Business context and reporting period
Marathon Patent Group, Inc. (now identified in the request as MARA Holdings, Inc.) filed this unaudited Form 10-Q for the quarter ended March 31, 2020. The company reported cryptocurrency mining revenue and continued harvesting remaining intellectual-property assets. Results are for the three months ended March 31, 2020, compared with the same period in 2019.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / prior period |
|---|---|---|
| Revenue | $592,487 | $230,694 |
| Cost of revenue | $1,153,241 | $508,640 |
| Operating loss | $(1,091,802) | $(984,909) |
| Net loss | $(1,057,931) | $(1,044,862) |
| Basic and diluted loss per share | $(0.12) | $(0.16) |
| Cash used in operating activities | $(1,072,237) | $(811,136) |
Revenue increased 157% year over year, while cost of revenue increased 127%; cost of revenue exceeded revenue by $560,754. Other operating expenses declined 25% to $531,048. Cash and cash equivalents were $474,546 at March 31, 2020, down from $692,963 at December 31, 2019. Working capital was $99,322, versus a deficit of $358,577 at year-end. Total assets were $5.67 million, total liabilities $2.50 million, and stockholders’ equity $3.17 million. Long-term convertible notes were $999,106, bearing 5% interest and due September 1, 2021; lease liabilities totaled $184,072.
Material changes and notable developments
- Compared with Q1 2019, operating loss widened by approximately 11%, while net loss was broadly similar. Loss per share improved as weighted-average shares increased to 8.66 million from 6.34 million.
- Operating cash use increased by approximately $261,000. Investing activities provided $468,703, primarily from cryptocurrency sales; financing provided $385,117 from the at-the-market (ATM) share program.
- At quarter-end, 9,212,106 common shares were outstanding. From after quarter-end through May 13, the company reported gross ATM proceeds of approximately $5.11 million from 9,004,108 shares, a substantial increase in share count.
- After quarter-end, the company purchased 700 MicroBT miners and 660 Bitmain S19 Pro miners. It also agreed to suspend services under its colocation agreement, pausing production from its S-9 miners. The filing anticipated delivery and installation of the new miners later in 2020.
Outlook, risks and contingencies
- Going concern: Management stated that 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. Additional financing may be needed; equity issuance could dilute shareholders, and funding may not be available on acceptable terms.
- Bitcoin and operations: The filing discusses the May 12, 2020 bitcoin reward halving and uncertainty about bitcoin prices, mining economics, and the effects of COVID-19. No quantified financial guidance was provided.
- Nasdaq listing: Nasdaq notified the company that it had not maintained the $1.00 minimum bid price. The compliance deadline was extended to December 17, 2020.
- Legal matter: The Feinberg litigation remained pending, with defendants’ motions to dismiss the amended complaint awaiting a court ruling. Plaintiffs sought unspecified damages and other relief.
- Controls: Management concluded disclosure controls and procedures were not effective and identified a material weakness in internal control over financial reporting.
- Compensation awards: Subsequent to quarter-end, the company approved 1,164,000 restricted stock units and cash awards totaling $159,000 for officers, and approved replacing 1,537,500 existing options with restricted stock units.
Important facts for investors to verify
- Assess liquidity and the going-concern warning, including the company’s dependence on further financing and the terms and capacity of its ATM program.
- Confirm the post-quarter ATM share issuance and resulting dilution; the filing reports 9,004,108 shares sold through May 13.
- Evaluate whether planned miner purchases, the suspension of S-9 operations, hosting arrangements, and the bitcoin halving support viable mining economics.
- Track Nasdaq minimum-bid compliance and progress in remediating the disclosed material weakness.
- Reconcile MD&A liquidity text with the financial statements: the MD&A contains inconsistent figures for accumulated deficit, net loss, and operating cash use. The financial statements report $106.7 million accumulated deficit, $1.06 million net loss, and $1.07 million operating cash use for Q1 2020.