Business context and reporting period
This is Marathon Patent Group, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. Although the request identifies MARA Holdings, Inc., the filing is under the name Marathon Patent Group, Inc. The business combined cryptocurrency mining with efforts to monetize remaining intellectual-property assets; mining operations were based in Canada and substantially outsourced.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $321,716 | $338,672 | $908,175 | $1,267,141 |
| Operating loss | $(807,859) | $(1,495,041) | $(2,533,365) | $(7,661,078) |
| Net loss | $(754,407) | $(1,340,457) | $(2,365,149) | $(8,419,922) |
| Loss per share, basic and diluted | $(0.12) | $(0.22) | $(0.37) | $(1.69) |
Mining generated the 2019-period revenue; the company reported no revenue from newly issued settlement or license agreements. Cost of revenue was $478,811 in Q3 and $1,486,039 for the nine months, exceeding revenue in both periods. The resulting gross loss was approximately $157,000 for Q3 and $578,000 for the nine months (derived from reported revenue and cost of revenue).
At September 30, cash and cash equivalents were $1.34 million, versus $2.55 million at December 31, 2018. Current assets were $1.56 million and current liabilities $4.06 million, a working-capital deficit of approximately $2.50 million. Total liabilities were $4.19 million, including $999,106 of current convertible notes, $1.85 million payable for mining servers, and $220,636 of lease liabilities. The notes also disclose $182,344 of accrued interest. Stockholders’ equity was $3.49 million.
For the first nine months, operating cash use was $2.20 million, compared with $7.28 million in 2018. Investing activities provided $913,278, primarily reflecting digital-currency sales; financing activities provided $79,817 from an at-the-market stock offering. Cash declined by $1.21 million to $1.34 million.
Material changes versus prior periods
- Revenue declined 5% in Q3 and 28% for the first nine months year over year.
- Operating and net losses narrowed substantially. Lower cost of revenue and operating expenses contributed; 2018 results also included a $2.85 million GBV breakup fee and $2.29 million of debt-discount amortization for the nine-month period.
- Mining equipment and property grew, including a September 30 purchase of 6,000 Bitcoin Antminers for a stated $4.09 million, payable in company shares. Mining equipment net of accumulated depreciation and impairment was included in property and equipment of $4.71 million.
- Common shares outstanding increased from 6,379,992 at December 31, 2018 to 7,703,461 at September 30, 2019. The filing reports 7,853,461 shares outstanding as of November 8, 2019.
Outlook, risks, contingencies and unusual items
The filing provides no quantified revenue or earnings guidance. Management said existing cash might not fund operations for the next 12 months and disclosed substantial doubt about the company’s ability to continue as a going concern. Management may seek additional funding, including through its at-the-market facility, or consider strategic alternatives; financing may be unavailable or dilute shareholders. If funding is inadequate, operations may need to be curtailed or the company may need arrangements requiring it to relinquish rights.
The Antminer purchase was to be funded with 2,335,000 shares at $1.75 each. Shares representing $1,852,477 of the purchase price were pending shareholder approval at a November 15, 2019 meeting; the company anticipated approval and stated cash payment was not the intended or required alternative. The filing gives inconsistent figures for shares already issued in connection with this transaction: 1,276,442 in several sections and 1,279,442 in one note.
A securities and fraud-related lawsuit against the company and former officers and directors remained pending, with motions to dismiss the amended complaint under submission; damages sought were unspecified. Management concluded disclosure controls and procedures were not effective and described a material weakness, noting a possibility that material misstatements might not be prevented or detected timely. Nasdaq had previously notified the company of a stockholders’ equity listing deficiency; it approved a compliance plan requiring the September-quarter filing to evidence compliance by November 13, 2019.
Important facts for investors to verify
- Whether the company met Nasdaq’s stockholders’ equity requirement and whether shareholder approval was obtained for the remaining Antminer shares.
- The Antminer share-issuance count discrepancy and the subsequent share count, including the 150,000 shares issued to a consultant on October 1.
- Cash runway, access to financing, and progress toward resolving the disclosed going-concern uncertainty.
- Mining performance and economics, including equipment utilization, power and hosting costs, and the two-year estimated useful life of mining machines.
- Status and potential exposure from the pending litigation, and remediation of the disclosed internal-control material weakness.