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.
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 to 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 number of shares to be issued which 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 September 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 received
660 of the 1,660 units at its Hosting Facility in August, and its hosting partner, Compute North, had installed them
upon their arrival. Of the 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter,
500 were received in November and installed in the Company’s Hosting Facility in Montana, while 500 are anticipated to be
received and installed during the remainder of the 4th quarter. These miners will produce an additional 110 PH/s increasing
the Company to an aggregate Hashpower of 294 PH/s.
On
July 29, 2020, the Company announced the purchase of 700 next generation M31S+ASIC Miners from MicroBT. The miners arrived mid-August.
On
August 13, 2020, the Company entered into a Long Term Purchase Contract with Bitmaintech PTE., LTD (“Bitmain”)
for the purchase of 10,500 next generation Antminer S-19 Pro ASIC Miners. The purchase price per unit is $2,362 ($2,206
with a 6.62% discount) for a total purchase price of $24,801,000 (with a 6.62% discount for a discounted price of $23,159,174).
The parties confirm that the total hashrate of the Antminers under this agreement shall not be less than 1,155,000 TH/s.
The
Company shall pay for the Antminers as follows:
|
(1)
|
Twenty
percent (20%) of the total purchase price shall be paid as a nonrefundable down payment within forty-eight (48) hours of execution
of the agreement.
|
|
|
|
|
|
|
(2)
|
The
Company shall pay the twenty percent (20%) of the total purchase price prior to September 20, 2020.
|
|
|
|
|
|
|
(3)
|
The
Company shall pay the ten percent (10%) of the total purchase price prior to October 10, 2020.
|
|
|
|
|
|
|
(4)
|
The
Company shall pay the remaining fifty percent (50%) of the total purchase price in equal monthly installments due not less
than fifty-five (55) days prior to the scheduled delivery of the Product(s) as follows:
|
|
|
a)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the first installment of
products to be shipped to the Company in January 2021.
|
|
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
b)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the second installment of
the products to be shipped to the Company in February 2021.
|
|
|
|
|
|
|
c)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the third installment of
the products to be shipped to the Company in March 2021.
|
|
|
|
|
|
|
d)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the fourth installment of
the products to be shipped to the Company in April 2021.
|
|
|
|
|
|
|
e)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the fifth installment of
the products to be shipped to the Company in May 2021.
|
|
|
|
|
|
|
f)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the sixth installment of
the products to be shipped to the Company in June 2021.
|
|
Subject
to the timely payment of the purchase price, Bitmain shall deliver products according to the following schedule: 1,500 Units on
or before January 31, 2021; and 1,800 units on or before each of February 28, 2021; March 31, 2021; April 30, 2021, May 31, 2021
and June 30, 2021.
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. In August 2020, the Company regained compliance with Rule 5550(a)(2) as the
closing bid price has been in excess of $1.00 per share for the requisite time period.
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, the Company has raised cash proceeds from the sale of its common stock during the nine months ended September
30, 2020 as follows:
Offering
|
|
Gross Proceeds
|
|
|
Offering Costs
|
|
|
Net Proceeds
|
|
2019 At the Market Offering Agreement
|
|
$
|
7.4 million
|
|
|
$
|
0.3 million
|
|
|
$
|
7.1 million
|
|
2020 Follow On Offering
|
|
$
|
6.9 million
|
|
|
$
|
0.6 million
|
|
|
$
|
6.3 million
|
|
2020 At the Market Offering (ongoing)
|
|
$
|
29.8 million
|
|
|
$
|
1.0 million
|
|
|
$
|
28.8
million
|
|
As of the November 12, 2020, the Company
has sold 15,622,638 shares of its common stock for an aggregate purchase price of $46,642,057 under our 2020 At the Market Offering
pursuant to our registration statement on Form S-3 declared effective by the SEC on August 6, 2020, and the Company may sell up
to an additional $53,357,943 of its securities thereunder (for an aggregate total of $100 million originally available for sale
under the shelf offering).
As
reflected in the consolidated condensed financial statements, the Company had an accumulated deficit of approximately $110.6 million
at September 30, 2020, a net loss of approximately $4.997 million and approximately $3.448 million net cash used in operating
activities for the nine months ended September 30, 2020. As a result, the Company believes it has sufficient cash flow for operations
through the next twelve months.
The
impact of the worldwide spread of a novel strain of coronavirus (“COVID 19”) has been and continues to be 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.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited 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.
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 nine months ended September 30, 2020 :
Digital currencies at December 31, 2019
|
|
$
|
1,141
|
|
Additions of digital currencies
|
|
|
1,713,832
|
|
Realized gain on sale of digital currencies
|
|
|
15,466
|
|
Sale of digital currencies
|
|
|
(1,278,550
|
)
|
Digital currencies at September 30, 2020
|
|
$
|
451,889
|
|
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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, 2020
and December 31, 2019, respectively :
|
|
Fair value measured at September 30, 2020
|
|
|
|
Total carrying value at September 30,
|
|
|
Quoted prices in active markets
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
31,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,500
|
|
|
|
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
|
|
There
were no transfers between Level 1, 2 or 3 during the nine months ended September 30, 2020.
At
September 30, 2020, the Company had an outstanding warrant liability in the amount of $31,500 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, 2020.
Fair
value of warrant liabilities
|
|
Fair value
|
|
Outstanding as of December 31, 2019
|
|
$
|
12,849
|
|
Change in fair value of warrants
|
|
|
18,651
|
|
Outstanding as of September 30, 2020
|
|
$
|
31,500
|
|
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.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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, 2020 and 2019 are as follows :
|
|
As of September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants to purchase common stock
|
|
|
696,167
|
|
|
|
182,191
|
|
Options to purchase common stock
|
|
|
140,182
|
|
|
|
1,733,620
|
|
Convertible notes to exchange common stock
|
|
|
-
|
|
|
|
312,221
|
|
Total
|
|
|
836,349
|
|
|
|
2,228,032
|
|
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,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net loss attributable to common shareholders
|
|
$
|
(1,994,417
|
)
|
|
$
|
(754,407
|
)
|
|
$
|
(5,213,544
|
)
|
|
$
|
(2,365,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic and diluted
|
|
|
31,520,736
|
|
|
|
6,372,061
|
|
|
|
18,868,967
|
|
|
|
6,353,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.37
|
)
|
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 September 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 were delivered to the Company’s Hosting Facility in June 2020 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 received
660 of the 1,660 units at its Hosting Facility in August, and its hosting partner, Compute North, had installed them upon their
arrival. Of the 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter, 500 were received in November and
installed in the Company’s Hosting Facility in Montana, while 500 are anticipated to be received and installed during the
remainder of the 4th quarter. These miners will produce an additional 110 PH/s increasing the Company to an aggregate
Hashpower of 294 PH/s.
On July 29, 2020, the Company announced the
purchase of 700 next generation M31S+ASIC Miners from MicroBT. The miners arrived mid-August.
On August 13, 2020, the Company entered into
a Long Term Purchase Contract with Bitmaintech PTE., LTD (“Bitmain”) for the purchase of 10,500 next generation Antminer
S-19 Pro ASIC Miners.
The purchase price per unit is $2,362 ($2,206
with a 6.62% discount) for a total purchase price of $24,801,000 (with a 6.62% discount for a discounted price of $23,159,174).
The parties confirm that the total hashrate of the Antminers under this agreement shall not be less than 1,155,000 TH/s.
The
Company shall pay for the Antminers as follows:
|
(1)
|
Twenty
percent (20%) of the total purchase price shall be paid as a nonrefundable down payment within forty-eight (48) hours of execution
of the agreement.
|
|
|
|
|
|
|
(2)
|
The
Company shall pay the twenty percent (20%) of the total purchase price prior to September 20, 2020.
|
|
|
|
|
|
|
(3)
|
The
Company shall pay the ten percent (10%) of the total purchase price prior to October 10, 2020.
|
|
|
|
|
|
|
(4)
|
The
Company shall pay the remaining fifty percent (50%) of the total purchase price in equal monthly installments due not less
than fifty-five (55) days prior to the scheduled delivery of the Product(s) as follows:
|
|
|
a)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the first installment of
products to be shipped to the Company in January 2021.
|
|
|
|
|
|
|
b)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the second installment of
the products to be shipped to the Company in February 2021.
|
|
|
|
|
|
|
c)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the third installment of
the products to be shipped to the Company in March 2021.
|
|
|
|
|
|
|
d)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the fourth installment of
the products to be shipped to the Company in April 2021.
|
|
|
|
|
|
|
e)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the fifth installment of
the products to be shipped to the Company in May 2021.
|
|
|
|
|
|
|
f)
|
eight-point
thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the sixth installment of
the products to be shipped to the Company in June 2021.
|
|
Subject
to the timely payment of the purchase price, Bitmain shall deliver products according to the following schedule: 1,500 Units on
or before January 31, 2021; and 1,800 units on or before each of February 28, 2021; March 31, 2021; April 30, 2021, May 31, 2021
and June 30, 2021.
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. In August 2020, the Company regained compliance with Rule 5550(a)(2) as the
closing bid price has been in excess of $1.00 per share for the requisite time period.
As
of September 30, 2020, approximately $13.27 million cash paid for Miners was recorded as a deposit on the balance
sheet.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The
components of property, equipment and intangible assets as of September 30, 2020 and December 31, 2019 are :
|
|
Useful
life (Years)
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
Website
|
|
7
|
|
$
|
121,787
|
|
|
$
|
121,787
|
|
Mining equipment
|
|
2
|
|
|
9,845,788
|
|
|
|
7,120,505
|
|
Mining patent
|
|
17
|
|
|
1,210,000
|
|
|
|
1,210,000
|
|
Gross property, equipment and intangible assets
|
|
|
|
|
11,177,575
|
|
|
|
8,452,292
|
|
Less: Accumulated depreciation
and amortization
|
|
|
|
|
(5,475,086
|
)
|
|
|
(3,623,745
|
)
|
Property, equipment and
intangible assets, net
|
|
|
|
$
|
5,702,489
|
|
|
$
|
4,828,547
|
|
The
Company’s depreciation expense for the three months ended September 30, 2020 and 2019 were $787,689 and $137,361, and amortization
expense were $17,794 and $17,794 for the three months ended September 30, 2020 and 2019, respectively. The Company’s depreciation
expense for the nine months ended September 30, 2020 and 2019 were $1.8 million and $412,083, and amortization expense were $53,382
and $53,382 for the nine months ended September 30, 2020 and 2019, respectively.
NOTE
4 - STOCKHOLDERS’ EQUITY
Common
Stock
Follow
On Offering
On
July 23, 2020, the Company entered into an underwriting agreement with H.C. Wainwright. The Company agreed to sell H.C. Wainwright
7,666,666 shares of its common stock, including the exercise in full by H.C. Wainwright 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.
Shelf
Registration Statement on Form S-3 and At The Market Offering Agreement
On
August 13, 2020, the Company’s Shelf Registration Statement on Form S-3, filed on August 6, 2020, was declared effective
by the SEC, along with the Company’s At The Market Offering Agreement, entered into by the Company and H.C. Wainwright &
Co., LLC, as Exhibit 1.1 to the Form S-3 (the “2020 At The Market Agreement”). This 2020 At the Market Agreement establishes
an at-the-market equity program pursuant to which the Company may offer and sell shares of its common stock, par value $0.0001
per share, with an aggregate offering price of up to $100 million, from time to time as set forth in the agreement.
During
the nine months ended September 30, 2020, 17,712,635 shares of common stock were issued under the Company’s 2020 At The
Market Agreement for total proceeds of approximately $28.8 million, net of offering costs of $1.0 million, and the Company has
sold all shares possible under the Agreement.
Series
B Convertible Preferred Stock
As
of September 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 September 30, 2020.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Common
Stock Warrants
A
summary of the status of the Company’s outstanding stock warrants and changes during the nine months ended September 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
|
|
Issued
|
|
|
536,667
|
|
|
|
1.13
|
|
|
|
4.8
|
|
Exercised
|
|
|
(4,722
|
)
|
|
|
1.13
|
|
|
|
-
|
|
Expired
|
|
|
(17,969
|
)
|
|
|
59.14
|
|
|
|
-
|
|
Outstanding as of September 30, 2020
|
|
|
696,167
|
|
|
$
|
5.89
|
|
|
|
4.0
|
|
Warrants exercisable as of September 30, 2020
|
|
|
696,167
|
|
|
$
|
5.89
|
|
|
|
4.0
|
|
Common
Stock Options
On
May 5, 2020, the Compensation Committee of the Board of Directors held a meeting and approved bonuses and restricted 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.
A
summary of the stock options as of September 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 September 30, 2020
|
|
|
140,182
|
|
|
$
|
38.92
|
|
|
|
4.38
|
|
Options vested and expected to vest as of September
30, 2020
|
|
|
140,182
|
|
|
$
|
38.92
|
|
|
|
4.38
|
|
Options vested and exercisable as of September 30, 2020
|
|
|
140,182
|
|
|
$
|
38.92
|
|
|
|
4.38
|
|
Restricted
Stock
A
summary of the restricted stock award activity for the nine months ended September 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
|
|
|
(1,391,570
|
)
|
|
$
|
0.50
|
|
Nonvested at September 30, 2020
|
|
|
1,372,820
|
|
|
$
|
0.45
|
|
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
5 - DEBT, COMMITMENTS AND CONTINGENCIES
Debt
consists of the following :
|
|
Maturity
|
|
|
Interest
|
|
|
September 30,
|
|
|
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 $0.60 per share. During the nine
months ended September 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 of expenses pursuant
to the inducement of the conversion terms.
During
the nine months ended September 30, 2020 and 2019, there was no amortization of debt discount. Interest expenses were $0 and $12,951
for the three months ended September 30, 2020 and 2019, respectively. Interest expenses were $20,984 and $37,363 for the nine
months ended September 30, 2020 and 2019, respectively.
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
|
|
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
Operating leases
|
|
|
|
|
|
|
|
|
Operating
lease cost
|
|
$
|
26,803
|
|
|
$
|
26,693
|
|
Operating lease expense
|
|
|
26,803
|
|
|
|
26,693
|
|
Short-term lease rent expense
|
|
|
6,231
|
|
|
|
6,465
|
|
Total rent expense
|
|
$
|
33,034
|
|
|
$
|
33,158
|
|
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
Operating leases
|
|
|
|
|
|
|
|
|
Operating
lease cost
|
|
$
|
79,925
|
|
|
$
|
80,004
|
|
Operating lease expense
|
|
|
79,925
|
|
|
|
80,004
|
|
Short-term lease rent expense
|
|
|
18,295
|
|
|
|
16,413
|
|
Total rent expense
|
|
$
|
98,220
|
|
|
$
|
96,417
|
|
Additional
information regarding the Company’s leasing activities as a lessee is as follow:
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
Operating cash flows from operating leases
|
|
$
|
78,796
|
|
|
$
|
79,184
|
|
Weighted-average remaining lease term – operating
leases
|
|
|
1.6
|
|
|
|
1.7
|
|
Weighted-average discount rate – operating leases
|
|
|
6.5
|
%
|
|
|
6.5
|
%
|
As
of September 30, 2020, contractual minimal lease payments are as follows:
2020
|
|
$
|
18,112
|
|
2021
|
|
|
99,615
|
|
2022
|
|
|
27,168
|
|
Total
|
|
|
144,895
|
|
Less present value discount
|
|
|
(7,337
|
)
|
Less current portion of operating
lease liabilities
|
|
|
(93,197
|
)
|
Non-current operating lease
liabilities
|
|
$
|
44,361
|
|
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
below.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On
October 6, 2020, the Company entered into a series of agreements with affiliates of Beowulf Energy LLC, a Delaware limited liability
company (collectively and as applicable, “Beowulf”) and Two Point One, LLC, a Delaware limited liability company (“2Pl”;
Marathon, Beowulf and 2Pl each a “Party” and, collectively, the “Parties”). Beowulf and 2Pl have been
designing and developing a data center facility of up to 100-megawatts (the “Facility”) that will be located next
to, and supplied energy directly from, Beowulf’s power generating station in Hardin, MT (the “Hardin Station”).
The Facility is being developed in two phases to reach its 100 MW capacity, and the Hardin Station will supply the Facility exclusively
with energy to operate Bitcoin mining servers.
The
projected build out cost for Phase I is approximately $14 million, which is front loaded as the infrastructure is being built
for the full 100 MW project. It entails high voltage equipment to break down the full 100 MW load from the generating station,
and thereafter, the infrastructure cost per MW is a matter of distributing power at a container level. Assuming market conditions
similar to current, the build out cost for Phase II works out to approximately $200,000 - $250,000 per MW. These are all in costs
covering all equipment and labor needed starting from the power coming off the Generating Station distributed down to running
the actual miners: including breakers, transformers, switches, containers, PDUs, fans, network cables, and the like.
Marathon
and Beowulf entered into an exclusive Power Purchase Agreement for the initial supply of 30 MW (Phase I), and up to 100 MW in
the aggregate (Phase II), of energy load to the Facility at a cost of $0.028/kWh. The initial term of the Power Purchase Agreement
is five years, with up to five additional three-year extensions, as mutually agreed, assuming 75% energy utilization of the initial
30 MW of energy supplied to the Facility. Marathon purchased certain mining infrastructure and equipment for the Facility from
Beowulf for a purchase price of $750,000, and Marathon has the right, at no additional cost, to construct and access the Facility
on land adjacent to the Hardin Station pursuant to a lease agreement with Beowulf.
Beowulf
and 2P1 will provide operation and maintenance services for the Facility pursuant to a Data Facility Services Agreement, in exchange
for an initial issuance of 3,000,000 shares of Marathon’s common stock to each of Beowulf and 2Pl. Upon completion of Phase
I, Marathon will issue to Beowulf an additional 150,000 shares of its common stock. During Phase II, Marathon will issue to Beowulf
an additional 350,000 shares of its common stock – 150,000 shares upon reaching 60 MW of Facility load and 200,000 at completion
of the full 100 MW of Facility load. The cost to maintain and run the Facility will be $0.006/kWh. All shares issued under the
Data Facility Services Agreement are issued pursuant to transactions exempt from registration under Section 4(a)(2) of the Securities
Act of 1933.
Effective
October 19, 2020, David Lieberman retired as the Company’s Chief Financial Officer, and Simeon Salzman was appointed Chief
Financial Officer.
As
of the November 12, 2020, the Company has sold 15,622,638 shares of its common stock for an aggregate purchase price of $46,642,057
under our 2020 At the Market Offering pursuant to our registration statement on Form S-3 declared effective by the SEC on August
6, 2020, and the Company may sell up to an additional $53,357,943 of its securities thereunder (for an aggregate total of $100
million originally available for sale under the shelf offering).