MARA Holdings, Inc. quarterly report, Q2 FY2018

Filing identity and period

The supplied filing is Marathon Patent Group, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018, filed August 13, 2018. The request metadata names MARA Holdings, Inc.; that does not match the registrant identified in the filing.

The company was shifting from patent licensing toward cryptocurrency mining, while retaining and monetizing remaining intellectual-property assets. It began mining digital currencies at a Quebec facility during 2018.

Financial results and liquidity

• Mining revenue was $661,917 for the quarter and $861,499 for the six-month period. Revenue was up 87% and 108%, respectively, from the comparable 2017 periods, when there was no mining revenue.
• Cost of revenue exceeded revenue by approximately $243,000 in the quarter and $271,000 for the six months, before other operating expenses.
• Six-month operating cash use was $5.61 million; investing cash use was $5.50 million, primarily reflecting mining equipment and installation spending. Financing provided $394,000. Cash fell to $4.23 million from $14.95 million at year-end 2017.
• At June 30, current assets were $5.19 million and current liabilities $3.14 million; reported working capital was $2.05 million. Total assets were $10.83 million and stockholders’ equity $7.69 million.
• Notes payable were $999,106, classified as current; the filing also reports $112,944 accrued interest. The notes bear 5% interest and were extended to mature December 31, 2019.
• Mining equipment and installation costs of approximately $5.25 million were capitalized and are depreciated over two years. The filing reports $806,598 depreciation for the first half.

Material changes and unusual items

• The proposed Global Bit Ventures merger was terminated. The company issued 3 million common shares to GBV as a termination fee, valued at $2.85 million and recorded as expense. This materially increased second-quarter and first-half losses.
• Common shares outstanding increased from 12.48 million at December 31, 2017 to 23.58 million at June 30, 2018, principally through debt and preferred-stock conversions and other share issuances. The filing reports 24,062,940 shares outstanding on August 13, 2018.
• The company acquired patent rights for $250,000 cash and 250,000 shares valued at $960,000. It also purchased 1,400 Antminer S9 machines.
• The six-month results included a $2.29 million debt-discount amortization expense and a $1.55 million noncash gain from the change in fair value of warrant liabilities.

Outlook, risks and contingencies

• Management stated that existing cash might not fund operations for the next twelve months and disclosed substantial doubt about the company’s ability to continue as a going concern. It may need additional financing or strategic alternatives; financing may be unavailable or dilute existing holders.
• Digital currency prices are highly volatile. The company remeasures holdings at fair value, and changes can affect earnings and financial position. Management also noted limited authoritative accounting guidance for digital-asset mining.
• The company reported ineffective disclosure controls and procedures, citing a material weakness and the possibility that material misstatements might not be prevented or detected timely.
• Two shareholder lawsuits were disclosed: the company and certain officers and directors faced the Feinberg matter, with a motion to dismiss pending; a separate Ramirez complaint alleged a proxy-disclosure claim, and the company said it had not been served. Outcomes were uncertain.
• No specific financial guidance or quantified forward outlook was provided. The filing cautions that interim results may not indicate full-year results.

Key facts for investors to verify

• Confirm the intended issuer: the supplied filing is for Marathon Patent Group, Inc., not the company named in the request metadata.
• Assess cash runway against operating and capital spending, the going-concern disclosure, and the company’s ability to obtain financing.
• Review mining economics, including realized mining revenue, electricity and facility costs, equipment utilization, and the two-year depreciation assumption.
• Verify the merger-termination share issuance, its $2.85 million valuation, and the resulting dilution; also review subsequent share-count changes.
• Check the status and potential financial effects of the disclosed litigation and the remediation of the material weakness in internal controls.