United States securities and exchange commission logo
May 27, 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
Form 10-Q for the
Quarterly Period Ended March 31, 2022
File No. 001-36555
Dear Mr. Gallagher:
We have reviewed your April 22, 2022 response to our comment
letter 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. Unless we note otherwise, our references to prior comments are
to comments in our
April 8, 2022 letter.
Form 10-K for the Fiscal Year Ended December 31, 2021
Consolidated Statements of Operations, page F-5
1. Please explain the
basis for classifying the realized gain on the sale of digital currencies
outside of loss from
operations within other income/expenses. Cite the authoritative
accounting literature
that supports your accounting.
Notes to Consolidated Financial Statements
Note 1 - Organization and Description of Business, page F-8
2. We note that you loaned
bitcoin to NYDIG under the Master Securities Loan Agreements
and the balance is
classified as digital currencies, restricted on the balance sheet. Please
describe the material
rights and obligations of both parties to the borrowings. Explain
how you are accounting
for the borrowed bitcoin and the collateral. In addition, please
Hugh Gallagher
FirstName LastNameHugh
Marathon Digital Holdings,Gallagher
Inc.
Comapany
May NameMarathon Digital Holdings, Inc.
27, 2022
May 27,
Page 2 2022 Page 2
FirstName LastName
provide the basis for your classification of the interest received on
the bitcoin loans in
your statement of cash flow. Cite the authoritative accounting
literature that supports your
accounting.
3. We note that, on December 21, 2021 and December 30, 2021, you entered
into two
separate Simple Agreement for Future Equity ( SAFE ) agreements.
Please describe the
material rights and obligations of these agreements. Also provide us
with your
comprehensive analysis to support your accounting for these agreements
with reference to
the authoritative literature applied. Ensure that your response
includes, but is not limited
to, an analysis of why you reference the guidance in ASC 323, what
consideration was
given to the application of ASC 815, and how you assess impairment.
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies
Digital Currencies, page F-13
4. We note your response to prior comment 11. Further explain how your
policy of testing
for impairment on a nightly basis complies with ASC 350. In this
regard, consistent with
ASC 350-30-35-19, you indicate that impairment exists when fair value
is below carrying
value, and ASC 350-30-35-18 indicates intangible assets should be
tested for impairment
at any time events or changes in circumstances indicate that it is
more likely than not that
the asset is impaired.
5. We note your disposition of digital currencies of $80,000. Tell us how
this is reflected on
the statement of cash flows. Provide an accounting analysis that
supports your
presentation, and explain the basis for any differences in the
presentation from prior
periods. Also, please tell us whether you lend your cryptocurrency or
otherwise purchase
forward contracts related to cryptocurrency. Tell us and disclose your
accounting policy
for such transactions, and cite the supportive accounting literature.
Investment Fund, page F-15
6. You indicate in response to prior comment 13 that your capital
contribution to the
investment fund was made in cash. Please reconcile this to your
disclosures on page F-11
indicating that you purchased BTC through an investment fund and on
page 48 that the
bitcoin was purchased and placed into the investment fund. In
addition, please explain the
disclosures throughout your filing indicating that you hold bitcoin in
an investment fund,
expect to purchase additional bitcoin held by the investment fund, and
may sell this
bitcoin in future periods to generate cash. Also address your press
release on January 25,
2021 stating that you purchased $150 million in bitcoin. In this
regard, you have
represented that you own 100% of a limited partnership interest in an
investment fund and
that entity invests in and holds bitcoin.
7. We note your response to prior comment 13. Please provide us with your
proposed
revised accounting policy for your investment in the investment fund.
That is, as
Hugh Gallagher
FirstName LastNameHugh
Marathon Digital Holdings,Gallagher
Inc.
Comapany
May NameMarathon Digital Holdings, Inc.
27, 2022
May 27,
Page 3 2022 Page 3
FirstName LastName
previously requested, please address how you are accounting for your
limited partnership
interest in NYDIG Digital Assets Fund III, LP.
8. You refer to ASC 810-10-25-38A through 25-38J in response to prior
comment 13.
Please further describe to us the design and purpose of NYDIG Digital
Assets Fund III,
LP ( DAF III ). Include in your response: (1) the basis for why
you would fund 100% of
the capital of DAF III, yet not retain any control over how that
capital is deployed; (2)
why the General Partner does not receive any economics in performance
of its duties; (3)
whether DAF III is designed to take on other investors; and (4)
whether DAF III is
designed to hold investments other than bitcoin.
9. Refer to your response to prior comment 13. Please identify for us the
General Partner
and Investment Manager and describe to us any related party
relationships. In addition,
provide us with your analysis of de facto agents pursuant to ASC
810-10-25-43. Further,
and where applicable, explain what consideration was given to the
remaining guidance in
ASC 810-10-25-42 through 25-44B.
10. In order to help us further evaluate your response to prior comment
13, please clarify
which entity is the limited partner of the Fund and whether the
limited partner is a
consolidated subsidiary of the Company for all periods; clarify to
whom the Other
Considerations #5 in your response refers and how its expectation
to purchase additional
bitcoin held by the investment fund in future periods is consistent
with your accounting
conclusion; and identify the various parties invested in or involved
with the Fund and their
relationships as well as the source of the Fund s bitcoin.
11. We note your response to prior comment 13 and continue to evaluate
your analysis.
Please provide us with a copy of the DAF III partnership agreement,
the agreement with
the Investment Manager, and any other pertinent agreements concerning
the governance
of DAF III.
Revenue Recognition, page F-15
12. You indicate in response to prior comment 14 and in your disclosure on
page 16 of your
Form 10-Q for the quarterly period ended March 31, 2022 that you
recognize revenue
based on the closing price of BTC on the day of constructive receipt
of the mining
reward. We note that constructive receipt of the mining reward can be
at least two days
from contract inception. As previously requested, please 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. In addition, please clarify the
statement in your
disclosure, The value of the BTC rewards, utilizing the prevailing
market prices at
constructive receipt, is not materially different than the value
recognized. That is, how is
there a difference in the value recognized if revenue is recognized
based on the closing
price of BTC on the day of constructive receipt.
Hugh Gallagher
FirstName LastNameHugh
Marathon Digital Holdings,Gallagher
Inc.
Comapany
May NameMarathon Digital Holdings, Inc.
27, 2022
May 27,
Page 4 2022 Page 4
FirstName LastName
13. We note your responses to prior comments 15 and 16 and disclosure on
page 16 of your
Form 10-Q for the quarterly period ended March 31, 2022. Please
distinguish between
how you recognized revenue as a pool participant and how revenue is
recognized as the
pool operator. We may have further comment. Also address the
following:
As the pool operator, explain how account for the block reward
earned and how you
present the allocation of the block reward to the 3rd party
miners. Provide us with
your comprehensive principal versus agent accounting analysis.
Refer to ASC 606-
10-55-36 through 55-40; and
You indicate that mining revenues are recorded net of any
pool fee, not gross, with
an offsetting cost of revenue. Please clarify this statement
and differentiate your
accounting for any pool fees earned as the pool operator with
third party miners, as
the pool operator and participant in your own pool, and when you
participated in third
party pools. Explain the nature of the amounts that are included
in the offsetting cost
of revenue. Tell us what consideration was given to whether the
pool fee you retain
relates to activities you must undertake to fulfill your contract
as the pool operator.
Also tell us whether the BTC rewarded among pool participants,
net of the pool fee,
represents the transaction price; and
Provide us with your proposed revised revenue recognition
policy disclosure in
response to our comments.
Note 5 - Debt, Commitments and Contingencies
Revolving Credit Line, page F-27
14. We note the terms of the collateral for your revolving line of credit.
Please provide us
with your analysis of the accounting for any bitcoin stored in a
custody account for the
benefit of the Bank pledged as collateral. Cite the authoritative
accounting literature
relied upon.
Form 10-Q for the Quarterly Period Ended March 31, 2022
Consolidated Condensed Statement of Operations, page 4
15. Please clarify that the line item of total other (expenses) income
excludes interest
expense.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Recent Developments, page 15
16. We note from your disclosure here and in response to prior comment 8
that, on March 31,
2022, you negotiated to terminate the three agreements associated with
the Hardin,
Montana facility effective in the third quarter of 2022. Please tell
us what consideration
was given to the impairment of the assets related to the build-out of
the Hardin Station.
Hugh Gallagher
FirstName LastNameHugh
Marathon Digital Holdings,Gallagher
Inc.
Comapany
May NameMarathon Digital Holdings, Inc.
27, 2022
May 27,
Page 5 2022 Page 5
FirstName LastName
Non-GAAP Financial Measures, page 17
17. We note your revised presentation of non-GAAP measures in response to
prior comments
3 and 4. Please address the following:
Revise to remove the adjustment for changes in the fair market
value of your
investment fund from your computation of non-GAAP measures. In
this regard, we
note your explanation that the adjustment is due to the
fundamentally different
accounting for your self-mined bitcoin and because the amount can
vary significantly
from period-to-period. Refer to Question 100.04 of the Compliance
and Disclosure
Interpretations on Non-GAAP Financial Measures.
Revise to remove the adjustment for impairment of digital
currencies from your
computation of adjusted EBITDA. As previously noted in prior
comment 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.
As previously requested in prior comment 4, explain the nature
of the non-GAAP
adjustment to adjusted EBITDA for amortization of prepaid service
contracts.
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.
Revise to present the most directly comparable GAAP financial
measures to basic
and diluted adjusted net income per share. Refer to Item
10(e)(1)(i)(A) and (ii)(E) of
Regulation S-K and Question 102.10 of the Compliance and
Disclosure Interpretation
of Non-GAAP Financial Measures.
Liquidity and Capital Resources, page 21
18. We note your disclosure here as well as the proposed prospective
disclosure in response to
prior comment 7. Further revise to provide quantitative and
qualitative analysis of the
underlying reasons for the material changes in net cash used by
operating activities, as
previously requested.
Hugh Gallagher
Marathon Digital Holdings, Inc.
May 27, 2022
Page 6
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
May 27, 2022 Page 6 Office of Technology
FirstName LastName