Item
1. Financial Statements
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED BALANCE SHEETS
|
|
March
31,2020
|
|
|
December
31,2019
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
474,546
|
|
|
$
|
692,963
|
|
Digital
currencies
|
|
|
2,892
|
|
|
|
1,141
|
|
Accounts
receivable - net of allowance for bad debt of $0 for March 31, 2020
|
|
|
117,811
|
|
|
|
-
|
|
Prepaid
expenses and other current assets
|
|
|
908,348
|
|
|
|
800,024
|
|
Total
current assets
|
|
|
1,503,597
|
|
|
|
1,494,128
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation and impairment charges of $6,220,792 and $6,157,786 for March 31, 2020 and
December 31, 2019, respectively
|
|
|
2,835,563
|
|
|
|
3,754,969
|
|
Right-of-use
assets
|
|
|
273,173
|
|
|
|
297,287
|
|
Intangible
assets, net of accumulated amortization of $154,216 and $136,422 for March 31, 2020 and December 31, 2019, respectively
|
|
|
1,055,784
|
|
|
|
1,073,578
|
|
Total
other assets
|
|
|
4,164,520
|
|
|
|
5,125,834
|
|
TOTAL
ASSETS
|
|
$
|
5,668,117
|
|
|
$
|
6,619,962
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,312,159
|
|
|
$
|
1,238,197
|
|
Mining
servers payable
|
|
|
-
|
|
|
|
513,700
|
|
Current
portion of lease liability
|
|
|
89,054
|
|
|
|
87,959
|
|
Warrant
liability
|
|
|
3,062
|
|
|
|
12,849
|
|
Total
current liabilities
|
|
|
1,404,275
|
|
|
|
1,852,705
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
999,106
|
|
|
|
999,106
|
|
Lease
liability
|
|
|
95,018
|
|
|
|
120,479
|
|
Total
long-term liabilities
|
|
|
1,094,124
|
|
|
|
1,119,585
|
|
Total
liabilities
|
|
|
2,498,399
|
|
|
|
2,972,290
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding at March 31, 2020 and December 31,
2019, respectively
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.0001 par value; 200,000,000 shares authorized; 9,212,106 and 8,458,781 issued and outstanding at March 31, 2020
and December 31, 2019, respectively
|
|
|
922
|
|
|
|
846
|
|
Additional
paid-in capital
|
|
|
110,284,952
|
|
|
|
109,705,051
|
|
Accumulated
other comprehensive loss
|
|
|
(450,719
|
)
|
|
|
(450,719
|
)
|
Accumulated
deficit
|
|
|
(106,665,437
|
)
|
|
|
(105,607,506
|
)
|
Total
stockholders’ equity
|
|
|
3,169,718
|
|
|
|
3,647,672
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
5,668,117
|
|
|
$
|
6,619,962
|
|
The
accompanying notes are an integral part to these unaudited consolidated condensed financial statements.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
Cryptocurrency
mining revenue
|
|
$
|
592,487
|
|
|
$
|
230,694
|
|
Total
revenues
|
|
|
592,487
|
|
|
|
230,694
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
1,153,241
|
|
|
|
508,640
|
|
Compensation
and related taxes
|
|
|
233,657
|
|
|
|
486,687
|
|
Consulting
fees
|
|
|
41,812
|
|
|
|
20,000
|
|
Professional
fees
|
|
|
146,642
|
|
|
|
85,033
|
|
General
and administrative
|
|
|
108,937
|
|
|
|
115,243
|
|
Total
operating expenses
|
|
|
1,684,289
|
|
|
|
1,215,603
|
|
Operating
loss
|
|
|
(1,091,802
|
)
|
|
|
(984,909
|
)
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
106,408
|
|
|
|
(9,437
|
)
|
Foreign
exchange loss
|
|
|
-
|
|
|
|
(11,873
|
)
|
Realized
loss on sale of digital currencies
|
|
|
(4,222
|
)
|
|
|
(608
|
)
|
Change
in fair value of warrant liability
|
|
|
9,787
|
|
|
|
(37,734
|
)
|
Change
in fair value of mining payable
|
|
|
(66,547
|
)
|
|
|
-
|
|
Interest
income
|
|
|
1,880
|
|
|
|
12,016
|
|
Interest
expense
|
|
|
(13,435
|
)
|
|
|
(12,317
|
)
|
Total
other income (expenses)
|
|
|
33,871
|
|
|
|
(59,953
|
)
|
Loss
before income taxes
|
|
$
|
(1,057,931
|
)
|
|
$
|
(1,044,862
|
)
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
Net
loss
|
|
$
|
(1,057,931
|
)
|
|
$
|
(1,044,862
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted:
|
|
$
|
(0.12
|
)
|
|
$
|
(0.16
|
)
|
Weighted
average shares outstanding, basic and diluted:
|
|
|
8,655,525
|
|
|
|
6,338,418
|
|
The
accompanying notes are an integral part to these unaudited consolidated condensed financial statements.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For
the Three Months Ended March 31, 2020
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Accumulated
Other Comprehensive
|
|
|
Total
Stockholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
Balance
as of December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
8,458,781
|
|
|
$
|
846
|
|
|
$
|
109,705,051
|
|
|
$
|
(105,607,506
|
)
|
|
$
|
(450,719
|
)
|
|
$
|
3,647,672
|
|
Stock
based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,238
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,238
|
|
Issuance
of common stock, net of offering costs/At-the-market offering
|
|
|
-
|
|
|
|
-
|
|
|
|
403,075
|
|
|
|
41
|
|
|
|
385,076
|
|
|
|
-
|
|
|
|
-
|
|
|
|
385,117
|
|
Common
stock issued for purchase of mining servers
|
|
|
-
|
|
|
|
-
|
|
|
|
350,250
|
|
|
|
35
|
|
|
|
171,587
|
|
|
|
-
|
|
|
|
-
|
|
|
|
171,622
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,057,931
|
)
|
|
|
-
|
|
|
|
(1,057,931
|
)
|
Balance
as of March 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
9,212,106
|
|
|
$
|
922
|
|
|
$
|
110,284,952
|
|
|
$
|
(106,665,437
|
)
|
|
$
|
(450,719
|
)
|
|
$
|
3,169,718
|
|
For
the Three Months Ended March 31, 2019
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
Total
Stockholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
Balance
as of December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
6,379,992
|
|
|
$
|
638
|
|
|
$
|
105,461,396
|
|
|
$
|
(102,090,441
|
)
|
|
$
|
(450,719
|
)
|
|
$
|
2,920,874
|
|
Stock
based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
282,180
|
|
|
|
-
|
|
|
|
-
|
|
|
|
282,180
|
|
Par
value adjustment and additional shares issued due to reverse split
|
|
|
-
|
|
|
|
-
|
|
|
|
5,413
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,044,862
|
)
|
|
|
-
|
|
|
|
(1,044,862
|
)
|
Balance
as of March 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
6,385,405
|
|
|
$
|
639
|
|
|
$
|
105,743,575
|
|
|
$
|
(103,135,303
|
)
|
|
$
|
(450,719
|
)
|
|
$
|
2,158,192
|
|
The
accompanying notes are an integral part to these unaudited consolidated condensed financial statements.
MARATHON
PATENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,057,931
|
)
|
|
$
|
(1,044,862
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
510,781
|
|
|
|
137,361
|
|
Amortization
of patents and website
|
|
|
17,794
|
|
|
|
17,794
|
|
Realized
loss on sale of digital currencies
|
|
|
4,222
|
|
|
|
608
|
|
Change
in fair value of warrant liability
|
|
|
(9,787
|
)
|
|
|
37,734
|
|
Change
in fair value of mining payable
|
|
|
66,547
|
|
|
|
-
|
|
Gain
on partial extinguishment of mining payable
|
|
|
-
|
|
|
|
-
|
|
Stock
based compensation
|
|
|
23,238
|
|
|
|
282,180
|
|
Amortization
of right-of-use assets
|
|
|
24,114
|
|
|
|
21,795
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivables
|
|
|
(117,811
|
)
|
|
|
-
|
|
Digital
currencies
|
|
|
(474,676
|
)
|
|
|
(230,694
|
)
|
Lease
liability
|
|
|
(24,365
|
)
|
|
|
(21,441
|
)
|
Prepaid
expenses and other assets
|
|
|
(108,324
|
)
|
|
|
55,364
|
|
Accounts
payable and accrued expenses
|
|
|
73,961
|
|
|
|
(66,975
|
)
|
Net
cash used in operating activities
|
|
|
(1,072,237
|
)
|
|
|
(811,136
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Sale
of digital currencies
|
|
|
468,703
|
|
|
|
224,449
|
|
Net
cash provided by investing activities
|
|
|
468,703
|
|
|
|
224,449
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock/At-the-market offering
|
|
|
401,891
|
|
|
|
-
|
|
Offering
costs for the issuance of common stock/At-the-market offering
|
|
|
(16,774
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
385,117
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(218,417
|
)
|
|
|
(586,687
|
)
|
Cash
and cash equivalents — beginning of period
|
|
|
692,963
|
|
|
|
2,551,171
|
|
Cash
and cash equivalents — end of period
|
|
$
|
474,546
|
|
|
$
|
1,964,484
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Par
value adjustment due to reverse split
|
|
$
|
-
|
|
|
$
|
1
|
|
Common
stock issued for purchase of mining servers
|
|
$
|
171,622
|
|
|
$
|
-
|
|
Reduction
of share commitment for purchase of mining servers
|
|
$
|
408,625
|
|
|
|
|
|
The
accompanying notes are an integral part to these 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.
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 can issue the balance of the 1,058,558 unregistered common stock shares.
The shareholders did approve the issuance of the additional shares at the Annual Shareholders Meeting. The Company has issued
an additional 474,808 at $0.90 per share on December 27, 2019. On March 30, 2020, the Seller has 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 was issued at $0.49 per share. There
was no mining payable outstanding as of March 31, 2020.
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.
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 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. During the three months ended March 31, 2020,
403,075 shares of common stock were issued under the At The Market Offering for the total proceeds of $401,891, net of offering
cost of $16,774. Subsequent to March 31, 2020, in connection with the Agreement, the Company received gross proceeds of approximately
$4,893,760 from the sale of 8,663,108 shares of common stock.
As
reflected in the consolidated condensed financial statements, the Company had an accumulated deficit of approximately $106.7 million
at March 31, 2020, a net loss of approximately $1.1 million and approximately $1.1 million net cash used in operating activities
for the three months ended March 31, 2020. 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:
|
●
|
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.
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.
The
following table presents the activities of the digital currencies for the three months ended March 31, 2020:
Digital
currencies at December 31, 2019
|
|
$
|
1,141
|
|
Additions
of digital currencies
|
|
|
592,487
|
|
Realized
gain on sale of digital currencies
|
|
|
(4,222
|
)
|
Sale
of digital currencies
|
|
|
(586,514
|
)
|
Digital
currencies at March 31, 2020
|
|
$
|
2,892
|
|
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 March 31, 2020 and
December 31, 2019, respectively:
|
|
Fair
value measured at March 31, 2020
|
|
|
|
Total
carrying value at
March 31,
|
|
|
Quoted
prices in active markets
|
|
|
Significant
other observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
2020
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
liability
|
|
$
|
3,062
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,062
|
|
|
|
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 three months ended March 31, 2020.
At
March 31, 2020, the Company had an outstanding warrant liability in the amount of $3,062 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 three months ended March 31, 2020.
Fair
value of warrant liabilities
|
|
Fair
value
|
|
Outstanding
as of December 31, 2019
|
|
$
|
12,849
|
|
Change
in fair value of warrants
|
|
|
(9,787
|
)
|
Outstanding
as of March 31, 2020
|
|
$
|
3,062
|
|
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 March 31, 2020 and 2019 are as follows:
|
|
As
of March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants
to purchase common stock
|
|
|
164,222
|
|
|
|
182,191
|
|
Options
to purchase common stock
|
|
|
1,727,682
|
|
|
|
1,466,520
|
|
Convertible
notes to exchange common stock
|
|
|
1,248,883
|
|
|
|
312,221
|
|
Total
|
|
|
3,140,787
|
|
|
|
1,960,932
|
|
The
following table sets forth the computation of basic and diluted loss per share:
|
|
For
the Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net
loss attributable to common shareholders
|
|
$
|
(1,057,931
|
)
|
|
$
|
(1,044,862
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average
common shares - basic and diluted
|
|
|
8,655,525
|
|
|
|
6,338,418
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.16
|
)
|
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.
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 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
The
components of property, equipment and intangible assets as of March 31, 2020 and December 31, 2019 are:
|
|
Useful
life (Years)
|
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
Website
|
|
|
7
|
|
|
$
|
121,787
|
|
|
$
|
121,787
|
|
Mining
equipment
|
|
|
2
|
|
|
|
6,711,880
|
|
|
|
7,120,505
|
|
Mining
patent
|
|
|
17
|
|
|
|
1,210,000
|
|
|
|
1,210,000
|
|
Gross
property, equipment and intangible assets
|
|
|
|
|
|
|
8,043,667
|
|
|
|
8,452,292
|
|
Less:
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(4,152,320
|
)
|
|
|
(3,623,745
|
)
|
Property,
equipment and intangible assets, net
|
|
|
|
|
|
$
|
3,891,347
|
|
|
$
|
4,828,547
|
|
The
Company’s depreciation expense for the three months ended March 31, 2020 and 2019 were $510,781 and $137,361, and amortization
expense were $17,794 and $17,794 for the three months ended March 31, 2020 and 2019, 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.
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 three months ended March 31, 2020, 403,075 shares of common stock were issued under the At The Market Offering for the total
proceeds of $401,891, net of offering cost of $16,774.
Series
B Convertible Preferred Stock
As
of March 31, 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 March 31, 2020.
Common
Stock Warrants
A
summary of the status of the Company’s outstanding stock warrants and changes during year ended 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 March 31, 2020
|
|
|
164,222
|
|
|
$
|
21.30
|
|
|
|
2.0
|
|
Warrants exercisable
as of March 31, 2020
|
|
|
164,222
|
|
|
$
|
21.30
|
|
|
|
2.0
|
|
Common
Stock Options
A
summary of the stock options as of March 31, 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
|
|
Expired
|
|
|
(4,063
|
)
|
|
|
110.67
|
|
|
|
-
|
|
Outstanding
as of March 31, 2020
|
|
|
1,727,682
|
|
|
$
|
5.25
|
|
|
|
7.69
|
|
Options
vested and expected to vest as of March 31, 2020
|
|
|
1,727,682
|
|
|
$
|
5.25
|
|
|
|
7.69
|
|
Options vested
and exercisable as of March 31, 2020
|
|
|
1,658,932
|
|
|
$
|
5.39
|
|
|
|
7.83
|
|
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
|
|
|
$
|
999,106
|
|
Less:
debt discount
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total
convertible notes, net of discount
|
|
|
|
|
|
|
|
|
|
$
|
999,106
|
|
|
$
|
999,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
999,106
|
|
|
$
|
999,106
|
|
Less:
current portion
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Long
term portion
|
|
|
|
|
|
|
|
|
|
$
|
999,106
|
|
|
$
|
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. The note
bears interest at the rate of 5% per annum and accrues but is not paid in cash. As of March 31, 2020 and December 31, 2019, the
Company had an outstanding obligation pursuant to the Convertible Notes in the amount of $999,106.
During
the three months ended March 31, 2020 and 2019, there was no amortization of debt discount. Interest expenses were $12,454 and
$12,591 for the three months ended March 31, 2020 and 2019, 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.
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
|
|
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Operating
leases
|
|
|
|
|
|
|
|
|
Operating
lease cost
|
|
$
|
26,789
|
|
|
$
|
26,246
|
|
Operating
lease expense
|
|
|
26,789
|
|
|
|
26,246
|
|
Short-term
lease rent expense
|
|
|
5,992
|
|
|
|
4,107
|
|
Total
rent expense
|
|
$
|
32,781
|
|
|
$
|
30,353
|
|
Additional
information regarding the Company’s leasing activities as a lessee is as follow:
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Operating
cash flows from operating leases
|
|
$
|
26,823
|
|
|
$
|
25,892
|
|
Weighted-average
remaining lease term – operating leases
|
|
|
1.5
|
|
|
|
2.0
|
|
Weighted-average
discount rate – operating leases
|
|
|
6.5
|
%
|
|
|
6.5
|
%
|
As
of March 31, 2020, contractual minimal lease payments are as follows:
2020
|
|
$
|
71,508
|
|
2021
|
|
|
98,323
|
|
2022
|
|
|
26,815
|
|
Total
|
|
|
196,646
|
|
Less
present value discount
|
|
|
(12,574
|
)
|
Less
current portion of operating lease liabilities
|
|
|
(89,054
|
)
|
Non-current
operating lease liabilities
|
|
$
|
95,018
|
|
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
May 11, 2020, the Company purchased 700 new generation M305+ASIC Miners from MicroBT. 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. The Company expects to take delivery
at our hosting Facility by the end of May and our hosting partner, Computer North, expects to install then within 48 hours of
their arrival.
On
May 12, 2020, the Company purchased an additional 660 latest generation Bitmain S19 Pro Miners. These miners produce 110 TH/s
and will generate 73 PH/s (petahash) of hashing power, bringing the company’s total Hashrate to 129 PH/s compared to the
Company’s S-9 production of 46 PH/s. The company expects to take delivery at our Hosting Facility by the end of July and
our hosting partner, Compute North, expects to install them within 48 hours of their arrival.
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 Bitcoins 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.
Subsequent
to March 31, 2020 and through May 13, 2020, in connection with the HC Wainwright
Agreement, the Company received gross proceeds of approximately $5,112,366 from the sale of 9,004,108 shares of common stock
with an average per share sale price of $ 0.5689.
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 1,164,000 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 1,537,500 existing stock options for Directors, Officers and outside legal
counsel, and replace them with new restricted stock units at a price of $0.43 per unit with a term of one year, vesting quarterly
in equal amounts.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This
report on Form 10-Q (“Report”) and other written and oral statements made from time to time by us may contain so-called
“forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statements can
be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,”
“projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them
by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth
strategy, financial results and product and development programs. One must carefully consider any such statement and should understand
that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate
assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking
statement can be guaranteed and actual future results may vary materially.
Information
regarding market and industry statistics contained in this Report is included based on information available to us that we believe
is accurate. It is generally based on industry and other publications that are not produced for purposes of securities offerings
or economic analysis. We have not reviewed or included data from all sources, and cannot assure investors of the accuracy or completeness
of the data included in this Report. Forecasts and other forward-looking information obtained from these sources are subject to
the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market
acceptance of products and services. We do not assume any obligation to update any forward-looking statement. As a result, investors
should not place undue reliance on these forward-looking statements.
Overview
We
were incorporated in the State of Nevada on February 23, 2010 under the name Verve Ventures, Inc. On December 7, 2011, we changed
our name to American Strategic Minerals Corporation and were engaged in exploration and potential development of uranium and vanadium
minerals business. In June 2012, we discontinued our minerals business and began to invest in real estate properties in Southern
California. In October 2012, we discontinued our real estate business when our former CEO joined the firm and we commenced our
IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc. We purchased our cryptocurrency
mining machines and established a data center in Canada to mine digital assets.
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. During the three months ended March 31, 2020, 403,075 shares of common stock were issued under the At The Market Offering
for the total proceeds of $401,891, net of offering cost of $16,774. Subsequent to March 31, 2020 and through May 13, 2020, in
connection with the Agreement, the Company received gross proceeds of approximately $5,112,366 from the sale of 9,004,108 shares
of common stock.
On
September 30, 2019, we 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
our Listing of Additional Shares application filed with Nasdaq to the transaction, we 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, we can issue the balance of the 1,058,558 unregistered common stock shares. The shareholders did approve the issuance of
the additional shares at the Annual Shareholders Meeting. we have issued an additional 474,808 at $0.90 per share on December
27, 2019. On March 30, 2020, the Seller has 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 was issued at $0.49 per share.
In
March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a pandemic, and it continues to spread
throughout the United States and the rest of the world with different geographical locations impacted more than others. The outbreak
of COVID-19 and public and private sector measures to reduce its transmission, such as the imposition of social distancing and
orders to work-from-home, stay-at-home and shelter-in-place, have had a minimal impact on our day to day operations. However this
could impact our efforts to work with other businesses as they have had to adjust, reduce or suspend their operating activities.
The extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19.
The Company is unable to predict the ultimate impact at this time. With the current worldwide situation caused by COVID-19 and
related circumstances, there can be no assurances as to when we may see any recovery in the bitcoin market, and if so, whether
any recovery might be significant.
Critical
Accounting Policies and Estimates
Our
critical accounting policies and significant estimates are detailed in our 2019 Annual Report. Our critical accounting policies
and significant estimates have not changed from those previously disclosed in our 2019 Annual Report, except for those accounting
subjects mentioned in the section of the notes to the condensed consolidated financial statements titled Adoption of Recent Accounting
Pronouncements.
Results
of Operations
For
the Three Months Ended March 31, 2020 and 2019
We
generated revenues of $592,487 during the three months ended March 31, 2020 as compared to $230,694 during the three months ended
March 31, 2019. For the three months ended March 31, 2020, this represented an increase of $361,793 or 157% over the same period
in 2019. Revenue for the three months ended March 31, 2020 and 2019 were derived primarily from cryptocurrency mining.
Direct
cost of revenues during the three months ended March 31, 2020 amounted to $1,153,241 and for the three months ended March 31,
2019, the direct cost of revenues amounted to $508,640. For the three months ended March 31, 2020, this represented an increase
of $644,601 or 127% over the same period in 2019. Direct costs of revenue include depreciation and amortization expenses of the
cryptocurrency mining machines and patents, contingent payments to patent enforcement legal costs, patent enforcement advisors
and inventors as well as various non-contingent costs associated with enforcing the Company’s patent rights and otherwise
in developing and entering into settlement and licensing agreements that generate the Company’s revenue.
We
incurred other operating expenses of $531,048 for the three months March 31, 2020 and $706,963 for the three months ended March
31, 2019. For the three months ended March 31, 2020, this represented a decrease of $175,915 or 25% over 2019. These expenses
primarily consisted of compensation to our officers, directors and employees, professional fees and consulting incurred in connection
with the day-to-day operation of our business.
The
operating expenses consisted of the following:
|
|
Total
Other Operating Expenses
|
|
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Compensation
and related taxes (1)
|
|
$
|
233,657
|
|
|
$
|
486,687
|
|
Consulting
fees (2)
|
|
|
41,812
|
|
|
|
20,000
|
|
Professional
fees (3)
|
|
|
146,642
|
|
|
|
85,033
|
|
Other
general and administrative (4)
|
|
|
108,937
|
|
|
|
115,243
|
|
Total
|
|
$
|
531,048
|
|
|
$
|
706,963
|
|
Non-cash
other operating expenses for the three months ended March 31, 2020 and 2019 include non-cash other operating expenses totaling
$23,238 and $282,180, respectively. Non-cash operating expenses consisted of the following:
|
|
Non-Cash
Other Operating Expenses
|
|
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Compensation
and related taxes (1)
|
|
$
|
23,238
|
|
|
$
|
282,180
|
|
Total
|
|
$
|
23,238
|
|
|
$
|
282,180
|
|
|
(1)
|
Compensation
expense and related taxes: Compensation expense includes cash compensation and related payroll taxes and benefits, and non-cash
equity compensation expenses. For the three months ended March 31, 2020, compensation expense and related payroll taxes were
$233,657, a decrease of $253,030 or 52% over the comparable periods in 2019. During the three months ended March 31, 2020
and 2019, we recognized non-cash employee and board equity-based compensation of $23,238 and $282,180, respectively.
|
|
|
|
|
(2)
|
Consulting
fees: For the three months ended March 31, 2020, we incurred consulting fees of $41,812, an increase of $21,812 or 109% over
the comparable periods in 2019. Consulting fees include both cash and non-cash related consulting fees primarily for investor
relations and public relations services as well as other consulting services.
|
|
|
|
|
(3)
|
Professional
fees: For the three months ended March 31, 2020 professional fees were $146,642, an increase of $61,609 or 72% over the comparable
periods in 2019. Professional fees primarily reflect the costs of professional outside accounting fees, legal fees and audit
fees.
|
|
|
|
|
(4)
|
Other
general and administrative expenses: For the three months ended March 31, 2020, other general and administrative expenses
were $108,937, a decrease of $6,306 or 5% over the comparable periods in 2019. General and administrative expenses reflect
the other non-categorized operating costs of the Company and include expenses related to being a public company, rent, insurance,
technology and other expenses incurred to support the operations of the Company.
|
Operating
Loss
We
reported operating loss from continuing operations of $1,091,802 and $984,909, for the three months ended March 31, 2020 and 2019,
respectively.
Other
Expenses
Total
other income was $33,871 for the three months ended March 31, 2020 and other expenses of $59,953 for the three months ended March
31, 2019, respectively.
Net
Loss Available to Common Shareholders
We
reported net loss of $1.1 million and $1.0 million for the three months ended March 31, 2020 and 2019, respectively.
Liquidity
and Capital Resources
The
Company’s condensed consolidated 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.
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. During the three months ended March 31, 2020, 403,075 shares of common stock were issued under the At The Market
Offering for the total proceeds of $401,891, net of offering cost of $16,774. Subsequent to March 31, 2020 and through May 13,
2020, in connection with the Agreement, the Company received gross proceeds of approximately $5,112,366 from the sale of 9,004,108
shares of common stock.
As
reflected in the condensed consolidated financial statements, the Company had an accumulated deficit of approximately $106.3 million
at March 31, 2020, a net loss of approximately $0.6 million and $1.2 million net cash used in operating activities for the three
months ended March 31, 2020. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis. At March 31, 2020, the Company’s cash and cash equivalents balances totaled $474,546 compared
to $692,963 at December 31, 2019.
Net
working capital increased by $457,899, to working capital of $99,322 at March 31, 2020 from working capital deficit of $358,577
at December 31, 2019.
Cash
used in operating activities was $1,072,237 during the three months ended March 31, 2020 and cash used in operating activities
of $811,136 during the three months ended March 31, 2019.
Cash
provided by investing activities was $468,703 during the three months ended March 31, 2020 and cash used in investing activities
of $224,449 for the three months ended March 31, 2019.
Cash
provided by financing activities was $385,117 during the three months ended March 31, 2020.
Based
on our current revenue and profit projections, we are uncertain that our existing cash will be sufficient to fund its operations
through at least the next twelve months, raising substantial doubt regarding our 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 our operations, through, among other potential sources, our newly effected At The Market Facility
with H.C. Wainwright; provided, however, there is no assurance that we will be able to raise such additional funds on acceptable
terms, if at all. If we raise 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 through
arrangements with strategic partners or others that may require us to relinquish rights to certain technologies or potential markets.
Off-balance
Sheet Arrangements
We
have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties.
We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity
or that are not reflected in our consolidated condensed financial statements. Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.