MARA Holdings, Inc. (as named in request; filing registrant: Marathon Patent Group, Inc.) — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited consolidated financial statements. The company reported cryptocurrency mining revenue and described its business as digital-asset mining alongside harvesting remaining intellectual-property assets. Per-share figures were retroactively adjusted for a 1-for-4 reverse stock split effective April 8, 2019.
Financial results and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $230,694 | $239,967; down 4% |
| Cryptocurrency mining revenue | $230,694 | $199,582 |
| Cost of revenue | $508,640 | $267,709; up 90% |
| Operating loss | $984,909 | $1,847,065 |
| Net loss | $1,044,862 | $2,402,820 |
| Basic and diluted loss per share | $0.16 | $0.63 |
| Cash used in operating activities | $811,136 | $3,650,422 |
- Gross loss was $277,946, or approximately 120% of revenue; the filing does not separately present a gross-margin percentage.
- Cash and cash equivalents were $1,964,484 at March 31, versus $2,551,171 at December 31, 2018. Cash decreased by $586,687 during the quarter.
- Balance-sheet current assets were $2,279,622 and current liabilities were $2,325,363. The company reported $999,106 of current convertible notes; the notes bear 5% interest and mature December 31, 2019. Accrued interest was $157,298.
- Lease liabilities totaled $259,545, including current and long-term portions. Total liabilities were $2,503,937; stockholders’ equity was $2,158,192.
- Digital currencies were $5,637 at quarter-end. Sale proceeds of $224,449 are shown as investing cash inflows in the cash-flow statement.
Changes, outlook, and risks
- Revenue declined slightly year over year, while cost of revenue increased substantially. Other operating expenses fell to $706,963 from $1,819,323, mainly because professional and general and administrative costs were lower than in the prior-year period.
- The smaller net loss also reflects substantially lower other expenses than in Q1 2018, when debt-discount amortization was $1,944,772. In Q1 2019, the company recorded a $37,734 expense from the change in fair value of warrant liabilities.
- Management stated that existing cash may not fund operations for the next 12 months and that conditions raise substantial doubt about the company’s ability to continue as a going concern. Potential responses include raising funds, reviewing strategic alternatives, curtailing operations, or seeking arrangements that could require relinquishing rights. Any equity financing could dilute shareholders; funding is not assured.
- No specific revenue, earnings, or operating guidance was provided. Management cautioned that forward-looking statements are uncertain and actual results may differ.
- Management concluded disclosure controls and procedures were not effective and described a material weakness involving segregation of duties. The filing says remediation procedures would be implemented and monitored.
- The amended Feinberg securities and fraud-related complaint remained pending; defendants had moved to dismiss, with oral argument tentatively scheduled for July 1, 2019. The Ramirez case was dismissed with prejudice in December 2018.
Important facts for investors to verify
- Going concern and funding: Monitor cash burn, mining economics, access to capital, and the company’s ability to address the December 2019 note maturity.
- Working-capital discrepancy: MD&A reports working capital of $143,384 at March 31, 2019, but the balance-sheet current assets less current liabilities imply a deficit of $45,741. The filing text does not reconcile these figures.
- Cash-flow description: MD&A describes $224,449 as cash used in investing, while the cash-flow statement reports that amount as cash provided by sale of digital currencies; verify the intended description.
- Operating economics: Mining revenue did not cover reported cost of revenue; assess mining costs, equipment utilization, and the sustainability of any improvement in expenses.
- Controls and litigation: Track remediation of the disclosed material weakness and developments in the Feinberg litigation.