United States securities and exchange commission logo
April 8, 2022
Hugh Gallagher
Chief Financial Officer
Marathon Digital Holdings, Inc.
1180 North Town Center Drive, Suite 100
Las Vegas, NV 89144
Re: Marathon Digital
Holdings, Inc.
Form 10-K for the
Fiscal Year Ended December 31, 2021
File No. 001-36555
Dear Mr. Gallagher:
We have limited our review of your filing to the financial
statements and related
disclosures and have the following comments. In some of our comments, we
may ask you to
provide us with information so we may better understand your disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 10-K for the Fiscal Year Ended December 31, 2021
Business, page 5
1. Consistent with your
response in the letter dated July 2, 2019, please clarify your business
model as to your patent
licensing business and assets.
2. Please ensure that all
of your disclosures are updated. For example, you state that you
have no long-term debt,
but we note the convertible notes payable on your balance sheet
as of December 31,
2021. You also state on page 21 that you do not currently own, and
do not have any current
plans to seek, any patents in connection with your existing and
planned blockchain and
cryptocurrency related operations, but we note from your
disclosure on page F-14
that your intangible assets include the Crypto Currency Patent. In
addition, on page 26,
you indicate that the current fixed reward on the bitcoin network is
12.5 bitcoins per
block, but the reward has decreased by half to become 6.25 bitcoins
around May 10, 2020.
Hugh Gallagher
FirstName LastNameHugh
Marathon Digital Holdings,Gallagher
Inc.
Comapany
April NameMarathon Digital Holdings, Inc.
8, 2022
April 28, 2022 Page 2
Page
FirstName LastName
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Non-GAAP Financial Measures, page 42
3. We believe that adjusting for impairment of mined cryptocurrency does
not provide useful
information to investors in light of your strategy to hold bitcoin as
a long term investment
and sell bitcoin in future periods as needed to generate cash for
treasury management and
other general corporate purposes, in addition to the recurring nature
of this charge. Please
revise to remove this adjustment from your computation of non-GAAP
measures. Refer
to Rule 100 of Regulation G.
4. Please tell us the nature of the non-GAAP adjustment for server
maintenance contract
amortization. Explain why you believe that adjusting for this item is
useful information to
investors as it appears to represent a normal, recurring, operating
expense. Refer to Item
10(e)(1)(i)(C) of Regulation S-K and Question 100.01 of the Compliance
and Disclosure
Interpretations on Non-GAAP Financial Measures.
5. Please tell us what consideration you gave to providing for the income
tax effects related
to the adjustments to arrive at non-GAAP net income and non-GAAP
diluted earnings per
share. Refer to Question 102.11 of the Compliance and Disclosure
Interpretations
on Non-GAAP Financial Measures.
Results of Operations for the Years Ended December 31, 2021, December 31, 2020
and
December 31, 2019, page 45
6. Please revise to describe and quantify the significant factors
affecting the changes in cost
of revenues in each of the periods presented. Refer to Item 303(b) of
Regulation S-K.
Liquidity and Capital Resources, page 47
7. Please revise to provide quantitative and qualitative analysis of the
underlying reasons for
the material changes in operating, investing, and financing cash
flows. Your discussion
should focus on the primary drivers and other material factors
necessary to understand
your cash flows in addition to the indicative value of your historical
cash flows. Refer to
Item 303(b) of Regulation S-K and Section IV.B.1 of SEC Release No.
33-8350.
Notes to Consolidated Financial Statements
Note 1 - Organization and Description of Business
Organization, page F-8
8. Please provide us with your detailed accounting analysis of whether
the series of
agreements entered into in October 2020 related to the Hardin Station
are or contain leases
under ASC 842. Also address the power purchase and data facility
services agreements as
part of your analysis. In addition, tell us and disclose how the build
out costs are being
paid for.
Hugh Gallagher
FirstName LastNameHugh
Marathon Digital Holdings,Gallagher
Inc.
Comapany
April NameMarathon Digital Holdings, Inc.
8, 2022
April 38, 2022 Page 3
Page
FirstName LastName
9. Please provide us with your detailed accounting analysis of whether
the agreement with
Compute North, LLC entered into on May 21, 2021 is or contains a lease
under ASC 842.
Also provide your evaluation under ASC 842 of the hosting agreements
with Compute
North, LLC.
10. We note that you own 82% of the equity in the Marathon Compute North 1
LLC joint
venture (the "LLC") with Compute North and the LLC has entered into a
hosting
agreement with Compute North to host bitcoin miners. Explain and
disclose how you are
accounting for the income from this hosting arrangement. Tell us
whether you own these
bitcoin miners and if they are subject to the hosting agreement
between the Company and
Compute North.
Note 2 - Summary of Significant Accounting Policies
Digital Currencies, page F-13
11. Please tell why you believe pricing of BTC on a nightly basis is the
proper time to use in
the quantitative impairment test of the mined BTC balances as well as
for the recordation
of daily revenues. Cite the literature that supports your accounting.
Refer to ASC 350-
30-35-20.
Property and Equipment, page F-14
12. We note that you changed the estimate of the expected life of
transaction verification
servers from two years to five years subsequent to December 31, 2020.
Please revise to
disclose the effect of this change in accounting estimate. Refer to
ASC 250-10-50-4.
Investment Fund, page F-15
13. Please explain how you are accounting for your limited partnership
agreement with
NYDIG Digital Assets Fund III, LP and cite the authoritative
accounting guidance relied
upon. Also explain how the Fund was established and describe the
general terms of the
agreement. We note that you own 100% of the limited partnership
interest. Address
whether the general partner or any other parties also hold any
interests in the Fund.
Explain the rights and responsibilities of the general partner and
investment manager in
more detail. Please also address whether the agreement provides you
with substantive
kick-out or participating rights. In addition, please provide us with
your detailed
accounting analysis of how the Fund qualifies as an investment company
for accounting
purposes under ASC 946. Refer to ASC 946-10-15.
Revenue Recognition , page F-15
14. Please clarify when you recognize revenue. Your disclosure states that
you recognize
revenue at the date you receive confirmation of the consideration you
will receive;
however, you also state that you measure the non-cash consideration at
fair value on the
date received. Tell us the time frame between confirmation of the
consideration and the
receipt of the consideration. Explain how you recognize revenue before
you have
Hugh Gallagher
Marathon Digital Holdings, Inc.
April 8, 2022
Page 4
determined the fair value. Also tell us how you comply with ASC
606-10-32-21 to 32-24.
That is, please provide us with your analysis of how you comply with
the requirement to
recognize the estimated fair value of the non-cash consideration at
contract inception.
15. Please clarify whether some or all of your mining activity is
conducted with other third
party pool participants and collectively provides transaction
verification services to the
blockchain network through a pool operator. If so, clearly disclose
the reward sharing
mechanism you select when participating in mining pools. Explain how
you are
accounting for any fees retained by the pool operator. In addition,
tell us and disclose the
amount of rewards earned from mining separately from fees earned for
transaction
verification.
16. We note from disclosures elsewhere in your filing that you operate
your own bitcoin
mining pools. Explain to us and disclose how you recognize revenue as
a pool operator.
Ensure your disclosure addresses the nature, amount, timing, and
uncertainty of revenue
and cash flows arising from these arrangements.
In closing, we remind you that the company and its management are
responsible for the
accuracy and adequacy of their disclosures, notwithstanding any review,
comments, action or
absence of action by the staff.
You may contact Melissa Walsh, Staff Accountant, at (202) 551-3224 or
Stephen
Krikorian, Accounting Branch Chief, at (202) 551-3488 with any questions.
FirstName LastNameHugh Gallagher Sincerely,
Comapany NameMarathon Digital Holdings, Inc.
Division of
Corporation Finance
April 8, 2022 Page 4 Office of
Technology
FirstName LastName