MARA Holdings, Inc. (then Marathon Patent Group, Inc.) — Q3 2020 Form 10-Q
Reporting period: Quarter ended September 30, 2020; filed November 12, 2020. The company’s principal reported activity was cryptocurrency mining, alongside harvesting value from remaining intellectual-property assets. Financial statements are unaudited.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2020: $835,184; 2019: $321,716 | 2020: $1.714 million; 2019: $908,175 |
| Cost of revenue | 2020: $1.636 million; 2019: $478,811 | 2020: $3.530 million; 2019: $1.486 million |
| Operating loss | 2020: $1.994 million; 2019: $807,859 | 2020: $4.877 million; 2019: $2.533 million |
| Net loss | 2020: $1.994 million; 2019: $754,407 | 2020: $5.214 million; 2019: $2.365 million |
| Basic and diluted loss per share | 2020: $0.06; 2019: $0.12 | 2020: $0.28; 2019: $0.37 |
- Margins: Cost of revenue exceeded revenue by about $801,000 in Q3 2020 and $1.816 million over the first nine months. The filing does not present a gross-margin percentage.
- Cash flow: Nine-month operating cash use was $3.448 million, investing cash use was $15.125 million, and financing cash provided was $35.132 million. Cash increased by $16.559 million to $17.252 million.
- Liquidity: Current assets were $31.601 million, including a $13.270 million miner deposit; current liabilities were $1.135 million. Management reported working capital of $30.5 million, versus a $358,577 deficit at year-end 2019.
- Debt: The $999,106 convertible-note balance was converted into shares during the first nine months, along with $215,136 accrued interest; the company recorded a $364,832 conversion expense. At quarter-end, reported debt included a $62,500 PPP note. Lease liabilities totaled approximately $137,558.
- Equity and dilution: Common shares outstanding rose from 8.46 million at December 31, 2019 to 38.96 million at September 30, 2020. The filing reports 51,599,792 shares outstanding as of November 6, 2020.
Material changes versus the prior comparable period
- Q3 revenue increased 160% and nine-month revenue increased 89% year over year, but cost of revenue rose faster—242% for Q3 and 138% for the nine-month period. Operating and net losses consequently widened.
- Mining expansion increased depreciation and equipment costs. Nine-month depreciation was $1.798 million, compared with $412,083 in 2019.
- Cash and working capital improved substantially, primarily following equity fundraising. Nine-month financing proceeds included $28.8 million net from an at-the-market offering and $6.3 million net from a follow-on offering.
- The company’s quarter-end cash balance coexisted with significant planned equipment spending: $13.270 million was recorded as a deposit for miners.
Outlook, risks, contingencies, and unusual items
- Mining plans: The company described deliveries and deployment of newer-generation MicroBT and Bitmain miners. It also contracted to buy 10,500 Antminer S-19 Pro units for a stated discounted price of approximately $23.16 million, with scheduled deliveries from January through June 2021 and payments due in advance. Delivery depends on timely payment.
- Management outlook: Management said current cash was expected to fund operations for at least the next twelve months, based on revenue and profit projections. A separate note contains an incomplete runway statement (“through ____ 202_”); no specific date is provided there. The filing provides no quantified revenue or earnings guidance.
- Bitcoin and operating risks: The May 2020 Bitcoin reward halving reduced block rewards; the company stated that future Bitcoin prices and the effects of halving were uncertain. COVID-19 effects were described as uncertain, though management then did not expect a material long-term impact on strategy, operations, or liquidity.
- Going concern: The statements were prepared on a going-concern basis. The company disclosed an accumulated deficit of approximately $110.8 million, nine-month net loss of $5.2 million, and operating cash use of $3.45 million.
- Controls and litigation: Management concluded disclosure controls and procedures were not effective, citing a material weakness and risk that material misstatements might not be prevented or detected. A New York securities and common-law lawsuit against the company and former officers/directors remained pending; damages sought were unspecified, and dismissal motions were under submission.
- Subsequent event: On October 6, 2020, the company agreed to develop a Montana mining facility with Beowulf and Two Point One, initially targeting 30 MW and potentially up to 100 MW. The agreements include a $0.028/kWh power price, a $750,000 infrastructure purchase, operating costs of $0.006/kWh, and share issuances for services. The CFO change took effect October 19.
Important facts for investors to verify
- Whether contracted miners were delivered, installed, and paid for on schedule, and how the $13.27 million deposit and remaining purchase commitments were funded.
- Actual mining output, Bitcoin realized prices, energy and hosting costs, and the effect of the halving on unit economics.
- Cash runway and liquidity after equipment commitments; reconcile management’s twelve-month assertion with the incomplete runway statement in the notes.
- Subsequent share count, further equity issuance, and dilution from outstanding warrants, options, restricted stock, and facility agreements.
- Remediation of the disclosed material weakness and developments in the pending litigation.