MARA Holdings, Inc. (then Marathon Patent Group, Inc.) — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. The unaudited filing is for Marathon Patent Group, Inc.; share and per-share figures reflect the 1-for-4 reverse split effective April 8, 2019. The company reported cryptocurrency mining and retained IP licensing as its activities, with operations largely outsourced.
Financial performance and position
| Metric | Q2 2019 | Six months 2019 | Comparable 2018 |
|---|---|---|---|
| Revenue | $355,765 | $586,459 | $688,502 and $928,469, respectively |
| Cost of revenue | $498,588 | $1,007,228 | $931,630 and $1,199,339, respectively |
| Operating loss | $740,597 | $1,725,506 | $4,318,972 and $6,166,037, respectively |
| Net loss | $565,880 | $1,610,742 | $4,676,645 and $7,079,465, respectively |
| Net loss per share | $0.09 | $0.25 | $0.93 and $1.61, respectively |
- Mining revenue was the primary source of revenue; the company reported no revenue from newly issued settlement or license agreements in either 2019 period.
- Cost of revenue exceeded revenue in both 2019 periods: gross loss was approximately $143,000 for Q2 and $421,000 for the first half.
- At June 30, cash and cash equivalents were $1.69 million, versus $2.55 million at December 31, 2018. Current assets were $1.93 million and current liabilities $2.26 million, resulting in a $328,146 working-capital deficit.
- First-half operating cash use was $1.47 million, compared with $5.61 million in 2018. Investing activities provided $606,363, principally from digital-currency sales; cash declined by $862,745 over the half-year.
- Total liabilities were $2.42 million and stockholders’ equity was $1.72 million, down from $2.92 million at year-end 2018. Current convertible notes were $999,106, due December 31, 2019, with $169,753 of accrued interest disclosed. Lease liabilities totaled $240,186.
Material changes and unusual items
- Revenue fell 48% year over year in Q2 and 37% for the first half. Management attributed much of the lower operating loss to reduced expenses; 2018 included a $2.85 million non-cash GBV merger termination fee, as well as higher professional and general and administrative costs.
- Other income was $174,717 in Q2 and $114,764 for the first half, compared with other expenses in 2018. The first-half comparison was affected by 2018 debt-discount amortization and warrant fair-value movements. In 2019, the warrant liability increased to $115,387, with a $76,304 fair-value loss recorded for the half.
- The company adopted lease accounting standard ASC 842 on January 1, 2019 and recognized right-of-use assets and lease liabilities.
- Nasdaq notified the company in May that it was below the $2.5 million stockholders’ equity listing requirement. The company subsequently reported Nasdaq approval of its compliance plan; its September 30, 2019 Form 10-Q was due by November 13, 2019 and had to evidence compliance.
Outlook, risks and contingencies
- Going concern: The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management was uncertain that existing cash would fund operations for at least the next 12 months. It said additional financing or strategic alternatives may be needed; financing may be unavailable or dilutive, and insufficient funds could require curtailed operations or relinquishment of rights.
- Subsequent financing: On July 19, 2019, the company established an at-the-market equity program for up to $7,472,417, subject to Form S-3 limits. Sales were optional and subject to a 3% commission; the filing does not report proceeds from the program during the quarter.
- Litigation: An amended securities and common-law complaint by Jeffrey Feinberg and others sought unspecified damages and other relief. Motions to dismiss were argued on July 9, 2019 and remained under submission as of the filing.
- Controls: Management concluded disclosure controls and procedures were not effective, citing a material weakness and the risk that material misstatements might not be prevented or detected timely. The filing says no material control changes occurred during the quarter.
- The filing provides no specific operating or earnings guidance. Management cautioned that actual results may differ materially from forward-looking statements.
Most important facts for investors to verify
- Whether the company met Nasdaq’s stockholders’ equity requirement by the required filing deadline.
- Cash runway, subsequent operating results, and whether the ATM program raised capital; assess potential dilution.
- Repayment, extension, or conversion of the $999,106 note due December 31, 2019, including accrued interest.
- Progress in remediating the disclosed material weakness and any later changes in control effectiveness.
- Rulings or developments in the Feinberg litigation and any resulting financial exposure.