forma financial information for anticipated growth and efficiency opportunities. There were no material nonrecurring pro forma adjustments directly attributable to the acquisition included within the unaudited pro forma financial information.

APLD - Rattlesnake Den I, LLC Acquisition (Garden City, Texas)

On April 2, 2024, the Company acquired an operational bitcoin mining site located in Garden City, Texas with 132 megawatts of operational capacity and 200 megawatts of nameplate capacity from Applied Digital Corporation (“APLD”) - Rattlesnake Den I LLC for total cash consideration of $87.3 million prior to ~~or during enforcement litigation. These firms generally enter into non-recurring, non-exclusive, non-assignable license agreements with~~any purchase price adjustments. The acquisition is intended to improve efficiencies and the ~~Company,~~scale of operations through the integration of our technology stack and ~~these customers do not generally engage in ongoing, recurring business activity with the Company. The Company has historically had a small number~~realization of ~~customers enter into such agreements, resulting in higher levels of revenue concentration.~~

synergies.

~~Table of Contents~~

~~Revenue Recognition~~

NOTE 4 – REVENUES

The Company recognizes revenue in accordance with ~~Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”~~ASC 606. The core principle of the revenue standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

•Step 1: Identify the contract with the customer;

•Step 2: Identify the performance obligations in the contract;

•Step 3: Determine the transaction price;

•Step 4: Allocate the transaction price to the performance obligations in the contract; and

•Step 5: Recognize revenue when the Company satisfies a performance obligation.

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

•The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct); and

•The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract). ~~Revenue~~

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.

Table of Cont e nts

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 ~~(i) persuasive evidence~~that performance obligation is satisfied, at a point in time or over time, as appropriate.

Application of the Five-Step Model to the Company’s Mining and Hosting 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”). On January 12, 2024, the Company acquired two operational bitcoin mining sites for the purpose of improving efficiencies and the scale of the Company’s mining operations. The acquired mining sites provide hosting services to institutional-scale crypto mining companies. Refer to Note 3 - Acquisitions, for further information.

The following table presents the Company’s revenues disaggregated for those arrangements in which the Company is the Operator and Participant:


	Three Months Ended March 31,
(in thousands)		2024		2023
Revenues from contracts with customers
Mining operator - transaction fees		$	8,984	$	1,051
Mining participant		13,442		17,876
Hosting services (1)		20,775		—
Total revenues from contracts with customers		43,201		18,927
Mining operator - block rewards and other revenue		121,997		32,205
Total revenues		$	165,198	$	51,132

(1)Includes revenue beginning January 12, 2024, the date of the acquisition. Intercompany transactions have been eliminated in consolidation. Refer to Note 3 - Acquisitions, for further information.

Table of Cont e nts

Mining 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. 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. The Company is currently entitled to the block reward of 6.25 bitcoin from the Bitcoin network upon each successful validation of a block. The Company is also entitled to the transaction fees paid by the transaction requester payable in bitcoin for each successful validation of a block. The Company assessed the following factors in the determination of the inception and duration of each individual contract to validate a block and satisfaction of its performance obligation as follows:

•For each individual contract, the parties’ rights, the transaction price, and the payment terms are fixed and known as of the inception of each individual contract.

•The transaction requestor and the Bitcoin network each have a unilateral enforceable right to terminate their respective contracts at any time without penalty.

•For each of these respective contracts, contract inception and completion occur simultaneously upon block validation; that is, the contract begins upon, and the duration of the contract does not extend beyond, the validation of an ~~arrangement exists, (ii) all obligations have been substantially performed, (iii) amounts are fixed or determinable~~individual blockchain transaction; and ~~(iv) collectability of amounts~~each respective contract contains a single performance obligation to perform a transaction validation service and this performance obligation is ~~reasonably assured. In general, revenue arrangements provide for~~satisfied at the ~~payment of contractually determined~~point-in-time when a block is successfully validated.

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 ~~in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company.~~

~~These rights typically include some combination of the following: (i) the grant of~~and block rewards to pool participants on a ~~non-exclusive, perpetual license~~pro rata basis according to ~~use patented technologies owned or controlled~~each respective pool participant’s contributed hash calculations. The MaraPool wallet (owned by the Company ~~(ii) a covenant-not-to-sue, (iii)~~as Operator) is recorded on the ~~dismissal~~distributed ledger as the winner of ~~any pending litigation.~~

proof of work block rewards and assignee of all validations and, therefore, the transaction verifier of record. The ~~intellectual property rights granted typically are perpetual in nature. Pursuant~~pool participants entered into contracts with the Company as Operator; they did not directly enter into contracts with the network or the requester and were not known verifiers of the transactions assigned to the pool. As Operator, the Company delegated mining work to the pool participants utilizing software that algorithmically assigned work to each individual miner. By virtue of its selection and operation of the software, the Company as Operator controlled delegation of work to the pool participants. This indicated that the Company directed the mining pool participants to contribute their hash calculations to solve in areas that the Company designated. 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.

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. The Company measures the non-cash consideration which is fixed as of the inception of each individual contract using the quoted spot rate for bitcoin determined using the Company’s primary trading platform for bitcoin at the time the Company successfully validates a block.

Expenses associated with providing bitcoin transaction verification services, 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.

Mining Participant

The Company participates in third-party operated mining pools. When the Company is a Participant in a third-party operated mining pool, the Company provides a service to perform hash calculations to the third-party pool operators. The Company considers the third-party mining pool operators to be its customers under Topic 606. Contract inception and our enforceable right to consideration begins when we commence providing hash calculation services to the mining pool operators. Each party to the contract has the unilateral right to terminate the contract at any time without any compensation to the other party for such termination. As such, the duration of a contract is less than a day and may be continuously renewed multiple times throughout the day. The implied renewal option is not a material right because there are no upfront or incremental fees in the initial contract and the terms, conditions, and compensation amount for the renewal options are at the then market rates.

Table of ~~these agreements,~~Cont e nts

The Company is entitled to non-cash compensation based on the pool operator’s payout model. The payout methodologies differ depending on the type of third-party operated mining pool. Full-Pay-Per-Share (“FPPS”) pools pay block rewards and transaction fees, less mining pool fees and Pay-Per-Share (“PPS”) pools pay block rewards less mining pool fees but no transaction fees. For FPPS and PPS pools, the Company is entitled to non-cash consideration even if a block is not successfully validated by the mining pool operators. Success-based mining pools pay a fractional share of the successfully mined block and transaction fees, reduced by pool operator expenses only if a block is successfully validated.

During 2023, the Company primarily participated in FPPS mining pools and, to a lesser extent, success-based mining pools. During 2022 and 2021, the Company primarily participated in success-based mining pools and, to a lesser extent, PPS mining pools.

FPPS Mining Pools

The Company primarily participates in mining pools that use the FPPS payout method for the year ended December 31, 2023. The Company is entitled to compensation once it begins to perform hash calculations for the pool operator in accordance with the operator’s specifications over a 24-hour period beginning mid-night UTC and ending 23:59:59 UTC on a daily basis. The non-cash consideration that we are entitled to for providing hash calculations to the pool operator under the FPPS payout method is made up of block rewards and transaction fees less pool operator expenses determined as follows:

•The non-cash consideration in the form of a block reward is based on the total blocks expected to be generated on the Bitcoin Network for the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: the daily hash calculations that we provided to the pool operator as a percent of the Bitcoin Network’s implied hash calculations as determined by the network difficulty, multiplied by the total Bitcoin Network block rewards expected to be generated for the same daily period.

•The non-cash consideration in the form of transaction fees paid by transaction requestors is based on the share of total actual fees paid over the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: total actual transaction fees generated on the Bitcoin Network during the 24-hour period as a percent of total block rewards the Bitcoin Network actually generated during the same 24-hour period, multiplied by the block rewards we earned for the same 24-hour period noted above.

•The block reward and transaction fees earned by the Company is reduced by mining pool fees charged by the operator for operating the pool based on a rate schedule per the mining pool contract. The mining pool fee is only incurred to the extent we perform hash calculations and generate revenue in accordance with the pool operator’s payout formula during the same 24-hour period beginning mid-night UTC daily.

The above non-cash consideration is variable in accordance with paragraphs ASC 606-10-32-5 to 606-10-32-7, since the amount of block reward earned depends on the amount of hash calculations we perform; the amount of transaction fees we are entitled to depends on the actual Bitcoin Network transaction fees over the same 24-hour period; and the operator fees for the same 24-hour period are variable since it is determined based on the total block rewards and transaction fees in accordance with the pool operator’s agreement. While the non-cash consideration is variable, the Company has ~~no further obligation~~the ability to estimate the variable consideration at contract inception with ~~respect to~~reasonable certainty without the ~~grant~~risk of the non-exclusive licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant ~~deliverables upon execution of the agreement. As such, the earnings process is complete and~~ revenue ~~is recognized upon the execution of the agreement, when collectability is reasonably assured, and when all other revenue recognition criteria have been met.~~

The Company also considers the revenue generated from its settlement and licensing agreements as one unit of accounting under ASC 605-25, “Multiple-Element Arrangements” as the delivered items do not have value to customers on a standalone basis, there are no undelivered elements and there is no general right of return relative to the license. Under ASC 605-25, the appropriate recognition of revenue is determined for the combined deliverables as a single unit of accounting and revenue is recognized upon delivery of the final elements, including the license for past and future use and the release.

Also, since the settlement element and license element for past and future use are the Company’s major central business, the Company presents these two elements as one revenue category in its statement of operations.reversal. The Company does not ~~expect~~constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved and recognizes the non-cash consideration on the same day that control is transferred, which is the same day as contract inception.

The Company measures the non-cash consideration based on the simple average daily spot rate of bitcoin determined using the Company’s primary trading platform for bitcoin over a 24-hour period beginning mid-night UTC and ending 23:59:59 UTC on the day of contract inception. The Company recognizes non-cash consideration on the same day that control of the contracted service is transferred to the pool operator, which is the same day as the contract inception.

PPS Mining Pools

The Company participates in PPS pools that provide ~~licenses that~~non-cash consideration similar to the FPPS pools except PPS pools do not include transaction fees, therefore, the non-cash consideration received by the Company is made up of block rewards less mining pool fees. While the non-cash consideration is variable, the Company has the ability to estimate the variable consideration at contract inception with reasonable certainty. The Company does not constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from

Table of Cont e nts

the contract will not occur when the uncertainty is subsequently resolved and recognizes the non-cash consideration on the same day that control is transferred, which is the same day as contract inception.

Success-based Mining Pools

The Company also participates, to a lesser extent, in third-party mining pools that pay rewards only when the pool successfully validates 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, reduced by pool operator expenses, based on the proportion of hash calculations the Company performed for the mining pool operator to the total hash calculations performed by all mining pool participants in validating the block during the 24-hour period beginning at midnight UTC and ending 23:59:59 UTC daily.

Contract inception and our enforceable right to consideration begins when the Company commences the performance of hash calculations for the mining pool operator. The non-cash consideration is variable in accordance with paragraphs ASC 606-10-32-5 to 606-10-32-7 as it depends on whether the third-party mining pool successfully validates a block during each 24-hour period. In addition, other inputs such as the amount of hash calculations and our fractional share of consideration earned by the pool operator also cause variability. The Company does not have the ability to estimate whether a block will be successfully validated with reasonable certainty at contract inception. The Company constrains the variable consideration at contract inception because it is not probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved. Once a block is successfully validated, the constraint is lifted. The Company recognizes the non-cash consideration on the same day that control is transferred, which is the same day as contract inception.

The Company’s policy was to measure non-cash consideration based on the spot rate of bitcoin at the time the pool successfully validates a block, which was not in accordance with ASC 606-10-32-21 which requires measurement to coincide with contract inception. Additionally, this measurement was not consistent with the measurement of non-cash consideration for FPPS and PPS pools. During the three months ended December 31, 2023, the Company corrected this error and changed its measurement of non-cash consideration to the simple average daily spot rate of bitcoin determined using the Company’s primary trading platform for bitcoin on the date of contract inception, which is the same day that control of the contracted service (hash calculations) is transferred to the pool operator. The change in measurement did not have a material impact to the results of operations for any of the periods presented.

Expenses associated with providing hash calculation 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.

Hosting Services

The Company operates two bitcoin mining sites, which were acquired on January 12, 2024, that provide ~~some form~~hosting services to institutional-scale crypto mining companies. Hosting services include colocation and managed services. Colocation services include providing mining companies with sheltered data center space, electrical power, cooling, and internet connectivity. Managed services generally include providing customers with technical support and maintenance services, in addition to colocation services. The Company will not be taking on any new hosting services customers and will transition to self-mining at these two sites as existing customer agreements expire or are terminated early.

Colocation services revenue is recognized over time as the customer simultaneously receives and consumes the benefits of ~~settlement or release. There~~the Company’s performance. Managed services revenue is recognized at a point-in-time as the customer simultaneously receives and consumes the benefits of the Company’s performance. The transaction price for colocation services is variable based on the consumption of energy and the managed services price is a fixed rate per miner basis. The Company recognizes hosting services revenue to the extent that a significant reversal of such revenue will not occur. Hosting services customers are generally invoiced in advance of the month in which the Company satisfies its performance obligation, and deferred revenue is recorded for any upfront payments received in advance of the Company’s performance. The monthly transaction price is generally variable based on the amount of megawatt hours (“MWh”) consumed by the customers equipment and when other monthly contracted services are performed. At the end of each month, the customer is billed for the actual amount owed for services performed. The Company recognizes revenue for hosting services under the right-to-invoice practical expedient in ASC

Table of Cont e nts

606-10-55-18, which allows for the recognition of revenue over time as the Company’s right-to-invoice for final payment corresponds directly with the value of services transferred to the customer to-date.

Expenses associated with providing hosting services are recorded as cost of revenues and depreciation on hosting equipment is recorded as a separate component of cost of revenues.

NOTE 5 – DIGITAL ASSETS

Effective January 1, 2023, the Company early adopted ASU 2023-08, which requires entities to measure crypto assets at fair value with changes recognized in the Condensed Consolidated Statements of Operations each reporting period. The Company’s digital assets were within the scope of ASU 2023-08 and a cumulative-effect adjustment of $11.5 million as of the beginning of the fiscal year ended December 31, 2023 was ~~no revenue~~recorded for the difference between the carrying amount of the Company’s digital assets and fair value.

The following table presents the Company’s significant digital asset holdings as of March 31, 2024 and December 31, 2023, respectively:


(in thousands, except for quantity)	Quantity	Cost Basis		Fair Value
Bitcoin	17,320	$	647,963	$	1,234,695
Total digital assets held as of March 31, 2024		$	647,963	$	1,234,695


(in thousands, except for quantity)	Quantity	Cost Basis		Fair Value
Bitcoin	15,126	$	515,315	$	639,660
Total digital assets held as of December 31, 2023		$	515,315	$	639,660

The Company earned 61 and 48 bitcoin that were pending distribution from ~~newly issued patent licenses~~the Company’s equity method investee, the ADGM Entity, which are excluded from the Company’s holdings as of March 31, 2024 and December 31, 2023, respectively.

NOTE 6 – ADVANCES TO VENDORS AND DEPOSITS

The Company contracts with bitcoin mining equipment manufacturers to procure equipment necessary for the operation of its bitcoin mining operations. These agreements typically require a certain percentage of the value of the total order to be paid in advance at specific intervals, usually within several days of execution of a specific contract and periodically thereafter with final payments due prior to each shipment date. The Company accounts for these payments as “Advances to vendors” in the Condensed Consolidated Balance Sheets.

As of March 31, 2024 and December 31, 2023, such advances totaled approximately $261.1 million and $95.6 million, respectively.

In addition, the Company contracts with other service providers for the hosting of its equipment and operational support in data centers where the Company’s equipment is deployed. These arrangements also typically require advance payments to be made to vendors in conjunction with the contractual obligations associated with these services. The Company classifies these payments as “Deposits” and “Long-term deposits” in the Condensed Consolidated Balance Sheets.

As of March 31, 2024 and December 31, 2023, such deposits totaled approximately $100.0 million and $67.0 million, respectively.

Table of Cont e nts

NOTE 7 – PROPERTY AND EQUIPMENT

The components of property and equipment as of March 31, 2024 and December 31, 2023 are:


(in thousands, except useful life)	Useful life (Years)	March 31, 2024		December 31, 2023
Land	—	$	610	$	—
Land improvements	9	25,246		—
Building and building improvements	25	3,119		—
Mining rigs	3	934,381		862,055
Containers	10 - 15	58,898		5,676
Equipment	7 - 15	42,249		—
Software and hardware	2	3,307		—
Asset retirement obligation	8	7,879		—
Other	7	839		242

Total gross property, equipment		1,076,528		867,973
Less: Accumulated depreciation		(274,196)		(196,201)
Property and equipment, net		$	802,332	$	671,772

The Company recorded an asset retirement obligation of $7.9 million for the Granbury data center land lease. The asset retirement obligation represents the estimated cost to return the site to its original state. The asset retirement obligation is being depreciated over the term of the lease which is approximately 8 years. The Company’s accretion expense related to the asset retirement obligation for the three months ended ~~September 30, 2017~~March 31, 2024 was $0.2 million.

The Company’s depreciation expense related to property and ~~September 30, 2016,~~equipment for the three months ended March 31, 2024 and 2023 was $78.0 million and $17.7 million, respectively.

~~Prepaid Expenses and Other Current Assets~~

~~Prepaid expenses and other current assets~~

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

The components of ~~$108,878 and $202,067 at September 30, 2017 and~~goodwill as of March 31, 2024 is comprised of the following items:


	As of March 31, 2024
(in thousands)	Cost		Accumulated impairment charges		Net
Granbury, Texas and Kearney, Nebraska Data Centers	$	30,852	$	—	$	30,852
Total goodwill	$	30,852	$	—	$	30,852

The Company acquired goodwill from the GC Data Center Equity Holdings, LLC acquisition on January 12, 2024, refer to Note 3 –Acquisitions, for further information. There was no goodwill as of December 31, ~~2016, respectively, consist primarily~~2023.

Table of costs paid for future services, which will occur within a year. Prepaid expenses include prepayments in cash and equity instruments for public relation services, business advisory, consulting, and prepaid insurance, which are being amortized over Cont e nts

Intangible assets

The following table presents the ~~terms~~Company’s intangible assets as of ~~their respective agreements.~~

~~Bonds Posted with Courts~~

~~Under certain circumstances related to litigations in Germany, the Company is either required to or may decide to enter a bond with the courts. As of September 30, 2017 and December~~March 31, ~~2016, the Company had no outstanding bonds posted with the German courts.~~

~~Related Party Transactions~~

Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. 2024:


	As of March 31, 2024
(in thousands)	Cost		Accumulated amortization		Accumulated impairment charges		Net
Customer relationships	$	22,000	$	(2,750)	$	—	$	19,250
Intellectual property	2,633		(219)		—		2,414
Total intangible assets	$	24,633	$	(2,969)	$	—	$	21,664

The Company ~~discloses all related party transactions.~~

~~On May 13, 2013, we entered into~~recognized customer relationships as a ~~nine-year advisory services agreement (the “Advisory Services Agreement”) with IP Navigation Group, LLC (“IP Nav”),~~result of which Erich Spangenberg is founder and former Chief Executive Officer. Mr. Spangenberg is an affiliate of the Company. The terms of the Advisory Services Agreement provide that, in consideration for its services as intellectual property licensing agent, the Company will pay to IP Navigation Group, LLC between 10% and 20% of the gross proceeds of certain licensing campaigns in which IP Navigation Group, LLC acts as intellectual property licensing agent.

~~Table of Contents~~

On November 18, 2013, we entered into a consulting agreement with Jeff Feinberg (“Feinberg Agreement”), pursuant to which we agreed to grant Mr. Feinberg 25,000 shares of our restricted Common Stock, 50% of which shall vest on the one-year anniversary of the Feinberg Agreement and the remaining 50% of which shall vest on the second-year anniversary of the Feinberg Agreement. Mr. Feinberg is the trustee of The Feinberg Family Trust and holds voting and dispositive power over shares held by The Feinberg Family Trust, which is a 10% beneficial owner of our Common Stock.

~~On May 2, 2014, the Company completed~~ the acquisition of ~~certain ownership rights (the “Acquired Intellectual Property”) from TechDev, Granicus and SFF pursuant~~GC Data Center Equity Holdings, LLC on January 12, 2024, refer to ~~the terms of three purchase agreements between: (i) the~~Note 3 –Acquisitions, for further information.

The Company TechDev, SFF and DA Acquisition LLC, a newly formed Texas limited liability company and wholly-owned subsidiary of the Company; (ii) the Company, Granicus, SFF and IP Liquidity Ventures Acquisition LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company; and (iii) the Company, TechDev, SFF and Sarif Biomedical Acquisition LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company. TechDev, SFF and Granicus are owned or controlled by Erich Spangenberg or family members or associates.

●	Pursuant to the DA Agreement, the Company acquired 100% of the limited liability company membership interests of Dynamic Advances, LLC, a Texas limited liability company, in consideration for: (i) two cash payments of $2,375,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $2,850,000 if not made on or before June 30, 2014; and (ii) 97,750 shares of the Company’s Series B Convertible Preferred Stock. The remaining cash payment was made on April 1, 2015 and is fully paid. Under the terms of the DA Agreement, TechDev and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below.

●	Pursuant to the IP Liquidity Agreement, the Company acquired 100% of the limited liability company membership interests of IP Liquidity Ventures, LLC, a Delaware limited liability company, in consideration for: (i) two cash payments of $2,375,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $2,850,000 if not made on or before June 30, 2014; and (ii) 97,750 shares of the Company’s Series B Convertible Preferred Stock. The remaining cash payment was made on April 1, 2015 and is fully paid. Under the terms of the IP Liquidity Agreement, Granicus and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below.

●	Pursuant to the Sarif Agreement, the Company acquired 100% of the limited liability company membership interests of Sarif Biomedical, LLC, a Delaware limited liability company, in consideration for two cash payments of $250,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $300,000 if not made on or before June 30, 2014. The remaining cash payment was made on February 24, 2015 and is fully paid. Under the terms of the Sarif Agreement, TechDev and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below.

●	Pursuant to the Pay Proceeds Agreement, the Company may pay the sellers a percentage of the net recoveries (gross revenues minus certain defined expenses) that the Company makes with respect to the assets held by the entities that the Company acquired pursuant to the DA Agreement, the IP Liquidity Agreement and the Sarif Agreement. Under the terms of the Pay Proceeds Agreement, as amended in 2016, if the Company recovers $10,000,000 or less with regard to the IP Assets, then nothing is due to the sellers; if the Company recovers between $13,000,000 and $40,000,000 with regard to the IP Assets, then the Company shall pay 40% of the cumulative gross proceeds of such recoveries to the sellers; and if the Company recovers over $40,000,000 with regard to the IP Assets, the Company shall pay 50% of the cumulative gross proceeds of such recoveries to the sellers. Pursuant to the amendment to the Pay Proceeds Agreement, the Company paid TechDev, Granicus and SFF $2.4 million. In no event will the total payments made by the Company under the Pay Proceeds Agreement exceed $250,000,000.

~~Table of Contents~~

On May 2, 2014, we entered into an opportunity agreement (the “Marathon Opportunity Agreement”) with Erich Spangenberg, who is an affiliate of the Company. The terms of the Marathon Opportunity Agreement provide that we have ten business days after receiving notice from Mr. Spangenberg to provide up to 50% of the funding for certain opportunities relating to the licensing,purchased intellectual property acquisitions and/or intellectual property enforcement actions in which Mr. Spangenberg, IP Nav or any entity controlled by Mr. Spangenberg, other than: (i) IP Nav or any of its affiliates, and (ii) Medtech Development, LLC or any of its affiliates.

On June 17, 2014, Selene Communication Technologies Acquisition LLC (“Acquisition LLC”), a Delaware limited liability company and newly formed wholly-owned subsidiary of the Company, entered into a merger agreement with Selene Communication Technologies, LLC (“Selene”). Selene owned a patent portfolio consisting of three United States patents in the field of search and network intrusion that relate to tools for intelligent searches applied to data management systems as well as global information networks such as the internet. IP Nav provided patent monetization and support services under an existing agreement with Selene prior to the return of the patents to Stanford Research Institute (“SRI”), the original owners of the patents.

On August 29, 2014, the Company entered into a patent purchase agreement to acquire a portfolio of patents from Clouding IP, LLC for an aggregate purchase price of $2.4 million, of which $1.4 million was paid in cash and $1.0 million was paid in the form of a promissory note issued by the Company that matured on October 31, 2014 and was fully paid prior to the maturation date. The Company also issued 6,250 shares of its restricted common stock in connection with the acquisition. Clouding IP, LLC is also entitled to certain possible future cash payments. Clouding IP LLC is owned or controlled by Erich Spangenberg or family members or associates.

On October 10, 2014, the Company entered into an interest sale agreement with MedTech Development, LLC (“MedTech”) to acquire from MedTech 100% of the limited liability membership interests of OrthoPhoenix and TLIF as well as 100% of the shares of MedTech GmbH. In connection with the transaction, the Company is obligated to pay to MedTech $1 million at closing and $1 million on each of the following nine (9) month anniversary dates of the closing. On July 16, 2015, the Company entered into a forbearance agreement (the “Agreement”) with MedTech Development, the holder of a Promissory Note issued by the Company, dated October 10, 2014. Pursuant to the Agreement, the term of the Note was extended to October 1, 2015 and the Note began accruing interest starting from May 13, 2015. In addition, the Company agreed to make certain mandatory prepayments under certain circumstances and issue to MedTech Development 500,000 shares of restricted common stock of the Company. In accordance with ASC 470-50, the Company recorded this agreement as debt extinguishment and $654,000 was recorded as loss on debt extinguishment during the ~~year~~three months ended ~~September 30, 2015. On October 23, 2015, the Company entered into Amendment No. 1 to the Forbearance Agreement (the “Amendment”) entered into with MedTech Development~~March 31, 2024. Intellectual property is amortized on ~~July 16, 2015. Pursuant to the Amendment, the due date~~a straight-line basis.

There were no intangible assets as of the Promissory Note was extended to October 23, 2016 in return for which the Company made a payment of $100,000 on October 23, 2015 and modified the terms under which the Company agreed to make mandatory prepayments under certain circumstances. December 31, 2023.

The ~~acquired subsidiaries are also obligated to make certain additional payments to MedTech from recoveries~~ following the receipt by the acquired subsidiaries of 200% of the purchase payments, plus recovery of out of pocket expenses in connection with patent claims. The participation payments may be paid, at the election of the Company, in common stock of Marathon at the market price on the date of issuance. In connection with the transaction, the Company entered into a promissory note, common interest agreement and in the event of issuance of common stock to MedTech, will enter into a lockup and registration rights agreement. Approximately forty-five percent (45%) of MedTech is owned or controlled by Erich Spangenberg or family members or associates.

~~On October 1, 2016, one of~~table presents the Company’s ~~subsidiaries, PG Technologies S.a.r.l. entered into an advisory services agreement with Granicus IP, LLC, an entity owned or controlled by one~~estimated future amortization of ~~the Company’s employees, whereby Granicus receives a percentage of pre-tax return from PG Technologies after certain revenue thresholds have been met.~~

~~During 2016, certain officers and directors of the Company received restricted common stock in the Company’s 3D Nanocolor Corp. (“3D Nano”) subsidiary.~~

At December 31, 2016, ‘‘Other noncurrent assets’’ in the Balance Sheets consists of a note receivable from an entity controlled by one of the Company’s employees that is uncollateralized. The note receivable does not carry interest and is repayable to the Company at the earlierfinite-lived intangible assets as of March 31, 2022 or based on certain milestones. The note receivable balance has been classified as current assets because the Company believes that it will be collected within one year from the Balance Sheet dates.

2024:

~~Table of Contents~~

On September 29, 2017, the Company entered into an Irrevocable Stock Power whereby the Company sold the shares it owns in the Company’s subsidiary, 3D Nano to Doug Croxall, the Company’s Chief Executive Officer with such assignment including the assumption of all of 3D Nano’s liabilities. ~~The Company engaged a third party to value the assignment, the results of which were that the valuation and assignment were deemed to be at fair value.~~

~~Fair Value of Financial Instruments~~


Year	Amount (in thousands)
2024 (remaining)	$	8,908
2025	11,878
2026	878


Thereafter	—
Total	$	21,664

NOTE 9 – FAIR VALUE MEASUREMENT

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

The levels of the fair value hierarchy are:


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

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

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

The carrying amounts reported in the ~~consolidated condensed balance sheet~~Condensed Consolidated Balance Sheets for cash ~~accounts receivable, bonds posted with courts,~~and cash equivalents, restricted cash, other receivables, deposits, prepaid expenses and other current assets, property and equipment, advances to vendors, accounts payable, ~~and~~ accrued expenses, and legal reserve payable, approximate their estimated fair market value based on the short-term maturity of these instruments. ~~The~~Additionally, the carrying ~~value of notes payable~~amounts reported in the Condensed Consolidated Balance Sheets for the Company’s term loan, operating lease liabilities and other long-term liabilities ~~approximates~~approximate fair value as the related interest rates approximate rates currently available to the Company.

~~Clouding IP earn out liability was determined as a Level 3 liability,~~

Table of Cont e nts

Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to their fair value measurement. The Company measures the fair value of its marketable securities and investments by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which ~~requires an assessment~~all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs included reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.

Recurring measurement of fair value

The following tables present information about the Company’s assets measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy for each ~~period end by~~of those assets and liabilities as of March 31, 2024 and December 31, 2023, respectively:


	Recurring fair value measured at March 31, 2024
(in thousands)	Total carrying value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets:

Money market funds	$	117,186	$	117,186	$	—	$	—

Digital assets	1,234,695		1,234,695		—		—

Liabilities:
Derivative instrument (1)	4,263		—		4,263		—
Contingent consideration liability (2)	3,523		—		—		3,523


	Recurring fair value measured at December 31, 2023
(in thousands)	Total carrying value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets:

Money market funds	$	141,147	$	141,147	$	—	$	—
U.S. Treasury Bills	60,541		60,541		—		—

Digital assets	639,660		639,660		—		—

(1) Refer to Note 2 - Summary of Significant Accounting Policies - Derivatives, for further information.

(2) Represents the estimated amount of acquisition-related consideration expected to be paid in the future as of March 31, 2024. Refer to Note 3 – Acquisitions, for further information.

The Company includes the above money market funds and U.S. treasury bills in cash and cash equivalents in the Condensed Consolidated Balance Sheets. The Company’s U.S. treasury bills have original remaining maturities of three months or less when purchased.

Effective January 1, 2023, the Company early adopted ASU 2023-08, measuring digital assets at fair value on a recurring basis. There were no transfers among Levels 1, 2 or 3 during the three months ended March 31, 2024.

The fair value of the derivative was estimated using a discounted cash flow asapproach that considers various assumptions including current market prices and electricity forward curves, which are considered Level 2 inputs. Increases (decreases) in market prices and electricity forward curves could result in significant increases (decreases) in the fair value of derivatives.

The fair value of the contingent earn-out was estimated using a ~~valuation technique using unobservable inputs, such as revenue and expenses forecasts, timing~~discounted cash flow approach, which included assumptions regarding the probability-weighted cash flows of ~~proceeds, and discount rate. Based on reassessment~~achieving certain capacity development milestones,

Table of Cont e nts

which are considered Level 3 inputs. Increases (decreases) in the probability of achieving the milestones could result in significant increases (decreases) in the fair value of the contingent consideration.

Non-recurring measurement of fair value

The following tables present information about the Company’s liabilities measured at fair value on a non-recurring basis and are, therefore, not included in the tables above. These liabilities include outstanding convertible notes measured at fair value based on quoted prices in active markets. These liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., impairment). The Company’s estimated level within the fair value hierarchy for each of these liabilities as of ~~September 30, 2017, the Company determined that there was a reduction in the Clouding IP earn out liability~~March 31, 2024 and December 31, 2023, respectively, is as follows:


	Non-recurring fair value measured at March 31, 2024
(in thousands)	Total carrying value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Liabilities:
Notes payable	$	326,083	$	277,774	$	—	$	—


	Non-recurring fair value measured at December 31, 2023
(in thousands)	Total carrying value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)





Liabilities:
Notes payable	$	325,654	$	269,725	$	—	$	—

There were no transfers among Levels 1, 2 or 3 during the three ~~and nine~~ months ended ~~September 30, 2017 in the amounts~~March 31, 2024. As of ~~$754,321and $754,321, respectively~~March 31, 2024 and ~~a reduction in the carrying value of the Clouding IP intangible assets during the three and nine months ended September 30, 2017 in the amounts of $723,218 and $723,218, respectively.~~

The Company determined that the Warrants issued pursuant to the Unit Purchase Agreement should be treated as a Level 2 liability, which determine the value based on observable market-based inputs. in this instance, the WarrantsDecember 31, 2023 there were valued using a Monte-Carlo simulation utilizing market-based inputs for volatility and risk-free rate of interest, which resulted in the Warrants issued pursuant to the August 31, 2017 close being fair valued at $0.0364 per share and the Warrants issued pursuant to the September 29, 2017 close being fair valued at $0.0877 per share.

~~Accounting for Acquisitions~~

In the normal course of its business, the Company makes acquisitions of patent assets and may also make acquisitions of businesses. With respect to each such transaction, the Company evaluates facts of the transaction and follows the guidelines prescribed in accordance with ASC 805 — Business Combinations to determine the proper accounting treatment for each such transaction and then records the transaction in accordance with the conclusions reached in such analysis.The Company performs such analysis with respect to each material acquisition within the consolidated group of entities.

~~Income Taxes~~

~~The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” which requires, among~~no other ~~things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax~~ assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provision of the ASC 740-10 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit ofmeasured at fair value on a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is most likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.

non-recurring basis.

~~Table of Contents~~

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions will more likely than not be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

~~The federal and state~~

NOTE 10 – NET INCOME PER SHARE

Net income tax returns of the Company are subject to examination by the Internal Revenue Service and state taxing authorities, generally for three years after they were filed. The Company is in the process of filing the 2016 tax returns. After review of the prior year financial statements and the results of operations through December 31, 2016, the Company has recorded a full valuation allowance on its deferred tax asset.

~~Basic and Diluted Net Loss~~ per ~~Share~~

~~Net loss per common~~ share is calculated in accordance with ASC ~~Topic 260:~~ 260 - Earnings Per Share ~~(“ASC 260”)~~. Basic ~~loss~~income per share is computed by dividing net ~~loss~~income by the weighted average number of shares of common stock outstanding during the period. ~~The computation~~For the three months ended March 31, 2024 and 2023, the Company recorded net income and as such, the Company calculated the impact of ~~diluted net loss per share does not include~~ dilutive common stock equivalents in determining diluted earnings per share.

The following table presents the weighted average shares outstanding, as they would be anti-dilutive. The Company has options to purchase 613,195 shares of Common Stock, warrants to purchase 7,487,894 shares of Common Stock, Convertible Notes convertible into up to 13,750,000 shares of Common Stock and shares of Series B Convertible Preferred Stock convertible into 195,501 shares of Common Stock outstanding at September 30, 2017, whichsecurities that were ~~excluded from~~not included in the computation of diluted ~~shares outstanding,~~income per share, as ~~they~~their inclusion would have ~~had an anti-dilutive impact on the Company’s net loss.~~

been anti-dilutive:


	Three Months Ended March 31,
		2024	2023
Warrants		324,375	324,375
Restricted stock units		—	2,156,230


Total dilutive shares		324,375	2,480,605

Table of Cont e nts

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

For the Three Months Ended
September 30, 2017

For the Three Months Ended
September 30, 2016

For the Nine Months
Ended
September 30, 2017

For the Nine Months
Ended
September 30, 2016

Net income (loss) attributable to Common shareholders $ (6,677,485 ) $ (6,274,410 ) $ (12,484,924 ) $ (2,261,542 )

Denominator
Weighted average common shares – Basic and Diluted 6,270,299 3,761,786 5,564,465 3,736,213

Earnings (loss) per common share:
Earnings (loss) – Basic and Diluted $ (1.06 ) $ (1.67 ) $ (2.24 ) $ (0.60 )

~~Intangible Assets - Patents~~

~~Intangible assets include patents purchased and patents acquired in lieu~~


	Three Months Ended March 31,
(in thousands, except share and per share data)		2024		2023
Basic earnings per share of common stock:
Net income per share of common stock - basic		$	337,173	$	118,699
Weighted average shares of common stock - basic		259,098,664		159,186,506
Net income per share of common stock - basic		$	1.30	$	0.75

Diluted earnings per share of common stock:
Net income per share of common stock - basic		$	337,173	$	118,699
Add: Notes interest expense, net of tax		985		2,225


Net income per share of common stock - diluted		$	338,158	$	120,924
Weighted average shares of common stock - basic		259,098,664		159,186,506
Restricted stock units		4,472,357		—
Convertible notes		4,341,422		9,812,955

Weighted average shares of common stock - diluted		267,912,443		168,999,461
Net income per share of common stock - diluted		$	1.26	$	0.72

NOTE 11 – STOCKHOLDERS' EQUITY

Common Stock

On July 27, 2023, the Company’s shareholders approved an amendment to the Company’s articles of cash in licensing transactions. The patents purchased are recorded based on the cost to acquire them and patents acquired in lieu of cash are recorded at their fair market value. The costs of these assets are amortized over their remaining useful lives. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicateincorporation that ~~the carrying amount may no longer be recoverable. The Company recorded impairment charges to its intangible assets during the three and nine months ended September 30, 2017 in~~increased the amount of ~~$723,218 and $723,218, respectively, compared~~common stock authorized for issuance to ~~impairment charges associated~~500,000,000 with ~~the end of life of~~ a ~~number of the Company’s portfolios during the three and nine months ended September 30, 2016 in the amounts of $5,531,383 and $6,525,273, respectively.~~

~~Table of Contents~~

~~Goodwill~~

Goodwill is tested for impairment at the reporting unit level at least annually in accordance with ASC 350, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fairpar value of ~~a reporting unit below its carrying value.~~

~~When conducting its annual goodwill impairment assessment,~~$0.0001 per share.

Shelf Registration Statements on Form S-3 and At-the-Market Offering Agreements

In February 2024, the Company ~~initially performs~~commenced a ~~qualitative evaluation~~new at-the-market (“ATM”) offering program with H.C. Wainwright & Co., LLC (“Wainwright”) acting as sales agent (the “2024 ATM”) pursuant to an ATM agreement, under which we may offer and sell shares of ~~whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired,~~our common stock from time to time through Wainwright having an aggregate offering price of up to $1,500.0 million. As of March 31, 2024, the Company ~~then applies a two-step impairment test. The two-step impairment test first compares the fair value~~has not sold any shares of the Company’s reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its fair value, the Company determines the implied fair value of the reporting unit’s goodwill and if the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equalcommon stock pursuant to the difference is recorded in the consolidated condensed statement of operations. The Company performs the annual testing for impairment of goodwill at the reporting unit level during the quarter ended September 30.

For the three and nine months ended September 30, 2017 the Company recorded no impairment charge to its goodwill and for the three and nine months ended September 30, 2016, the Company recorded an impairment charge to its goodwill in the amount of $0 and $83,000, respectively.

~~Other Intangible Assets~~

In accordance with ASC 350-30, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following: (1) significant underperformance relative to expected historical or projected future operating results; (2) significant changes in the manner of use of the acquired assets or the strategy for the overall business; and (3) significant negative industry or economic trends.

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model.

~~For the three and nine months ended September 30, 2017 and September 30, 2016, the Company recorded no impairment charge to its other intangible assets.~~

~~Impairment of Long-lived Assets~~

The Company accounts for the impairment or disposal of long-lived assets according to the ASC 360 “Property, Plant and Equipment”. The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of long-lived assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset.

~~The Company did not record any impairment charges on its long-lived assets during the three and nine months ended September 30, 2017 and September 30, 2016.~~

~~Stock-based Compensation~~

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. As stock-based compensation expense is recognized based on awards expected to vest, forfeitures are also estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

2024 ATM.

~~Table of Contents~~

For the three and nine months ended September 30, 2017, the expected forfeiture rate was 12.75%, which resulted in an expense of $60,115 and $108,748, for the three and nine months ended September 30, 2017, respectively, recognized in the Company’s compensation expenses. For the three and nine months ended September 30, 2016, the expected forfeiture rate was 11.03%, which resulted in an expense of $9,570 and $36,832 for the three and nine months ended September 30, 2016, respectively, recognized in the Company’s compensation expenses. The Company will continue to re-assess the impact of forfeitures if actual forfeitures increase in future quarters.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

~~Liquidity and Capital Resources~~

At September 30, 2017, we had approximately $0.1 million in unrestricted cash and cash equivalents, $3.9 million in restricted cash and an unrestricted working capital deficit of approximately $20.3 million.

Based on the Company’s current revenue and profit projections, management is uncertain that the Company’s existing cash and accounts receivables will be sufficient to fund its operations through at least the next twelve months from the issuance date of the financial statements, raising substantial doubt regarding the Company’s ability to continue operating as a going concern. If we do not meet our revenue and profit projections or the business climate turns negative, then we will need to:

	●	raise additional funds to support the Company’s operations; provided, however, there is no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all. If the Company raises additional funds by issuing securities, existing stockholders may be diluted; and

	●	~~review strategic alternatives.~~

If adequate funds are not available, we may be required to curtail our operations or other business activities or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain technologies or potential markets. The accompanying consolidated condensed financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlements of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern

~~Recent Accounting Pronouncements~~

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted.

~~In May 2017, the FASB issued ASU No. 2017-09,~~~~Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting~~. This ASU provides clarity about which changes to the terms or conditions of a share-based payment award require the application of modification accounting. Specifically, ASU 2017-09 clarifies that changes to the terms or conditions of an award should be accounted for as a modification unless all of the following are met: 1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, 2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company does not expect the adoption of ASU 2017-09 to significantly impact its accounting for share-based payment awards, as changes to awards’ terms and conditions subsequent to the grant date are unusual and infrequent in nature.

~~Table of Contents~~

~~In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04~~~~Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ (“ASU 2017-04”). This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual period beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017.

~~In January 2017, the FASB issued ASU 2017-01~~~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~ (“ASU 2017-01”), which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted.

~~In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No.~~~~2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)~~, which addresses classification and presentation of changes in restricted cash on the statement of cash flows. The standard requires an entity’s reconciliation of the beginning-of-period and end-of-period total amounts shown on the statement of cash flows to include in cash and cash equivalents amounts generally described as restricted cash and restricted cash equivalents. The ASU does not define restricted cash or restricted cash equivalents, but an entity will need to disclose the nature of the restrictions. The ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period.

InOn October ~~2016, the FASB issued ASU 2016-16~~~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~ (“ASU 2016-16”), which eliminates the exception in existing guidance which defers the recognition of the tax effects of intra-entity asset transfers other than inventory until the transferred asset is sold to a third party. Rather, the amended guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted as of the beginning of an annual reporting period. The Company is currently assessing the impact of this guidance on its consolidated condensed financial statements.

~~In August 2016, the FASB issued ASU 2016-15~~~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~(“ASU 2016-15”). The standard is intended to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017. Early adoption is permitted for all entities. The Company is currently evaluating the impact of this guidance on its consolidated condensed financial statements.

In May 2014, the FASB Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, as a new Topic, (ASC) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle 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 entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date. This ASU must be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are considering the alternatives of adoption of this ASU and we are conducting our review of the likely impact to the existing portfolio of customer contracts entered into prior to adoption. After completing our review, we will continue to evaluate the effect of adopting this guidance upon our results of operations, cash flows and financial position.

~~Table of Contents~~

~~In February 2016, the FASB issued ASU No. 2016-02, “~~~~Leases (Topic 842)~~” (“ASU 2016-02”). The standard requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. Accordingly, the standard is effective for us on September 1, 2019 using a modified retrospective approach. We are currently evaluating the impact that the standard will have on our consolidated condensed financial statements.

There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

~~NOTE 3 — ACQUISITIONS~~

~~Clouding Corp.~~

~~On August 29, 2014,~~24, 2023, the Company entered into a ~~patent purchase agreement~~new ATM offering program (the ~~“Clouding Agreement”~~“2023 ATM”) ~~between Clouding Corp., a Delaware corporation and a wholly-owned subsidiary~~with Wainwright relating to shares of the Company (“Clouding”) and Clouding IP, LLC, a Delaware limited liability company (“Clouding IP”), pursuant to which Clouding acquired a portfolio of patents from Clouding IP. The Clouding Agreement included an earn out payable to Clouding IP, which was booked as an earn out liability on the balance sheet inCompany’s common stock. In accordance with the ~~appraisal~~terms of ~~the consideration and intangible value.~~

The Clouding IP earn out liability was determined to be a Level 3 liability, which requires assessment of fair value at each period end by using a discounted cash flow model as the valuation methodology, using unobservable inputs, such as revenue and expenses forecasts, timing of proceeds, and discount rates. Based on the reassessment of fair value as of September 30, 2017,an ATM agreement, the Company ~~determined the Clouding IP earn out liability~~may offer and sell shares of its common stock having an aggregate offering price of up to ~~be $32,637 (current portion) and $681,175 (long-term portion) and~~$750.0 million from time to time through Wainwright acting as its sales agent. As of ~~December~~March 31, ~~2016,~~2024, the Company ~~determined the Clouding IP earn out liability to be $81,930 (current portion) and $1,400,082 (long-term portion).~~

~~Munitech IP S.a.r.l. (“Munitech”)~~

~~On June 27, 2016, Munitech S.a.r.l. (“Munitech”), a Luxembourg limited liability company and newly formed wholly-owned subsidiary~~has sold 44,254,912 shares of ~~the Company, entered into two Patent Purchase Agreements (the “PPA” or together, the “PPAs”) to~~common stock for an aggregate purchase 221 patents from Siemens Aktiengesellschaft. The patents purchased by Munitech relate to W-CDMA and GSM cellular technology and cover all the major global economies including China, France, Germany, the United Kingdom and the United States. Significantly, manyprice of ~~the patent families have been declared to be Standard Essential Patents (“SEPs”) with the European Telecommunications Standard Institute (“ETSI”) and/or the Association~~$731.2 million, net of ~~Radio Industries and Businesses (“ARIB”) related to Long Term Evolution (“LTE”), Universal Mobile Telecommunications System (“UMTS”), and/or General Packet Radio Service (“GPRS”).~~

Pursuant to the terms of the PPAs, Munitech (i) paid Siemens Aktiengesellschaft $1,150,000 in cash upon closing and (ii) agreed to two future payments, one in the amount of $1,000,000 payable on December 31, 2016 and the second in the amount of $750,000 payable on September 30, 2017.

After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licensing activity, vendors associated with the patents, any royalties, and any other assets other than the patents.

~~On September 1, 2017, the Company entered into a Share Purchase Agreement with GPat Technologies, LLC (“GPat”) whereby the Company sold its 100% interest in Munitech to GPat.~~

~~Table of Contents~~

~~Magnus IP GmbH (“Magnus”)~~

On July 5, 2016, Marathon IP GmbH (“Marathon IP”), a German corporate entity and newly formed wholly-owned subsidiary of the Company, entered into a Patent Purchase Agreements (the “PPA”) to purchase 86 patents from Siemens Switzerland Ltd and Siemens Industry Inc., (together, “Siemens”). On September 15, 2016, the patents were assigned by Marathon IP to Magnus, both of which are wholly-owned subsidiaries of the Company. The patents purchased by Marathon IP relate to Internet-of-Things (IOT) technology. Generally, the portfolio’s subject matter is directed toward self-healing control networks for automation systems. The patents are relevant to wireless mesh or home area networks for use in IOT, or connected home devices and enable simple commissioning, application level security, simplified bridging, and end-to-end IP security. The technology can support a wide variety of IOT enabled devices including lighting, sensors, appliances, security, and more. Pursuant to the terms of the PPA, Marathon IP paid Siemens $250,000 in cash upon closing.

~~Pursuant to the terms of the PPAs, Munitech (i) paid Siemens $250,000 in cash upon closing and (ii) will pay a percentage of gross proceeds in excess of a reserve threshold on behalf of Marathon IP.~~

~~On October 20, 2017, the Company assigned the patents held by Magnus to DBD,~~offering costs, pursuant to the First Amendment to Amended and Restated Revenue Sharing and Securities Purchase Agreement and Restructuring Agreement (the “First Amendment and Restructuring Agreement”) entered into with DBD. In exchange for the assignment2023 ATM.

Table of ~~three of the Company’s portfolios, of which Magnus was one, DBD cancelled all indebtedness owed by the Company to DBD.~~

~~Traverse Technologies Corp. (“Traverse”)~~

On August 3, 2016, Traverse Technologies Corp. (“Traverse”), a United States corporation and newly formed wholly-owned subsidiary of the Company, entered into a Patent Purchase Agreement (the “PPA”) to purchase 12 patents from CPT IP Holdings (“CPT”). The patents purchased by Traverse relate to batteries and principally cover various Asian and the United States markets.

~~Pursuant to the terms of the PPAs, Traverse (i) paid CPT $1,300,000 in cash upon closing and (ii) will pay a percentage of net recoveries in excess of a reserve threshold on behalf of Traverse.~~

On October 20, 2017, the Company assigned the patents held by Traverse to DBD, pursuant to the First Amendment and Restructuring Agreement entered into with DBD. In exchange for the assignment of three of the Company’s portfolios, of which Traverse was one, DBD cancelled all indebtedness owed by the Company to DBD.

~~PG Technologies S.a.r.l. (“PG Tech”)~~

On August 11, 2016, PG Technologies S.a.r.l. (“PG Tech”), a Luxembourg limited liability company jointly owned with a large litigation financing fund, entered into a Patent Funding and Exclusive License Agreement (the “ELA”) to manage the monetization of greater than 10,000 patents in a single industry vertical with a Fortune 50 company. The patents cover all the major global economies including China, France, Germany, the United Kingdom and the United States. The Company determined that its ownership in PG Tech constitutes a VIE and that the Company is the primary beneficiary, as a result of which, the Company consolidated PG Tech in its financial statements.

Pursuant to the terms of the ELA, PG Tech agreed with the Fortune 50 company to pay (i) $1,000,000 in cash upon closing, (ii) a future payment in the amount of $1,000,000 payable on or before December 31, 2016, (iii) minimum quarterly payments of $250,000 starting on April 1, 2017 and (iv) split 50% of the net licensing revenues.

Cont e nts

~~Table of Contents~~

On October 27, 2017, the Company entered into an Assignment and Confirmation Agreement (the “Assignment”) with Luxone Ventures S.a.r.l. (“Luxone”) whereby the Company assigned all of its ownership interest in PG Technologies, S.a.r.l. (“PG Tech”) to Luxone. Pursuant to the Assignment, Luxone assumed the Company’s ownership interest in PG Tech and the Company removed from its balance sheet all the liabilities and debt associated with PG Tech and received in return a revenue share associated with future earnings from the PG Tech portfolio.

~~NOTE 4 – INTANGIBLE ASSETS~~

Intangible assets include patents purchased and patents acquired in lieu of cash in licensing transactions. Patents purchased are recorded based at their acquisition cost and patents acquired in lieu of cash are recorded at their fair market value. Intangible assets consisted of the following:

September 30, 2017 December 31, 2016

Intangible Assets $ 20,403,408 $ 23,637,813
Accumulated Amortization & Impairment (12,813,195 ) (11,323,185 )

Intangible assets, net $ 7,590,213 $ 12,314,628

Intangible assets are comprised of patents with estimated useful lives between approximately 1 to 16 years. Once placed in service, the Company will amortize the costs of intangible assets over their estimated useful lives on a straight-line basis. During the three and nine months ended September 30, 2017, respectively, the Company capitalized a total of $0 and $0 in patent acquisition costs and during the three and nine months ended September 30, 2016, respectively, the Company capitalized a total of $3,550,000 and $6,450,000 in patent acquisition costs. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent. Amortization of patents is included as an operating expense as reflected in the accompanying consolidated condensed statements of operations. The Company assesses fair market value for any impairment to the carrying values. The Company recorded impairment charges to its intangible assets during the three and nine months ended September 30, 2017 in the amount of $723,218 and $723,218, respectively, compared to impairment charges associated with the end of life of a number of the Company’s portfolios during the three and nine months ended September 30, 2016 in the amounts of $5,531,383 and $6,525,273, respectively.

Patent amortization expense for the three and nine months ended September 30, 2017 was $457,419 and $1,803,264, respectively, and for the three and nine months ended September 30, 2016, patent amortization expense was $2,030,886 and $6,018,196, respectively. All patent amortization expense figures are net of foreign currency translation adjustments. Future amortization of intangible assets, net of foreign currency translation adjustments is as follows:

2017 $ 401,804
2018 1,517,219
2019 1,447,660
2020 1,154,767
2021 1,004,600
2022 and thereafter 2,064,163
Total $ 7,590,213

As of September 30, 2017, our operating subsidiaries owned 170 patents, as set forth below, and had economic rights to over 10,000 additional patents, both of which include U.S. patents and certain foreign counterparts. In the aggregate, the earliest date for expiration of a patent in the Company’s patent portfolio has passed (the patent is expired, but patent rules allow for nine-year look-back for royalties), the median expiration date for patents in the Company’s portfolio is September 13, 2021, and the latest expiration date for a patent in any of the Company’s patent portfolios is February 27, 2033. A summary of the Company’s patent portfolios is as follows:

~~Table of Contents~~

~~Subsidiary~~

~~Number of~~
~~Patents~~

~~Earliest~~
~~Expiration Date~~

~~Median~~
~~Expiration Date~~

~~Latest~~
~~Expiration Date~~

~~Subject Matter~~

~~Clouding Corp.~~

~~2/3/18~~

~~9/10/21~~

~~5/29/29~~

~~Network and data management~~

~~CRFD Research, Inc.~~

~~5/25/21~~

~~9/17/21~~

~~8/19/23~~

~~Web page content translator and device-to-device transfer system~~

~~Dynamic Advances, LLC~~

~~11/6/21~~

~~9/7/23~~

~~7/9/25~~

~~Natural language interface~~

~~Magnus IP~~

~~1/28/22~~

~~9/27/25~~

~~12/9/31~~

~~Network Management/Connected Home Devices~~

~~Medtech Group Acquisition Corp.~~

~~Expired~~

~~12/8/18~~

~~8/9/29~~

~~Medical technology~~

~~Signal IP, Inc.~~

~~8/28/20~~

~~8/17/21~~

~~8/6/22~~

~~Automotive~~

~~Traverse Technologies~~

~~2/27/22~~

~~2/25/29~~

~~2/27/33~~

~~Li-Ion Battery/High Capacity Electrodes~~

~~Soems Acquisition~~

~~11/11/17~~

~~4/6/19~~

~~7/18/24~~

~~N/A~~

~~Median~~

~~09/13/21~~

~~On October 20, 2017, the Company assigned the patent held by Dynamic Advances LLC, Magnus IP GmbH and Traverse Technologies Corp. (all wholly-owned subsidiaries of the Company) to DBD.~~

~~On October 27, 2017, the Company assigned the economic rights to its more than 10,000 patents to Luxone.~~

~~NOTE 5 - STOCKHOLDERS’ EQUITY~~

~~The Company has authorized capital to 200,000,000 shares of~~ Common Stock ~~with par value to $0.0001 per share, and has authorized capital of 50,000,000 shares of preferred stock, par value $0.0001 per share.~~

~~On July 18, 2017, shareholders of record holding a majority of the outstanding voting capital of the Company approved a reverse stock split~~Warrants

A summary of the Company’s issued and outstanding common stock ~~by a ratio of not less than one-for-four~~warrants and ~~not more than one-for-twenty-five, with such ratio to be determined by~~changes during the three months ended March 31, 2024 is as follows:


	Number of Warrants	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)




Outstanding as of December 31, 2023	324,375	25.00		2.5



Outstanding as of March 31, 2024	324,375	$	25.00	2.5

Restricted Stock Units

On January 1, 2018, the Board ~~of Directors, in its sole discretion. On October 25, 2017,~~adopted the ~~reverse stock split ratio of one (1) for four (4) basis~~2018 Equity Incentive Plan (as amended, the “2018 Plan”), which was subsequently approved by the ~~Board~~Company’s shareholders on March 7, 2018, The 2018 Plan provides for the issuance of ~~Directors. On October 30, 2017,~~stock options, restricted stock, restricted stock units, preferred stock and other awards to employees, directors, consultants and other service providers.

The Company has granted restricted stock units (“RSU”) to employees, which generally vest over a four-year period from the date of grant; however, in certain instances, all or a portion of a grant may vest immediately. RSUs granted to directors generally vest over a one-year period or, in certain instances, immediately. The Company ~~filed~~measures the fair value of RSUs at the grant date and recognizes expense on a ~~certificate~~straight-line basis over the requisite service period from the date of ~~amendment to its Amended and Restated Articles of Incorporation with~~grant for each separately-vesting tranche under the ~~Secretary of State of the State of Nevada in order to effectuate a reverse stock split~~graded-vesting attribution method.

A summary of the Company’s RSU activity for the three months ended March 31, 2024, is as follows:


	Number of RSUs	Weighted Average Grant Date Fair Value





Nonvested at December 31, 2023	5,765,529	9.40
Granted	5,774,558	17.96

Vested	(2,244,563)	11.95

Nonvested at March 31, 2024	9,295,524	14.10

As of March 31, 2024, there was approximately $130.6 million of aggregate unrecognized stock-based compensation related to unvested RSUs that is expected to be recognized over the next 2.9 years.

NOTE 12 – DEBT

Convertible Note

On November 18, 2021, the Company issued $650.0 million principal of 1% Convertible Senior Notes due 2026 (the “Notes”). The Notes were issued pursuant to, and ~~outstanding~~are governed by, an indenture (the “Indenture”), dated as of November 18, 2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”).

On November 23, 2021, the initial purchasers of the Notes purchased an additional $97.5 million principal of Notes for an aggregate principal amount of $747.5 million.

The Notes accrue interest at a rate of 1% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2022. The Notes will mature on December 1, 2026, unless earlier repurchased, redeemed or converted. Before the close of business on the business day immediately before September 1, 2026, noteholders will have the right to convert their Notes only upon the occurrence of certain events. From and after September 1, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock ~~par value $0.0001~~or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 13.1277 shares of common stock per one thousand dollar principal amount of Notes, which represents an initial conversion price of approximately $76.17 per share onof common stock. The conversion rate and conversion price will be subject to customary adjustments upon

Table of Cont e nts

the occurrence of certain events. In addition, if certain corporate events that constitute a ~~one (1)~~“Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for ~~four (4) basis.~~

~~Series B Convertible Preferred Stock~~

a specified period of time.

In September 2023, the Company entered into privately negotiated exchange agreements with certain holders of its Notes. In total, the Company exchanged $416.8 million principal amount of Notes for an aggregate 31,722,417 shares of Company common stock. The ~~terms~~Company evaluated the exchange of debt to determine if it was an extinguishment or a modification of the ~~Series B Convertible Preferred Stock are summarized below:~~

~~Dividend~~~~. The holders of Series B Convertible Preferred Stock will be entitled to receive such dividends paid and distributions made~~debt. Due to the ~~holders~~addition of ~~Common Stock, pro rata~~a substantive conversion feature, the Company determined that the exchange was an extinguishment of debt. The Company measured the gain on extinguishment of debt based on the carrying value of the Notes, the fair value of the Company’s common stock issued in the exchange and related transaction costs. The Company recorded a gain on the exchange of Notes for the Company’s common stock in the amount of $82.6 million to “Net gain from extinguishment of debt” in the Condensed Consolidated Statements of Operations.

The Company is permitted and may seek to repurchase additional Notes prior to the ~~same extent as if such holders had converted~~maturity date, whether through privately negotiated purchases, open market purchases, or otherwise.

As of March 31, 2024 and December 31, 2023, Notes outstanding, net of unamortized discounts of approximately $4.6 million and $5.1 million, respectively, were $326.1 million and $325.7 million, respectively.

NOTE 13 – LEASES

The Company leases office space in the ~~Series B Convertible Preferred Stock~~United States under operating lease agreements. The Company also entered into ~~Common Stock (without regard~~an arrangement with Applied Blockchain for the use of energized cryptocurrency mining facilities under which the Company pays for electricity per megawatt based on usage. The Company has determined that it has embedded operating leases at two of the facilities governed by this arrangement that commenced in January and March 2023, and has elected not to ~~any limitations~~separate lease and non-lease components. Payments made for these two operating leases are entirely variable and are based on ~~conversion herein~~usage of electricity, and the Company therefore does not record a right-of-use (“ROU”) asset or ~~elsewhere)~~lease liability associated with the leases. Variable lease cost during the three months ended March 31, 2024 and ~~had held such shares~~March 31, 2023 are disclosed in the table below. Office space and mining facilities comprise the Company’s material underlying asset class under operating lease agreements. The Company has no material finance leases.

Additionally, the Company assumed an operating lease in the GC Data Center Equity Holdings, LLC acquisition related to the data center land lease in Granbury, Texas on January 12, 2024. The ROU asset and total lease liabilities recorded for the assumption of ~~Common Stock~~the leases were $8.9 million and $8.9 million, respectively. ROU assets related to the GC Data Center Equity Holdings, LLC acquisition reflect an unfavorable lease liability adjustment of $5.1 million. Lease liabilities for the leases assumed were measured based on the ~~record date for such dividends and distributions.~~

~~Liquidation Preference~~~~. In the event~~net present value of ~~a liquidation, dissolution or winding up of the Company, after provision for payment of all debts and liabilities of the Company, any~~ remaining assets of the Company shall be distributed pro rata to the holders of Common Stock and the holders of Series B Convertible Preferred Stock as if the Series B Convertible Preferred Stock had been converted into shares of Common Stockfuture lease payments on the date of ~~such liquidation, dissolution~~the acquisition, with consideration given for options to extend or ~~winding up~~renew the lease.

As of March 31, 2024, the Company’s ROU assets and total lease liabilities were $9.0 million and $9.4 million, respectively. As of December 31, 2023, the Company’s ROU assets and total lease liabilities were $0.4 million and $0.5 million, respectively. The Company has amortized the right-of-use assets totaling $0.3 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

Operating lease costs are recorded on a straight-line basis within operating expenses. The Company’s total lease expense is comprised of the ~~Company.~~

~~Voting Rights~~. following:


	For the Three Months Ended March 31,
(in thousands)		2024		2023
Operating leases:
Operating lease cost		$	204	$	112
Operating lease expense		204		112
Short-term lease rent expense		16		9
Variable lease cost		23,186		2,773
Total rent expense		$	23,406	$	2,894

Table of Cont e nts

Additional information regarding the Company’s leasing activities is as follows:


	For the Three Months Ended March 31,
	2024			2023
Operating cash flows from operating leases	$	438		$	(2)
Weighted-average remaining lease term – operating leases	7.3			3.5
Weighted-average discount rate – operating leases	7		%	5		%

The following table presents the Company’s future minimum operating lease payments as of March 31, 2024:


Year	Amount (in thousands)
2024 (remaining)	$	168
2025	203
2026	817
2027	2,563
2028	2,500
Thereafter	6,876
Total	13,127
Less: Imputed interest	(3,694)
Present value of lease liability	$	9,433

NOTE 14 - LEGAL PROCEEDINGS

Compute North Bankruptcy

On September 22, 2022, Compute North Holdings, Inc. (currently d/b/a Mining Project Wind Down Holdings, Inc.) and certain of its affiliates (collectively, “Compute North”) filed for chapter 11 bankruptcy protection. Compute North provided operating services to the Company and hosted its mining rigs at multiple facilities. The Company delivered miners to Compute North, which then installed the mining rigs at those facilities, operated and maintained the mining rigs, and provided energy to keep the miners operating. During the course of the chapter 11 cases, Compute North sold substantially all of their assets in a series of 363 sale transactions, including Compute North’s ownership interests in non-debtor entities that own or partially own facilities that house the Company’s miners.

On November 23, 2022, the Company and certain of its affiliates timely filed proofs of claim asserting various claims against Compute North, including: (i) claims arising under hosting agreements between the Company and Compute North LLC; (ii) claims arising under that certain Senior Promissory Note, dated as of July 1, 2022, by and between the Company, as Lender, and Compute North LLC, as Borrower; (iii) claims arising from the breach of a letter of intent between us and Compute North LLC; and (iv) claims for daily lost revenue, profits and other damages against Compute North.

On February 9, 2023, the Bankruptcy Court approved a settlement stipulation between the Company and Compute North, pursuant to which the proofs of claim filed by the Company and certain of its affiliates were resolved, and the Company received a single allowed unsecured claim against Compute North LLC in the amount of $40.0 million and its Preferred Equity Interests in Compute North Holdings, Inc. in the amount of 39,597 shares of Series ~~B Convertible~~C Preferred Stock ~~have no voting rights except~~was confirmed. In exchange, the Company agreed to vote in favor of Compute North’s chapter 11 plan.

On February 16, 2023, the Bankruptcy Court confirmed Compute North’s chapter 11 plan (the “Plan”), pursuant to which Compute North will liquidate its remaining assets and distribute proceeds arising therefrom in accordance with ~~regard to certain customary protective provisions~~the waterfall set forth in the ~~Series B Convertible Preferred Stock Certificate~~Plan. In its disclosure statement filed on December 19, 2022, the Compute North Debtors projected that holders of ~~Designations~~allowed general unsecured claims could recover anywhere between 8% to 65% on their claims, while holders of preferred equity interests are expected to recover nothing on their interests. The Plan became effective on March 31, 2023. At this time, the Company cannot predict the quantum of its potential recovery on account of its allowed general unsecured claim and ~~as otherwise~~preferred equity interests or the timing of when it would receive any distributions under the Plan on account of its claims and interests.

Table of Cont e nts

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 (the “Board”) and senior management. 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 the Company previously made on November 15, 2021. On March 4, 2022, the Company was served the complaint. On April 4, 2022, the defendants moved to dismiss the 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 the Company’s 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. 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 ~~by applicable law.~~

~~Conversion~~~~. Each share~~for plaintiffs to file a consolidated complaint and for renewed motions to dismiss the consolidated shareholder derivative complaint. 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.

On June 22, 2023, a shareholder derivative complaint was filed in the Circuit Court of ~~Series B Convertible Preferred Stock may be converted at~~ the ~~holder’s option at any time after issuance into one share~~17th Judicial Circuit for Broward County, Florida, against current members of ~~Common Stock, provided that~~ the ~~number~~Company’s Board and senior management, alleging claims for breach of ~~shares~~fiduciary duty and unjust enrichment based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint.

On July 8, 2023, a second shareholder derivative complaint was filed in the United States District Court for the District of ~~Common Stock to be issued pursuant to such conversion does not exceed, when aggregated with all other shares~~Nevada, against current and former members of ~~Common Stock owned by such holder at such time, result in such holder beneficially owning (as determined in accordance with Section 13(d)~~the Company’s Board and senior management, alleging claims under Sections 14(a), 10(b), and 21D of the Securities Exchange Act of ~~1934, as amended,~~1943 (the “Exchange Act”), and for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, based on allegations substantially similar to the ~~rules thereunder)~~allegations in ~~excess~~the March 30, 2023 putative class action complaint.

On July 12, 2023, a third shareholder derivative complaint was filed in the United States District Court for the District of ~~9.99% of all~~Nevada, against current and former members of the ~~Common Stock outstanding at such time, unless otherwise waived~~Company’s 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 ~~writing by~~ the ~~Company with ninety-one (61) days’ notice.~~

March 30, 2023 putative class action complaint.

~~Table of Contents~~

~~Series D Convertible Preferred Stock~~

~~The Company issued Series D Convertible Preferred Stock~~

On July 13, 2023, a fourth shareholder derivative complaint was filed in ~~exchange~~the Circuit Court of the 17th Judicial Circuit for Broward County, Florida, against current members of the Company’s 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.

On August 14, 2023, the two derivative actions pending in the United States District Court for the ~~outstanding convertible note issued~~District of Nevada were consolidated (the “Nevada Derivative Action”). On October 16, 2023, the parties to the derivative actions pending in ~~October 2014 and prior to September 30, 2017, all~~the Circuit Court of the ~~Series D Convertible Preferred Stock was converted~~17th Judicial Circuit for Broward County, Florida filed an agreed order to ~~the Company’s Common Stock and no shares~~stay both actions pending completion of the ~~Series D Convertible Preferred Stock remain outstanding. The terms~~Nevada Derivative Action.

Putative Class Action Complaint

On March 30, 2023, a putative class action complaint was filed in the United States District Court for the District of ~~the Series D Convertible Preferred Stock are summarized below:~~

~~Dividend~~. The holders of Series D Convertible Preferred Stock will be entitled to receive such dividends paid and distributions made to the holders of Common Stock, pro rata to the same extent as if such holders had converted the Series D Convertible Preferred Stock into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions.

~~Liquidation Preference~~. In the event of a liquidation, dissolution or winding up of the Company, after provision for payment of all debts and liabilities of the Company, any remaining assets of the Company shall be distributed pro rata to the holders of Series B Convertible Preferred Stock and Series D Convertible Preferred Stock as if the Series B Convertible Preferred Stock and Series D Convertible Preferred Stock had been converted into shares of Common Stock on the date of such liquidation, dissolution or winding up of the Company, prior to any distributions to Junior Stock, which includes the Company’s Common Stock.

~~Voting Rights~~~~. Except as otherwise expressly required by law, each holder of Preferred Shares shall be entitled to vote on all matters submitted to shareholders of~~Nevada, against the Company and shall be entitled to the number of votes for each Preferred Share owned at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, equal to the number of shares of Common Stock such Preferred Shares are convertible into (voting as a class with Common Stock),

~~Conversion~~. Each share of Series D Convertible Preferred Stock may be converted at the holder’s option at any time after issuance into five shares of Common Stock, provided that the number of shares of Common Stock to be issued pursuant to such conversion does not exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, result in such holder beneficially owning (as determined in accordance withpresent and former senior management, alleging claims under Section ~~13(d)~~10(b) and 20(a) of the ~~Securities~~ Exchange Act ~~of 1934, as amended, and the rules thereunder) in excess of 9.99% of all~~arising out of the ~~Common Stock outstanding at such~~Company’s announcement of accounting restatements on February 28, 2023. The defendants’ time ~~unless otherwise waived in writing by~~to respond has been extended until after the ~~Company with ninety-one (61) days’ notice.~~

~~Common Stock~~

appointment of a lead plaintiff. To date, no lead plaintiff has been appointed.

Information Subpoena

On ~~May 11, 2016,~~October 6, 2020, the Company entered into a ~~consulting agreement~~series of agreements with ~~the Cooper Law Firm, LLC (“Cooper”), pursuant~~multiple parties to ~~which~~design and build a data center for up to 100-megawatts in Hardin, Montana. In conjunction therewith, the Company ~~agreed to issue 20,000 shares of the Company’s Common Stock. In connection with this transaction, the Company valued the shares at the quoted market price~~filed a Current Report on ~~the date of grant at $6.80 per share or $136,000.~~

On December 9, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors for the sale of an aggregate of 870,500 shares of the Company’s common stock, at a purchase price of $6.00 per share, and warrants to purchase 435,249 shares of common stock for a purchase price of $0.01 per warrant, or $17,019.95 in total. None of the warrants were purchased prior to December 31, 2016, and all were subsequently purchased prior to the date of this report.

On February 1, 2017, the Company issued 187,500 shares of common stock pursuant to an At-The-Market (“ATM”) securities offering with certain institutional investors at an average price of $6.96 per share, yielding gross proceeds of $1,301,923.

~~On April 12, 2017, pursuant to an amendment entered into on March 6, 2017 to the settlement agreement entered into~~Form 8-K on October 29, 2015 between the Company and Dominion Harbor, the Company issued 31,250 shares of common stock to Dominion Harbor. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $0.83 per share or $103,750.

On April 18, 2017, the Company entered into a securities purchase agreement (the “April Purchase Agreement”) with certain institutional investors for the sale of an aggregate of 950,000 shares of the Company’s common stock at a purchase price of $2.80per share and warrants to purchase 570,000 shares of common stock at a purchase price of $3.32 per share.

~~Table of Contents~~

On April 24, 2017, the Company issued one of its vendors 7,500 shares of Common Stock in exchange for cancellation of the vendor’s outstanding invoices. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $3.32 per share or $24,897.

~~On August 9, 2017, the Company issued 250,000 shares of the Company’s Common Stock pursuant to the conversion of 200,000 shares of Series D Convertible Preferred Stock.~~

~~On August 29, 2017, the Company issued 200,000 shares in total of the Company’s Common Stock to four different vendors in partial or total payment of outstanding invoices.~~

~~On September 5, 2017, the Company issued 62,500 shares of the Company’s Common Stock pursuant to the conversion of 50,000 shares of Series D Convertible Preferred Stock.~~

~~On September 6, 2017, the Company issued 534,710 shares of the Company’s Common Stock pursuant to the conversion of $427,768 in principal amount invested in the Convertible Note.~~

~~On September~~ 13, ~~2017, the Company issued 315,925 shares of the Company’s Common Stock pursuant to the conversion of 252,750 shares of Series D Convertible Preferred Stock.~~

On September 29, 2017, the Company issued 598,500 shares of the Company’s Common Stock to holders of the warrants issued pursuant to the April Purchase Agreement following approval by the Company’s shareholders of the warrant exchange at a special meeting held on September 29, 2017.

~~Common Stock Warrants~~

Pursuant to the sales of securities underlying the Purchase Agreement entered into on December 9, 2016, the Company issued a warrant to the underwriter (“Underwriter’s Warrant”) to purchase 43,525 shares of Common Stock on December 9, 2016. The Underwriter’s Warrant has an exercise price of $6.92 per share. In addition, in a series of issuances in January 2017, the Company issued warrants to the investors (“Investor Warrants”) pursuant to the Purchase Agreement to purchase 435,249 shares of the Company’s Common Stock. The Investor Warrants have an exercise price of $6.80 per share. The warrants were issued in a series of transaction during January 2017 and were valued based on the Black-Scholes model, using the strike price of $6.80 per share, market prices ranging from $7.00 to $8.52 per share, an expected term of 3.25 years, volatility ranging from 38% to 39%, based on the average volatility of comparable companies over the comparable prior period, and a discount rate as published by the Federal Reserve ranging from 1.50% to 1.56%. The Company reviewed the issuance of the Underwriter and Investor Warrants and determined2020 disclosing that, pursuant to ~~ASC 480 and ASC 815, the Underwriter and Investor Warrants should be classified as~~ a liability and marked to market every reporting period. Following acceptance by the SEC of the Company’s registration statement registering these warrants, the warrants were reclassified from a liability to equity.

On January 10, 2017, pursuant to the amendment to the Fortress debt, the Company issued a five-year warrant to DBD to purchase 46,875 shares of the Company’s Common Stock, exercisable at $6.80 per share, subject to adjustment. The warrant was valued based on the Black-Scholes model, using the strike and market prices of $6.80 and $7.60 per share, respectively, an expected term of 3.00 years, volatility of 39% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.52%. The Company reviewed the issuance of the Underwriter and Investor Warrants and determined that pursuant to ASC 480 and ASC 815, the Underwriter and Investor Warrants met the requirement to be classified as equity and were booked as Additional Paid-in Capital.

Pursuant to the sales of securities underlying the April Purchase Agreement entered into on April 18, 2017, the Company issued a warrant to the underwriter (“Underwriter’s Warrant”) to purchase 14,250 shares of Common Stock. The Underwriter’s Warrant has an exercise price of $3.08 per share. In addition, also associated with the April PurchaseData Facility Services Agreement, the Company issued ~~warrants~~6,000,000 shares of restricted common stock, in transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933 (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. The Company received an additional subpoena from the SEC

Table of Cont e nts

on April 10, 2023, relating to, among other things, transactions with related parties. The Company understands that the SEC may be investigating whether or not there may have been any violations of the federal securities law. The Company is cooperating with the SEC.

Ho v. Marathon

On January 14, 2021, Plaintiff Michael Ho (“Ho”) filed a civil complaint for damages and restitution (the “Complaint”) against the Company. The Complaint alleges six causes of action against the Company:

1) Breach of written contract;

2) Breach of implied contract;

3) Quasi-contract;

4) Services rendered;

5) Intentional interference with prospective economic relations; and

6) Negligent interference with prospective economic relations, which is plead against “all defendants” and is most likely of these causes of action to involve later-named defendants.

The claims arise from a set of facts where Ho alleges the Company profited from commercially sensitive information he shared with the Company and further alleges the Company refused to compensate him for his role in securing the Company’s acquisition of an energy supplier. On February 22, 2021, the Company responded to the ~~investors (“April Investor Warrants”) pursuant~~Complaint with a general denial and the assertion of applicable affirmative defenses. Then, on February 25, 2021, the Company removed the action to the ~~Purchase Agreement~~United States District Court in the Central District of California, where the action remains pending. The Company filed a motion for summary judgment/adjudication of all causes of action. On February 11, 2022, the court granted the motion and dismissed Ho’s second, fifth and sixth causes of action. Discovery is substantially closed. The court held a pre-trial conference on February 24, 2022, where it vacated a March 3, 2022 trial date and ordered the parties to ~~purchase 570,000 shares~~meet and confer on a new trial date. The court discussed the various theories of damages maintained by the ~~Company’s Common Stock. The Investor Warrants have an exercise price of $3.32 per share. The Investor Warrants were valued based~~parties. In its ruling on the ~~Black-Scholes model, using~~summary judgment motion and at the ~~strike price of $3.08 per share,~~pre-trial conference on February 24, 2022, the court noted that a jury is more likely to accept $0.2 million as an ~~expected term of 2.5 years, volatility of 39%, based on the average volatility of comparable companies over the comparable prior period and a discount rate~~appropriate damages amount if liability is found, as published by the Federal Reserve of 1.60%. The Underwriter’s Warrant was valued based on the Black-Scholes model, using the strike price of $3.32 per share, an expected term of 3.25 years, volatility of 38%, based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.72%. The Company reviewed the issuance of the Underwriter and Investor Warrants and determined that pursuant to ASC 480 and ASC 815, the Underwriter and Investor Warrants should be classified as equity.

~~Table of Contents~~

~~Pursuant~~opposed to the ~~Unit Purchase Agreement entered into on August 14, 2017,~~various theories espoused by Ho that result in multi-million-dollar recoveries. Due to outstanding issues of fact and law, it is impossible to predict the outcome at this time; however, after consulting legal counsel, the Company is confident that it will prevail in ~~two closings, issued warrants~~this litigation, since it did not have a contract with Mr. Ho and he did not disclose any commercially sensitive information under any mutual nondisclosure agreement that was used to ~~the investors (“Note Investor Warrants”)~~structure any joint venture with energy providers. The trial is likely to purchase 6,875,000 shares of the Company’s Common Stock. The Note Investor Warrants have an exercise price of $1.20 per share. The Note Investor Warrants from the first close were valued based on a Monte Carlo simulation model, using the strike price of $1.20 per share, remaining term of 5.50 years, volatility of 100%, based on the terms of the Unit Purchase Agreement which set the volatility at the greater 100%commence in or the 100-day volatility immediately following certain events and a discount rate as published by the Federal Reserve of 1.76%. The Note Investor Warrants from the second close were valued based on a Monte Carlo simulation model, using the strike price of $1.20 per share, remaining term of 5.50 years, volatility of 100%, based on the methodology set forth above and a discount rate as published by the Federal Reserve of 1.98%. The Company reviewed the issuance of the Note Investor Warrants and determined that pursuant to ASC 480 and ASC 815, the Note Investor Warrants should be classified as a liability.

Ataround July 2024.

NOTE 15 - RELATED PARTY TRANSACTIONS

During September 30, 2017, the Company had warrants outstanding to purchase 7,487,894 shares of Common Stock with a weighted average remaining life of 5.35 years. A summary of the status of the Company’s outstanding stock warrants and changes during the period then ended is as follows:

Number of
Warrants Weighted
Average Exercise
Price
Weighted
Average
Remaining
Life

Balance at December 31, 2016 116,520 $ 15.17 3.25
Granted 7,941,374 1.70 5.01
Cancelled - - -
Forfeited - - -
Exercised 570,000 3.32 -
Balance at September 30, 2017 7,487,894 $ 1.86 5.35

Warrants exercisable at September 30, 2017 612,894
Weighted average fair value of warrants granted during the period $ 0.09

~~Warrant Amendment Letter~~

~~On March 11, 2016,~~2023, the Company entered into an agreement with ~~the remaining investor in the Company’s convertible debt issued on October 9, 2014~~Auradine to ~~revise the strike price of their warrant, which could be exercised for the purchase of 5,834 shares of Common Stock, in exchange for permanent waiver of~~secure certain ~~consent~~ rights ~~held~~to future purchases by the ~~holder of the convertible debt. As a result of the amendment, the strike price was reduced~~Company from ~~$16.50 to the lower of 1) $8.00 per share or 2) the same gross per share price as the Company sells shares of its Common Stock in any future public offering of the Company’s Common Stock.~~

~~Common Stock Options~~

On May 10, 2016, the Company entered into an executive employment agreement with Erich Spangenberg (“Spangenberg Agreement”) pursuant to which Mr. Spangenberg would serve as the Company’s Director of Acquisitions, Licensing and Strategy. As part of the consideration, the Company agreed to grant Mr. Spangenberg a ten-year stock option to purchase an aggregate of 125,000 shares of Common Stock, with a strike price of $7.48 per share, vesting in twenty-four (24) equal installments on each monthly anniversary of the date of the Spangenberg Agreement. The options were valued based on the Black-Scholes model, using the strike and market prices of $7.48 per share, an expected term of 5.75 years, volatility of 47% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.32%.

~~Table of Contents~~

On May 20, 2016, the Company entered into an employment agreement with Kathy Grubbs (“Grubbs Agreement”) pursuant to which Ms. Grubbs would serve as an analyst. As part of the consideration, the Company agreed to grant Ms. Grubbs a ten-year stock option to purchase an aggregate of 12,500 shares of Common Stock, with a strike price of $9.00 per share, vesting in thirty-nine (36) equal installments on each monthly anniversary of the date of the Grubbs Agreement. The options were valued based on the Black-Scholes model, using the strike and market prices of $9.00 per share, an expected term of 6.50 years, volatility of 47% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.88%.

On July 1, 2016, in conjunction with an executive employment agreement with David Liu (“Liu Agreement”) pursuant to which Mr. Liu would serve as the Company’s CTO, entered into on June 29, 2016, the Company granted Mr. Liu a ten-year stock option to purchase an aggregate of 37,500 shares of Common Stock, with a strike price of $11.16 per share, vesting in thirty-nine (36) equal installments on each monthly anniversary of the date of the Liu Agreement. The options were valued based on the Black-Scholes model, using the strike and market prices of $11.16 per share, an expected term of 6.50 years, volatility of 47% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.20%.

On October 13, 2016, the Company issued its independent board members ten-year options to purchase an aggregate of 20,000 shares of the Company’s Common Stock with an exercise price of $9.64 per share, subject to adjustment, which shall vest monthly over twelve (12) months commencing on the date of grant. The options were valued based on the Black-Scholes model, using the strike and market prices of $9.64 per share, an expected term of 5.5 years, volatility of 46% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.21%. As there were not sufficient shares in the Company’s equity incentive plans to accommodate these grants, Mr. Croxall forfeited a portion of one of his options to purchase 20,000 shares.

~~At September 30, 2017, there was a total of $7,072 of unrecognized compensation expenses related to non-rested option-based compensation arrangements entered into during the year.A summary of the stock options as of September 30, 2017 and changes during the period are presented below:~~

Number of
Options Weighted
Average Exercise
Price
Weighted
Average
Remaining
Life

Balance at December 31, 2016 879,034 $ 17.84 6.80
Granted - - -
Cancelled 48,542 - -
Forfeited 217,298 16.71 -
Exercised - - -
Balance at September 30, 2017 613,194 $ 17.04 3.06

Options Exercisable at September 30, 2017 591,841 $ 13.83 2.91
Options expected to vest 21,354 $ 20.33 7.23
Weighted average fair value of options granted during the period $ -

~~Table of Contents~~

~~NOTE 6 – DEBT, COMMITMENTS AND CONTINGENCIES~~

~~Debt consists of the following:~~

Maturity Interest September 30, December 31,
Date Rate 2017 2016

Senior secured term notes 9-Jul-20 LIBOR + 9.75 % $ 15,881,493 $ 15,620,759
Less: debt discount (1,686,090 ) (1,425,167 )
Total senior-term notes, net of discount $ 14,195,403 $ 14,195,592

Maturity Interest September 30, December 31,
Date Rate 2017 2016

Convertible Note 10-Oct-18 11 % $ 0 $ 500,000

Maturity Late September 30, December 31,
Date Fee 2017 2016
iRunway trade payable On Demand 1.5% per month $ 0 $ 191,697

Maturity Interest September 30, December 31,
Date Rate 2017 2016
Note payable 31-Jan-17 NA $ - $ 103,000

Maturity Interest September 30, December 31,
Date Rate 2017 2016
Siemens 30-Sep-17 NA $ - $ 1,672,924

Maturity Interest September 30, December 31,
Date Rate 2017 2016
Dominion Harbor 15-Oct-17 NA $ - $ 125,000

Maturity Interest September 30, December 31,
Date Rate 2017 2016
Oil & Gas On Demand NA $ 1,000,000 $ 944,296

Maturity Interest September 30, December 31,
Date Rate 2017 2016
Convertible Note 10-May-18 0 $ 1,876,300 $ -
Less: debt discount (1,851,171 ) -
Total Convertible notes, net of discount $ 25,129 $ -

Maturity Interest September 30, December 31,
Date Rate 2017 2016
Convertible Note 31-May-18 5 % $ 3,195,932 $ -
Less: debt discount (2,834,308 ) -
Total Convertible notes, net of discount $ 361,624 $ -

Maturity Interest September 30, December 31,
Date Rate 2017 2016
Medtech Note 1-May-18 NA $ - $ -

Maturity Interest September 30, December 31,
Date Rate 2017 2016
3D Nano license Fee 31-Jan-17 NA $ - $ 100,000

September 30, 2017 December 31, 2016
Total $ 15,582,156 $ 17,832,509
Less: current portion (15,582,156 ) (13,162,007 )
Total, net of current portion $ - $ 4,670,502

~~Table of Contents~~

~~Senior Secured Term Notes~~

On January 29, 2015, the Company and certain of its subsidiaries entered into a series of Agreements including a Securities Purchase Agreement with DBD Credit Funding LLC, (“DBD”) an affiliate of Fortress Credit Corp., under which the terms of the notes were:

	~~(i)~~	~~$15,000,000 original principal amount of Fortress Notes (the “Initial Note”);~~
	~~(ii)~~	a right to receive a portion of certain proceeds from monetization net revenues received by the Company (the “Revenue Stream”, after receipt by the Company of $15,000,000 of monetization net revenues and repayment of the Fortress Notes);
	~~(iii)~~	~~a five-year Fortress Warrant to purchase 25,000 shares of the Company’s Common Stock exercisable at $29.76 per share, subject to adjustment; and~~
	~~(iv)~~	~~33,603 shares of the Issuer’s Common Stock (the “Fortress Shares”).~~

~~On February 12, 2015, the Company issued an additional $5,000,000 of Notes (which increase proportionately the Revenue Stream).~~

The Initial Note matures on July 29, 2018. Additional Notes issued pursuant to the Fortress Purchase Agreement mature 42 months after issuance. The unpaid principal amount of the Initial Note plus the additional $5,000,000 note (including any PIK Interest, as defined below) bear cash interest at a rate equal to LIBOR plus 9.75% per annum payable on the last business day of each month. Interest is paid in cash except that 2.75% per annum of the interest due on each Interest Payment Date shall be paid-in-kind, by increasing the principal amount of the Notes by the amount of such interest. Monthly principal payments are due commencing one year after the anniversary dates of the loans.

~~The terms of the Fortress Warrant provide that until January 29, 2020, the Warrant may be exercised~~Auradine for cash or on a cashless basis. Exercisability of the Fortress Warrant is limited if, upon exercise, the holder would beneficially own more than 4.99% of the Company’s Common Stock. The exercise price of the warrant is $29.76 and the warrant fair value was determined to be $318,679 utilizing the Black-Scholes model, with the fair value of the warrants recorded as additional paid-in capital and reducing the carrying value of the Notes. As of September 30, 2017 and December 31, 2016, the unamortized discount on the Notes was $1,686,090 and $1,425,167, respectively.

~~Senior Secured Term Note Amendment~~

On January 10, 2017 the Company and certain of its subsidiaries entered into the Amended and Restated Revenue Sharing and Securities Purchase Agreement (“ARRSSPA”) with DBD Credit Funding LLC, under which the Company and DBD amended and restated the Revenue Sharing and Securities Purchase Agreement dated January 29, 2015 (the “Original Agreement”) pursuant to which (i) Fortress purchased $20,000,000 in promissory notes, of which $15,881,493 is outstanding as of September 30, 2017, (ii) an interest inpaid $15.0 million. Fred Thiel, the Company’s ~~revenues from certain activities~~Chief Executive Officer and ~~warrants to purchase 25,000 shares~~Chairperson of the ~~Company’s common stock.~~ Board, is a member of Auradine’s board of directors.

Table of Cont e nts

NOTE 16 – SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The ~~ARRSSPA amends and restates the Original Agreement to provide for (i) the sale by the Company~~following table provides supplemental disclosure of ~~a $4,500,000 promissory note (the “New Note”) and (ii) the insurance~~Condensed Consolidated Statements of additional warrants to purchase 46,875 shares of common stock (the “New Warrant”). Pursuant to the ARRSSPA, Fortress acquired an increased revenue stream right to certain revenues generated by the Company through monetization of our patent portfolio (“Monetization Revenues”). The ARRSSPA increases the revenue stream basis to $1,225,000. The ARRSSPA provides for the potential issuance of up to $7,500,000 of additional notes (the “Additional Notes”), of which not more than $3,750,000 shall be made prior to June 30, 2017 and of which not more than $3,750,000 shall be made available during the period following June 30, 2017 and on or prior to December 31, 2017 and not more than two such issuances shall occur under the ARRSSPA.

The unpaid principal amount of the New Note (including any PIK Interest, as defined below) shall bear cash interest at a rate equal to LIBOR plus 9.75% per annum; provided that upon and during the continuance of an Event of Default (as defined in the Initial Note), the interest rate shall increase by an additional 2% per annum.

Interest on the Initial Note shall be paid on the last business day of each calendar month (the “Interest Payment Date”), commencing January 31, 2017. Interest shall be paid in cash except that 2.75% per annum of the interest due on each Interest Payment Date shall be paid-in-kind, by increasing the principal amount of the Notes by the amount of such interest, effective as of the applicable Interest Payment Date (“PIK Interest”). PIK Interest shall be treated as added principal of the New Note for all purposes, including interest accrual and the calculation of any prepayment premium. The Company paid a structuring fee of 2.0% of the New Note and would pay a 2.0% fee upon the issuance of any Additional Notes. The proceeds of the New Note and any Additional Notes may be used for working capital purposes, portfolio acquisitions, growth capital and other general corporate purposes.

Cash Flows information:

~~Table of Contents~~

The ARRSSPA contains certain customary events of default, and also contains certain covenants including a requirement that the Company maintain minimum liquidity of $1,250,000 in unrestricted cash and cash equivalents.

The terms of the New Warrants provide that from July 10, 2017 until January 10, 2022, the Warrant may be exercised for cash or on a cashless basis. Exercisability of the Warrant is limited if, upon exercise, the holder would beneficially own more than 4.99% of the Issuer’s Common Stock.

Pursuant to the ARSSPA, as security for the payment and performance in full of the Secured Obligations (as defined in the Security Agreement entered in favor of the Note purchasers (the “Security Agreement”) the Company and certain subsidiaries executed and delivered in favor of the purchasers a Security Agreement and a Patent Security Agreement, including a pledge of the Company’s interests in certain of its subsidiaries. As further set forth in the Security Agreement, repayment of the Note Obligations (as defined in the Notes) is secured by a first priority lien and security interest in all the assets of the Company, subject to certain permitted liens. Certain subsidiaries of the Company also executed guarantees in favor of the purchasers (each, a “Guaranty”), guaranteeing the Note Obligations.

~~Amendment to Senior Secured Term Note Amendment~~

On August 3, 2017, the Company and certain of its operating subsidiaries entered into a First Amendment to Amended and Restated Revenue Sharing and Securities Purchase Agreement and Restructuring Agreement (the “First Amendment and Restructuring Agreement”) with DBD to cancel the indebtedness and other obligations of the Company under that certain ARRSSPA, dated January 10, 2017, which was originally entered into by the Company and DBD on January 29, 2015.

Pursuant to the First Amendment and Restructuring Agreement, certain intellectual property owned by the Company (the “Designated IP”) is to be assigned to one or more newly created special purpose entities (the “SPE”) as elected by DBD, which to be formed SPE shall be under the management and control of an affiliate of DBD (the “IP Monetization Manager”). All intellectual property owned by the Company that will not be assigned to one or more newly created special purpose entities shall be referred to as “Non- Designated IP.” The patents that are part of the Designated IP are referred to as the “Designated Patents”. Until shareholder approval and the close of the First Amendment and Restructuring Agreement (the “Restructuring”), all Monetization Revenues arising from the Designated IP and Non-Designated IP shall be paid to an account that is under the sole and exclusive control of the Collateral Agent as the IP Monetization Manager. In addition, until the Restructuring, the Company shall be responsible for the expenses associated with the maintenance, prosecution and enforcement of all of the Company’s intellectual property including the Designated IP and the other IP owned by the Company which is not to be transferred to the SPE, and for any expenses associated with the pursuit of monetization activities relating to both the Designated IP and the Non-Designated IP. From and after the Restructuring, the SPE shall have sole responsibility for the expenses associated with the Designated IP and the Company shall have sole responsibility for the expenses associated with the Non-Designated IP.

On October 20, 2017, the Company and DBD satisfied all the closing conditions related to the First Amendment and Restructuring Agreement. With the close of the First Amendment and Restructuring Agreement, the Company exchanged the patent portfolios held by Dynamic Advances LLC, Magnus IP GmbH and Traverse Technologies Corp. (all wholly-owned subsidiaries of the Company) in exchange for the cancelation of all indebtedness and obligations to DBD.

~~As of September 30, 2017 and December 31, 2016, the outstanding balances were $15,881,493 and $15,620,759, respectively.~~

~~Convertible Note~~

In two transactions, on October 9, 2014 and October 16, 2014, the Company sold an aggregate $5,550,000 of principal amount of convertible notes (“Convertible Notes”) along with two-year warrants to purchase 32,375 shares of the Company’s Common Stock. The Convertible Notes are convertible into shares of the Company’s Common Stock at $30.00 per share and the Warrants have an exercise price of $33.00 per share. The Notes mature on October 10, 2018 and bear interest at the rate of 11% per annum, payable quarterly in cash on each of the three, nine, nine and twelve-month anniversaries of the issuance date and on each conversion date. The Notes may become secured by a security interest granted to the holder in certain future assets under certain circumstances. In the event the Company’s Common Stock trades at a price of at least $108.00 per share for four out of eight trading days, the Notes will be mandatorily converted into Common Stock of the Company at the then applicable conversion price per share. The Company repaid the Convertible Notes for all but one holder in early 2015, and exchanged the remaining balance for Series D Convertible Preferred Stock on August 7, 2017, with the Series D Convertible Preferred Stock converted in its entirety prior to September 30, 2017. The balance was $0 and $500,000 as of September 30, 2017 and December 31, 2016, respectively.

~~Table of Contents~~

~~iRunway~~

The Company converted a set of outstanding invoices related to work performed by one of the Company’s vendors to a short-term payable whereby the Company agreed to pay iRunway over time for the open invoices, subject to a payment schedule as defined. To the extent that the Company does not make payments according to that schedule, the remaining balance accrues interest at 1.5% per month. On August 20, 2017, the Company entered into a release agreement with iRunway pursuant to which the Company made an immediate cash payment to iRunway in return for a release of the remaining amount outstanding. As of September 30, 2017 and December 31, 2016, the principal balance was $0 and $191,697, respectively.

~~Note Payable~~

The Company entered into a short-term advance with an officer related to funds the Company was transferring from its European subsidiaries. The advance carried no interest and as of September 30, 2017 and December 31, 2016, the outstanding balance was $0 and $103,000, respectively.

~~Siemens Purchase Payment~~

The Company entered into a purchase agreement to acquire ownership of certain patents. As part of the purchase agreement, the Company agreed to certain future payments of cash consideration. The payment obligation bears no interest. On September 1, 2017, the Company entered into Share Purchase Agreement with GPat whereby the Company sold its 100% interest in Munitech, the wholly-owned subsidiary holding these patents, to GPat. As of September 30, 2017 and December 31, 2016, the outstanding balances were $0 and $1,672,924, respectively.

~~Dominion Harbor Settlement Note~~

The Company entered into a settlement agreement with Dominion Harbor, a former licensing agent for some of the Company’s subsidiaries, on October 29, 2015 whereby the Company agreed to issue 75,000 shares of the Company’s Common Stock to Dominion Harbor and make eight (8) payments of $25,000 each ending on October 15, 2017. The shares issued to Dominion Harbor were valued at the quoted market price on the date of the grant of $6.84 per share or $513,000. As of September 30, 2017 and December 31, 2016, $0 and $125,000, respectively, remained outstanding, following an agreement between the Company and Dominion wherein the Company paid $25,000 and issued 31,250 shares of Common Stock to Dominion in full resolution of the outstanding obligation.

~~Oil & Gas Purchase Payment~~

The Company entered into a purchase agreement to acquire monetization rights to certain patents. As part of the purchase agreement, the Company agreed to certain future payments of cash consideration. The payment obligation bears no interest and as of September 30, 2017 and December 31, 2016, the Company had an outstanding obligation for purchase of certain Siemens patents in the amount of $1,000,000 and $944,296, respectively, with such payments expected to be made by December 31, 2017.

~~Convertible Note~~

On August 14, 2017, the Company entered into a unit purchase agreement (the “Unit Purchase Agreement”) with certain accredited investors providing for the sale of up to $5,500,000 of 5% secured convertible promissory notes (the “Convertible Notes”), which are convertible into shares of the Corporation’s common stock, and the issuance of warrants to purchase 6,875,000 shares of the Company’s Common Stock (the “Warrants”). The Convertible Notes are convertible into shares of the Company’s Common Stock at the lesser of (i) $0.80 per share or (ii) the closing bid price of the Company’s common stock on the day prior to conversion of the Convertible Note; provided that such conversion price may not be less than $0.40 per share. The Warrants have an exercise price of $1.20 per share. The Convertible Notes mature on May 31, 2018 and bear interest at the rate of 5% per annum. In two closings of the Unit Purchase Agreement, the Company issued all $5,500,000 in Convertible Notes to the investors. As of September 30, 2017, the Company had an outstanding obligation pursuant to the Convertible Notes in the amount of $5,072,232.


	Three Months Ended March 31,
	2024		2023
Supplemental information
Cash paid during the year for:
Income taxes	$	3,518	$	—
Interest	—		1,425

Supplemental schedule of non-cash investing and financing activities:







Reclassifications from advances to vendor to property and equipment upon receipt of equipment	59,615		442,353
Reclassifications from long-term prepaid to property and equipment	3,273		—






Dividends received from equity method investment	12,145		—

~~Table of Contents~~

~~3D Nano Purchase Payment~~

3D Nano entered into a license and purchase agreement with HP Inc. (“HP”) to acquire the rights to use if 3D Nano chooses, the right to exercise an option to acquire, ownership of certain patents, trade secrets and other intellectual property (the “Technology”). As part of the purchase agreement, the Company agreed to license the Technology for two payments of $100,000 each, with the first payment made in April 2016 and the second payment due by January 31, 2017. Under the original agreement, the payment obligations bear no interest and as of September 30, 2017 and December 31, 2016, 3D Nano had an outstanding obligation in the amount of $0 and $100,000, respectively. On May 1, 2017, 3D Nano entered into an amendment with HP whereby the agreement was extended for two years. While 3D Nano does not have the obligation under the amendment to make additional payments, should 3D Nano desire to do so, payments in the amount of $100,000 in each of 2018 and 2019 would be due to HP for the agreement to remain in effect.

~~Medtech Note~~

On May 31, 2017, the Company entered into a note payable with Medtronic, Inc. (“Medtronic”), the original owner of the patents in the Company’s Medtech portfolio, whereby the Company agreed to pay Medtronic a total of $750,000 in ten equal monthly installments for patent enforcement related expenses incurred by Medtronic. Following two payments of $75,000 each in May and June 2017, the Company entered into an agreement on August 29, 2017 to pay a discounted amount in return for a full release from the remaining obligations. The note payable carries no interest and since the note payable arose after December 31, 2016 and was repaid in full prior to September 30, 2016, as of September 30, 2017 and December 31, 2016, the outstanding balance, was $0 and $0, respectively.

~~Total Future Minimum Principal Payments~~

~~Future minimum principal payments for all items set forth above are as follows:~~

2017 $ 16,881,493
2018 5,072,232
Total $ 21,953,725

~~Office Lease~~

In October 2013, the Company entered into a net-lease for its current office space in Los Angeles, California. The lease will commence on May 1, 2014 and runs for seven years through April 30, 2021, with monthly lease payment escalating each year of the lease. In addition, to paying a deposit of $7,564 and the monthly base lease cost, the Company is required to pay pro rata share of operating expenses and real estate taxes. Under the terms of the lease, the Company will not be required to pay rent for the first five months but must remain in compliance with the terms of the lease to continue to maintain that benefit. In addition, the Company has a one-time option to terminate the lease in the 42th month of the lease. Minimum future lease payments under this lease at September 30, 2017, for the next five years are as follows:

2017 (Three Months) $ 18,081
2018 74,540
2019 77,872
2020 81,336
2021 27,504
Total $ 297,333

~~Table of Contents~~

NOTE 717 – SUBSEQUENT EVENTS

On ~~October 20, 2017,~~April 2, 2024, the Company acquired an operational bitcoin mining site located in Garden City, Texas with 132 megawatts of operational capacity and ~~DBD satisfied all the closing conditions related~~200 megawatts of nameplate capacity from APLD - Rattlesnake Den I LLC for a base purchase price of $87.3 million subject to ~~the First Amendment~~customary purchase price adjustments. The acquisition is intended to lower operating expenditures, and Restructuring Agreement. With the close of the First Amendment and Restructuring Agreement, the Company exchanged the patent portfolios held by Dynamic Advances LLC, Magnus IP GmbH and Traverse Technologies Corp. (all wholly-owned subsidiaries of the Company) in exchange for the cancelation of all indebtedness and obligations to DBD.

On October 27, 2017, the Company entered into the Assignment with Luxone whereby the Company assigned all of its ownership interest in PG Tech to Luxone. Pursuant to the Assignment, Luxone assumed the Company’s ownership interest in PG Techimprove efficiencies and the ~~Company removed from its balance sheet all~~scale of operations through the liabilities and debt associated with PG Tech and received in return a revenue share associated with future earnings from the PG Tech portfolio. Luxone is owner or controlled by a former affiliate of the Company.

On November 1, 2017, the Company entered into an agreement to acquire, through its wholly-owned subsidiary, Global Bit Ventures Acquisition Corp., a Nevada corporation (“GBVAC”), 100% of the Capital Stock of Global Bit Ventures, Inc., a Nevada corporation (“GBV”), which currently secures and powers digital asset blockchains by running specialized servers. Under the terms of the Agreement and Plan of Merger (the “Merger Agreement”), the Company will issue 126,674,557 sharesintegration of the Company’s ~~Common Stock in exchange for one-hundred (100%) percent~~technology stack and realization of synergies.

Subsequent to March 31, 2024, the Company issued an aggregate 3,850,436 shares of ~~GBV’s capital stock. At the closing~~common stock at an average value of the merger, GBVAC shall be merged with and into GBV pursuant to the Merger Agreement and the separate existence of GBVAC shall cease and GBV shall be the surviving company. The closing of the acquisition is subject to certain closing conditions including approval of the Merger Agreement byapproximately $18.51 per share under the Company’s ~~Shareholders.~~

2024 ATM. As a result, the Company had $1,294.3 million aggregate offering price remaining under the 2024 ATM.

Table of Cont e nts

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

You should read the following discussion and analysis together with our financial statements and related notes in Part I, Item 1 of ~~Financial Condition and Results of Operations.~~

~~This report~~this Quarterly Report on Form 10-Q (“for the quarter ended March 31, 2024 (this “Quarterly Report”) ~~and other written and oral~~.

This Quarterly Report contains forward-looking statements ~~made from time to time by us may contain so-called “forward-looking~~within the meaning of the federal securities laws, which statements~~” all of which~~ are subject to considerable risks and uncertainties. ~~Forward-looking~~These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Quarterly Report, other than statements of historical fact, are forward-looking statements. You can ~~be identified~~identify forward-looking statements by the use of words such as ~~“expects,” “plans,~~“may,” “will,” ~~“forecasts,~~“could,” ~~“projects,~~“anticipate,” ~~“intends,~~“expect,” ~~“estimates,~~“intend,” ~~and~~“believe,” “continue” or the negative of such terms, or other ~~words of similar meaning. One can identify them by~~comparable terminology. Forward-looking statements also include the ~~fact that they do not relate strictly~~assumptions underlying or relating to ~~historical or current facts. These~~such statements. Our forward-looking statements are ~~likely to address~~based on our 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 our forward-looking statements. These factors may include inaccuratemanagement’s current assumptions and ~~a broad variety of other~~expectations about future events and trends, which affect or may affect our business, strategy, operations or financial performance. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Our actual financial condition and results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including ~~some~~those set forth below in the section entitled “Risk Factors” in Part II, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2023 (our “Annual Report”), which is incorporated herein by reference, as well as in the other public filings we make with the Securities and Exchange Commission (the “SEC”). You should read this Quarterly Report with the understanding that ~~are known and some that are not. No forward-looking statement can be guaranteed and~~our actual future financial condition and results may ~~vary materially.~~

~~Information~~be materially different from and worse than what we expect.

Additionally, information regarding market and industry statistics contained in this Quarterly Report is included based onupon information available to us that we believe is ~~accurate.~~accurate as of the date of this Quarterly Report. It is generally based onupon industry and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources and cannot assure investors of the accuracy or completeness of the data included in this Quarterly 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. We do not assume any obligation to update any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.

~~Overview~~

BUSINESS OVERVIEW

Marathon Digital Holdings, Inc. is one of the world’s largest publicly traded bitcoin mining companies with operations in North America, the Middle East, and Latin America. The Company’s core business is utility-scale Bitcoin mining, which produces or “mines” bitcoin using one of the industry’s largest and most energy-efficient fleets of specialized computers. As of March 31, 2024, the Company had approximately 226,000 energized and operational mining rigs, capable of producing 27.8 exahashes per second with an efficiency of 25 joules per terahash, which we believe to be amongst the most efficient in the industry. The Company believes it has one of the most efficient bitcoin mining fleets in the industry. The Company is also committed to a future of carbon-neutrality and is actively transitioning its operations to sustainable energy. As of March 31, 2024, sustainable energy sources accounted for 55% of the fleet’s power usage.

RECENT DEVELOPMENTS

The Company has continued its recent focus on expanding its operational capabilities globally. Recent efforts include the following:

•On January 12, 2024, the Company, through its wholly owned subsidiary MARA USA Corporation, completed the acquisition of 100% of the issued and outstanding equity interests (the “Transaction”) of GC Data Center Equity Holdings, LLC, pursuant to which, the Company acquired ~~patents~~two operational bitcoin mining sites, for an aggregate 390 megawatts of operational capacity for $179.3 million cash consideration plus customary working capital adjustments. We hope to realize synergies from this transaction through the integration of our technology stack, which we expect will lower operating expenditures, improve efficiencies and ~~patent rights~~scale our operating capacity.

Table of Cont e nts

•On April 2, 2024, the Company, through its wholly owned subsidiary MARA USA Corporation, completed the acquisition of a bitcoin mining data center in Garden City, Texas, with a capacity of 200 megawatts, from ~~owners~~Applied Digital Corporation, for a purchase price of $87.3 million cash consideration, which is subject to customary purchase price adjustments. This is the Company’s second major acquisition of data centers dedicated to bitcoin mining and increases the amount of self-owned and operated megawatts in the Company’s mining portfolio to 54%. The bitcoin mining data center in Garden City, Texas is located adjacent to a wind farm and uses predominantly renewable energy. We are currently converting approximately 100 megawatts into economic value via bitcoin mining. We expect to expand our presence at the site in 2024 by an additional 100 megawatts to accommodate a total of 200-megawatts of capacity dedicated exclusively to Marathon’s bitcoin mining operations.

•On April 19, 2024, a Bitcoin halving event occurred on the Bitcoin network. 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. The Bitcoin halving event reduced the block subsidy by half from 6.25 to 3.125 bitcoin. Transaction fees, which together with the block subsidy comprise the block reward for successfully solving a block, is not directly impacted by the halving, although the Bitcoin network and the Company experienced an increase in transaction fees.

•Introduced Anduro, a new multi-chain Bitcoin layer-two network aimed at accelerating Bitcoin development and adoption.

•Launched the Company’s first products and services to support the Bitcoin ecosystem, including:

◦Slipstream – a direct Bitcoin transaction submission service designed to streamline confirmations of large or non-standard Bitcoin transactions;

◦MARAFW – custom firmware designed to optimize the individual chip settings of Bitcoin miners;

◦MARA UBC 2100 – a replacement control board, designed in-house by Marathon; and

◦MARA 2PIC700 – a next generation two-phase immersion cooling system built to transform data center operations with industry leading power, density, and efficiency.

NON-GAAP FINANCIAL MEASURES

In addition to the Company’s results determined in accordance with GAAP, throughout this Quarterly Report the Company provides adjusted EBITDA and total margin excluding depreciation and amortization, which are non-GAAP financial 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) early termination expenses, (iii) gain on investments, and (iv) losses from extinguishment of debt. The Company defines total margin excluding depreciation and amortization as (a) GAAP total margin less (b) depreciation and amortization.

The Company provides non-GAAP financial measures to provide information that may assist investors in understanding the results of operations and assessing the prospect of future performance. However, adjusted EBITDA and total margin excluding depreciation and amortization, as we present such information, may not necessarily be comparable to similarly titled measures presented by other ~~ventures~~companies. Non-GAAP financial measures are not intended to represent, and ~~seeks~~should not be considered to ~~monetize~~be more meaningful measures than, or alternatives to, measures of financial or operating performance 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 Quarterly Reports on Form 10-Q and its Annual Reports on Form 10-K as filed with the SEC. 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.

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2024 Compared to March 31, 2023


	Three Months Ended March 31,				Favorable
(dollars in thousands)	2024		2023		(Unfavorable)
Revenues
Mining	$	144,423	$	51,132	$	93,291
Hosting services	20,775		—		20,775

Total revenues	165,198		51,132		114,066

Costs and expenses
Cost of revenues
Mining	(71,240)		(33,377)		(37,863)
Hosting services	(18,971)		—		(18,971)
Depreciation and amortization	(77,995)		(17,733)		(60,262)
Total cost of revenues	(168,206)		(51,110)		(117,096)
Operating expenses
General and administrative expenses	(73,311)		(15,135)		(58,176)
Gains on digital assets	488,807		137,398		351,409
Change in fair value of derivative	(15,252)		—		(15,252)
Early termination expenses	(22,097)		—		(22,097)

Amortization of intangible assets	(2,969)		—		(2,969)
Research and development	(2,466)		(209)		(2,257)







Total operating expenses	372,712		122,054		250,658
Operating income	369,704		122,076		247,628
Gain on investments	5,236		—		5,236
Net loss from extinguishment of debt	—		(333)		333
Loss on hedge instruments	(2,292)		—		(2,292)
Equity in net income of unconsolidated affiliate	1,259		—		1,259


Interest expense	(1,256)		(3,760)		2,504
Other non-operating income	2,573		791		1,782
Income before income taxes	375,224		118,774		256,450
Income tax expense	(38,051)		(75)		(37,976)
Net income	$	337,173	$	118,699	$	218,474

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Supplemental information:
bitcoin (“BTC”) production during the period, in whole BTC (1)	2,811			2,195			616
Average bitcoin per day, in whole BTC	30.9			24.4			6.5
Total margin (total revenues less total cost of revenues)	$	(3,008)		$	22		$	(3,030)
Total margin excluding the impact of depreciation and amortization:
Mining	$	73,183		$	17,755		$	55,428
Hosting services	$	1,804		$	—		$	1,804
General and administrative expenses excluding stock-based compensation	$	(21,398)		$	(11,399)		$	(9,999)


Installed Hash Rate (Exahashes per second) - at end of period (2)	27.8			15.4			12.4
Energized Hash Rate (Exahashes per second) - at end of period (2)	27.8			11.5			16.3
Average operational Hash Rate (Exahashes per second) (3)	18.2			6.9			11.3
Cost per Petahash Rate per day (4)	$	45.2		$	53.7		$	(8.5)
Share of available miner rewards	3.1		%	2.5		%	0.6		%
Number of blocks won	368			221			147
Transaction fees as a percentage of total	7.0		%	2.4		%	4.6		%

Reconciliation to Adjusted EBITDA:
Net income	$	337,173		$	118,699		$	218,474
Exclude: Interest expense	1,256			3,760			(2,504)
Exclude: Income tax expense	38,051			75			37,976
EBIT	376,480			122,534			253,946
Exclude: Depreciation and amortization (5)	83,548			17,733			65,815
EBITDA	460,028			140,267			319,761
Exclude: Stock compensation expense	51,913			3,945			47,968
Exclude: Early termination expenses (6)	22,097			—			22,097
Exclude: Gain on investments	(5,236)			—			(5,236)
Exclude: Net loss from extinguishment of debt	—			333			(333)
Adjusted EBITDA	$	528,802		$	144,545		$	384,257

(1)Includes 171 bitcoin representing the Company’s share of the equity method investee, the ADGM entity, for the three months ended March 31, 2024.

(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.

(4) Cost per Petahash Rate per day is calculated using mining cost of revenues, excluding depreciation and amortization, divided by the Average operational Hash Rate, excluding the Company’s share of the hash rate for the equity method investee, the ADGM entity.

(5) Includes approximately $2.6 million of depreciation and amortization from the Company’s share in the results of its equity method investee, the ADGM entity, reported in Equity in net earnings of unconsolidated affiliate for the three months ended March 31, 2024.

(6) Early termination expenses represent amounts recognized as the cost to early terminate data center hosting agreements.

Revenues: The Company generated revenues of $165.2 million for the three months ended March 31, 2024, compared to $51.1 million in the prior year period. The $114.1 million or approximately 223% increase in revenues was primarily driven by an $82.9 million increase in the average price of bitcoin mined and other revenue, a $10.4 million increase in bitcoin production, and $20.8 million in revenues generated from providing hosting services as a result of the acquisition of GC Data Center Equity Holdings, LLC on January 12, 2024. Revenues during the quarter was negatively impacted by unexpected equipment failures, transmission line maintenance, and higher than

Table of Cont e nts

anticipated weather-related curtailments at our Garden City and other sites which we are working to address. The average price of bitcoin mined was 126% higher than the average price of bitcoin mined in the prior year period and average daily bitcoin production was 30.9 bitcoin in the current year period compared with 24.4 in the prior year period.

Cost of revenues – mining during the three months ended March 31, 2024, totaled $71.2 million compared to $33.4 million in the prior year period. The $37.9 million or approximately 113% increase was primarily driven by the growth in the Company’s hash rate from the deployment and energization of mining rigs in existing and new hosting facilities, which increased hosting and energy costs, compared to the prior year period. Cost of revenues was also negatively impacted by an increase in the global hash rate, which increased 86% in the current period compared to the prior year period. Partially offsetting the increase was the impact of unexpected equipment failures, transmission line maintenance, and higher than anticipated weather-related curtailment at our Garden City and other sites which resulted in downtime that reduced hosting and energy costs.

Cost of revenues – hosting services of $19.0 million primarily includes cost of power and other hosting related operating costs to provide hosting services. Hosting services includes results beginning from January 12, 2024, the acquisition date of GC Data Center Equity Holdings, LLC.

Cost of revenues – depreciation and amortization during the three months ended March 31, 2024 totaled $78.0 million compared to $17.7 million in the prior year period. The $60.3 million or approximately 340% increase was primarily due to the deployment of mining rigs since the prior year period from the increased scale of the business. Depreciation and amortization also increased $2.7 million as a result of the January 12, 2024, acquisition of GC Data Center Equity Holdings, LLC.

Total Margin was a negative $3.0 million in the current year period compared to nearly zero in the prior year period, a decrease of approximately $3.0 million. The following table summarizes the factors that impacted the decrease in total margin for the three months ended March 31, 2024 as compared to the prior year period:


Revenue:			(in thousands)
	●	Impact of higher average price of bitcoin produced and other revenue	$	82,925
	●	Impact of third-party hosting	20,775
	●	Impact of higher amount of bitcoin produced	10,366

Cost of revenue – energy, hosting and other:
	●	Impact of higher costs due to growth in hash rate	(25,855)
	●	Impact of third-party hosting	(18,971)
	●	Impact of increased production on cost of revenues	(12,008)


Cost of revenue – depreciation and amortization:
	●	Increased due to deployment of mining rigs	(57,643)
	●	Increased due to third-party hosting services	(2,619)
Total margin			$	(3,030)

General and administrative expenses: General and administrative expenses were $73.3 million for the three months ended March 31, 2024, compared to $15.1 million in the prior year period, an increase of $58.2 million or approximately 384%. The Company’s general and administrative expenses included stock-based (non-cash) compensation expense of $51.9 million in the current year period and $3.9 million in the prior year period. The increase in stock-based compensation expense was primarily due to additional restricted stock unit awards granted in the current year period and as a result of an increase in the Company’s headcount, which grew from 30 employees as of March 31, 2023 to approximately 60 employees as of March 31, 2024. General and administrative expenses excluding stock-based compensation was $21.4 million in the current year period compared with $11.4 million in the prior year period. The $10.0 million or approximately 88% increase in expenses was primarily due to the increased scale of the business, including payroll and benefits, professional fees, and other third-party costs associated with the growth in the business.

Gains on digital assets: The Company recognized a gain on digital assets of $488.8 million, compared to a gain of $137.4 million in the prior year period. The $351.4 million or approximately 256% increase was primarily related to the increase in the price of bitcoin as of March 31, 2024 of $71,289 compared to $28,474 for the prior year period ended March 31, 2023.

Table of Cont e nts

Change in fair value of derivative: The Company acquired a commodity swap contract as a result of its January 12, 2024 acquisition of GC Data Center Equity Holdings, LLC. The commodity swap contract hedges price variability in electricity purchases and expires December 31, 2027. The commodity swap contract is a derivative instrument and remeasured at fair value each reporting period with changes recognized on the Consolidated Condensed Statement of Operations. The change in fair value of derivative is the result of the change in estimated fair value of the derivative as of March 31, 2024 compared to January 12, 2024, the acquisition date of GC Data Center Equity Holdings, LLC.

Early termination expenses: On January 30, 2024, the Company entered into a termination and transition agreement (“Agreement”) with the operator, US Bitcoin Corp (“USBTC”), of the two sites from the January 12, 2024, acquisition of GC Data Center Equity Holdings, LLC. The Company and USBTC agreed to terminate the acquired operating agreement for a termination fee of $13.5 million. In addition, the Company entered into an agreement to early terminate a data center hosting agreement with one of its customers and in accordance with the agreement, the Company forgave the outstanding accounts receivable balance of $8.6 million.

Amortization of intangible assets: During the three months ended March 31, 2024, the Company recorded a $3.0 million amortization expense for intangible assets. The Company acquired customer relationships in the January 12, 2024 acquisition of GC Data Center Equity Holdings, LLC, in addition to intellectual property purchased during the three months ended March 31, 2024. There was no amortization expense of intangible assets in the prior year period.

Research and development: Research and development expenses were $2.5 million for the three months ended March 31, 2024 compared to $0.2 million in the prior year period. Research and development expenses consisted primarily of contractor costs, equipment, supplies, personnel, and related expenses for research and development activities which increased in the current year period.

Net loss from extinguishment of debt: 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 revolving credit (“RLOC”) facilities. In connection with the termination of the credit facility, the Company recorded a loss in the amount of $0.3 million to “Net loss from extinguishment of debt” in the Condensed Consolidated Statements of Operations.

Loss on hedge instruments: During the three months ended March 31, 2024, the Company recorded a $2.3 million realized loss related to bitcoin hedging activities. The Company has significant bitcoin holdings on its balance sheet and from time to time will evaluate as part of its risk management and treasury management process, short-term hedging or yield enhancing opportunities. The Company has an Investment Committee composed of members of its senior executive team, that evaluates market conditions to set hedging, investments, and monetization of bitcoin strategies. There were no outstanding hedging transactions as of the three months ended March 31, 2024 and there were no such activities in the prior year period.

Equity in net income of unconsolidated affiliate: During the three months ended March 31, 2024, the Company recorded its share of net earnings for its 20% interest in the Abu Dhabi Global Markets company (the “ADGM Entity”) in the amount of $1.3 million, which began mining operations during the third quarter of 2023. The Company’s share of the ADGM Entity’s operating results included earnings from the production of 171 bitcoin, a $4.1 million impairment of property, plant and equipment and approximately $2.6 million of depreciation and amortization during the three months ended March 31, 2024.

Interest expense: Interest expense was $1.3 million for the three months ended March 31, 2024 compared to $3.8 million in the prior year. The $2.5 million, or approximately 67% decrease was primarily a result oflower interest costs following the exchange of $416.8 million aggregate principal amount of Notes for shares of the Company’s common stock during the year ended December 31, 2023. Additionally, the Company prepaid and terminated its revolving line of credit and term loan facilities during March 2023.

Other non-operating income: Other non-operating income was $2.6 million during the three months ended March 31, 2024 compared to income of $0.8 million in the prior year period. The $1.8 million increase was primarily due to the higher balance of cash and cash equivalents and an increase in interest rates in the current year period.

Income tax expense: The Company recorded income tax expense of $38.1 million for the three months ended March 31, 2024 compared to an income tax expense of $0.1 million in the prior year period. The $38.1 million tax expense was primarily due to the establishment of deferred tax liabilities for the significant increase in fair value of bitcoin during the current year period partially offset by the release of its valuation allowance associated with deferred tax assets. During the three months ended March 31, 2024, the Company determined that sufficient taxable income will be generated to support the utilization of its deferred tax assets.

Table of Cont e nts

Net income: The Company recorded net income of $337.2 million for the three months ended March 31, 2024 compared to net income of $118.7 million in the prior year period. The $218.5 million, or approximately 184%, increase in earnings was primarily driven by the favorable mark-to-market adjustment of digital assets, an increase in the average price of bitcoin and production, and revenues generated from providing hosting services as a result of the January 12, 2024 acquisition of GC Data Center Equity Holdings, LLC. These increases were partially offset by increased mining costs associated with the growth in our energized hash rate as we deployed additional mining rigs, increased general and administrative expenses, and increased costs related to the acquisition and operation of our new data centers, including early termination fees incurred to exit customers in pursuit of the Company’s objective to self-mine at these sites.

Adjusted EBITDA: Adjusted EBITDA was $528.8 million for the three months ended March 31, 2024 compared to an adjusted EBITDA of $144.5 million in the prior year period. The $384.3 million increase was primarily driven by favorable fair value adjustments to digital assets of $488.8 million and higher production of bitcoin.

Table of Cont e nts

FINANCIAL CONDITION AND LIQUIDITY

The following table presents a summary of the Company’s cash flow activity for the three months ended March 31, 2024 and 2023:


	For the Three Months Ended March 31,
(in thousands)	2024		2023
Net cash used in operating activities	$	(88,340)	$	(91,458)
Net cash used in investing activities	(416,591)		(9,383)
Net cash provided by financing activities	471,886		113,218
Net increase (decrease) in cash, cash equivalents and restricted cash	(33,045)		12,377
Cash, cash equivalents and restricted cash — beginning of period	357,313		112,505
Cash, cash equivalents and restricted cash — end of period	$	324,268	$	124,882

Cash flows for the three months ended March 31, 2024: Cash and cash equivalents totaled $324.3 million at March 31, 2024, a decrease of $33.0 million from December 31, 2023.

Cash flows from operating activities resulted in a use of funds of $88.3 million, as net income, adjusted for non-cash and non-operating items, in the amount of $56.7 million was more than offset by the use of cash of $145.0 million from changes in operating assets and liabilities. When the Company produces and holds bitcoin on its Condensed Consolidated Balance Sheets, it excludes such produced and held bitcoin from its operating cash flows. As the Company monetizes bitcoin in the future, those proceeds are reported as cash flows from investing activities. Changes in cash flows from operating assets and liabilities were driven by a use of funds associated with changes in digital assets of $144.4 million due to the non-cash adjustment for bitcoin mining revenues and deposits of $1.3 million resulting from increased deposits associated with hosting agreements.

Cash flows from investing activities resulted in a use of funds of $416.6 million, primarily resulting from the use of funds for advances to vendors of $225.2 million, payment for the acquisition of a business of $183.8 million, payment of a deposit for the GC Data Center Equity Holdings, LLC acquisition of $25.0 million, capital expenditures of $9.1 million, purchase of digital assets of $7.3 million, purchase of $8.0 million of Auradine’s preferred stock, and an investment in an equity method investee of $3.0 million, partially offset by proceeds from the sale of digital assets of $44.8 million.

Cash flows from financing activities resulted in a source of cash of $471.9 million, primarily from the periodic issuance of common stock under the Company’s 2023 ATM (as defined below) of $489.3 million and the repurchase of shares in settlement of employee taxes upon restricted stock vesting.

Bitcoin holdings as of March 31, 2024: At March 31, 2024, the Company held approximately 17,320 bitcoin on its Condensed Consolidated Balance Sheets with a fair value of $1,234.7 million. The Company’s holdings as of March 31, 2024 excluded 61 bitcoins owned by the Company’s equity method investee, the ADGM Entity, but allocable to the Company, and pending distribution to the Company. At March 31, 2024, the fair value of a single bitcoin was approximately $71,289. As a result, the fair market value of the Company’s bitcoin holdings at March 31, 2024, was approximately $1,234.7 million. 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.

During the third quarter of 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 believes the strategy provides resiliency to the organization and downside risk during volatile market conditions such as the halving event while maximizing the Company's bitcoin valuation potential.

At-the-Market Offering Programs and Proceeds: In October 2023, the Company commenced an at-the-market offering program (the “2023 ATM”) with H.C. Wainwright & Co., LLC (“Wainwright”), acting as sales agent, which allowed the Company to sell and issue shares of its common stock from time to time with an aggregate offering price up to $750.0 million. As of March 31, 2024, the Company had sold 44,254,912 shares of common stock under the 2023 ATM for an aggregate purchase price of $731.2 million, net of commissions expenses, concluding the 2023 ATM. In February 2024, the Company commenced an at-the-market offering program (the

Table of Cont e nts

“2024 ATM”) with Wainwright acting as sales agent pursuant to an ATM Agreement, under which the Company may offer and sell shares of its common stock from time to time through Wainwright having an aggregate offering price of up to $1,500.0 million.

Liquidity and Capital Resources: Cash and cash equivalents totaled $324.3 million and the fair value of bitcoin holdings was $1,234.7 million at March 31, 2024. The combined value of cash and cash equivalents and bitcoin, as of March 31, 2024, was $1,559.0 million.

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 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, including the impacts from the bitcoin halving event, which would impact both the value of the ~~patents~~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.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The Company contracts with service providers for hosting its equipment and operational support in data centers where the Company’s equipment is deployed. Under these arrangements, the Company expects to pay at a minimum approximately (i) $182.8 million during the remainder of calendar year 2024, (ii) $708.9 million in total payments during the calendar years 2025 through ~~litigation~~2027, and ~~licensing strategies, alone or with others. We generally monetize our portfolio~~(iii) $15.7 million in total payments during the calendar year 2028. Under certain of ~~patents~~these arrangements, the Company is required to pay variable pass-through power and patent rights by entering into license discussions, and if that is unsuccessful, initiating enforcement activities against any infringing parties with the objective of entering into comprehensive settlement and licenseservice fees in addition to these estimated minimum amounts.

The Company has purchase agreements ~~that may include the granting of non-exclusive retroactive and future rights~~ to ~~use the patented technology, a covenant not to sue, a release of the party from certain claims, the dismissal of any pending litigation~~purchase miners and other ~~terms. As~~mining equipment for a total purchase price of September 30, 2017, we owned 170 patents and had economic rights to over 10,000 additional patents, both of which include U.S. patents and certain foreign counterparts, covering technologies used in a wide variety of industries. The greater than 10,000 patents to which the Company has economic rights were assigned to Luxone in an agreement entered into in October 2017; the Company retained an earn-out associated with future income from this portfolio, but no longer manages or is responsible for costs associated with licensing the portfolio.

~~The Company previously announced~~$517.3 million that it intended to review alternative business directions with the goal of enhancing shareholder value, and on November 1, 2017, the Company announced that it will be entering into the cryptocurrency mining market pursuant to the agreement to acquire 100% ownership of GBV, a digital asset technology company that mines cryptocurrencies. GBV is a technology company that powers and secures Blockchains by operating custom hardware and software, which verify Blockchain transactions. Blockchains are decentralized digital ledgers that record and enable secure peer-to-peer transactions without third party intermediaries. With the acquisition of GBV, the Company will be supplementing its existing business with this new business opportunity. GBV currently owns 250GH/s of GPU mining servers and plans to add 14PH/s of ASIC hashing servers, with significant capability for expansion.

~~Table of Contents~~

~~Our principal office is located at 11100 Santa Monica Blvd., Suite 380, Los Angeles, CA 90025. Our telephone number is (703) 232-1701.~~

We were incorporated in the State of Nevada on February 23, 2010 under the name “Verve Ventures, Inc.” On December 7, 2011, we changed our name to “American Strategic Minerals Corporation” and were engaged in exploration and potential development of uranium and vanadium minerals business. During June 2012, we discontinued our minerals business and began to invest in real estate properties in Southern California. In November 2012, we discontinued our real estate business.

On July 18, 2017, shareholders of record holding a majority of the outstanding voting capital of the Company approved a reverse stock split of the Company’s issued and outstanding common stock by a ratio of not less than one-for-four and not more than one-for-twenty-five, with such ratioexpected to be determined by the Board of Directors, in its sole discretion. On October 25, 2017, the reverse stock split ratio of one (1) for four (4) basis was approved by the Board of Directors. On October 30, 2017, the Company filed a certificate of amendmentdelivered during 2024. To date, we have made installment payments totaling $261.1 million. We expect to its Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada in order to effectuate a reverse stock split of the Company’s issued and outstanding common stock, par value $0.0001 per share on a one (1) for four (4) basis.

All share and per share values for all periods presented in the accompanying condensed consolidated financial statements are retroactively adjusted as of September 30, 2017 to reflect the Reverse Split.

~~Critical Accounting Policies and Estimates~~

~~The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared~~make periodic payments in accordance with ~~US GAAP. The preparation~~the payment schedule with the final payment expected to occur during 2024.

Assuming the Notes due 2026 are not converted into common stock, repurchased or redeemed prior to maturity, (i) remaining interest payments relating to the Notes will approximate $2.5 million through the remainder of ~~these financial statements requires us to make estimates~~the calendar year 2024, (ii) annual interest payments of approximately $3.3 million in each calendar year from 2025 through 2026, and ~~judgments that affect~~(iii) principal in the ~~reported amounts~~amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to$330.7 million upon the maturity in November 2026, will be ~~reasonable~~payable under the ~~circumstances, the results of which form the basis~~Notes due 2026. Refer to Note 12 – Debt, for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

~~Management believes the~~further information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following ~~critical~~ accounting policies ~~affect~~relate to the significant areas involving management’s judgments and estimates ~~used~~ in the preparation of the ~~financial statements.~~

~~Basis of Presentation and Principles of Consolidation~~

~~The accompanying consolidated condensed~~Company’s financial statements, ~~have been prepared by~~and are those that it believes are the most critical to aid the understanding and evaluation of this management discussion and analysis:

•Digital assets

•Revenues

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•Long-lived assets

•Income taxes

•Assets acquired and liabilities assumed in a business combination

•Goodwill impairment

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 ~~without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared~~through its mining activities are accounted for in accordance with ~~accounting principles generally accepted~~the Company’s revenue recognition policy below.

Effective January 1, 2023, the Company early adopted ASU 2023-08, which requires entities to measure crypto assets at fair value with changes recognized in the ~~United States~~Condensed Consolidated Statements of ~~America (U.S. GAAP) have been condensed or omitted pursuant to such rules~~Operations each reporting period. The Company’s digital assets are within the scope of ASU 2023-08 and ~~regulations. These consolidated condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in~~ the ~~opinion of management, are necessary to present fairly the financial position, the results of operations and cash flows~~transition guidance requires a cumulative-effect adjustment as of the beginning of the current fiscal year for any difference between the carrying amount of the Company’s digital assets and fair value.

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 Accounting Standard Codification (“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 ~~for~~has determined that it is more likely than not that an impairment exists and records impairment equal to the ~~periods presented. It is suggested~~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 ~~consolidated condensed financial statements be read in conjunction with the consolidated condensed financial statements and the notes thereto included~~were based on observable quoted prices in the Company’s ~~most recent Annual Report~~principal market for identical assets. Subsequent reversal of impairment losses is not permitted.

Additionally, during the quarter ended March 31, 2023 and effective January 1, 2023, the Company enacted a voluntary change in accounting principle from last-in-first-out (“LIFO”) to FIFO in order to more accurately reflect the disposition of its digital assets. The change in accounting principle resulted in an increase in gain on ~~Form 10-K. The results of operations~~digital assets for the ~~interim periods are not necessarily indicative~~year ended December 31, 2021 and resulted in an impairment of ~~the results to be expected~~digital assets for the ~~full year.~~

~~Use~~years ending December 31, 2022 and 2021. The voluntary change in accounting principle has been reflected in the Consolidated Financial Statements.

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 ~~Estimates~~Cash Flows. The sales of digital assets are included within investing activities in the accompanying Condensed Consolidated Statements of Cash Flows and ~~Assumptions~~

~~The preparation~~any gains or losses from such sales are included in operating expenses in the Condensed Consolidated Statements of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, estimating the useful lives of patent assets, the assumptions used to calculate fair value of warrants and options granted, goodwill impairment, realization of long-lived assets, deferred income taxes, unrealized tax positions and business combination accounting.

Operations.

~~Table of Contents~~

~~Revenue Recognition~~

Revenues

•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.

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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:

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.

•Variable consideration

•Constraining estimates of variable consideration

•The existence of a significant financing component in the contract

•Noncash consideration

•Consideration payable to a customer

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 ~~(i) persuasive evidence~~that performance obligation is satisfied, at a point in time or over time, as appropriate.

Application of the Five-Step Model to the Company’s Mining and Hosting Operations

Mining Operator

•For each individual contract, the parties’ rights, the transaction price, and the payment terms are fixed and known as of the inception of each individual contract.

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•The transaction requestor and the Bitcoin network each have a unilateral enforceable right to terminate their respective contracts at any time without penalty.

Mining Participant

The Company is entitled to non-cash compensation based on the pool operator’s payout model. The payout methodologies differ depending on the type of ~~these agreements,~~third-party operated mining pool. Full-Pay-Per-Share (“FPPS”) pools pay block rewards and transaction fees, less mining pool fees and Pay-Per-Share (“PPS”) pools pay block rewards less mining pool fees but no transaction fees. For FPPS and PPS pools, the Company is entitled to non-cash consideration even if a block is not successfully validated by the mining pool operators. Success-based mining pools pay a fractional share of the successfully mined block and transaction fees, reduced by pool operator expenses only if a block is successfully validated.

FPPS Mining Pools

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in accordance with the operator’s specifications over a 24-hour period beginning mid-night UTC and ending 23:59:59 UTC on a daily basis. The non-cash consideration that we are entitled to for providing hash calculations to the pool operator under the FPPS payout method is made up of block rewards and transaction fees less pool operator expenses determined as follows:

Also, due to the fact that the settlement element and license element for past and future use are the Company’s major central business, the Company presents these two elements as one revenue category in its statement of operations.reversal. The Company does not ~~expect~~constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved and recognizes the non-cash consideration on the same day that control is transferred, which is the same day as contract inception.

PPS Mining Pools

The Company participates in PPS pools that provide ~~licenses that~~non-cash consideration similar to the FPPS pools except PPS pools do not ~~provide some form of settlement or release.~~

~~Accounting for Acquisitions~~

Ininclude transaction fees, therefore, the ~~normal course of its business,~~non-cash consideration received by the Company ~~makes acquisitions~~is made up of ~~patent assets and may also make acquisitions of businesses. With respect to each such transaction,~~block rewards less mining pool fees. While the non-cash consideration is variable, the Company ~~evaluates facts~~has the ability to estimate the variable consideration at contract inception with reasonable certainty. The Company does not constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved and recognizes the non-cash consideration on the same day that control is transferred, which is the same day as contract inception.

Success-based Mining Pools

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mining pool operator to the total hash calculations performed by all mining pool participants in validating the block during the 24-hour period beginning at midnight UTC and ~~follows~~ending 23:59:59 UTC daily.

Contract inception and our enforceable right to consideration begins when the ~~guidelines prescribed~~Company commences the performance of hash calculations for the mining pool operator. The non-cash consideration is variable in accordance with paragraphs ASC 606-10-32-5 to 606-10-32-7 as it depends on whether the third-party mining pool successfully validates a block during each 24-hour period. In addition, other inputs such as the amount of hash calculations and our fractional share of consideration earned by the pool operator also cause variability. The Company does not have the ability to estimate whether a block will be successfully validated with reasonable certainty at contract inception. The Company constrains the variable consideration at contract inception because it is not probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved. Once a block is successfully validated, the constraint is lifted. The Company recognizes the non-cash consideration on the same day that control is transferred, which is the same day as contract inception.

The Company’s policy was to measure non-cash consideration based on the spot rate of bitcoin at the time the pool successfully validates a block, which was not in accordance with ASC ~~805 — Business Combinations~~606-10-32-21 which requires measurement to ~~determine the proper accounting treatment for each such transaction and then records the transaction in accordance~~coincide with contract inception. Additionally, this measurement was not consistent with the ~~conclusions reached~~measurement of non-cash consideration for FPPS and PPS pools. During the three months ended December 31, 2023, the Company corrected this error and changed its measurement of non-cash consideration to the simple average daily spot rate of bitcoin determined using the Company’s primary trading platform for bitcoin on the date of contract inception, which is the same day that control of the contracted service (hash calculations) is transferred to the pool operator. The change in measurement did not have a material impact to the results of operations for any of the periods presented.

Expenses associated with providing hash calculation services to third-party operated mining pools, such ~~analysis.~~ 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.

Hosting Services

The Company ~~performs such analysis~~operates two bitcoin mining sites, which were acquired on January 12, 2024, that provide hosting services to institutional-scale crypto mining companies. Hosting services include colocation and managed services. Colocation services include providing mining companies with ~~respect~~sheltered data center space, electrical power, cooling, and internet connectivity. Managed services generally include providing customers with technical support and maintenance services, in addition to ~~each material acquisition within~~colocation services. The Company will not be taking on any new hosting services customers and will transition to self-mining at these two sites as existing customer agreements expire or are terminated early.

Colocation services revenue is recognized over time as the ~~consolidated group~~customer simultaneously receives and consumes the benefits of ~~entities.~~

~~Intangible Asset - Patents~~

~~Intangible assets include patents purchased~~the Company’s performance. Managed services revenue is recognized at a point-in-time as the customer simultaneously receives and ~~patents acquired in lieu~~consumes the benefits of ~~cash in licensing transactions.~~the Company’s performance. The ~~patents purchased are recorded~~transaction price for colocation services is variable based on the ~~cost~~consumption of energy and the managed services price is a fixed rate per miner basis. The Company recognizes hosting services revenue to ~~acquire them~~the extent that a significant reversal of such revenue will not occur. Hosting services customers are generally invoiced in advance of the month in which the Company satisfies its performance obligation, and ~~patents acquired~~deferred revenue is recorded for any upfront payments received in ~~lieu~~advance of ~~cash~~the Company’s performance. The monthly transaction price is generally variable based on the amount of megawatt hours (“MWh”) consumed by the customers equipment and when other monthly contracted services are performed. At the end of each month, the customer is billed for the actual amount owed for services performed. The Company recognizes revenue for hosting services under the right-to-invoice practical expedient in ASC 606-10-55-18, which allows for the recognition of revenue over time as the Company’s right-to-invoice for final payment corresponds directly with the value of services transferred to the customer to-date.

Expenses associated with providing hosting services are recorded as cost of revenues and depreciation on hosting equipment is recorded as a separate component of cost of revenues.

Long-Lived Assets

The Company has long-lived assets that consist primarily of property and equipment stated at ~~their~~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 ~~market value.~~values and residual values. The ~~costs~~Company’s property and equipment is primarily composed of ~~these~~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

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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 ~~amortized over their remaining~~higher or lower than the assigned estimated useful lives. ~~Useful lives of intangible~~

Management reviews the Company’s long-lived assets ~~are periodically evaluated for reasonableness and the assets are tested~~ for impairment whenever events or changes in circumstances indicate that the carrying amount ~~may no longer be recoverable. The Company recorded~~of an impairment charge to its intangible assets during the three and nine months ended September 30, 2017 in the amount of $723,218 and $723,218, respectively, compared to an impairment charge associated with the end of life of a number of the Company’s portfolios during the three and nine months ended September 30, 2016 in the amounts of $5,531,383 and $6,525,273, respectively.

~~Table of Contents~~

~~Goodwill~~

When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then applies a two-step impairment test. The two-step impairment test first compares the fair value of the Company’s reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its fair value, the Company determines the implied fair value of the reporting unit’s goodwill and if the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded in the consolidated condensed statement of operations. The Company performs the annual testing for impairment of goodwill at the reporting unit level during the quarter ended September 30.

For the three and nine months ended September 30, 2017, the Company recorded no impairment charge to its goodwill and for the three and nine months ended September 30, 2016, the Company recorded an impairment to its Goodwill in the amount of $0 and $83,000, respectively.

~~Other Intangible Assets~~

In accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following: (1) significant underperformance relative to expected historical or projected future operating results; (2) significant changes in the manner of use of the acquired assets or the strategy for the overall business; and (3) significant negative industry or economic trends.

~~When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the~~ asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model.

~~For the three and nine months ended September 30, 2017 and September 30, 2016, the Company recorded no impairment charge to its other intangible assets.~~

~~Impairment of Long-lived Assets~~

The Company accounts for the impairment or disposal of long-lived assets according to the ASC 360 “Property, Plant and Equipment”. The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of long-lived assets(asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of ~~the~~their carrying amount ~~of an asset~~ to the ~~estimated~~undiscounted future ~~net undiscounted~~ cash flows expected to be generated ~~by the asset. When necessary, impaired~~thereby. If such assets are ~~written down to estimated fair value~~not recoverable based on that test, impairment is recorded in the ~~best information available. Estimated fair value is generally based on either appraised value or measured~~amount by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less thanwhich the carrying amount of the ~~asset.~~

assets exceeds their fair value as determined in accordance with ASC 820.

Income Taxes

The ~~Company did not record any impairment charges on its long-lived assets during~~primary objectives of accounting for income taxes are to recognize the ~~three and nine months ended September 30, 2017 and September 30, 2016.~~

~~Stock-based Compensation~~

~~Stock-based compensation is accounted for based on the requirements~~amount of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employeeincome taxes payable or ~~director is required to perform the services in exchange~~refundable for the ~~award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee~~current year, and ~~director services received in exchange for an award based on the grant-date fair value of the award. As stock-based compensation expense is recognized based on awards expected~~ to ~~vest, forfeitures are also estimated at the time of grant~~recognize deferred tax liabilities and ~~revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.~~

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~~For the three and nine months ended September 30, 2017, the expected forfeiture rate was 12.75%, which resulted in an expense of $60,115 and $108,748,~~assets for the ~~three and nine months ended September 30, 2017, respectively,~~future tax consequences of events that have been recognized in the Company’s ~~compensation expenses. For~~financial statements or tax returns. The Company accounts for income taxes in accordance with ASC 740 - Income Taxes, using the ~~three~~asset and ~~nine months ended September 30, 2016,~~liability method. Under this method, deferred tax assets and liabilities are calculated based on enacted tax rates and are recognized for the expected ~~forfeiture rate was 11.03%, which resulted~~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 ~~an expense of $9,570 and $36,832 for the three and nine months ended September 30, 2016, respectively,~~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 ~~compensation expenses.~~income tax benefit or expense and deferred tax assets and liabilities. The Company ~~will continue to re-assess the impact~~recognizes tax positions when they are more likely than not of ~~forfeitures if actual forfeitures increase in future quarters.~~

~~Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third parties, compensation expense is determined~~being sustained. Recognized tax positions are measured at the ~~“measurement date.”~~ 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.

Assets Acquired and Liabilities Assumed in a Business Combination

The ~~expense is recognized over~~Company accounts for business combinations under the ~~vesting period~~acquisition method of accounting in accordance with ASC 805 - Business Combinations, by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, measured at the acquisition date fair value. The determination of fair value involves assumptions, estimates and judgments. Any purchase consideration in excess of the ~~award. Until the measurement date~~estimated fair values of net assets acquired is ~~reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on~~recorded as goodwill.

Goodwill Impairment

Goodwill is not subject to amortization, and instead, assessed for impairment annually, or more frequently when events or changes in circumstances indicate is it more likely than not that the fair value of ~~the award at the~~a reporting ~~date.~~

~~Liquidity and Capital Resources~~

~~At September 30, 2017, we had approximately $.1 million in unrestricted cash and cash equivalents, $3.9 million in restricted cash and an unrestricted working capital deficit of $20.3 million.~~

~~Based on the Company’s current revenue and profit projections, management~~unit is ~~uncertain that the Company’s existing cash and accounts receivables will be sufficient to fund~~less than its operations through at least the next twelve months, raising substantial doubt regarding the Company’s ability to continue operating as a going concern. If we do not meet our revenue and profit projections or the business climate turns negative, then we will need to:

	●	raise additional funds to support the Company’s operations; however, there is no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all. If the Company raises additional funds by issuing securities, existing stockholders may be diluted; and

	●	~~review strategic alternatives.~~

~~Results of Operations~~

~~For the Three and Nine Months Ended September 30, 2017 and 2016~~

We generated revenues of $162,713 and $609,650 during the three and nine months ended September 30, 2017 as compared to $43,113 and $36,452,551 during the three and nine months ended September 30, 2016. For the three and nine months ended September 30, 2017, this represented an increase of $119,600 or 277% and a decrease of $35,842,901 or 98%, respectively. On an absolute basis, revenue for the three and nine months ended September 30, 2017 was derived from the issuance of a one-time technology license outside of litigation and recurring royalties from the Company’s Medtech portfolio and for the three and nine months ended September 30, 2016 revenue was primarily derived from the issuance of one-time patent licenses with the remainder of the revenue derived from recurring royalties.

The Company had no revenues from the issuance of one-time patent licenses to certain of the Company’s patent portfolios for the three months and nine ended September 30, 2017 and 0% and 99% for the three and nine months ended September 30, 2016, respectively. For the three months ended September 30, 2017, there were no patent settlement and license agreements, whereas revenues from the five largest settlement and license agreements accounted for 99% of the Company’s revenue for the comparable period ending September 30, 2016.

Direct cost of revenues during the three and nine months ended September 30, 2017 amounted to $64,836 and $1,544,322, respectively and for the three and nine months ended September 30, 2016, the direct cost of revenues amounted to $1,094,378 and $19,202,118, respectively. For the three and nine months ended September 30, 2017, this represented a decrease of $1,479,486 or 94% and $18,107,740 or 92%, respectively. Direct costs of revenue include contingent payments to patent enforcement legal costs, patent enforcement advisors and inventors as well as various non-contingent costs associated with enforcing the Company’s patent rights and otherwise in developing and entering into settlement and licensing agreements that generate the Company’s revenue. For the three and nine months ended September 30, 2017, the Company had lower contingent fee costs associated with lower levels of revenue and fewer number of active infringement cases. Direct cost of revenues were 40% and 253%, respectively, for the three and nine months ended September 30, 2017 and direct costs of revenues were 2,538% and 53%, respectively, for the comparable periods in 2016.

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We incurred other operating expenses of $4,014,856 and $8,720,754 for the three and nine months September 30, 2017, respectively and $9,688,527 and $18,884,827 for the three and nine months ended September 30, 2016, respectively. For the three and nine months ended September 30, 2017, this represented a decrease in other operating expenses of $5,669,671 or 59% and $10,164,073 or 54%, respectively. These expenses primarily consisted of amortization of patents, general expenses, compensation to our officers, directors and employees, professional and consulting fees incurred in connection with the day-to-day operation of our business and patent and goodwill impairment charges. The year over year decline in other operating expenses for the three and nine months ended September 30, 2017 resulted from declines in patent amortization and impairment costs and consulting fees, offset by increases in compensation, professional fees and other general and administrative costs, compared to 2016. The increase in compensation expenses is related to costs associated with the cancellation of existing employment agreements between the Company and the Company’s CEO, CFO and COO, as well as other termination provisions for non-executive employees.

~~Other operating expenses consisted of the following:~~

Total Other Operating Expenses Total Other Operating Expenses
For the Three Months Ended
September 30, 2017 For the Three Months Ended
September 30, 2016 For the Nine Months Ended
September 30, 2017 For the Nine Months Ended
September 30, 2016

Amortization of patents(1) $ 457,419 $ 2,030,886 $ 1,803,264 $ 6,018,196
Compensation and related taxes (2) 1,871,946 1,252,571 3,718,034 3,406,841
Consulting fees (3) 133,018 257,420 189,819 903,032
Professional fees (4) 616,125 432,496 1,686,955 1,336,201
Other general and administrative (5) 213,130 183,771 599,464 612,284
Goodwill impairment (6) - - - 83,000
Patent Impairment (7) 723,218 5,531,383 723,218 6,525,273
Total $ 4,014,856 $ 9,688,527 $ 8,720,754 $ 18,884,827

Operating expenses for the three and nine months ended September 30, 2017 include non-cash operating expenses totaling $2,541,798 and $4,069,413, respectively, and for the three and nine month ended September 30, 2016, the Company incurred non-cash operating expenses of $8,053,556 and $14,332,533, respectively. Non-cash operating expenses consisted of the following:

Non-Cash Operating Expenses Non-Cash Operating Expenses
For the Three Months Ended
September 30, 2017 For the Three Months Ended
September 30, 2016 For the Nine Months Ended
September 30, 2017 For the Nine Months Ended
September 30, 2016

Amortization of patents (1) $ 457,419 $ 2,030,886 $ 1,803,264 $ 6,018,196
Compensation and related taxes (2) 1,319,629 440,161 1,636,906 1,306,399
Consulting fees (3) 42,910 30,038 (91,228 ) 345,510
Professional fees (4) 108 8,620 325 25,707
Other general and administrative (5) (1,486 ) 12,468 (3,072 ) 28,448
Goodwill impairment (6) - - - 83,000
Patent Impairment (7) 723,218 5,531,383 723,218 6,525,273
Total $ 2,541,798 $ 8,053,556 $ 4,069,413 $ 14,332,533

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	~~(1)~~	Amortization of intangibles and depreciation: Amortization expenses associated with patents and the Company’s website were $457,419 and $1,803,264 during the three and nine months ended September 30, 2017, respectively, a decrease of $1,573,467 or 77% and $4,214,932 or 70% relative to the three and nine months ended September 30, 2016. The decrease results from the partial or full impairment of numerous of the Company’s portfolios reducing the carrying fair value and the related amortization expenses. When the Company acquires patents and patent rights, the Company capitalizes the cost of those assets and amortizes those costs over the remaining useful lives of the assets. All patent amortization expenses are non-cash expenses.

	~~(2)~~	Compensation expense and related taxes: Compensation expense includes cash compensation and related payroll taxes and benefits, and non-cash equity compensation expenses. For the three and nine months ended September 30, 2017, respectively, compensation expense and related payroll taxes were $1,871,946 and $3,718,034, an increase of $619,375 or 49% and 311,193 or 9% relative to the three and nine months ended September 30, 2016. The increase in compensation expenses is related to costs associated with the cancellation of existing employment agreements between the Company and the Company’s CEO, CFO and COO, as well as other termination provisions for non-executive employees. We recognized non-cash employee and board equity based compensation of $1,319,629 and $1,636,906, respectively, for the three and nine months ended September 30, 2017 and $440,161 and $1,306,399, respectively, for the three and nine months ended September 30, 2016.

	~~(3)~~	~~Consulting fees: For the three and nine months ended September 30, 2017, respectively, we incurred consulting fees of $133,018 and $189,819. This represented decreases in the~~ amount of $124,402 or 48% and $713,213 or 79% compared to the three and nine months ended September 30, 2016. Consulting fees include both cash and non-cash related consulting fees primarily for investor relations, public relations and general consulting services. The decrease in consulting fees for the three and nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 reflects a reduction in activity related to the acquisition of new portfolios as well as a credit recognized during the three months ended March 31, 2017 associated with the mark to market of an option grant issued to a consultant who no longer derives a majority of his compensation from the Company. As a result, the Company must mark to market his option grant on a quarterly basis. The credit for the three months ended March 31, 2017 was partially offset by a mark to market expense of the same option during the three months ended September 30, 2017. During the three ended September 30, 2017, we recognized non-cash equity based consulting expenses of $42,910 and during the nine months ended September 30, 2017, we recognized a non-cash equity based consulting credit of $91,228. During the three and nine months ended September 30, 2016, we recognized non-cash equity-based consulting expenses of $30,038 and $345,510, respectively.

	~~(4)~~	Professional fees: For the three and nine months ended September 30, 2017, we incurred professional fees of $616,125 and $1,686,955, respectively, an increase of $183,629 or 42% and $350,754 or 26% over the comparable periods in 2016. Professional fees primarily reflect the costs of professional outside accounting fees, legal fees and audit fees. The increase in professional fees for the three and nine months ended September 30, 2017 over the three and nine months ended September 30, 2016 relate to higher professional outside legal, accounting and audit fees resulting from the costs associated with closing the Fortress restructuring in January 2017, the equity issuance in April 2017, the Convertible Note issuance in August, the restructuring of other indebtedness and the entrance into the merger agreement with GBV. During the three and nine months ended September 30, 2017, we recognized non-cash equity-based professional expenses of $108 and $325, respectively, compared to non-cash equity-based professional expenses of $8,620 and $25,707, respectively, during the same periods in 2016.

	~~(5)~~	Other general and administrative expenses: For the three and nine months ended September 30, 2017, we incurred other general and administrative expenses of $213,130 and $599,464, respectively, an increase of $29,359 or 16% for the three months ended September 30, 2017 and a decrease of $12,820 or 2% over the comparable periods in 2016. General and administrative expenses reflect the other non-categorized operating costs of the Company and include expenses related to being a public company, rent, insurance, technology and other expenses incurred to support the operations of the Company. During the three and nine months ended September 30, 2017, we recognized non-cash equity based other G&A credits of $1,486 and $3,072, respectively, compared to non-cash equity-based other G&A expenses of $12,468 and $28,448, respectively, during the same periods in 2016.

~~Table of Contents~~

	~~(6)~~	Goodwill impairment: For the three and nine months ended September 30, 2017, there was no impairment of goodwill. Based on the Company’s decision to end of life one of its portfolios, the Company took an impairment charge during the three and nine months ended September 30, 2016 in the carrying value of the related goodwill in the amount of $83,000.

	~~(7)~~	Patent impairment: For the three and nine months ended September 30, 2017, the Company took an impairment charge of the carrying value of the Company’s Clouding portfolio patents in the amount of $723,218 and $723,218, respectively. Based on changes in the expected timing of proceeds from the Clouding portfolio, as well as the impairment of one portfolio during the three months ended September 30, 2016 and two portfolios during the three months ended March 31, 2016, the Company took impairment charges for three and nine months September 30, 2016 in the carrying value of the Company’s patents assets in the amount of $5,531,383 and $6,525,273, respectively.

We reported operating income (loss) of $(3,916,979) and $(9,655,378) for the three and nine months ended September 30, 2017 and operating income (loss) of $(10,739,792) and $(1,634,394) for the three and nine months ended September 30, 2016. For the three and nine months ended September 30, 2017, this represented an increase in operating income of $6,822,813 for the three months ended September 30, 2017 and a decrease in operating income of $8,020,984 for the three months ended September 30, 2017. The increase in operating income for the three months ended September 30, 2017 results from markedly lower expenses and the decreased income from operations in 2017 relative to 2016 was primarily attributable to lower revenue and higher direct cost of revenues as a percentage of revenue, only partially offset by lower cash and non-cash operating expenses.

~~Other Income (Expenses)~~

Total other income (expenses) was $(2,468,316) and $(2,675,400) for the three and nine months ended September 30, 2017, respectively, and $1,093,278 and $(682,040) for the three and nine months ended September 30, 2016, respectively. For the three and nine months ended September 30, 2016, this represented an increase in other expense of $3,561,594 and $1,993,360, respectively.

~~Income Tax Benefit (Expense)~~

For the three and nine months ended September 30, 2016, the Company recognized no income tax benefit as a result of the Company’s profit. We recognized an income tax expense for the three and nine months ended September 30, 2017 in the amounts of $(12,191) and $(29,433), respectively and an income tax benefit in the amount of $3,347,909 and $26,974 for the three and nine months ended September 30, 2016, respectively.

~~Net Income (Loss)~~

We reported net income (loss) of $(6,677,486) and $(12,484,925) for the three and nine months ended September 30, 2017, respectively, and net income (loss) of $(6,274,410) and $(2,261,542) for the three and nine months ended September 30, 2016, respectively. For the three and nine months ended September 30, 2017, this represented a decrease in the net income of $98,881 and $10,070,751, respectively.

~~Non-GAAP Reconciliation~~

~~Non-GAAP earnings as presented in this Annual Report is a supplemental measure of our performance that is neither required by, nor presented~~ in accordance with ~~U.S. generally accepted accounting principles (“US GAAP”). Non-GAAP earnings is not a measurement~~ASC 350.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 – Summary of ~~our financial performance under US GAAP and should not be considered as alternative~~Significant Accounting Policies to net income, operating income, or any other performance measures derived in accordance with US GAAP, or as alternative to cash flow from operating activities as a measure of our liquidity. In addition, in evaluating Non-GAAP earnings, you should be aware that in the future we will incur expenses or charges such as those added back to calculate Non-GAAP earnings. Our presentation of Non-GAAP earnings should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

Non-GAAP earnings has limitations as an analytical tool, and you should not consider it in isolation, or as substitutes for analysis of our results as reported under US GAAP. Some of these limitations are (i) it does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Non-GAAP earnings does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, and (vi) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as comparative measures.

~~Table of Contents~~

We compensate for these limitations by providing specific information regarding the US GAAP amounts excluded from such non-GAAP financial measures. We further compensate for the limitations in our use of Non-GAAP financial measures by presenting comparable US GAAP measures more prominently.

We believe that Non-GAAP earnings facilitates operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present Non-GAAP earnings because (i) we believe that this measure is frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use Non-GAAP earnings internally as benchmark to compare our performance to that of our competitors.

The Company uses a Non-GAAP reconciliation of net income (loss) and earnings (EPS reconciliation loss) per share in the presentation of financial results here. Management believes that this presentation may be more meaningful in analyzing our income generation.

~~On a Non-GAAP basis,~~ the Company’s ~~recorded~~Condensed Consolidated Financial Statements for a ~~Non-GAAP loss~~discussion of ~~$(1,448,278)~~recent accounting standards and $(6,187,993) for the three and nine months ended September 30, 2017, respectively, compared to Non-GAAP loss in the amount of $(3,235,092) and non-GAAP income of $10,874,080 for the three and nine months ended September 30, 2016, respectively. The details of those expenses and non-GAAP reconciliation of these non-cash items are set forth below:

Non-GAAP Reconciliation Non-GAAP Reconciliation
For the Quarter Ended
September 30, 2017 For the Quarter Ended
September 30, 2016 For the Nine Months Ended
September 30, 2017 For the Nine Months Ended
September 30, 2016
Net income (loss) attributable to Common Shareholders $ (6,677,486 ) $ (6,274,410 ) $ (12,484,925 ) $ (2,261,542 )
Non-GAAP
Amortization of intangible assets & depreciation 457,719 2,030,886 1,804,512 6,018,196
Equity-based compensation 1,371,480 478,819 1,554,835 1,677,616
Impairment of intangible assets 723,218 5,531,383 723,218 6,608,273
Change in the fair value of the clouding IP liability (754,320 ) (1,954,378 ) (768,199 ) (2,122,208 )
Loss on debt extinguishment 283,237 - 283,237 -
Loss on sale of companies 1,519,875 - 1,519,875 -
Warrant (Income) Expense, net 1,909,879 - 1,914,786 -
Non-cash Other (Income) expense, net (1,323,407 ) - (2,221,939 ) -
Non-cash interest expense 1,043,012 288,049 1,489,678 952,231
Deferred tax benefit - (3,347,909 ) - (26,974 )
Other (1,486 ) 12,468 (3,072 ) 28,488
Non-GAAP earnings (loss) $ (1,448,278 ) $ (3,235,092 ) $ (6,187,993 ) $ 10,874,080

pronouncements.

~~Table of Contents~~

~~The following table sets forth the computation of basic and diluted loss per share on a Non-GAAP basis:~~

Non-GAAP Reconciliation Non-GAAP Reconciliation
For the Quarter Ended
September 30, 2017 For the Quarter Ended
September 30, 2016 For the Nine Months Ended
September 30, 2017 For the Nine Months Ended
September 30, 2016
Non-GAAP net income (loss) $ (1,448,278 ) $ (3,235,092 ) $ (6,187,993 ) $ 10,874,080

Denominator
Weighted average common shares - Basic 6,270,299 3,761,785 5,564,465 3,736,213
Weighted average common shares - Diluted 6,270,299 3,761,785 5,564,465 3,996,067

Non-GAAP earnings (loss) per common share:
Non-GAAP earnings (loss) - Basic $ (0.23 ) $ (0.86 ) $ (1.11 ) $ 2.91
Non-GAAP earnings (loss) - Diluted NA NA NA 2.72

~~Liquidity and Capital Resources~~

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At September 30, 2017, the Company’s unrestricted cash balances totaled $122,172 compared to $4,998,314 at December 31, 2016 and the Company’s restricted cash balances totaled $3,919,718 at September 30, 2017 and $0 at December 31, 2016. The decrease in the cash balances of $4,876,142 resulted primarily from net cash used in operations, offset by cash received upon the issuance of the Convertible Note and equity.

The unrestricted net working capital deficit declined by $5,323,251 to $(20,262,835) at September 30, 2017 from $(14,939,583) at December 31, 2016. The decrease in net working capital resulted primarily from a reduction in the Company’s cash as well as the reclassification of all Fortress indebtedness into short-term liabilities in anticipation of the Restructuring.

Cash provided in operating activities was $(14,805,103) during the nine months ended September 30, 2017 and cash provided in operating activities of was $11,214,122 during the nine months ended September 30, 2016. The difference between the nine months ended September 30, 2016, during which the Company generated cash from operating activities, and the nine months ended September 30, 2017, during which the Company used cash in operating activities, is largely tied to the much lower level of revenues during the nine months ended September 30, 2017 as compared to the comparable period in 2016.

Cash provided in investing activities was $2,765,466 for the nine months ended September 30, 2017 compared to $(3,561,043) cash used in investing activities for the nine months ended September 30, 2016. The generation of cash in investing activities during the nine months ended September 30, 2017 was primarily related to the disposition of certain patent portfolios, offset slights by the purchases of property, equipment and other non-patent intangible assets and cash used during the nine months ended September 30, 2016 was primarily the acquisition of new patent portfolios.

Cash provided in financing activities was $11,066,704 during the nine months ended September 30, 2017 compared to cash provided in financing activities in the amount of $(8,911,688) during the nine months ended September 30, 2016. Cash generated by financing activities for the nine months ended September 30, 2017 resulted from the issuance of equity, issuance of Convertible Notes, offset by the repayment of some outstanding debt. Cash used in financing activities for the nine months ended September 30, 2016 resulted from the repayment of notes payable related to the acquisition of the Medtech portfolios, the repayment of principal on the Fortress debt and the repayment of other minor debt obligations.

Management is uncertain that the balance of cash and cash equivalents of $122,172 in unrestricted cash at September 30, 2017 is sufficient to continue to fund the Company’s operations through at least the next twelve months and there is no certainty that the Company will achieve the milestones to have the restricted cash released from escrow. The Company’s operations are subject to various risks and there is no assurance that changes in the operations of the Company will not require the Company to raise additional cash sooner than planned in order to continue uninterrupted operations. In that event, the Company would seek to raise additional capital from the sale of the Company’s securities, from borrowing or from other sources. Should the Company seek to raise capital from the issuances of its securities, such transactions would be subject to the risks of the market for the Company’s securities at the time.

~~Table of Contents~~

OFF-BALANCE SHEET ARRANGEMENTS

Based on the Company’s current revenue and profit projections, management is uncertain that the Company’s existing cash and accounts receivables will be sufficient to fund its operations through at least the next twelve months, raising substantial doubt regarding the Company’s ability to continue operating as a going concern. If we do not meet our revenue and profit projections or the business climate turns negative, then we will need to:

	●	raise additional funds to support the Company’s operations; provided, however, there is no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all. If the Company raises additional funds by issuing securities, existing stockholders may be diluted; and

	●	~~review strategic alternatives.~~

~~Off-balance Sheet Arrangements~~

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated condensed financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.

None.

~~Item~~

ITEM 3. ~~Quantitative~~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. 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. This 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.

Table of Cont e nts

At March 31, 2024, we held approximately 17,320 bitcoin and ~~Qualitative Disclosures About Market Risk.~~

~~Not required for smaller reporting companies.~~

the fair value of a single bitcoin was approximately $71,289, meaning that the fair value of our bitcoin holdings on that date was approximately $1,234.7 million.

~~Item~~

ITEM 4. ~~Controls and Procedures.~~

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and ~~Procedures.~~

~~Our~~Procedures

The Company’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of its disclosure controls and procedures (as such term is ~~responsible~~defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that its disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2024 due to the previously identified material weakness.

Material Weaknesses in Internal Control and Plan for ~~establishing and maintaining adequate~~Remediation

Based on its evaluation, management previously identified a material weakness in internal control over financial reporting that remained open as ~~defined~~of year-end. The material weakness included:

•A material weakness related to the ineffective design or implementation of information technology general controls or an alternative key manual control to prevent or detect material misstatements in ~~Rules 13a-15(f)~~revenue.

The material weaknesses associated with the design and ~~15d-15(f) under~~implementation of the ~~Exchange Act. Our~~manual control over revenue recognition did not result in a material misstatement to the Company’s previously issued Consolidated Financial Statements, nor in the Consolidated Financial Statements included in this Quarterly Report.

Remediation

The Company’s Board of Directors and management ~~is also required to assess and report on the effectiveness of our~~take internal control over financial reporting ~~in accordance with~~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 to utilize external third-party audit and implementation firms under Section 404 of the Sarbanes-Oxley Act of 2002 (“~~Section 404”~~SOX”)~~. Our~~ to enable the Company to improve the Company’s controls related to its material weaknesses; and

•Continue to evaluate existing processes and implement new processes and controls where necessary in connection with remediating the Company’s material weaknesses, such that these controls are designed, implemented, and operating effectively.

•Continue to work and guide our vendors in the industry that are not accustomed to the requirements of SOX to enhance and progress the industry forward to be fully compliant with SOX.

The Company recognizes that the material weaknesses in its internal control over financial reporting iswill not be considered remediated until the remediated controls operate for a ~~process~~sufficient period of time and can be tested and concluded by management to be designed toand operating effectively. Because the Company’s remediation efforts are ongoing, it cannot provide ~~reasonable~~any assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Management assessed the effectiveness of ourthat these remediation efforts will be successful or that its internal control over financial reporting as of December 31, 2016. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework in the 2013 COSO framework.

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be ~~performed by separate individuals.~~

~~We believe that the foregoing steps if implemented, will help remediate the material weakness identified above, and we will continue to monitor the effectiveness~~effective as a result of these ~~steps~~efforts.

The Company continues to evaluate and ~~make any changes that our management deems appropriate. Due~~work to ~~the nature of this material weakness in our~~improve its internal control over financial reporting ~~there is more than a remote likelihood that misstatements which could be~~related to the identified material weaknesses, and management may determine to ~~our annual~~take additional measures to address control deficiencies or ~~interim financial statements could occur that would not be prevented or detected.~~

~~Table of Contents~~

~~A material weakness is a deficiency, or a combination~~determine to modify the remediation plan described above. In addition, the Company will report the progress and status of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detectedthe above remediation efforts to the Audit Committee on a ~~timely~~periodic basis. ~~A significant deficiency is a deficiency, or a combination~~

Table of ~~deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight~~Cont e nts

As part of the ~~company’s financial reporting.~~

~~Because~~Company’s ongoing program to implement changes and further improve its internal controls and in conjunction with is Code of Ethics, the Company’s independent directors have been working with management to include protocols and measures aimed at ensuring quality of its ~~inherent limitations,~~ internal ~~control over financial reporting~~controls. Among those measures is the implementation of a whistle blower hotline, which allows third parties to anonymously report noncompliant activity. The hotline may ~~not prevent or detect misstatements. Projections~~be accessed as follows:

To file a report, use the Client Code “MarathonPG” and pick one of ~~any evaluation of effectiveness to future periods are subject to~~ the ~~risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.~~

~~Changes~~following options:

•Call: 1-877-647-3335

•Click: http://www.RedFlagReporting.com

Change in Internal ~~Controls.~~

Control Over Financial Reporting

There have been no changes in ~~our~~the Company’s internal control over financial reporting during the ~~quarter~~three months ended ~~September 30, 2017~~March 31, 2024 that have materially affected, or are reasonably likely to materially affect, ~~our~~its internal controls over financial ~~reporting.~~

reporting other than the ongoing remediation efforts undertaken by management.

Table of Cont e nts

PART II ~~- OTHER INFORMATION~~

~~Item~~

ITEM 1. ~~Legal Proceedings.~~

In the normal course of our business of patent monetization, it is generally necessary for us to initiate litigation in order to commence the process of protecting our patent rights. Such litigation is expected to lead to a monetization event. Accordingly, we are, and in the future, expect to become, a party to ongoing patent enforcement related litigation alleging infringement by various third parties of certain patented technologies owned and/or controlled by us. Litigation is commenced by and managed through the subsidiary that owns the related portfolio of patents or patent rights. In connection with our enforcement activities, we are currently involved in multiple patent infringement cases. As of September 30, 2017, the Company is involved into a total of 5 lawsuits against defendants in the following jurisdictions:

~~United States~~
~~District of Delaware~~			5

Marathon Patent Group, Inc. and Clouding Corp. are currently defendants in a lawsuit captioned as Symantec Corporation v. IP Navigation Group, LLC; Clouding IP, LLC, et al., Los Angeles County Superior Court, Case No.: BC640931. Symantec alleges the following causes of action against Marathon and Clouding in the First Amended Complaint: fraudulent misrepresentation; interference with contractual relations; violation of Business and Professions Code section 17200, et seq.; and accounting. A Post Mediation Status Conference is scheduled for January 24, 2018 (although the parties have not discussed mediation or any other form of alternative dispute resolution). A Final Status Conference is scheduled for March 16, 2018. Trial of the matter is scheduled to commence on March 26, 2018.

Marathon Patent Group, Inc., Doug Croxall and Francis Knuettel II are currently defendants in a lawsuit captioned as Jeffrey Feinberg v. Marathon Patent Group, Inc., Doug Croxall, Francis Knuettel II and Does 1-10, inclusive, Los Angeles County Superior Court, Case No.: BC673128. Mr. Feinberg alleges the following causes of action against Marathon, Doug Croxall and Francis Knuettel II: violation of Section 11 of the Securities Act; violation of Section 12(a)(2) of the Securities Act; violation of Section 15 of the Securities Act; fraud and fraudulent concealment; constructive fraud; and negligent misrepresentation. On November 9, 2017, Mr. Feinberg filed a request for dismissal.

LEGAL PROCEEDINGS

Other than as disclosed ~~herein, we know of~~in Note 14 - Legal Proceedings—Ho v. Marathon in the notes to the Company’s Condensed Consolidated Financial Statements included in this Quarterly Report, there have been no ~~other~~ material ~~active or pending~~changes to our legal proceedings ~~against us, nor are we involved~~ as ~~a plaintiff~~previously disclosed in ~~any material proceedings or pending litigation other than in the normal course of business.~~

our Annual Report.

ITEM 1A. RISK FACTORS

We are not aware of any material changes to the risk factors set forth under the caption “Risk Factors” in Part II, Item ~~1A. Risk Factors.~~

~~Not required for smaller reporting companies.~~

1A of our Annual Report, which are incorporated herein by reference. The risks described in our Annual Report are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financial condition, operating results, liquidity, and future prospects.

~~Table of Contents~~

~~Item~~

ITEM 2. ~~Unregistered Sales~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities ~~and Use~~


Period	Total Number of Shares Repurchased	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Amounted Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2024 through January 31, 2024	670,776	$	17.75	—	$	—
February 1, 2024 through February 29, 2024	121,977	23.20		—	—
March 1, 2024 through March 31, 2024	68,585	26.20		—	—
Total	861,338	$	19.20	—	$	—

(1)The average price paid for shares in connection with vesting of ~~Proceeds.~~

~~On August 9, 2017, the Company issued 250,000 shares~~restricted stock units are averages of the ~~Company’s Common Stock pursuant~~closing stock price at the vesting date which is used to calculate the ~~conversion~~number of ~~200,000~~ shares ~~of Series D Convertible Preferred Stock.~~

~~On August 29, 2017, the Company issued 200,000 shares in total of the Company’s Common Stock to four different vendors in partial or total payment of outstanding invoices.~~

~~On September 5, 2017, the Company issued 62,500 shares of the Company’s Common Stock pursuant to the conversion of 50,000 shares of Series D Convertible Preferred Stock.~~

~~On September 6, 2017, the Company issued 534,710 shares of the Company’s Common Stock pursuant to the conversion of $427,768 in principal amount invested in the Convertible Note.~~

~~On September 13, 2017, the Company issued 315,925 shares of the Company’s Common Stock pursuant to the conversion of 252,750 shares of Series D Convertible Preferred Stock.~~

withheld.

~~Item~~

ITEM 3. ~~Defaults Upon Senior Securities.~~

DEFAULTS UPON SENIOR SECURITIES

None.

~~Item~~

ITEM 4. ~~Mine Safety Disclosures.~~

MINE SAFETY DISCLOSURES

Not applicable.

~~Item~~

ITEM 5. ~~Other Information.~~

~~Certain officers of~~OTHER INFORMATION

Director and Officer Trading Plans and Arrangements

Neither the Company ~~have received stock grants and /~~nor any of its directors or ~~options~~Section 16 officers has adopted, modified, or terminated any trading plans or arrangements that are intended to satisfy the affirmative defense conditions of Rule 10b5-1 or plans that are “non-Rule 10b5-1 plans,” as defined in ~~3D Nanocolor Corp. (“3D Nano”), a wholly-owned subsidiary~~Item 408(c) of ~~the Company, pursuant to 3D Nano’s 2016 Equity Incentive Plan.~~

Regulation S-K.

Table of Cont e nts

~~Item~~

ITEM 6. ~~Exhibits.~~

EXHIBITS

The following exhibits are filed as part of this Quarterly Report.

Exhibit Number

Exhibit Description

Form

Date of First Filing

Exhibit Number

Provided Herewith

10.1#

Amended Executive Employment Agreement, dated May 26, 2022, by and between Marathon Digital Holdings, Inc. and James Crawford

10.2#

Amended Executive Employment Agreement, dated April 4, 2023, by and between Marathon Digital Holdings, Inc. and Adam Swick

31.1

~~Certification~~Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*2002

31.2

~~Certification~~Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*2002

~~32.1~~32.1*

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*2002

~~32.2~~

101.INS

Inline XBRL Instance Document

~~Certification pursuant to~~

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

Indicates management contract or compensatory plan.

This certification is not deemed “filed” for purposes of Section ~~906~~18 of the ~~Sarbanes-Oxley~~Securities Exchange Act of 2002*

~~101.ins~~

XBRL Instance Document**

~~101.sch~~

XBRL Taxonomy Schema Document**

~~101.cal~~

XBRL Taxonomy Calculation Document**

~~101.def~~

XBRL Taxonomy Linkbase Document**

~~101.lab~~

XBRL Taxonomy Label Linkbase Document**

~~101.pre~~

XBRL Taxonomy Presentation Linkbase Document**

* Furnished herewith

** Filed herein

411934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

~~Table of Contents~~

Table of Cont e nts

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Date: November 20, 2017~~


Date:	~~MARATHON PATENT GROUP, INC.~~May 09, 2024

	~~By:~~	~~/s/ Doug Croxall~~MARATHON DIGITAL HOLDINGS, INC.
			~~Name: Doug Croxall~~
		By:	/s/ Fred Thiel
		Name:	Fred Thiel
		Title:	Chief Executive Officer and ~~Chairman~~Chairperson of the Board
			(Principal Executive Officer)

		By:	/s/ ~~Francis Knuettel II~~Salman Khan
		Name:	~~Name: Francis Knuettel II~~Salman Khan
		Title:	~~Title:~~ Chief Financial Officer
			(Principal Financial and Accounting Officer)

~~11100 Santa Monica Blvd., Ste. 380~~ ~~Los Angeles, CA~~
101 NE Third Avenue, Suite 1200, Fort Lauderdale, FL						~~90025~~33301
(Address of principal executive offices)						(Zip Code)


Large accelerated filer		~~[ ]~~☒		Accelerated filer		~~[ ]~~☐

Non-accelerated filer ~~(Do not check if smaller reporting company)~~	~~[ ]~~☐		Smaller reporting company		☐
				Emerging growth company		~~[X]~~ ~~[ ]~~ ☐

				Page ~~No.~~
































PART I. - FINANCIAL INFORMATION
Item 1.		Financial Statements		3
		Condensed Consolidated ~~Condensed~~ Balance Sheets as of ~~September 30, 2017~~March 31, 2024 (unaudited) and December 31, ~~2016~~2023		3 1
		Condensed Consolidated ~~Condensed~~ Statements of Operations ~~and Comprehensive Loss~~ for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 (unaudited)		4 2
		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)		3
		Condensed Consolidated ~~Condensed~~ Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 (unaudited)		5 4
		Notes to ~~Unaudited~~Condensed Consolidated ~~Condensed~~ Financial Statements		6 5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3.		Quantitative and Qualitative ~~Disclosures~~Disclosure About Market Risk		39 43
Item 4.		Controls and Procedures		39 44

PART II. OTHER INFORMATION
~~PART II – OTHER INFORMATION~~
Item 1.	Legal Proceedings		40 46
Item 1A1A.		Risk Factors		40 46
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		41 46
Item 3.		Defaults ~~upon~~Upon Senior Securities		41 46
Item 4.		Mine Safety Disclosures		41 46
Item 5.		Other Information		41 46
Item 6.		Exhibits		41 47

	September 30, 2017			December 31, 2016

ASSETS
Current assets:
Cash	$	122,172		$	4,998,314
Restricted Cash		3,919,718			-
Total cash		4,041,890			4,998,314
Accounts receivable - net of allowance for bad debt of $387,976 and $387,976 for September 30, 2017 and December 31, 2016		123,630			95,069
Note receivable		588,864			225,982
Prepaid expenses and other current assets, net of discounts of $2,659 for September 30, 2017 and $3,724 for December 31, 2016		108,878			202,067
Total current assets		4,863,262			5,521,432

Other assets:
Property and equipment, net of accumulated depreciation of $133,224 and $108,407 for September 30, 2017 and December 31, 2016		9,803			28,329
Intangible assets, net of accumulated amortization of $12,813,915 and $11,323,185 for September 30, 2017 and December 31, 2016		7,590,213			12,314,628
Other non current assets, net of discounts of $797 for December 31, 2016		-			201,203
Goodwill		228,401			222,843
Total other assets		7,828,417			12,767,003

Total Assets	$	12,691,679		$	18,288,435

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,954,836		$	7,217,078
Clouding IP earn out - current portion		32,637			81,930
Revenue share liability		1,225,000			-
Warrant liability		2,411,750			-
Notes payable, net of discounts of $5,837,363 and $852,404 for September 30, 2017 and December 31, 2016		15,582,156			13,162,007
		21,206,379			20,461,015

Long-term liabilities
Notes Payable, net of discount of $57,763 for December 31, 2016		-			4,670,502
Clouding IP earn out		681,175			1,400,082
Revenue share liability		-			1,000,000
Other long term liability		37,236			43,978
Total long-term liabilities		718,411			7,114,562

Total liabilities		21,924,790			27,575,577

Stockholders' Deficit:
Preferred stock Series B, $.0001 par value, 50,000,000 shares authorized: 195,501 issued and outstanding at September 30, 2017 and December 31, 2016		78			78
Common stock, $.0001 par value; 200,000,000 shares authorized; 7,776,016 and 4,638,118 at September 30, 2017 and December 31, 2016		3,111			1,856
Additional paid-in capital		61,833,077			49,877,710
Accumulated other comprehensive income (loss)		(450,623	)		(1,060,390	)
Accumulated deficit		(70,427,472	)		(57,942,548	)

Total Marathon Patent Group stockholders' equity		(9,041,829	)		(9,123,294	)

Noncontrolling interests		(191,282	)		(163,848	)

Total deficit		(9,233,111	)		(9,287,142	)

Total liabilities and stockholders' deficit	$	12,691,679		$	18,288,435

	For the Three Months Ended 30-Sep-17			For the Three Months Ended 30-Sep-16			For the Nine Months Ended 30-Sep-17			For the Nine Months Ended 30-Sep-16

Revenues	$	162,713		$	43,113		$	609,650		$	36,452,551

Expenses
Cost of revenues		64,836			1,094,378			1,544,322			19,202,118
Amortization of patents and website		457,419			2,030,886			1,803,264			6,018,196
Compensation and related taxes		1,871,946			1,252,571			3,718,034			3,406,841
Consulting fees		133,018			257,420			189,819			903,032
Professional fees		616,125			432,496			1,686,955			1,336,201
General and administrative		213,130			183,771			599,416			612,284
Goodwill impairment		-			-			-			83,000
Patent impairment		723,218			5,531,383			723,218			6,525,273
Total operating expenses		4,079,692			10,782,905			10,265,028			38,086,945

Operating loss from continuing operations		(3,916,979	)		(10,739,792	)		(9,655,378	)		(1,634,394	)

Other income (expenses)
Other income (expense)		2,252,886			(37,116	)		3,151,418			(68,647	)
Foreign exchange (loss)		(480,240	)		(175,850	)		(463,191	)		(238,073	)
Loss on debt extinguishment		(283,237	)		-			(283,237	)		-
Loss on sale of company		(1,519,875	)		-			(1,519,875	)		-
Change in fair value adjustment of Clouding IP earn out		754,321			1,954,378			768,200			2,122,208
Warrant income (expense)		(1,909,879	)		-			(1,914,786	)		-
Interest income		931			931			2,793			2,793
Interest expense		(1,283,223	)		(649,065	)		(2,416,722	)		(2,500,321	)
Total other income (expenses)		(2,468,316	)		1,093,278			(2,675,400	)		(682,040	)

Loss from continuing operations before benefit for income taxes		(6,385,295	)		(9,646,514	)		(12,330,778	)		(2,316,434	)

Income tax benefit (expense)		(12,191	)		3,347,909			(29,433	)		26,974

Net Income (loss)		(6,397,486	)		(6,298,605	)		(12,360,211	)		(2,289,460	)

Net income (loss) attributable to Noncontrolling interests		(280,000	)		24,195			(124,714	)		27,918

Net (loss) attributable to common shareholders	$	(6,677,486	)	$	(6,274,410	)	$	(12,484,925	)	$	(2,261,542	)

Income (loss) per common share:
Basic	$	(1.06	)	$	(1.67	)	$	(2.24	)	$	(0.61	)
Diluted

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		6,270,299			3,761,786			5,564,465			3,736,213

Net loss	$	(6,677,486	)	$	(6,274,410	)	$	(12,484,925	)	$	(2,261,542	)
Other comprehensive loss:
Unrealized gain on foreign currency translation		482,622			209,159			609,768			306,411
Comprehensive loss		(6,194,864	)		(6,065,251	)		(11,875,157	)		(1,955,131	)
Less: comprehensive income (loss) related to non-controlling interest		(280,000	)		24,195			(124,714	)		27,918
Comprehensive loss attributable to Marathon Patent Group, Inc.	$	(6,474,864	)	$	(6,041,056	)	$	(11,999,871	)	$	(1,927,213	)

	For The Nine Months Ended September 30, 2017			For The Nine Months Ended September 30, 2016
Cash flows from operating activities:
Net loss	$	(12,484,924	)	$	(2,261,542	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		1,248			3,780
Amortization of patents and website		1,803,264			6,018,196
Deferred tax asset		-			531,757
Deferred tax liability		-			(638,268	)
Loss on sale of companies		-			-
Warrant liability		-			-
Impairment of intangible assets		704,678			6,525,273
Impairment of goodwill		-			83,000
Stock based compensation		1,523,187			1,541,615
Stock issued for services		-			136,000
Non-cash interest, discount, and financing costs		(4,397,381	)		952,231
Change in fair value of Clouding earnout		(768,200	)		(2,122,198	)
Allowance for doubtful accounts		-			12,226
Beneficial conversion feature		4,017,729			-
Noncontrolling interest		(27,435	)		(27,918	)
Other non-cash adjustments		182,024			96,996
Changes in operating assets and liabilities
Accounts receivable		(28,561	)		43,763
Bonds posted with courts		-			883,695
Prepaid expenses and other assets		(269,693	)		(6,652	)
Other non current assets		201,203			-
Accounts payable and accrued expenses		(5,262,242	)		(557,832	)

Net cash and restricted cash provided by (used in) operating activities		(14,805,103	)		11,214,122

Cash flows from investing activities:
Acquisition of patents		-			(3,552,656	)
Disposal of patents		2,771,757			-
Purchase of property, equipment, and other intangible assets		(6,291	)		(8,387	)
Net cash provided by (used in) investing activities		2,765,466			(3,561,043	)

Cash flows from financing activities:
Payment on note payable in connection with the acquisition of Medtech and Orthophoenix		-			(2,953,779	)
Payment on Fortress note payable		(63,286	)		(5,379,105	)
Payment on 3D Nano license note payable		(100,000	)		-
Cash received upon issuance of equity (net of issuance costs)		5,158,906			-
Issuance of warrants		2,549,084			-
Issuance of convertible notes payable		5,500,000
Medtronic note payable		600,000			-
Payment of Medtronic note payable		(600,000	)
Payments on Seimens notes payable		(1,750,000	)		-
Payments on notes payable to vendors		(125,000	)		-
Payments on notes payable, net		(103,000	)		(578,804	)
Net cash provided (used in) by financing activities		11,066,704			(8,911,688	)

Effect of exchange rate changes on cash		16,509			(1,592	)

Net decrease in cash		(956,424	)		(1,260,201	)

Cash at beginning of period		4,998,314			2,555,151

Cash and restricted cash at end of period	$	4,041,890		$	1,294,950

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest expense	$	368,923		$	1,187,074
Taxes paid	$	29,433		$	27,682
Cash invested in 3D Nano	$	-		$	115,000

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Revenue share liability incurred in conjunction with note payable	$	225,000		$	-
Warrant issued in conjunction with common stock issuance	$	257,957		$	-
Note payable issued in conjunction with the acquisition of Munitech patents	$	-		$	1,755,635
Note payable issued in conjunction with the acquisition of GE patent		-			1,000,000
Note payable issued in conjunction with the acquisition of3D Nano license		-			200,000

	For the Three Months Ended September 30, 2017			For the Three Months Ended September 30, 2016			For the Nine Months Ended September 30, 2017			For the Nine Months Ended September 30, 2016
Net income (loss) attributable to Common shareholders	$	(6,677,485	)	$	(6,274,410	)	$	(12,484,924	)	$	(2,261,542	)

Denominator
Weighted average common shares – Basic and Diluted		6,270,299			3,761,786			5,564,465			3,736,213

Earnings (loss) per common share:
Earnings (loss) – Basic and Diluted	$	(1.06	)	$	(1.67	)	$	(2.24	)	$	(0.60	)

2017	$	401,804
2018		1,517,219
2019		1,447,660
2020		1,154,767
2021		1,004,600
2022 and thereafter		2,064,163
Total	$	7,590,213

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Life
Balance at December 31, 2016		116,520	$	15.17		3.25
Granted		7,941,374		1.70		5.01
Cancelled		-		-		-
Forfeited		-		-		-
Exercised		570,000		3.32		-
Balance at September 30, 2017		7,487,894	$	1.86		5.35

Warrants exercisable at September 30, 2017		612,894
Weighted average fair value of warrants granted during the period			$	0.09

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Life
Balance at December 31, 2016		879,034	$	17.84		6.80
Granted		-		-		-
Cancelled		48,542		-		-
Forfeited		217,298		16.71		-
Exercised		-		-		-
Balance at September 30, 2017		613,194	$	17.04		3.06

Options Exercisable at September 30, 2017		591,841	$	13.83		2.91
Options expected to vest		21,354	$	20.33		7.23
Weighted average fair value of options granted during the period			$	-

	Maturity	Interest			September 30,			December 31,
	Date	Rate			2017			2016

Senior secured term notes	9-Jul-20		LIBOR + 9.75	%	$	15,881,493		$	15,620,759
Less: debt discount						(1,686,090	)		(1,425,167	)
Total senior-term notes, net of discount					$	14,195,403		$	14,195,592

	Maturity	Late		September 30,		December 31,
	Date	Fee		2017		2016
iRunway trade payable	On Demand	1.5% per month	$	0	$	191,697

2017 (Three Months)	$	18,081
2018		74,540
2019		77,872
2020		81,336
2021		27,504
Total	$	297,333

	Total Other Operating Expenses				Total Other Operating Expenses
	For the Three Months Ended September 30, 2017		For the Three Months Ended September 30, 2016		For the Nine Months Ended September 30, 2017		For the Nine Months Ended September 30, 2016

Amortization of patents(1)	$	457,419	$	2,030,886	$	1,803,264	$	6,018,196
Compensation and related taxes (2)		1,871,946		1,252,571		3,718,034		3,406,841
Consulting fees (3)		133,018		257,420		189,819		903,032
Professional fees (4)		616,125		432,496		1,686,955		1,336,201
Other general and administrative (5)		213,130		183,771		599,464		612,284
Goodwill impairment (6)		-		-		-		83,000
Patent Impairment (7)		723,218		5,531,383		723,218		6,525,273
Total	$	4,014,856	$	9,688,527	$	8,720,754	$	18,884,827

	Non-Cash Operating Expenses					Non-Cash Operating Expenses
	For the Three Months Ended September 30, 2017			For the Three Months Ended September 30, 2016		For the Nine Months Ended September 30, 2017			For the Nine Months Ended September 30, 2016

Amortization of patents (1)	$	457,419		$	2,030,886	$	1,803,264		$	6,018,196
Compensation and related taxes (2)		1,319,629			440,161		1,636,906			1,306,399
Consulting fees (3)		42,910			30,038		(91,228	)		345,510
Professional fees (4)		108			8,620		325			25,707
Other general and administrative (5)		(1,486	)		12,468		(3,072	)		28,448
Goodwill impairment (6)		-			-		-			83,000
Patent Impairment (7)		723,218			5,531,383		723,218			6,525,273
Total	$	2,541,798		$	8,053,556	$	4,069,413		$	14,332,533

	Non-GAAP Reconciliation						Non-GAAP Reconciliation
	For the Quarter Ended September 30, 2017			For the Quarter Ended September 30, 2016			For the Nine Months Ended September 30, 2017			For the Nine Months Ended September 30, 2016
Net income (loss) attributable to Common Shareholders	$	(6,677,486	)	$	(6,274,410	)	$	(12,484,925	)	$	(2,261,542	)
Non-GAAP
Amortization of intangible assets & depreciation		457,719			2,030,886			1,804,512			6,018,196
Equity-based compensation		1,371,480			478,819			1,554,835			1,677,616
Impairment of intangible assets		723,218			5,531,383			723,218			6,608,273
Change in the fair value of the clouding IP liability		(754,320	)		(1,954,378	)		(768,199	)		(2,122,208	)
Loss on debt extinguishment		283,237			-			283,237			-
Loss on sale of companies		1,519,875			-			1,519,875			-
Warrant (Income) Expense, net		1,909,879			-			1,914,786			-
Non-cash Other (Income) expense, net		(1,323,407	)		-			(2,221,939	)		-
Non-cash interest expense		1,043,012			288,049			1,489,678			952,231
Deferred tax benefit		-			(3,347,909	)		-			(26,974	)
Other		(1,486	)		12,468			(3,072	)		28,488
Non-GAAP earnings (loss)	$	(1,448,278	)	$	(3,235,092	)	$	(6,187,993	)	$	10,874,080