Notes
to Unaudited Consolidated Condensed Financial Statements
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization
Marathon
Patent Group, Inc. (the “Company”) was incorporated in the State of Nevada on February 23, 2010 under the name Verve
Ventures, Inc. On December 7, 2011, the Company changed its name to American Strategic Minerals Corporation and were engaged in
exploration and potential development of uranium and vanadium minerals business. In June 2012, the Company discontinued the minerals
business and began to invest in real estate properties in Southern California. In October 2012, the Company discontinued its real
estate business when the former CEO joined the firm and the Company commenced IP licensing operations, at which time the Company’s
name was changed to Marathon Patent Group, Inc. On November 1, 2017, the Company entered into a merger agreement with Global Bit
Ventures, Inc. (“GBV”), which is focused on mining digital assets. The Company purchased cryptocurrency mining machines
and established a data center in Canada to mine digital assets. The Company expanded its activities in the mining of new digital
assets, while at the same time harvesting the value of its remaining IP assets. In order to streamline and create efficiencies,
we outsource most of our operations to service providers, and our Granby facility and its bitcoin mining operations are provided
by Block Maintain, Inc. Additionally, 24 hour security at our facility is provided by Securitas Canada, and financial operations
are provided by Chord Advisors, LLC.
The
Company’s Board of Directors adopted the reverse stock split approved by its shareholders at its December 2018 Board Meeting.
Upon the effectiveness of the reverse stock split, every four shares of issued and outstanding common stock before the open of
business on April 8, 2019 was combined into one issued and outstanding share of common stock, with no change in par value per
share. All share and per share values for all
periods presented in the accompanying consolidated condensed financial statements have been retroactively adjusted to reflect
the 1:4 Reverse Split.
On
May 21, 2019, the Company received notice from the Nasdaq Capital Market (the “Capital Market”) that the Company has
failed to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing as required under Listing Rule
5550(b)(1) as its Form 10-Q for the period ended March 31, 2019 reported stockholders’ equity of $2,158,192. On July 23,
2019, we announced Nasdaq approved the Company’s plan to regain compliance, and the Company is required to file its Form
10-Q for the period ending September 30, 2019 with the SEC on or before November 13, 2019 evidencing compliance with the stockholders’
equity requirement.
On
September 30, 2019, the Company consummated the purchase of 6,000 S-9 Bitmain 13.5 TH/s Bitcoin Antminers from SelectGreen
Blockchain Ltd, a British Columbia corporation, for which the purchase price was $4,086,250 or 2,335,000 shares
of its common stock at a price of $1.75 per share. As a result of an exchange cap requirement imposed in conjunction with the
Company’s Listing of Additional Shares application filed with Nasdaq with regard to the transaction, the Company issued
1,276,442 shares of its common stock which represented $2,233,773 of the $4,086,250 (constituting 19.9% of the issued and
outstanding shares outstanding on the date of the Asset Purchase Agreement for the transaction) and upon receipt of shareholder
approval, at the Special Shareholders Meeting on November 15, 2019, the Company will issue the balance of the 1,058,558 unregistered
common stock shares. The $1,852,477 set forth on the balance sheet for mining servers payable reflects this balance of 1,058,558
shares to be issued at $1.75 per share immediately upon receipt of shareholder approval, thus immediately satisfying the mining
servers payable. If the Company does not gain shareholder approval (which it anticipates it will receive), it would plan to resolicit shareholders
after a reasonable waiting period; however, this is neither the intention nor the requirement to make payment in cash.
Going
Concern
The
Company’s consolidated condensed financial statements have been prepared assuming that it will continue as a going concern,
which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the consolidated condensed financial statements, the Company had an accumulated deficit of approximately $104.5 million
at September 30, 2019, a net loss of approximately $2.4 million and approximately $2.2 million net cash used in operating activities
for the nine months ended September 30, 2019. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
Based
on the Company’s current revenue and profit projections, management is uncertain that the Company’s existing cash
will be sufficient to fund its operations through at least the next twelve months from the issuance date of the financial statements,
raising substantial doubt regarding the Company’s ability to continue operating as a going concern. If we do not meet our
revenue and profit projections or the business climate turns negative, then we will need to:
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●
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raise additional
funds to support the Company’s operations; provided, however, there is no assurance that the Company will be able to
raise such additional funds on acceptable terms, if at all. If the Company raises additional funds by issuing securities,
existing stockholders may be diluted; and
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|
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●
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review strategic
alternatives.
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MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
Notes
to Unaudited Consolidated Condensed Financial Statements
If
adequate funds are not available, we may be required to curtail our operations or other business activities or obtain funds, if
available, through arrangements with strategic partners or others that may require us to relinquish rights to certain technologies
or potential markets.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated condensed financial statements, including the accounts of the Company’s subsidiaries, Marathon
Crypto Mining, Inc., Crypto Currency Patent Holding Company and Soems Acquisition Corp., have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. These consolidated condensed financial
statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are
necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented.
It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company’s most recent Annual Report on Form 10-K. The results of operations
for the interim periods are not necessarily indicative of the results to be expected for the full year ended December 31, 2019.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates made by management include, but are not limited to, estimating the useful lives of patent assets,
the assumptions used to calculate fair value of warrants and options granted, goodwill impairment, realization of long-lived assets,
deferred income taxes, unrealized tax positions and business combination accounting.
Significant
Accounting Policies
There
have been no material changes to the Company’s significant accounting policies to those previously disclosed in the 2018
annual report.
Leases
Effective
January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition
of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right
of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the
lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each
period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and
the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses,
if any, are recorded when incurred.
In
calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components. The Company
excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and
recognizes rent expense on a straight-line basis over the lease term.
The
Company continues to account for leases in the prior period financial statements under ASC Topic 840.
Other
than above, there have been no material changes in the Company’s significant accounting policies to those previously disclosed
in the Company’s annual report on Form 10-K, which was filed with the SEC on March 25, 2019.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
Notes
to Unaudited Consolidated Condensed Financial Statements
Digital
Currencies
Digital
currencies are included in current assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment.
An intangible
asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or
changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment
exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform
a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it
is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes
otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss
establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
The
following table presents the activities of the digital currencies for the nine months ended September 30, 2019:
|
Digital currencies at December 31, 2018
|
|
$
|
-
|
|
|
Additions of digital currencies
|
|
|
908,175
|
|
|
Realized gain on sale of digital currencies
|
|
|
13,208
|
|
|
Sale of digital currencies
|
|
|
(918,502
|
)
|
|
Digital Currencies at September 30, 2019
|
|
$
|
2,881
|
|
Crypto-currency
Machines
Management
has assessed the basis of depreciation of the Company’s Crypto-currency Machines used to verify digital currency transactions
and generate digital currencies and believes they should be depreciated over a 2 year period. The rate at which the Company generates
digital assets and, therefore, consumes the economic benefits of its transaction verification servers are influenced by a number
of factors including the following:
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●
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the complexity
of the transaction verification process which is driven by the algorithms contained within the bitcoin open source software;
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●
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the general availability
of appropriate computer processing capacity on a global basis (commonly referred to in the industry as hashing capacity which
is measured in Petahash units); and
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●
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technological
obsolescence reflecting rapid development in the transaction verification server industry such that more recently developed
hardware is more economically efficient to run in terms of digital assets generated as a function of operating costs, primarily
power costs i.e. the speed of hardware evolution in the industry is such that later hardware models generally have faster
processing capacity combined with lower operating costs and a lower cost of purchase.
|
The
Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of
specialized equipment. Management has determined that a two year diminishing value best reflects the current expected useful life
of transaction verification servers. This assessment takes into consideration the availability of historical data and management’s
expectations regarding the direction of the industry including potential changes in technology. Management will review this estimate
annually and will revise such estimates as and when data comes available.
To
the extent that any of the assumptions underlying management’s estimate of useful life of its transaction verification servers
are subject to revision in a future reporting period either as a result of changes in circumstances or through the availability
of greater quantities of data then the estimated useful life could change and have a prospective impact on depreciation expense
and the carrying amounts of these assets.
Fair
Value of Financial Instruments
The
Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy
are:
|
|
Level 1:
|
Observable inputs
such as quoted market prices in active markets for identical assets or liabilities
|
|
|
Level 2:
|
Observable market-based
inputs or unobservable inputs that are corroborated by market data
|
|
|
Level 3:
|
Unobservable inputs
for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The
carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, accounts payable, and accrued expenses,
approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying value of notes
payable and other long-term liabilities approximate fair value as the related interest rates approximate rates currently available
to the Company.
Financial
assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that
is significant to their fair value measurement. The Company measures the fair value of its marketable securities by taking into
consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models,
including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly,
to estimate fair value. These inputs included reported trades of and broker-dealer quotes on the same or similar securities, issuer
credit spreads, benchmark securities and other observable inputs.
The
following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis
and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of September 30, 2019
and December 31, 2018, respectively:
|
|
|
Fair value measured at September 30, 2019
|
|
|
|
|
Total carrying value
at September 30,
|
|
|
Quoted prices in
active markets
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
|
2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
46,836
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
46,836
|
|
|
|
|
Fair value measured at December 31, 2018
|
|
|
|
|
Total carrying value at December 31,
|
|
|
Quoted prices in active markets
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
|
2018
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
39,083
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
39,083
|
|
There
were no transfers between Level 1, 2 or 3 during the nine months ended September 30, 2019.
At
September 30, 2019, the Company had an outstanding warrant liability in the amount of $46,836 associated with warrants that were
issued in January 2017 and warrants issued related to the Convertible Notes issued in August and September of 2017. The following
table rolls forward the fair value of the Company’s warrant liability, the fair value of which is determined by Level 3
inputs for the nine months ended September 30, 2019.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
Notes
to Unaudited Consolidated Condensed Financial Statements
Fair
value of warrant liabilities
|
|
|
Fair value
|
|
|
Outstanding as of December 31, 2018
|
|
$
|
39,083
|
|
|
Change in fair value of warrants
|
|
|
7,753
|
|
|
Outstanding as of September 30, 2019
|
|
$
|
46,836
|
|
Basic
and Diluted Net Loss per Share
Net
loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per
share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares
outstanding, as they would be anti-dilutive.
Securities
that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share
at September 30, 2019 and 2018 are as follows:
|
|
|
As of September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Warrants to purchase common stock
|
|
|
182,191
|
|
|
|
182,191
|
|
|
Options to purchase common stock
|
|
|
1,733,620
|
|
|
|
105,462
|
|
|
Preferred stock to exchange common stock
|
|
|
-
|
|
|
|
485,540
|
|
|
Convertible notes to exchange common stock
|
|
|
312,221
|
|
|
|
312,221
|
|
|
Total
|
|
|
2,228,032
|
|
|
|
1,085,414
|
|
The
following table sets forth the computation of basic and diluted loss per share:
|
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(754,407
|
)
|
|
$
|
(1,340,457
|
)
|
|
$
|
(2,365,149
|
)
|
|
$
|
(8,419,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic and diluted
|
|
|
6,372,061
|
|
|
|
6,080,447
|
|
|
|
6,353,643
|
|
|
|
4,973,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.69
|
)
|
Sequencing
In
connection with the August 14, 2017 Convertible Note financing, the Company adopted a sequencing policy whereby all future instruments
may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees
or directors.
Recent
Accounting Pronouncements
In
June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which
simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the
guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.
The changes take effect for public companies for fiscal years starting after December 15, 2018, including interim periods within
that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and
interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s
adoption date of Topic 606. The adoption of this ASU did not have a material impact on the Company’s consolidated condensed
financial statements.
In
July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic
480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments
with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result
in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates
cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire instrument or conversion option. For public business entities, the
amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018 with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s
consolidated condensed financial statements.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
Notes
to Unaudited Consolidated Condensed Financial Statements
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among
organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases
classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption
is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to
all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence
of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively
allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases
(Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842
as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using
the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented,
and elected the package of practical expedients described above. The adoption did not have a material impact on the Company’s
consolidated financial statements.
Any
new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a
future date are not expected to have a material impact on the financial statements upon adoption.
NOTE
3 – DIGITIAL ASSET MINING
On
September 30, 2019, the Company consummated the purchase of 6,000 S-9 Bitmain 13.5 TH/s Bitcoin Antminers from SelectGreen
Blockchain Ltd, a British Columbia corporation, for which the purchase price was $4,086,250 or 2,335,000 shares
of its common stock at a price of $1.75 per share. As a result of an exchange cap requirement imposed in conjunction with the
Company’s Listing of Additional Shares application filed with Nasdaq with regard to the transaction, the Company issued
1,279,442 shares of its common stock which represented $2,233,773 or the $4,086,250 (constituting 19.9% of the issued and
outstanding shares outstanding on the date of the Asset Purchase Agreement for the transaction) and upon receipt of shareholder
approval, at the Special Shareholders Meeting on November 15, 2019, the Company will issue the balance of the 1,058,558 unregistered
common stock shares. The $1,852,477 set forth on the balance sheet for mining servers payable reflects this balance of 1,058,558
shares to be issued at $1.75 per share immediately upon receipt of shareholder approval, thus immediately satisfying the mining
servers payable. If the Company does not gain shareholder approval (which it anticipates it will receive), it would plan to resolicit shareholders
after a reasonable waiting period; however, this is neither the intention nor the requirement to make payment in cash.
The
components of property, equipment and intangible assets as of September 30, 2019 and December 31, 2018 are:
|
|
|
Useful life (Years)
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Website
|
|
|
7
|
|
|
$
|
121,787
|
|
|
$
|
121,787
|
|
|
Mining equipment
|
|
|
2
|
|
|
|
7,120,505
|
|
|
|
3,029,031
|
|
|
Mining patent
|
|
|
17
|
|
|
|
1,210,000
|
|
|
|
1,210,000
|
|
|
Gross property, equipment and intangible assets
|
|
|
|
|
|
|
8,452,292
|
|
|
|
4,360,818
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
|
|
|
|
(2,646,953
|
)
|
|
|
(2,181,488
|
)
|
|
Property, equipment and intangible assets, net
|
|
|
|
|
|
$
|
5,805,339
|
|
|
$
|
2,179,330
|
|
The
Company’s depreciation expense for the three and nine months ended September 30, 2019 were $137,361 and $412,083, and $598,549
and $1,405,147 for the three and nine months ended September 30, 2018, respectively. Amortization expense were $17,794 and $53,382
for the three and nine months ended September 30, 2019, and $18,308 and $48,222 for the three and nine months ended September
30, 2018, respectively.
NOTE
4 - STOCKHOLDERS’ EQUITY
Common
Stock
At
The Market Offering Agreement
On
July 19, 2019, we entered into an At The Market Offering Agreement (the “Agreement”) with H.C. Wainwright & Co.,
LLC (“H.C. Wainwright”) which establishes an at-the-market equity program pursuant to which we may offer and sell
shares of our common stock, par value $0.0001 per share (“Common Stock”), from time to time as set forth in the Agreement.
The Agreement provides for the sale of shares of our Common Stock (“Shares”) having an aggregate offering price of
up to $7,472,417 (the Company’s ability to offer shares under the Agreement is limited to the amount of shares it may sell
pursuant to General Instruction I.B.6. of Form S-3.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
Notes
to Unaudited Consolidated Condensed Financial Statements
Subject
to the terms and conditions set forth in the Agreement, H.C. Wainwright will use its commercially reasonable efforts consistent
with its normal trading and sales practices to sell the Shares from time to time, based upon our instructions. We have provided
H.C. Wainwright with customary indemnification rights, and H.C. Wainwright will be entitled to a commission at a fixed rate equal
to three percent (3.0%) of the gross proceeds per Share sold. In addition, we have agreed to pay certain expenses incurred by
H.C. Wainwright in connection with the Agreement, including up to $25,000 of the fees and disbursements of their counsel. The
Agreement will terminate upon the earlier of sale of all of the Shares under the Agreement or July 19, 2022 unless terminated
earlier by either party as permitted under the Agreement.
Sales
of the Shares, if any, under the Agreement shall be made in transactions that are deemed to be “at the market offerings”
as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including sales made by
means of ordinary brokers’ transactions, including on the Nasdaq Capital Market, at market prices or as otherwise agreed
with H.C. Wainwright. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Agreement
or terminate the Agreement.
During
the nine months ended September 30, 2019, 41,614 shares of common stock were issued under the At The Market Offering for the total
proceeds of $79,817, net of offering cost of $3,636.
Asset
Purchase Agreement
On
September 30, 2019, the Company consummated the purchase of 6,000 S-9 Bitmain 13.5 TH/s Bitcoin Antminers from SelectGreen
Blockchain Ltd, a British Columbia corporation, for which the purchase price was $4,086,250 or 2,335,000 shares
of its common stock at a price of $1.75 per share. As a result of an exchange cap requirement imposed in conjunction with the
Company’s Listing of Additional Shares application filed with Nasdaq with regard to the transaction, the Company issued
1,279,442 shares of its common stock which represented $2,233,773 of the $4,086,250 (constituting 19.9% of the issued and
outstanding shares outstanding on the date of the Asset Purchase Agreement for the transaction) and upon receipt of shareholder
approval, at the Special Shareholders Meeting on November 15, 2019, the Company will issue the balance of the 1,058,558 unregistered
common stock shares. The $1,852,477 set forth on the balance sheet for mining servers payable reflects this balance of 1,058,558
shares to be issued at $1.75 per share immediately upon receipt of shareholder approval, thus immediately satisfying the mining
servers payable. If the Company does not gain shareholder approval (which it anticipates it will receive), it would plan to
resolicit shareholders after a reasonable waiting period; however, this is neither the intention nor the requirement to make payment
in cash.
Series
B Convertible Preferred Stock
As
of September 30, 2019, there was no share of Series B Convertible Preferred Stock outstanding.
Series
E Preferred Stock
There
was no Series E Convertible Preferred Stock outstanding as of September 30, 2019.
Common
Stock Warrants
As
of September 30, 2019, the Company had warrants outstanding to purchase 182,191 shares of Common Stock with a weighted average
remaining life of 2.3 years and a weighted average exercise price of $25.04. There was no activity of the Company’s warrants
during the period ended September 30, 2019.
Common
Stock Options
On
July 22, 2019, the Company’s board has approved to issue 275,000 shares of option to purchase the Company’s common
stock to 8 employees and consultants for the service they provided. The options have a five-year term with an exercise price of
$2.04.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
Notes
to Unaudited Consolidated Condensed Financial Statements
A
summary of the stock options as of September 30, 2019 and changes during the period are presented below:
|
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
(in years)
|
|
|
Outstanding as of December 31, 2018
|
|
|
1,466,520
|
|
|
$
|
6.66
|
|
|
|
9.49
|
|
|
Granted
|
|
|
275,000
|
|
|
$
|
2.04
|
|
|
|
4.81
|
|
|
Expired
|
|
|
(7,900
|
)
|
|
|
77.22
|
|
|
|
-
|
|
|
Outstanding as of September 30, 2019
|
|
|
1,733,620
|
|
|
$
|
5.61
|
|
|
|
8.16
|
|
|
Options vested and expected to vest as of September 30, 2019
|
|
|
1,733,620
|
|
|
$
|
5.61
|
|
|
|
8.16
|
|
|
Options vested and exercisable as of September 30, 2019
|
|
|
1,255,495
|
|
|
$
|
6.89
|
|
|
|
8.29
|
|
NOTE
5 - DEBT, COMMITMENTS AND CONTINGENCIES
Debt
consists of the following:
|
|
|
Maturity
|
|
|
Interest
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
Date
|
|
|
Rate
|
|
|
2019
|
|
|
2018
|
|
|
Convertible Note
|
|
12/31/2019
|
|
|
|
5
|
%
|
|
$
|
999,106
|
|
|
$
|
999,106
|
|
|
Less: debt discount
|
|
and
12/31/2019
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
Total Convertible notes, net of discount
|
|
|
|
|
|
|
|
|
$
|
999,106
|
|
|
$
|
999,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
999,106
|
|
|
$
|
999,106
|
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
(999,106
|
)
|
|
|
(999,106
|
)
|
|
Total, net of current portion
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
On
August 14, 2017, the Company entered into a unit purchase agreement (the “Unit Purchase Agreement”) with certain accredited
investors providing for the sale of up to $5,500,000 of 5% secured convertible promissory notes (the “Convertible Notes”),
which are convertible into shares of the Corporation’s common stock, and the issuance of warrants to purchase 1,718,750
shares of the Company’s Common Stock (the “Warrants”). The Convertible Notes are convertible into shares of
the Company’s Common Stock at the lesser of (i) $3.20 per share or (ii) the closing bid price of the Company’s common
stock on the day prior to conversion of the Convertible Note; provided that such conversion price may not be less than $1.60 per
share. The Warrants have an exercise price of $4.80 per share. In two closings of the Unit Purchase Agreement, the Company issued
$5,500,000 in Convertible Notes to the investors. The remaining balance of the Convertible Notes were due to mature on May 31,
2018. The investor agreed to extend the maturity date to December 31, 2019. The note bears interest at the rate of 5% per annum
and accrues but is not paid in cash. As of September 30, 2019, the Company had an outstanding obligation pursuant to the Convertible
Notes in the amount of $999,106. Accrued interest as of September 30, 2019 was $182,344. During the three and nine months ended
September 30, 2019, the interest expense were $12,591 and $37,363, and $19,446 and $68,891 for the three and nine months
ended September 30, 2018, respectively.
The
amortization of debt discount was $0 for the three and nine months ended September 30, 2019, and $0 and $2.3 million for the three
and nine months ended September 30, 2018, respectively.
Leases
Effective
June 1, 2018, the Company rented its corporate office at 1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144, on
a month to month basis. The monthly rent is $1,997. A security deposit of $3,815 has been paid.
The
Company also assumed a lease in connection with the mining operations in Quebec, Canada. Operating leases are included in operating
lease right-of-use assets, operating lease liabilities, and noncurrent operating lease liabilities on the balance sheets.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
Notes
to Unaudited Consolidated Condensed Financial Statements
Operation
lease costs are recorded on a straight-line basis within operating expenses. The Company’s total lease expense is comprised
of the following:
|
|
|
For the Three
Months
Ended
September 30, 2019
|
|
|
For the Nine
Months Ended
September 30, 2019
|
|
|
Operating leases
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
26,693
|
|
|
$
|
80,004
|
|
|
Operating lease expense
|
|
|
26,693
|
|
|
|
80,004
|
|
|
Short-term lease rent expense
|
|
|
6,465
|
|
|
|
16,413
|
|
|
Total rent expense
|
|
$
|
33,158
|
|
|
$
|
96,417
|
|
Additional
information regarding the Company’s leasing activities as a lessee is as follow:
|
|
|
For the Three
Months Ended
September 30, 2019
|
|
|
For the Nine
Months Ended
September 30, 2019
|
|
|
Operating cash flows from operating leases
|
|
$
|
26,870
|
|
|
$
|
79,184
|
|
|
Weighted-average remaining lease term – operating leases
|
|
|
1.7
|
|
|
|
1.7
|
|
|
Weighted-average discount rate – operating leases
|
|
|
6.5
|
%
|
|
|
6.5
|
%
|
As
of September 30, 2019, contractual minimal lease payments are as follows:
|
2019
|
|
$
|
17,768
|
|
|
2020
|
|
|
97,724
|
|
|
2021
|
|
|
97,724
|
|
|
2022
|
|
|
26,652
|
|
|
Total
|
|
|
239,868
|
|
|
Less present value discount
|
|
|
(19,232
|
)
|
|
Operating lease liabilities
|
|
$
|
220,636
|
|
Legal
Proceedings
Feinberg
Litigation
On
March 27, 2018, Jeffrey Feinberg, purportedly joined by the Jeffrey L. Feinberg Personal Trust and the Jeffrey L. Feinberg Family
Trust, filed a complaint against the Company and certain of its former officers and directors. The complaint was filed in the
Supreme Court of the State of New York, County of New York. The plaintiffs purported to state claims under Sections 11, 12(a)(2)
and 15 of the federal Securities Act of 1933 and common law claims for “actual fraud and fraudulent concealment,”
constructive fraud, and negligent misrepresentation, seeking unspecified money damages (including punitive damages), as well as
costs and attorneys’ fees, and equitable or injunctive relief. On June 15, 2018, the defendants filed a motion to dismiss
all claims asserted in the complaint and, on July 27, 2018, the plaintiffs filed an opposition to that motion. The court heard
argument on the motion and, on January 15, 2019, the court granted the motion to dismiss, allowing 30 days for the filing of an
amended complaint. On February 15, 2019, Jeffrey Feinberg, individually and as trustee of the Jeffrey L. Feinberg Personal Trust,
and Terrence K. Ankner, as trustee of the Jeffrey L. Feinberg Family Trust, filed an amended complaint that purports to state
the same claims and seeks the same relief sought in the original complaint. On March 7 and 22, 2019, defendants filed motions
to dismiss the amended complaint and on April 5, 2019, plaintiffs filed an opposition to those motions. The court heard oral argument
on the motions to dismiss on July 9, 2019, and at the conclusion of the argument the court took the motions under submission.
The parties are waiting for the court’s rulings on the motions to dismiss and, while the motions have been under submission,
no discovery has been taken and there have been no other significant developments in the case.
NOTE
6 – Subsequent Events
On
October 1, 2019, the Company issued 150,000 shares of its common stock to a consultant. The fair value of the common stocks was
$262,500.
The
Company has evaluated subsequent events through the date of the consolidated financial statements were available to be issued
and has concluded that no such events or transactions took place that would require disclosure herein except as stated directly
above.