NOTES
TO 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 was engaged in
the business of exploration and potential development of uranium and vanadium minerals. 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. 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.
On
September 30, 2019, the Company consummated the purchase of 6000 S-9 Bitmain 13.5 TH/s Bitcoin Antminers (“Miners”)
from SelectGreen Blockchain Ltd. (the “Seller”), 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 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 on the date of the Asset Purchase Agreement) and upon the receipt of shareholder approval, at the Annual Shareholders
Meeting to be held on November 15, 2019, the Company was authorized issue the balance of the 1,058,558 unregistered common stock
shares. The Company issued an additional 474,808 at $0.90 per share on December 27, 2019. On March 30, 2020, the Seller agreed
to amend the total of number of shares to be issued was reduced to 2,101,500 shares and the rest of 350,250 shares were issued
at $0.49 per share. There was no mining payable outstanding as of June 30, 2020.
On
May 11, 2020, the Company purchased 700 new generation M305+ASIC Miners from MicroBT for approximately $1.3 million. The 700 miners
produce 80/Th and will generate 56 PH/s (petahash) of hashing power, compared to the Company’s current S-9 production of
46 PH/s. These next generation MicroBT ASIC miners are markedly more energy efficient than our existing Bitmain models. These
miners were delivered to the Company’s Hosting Facility in June and are producing Bitcoins.
The
Company purchased 660 latest generation Bitmain S19 Pro Miners on May 12, 2020, 500 units on May 18, 2020 and an additional 500
units on June 11, 2020. These miners produce 110 TH/s and will generate 73 PH/s (petahash) of hashing power, compared to the Company’s
S-9 production of 46 PH/s. The Company made the payments of approximately $4.2 million in the second quarter of 2020 and expects
660 of the 1,660 units to take delivery at its Hosting Facility in mid-August, and its hosting partner, Compute North, expects
to install them within 48 hours of their arrival. The 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter
will produce an additional 110 PH/s, which when installed will give the Company an aggregate Hashpower of 294 PH/s.
As
of April 6, 2020, the Company received notice from the Nasdaq Capital Market (the “Capital Market”) that the Company
has failed to maintain a minimum closing bid price of $1.00 per share of its Common Stock over the last consecutive 30 business
days based upon the closing bid price for its common stock as required by Rule 5550(a)(2). However, the Rules also provide the
Company a compliance period of 180 calendar days in which to regain compliance during which time it must maintain a minimum closing
bid price of at least $1.00 per share for a minimum period of 10 consecutive business days, which must be completed by October
5, 2020. On April 20, 2020, the Company received a further notice from the Nasdaq Capital Market that the Company’s time
to maintain a minimum closing bid price of at least $1.00 per share for a minimum period of 10 consecutive business days has been
extended from October 5, 2020 to December 17, 2020. As of August 6, 2020, the Company believes it has regained compliance with
Rule 5550(a)(2) as the closing bid price has been in excess of $1.00 per share for the past ten trading days.
Liquidity
and Financial Condition
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
disclosed in Note 4, 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 provided for the sale of shares of our Common Stock (“Shares”) having
an aggregate offering price of up to $7.5 million (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). During the six months ended June 30,
2020, 10,947,893 shares of common stock were issued under the Agreement for the total proceeds of approximately $7.1 million,
net of offering cost of $0.3 million, and has sold all shares it is able to sell thereunder.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
As
reflected in the consolidated condensed financial statements, the Company had an accumulated deficit of approximately $108.8 million
at June 30, 2020, a net loss of approximately $3.2 million and approximately $2.1 million net cash used in operating activities
for the six months ended June 30, 2020. These factors raise substantial doubt about the Company’s ability to continue as
a going concern.
On
July 23, 2020, the Company entered into an underwriting agreement with H.C. Wainwright. The Company agree to sell H.C. Wainwright
(the “Underwriter”) 7,666,666 shares of its common stock, including the exercise in full by the Underwriter of the
option to purchase an additional 999,999 shares of common stock, at a public offering price of $0.90 per share. The gross proceeds
of this offering, which closed on July 28, 2020, were approximately $6.9 million, and proceeds, net of underwriting discount and
expenses of $0.6 million, were $6.3 million. Additionally, representative’s warrant to purchase 536,667 shares of our common
stock with a five year term and an exercise price of $1.125 per share were issued.
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:
|
●
|
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
|
|
|
|
|
●
|
review
strategic alternatives.
|
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.
The
impact of the worldwide spread of a novel strain of coronavirus (“COVID 19”) has been unprecedented and unpredictable,
but based on the Company’s current assessment, the Company does not expect any material impact on its long-term strategic
plans, operations and its liquidity due to the worldwide spread of COVID-19. However, the Company is continuing to assess the
effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world
and its assessment of the impact of COVID-19 may change.
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, 2020.
Use
of Estimates and Assumptions
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
and fixed assets, the assumptions used to calculate fair value of warrants and options granted, realization of long-lived assets,
deferred income taxes, unrealized tax positions and the realization of digital currencies.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Significant
Accounting Policies
There
have been no material changes to the Company’s significant accounting policies to those previously disclosed in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
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.
Halving
– The bitcoin blockchain and the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving
is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work
consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “Halving”. The next
halving for bitcoin occurred on May 12, 2020. Many factors influence the price of bitcoin and potential increases or decreases
in prices in advance of or following a future halving is unknown.
The
following table presents the activities of the digital currencies for the six months ended June 30, 2020:
Digital currencies at December 31, 2019
|
|
$
|
1,141
|
|
Additions of digital currencies
|
|
|
878,648
|
|
Realized gain on sale of digital currencies
|
|
|
4,260
|
|
Sale of digital currencies
|
|
|
(775,349
|
)
|
Digital currencies at June 30, 2020
|
|
$
|
108,700
|
|
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.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 June 30, 2020 and
December 31, 2019, respectively:
|
|
Fair value measured at December 31, 2019
|
|
|
|
Total carrying value at December 31,
|
|
|
Quoted prices in active markets
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
12,849
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,849
|
|
|
|
Fair value measured at June 30, 2020
|
|
|
|
Total carrying value at
June 30,
|
|
|
Quoted prices in active markets
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
9,625
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,625
|
|
There
were no transfers between Level 1, 2 or 3 during the six months ended June 30, 2020.
At
June 30, 2020, the Company had an outstanding warrant liability in the amount of $9,625 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 six months ended June 30, 2020.
Fair
value of warrant liabilities
|
|
Fair value
|
|
Outstanding as of December 31, 2019
|
|
$
|
12,849
|
|
Change in fair value of warrants
|
|
|
(3,224
|
)
|
Outstanding as of June 30, 2020
|
|
$
|
9,625
|
|
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 June 30, 2020 and 2019 are as follows:
|
|
As of June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants to purchase common stock
|
|
|
164,222
|
|
|
|
182,191
|
|
Options to purchase common stock
|
|
|
140,182
|
|
|
|
1,466,520
|
|
Convertible notes to exchange common stock
|
|
|
-
|
|
|
|
312,221
|
|
Total
|
|
|
304,404
|
|
|
|
1,960,932
|
|
The
following table sets forth the computation of basic and diluted loss per share:
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net loss attributable to common shareholders
|
|
$
|
(2,161,196
|
)
|
|
$
|
(565,880
|
)
|
|
$
|
(3,219,127
|
)
|
|
$
|
(1,610,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic and diluted
|
|
|
16,291,610
|
|
|
|
6,350,080
|
|
|
|
12,473,568
|
|
|
|
6,344,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.25
|
)
|
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Sequencing
In
connection with 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. This convertible note was satisfied in full during the second quarter of 2020, therefore as of June 30, 2020, no
future instruments are subject to the company sequencing policy.
Recent
Accounting Pronouncements
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”)”,
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to
the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related
disclosures.
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 – DEPOSIT, PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
On
May 11, 2020, the Company signed a Contract Addendum with Compute North, to pause and suspend services under its Colocation Agreement.
This will suspend all production of Bitcoin using our S-9 miners.
Halving
– The bitcoin blockchain and the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving
is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work
consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “Halving”. The next
halving for bitcoin occurred on May 12, 2020. Many factors influence the price of bitcoin and potential increases or decreases
in prices in advance of or following a future halving is unknown.
On
May 11, 2020, the Company purchased 700 new generation M305+ASIC Miners from MicroBT for approximately $1.3 million. The 700 miners
produce 80/Th and will generate 56 PH/s (petahash) of hashing power, compared to the Company’s current S-9 production of
46 PH/s. These next generation MicroBT ASIC miners are markedly more energy efficient than our existing Bitmain models. These
miners have been delivered to the Company’s Hosting Facility in June and are producing Bitcoins.
The
Company purchased 660 latest generation Bitmain S19 Pro Miners on May 12, 2020, 500 units on May 18, 2020 and an additional 500
units on June 11, 2020. These miners produce 110 TH/s and will generate 73 PH/s (petahash) of hashing power, compared to the Company’s
S-9 production of 46 PH/s. The Company made the payments of approximately $4.2 million in the second quarter of 2020 and expects
660 of the 1,660 units to take delivery at its Hosting Facility in mid-August, and its hosting partner, Compute North, expects
to install them within 48 hours of their arrival. The 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter
will produce an additional 110 PH/s, which when installed will give the Company an aggregate Hashpower of 294 PH/s.
As
of June 30, 2020, approximately $4.2 million cash paid for Miners was recorded as deposit on the balance sheet.
The
components of property, equipment and intangible assets as of June 30, 2020 and December 31, 2019 are:
|
|
Useful life (Years)
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Website
|
|
7
|
|
$
|
121,787
|
|
|
$
|
121,787
|
|
Mining equipment
|
|
2
|
|
|
7,989,335
|
|
|
|
7,120,505
|
|
Mining patent
|
|
17
|
|
|
1,210,000
|
|
|
|
1,210,000
|
|
Gross property, equipment and intangible assets
|
|
|
|
|
9,321,122
|
|
|
|
8,452,292
|
|
Less: Accumulated depreciation and amortization
|
|
|
|
|
(4,669,603
|
)
|
|
|
(3,623,745
|
)
|
Property, equipment and intangible assets, net
|
|
|
|
$
|
4,651,519
|
|
|
$
|
4,828,547
|
|
The
Company’s depreciation expense for the three months ended June 30, 2020 and 2019 were $499,489 and $137,361, and amortization
expense were $17,794 and $17,794 for the three months ended June 30, 2020 and 2019, respectively. The Company’s depreciation
expense for the six months ended June 30, 2020 and 2019 were $1.0 million and $274,722, and amortization expense were $35,588
and $35,588 for the six months ended June 30, 2020 and 2019, respectively.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 provided for the sale of shares of our Common Stock (“Shares”) having an aggregate offering price of
up to $7.5 million (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).
During
the six months ended June 30, 2020, 10,947,893 shares of common stock were issued under the Agreement for the total proceeds of
approximately $7.1 million, net of offering cost of $0.3 million, and the Company has sold all shares possible under the Agreement.
Series
B Convertible Preferred Stock
As
of June 30, 2020, 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 June 30, 2020.
Common
Stock Warrants
A
summary of the status of the Company’s outstanding stock warrants and changes during the six months ended June 30, 2020
is as follows:
|
|
Number of Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
Outstanding as of December 31, 2019
|
|
|
182,191
|
|
|
$
|
25.04
|
|
|
|
2.8
|
|
Expired
|
|
|
(17,969
|
)
|
|
|
59.14
|
|
|
|
-
|
|
Outstanding as of June 30, 2020
|
|
|
164,222
|
|
|
$
|
21.30
|
|
|
|
1.8
|
|
Warrants exercisable as of June 30, 2020
|
|
|
164,222
|
|
|
$
|
21.30
|
|
|
|
1.8
|
|
Common
Stock Options
On
May 5, 2020, the Compensation Committee of the Board of Directors held a meeting and approved bonuses and stock option grants
for Directors and Officers for their contributions to the growth of Marathon Patent Group, Inc., for the year ended December 31,
2019. Total awards to be granted amounted to 1,158,138 restricted stock units at a price of $0.43 per unit with a term of one
year, vesting quarterly in equal amounts, and (ii) cash award of $105,000 to Merrick Okamoto and $54,000 to David Lieberman. In
addition, the Compensation Committee agreed to cancel 1,587,500 existing stock options for Directors, Officers and outside legal
counsel, and replace them with 1,587,500 restricted stock units at a price of $0.43 per unit with a term of one year, vesting
quarterly in equal amounts.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A
summary of the stock options as of June 30, 2020 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, 2019
|
|
|
1,731,745
|
|
|
$
|
5.50
|
|
|
|
7.92
|
|
Cancelled
|
|
|
(1,587,500
|
)
|
|
|
2.28
|
|
|
|
-
|
|
Expired
|
|
|
(4,063
|
)
|
|
|
110.67
|
|
|
|
-
|
|
Outstanding as of June 30, 2020
|
|
|
140,182
|
|
|
$
|
38.92
|
|
|
|
4.63
|
|
Options vested and expected to vest as of June 30, 2020
|
|
|
140,182
|
|
|
$
|
38.92
|
|
|
|
4.63
|
|
Options vested and exercisable as of June 30, 2020
|
|
|
127,682
|
|
|
$
|
42.53
|
|
|
|
4.69
|
|
Restricted
Stock
A
summary of the restricted stock award activity for the six months ended June 30, 2020 as follows:
|
|
Number of Units
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
Nonvested at December 31, 2019
|
|
|
18,750
|
|
|
$
|
6.88
|
|
Granted
|
|
|
2,745,639
|
|
|
$
|
0.43
|
|
Vested
|
|
|
(698,910
|
)
|
|
$
|
0.55
|
|
Nonvested at June 30, 2020
|
|
|
2,065,479
|
|
|
$
|
0.45
|
|
NOTE
5 - DEBT, COMMITMENTS AND CONTINGENCIES
Debt
consists of the following:
|
|
Maturity
|
|
|
Interest
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Date
|
|
|
Rate
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Note
|
|
|
9/1/2021
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
999,106
|
|
Less: debt discount
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total convertible notes, net of discount
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
999,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
999,106
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Long term portion
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
999,106
|
|
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) $0.80 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 $0.40 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. On February 10, 2020, in consideration
of the payment of $65,000, the investor agreed to extend the maturity date to September 1, 2021, and the conversion price changed
to the lower of, the closing price on the previous days close prior to the conversion request or a maximum conversion price of
$1.00 and a floor of $0.80. The Company made such payment on February 11, 2020. On May 19, 2020, the Company amended the note with
the investor to reduce the conversion price to $0.6 per share. During the six months ended June 30, 2020, $999,106 remaining balance
of the Convertible Notes and $215,136 of accrued and unpaid interest were converted into 2,023,739 shares of the Company’s
Common Stock, and the Company recorded $364,832 expenses pursuant to the inducement of the conversion terms.
During the six months ended June 30, 2020 and
2019, there was no amortization of debt discount. Interest expenses were $8,414 and $12,454 for the three months ended June 30,
2020 and 2019, respectively. Interest expenses were $20,869 and $24,772 for the six months ended June 30, 2020 and 2019, respectively.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note
Payable
On
May 6, 2020, the Company entered into a Paycheck Protection Program Promissory Note agreement with a bank which is providing $62,500
to the Company. The note accrues interest at a rate of 1% per annum and matures on May 6, 2022.
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.
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
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Operating leases
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
26,333
|
|
|
$
|
27,065
|
|
Operating lease expense
|
|
|
26,333
|
|
|
|
27,065
|
|
Short-term lease rent expense
|
|
|
6,072
|
|
|
|
5,841
|
|
Total rent expense
|
|
$
|
32,405
|
|
|
$
|
32,906
|
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Operating leases
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
53,122
|
|
|
$
|
53,311
|
|
Operating lease expense
|
|
|
53,122
|
|
|
|
53,311
|
|
Short-term lease rent expense
|
|
|
12,064
|
|
|
|
9,948
|
|
Total rent expense
|
|
$
|
65,186
|
|
|
$
|
63,259
|
|
Additional
information regarding the Company’s leasing activities as a lessee is as follow:
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Operating cash flows from operating leases
|
|
$
|
52,246
|
|
|
$
|
52,314
|
|
Weighted-average remaining lease term – operating leases
|
|
|
1.4
|
|
|
|
1.8
|
|
Weighted-average discount rate – operating leases
|
|
|
6.5
|
%
|
|
|
6.5
|
%
|
As
of June 30, 2020, contractual minimal lease payments are as follows:
2020
|
|
$
|
43,181
|
|
2021
|
|
|
94,997
|
|
2022
|
|
|
25,908
|
|
Total
|
|
|
164,086
|
|
Less present value discount
|
|
|
(9,384
|
)
|
Less current portion of operating lease liabilities
|
|
|
(87,447
|
)
|
Non-current operating lease liabilities
|
|
$
|
67,255
|
|
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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
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.
On
July 23, 2020, the Company entered into an underwriting agreement with H.C. Wainwright. The Company agree to sell H.C. Wainwright
(the “Underwriter”) 7,666,666 shares of its common stock, including the exercise in full by the Underwriter of the
option to purchase an additional 999,999 shares of common stock, at a public offering price of $0.90 per share. The gross proceeds
of this offering, which closed on July 28, 2020, were approximately $6.9 million, and proceeds, net of underwriting discount and
expenses of $0.6 million, were $6.3 million. Additionally, representative’s warrant to purchase 536,667 shares of our common
stock with a five year term and an exercise price of $1.125 per share were issued.
On
July 29, 2020, the Company announced the purchase of 700 next generation M31S+ASIC Miners from MicroBT. The miners are expected
to arrive mid-August. Additionally, Bitmain has notified the Company that 660 of the 1,660 Bitmain S-19 Pro Miners previously
purchase will be delivered in mid-August. The 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter will
produce an additional 110 PH/s, which when installed will give the Company an aggregate Hashpower of 294 PH/s.