NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Marathon
Digital Holdings, Inc. (the “Company”) was incorporated in the State of Nevada on February 23, 2010 under the name Verve
Ventures, Inc. On December 7, 2011, the Company changed its name to American Strategic Minerals Corporation and was engaged in
exploration and potential development of a minerals business. In June 2012, the Company discontinued the minerals business and
began to invest in real estate properties in Southern California. In October 2012, the Company discontinued its real estate business
and the Company commenced IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc.
Since 2018, the Company purchased cryptocurrency mining machines and established a data center in Canada to mine digital assets. The
Company has since expanded its activities in the mining of bitcoin. As of March 31, 2022, the Company no longer holds any
legacy IP assets and is solely focused on the mining of bitcoin and ancillary opportunities within the bitcoin ecosystem.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited consolidated condensed financial statements, including the accounts of the Company’s subsidiaries, Marathon
Crypto Mining, Inc., Crypto Currency Patent Holding Company and Soems Acquisition Corp., have been prepared by 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 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. 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 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 the full year ended December 31, 2022.
Use
of Estimates and Assumptions
The
preparation 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 fixed assets, the assumptions
used to calculate fair value of options granted, realization of long-lived assets, deferred income taxes, unrealized tax
positions and the realization of digital currencies.
Significant
Accounting Policies
There
have been no material changes to the Company’s significant accounting policies to those previously disclosed in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Digital
Currencies
Digital
currencies are included in current assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment.
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. Impairment
exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative
assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely
than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required
to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of
the asset. Subsequent reversal of impairment losses is not permitted.
Halving
– The bitcoin blockchain and the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving
is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus
algorithm. At a predetermined block, the mining reward is cut in half, hence the term “Halving”. The last halving for bitcoin
occurred on May 12, 2020. For example, the current fixed reward on the bitcoin network for solving
a new block is six and one quarter (6.25) bitcoins per block, which decreased from twelve and a half (12.5) bitcoins per block
in May 2020. It is estimated that the number of bitcoins per block will halve again in about four (4) years. Many factors influence
the price of bitcoin and potential increases or decreases in prices in advance of or following a future halving is unknown.
The
following table presents the activities of the digital currencies for the three months ended March 31, 2022:
SCHEDULE OF ACTIVITIES OF DIGITAL CURRENCIES
Digital
currencies at December 31, 2021 | |
$ | 123,243,264 | |
Additions of digital currencies | |
| 51,717,718 | |
Impairment of digital currencies | |
| (19,551,254 | ) |
Interest received on digital
currencies, restricted | |
| 151,148 | |
Digital currencies
at March 31, 2022 | |
$ | 155,560,876 | |
At
March 31, 2022, we held approximately 4,579
self-mined bitcoin with a carrying value of
$155.6
million and carried on the balance sheet as digital currencies ($135.1
million) and digital currencies, restricted ($20.5
million). The fair market value of the self-mined
bitcoin as of March 31, 2022 was approximately $208.8 million. We also held approximately 4,794 bitcoin in an investment fund,
which was valued at $218.2 million as of March 31, 2022.
MARATHON
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Investment
Fund
In
2016, the FASB issued Accounting Standards Update (ASU) 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities, that requires entities to generally measure investments in equity
securities at fair value and recognize changes in fair value in net income.
On
January 25, 2021, the Company entered into a limited partnership agreement with NYDIG Digital Assets Fund III, LP (“fund”)
whereas the fund purchased 4,812.66 BTC in an aggregate purchase price of $150 million. The Company
owns 100% of the limited partnership interest. The investment fund is included in current assets in the consolidated balance sheets.
The
fund qualifies and operates as an investment company for accounting purposes pursuant to the accounting and reporting guidance under
ASC 946, Financial Services – Investment Companies, which requires fair value measurement of the Fund’s investments in digital
assets. The digital assets held by each Fund are traded on a number of active markets globally, including the over-the-counter (“OTC”)
market and digital asset exchanges. A fair value measurement under ASC 820 for an asset assumes that the asset is exchanged in an orderly
transaction between market participants either in the principal market for the asset or, in the absence of a principal market, the most
advantageous market for the asset (ASC 820-10-35-5). An entity must have access to the principal (or most advantageous) market at the
measurement date (ASC 820-10-35-6A).
Investments
Investments,
which may be made from time to time for strategic reasons (and not to engage in the business of investments) are included in non-current
assets in the consolidated balance sheets. Investments are recorded at cost and the Company analyzes these investments value on a quarterly
basis. 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 SAFE agreements. 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.
Fair
Value of Financial Instruments
The
Company measures at fair value certain of its financial and non-financial assets and liabilities by using 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. |
The
carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, accounts payable, and accrued expenses, approximate
their estimated fair market value based on the short-term maturity of these instruments. The carrying value of notes payable and other
long-term liabilities approximate fair value as the related interest rates approximate rates currently available to the Company.
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 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.
The
following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and
the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of March 31, 2022 and December
31, 2021, respectively:
SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
| |
Fair
value measured at March 31, 2022 | |
| |
Total carrying
value at March 31, | | |
Quoted prices
in active markets | | |
Significant
other observable inputs | | |
Significant
unobservable inputs | |
| |
2022 | | |
(Level
1) | | |
(Level
2) | | |
(Level
3) | |
Assets | |
| | | |
| | | |
| | | |
| | |
Money Market
Accounts | |
$ | 114,938,284 | | |
$ | 114,938,284 | | |
$ | - | | |
$ | - | |
Investment Fund | |
$ | 218,236,903 | | |
$ | - | | |
$ | 218,236,903 | | |
$ | - | |
| |
Fair
value measured at December 31, 2021 | |
| |
Total carrying
value at December 31, | | |
Quoted prices
in active markets | | |
Significant
other observable inputs | | |
Significant
unobservable inputs | |
| |
2021 | | |
(Level
1) | | |
(Level
2) | | |
(Level
3) | |
Assets | |
| | | |
| | | |
| | | |
| | |
Money Market
Accounts | |
$ | 266,635,158 | | |
$ | 266,635,158 | | |
$ | - | | |
$ | - | |
Investment Fund | |
$ | 223,778,545 | | |
$ | - | | |
$ | 223,778,545 | | |
$ | - | |
There
were no transfers among Levels 1, 2 or 3 during the three months ended March 31, 2022.
Net
Income and Basic and Diluted Net Income per Share
Net
income per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic income per
share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.
For the three month period ending March 31, 2022, the Company incurred a loss position and as such the computation of diluted net income
(loss) per share does not include dilutive common stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive.
MARATHON
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Computation
of potential shares for the diluted earning (loss) per share calculation at March 31, 2022 and 2021 are as follows:
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
| |
2022 | | |
2021 | |
| |
As
of March 31, | |
| |
2022 | | |
2021 | |
Warrants to purchase common stock | |
| 324,375 | | |
| 448,790 | |
Options to purchase common stock | |
| - | | |
| 81,120 | |
Convertible notes to exchange
common stock | |
| 9,812,955 | | |
| - | |
Total | |
| 10,137,330 | | |
| 529,910 | |
The
following table sets forth the computation of basic and diluted income (loss) per share:
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE
| |
2022 | | |
2021 | |
| |
For
the Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Net income (loss) attributable
to common shareholders | |
$ | (12,958,589 | ) | |
$ | 83,356,742 | |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
Weighted average common shares - basic | |
| 103,102,596 | | |
| 94,350,216 | |
Weighted average common shares - diluted | |
| 103,102,596 | | |
| 96,251,240 | |
Income (loss) per common share - basic | |
$ | (0.13 | ) | |
$ | 0.88 | |
Income (loss) per common share - diluted | |
$ | (0.13 | ) | |
$ | 0.87 | |
MARATHON
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
3 – ADVANCES TO VENDORS AND PROPERTY AND EQUIPMENT
The
Company contracts with bitcoin mining server manufacturers in procuring equipment necessary for the operation of its bitcoin mining operations.
A typical agreement calls for a certain percentage of the total order to be paid in advance at specific intervals, usually (1) within
several days of execution of a specific contract (2) approximately six months before each shipment date and (3) approximately one month
before each shipment date. We account for these payments as Advances
to vendor on the balance sheet.
As
of March 31, 2022 and December 31, 2021, such advances totaled approximately $594.2 million and $466.3 million, respectively.
In
addition, 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 also call for advance payments to be made to vendors in conjunction with
the contractual obligations associated with these services. We classify these payments as deposits on the balance sheet.
The
components of property and equipment as of March 31, 2022 and December 31, 2021 are:
SCHEDULE
OF COMPONENTS OF PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
| |
Useful life (Years) | | |
March 31, 2022 | | |
December 31, 2021 | |
Website | |
| 7 | | |
| 121,787 | | |
| 121,787 | |
Mining equipment | |
| 5 | | |
| 182,247,691 | | |
| 163,868,283 | |
Construction in Progress | |
| N/A
| | |
| 186,125,986 | | |
| 133,565,908 | |
Mining patent | |
| 17 | | |
| - | | |
| 1,210,000 | |
Gross property, equipment and intangible assets | |
| | | |
| 368,495,464 | | |
| 298,765,978 | |
Less: Accumulated depreciation and amortization | |
| | | |
| (35,178,006 | ) | |
| (21,591,958 | ) |
Property, equipment and intangible assets, net | |
| | | |
$ | 333,317,458 | | |
$ | 277,174,020 | |
The
Company’s depreciation expense related to property and equipment for the three months ended March 31, 2022 and March 31,
2021 was $13,864,132 and
$720,142,
respectively. Amortization expense for the three months ended March 31, 2022 and March 31, 2021 was $12,552
and $17,794,
respectively.
NOTE
4 - STOCKHOLDERS’ EQUITY
Common
Stock
Shelf
Registration Statements on Form S-3 and At The Market Offering Agreements
On
February 11, 2022, we entered into an At The Market Offering Agreement, or sales agreement, with H.C. Wainwright & Co., LLC relating to shares of our common stock. In accordance with the terms of the sales agreement, we
may offer and sell shares of our common stock having an aggregate offering price of up to $750,000,000 from time to time through Wainwright
acting as our sales agent. As of March 31, 2022, the Company had sold 2,999,644 shares of common stock for an aggregate purchase price
of $90.2 million net of offering costs pursuant to this At The Market Offering Agreement.
Series
B Convertible Preferred Stock
As
of March 31, 2022, there were no shares of Series B Convertible Preferred Stock outstanding.
Series
E Preferred Stock
There
was no Series E Convertible Preferred Stock outstanding as of March 31, 2022.
MARATHON
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Common
Stock Warrants
A
summary of the status of the Company’s outstanding stock warrants and changes during the three months ended March 31, 2022 is as
follows:
SUMMARY OF OUTSTANDING STOCK WARRANTS
| |
Number
of Warrants | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Life (in years) | |
Outstanding as of December 31,
2021 | |
| 326,779 | | |
$ | 25.54 | | |
| 3.5 | |
Issued | |
| - | | |
$ | - | | |
| - | |
Expired | |
| (2,404 | ) | |
$ | 52.00 | | |
| - | |
Exercised | |
| - | | |
$ | - | | |
| - | |
Outstanding as of March 31, 2022 | |
| 324,375 | | |
$ | 25.00 | | |
| 3.8 | |
Warrants exercisable as of March 31, 2022 | |
| 324,375 | | |
$ | 25.00 | | |
| 3.8 | |
| |
| | | |
| | | |
| | |
The aggregate intrinsic value of warrants outstanding
and exercisable at March 31, 2022 was | |
| | | |
$ | 956,907 | | |
| | |
Common
Stock Options
As
of March 31, 2022 and December 31, 2021, there were no stock options outstanding.
Restricted
Stock
A
summary of the restricted stock award activity (represented by restricted stock units (RSUs) for the three months ended March 31, 2022
as follows:
SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY
| |
Number
of Units | | |
Weighted
Average Grant Date Fair Value | |
Nonvested at December 31,
2021 | |
| 642,094 | | |
$ | 35.93 | |
Granted | |
| 665,180 | | |
$ | 24.64 | |
Vested | |
| (118,796 | ) | |
$ | 26.99 | |
Nonvested at March 31, 2022 | |
| 1,188,478 | | |
$ | 25.78 | |
During
the first quarter of 2022, the Compensation Committee issued grants that will vest over the next four years and result in total stock
compensation expense of approximately $16.3 million.
MARATHON
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
5 - DEBT, COMMITMENTS AND CONTINGENCIES
Debt
On
October 1, 2021, the Company entered into a Revolving Credit and Security Agreement (the “Agreement”) with Silvergate Bank
pursuant to which Silvergate has agreed to loan the Company up to $100 million on a revolving basis. At March 31, 2022 and December 31,
2021 there were no amounts outstanding under this facility.
On
November 18, 2021, the Company issued $650 million principal amount of its 1.00% Convertible Senior Notes due 2026 (the “Notes”).
The Notes were issued pursuant to, and are governed by, an indenture dated as of November 18, 2021, between the Company and U.S. Bank
National Association, as trustee. Pursuant to the purchase agreement between the Company and the initial purchasers of the Notes, the
Company also granted the initial purchasers an option to purchase up to an additional $97,500,000 principal amount of Notes. This option
was exercised and an additional $97,500,000 principal amount of Notes were issued on November 23, 2021.
As
of March 31, 2022 and December 31, 2021, notes outstanding, net of unamortized discounts of approximately $18.1 million and
$19.1 million, respectively, were $729.4 million and $728.4 million, respectively.
Leases
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), and has since issued amendments thereto, related to the accounting
for leases (collectively referred to as “ASC 842”). ASC 842 establishes a right-of-use, or ROU, model that requires a lessee
to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified
as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Effective January
1, 2019, the Company adopted ASU 842. The Company determines if an arrangement contains a lease at inception based on whether or not
the Company has the right to control the asset during the contract period and other facts and circumstances.
The
Company leases office space in the United States under operating lease agreements. Office space is the Company’s only material
underlying asset class under operating lease agreements. The Company has no material finance leases.
Effective
June 1, 2018, the Company rented its corporate office at 1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144, on a month
to month basis.
Effective
February 14, 2022, the Company rented an office located at Tower 101, 101 NE Third Avenue, Fort Lauderdale, Florida, 33301, for a term
of 63 months.
Effective
March 1, 2022, the Company rented an office located at 300 Spectrum Center Drive, Irvine CA, 92618, for a term of 24 months.
As
of March 31, 2022, the Company’s right-of-use (“ROU”) assets and total lease liabilities were $1.3
million and $1.3
million, respectively for leases in the United
States. As of December 31, 2021, the Company’s ROU assets and total lease liabilities were nil.
The Company has made payments and amortized the right-of-use assets totalling $16,704
and $26,132,
respectively, for the three month period ending
March 31, 2022.
MARATHON
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Operation
lease costs are recorded on a straight-line basis within operating expenses. The Company’s total lease expense is comprised of
the following:
SCHEDULE
OF COMPONENTS OF LEASE COST
| |
| | |
| |
| |
For
the Three Months Ended | |
| |
March
31, 2022 | | |
March
31, 2021 | |
Operating leases | |
| | | |
| | |
Operating
lease cost | |
$ | 26,133 | | |
$ | 18,701 | |
Operating lease expense | |
| 26,133 | | |
| 18,701 | |
Short-term lease rent
expense | |
| 7,139 | | |
| 6,687 | |
Total rent expense | |
$ | 33,272 | | |
$ | 25,388 | |
Additional
information regarding the Company’s leasing activities as a lessee is as follow:
SUMMARY
OF MINIMUM LEASE PAYMENTS
| |
For
the Three Months Ended | |
| |
March
31, 2022 | | |
March
31, 2021 | |
Operating cash flows from operating
leases | |
$ | 16,704 | | |
$ | - | |
Weighted-average remaining lease term –
operating leases | |
| 4.7 | | |
| - | |
Weighted-average discount rate – operating
leases | |
| 5.0 | % | |
| 0.0 | % |
As
of March 31, 2022, contractual minimum lease payments are as follows for the next five years.
SCHEDULE
OF CONTRACTUAL MINIMUM LEASE
| |
| |
Year | |
Amount | |
2022 (remaining) | |
$ | 182,318 | |
2023 | |
$ | 323,582 | |
2024 | |
$ | 248,447 | |
2025 | |
$ | 236,696 | |
2026 | |
$ | 240,991 | |
Thereafter | |
$ | 101,824 | |
Total | |
$ | 1,333,858 | |
Legal
Proceedings
Ho
Matter
On
January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and Restitution
(“Complaint”) against Marathon Digital Holdings, Inc. (the “Company”) and 10 Doe Defendants. The Complaint alleges
six causes of action against the Company, (1) Breach of Written Contract; (2) Breach of Implied Contract; (3) Quasi-Contract; (4) Services
Rendered; (5) Intentional Interference with Prospective Economic Relations; and (6) Negligent Interference with Prospective Economic
Relations, which is the one plead against “all Defendants” and is most likely to involve later named defendants. The claims
arise from the same set of facts, Ho alleges that the Company profited from commercially-sensitive information he shared with the Company
and then it refused to compensate him for his role in securing the acquisition of a supplier of energy for the Company. On February 22,
2021, the Company responded to Mr. Ho’s Complaint with a general denial and the assertion of applicable affirmative defenses. Then,
on February 25, 2021, the Company removed the action to the United States District Court in the Central District of California, where
the action remains pending. Marathon 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 2nd, 5th and 6th causes of action. Discovery is closed. The Court held a pre-trial
conference on February 24, 2022, where it vacated the March 3, 2022 trial date and ordered the parties to meet and confer on a new trial
date. The Court discussed the various theories of damages maintained by the parties. In its ruling on the summary judgment motion
and at the pre-trial conference on February 24, 2022, the Court noted that a jury is more likely to accept $150,000 as an appropriate
damages amount if liability is found, as opposed to the various theories espoused by Ho that result in multi-million dollar recoveries.
Due to outstanding issues of fact and law, it is impossible to predict the outcome at this time; however, after consulting legal counsel,
the Company is confident that it will prevail in this litigation, since it did not have a contract with Mr. Ho and he did not disclose
any commercially-sensitive information under any mutual nondisclosure agreement that was used to structure any joint venture with energy
providers. Trial is set to begin on May 26, 2022.
Information
Subpoena
On
October 6, 2020, the Company entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts
in Hardin, MT. In conjunction therewith, the Company filed a Current Report on Form 8-K on October 13, 2020. The 8-K discloses that,
pursuant to a Data Facility Services Agreement, the Company issued 6,000,000 shares of restricted Common Stock, in transactions exempt
from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. During the quarter ended September 30, 2021, the Company
and certain of its executives received a subpoena to produce documents and communications concerning the Hardin, Montana data center
facility described in our Form 8-K dated October 13, 2020. We understand that the SEC may be investigating whether or not there may have
been any violations of the federal securities law. We are cooperating with the SEC.
Putative
Complaint
On
December 17, 2021, a putative class action complaint was filed in the United States District Court for the District of Nevada, against
the Company and present and former senior management. The Complaint alleges securities fraud related to the disclosure of an SEC
investigation previously made by the Company on November 15, 2021. Plaintiff Tad Schlatre served the Complaint on the Company
on March 1, 2022.
Derivative
Complaint
On
February 18, 2022, a shareholder derivative complaint was filed in the United States District Court for the District of Nevada,
against current and former members of the Company’s board of directors and senior management. The complaint is based on
allegations substantially similar to the allegations in the December 2021 putative securities class action complaint, related to the
Company’s disclosure of an SEC investigation previously made by the Company on November 15, 2021. On March 4, 2022, the
Complaint was served on the Company. On April 4, 2022, the defendants moved to dismiss the Complaint.
On May 5, 2022, a second shareholder derivative complaint was filed
in the United States District Court for the District of Nevada, against current and former members of the Company’s board of directors
and senior management. The complaint is based on allegations substantially similar to the allegations in the February 18, 2022
derivative complaint.
In the opinion of management, after consulting legal counsel, the ultimate disposition of these five matters will
not have a material adverse effect on the Company and its related entities combined financial position, results of operations, or liquidity.
NOTE
6 – Subsequent Events
The
Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued and has concluded
that no such events or transactions took place that would require disclosure herein except as stated directly below.
Subsequent
to March 31, 2022, the Company has drawn down on the revolving line of credit in an amount of $70,000,000.