Business Context and Reporting Period
This Form 8-K is filed by Marathon Patent Group, Inc. (not MARA Holdings, Inc.) for the reporting period ending January 17, 2017, covering events occurring on January 10, 2017. The company is a Nevada corporation engaged in the monetization of its patent portfolio.
Key Financial Metrics and Agreements
- New Debt Financing: The Company entered into an Amended and Restated Revenue Sharing and Securities Purchase Agreement (ARRSSPA) with DBD Credit Funding, LLC (an affiliate of Fortress Credit Corp.), issuing a new $4,500,000 promissory note.
- Existing Debt: Under the original 2015 agreement, $15,549,409 of promissory notes remains outstanding, with $4,500,000 currently held in a cash collateral account.
- Interest Terms: The new note bears cash interest at LIBOR plus 9.75% per annum, with an additional 2% penalty rate upon an Event of Default. Interest includes a 2.75% per annum paid-in-kind (PIK) component.
- Equity Issuance: The agreement includes the issuance of warrants to purchase 187,500 shares of common stock (New Warrant), exercisable from July 10, 2017, to January 10, 2022.
- Liquidity Covenant: The Company is required to maintain minimum liquidity of $1,250,000 in unrestricted cash and cash equivalents.
- Revenue Sharing: The revenue stream basis was increased to $1,225,000, granting Fortress an increased right to revenues generated from patent monetization.
Material Changes
- Debt Restructuring: The Company amended its 2015 revenue sharing agreement to secure additional capital ($4.5 million) and increase the revenue sharing basis.
- Future Funding Capacity: The agreement allows for the potential issuance of up to $7,500,000 in additional notes, split into two tranches of $3,750,000 each, with the first tranche available prior to June 30, 2017.
- Accounting Firm Change: The Company dismissed SingerLewak LLP as its independent registered public accounting firm effective January 11, 2017, and appointed BDO USA, LLP for the fiscal year ending December 31, 2016.
Outlook, Risks, and Contingencies
- Use of Proceeds: Proceeds from the new note are designated for working capital, portfolio acquisitions, growth capital, and general corporate purposes.
- Collateral and Security: Repayment of note obligations is secured by a first-priority lien on all Company assets, including a pledge of interests in certain subsidiaries and a patent security agreement.
- Default Risks: The agreement contains customary events of default. Failure to maintain the $1,250,000 liquidity covenant or other defaults could trigger the increased interest rate and acceleration of obligations.
- Accountant Transition: The filing confirms no disagreements or reportable events occurred with the former auditor, SingerLewak LLP, regarding accounting principles or financial statement disclosures.
Investor Verification Checklist
- Verify the exact outstanding principal balance of the original 2015 notes after accounting for the $4,500,000 cash collateral.
- Confirm the Company's current unrestricted cash balance to ensure compliance with the $1,250,000 minimum liquidity covenant.
- Review the specific definition of "Monetization Revenues" to understand the scope of the increased revenue stream basis.
- Monitor the timeline for the potential issuance of the $7,500,000 in additional notes and the associated 2.0% structuring fees.
- Check subsequent filings to confirm the transition of audit responsibilities to BDO USA, LLP and the status of the 2016 fiscal year audit.