MARA Holdings, Inc. annual report, FY2019

Business Context and Reporting Period

This is Marathon Patent Group, Inc.’s audited Form 10-K for the fiscal year ended December 31, 2019, filed March 23, 2020. The filing predates the company’s later name, MARA Holdings, Inc.; it reports on the historical issuer trading as MARA. The business was focused on cryptocurrency mining, while seeking to realize value from remaining intellectual-property assets. The proposed merger with Global Bit Ventures had been abandoned in 2018.

Financial Results and Position

Mining revenue fell 24% year over year. Gross margin was approximately negative 109% in 2019, compared with approximately negative 115% in 2018, based on reported revenue and cost of revenue. Lower operating expenses—particularly the absence of 2018 mining-equipment impairment and the GBV breakup fee—helped reduce operating and net losses. Total other income was $0.72 million in 2019, versus $0.67 million in other expenses in 2018.

At year-end, cash and cash equivalents were $0.69 million, down from $2.55 million; working capital was a deficit of $0.4 million, versus positive working capital of $0.7 million. Total assets were $6.62 million and total liabilities were $2.97 million. The balance sheet reported $999,106 of 5% convertible notes, classified as long-term, and $513,700 payable for mining servers; it also reported $208,438 of lease liabilities. The notes disclose $194,935 of accrued interest at year-end.

Cash provided by investing activities was $1.21 million, mainly reflecting sales of digital currencies; cash provided by financing activities was $0.25 million, primarily from at-the-market share sales. Stockholders’ equity was $3.65 million, and accumulated deficit was $105.6 million.

Material Changes and Unusual Items

• Revenue declined by approximately $0.38 million, while direct cost of revenue declined by approximately $0.87 million.
• Operating expenses fell to $2.94 million from $10.29 million. FY2018 included $2.22 million of mining-equipment impairment and a $2.85 million GBV breakup fee; FY2019 included $447,776 impairment of Canadian leasehold improvements.
• In September 2019, the company acquired 6,000 Bitcoin Antminers for stated consideration of $4.09 million, largely in shares. At year-end, $513,700 remained payable in shares, with no cash-in-lieu requirement disclosed.
• The company adopted lease accounting guidance in 2019 and recorded right-of-use assets and lease liabilities.
• Common shares outstanding increased to 8,458,781 from 6,379,992. FY2019 included share issuance for mining equipment, an at-the-market offering, and compensation.

Outlook, Risks, and Contingencies

Management and the independent auditor reported substantial doubt about the company’s ability to continue as a going concern. Management said existing cash might not fund operations for the next 12 months and identified potential additional financing or strategic alternatives; financing might be unavailable or dilutive. The auditor’s opinion on the financial statements was unqualified, with a going-concern explanatory paragraph.

Management cited uncertainty around bitcoin prices, mining economics, the anticipated May 2020 bitcoin reward halving, competition, and the potential economic effects of COVID-19. The filing provides no quantitative financial guidance. It also highlights unsettled digital-asset regulation and accounting, potential investment-company or money-transmitter regulation, exchange and custody failures, cyber theft, irreversible transactions, uninsurable digital-asset losses, network forks and security risks, and possible impairment or obsolescence of mining equipment.

A material weakness in internal control over financial reporting—lack of segregation of accounting duties and evidence of control review—led management to conclude that disclosure controls and internal controls were ineffective at December 31, 2019. The company described planned procedures to address the weakness.

The Feinberg securities and fraud case remained pending on motions to dismiss, with no discovery reported; claimed damages were unspecified. A separate patent case against Amazon involved an entity in which Marathon held a 30% interest, but any potential proceeds were uncertain and subject to litigation expenses and debt-related claims. The company also disclosed warrants with a change-of-control cash put feature whose potential payment could be material but was not determinable in advance.

Subsequent to year-end, the convertible-note investor agreed to extend the note’s maturity to September 1, 2021, in exchange for a $65,000 payment; the conversion-price terms were revised. The filing also disclosed $2.18 million of indebtedness outstanding as of March 23, 2020, a figure that includes the note and should be reconciled to the year-end balance sheet.

Key Facts for Investors to Verify

• Whether cash, financing access, and operating performance were sufficient to address the disclosed going-concern uncertainty.
• Mining fleet deployment, utilization, power and hosting costs, realized coin production, and economics after the 2020 reward halving.
• The status and settlement terms of the convertible notes, including accrued interest, revised conversion price, and potential dilution.
• Share issuance and remaining consideration for the 6,000-miner acquisition, including the reported year-end share payable.
• Remediation of the material weakness and whether subsequent filings report effective controls.
• Developments in the Feinberg and Amazon-related litigation, and any resulting liabilities or recoveries.
• Current digital-asset custody, insurance, regulatory, and accounting practices, which may differ from the risk descriptions in this 2019 filing.